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, 2017

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 THERAPEUTICS, 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, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth 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

 

 

 

 

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

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 November 3, 2017, 84,520,951 shares of the issuer’s common stock, par value $0.01 per share, were outstanding.

 

 

 

 


 

INDEX

SANGAMO THERAPEUTICS, INC.

 

PART I. FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements (Unaudited)

4

 

Condensed Consolidated Balance Sheets at September 30, 2017 and December 31, 2016

4

 

Condensed Consolidated Statements of Operations for the Three Months and Nine Months Ended
September 30, 2017 and 2016

5

 

Condensed Consolidated Statements of Comprehensive Loss for the Three Months and Nine Months Ended
September 30, 2017 and 2016

6

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2017 and 2016

7

 

Notes to Condensed Consolidated Financial Statements

8

Item 2.

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

18

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

23

Item 4.

Controls and Procedures

24

 

 

PART II. OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

25

Item 1A

Risk Factors

25

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

39

Item 3.

Defaults Upon Senior Securities

39

Item 4.

Mine Safety Disclosures

39

Item 5.

Other Information

39

Item 6.

Exhibits

40

 

 

SIGNATURES

41

 

Unless the context suggests otherwise, references in this Quarterly Report on Form 10-Q, or Quarterly Report, to “Sangamo,” the “Company,” “we,” “us,” and “our” refer to Sangamo Therapeutics, Inc. and, where appropriate, our wholly owned subsidiaries.

ZFP Therapeutic®, Engineering Genetic Cures®, and Pioneering Genetic Cures® are registered trademarks of Sangamo Therapeutics, Inc. Any third-party trade names, trademarks and service marks appearing in this Quarterly Report are the property of their respective holders.

 

2


 

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 Quarterly Report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances arising after the date of such statements. Readers are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this Quarterly Report.

 

3


 

PART I. FINANCIAL INFORMATION

 

ITEM  1.

FINANCIAL STATEMENTS

SANGAMO THERAPEUTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

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

 

 

 

September 30,

 

 

December 31,

 

 

 

2017

 

 

2016

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

29,894

 

 

$

22,061

 

Marketable securities

 

 

206,810

 

 

 

120,474

 

Interest receivable

 

 

483

 

 

 

224

 

Accounts receivable

 

 

3,433

 

 

 

4,972

 

Prepaid expenses

 

 

1,720

 

 

 

1,849

 

Total current assets

 

 

242,340

 

 

 

149,580

 

 

 

 

 

 

 

 

 

 

Marketable securities, non-current

 

 

16,325

 

 

 

 

Property and equipment, net

 

 

8,500

 

 

 

6,557

 

Goodwill

 

 

1,585

 

 

 

1,585

 

Other assets

 

 

1,041

 

 

 

169

 

Total assets

 

$

269,791

 

 

$

157,891

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

10,112

 

 

$

6,261

 

Accrued compensation and employee benefits

 

 

4,474

 

 

 

2,885

 

Deferred revenues

 

 

28,357

 

 

 

4,145

 

Total current liabilities

 

 

42,943

 

 

 

13,291

 

Deferred revenues, non-current

 

 

36,326

 

 

 

4,460

 

Build-to-suit lease obligation

 

 

3,870

 

 

 

3,945

 

Total liabilities

 

 

83,139

 

 

 

21,696

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Common stock, $0.01 par value; 160,000,000 shares authorized, 84,104,791 and

   70,871,902 shares issued and outstanding at September 30, 2017 and

   December 31, 2016, respectively

 

 

841

 

 

 

709

 

Additional paid-in capital

 

 

668,330

 

 

 

576,377

 

Accumulated deficit

 

 

(482,388

)

 

 

(440,911

)

Accumulated other comprehensive (loss) income

 

 

(131

)

 

 

20

 

Total stockholders' equity

 

 

186,652

 

 

 

136,195

 

Total liabilities and stockholders' equity

 

$

269,791

 

 

$

157,891

 

 

See accompanying notes.

 

4


 

SANGAMO THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited; in thousands, except per share amounts)

 

 

 

Three months ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collaboration agreements

 

$

11,759

 

 

$

2,728

 

 

$

23,042

 

 

$

10,031

 

Research grants

 

 

53

 

 

 

95

 

 

 

448

 

 

 

436

 

Total revenues

 

 

11,812

 

 

 

2,823

 

 

 

23,490

 

 

 

10,467

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

18,425

 

 

 

17,008

 

 

 

46,351

 

 

 

51,728

 

General and administrative

 

 

6,422

 

 

 

5,021

 

 

 

19,734

 

 

 

21,468

 

Total operating expenses

 

 

24,847

 

 

 

22,029

 

 

 

66,085

 

 

 

73,196

 

Loss from operations

 

 

