e10vq
FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
1934 |
For the quarterly period ended June 30, 2007
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
1934 |
For the transition period from to
Commission file number 000-30171
SANGAMO BIOSCIENCES, INC.
(exact name of small business issuer as specified in its charter)
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Delaware
(State or other jurisdiction of incorporation or organization)
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68-0359556
(IRS Employer Identification No.) |
501 Canal Blvd, Suite A100
Richmond, California 94804
(Address of principal executive offices)
(510) 970-6000
(Registrants 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 þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act.
Large accelerated filer o Accelerated filer þ Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes o No þ
As of July 27, 2007, 39,658,307 shares of the issuers common stock, par value $0.01 per
share, were outstanding.
INDEX
SANGAMO BIOSCIENCES, INC.
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3 |
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3 |
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3 |
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4 |
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5 |
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6 |
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13 |
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18 |
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19 |
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20 |
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20 |
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20 |
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31 |
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31 |
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32 |
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33 |
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CERTIFICATIONS |
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34 |
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Some statements contained in this report are forward-looking with respect to our operations,
research and development activities, operating results and financial condition. Statements that are
forward-looking in nature should be read with caution because they involve risks and uncertainties,
which are included, for example, in specific and general discussions about:
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our strategy; |
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product development and commercialization of our products; |
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clinical trials; |
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revenues from existing and new collaborations; |
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sufficiency of our cash resources; |
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our research and development and other expenses; |
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our operational and legal risks; and |
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our plans, objectives, expectations and intentions and any other statements that are not historical facts. |
EXHIBIT 10.1 |
EXHIBIT 31.1 |
EXHIBIT 31.2 |
EXHIBIT 32.1 |
Various terms and expressions similar to them are intended to identify these cautionary statements.
These terms include: anticipates, believes, continues, could, estimates, expects,
intends, may, plans, seeks, should and will. Actual results may differ materially from
those expressed or implied in those statements. Factors that could cause these differences include,
but are not limited to, those discussed under Risk Factors and Managements Discussion and
Analysis of Financial Condition and Results of Operations. Sangamo undertakes no obligation to
publicly release any revisions to forward-looking statements to reflect events or circumstances
arising after the date of this report. Readers are cautioned not to place undue reliance on the
forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q.
2
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SANGAMO BIOSCIENCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
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June 30, |
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December 31, |
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2007 |
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2006 (1) |
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(unaudited) |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
9,672 |
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$ |
12,702 |
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Marketable securities |
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34,895 |
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41,218 |
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Interest receivable |
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18 |
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55 |
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Accounts receivable |
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160 |
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487 |
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Prepaid expenses |
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1,009 |
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594 |
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Total current assets |
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45,754 |
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55,056 |
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Property and equipment, net |
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1,133 |
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675 |
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Other assets |
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49 |
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49 |
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Total assets |
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$ |
46,936 |
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$ |
55,780 |
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Liabilities and stockholders equity |
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Current liabilities: |
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Accounts payable and accrued liabilities |
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$ |
2,768 |
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$ |
1,726 |
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Accrued compensation and employee benefits |
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644 |
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878 |
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Deferred revenue |
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2,861 |
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2,596 |
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Total current liabilities |
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6,273 |
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5,200 |
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Deferred revenue, non current portion |
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729 |
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1,875 |
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Total liabilities |
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7,002 |
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7,075 |
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Stockholders equity: |
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Common stock, $0.01 par value; 80,000,000
shares authorized, 35,242,359 and 35,045,398
shares issued and outstanding at June 30,
2007 and December 31, 2006, respectively |
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352 |
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350 |
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Additional paid-in capital |
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178,264 |
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176,513 |
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Accumulated deficit |
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(138,812 |
) |
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(128,272 |
) |
Accumulated other comprehensive income |
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130 |
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114 |
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Total stockholders equity |
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39,934 |
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48,705 |
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Total liabilities and stockholders equity |
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$ |
46,936 |
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$ |
55,780 |
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(1) |
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Amounts derived from Audited Consolidated Financial Statements dated December 31, 2006
filed as a part of our 2006 Annual Report on Form 10-K. |
See accompanying notes.
3
SANGAMO BIOSCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
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Three months ended |
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Six months ended |
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June 30, |
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June 30, |
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2007 |
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2006 |
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2007 |
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2006 |
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Revenues: |
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Collaboration agreements |
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$ |
1,461 |
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$ |
1,431 |
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$ |
2,611 |
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$ |
3,304 |
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Research grants |
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1,123 |
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346 |
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1,395 |
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609 |
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Total revenues |
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2,584 |
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1,777 |
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4,006 |
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3,913 |
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Operating expenses: |
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Research and development |
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6,309 |
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4,028 |
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11,739 |
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7,617 |
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General and administrative |
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2,113 |
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1,821 |
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4,112 |
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3,576 |
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Total operating expenses |
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8,422 |
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5,849 |
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15,851 |
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11,193 |
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Loss from operations |
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(5,838 |
) |
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(4,072 |
) |
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(11,845 |
) |
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(7,280 |
) |
Interest and other income, net |
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657 |
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745 |
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1,305 |
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1,209 |
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Net loss |
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$ |
(5,181 |
) |
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$ |
(3,327 |
) |
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$ |
(10,540 |
) |
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$ |
(6,071 |
) |
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Basic and diluted net loss per share |
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$ |
(0.15 |
) |
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$ |
(0.11 |
) |
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$ |
(0.30 |
) |
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$ |
(0.20 |
) |
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Shares used in computing basic and diluted net loss per share |
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35,136 |
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31,312 |
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35,097 |
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30,959 |
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See accompanying notes.
