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sgmo:RichmondAndValbonneLeasesMember 2019-01-01 2019-06-30 0001001233 us-gaap:CommonStockMember 2019-04-30 0001001233 us-gaap:CommonStockMember 2018-04-01 2018-04-30 0001001233 sgmo:AtTheMarketOfferingAgreementMember 2016-12-07 0001001233 us-gaap:CommonStockMember 2018-04-30 0001001233 sgmo:AtTheMarketOfferingAgreementMember 2019-06-30 0001001233 us-gaap:CommonStockMember 2019-04-01 2019-04-30 0001001233 sgmo:TxCellSAMember 2018-10-01 0001001233 sgmo:TxCellSAMember 2018-10-01 2018-10-01 0001001233 sgmo:TxCellSAMember 2018-12-31 0001001233 sgmo:TxCellSAMember 2019-01-01 2019-06-30 0001001233 sgmo:TxCellSAMember 2018-09-01 2018-09-30 0001001233 srt:MinimumMember sgmo:TxCellSAMember sgmo:SharePurchaseAgreementAndTenderOfferAgreementMember 2018-10-01 0001001233 sgmo:TxCellSAMember sgmo:SharePurchaseAgreementAndTenderOfferAgreementMember us-gaap:ValuationTechniqueOptionPricingModelMember 2018-10-01 0001001233 sgmo:TxCellSAMember 2018-10-01 2018-12-31 0001001233 sgmo:TxCellSAMember sgmo:SharePurchaseAgreementMember 2018-10-01 0001001233 2018-11-23 0001001233 sgmo:TxCellSAMember 2019-06-30 0001001233 sgmo:TxCellSAMember sgmo:SharePurchaseAgreementAndTenderOfferAgreementMember 2018-07-20 0001001233 sgmo:TxCellSAMember 2018-01-01 2018-12-31 0001001233 2018-10-01 0001001233 sgmo:TxCellSAMember sgmo:SharePurchaseAgreementAndTenderOfferAgreementMember 2018-10-01 2018-10-01 0001001233 sgmo:TxCellSAMember sgmo:SharePurchaseAgreementMember 2018-10-01 2018-10-01 sgmo:renewal_option iso4217:USD xbrli:shares iso4217:EUR xbrli:shares iso4217:USD xbrli:shares utreg:sqft sgmo:Milestone sgmo:Product sgmo:contract xbrli:pure sgmo:program sgmo:milestone
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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, 2019
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)
 
 
 
(I.R.S. Employer
Identification No.)
 
 
 
 
 
501 Canal Boulevard
Richmond
California
 
94804
(Address of principal executive offices)
 
(Zip Code)
(510) 970-6000
(Registrant’s telephone number, including area code)
________________________________________________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock, par value $0.01 per share
 
SGMO
 
NASDAQ Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).    Yes  x    No  o
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
o
Non-accelerated filer
o
 
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.  o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes        No   x
As of August 2, 2019, 115,675,077 shares of the issuer’s common stock, par value $0.01 per share, were outstanding.
 


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INDEX
SANGAMO THERAPEUTICS, INC.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unless otherwise indicated or 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 our subsidiaries, including Sangamo Therapeutics France S.A.S (formerly TxCell S.A.).
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.

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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 that 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 may include, but are not limited to, statements about:
our strategy;
anticipated product candidate development and potential commercialization of any resulting products;
the initiation, scope, rate of progress, enrollment, anticipated results and timing of our preclinical studies and clinical trials and those of our collaborators or strategic partners;
the therapeutic and commercial potential of, and the ability of Sangamo and our collaborators or strategic partners to advance the development of, product candidates using our zinc finger protein, or ZFP, technology platform, including our ability to effectively deliver our zinc finger nucleases, or ZFNs, and ZFP transcription factors, or ZFP TFs, to produce a clinical benefit;
the benefits of the acquisition of TxCell S.A., now known as Sangamo Therapeutics France S.A.S.;
our ability to establish and maintain collaborative, licensing and other similar arrangements;
anticipated revenues from existing and new collaborations and the timing thereof;
our research and development and other expenses;
our ability to obtain adequate preclinical and clinical supplies of our product candidates from current and potential new suppliers and manufacturers;
the ability of Sangamo and our collaborators or strategic partners to obtain and maintain regulatory approvals for product candidates using our ZFP technology platform;
our ability to comply with, and the impact of, regulatory requirements, obligations and restrictions on our business;
our ability to protect our intellectual property and operate our business without infringing upon the intellectual property rights of others, including our ability to obtain rights to the gene transfer technologies required to develop and commercialize our product candidates;
our estimates regarding the sufficiency of our cash resources and our expenses, capital requirements and need for additional financing, and our ability to obtain additional financing;
our ability to manage the growth of our business;
our projected operating and financial performance;
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” and similar expressions intended to identify forward-looking statements. These statements reflect our current views with respect to future events, are based on assumptions and are 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 or revise any forward-looking statements to reflect new information or future events or developments. Readers are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q.