(13,035

)

 

 

(19,206

)

 

 

(42,595

)

 

 

(62,729

)

Interest and other income, net

 

 

681

 

 

 

238

 

 

 

1,118

 

 

 

668

 

Loss before income taxes

 

 

(12,354

)

 

 

(18,968

)

 

 

(41,477

)

 

 

(62,061

)

Benefit from income taxes

 

 

 

 

 

3

 

 

 

 

 

 

27

 

Net loss

 

$

(12,354

)

 

$

(18,965

)

 

$

(41,477

)

 

$

(62,034

)

Basic and diluted net loss per share

 

$

(0.15

)

 

$

(0.27

)

 

$

(0.55

)

 

$

(0.88

)

Shares used in computing basic and diluted net loss per share

 

 

83,750

 

 

 

70,618

 

 

 

75,814

 

 

 

70,493

 

 

See accompanying notes.

 

5


 

SANGAMO THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited; in thousands)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Net loss

 

$

(12,354

)

 

$

(18,965

)

 

$

(41,477

)

 

$

(62,034

)

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

   securities, net of tax

 

 

12

 

 

 

(14

)

 

 

(131

)

 

 

77

 

Comprehensive loss

 

$

(12,342

)

 

$

(18,979

)

 

$

(41,608

)

 

$

(61,957

)

 

See accompanying notes.

 

6


 

SANGAMO THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited: in thousands)

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2017

 

 

2016

 

Operating Activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(41,477

)

 

$

(62,034

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

1,030

 

 

 

745

 

Amortization of (discount) premium on marketable securities

 

 

(310

)

 

 

159

 

Stock-based compensation

 

 

6,969

 

 

 

13,128

 

Taxes paid related to net share settlement of equity awards

 

 

(71

)

 

 

(534

)

Benefit from income taxes

 

 

 

 

 

(27

)

Other

 

 

 

 

 

54

 

Net changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Interest receivable

 

 

(259

)

 

 

(3

)

Accounts receivable

 

 

1,539

 

 

 

1,039

 

Prepaid expenses and other assets

 

 

(743

)

 

 

(725

)

Accounts payable and accrued liabilities

 

 

3,676

 

 

 

(1,919

)

Accrued compensation and employee benefits

 

 

1,589

 

 

 

89

 

Deferred revenues

 

 

56,078

 

 

 

(4,087

)

Net cash provided by (used in) operating activities

 

 

28,021

 

 

 

(54,115

)

Investing Activities:

 

 

 

 

 

 

 

 

Purchases of marketable securities

 

 

(229,595

)

 

 

(188,129

)

Maturities of marketable securities

 

 

127,093

 

 

 

200,497

 

Purchases of property and equipment

 

 

(2,873

)

 

 

(509

)

Net cash (used in) provided by investing activities

 

 

(105,375

)

 

 

11,859

 

Financing Activities:

 

 

 

 

 

 

 

 

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

 

 

81,573

 

 

 

 

Proceeds from issuance of common stock

 

 

3,614

 

 

 

760

 

Net cash provided by financing activities

 

 

85,187

 

 

 

760

 

Net increase (decrease) in cash and cash equivalents

 

 

7,833

 

 

 

(41,496

)

Cash and cash equivalents, beginning of period

 

 

22,061

 

 

 

69,482

 

Cash and cash equivalents, end of period

 

$

29,894

 

 

$

27,986

 

Supplemental disclosure of noncash investing activities:

 

 

 

 

 

 

 

 

Property and equipment included in accrued liabilities

 

$

50

 

 

$

2,202

 

 

See accompanying notes.

 

 

 

7


 

SANGAMO THERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2017

(Unaudited)

 

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

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Sangamo Therapeutics, 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, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. The condensed consolidated balance sheet data at December 31, 2016 were derived from the audited consolidated financial statements included in Sangamo’s Annual Report on Form 10-K for the year ended December 31, 2016, (the “2016 Annual Report”), 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, 2016, included in the 2016 Annual Report.

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.

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, as amended, if applicable, entered into with (i) Shire International GmbH, formerly Shire AG (“Shire”), in January 2012, and (ii) Bioverativ Inc. (“Bioverativ”), the blood disorder spin-off of Biogen Inc., formerly Biogen Idec MA Inc. (“Biogen”) in January 2014 were evaluated under these amended accounting standards.

For the Company’s arrangement entered into May 2017 with Pfizer, Inc. (“Pfizer”), the Company recognizes revenue as a single unit of account as the license, research and development activities cannot be separated and therefore do not have standalone value.

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.

8


 

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 assuming all other applicable revenue recognition criteria have been met. 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.

