Updated with stock price.

RICHMOND, Calif. ( TheStreet) -- Sangamo Biosciences' ( SGMO) experimental drug SB-509 failed to restore the health and function of damaged leg nerves in patients with severe diabetic neuropathy, according to results from a mid-stage study released Monday.

Due to the negative results from the study, Sangamo said it will halt further clinical development of SB-509 and focus instead on other pipeline drugs, including a gene therapy for HIV.

Shares of Sangamo were down $1.59, or 36%, to $2.76 in Monday pre-market trading. The stock closed Friday at $4.35.

The failure of SB-509 is a setback for Sangamo and its so-called "zinc finger" drug technology, which the company has been developing for years on its own. SB-509 is a protein -- or "zinc finger" -- 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.

In the phase IIb study, SB-509 treatment failed to demonstrate statistically significant improvements from baseline compared with placebo at 180 days in two key measures of nerve regeneration and function -- sural nerve conduction velocity (sNCV) or neuropathy impairment score in the lower limb (NIS-LL). The study enrolled 150 patients with severe diabetic neuropathy.

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 like Pfizer's ( PFE) Lyrica or Eli Lilly's ( LLY) Cymbalta, none of which address the root problem of nerve damage or offer a way to reverse it.

Previous studies showed Sangamo's SB-509 improved nerve fiber density and nerve fiber health, but these biologic measurements did not translate into significant or meaningful improvements in the "real world" clinical symptoms of diabetic neuropathy, particularly in patients with mild to moderate forms of the disease.

Sangamo hoped to show more robust results in this current trial by restricting enrollment to patients with more severe nerve damage from diabetic neuropathy.

Last month, Sangamo released results from a early-stage study of a gene therapy for HIV.

--Written by Adam Feuerstein in Boston.

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