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Sangamo Dropping on Diabetic Drug Failure


Shares of the biotech climbed over the past year on hope for an HIV treatment. Now the company is scrapping a drug that was farther along in development.

Sangamo BioSciences (SGMO) rose over the past year on hope for an early-stage experimental HIV treatment. Today the stock is selling off as the company's lead drug candidate -- a medicine to help repair nerve damage in diabetics -- failed in a study.

The company is scrapping its diabetes drug program to focus on other products in the pipeline, including the HIV therapy.

Shares of Sangamo fell 25% to $3.28 in early trading Monday. The stock traded above $8 in April on excitement over the HIV program. Following the rise, the stock has been falling since Sangamo announced positive results for an HIV clinical trial. (See Sangamo Drops After Positive HIV Drug Study.)

But the company saw a strong market potential for diabetics, too. It's a bad sign any time a drug developer has to kill a lead product candidate.

"We are obviously disappointed," CEO Edward Lanphier told investors and analysts on a conference call Monday morning. He promised to focus the company's attention and resources on other drugs that are in earlier stages of development.

The condition Sangamo was trying to tackle with the drug, SB-509, is known as diabetic neuropothy, "a complex disease," Lanphier said. The drug worked no better than a placebo in a trial of 170 patients. The study was in the second of three phases of trials usually necessary for US approval.

Lanphier tried to put the best spin on the failure. He said he hopes to end the year with $85 million in cash and marketable securities, which he called a strong financial position to move forward with the studies of other drugs.

Despite the excitement over the company's HIV treatment -- a drug aimed at eliminating the need for a daily antiviral regimen -- the product is in the very early stages of development. (See Sangamo Touts Cure for HIV.)

And while the HIV drug and early studies of the diabetic neuropathy medicine seemed to validate Sangamo's technology, the trial failure raises questions about it. Sangamo is testing a proprietary gene-targeting technology, engineered zinc finger proteins.

SB-509 was designed to restore nerves and promote growth of blood vessels. Sangamo was studying the drug for other conditions but it pinned its hopes on the market for diabetics, which it says is growing. According to Sangamo, up to 70% of Americans with diabetes have some form of neuropathy. There are 1.6 million new cases a year of diabetes diagnosed in people aged 20 years or older, the company says.

Twitter: @brettchase
No positions in stocks mentioned.
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