Recent Accounting Standards

In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-09, Compensation – Stock Compensation (Topic 718) (“ASU 2016-09”). ASU 2016-09 involves several aspects of the accounting for share-based transactions, including the income tax consequences, classification of awards as either equity or liabilities, how to account for forfeitures, and classification on the statement of cash flows. The amendments in this update are effective for the Company for its fiscal year 2017. As a result of the adoption of ASU 2016-09, the Company recognized current and prior excess tax benefits related to the exercise of options in its income tax provision.  As a result of the Company’s historic and current losses and valuation allowance applied to its deferred tax assets, the gross cumulative effect when considering the federal and state tax impact is $7.5 million. The Company has elected to prospectively apply the amendments related to classifying cash flows related to excess tax benefits as an operating activity. For the quarter ended September 30, 2017 excess tax benefits were classified as an operating activity on the consolidated statement of cash flows, along with other income tax cash flows. The Company has made a policy election to account for forfeitures as they occur. This election was adopted using the prospective approach resulting in an immaterial cumulative effect on retained earnings at the beginning of the period. Prior to the adoption, forfeitures were accounted for using an estimated forfeiture rate.

In February 2016, the FASB issued ASU No. 2016-02 Leases (“ASU 2016-02”). ASU 2016-02 amends a number of aspects of lease accounting, including requiring lessees to recognize almost all leases with a term greater than one year as a right-of-use asset and corresponding liability, measured at the present value of the lease payments. The guidance will become effective for the Company beginning in the first quarter of 2019 with early adoption permitted and will be adopted using a modified retrospective approach. The Company is evaluating the impact of the adoption of this standard on its consolidated financial statements, and expects that its operating lease commitments will be subject to the new standard and recognized as right-of-use assets and operating lease liabilities upon adoption, which will increase the Company’s total assets and total liabilities as compared to amounts prior to adoption.

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). The Company elected to apply the 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 has performed a preliminary assessment and continues to evaluate the impact of the pending adoption of ASU 2014-09 on its consolidated financial statements and has determined that the collaborations with Pfizer, Bioverativ, Shire, Dow AgroSciences LLC (“DAS”) and Sigma-Aldrich Corporation, which was acquired by Merck KGaA and renamed MilliporeSigma (“Sigma”) are within its scope. The Company is assessing the various components of these collaborations under ASC 2014-09 including the upfront license payment, milestones, and research and development services. At this time the Company is evaluating the impact to its financial position and results of operations upon adoption of ASU 2014-09.

9


 

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).

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, 2017

 

 

 

Fair Value Measurements

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

14,710

 

 

$

14,710

 

 

$

 

 

$

 

Total

 

 

14,710

 

 

 

14,710

 

 

 

 

 

 

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper securities

 

 

106,727

 

 

 

 

 

 

106,727

 

 

 

 

Corporate debt securities

 

 

80,126

 

 

 

 

 

 

80,126

 

 

 

 

U.S. government-sponsored entity debt securities

 

 

36,282

 

 

 

 

 

 

36,282

 

 

 

 

Total

 

 

223,135

 

 

 

 

 

 

223,135

 

 

 

 

Total cash equivalents and marketable securities

 

$

237,845

 

 

$

14,710

 

 

$

223,135

 

 

 

 

 

 

 

December 31, 2016

 

 

 

Fair Value Measurements

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

18,992

 

 

$

18,992

 

 

$

 

 

$

 

Total

 

 

18,992

 

 

 

18,992

 

 

 

 

 

 

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper securities

 

 

23,185

 

 

 

 

 

 

23,185

 

 

 

 

Corporate debt securities

 

 

10,004

 

 

 

 

 

 

10,004

 

 

 

 

U.S. government-sponsored entity debt securities

 

 

87,285

 

 

 

 

 

 

87,285

 

 

 

 

Total

 

 

120,474

 

 

 

 

 

 

120,474

 

 

 

 

Total cash equivalents and marketable securities

 

$

139,466

 

 

$

18,992

 

 

$

120,474

 

 

$

 

 

The Company generally classifies its marketable securities as Level 2. Instruments are 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

The Company 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

10


 

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

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

 

 

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Estimated

 

 

 

Cost

 

 

Gains

 

 

(Losses)

 

 

Fair Value

 

September 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

14,710

 

 

$

 

 

$

 

 

$

14,710

 

Total

 

 

14,710

 

 

 

 

 

 

 

 

 

14,710

 

Available-for-sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper securities

 

 

106,759

 

 

 

2

 

 

 

(34

)

 

 

106,727

 

Corporate debt securities

 

 

80,177

 

 

 

 

 

 

(51

)

 

 

80,126

 

U.S. government-sponsored entity debt securities

 

 

36,300

 

 

 

 

 

 

(18

)

 

 

36,282

 

Total

 

 

223,236

 

 

 

2

 

 

 

(103

)

 

 

223,135

 

