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It's time to jump on the Biotech bandwagon...
Sangamo Biosciences, Inc. has the midas touch when it comes to regulating gene expressions!
by Siu-Yee Ng
Back in 1991, the biotech industry promised breakthroughs that sent shares soaring almost 150%. But this enthusiasm didn't last. By the first five months of 1992, the sector had lost 40% of its value.
 What can we expect from the recent biotech surge? The NASDAQ Biotech Index was up over 100% last year and soaring another 60% so far this year. The mapping of the human genome and promises for cures for everything from cancer to aids have fueled investor's interest.
Unlike 1991, major players like Amgen (AMGN-NASDAQ), Biogen (BGEN-NASDAQ), and Genzyme (GENZ-NASDAQ) are generating profits and have drugs on the market and in the pipeline. Many of the companies have grown up since 1991 and for those infants trying to bring products to market, they are seek financing from the pharmaceutical industry and from the private and public sector.
We saw enormous gains for the biotech companies that debuted so far this year. Sequenom (SQNM-NASDAQ) soared 205% on the first day, Diversa (DVSA-NASDAQ) climbed 212% and Antigenics (ATGN-NASDAQ) gained 241%. Biotech companies are taking advantage of this hot sector and are filing to go public. Last year's hype for Internet IPOs generated many filings - but some not worth looking at. We'll see the same this year for the biotech sector - many filings but some poor offerings. It's imperative to look for a strong management team, a pipeline of products, strong scientific talent, patents, and a strong outlook for profits.
I just returned from a genome conference in San Francisco, where mostly private biotech companies were seeking funding. These are truly start-up companies - with many that only have a platform and innovative idea. But out of the many that presented there are bound to be a few that will be the next Amgen or Biogen. I'll keep you posted on any new developments.
(In the meantime, I will be speaking at the Annual Cutting Edge Biotech Symposium in August. I'll give you the scoop on what we can expect from the Biotech IPO market and what hot IPOs are in the pipeline. Call Agora Conferences at (800) 926-6575 to register.)
Bio 101
Deoxyribonucleic acid, or DNA, is present in all living cells and is responsible for determining the inherited characteristics of all living organisms. DNA is arranged on chromosomes in individual units called genes. Genes encode proteins, which are assembled through the processes of transcription, whereby DNA is transcribed into ribonucleic acid, or RNA, and translation, whereby RNA is translated into protein. DNA, RNA, and proteins represent a large percentage of the targets for pharmaceutical drug discovery.
The human body is composed of specialized cells that perform different functions and are thus organized into tissues and organs. All cells in the human body contain the same set of genes. It is believed, however, that only about 10% of these genes are activated, or expressed, in an individual human cell. Genes are regulated in response to a wide variety of stimuli and developmental signals. Different sets of genes are expressed in distinct cell types. It is this pattern of gene expression that determines the structure, biological function and health of all cells, tissues and organisms. Aberrant gene expression can lead to disease.
DNA binding proteins called transcription factors controls the regulation of gene expression. A transcription factor regulates gene expression by recognizing and binding to a specific DNA sequence associated with a particular gene and by causing the activation or repression of that gene. In virtually all higher organisms, transcription factors consist of two components: DNA binding domain that recognizes a specific DNA sequence and thereby directs the transcription factor to the proper chromosomal location; and a functional domain that determines whether the gene is activated or repressed.
Mapping the Human Genome
Over the past decade, genomics research has produced a significant quantity of information on the chromosomal location, sequence and structure of thousands of genes. The human genome may contain upwards of 140,000 unique genes. The challenge facing the pharmaceutical and other life science industries is how to derive medically and commercially valuable knowledge about the function of these genes from this large accumulation of new genomic information.
The delivery of the entire human DNA sequence, with its bounty of new genes and potential drug discovery targets, simultaneously poses a competitive challenge and significant commercial opportunity to every pharmaceutical company. They'll need to accelerate the identification of novel drug targets from thousands of newly discovered genes whose functions are unknown, filter through the hundreds of potential drug targets to confirm those for which proprietary drugs may be successfully developed, increase the accuracy and efficiency of compound screening, the process by which pharmaceutical researchers screen large libraries of chemical compounds to identify those which have therapeutic activity, and discover new therapeutics that can control disease through the regulation of gene expression.
Digging for dirt
The genomics revolution poses a similar set of challenges and opportunities to agricultural biotechnology researchers, such as the identification of novel agrochemical targets among thousands of newly discovered genes, the assessment of which targets may be commercially viable and the efficient development of agrochemicals and crops optimized for yield. In another application of genomics research, bacteria, yeast and plants may be used for the biological production of industrial chemicals.
Sangamo BioSciences, Inc. (SGMO-NASDAQ) picked the right time for an IPO. The company intends to develop its Universal Gene Recognition technology platform for application in pharmaceutical discovery, human therapeutics, DNA diagnostics, and agricultural and industrial biotechnology. Sangamo develops novel transcription factors for the regulation of gene expression.
