If you've been following the news lately, you might have heard about gene editing, a process that involves rewriting a person's DNA to correct genetic disorders, and you're wondering what all the buzz is about.
While gene editing is getting a lot of attention recently, it's far from a new idea. Sangamo Therapeutics (NASDAQ: SGMO) has been working on gene-editing research since 1995, and it's already investigating its unique zinc-finger nuclease (ZFN) gene-editing approach in human trials.
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With over 6,000 genetic disorders identified and nearly 300 million people worldwide who could benefit from gene-editing, the opportunity for Sangamo Therapeutics is massive. So, let's take a closer look at the company, its history, and whether its ZFN gene-editing technology makes it worth owning in your investment portfolio.
Sangamo: The early days
In 1995, Sangamo Therapeutics (then known as Sangamo BioSciences) was founded by Edward Lanphier to explore whether zinc-finger proteins (ZFPs), a family of proteins that can bind to DNA (deoxyribonucleic acid, the genetic code that controls the growth, development, functioning, and reproduction of living organisms), can be used to regulate the production of proteins in people with genetic disorders.
Sangamo's story, however, begins with Lanphier's prior work as the chief financial officer of Somatix Therapy, a gene-therapy company that was researching the use of viruses to deliver genetic material into cells.
At Somatix, one of Lanphier's responsibilities was securing the intellectual property (IP) necessary for Somatix to control the commercial opportunities for its research.
It was during the pursuit of that goal that Lanphier became aware of Srinivasan Chandrasegaran, a researcher who figured out how to fuse ZFPs to FokI, a gene-cutting tool that's used by Flavobacterium to infect plant cells. This created a zinc-finger nuclease (ZFN) that could bind to a specific DNA sequence and make an "edit" by cutting away and replacing unwanted DNA.
Zinc-finger proteins can each bind to about three DNA bases, so by creating different combinations, researchers can precisely target and bind to specific DNA sequences. For example, combining six zinc fingers allows the targeting of an 18-base sequence.
To make a gene edit, two ZFNs are constructed, each containing half of the cutting enzyme, FokI. Once the ZFNs bind to DNA on either side of the piece of DNA that's to be edited, the two halves of FokI combine, or "dimerize," to make a cut between the two sets of zinc-finger proteins.
Somatix wasn't interested in licensing Chandrasegaran's research, but Lanphier was. He raised $750,000 from his family and friends, founded Sangamo, and inked an exclusive license to Chandrasegaran's work. He also managed to convince him to join Sangamo's board of directors, a move that helped the company lock up the rights to ZFN gene-editing IP.
Cornering the ZFN market
Because Chandrasegaran knew all the key zinc-finger researchers, he was able to make introductions to Lanphier that led to their joining Sangamo or licensing their work to the company.
By 2000, a growing bench of IP and talent had translated into more than 20 biopharma companies using Sangamo's Universal GeneTools to accelerate their understanding of the role of genes in disease.
It had also led to Edwards Lifesciences (NYSE: EW), a medical device company, signing on to develop ZFP-based therapeutics for cardiovascular disease.
Riding tailwinds of excitement about the potential to regulate gene functions using new therapeutics, Sangamo decided to become a publicly traded company in 2000. Its initial public offering raised $53 million for Sangamo's balance sheet. And the IPO paved the way in 2001 for Lanphier to convince his biggest competitor, Gendaq, to merge in a $30 million all-stock transaction.
The Gendaq deal proved critical to Sangamo because it added 16 leading scientists, 22 patent applications, and two issued patents. Effectively, the merger allowed Sangamo to corner the market on the use of ZFPs in gene editing.
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Research suffers setbacks
Lanphier's deal-making created a moat around Sangamo's research. But determining which genetic base pairs to edit, and crafting ZFPs that bind precisely to them, took plenty of trial and error.
Base pairs are two complementary nucleobases that bind together to allow the DNA helix to maintain its structure. Because base pairs often repeat in different genes throughout the body, there's always the risk that a gene-editing therapy can edit an unintended piece of DNA. That's a big problem, because if the wrong piece of DNA gets edited, it can cause a new genetic disorder.
Thanks to the complexity of developing ZFN therapies, Sangamo suffered a number of meaningful setbacks following its acquisition of Gendaq. These included Edwards Lifesciences' decision in 2006 to exit its collaboration with Sangamo Therapeutics on cardiovascular therapies. Ultimately, Sangamo gave Edwards Lifesciences 1 million shares in exchange for the research it had done.
Sangamo suffered another important disappointment in 2008 when its most advanced zinc-finger therapy, SB-509, failed in a phase 2 study for diabetic neuropathy. Although Sangamo continued development of therapeutics in that indication for a few more years, it eventually sent that program to the laboratory dustbin, too.
One step forward, two steps back
Perhaps the most notable demonstration of the potential associated with using ZFN to cure disease occurred in 2014, when gene-editing pioneer Carl June successfully used ZFN to block CCR5, a gene used by the human immunodeficiency virus (HIV) to infect cells. Patients treated in June's study had an increase in their T cells -- a subtype of white blood cell that is important to immunity and is destroyed by HIV.
Importantly, June discovered that T cells persisted in these patients even after they discontinued treatment with conventional HIV drugs; this finding lent support to the thinking that ZFN regulation of CCR5 could someday offer people functional immunity to HIV. This means people could still be infected with HIV, but the virus wouldn't be able to destroy enough immune cells to make the patients susceptible to other life-threatening infections -- the condition called acquired immunodeficiency syndrome (AIDS).
