Sangamo 2018: Coming Up Short


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Sangamo (SGMO) closed the book on 2018 last week when they hosted their 4Q18 earnings call. 2018 had started with tremendous promise following the October 2017 first-ever in vivo genome editing treatment and a second Pfizer (NYSE:PFE) gene regulation collaboration. The SB-525 hemophilia A gene therapy trial had moved into cohort 2 and new trial initiations were projected for beta-thalassemia, sickle cell disease, Fabry, MPS I and hemophilia B. Expectations for a catalyst-rich year created palpable excitement for both Sangamo and the genome medicine sector. Those expectations jumped higher in February 2018 when Sangamo announced a comprehensive CAR-T cell therapy collaboration with Kite, a division of Gilead (GILD).


Those expectations went largely unfulfilled, reminding investors that clinical trials are unpredictable high-risk endeavors, especially when cutting-edge science is involved. The hemophilia B and MPS I trials barely budged during most of the year. The beta-thalassemia trial slipped to January 2019. The Fabry and sickle cell disease therapies still haven’t treated any patients though investigational new drug or IND applications are now active.

The hemophilia A trial did progress into cohort 4, but Pfizer and Sangamo elected to maintain a cloud of secrecy following cohort 2 for competitive reasons. The cohort 3 dose reportedly achieved therapeutic factor levels but the lack of data led to uncertainty which is never investor-friendly. No dose level has yet been disclosed for cohort 4.


The final chapter for 2018 came several weeks ago when a company update on MPS II included the decision to move to next generation zinc finger editing technology to improve results, delaying any Phase 3 decision for MPS II until 2020.

The year fell well-short of expectations set by management, as reflected in the stock price for Sangamo and many other early stage genome medicine competitors. A challenging year that showed early promise proved to fall sort of expectations.


What Now?

Sangamo continues to pursue a diverse pipeline focused on inherited metabolic diseases or IMDs, central nervous system or CNS diseases and inflammatory and autoimmune diseases, leveraging proprietary zinc finger protein or ZFP technology for genome editing, gene therapy, cell therapy and gene regulation. Their product portfolio blends owned programs with collaborated assets designed to mitigate risk on competitive indications requiring extensive research and clinical development investments. Sangamo has seven clinical programs in addition to investigator sponsored HIV trials.


An IND filing for three additional preclinical programs is expected this year. These are believed to be for: tau protein gene regulation, allogeneic CAR-T cell therapy and solid organ transplant rejection using regulatory T cells or Tregs. Despite 2018 issues, the following review of the Sangamo programs is worth noting considering the increasing trend of big pharma committing to emerging genome medicines as seen in recent acquisitions.

Genome Editing or GE

SB-913 MPS II

Mucopolysaccharidoses type II or MPS II is caused by a defect in the IDS gene encoding iduronate-2-sulfatase enzyme required to excrete glycosaminoglycans or GAGs. SB-918 is an in vivo GE designed to permanently insert a replacement gene to induce therapeutic IDS transgene expression levels.


In February 2019 the company presented data suggesting GE had occurred, GAG levels were not meaningfully reduced and a potentially small increase in IDS enzyme level compared to baseline was seen. Trial Status-Phase I/II:

Owned program. Well-tolerated in all 8 patients included in data presented. Urine GAG results do not show a meaningful change from baseline. Plan to initiate a clinical trial in C19 using ZFN 2.0 to enable a Phase 3 decision in 2020. Low dose (5e+12 vg/kg) cohort 1: Two patients were treated between late 2017 and early 2018. A small increase in IDS activity compared to baseline was noted in one patient. No patients have undergone enzyme replacement therapy or ERT withdrawal. The one liver biopsy conducted was negative. No biopsy was performed on the second patient due to anti-coagulation therapy. Mid dose (1e+13 vg/kh) cohort 2: Two patients were treated in 1H18. A small increase in IDS activity compared to baseline was noted. Both patients elected ERT withdrawal. One resumed ERT due to fatigue and increasing GAG levels. Liver biopsies to assess GE (SB-913-1602) using an RT-qPCR assay were positive in both patients (24 weeks) suggesting GE had occurred. High dose (5e+13 vg/kg) cohort 3: Two patients were treated in mid-2018. One patient has elected ERT withdrawal. Data on ERT withdrawal and liver biopsies will be made available in 2019. High dose cohort 3 expansion: Three adults and two adolescents were added in this cohort expansion. All three adults have now been treated. The adolescents will not be treated until the ZFN 2.0 treatment is initiated. Data on the three adults including ERT withdrawal and liver biopsies expected in 2019.


