Ion

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 June 30, 2018

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 August 1, 2018, 101,673,757 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 June 30, 2018 and December 31, 2017

4

 

Condensed Consolidated Statements of Operations for the Three and Six Months Ended
June 30, 2018 and 2017

5

 

Condensed Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended
June 30, 2018 and 2017

6

 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2018 and 2017

7

 

Notes to Condensed Consolidated Financial Statements

8

Item 2.

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

21

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

26

Item 4.

Controls and Procedures

27

 

 

PART II. OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

28

Item 1A

Risk Factors

28

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

62

Item 3.

Defaults Upon Senior Securities

62

Item 4.

Mine Safety Disclosures

62

Item 5.

Other Information

62

Item 6.

Exhibits

63

 

 

SIGNATURES

65

 

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.

 

Convenience translations between Euros (€) and U.S. dollars provided herein are based on the noon buying rate in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York on July 27, 2018, or €1.00 = $1.166. We do not represent that Euros were, could have been, or could be, converted into U.S. dollars at such rate or at any other rate.

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;

 

the proposed acquisition of TxCell S.A., including the expected timing, term and anticipated benefits thereof;

 

partnering, other 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)

 

 

 

June 30,

 

 

December 31,

 

 

 

2018

 

 

2017

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

59,406

 

 

$

49,826

 

Marketable securities

 

 

480,040

 

 

 

193,482

 

Interest receivable

 

 

562

 

 

 

240

 

Accounts receivable

 

 

4,977

 

 

 

3,343

 

Prepaid expenses and other current assets

 

 

5,064

 

 

 

1,506

 

Total current assets

 

 

550,049

 

 

 

248,397

 

 

 

 

 

 

 

 

 

 

Marketable securities, non-current

 

 

34,182

 

 

 

1,012

 

Property and equipment, net

 

 

37,223

 

 

 

31,066

 

Goodwill

 

 

1,585

 

 

 

1,585

 

Restricted cash and other non-current assets

 

 

4,688

 

 

 

4,681

 

Total assets

 

$

627,727

 

 

$

286,741

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

14,388

 

 

$

11,035

 

Accrued compensation and employee benefits

 

 

4,346

 

 

 

5,479

 

Deferred revenues

 

 

57,215

 

 

 

28,345

 

Total current liabilities

 

 

75,949

 

 

 

44,859

 

Deferred revenues, non-current

 

 

137,731

 

 

 

29,244

 

Build-to-suit lease obligation

 

 

26,180

 

 

 

24,738

 

Total liabilities

 

 

239,860

 

 

 

98,841

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Common stock, $0.01 par value; 160,000,000 shares authorized, 101,623,521 and

  85,598,534 shares issued and outstanding at June 30, 2018 and

   December 31, 2017, respectively

 

 

1,016

 

 

 

856

 

Additional paid-in capital

 

 

918,197

 

 

 

682,809

 

Accumulated deficit

 

 

(531,189

)

 

 

(495,479

)

Accumulated other comprehensive loss

 

 

(157

)

 

 

(286

)

Total stockholders' equity

 

 

387,867

 

 

 

187,900

 

Total liabilities and stockholders' equity

 

$

627,727

 

 

$

286,741

 

 

See accompanying notes.

 

4


 

SANGAMO THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited; in thousands, except per share amounts)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collaboration agreements

 

$

21,289

 

 

$

7,977

 

 

$

33,840

 

 

$

11,283

 

Research grants

 

 

127

 

 

 

276

 

 

 

213

 

 

 

395

 

Total revenues

 

 

21,416

 

 

 

8,253

 

 

 

34,053

 

 

 

11,678

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

29,255

 

 

 

14,984

 

 

 

52,802

 

 

 

27,926

 

General and administrative

 

 

11,301

 

 

 

6,037

 

 

 

21,388

 

 

 

13,312

 

Total operating expenses

 

 

40,556

 

 

 

21,021

 

 

 

74,190

 

 

 

41,238

 

Loss from operations

 

 

(19,140

)

 

 

(12,768

)

 

 

(40,137

)

 

 

(29,560

)

Interest and other income, net

 

 

2,500

 

 

 

277

 

 

 

3,310

 

 

 

437

 

Net loss

 

$

(16,640

)

 

$

(12,491

)

 

$

(36,827

)

 

$

(29,123

)

Basic and diluted net loss per share

 

$

(0.17

)

 

$

(0.17

)

 

$

(0.40

)

 

$

(0.41

)

Shares used in computing basic and diluted net loss per share

 

 

97,267

 

 

 

72,527

 

 

 

91,831

 

 

 

71,780

 

 

 

 

See accompanying notes.

 

5


 

SANGAMO THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited; in thousands)

 

 

 

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Net loss

 

$

(16,640

)

 

$

(12,491

)

 

$

(36,827

)

 

$

(29,123

)

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

 

 

230

 

 

 

(51

)

 

 

131

 

 

 

(163

)

Comprehensive loss

 

$

(16,410

)

 

$

(12,542

)

 

$

(36,696

)

 

$

(29,286

)

 

 

See accompanying notes.

