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Why Sangamo Therapeutics Stock Dropped Today

By Brian Orelli, PhD - May 8, 2018 at 1:50PM

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Valuing early-stage biotechs is hard.

What happened

Shares of Sangamo Therapeutics (SGMO 1.73%) are down 10% as of 1:28 p.m. EDT after the biotech announced first-quarter results this morning, although there doesn't seem to be any negative news in the release that would justify a double-digit decline.

Perhaps it's the lack of something extra in the update that has short-term investors hitting the sell button. Biotech can be a what-have-you-done-for-me-lately kind of business.

Scientist working in a lab

Image source: Getty Images.

So what

Without any drugs on the market, Sangamo's revenue and earnings don't really matter. For the record, the biotech lost $20.2 million in the quarter.

The only number that really matters is Sangamo's cash balance, which came in at $234.9 million, although that doesn't include $150 million from its collaboration with Gilead Sciences that closed after the quarter ended or the $216 million Sangamo received from a secondary offering in late April. The company is guiding for having at least $485 million at the end of this year, giving it a substantial runway.

Now what

It's hard to value early-stage biotechs because much of the valuation is based on unknown risk that can change with investor sentiment, which is why the stock is trading substantially below the $16.25 per share investors paid in the secondary offering. In the short term, it's hard to know where the stock might go.

Rather than focusing on short-term gyrations, long-term investors should be watching Sangamo's pipeline of gene-editing therapies, including SB-525 in hemophilia A and SB-913 and SB-318 for two different types of a rare disease called mucopolysaccharidosis. Investors will get some additional preclinical data for Sangamo's programs at the American Society of Gene and Cell Therapy meeting later this month, but it'll be the clinical trial results that will ultimately drive the biotech's long-term valuation.

Brian Orelli has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends GILD. The Motley Fool has the following options: short May 2018 $85 calls on GILD. The Motley Fool has a disclosure policy.

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