Is

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended September 30, 2016

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      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      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

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  

As of October 24, 2016, 70,623,858 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, 2016 and December 31, 2015

3

 

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2016 and 2015

4

 

Condensed Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended September 30, 2016 and 2015

5

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2016 and 2015

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

21

 

 

PART II. OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

22

Item 1A

Risk Factors

22

Item 6.

Exhibits

36

 

 

SIGNATURES

37

 

 

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, acquisition and other strategic transactions;

 

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. Given these risks and uncertainties, you should not place undue reliance on these forward-looking statements.  We discuss many of these risks 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® and Engineering Genetic Cures® are registered trademarks of Sangamo BioSciences, Inc. This report also contains trademarks and trade names that are the property of their respective owners.

 

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,

 

 

 

2016

 

 

2015

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

27,986

 

 

$

69,482

 

Marketable securities

 

 

117,595

 

 

 

139,518

 

Interest receivable

 

 

310

 

 

 

307

 

Accounts receivable

 

 

1,482

 

 

 

2,521

 

Prepaid expenses

 

 

1,472

 

 

 

754

 

Total current assets

 

 

148,845

 

 

 

212,582

 

Marketable securities, non-current

 

 

9,507

 

 

 

 

Property and equipment, net

 

 

4,882

 

 

 

2,916

 

Goodwill

 

 

1,585

 

 

 

1,585

 

Other assets

 

 

159

 

 

 

152

 

Total assets

 

$

164,978

 

 

$

217,235

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

6,317

 

 

$

8,229

 

Accrued compensation and employee benefits

 

 

2,837

 

 

 

2,748

 

Deferred revenues

 

 

4,714

 

 

 

9,120

 

Total current liabilities

 

 

13,868

 

 

 

20,097

 

Deferred revenues, non-current

 

 

5,018

 

 

 

4,699

 

Build-to-suit lease obligation

 

 

2,256

 

 

 

 

Total liabilities

 

 

21,142

 

 

 

24,796

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Common stock, $0.01 par value; 160,000,000 shares authorized, 70,621,837 and

   70,354,608 shares issued and outstanding at September 30, 2016 and December 31, 2015,

   respectively

 

 

706

 

 

 

703

 

Additional paid-in capital

 

 

574,340

 

 

 

560,989

 

Accumulated deficit

 

 

(431,287

)

 

 

(369,253

)

Accumulated other comprehensive income

 

 

77

 

 

 

 

Total stockholders' equity

 

 

143,836

 

 

 

192,439

 

Total liabilities and stockholders' equity

 

$

164,978

 

 

$

217,235

 

 

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,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collaboration agreements

 

$

2,728

 

 

$

8,406

 

 

$

10,031

 

 

$

28,878

 

Research grants

 

 

95

 

 

 

163

 

 

 

436

 

 

 

1,540

 

Total revenues

 

 

2,823

 

 

 

8,569

 

 

 

10,467

 

 

 

30,418

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

17,008

 

 

 

16,694

 

 

 

51,728

 

 

 

47,292

 

General and administrative

 

 

5,021

 

 

 

4,560

 

 

 

21,468

 

 

 

14,309

 

Total operating expenses

 

 

22,029

 

 

 

21,254

 

 

 

73,196

 

 

 

61,601

 

Loss from operations

 

 

(19,206

)

 

 

(12,685

)

 

 

(62,729

)

 

 

(31,183

)

Interest and other income, net

 

 

238

 

 

 

101

 

 

 

668

 

 

 

406

 

Loss before income taxes

 

 

(18,968

)

 

 

(12,584

)

 

 

(62,061

)

 

 

(30,777

)

Benefit from income taxes

 

 

3

 

 

 

3,339

 

 

 

27

 

 

 

4,087

 

Net loss

 

$

(18,965

)

 

$

(9,245

)

 

$

(62,034

)

 

$

(26,690

)

Basic and diluted net loss per share

 

$

(0.27

)

 

$

(0.13

)

 

$

(0.88

)

 

$

(0.38

)

Shares used in computing basic and diluted net loss per share

 

 

70,618

 

 

 

69,892

 

 

 

70,493

 

 

 

69,622

 

 

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,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Net loss

 

$

(18,965

)

 

$

(9,245

)

 

$

(62,034

)

 

$

(26,690

)

Change in unrealized gain (loss) on available-for-sale securities, net

 

 

(14

)

 

 

57

 

 

 

77

 

 

 

79

 

Comprehensive loss

 

$

(18,979

)

 

$

(9,188

)

 

$

(61,957

)

 

$

(26,611

)

 

See accompanying notes.