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PART I. FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS
SANGAMO THERAPEUTICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited; in thousands)
 
June 30,
2019
 
December 31,
2018
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
169,222

 
$
140,418

Restricted cash, current portion
2,000

 

Marketable securities
271,877

 
259,715

Interest receivable
766

 
375

Accounts receivable
12,095

 
4,673

Prepaid expenses and other current assets
5,848

 
5,340

Total current assets
461,808

 
410,521

Marketable securities, non-current
8,450

 

Property and equipment, net
21,019

 
78,723

Intangible assets
53,892

 
54,243

Goodwill
39,795

 
40,044

Operating lease right-of-use assets
79,435

 

Other non-current assets
7,582

 
3,364

Non-current restricted cash
1,500

 
3,500

Total assets
$
673,481

 
$
590,395

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable and accrued liabilities
$
22,505

 
$
21,457

Accrued compensation and employee benefits
8,714

 
9,490

Deferred revenues
50,826

 
47,564

Total current liabilities
82,045

 
78,511

Deferred revenues, non-current
94,189

 
108,273

Long-term portion of lease liabilities
41,550

 
27,689

Deferred income tax
6,661

 
6,705

Other non-current liabilities
3,288

 
1,960

Total liabilities
227,733

 
223,138

Commitments and contingencies

 

Stockholders' equity:
 
 
 
Preferred stock

 

Common stock
1,156

 
1,022

Additional paid-in capital
1,078,976

 
929,632

Accumulated deficit
(634,233
)
 
(562,696
)
Accumulated other comprehensive loss
(765
)
 
(1,440
)
Total Sangamo Therapeutics, Inc. stockholders' equity
445,134

 
366,518

Non-controlling interest
614

 
739

Total stockholders' equity
445,748

 
367,257

Total liabilities and stockholders' equity
$
673,481

 
$
590,395

See accompanying Notes to Condensed Consolidated Financial Statements.

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SANGAMO THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; in thousands, except per share amounts)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Revenues
$
17,548

 
$
21,416

 
$
25,619

 
$
34,053

Operating expenses:
 
 
 
 
 
 
 
Research and development
36,455

 
29,255

 
71,305

 
52,802

General and administrative
14,597

 
11,301

 
31,715

 
21,388

Total operating expenses
51,052

 
40,556

 
103,020

 
74,190

Loss from operations
(33,504
)
 
(19,140
)
 
(77,401
)
 
(40,137
)
Interest and other income, net
3,148

 
2,500

 
4,842

 
3,310

Net loss
(30,356
)
 
(16,640
)
 
(72,559
)
 
(36,827
)
Net loss attributable to non-controlling interest
(72
)
 

 
(125
)
 

Net loss to Sangamo Therapeutics, Inc. stockholders
$
(30,284
)
 
$
(16,640
)
 
$
(72,434
)
 
$
(36,827
)
Basic and diluted net loss per share attributable to Sangamo
   Therapeutics, Inc. stockholders
$
(0.26
)
 
$
(0.17
)
 
$
(0.67
)
 
$
(0.40
)
Shares used in computing basic and diluted net loss per share attributable to
   Sangamo Therapeutics, Inc. stockholders
114,382

 
97,267

 
108,360

 
91,831

See accompanying Notes to Condensed Consolidated Financial Statements.

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SANGAMO THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited; in thousands)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Net loss
$
(30,356
)
 
$
(16,640
)
 
$
(72,559
)
 
$
(36,827
)
Foreign currency translation adjustment
1,442

 

 
(62
)
 

Change in unrealized gain on available-for-sale securities
484

 
230

 
737

 
131

Comprehensive loss
(28,430
)
 
(16,410
)
 
(71,884
)
 
(36,696
)
Comprehensive loss attributable to non-controlling interest
(72
)
 

 
(125
)
 

Comprehensive loss attributable to Sangamo Therapeutics, Inc.
$
(28,358
)
 
$
(16,410
)
 
$
(71,759
)
 
$
(36,696
)
See accompanying Notes to Condensed Consolidated Financial Statements.