4
SANGAMO BIOSCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
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Six months ended |
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June 30, |
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2007 |
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2006 |
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Operating Activities: |
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Net loss |
|
$ |
(10,540 |
) |
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$ |
(6,071 |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation and amortization |
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110 |
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92 |
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Amortization of premium on investments |
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(953 |
) |
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(108 |
) |
Realized (gain) / loss on investments |
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16 |
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(29 |
) |
Stock-based compensation |
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1,074 |
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|
950 |
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Changes in operating assets and liabilities: |
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Interest receivable |
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37 |
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|
48 |
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Accounts receivable |
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|
327 |
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|
743 |
|
Prepaid expenses and other assets |
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(415 |
) |
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(348 |
) |
Accounts payable and accrued liabilities |
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1,042 |
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|
(581 |
) |
Accrued compensation and employee benefits |
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(234 |
) |
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(331 |
) |
Deferred revenue |
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(881 |
) |
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(2,594 |
) |
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Net cash used in operating activities |
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(10,417 |
) |
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(8,229 |
) |
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Investing Activities: |
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Purchases of investments |
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(36,375 |
) |
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(16,016 |
) |
Maturities of investments |
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43,651 |
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|
14,243 |
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Purchases of property and equipment |
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(568 |
) |
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(137 |
) |
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Net cash provided by / (used in) investing activities |
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6,708 |
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(1,910 |
) |
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Financing Activities: |
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Proceeds from issuance of common stock |
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679 |
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20,470 |
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Net cash provided by financing activities |
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679 |
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20,470 |
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Net (decrease)/increase in cash and cash equivalents |
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(3,030 |
) |
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|
10,331 |
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Cash and cash equivalents, beginning of period |
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|
12,702 |
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18,507 |
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Cash and cash equivalents, end of period |
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$ |
9,672 |
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$ |
28,838 |
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See accompanying notes.
5
SANGAMO BIOSCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 2007
NOTE 1-BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of Sangamo Biosciences,
Inc. (Sangamo or the Company) have been prepared in accordance with 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. The condensed
consolidated financial statements include the accounts of Sangamo and its wholly-owned subsidiary,
Gendaq Limited, after elimination of all material intercompany balances and transactions. Operating
results for the six months ended June 30, 2007 are not necessarily indicative of the results that
may be expected for the year ending December 31, 2007. These financial statements should be read in
conjunction with the financial statements and footnotes thereto for the year ended December 31,
2006, included in Sangamos Form 10-K as filed with the SEC.
USE OF ESTIMATES AND CLASSIFICATIONS
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. Actual results could differ from those
estimates.
FOREIGN CURRENCY TRANSLATION
The Company records foreign currency transactions at the exchange rate prevailing at the date
of the transaction. Monetary assets and liabilities denominated in foreign currency are translated
into U.S. dollars at the exchange rates in effect at the balance sheet date. All currency
translation adjustments arising from foreign currency transactions are recorded through statements
of operations.
REVENUE RECOGNITION
In accordance with Staff Accounting Bulletin No. 104, Revenue Recognition, revenue from
research activities made under strategic partnering agreements and Enabling Technology
collaborations is 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 collectibility
is reasonably assured. Amounts received in advance under such agreements are deferred until the
above criteria are met and the research services are performed. Sangamos research grants are
typically multi-year agreements and provide for the reimbursement of qualified expenses for
research and development as defined under the terms of the grant agreement. Revenue under grant
agreements is recognized when the related qualified research expenses are incurred. Grant
reimbursements are received on a quarterly or monthly basis and are subject to the issuing agencys
right of audit.
Milestone payments under research, partnering, or licensing agreements are recognized as
revenue upon the achievement of mutually agreed upon milestones, provided that (i) the milestone
event is substantive and its achievement is not reasonably assured at the inception of the
agreement, and (ii) there are no remaining performance obligations associated with the milestone
payment.
In accordance with Emerging Issues Task Force Issue No. 00-21, Revenue Arrangements with
Multiple Deliverables, revenue arrangements entered into after June 15, 2003, that include
multiple deliverables, are divided into separate units of accounting if the deliverables meet
certain criteria, including whether the fair value of the delivered items can be determined and
whether there is evidence of fair value of the undelivered items. In addition, the consideration is
allocated among the separate units of accounting based on their fair values, and the applicable
revenue recognition criteria are considered separately for each of the separate units of
accounting.
6
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses consist of costs incurred for Company-sponsored as well as
collaborative research and development activities. These costs include direct and research-related
overhead expenses, which include salaries and other personnel-related expenses, stock-based
compensation, pre-clinical and clinical studies, facility costs, laboratory supplies and
depreciation of facilities and laboratory equipment, as well as the cost of funding research at
universities and other research institutions, and are expensed as incurred. Costs to acquire
technologies that are utilized in research and development and that have no alternative future use
are expensed as incurred.
STOCK-BASED COMPENSATION
Employee stock-based compensation expenses recognized in the three-month and six-month periods
ended June 30, 2007 and 2006 were calculated based on awards ultimately expected to vest and has
been reduced for estimated forfeitures. FAS 123R requires forfeitures to be estimated at the time
of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those
estimates.
The following table shows total stock-based employee compensation expense included in the
condensed consolidated statement of operations for the three-month and six-month periods ended June
30, 2007 and 2006 (in thousands):
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Three months ended |
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Six months ended |
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|
June 30, |
|
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June 30, |
|
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2007 |
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2006 |
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|
2007 |
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|
2006 |
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|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
$ |
325 |
|
|
$ |
310 |
|
|
$ |
668 |
|
|
$ |
627 |
|
General and administrative |
|
|
202 |
|
|
|
184 |
|
|
|
398 |
|
|
|
297 |
|
|
|
|
|
|
|
|
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|
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|
|
Total stock-based compensation expense |
|
$ |
527 |
|
|
$ |
494 |
|
|
$ |
1,066 |
|
|
$ |
924 |
|
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|
There was no capitalized stock-based employee compensation cost as of June 30, 2007 and 2006.