 

6


 

SANGAMO THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; in thousands)

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2018

 

 

2017

 

Operating Activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(36,827

)

 

$

(29,123

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

1,207

 

 

 

618

 

Amortization of (discount) premium on marketable securities

 

 

(1,656

)

 

 

32

 

Stock-based compensation

 

 

6,564

 

 

 

4,751

 

Other

 

 

465

 

 

 

 

Net changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Interest receivable

 

 

(322

)

 

 

(32

)

Accounts receivable

 

 

(1,634

)

 

 

1,477

 

Prepaid expenses and other assets

 

 

(3,564

)

 

 

(1,039

)

Accounts payable and accrued liabilities

 

 

2,733

 

 

 

2,654

 

Accrued compensation and employee benefits

 

 

(1,133

)

 

 

24

 

Deferred revenues

 

 

138,474

 

 

 

64,346

 

Net cash provided by operating activities

 

 

104,307

 

 

 

43,708

 

Investing Activities:

 

 

 

 

 

 

 

 

Purchases of marketable securities

 

 

(451,240

)

 

 

(159,166

)

Maturities of marketable securities

 

 

133,297

 

 

 

83,029

 

Purchases of property and equipment

 

 

(5,768

)

 

 

(2,175

)

Net cash used in investing activities

 

 

(323,711

)

 

 

(78,312

)

Financing Activities:

 

 

 

 

 

 

 

 

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

 

 

215,756

 

 

 

81,562

 

Taxes paid related to net share settlement of equity awards

 

 

(57

)

 

 

(7

)

Proceeds from issuance of common stock

 

 

13,285

 

 

 

825

 

Net cash provided by financing activities

 

 

228,984

 

 

 

82,380

 

Net increase in cash, cash equivalents, and restricted cash

 

 

9,580

 

 

 

47,776

 

Cash, cash equivalents, and restricted cash, beginning of period

 

 

53,326

 

 

 

22,061

 

Cash, cash equivalents, and restricted cash, end of period

 

$

62,906

 

 

$

69,837

 

Supplemental disclosure of noncash investing activities:

 

 

 

 

 

 

 

 

Property and equipment included in accrued liabilities

 

$

1,836

 

 

$

226

 

 

 

 

See accompanying notes.

 

 

 

7


 

SANGAMO THERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2018

(Unaudited)

 

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

Overview

Sangamo Therapeutics, Inc. was incorporated in the state of Delaware in 1995 and changed its name from Sangamo Biosciences, Inc. in January 2017 (“Sangamo” or the “Company”).  Sangamo is focused on the research, development and commercialization of novel genomic therapies for unmet medical needs. Sangamo’s genome editing and gene regulation technology platform is enabled by the engineering of a class of transcription factors known as zinc finger DNA-binding proteins (“ZFPs”).

Sangamo is currently working on a number of long-term development projects that involve experimental technology. The projects may require several years and substantial expenditures to complete and ultimately may be unsuccessful. The Company plans to finance operations with available cash resources, collaborations and strategic partnerships, research grants and from the issuance of equity or debt securities. Sangamo believes that its available cash, cash equivalents, marketable securities and interest receivable as of June 30, 2018, along with expected revenues from collaborations, strategic partnerships and research grants, will be adequate to fund its operations at least through the next twelve months. Sangamo will need to raise substantial additional capital to fund the development, manufacturing and potential commercialization of its product candidates. Additional capital may not be available on terms acceptable to the Company, if at all. If adequate funds are not available, or if the terms of potential funding sources are unfavorable, the Company’s business and ability to develop its technology and product candidates could be harmed. Furthermore, any sales of additional equity securities may result in dilution to the Company’s stockholders, and any debt financing may include covenants that restrict the Company’s business.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements 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 six months ended June 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018. The condensed consolidated balance sheet data at December 31, 2017 were derived from the audited consolidated financial statements included in Sangamo’s Annual Report on Form 10-K for the year ended December 31, 2017, (the “2017 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, 2017, included in the 2017 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.

Cash and Cash Equivalents

Sangamo considers all highly-liquid investments purchased with original maturities of three months or less at the purchase date to be cash equivalents. Cash and cash equivalents consist of cash and deposits in money market investment accounts.  

Marketable Securities

Sangamo classifies its marketable securities as available-for-sale which are recorded at estimated fair value based on quoted market prices or observable market inputs of almost identical assets. Unrealized holding gains and losses are included in accumulated other comprehensive income.

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

8


 

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.

Fair Value Measurements

The carrying amounts for financial instruments consisting of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate fair value due to their short maturities. Marketable securities and liabilities are stated at their estimated fair values. The counterparties to the agreements relating to the Company’s investment securities consist of the US Treasury, governmental agencies and various major corporations and financial institutions with investment-grade high credit ratings.

Revenue Recognition

Effective January 1, 2018, the Company adopted the provisions of Accounting Standards Codification (“ASC”), Topic 606, Revenue from Contracts with Customers (“Topic 606”) resulting in a change to its accounting policy for revenue recognition. Topic 606 establishes a unified model to determine how revenue is recognized.

The Company’s contract revenues consist of strategic partnering collaboration agreements and research activity grants and licensing. Research and licensing agreements typically include upfront signing or license fees, cost reimbursements, research services, minimum sublicense fees, milestone payments and royalties on future licensee’s product sales. The Company has both fixed and variable consideration. Non-refundable upfront fees and funding of research and development activities are considered fixed, while milestone payments are identified as variable consideration. 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. Revenues under grant agreements are recognized when the related qualified research expenses are incurred. Deferred revenue represents the portion of research or license payments received but not earned.

