Shares of Sangamo Therapeutics (SGMO 0.87%), a clinical-stage biotechnology company focused on utilizing its proprietary zinc finger DNA-binding protein (ZFP) technology to enable genome editing and gene regulation for the treatment of various autoimmune and rare diseases, rocketed higher by 31% in June, according to data from S&P Global Market Intelligence. The reason for the run-up appears to be a combination of two factors.
To begin with, we're likely still seeing some positive carryover from Sangamo's May announcement of a collaboration with Pfizer (PFE). The agreement concerns gene therapy programs for hemophilia, including SB-525, and it comes with a $70 million up-front payment from Pfizer. Sangamo is responsible for conducting the phase 1/2 studies, with Pfizer being operationally and financially responsible for all subsequent research, development, manufacturing, and commercialization costs. Additionally, Sangamo stands in line to receive up to $475 million in various development and sales milestones for SB-525, and tiered double-digit royalties.
In June, Sangamo and Pfizer announced that SB-525 received the orphan medicinal product designation from the European Medicines Agency. This designation provides incentives for drugmakers to bring rare-disease drugs to market, which can include market exclusivity for up to 10 years.
The second catalyst, which is somewhat of a head-scratcher, was a public stock offering. Shares of Sangamo moved substantially higher following the announcement that the company would sell 10 million shares of common stock, and 1.5 million shares to the deal's underwriters, for $7.25 a share, raising $83.4 million in gross proceeds before discounts and commissions. Normally, dilutive share offerings hurt a company's share price, but investors seem quite content with Sangamo fortifying its balance sheet with more cash. Despite this stock offering, Sangamo had an exceptional June.
It's no secret that Pfizer has been nothing short of a savior for Sangamo and its shareholders after its ZFP technology was pushed to the back burner in the wake of CRISPR/Cas9's rise. CRISPR/Cas9 can be programmed to target specific stretches of genetic code, potentially making the gene modification method preferable to ZFP.
Yet there's still a large enough market potential for Sangamo in hemophilia A for investors to be excited. If SB-525 can navigate its way successfully through clinical studies and be approved, it's not out of the question that it could be a blockbuster drug by the mid-2020s. This would net Sangamo a healthy annual royalty and perhaps $300 million to $475 million in added milestone payments. If that's the case, Sangamo could still be undervalued.
However, and there's a big gap in our knowledge: We don't have a lot to go on with SB-525 yet. Clinical trials are just getting underway, so it could be some time before we get a real look at potential efficacy and safety data. It's clear that cash concerns have been pushed to the back burner for Sangamo Therapeutics, but this recent bout of bullishness might be a little overblown given the lack of real-world efficacy data on SB-525 at this point. This Fool would suggest parking on the sidelines until we have tangible data.