UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2015

OR

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission file number 000-30171

 

SANGAMO BIOSCIENCES, INC.

(exact name of registrant as specified in its charter)

 

 

Delaware

 

68-0359556

(State or other jurisdiction of

incorporation or organization)

 

(IRS Employer

Identification No.)

501 Canal Blvd

Richmond, California 94804

(Address of principal executive offices)

(510) 970-6000

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

x

Accelerated filer

¨

 

 

 

 

Non-accelerated filer

¨  (Do not check if a smaller reporting company)

Smaller reporting company

¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No   x

As of October 26, 2015, 70,046,841 shares of the issuer’s common stock, par value $0.01 per share, were outstanding.

 

 

 

 


INDEX

SANGAMO BIOSCIENCES, INC.

PART I. FINANCIAL INFORMATION

  

Item 1.

Financial Statements (Unaudited)

3

 

Condensed Consolidated Balance Sheets at September 30, 2015 and December 31, 2014

3

 

Condensed Consolidated Statements of Operations for the Three and Nine Months ended
September 30, 2015 and 2014

4

 

Condensed Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended
September 30, 2015 and 2014

5

 

Condensed Consolidated Statements of Cash Flows for the Three and Nine Months Ended September 30, 2015 and 2014

6

 

Notes to Condensed Consolidated Financial Statements

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

16

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

20

Item 4.

Controls and Procedures

20

PART II. OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

22

Item 1A

Risk Factors

22

Item 6.

Exhibits

35

 

 

SIGNATURES

36

 

 

CERTIFICATIONS

 

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some statements contained in this report are forward-looking with respect to our operations, research, development and commercialization activities, clinical trials, operating results and financial condition. These statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. Forward-looking statements include, but are not limited to, statements about:

 

·

our strategy;

 

·

product development and commercialization of our products;

 

·

clinical trials;

 

·

partnering;

 

·

revenues from existing and new collaborations;

 

·

our research and development and other expenses;

 

·

sufficiency of our cash resources;

 

·

our operational and legal risks; and

 

·

our plans, objectives, expectations and intentions and any other statements that are not historical facts.

In some cases, you can identify forward-looking statements by terms such as: “anticipates,” “believes,” “continues,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “seeks,” “should” and “will.” These statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Many of these risks are discussed in greater detail under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” in this Form 10-Q. Sangamo undertakes no obligation to publicly release any revisions to forward-looking statements to reflect events or circumstances arising after the date of this report. Readers are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q.

ZFP Therapeutic® is a registered trademark of Sangamo BioSciences, Inc.

2


 

PART I. FINANCIAL INFORMATION

 

ITEM  1.

FINANCIAL STATEMENTS

SANGAMO BIOSCIENCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited; in thousands, except share and per share amounts)

 

 

 

September 30,

 

 

December 31,

 

 

 

2015

 

 

2014

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

34,287

 

 

$

6,030

 

Marketable securities

 

 

185,042

 

 

 

172,932

 

Interest receivable

 

 

399

 

 

 

423

 

Accounts receivable

 

 

7,004

 

 

 

10,368

 

Prepaid expenses

 

 

951

 

 

 

623

 

Restricted cash

 

 

 

 

 

320

 

Other current assets

 

 

 

 

 

183

 

Total current assets

 

 

227,683

 

 

 

190,879

 

Marketable securities, non-current

 

 

 

 

 

47,260

 

Property and equipment, net

 

 

3,063

 

 

 

1,479

 

Intangible assets, in-process research and development

 

 

 

 

 

1,870

 

Goodwill

 

 

1,585

 

 

 

1,585

 

Other assets

 

 

185

 

 

 

139

 

Total assets

 

$

232,516

 

 

$

243,212

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

8,888

 

 

$

8,704

 

Accrued compensation and employee benefits

 

 

2,779

 

 

 

2,853

 

Escrow liability

 

 

 

 

 

275

 

Deferred revenues

 

 

10,461

 

 

 

9,050

 

Total current liabilities

 

 

22,128

 

 

 

20,882

 

Deferred revenues, non-current

 

 

6,830

 

 

 

13,149

 

Contingent consideration liability

 

 

 

 

 

1,800

 

Deferred tax liability

 

 

 

 

 

748

 

Total liabilities

 

 

28,958

 

 

 

36,579

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Common stock, $0.01 par value; 160,000,000 shares authorized, 70,042,758 and

     69,062,394 shares issued and outstanding at September 30, 2015, and

     December 31, 2014, respectively

 

 

700

 

 

 

690

 

Additional paid-in capital

 

 

558,044

 

 

 

534,518

 

Accumulated deficit

 

 

(355,240

)

 

 

(328,550

)

Accumulated other comprehensive income (loss)

 

 

54

 

 

 

(25

)

Total stockholders' equity

 

 

203,558

 

 

 

206,633

 

Total liabilities and stockholders' equity

 

$

232,516

 

 

$

243,212

 

 

See accompanying notes.

 

 

 

3


SANGAMO BIOSCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited; in thousands, except per share amounts)

 

 

 

Three months ended

 

 

Nine months ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collaboration agreements

 

$

8,406

 

 

$

12,045

 

 

$

28,878

 

 

$

29,334

 

Research grants

 

 

163

 

 

 

372

 

 

 

1,540

 

 

 

1,584

 

Total revenues

 

 

8,569

 

 

 

12,417

 

 

 

30,418

 

 

 

30,918

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

16,694

 

 

 

16,340

 

 

 

47,292

 

 

 

41,883

 

General and administrative

 

 

4,560

 

 

 

3,731

 

 

 

14,309

 

 

 

11,347

 

Total operating expenses

 

 

21,254

 

 

 

20,071

 

 

 

61,601

 

 

 

53,230

 

Loss from operations

 

 

(12,685

)

 

 

(7,654

)

 

 

(31,183

)

 

 

(22,312

)

Interest and other income, net

 

 

101

 

 

 

109

 

 

 

406

 

 

 

214

 

Loss before income taxes

 

 

(12,584

)

 

 

(7,545

)

 

 

(30,777

)

 

 

(22,098

)

Benefit from income taxes

 

 

3,339

 

 

 

 

 

 

4,087

 

 

 

 

Net loss

 

$

(9,245

)

 

$

(7,545

)

 

$

(26,690

)

 

$

(22,098

)

Basic and diluted net loss per share

 

$

(0.13

)

 

$

(0.11

)

 

$

(0.38

)

 

$

(0.33

)

Shares used in computing basic and diluted net loss per share

 

 

69,892

 

 

 

68,230

 

 

 

69,622

 

 

 

66,488

 

 

See accompanying notes.