There were no recognized tax benefits during the three month and six month periods ended June 30,
2007 and 2006.
As of June 30, 2007, total compensation cost related to nonvested stock options to be recognized in
future periods was $5.6 million, which is expected to be expensed over a weighted average period of
48 months.
Valuation Assumptions
The employee stock-based compensation expense recognized under FAS123R was determined using the
Black Scholes option valuation model. Option valuation models require the input of subjective
assumptions and these assumptions can vary over time.
We primarily base our determination of expected volatility through our assessment of the historical
volatility of our Common Stock. We do not believe that we are able to rely on our historical
exercise and post-vested termination activity to provide accurate data for estimating our expected
term for use in determining the fair value of these options. Therefore, as allowed by Staff
Accounting Bulletin (SAB) No. 107, Share-Based Payment , we have opted to use the simplified method
for estimating our expected term equal to the midpoint between the vesting period and the
contractual term.
The weightedaverage assumptions used for estimating the fair value of the employee stock options
are as follows:
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|
Three months ended |
|
Six months ended |
|
|
June 30, |
|
June 30, |
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
Risk-free interest rate |
|
|
4.99 |
% |
|
|
5.10 |
% |
|
|
4.58-4.99 |
% |
|
|
5.00-5.02 |
% |
Expected life of option |
|
6.25 years |
|
6.25 years |
|
6.25 years |
|
6.25 years |
Expected dividend yield of stock |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
0.0 |
% |
Expected volatility |
|
|
.92 |
|
|
|
.97 |
|
|
|
.92-.93 |
|
|
|
.91-.97 |
|
7
The weightedaverage assumptions used for estimating the fair value of the employees
purchase rights are as follows:
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|
|
Three months ended |
|
Six months ended |
|
|
June 30, |
|
June 30, |
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free interest rate |
|
|
3.60-5.10 |
% |
|
|
4.75-5.17 |
% |
|
|
3.60-5.10 |
% |
|
|
4.75-5.17 |
% |
Expected life of option |
|
0.5-2 years |
|
0.5-2 yrs |
|
.5-2 yrs |
|
0.5-2 yrs |
Expected dividend yield of stock |
|
|
0.0 |
|
|
|
0.0 |
|
|
|
0.0 |
|
|
|
0.0 |
|
Expected volatility |
|
|
.46-.77 |
|
|
|
.41-.98 |
|
|
|
.46-.77 |
|
|
|
.41-.98 |
|
Stock Option Activity
A summary of Sangamos stock option activity follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding |
|
|
Shares Available |
|
|
|
|
|
Weighted-Average |
|
Weighted Average |
|
|
for Grant of |
|
Number of |
|
Exercise per |
|
Remaining |
|
|
Options |
|
Shares |
|
Share Price |
|
Contractual Term |
|
|
|
Balance at January 1, 2007 |
|
|
3,625,021 |
|
|
|
4,147,812 |
|
|
$ |
5.64 |
|
|
|
|
|
Options granted |
|
|
(391,250 |
) |
|
|
391,250 |
|
|
$ |
7.10 |
|
|
|
|
|
Options exercised |
|
|
|
|
|
|
(135,766 |
) |
|
$ |
3.82 |
|
|
|
|
|
Options canceled |
|
|
187,894 |
|
|
|
(187,894 |
) |
|
$ |
5.90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2007 |
|
|
3,421,665 |
|
|
|
4,215,402 |
|
|
$ |
5.86 |
|
|
|
6.26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at June 30, 2007 |
|
|
|
|
|
|
2,618,931 |
|
|
$ |
5.86 |
|
|
|
4.76 |
|
There were no shares subject to Sangamos right of repurchase as of June 30, 2007. The intrinsic
value of options exercised were $382,000 and $269,000 for the three months ended June 30, 2007 and
2006, respectively, and $463,000 and $1,059,000 for the six months ended June 30, 2007 and 2006,
respectively.
The weighted-average estimated fair value per share of options granted during the three months and
six months ended June 30, 2007 and 2006 were $5.74 and $5.80, respectively, and $5.58 and $5.44,
respectively, based upon the assumptions in the Black-Scholes valuation model described above.
The weighted-average estimated fair value per share of employee purchase rights during the three
months and six months ended June 30, 2007 and 2006 were $2.36 and $2.23, respectively, and $2.36
and $2.17, respectively, based upon the assumptions in the Black-Scholes valuation model described
above.
The following table summarizes information with respect to stock options outstanding at June 30,
2007:
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding |
|
|
|
|
|
|
Weighted Average |
|
|
|
|
|
|
Remaining |
|
|
Number |
|
Contractual Life |
Range of Exercise Price |
|
of Shares |
|
(In Years) |
$0.05 $0.17 |
|
|
431,583 |
|
|
|
0.89 |
|
$0.23 $3.87 |
|
|
440,133 |
|
|
|
5.94 |
|
$3.95 $4.11 |
|
|
549,196 |
|
|
|
8.15 |
|
$4.15 $5.18 |
|
|
224,148 |
|
|
|
6.98 |
|
$5.19 $5.19 |
|
|
453,996 |
|
|
|
6.76 |
|
$5.30 $6.77 |
|
|
241,396 |
|
|
|
6.93 |
|
$6.82 $6.82 |
|
|
450,000 |
|
|
|
9.45 |
|
$6.88 $7.49 |
|
|
812,750 |
|
|
|
6.77 |
|
$7.56 $14.60 |
|
|
509,200 |
|
|
|
4.88 |
|
$14.87 $38.00 |
|
|
103,000 |
|
|
|
3.61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
4,215,402 |
|
|
|
6.26 |
|
|
|
|
|
|
|
|
|
|
8
At June 30, 2007, the aggregate intrinsic values of the outstanding and exercisable options were
$11.7 million and $8.1 million, respectively.
