Piper Jaff Jul 30 SGMO report -"Outperform-raise target from $12.50 to $14 excluding globlastoma program." "THE ONLY ZFP GAME IN TOWN"
Sangamo BioSciences (SGMO - $8.90)
Outperform Volatility: Medium
Strengthens Balance Sheet; Increasing Price
Target to $14
� Strengthened balance sheet with proforma cash of $88 million.
� Updated Phase Ib diabetic neuropathy and 2 new INDs are key drivers in 2H:07.
� Sangamo reported 2Q:07 revenues of $2.6 million, slightly above our $2.3 million estimate. We now forecast 2007 revenues of $9.7 million benefited by the recent Sigma Aldrich ZFP reagent deal.
� R&D of $6.3 million and SG&A of $2.1 million were above our respective budgets of $5.5 million and $1.8 million in the quarter. As a result, net loss of $5.2 million or ($0.15) per share was greater than our ($0.13) estimate.
� Sangamo ended 2Q:07 with $45 million in cash. With the successful follow-on offering and Sigma Aldrich partnership earlier this month, we estimate Sangamo now holds proforma cash of $88 million.
� Sangamo entered into a strategic alliance with Sigma-Aldrich to develop research reagents based on ZFP technology. Sangamo received $13.5 million upfront including license fees and the sale of 1 million shares of common stock. This deal yet another example of Sangamo partnering non-core applications and retaining all ZFP therapeutic rights.
� In June, Sangamo completed key milestones in its collaboration with Dow AgroSciences, and we look for increased commercial visibility in the back half. The two companies entered into a three-year research agreement in September 2005 for agricultural applications of ZFP technology.
� At the ADA meeting in June, Sangamo presented promising data from the ongoing Phase Ib study of SB-509. We expect Sangamo to present updated Phase Ib data on SB-509 later this year with final data in 1H:08. SB-509 is currently in 2 Phase II studies expected to complete in 2H:08.
� We also expect Sangamo to provide an update on the development plan for the EW-A-401, which was re-acquired from Edwards Life Sciences earlier this year.
� Sangamo is on track to file INDs and initiate Phase I studies for SB-728, the CCR5 program for HIV, and the City of Hope glioblastoma program
We reiterate our Outperform rating and are increasing our 12-month price target from $12.50 to $14. Our new target is based on a projected enterprise value of $500 million (up from $400 million) to which we add mid-'08E cash of $65 million. We continue to value the Phase II diabetic neuropathy and PAD programs at $200 million each and are adding $100 million for the CCR5 HIV program, which we anticipate will enter the clinic this year. At this point, we assign no value for the glioblastoma program until more feasibility data is available.
RISKS TO ACHIEVEMENT OF TARGET PRICE:
Risks associated with shares of SGMO are typical to all drug discovery companies including developmental, clinical and regulatory. ZFP drugs may fail in the clinic. Sangamo may not enter into new partnerships and may require additional funding.
Sangamo is pioneering the development of Zinc-Finger Proteins to treat disease.
THE ONLY ZFP GAME IN TOWN:
Sangamo dominates intellectual property and scientific "know-how" in the field of zinc finger proteins (ZFPs). ZFPs are a naturally occurring family of proteins that serve as binding domains for transcription factors to regulate gene expression. ZFPs can be designed to precisely target any gene in the genome. ZFPs transcription factors can be engineered to either activate or repress genes of interest, thereby offering tremendous flexibility in treating disease. The ability to induce gene expression is unique to the ZFP approach and can potentially treat diseases that are not addressable by any other means.
Sangamo is focused on developing ZFP technology for therapeutic intervention. The company's lead drug is SB-509, a ZFP drug that turns on expression of VEGF in order to promote nerve growth for the treatment of diabetic neuropathy. The company presented encouraging Phase Ib data at the ADA meeting in June and will provide updated data through early next year. Sangamo is conducting 2 Phase II trials in diabetic neuropathy and blocked nerve with data likely available in 2H:08. Based on that data, we expect Sangamo will likely partner SB-509 in late 2008/early 2009.
The company also reacquired the rights to EW-A-401 from Edward's Life Sciences earlier this year. EW-A-401 is the same ZFP drug that targets VEGF as SB-509, however, applied with the purpose of revascularization in peripheral artery disease. We expect Sangamo to provide an update on the development plans for this drug later this year.
Sangamo is also developing ZFP technology to modify the DNA of disease genes. The company intends to file an IND on its CCR5 gene disruption program for the potential treatment of HIV later this year. In collaboration with the City of Hope Hospital, Sangamo also hopes to file an IND to render therapeutic T-cells resistant to steroids for the treatment of glioblastoma.
In our opinion, Sangamo has done an excellent job of partnering non-core applications of ZFP technology in order to fund the company while retaining all therapeutic rights. In June, Sangamo entered into a strategic alliance with Sigma-Aldrich to develop research reagents based on ZFP technology. The company is also working with Dow AgroSciences on applying ZFP technology to plant genetics. Sangamo is also working with the LifeScan division of Johnson & Johnson to develop cells lines for diabetes research. ZFP technology has also been used in collaborations with industry leaders such as Pfizer, Amgen, Genentech, Novo Nordisk and others to engineer cell lines to optimize protein production.
We reiterate our Outperform rating and are increasing our 12-month price target from $12.50 to $14 per share. Our new price target is based on a projected enterprise value of $500 million (up from $400 million) to which we add mid-'08E cash of $65 million. We continue to value the Phase II diabetic neuropathy and PAD programs at $200 million each and are adding $100 million for the CCR5 HIV program, which we anticipate will enter the clinic this year. At this point, we assign no value for the glioblastoma program until more feasibility data is available. With the successful follow-on offering and Sigma Aldrich partnership, we estimate Sangamo now holds proforma cash of $88 million.