Top Picks 2019: Sangamo Therapeutics (SGMO)

01/11/2019 5:00 am EST

Focus: HEALTHCARE

Jay Silverman

Analyst, Medical Technology Stock Letter

Sangamo Therapeutics (SGMO) is the leader in gene editing, and an unappreciated leader in gene therapy as well; with many value drivers coming in 2019, the stock is our top speculative pick for the coming year, explains Jay Silverman, analyst with The Medical Technology Stock Letter.

The company has more in vivo gene editing studies underway than the entire gene editing universe combined, including the CRSPR companies.

A year ago in the first in vivo gene editing study in history, SGMO began treating adults with MPSII with SB-913. Management has always noted that once safety and efficacy was shown in the initial adult participants, it would discuss the results with the FDA and Safety Monitoring Committee (SMC) in order to allow younger patients to be given the novel gene editing treatment.

On the Q3:18 quarterly call, the company announced that adolescents aged 12-17 would begin to be enrolled. Less than 3 weeks later, SGMO has posted an update saying that children as young as 5 year olds are now being enrolled.

This is a clear signal that the regulators are in agreement on the company’s program, as permanently editing the genes of a child has potential risks involved — and the agency believes that the initial responses warrant taking such risks.

Moreover, if gene editing occurs at an early age, many of the neurological and physical symptoms of MPSII could be stopped well before the condition advances.

The clean safety of SGMO’s ZFN technology stands alone in the revolutionary world of gene editing, especially compared with potential off-target toxicities of other technologies (e.g., CRSPR, etc.).

When SGMO announced initial positive results in August, the stock dropped sharply because while delivering significant drops in GAG, they could not measure IDS levels with the available assay used at the time.

Since, then the company has been working on developing a new test to measure IDS levels that appear to be gobbled up by organs (e.g., liver) as soon as they are produced. Measurable IDS enzyme levels appear to be the gating factor in gaining the Street’s appreciation of this revolutionary and positive study.

In 2019, SGMO will emerge as the leader in gene editing as positive clinical data will validate both the platform and management’s ability to execute. In addition to clinical catalysts, there is strong potential for more collaborations (e.g., CNS/Immunology).

The stock is a favorite of ours for 2019 as either on its own and/or compared with other gene editing stocks, in our view, Sangamo is undervalued. The stock is a buy under $30 with a target price of $40.

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