In determining the appropriate amount of revenue to be recognized as it fulfills its obligations under its agreements, the Company performs the following steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations based on estimated selling prices; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in Topic 606. The Company’s performance obligations include license rights, development services, and services associated with regulatory submission and approval processes. Significant management judgment is required to determine the level of effort required under an arrangement and the period over which the Company expects to complete its performance obligations under the arrangement. If the Company cannot reasonably estimate when its performance obligations either are completed or become inconsequential, then revenue recognition is deferred until the Company can reasonably make such estimates. The Company includes the unconstrained amount of estimated variable consideration in the transaction price. The amount included in the transaction price is constrained to the amount for which it is probable that a significant reversal of cumulative revenue recognized will not occur. At the end of each subsequent reporting period, the Company re-evaluates the estimated variable consideration included in the transaction price and any related constraint, and if necessary, adjusts its estimate of the overall transaction price. Revenue is then recognized over the remaining estimated period of performance using the cumulative catch-up method. The estimated period of performance and project costs are reviewed quarterly and adjusted, as needed, to reflect the Company’s current assumptions regarding the timing of its deliverables.

As part of the accounting for these arrangements, the Company must develop assumptions that require judgment to determine the stand-alone selling price of each performance obligation identified in the contract. The Company uses key assumptions to determine the stand-alone selling price, which may include forecasted revenues, development timelines, reimbursement rates for personnel costs, discount rates and probabilities of technical and regulatory success.

During the six months ended June 30, 2018, revenues related to the hemophilia A collaboration agreement with Pfizer Inc. (“Pfizer”) and the hemoglobinopathies agreement with Bioverativ, a Sanofi company (“Bioverativ”) represented 47% and 26%, respectively, of the Company’s total revenue. During the six months ended June 30, 2017, revenues related to the Company’s agreements with Bioverativ and Shire International GmBH (“Shire”) represented 48% and 11%, respectively, of total revenue. Receivables from collaborations are typically unsecured and are concentrated in the biopharmaceutical industry. Accordingly, the Company may be exposed to credit risk generally associated with biopharmaceutical companies or specific to its collaboration agreements. To date, the Company has not experienced any losses related to these receivables.

Funds received from third parties under contract or grant arrangements are recorded as revenue if the Company is deemed to be the principal participant in the arrangements because the activities under the contracts or grants are part of the Company’s development programs. Contract funds received are not refundable and are recognized when the related qualified research and

9


 

development costs are incurred and there is reasonable assurance that the funds will be received. Funds received in advance are recorded as deferred revenue. Management has determined that the Company is the principal participant under the Company’s non-profit grant agreement, and accordingly, the Company records amounts earned under these arrangements as revenue.

 

Recent Accounting Pronouncements

Recently Adopted

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Updated (“ASU”) 2014-09, Revenue from Contracts with Customers (“Topic 606”). 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 Topic 606 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. Topic 606 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 implemented this standard under the modified retrospective method. This guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Under Topic 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of Topic 606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. Topic 606 also impacts certain other areas, such as the accounting for costs to obtain or fulfill a contract.

 The Company adopted Topic 606 effective January 1, 2018, using the modified retrospective method with a cumulative effect adjustment of $1.1 million reflected as a decrease to the opening balance of accumulated deficit and a decrease to deferred revenues, respectively. The new guidance has been applied with a cumulative effect adjustment of $5.2 million reflected as a decrease to the opening balance of accumulated deficit and a decrease to deferred revenues, respectively. The Company’s contracts and agreements that were within the scope of the guidance upon adoption were Bioverativ and the hemophilia A Pfizer agreements. The impact on the Bioverativ agreement was to reduce the amount of the recognition of up-front payment by approximately $0.7 million and $1.5 million for the three and six months ended June 30, 2018, respectively, and the development and commercialization milestones are deemed constrained at June 30, 2018, as defined under Topic 606. The impact on the hemophilia A Pfizer agreement was to increase the amount of the recognition of the up-front payment by approximately $1.6 million and $2.6 million for the three and six months ended June 30, 2018, respectively, and the development and commercialization milestones are deemed constrained at June 30, 2018, as defined under Topic 606. The net impact under the modified retrospective transition approach was a decrease of $5.2 million to accumulated deficit as of June 30, 2018. With regards to Shire, Dow AgroSciences, LLC (“Dow”) and Sigma-Aldrich Corporation (“Sigma”), the Company’s performance obligations under those arrangements were substantially complete at December 31, 2017. Comparative information has not been adjusted and continues to be reported under previous accounting standards. All future receipts under these agreements are contingent upon the counterparties achieving specified development, commercial, and/or sales targets which would be in the form of milestones or royalties, all of which management concluded are constrained at June 30, 2018, as defined under Topic 606. See Revenue Recognition above.

Refer below for a summary of the amount by which each financial statement line item was affected by the impact of the cumulative adjustment and as compared with the guidance that was in effect prior to the adoption:

 

 

 

Impact of Topic 606 Adoption on

Condensed Consolidated Balance Sheet as of January 1, 2018

 

(in thousands)

 

As reported under Topic 606

 

 

Adjustments

 

 

Balances without adoption of Topic 606

 

Deferred revenue, current portion

 

$

29,626

 

 

$

1,281

 

 

$

28,345

 

Deferred revenue, noncurrent portion

 

$

26,846

 

 

$

(2,398

)

 

$

29,244

 

Accumulated deficit

 

$

(494,362

)

 

$

1,117

 

 

$

(495,479

)

 

 

10


 

 

 

Impact of Topic 606 Adoption on

Condensed Consolidated Balance Sheet as of June 30, 2018

 

(in thousands)

 

As reported under Topic 606

 

 

Adjustments

 

 

Balances without adoption of Topic 606

 

Deferred revenue, current portion

 

$

57,215

 

 

$

8,744

 

 

$

65,959

 

