Revisting Sangamo Therapeutics

Summary

• Today, we revisit Sangamo Therapeutics, which is a nice sum of the parts story given multiple drug candidates and partnerships with several drug giants.
• The company recently gave a corporate update and posted fourth quarter results.
• We updated our investment thesis on Sangamo in the paragraphs below.
• I do much more than just articles at The Biotech Forum: Members get access to model portfolios, regular updates, a chat room, and more. Learn More »

It has been nearly five months since we last revisited Sangamo Therapeutics (NASDAQ:SGMO). This is a name we get frequent questions about. Over the past month we have seen a quick rise in interest rates leading to sell-offs in some high beta parts of the market.

The SPDR Biotech ETF (XBI) has seen better than a 15% pull back over the past month. The shares of Sangamo are off more than 20% over that time span. Given that, it seems a good time to circle back on this name. An analysis incorporating recent results and news follows below.

Company Overview:

Sangamo Therapeutics, Inc. (SGMO) is a pioneer in the research and development of zinc finger proteins (ZFPs). It is based in California and still is in the clinical stage of development.

Source: February Company Presentation

The company has four platform technologies that have produced one late-stage partnered candidate, two-earlier stage partnered assets, and two wholly owned earlier-stage compounds. With the recent pullback, the shares trade just below $11.50 a share and sport an approximate market capitalization just north of $1.6 billion.

Source: February Company Presentation

Recent Developments:

There hasn't been a lot of news around the company's pipeline since our last article on October 13th. On December 7th, Sangamo reported results from a development effort it is partnered with Pfizer (PFE) on developing a treatment of Hemophilia A that should allow it to move on to key Phase 3 studies.

In addition, the company posted fourth quarter results on February 24th. We update the current status of its balance sheet based on that report in the section below. Two days later, Sangamo presented at the 10th annual SVB Leerink Healthcare conference. It is from that presentation we can give a quick synopsis of recent accomplishments and what lies ahead in 2021.

Source: February Company Presentation

As far as its proprietary programs, it should kick off both its Phase 1/2 efforts around Fabry Disease and Solid Organ Transplant this year with initial results from the former scheduled to be out late this year. Sangamo is also due to complete its manufacturing facilities by yearend 2021.

Source: February Company Presentation

It is the partnered part of the company's pipeline that should draw the most excitement in the year ahead. These programs are where all of the company's $108 million in revenue came from in FY2020.

Source: February Company Presentation

It is also where the company's only Phase 3 development resides with Pfizer, with a couple of earlier stage candidates with other partners that should have some milestones in FY2021.

Analyst Commentary & Balance Sheet:

Sangamo is quite the 'battleground stock' in the analyst community right now. Since we last profiled it in October, Wedbush and Stifel Nicolaus have reissued Hold ratings on the stock while Guggenheim initiated the shares with a new Neutral rating and $16 price target in early January.

On the optimistic side of the ledger, H.C. Wainwright assumed coverage of the shares with a Buy rating and $25 price target in Mid-December. Last Wednesday, Wells Fargo maintained its Overweight rating but lowered its Street high price target from $36 to $29 and provided the following commentary.

Overall, we continue to see significant upside potential in the company's genomic medicines pipeline programs and platforms, in particular the regulatory T (Treg) cell therapy platform, which may address a broad range of autoimmune diseases, and the ZFP-TF gene regulation platform, which may address certain difficult-to-target neurological indications. Our PT adjustment is based on review of our probability adjusted NPV model for the company's pipeline, including the Pifzer-partnered hemophilia A program, Sanofi-partnered sickle cell disease and beta thalassemia programs, the wholly-owned Fabry's disease program, and the wholly-owned Treg cell therapy for solid organ transplantation program."

The company ended FY2020 with just over $690 million in cash and marketable securities on the balance sheet. The company had operating expenses of almost $250 million during 2020, which was offset somewhat by partnership and milestone payouts. Management guided that it expects operating expenses of $285 million to $305 million in FY2021 on a GAAP basis. Therefore, the company looks well funded at this time.

Verdict:

I continue to like Sangamo as a 'sum of the parts' investment. It has multiple 'shots on goal' and strong partnerships with several drug giants. The company is also well funded for the moment.

Source: February Company Presentation

That said the company is quite a bit away from the commercialization stage even if it has numerous milestones here in 2021. This is why I continue to hold this name in my portfolio within covered call positions. This way I get some downside protection while capturing lucrative option premiums as the company continues to develop its pipeline. It is also a good strategy for increasing my exposure in Sangamo whenever the stock has a decent pullback during general weakness in the sector. I will probably do this again on Monday using the August $12 call strikes where the last trade Friday was $2.70 a share.

Bret Jensen is the Founder of and authors articles for the Biotech Forum, Busted IPO Forum, and Insiders Forum

Analyst’s Disclosure: I am/we are long SGMO, XBI. 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.

Comments

[bioimmuno]

It makes no sense to cap your upside at $12 until August, bad advice IMO. If one wants to enter at a lower price, sell the March, or April $11 puts on a dip. If/ when long, wait for a positive event and a higher price to sell calls. I only sell calls into a run like SGMO had a few months ago. People using and recommending options should read "Options as a Strategic Investment".

[Delmar Price]

Sangamo management is good!

[antiqueman]

Good article. I like the company but not in this "difficult" and weakening market. No earnings, only stage one and two. Months away from approval and Stage 3. Will buy it a $5 a share in next few months.

[charged]

@antiqueman I don’t see it going to $5 but if it does there will be many buyers including all their partners.

[jeybolt00]

If u like dead money SGMO is a homerun. Sadly long but small position

[lionbark]

I'm a fan of the work SGMO is doing and like their huge list of collaborations and indications. But the fact that SGMO has significantly underperformed the broader XBI index over the past few weeks is a red flag to me. IMO, this is the long-awaited rotation into value, and almost all speculative growth stocks will continue to suffer. And SGMO's underperformance lately, coupled with the negative news from BLUE and QURE dampening enthusiasm for genomics, makes me think that it will not be one of the few biotechs that break the trend. Whether the price drop is a fair reflection of SGMO's value or not, it seems to me that holders are fighting Mr. Market right now, and that's a tough fight.

Watching and waiting for a catalyst.

[Jeff McGinn]

Bret, appreciate your expertise. Looking for your opinion on the following statement:

The market is rewarding drug cos that can successfully commercialize products even in niche areas. The market is losing interest in companies with an exciting platform years off.

Is this assessment correct?
Is this a relatively new development based on IPO financing or has it more or less always been this way?

[Bret Jensen]

@Jeff McGinn Reading too much into recent market action imho

[Mini Ice Age]

Thanks Bret, I will continue to add to my SGMO position, for a long term hold.

[Janimi]

Thanks for your evaluation. Think of buying a little bit more to lower my entry price