It’s earnings season, and traders are focused closely on what companies say in their press release. Now, this gives companies a chance to show investors how they performed in the reported period, and any potential updates. That said, if a company exhibits potential strategic changes that could potentially benefit and help the company generate more revenue and income, and therefore, traders and investors may get long the stock. The opposite is true. That said, this was the case with Sangamo Therapeutics Inc (NASDAQ: SGMO).
On May 10, 2017, Sangamo Therapeutics reported its 1Q 2017 financial results and also announced that it was going to collaborate with Pfizer for Hemophilia A Gene therapy. This catalyst caused SGMO to rise over 60% today. That said, let’s take a look at the announcement before we look into its 1Q 2017 financial results.
Sangamo Therapeutics and Pfizer Collaboration
Sangamo and Pfizer announced an exclusive, global license and collaboration agreement for the development and commercialization of gene therapy programs that could potentially treat Hemophilia A. The terms of the collaboration agreement indicated that SGMO would receive $70M as an upfront payment from Pfizer. That said, Sangamo will now be responsible for conducting the SB-525, one of Sangamo’s lead product candidates, Phase I/II clinical study, as well as certain manufacturing activities.
Additionally, Pfizer would be financially and operationally responsible for any future research and development (R&D), manufacturing and commercialization activities for products. Now, in addition to the $70M in the form of an upfront payment, Sangamo could potentially receive up to $475M in milestone payments, which is comprised of up to $300M for the commercialization and development of SB-525 and a maximum of $175M for additional Hemophilia A gene therapy product candidates that might be developed under the agreement.
According to Sangamo Chief Executive Officer Dr. Sandy Macrae, “With a long-standing heritage in rare disease, including hemophilia, Pfizer is an ideal partner for our Hemophilia A program.”
Macrae added, “We believe Pfizer’s end-to-end gene therapy capabilities will enable comprehensive development and commercialization of SB-525, which could potentially benefit Hemophilia A patients around the world. This collaboration also marks an important milestone for Sangamo as we continue to make progress in the translation of our ground-breaking research into new genomic therapies to treat serious, genetically tractable diseases.”
This collaboration agreement overshadowed Sangamo’s 1Q 2017 financial results, and traders were more focused on this bit of news. However, you should still be mindful of how the company performed in the last quarter.
Sangamo 1Q 2017 Financial Results
Sangamo reported a consolidated net loss of $16.6M, or 23 cents per share, which was slightly more than its net loss for the same period in the prior fiscal year. Revenues came in at $3.4M, a decrease of $500K from its revenue in the same period in the 2016 fiscal year. The company spent less on R&D in the first quarter of 2017, in comparison to 1Q 2016, which was primarily attributed to the company’s completion of external GMP manufacturing expenses in connection to its 2017 clinical studies. However, general and administrative expenses came in at $7.3M, which was more than $5.4M for 1Q 2016.
What You Need to Know About SGMO
- SGMO announced a collaboration agreement with Pfizer, which could significantly benefit both parties. This was the primary catalyst that sent SGMO up over 60% today.
- SGMO has a 52-week low of $2.65 and a 52-week high of $7.60, and the stock closed just under 8% below its 52-week high today.
- Sangamo had a price-to-book ratio of 2.3, which was below the industry average of 6.4.
- The company had a trailing 12-month price-to-sales ratio of 15.8, while the industry average was 6.1.
- Sangamo is operating at a loss, and therefore, it does not have a price-to-earnings ratio, while the industry average is 58.4.
Take a look at SGMO on the daily chart below:
Sangamo had a positive catalyst, after the company announced a collaborative agreement with Pfizer. That said, SGMO would be receiving a $70M upfront payment from Pfizer, and it could receive up to $475M, if it achieves the specified milestones. The stock’s price-to-book ratio was well below the industry average, which may be an indication that it’s undervalued.
Traders may be looking at this as a mean-reversion strategy, as it may have an extended move. Additionally, the stock has a trailing 12-month price-to-sales ratio of 15.8, which is well above the industry average. Moreover, the company is operating at a loss, while the average biotech company has positive earnings, according to Morningstar.
Sangamo shares were up over 60% today, after the company announced a collaboration agreement with Pfizer. That in mind, bullish traders might believe it could continue to build its momentum, after more than doubling year to date. However, bearish traders might think this move is extended and due for a pullback. There are two sides to every story, and there are multiple reasons why one might want to get long the stock, and also short the stock, as outlined above.