Sangamo did not grant any stock option to consultants during the three months ended June 30, 2007.
The Company granted 10,000 nonqualified stock options in July 2006. The options generally vest
over four years at a rate of 25 percent one year from grant date and one-thirty-sixth per month
thereafter and expire ten years after the grant date. The fair value of these options was
determined using the Black-Scholes Merton model. Total nonqualified stock-based compensation
expense was $4,000 and $5,000 for the three month periods ended June 30, 2007 and 2006,
respectively, and $8,000 and $26,000 for the six month periods ended June 30, 2007 and 2006,
respectively.
RECENT ACCOUNTING PRONOUNCEMENT
In February 2007, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 159, The Fair Value Option for Financial Assets and Financial
Liabilities, Including an Amendment of FASB Statement No. 115, which will become effective in
2008. SFAS No. 159 permits entities to measure eligible financial assets, financial liabilities and
firm commitments at fair value, on an instrument-by-instrument basis, that are otherwise not
permitted to be accounted for at fair value under other generally accepted accounting principles.
The fair value measurement election is irrevocable and subsequent changes in fair value must be
recorded in earnings. The Company is evaluating what impact, if any; the adoption of this standard
will have on its financial position or results of operations.
In September 2006 the FASB issued FASB Statement No. 157, Fair Value Measurements, or SFAS 157.
The standard provides guidance for using fair value to measure assets and liabilities. The
standard also responds to investors requests for expanded information about the extent to which
companies measure assets and liabilities at fair value, the information used to measure fair value,
and the effect of fair value measurements on earnings. The standard applies whenever other
standards require or permit assets or liabilities to be measured at fair value. The standard does
not expand the use of fair value in any new circumstances. SFAS 157 must be adopted prospectively
as of the beginning of the year it is initially applied. SFAS 157 is effective for financial
statements issued for fiscal years beginning after November 15, 2007, and interim periods within
those fiscal years. The Company is evaluating what impact, if any; the adoption of this standard
will have on its financial position or results of operations.
NOTE 2-BASIC AND DILUTED NET LOSS PER SHARE
Basic earnings (loss) per share is calculated based on the weighted average number of shares
of common stock outstanding during the period. Diluted earnings (loss) per share is calculated
based on the weighted average number of shares of common stock and dilutive securities, such as
stock options and equivalents, outstanding during the period. Potential dilutive shares of common
stock resulting from the assumed exercise of outstanding stock options and equivalents.
Because Sangamo is in a net loss position, diluted earnings (loss) per share excludes the
effects of common stock equivalents consisting of options, which are all antidilutive. Had Sangamo
been in a net income position, diluted earnings (loss) per share would have included the shares
used in the computation of basic net loss per share as well as an additional 2,214,731 shares and
1,898,378 shares for the six months ended June 30, 2007 and 2006, respectively, related to
outstanding options.
NOTE 3-COMPREHENSIVE LOSS
Comprehensive loss is comprised of net loss and other comprehensive income (loss). Other
comprehensive loss includes certain changes in stockholders equity that are excluded from net
loss, which includes unrealized gains and losses on our available-for-sale securities.
Comprehensive loss and its components are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(5,181 |
) |
|
$ |
(3,327 |
) |
|
$ |
(10,540 |
) |
|
$ |
(6,071 |
) |
Changes in
unrealized gain
(loss) on
securities
available-for-sale |
|
|
18 |
|
|
|
(18 |
) |
|
|
16 |
|
|
|
(29 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
$ |
(5,163 |
) |
|
$ |
(3,345 |
) |
|
$ |
(10,524 |
) |
|
$ |
(6,100 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
9
NOTE 4-MAJOR CUSTOMERS, PARTNERSHIPS AND STRATEGIC ALLIANCES
Enabling Technology Collaborations for Pharmaceutical Protein Production
On April 27, 2007, Sangamo entered into a research and license agreement with the Genentech,
Inc. to provide Genentech with access to Sangamos proprietary zinc finger DNA-binding protein
technology. Under the agreement, Sangamo will design and engineer ZFP nucleases for Genentech to
evaluate and potentially use to generate cell lines with Novel characteristics for protein
pharmaceutical production purpose. Upon successful development of such ZFNs, Sangamo will transfer
these ZFNs and the modified cell lines to Genentech and will provide technical support to Genentech
with respect to the use of the transferred ZFN technology. In consideration for the rights and
licenses granted to Genentech, as well as Sangamos development efforts, Genentech has paid Sangamo
an upfront fee and initial technology access fee. Genentech will also pay an ongoing annual
technology access fee. Genentech has also agreed to make certain payments upon on achievement of
specified milestones relating to the research of ZFNs and the development and commercialization of
products manufactured using a modified cell line created by ZFN technology or any other technology
covered by Sangamos intellectual property rights.
On December 2004, we announced a research collaboration agreement with Pfizer Inc to use our
ZFP technology to develop enhanced cell lines for protein pharmaceutical production. The scope of
this agreement was expanded in December 2006 and provided further research funding from Pfizer to
develop additional cell lines for enhanced protein production. Under the terms of the agreement,
Pfizer is funding research at Sangamo and Sangamo will provide our proprietary ZFP technology for
Pfizer to assess its feasibility for use in mammalian cell-based protein production. We are
generating novel cell lines for enhanced protein production as well as novel technology for rapid
creation of new production cell lines. Revenues attributable to collaborative research and
development performed under the Pfizer agreement were $25,000 and $157,000 during the three months
ended June 30, 2007 and 2006, respectively. Revenues for the six-month periods ended June 30, 2007
and 2006 were $50,000 and $307,000, respectively. Related research and development costs and
expenses performed under the Pfizer agreement were $113,000 and $98,000 during the three months
ended June 30, 2007 and 2006, respectively, and $247,000 and $155,000 during the six months ended
June 30, 2007 and 2006, respectively.