Its Universal Gene Recognition technology platform enables the engineering of a class of transcription factors known as zinc finger DNA binding proteins, or ZFPs. By engineering ZFPs, Sangamo can selectively bind to and regulate a target gene, thereby creating ZFP transcription factors that can control gene expression and, consequently, cell function.
To date, Sangamo have engineered hundreds of ZFP transcription factors and have tested their ability to bind to their target sequences and to function in cell-based models. In similar models, Sangamo have also demonstrated the ability of ZFP transcription factors to regulate a limited number of commercially important genes.
Presenting the platform
Sangamo's Universal Gene Recognition platform is a proprietary technology for the regulation of gene expression that is enabled by the engineering of a class of transcription factors called zinc finger DNA binding proteins, or ZFPs.
Consistent with the two-domain structure, Sangamo takes a modular approach to the design of ZFP transcription factors, each of which includes a DNA recognition domain and a functional domain. The recognition domain is composed of one or more ZFPs. Each ZFP recognizes and binds to a three base pair sequence of DNA. Multiple ZFPs can be linked together to recognize longer stretches of DNA thereby increasing their specificity.
By modifying those portions of a ZFP that interact with DNA, Sangamo can create new ZFPs capable of recognizing DNA sequences in virtually any gene whose sequence is known.
The ZFP DNA recognition domain is coupled to a functional domain, which causes the ZFP transcription factor to control or regulate the gene in a desired manner. For instance, an activation domain can cause a target gene to be turned on. Alternatively, a repression domain can cause the gene to be turned off. Similarly, a detection domain could be used to identify or detect the target DNA sequence in a DNA diagnostic test. It is also possible to link the ZFP transcription factor with a molecular switch that permits a target gene to be temporarily activated or repressed. This conditional regulation of a gene allows the effects of gene expression to be controlled in a reversible fashion.
To regulate a target gene, the ZFP transcription factor must be delivered to a target cell. Sangamo have licensed gene transfer technology from Targeted Genetics, Inc. for use with its Universal GeneTools in pharmaceutical discovery.
To date, Sangamo have generated hundreds of ZFPs and have tested their affinity, or tightness of binding, to their DNA target, and specificity, or preference for their intended DNA target. The company have developed software and standardized methods for the assembly of ZFPs capable of binding to a wide spectrum of DNA sequences. Sangamo have linked ZFPs to functional domains to create ZFP transcription factors and have demonstrated in cell-based models their ability to regulate commercially important genes. Sangamo have also shown that engineered ZFPs can detect single-base changes in clinically interesting gene targets.
Among the advantages of Sangamo's ZFP transcription factor-based approach to gene regulation are: ZFP transcription factors normally and naturally regulate gene expression in the cells of virtually all higher organisms; ZFPs can be designed to recognize unique DNA sequences resulting in the ability to recognize a single gene within the entire genome; ZFP transcription factors can activate or repress target genes, enhancing their versatility; ZFP transcription factors can be used to regulate gene expression in multiple organisms including humans, animals, plants, microbes and viruses; and ZFP transcription factors can themselves be "turned on" and "turned off" with molecular switches, allowing conditional and reversible regulation of a target gene.
Forming alliances
To establish Universal Gene Recognition as a broadly-used technology platform in life science industries, and to fund internal research and development activities, the company have established and will continue to pursue collaborations with selected pharmaceutical and biotechnology companies.
Sangamo have signed Universal GeneTools agreements with 17 pharmaceutical or biotechnology companies including Pfizer Inc., SmithKline Beecham plc, Millennium Pharmaceuticals, Inc., AstraZeneca PLC, Schering AG, Bayer Corporation, Glaxo Wellcome plc, DuPont Pharmaceuticals Company, Japan Tobacco Inc., F. Hoffmann-La Roche Ltd., Immunex Corporation, Pharmacia & Upjohn Company, Genset SA, Warner-Lambert Company, Merck KGaA, Zaiya Incorporated and Johnson & Johnson.
Sangamo have also entered into a strategic partnership with Edwards LifeScience, Inc., formerly the CardioVascular Group of Baxter Healthcare Corporation, for the development and commercialization of ZFP-Therapeutics in cardiovascular and peripheral vascular diseases.
Future play
Sangamo began operations in 1995 and are at an early stage of development. Losses continue to mount and its revenues have been limited to federal government research grants and Universal GeneTools collaborators and a strategic partner. Research and Development is not cheap so expect losses to continue.
Revenues are increasing which is a good sign. Total revenues consist of revenues from collaboration agreements and federal government research grants. Revenues from Sangamo's Universal GeneTools agreements were $1.0 million in 1999, compared with $150,000 during 1998, an increase of $850,000. The increase in 1999 was principally attributable to revenues recognized from collaboration agreements signed since the third quarter of 1998.