 

5


 

SANGAMO BIOSCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited: in thousands)

 

 

 

Nine months ended

 

 

 

September 30,

 

 

 

2016

 

 

2015

 

Operating Activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(62,034

)

 

$

(26,690

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

745

 

 

 

745

 

Amortization of premium on marketable securities

 

 

159

 

 

 

681

 

Stock-based compensation

 

 

13,128

 

 

 

8,664

 

Change in fair value of contingent consideration liability

 

 

 

 

 

(1,800

)

Intangible impairment

 

 

 

 

 

1,870

 

Other

 

 

54

 

 

 

 

Benefit from income taxes

 

 

(27

)

 

 

(4,087

)

Net changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Interest receivable

 

 

(3

)

 

 

24

 

Accounts receivable

 

 

1,039

 

 

 

3,364

 

Prepaid expenses and other assets

 

 

(725

)

 

 

129

 

Accounts payable and accrued liabilities

 

 

(1,919

)

 

 

(2,534

)

Accrued compensation and employee benefits

 

 

89

 

 

 

(74

)

Deferred revenues

 

 

(4,087

)

 

 

(4,908

)

Net cash used in operating activities

 

 

(53,581

)

 

 

(24,616

)

Investing Activities:

 

 

 

 

 

 

 

 

Purchases of marketable securities

 

 

(188,129

)

 

 

(168,627

)

Maturities of marketable securities

 

 

200,497

 

 

 

203,175

 

Purchases of property and equipment

 

 

(509

)

 

 

(2,327

)

Net cash provided by investing activities

 

 

11,859

 

 

 

32,221

 

Financing Activities:

 

 

 

 

 

 

 

 

Taxes paid related to net share settlement of equity awards

 

 

(534

)

 

 

(48

)

Proceeds from issuance of common stock

 

 

760

 

 

 

6,248

 

Claims settlement under Section 16(b)

 

 

 

 

 

14,452

 

Net cash provided by financing activities

 

 

226

 

 

 

20,652

 

Net increase / (decrease) in cash and cash equivalents

 

 

(41,496

)

 

 

28,257

 

Cash and cash equivalents, beginning of period

 

 

69,482

 

 

 

6,030

 

Cash and cash equivalents, end of period

 

$

27,986

 

 

$

34,287

 

Supplemental disclosure of noncash investing activities:

 

 

 

 

 

 

 

 

Property and equipment included in accrued liabilities

 

$

2,202

 

 

$

 

 

See accompanying notes.

 

 

 

6


 

SANGAMO BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2016

(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, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. The condensed consolidated balance sheet data at December 31, 2015 were derived from the audited consolidated financial statements included in Sangamo’s Form 10-K for the year ended December 31, 2015, 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, 2015, 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, 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. During the first quarter of 2016, we revised the estimated performance period of the upfront Biogen license through June 2019. This change increased net loss by $0.9 million and $2.7 million for the three and nine months ended September 30, 2016, respectively. The change in the performance period also increased our basic net loss per share by $0.02 and $0.04 for the three and nine months ended September 30, 2016, respectively.

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.

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 Vendor Specific Objective Evidence (“VSOE”) of selling price or Third Party Evidence (“TPE”) of selling price. If neither exists, the Company uses Estimated Selling Price (“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, as amended, 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.

7


 

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.

Recent Accounting Standards

In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09, Improvements to Employee Share-Based Payment Accounting, which amends ASC Topic 718, Stock Compensation. The objective of this amendment is part of the FASB’s Simplification Initiative as it applies to several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The guidance is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The Company is currently in the process of evaluating the impact of the pending adoption of ASU 2016-09 on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases. Under the new guidance, lessees will be required to recognize a lease liability and a right-of-use asset for all leases (with the exception of short-term leases) at the commencement date. ASU 2016-02 is effective for annual and interim periods beginning on or after December 15, 2018 and early adoption is permitted. Under ASU 2016-02, lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. Lessees and lessors may not apply a full retrospective transition approach. The Company is currently in the process of evaluating the impact of the pending adoption of ASU 2016-02 on its consolidated financial statements.

In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. ASU 2014-15 requires management to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. In doing so, companies will have reduced diversity in the timing and content of footnote disclosures than under the current guidance. ASU 2014-15 is effective for the Company in the fourth quarter of 2016 with early adoption permitted. The Company does not believe the impact of adopting ASU 2014-15 on its consolidated financial statements will be material.