Terminated Strategic Partnership with Edwards Lifesciences
In December 2006, Sangamo entered into an Asset Purchase Agreement with Edwards Lifesciences
LLC (Edwards) to acquire all of the assets in Edwards ZFP TF angiogenesis program, including
regulatory filings, clinical data, and GMP product in exchange for one million shares of our
unregistered Common Stock and certain royalties. This transaction was valued at $5.8 million based
on the fair value of our publicly traded stock at the closing date of the transaction less a
discount for lack of marketability in the unregistered Common Stock. Under the agreement, Company
agreed to pay Edwards royalties generated by the sales of certain human therapeutic products,
including products to treat ischemic cardiovascular and vascular disease and diabetic neuropathy,
based upon ZFP TF activation of the VEGF gene: the first product is not expected to be available
for sale before 2012. The amount of royalties payable to Edwards is equal to (i) five percent (5%)
of the net sales of each such product sold by Sangamo and (ii) the greater of (a) five percent (5%)
of the net sales of each such product sold by a sublicensee of Sangamo or (b) twenty-five percent
(25%) of the royalty payment received by Sangamo from its sublicensee on account of such product
sold by such sublicensee; provided that total royalties paid by Sangamo under the agreement shall
not exceed $20 million in any calendar year or $100 million in the aggregate. In connection with
this transaction, the Company and Edwards terminated their prior agreements entered in January
2000.
Plant Agriculture Agreements
Sangamo scientists and collaborators have shown that ZFP TFs and ZFP nucleases (ZFNs) can be
used to regulate and modify genes in plants with similar efficacy to that shown in various
mammalian cells and organisms. The ability to regulate gene expression with engineered ZFP TFs may
lead to the creation of new plants that increase crop yields, lower production costs, are more
resistant to herbicides, pesticides, and plant pathogens; and permit the development of branded
agricultural products with unique nutritional and processing characteristics. In addition, ZFNs may
be used to facilitate the efficient and reproducible generation of transgenic plants. Effective as
of October 1, 2005, we entered into a Research License and Commercial Option Agreement with Dow
AgroSciences LLC (DAS), a wholly owned indirect subsidiary of Dow Chemical Corporation. Under
this agreement, we will provide DAS with access to our proprietary ZFP technology and the exclusive
right to use our ZFP technology to modify the genomes or alter the nucleic acid or protein
expression of plant cells, plants, or plant cell cultures. We will retain rights to use plants or
plant-derived products to deliver ZFP TFs or ZFNs into human or animals for diagnostic,
therapeutic, or prophylactic purposes.
10
Our agreement with DAS provides for an initial three-year research term during which time we
will work together to validate and optimize the application of our ZFP technology to plants, plant
cells and plant cell cultures. A joint committee having equal representation from both companies
will oversee this research. During the initial three-year research term, DAS will have the option
to obtain a commercial license to sell products incorporating or derived from plant cells generated
using our ZFP technology, including agricultural crops, industrial products and plant-derived
biopharmaceuticals. This commercial license will be exclusive for all such products other than
animal and human health products. In the event that DAS exercises this option, DAS may elect to
extend the research program beyond the initial three-year term on a year-to-year basis.
Pursuant to the Research License and Commercial Option Agreement, DAS made an initial cash
payment to us of $7.5 million and agreed to purchase up to $4.0 million of our common stock in the
next financing transaction meeting certain criteria. In November 2005, the Company sold
approximately 1.0 million shares of common stock to DAS at a price of $3.85 per share, resulting in
gross proceeds of $3.9 million. In addition, DAS will provide between $4.0 and $6.0 million in
research funding over the initial three-year research term and may make an additional payment of up
to $4.0 million in research milestone payments to us during this same period, depending on the
success of the research program. In the event that DAS elects to extend the research program beyond
the initial three-year term, DAS will provide additional research funding. If DAS exercises its
option to obtain a commercial license, we will be entitled to full payment of the $4.0 million in
research milestones, a one-time exercise fee of $6.0 million, minimum annual payments of up to
$25.25 million, development and commercialization milestone payments for each product, and
royalties on sales of products. Furthermore, DAS will have the right to sublicense our ZFP
technology to third parties for use in plant cells, plants, or plant cell cultures, and we will be
entitled to 25% of any cash consideration received by DAS under such sublicenses.
We have agreed to supply DAS and its sublicensees with ZFP TFs and/or ZFNs for both research
and commercial use. If DAS exercises its option to obtain a commercial license, DAS may request
that we transfer, at DASs expense, the ZFP manufacturing technology to DAS or to a mutually
agreed-upon contract manufacturer.
The Research License and Commercial Option Agreement will terminate automatically if DAS fails
to exercise its option for a commercial license by the end of the initial three-year research term.