 

 

 

4


SANGAMO BIOSCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited; in thousands)

 

 

 

Three months ended

 

 

Nine months ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Net loss

 

$

(9,245

)

 

$

(7,545

)

 

$

(26,690

)

 

$

(22,098

)

Change in unrealized gain on available-for-sale securities

 

 

57

 

 

 

20

 

 

 

79

 

 

 

41

 

Comprehensive loss

 

$

(9,188

)

 

$

(7,525

)

 

$

(26,611

)

 

$

(22,057

)

 

See accompanying notes.

 

 

 

5


SANGAMO BIOSCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited: in thousands)

 

 

 

Nine months ended

 

 

 

September 30,

 

 

 

2015

 

 

2014

 

Operating Activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(26,690

)

 

$

(22,098

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

745

 

 

 

400

 

Amortization of premium on marketable securities

 

 

681

 

 

 

843

 

Stock-based compensation

 

 

8,664

 

 

 

6,165

 

Change in fair value of contingent consideration liability

 

 

(1,800

)

 

 

130

 

Intangible impairment

 

 

1,870

 

 

 

 

Benefit from income taxes

 

 

(4,087

)

 

 

 

Net changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Interest receivable

 

 

24

 

 

 

25

 

Accounts receivable

 

 

3,364

 

 

 

(5,319

)

Prepaid expenses and other assets

 

 

129

 

 

 

(1,059

)

Accounts payable and accrued liabilities

 

 

(2,534

)

 

 

3,619

 

Accrued compensation and employee benefits

 

 

(74

)

 

 

(530

)

Deferred revenues

 

 

(4,908

)

 

 

14,861

 

Net cash used in operating activities

 

 

(24,616

)

 

 

(2,963

)

Investing Activities:

 

 

 

 

 

 

 

 

Purchases of marketable securities

 

 

(168,627

)

 

 

(176,385

)

Maturities of marketable securities

 

 

203,175

 

 

 

76,605

 

Purchases of property and equipment

 

 

(2,327

)

 

 

(559

)

Net cash provided by / (used in) investing activities

 

 

32,221

 

 

 

(100,339

)

Financing Activities:

 

 

 

 

 

 

 

 

Proceeds from public offering of common stock, net of issuance costs

 

 

 

 

 

93,796

 

Taxes paid related to net share settlement of equity awards

 

 

(48

)

 

 

 

Proceeds from issuance of common stock

 

 

6,248

 

 

 

10,525

 

Claims settlement under Section 16(b)

 

 

14,452

 

 

 

 

Net cash provided by financing activities

 

 

20,652

 

 

 

104,321

 

Net increase in cash and cash equivalents

 

 

28,257

 

 

 

1,019

 

Cash and cash equivalents, beginning of period

 

 

6,030

 

 

 

10,186

 

Cash and cash equivalents, end of period

 

$

34,287

 

 

$

11,205

 

 

See accompanying notes.

 

 

 

 

6


SANGAMO BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2015

(Unaudited)

 

NOTE 1—BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Sangamo BioSciences, Inc. (“Sangamo” or the “Company”) have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015. The condensed consolidated balance sheet data at December 31, 2014 were derived from the audited consolidated financial statements included in Sangamo’s Form 10-K for the year ended December 31, 2014, as filed with the SEC. The accompanying condensed consolidated financial statements and related financial information should be read in conjunction with the audited financial statements and footnotes thereto for the year ended December 31, 2014, included in Sangamo’s Form 10-K, as filed with the SEC.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. On an ongoing basis, management evaluates its estimates, including critical accounting policies or estimates related to revenue recognition, clinical trial accruals, fair value measurements, business combinations including the fair value of the contingent consideration liability for payments to former Ceregene, Inc. (Ceregene) stockholders and intangible assets related to the acquisition of Ceregene, and stock-based compensation. Estimates are based on historical experience and on various other market specific and other relevant assumptions that the Company believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.

Revenue Recognition

Revenues from research activities made under strategic partnering agreements and collaborations are recognized as the services are provided when there is persuasive evidence that an arrangement exists, delivery has occurred, the price is fixed or determinable, and collectability is reasonably assured. Revenue generated from research and licensing agreements typically includes upfront signing or license fees, cost reimbursements, research services, minimum sublicense fees, milestone payments and royalties on future licensee’s product sales.

Multiple Element Arrangements prior to the adoption of ASU No. 2009-13, Revenue Recognition—Multiple Deliverable Revenue Arrangements (ASU 2009-13). For revenue arrangements entered into before January 1, 2011, that include multiple deliverables, the elements of such agreements were divided into separate units of accounting if the deliverables met certain criteria, including whether the fair value of the delivered items could be determined and whether there was evidence of fair value of the undelivered items. In addition, the consideration was allocated among the separate units of accounting based on their fair values, and the applicable revenue recognition criteria are considered separately for each of the separate units of accounting. Prior to the adoption of ASU 2009-13, the Company recognized nonrefundable signing, license or non-exclusive option fees as revenue when rights to use the intellectual property related to the license were delivered and over the period of performance obligations if the Company had continuing performance obligations. The Company estimated the performance period at the inception of the arrangement and reevaluated it each reporting period. Changes to these estimates were recorded on a prospective basis.

Multiple Element Arrangements after the adoption of ASU 2009-13. ASU 2009-13 amended the accounting standards for certain multiple element revenue arrangements to:

 

·

provide updated guidance on whether multiple elements exist, how the elements in an arrangement should be separated, and how the arrangement consideration should be allocated to the separate elements;

 

·

require an entity to allocate arrangement consideration to each element based on a selling price hierarchy where the selling price for an element is based on vendor-specific objective evidence (VSOE), if available; third-party evidence (TPE), if available and VSOE is not available; or the best estimate of selling price (ESP), if neither VSOE nor TPE is available; and

 

·

eliminate the use of the residual method and require an entity to allocate arrangement consideration using the relative selling price method.