Deferred revenue, noncurrent portion

 

$

137,731

 

 

$

(3,581

)

 

$

134,151

 

Accumulated deficit

 

$

(531,189

)

 

$

(5,163

)

 

$

(536,352

)

 

 

 

Impact of Topic 606 Adoption on Condensed Consolidated Statement of Operations and Comprehensive Loss for the

Three Months Ended June 30, 2018

 

 

Impact of Topic 606 Adoption on Condensed Consolidated Statement of Operations and Comprehensive Loss for the

Six Months Ended June 30, 2018

 

(in thousands)

 

As reported under Topic 606

 

 

Adjustments

 

 

Balances without adoption of Topic 606

 

 

As reported under Topic 606

 

 

Adjustments

 

 

Balances without adoption of Topic 606

 

Collaboration revenue

 

$

21,289

 

 

$

(2,271

)

 

$

19,018

 

 

$

33,840

 

 

$

(4,047

)

 

$

29,793

 

Net loss

 

$

(16,640

)

 

$

(2,271

)

 

$

(18,911

)

 

$

(36,827

)

 

$

(4,047

)

 

$

(40,874

)

Net loss per share - basic and diluted:

 

$

(0.17

)

 

$

(0.02

)

 

$

(0.19

)

 

$

(0.40

)

 

$

(0.04

)

 

$

(0.44

)

 

 

 

Impact of Topic 606 Adoption on Condensed Consolidated Statement of Cash Flows for the

Six Months Ended June 30, 2018

 

(in thousands)

 

As reported under Topic 606

 

 

Adjustments

 

 

Balances without adoption of Topic 606

 

Net loss

 

$

(36,827

)

 

$

(4,047

)

 

$

(40,874

)

Changes in deferred revenue

 

$

138,474

 

 

$

4,047

 

 

$

142,521

 

 

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (“Topic 230”). The Company adopted Topic 230 in the beginning of fiscal 2018, which requires the statement of cash flows to explain the change during the period relating to total cash, cash equivalents, and restricted cash. The Company adopted this standard using the retrospective transition method by restating its condensed consolidated statements of cash flows to include restricted cash of $3.5 million in the beginning and ending cash, cash equivalents, and restricted cash balances. Net cash flows for the six months ended June 30, 2017, did not change as a result of including restricted cash with cash and cash equivalents when reconciling the beginning-of-period and end-of-period amounts presented on the statements of cash flows. Restricted cash was included in other non-current assets on the Company's condensed consolidated balance sheets.

Not yet adopted

In February 2016 the FASB issued ASU 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 expect its operating lease commitments will be subject to the new standard and recognized as a right-of-use assets and operating lease liabilities upon adoption which will increase total assets and total liabilities as compared to amounts prior to adoption.

 

 

 

11


 

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 marketable 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):

 

 

June 30, 2018

 

 

 

Fair Value Measurements

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

41,909

 

 

$

41,909

 

 

$

 

 

$

 

Commercial paper securities

 

 

15,233

 

 

 

 

 

 

15,233

 

 

 

 

Total

 

 

57,142

 

 

 

41,909

 

 

 

15,233

 

 

 

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper securities

 

 

396,993

 

 

 

 

 

 

396,993

 

 

 

 

Corporate debt securities

 

 

98,676

 

 

 

 

 

 

98,676

 

 

 

 

U.S. government-sponsored entity debt securities

 

 

18,553

 

 

 

 

 

 

18,553

 

 

 

 

Total

 

 

514,222

 

 

 

 

 

 

514,222

 

 

 

 

Total cash equivalents and marketable securities

 

$

571,364

 

 

$

41,909

 

 

$

529,455

 

 

 

 

 

 

 

December 31, 2017

 

 

 

Fair Value Measurements

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

24,290

 

 

$

24,290

 

 

$

 

 

$

 

Commercial paper securities

 

 

4,595

 

 

 

 

 

 

4,595

 

 

 

 

Total

 

 

28,885

 

 

 

24,290

 

 

 

4,595

 

 

 

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper securities

 

 

110,247

 

 

 

 

 

 

110,247

 

 

 

 

Corporate debt securities

 

 

75,755

 

 

 

 

 

 

75,755

 

 

 

 

U.S. government-sponsored entity debt securities

 

 

8,492

 

 

 

 

 

 

8,492

 

 

 

 

Total

 

 

194,494

 

 

 

 

 

 

194,494

 

 

 

 

Total cash equivalents and marketable securities

 

$

223,379

 

 

$

24,290

 

 

$

199,089

 

 

 

 

 

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

12


 

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

 

June 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

41,909

 

 

$

 

 

$

 

 

$

41,909

 

Commercial paper securities

 

 

15,232

 

 

 

1

 

 

 

 

 

 

15,233

 

Total

 

 

57,141

 

 

 

1

 

 

 

 

 

 

57,142

 

Available-for-sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper securities

 

 

396,958

 

 

 

110

 

 

 

(75

)

 

 

396,993

 

Corporate debt securities

 

 

98,834

 

 

 

 

 

 

(158

)

 

 

98,676

 

U.S. government-sponsored entity debt securities

 

 

18,556

 

 

 

 

 

 

(3

)

 

 

18,553

 

Total

 

 

514,348

 

 

 

110

 

 

 

(236

)

 

 

514,222

 

Total cash equivalents and available-for-sale securities

 

$

571,489

 

 

$

111

 

 

$

(236

)

 

$

571,364

 

December 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

24,290

 

 

$

 

 

$

 

 

$

24,290

 

Commercial paper securities

 