Total cash equivalents and available-for-sale securities

 

$

237,946

 

 

 

2

 

 

$

(103

)

 

$

237,845

 

December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

18,992

 

 

$

 

 

$

 

 

$

18,992

 

Total

 

 

18,992

 

 

 

 

 

 

 

 

 

18,992

 

Available-for-sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper securities

 

 

23,112

 

 

 

73

 

 

 

 

 

 

23,185

 

Corporate debt securities

 

 

10,005

 

 

 

 

 

 

(1

)

 

 

10,004

 

U.S. government-sponsored entity debt securities

 

 

87,307

 

 

 

3

 

 

 

(25

)

 

 

87,285

 

Total

 

 

120,424

 

 

 

76

 

 

 

(26

)

 

 

120,474

 

Total cash equivalents and available-for-sale securities

 

$

139,416

 

 

$

76

 

 

$

(26

)

 

$

139,466

 

 

The Company had no material realized losses or other-than-temporary impairments of its investments for the nine months ended September 30, 2017 or the twelve months ended December 31, 2016. As of September 30, 2017 and December 31, 2016, all of the Company’s investments had maturity dates within one year, except for $16.3 million as of September 30, 2017 which mature within 24 months.  The Company 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 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 as of September 30, 2017 and 2016 were 9,581,024 and 9,559,727, respectively.

 

11


 

NOTE 5—MAJOR CUSTOMERS, PARTNERSHIPS AND STRATEGIC ALLIANCES

Collaboration Agreements

Collaboration and License Agreement with Pfizer Inc. in Human Therapeutics

On May 10, 2017, Sangamo entered into an Exclusive, Global Collaboration and License Agreement (the “Pfizer Agreement”) with Pfizer pursuant to which Sangamo and Pfizer established a collaboration for the research, development and commercialization of SB-525, Sangamo’s gene therapy product candidate for hemophilia A, and closely related products.

Under the Pfizer Agreement, Sangamo will be responsible for conducting the Phase 1/2 clinical trial and certain manufacturing activities for SB-525, while Pfizer will be responsible for subsequent worldwide development, manufacturing, marketing and commercialization of SB-525.  Sangamo and Pfizer may also collaborate in the research and development of additional adeno-associated virus (“AAV”)-based gene therapy products for hemophilia A.  

Under the Pfizer Agreement, Sangamo received an upfront fee of $70.0 million from Pfizer.  In addition, Sangamo is eligible to receive $208.5 million in payments upon the achievement of specified clinical development, intellectual property, regulatory and $266.5 million in payment upon first commercial sale milestones for SB-525 and potentially other products. The total amount of potential clinical development, intellectual property, regulatory, and first commercial sale milestone payments, assuming the achievement of all specified milestones in the Pfizer Agreement, is $475.0 million, which includes up to $300.0 million for SB-525 and up to $175.0 million for other products that may be developed under the Pfizer Agreement, subject to reduction on account of payments made under certain licenses for third party intellectual property.  In addition, Pfizer has agreed to pay Sangamo royalties for each potential licensed product developed under the Pfizer Agreement that are an escalating tiered, double-digit percentage of the annual net sales of such product and are subject to reduction due to patent expiration, entry of biosimilar products to the market and payment made under certain licenses for third party intellectual property.  To date, no milestone payments have been received and no products have been approved and therefore no royalty fees have been earned under the Pfizer Agreement.

Subject to the terms of the Pfizer Agreement, Sangamo granted Pfizer an exclusive, worldwide, royalty-bearing license, with the right to grant sublicenses, to use certain technology controlled by Sangamo for the purpose of developing, manufacturing and commercializing SB-525 and related products.  Under the Pfizer Agreement, Pfizer granted Sangamo a non-exclusive, worldwide, royalty free, fully paid license, with the right to grant sublicenses, to use certain manufacturing technology developed under the Pfizer Agreement and controlled by Pfizer to manufacture Sangamo’s products that utilize the AAV delivery system.  During a specified period, neither Sangamo nor Pfizer will be permitted to clinically develop or commercialize, outside of the collaboration, certain AAV-based gene therapy products for hemophilia A.

The Company has identified the deliverables within the Pfizer Agreement as a license to the technology and on-going services. The Company concluded that the license is not a separate unit of accounting as it does not have stand-alone value to Pfizer apart from the services to be performed by the Company pursuant to the Pfizer Agreement. As a result, the Company will recognize revenue from the upfront payment on a straight-line basis over a thirty-two month estimated time over which the Company will perform services under the Pfizer agreement. The recognition period will be reviewed quarterly and adjusted, as needed, to reflect the Company’s current assumptions regarding the period of performance. As of September 30, 2017, the Company had deferred revenue of $59.6 million related to the Pfizer Agreement. During the three and nine months ended September 30, 2017 the Company recognized revenue of $6.6 million and $10.4 million, respectively, related to the upfront fee that was received upon entering into the Pfizer agreement.

