The death of a lead drug for a biotech is never a good thing. And it's worse when investors aren't convinced of your technology in the first place.
Sangamo BioSciences (Nasdaq: SGMO ) is trading down 25% today after the biotech said it's dropping development of its diabetic neuropathy drug, SB-509. The drug failed to show an effect in a phase 2b trial.
The big question here is whether the failure is a knock on Sangamo's zinc-finger technology as a way to treat diseases or just a sign that diabetic neuropathy is hard to treat. I'd argue it's more of the latter, and the decline might be a slight overreaction.
Current treatments for diabetic neuropathy -- Pfizer's (NYSE: PFE ) Lyrica and Eli Lilly's (NYSE: LLY ) Cymbalta, for example -- and most of the ones in development, like Endo Pharmaceuticals' (Nasdaq: ENDP ) Lidoderm Patch, treat the pain. But SB-509 was attempting to treat the underlying condition by increasing the production of a protein called vascular endothelial growth factor-A. The protein regenerates nerve cells and promotes the growth of blood vessels.
Easier said than done.
There are many potential reasons for the failure, but the fact that diabetic neuropathy is a complex disease with endpoints that are somewhat subjective certainly didn't help. The company said the placebo group fared better than in the previous trial, which may have masked a positive effect.
Comparing SB-509 to Sangamo's potential cure for HIV, SB-728, isn't exactly fair. While they're both a type of zinc-finger technology, SB-509 is a transcription factor that binds to the DNA to increase production of a protein, while the HIV treatment is a nuclease that cuts the DNA and removes a gene so it can't be expressed. There are some parts of the process in common -- getting the zinc-finger protein into the cell, for example -- but I don't think we can draw too many conclusions about whether Sangamo can get SB-728 to work based on the failure of SB-509.
In my article last week about Sangamo's HIV treatment, I said the company might be a good investment if you're willing to wait. I think that still applies, but it's going to take a little longer to have a drug on the market. On the plus side, there's considerably more upside with the stock knocked down.