“The Next 8,539% Biotech Breakout … Beginning April 26”

By Travis Johnson, Stock Gumshoe, April 13, 2010

Ah, a good old promise of biotech riches — I haven’t dug into one of these in ages, nothing beats the wild biotech stocks that can see their share price climb 200% (or fall 90%) on a single bit of news.

This tease is from Marc Lichtenfeld, whose biotech stuff we’ve looked at several times before for a variety of newsletters he’s associated with — this time the ad is for his First Access Research membership, “normally” $2,750 per year (on super-sale right now, naturally). I always get the multiple layers of these newsletters confused (there’s always a pricier version to buy if you want the very very very best ideas, of course), but it sounds like this is a step up from his regular Access newsletter that I’ve written about before.

If the name sounds familiar to Gumshoe readers, there’s a good reason — Lichtenfeld’s most aggressive ad that I’ve seen so far teased MELA Sciences (MELA) more than two years ago, and to his credit he was certainly on that story before other folks I saw and might have ridden it to better than a double (the stock got a high profile mention in Barron’s last summer, and has been touted by others as the developer of the “algorithm gun” more recently, but got a surprising “need more data” response from the FDA last month that clobbered the share price).

So in exchange for taking a flier on this newsletter, what fabulous undercover biotech stock will they tell you about today? Let’s see if we can’t figure it out without subscribing, eh? Clues, please!

“Beginning April 26, 2010… The Next 8,539% Biotech Breakout

“In the coming days, this CA-based micro-cap will release important Phase IIb data that could revolutionize genetic medicine.”

So that’s exciting, right? Some more details? Of course!

“Any day now, the company will announce results for a new genetic therapy that could create the single-biggest return of any investment I’ve ever found.

“The President of the Research Biotech Business Unit at an S&P 500 company calls this technology ‘the holy grail.’

“According to the UK Times, ‘…scientists predict that the technique could change the way… diseases are treated, making genetic therapies a routine part of medicine for the first time.'”

If anyone ever does find the real (assuming there is one) holy grail, I hope that they say their mission was the “holy grail of archeology.” And I hope that’s the last time we hear that term.

Some more details that might help pin down this particular stock?

“How This Tiny Company’s Market Cap Could Explode Tenfold!

“I’ve been tracking this play for months.

“And quite frankly, I’m not sure if I’ve ever come across a company with this much moneymaking potential…

“Thanks to this company’s unique technology, it has developed a therapy for treating nerve damage in diabetics – a painful affliction affecting 12.5 million people in the United States alone.

“Currently, no therapies like it exist. Meaning this $250 million company could conceivably corner a $2.5 BILLION market. And it could happen sooner than you think.

“This drug is in Phase IIb trials right now. We expect data in the second quarter of this year. That’s right. Any day now. And when it happens, that news alone could cause the stock to immediately double…”

“In the case of our tiny biotech, we’re expecting very good news. We’ve already seen results from Phase I testing showing that the drug was effective for 75% of participants with moderate to severe symptoms. And there were no safety issues. But more importantly….

“We have quotes from some patients testing the drug:

“48-year-old participant Sharon revealed, ‘…it’s helping. I have more energy. I like it… The nerve test showed improvement.’

“Bob, a 59-year-old participant, reported early on, ‘…I am increasing mass in my arms and legs.’”

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So who is it? Well, we throw that into the Thinkolator, and after quite a bit of sputtering and churning we get our answer out the other end … this must be:

Sangamo Biosciences (SGMO)

I’ve written about this stock before, following a Hot Stock Confidential teaser about a year ago (that promised “only” 1,100% gains — paltry compared to Lichtenfeld’s promise of 8,539%, though I’d settle for either myself), and it certainly is an interesting little “junior biotech” stock.

The clues match quite nicely — Sangamo is based in California, their most advanced compound is SB-509, which is in Phase IIb clinical trials right now for Diabetic Neuropathy, and at least that quote from Bob comes from a patient comment about an earlier SB-509 trial (though the name wasn’t really Bob, I don’t think — not unusual to switch them for “privacy”).

Their technology is called ZFN, for Zinc Finger Proteins, and it is a gene switching technology that does sound promising, at least to an idiot like myself who scraped through high school chemistry and biology with only a very basic level of comprehension. The quote from the Times is from this article, about two years old now, that describes the technology in more detail. And for a final little match on the clues, SGMO does have a current market cap of almost exactly $250 million.

As to whether it’s going to $2.5 billion, well, that I can’t help you with. Apparently Lichtenfeld is lining up this conference call, which includes the CEO, on April 26 — which is a bit surprising, because they release earnings on April 30 and usually CEOs are very cautious about making any public utterances anywhere near the earnings release date. Not that they’re actually going to have any earnings, of course, Sangamo has been losing money for years, and will continue losing money for at least a couple more years (absent any deals to sell or partner their drugs for upfront payments, of course). That said, they are in very nice shape financially, with about $80 million in cash (close to $2 per share), so they could keep losing money for a while at this pace and be just fine — and earnings are not exactly the best measure for a little biotech stock, if you insist on your companies being profitable you’re probably not lined up for the biotech and mining lottery tickets that so many investors crave.

Of course, if SB-509 makes it through this Phase II-b trial and is ready for phase III, the costs start to pile up as the size of the trials climbs in their effort to prove that the drug is safe (enough), and any effort to move the drug along for other applications as well (the II-b trial is for “moderate severity”, and they’re also studying it for “mild” and “severe” cases), and for other diseases (SB-509 is also in trials for ALS, Lou Gehrig’s disease — phase II results expected in the second half of this year), which means costs have every potential to escalate … which probably means that the company would be delighted to have a deep-pocketed partner to move the drug through the latter, most expensive stages before a hoped-for approval.

I’m far from being an expert on Sangamo or on the science behind their work, but given the platform of ZFN that they’re working on it does seem like any big moves to profitability would most likely come from partners who use their technology to advance other therapies — their own SB-509 is farther along than many drugs get, but it’s still in Phase II and things remain very uncertain, so if you’re interested in Sangamo you’re probably hoping either for a partnership to push forward these clinical programs, or a buyout from big pharma, or a series of licensing deals to use their ZFN technology in other areas. I lost a little bit of money in SGMO options last year, if memory serves, and for some reason the company just appeals to me — though I don’t own shares now, and of course I won’t trade in the stock during my three day blackout period after writing about them.

Lichtenfeld teases that there are three potential catalysts for this stock in the near future: the release of those IIb results; “news from a trusted source” that tells him that a partnership deal could be imminent; and he thinks the company could get a “takeover bid within the next 12 months.”

So … what do you think? Any genetic mavens out there who like Sangamo, or any of the many, many other small biotechs that are looking for the next hot drug? Let us know with a comment below.

And if you happen to be an early