7


For revenue agreements with multiple element arrangements, such as license and development agreements, entered into on or after January 1, 2011, the Company allocates revenue to each non-contingent element based on the relative selling price of each element. When applying the relative selling price method, the Company determines the selling price for each deliverable using VSOE of selling price or TPE of selling price. If neither exists, the Company uses ESP for that deliverable. Revenue allocated is then recognized when the basic four revenue recognition criteria are met for each element. The collaboration and license agreements entered into with Shire International GmbH, formerly Shire AG (Shire), in January 2012 and Biogen Inc., formerly Biogen Idec Inc. (Biogen) in January 2014 were evaluated under these amended accounting standards.

Additionally, the Company may be entitled to receive certain milestone payments which are contingent upon reaching specified objectives. These milestone payments are recognized as revenue in full upon achievement of the milestone if there is substantive uncertainty at the date the arrangement is entered into that the objectives will be achieved and if the achievement is based on the Company’s performance.

Minimum annual sublicense fees are also recognized as revenue in the period in which such fees are due. Royalty revenues are generally recognized when earned and collectability of the related royalty payment is reasonably assured. The Company recognizes cost reimbursement revenue under collaborative agreements as the related research and development costs for services are rendered. Deferred revenue represents the portion of research or license payments received which have not been earned.

Sangamo’s research grants are typically multi-year agreements and provide for the reimbursement of qualified expenses for research and development as defined under the terms of the grant agreement. Revenue under grant agreements is recognized when the related qualified research expenses are incurred to the extent such amounts have been agreed to with the respective collaboration partner.

Recent Accounting Standards

In May 2014 the Financial Accounting Standards Board issued ASU 2014-09, Revenue from Contracts with Customers (ASU 2014-09). This standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The main principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. ASU 2014-09 provides companies with two implementation methods: (i) apply the standard retrospectively to each prior reporting period presented (full retrospective application); or (ii) apply the standard retrospectively with the cumulative effect of initially applying the standard as an adjustment to the opening balance of retained earnings of the annual reporting period that includes the date of initial application (modified retrospective application). This guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The Company is currently in the process of evaluating the impact of the pending adoption of ASU 2014-09 on its consolidated financial statements.

 

NOTE 2—FAIR VALUE MEASUREMENT

The Company measures certain financial assets and liabilities at fair value on a recurring basis, including cash equivalents, available-for sale-securities and the contingent consideration liability. The fair value of these assets and contingent liability was determined based on a three-tier hierarchy under the authoritative guidance for fair value measurements and disclosures that prioritizes the inputs used in measuring fair value as follows:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2: Quoted prices in markets that are not active or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; and

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

8


The fair value measurements of the Company’s cash equivalents, available-for-sale marketable securities and contingent consideration liability are identified at the following levels within the fair value hierarchy (in thousands):

 

 

 

September 30, 2015

 

 

 

Fair Value Measurements

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

12,747

 

 

$

12,747

 

 

$

 

 

$

 

Total

 

 

12,747

 

 

 

12,747

 

 

 

 

 

 

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper securities

 

 

15,399

 

 

 

 

 

 

15,399

 

 

 

 

Corporate debt securities

 

 

29,217

 

 

 

 

 

 

29,217

 

 

 

 

U.S. government sponsored entity debt securities

 

 

140,426

 

 

 

 

 

 

140,426

 

 

 

 

Total

 

 

185,042

 

 

 

 

 

 

185,042

 

 

 

 

Total cash equivalents and marketable securities

 

$

197,789

 

 

$

12,747

 

 

$

185,042

 

 

$

 

 

 

 

December 31, 2014

 

 

 

Fair Value Measurements

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

3,182

 

 

$

3,182

 

 

$

 

 

$

 

Total

 

 

3,182

 

 

 

3,182

 

 

 

 

 

 

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper securities

 

 

33,748

 

 

 

 

 

 

33,748

 

 

 

 

Corporate debt securities

 

 

22,813

 

 

 

 

 

 

22,813

 

 

 

 

U.S. government sponsored entity debt securities

 

 

163,631

 

 

 

 

 

 

163,631

 

 

 

 

Total

 

 

220,192

 

 

 

 

 

 

220,192

 

 

 

 

Total cash equivalents and marketable securities

 

$

223,374

 

 

$

3,182

 

 

$

220,192

 

 

$

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration liability

 

$

1,800

 

 

$

 

 

$

 

 

$

1,800

 

Total

 

$

1,800

 

 

$

 

 

$

 

 

$

1,800

 

 

Investments

The Company generally classifies its marketable securities as Level 2. Instruments can be classified as Level 2 when observable market prices for identical securities that are traded in less active markets are used. When observable market prices for identical securities are not available, such instruments are priced using benchmark curves, benchmarking of like securities, sector groupings, matrix pricing and valuation models. These valuation models are proprietary to the pricing providers or brokers and incorporate a number of inputs, including, listed in approximate order of priority: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data including market research publications. For certain security types, additional inputs may be used, or some of the standard inputs may not be applicable. Evaluators may prioritize inputs differently on any given day for any security based on market conditions, and not all inputs listed are available for use in the evaluation process for each security evaluation on any given day.

Contingent Consideration Liability

In October 2013, the Company acquired Ceregene and recorded a liability for the estimated fair value of contingent consideration payments to former Ceregene stockholders, as outlined under the terms of the merger agreement with Ceregene. These contingent payments are owed if the Company grants a third-party license to develop and commercialize certain product candidates acquired from Ceregene, or if the Company commercializes any of such product candidates itself. The fair value of this liability is estimated using a probability-weighted discounted cash flow analysis. Such valuations require significant estimates and assumptions including but not limited to: determining the timing and estimated costs to complete the in-process projects, projecting regulatory approvals, estimating future cash flows and developing appropriate discount rates. The Company has classified this liability as Level 3.