Collaboration and License Agreement with Bioverativ Inc. in Human Therapeutics

In January 2014, the Company entered into a Global Research, Development and Commercialization Collaboration and License Agreement with Biogen (the “Bioverativ Agreement”), and in January 2017 this agreement was assigned by Biogen to its blood disorder spin-off, Bioverativ.  Pursuant to the Bioverativ Agreement, Sangamo and Bioverativ 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 Bioverativ Agreement, Sangamo and Bioverativ 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 therapeutic developed under the Bioverativ 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 a ZFP-based therapeutic intended to treat SCD. For both programs, Bioverativ is responsible for subsequent world-wide clinical development, manufacturing and commercialization of licensed products developed under the Bioverativ Agreement. At the end of specified research terms for each program or under certain specified circumstances, Bioverativ retains the right to step in and take over any remaining activities of Sangamo. Furthermore, Sangamo has an option to co-

12


 

promote in the United States any licensed products to treat beta-thalassemia and SCD developed under the Bioverativ Agreement, and Bioverativ agrees to compensate Sangamo for such co-promotion activities.

Sangamo received an upfront license fee of $20.0 million upon entering into the Bioverativ Agreement. In addition, the Company will also be eligible to receive $115.8 million in payments upon the achievement of specified research, regulatory, clinical development milestones, as well as $160.5 million in payments upon the achievement of specified commercialization and sales milestones. Bioverativ reimburses Sangamo for agreed upon costs incurred in connection with research and development activities conducted by Sangamo, including Phase 1 contingent payments of $7.5 million for the SCD program and $6.0 million for the beta-thalassemia program. In addition, if products are commercialized under the Bioverativ Agreement, Bioverativ 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 Bioverativ Agreement.

In January 2016, the parties agreed on an updated beta-thalassemia development plan and budget using the BCL11A Enhancer target. In November 2016, Sangamo and Bioverativ agreed on an updated beta-thalassemia development plan and budget. As a result of this change, the Company updated the estimated performance period of the upfront license through June 2020, and updated the milestones to be received based on the updated performance period of its deliverables under the Bioverativ Agreement.

All contingent payments under the Bioverativ Agreement, when earned, will be non-refundable and non-creditable. The Company has evaluated the contingent payments under the Bioverativ 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 Bioverativ Agreement, assuming all other applicable revenue recognition criteria have been met.

Subject to the terms of the Bioverativ Agreement, Sangamo has granted Bioverativ 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 Bioverativ Agreement. Sangamo has also granted Bioverativ a non-exclusive, world-wide, royalty free, fully paid license, with the right to grant sublicenses, under Sangamo’s interest in certain other intellectual property developed pursuant to the Bioverativ Agreement.

The Company has identified the deliverables within the arrangement as a license to the technology and on-going research services activities. The Company concluded that the license is not a separate unit of accounting as it does not have stand-alone value to Bioverativ apart from the research services to be performed pursuant to the Bioverativ Agreement. As a result, the Company will recognize revenue from the upfront payment on a straight-line basis over a forty-four month estimated research term as of the November 2016 modification date, during which time the Company will perform research services. The estimated period of performance is reviewed quarterly and adjusted, as needed, to reflect the Company’s current assumptions regarding the timing of its deliverables. As of September 30, 2017, the Company had deferred revenue of $5.0 million related to the Bioverativ Agreement.

Revenues recognized under the agreement with Bioverativ for the three months and nine months ended September 30, 2017 and 2016 were as follows (in thousands):

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Revenue related to Bioverativ Collaboration:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recognition of upfront fee

 

$

442

 

 

$

607

 

 

$

1,326

 

 

$

1,823

 

Research services

 

 

2,959

 

 

 

1,238

 

 

 

7,736

 

 

 

5,163

 

Total

 

$

3,401

 

 

$

1,845

 

 

$

9,062

 

 

$

6,986

 

 

Costs and expenses incurred under the Bioverativ Agreement related to the beta-thalassemia project were $2.8 million and $1.2 million during the three months ended September 30, 2017 and 2016, respectively, and $7.3 million and $5.3 million during the nine months ended September 30, 2017 and, 2016, respectively.