In May 2014 the FASB 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, and available-for sale-securities. The fair values of these assets were 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, and available-for-sale marketable securities are identified at the following levels within the fair value hierarchy (in thousands):

 

 

 

September 30, 2016

 

 

 

Fair Value Measurements

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

24,113

 

 

$

24,113

 

 

$

 

 

$

 

U.S. government sponsored entity debt securities

 

 

3,002

 

 

 

 

 

 

3,002

 

 

 

 

Total

 

 

27,115

 

 

 

24,113

 

 

 

3,002

 

 

 

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper securities

 

 

25,729

 

 

 

 

 

 

25,729

 

 

 

 

Corporate debt securities

 

 

10,009

 

 

 

 

 

 

10,009

 

 

 

 

U.S. government sponsored entity debt securities

 

 

91,364

 

 

 

 

 

 

91,364

 

 

 

 

Total

 

 

127,102

 

 

 

 

 

 

127,102

 

 

 

 

Total cash equivalents and marketable securities

 

$

154,217

 

 

$

24,113

 

 

$

130,104

 

 

$

 

 

 

 

December 31, 2015

 

 

 

Fair Value Measurements

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

25,070

 

 

$

25,070

 

 

$

 

 

$

 

Commercial paper securities

 

 

2,000

 

 

 

2,000

 

 

 

 

 

 

 

U.S. government sponsored entity debt securities

 

 

38,867

 

 

 

38,867

 

 

 

 

 

 

 

Total

 

 

65,937

 

 

 

65,937

 

 

 

 

 

 

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper securities

 

 

30,717

 

 

 

 

 

 

30,717

 

 

 

 

Corporate debt securities

 

 

17,263

 

 

 

 

 

 

17,263

 

 

 

 

U.S. government sponsored entity debt securities

 

 

91,538

 

 

 

 

 

 

91,538

 

 

 

 

Total

 

 

139,518

 

 

 

 

 

 

139,518

 

 

 

 

Total cash equivalents and marketable securities

 

$

205,455

 

 

$

65,937

 

 

$

139,518

 

 

$

 

 

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.

 

NOTE 3—MARKETABLE SECURITIES

Sangamo classifies its marketable securities as available-for-sale and records its investments at estimated fair value based on quoted market prices or observable market inputs of substantially identical assets. Unrealized holding gains and losses are 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.  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.  Realized gains and losses on available-for-sale securities are included in other income, which is determined using the specific identification method

9


 

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

 

 

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Estimated

 

 

 

Cost

 

 

Gains

 

 

(Losses)

 

 

Fair Value

 

September 30, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

24,113

 

 

$

 

 

$

 

 

$

24,113

 

U.S. government sponsored entity debt securities

 

 

3,002

 

 

 

 

 

 

 

 

 

3,002

 

Total

 

 

27,115

 

 

 

 

 

 

 

 

 

27,115

 

Available-for-sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper securities

 

 

25,655

 

 

 

74

 

 

 

 

 

 

25,729

 

Corporate debt securities

 

 

10,010

 

 

 

 

 

 

(1

)

 

 

10,009

 

U.S. government sponsored entity debt securities

 

 

91,309

 

 

 

55

 

 

 

 

 

 

91,364

 

Total

 

 

126,974

 

 

 

129

 

 

 

(1

)

 

 

127,102

 

Total cash equivalents and available-for-sale securities

 

$

154,089

 

 

$

129

 

 

$

(1

)

 

$

154,217

 

December 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

25,070

 

 

$

 

 

$

 

 

$

25,070

 

Commercial paper securities

 

 

2,000

 

 

 

 

 

 

 

 

 

2,000

 

U.S. government sponsored entity debt securities

 

 

38,866

 

 

 

1

 

 

 

 

 

 

38,867

 

Total

 

 

65,936

 

 

 

1

 

 

 

 

 

 

65,937

 

Available-for-sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper securities

 

 

30,667

 

 

 

50

 

 

 

 

 

 

30,717

 

Corporate debt securities

 

 

17,275

 

 

 

 

 

 

(12

)

 

 

17,263

 

U.S. government sponsored entity debt securities

 

 

91,562

 

 

 

 

 

 

(24

)

 

 

91,538

 

Total

 

 

139,504

 

 

 

50

 

 

 

(36

)

 

 

139,518

 

Total cash equivalents and available-for-sale securities

 

$

205,440

 

 

$

51

 

 

$

(36

)

 

$

205,455

 

 

The Company had no other-than-temporary impairments of its investments for the nine months ended September 30, 2016 or the twelve months ended December 31, 2015. As of September 30, 2016 and December 31, 2015, all of the Company’s investments had maturity dates within two years. The Company had no material realized losses or other-than-temporary impairments of available-for-sale securities as of the nine months ended September 30, 2016. Sangamo has the intent and ability to hold its investments for a period of time sufficient to allow for any anticipated recovery in market value.

