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The Deal With Biogen Boosts The Recommendation To Buy Sangamo Shares

Mar. 02, 2020 8:51 AM ETSangamo Therapeutics, Inc. (SGMO)BIIB32 Comments
Robert Dydo profile picture
Robert Dydo
1.15K Followers

Summary

  • The new estimate for cash runway goes to five years.
  • Biogen will own 17% of Sangamo, future buyout potential emerges.
  • Sangamo's undervalued condition is even more apparent.

The recommendation update

Biogen Inc. (BIIB) and Sangamo's Therapeutics Inc. (NASDAQ:SGMO) agreement have eclipsed my recommendation found in my recent article. Despite adding 24M to 116M outstanding shares, Biogen as the largest shareholder of Sangamo offers a strong hint that the company is, in fact, on the radar of big pharma. Substantial equity ownership by Biogen could serve as a springboard to the acquisition of the company under the right financial circumstances.

A central nervous system (CNS) partnership, which I thought initially would take place in 2021, adds confidence to the investment thesis. Since Biogen is buying shares at $9.21, this is a very comfortable upper limit to be used for accumulation. I expect shares to trade in double digits, even before Pfizer's phase 3 trial or SB-525 updates are publicized.

The deal for Alzheimer's and Parkinson's, plus one not identified target, adds $350M to Sangamo's coffers, which had about $385M at the end of 2019, based on the Q4 release. In the past, the cash runway was expected to last to the end of 2021, and with the new money, I assume, Sangamo can operate until the end of 2023. Pfizer's objective to commercialize an SB-525 program as gene therapy for hemophilia A is expected to deliver $275M in milestones by 2022. Provided milestone payments are coming from Gilead Inc. (GILD) and Sanofi (SNY), which just paid for dosing of a first patient in the sickle cell disease trial, Sangamo appears to be funded for the next five years.

Sangamo's partners, Gilead, Pfizer Inc (PFE), Takeda Pharmaceutical Company Limited (TAK), Sanofi, and now Biogen, paid for collaboration with Sangamo because of the compelling science, offering the best form of validation for retail investors. Still, what is apparent, besides now broken thesis that the company is running out of cash, Sangamo continues to be

This article was written by

Robert Dydo profile picture
1.15K Followers
In the past, I evaluated solar manufacturers and renewable yieldcos based on their operational, financial, and growth factors. Currently, I am interested in lidar companies' technology, adoption, and revenue growth..

Analyst’s Disclosure: I am/we are long SGMO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (32)

Robert Dydo profile picture
Rumor Sanofi will buy QURE. SGMO cannot get to 9.21, a price paid for shares by Biogen.
MDmoney profile picture
QURE has been in the buyout rumor mill for a while, thus boosting its stock price..
SGMO has made it clear they dont want a buyout which is why its stock price suffers as it awaits data..as you noted its still below share purchase price despite good news
Robert Dydo profile picture
Are you referring to the comment from the time of the Gilead deal?
I am hoping there is a reconsideration of this stance moving forward.
MDmoney profile picture
Yes, plus the fact they are pushing ahead with partnering their tech with multiple different partners..
Any of these giants could have and probably would have bought them for $3B+ if they wanted
Robert Dydo profile picture
I have created a free discussion forum for SGMO. if you interested you welcome to join
solarpvinvestor.com/...
Robert Dydo profile picture
It almost got the gap filled as if the Biogen deal never happened. At $7, the pipeline is worth $340M, and $605M cash end of Q2.
Robert Dydo profile picture
BMRN just posted some results of phase 3 with 16 patients, the stopped reporting levels of VIII activity in those. only bleeds and infusions. Interesting as that is not the primary point. They look a lot weaker than I thought
seekingalpha.com/...
Robert Dydo profile picture
Sandy disclosed lower royalty level at 14% to 20% for SB-525
caltiger profile picture
thank you Robert, really appreciate the insights in the two write-ups. i'm waiting to add more possibly at slightly lower levels like $7... seems to be sliding lower (daily) after the Biogen deal, so i figure it will go back near the lows it recently tested.
Robert Dydo profile picture
@caltiger, thank you for your comment. Yes, one can appreciate the irony with Sangamo. After the transformative deal, the company is looking to drop $240M in value by going to $7.
The EDIT I mentioned, just dosed a single patient. The company is worth $1.2B versus Sangamo $1.194B, including Biogen Equity. EDITs trial is for a condition in which there is a gene therapy approved already, Luxurna from Spark.
Biogen deal with only two indications covers a population of 6 million patients. After I deduct the $605M cash at the end of Q2, everything including Biogen is worth $533M. Editas is going into the same space with CRISPR Thera, where they are having a zero competitive edge, the same technology, and the lawsuits. Their full pipeline is worth $800M, $300M more than Sangamo's.

CRSP is worth $3.3B, with two patients dosed out of 90. No other data has been provided. A few statements I read they selectively presented data to look good. Vertex has sold half the shares, after this "success," why?

The Sangamo stock is selling off.
I think Wall Street is not going to pay attention to Sangamo's successes, perhaps until the company will afford to buy its shares from the market or gets acquired.
Watching what is happening now, I feel now even stellar results for SB-525 could be ignored. Biogen is a great deal, half costs, manufacturing paid by Biogen, new targets.17% equity, that is an issue? Equity buys were considered a prelude to acquisitions. This is not?
I am not a conspiracy theorist, but what we are witnessing is genuinely beyond logic. Good luck to those who can accumulate.
NDHT profile picture
Your wish may come true. Now it is selling at $7.7 a piece.

