repost from IV board. JMP update on SGMO..
JMP on SGMO - Substantive Early DN Data Bode Well for Novel, Broad Neuroregenerative Activity. Substantive early data from SB-509 study in DN presented at ADA; Reiterate Strong Buy/$15 target.
JMP
Biotechnology – Update
Sangamo BioSciences, Inc. (1)
Substantive Early DN Data Bode Well for Novel, Broad Neuroregenerative Activity
STRONG BUY SGMO $8.47
INVESTMENT HIGHLIGHTS
· Substantive early data from SB-509 study in DN presented at ADA; Reiterate Strong Buy
rating and $15 price target. Data presented at the American Diabetes Association meeting (ADA)
support our thesis that SB-509 has potentially broad, novel neuro-regenerative/repair activity, and it
could become the first disease-modifying agent for the treatment of diabetic neuropathy (DN).
Although from an ongoing Phase Ib study in moderately severe symptomatic patients given only a
single treatment with the drug, we believe these data describe the first substantive clinical
experience with ‘509 and the impressive 6+ mo durability of activity have predictive value for a
positive outcome from the currently enrolling multi-dose Phase II. Additionally, our diligence with
key opinion leaders suggests that the outcome measures employed, emerging safety data, and
envisioned treatment regimen give ‘509 a differentiated, more-than-attractive commercial profile.
· SB-509 DN data demonstrate improvements in validated neurologic endpoints. SB-509, a
ZFP vascular endothelial growth factor (VEGF) therapeutic being studied in a dose-escalation trial
in moderately severe DN patients. The primary endpoints are improvement in the Total Neuropathy
Score (TNS), a composite scale incorporating symptoms, neurologic exam, and nerve testing, such
as nerve conduction velocities (NCV) and quantitative sensory testing (QST). In the 12 patients on
which 6 mo follow-up was reported at ADA, 60 mg ‘509 given in a single dose showed impressive
statistically significant improvements in several neurological endpoints. We focus on improvement
in NCV and QST measures of nerve function, which exceeded our expectations and have not, to
our knowledge, ever been achieved in this advanced patient population. Specifically, for QST, the
difference in improvement from baseline seen in ‘509 treated patients vs. the loss of function in the
placebo group was 55%, clinically and statistically significant (p=0.008). For NCV in sensory fibers,
the mean improvement in conduction was 2.6m/s, over 2x greater than the 1.2m/s suggested by
our expert contacts as the minimal hurdle for clinicians and FDA regulators. Combined with an
emerging durability (6-12 mo) and safety profile, these results are impressive given the small
sample size. We anticipate that data from the remaining 12 patients, all of which have now been
dosed with either ‘509 or placebo (1:1 randomization), will be presented in an appropriate peerreviewed
forum sometime yet this year and in 1H08. We also believe the improved neuro function
presented at ADA will fuel patient enrollment in the ongoing PII, and we now have high conviction
that the company will achieve its goal of completing this enrollment by YE’07.
· SB-509 differentiated from previously tested DN drug candidates. Current treatments for DN
are limited to symptomatic treatment, primarily for pain. We believe the improvement in nerve
conduction velocity and sensitivity to vibration shown in this study differentiates SB-509 from
previously tested DN drug candidates such as nerve growth factor (NGF) and aldose reductase
inhibitors. Previously, some aldose reductase inhibitors showed the ability to delay or prevent the
loss of nerve function, however, they had severe and dose limiting toxicities at clinically effective
doses, ultimately leading to their failure. To date, no such AEs have been seen with ‘509, and the
company has detected only minimal VEGF in the systemic circulation.
· Commercially viable product? We think so, based on discussions with neurologists and
diabetologists at the ADA meeting. We anticipate two issues will be hotly contested as these data
are digested and capture the imagination of mainstream biotech investors. Beyond longer-term
safety of a pro-VEGF-based mechanism and whether the company is employing FDA-approvable
endpoints for measuring efficacy and if the surrogate marker of improved neuro function measured
by the composite TNS score can be sufficient to support a disease-modifying claim, we believe
attention will turn to the treatment regimen (currently 22 “shots” in each leg, given in each of 1-4
monthly sessions). In our view, we see this treatment paradigm as commercially viable. Based on
discussions with KOLs, we believe that testing for nerve function is a more painful, onerous
process than the ‘509, potentially disease-modifying, treatment regimen. We asked some
physicians experienced in treating patients with moderate to severe DN if this administration
regimen would stand in the way of prescribing the drug, and the answer was a resounding “no”, if
early efficacy signals hold up. In addition, we think that the reimbursement paradigm seen with
Botox offers some clues on how ‘509 may be paid for. If ‘509 proves to be a safe and effective
treatment for DN, which would clearly extend therapy beyond current symptomatic drugs, we
believe a $50,000 annual treatment price tag could be justified. However, our current model for the
commercial potential of ‘509, although admittedly based on rough estimates of market penetration
given the early clinical data now supporting an envision target product profile, only assumes a
$10,000 annual treatment cost. This potential price differential suggests significant upside potential
to our estimates should a strong clinical profile be replicated with later clinical studies.
