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Biotech Stock Mailbag: Sangamo Biosciences

BOSTON ( TheStreet) -- I recently highlighted Sangamo Biosciences (SGMO - Get Report) as one of the top 10 biotech stock trades in the second half of 2010 because I perceived the pending results from a phase IIb study of SB-509 in diabetic neuropathy as a referendum on the company's zinc-finger drug technology platform.

Some readers took issue with that characterization, arguing that Sangamo and its zinc-finger technology -- which engineers custom proteins to turn disease-related genes on or off -- will not live or die based on the results from a single phase IIb study in diabetic neuropathy.

"Lest you think I'm a rabid cheerleader, let me say first that SB-509 will almost certainly fail," writes Eric B. "Your lack of insight is startling," he adds. "Zinc fingers are not drugs. The drug in the neuropathy trial are localized cells that have had their veg-f genes upregulated. The trial will determine if that is effective, not whether turning on and off genes via a zinc finger is a viable way of making drugs."

I didn't think my insight was so off base, but I do understand Eric's point. Sangamo is also developing zinc-finger "drugs" as potential therapies for hemophilia and HIV/AIDS -- the latter, especially, has garnered a lot of attention. So, Eric's right, Sangamo won't disappear if SB-509 fails to promote significant nerve growth in patients with diabetic neuropathy.

Other investors I've spoken to this week agree that the expectations around SB-509 are relatively low, so Sangamo's stock price may not take the 50% or higher haircut you'd typically see if the trial comes back negative. The more interesting Sangamo pipeline "drug" is SB-728 in HIV/AIDS, although it's also earlier stage and the clinical path forward is not entirely clear at this point.

By contrast, if the SB-509 phase IIb study is successful, Sangamo could advance into pivotal phase III trials relatively easily and also ignite the interests of potential partners. For that reason, I still view SB-509 and the upcoming phase IIb study as a very important event for Sangamo, while acknowledging the point made by Eric B. and others.

As was mentioned above, SB-509 is a protein custom engineered to turn on (or restore activity) in the gene for vascular endothelial growth factor. The so-called VEGF-A protein is responsible for nerve and blood vessel growth. If this sounds familiar, it's because Roche/Genentech's blockbuster cancer drug Avastin blocks the expression of VEGF as a way to prevent tumors from growing new blood vessels.

A high level of blood sugar that damages blood vessels feeding nerves is the root cause of diabetic neuropathy. Eventually, the damaged nerves lose function and even die, leading to tingling, numbness and pain. The only drugs approved for diabetic neuropathy today are painkillers and anti-depressants, none of which address the root problem of nerve damage or offer a way to reverse it.

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