9


Subsequent changes in the fair value of this contingent consideration liability are recorded to the research and development (R&D) expense line item in the Condensed Consolidated Statements of Operations as operating expenses. During the nine months ended September 30, 2015, the recognized amount of the liability for contingent consideration decreased by $1.8 million due to the decrease in the probability of incurring potential future royalty payments associated with the impairment of the in-process research and development (IPR&D) assets acquired from Ceregene (see Note 6).

 

Fair value as of December 31, 2014

 

$

1,800

 

Change in fair value

 

 

(1,800

)

Fair value as of September 30, 2015

 

$

 

 

 

NOTE 3—MARKETABLE SECURITIES

Sangamo generally classifies its marketable securities as available-for-sale and records its investments at fair value. Available-for-sale securities are carried at estimated fair value, with the unrealized holding gains and losses included in accumulated other comprehensive income (loss). Investments that have maturities beyond one year as of the end of the reporting period are classified as non-current. The Company’s investments are subject to a periodic impairment review, and the Company recognizes an impairment charge when a decline in the fair value of its investments below the cost basis is judged to be other-than-temporary. The Company considers various factors in determining whether to recognize an impairment charge, including the length of time and extent to which the fair value has been less than the Company’s cost basis, the financial condition and near-term prospects of the investee, and the Company’s intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in the market value.

The table below summarizes the Company’s investments (in thousands):

 

 

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Estimated

 

 

 

Cost

 

 

Gains

 

 

(Losses)

 

 

Fair Value

 

September 30, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

12,747

 

 

$

 

 

$

 

 

$

12,747

 

Total

 

 

12,747

 

 

 

 

 

 

 

 

 

12,747

 

Available-for-sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper securities

 

$

15,371

 

 

$

28

 

 

$

 

 

$

15,399

 

Corporate debt securities

 

 

29,215

 

 

 

2

 

 

 

 

 

 

29,217

 

U.S. government sponsored entity debt securities

 

 

140,402

 

 

 

24

 

 

 

 

 

 

140,426

 

Total

 

 

184,988

 

 

 

54

 

 

 

 

 

 

185,042

 

Total cash equivalents and available-for-sale securities

 

$

197,735

 

 

$

54

 

 

$

 

 

$

197,789

 

December 31, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

3,182

 

 

$

 

 

$

 

 

$

3,182

 

Total

 

 

3,182

 

 

 

 

 

 

 

 

 

3,182

 

Available-for-sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper securities

 

$

33,715

 

 

$

33

 

 

$

 

 

$

33,748

 

Corporate debt securities

 

 

22,831

 

 

 

 

 

 

(18

)

 

 

22,813

 

U.S. government sponsored entity debt securities

 

 

163,671

 

 

 

 

 

 

(40

)

 

 

163,631

 

Total

 

 

220,217

 

 

 

33

 

 

 

(58

)

 

 

220,192

 

Total cash equivalents and available-for-sale securities

 

$

223,399

 

 

$

33

 

 

$

(58

)

 

$

223,374

 

 

The Company had no other-than-temporary impairments of its investments for the nine months ended September 30, 2015 or the twelve months ended December 31, 2014.

 

NOTE 4—BASIC AND DILUTED NET LOSS PER SHARE

Basic net loss per share has been computed by dividing the net loss by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share is calculated by dividing net loss by the weighted-average number of shares of common stock and potential dilutive securities outstanding during the period.

Because Sangamo is in a net loss position, diluted net loss per share excludes the effects of common stock equivalents consisting of stock options and unvested restricted stock units, which are anti-dilutive. The total number of shares subject to stock

10


options outstanding excluded from consideration in the calculation of diluted net loss per share for the three and nine months ended September 30, 2015 and 2014 were 7,868,033 and 8,263,998, respectively.

 

NOTE 5—MAJOR CUSTOMERS, PARTNERSHIPS AND STRATEGIC ALLIANCES

Collaboration Agreements

Collaboration and License Agreement with Biogen Inc. in Human Therapeutics

In January 2014 the Company entered into a Global Research, Development and Commercialization Collaboration and License Agreement (the “Biogen Agreement”) with Biogen, pursuant to which Sangamo and Biogen collaborate to discover, develop, seek regulatory approval for and commercialize therapeutics based on Sangamo’s zinc finger DNA-binding protein (ZFP) technology for hemoglobinopathies, including beta-thalassemia and sickle cell disease (SCD).

Under the Biogen Agreement, Sangamo and Biogen jointly conduct two research programs: the beta-thalassemia program and the SCD program. For the beta-thalassemia program, Sangamo is responsible for all discovery, research and development activities through the first human clinical trial for the first ZFP Therapeutic developed under the Biogen Agreement for the treatment of beta-thalassemia. For the SCD program, both parties are responsible for research and development activities through the submission of an Investigational New Drug (IND) application for ZFP Therapeutics intended to treat SCD. For both programs, Biogen is responsible for subsequent world-wide clinical development, manufacturing and commercialization of licensed products developed under the Biogen Agreement. At the end of specified research terms for each program or under certain specified circumstances, Biogen retains the right to step in and take over any remaining activities of Sangamo. Furthermore, Sangamo has an option to co-promote in the United States any licensed product to treat beta-thalassemia and SCD developed under the Biogen Agreement, and Biogen agrees to compensate Sangamo for such co-promotion activities.

Sangamo received an upfront license fee of $20.0 million upon entering into the Biogen Agreement. In addition, the Company will also be eligible to receive $126.3 million in payments upon the achievement of specified research, regulatory, clinical development milestones, as well as $167.5 million in payments upon the achievement of specified commercialization and sales milestones. Biogen reimburses Sangamo for agreed upon costs incurred in connection with research and development activities conducted by Sangamo. In addition, Sangamo is eligible to receive contingent payments upon the achievement of specified regulatory, clinical development, commercialization and sales milestones. The total amount of potential regulatory, clinical development, commercialization and sales contingent payments, assuming the achievement of all specified milestone events in the Biogen Agreement, is $293.8 million, including Phase 1 contingent payments of $7.5 million for each of the beta-thalassemia and SCD programs. In addition, if products are commercialized under the Biogen Agreement, Biogen will pay Sangamo incremental royalties for each licensed product that are a tiered double-digit percentage of annual net sales of such product. To date, no milestone payments have been received and no products have been approved and therefore no royalty fees have been earned under the Biogen Agreement.

