With a frenzy of popping corks and champagne toasts, Sangamo bags French biotech TxCell as Europe’s CAR T-cell science expanding into autoimmune disease. SGMA is a buy.

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The News:

Sangamo Therapeutics Inc. (Richmond CA) has acquired TxCell SA (Valbonne FRA) with a view toward utilizing its chimeric antigen receptor (CAR) technology to prevent organ transplant rejections and treat autoimmune disease. Sangamo is known for bringing the first in-vivo gene therapy to the market.

The company entered into an agreement to purchase TxCell for €72 million. Sangamo plans to combine its zinc finger nuclease gene editing technology with the French biotech’s CAR T-cell therapy. Sangamo hopes to complete the acquisition of TxCell by the end of this year, according to Labiotech.

CAR T-cell therapies are made by taking a patient’s white blood cells and genetically engineering them to recognize cancer cells. The cells are then reintroduced into the patient, where they attack and kill cancer cells. While most CAR T-cell therapy focused biotechs are combating cancer, TxCell is going one step further by developing CAR therapies for autoimmune diseases using a different type of CAR T-cell. Usually, CAR therapies use killer T cells, which attack and kill cancer cells or damaged and diseased cells. TxCell uses a different cell type, called regulatory T cells or CAR-Treg, which protect their target from being attacked by the immune system.

The main attribute of TxCell’s approach is that it suppresses unwanted immune responses in specific tissues, which the company demonstrated in preclinical studies. Commonly used immunosuppressant drugs, on the other hand, dampen the immune system across the entire body. Sangamo plans to apply for a European trial authorization to test TxCell’s technology in solid organ transplant patients and start a Phase 1/2 trial next year. Moreover, Sangamo ultimately hopes to use its gene-editing technology to create CAR-T therapies from both patient and donor regulatory T cells.

Autoimmune diseases affect approximately 5-10% of the population in Europe and North America, according to Labiotech and constitute a major treatment market. For example, AbbVie Inc.’s (North Chicago) Humira, the world’s best-selling drug, is approved in half a dozen autoimmune diseases, including psoriatic and rheumatoid arthritis and Crohn’s disease, and is generating more than $15 billion in annual revenue. By helping the body suppress its own immune response, TxCell’s CAR-Treg technology could eliminate the need for lifelong treatments for autoimmune diseases.

Steve’s Take:

Talk about flying under the radar.

To recap, Sangamo will pay €72 million ($84.31 million), or €2.58 per share, for TxCell. That’s a premium of 277% to the closing price of TxCell prior to news of the deal. It expects to complete the deal later this year, although I could almost hear the corks popping all the way from  the little village of Valbonne, about 10 kilometers from Cannes. The deal gives Sangamo a technology that modifies regulatory T cells (or CAR-Tregs)–a type of immune cell–to try to treat immunological diseases.

The cell therapies approved thus far by the US Food and Drug Administration–known as CAR T-cell treatments–use a different type of T cell and target primarily blood cancers. TxCell’s approach hasn’t yet been tested in humans, Xconomy reports, and the company didn’t have the cash to advance the technology on its own, CEO Stephane Boissel said in a statement.

“[It] would require expertise and financial resources that were impossible for us to get as a stand-alone business at a reasonable cost,” Boissel said.

Put simply, TxCell had just €4.4 million in cash on hand at the end of June and shares closed at €0.93 on Friday, July 20. The week prior, the company said in a statement it was working on “securing a longer-term financing solution, such as a strategic partnership and/or an equity offering.”

Sangamo is best known for using an unproven technology platform for engineering highly specific “zinc finger nucleases” (ZFNs) for therapeutic genome editing applications. ZFNs are a class of engineered DNA-binding proteins that facilitate targeted editing of the genome by creating double-strand breaks in DNA at user-specified locations. Sangamo’s focus has been to use ZFNs to try to treat diseases like hemophilia, beta thalassemia, and HIV.

More recently, Sangamo has been expanding its work into other disease areas as well, and is increasingly trying to use gene editing to enhance cell therapies. In February, for example, Gilead Sciences Inc. (Foster City CA) tapped Sangamo to try to use gene editing to develop next-gen, CAR-T treatments for solid cancers. Several analysts believe the two companies could produce 10 or more possible products in the collaboration if all goes well.

Bottom Line:

With the TxCell deal, Sangamo is now marking its attempt to implement a strategy similar to that used for solid cancers but for immunological illnesses such as multiple sclerosis and Crohn’s disease. Maybe even for Celiac disease?

The hope is that these therapies might provide long-lasting effects with a single treatment, thus amounting to a “cure.” Sangamo will also test a CART-Treg treatment as an immunosuppressant following a solid organ transplant and plans to begin a clinical trial in Europe next year testing CART-Tregs on transplant patients.

Steve's Take: I like small cap #Sangamo and believe it’s one of those companies flying under the market’s radar, but not for much longer. Click To Tweet

Compared to other acquisitions in the CAR-T space, the current deal for TxCell is not very large. Last year, for example, Gilead bought Kite Pharma Inc. (Los Angeles) for $11.9 billion. By introducing CAR-T into its pipeline, however, TxCell could turn out to be a great buy for Sangamo. Time will tell.

I like small cap Sangamo (with a market cap of $1.38 billion as of July 31) and believe it’s one of those companies flying under the market’s radar, but not for much longer. So do 6 of the 7 analysts who follow it. The mean consensus is “Outperform,” with an average 12-month target price of $27.50. With its closing price today (July 31) of $13.65, there’s a spread of 101% to the average target of $27.50 and 186% to the highest target of $39.00.

There’s no question Sangamo is a very risky bet. But there’s a heck of a lot of upside potential, and a piece of it would fit nicely into portfolios with a high-risk tolerant component.

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