 

 

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 restricted stock units, which are all anti-dilutive. The total number of shares subject to stock options and restricted stock units outstanding were excluded from consideration in the calculation of diluted net loss per share. Stock options and restricted stock units outstanding for the nine months ended September 30, 2016 and 2015 were 9,559,727 and 7,868,033, 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).

10


 

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.

In January 2016 Sangamo and Biogen agreed on an updated beta-thalassemia Development Plan and budget using the BCL11A Enhancer target. As a result of this change, the Company updated the estimated performance period of the upfront license through June 2019. Sangamo also updated the milestones to be received based on the updated performance period of our deliverables under the Biogen Agreement. Sangamo received an upfront license fee of $20.0 million upon entering into the Biogen Agreement in January 2014. In addition, the Company will be eligible to receive up to $126.3 million in payments upon the achievement of specified research, regulatory, clinical development milestones, as well as up to $167.5 million in payments upon the achievement of specified commercialization and sales milestones. 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 through June 2019, which is the estimated term during which the Company will perform research services. The estimated period of performance is reviewed quarterly and adjusted, as needed, to reflect our current assumptions regarding the timing of our deliverables. As of September 30, 2016, the Company has deferred revenue of $6.7 million related to the Biogen Agreement.

Revenues recognized under the agreement with Biogen for the three and nine months ended September 30, 2016 and 2015 were as follows (in thousands):

 

 

 

Three months ended

 

 

Nine months ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Revenue related to Biogen Collaboration:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recognition of upfront fee

 

$

607

 

 

$

1,556

 

 

$

1,823

 

 

$

4,619

 

Research services

 

 

1,238

 

 

 

2,594

 

 

 

5,163

 

 

 

5,827

 

Total

 

$

1,845

 

 

$

4,150

 

 

$

6,986

 

 

$

10,446

 

 

11


 

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 $1.2 million and $2.3 million during the three months ended September 30, 2016 and 2015, respectively, and $5.3 million and $4.7 million during the nine months ended September 30, 2016 and, 2015, respectively. Related costs and expenses for other projects including sickle cell disease under the Biogen agreement were $0.1 million and $0.7 million during the three months ended September 30, 2016 and 2015, respectively, and $0.2 million and $2.7 million during the nine months ended September 30, 2016 and 2015, respectively.

Amended 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 original 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 reimbursed Sangamo $3.4 million related to obligations prior to the amendment date which was recognized in revenue and expensed as incurred. During the three and nine months ended September 30, 2016, there were no expenses incurred and no revenue 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 Sangamo 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 straight-line basis over the six-year initial research term during which the Company expects to perform research services. As of September 30, 2016, the Company has deferred revenue of $2.9 million related to the Shire Agreement.

12


 

Revenues recognized under the agreement with Shire for the three and nine months ended September 30, 2016 and 2015 were as follows (in thousands):

 

 

 

Three months ended

 

 

Nine months ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Revenue related to Shire Collaboration:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recognition of upfront fee

 

$

542

 

 

$

542

 

 

$

1,625

 

 

$

1,625

 

Research services

 

 

165

 

 

 

3,313

 

 

 

957

 

 

 

11,729

 

Total

 

$

707

 

 

$

3,855

 

 

$

2,582

 

 

$

13,354

 

 

Related costs and expenses incurred under the Shire agreement were $0.2 million and $3.2 million during the three months ended September 30, 2016 and 2015, respectively, and $0.9 million and $11.9 million during the nine months ended September 30, 2016 and 2015, 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 agreement, 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, valued at $4.9 million, and a $15.1 million upfront license fee. Sangamo has received commercial license fees of $5.0 million based upon a percentage of net sales and sublicensing revenue and thereafter a reduced royalty rate of 10.5% 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, 2016 and 2015 were as follows (in thousands):

 

 

 

Three months ended

 

 

Nine months ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Revenue related to Sigma Collaboration:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Royalty revenues

 

$

42

 

 

$

97

 

 

$

103

 

 

$

390

 

License fee revenues

 

 

7

 

 

 

172

 

 

 

77

 

 

 

4,449

 

Total

 

$

49

 

 

$

269

 

 

$

180

 

 

$

4,839

 

 

Related costs and expenses incurred under the Sigma agreement were $0.1 million and $0.0 million during the three months ended September 30, 2016 and 2015, respectively, and $0.1 million and $0.3 million during the nine months ended September 30, 2016 and 2015, respectively.

