Biotech-Stock Mailbag: Sangamo

Originally posted on 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) 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.

Moreover, there is no data yet to show that SB-509 has any significant ability to reduce or eliminate severe nerve pain in diabetic neuropathy patients, Aschoff writes. This is important because pain is the primary physical complaint of these patients.

Sangamo is running several larger, phase II studies of SB-509 right now, with results ready for release starting in the fourth quarter. Perhaps these studies will provide more definitive evidence of the drug's efficacy. Aschoff thinks the more likely scenario is that the phase II studies will be negative, based on the weak data presented so far. That's why he has a sell rating and a $5 price target on the stock. Let's also note that Sangamo rejiggered one of these phase II studies by doubling the number of patients enrolled and upping the frequency of dosing -- not necessarily a bullish sign.

It should be noted that other analysts are more optimistic about SB-509's chances, including Cantor Fitzgerald's Pamela Bassett. She has a buy rating and a $27 price target on the stock, and in particular, believes Sangamo is a prime candidate for a big-money development partner.

My take on all of this hews very close to where I was last August: I'm not ready to believe in zinc finger proteins, or SB-509 in particular, until there are some convincing data from phase II studies. Aschoff raises enough questions to make me want to withhold judgment for the next slug of data.

One more thing on Aschoff: Yes, I know he got in trouble a few years ago for impersonating a doctor to get information about a clinical trial. He was wrong, got caught and was punished. I don't believe that transgression tarnishes his reputation for life.

Since then, Aschoff has made some really good stock calls; he's also made some bad ones. In other words, he's just like everyone else in this industry. I choose to evaluate Aschoff's work not on a mistake he made a long time ago, but on his ability to make profitable stock calls today.

Next, an email from Garey H., who writes:
Mr. Feuerstein, is there a database that a biotech investor can search to estimate a drug approval date? I can currently go to and see the status of a drug's clinical phase. Once a company files a new-drug application, is there a database an investor can visit to see the filing? The FDA's Web site is pretty useless for this kind of information.

First off, Mr. Feuerstein is my father. Please, call me Adam.

Unfortunately, there is no widely available (and free) database or Web site that lists drug approval dates. That's why I put together my own list on a regular basis. The last one I posted can be found here.

If you're following a specific company and you know when the company filed its new-drug application or biologics license application with the Food and Drug Administration (typically because the company issued a press release about it), you can estimate an FDA approval date on your own.

A normal or standard drug review period is 10 months from the filing date. If the drug in question receives priority review, the FDA is supposed to issue an approval decision by six months from the filing date.

Companies with upcoming FDA approval decision dates include Vanda Pharmaceuticals ( VNDA), The Medicines Co. ( MDCO), Gilead Sciences ( GILD) and BioDelivery Sciences ( BDSI).

Onward. Bob A. writes:
I was very surprised when you mentioned that one company's clinical trial was being conducted in Russia. I thought all trials had to be conducted in the U.S. ... My real question concerns studies done in Russia. I have some friends in Russia and I would not want to use that country's economic system for a drug evaluation. I think phase II would go very well and phase III would be very problematic. In short, the data would lead to bad investing decisions regardless of the drug's effectiveness. ...

Therefore, when you report on a drug going into or having a successful phase II or phase III test would you please also mention where the study is being conducted? To me, this is important information, as I would expect more successful phase II tests and fewer successful phase III tests from Russia.

Bob's email was longer, but I excerpted his main points. His concern about the quality of clinical trials conducted in Russia (or other "non-Western" countries like India, for that matter) is a valid one. Knowing the provenance of clinical data for any drug candidate you're evaluating as a potential investor should be a regular part of your due diligence routine. I wouldn't say it's priority No. 1, but it's good information to have.

I don't have a jingoistic bone in my body, but I do believe, on average, that the conduct of clinical trials run in the U.S. and Western Europe is more reliable than those conducted in Russia or India or some other developing part of the world.

This doesn't mean that all clinical data collected in the U.S. are infallible; heck, there are plenty of bad studies done right here. Rightly or wrongly, however, investors do look askance at companies that conduct entire clinical trials in developing countries because they believe the risk is greater that data collected there may be faulty, unreliable or otherwise not reproducible when follow-up studies are performed in the U.S. or Western Europe.

Cell Therapeutics ( CTIC) is a good example of a company that blew up in part because it funded a poorly run clinical trial in Russia. (Its cancer drug, Xyotax, probably would have failed even if a study was run here, but doing all the work in Russia didn't help matters at all.)

Medivation ( MDVN) has presented some very positive phase II clinical data on an Alzheimer's drug candidate, Dimebon, but because the study was conducted entirely in Russia (the drug is of Russian origin, too) many investors are very skeptical.

On the other hand, let's not forget that when Abraxis BioScience ( ABII) was developing its breast cancer drug Abraxane, one of the key tenets of the short-seller's story was that the Abraxane phase III data wouldn't pass muster with the FDA because it was collected entirely in Russia. It turned out the FDA had no issues at all with a Russian study and the agency approved the drug.

We operate in a global economy, which for drug companies has meant moving an increasing percentage of their drug development to places like Russia or India where it is easier to enroll patients or where costs are lower. New international standards like the so-called ICH-GCP guidelines are being adopted globally to ensure that the reliability of data collected is the same in Russia as it is in New York.

So what's a biotech investor to do about all of this? I'd be aware of where your favorite biotech firm is conducting its clinical trials. If the answer is Turkmenistan, then be a bit concerned and ask a lot of follow-up questions. If the answer is Turkmenistan, Germany, France, the U.S., Canada, Brazil and Korea, among many other countries, then I wouldn't worry so much.

Finally, I need to correct a mistake in my assessment of Peregrine Pharmaceuticals ( PPHM) in last week's Mailbag. Referring to the bavituximab breast cancer study, I said that the partial tumor responses observed in five of 11 patients were not yet substantial enough to meet RECIST standards.

In fact, those partial responses were measured using RECIST criteria; I misinterpreted Peregrine's press release. Thanks to Peregrine's PR folks for pointing out my error.

Adam Feuerstein writes regularly for In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.

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