All contingent payments under the Biogen Agreement, when earned, will be non-refundable and non-creditable. The Company has evaluated the contingent payments under the Biogen Agreement based on the authoritative guidance for research and development milestones and determined that certain of these payments meet the definition of a milestone and that all such milestones are evaluated to determine if they are considered substantive milestones. Milestones are considered substantive if they are related to events (i) that can be achieved based in whole or in part on either the Company’s performance or on the occurrence of a specific outcome resulting from the Company’s performance, (ii) for which there was substantive uncertainty at the date the agreement was entered into that the event would be achieved and (iii) that would result in additional payments being due to the Company. Accordingly, consideration received for the achievement of milestones that are determined to be substantive will be recognized as revenue in their entirety in the period when the milestones are achieved and collectability is reasonably assured. Revenue for the achievement of milestones that are not substantive will be recognized over the remaining period of the Biogen Agreement, assuming all other applicable revenue recognition criteria have been met.

Subject to the terms of the Biogen Agreement, Sangamo grants Biogen an exclusive, royalty-bearing license, with the right to grant sublicenses, to use certain ZFP and other technology controlled by Sangamo for the purpose of researching, developing, manufacturing and commercializing licensed products developed under the Biogen Agreement. Sangamo also grants Biogen a non-exclusive, world-wide, royalty free, fully paid license, with the right to grant sublicenses, of Sangamo’s interest in certain other intellectual property developed pursuant to the Biogen Agreement.

The Company has identified the deliverables within the arrangement as a license to the technology and on-going research services activities. The Company has concluded that the license is not a separate unit of accounting as it does not have stand-alone value to Biogen apart from the research services to be performed pursuant to the Biogen Agreement. As a result, the Company will recognize revenue from the upfront payment on a straight-line basis over a forty-month estimated initial research term during which the Company will perform research services. As of September 30, 2015, the Company has deferred revenue of $10.2 million related to the Biogen Agreement.

11


Revenues recognized under the agreement with Biogen for the three and nine months ended September 30, 2015 and 2014 are as follows (in thousands):

 

 

 

Three months ended

 

 

Nine months ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Revenue related to Biogen Collaboration:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recognition of upfront fee

 

$

1,556

 

 

$

1,557

 

 

$

4,619

 

 

$

3,756

 

Research services

 

 

2,594

 

 

 

3,508

 

 

 

5,827

 

 

 

5,270

 

Total

 

$

4,150

 

 

$

5,065

 

 

$

10,446

 

 

$

9,026

 

 

Related costs and expenses incurred under the Biogen agreement related to the beta-thalassemia project, which was co-funded with California Institute for Regenerative Medicine (CIRM), were $2.3 million and $2.0 million during the three months ended September 30, 2015 and, 2014, respectively and $4.7 million and $4.5 million during the nine months ended September 30, 2015 and, 2014, respectively. Related costs and expenses for other projects including sickle cell disease under the Biogen agreement were $0.7 million and $0.5 million during the three months ended September 30, 2015 and, 2014, respectively and $2.7 million and $0.8 million during the nine months ended September 30, 2015 and 2014, respectively.

Collaboration and License Agreement with Shire International GmbH in Human Therapeutics and Diagnostics

In January 2012 the Company entered into a collaboration and license agreement (the “Shire Agreement”) with Shire, pursuant to which the Company and Shire collaborate to research, develop and commercialize human therapeutics and diagnostics for monogenic diseases based on Sangamo’s novel ZFP technology. This agreement was amended on September 1, 2015.  

Under the original Shire Agreement, the Company and Shire agreed to develop potential human therapeutic or diagnostic products for seven gene targets. The initial four gene targets selected were blood clotting Factors VII, VIII, IX and X, and products developed for such initial gene targets will be used for treating or diagnosing hemophilia A and B. In June 2012, Shire selected a fifth gene target for the development of a ZFP Therapeutic for Huntington’s disease. Shire had the right, subject to certain limitations, to designate two additional gene targets. Pursuant to the Shire Agreement, the Company granted Shire an exclusive, world-wide, royalty-bearing license, with the right to grant sublicenses, to use Sangamo’s ZFP technology for the purpose of developing and commercializing human therapeutic and diagnostic products for the gene targets.

Under the terms of the Shire Agreement, the Company was responsible for all research activities through the submission of an IND or European Clinical Trial Application (CTA), while Shire was responsible for clinical development and commercialization of products generated from the research program from and after the acceptance of an IND or CTA for the product. Shire reimbursed Sangamo for agreed upon internal and external program-related research costs. The Company received an upfront license fee of $13.0 million upon entering into the Shire Agreement in 2012. In 2014 Sangamo recognized a $1.0 million milestone payment related to the hemophilia program.

On September 1, 2015, the Shire Agreement was amended such that Shire agreed to return to Sangamo the exclusive, world-wide rights to gene targets for the development and commercialization of ZFP Therapeutics for hemophilia A and B.  Shire retains the rights and will continue to develop a ZFP Therapeutic for Huntington’s disease and a ZFP Therapeutic for one additional gene target yet to be named.  Sangamo will provide certain target feasibility services, and upon Shire’s request, certain research activities according to a research plan as agreed upon by both companies. Such research activities performed by Sangamo will be reimbursed by Shire. Shire’s rights with respect to other targets contemplated in the original agreement revert to Sangamo. Under the revised agreement, each company is responsible for expenses associated with its own programs and will reimburse the other for any ongoing services provided. Shire is responsible for reimbursement of $4.0 million related to obligations prior to the amendment date which will be recognized in revenue as expenses are incurred. During the 3 months ended September 30, 2015, $2.3 million was incurred and recognized related to prior obligations. Sangamo has granted Shire a right of first negotiation to license the hemophilia A and B programs. Under the amended agreement, Shire does not have any milestone payment obligations to us with respect to the retained programs, but it is required to pay single digit percentage royalties to us, up to a specified maximum cap, on the commercial sales of ZFP therapeutic products from such programs. Under the Agreement, Sangamo has full control over, and full responsibility for the costs of, the hemophilia programs returned to us, subject to certain diligence obligations and Shire’s right of first negotiation to obtain a license to such programs under certain circumstances. The Company is required to pay single digit percentage royalties to Shire, up to a specified maximum cap, on commercial sales of ZFP therapeutic products from such returned programs.  

