Biotech-Stock Mailbag: Sangamo

Originally posted on RealMoney.com at 6:59 a.m. EDT

This week's Biotech Mailbag kicks off with an email from David V., who asks:

Would you comment on Sangamo BioSciences' (SGMO Quote) recent downturn, which was spurred by Brean Murray Carret analyst Jonathan Aschoff saying that the midstage trial to treat diabetic neuropathy is expected to fail?

I first wrote about Sangamo last August because the company had an interesting story to tell, even if there were scant clinical data to back it up. Sangamo is engineering protein "switches," called zinc fingers, that can turn genes on or off. It's similar to the work being conducted with RNA interference, or RNAi, with one big difference: RNAi can only turn genes off, while zinc finger proteins have the ability to switch genes off and on.

Sangamo's lead pipeline drug, SB-509, is being developed as a way to turn on a gene that will regenerate nerves in patients with diabetic neuropathy.

The stock was at $10 when I penned that piece last August. It then ran all the way to $19 in November before retreating to around $9 in March. Another surge pushed the stock back above $13 recently, but then Brean Murray's Aschoff initiated coverage of the stock with a sell rating in late May, and the stock is now back under $9. (Biotech: a beta lover's dream.)

I've read Aschoff's notes and believe he raises some important questions and concerns about the clinical data presented on SB-509 to date.

The only data we have on the drug come from a phase Ib study in 24 mild-to-moderate diabetic neuropathy patients. Updated results were presented at this week's American Diabetes Association meeting. Sangamo reported a statistically significant clinical benefit favoring SB-509 on two measures of nerve health -- the neuropathy impairment score in the lower limbs (NIS-LL) and quantitative sensory testing, or QST.

Aschoff points out that SB-509 failed to show a statistically significant benefit on two other important tests of nerve health, most significantly the nerve conduction velocity (NVC) test, which measures a nerve's ability to conduct electrical impulses.