DAS may also terminate the agreement at the end of the second year of the initial research term if
the joint committee overseeing the research determines that disappointing research results have
made it unlikely that DAS will exercise the option; we are guaranteed to receive $4.0 million in
research funding from DAS prior to such a termination. Following DASs exercise of the option and
payment of the exercise fee, DAS may terminate the agreement at any time. In addition, each party
may terminate the agreement upon an uncured material breach of the other party. In the event of any
termination of the agreement, all rights to use our ZFP technology will revert to us, and DAS will
no longer be permitted to practice our ZFP technology or to develop or, except in limited
circumstances, commercialize any products derived from our ZFP technology. Revenues related to the
research license under the DAS agreement are being recognized ratably over the initial three-year
research term of the agreement and were $625,000 during both the three months ended June 30, 2007
and 2006 and $1.3 million during both the six months ended June 30, 2007 and 2006. Revenues
attributable to collaborative research and development performed under the DAS agreement were
$500,000 during both the three months ended June 30, 2007 and 2006 and $1.0 million during both the
six months ended June 30, 2007 and 2006. Revenues attributable to milestone payments were $290,000
during both the three and six month periods ended June 30, 2007. Related costs and expenses
incurred under the DAS agreement were $500,000 during both the three months ended June 30, 2007 and
2006 and $1.0 million and $1.4 million during the six months ended June 30, 2007 and 2006,
respectively.
11
Funding from Research Foundations
The Michael J. Fox Foundation
On January 23, 2007, Sangamo announced a partnership with the Michael J. Fox Foundation (MJFF)
to provide financial support of Sangamos ZFP TFsTM to activate the expression of
glial cell line-derived neurotrophic factor (GDNF) that has shown promise in preclinical testing to
slow or stop the progression of Parkinsons disease. Under the agreement with MJFF and subject to
its terms and conditions, MJFF will pay the Company $950,000 award over a period of two years.
Revenues attributable to research and development performed under the MJFF partnership were
$134,000 and $184,000 during the three months and six months ended June 30, 2007, respectively.
Related costs and expenses incurred under the MJFF partnership were $134,000 and $184,000 during
the three month and six month periods ended June 30, 2007, respectively.
The Juvenile Diabetes Research Foundation International
On October 26, 2006, we announced a partnership with the Juvenile Diabetes Research Foundation
International (JDRF) to provide financial support one of Sangamos Phase 2 human clinical studies
of SB-509, a ZFP Therapeutic that is in development for the treatment of diabetic neuropathy.
Under the agreement with JDRF and subject to its terms and conditions, including the Companys
achievement of certain milestones associated with the Companys Phase 2 clinical trial of SB-509
for the treatment of mild to moderate diabetic neuropathy, JDRF will pay the Company an aggregate
amount of up to $3.0 million. After the first commercial launch of SB-509 in a major market, JDRF
has the right to receive, subject to certain limitations, annual payments from us, until such time
when the total amount paid to JDRF, including payments made on account of certain licensing
arrangements, equals three times the amount received by us from JDRF.
Under the agreement, we are obligated to use commercially reasonable efforts to carry out the
Phase 2 trial and, thereafter, to develop and commercialize, a product containing SB-509 for the
treatment of diabetes and complications of diabetes. We are obligated to cover all costs of the
Phase 2 trial that are not covered by JDRFs grant. If we fail to satisfy these obligations, JDRF
may have the right, subject to certain limitations, to obtain an exclusive, sublicensable license,
to the intellectual property generated by us in the course of the Phase 2 trial, to make and
commercialize products containing SB-509 for the treatment of diabetes and complications of
diabetes. If JDRF obtains such a license, it is obligated to pay us a percentage of its revenues
from product sales and sublicensing arrangements. If JDRF fails to satisfy its obligations to
develop and commercialize a product containing SB-509 under the Agreement, then their license
rights will terminate and we will receive a non-exclusive, fully paid license, for any intellectual
property developed during JDRFs use of the license, to research, develop and commercialize
products containing SB-509 for the treatment of diabetes and complications of diabetes.
During the three months and six months ended June 30, 2007, the Company received $500,000 and
$1.0 million from JDRF upon the achievement of two milestones. Revenues attributable to research
and development performed under the JDRF partnership were $830,000 during the three months ended
June 30, 2007. Related costs and expenses incurred under the Phase 2 clinical trial of SB-509 were
$764,000 and $2.0 million during the three months and six months ended June 30, 2007, respectively.
NOTE 5-STOCKHOLDERS EQUITY
In December 2006, Sangamo issued 1,000,000 shares of common stock to Edwards as partial
consideration for the purchase of Edwards angiogenesis program. The issuance was exempt for the
registration requirement pursuant to Section 4(2) of the Securities Act of 1933, as amended and,
Rule 506 of Regulation D promulgated pursuant to such Act. This transaction was valued at $5.8
million based on the fair value of our publicly traded stock at the closing date of the transaction
less a discount for lack of marketability in the unregistered Common Stock and recorded as a
research and development expense in 2006 consolidated statement of operations.
In June 2006, in an underwritten public offering and pursuant to an effective registration
statement, we sold 3,100,000 shares of common stock at a public offering price of $6.75 per share,
resulting in net proceeds of approximately $20.15 million after deducting underwriters discount.
NOTE 6-INCOME TAXES
On January 1, 2007, the Company adopted the provisions of Financial Standards Accounting Board
Interpretation No. 48, Accounting for Uncertainty in Income Taxes-an interpretation of FASB
Statement No. 109 (FIN 48). There was no impact on the Companys financial statements upon adoption. Because of the Companys historical significant
net operating losses, it has not been subject to income tax since inception. There were no
unrecognized tax benefits during all the periods presented.
12
We maintain deferred tax assets that reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes. These deferred tax assets include net operating loss
carryforwards, research credits and capitalized research and development. The net deferred tax
asset has been fully offset by a valuation allowance because of the Companys history of losses.
Utilization of operating losses and credits may be subject to substantial annual limitation due to
ownership change provisions of the Internal Revenue Code of 1986, as amended and similar state
provisions. The annual limitation may result in the expiration of net operating losses and credits
before utilization.
NOTE 7-SUBSEQUENT EVENT
On July 20, 2007, Sangamo completed a registered direct offering to a group of institutional
investors, in which Sangamo sold an aggregate of 3,278,689 shares of common stock at a price of
$9.15 per share to such investors, resulting in gross proceeds of approximately $30.0 million.