The Company has identified the deliverables within the amended arrangement as a license to the technology and on-going research services activities. The Company has concluded that the license is not a separate unit of accounting as it does not have stand-alone value to Shire apart from the research services to be performed pursuant to the Shire amendment. Sangamo continues to be responsible for research activities related to our licensed technology with Shire under the amendment. As a result, the Company will continue to recognize revenue from the upfront payment received upon entering into the original Shire agreement in 2012 on a

12


straight-line basis over the six-year initial research term during which the Company expects to perform research services. As of September 30, 2015, the Company has deferred revenue of $7.1 million related to the Shire Agreement.

Revenues recognized under the agreement with Shire for the three and nine months ended September 30, 2015 and 2014, were as follows (in thousands):

 

 

 

Three months ended

 

 

Nine months ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Revenue related to Shire Collaboration:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recognition of upfront fee

 

$

542

 

 

$

542

 

 

$

1,625

 

 

$

1,625

 

Recognition of milestone

 

 

 

 

 

1,000

 

 

 

 

 

 

1,000

 

Research services

 

 

3,313

 

 

 

5,002

 

 

 

11,729

 

 

 

15,912

 

Total

 

$

3,855

 

 

$

6,544

 

 

$

13,354

 

 

$

18,537

 

 

Related costs and expenses incurred under the Shire agreement were $3.2 million and $5.1 million during the three months ended September 30, 2015 and 2014, respectively and $11.9 million and $15.5 million during the nine months ended September 30, 2015 and 2014, respectively.

Agreement with Sigma-Aldrich Corporation in Laboratory Research Reagents, Transgenic Animal and Commercial Protein Production Cell-line Engineering

In July 2007 the Company entered into a license agreement (the “Sigma Agreement”) with Sigma-Aldrich Corporation (Sigma). Under the Sigma Agreement, Sangamo agreed to provide Sigma with access to Sangamo’s proprietary ZFP technology and the exclusive right to use the technology to develop and commercialize research reagent products and services in the research field, excluding certain agricultural research uses that Sangamo previously licensed to Dow AgroSciences LLC (DAS). Under the Sigma Agreement, Sangamo and Sigma agreed to conduct a three-year research program to develop laboratory research reagents using Sangamo’s ZFP technology during which time Sangamo agreed to assist Sigma in connection with its efforts to market and sell services employing the Company’s ZFP technology in the research field. Sangamo has transferred its ZFP manufacturing technology to Sigma.

In October 2009 the Company expanded the Sigma Agreement. In addition to the original terms of the Sigma Agreement, Sigma received exclusive rights to develop and distribute ZFP-modified cell lines for commercial production of protein pharmaceuticals and certain ZFP-engineered transgenic animals for commercial applications. Under the terms of the Sigma Agreement as expanded in 2009, Sigma made an upfront cash payment of $20.0 million consisting of a $4.9 million purchase of 636,133 shares of Sangamo common stock and a $15.1 million upfront license fee. The upfront license fee was recognized on a straight-line basis from the effective date of the expanded license through July 2010, which represents the period over which Sangamo was obligated to perform research services for Sigma. Sangamo is also eligible to receive commercial license fees of $5.0 million based upon a percentage of net sales. As of September 30, 2015 Sangamo has received the entire $5.0 million of commercial license fees and is eligible to receive royalty payments of 5.25% of net sales and sublicensing revenue.  In addition, upon the achievement of certain cumulative commercial milestones Sigma will make milestone payments to Sangamo up to an aggregate of $25.0 million.

Revenues recognized under the agreement with Sigma for the three and nine months ended September 30, 2015 and 2014, were as follows (in thousands):

 

 

 

Three months ended

 

 

Nine months ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Revenue related to Sigma Collaboration:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Royalty revenues

 

$

97

 

 

$

67

 

 

$

390

 

 

$

270

 

License fee revenues

 

 

172

 

 

 

269

 

 

 

4,449

 

 

 

447

 

Total

 

$

269

 

 

$

336

 

 

$

4,839

 

 

$

717

 

 

Related costs and expenses incurred under the Sigma agreement were both $0.0 million during the three months ended September 30, 2015 and 2014, respectively. Related costs and expenses incurred under the Sigma agreement were $0.3 million and $0.1 million during the nine months ended September 30, 2015 and 2014, respectively.

Agreement with Dow AgroSciences in Plant Agriculture

In October 2005 the Company entered into an exclusive commercial license agreement with DAS (the “DAS Agreement”). Under the DAS Agreement, Sangamo provides DAS with access to Sangamo’s proprietary ZFP technology and the exclusive right to

13


use the technology to modify the genomes or alter the nucleic acid or protein expression of plant cells, plants, or plant cell cultures. Sangamo has retained rights to use plants or plant-derived products to deliver ZFP transcription factors (ZFP TFs) or ZFP nucleases (ZFNs) into humans or animals for diagnostic, therapeutic or prophylactic purposes. The DAS Agreement provided for an initial three-year research term. In June 2008, DAS exercised its option under the agreement to obtain a commercial license to sell products incorporating or derived from plant cells generated using the Company’s ZFP technology, including agricultural crops, industrial products and plant-derived biopharmaceuticals. The exercise of the option triggered a one-time commercial license fee of $6.0 million, payment of the remaining $2.3 million of the previously agreed $4.0 million in research milestones, development and commercialization milestone payments for each product, and royalties on sales of products. Furthermore, DAS has the right to sublicense Sangamo’s ZFP technology to third parties for use in plant cells, plants or plant cell cultures. Sangamo will be entitled to 25% of any cash consideration received by DAS under such sublicenses. In December 2010, the Company amended the DAS Agreement to extend the period of reagent manufacturing services and research services through December 31, 2012.