The potential for ZFN to offer patients immunity to HIV has yet to be realized, but the excitement surrounding June's study caused Sangamo's stock to soar to nearly $25 per share, its highest point since going public nearly 15 years earlier.
Unfortunately for investors, June's discovery wasn't exciting enough for Sangamo partners Biogen (NASDAQ: BIIB) and Shire (NASDAQ: SHPG). In 2015, Biogen announced a delay to its beta-thalassemia and sickle-cell disease treatment program with Sangamo. And then Shire, a Sangamo collaboration partner since 2012, walked away from Sangamo's hemophilia program.
The one-two punch derailed Sangamo's stock rally, with shares continuing to tumble until they reached roughly $3 in December 2016.
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A new era emerges
Following the sharp sell-off in Sangamo's shares, Lanphier agreed to step down as Sangamo's CEO in June 2016. In his place, Sangamo's board of directors hired Sandy Macrae, a GlaxoSmithKline (NYSE: GSK) veteran who had most recently been the global medical officer for Takeda Pharmaceuticals.
Macrae didn't waste any time making changes. To prepare Sangamo for new ZFN trials that were planned in humans, he hired Edward R. Conner as senior vice president and chief medical officer in December 2016.
A Genentech alumnus, Conner was previously vice president of clinical science at Ultragenyx Pharmaceutical Inc. (NASDAQ: RARE), a biotech that has successfully developed therapies for rare and ultrarare diseases. Prior to that, he was senior medical director at BioMarin Pharmaceutical Inc. (NASDAQ: BMRN), another biotech company that's successfully developed drugs for rare diseases.
Macrae followed up that key hire in January 2017 with a decision to change the company's name from Sangamo BioSciences to Sangamo Therapeutics. Also in January, Sangamo reported that the Food and Drug Administration cleared it to begin a study in hemophilia A, and granted an orphan designation to its treatment for mucopolysaccharidosis I (MPS I), a rare pediatric disorder. Orphan designation doesn't guarantee a therapy will succeed, but it provides additional incentives that can make therapies more profitable if they do eventually win FDA approval.
Throughout the remainder of 2017, Sangamo reported a seemingly continuous stream of good news. Macrae hired a new chief financial officer away from Novartis. The company's mucopolysaccharidosis II (MPS II) therapy also received orphan designation. Pfizer (NYSE: PFE) licensed its hemophilia A drug. It landed FDA fast-track designation in MPS I, MPS II, and hemophilia A. And it dosed its first hemophilia A and MPS II patients.
MPS I and MPS II are genetic disorders caused by an inability to create enough of the enzyme responsible for breaking down glycosaminoglycans (GAGs), complex sugars that if not broken down can build up cells and eventually cause cell, tissue, and organ damage. Hemophilia A is a genetic disorder characterized by missing or defective factor VIII clotting protein.
What's next for Sangamo
For Sangamo to transition from clinical-stage to commercial-stage biotech, it will need to demonstrate that ZFN gene editing is both effective and safe in humans. Investors should begin to find out the answers to those questions soon, though, because Sangamo is expected to begin unveiling MPS II data and hemophilia A data in 2018.
In addition to those milestones, Sangamo's plans include initiating human trials in beta-thalassemia, sickle-cell disease, and -- depending on preclinical data -- Fabry disease.
The company could also begin to make progress soon in two new collaborations with Pfizer and Gilead Sciences (NASDAQ: GILD). In January 2018, Pfizer expanded its existing relationship to include the development of ZFN approaches for the degenerative neurological diseases amyotrophic lateral sclerosis (ALS) and frontotemporal lobar degeneration (FTLD). And in February 2018, Gilead Sciences announced it will work with Sangamo on ZFN gene-editing approaches for cancer treatment.
Is it a good idea to invest in Sangamo?
A lot is going on at Sangamo Therapeutics right now that should have investors excited, but it's probably wise to keep at least some of that optimism in check until trial results confirm that ZFN approaches are effective and safe in humans.
There's little debate that ZFN gene editing has game-changing potential, but it's not the only gene-editing approach being developed by biopharmaceutical companies. Competitors are also working on clustered regularly interspaced short palindromic repeats (CRISPR), and transcription activator-like effector nucleases (TALEN); those approaches could wind up being better than ZFN.
Nevertheless, Sangamo has the most advanced gene-editing technique, and plenty of upcoming catalysts that could cause its shares to pop or drop. The make-it-or-break-it nature of these catalysts, however, means the stock is risky: If the company's latest ZFN trials fail, its shares could lose a significant amount of their value. Therefore, Sangamo Therapeutics is best suited for aggressive growth investors who can afford to lose most of their money if the company fails. Investors with a lower penchant for risk might be best-served focusing on other investment ideas until Sangamo's ZFNs win the regulatory nod of approval.
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Todd Campbell owns shares of Gilead Sciences and Pfizer. His clients may have positions in the companies mentioned. The Motley Fool owns shares of and recommends Biogen and Gilead Sciences. The Motley Fool has the following options: short May 2018 $85 calls on Gilead Sciences. The Motley Fool recommends BioMarin Pharmaceutical. The Motley Fool has a disclosure policy.