SB-318 MPS I

Mucopolysaccharidoses type I or MPS I is caused by a defect in the IDUA gene encoding alpha-L-iduronidase enzyme necessary to excrete GAGs. SB-318 is an in vivo GE designed to permanently insert a replacement gene to induce therapeutic IDUA transgene expression levels.

In February 2019 the company presented data showing increases in leukocyte IDUA activity in all three patients with attenuated MPS I. Plasma IDUA activity showed no significant change from baseline. Trial Status-Phase I/II:

Owned program. Well-tolerated by all three patients. Leukocyte IDUA activity (SB-318-1502) increased in all three patients. Plasma IDUA activity showed no significant change from baseline. Urine GAG measurements show no change in activity. ERT withdrawal and liver biopsies planned. Data expected in 2019. The original low dose (5e+12 vg/kg) cohort was skipped based upon SB-913 results and the recommendation of the safety monitoring committee or SMC. Mid dose (1e+13 vg/kh) cohort: One patient was treated in mid-2018. The second treatment was skipped based upon SB-913 and the SMC recommendation. High dose (5e+13 vg/kg) cohort: Two patients were treated in 4Q18.


SB-FIX Hemophilia B

Hemophilia B is caused by a defect in the factor IX or FIX gene. SB-FIX is an in vivo GE designed to permanently insert a replacement transgene to durably produce therapeutic FIX enzyme. Trial Status-Phase I/II:

Owned program. One patient treated in 5e+13 vg/kg dose cohort in December 2018. THe second patient was expected to be treated soon as reported at the JP Morgan healthcare conference in early January. There are three sites active in the United Kingdom.


Gene Therapy or GT

SB-525 Hemophilia A

Hemophilia A is caused by a defect in the factor VIII or F8 gene. SB-525 is a GT product candidate utilizing an adeno-associated virus or AAV to deliver a replacement F8 gene construct to produce therapeutic levels of coagulation factor protein.

Data for this program has not been updated since August 2018 for “competitive reasons”. Trial Status-Phase I/II:

Pfizer collaborated program. Two patients were treated in the first cohort (9e+11 vg/kg) in 2H17. Two patients were treated in cohort two (2e+12 vg/kg) in 1Q18. Two patients were treated in cohort three (4e+12 vg/kg) in mid-2018. Two patients were treated and a third enrolled in the fourth cohort (undisclosed dose) by February 2019. Safety and efficacy data is on hold until after dose escalation is complete and the trial has progressed to the cohort expansion phase.


ST-920 Fabry

Fabry is caused by buildup of sugar waste products (globotriaosylceramides) from insufficient digestive enzymes (alpha-galactosidase A or GLA). ST-920 is a GT product candidate utilizing an adeno-associated virus or AAV to deliver a replacement GLA gene construct. The IND application became effective in January 2019. Trial Status-Phase I/II:


Owned program. Trial initiation expected in 2019.

Cell Therapy or CT

ST-400 Beta-thalassemia: BIVV-003 Sickle Cell Disease or SCD

Beta-thalassemia and SCD are blood disorders (hemoglobinopathies) that affect red blood cells. Both therapies are genome edited autologous CTs that switch the expression of an mutant adult beta-globin to functional fetal gamma-globin. Sangamo is conducting the ST-400 trial, which is now active, recruiting and treating patients. Bioverativ is conducting the SCD trial, which is expected to initiate in 2019. Trial Status-Phase I/II:


Bioverativ, a division of Sanofi (SNY) collaborated programs. ST-400 is a single dose6 participant trial run by Sangamo. The first patient was dosed in January 2019. A second patient has been enrolled. BIVV-003 is a single dose 8 participant trial run by Bioverativ. The trial is expected to be initiated in 2019.


Oncology CAR-T

Sangamo published multi-plex editing results, suggesting best-in-class efficiency, which led to a collaboration agreement in February 2018 with Gilead. Gilead has control over public disclosures. The initial target indication IND for KITE-037 is expected to be filed in 2H19.


