Sigilon Therapeutics, Inc. (NASDAQ:SGTX) is a preclinical stage biotechnology company that is pioneering a new class of therapeutics and seeking to develop functional cures for patients with a wide range of diseases. The company's Shielded Living Therapeutics (SLTx) platform combines advanced cell engineering with cutting-edge innovations in cell differentiation and biocompatible materials, enabling its product candidates to provide a wide range of functions or therapeutic molecules that may be missing or dysfunctional in patients.

Business Overview

Sigilon's SLTx platform is comprised of two primary elements: the cells and the sphere. The company differentiates stem cells into the appropriate cell types, such as islet cells in the case of its diabetes program, which both sense and respond. Sigilon also engineers cells to express a therapeutic molecule of choice in a continuous manner, which it refers to as constitutive expression. The human cell lines are selected for each indication based on their safety, durability, scalability, functionality and engineerability. These cells are subsequently encapsulated in Sigilon's proprietary and biocompatible spheres.

The spheres are composed of an Afibromer outer layer, an alginate conjugated with a novel, proprietary small molecule, which was derived from 10 years of work in the MIT labs of Professors Robert Langer and Daniel Anderson. This work culminated in a series of patents and patent applications to which Sigilon obtained exclusive rights through its license agreement with MIT. The spheres are designed to prevent the generation of an immune response against the spheres encapsulating the cells while enabling nutrient influx and therapeutic protein efflux.

Modularity, a key attribute of Sigilon's SLTx platform, is comprised of three core pillars: the cells, the sphere and the manufacturing process. In addition to the cells and the sphere described above, the company has also spent significant time and resources to create a state-of-the-art modular manufacturing platform for all potential product candidates developed using its cell and sphere components. This cost-effective manufacturing platform is designed to provide a true "off-the-shelf" product for patients.

Sigilon's Programs and Product Candidates

Sigilon's programs and most advanced product candidates are outlined below:

Diabetes:

SIG-002 is the company's product candidate designed to replace islet cells for the treatment of Type 1 Diabetes (T1D). In T1D, the immune system attacks and destroys the insulin-producing beta cells within the endocrine islets of the pancreas, resulting in insulin deficiency and dysregulation of glucose metabolism. In April 2018, Sigilon partnered with Eli Lilly and Company, a global leader in diabetes, to develop cell therapies for the treatment of T1D, including SIG-002. Under the terms of the partnership, Sigilon is currently leading execution of the program through IND submission readiness and Lilly will develop and commercialize the program worldwide. The company expects to conduct IND-enabling studies for SIG-002 in 2023.

MPS-1:

Sigilon is also developing product candidates for the treatment of lysosomal diseases. The company believes its product candidates for lysosomal diseases, including mucopolysaccharidosis type 1 (MPS-1), can leverage the well understood mechanism of enzyme replacement therapies (ERTs) by using engineered cells to express functional human enzyme or other protein that more closely resemble normal physiology in a continuous manner. For example, Sigilon's program for MPS-1 consists of product candidates that contain a cell line that is genetically modified with a nonviral vector to express human α-L-iduronidase (IDUA), encapsulated within its spheres. In addition, the company is designing its product candidates to address the neurological manifestations of certain lysosomal diseases, using molecules designed to penetrate the blood brain barrier and molecules designed to extend plasma half-life. In the first quarter of 2023, Sigilon decreased its external spend relating to its MPS-1 program to preserve capital.

Financials

For the full year 2022, Sigilon reported annual revenue of $12.9 million, annual net loss of $43.5 million, annual operating cash flow of -$51.5 million, and annual free cash flow of -$52.0 million.

In the second quarter of 2023, the company generated revenue of $5.9 million, a significant increase compared to $2.9 million in the prior year period. This increase was primarily due to the timing of the costs of the activities performed under Sigilon's collaboration agreement with Eli Lilly.

Research and development expenses were $7.5 million in Q2 2023, down from $11.9 million in the prior year period. This decrease was primarily related to prioritization of the company's diabetes program, which resulted in decreased expenses incurred on its platform and other early-stage programs as well as the MPS-1 program.

General and administrative expenses were $5.9 million in Q2 2023, up from $5.0 million in the prior year period. The increase was primarily due to transaction expenses related to the pending acquisition of Sigilon by Eli Lilly.

Sigilon reported a net loss of $7.5 million in Q2 2023, an improvement from a net loss of $14.3 million in the prior year period. The company's cash, cash equivalents and marketable securities totaled $34.9 million as of June 30, 2023.

Recent Developments

Pending Acquisition by Eli Lilly and Company

On June 28, 2023, Sigilon entered into an Agreement and Plan of Merger with Eli Lilly and Company. Pursuant to the agreement, Lilly will commence a tender offer to purchase all of Sigilon's outstanding shares for $14.92 per share in cash, plus one contingent value right per share which represents the right to receive up to an additional $111.64 per share upon the achievement of certain milestones. Following the completion of the tender offer and merger, Sigilon will become a wholly owned subsidiary of Lilly.

The transaction is subject to customary closing conditions, including the tender of a majority of Sigilon's outstanding shares and regulatory approvals. Sigilon expects the transaction to close in the third quarter of 2023.

Risks and Challenges

Sigilon faces several key risks and challenges as it continues to advance its pipeline of product candidates:

- Negative results from preclinical or clinical studies of any of its product candidates may require the company to discontinue or delay development of other product candidates, as they are all based on the same SLTx platform. - The SLTx platform consists of novel technologies that are not yet clinically validated for human therapeutic use, and the regulatory requirements applicable to Sigilon's product candidates may change over time. - The company may not be successful in its efforts to identify and develop product candidates, and if these efforts are unsuccessful, it may never become a commercial stage company or generate any revenues. - Sigilon is early in its development efforts, and it will be many years before it or its collaborators commercialize a product candidate, if ever. If the company is unable to advance its product candidates to clinical development, obtain regulatory approval and ultimately commercialize them, or experience significant delays in doing so, its business will be materially harmed. - Drug development is a lengthy, expensive, and inherently uncertain process, with a high risk of failure at every stage of development. Any favorable preclinical results are not predictive of results that may be observed in clinical trials. - Sigilon's product candidates are composed of engineered human cell lines, encapsulated in a biocompatible matrix sphere. There may be serious adverse events, undesirable side effects related to either component of its product candidates, or limited efficacy of product candidates arising from its SLTx platform.

Outlook

Despite the challenges, Sigilon remains focused on advancing its pipeline of product candidates leveraging its proprietary SLTx platform. The company's partnership with Eli Lilly for the development of SIG-002 in type 1 diabetes represents a significant validation of its technology and a potential path to commercialization.

The pending acquisition by Eli Lilly, if completed, would provide Sigilon's shareholders with an attractive valuation and the opportunity to benefit from potential future milestone payments and royalties. However, the transaction is subject to closing conditions and there can be no assurance that it will be consummated as planned.

Conclusion

Overall, Sigilon's novel approach to cell-based therapies, its diverse pipeline of product candidates, and its strategic partnership with a leading pharmaceutical company position the company as an intriguing player in the rapidly evolving field of engineered cell therapies. Investors will want to closely monitor the company's progress, the outcome of the pending acquisition, and any updates regarding the advancement of its pipeline.