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SANGAMO THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited; in thousands)
 
Common Stock
 
Additional
Paid-in
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Non-
Controlling
Interest
 
Total
Stockholders'
Equity
Shares
 
Amount
Balances at December 31, 2018
102,188

 
$
1,022

 
$
929,632

 
$
(562,696
)
 
$
(1,440
)
 
$
739

 
$
367,257

Cumulative-effect adjustment of ASC Topic 842 on January 1, 2019

 

 

 
897

 

 

 
897

Issuance of common stock upon exercise of stock options and in connection with restricted stock units, net of tax
141

 
1

 
215

 

 

 

 
216

Issuance costs related to public offering

 

 
(258
)
 

 

 

 
(258
)
Stock-based compensation

 

 
4,523

 

 

 

 
4,523

Foreign currency translation adjustment

 

 

 

 
(1,504
)
 

 
(1,504
)
Net unrealized gain on marketable securities

 

 

 

 
253

 

 
253

Net loss

 

 

 
(42,150
)
 

 
(53
)
 
(42,203
)
Balances at March 31, 2019
102,329

 
1,023

 
934,112

 
(603,949
)
 
(2,691
)
 
686

 
329,181

Issuance of common stock upon exercise of stock options and in connection with restricted stock units, net of tax
492

 
5

 
2,439

 

 

 

 
2,444

Issuance of common stock under employee stock purchase plan
132

 
1

 
1,137

 

 

 

 
1,138

Issuance of common stock under public offering, net of issuance costs
12,650

 
127

 
136,439

 

 

 

 
136,566

Issuance costs related to TxCell Acquisition

 

 
(18
)
 

 

 


 
(18
)
Stock-based compensation

 

 
4,867

 

 

 

 
4,867

Foreign currency translation adjustment

 

 

 

 
1,442

 

 
1,442

Net unrealized gain on marketable securities

 

 

 

 
484

 

 
484

Net loss

 

 

 
(30,284
)
 

 
(72
)
 
(30,356
)
Balances at June 30, 2019
115,603

 
$
1,156

 
$
1,078,976

 
$
(634,233
)
 
$
(765
)
 
$
614

 
$
445,748



See accompanying Notes to Condensed Consolidated Financial Statements.

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SANGAMO THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (CONTINUED)
(Unaudited; in thousands)
 
Common Stock
 
Additional
Paid-in
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Non-
Controlling
Interest
 
Total
Stockholders'
Equity
Shares
 
Amount
Balances at December 31, 2017
85,598

 
$
856

 
$
682,809

 
$
(495,479
)
 
$
(286
)
 
$

 
$
187,900

Cumulative-effect adjustment of ASC Topic 606 on January 1, 2018

 

 

 
1,117

 

 

 
1,117

Issuance of common stock upon exercise of stock options and in connection with restricted stock units, net of tax
1,443

 
14

 
10,570

 

 

 

 
10,584

Stock-based compensation

 

 
3,050

 

 

 

 
3,050

Net unrealized loss on marketable securities

 

 

 

 
(99
)
 

 
(99
)
Net loss

 

 

 
(20,187
)
 

 

 
(20,187
)
Balances at March 31, 2018
87,041

 
870

 
696,429

 
(514,549
)
 
(385
)
 

 
182,365

Issuance of common stock upon exercise of stock options and in connection with restricted stock units, net of tax
263

 
2

 
1,952

 

 

 

 
1,954

Issuance of common stock under employee stock purchase plan
163

 
2

 
688

 

 

 

 
690

Issuance of common stock under public offering, net of issuance costs
14,157

 
142

 
215,614

 

 

 


 
215,756

Stock-based compensation

 

 
3,514

 

 

 

 
3,514

Foreign currency translation adjustment

 

 

 

 
(2
)
 

 
(2
)
Net unrealized gain on marketable securities

 

 

 

 
230

 

 
230

Net loss

 

 

 
(16,640
)
 

 

 
(16,640
)
Balances at June 30, 2018
101,624

 
$
1,016

 
$
918,197

 
$
(531,189
)
 
$
(157
)
 
$

 
$
387,867

See accompanying Notes to Condensed Consolidated Financial Statements.