13


 

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

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

Under the original Shire Agreement, the Company and Shire agreed to develop potential genome editing products or diagnostic products for up to 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 may be used for treating or diagnosing hemophilia A and B. Shire had the right, subject to certain limitations, to designate two additional gene targets, and in June 2012, Shire selected a fifth gene target for the development of a therapeutic for Huntington’s disease. 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 therapeutics for hemophilia A and B.  Shire retained the rights and will continue to develop a therapeutic for Huntington’s disease.  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 amended agreement, each company is responsible for expenses associated with its own programs and Shire will reimburse Sangamo for any ongoing services provided by Sangamo for Shire’s programs. Sangamo has granted Shire a right of first negotiation to license Sangamo’s hemophilia A and B products for genome editing purposes developed under the amended Shire Agreement based on Sangamo’s ZFP technology. Under the amended agreement, Shire does not have any milestone payment obligations with respect to the retained programs, but it is required to pay single digit percentage royalties to Sangamo, up to a specified maximum cap, on the commercial sales of therapeutic products from such programs. Under the Shire Agreement as amended, Sangamo has full control over, and full responsibility for the costs of, the hemophilia programs returned to it, 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 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. As of September 30, 2017, the Company had recognized the remaining deferred revenue of $1.2 million related to the Shire amendment as the research services were completed.

Revenues recognized under the agreement with Shire for the three and nine months ended September 30, 2017 and 2016 were as follows (in thousands):

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Revenue related to Shire Collaboration:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recognition of upfront fee

 

$

1,166

 

 

$

542

 

 

$

2,333

 

 

$

1,625

 

Research services

 

 

6

 

 

 

165

 

 

 

116

 

 

 

957

 

Total

 

$

1,172

 

 

$

707

 

 

$

2,449

 

 

$

2,582

 

 

Related costs and expenses incurred under the Shire agreement were $0.0 million and $0.2 million during the three months ended September 30, 2017 and 2016, and $0.0 million and $0.9 million during the nine months ended September 30, 2017 and 2016, respectively.

14


 

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. 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 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 and other pharmaceuticals and certain ZFP-engineered transgenic animals for commercial applications. Under the terms of the expanded 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 for commercial products and once such amount was received, the Company receives 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, 2017 and 2016 were as follows (in thousands):

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Revenue related to Sigma Collaboration:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Royalty revenues

 

$

18

 

 

$

42

 

 

$

68

 

 

$

103

 

License fee revenues

 

 

 

 

 

7

 

 

 

267

 

 

 

77

 

Total

 

$

18

 

 

$

49

 

 

$

335

 

 

$

180

 

 

Related costs and expenses incurred under the Sigma agreement were $0.0 million during both the three and nine months ended September 30, 2017 and 2016, respectively.

Agreement with Dow AgroSciences in Plant Agriculture

In October 2005, the Company entered into an exclusive commercial license agreement with 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 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 eleven 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.

15


 

Revenues recognized under the agreement with DAS were $0.4 million during three and nine months ended September 30, 2017. There were no revenues recognized for the three and nine months ended September 30, 2016. There were no costs and expenses incurred under the agreement with DAS during the three and nine months ended September 30, 2017 and 2016, respectively.

Funding from Research Foundations

California Institute for Regenerative Medicine (“CIRM”) - HIV

In May 2014, CIRM agreed to fund a $5.6 million Strategic Partnership Award to fund the clinical studies of a potentially curative 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 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 this Strategic Partnership Award during the three and nine months ended either September 30, 2017 or 2016. Related costs and expenses incurred under the CIRM Strategic Partnership Award were $0.5 million and $0.6 million during the three months ended September 30, 2017 and 2016, respectively, and $0.8 million and $1.2 million during the nine months ended September 30, 2017 and 2016, 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, 2017 and 2016 (in thousands):

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Research and development

 

$

1,331

 

 

$

1,790

 

 

$

3,766

 

 

$

5,368

 

General and administrative

 

 

888

 

 

 

945

 

 

 

3,203

 

 

 

7,760

 

Total stock-based compensation expense

 

$

2,219

 

 

$

2,735

 

 

$

6,969

 

 

$

13,128

 

 

Included in the above stock-based compensation table for the nine months ended September 30, 2017 is $0.8 million related to a modification of options for the Company’s former chief financial officer who retired during the three months ended March 31, 2017. For the nine months ended September 30, 2016 the Company recognized $4.1 million in stock-based compensation expense associated with separation costs for the transition of the Company’s former chief executive officer in June 2016.

 

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. Substantial completion of the building was accomplished in December 2016, at which time the lease commenced. The lease agreement expires in December 2021, five years after substantial completion of the building. 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 capitalized the 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, 2017, $3.8 million of costs were capitalized in buildings with a corresponding build-to-suit lease obligation recognized related to this lease.

16


 

Construction has completed on the facility and as such a portion of the monthly lease payment is 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 is applied to reduce the build-to-suit lease obligation.  