Agreement with Dow AgroSciences in Plant Agriculture

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

13


 

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 and Sangamo will be entitled to 25% of any cash consideration received by DAS under such sublicenses. In December 2010, the Company amended its agreement with DAS to extend the period of reagent manufacturing services and research services through December 31, 2012.

The agreement with DAS also provides for minimum sublicense 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 with respect to the sublicensing activities to be conducted by DAS. DAS has the right to terminate the agreement at any time; accordingly, the Company’s actual sublicense fees over the term of the agreement could be lower than $25.3 million. In addition, each party may terminate the agreement upon an uncured material breach by the other party. In the event of any termination of the agreement, all rights to use the Company’s ZFP technology will revert to Sangamo, and DAS will no longer be permitted to practice 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 incurred under the agreement during the three and nine months ended September 30, 2016 and 2015, 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 a potentially curative ZFP Therapeutic for HIV/AIDS based on the application of Sangamo’s 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, 2016 and 2015, respectively. Related costs and expenses incurred under the CIRM Strategic Partnership Award were $0.6 million and $0.6 million during the three months ended September 30, 2016 and 2015, respectively, and $1.2 million and $1.3 million during the nine months ended September 30, 2016 and 2015, respectively.

 

 

NOTE 6—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.  

 

NOTE 7—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, 2016 and 2015 (in thousands):

 

 

 

Three months ended

 

 

Nine months ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Research and development

 

$

1,790

 

 

$

1,595

 

 

$

5,368

 

 

$

5,020

 

General and administrative

 

 

945

 

 

 

1,233

 

 

 

7,760

 

 

 

3,644

 

Total stock-based compensation expense

 

$

2,735

 

 

$

2,828

 

 

$

13,128

 

 

$

8,664

 

 

For the nine months ended September 30, 2016 the Company recognized $4.1 million in stock-based compensation expense and $2.0 million in salaries and benefits associated with separation costs for the transition of the Company’s CEO in June 2016.

14


 

 

NOTE 8—BUILD-TO-SUIT LEASE

In December 2015 the Company entered into a long-term property lease which includes construction by the lessor of a building with approximately 41,400 square feet of space, in Richmond, California. The lease agreement expires five years after substantial completion of the building, which is estimated to occur in late 2016. The Company has two options to extend the lease term for up to a combined additional ten years.

The Company is deemed, for accounting purposes only, to be the owner of the entire project including the building shell, even though it is not the legal owner. In connection with the Company’s accounting for this transaction, the Company will capitalize costs of construction as a build-to-suit property within property and equipment, net, and recognize a corresponding build-to-suit lease obligation for the same amount. As of September 30, 2016, $2.2 million of costs were capitalized in construction in progress with a corresponding build-to-suit lease obligation recognized related to this lease.

Upon construction a portion of the monthly lease payment will be allocated to land rent and recorded as an operating lease expense, and the non-interest portion of the amortized lease payments to the landlord related to the rent of the building will be applied to reduce the build-to-suit lease obligation.

 

 

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, 2015 as filed with the SEC.

Overview

We are the leading company in the field of therapeutic genome editing which we are applying to “Engineer Genetic Cures®” for numerous gene-based diseases. As a clinical stage biopharmaceutical company we are focused on the development of gene therapies including the research, development and commercialization of engineered DNA-binding proteins for therapeutic genome editing and gene regulation.  Our proprietary zinc finger DNA-binding proteins (ZFP) technology enables efficient and highly specific genome editing and gene regulation and we are developing ZFP Therapeutics and gene therapies for the treatment of genetic disease. We have several proprietary clinical and preclinical programs in development and have strategically partnered certain programs with biopharmaceutical companies to obtain funding for our own programs and to expedite clinical and commercial development. Our long-term goal is to forward integrate into manufacturing, development and commercial operations to more fully capture the value of our proprietary ZFP Therapeutic and gene therapy products.