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Table of Contents

SANGAMO THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in thousands)
 
Six Months Ended
June 30,
 
2019
 
2018
Operating Activities:
 
 
 
Net loss
$
(72,559
)
 
$
(36,827
)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
 
 
 
Depreciation and amortization
1,583

 
1,207

Amortization of discount on marketable securities
(2,455
)
 
(1,656
)
Gain on free shares
(551
)
 

Stock-based compensation
9,390

 
6,564

Net loss on lease termination
218

 

Other
11

 
465

Net changes in operating assets and liabilities:
 
 
 
Interest receivable
(391
)
 
(322
)
Accounts receivable
(7,422
)
 
(1,634
)
Prepaid expenses and other assets
(5,449
)
 
(3,564
)
Operating lease right-of-use assets
1,923

 

Accounts payable and accrued liabilities
1,811

 
2,733

Accrued compensation and employee benefits
(764
)
 
(1,133
)
Deferred revenues
(10,821
)
 
138,474

Long-term portion of lease liabilities
(563
)
 

Other non-current liabilities
1,327

 

Net cash (used in) provided by operating activities
(84,712
)
 
104,307

Investing Activities:
 
 
 
Purchases of marketable securities
(244,306
)
 
(451,240
)
Maturities of marketable securities
226,884

 
133,297

Purchases of property and equipment
(9,760
)
 
(5,768
)
Net cash used in investing activities
(27,182
)
 
(323,711
)
Financing Activities:
 
 
 
Proceeds from public offering of common stock, net of issuance costs
136,308

 
215,756

Taxes paid related to net share settlement of equity awards
(296
)
 
(57
)
Proceeds from issuance of common stock
4,094

 
13,285

Net cash provided by financing activities
140,106

 
228,984

Effects of changes in foreign exchange rates
592

 

Net increase in cash, cash equivalents, and restricted cash
28,804

 
9,580

Cash, cash equivalents, and restricted cash, beginning of period
143,918

 
53,326

Cash, cash equivalents, and restricted cash, end of period
$
172,722

 
$
62,906

Supplemental disclosure of non-cash activities:
 
 
 
Property and equipment included in accrued liabilities
$
1,679

 
$
1,836

Right-of-use assets obtained in exchange for lease obligations
$
29,671

 
$

See accompanying Notes to Condensed Consolidated Financial Statements.


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Table of Contents

SANGAMO THERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2019
(Unaudited)
NOTE 1—ORGANIZATION, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Overview
Sangamo Therapeutics, Inc. (“Sangamo” or the “Company”) was incorporated in the State of Delaware in June 1995 and changed its name from Sangamo Biosciences, Inc. in January 2017. Sangamo is focused on the research, development and commercialization of novel therapeutic strategies 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”). Potential applications of Sangamo’s technology include development of human therapeutics, plant agriculture and enhancement of pharmaceutical protein production.
Sangamo is currently working on a number of long-term development projects that will 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 funds, research grants and from the issuance of equity or debt securities. Sangamo believes that its available cash, cash equivalents and investments as of June 30, 2019, and expected revenues from collaborations, strategic partnerships and research grants, will be adequate to fund its operations at least through the next twelve months from the date the financial statements are issued. Sangamo will require additional financial resources to complete the development and commercialization of its products including ZFP Therapeutic products. Additional capital may not be available on terms acceptable to the Company, or 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 ZFP Therapeutic products would 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 generally accepted accounting principles in the United States of America (“U.S. GAAP”) 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 U.S. GAAP 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, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019. The condensed consolidated balance sheet data at December 31, 2018 was derived from the audited consolidated financial statements included in Sangamo’s Annual Report on Form 10-K for the year ended December 31, 2018 (the “2018 Annual Report”) as filed with the SEC on March 1, 2019. 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, 2018, included in the 2018 Annual Report.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. On an ongoing basis, management evaluates its estimates including critical accounting policies or estimates related to revenue recognition, clinical trial accruals, fair value of assets and liabilities, including from acquisitions, 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. In March 2019, the Company recorded an adjustment to revenue related to a change in estimate in connection with the hemophilia A collaboration agreement with Pfizer Inc. (“Pfizer”) as result of a decision made in a joint steering committee of Pfizer and Sangamo in March 2019 to increase the project scope and related project cost, which resulted in a decrease in the measure of the proportional performance. This adjustment decreased revenue by $3.0 million, increased net loss by $3.0 million and increased the Company’s basic net loss per share by $0.03 for the six months ended June 30, 2019.
Foreign Currency Translation
The functional currency of the Company’s foreign subsidiaries is primarily the Euro. Assets and liabilities denominated in foreign currencies are translated to U.S. dollars using the exchange rates at the balance sheet date. Foreign currency translation