 

4,595

 

 

 

 

 

 

 

 

 

4,595

 

Total

 

 

28,885

 

 

 

 

 

 

 

 

 

28,885

 

Available-for-sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper securities

 

 

110,365

 

 

 

 

 

 

(118

)

 

 

110,247

 

Corporate debt securities

 

 

75,886

 

 

 

 

 

 

(131

)

 

 

75,755

 

U.S. government-sponsored entity debt securities

 

 

8,498

 

 

 

 

 

 

(6

)

 

 

8,492

 

Total

 

 

194,749

 

 

 

 

 

 

(255

)

 

 

194,494

 

Total cash equivalents and available-for-sale securities

 

$

223,634

 

 

 

 

 

$

(255

)

 

$

223,379

 

 

The Company had no material realized losses or other-than-temporary impairments of its investments for the six months ended June 30, 2018 and 2017. As of June 30, 2018, all of the Company’s investments had maturity dates within one year, except for $34.2 million, which matures 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.

The total number of shares subject to stock options and restricted stock units outstanding, which are all anti-dilutive, were excluded from consideration in the calculation of diluted net loss per share. Stock options and restricted stock units outstanding as of June 30, 2018 and 2017 were 8,702,199 and 9,898,588, respectively.

13


 

 

 

NOTE 5—MAJOR CUSTOMERS, PARTNERSHIPS AND STRATEGIC ALLIANCES

Collaboration Agreements

Kite Pharma, Inc.

In February 2018, the Company entered into a collaboration and license agreement with Kite Pharma, Inc. (“Kite”), a wholly-owned subsidiary of Gilead Sciences, Inc., for the research, development and commercialization of potential engineered cell therapies for cancer. Kite will be responsible for all clinical development and commercialization of any resulting products. The Kite agreement became effective on April 5, 2018 when the waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and other customary closing conditions were completed.

Subject to the terms of this agreement, the Company granted Kite an exclusive, royalty-bearing, worldwide, sublicensable license, under the Company’s relevant patents and know-how, to develop, manufacture and commercialize, for the purpose of treating cancer, specific cell therapy products that may result from the research program and that are engineered ex vivo using selected zinc finger nucleases (“ZFNs”) and adeno-associated viral vectors (“AAVs”) developed under the research program, to express chimeric antigen receptors (“CARs”), T-cell receptors (“TCRs”) or NK-cell receptors (“NKRs”) directed to candidate targets.  

During the research program term and subject to certain exceptions, except pursuant to this agreement, the Company is prohibited from researching, developing, manufacturing and commercializing, for the purpose of treating cancer, any cell therapy product that, as a result of ex vivo genome editing, expresses a CAR, TCR or NKR that is directed to a target expressed on or in a human cancer cell. After the research program term concludes and subject to certain exceptions, except pursuant to this agreement, the Company will be prohibited from developing, manufacturing and commercializing, for the purpose of treating cancer, any cell therapy product that, as a result of ex vivo genome editing, expresses a CAR, TCR or NKR that is directed to a candidate target.  

Following the effective date, in April 2018, the Company received a $150.0 million upfront payment from Kite. In addition, Kite will reimburse the Company’s direct costs to conduct the joint research program, and Kite will be responsible for all subsequent development, manufacturing and commercialization of any licensed products. Sangamo is also eligible to receive contingent development- and sales-based milestone payments that could total up to $3.01 billion if all of the specified milestones set forth in this agreement are achieved. Of this amount, approximately $1.26 billion relates to the achievement of specified research, clinical development, regulatory and first commercial sale milestones, and approximately $1.75 billion relates to the achievement of specified sales-based milestones if annual worldwide net sales of licensed products reach specified levels. Each development- and sales-based milestone payment is payable (i) only once for each licensed product, regardless of the number of times that the associated milestone event is achieved by such licensed product, and (ii) only for the first ten times that the associated milestone event is achieved, regardless of the number of licensed products that may achieve such milestone event.  In addition, the Company will be entitled to receive escalating, tiered royalty payments with a percentage in the single digits based on potential future annual worldwide net sales of licensed products. These royalty payments will be subject to reduction due to patent expiration, entry of biosimilar products to the market and payments made under certain licenses for third-party intellectual property.  

The initial research term in the agreement is six years. Kite has an option to extend the research term of the agreement for up to two additional one-year periods for a separate upfront fee of $10.0 million per year. All contingent payments under the agreement, when earned, will be non-refundable and non-creditable. None of the development and sales-based milestone payments have been included in the $185.9 million transaction price, which includes the upfront license fee and estimated reimbursable service costs for identified research projects over the estimated performance period, as estimated fees for the presumed exercise of the research term extension options and all milestone amounts are fully constrained. As part of its evaluation of the constraint, the Company considered numerous factors, including the fact that achievement of the milestones at this time is uncertain and contingent upon future periods when the uncertainty related to the variable consideration is resolved. The Company will re-evaluate the transaction price, including the estimated variable consideration included in the transaction price and all constrained amounts, in each reporting period and as uncertain events are resolved or other changes in circumstances occur.

 

Kite has the right to terminate this agreement, in its entirety or on a per licensed product or per candidate target basis, for any reason after a specified notice period.  Each party has the right to terminate this agreement on account of the other party’s bankruptcy or material, uncured breach.