· Valuation. Our $15 price target on SGMO shares is based on a comparables analysis, which,
given the strong IP position for this unencumbered platform, should value the company at least inline
with mind-share competitors such as Isis (ISIS, Not Rated), Sirna before it was acquired, and
Alnylam (ALNY, Not Rated), which have market values between $500 million and $900 million.
PHASE 1B SB-509 STUDY DEMONSTRATES NOVEL MECHANISM
The Phase 1b dose-escalation study of SB-509 was conducted in 24 patients with mild to moderate DN.
Patients were used as their own control. Treatment plan 1 consisted of a single dose of SB-509 injected
intramuscularly in one leg (either 1, 5,10, 15, or 30 milligrams) and placebo in the other leg. Treatment
Plan 2 consisted of either a single dose of SB-509 (n=6 at 60 mg total dose or 30 mg per leg) or a
placebo (n=6) injected in both legs. Patients were examined at six months post treatment. The only
adverse event reported was a mild and reversible injection site reaction.
The study showed statistically significant clinical improvements in two meaningful neurologic endpoints.
The impact on nerve conduction velocity showed a mean improvement in the SB-509 group (three
patients) of 3.934 M/Sec compared to (0.52) M/sec in the placebo group (six patients). At six months,
QST testing showed a 43% improvement in vibration units from baseline at the 60 mg dose level in the
SB-509 group compared to a 12% decline in the placebo group. In addition, the study showed
improvement in the Total Neuropathy Score (TNS) of the SB-509 treated patients. Importantly, data was
presented from 3 patients with a “blocked nerve” that showed recovered and improved NCV measured
over six months post treatment of a single dose of SB-509. This data is encouraging for the neuroregenerative
repair potential of SB-509.
INVESTMENT RISKS
Given Sangamo is still in the development stage, the primary risk to our investment thesis involves the
ability of its partner, Edwards Lifesciences, to progress its development program in intermittent
claudication into later stage trials. In addition and in relation to its internal research programs, other
risks to our investment thesis involve being able to successfully progress these programs into clinical
trials and subsequently into later stage trials. The last risk we would point out is the company's ability to
continue to fund operations through product commercialization.
COMPANY DESCRIPTION
Richmond, California-based Sangamo BioSciences, Inc. uses its proprietary zinc finger DNA-binding
protein (ZFP) technology to develop gene therapy treatments for a number of diseases. The company's
lead therapeutic ZFP activates the VEGF-A gene in order to promote blood vessel growth, and
Sangamo is developing VEGF-ZFP in collaboration with Edwards Lifesciences as a potential treatment
for peripheral arterial disease.
Price $8.47 FY: Dec 2006A 2007E 2008E
Target Price $15.00 Revenue (M) 1Q $2.1 $1.4A NE
52-Wk Range $4.38 - $8.85 2Q $1.8 $2.5 NE
Shares Out. (M) 35.0 3Q $1.8 $2.5 NE
Market Cap. (M) $296.5 4Q $2.2 $2.7 NE
Average Daily Vol. (000) 345 FY $7.9 $9.1 $15.0
Float (M) 29.0
Secular Growth Rate NM 2006A 2007E 2008E
ROAE NM EPS 1Q ($0.09) ($0.15)A NE
2Q ($0.11) ($0.15) NE
LT Debt (M) $0.0 3Q ($0.08) ($0.16) NE
LT Debt/Total Cap. 0.0% 4Q ($0.26) ($0.18) NE
Cash (M) $49.0 FY ($0.55) ($0.64) ($0.53)
Book Value/Share $1.25 P/E NM NM NM
Cash/Share $1.40 Previous FY -- NC NC
CY ($0.55) ($0.64) ($0.53)
P/E NM NM NM |