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adjustments are recorded as a component of Accumulated Other Comprehensive Income (Loss) (“AOCI”) within stockholders’ equity. Revenues and expenses from the Company’s foreign subsidiaries are translated using the monthly average exchange rates in effect during the period in which the transactions occur. Foreign currency transaction gains and losses are recorded in interest and other income, net, on the Company’s Condensed Consolidated Statements of Operations.
Reclassifications
Certain prior period amounts in the accompanying condensed consolidated financial statements have been reclassified to conform to the current period presentation. These reclassifications had no effect on the reported results of operations. The Company reclassified $0.6 million from Intangible assets to Other non-current assets on the Condensed Consolidated Balance Sheet as of December 31, 2018.
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, deposits in demand money market accounts and commercial paper.
Marketable Securities
Sangamo classifies its marketable securities as available-for-sale and records its investments at estimated fair value based on quoted market prices or observable market inputs of almost identical assets, with the unrealized holding gains and losses included in AOCI.
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, net, which are determined using the specific identification method.
Concentrations of Risk
Cash, cash equivalents, and marketable securities consist of financial instruments that potentially subject the Company to a concentration of credit risk to the extent of the fair value recorded in the condensed consolidated balance sheets. The Company invests cash that is not required for immediate operating needs primarily in highly liquid instruments that bear minimal risk. The Company has established guidelines relating to the quality, diversification, and maturities of securities to enable the Company to manage its credit risk. The Company is exposed to credit risk in the event of a default by the financial institutions holding its cash, cash equivalents and investments and issuers of investments to the extent recorded on the condensed consolidated balance sheets.
In April 2019, the Company entered into an Option Agreement (the “Option”) with Brammer Bio MA (“Brammer”) whereby Brammer granted an option to secure dedicated capacity for Sangamo for manufacturing in Brammer’s facilities. The Company paid $3.0 million for the Option, which expires on July 31, 2020, and which is included in other non-current assets on the Condensed Consolidated Balance Sheets. If the Company exercises the option, the $3.0 million will be applied towards future manufacturing services. If the Company does not exercise the option, $1.5 million of the deposit is non-refundable. The remainder will be applied towards future services initiated within five years. In addition, the Company will pay Brammer $2.0 million to assist it in establishing its manufacturing capabilities in Brisbane, CA.
Certain materials and key components that the Company utilizes in its operations are obtained through single suppliers. Since the suppliers of key components and materials must be named in an investigational new drug application filed with the U.S. Food and Drug Administration for a product, significant delays can occur if the qualification of a new supplier is required. If delivery of material from the Company’s suppliers were interrupted for any reason, the Company may be unable to supply any of its product candidates for clinical trials.
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 are stated at their estimated fair values. The counterparties to the agreements relating to the Company’s investment securities consist of the U.S. government-sponsored entities and various major corporations and financial institutions with high credit ratings. The free share asset/liability is measured using a binomial-lattice pricing model and is reviewed each reporting period and adjusted, as needed.

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Leases
The Company determines if an arrangement is or contains a lease at inception by assessing whether the arrangement contains an identified asset and whether it has the right to control the identified asset. Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Lease liabilities are recognized at the lease commencement date based on the present value of future lease payments over the lease term. ROU assets are based on the measurement of the lease liability and also include any lease payments made prior to or on lease commencement and exclude lease incentives and initial direct costs incurred, as applicable.
As the implicit rate in the Company’s leases is generally unknown, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of remaining lease payments. The incremental borrowing rate represents an estimate of the interest rate the Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease in a similar economic environment. The Company gives consideration to its credit risk, term of the lease, total lease payments and adjusts for the impacts of collateral, as necessary, when calculating its incremental borrowing rates. The lease terms may include options to extend or terminate the lease when it is reasonably certain the Company will exercise any such options. Rent expense for the Company’s operating leases is recognized on a straight-line basis over the lease term.
The Company has elected to not separate lease and non-lease components for its real estate and copier leases and, as a result, accounts for any lease and non-lease components as a single lease component. The Company has also elected to not apply the recognition requirement to any leases with a term of 12 months or less and does not include an option to purchase the underlying asset that the Company is reasonably certain to exercise.
Revenue Recognition
Effective January 1, 2018, the Company adopted the provisions of Accounting Standards Codification (“ASC”) Topic 606 - Revenue from Contracts with Customers (“ASC Topic 606”) using the modified retrospective method, resulting in a change to its accounting policy for revenue recognition. ASC Topic 606 establishes a unified model to determine how revenue is recognized.
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.
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 research 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 ASC 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