 

The Company has identified the primary performance obligations within the Kite agreement as a license to the technology and on-going services. The Company concluded that the license is not discrete as it does not have stand-alone value to Kite apart from the services to be performed by the Company pursuant to the agreement. As a result, the Company recognizes revenue from the upfront payment on a straight-line basis through June 2024, the estimated period the Company will perform research services. The estimated period of performance and project cost is reviewed quarterly and adjusted, as needed, to reflect the Company’s current assumptions regarding the timing of its deliverables.  As of June 30, 2018, the Company had deferred revenue of $144.0 million related to this

14


 

agreement. During the three months ended June 30, 2018 the Company recognized revenue of approximately $6.0 million related to the upfront fee that was received upon effectiveness of the agreement and approximately $1.5 million in research services.

Pfizer Inc.

SB-525 Global Collaboration and License Agreement

 

In May 2017, the Company entered into an exclusive, global collaboration and license agreement with Pfizer, pursuant to which it established a collaboration for the research, development and commercialization of SB-525, its gene therapy product candidate for hemophilia A, and closely related products.

 

Under this agreement, the Company is responsible for conducting the Phase 1/2 clinical trial and certain manufacturing activities for SB-525, while Pfizer is responsible for subsequent worldwide development, manufacturing, marketing and commercialization of SB-525. Sangamo may also collaborate in the research and development of additional AAV-based gene therapy products for hemophilia A.

The Company received an upfront fee of $70.0 million and is eligible to receive development milestone payments contingent on the achievement of specified clinical development, intellectual property, regulatory and first commercial sale milestones for SB-525 and potentially other products. In addition, Sangamo is eligible to receive up to $208.5 million in payments upon the achievement of specified clinical development, intellectual property and regulatory milestones and up to $266.5 million in payments 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 hemophilia A Pfizer agreement, is up to $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 agreement, subject to reduction on account of payments made under certain licenses for third party intellectual property. In addition, Pfizer agreed to pay the Company royalties for each potential licensed product developed under the 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 hemophilia A Pfizer agreement. Sangamo is responsible for internal and external research costs as part of the upfront fee and has the ability to request additional reimbursement from Pfizer if certain conditions are met.

None of the clinical or regulatory milestones have been included in the $70.0 million transaction price, as all milestone amounts are fully constrained. As part of its evaluation of the constraint, the Company considered numerous factors, including the fact that achievement of the milestones at this time is uncertain and contingent upon future periods when the uncertainty related to the variable consideration is resolved. The Company will re-evaluate the transaction price, including its estimated variable consideration included in the transaction price and all constrained amounts, in each reporting period and as uncertain events are resolved or other changes in circumstances occur.

 

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

 

Unless earlier terminated, the agreement has a term that continues, on a per product and per country basis, until the later of (i) the expiration of patent claims that cover the product in a country, (ii) the expiration of regulatory exclusivity for a product in a country, and (iii) fifteen years after the first commercial sale of a product in a country.  Pfizer has the right to terminate the agreement without cause in its entirety or on a per product or per country basis.  The agreement may also be terminated by either party based on an uncured material breach by the other party or the bankruptcy of the other party.  Upon termination for any reason, the license granted by the Company to Pfizer to develop, manufacture and commercialize SB-525 and related products will automatically terminate.  Upon termination by the Company for cause or by Pfizer in any country or countries, Pfizer will automatically grant the Company an exclusive, royalty-bearing license under certain technology controlled by Pfizer to develop, manufacture and commercialize SB-525 in the terminated country or countries. 

 

The Company has identified the performance obligations within the hemophilia A Pfizer agreement as a license to the technology and on-going services. The Company concluded that the license is not discrete as it does not have stand-alone value to Pfizer apart from the services to be performed by the Company pursuant to the agreement. As a result, the Company recognizes revenue from the upfront payment based on proportional performance through 2020, the estimated period the Company will perform

15


 

research services. The estimated period of performance and project cost is reviewed quarterly and adjusted, as needed, to reflect the Company’s current assumptions regarding the timing of its deliverables.  As of June 30, 2018, the Company had deferred revenue of $31.9 million related to this agreement. During the three and six months ended June 30, 2018 the Company recognized revenue of $8.1 million and $15.8 million, respectively, related to the upfront fee that was received upon entering into the agreement.

C9ORF72 Research Collaboration and License Agreement

In December 2017, the Company entered into a separate exclusive, global collaboration and license agreement with Pfizer for the development and commercialization of potential gene therapy products that use ZFP transcription factors (“TFs”) to treat amyotrophic lateral sclerosis (“ALS”) and frontotemporal lobar degeneration (“FTLD”) linked to mutations of the C9ORF72 gene. Pursuant to this agreement, the Company agreed to work with Pfizer on a research program to identify, characterize and preclinically develop ZFP-TFs that bind to and specifically reduce expression of the mutant form of the C9ORF72 gene.

The Company received a $12.0 million upfront payment from Pfizer and is eligible to receive up to $60.0 million in development milestone payments from Pfizer contingent on the achievement of specified preclinical development, clinical development and first commercial sale milestones, and up to $90.0 million commercial milestone payments if annual worldwide net sales of the licensed products reach specified levels. In addition, Pfizer will pay the Company royalties based on an escalating tiered, mid- to high-single digit percentage of the annual worldwide net sales of the licensed products. These royalty payments are subject to reduction due to patent expiration, entry of biosimilar products to the market and payments made under certain licenses for third party intellectual property. Each party will be responsible for the cost of its performance of the research program. Pfizer will be operationally and financially responsible for subsequent development, manufacturing and commercialization of the licensed products.