On July 10, 2007, Sangamo entered into a license agreement with Sigma-Aldrich Corporation
(Sigma). Under the agreement, Sangamo will provide Sigma with access to Sangamos proprietary
zinc finger DNA-binding protein (ZFP) technology and the exclusive right to use Sangamo ZFP
technology to develop and commercialize products for use as research reagents and to offer services
in the research field, excluding certain agricultural research uses that Sangamo previously
licensed to Dow AgroSciences LLC. Pursuant to the agreement, Sangamo issued one million shares of common stock at a price of $7.75 per share
to Sigma, resulting in gross proceeds of approximately $7.75 million and will receive an additional $5.75 million as an upfront license fee.
Sangamo is also eligible to receive development and commercial milestone payments and royalties on product sales.
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The discussion in Managements Discussion and Analysis of Financial Condition and Results of
Operations contains trend analysis, estimates and other forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. These forward-looking statements include, without limitation,
statements containing the words believes, anticipates, expects, continue, and other words
of similar import or the negative of those terms or expressions. Such forward-looking statements
are subject to known and unknown risks, uncertainties, estimates and other factors that may cause
the actual results, performance or achievements of the Company, or industry results, to be
materially different from any future results, performance or achievements expressed or implied by
such forward-looking statements. Actual results could differ materially from those set forth in
such forward-looking statements as a result of, but not limited to, the Risk Factors described
below. You should read the following discussion and analysis along with the financial statements
and notes attached to those statements included elsewhere in this report and in our annual report
on Form 10-K for the year ended December 31, 2006 as filed with the SEC on March 1, 2007.
Overview
We were incorporated in June 1995. From our inception through June 30, 2007, our activities
related primarily to establishing and operating a biotechnology research and development
organization and developing relationships with our corporate collaborators. Our scientific and
business development endeavors currently focus on the engineering of novel zinc finger DNA binding
proteins (ZFPs) for the regulation and modification of genes. We have incurred net losses since
inception and expect to incur losses in the future as we continue our research and development
activities. To date, we have funded our operations primarily through the issuance of equity
securities, borrowings, payments from research grants and from corporate collaborators and
strategic partners. As of June 30, 2007, we had an accumulated deficit of $138.8 million.
Our revenues have consisted primarily of revenues from our corporate partners for ZFP TFs and
ZFNs, contractual payments from strategic partners for research programs and research milestones,
and research grant funding. We expect revenues will continue to fluctuate from period to period and
there can be no assurance that new collaborations or partner fundings will continue beyond their
initial terms.
13
Commencing in 2005, we have placed more internal emphasis on higher-value therapeutic product
development and less emphasis on non therapeutic programs. We believe this shift in emphasis has
the potential to increase the return on investment to our stockholders by allocating capital
resources to higher value, therapeutic product development activities. At the same time, it may
reduce our revenues over the next several years and it increases our financial risk by
increasing expenses associated with product development. We have filed an Investigational New Drug
(IND) application with the U.S. Food and Drug Administration (FDA) and have initiated two Phase 2
clinical trials of a ZFP Therapeutic in patients with diabetic neuropathy during the first six
months of 2007. Development of novel therapeutic products is costly and is subject to a lengthy and
uncertain regulatory process by the FDA. Our future products are nucleic acid-based therapeutics.
Adverse events in both our own clinical program and other programs in
gene therapy and RNAi may have a
negative impact on regulatory approval, the willingness of potential commercial partners to enter
into agreements and the perception of the public.
Research and development expenses consist primarily of salaries and related personnel
expenses, including stock-based compensation, clinical trials and manufacturing cost, laboratory
supplies, allocated facilities costs, subcontracted research expenses, trademark registration and
technology licenses. Research and development costs incurred in connection with collaborator-funded
activities are expensed as incurred. We believe that continued investment in research and
development is critical to attaining our strategic objectives. We expect these expenses will
increase significantly as we increase our focus on development of ZFP Therapeutics. The Company is
also developing ZFNs for therapeutic gene correction and therapeutic gene modification as a
treatment for certain monogenic and infectious diseases. Additionally, in order to develop ZFP TFs
and ZFNs as commercially relevant therapeutics, we expect to expend additional resources for
expertise in the manufacturing, regulatory affairs and clinical research aspects of biotherapeutic
development.
General and administrative expenses consist primarily of salaries and related personnel
expenses for executive, finance and administrative personnel, stock-based compensation,
professional fees, patent prosecution expenses, allocated facilities costs and other general
corporate expenses. As we pursue commercial development of our therapeutic leads we expect the
business aspects of the Company to become more complex. We may be required in the future to add
personnel and incur additional costs related to the maturity of our business.
Critical Accounting Estimates
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and expenses during the
reporting period. Such estimates are described in Note 1, Basis of Presentation and Summary of
Significant Accounting Policies to the Unaudited Notes to Condensed Financial Statements. We base
our estimates on historical experience and on various other assumptions that we believe to be
reasonable under the circumstances, the results of which form our basis for making judgments about
the carrying value of assets and liabilities that are not readily apparent from other sources, and
evaluates our estimates on an ongoing basis. Actual results could differ from those estimates under
different assumptions or conditions. Sangamo believes the following critical accounting policies
have significant effect in the preparation of our consolidated financial statements.
Revenue Recognition
In accordance with Staff Accounting Bulletin No. 104, Revenue Recognition, revenue from
research activities made under strategic partnering collaborations is 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 collectibility is reasonably assured. Amounts received
under such agreements are deferred until the above criteria are met and the research services are
performed. Sangamos research grants are typically multi-year agreements and provide for the
reimbursement of qualified expenses for research and development as defined under the terms of the
grant agreement. Revenue under grant agreements is recognized when the related research expenses
are incurred. Grant reimbursements are typically received on a quarterly basis and are subject to
the issuing agencys right of audit.