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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. Related costs and expenses under these arrangements have historically approximated the revenues recognized.
For the six months ended June 30, 2019, revenues related to Kite Pharma, Inc. (“Kite”), a wholly-owned subsidiary of Gilead Sciences, Inc., the hemoglobinopathies agreement with Bioverativ Inc., (now Sanofi Genzyme, a global business unit of Sanofi S.A. (“Sanofi”)), and the Company’s hemophilia A collaboration agreement with Pfizer represented 61%, 18% and 16%, respectively, of the Company’s total revenue, excluding the above change in estimate. For the three months ended June 30, 2019, revenues related to Kite, the Company’s hemophilia A collaboration agreement with Pfizer and the hemoglobinopathies agreement with Sanofi represented 52%, 26% and 17%, respectively, of the Company’s total revenue. During the six months ended June 30, 2018, revenues related to the Company’s hemophilia A collaboration agreement with Pfizer, the hemoglobinopathies agreement with Sanofi and the agreement with Kite represented 47%, 26% and 22%, respectively, of the Company’s total revenue. For the three months ended June 30, 2018, revenues related to the Company’s hemophilia A collaboration agreement with Pfizer, Kite and the hemoglobinopathies agreement with Sanofi represented 38%, 35% and 21%, respectively, of the Company’s 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 development costs are incurred and there is reasonable assurance that the funds will be received. Funds received in advance are recorded as deferred revenue.
Recent Accounting Pronouncements
Recently Adopted
Simplified Disclosure
In August 2018, the SEC adopted amendments to certain disclosure requirements in Securities Act Release No. 33-10532, Disclosure Update and Simplification, as updated. These amendments eliminate, modify, or integrate into other SEC requirements certain disclosure rules. Among the amendments is the requirement to present an analysis of changes in stockholders’ equity in the interim financial statements included in quarterly reports on Form 10-Q. The analysis, which can be presented as a footnote or separate statement, is required for the current and comparative quarter and year-to-date interim periods. The amendments are effective for all filings made on or after November 5, 2018. As such, the Company adopted these SEC amendments on November 5, 2018 and has presented the analysis of changes in stockholders’ equity in these interim financial statements for June 30, 2019 and 2018 presented in this Quarterly Report on Form 10-Q. The Company’s adoption of these SEC amendments had no material effect on the Company’s reporting of financial position, results of operations, cash flows or stockholders’ equity.
Accounting for Leases
In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-2, Leases (“ASC Topic 842”). ASC Topic 842 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 ROU asset and corresponding liability, measured at the present value of the lease payments. On January 1, 2019, the Company adopted ASC Topic 842 using the modified retrospective approach with a cumulative-effect adjustment of $0.9 million reflected as a decrease to the opening balance of accumulated deficit as of the adoption date. Results for the three and six months ended June 30, 2019 are presented under ASC Topic 842. No prior period amounts were adjusted and continue to be reported in accordance with previous lease guidance, ASC Topic 840 — Leases (“ASC Topic 840”).
ASC Topic 842 provides a number of optional practical expedients in transition. The Company elected the practical expedients to not reassess its prior conclusions about lease identification under the new standard, to not reassess lease classification, and to not reassess initial direct costs. The Company did not elect the practical expedient allowing the use-of-hindsight which would require the Company to reassess the lease term of its leases based on all facts and circumstances through

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the effective date and did not elect the practical expedient pertaining to land easements as this is not applicable to the current contract portfolio.
The impact of the adoption of ASC Topic 842 on the accompanying Condensed Consolidated Balance Sheet as of January 1, 2019 was as follows (in thousands):
 
December 31, 2018
 
Adjustments Due to
the Adoption of
ASC Topic 842
 
January 1, 2019
Assets:
 