None of the clinical or regulatory milestones have been included in the $12.0 million transaction price, as all milestone amounts are fully constrained. As part of its evaluation of the constraint, the Company considered numerous factors, including the fact that achievement of the milestones at this time is uncertain and contingent upon future periods when the uncertainty related to the variable consideration is resolved. The Company will re-evaluate the transaction price, including is estimated variable consideration included in the transaction price and all constrained amounts, in each reporting period and as uncertain events are resolved or other changes in circumstances occur.

Subject to the terms of this agreement, the Company granted Pfizer an exclusive, royalty-bearing, worldwide, license under the Company’s relevant patents and know-how to develop, manufacture and commercialize gene therapy products that use resulting ZFP-TFs that satisfy pre-agreed criteria. During a specified period, neither the Company nor Pfizer will be permitted to research, develop, manufacture or commercialize outside of the collaboration any ZFPs that specifically bind to the C9ORF72 gene.

Unless earlier terminated, the agreement has a term that continues, on a per licensed product and per country basis, until the later of (i) the expiration of patent claims that cover the licensed product in a country, (ii) the expiration of regulatory exclusivity for a licensed product in a country, and (iii) fifteen years after the first commercial sale of a licensed product in a major market country.  Pfizer also has the right to terminate the agreement without cause in its entirety or on a per product or per country basis. The agreement may also be terminated by either party based on an uncured material breach by the other party or the bankruptcy of the other party. The agreement will also terminate if the Company is unable to identify any lead candidates for development within a specified period of time or if Pfizer elects not to advance a lead candidate beyond a certain development milestone within a specified period of time. Upon termination for any reason, the license granted by the Company to Pfizer to develop, manufacture and commercialize licensed products under the agreement will automatically terminate. Upon termination by the Company for cause or by Pfizer without cause for any licensed product or licensed products in any country or countries, the Company will have the right to negotiate with Pfizer to obtain a non-exclusive, royalty-bearing license under certain technology controlled by Pfizer to develop, manufacture and commercialize the licensed product or licensed products in the terminated country or countries. 

Following termination by the Company for Pfizer’s material breach, Pfizer will not be permitted to research, develop, manufacture or commercialize ZFPs that specifically bind to the C9ORF72 gene for a period of time. Following termination by Pfizer for the Company’s material breach, the Company will not be permitted to research, develop, manufacture or commercialize ZFPs that specifically bind to the C9ORF72 gene for a period of time.

16


 

The Company has identified the performance obligations within this agreement as a license to the technology and on-going services. The Company concluded that the license is not discrete as it does not have stand-alone value to Pfizer apart from the services to be performed by the Company pursuant to the agreement. As a result, the Company recognizes revenue from the upfront payment based on proportional performance through March 31, 2019 the estimated period the Company will perform research services. The estimated period of performance and project cost is reviewed quarterly and adjusted, as needed, to reflect the Company’s current assumptions regarding the timing of its deliverables. As of June 30, 2018, the Company had deferred revenue of $10.9 million related to this agreement. During the three and six months ended June 30, 2018 the Company recognized revenue of $0.6 million and $1.1 million, respectively, related to the upfront fee that was received upon entering into the agreement.

Bioverativ, a Sanofi company.

In January 2014, the Company entered into an exclusive worldwide collaboration and license agreement with Bioverativ to develop therapeutics for hemoglobinopathies, focused on beta-thalassemia and sickle cell disease (“SCD”). Under the agreement, the Company is jointly conducting two research programs: the beta-thalassemia program and the SCD program. In the beta-thalassemia program, the Company is responsible for all discovery, research and development activities through the first human clinical trial. In 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.

Under both programs, Bioverativ is responsible for subsequent worldwide clinical development, manufacturing and commercialization of licensed products developed under the agreement. At the end of the specified research terms for each program or under certain specified circumstances, Bioverativ has the right to step in and take over any of our remaining activities. Furthermore, the Company has an option to co-promote in the United States any licensed products to treat beta-thalassemia and SCD developed under the agreement, and Bioverativ will compensate the Company for such co-promotion activities. Subject to the terms of the agreement, the Company has granted Bioverativ an exclusive, royalty-bearing license, with the right to grant sublicenses, to use certain ZFP and other technology controlled by the Company for the purpose of researching, developing, manufacturing and commercializing licensed products developed under the agreement. The Company also granted Bioverativ a non-exclusive, worldwide, royalty-free, fully paid license, with the right to grant sublicenses, under the Company’s interest in certain other intellectual property developed pursuant to the agreement. During the term of the agreement, the Company is not permitted to research, develop, manufacture or commercialize, outside of the agreement, certain gene therapy products that target genes relevant to the licensed products.

Under the agreement, the Company received an upfront license fee of $20.0 million and is eligible to receive development and sales milestone payments upon the achievement of specified regulatory, clinical development and sales milestones. In addition, the Company will also be eligible to receive up to $115.8 million in payments upon the achievement of specified clinical development and regulatory milestones, as well as up to $160.5 million in payments upon the achievement of specified sales milestones. The total amount of potential regulatory, clinical development, and sales milestone payments, assuming the achievement of all specified milestones in the agreement, is up to $276.3 million. In addition, the Company will receive royalty payments for each licensed product that are a tiered double-digit percentage of annual net sales of each product. Bioverativ reimburses Sangamo for agreed upon costs incurred in connection with research and development activities conducted by Sangamo. 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.

The agreement may be terminated by (i) the Company or Bioverativ for the uncured material breach of the other party, (ii) the Company or Bioverativ for the bankruptcy or other insolvency proceeding of the other party; (iii) Bioverativ, upon 180 days’ advance written notice to the Company and (iv) Bioverativ, for certain safety reasons upon written notice to, and after consultation with, the Company. As a result, actual future milestone payments could be lower than the amounts stated above.     