 

 

NOTE 9— STOCKHOLDERS’ EQUITY

On May 26, 2017, the Company entered into an Amended and Restated At-the-Market Offering Program Sales Agreement (the “2017 ATM Agreement”) with an investment bank pursuant to which the Company may issue and sell from time to time after the date of the 2017 ATM Agreement, shares of its common stock having an aggregate offering price of up to $75.0 million through the investment bank acting as the Company’s sales agent. Under the 2017 ATM Agreement, if the Company decides to sell shares, the Company will notify the sales agent, and the sales agent will use its commercially reasonable efforts to sell on the Company’s behalf all of the shares of common stock requested to be sold.  Sales of the Company’s common stock, if any, will be made at market prices by any method that is deemed to be an “at the market offering” as defined in Rule 415 under the Securities Act, as amended, including sales made directly on The NASDAQ Global Select Market and sales to or through a market maker other than on an exchange. In addition, with the Company’s prior written consent, the sales agent may also sell shares of its common stock in negotiated transactions under the 2017 ATM Agreement.  During the three months ended March 31, 2017, the Company issued a total of 871,149 shares of its common stock under the original At-the-Market Offering Program Sales Agreement entered into with the sales agent in December 2016, and received net proceeds of $3.4 million, after deducting offering expenses, including $0.1 million of commission paid to the sales agent. These shares were inadvertently sold under a registration statement filed with the SEC that had in fact expired prior to the time the shares were sold.  Consequently, the Company may be subject to claims for rescission by purchasers who purchased shares of common stock under the ATM Agreement in March 2017.  Under Section 12(a)(1) of the Securities Act, a purchaser of security in a transaction made in violation of Section 5 of the Securities Act may obtain recovery of the consideration paid in connection with its purchase, plus statutory interest, or, if it had already sold the shares, recover damages resulting from its purchase. While the Company believes it is unlikely that a successful claim will be asserted against the Company by any purchasers who purchased shares of common stock under the ATM Agreement in March 2017, the Company cannot guarantee that no such legal claims will be asserted against the Company by any purchasers. In addition, the Company could become subject to enforcement actions and/or penalties and fines by federal authorities, and the Company is unable to predict the likelihood of any such enforcement actions being brought, or the amount of any such potential penalties or fines.

On June 26, 2017, Sangamo completed an underwritten public offering of its common stock, in which the Company sold an aggregate of 11.5 million shares of its common stock at a public offering price of $7.25 per share. The net proceeds to Sangamo from the sale of shares in this offering, after deducting underwriting discounts and commissions and other estimated offering expenses, were approximately $78.1 million.

 

NOTE 10— SUBSEQUENT EVENT

 

On November 3, 2017, Sangamo Therapeutics, Inc. (the “Company”) entered into a Lease Agreement (the “Lease”) with Marina Boulevard Property, LLC (“Landlord”) for the lease of approximately 87,695 square feet of rentable area of the building located at 7000 Marina Boulevard, Brisbane, California (the “Premises”). The Company expects to occupy the Premises upon completion of tenant improvements, which the Company expects will occur by the end of 2018. The Company plans to use the Premises as its new principal executive offices and for general office, research and development, lab and manufacturing uses. After the relocation, the Company plans to continue to utilize its currently-leased space located in Richmond, California as a research center.  

Unless earlier terminated, the term of the Lease (the “Initial Term”) will commence on June 1, 2018 (the “Commencement Date”) and will expire the day before the eleventh anniversary of the Commencement Date. The aggregate base rent due over the Initial Term under the terms of the Lease is approximately $38 million (without giving effect to certain rent abatement terms). The Company will also be responsible for the payment of additional rent to cover certain costs, taxes and insurance. Based on the estimated monthly additional rent for 2017 as set forth in the Lease, the Company estimates that the additional rent during the Initial Term will be approximately $10 million. The Company also expects to pay approximately $15 million for leasehold improvements, net of the tenant improvement allowance.

The Company has two renewal options to extend the term of the Lease for a period of five years each (each, a “Renewal Term”) beyond the Initial Term. Under the terms of the Lease, the base rent payable with respect to each Renewal Term will be equal to 90% of the prevailing market rental rent as of the commencement of the applicable Renewal Term. In the event of a default of certain of the Company’s obligations under the Lease, Landlord would have right to terminate the Lease. At this time the Company is assessing the accounting impact of the lease.  

 

17


 

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 our actual results, performance or achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements , including but not limited to those described under the caption “Risk Factors” herein and in our Annual Report on Form 10-K for the year ended December 31, 2016, or 2016 Annual Report, as filed with the Securities and Exchange Commission, or SEC. 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 2016 Annual Report.

