The State of Gene Therapy in a Biogen Idec World: Sangamo, Bluebird and Acceleron

As part of my 2014 predictions, I argued gene therapy would get hot and investor interest would turn toward the monogenic programs at Sangamo Biosciences (SGMO). The partnership announced on Jan. 9 between Biogen Idec (BIIB) and Sangamo confirmed my prediction to a certain extent, albeit sooner in the year than I expected.

Let's discuss what the Biogen partnership means for Sangamo moving forward, and discuss the implications for other gene therapy stocks like Bluebird  (BLUE) and Acceleron (XLRN)?

The partnership covers two Sangamo programs: sickle cell disease (SCD) and beta-thalassemia (BT). Sangamo will receive a $20 million upfront payment and is eligible for just about $300 million in future milestones. While it is not explicitly stated, $15 million of those milestones appear to be related to the start of a phase I trial. Sangamo will receive double-digit royalties on sales and retains the right to co-promote in the U.S., assuming drug approval, of course.

Summed up, the new partnership is a nice entry into the gene therapy business for Biogen and continued validation of the Sangamo monogenic disease pipeline.

Sangamo shares are up 46% since the Biogen deal was announced. Part of this move higher is fundamental -- Biogen now joins Shire as the second, high-quality partner to show interest in Sangamo's gene therapy technology platform. Short covering is likely playing a role, too.

Bluebird shares also moved higher on the Sangamo-Biogen news. This makes sense given Bluebird is another small-cap gene therapy developer with wholly owned assets. Biogen deciding to invest in the gene therapy field is good for all the gene therapy stocks. Of course, Bluebird has a competing BT program that was essentially not chosen by Biogen. Does this mean Biogen looked over the Bluebird compound and found it inferior? Or, is Bluebird waiting to get proof-of-concept clinical data in hand, which could increase the value of its compound and demand for a deal of its own?

I don't know the answers to these questions, but at the very least, Bluebird will now have to compete not only with Sangamo but also the clinical and commercial expertise of Biogen. I certainly understand why Bluebird traded higher but the Sangamo-Biogen deal wasn't a purely positive read through.

While Sangamo and Bluebird race to get a BT gene therapy to market, Acceleron is developing a BT drug (partnered with Celgene (CELG)) in phase II testing. The big difference between a gene therapy and a drug for BT is the former has the potential to cure while the latter will only treat symptoms.

A cure is preferred, of course, but Acceleron has clinical data showing its drug having an effect, while neither Sangamo and Bluebird have validated their respective gene therapy approaches clinically. [On Wednesday night, Acceleron sold 2.4 million shares of common stock at $50 per share, or a 12% discount to market price.]

All in all, the partnership is clearly positive for Sangamo and Biogen. It validates the approach but still needs the all-important clinical proof of concept. It also plays into one of my 2014 themes, which is the growing interest in gene therapy. The net effect on Bluebird and Acceleron is less clear. The interest in gene therapy is positive but having a competitor with a quality partner is less so. Acceleron has the advantage of being further along but cannot offer a cure (assuming all goes well with the gene therapies.) Even if they completely lose out in the BT opportunity, however, Acceleron's drug has enough shots on goals in other diseases that the ultimate effect should be minimal.

Sobek has no position in any stocks mentioned in this column.

David Sobek has been writing on biotech for a number of years through various outlets with a general focus on small cap oncology and antibiotics companies. He received his PhD in political science from Pennsylvnia State Univeristy in 2003 and a BA in international relations from The College of William and Mary in 1997.

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