We, and our licensed partners, are the leaders in the research, development and commercialization of ZFPs, a naturally occurring class of proteins found in humans. We have used our knowledge and expertise to develop a proprietary technology platform in both genome editing and gene regulation. ZFPs can be engineered to make ZFP nucleases (ZFNs), proteins that can be used to specifically modify DNA sequences by adding or knocking out specific genes (genome editing) and ZFP transcription factors (ZFP TFs), proteins that can be used to turn genes on or off (gene regulation). As ZFPs act at the DNA level, they potentially have broad and fundamental applications in several areas, including human therapeutics, plant agriculture and research reagents, including the production of transgenic animals and cell-line engineering. In the process of developing this platform we have accrued significant scientific, manufacturing and regulatory capabilities and know-how that is generally applicable in the broader field of gene therapy.

The main focus for our company is the development of novel human 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 genome editing technology and is being evaluated in an ongoing Phase 2 study of ZFN-modified T-cells (SB-728-T-1101, Cohort 3*) and a Phase 1/2 study of modified hematopoietic stem cells (SB-728mR-HSPC) in HIV-infected subjects. We are also initiating a Phase 1/2 study of in vivo genome editing applications of ZFP Therapeutics for hemophilia B and have plans to initiate Phase 1/2 studies of ZFP Therapeutics for the treatment of Mucopolysaccharidosis I (MPS I) and Mucopolysaccharidosis II (MPS II), which are lysosomal storage disorders (LSD).  In addition, we have proprietary preclinical programs in hemophilia A and other LSDs and research stage programs in other monogenic diseases, including certain central nervous system (CNS) disorders and cancer immunotherapy.

We have established collaborative partnership with Biogen Inc., formerly Biogen Idec Inc. (Biogen), to research, develop and commercialize our preclinical ZFP Therapeutic development program in hemoglobinopathies, including sickle cell disease (SCD) and beta-thalassemia.  We also have a collaborative partnership with Shire International GmbH, formerly Shire AG (Shire), to research, develop and commercialize our preclinical ZFP Therapeutic development program in Huntington’s disease (HD).

We have entered into strategic partnerships in fields outside human therapeutics to facilitate the sale or licensing of our ZFP platform. We have a license agreement with Sigma-Aldrich Corporation (Sigma). Under this agreement, Sigma has the exclusive rights to develop and market ZFP-based laboratory research reagents marketed under the trademark CompoZr ® as well as ZFP-modified cell lines for commercial production of protein pharmaceuticals and ZFP-engineered transgenic animals. We also have a license agreement with Dow AgroSciences, LLC (DAS), a wholly owned subsidiary of Dow Chemical Corporation. Under this agreement, DAS has the exclusive rights to use our ZFP technology to modify the genomes or alter protein expression of plant cells, plants, or plant cell cultures and markets our ZFN technology under the trademark EXZACTTM Precision Technology.

We have a substantial intellectual property position in the genome editing field including the design, selection, composition and use of engineered ZFPs to support our commercial activities. As of February 1, 2016, we either owned outright or have exclusively licensed the commercial rights to approximately 760 patents issued in the United States and foreign national jurisdictions, and we have 629 patent applications owned and licensed pending worldwide. We continue to license and file new patent applications that

16


 

strengthen our core and accessory patent portfolio. We believe that our intellectual property position is a critical element in our ability to research, develop and commercialize products and services based on ZFP technology across our chosen applications.

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, 2016, we incurred a consolidated net loss of $19.0 million, or $0.27 per share, compared to a net loss of $9.2 million, or $0.13 per share, for the same period in 2015. For the nine months ended September 30, 2016, we incurred a consolidated net loss of $62.0 million, or $0.88 per share, compared to a net loss of $26.7 million, or $0.38 per share, for the same period in 2015. As of September 30, 2016, we had cash, cash equivalents, marketable securities and interest receivable totaling $155.4 million compared to $209.3 million as of December 31, 2015. As of September 30, 2016, we had an accumulated deficit of $431.3 million.

Our revenues have consisted primarily of revenues from our corporate partners for ZFNs and ZFP TFs, contractual payments from strategic partners for research services and research milestones, and 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 initial terms or that we are able to meet the milestones specified in these agreements.

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 there have been no significant changes in our critical accounting policies and estimates disclosed in our Annual Report on Form 10-K for the year ended December 31, 2015, as filed with the SEC.

Results of Operations

Three and nine months ended September 30, 2016 and 2015

Revenues

 

 

 

Three months ended September 30,

 

 

Nine months ended September 30,

 

 

 

(in thousands, except percentage values)

 

 

(in thousands, except percentage values)

 

 

 

2016

 

 

2015

 

 

Change

 

 

%

 

 

2016

 

 

2015

 

 

Change

 

 

%

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

<