Sangamo Therapeutics Stock Looks Attractive At $11

Sangamo Therapeutics (NASDAQ: SGMO), a biotechnology company that focuses on multiple areas in the genomic medicine space, including gene therapy, cell therapy, and in vivo genome editing, looks attractive at current levels of $11, after the recent correction of 30% year-to-date. The stock is still around 2x higher from levels of $6 it was at on March 23, 2020, when broader markets made a bottom due to the spread of Covid-19. This marks a slight outperformance compared to the S&P which has moved 85% since its March 2020 lows, with the resumption of economic activities as lockdowns are gradually lifted and vaccination programs have been initiated in multiple countries. This outperformance can primarily be attributed to developments around its pipeline, including European regulator supporting orphan designation for BIVV003, a drug in early clinical trials (in partnership with Sanofi) used for the treatment of sickle cell disease. Looking at a longer time period, SGMO stock is actually down 4% from levels seen toward the end of 2018.

The decline in stock price over the last two years or so can be attributed to unfavorable changes in the company’s P/S multiple. The company’s revenues have trended higher, rising 40% from $84.5 million in 2018 to $118.2 million in 2020. Note that the company doesn’t have any commercial product yet, and its revenues are derived by collaboration agreements with other pharmaceutical companies and research grants. While the company posted strong revenue growth over the recent years, it also issued more shares, resulting in a 38% jump in total shares outstanding. As such, on a per share basis, revenue grew a mere 2% from $0.87 in 2018 to $0.88 in 2020. The company surely has an interesting pipeline, as we discuss in the section below, and despite more collaboration agreements over the recent years, the company’s P/S multiple has contracted, especially over the last few months, from levels of 18x seen toward the end of 2020 to 12x currently. Our dashboard, ‘What Factors Drove -4% Change In Sangamo Stock between 2018 and now?‘, has the underlying numbers.

So what’s the likely trigger and timing for upside?

Sangamo has entered into collaboration agreements with multiple pharmaceutical companies, including Biogen, Kite, Sanofi, and Pfizer. The company’s pipeline includes:

1. SB-525, a gene therapy for the treatment of hemophilia A in collaboration with Pfizer.
2. ST-920, Sangamo’s wholly-owned gene therapy for the treatment of Fabry disease.
3. BIVV003, a cell therapy product for the treatment of sickle cell disease in collaboration with Sanofi
4. ST-400, another cell therapy product in collaboration with Sanofi for the treatment of transfusion dependent beta thalassemia.
5. TX200, Sangamo’s wholly-owned CAR-T (Chimeric Antigen Receptor T Cell) therapy for the treatment of a particular kidney transplant rejection, and
6. KITE-037, a CAR-T therapy for the treatment of cancers in collaboration with Kite Pharma, a wholly owned subsidiary of Gilead Lifesciences.

Sangamo’s gene and therapy programs are also subject to competition. For instance, BioMarin’s ValRox is expected to secure the approval before SB-525 for the treatment of hemophilia A, giving it an early mover advantage, and this has also weighed on SGMO’s stock price this year. However, after the recent drop of around 30% y-t-d, we believe SGMO stock now looks attractive. The company has provided preclinical evidence to back its gene editing programs, and if approved, some of the drugs, including SB-525, could potentially be blockbuster drugs. Looking ahead, Sangamo in the near term will rely primarily on collaboration agreements for its revenues and the focus remains on SB-525 in phase 3 clinical trials. The company’s average price estimate is $20 currently, implying a large 80% premium to the current market price of $11.