All contingent payments under the agreement, when earned, will be non-refundable and non-creditable. None of the clinical or regulatory milestones have been included in the $75.7 million transaction price, which includes the upfront license fee and service costs over the estimated performance period, as all milestone amounts are fully constrained. As part of its evaluation of the constraint, the Company considered numerous factors, including the fact that achievement of the milestones at this time is uncertain and contingent upon future periods when the uncertainty related to the variable consideration is resolved. The Company will re-evaluate the transaction price, including the estimated variable consideration included in the transaction price and all constrained amounts, in each reporting period and as uncertain events are resolved or other changes in circumstances occur.

The Company has identified the performance obligations within this arrangement as a license to the technology and on-going research services activities. The Company concluded that the license is not discrete as it does not have stand-alone value to Bioverativ apart from the research services to be performed pursuant to the agreement. As a result, the Company recognizes revenue from the upfront payment based on proportional performance through 2022, the estimated period the Company will perform research services. The estimated period of performance and project cost is reviewed quarterly and adjusted, as needed, to reflect the Company’s current assumptions regarding the timing of its deliverables. As of June 30, 2018, the Company had deferred revenue of $6.2 million related to this agreement.

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Revenues recognized under the agreement for the three and six months ended June 30, 2018 and 2017 were as follows (in thousands):

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Revenue related to Bioverativ agreement:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recognition of upfront fee

 

$

1,184

 

 

$

442

 

 

$

2,338

 

 

$

884

 

Research services

 

 

3,332

 

 

 

3,068

 

 

 

6,560

 

 

 

4,777

 

Total

 

$

4,516

 

 

$

3,510

 

 

$

8,898

 

 

$

5,661

 

 

Shire International GmbH

In January 2012, the Company entered into a collaboration and license agreement with Shire to research, develop and commercialize a ZFP therapeutic for treating Huntington’s disease. The Company received an upfront license fee of $13.0 million. In 2014, Sangamo recognized a $1.0 million milestone payment related to the hemophilia program. Shire does not have any milestone payment obligations, but is required to pay single digit percentage royalties to the Company, up to a specified maximum cap, on the commercial sales of therapeutic products for Huntington’s disease. 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 programs returned under the original agreement (which include blood clotting Factors VIII and IX) that use two zinc fingers.

Pursuant to the agreement, the Company granted Shire an exclusive, world-wide, royalty-bearing license, with the right to grant sublicenses, to use the Company’s ZFP technology for the purpose of developing and commercializing human therapeutic and diagnostic products for the HTT gene. During the term of the agreement, the Company is not permitted to research, develop or commercialize, outside of the agreement, certain products that target the HTT gene. The Company satisfied the deliverables and research services responsibilities within the amended arrangement which were completed in 2017. The agreement may be terminated by (i) the Company or Shire, in whole or in part, for the uncured material breach of the other party, (ii) the Company or Shire for the bankruptcy or other insolvency proceeding of the other party and (iii) Shire, in its entirety, effective upon at least 90 days’ advance written notice.

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 agreement. The Company satisfied the deliverables and research services responsibilities within the amended arrangement which were completed in 2017. As a result, the Company recognized the remaining $2.3 million of deferred revenue from the upfront payment during the year ended December 31, 2017.

Revenues recognized under the agreement for the three and six months ended June 30, 2018 and 2017 were as follows (in thousands):

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Revenue related to Shire agreement:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recognition of upfront fee

 

$

 

 

$

583

 

 

$

 

 

$

1,167

 

Research services

 

 

 

 

 

3

 

 

 

 

 

 

110

 

Total

 

$

 

 

$

586

 

 

$

 

 

$

1,277

 

 

Funding from Research Foundations

California Institute for Regenerative Medicine

 

In May 2018, the California Institute for Regenerative Medicine (“CIRM”) agreed to fund a $8.0 million Strategic Partnership Award to fund the clinical studies of a potentially curative ZFP Therapeutic for the treatment of beta-thalassemia based on the application of Sangamo’s ZFN genome editing technology. The grant exists through December 31, 2022 and provides matching funds to support the evaluate ST-400, a gene-edited cell therapy candidate for people with transfusion-dependent beta-thalassemia. There were no revenues or related costs attributable to research and development performed under the Strategic Partnership Award during the three and six months ended June 30, 2018. As of June 30, 2018, the Company had deferred revenue of $1.7 million related to this award.

 

 

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NOTE 6—INCOME TAXES

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "Tax Act"). The Tax Act makes broad and complex changes to the U.S. tax code that affected 2017, the current year and onwards, including, but not limited to, a reduction of the U.S. federal corporate tax rate from as high as 35% to 21%, a general elimination of U.S. federal income taxes on dividends from foreign subsidiaries, net operating loss deduction limitations, and 100% disallowance of entertainment expense.

In addition, on December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 ("SAB 118") which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under Accounting Standards Codification 740, Income taxes for the year ended December 31, 2017.  In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete.  The Company is still within the measurement period as of June 30, 2018 and no further conclusions have been made, as the Company reviews the law change and the impact to the Company.

Due to the Company’s valuation allowance against its deferred tax assets, it does not expect that the provisions of the Tax Act will have a material impact on the Company’s financial position, results of operations, or income tax expense or benefit.

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 six months ended June 30, 2018 and 2017 (in thousands):

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Research and development

 

$

2,120

 

 

$

1,218

 

 

$

3,879