The DAS Agreement also provides for minimum license fees each year due to Sangamo every October, provided the Agreement is not terminated by DAS. Annual fees range from $250,000 to $3.0 million and total $25.3 million over 11 years. The Company does not have any ongoing performance obligations under the agreement with DAS. DAS has the right to terminate the agreement at any time; accordingly, the Company’s actual license fees over the term of the DAS Agreement could be lower than $25.3 million. In addition, each party may terminate the DAS Agreement upon an uncured material breach by the other party. In the event of any termination of the DAS Agreement, all rights to use the Company’s ZFP technology will revert to Sangamo, and DAS will no longer be permitted access to Sangamo’s ZFP technology or to develop or, except in limited circumstances, commercialize any products derived from the Company’s ZFP technology.

There were no revenues or related costs and expenses recognized under the DAS Agreement during the three and nine months ended September 30, 2015 and 2014, respectively.

Funding from Research Foundations

California Institute for Regenerative Medicine - HIV

In May 2014 CIRM agreed to fund a $5.6 million Strategic Partnership Award to fund the clinical studies of this potentially curative ZFP Therapeutic for HIV/AIDS based on the application of its ZFN genome editing technology in hematopoietic stem and progenitor cells (HSPCs). The four year grant provides matching funds to support evaluation of the Company’s stem cell-based ZFP Therapeutic in a clinical trial in HIV-infected individuals conducted at City of Hope.

There were no revenues attributable to research and development performed under the Strategic Partnership Award during the three and nine months ended September 30, 2015 and 2014, respectively. Related costs and expenses incurred under the CIRM Strategic Partnership Award were $0.6 million and $0.0 million during the three months ended September 30, 2015 and 2014, respectively and $1.3 million and $0.0 million during the nine months ended September 30, 2015 and 2014, respectively.

California Institute for Regenerative Medicine - Beta-Thalassemia

In May 2013 CIRM granted Sangamo a $6.4 million Strategic Partnership Award to develop a potentially curative ZFP Therapeutic for beta-thalassemia based on the application of its ZFN gene editing technology in HSCs. The four-year grant was intended to provide matching funds for preclinical work to support an IND application and a Phase 1 clinical trial in transfusion-dependent beta-thalassemia patients using the BCL11A knockout strategy. In May 2015 Sangamo announced a consolidated development path for its beta-thalassemia and SCD programs using the “BCL11A Enhancer” target.  Due to the switch to the BCL11A Enhancer strategy, CIRM and Sangamo terminated the Strategic Partnership Award as of June 30, 2015.  Sangamo returned $3.0 million in unused funds received from CIRM under the award during the three months ended September 30, 2015.

Revenue attributable to research and development performed under the CIRM grant agreement for beta-thalassemia was $0.0 million and $0.4 million during the three months ended September 30, 2015 and 2014, respectively and $1.2 million and $1.1 million during the nine months ended September 30, 2015 and 2014, respectively. Related costs and expenses incurred under the CIRM grant agreement were $0.0 million and $0.4 million during the three months ended September 30, 2015 and 2014, respectively and $1.2 million and $1.1 million during the nine months ended September 30, 2015 and 2014, respectively.

 

14


NOTE 6—INTANGIBLE ASSETS

Intangible assets for IPR&D consisted of two clinical product candidates from our 2013 acquisition of Ceregene. IPR&D is an intangible asset classified as indefinite-lived until the completion or abandonment of the associated research and development effort, and is amortized over an estimated useful life to be determined at the date the project is completed.

The carrying values of these intangibles assets are as follows (in thousands):

 

 

 

As of

 

 

As of

 

 

 

September 30, 2015

 

 

December 31, 2014

 

CERE-110 for the treatment of Alzheimer's disease

 

$

 

 

$

1,640

 

CERE-120 for the treatment of Parkinson's disease

 

 

 

 

 

230

 

Total identifiable intangible assets

 

$

 

 

$

1,870

 

 

In the first quarter of 2015, the Company decided to discontinue the CERE-110 and CERE-120 clinical trial programs. As such, the probability of achieving projected revenues and cash flows associated with these programs were adversely affected. The Company does not believe the programs have an alternative future use for itself or other market participants. Accordingly, during the nine months ended September 30, 2015, the Company recognized a $1.9 million impairment charge related to these assets. The impairment is recorded in research and development expense in the accompanying condensed consolidated statements of operations.

 

NOTE 7—INCOME TAXES

The Company maintains deferred tax assets that reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. These deferred tax assets include net operating loss carryforwards, research credits and capitalized research and development costs. Realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain based on Sangamo’s history of losses. Accordingly, the Company’s net deferred tax assets have been fully offset by a valuation allowance. Utilization of operating losses and credits may be subject to substantial annual limitation due to ownership change provisions of the Internal Revenue Code of 1986, as amended and similar state provisions. The annual limitation may result in the expiration of net operating losses and credits before utilization.

During the nine months ended September 30, 2015, the Company received a $14.5 million disgorgement settlement that was recognized as additional paid-in capital. The disgorgement settlement was recognized net of taxes of $5.8 million, which under the intraperiod tax allocation rules resulted in an income tax benefit of $3.4 being recognized in the accompanying condensed consolidated statements of operations for the three and nine months ended September 30, 2015.

 

NOTE 8—STOCK-BASED COMPENSATION

The following table shows total stock-based compensation expense included in the condensed consolidated statements of operations for the three and nine months ended September 30, 2015 and 2014 (in thousands):

 

 

 

Three months ended

 

 

Nine months ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Research and development

 

$

1,595

 

 

$

1,182

 

 

$

5,020

 

 

$

3,418

 

General and administrative

 

 

1,233

 

 

 

947

 

 

 

3,644

 

 

 

2,747

 

Total stock-based compensation expense

 

$

2,828

 

 

$

2,129

 

 

$

8,664

 

 

$

6,165

 

 

NOTE 9—CLAIMS SETTLEMENT

In September 2015, the Company received $14.5 million as a settlement with certain investors who were beneficial owners of our common stock related to the disgorgement of short-swing profits pursuant to Section 16 of the Securities Exchange Act of 1934, as amended.  The settlement of $8.7 million, net of a $5.8 million income tax benefit and certain expenses, was recognized as additional paid-in capital.