Glad that SGMO is not pumping that they have a cure for COVID-19, like many other fellow biotech companies.
Robert Dydo profile picture
Editas dosed its first patient, watch it add value instantly.
MDmoney profile picture
NTLA went up more than EDIT..
Probably due to attention that NTLA is the "cheap" CRSPR stock..
SGMO in the meantime had nearly abandoned in vivo gene editing...no peep on MPS II recently at all
Robert Dydo profile picture
MPS II is coming.
Robert Dydo profile picture
Surely an accumulation time.
MDmoney profile picture
I think they sold shares cheaply to raise some cash for a purchase..likely a delivery deal..
Otherwise they shouldn't have diluted 17% at such a low price given the cash they already had on hand
Robert Dydo profile picture
@MDmoney , I wrote moments ago, thinking that Biogen wanted to take an equity position, but I can be open-minded. My feelings are Biogen wants to buy them. I also think if shares were at $20, Biogen would still spend $225M.
I think there will be another deal for MS, but the strategy here, contrary to some who think Sangamo is giving shares away, is to partner MS, perhaps next year, after SB-525 is delivered into BLA.
I also think cash is needed for marketing Fabry and PKU. They will own it, and Pfizer wanted GT, but they had genome regulation on the block. Hence Pfizer left.
They do not want to be bothered looking for money with such poor stock performance in the middle of the commercialization process. I think the only time they will sell more shares if Biogen wants to buy during MS partnership. No more secondaries. At that point, Sangamo could be bought at $40.
MDmoney profile picture
You may be right, but this feels like when they raised cash even after a 30% drop after the GILD deal to buy TxCell..
And if you listen to their conference calls they keep hinting at willingness to purchase/license outside delivery tech and "other" delivery options..
I guess we will see :)
Robert Dydo profile picture
Yes, delivery to the brain would be something they had paused when developing CNS treatment. Now with partnership in place, I am assuming they solved it, and have no need to spend externally.
Anything is possible.
I should add manufacturing costs are probably the highest piece of each treatment. They need to do Fabry, CNS now, TX200 and MPS II. I think the MPS II could be the most costly based on complexity and Fabry on quantity. This is why I think commercialization efforts including manufacturing are the upfront cost and reason for a big sale of equity.
B
Biogen paid $9.2x per share to acquire right for CNS assets. Market is not happy with the premium
Robert Dydo profile picture
Looks like the market liked it more at $6.43 hoping for secondary at 5. I think we will see a lot of consolidation within this range. At least that is what I recommended here.
Robert Dydo profile picture
The stats for Alzheimer's and Parkinson's are very high for the cost of care.
$550B for Alzheimer's and $53B for Parkinson's per year in the US alone.
The potential of gene regulation curing at $1M per patient does not appear to be a big stretch if 10 or more years of illness can be eliminated.

Biogen is also present in MS, a program covered by Sangamo's cell edit therapy. I am pretty certain Biogen is also interested in this program. It could be that Sangamo is negotiating another deal for this. I would imagine they would break it up the timeline, at least to wait for the price to go up. Another $100M in equity, for example, would be great at level of $18 by the end of this year. An increase in ownership by Biogen would only signal an appetite to get Sangamo.
I wrote about uniQUre, a company in p 3 for hemophilia B. $2.3B today. No partners but running own phase 3. Sangamo is half of it today with $725M in cash.
Sanofi doing SCD a huge potential since fetal hemoglobin production was already enough in BT patients. I think Sanofi will take this indication to phase 3, which strategically makes sense since bluebird has not started phase 3 yet. This will come at least with $100M in milestones.

Lastly 10K, Sangamo is looking for HIV collaboration, which is very much aiming at Gilead. A second agreement here would produce a lot of competition with Biogen.
Now it is much clearer Pfizer moving on is because of no interest in cell therapy or gene regulation, but focus on gene therapy. I am very confident to think Sangamo will do Fabry and PKU by themselves. The only way they sell those off if they hit big in cell therapy.
Downtown10 profile picture
Added a little more today. Modest SP increase does not reflect the value added by the BIIB deal IMO.
p
This is a case of Wall Street analysts not being real scientists. Or choosing to ignore real science. Crispr technology is overhyped while zinc finger has been quietly working. Reminds me of AMD when they turn the applied technology corner; but, the institutional monies were skeptical. And didn’t want to admit they were wrong.
Robert Dydo profile picture
Interesting point, thank you. CRISPR technology is certainly a focus of the market with CRSP having dosed 2 patients, out of 90 they need to dose. They captured $3B plus a market cap.
EDIT not having anyone dosed, and being exactly were SGMO market cap is. SGMO managed to fall already and learn from the fall for MPS II. Seems Sanofi will do better in SCD learning from BT trial. HIV learning is on agenda to find another BP collaboration. Too bad organized manipulation seems to dominate the stock of this company. Hopefully, in time eyes will open wide here.
Robert Dydo profile picture
Vertex deals with CRSP are well known. The amount of those deals breaks down to $287M in cash plus equity of $30M (originally). Vertex has sold half of the position in CRSP this year.
There is about $1.2B in milestone potential.
Biogen's investment in SGMO at $225M, in my opinion, indicates interest in SGMO, and not just the deal. I imagine if stock price was $15, Biogen will likely still buy $225M of the stock. Gilead made a much smaller investment of $50M but gave an upfront payment of $150M.
Stock Zombie profile picture
I agree đź‘Ť
wnw64 profile picture
The movement in SGMO stock has been absolutely horrific. The “buying opportunities” have been way too numerous... Looking at ARKG as a comp-tracker, SGMO’s performance has been abysmal in comparison to others in it’s sector.
wait until $5 I will load then.
sc21 profile picture
This was an important step for sgmo which has seen more technical progress than movement in the stock. thanks your attention. sc
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