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May 15, 2007 (Vol. 27, No. 10)

Sangamo Poised to Earn Steady Revenues

Company Builds on a Strong IP Position in Engineering of a Class of Transcription Factors

  • Sangamo Biosciences (www.sangamo.com) is set to have a groundbreaking year, according to Pamela Bassett, senior vp life sciences research at Cantor Fitzgerald. “It is our opinion that the Sangamo business model establishes a structure for long-term revenue streams from licensing and milestone payments, double-digit royalties on product sales, and revenue from proprietary products by addressing large, high-impact market segments.”

    Sangamo utilizes its zinc finger transcription factor technology to develop human therapeutics, protein therapeutics manufacturing, and agricultural products. It focuses on R&D of engineered DNA-binding proteins for the regulation of gene expression and for gene modification. “We expect Sangamo to emerge as a leader in a new era of products based upon direct intervention at the genome level,” states Bassett.

  • Leveraging a Unique Class of Transcription Factors

    The firm’s technology is based on the engineering of a naturally occurring class of transcription factors, zinc finger DNA-binding proteins (ZFPs). When linked to functional domains that normally activate or repress gene expression, ZFP transcription factors (ZFP TFs) are created, which are capable of turning genes on or off. ZFPs can also be linked to nuclease domains to create zinc finger nucleases (ZFNs). Engineered ZFNs can modify genomic DNA at a preselected location facilitating either correction or disruption of a specific gene.

  • Therapeutic Pipeline

    Sangamo reports that it is using ZFNs to correct mutations in genes that cause disease such as X-linked severe immunodeficiency or blood diseases such as sickle cell anemia and beta-thalassemia. In addition, the company is developing ZFNs to disrupt genes that facilitate disease. For example, in the HIV/AIDS program, Sangamo is using ZFNs to disrupt CCR5, a co-receptor for HIV.

    Its most advanced candidate is in Phase I/II trials for diabetic neuropathy. Due to the combination of symptoms and the complexity of the underlying disease, Sangamo believes that a therapeutic capable of addressing treatment at a functional, causative level rather than simply the symptoms will provide the best approach. SB-509 could provide this capability via both angiogenesis and neuroprotection, the company explains.

    “In our view, SB-509 could become a key product platform with potential applications across several major indications— diabetic neuropathy, peripheral arterial disease, ischemic heart disease, and spinal cord injury—all with very large patient populations, increasing prevalence, and significant unmet clinical need,” adds Bassett.

    The company has set milestones of three Phase II trials in diabetic neuropathy, blocked nerve, and critical limb ischemia as well as three Phase I studies in intermittent claudication, HIV, and glioblastoma.

    “Although we anticipate Sangamo to continue to advance its preclinical pipeline into the clinic, if for no other reason than to secure partnerships with better economics,” Bassett notes, “Sangamo has a war chest of confirmed targets with a portfolio of ZFPs and ZFNs already designed that the company can carry forward as proprietary products to create a long-term pipeline.”

    Bassett cautions that should Sangamo be unsuccessful in attracting future partners for these programs, development could be stalled or Sangamo may be required to find other funding sources. Also, any unsuccessful clinical programs could diminish its ability to attract future partners.

  • Research and Manufacturing Alliances

    Sangamo’s business model, at least for the near term, is focused on the wide-spread acceptance of the ZFP technology, says Bassett. Sangamo has discovery and biomanufacturing partnerships, a broad agrosciences alliance with Dow, and ZFP may have an enabling technology position in Johnson & Johnson’s Lifescan diabetes therapeutic product, she adds.

    “Sangamo’s enabling technology applies broadly across product platforms,” Bassett notes. “As the sole provider of ZFP technology, currently the only technology that can provide genome editing via transcription, Sangamo is in a unique position to enable manufacturing capabilities across multiple industries that both improve products and lower costs, including human biopharmaceuticals and new agricultural products.

    “Genentech’s commercial license of Sangamo’s ZFP technology for biomanufacturing provides proof of technology concept by a leader in biotherapeutics manufacturing.” Other collaborations include Medarex, Pfizer, Amgen, Novo Nordisk, MedImmune, Novartis, and Kirin.

    “There are no current commercial products based upon ZFP technology, and therefore market acceptance of such products is unknown,” Bassett notes. “Sangamo products could face significant competition in the future, which could diminish its revenue potential.”

    “It is our view that Sangamo’s near monopoly intellectual property position combined with proof of technology value in human therapetics, agricultural products, and protein therapeutics manufacturing, could unlock a stream of revenue from multiple alliances plus proprietary product opportunities. As the sole provider of technology to access to regulation and modulation of the human genome via transcription factors, we expect Sangamo to have complete freedom to operate with the capability of widely leveraging its zinc finger transcription factor technology across numerous industries and products.”

    Sangamo’s current market cap is approximately $250.6 million. On May 1, it reported first quarter EPS of $0.15, in line with Bassett’s consensus EPS of $0.13. It also had a net loss of $5.4 million on revenue of $1.4 million and cash and equivalents of $49 million. “At current price levels,” Bassett concludes, “we consider Sangamo a significant value opportunity and reiterate our Buy.”



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