 

 

15


ITEM  2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The discussion in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contains trend analysis, estimates and other forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements include, without limitation, statements containing the words “believes,” “anticipates,” “expects,” “continue,” and other words of similar import or the negative of those terms or expressions. Such forward-looking statements are subject to known and unknown risks, uncertainties, estimates and other factors that may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. You should read the following discussion and analysis along with the financial statements and notes attached to those statements included elsewhere in this report and in our annual report on Form 10-K for the year ended December 31, 2014 as filed with the SEC.

Overview

We are a clinical stage biopharmaceutical company focused on the research, development and commercialization of engineered DNA-binding proteins for the development of novel therapeutic strategies for unmet medical needs. Our current mission is to develop ZFP Therapeutics®, or human therapeutics based on our proprietary zinc finger DNA-binding protein (ZFP) technology, through early stage clinical testing, strategically partner with biopharmaceutical companies at points of value inflection and have the partners execute late-stage clinical trials and commercial development. In the long-term, our goal is to integrate marketing and development operations and to capture the value of late-stage and commercial ZFP Therapeutic products for ourselves.

We and our licensed partners are the leaders in the research, development and commercialization of ZFPs, a naturally occurring class of proteins. We have used our knowledge and expertise to develop a proprietary technology platform. ZFPs can be engineered to make ZFP nucleases (ZFNs), proteins that can be used to modify DNA sequences in a variety of ways and ZFP transcription factors (ZFP TFs), proteins that can be used to turn genes on or off. As ZFPs act at the DNA level, they have broad potential applications in several areas, including human therapeutics, plant agriculture and research reagents, as well as production of transgenic animals and cell-line engineering.

The main focus for our company is the development of novel human therapeutics and we are building a pipeline of ZFP Therapeutics. Our lead ZFP Therapeutic, SB-728-T, a ZFN-modified autologous T-cell product for the treatment of HIV/AIDS, is the first therapeutic application of our ZFN technology and is being evaluated in a Phase 2 clinical trial in HIV-infected subjects. We also have a Phase 1 clinical trial of this same approach in hematopoietic stem cells.

In January 2014 we entered into a collaborative partnership with Biogen Inc., formerly Biogen Idec Inc. (Biogen) to research, develop and commercialize our preclinical ZFP Therapeutic development program in hemoglobinopathies, targeting sickle cell disease (SCD) and beta-thalassemia. In January 2012 we entered into a collaborative partnership with Shire International GmbH, formerly Shire AG (Shire), to research, develop and commercialize certain of our preclinical ZFP Therapeutic development programs, including programs in hemophilia A and B, Huntington’s disease (HD) and other monogenic diseases. On September 1, 2015, the agreement with Shire was amended such that Shire agreed to return to us the exclusive world-wide rights to gene targets for the development, clinical testing and commercialization of ZFP Therapeutics for hemophilia A and B. Shire will retain rights and will continue to develop ZFP Therapeutic clinical leads for HD disease and a ZFP Therapeutic for one additional gene target yet to be named. Sangamo will provide certain target feasibility services, and upon Shire’s request, certain research activities according to a research plan as agreed upon by both companies. Such research activities performed by Sangamo will be reimbursed by Shire. Shire’s rights with respect to other targets contemplated in the original agreement revert to Sangamo. Under the revised agreement, each company is responsible for expenses associated with its own programs and will reimburse the other for any ongoing services provided. We also have proprietary preclinical programs in several lysosomal storage disorders (LSDs). In addition, we have research stage programs in other monogenic diseases, including certain immunodeficiencies, as well as central nervous system (CNS) disorders and cancer immunotherapy.

We believe the potential commercial applications of ZFPs are broad-based and we have entered into strategic partnerships in fields outside human therapeutics to facilitate the sale or licensing of our ZFP platform as follows:

 

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We have a license agreement with the research reagent company Sigma-Aldrich Corporation (Sigma). Sigma has the exclusive rights to develop and market high value laboratory research reagents based upon our ZFP technology as well as ZFP-modified cell lines for commercial production of protein pharmaceuticals and ZFP-engineered transgenic animals. Sigma is marketing ZFN-derived gene editing tools under the trademark CompoZr®.

 

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We have a license agreement with Dow AgroSciences, LLC (DAS), a wholly owned subsidiary of Dow Chemical Corporation. Under the agreement, we have provided DAS with access to our ZFP technology and the exclusive rights to use it to modify the genomes or alter protein expression of plant cells, plants or plant cell cultures. DAS markets our ZFN

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technology under the trademark EXZACTTM Precision Technology. We have retained rights to use plants or plant-derived products to deliver ZFP TFs or ZFNs into human or animals for diagnostic, therapeutic or prophylactic purposes.

We have incurred net losses since inception and expect to incur losses in the future as we continue our research and development activities. To date, we have funded our operations primarily through the issuance of equity securities, payments from corporate collaborations and research grants.

For the three months ended September 30, 2015, we incurred a consolidated net loss of $9.2 million, or $0.13 per share, compared to a net loss of $7.5 million, or $0.11 per share, for the same period in 2014. For the nine months ended September 30, 2015, we incurred a consolidated net loss of $26.7 million, or $0.38 per share, compared to a net loss of $22.1 million, or $0.33 per share, for the same period in 2014. As of September 30, 2015, we had cash, cash equivalents, marketable securities and interest receivable totaling $219.7 million compared to $226.6 million as of December 31, 2014. As of September 30, 2015, we had an accumulated deficit of $355.2 million.

Our revenues have consisted primarily of revenues from partnerships of our ZFP technology platform in both therapeutic and non-therapeutic applications, including license fees, research reimbursement and milestones, royalties, as well as revenues from research grant funding. We expect revenues will continue to fluctuate from period to period, and there can be no assurance that new collaborations or partner funding will continue beyond their current terms.

In the development of our ZFP technology platform, we are focusing our resources on higher-value ZFP Therapeutic product development and less on our non-therapeutic applications. Development of novel therapeutic products is costly and is subject to a lengthy and uncertain regulatory process at the FDA. Our future products will be gene-based therapeutics. Adverse events in both our own clinical program and other programs may have a negative impact on regulatory approval, the willingness of potential commercial partners to enter into agreements and public perception.

Critical Accounting Estimates

The accompanying discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements and the related disclosures, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts in our consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe that the