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New Interest In Sangamo After Early Trial Is Completed
Sangamo Biosciences (NASDAQ: SGMO) is one of many biotech names that have been drawing lots of attention from buyers recently, as evidenced by its rise to a new 52-week high of $10.05 on strong volume. The company's market cap has now breached $500 million, which means that Sangamo is worth almost three times what it was on January 30, 2012.
It seems that this is the result of a new wave of investor interest towards the company's zinc finger protein (ZFP) platform ahead of the release of clinical trail data that is due some time this year. The biologic SB-728-T is the company's flagship biologic and is also the only program that the company has in clinical-stage development at this point. Due to this, it's clear that headlines related to SB-728-T and investor perception of the program's progress will drive the stock going forward. It's also easy to see how the completion of the late phase I/II trial has led to increased attention on SGMO as it prepares to release data.
Although it's not always the case that increased attention on a biotech stock results in positive momentum in share price, I do believe that it could definitely explain why SGMO has been so strong in recent trading. Another factor is the extreme strength of the broader market. The markets have not been this high since 2007, and most of the biotech sector has enjoyed the ride as well (a rising tide lifts all boats). I also think that Sangamo, and other biotech names that actually have major trading catalysts this year, have been able to garner the lion's share of attention from the many retail and institutional investors who are venturing into the biotech world, looking for something to invest in.
Those who are not followers of Sangamo should note that the company's ZFP platform is quite innovative, and provides a new angle to go on the offensive against diseases that are caused by genetic defects. This is due to the ZFP mechanism itself, which can silence or activate particular genes. This is clearly useful for genetic diseases in which we have isolated the defective gene – like hemophilia (which happens to be one of Sangamo's development programs for their ZFP technology.)
I don't take preclinical data too seriously, but it's worth noting that Sangamo has five programs in the preclinical development stage that can generate some attention from the investment community through press releases. The most recent was theSeptember 10th release which showed that the company's zinc finger protein platform could have applications in Gaucher and Fabry disease, which are currently treated through infusions of particular proteins.
It seems that the platform's potential has interested the larger pharma company, Shire (NASDAQ: SHPG), which has two exclusive partnerships with Sangamo for the development of treatments for hemophilia using ZFP, as well as Huntington's disease. This partnership has clearly helped Sangamo's stock, which moved up over 20% on this news (which was finally announced in February 2012).
Although there is major potential for ZFP in a plethora of genetic diseases, realistically investors that are buying SGMO are buying a play on ZFP as a treatment for HIV/AIDS (at least for now, anyway).
Investors who are not keen on making a ZFP play on HIV/AIDS will have to wait a very long time to see the ZFP platform in other indications, although it's worth pointing out that Sangamo's cash burn rate is extremely low. Assuming that SGMO has about $70 million in cash right now, and using the company's historic rates of operating losses, I would assume that the company could run for about two and a half years before it would have to undergo some sort of financing.
This is great news for SGMO shareholders who want to play the upcoming clinical trial data release for SB-728-T in HIV/AIDS, since it dramatically lowers the chances that SGMO will get diluted prior to the catalyst itself. This makes it a good, clean play on a binary event (meaning that good/bad will translate to upside/downside for SGMO.)
Other than that, I don't see enough to justify playing SGMO on separate indications. I would also presume that SGMO's cash burn rate would increase once the company starts to conduct new (and larger) clinical trials. This could expedite share dilution down the road, although Sangamo's success in its partnerships may also translate to success in crafting alternative methods of financing with third parties.
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