One of the most promising niches in the biotech sector from both a technological and a financial standpoint is the realm of gene editing. Technologies such as CRISPR are enabling a new generation of treatments for previously incurable genetic conditions ranging from blood disorders to severe forms of blindness. CRISPR Therapeutics (NASDAQ:CRSP) and Editas Medicine (NASDAQ:EDIT) have emerged as two of the top stocks in the sector. However, the speculative nature of the gene-editing market means that it's never 100% certain which company will succeed or fail in its clinical trials.
As such, even smaller, lesser-known gene-editing companies could be the big winners of the future. One such company is Sangamo Therapeutics (NASDAQ:SGMO), with a market cap of $987 million. Its share prices have gone back and forth for most of the year but have fallen by 21.4% over the past couple weeks and are down 32.3% over the past six months. Let's take a look at whether Sangamo's recent declines are justified and how promising its clinical pipeline is at the moment.
Potential breakthrough #1: Hemophilia A treatment
Earlier this year, Sangamo reported positive results from its early phase 1/2 clinical trial on treating patients with hemophilia A, a rare bleeding condition that's due to a lack of crucial blood plasma needed to produce a protein known as clotting factor VIII. Patients with hemophilia A tend to bleed often without any apparent cause, and the only treatment available is frequent blood infusions to maintain adequate levels of this clotting factor.
The data reported from Sangamo's hemophilia drug SB-525 were positive, especially considering the drug was targeting patients that also had a more severe, harder-to-treat form of the condition. All patients in the study saw increases in clotting factor VIII, but most impressive for SB-525 was that those with severe hemophilia saw their clotting recover to the extent that they didn't require any further blood infusions during the treatment period.
The results from the trial were strong enough that the FDA gave Sangamo's SB-525 drug the regenerative medicine advanced therapy (RMAT) designation. This is a big deal mainly because it helps fast-track promising drugs aimed at treating challenging illnesses. Candidates that receive the RMAT designation receive the same benefits of other major designations, such as Fast Track or the Rare Breakthrough Therapy designation, and are also entitled to early interactions with the FDA on what is required from the therapy moving forward. With the FDA recognizing SB-525's potential as well as paying special attention to it, things look quite promising for the drug.
What's also worth mentioning is that Sangamo's SB-525 program is in partnership with Pfizer (NYSE:PFE), which initially paid $70 million up front to Sangamo when the partnership was first announced. Further good news from SB-525 could entitle Sangamo to an additional $300 million in milestone payments from Pfizer, which is around one-third of Sangamo's current market valuation. This could be a major catalyst to watch out for in the future, with the company's stock likely to jump in response to such a positive development.
Potential breakthrough #2: Thalassemia and sickle cell treatments
While Sangamo's hemophilia treatment is its strongest drug offering at the moment, there are other candidates in the pipeline worth mentioning. Investors will notice that most of the company's gene-editing efforts are directed toward treating various types of blood disorders. Sangamo is currently developing two more therapies in this area, although both are still at a very early stage of development and testing.
First is ST-400, a thalassemia treatment in its phase 1/2 clinical trial. Thalassemia is a condition in which a patient's body doesn't produce the necessary hemoglobin needed in the blood. Investors will have to wait until the end of 2019 before the full preliminary data are updated, but early trials showed some promising results. However, the sample size for the clinical trial was quite small -- only six patients -- and just two of them have been treated so far.
"While these data are very early and will require confirmation in additional patients as well as longer follow-up to draw any clinical conclusion, they are promising. These initial results are especially encouraging given the patient's β0/β0 genotype, a patient population which has proved to be difficult to treat and where there is high unmet medical need," said Angela Smith, MD, associate professor at the University of Minnesota in response to these initial results.
The second drug, BIVV003, is the result of a partnership with Sanofi (NASDAQ:SNY) and is meant to treat sickle cell disease in patients. While it's worth mentioning to keep investors informed about what's going on, at this point BIVV003 is still far too early in the clinical trial process for us to tell whether it will prove successful. At the same time, sickle cell disease is one area in gene editing that has major competition, with both CRISPR Therapeutics and Editas Medicine developing their own treatments -- CTX001 and EDIT301, respectively -- that also show significant promise.
How the financials stack up
While current revenues aren't an accurate representation of future growth potential for a biotech stock still amid clinical trials, it's worth noting Sangamo has a significant edge over its competitors in terms of current income. Its recent quarterly revenue came in at $17.5 million, a decline from Q2 2018's $21.4 million. In comparison, CRISPR's Q2 revenue came in at only $0.3 million, a figure that has remained relatively constant. Editas reported $2.3 million in revenue for Q2, which was a significant decline from last year's $7.3 million.
However, all three companies are losing money and that likely won't change until their drug candidates enter the market. CRISPR is burning cash at a faster rate than the other two, reporting a net quarterly loss of $53.7 million while Editas and Sangamo saw quarterly losses of $33.8 million and $30.4 million respectively.
With expenses largely eclipsing revenues between all three companies, the main question worth asking is how long will their cash reserves hold up? Sangamo does have $450.3 million in cash and short-term investments, with additional milestone payments from Pfizer potentially helping shore up this figure even more. CRISPR is comparable with Sangamo with $427.9 million in cash, while Editas has only $317.9 million in cash and short-term investments.
While Sangamo seems to have an edge when it comes to these financial figures, what's most important is whether or not these companies have enough financial breathing room to last for the next 12 months or so. With gene-editing drugs still in the clinical trial phase, all these financial figures are liable to change dramatically once these therapies enter the market. While important, these early-stage financial figures aren't as significant in the long-term as the prospects of the actual drug candidates themselves, each of which could easily be worth billions in annual revenue if successful.
Where to invest new money today
Taking this into consideration, Sangamo Therapeutics is an interesting investment opportunity. While there is plenty of competition from other gene-editing companies in the field of blood disorders, Sangamo's hemophilia A treatment looks quite promising at the moment. This is especially true considering its partnership with Pfizer as well as the potential for significant milestone payments in the future.
In the world of biotech, a company only needs to have a single major breakthrough to become a success, and the prospects for Sangamo's hemophilia drug SB-525 look quite positive right now. If you were only to pick one gene-editing stock to invest in, however, I don't think Sangamo would be the best choice. Both CRISPR Therapeutics and Editas Medicine seem to have more going for them at the moment. However, Sangamo shows enough promise that it's worth a buy if you're interested in branching out to other gene-editing stocks in the sector.