TX-200 Solid Organ Transplant CAR Treg

Sangamo acquired TxCell in 4Q18. Their lead indication for transplant rejection is in research stage. An IND or CTA filing is expected in 1H19.


Gene Regulation-ZFP transcription factor or ZFP-TF

C9orf72-linked amytrophic lateral sclerosis or ALS

Sangamo announced a collaboration agreement with Pfizer in early 2018 for ALS and frontotemporal lobar degeneration or FTLD. This research program intends to identify and preclinically develop ZFP-TFs that bind to and reduce mutant c9orf72 gene expression.


Tauopathies

Sangamo is using gene regulation to potentially treat tauopathy disorders by reducing tau protein levels. Nonhuman primate studies or NHPs are currently being conducted. The company intends to seek a partner with disease expertise for clinical development and eventual commercialization of this program.


Huntington’s Disease

Sangamo has a collaboration agreement with Shire, a division of Takeda (TAK), to regulate HTT gene mutations that cause Huntington’s disease. Shire controls all public disclosures. No material updates were provided in 2018 though Sangamo referenced a publication that was being prepared to publish findings.


Financial Recap

Revenues for the year ended December 31, 2018 grew 131% to $84.5 million. The revenue growth in 2018 was driven by collaboration revenues from the Gilead and Pfizer collaborations.


Operating expenses for the year ended December 31, 2018 grew 74% to $161.6 million.

Cash, equivalents and marketable securities were approximately $400 million at CYE18. This represented approximately 1.4 years of cash burn relative to the 4Q18 cash burn elevated by investments for a new facility. Sangamo guided that cash is sufficient to fund operations into 2021, excluding a $75 million at-the-money or ATM equity sales agreement established in 2018. This facility remains fully available at year end.


Sangamo has numerous collaboration agreements designed to validate their genomic medicine platforms while mitigating risk on competitive high-investment indications. The following summaries of their collaborations reflect significant estimated progress for the Pfizer hemophilia A and the Bioverativ hemoglobinopathy collaborations. Sangamo partners take responsibility for these programs in Phase 3, which is expected in 2019.



Summary

Sangamo expectations were reset in the second half of 2018 punishing investors in the wake. Several programs were delayed for undisclosed reasons along with at least one anticipated new collaboration for tauopathies. The data updates from the hemophilia A GT trial were withheld for competitive reasons, just prior to publication, which led to speculation and uncertainty. The lead GE indication for MPS II provided confusing data in September 2018, followed by the muted efficacy results released at WORLD. This led to the decision to deploy next generation ZFN editing technology pushing any Phase 3 decision into 2020. While not surprising that early stage biotechnology would have some bumps in the road, better management expectation-setting and data communication could have resulted in a more muted market reaction.


The valuation damage done to Sangamo is recoverable as all programs are intact. Sangamo remains the only company approved to conduct in vivo GE clinical trials and in fact has already received approval from the FDA to clinically incorporate next generation ZFN under existing INDs. The assay results indicate site-specific editing did occur-a first for genome medicines. The estimated hemophilia A completion percentage increased from 32% last year to 86% in 4Q18. This management estimate provides some insight while investors wait for more substantive data. The acquisition of TxCell in 4Q18 represents a core investment for the future, arguably putting Sangamo in the forefront of Tregs.


Valuations for genome medicine companies have become heavily weighted toward pivotal stage companies. This started with the acquisitions of Kite and Juno by Gilead and Novartis (NVS) respectively. AveXis was then acquired by Novartis and in February, Roche (OTCQX:RHHBY) announced their acquisition of Spark (ONCE). March has now kicked off with Nightstar (NITE) being acquired by Biogen (BIIB).

The common element in these acquisitions is an approved or late stage clinical program. If hemophilia A or beta-thalassemia therapy progresses to Phase 3 in 2019, as projected by management at JP Morgan 2019, the valuation should not remain at these severely discounted levels.

Investor be forewarned: This is a very volatile space. Many of the trials being initiated are for rare diseases for which there are no or limited alternative treatments. These patients can have serious medical issues and short life expectancy leading to treatment complications.

Disclosure: I am/we are long GILD SGMO PFE. 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.

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

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