Sangamo Biosciences, Inc.: Buy SGMO Calls Before the Breakout

Sangamo Biosciences, Inc. (NASDAQ:SGMO) is a healthcare company involved in clinical stage biopharmaceuticals. The company, backed by a market capitalization of a modest $1.16B is focusing on researching, developing, and commercialization of Zinc finger DNA-binding proteins for gene regulation and gene modification in the United States.

Sangamo is a relatively small player in the biopharmaceutical industry, but it has the potential to become one of the most-profitable biopharmaceutical players in the short to medium terms. For one, the company has a rich product pipeline that is filled with proprietary technology for which it has formed strong alliances (more on that in a bit).

Sangamo Biosciences In My Scope

Sangamo entered by field of vision last week when it started showing indications of a potential breakout. The stock chart below shows how the shares of Sangamo have traded within the last one year.

SGMO Chart

From the chart, you’ll notice that the shares of Sangamo have been channeling in the last nine months after the stock fell from its 52-Week high in March 2014. You will also notice that the channeling in the stock has keep it under a $17 ceiling resistance point as indicated by the red line. You will also observe that the stock now has a rising support level (Green line) that led it to touch $17.22 last Friday before it close the session with 1.29% gains at $16.94.

If the shares of Sangamo could break out above the $17 resistance point, we can optimistically expect the stock to record a rally that might push it up towards it 52-week high and beyond. However, a bearish outlook could make the case short trades against a rally above $17. Nonetheless, the following facts suggest that Sangamo has better chances of breaking out above $17 than breaking down below that mark.

Decent Quarterly Earnings Report

On February 10, Sangamo reported its fourth quarter (Q4, FY 2014) financial results.  Sangamo posted quarterly loss of $0.06 per share down from a loss of $0.13 per share to beat the consensus analyst estimate by $0.03. The company’s revenue surged by 117% year-over-year as it reported revenue of $15M from revenue of $6.9M from the same quarter in 2013. It might interest you to know that Sangamo doesn’t have any product in the market yet, its revenue currently comes in from collaborations and partnerships.

Going forward, Sangamo expects 2015 to be a profitable year as it expects its cash, cash equivalents and marketable securities to be about $180 million when 2015 ends. In addition, Sangamo expects revenue in the range of $60 and $70 million is 2015.

Strong Product Pipeline and Strategic Partnerships

Sangamo’s product pipeline contains 8 potential blockbusters in various stages of development and two candidates in phase II clinical trials. Sangamo’s top candidate is the SB-728, which is touted as a potential functional cure for HIV/AIDS. The drug is already in phase II trials where it is being tested for making CCR5 gene permanently resistant to HIV infection.

Additionally, the company has strong partnership from which it generates revenue through license fees and milestone payments. For instance, Sangamo has collaborative agreements with Biogen Idec, Dow AgroSciences, Sigma-Aldrich and Shire.

How to Trade SGMO Options

I am optimistic about the prospects of Sangamo Biosciences and I strongly believe that a breakout is imminent on the stock. I recommend SGMO call options and I think you’ll do well to buy the SGMO May 2015 16.000 call (SGMO150515C00016000) at an asking price of $2.90.

Photo: via photopin (license)

— Daily Option Alerts

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