 
 
 
 
Property and equipment, net
$
78,723

 
$
(62,500
)
 
$
16,223

Operating lease right-of-use assets

 
8,753

 
8,753

Prepaid rent

 
36,025

 
36,025

 
 
 
 
 
 
Liabilities:
 
 
 
 
 
Operating lease liabilities - current(1)

 
1,408

 
1,408

Deferred rent(1)
271

 
(271
)
 

Build-to-suit lease obligation(2)
27,689

 
(27,689
)
 

Operating lease liabilities - long-term(2)

 
7,933

 
7,933

 
 
 
 
 
 
Accumulated deficit
(562,696
)
 
897

 
(561,799
)
___________________
(1)
Operating lease liabilities – current and deferred rent are included in accounts payable and accrued liabilities on the Condensed Consolidated Balance Sheets.
(2)
Build-to-suit lease obligation and operating lease liabilities – long-term are included in long-term portion of lease liabilities on the Condensed Consolidated Balance Sheets.
The adjustments due to the adoption of ASC Topic 842 primarily related to the recognition of operating lease ROU assets and operating lease liabilities for the Company’s leases. In addition, the adoption of ASC Topic 842 resulted in a change in accounting of the build-to-suit component of two leases under ASC Topic 840 to operating leases under ASC Topic 842 and as a result the Company derecognized the estimated fair value of the building shells that were included in Property and equipment, net as of December 31, 2018, as the Company had been deemed to own these buildings under ASC Topic 840. For additional discussion of the build-to-suit properties, see “Note 7 – Property and equipment, net” to the Company’s consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on March 1, 2019. For a description of the leases, see “Note 8 – Commitments and Contingencies – Leases” in these condensed consolidated financial statements.
Not yet adopted
Collaborative Arrangements
In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (ASC Topic 808): Clarifying the Interaction between Topic 808 and Topic 606 (“ASC Topic 808”), which clarifies that certain transactions between participants in a collaborative arrangement should be accounted for under ASC Topic 606 when the counterparty is a customer. In addition, ASC Topic 808 precludes an entity from presenting consideration from a transaction in a collaborative arrangement as revenue from contracts with customers if the counterparty is not a customer for that transaction. This guidance will be effective for the Company beginning January 1, 2020. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements.
Goodwill Impairment Testing
In January 2017, the FASB issued ASU No. 2017-4, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test of Goodwill Impairment (“ASU 2017-4”). The new guidance simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. ASU 2017-4 requires goodwill impairment to be measured as the amount by which a reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of its goodwill. ASU 2017-4 requires prospective application and is effective for annual periods beginning after December 15, 2019. ASU 2017-4 will require the Company to amend its methodology for determining any goodwill impairment beginning in 2020.

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NOTE 2—FAIR VALUE MEASUREMENTS
The Company measures certain financial assets and liabilities at fair value on a recurring basis, including cash equivalents, available-for-sale marketable securities and the free share asset/liability. Fair value is 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, available-for-sale marketable securities and the free share asset/liability are identified at the following levels within the fair value hierarchy (in thousands):
 
June 30, 2019
Fair Value Measurements
 
Total
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
Money market funds
$
71,490

 
$
71,490

 
$

 
$

Commercial paper securities
30,441

 

 
30,441

 

Total
101,931

 
71,490

 
30,441

 

Marketable securities:
 
 
 
 
 
 
 
Commercial paper securities
170,953

 

 
170,953

 

Corporate debt securities
71,383

 

 
71,383

 

U.S. government-sponsored entity debt securities
37,991

 

 
37,991

 

Total
280,327

 

 
280,327

 

Total cash equivalents and marketable securities
$
382,258

 
$
71,490

 
$
310,768

 
$

 
 
 
 
 
 
 
 
Free shares asset
$
361

 
$

 
$

 
$
361

 
December 31, 2018
Fair Value Measurements
 
Total
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
Money market funds
$
103,291

 
$
103,291

 
$

 
$

Total
103,291

 
103,291

 

 

Marketable securities:
 
 
 
 
 
 
 
Commercial paper securities
177,224

 

 
177,224

 

Corporate debt securities
63,870

 

 
63,870

 

U.S. government-sponsored entity debt securities
18,621

 

 
18,621

 

Total
259,715

 

 
259,715

 

Total cash equivalents and marketable securities
$
363,006

 
$
103,291

 
$
259,715

 
$

Liabilities:
 
