Gilead Sciences(NASDAQ:GILD) plan to transform itself into a leader in oncology treatment took another step forward this month when it inked a deal to develop gene editing cancer drugs with Sangamo Therapeutics (NASDAQ:SGMO). Can gene editing move us one step closer to curing cancer?

In this clip from The Motley Fool's Industry Focus: Healthcare, analyst Kristine Harjes and contributor Todd Campbell explain what Gilead Sciences' new partnership may mean for investors.

A full transcript follows the video.

This video was recorded on Feb. 28, 2018.

Kristine Harjes: Some news out of one of our most beloved biotech stocks, Gilead Sciences. Last Thursday, February 22nd, a collaboration between Gilead and Sangamo Therapeutics was announced. This licensing deal will use Sangamo's zinc finger nucleases, or ZFN, technology, to edit DNA to develop cell therapies for cancer.

Todd Campbell: You know what's really cool, Kristine? We're going to get more into the nitty-gritty as we go forward, but when you think about where we may be heading in treatment from here, the whole concept of being able to go in and actually replace or edit out these parts of our genetic code that are faulty, is truly quite amazing. I was thinking, hey, maybe they could actually make my hair not be grey. [laughs] But I think they're going to focus more on some much more important things early on. There are a few different ways that companies are researching gene editing. You have zinc finger, which is something that Sangamo is doing a lot of work on. You have CRISPR Cas9, which is another more recent development way of doing genetic editing. Then you also have TALEN. Gilead seems to feel, based on this recent deal, that its best option for next-generation therapies is going to be using zinc finger.

Harjes: It's so interesting to me to see Gilead get into this business because it's only fairly recently that they've been very serious about pursuing oncology. This seems to be their next step after purchasing Kite Pharma a while back for Kite's CAR-T drug therapy portfolio. Now, in addition, they're going one step further and looking at how what Sangamo is doing might complement what they're working on with Kite.

Campbell: I think that's an important point. Gilead has always wanted to diversify itself away from its HIV franchise. They went from HIV to hepatitis C. Then, of course, as anyone who's been following Gilead Sciences knows, as they provided a functional cure for that disease, the patient population is shrinking, and thus so are sales, and the company is having to find new ways and new drugs to expand into new indications and replace that revenue. You mentioned the deal last year to buy Kite. That was pretty transformative because it basically elevated them to the forefront of gene therapy, this ability to take out patients' T-cells, reengineer them outside the body and then reinsert them after a 20-day period. That's a pretty remarkable development. We already saw them win approval of their first drug, Yescarta, last fall.

I think what we're seeing now with this deal with Sangamo is them thinking, what's next? If you do a little bit of research and spend a little time thinking about gene therapy in use in cancer, you'll see that it's kind of crowded. You have players like bluebird who are doing work on drugs for multiple myeloma with Celgene. You have Juno, which Celgene just acquired. You have Novartis, which has another competing drug called Kymriah out there. And I think Gilead is looking at Sangamo and saying, maybe we can use this zinc finger technology to go in and create cells that we can use right off the shelf. We'll no longer have to take the patient's cells, ship them somewhere else, have them reengineered and ship them back. We can use it right off the shelf. That would be remarkable.

Harjes: Yeah. Right now, CAR-T therapy is incredibly cumbersome and it's very expensive, because as you mentioned, you're taking the patient's own T-cells, extracting them, editing them, and putting them back into the body. But hopefully, with Sangamo's efforts, you can make a more off-the-shelf type of product pre-made by either healthy donor cells or from renewable stem cells. This could be something that's already on hospital shelves and ready to go, as opposed to having to go through the entire process that CAR-T currently requires.

Campbell: Right. Sangamo has been working on this zinc finger technology for about 20 years. It's pretty much the primary patent holder of this technology. That differentiates itself a little bit from CRISPR Cas9. Our listeners are probably asking themselves, why didn't Gilead go out and buy Editas or CRISPR Therapeutics (NASDAQ:CRSP) or something like that to get involved in CRISPR Cas9? Obviously, there's been a lot of attention spent by media on CRISPR Cas9, what's this zinc finger thing all about? I think Gilead basically looked at it and said, we know there's a risk of off-target when you're doing gene editing, and that can be kind of scary. You don't want to have a situation where you jump in with CRISPR Cas9, which is a relatively new technology, and it turns out that there's a lot of off-target gene editing that goes along in using it. Since zinc finger has been researched for some 20-some odd years by Sangamo, it appears that Gilead Sciences thinks, we know better what we're getting into from a safety standpoint. I think Sangamo's zinc finger nucleases have been used in over 100 patients in clinic. CRISPR Cas9 is only looking to get into clinic this year.

Harjes: This is a surprisingly advanced company. They have a roughly $2 billion market cap. They're working in 10 different indications on a whole range of different diseases. One that stands out to me is that they're working in both hemophilia A and hemophilia B. They have a partnership with Pfizer, actually, in hemophilia A. We know that these are enormous markets. Both their A and B products are in Phase I/II development. So, they have a lot going on, and yet this is still a pretty big deal to the stock, that is has this partnership now with Gilead. I believe on the day of the announcement, shares gained about 14%.

Campbell: And if you look at it from, I'm an investor in Sangamo, or I'm considering Sangamo, what do I want to do with this, what does this mean for it? Gilead has given them $150 million up front. Then, depending on regulatory milestones, sales milestones, developmental milestones, Sangamo can earn up to another $3 billion. That's spread over a minimum of 10 different products. So, do a little math there, best case scenario is a maximum of $3 billion, or $300 million per product developed by them. That's not insignificant at all. Plus, they'll get royalties on any eventual sales.

That being said, we always have to tamp down some of that enthusiasm. Nothing is in clinical trials right now from Sangamo in cancer. It's going to be a while before we have any idea whether or not zinc finger can be used in this way to develop these next generation drugs. We will, however, get a little bit of insight into the technology later this year, when data comes out in Hunter disease, or MPS II. At some point this year, they're hoping by the first half of this year, they'll be able to provide us a little bit more insight into how that trial is going. Maybe that would help validate Gilead's decision.

It's definitely fascinating, it's fascinating times. I think it's a smart investment. Who knows, in 10 years from now, this could be the big thing, or the standard of care that's used to cure cancer.

Harjes: Investors and industry watchers have been pleading with Gilead for a while now to make acquisitions and beef up their portfolio and their products using all this cash that they have. But, that being said, because Sangamo is so early stage, I'm actually really glad they structured the collaboration in this way as opposed to an outright buyout. Now, you have an initial investment and then milestones contingent on different events that might happen along the way as this develops further. There's huge upside that I think they've captured with this. Best-case scenario, you get adoptive cell therapies breaking into solid tumors. This would most likely be in combination with drugs like PD-1 inhibitors. You could even see, one day, this type of therapy getting into the treatment of other diseases. These are also diseases that Sangamo is working on. So, I do see a tremendous amount of upside at a pretty minimal risk to Gilead.

Campbell: 100% agree. They keep their optionality. I know that Kite had a relationship with bluebird bio on some research into gene editing, so they already have that kind of relationship. I wouldn't be surprised to see Gilead sign others of this kind of collaboration deal and spread itself around. Because, again, we don't know which one of these gene editing approaches is going to end up becoming the safest, more favored of all of them. It's going to take a few more years for that to all shake out. There's no question, though, that Sangamo's approach is the furthest along in clinic, and that does give it an advantage.

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