Federal government research grant revenues were $1.2 million in 1999, compared to $1.9 million in 1998, a decrease of $706,000. The decrease in 1999 was principally due to an increased focus on Universal GeneTools collaborations and strategic partners in 1999 as some existing federal research government grants ended.
Buyers and sellers
Sangamo began marketing its Universal GeneTools products to the pharmaceutical and biotechnology industry in 1998. Its Universal GeneTools business is based upon the delivery of an engineered ZFP transcription factor which is capable of regulating the expression of a gene for which it is specifically designed and targeted.
Sangamo's collaborator provides the gene target they wish to study and the company designs and delivers at least two ZFP transcription factors designed specifically for that collaborator's gene target. Sangamo have not licensed any intellectual property rights to its current Universal GeneTools collaborators.
Risky business
Playing the biotechnology does come with risk. Like all other technological breakthroughs Sangamo's technology may not be used or accepted by the industry. Some of Sangamo's Universal GeneTools collaborators have been able to confirm the potential utility of its gene regulation technology. Two of the company's collaborators, however, have not yet been able to regulate gene expression using Sangamo's technology. These collaborators are continuing to evaluate the technology. Most of the company's collaborators have not yet started testing or have not yet generated the final results of their testing.
Because this technology is new there can be no assurance that the ZFP transcription factors that Sangamo have generated will function as intended or that ZFP transcription factors engineered in the future for other collaborators or strategic partners will function as intended. But that's the case with all biotech companies with products in the pipeline. The payoff is enormous if all goes well. Another plus for this company, that the management team has a lot of experience in the industry.
Thumbs up!
The founder has served as President, CEO and as a member of the board of directors since inception. He has eighteen years of experience in the pharmaceutical and biotechnology industry. He held various positions at Somatix Therapy Corporation, a gene therapy company, including Executive Vice President, Commercial Development and Chief Financial Officer. Prior to Somatix, he was President and CEO of BioGrowth, Inc., a biotechnology company that merged with Celtrix Laboratories to form Celtrix Pharmaceuticals, Inc. in 1991. He has also worked at Biotherapeutics, Inc, Synergen Inc and Eli Lilly.
The Vice President of Research served since November 1997. Prior to joining the Sangamo team, he served as Director of Cell Biology at Tularik, Inc., a pharmaceutical company focusing on gene regulating drugs. He was also Director of Transcriptional Research at Oncogene Science, Inc., a pharmaceutical company, where he led Oncogene's research efforts in the development of mammalian cell-based assays for gene transcription and the automation of these assays for selection of therapeutic targets and compounds.
The Vice President of Corporate Development served since December 1997 and since joining Sangamo has had operating responsibility for its licensing, intellectual property and business planning activities. He has also served as Senior Director of Corporate Development at Sangamo. He was also a former Director for Commercial Development at Somatix Therapy Corporation, where he was responsible for Somatix's strategic business planning activities while also serving as Project Team Leader of Oncology.
Shawn K. Johnson has served as Director of Finance since December 1997. From July 1995 to October 1997, Mr. Johnson was Director of Finance at Neurobiological Technologies, Inc., a neuroscience company developing drugs. From July 1993 to June 1995, he managed various accounting functions for Glycomed, Inc., a pharmaceutical company. Prior to Glycomed, Mr. Johnson was the Controller for Cognitive Systems, Inc., a software technology company. He holds an M.B.A. from the University of California, Berkeley and a B.S. in accounting from City University in Bellevue, Washington.
The Director of Commercial Development since July 1998 and has primary responsibility for management of our Universal GeneTools business. Prior to joining Sangamo, Mr. Rhodes served in a variety of capacities at Incyte Pharmaceuticals, Inc., a genomic database and data management software company, from March 1994 to July 1998. He initially served as part of the team responsible for expansion of Incyte's high throughput sequencing capabilities and later worked in the business development group where his primary focus was the evaluation and acquisition of new technologies. From 1991 to 1994, Mr. Rhodes directed the molecular biology group at Anergen, Inc., a biotechnology company focusing on treatment of autoimmune disease and prior to that he was with BioGrowth, Inc., from 1989 to 1991 and Triton BioSciences, a biotechnology company, as a molecular biologist from 1987 to 1989. Mr. Rhodes received a B.S. in microbiology and immunology from the University of California, Berkeley.
The Director of Delivery Technology was formerly employed by Acacia Biosciences, by Somatix Therapy Corporation and by BioGrowth Inc.
Not only is the management team strong but the directors offer much experience as well. Directors include a co-inventor of recombinant DNA technology who is also a founder of Genentech, Inc., a biopharmaceutical company; a CEO and a Director of Epoch Pharmaceuticals, Inc., a biomedical company; a senior partner at the law firm of Brobeck, Phleger & Harrison LLP; a co-founder of Chiron Corporation, a biopharmaceutical, vaccine and blood testing company; a President of Knowledge Kids Enterprises, Inc. with 15 years of experience in the corporate legal representation of high technology firms and venture capital partnerships.
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