 
 
 
 
 
 
Free shares liability
$
154

 
$

 
$

 
$
154


Cash Equivalents and Marketable Securities
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

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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.
Free Share Asset/Liability
As a result of the July 20, 2018 Share Purchase Agreement (“SPA”) with TxCell S.A., a French société anonyme (“TxCell”) (see Note 10 — Acquisition of TxCell S.A.), the Company entered into arrangements with the holders of approximately 477,000 “free shares” of TxCell pursuant to which the Company has the right to purchase such shares from the holders thereof (a call option) and such holders have the right to sell to the Company such shares from time to time through mid-2021 (a put option). The Company initially recorded a liability of $0.2 million on the acquisition date. The put options were classified within Level 3 of the fair value hierarchy as the Company utilized a binomial-lattice pricing model (the “Monte Carlo simulation model”) that involved certain market conditions to estimate the fair value of the options. The assumptions used in this simulation model are reviewed on a quarterly basis and adjusted, as needed. Subsequent changes in the fair value of the free shares are recorded in general and administrative expenses in the Condensed Consolidated Statements of Operations. The number of free shares has not changed since the Acquisition Date. The free shares liability was approximately $0.2 million at December 31, 2018 and the Company recognized a gain due to an increase in the fair value of the free shares of approximately $0.5 million for the six months ended June 30, 2019 bringing the balance to an asset of approximately $0.4 million at June 30, 2019.
Free Shares valuation assumptions:

June 30,
2019

December 31, 2018
Sangamo Stock Price (USD)

$
9.65


$
11.48

TxCell Stock Price (EUR)

2.24


2.58

EUR / USD Exchange Rate

0.89


0.87

Estimated Correlation Sangamo and TxCell Stock Prices

72.2%



Sangamo Stock Price (USD) Volatility Estimate

77.6%


79.9%

TxCell Stock Price (EUR) Volatility Estimate

76.2%


8.6%

EUR / USD Exchange Rate Volatility Estimate

7.0%


7.7%

Risk Free Rate and Cost of Debt by Expected Exercise Date

Varies


Varies


NOTE 3—CASH AND MARKETABLE SECURITIES
Cash, Cash Equivalents and Restricted Cash
A reconciliation of cash, cash equivalents and restricted cash reported within the Condensed Consolidated Balance Sheets to the amounts reported within the accompanying Condensed Consolidated Statements of Cash Flows was as follows (in thousands):
 
June 30,
2019
 
December 31,
2018
 
June 30,
2018
 
December 31,
2017
Cash and cash equivalents
$
169,222

 
$
140,418

 
$
59,406

 
$
49,826

Restricted cash included in Restricted cash, current portion
2,000

 

 

 

Restricted cash included in Non-current restricted cash
1,500

 
3,500

 
3,500

 
3,500

Cash, cash equivalents and restricted cash as reported within the accompanying Condensed Consolidated Statements of Cash Flows
$
172,722

 
$
143,918

 
$
62,906

 
$
53,326


Restricted cash consists of a letter of credit for $3.5 million established as a deposit for the Brisbane lease.

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Cash Equivalents and Available-for-sale Securities
The table below summarizes the Company’s cash equivalents and available-for-sale securities (in thousands):
 
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
(Losses)
 
Estimated
Fair Value
June 30, 2019
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
 
Money market funds
 
$
71,490

 
$

 
$

 
$
71,490

Commercial paper securities
 
30,439

 
2

 

 
30,441

Total
 
101,929

 
2

 

 
101,931

Available-for-sale securities:
 
 
 
 
 
 
 
 
Commercial paper securities
 
170,598

 
355

 

 
170,953

Corporate debt securities
 
71,280

 
108

 
(5
)
 
71,383

U.S. government-sponsored entity debt securities
 
37,973

 
18

 

 
37,991

Total
 
279,851

 
481

 
(5
)
 
280,327

Total cash equivalents and available-for-sale securities
 
$
381,780

 
$
483

 
$
(5
)
 
$
382,258

December 31, 2018
 
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
 
Money market funds
 
$
103,291

 
$

 
$

 
$
103,291

Total
 
103,291

 

 

 
103,291

Available-for-sale securities:
 
 
 
 
 
 
 
 
Commercial paper securities
 
177,353

 

 
(129
)
 
177,224

Corporate debt securities
 
63,981