Overview

We are a clinical stage biotechnology company focused on translating ground-breaking science into genomic therapies that transform patients’ lives using our industry-leading platform technologies in genome editing, gene therapy, gene regulation and cell therapy. Our proprietary zinc finger DNA-binding proteins, or ZFP technology enables efficient and highly specific genome editing and gene regulation, and we are developing genome editing and gene therapies for the treatment of diverse diseases with well-characterized genetic causes. 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 genome editing 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 zinc finger nucleases, or ZFNs, proteins that can be used to specifically modify DNA sequences by adding or knocking out specific genes (genome editing), and ZFP transcription factors or ZFP TFs, proteins that can be used to increase or decrease gene function (gene regulation). Although we are focused on the development of human therapeutic applications, ZFPs act at the DNA level and potentially have broad and fundamental applications in several other areas, such as 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 human therapeutics. We have initiated Phase 1/2 clinical trials evaluating our proprietary ZFN in vivo genome editing approach for the treatment of hemophilia B, a blood disorder, Mucopolysaccharidosis I, or MPS I, and Mucopolysaccharidosis II, or MPS II, rare lysosomal storage disorders, or LSDs.  We have also initiated a Phase 1/2 clinical trial evaluating a gene therapy for the treatment of hemophilia A, a blood disorder. In addition, we have proprietary preclinical programs in other LSDs and research stage programs in other monogenic diseases, including certain central nervous system disorders and cancer immunotherapy.

We have established a collaborative partnership with Bioverativ, Inc., or Bioverativ, the blood disorder spin-off of Biogen Inc., formerly Biogen Idec MA Inc., to research, develop and commercialize therapeutic gene-edited cell therapy products in hemoglobinopathies, including sickle cell disease, or SCD and beta-thalassemia. The U.S. Food and Drug Administration, or FDA, has approved the Investigational New Drug Application, or IND, relating to a gene-edited cell therapy candidate for the treatment of beta-thalassemia, enabling us to initiate a clinical trial evaluating such product candidate for the treatment of beta-thalassemia. We expect to begin enrolling patients in that study in the first half of 2018. We also have a collaborative partnership with Shire International GmbH, formerly Shire AG, or Shire, to research, develop and commercialize a preclinical development program related to Huntington’s disease.

On May 10, 2017, we entered into an Exclusive, Global Collaboration and License Agreement, or the Pfizer Agreement, with Pfizer Inc., or Pfizer, pursuant to which we and Pfizer established a collaboration for the research, development and commercialization of SB-525, our gene therapy product candidate for hemophilia A, and closely related products. Under the Pfizer Agreement, we will be responsible for conducting the Phase 1/2 clinical trial and certain manufacturing activities for SB-525, while Pfizer will be responsible for subsequent worldwide development, manufacturing, marketing and commercialization of SB-525.  We and Pfizer may also collaborate in the research and development of additional adeno-associated virus or AAV-based gene therapy products for hemophilia A.  See “Liquidity and Capital Resources” below.

18


 

Additionally, we have a legacy clinical development program evaluating SB-728-T, a ZFN-modified autologous T-cell product and SB-728-HSPC, a ZFN-modified autologous hematopoietic stem cell product for the treatment of HIV/AIDS. We have determined that HIV/AIDS is not a primary strategic focus for our Company, and we intend to seek collaborative partnerships before investing further in the development of human therapeutics for these indications.

In fields outside human therapeutics, we have entered into strategic partnerships to facilitate the sale or licensing of our ZFP platform. We have a license agreement with Sigma-Aldrich Corporation, which was acquired by Merck KGaA and renamed MilliporeSigma, or 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 or 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 July 26, 2017, we either owned outright or have exclusively licensed the commercial rights to approximately 812 patents issued in the United States and foreign national jurisdictions, and 617 patent applications pending worldwide.  We continue to license and file new patent applications that 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 genome editing, gene therapy, gene regulation and cell therapy across our chosen applications.

In the development of our ZFP technology platform, we are focusing our resources on higher-value product development for therapeutic use in humans. Development of novel therapeutic products is costly and 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 for our therapeutic programs.

On January 5, 2017, we changed our corporate name from “Sangamo BioSciences, Inc.” to “Sangamo Therapeutics, Inc.” The new corporate name underscores our focus on clinical development of genomic therapies using our industry-leading platform technologies across genome editing, gene therapy, gene regulation and cell therapy.

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. There have been no significant changes in our critical accounting policies and estimates disclosed in our 2016 Annual Report.

Results of Operations

Three and nine months ended September 30, 2017 and 2016

Revenues

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

(in thousands, except percentage values)

 

 

(in thousands, except percentage values)

 

 

 

2017

 

 

2016

 

 

Change

 

 

%

 

 

2017

 

 

2016

 

 

Change

 

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collaboration agreements

 

$

11,759

 

 

$

2,728

 

 

$

9,031

 

 

 

331%

 

 

$

23,042

 

 

$

10,031

 

 

$

13,011

 

 

 

130%

 

Research Grants

 

 

53

 

 

 

95

 

 

 

(42

)

 

 

-44%