Sangamo recognizes revenue from its Therapeutic and Enabling Technology collaborations when
ZFP-based products are delivered to the collaborators, persuasive evidence of an agreement exists,
there are no unfulfilled obligations, the price is fixed and determinable, and collectibility is
reasonably assured. Generally, Sangamo receives partial payments from these collaborations prior to
the delivery of ZFP-based products and the recognition of these revenues is deferred until the
ZFP-based products are delivered, the risk of ownership has passed to the collaborator and all
performance obligations have been satisfied. Upfront or signature payments received upon the
signing of an Enabling Technology agreement are generally recognized ratably over the applicable
period of the agreement, which currently ranges between 12 and 15 months, or as ZFP-based products
are delivered.
14
Milestone payments under research, partnering, or licensing agreements are recognized as
revenue upon the achievement of mutually agreed upon milestones, provided that (i) the milestone
event is substantive and its achievement is not reasonably assured at the inception of the
agreement, and (ii) there are no further significant performance obligations associated with the
milestone payment.
In accordance with Emerging Issues Task Force Issue No. 00-21, Revenue Arrangements with
Multiple Deliverables, revenue arrangements entered into after June 15, 2003, that include
multiple deliverables, are divided into separate units of accounting if the deliverables meet
certain criteria, including whether the fair value of the delivered items can be determined and
whether there is evidence of fair value of the undelivered items. In addition, the consideration is
allocated among the separate units of accounting based on their fair values, and the applicable
revenue recognition criterion is considered separately for each of the separate units of
accounting.
15
Stock-Based Compensation
On January 1, 2006, we began accounting for employee stock-based compensation in accordance
with FAS 123R. Under the provisions of FAS 123R, employee stock-based compensation is estimated at
the date of grant based on the employee stock awards fair value using the Black-Scholes
option-pricing model and is recognized as expense ratably over the requisite service period in a
manner similar to other forms of compensation paid to employees. The Black-Scholes option-pricing
model requires the use of certain subjective assumptions. The most significant of these
assumptions are our estimates of the expected volatility of the market price of our stock and the
expected term of the award. We primarily base our determination of expected volatility through our
assessment of the historical volatility of our Common Stock. We do not believe that we are able to
rely on our historical exercise and post-vested termination activity to provide accurate data for
estimating our expected term for use in determining the fair value of these options. Therefore, as
allowed by Staff Accounting Bulletin (SAB) No. 107, Share-Based Payment, we have opted to use the
simplified method for estimating our expected term equal to the midpoint between the vesting period
and the contractual term. As required under the accounting rules, we review our valuation
assumptions at each grant date and, as a result, our valuation assumptions used to value employee
stock-based awards granted in future periods may change.
As of June 30, 2007, total compensation cost related to nonvested stock options to be recognized in
future periods was $5.6 million, which is expected to be expensed over a weighted average period of
48 months.
RESULTS OF OPERATIONS
Three and six months ended June 30, 2007 and 2006
Revenues
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
|
|
(in thousands, except percentage values) |
|
|
(in thousands, except percentage values) |
|
|
|
2007 |
|
|
2006 |
|
|
Change |
|
|
% |
|
|
2007 |
|
|
2006 |
|
|
Change |
|
|
% |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collaboration agreements |
|
$ |
1,461 |
|
|
$ |
1,431 |
|
|
$ |
30 |
|
|
|
2 |
% |
|
$ |
2,611 |
|
|
$ |
3,304 |
|
|
$ |
(693 |
) |
|
|
(21 |
%) |
Research grants |
|
|
1,123 |
|
|
|
346 |
|
|
|
777 |
|
|
|
(225 |
%) |
|
|
1,395 |
|
|
|
609 |
|
|
|
786 |
|
|
|
129 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
2,584 |
|
|
$ |
1,777 |
|
|
$ |
807 |
|
|
|
(45 |
%) |
|
$ |
4,006 |
|
|
$ |
3,913 |
|
|
$ |
93 |
|
|
|
2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues increased to $2.6 million for the three months ended June 30, 2007 from $1.8
million in the corresponding period in 2006. The increase for the three months ended June 30, 2007
was principally due to revenues of $830,000 in connection with our JDRF grant. Total revenues
increased to $4.0 million for the six months ended June 30, 2007 from $3.9 million in the
corresponding period in 2006. The increase for the six months ended June 30, 2007 was principally
due to revenues of $830,000 in connection with our JDRF grant, offset by decreased
collaboration-related revenues of approximately $300,000, $257,000 and $158,000 from Johnson &
Johnson, Pfizer and DAS, respectively. We anticipate continued revenues from collaboration
agreements through the end of 2008, and we have applied for, and plan to continue to apply for,
research grants in the future to support the development of applications of our technology
platform. Although we have negotiated collaboration agreements and received research grants in the
past, we cannot assure you that these efforts will be successful in the future.
16
Operating Expenses
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
|
Six months ended June 30, |
|
|
|
(in thousands, except percentage values) |
|
|
(in thousands, except percentage values) |
|
|
|
2007 |
|
|
2006 |
|
|
Change |
|
|
% |
|
|
2007 |
|
|
2006 |
|
|
Change |
|
|
% |
|
Operating Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
$ |
6,309 |
|
|
$ |
4,028 |
|
|
$ |
2,281 |
|
|
|
57 |
% |
|
$ |
11,739 |
|
|
$ |
7,617 |
|
|
$ |
4,122 |
|
|
|
54 |
% |
General and administrative |
|
|
2,113 |
|
|
|
1,821 |
|
|
|
292 |
|
|
|
16 |
% |
|
|
4,112 |
|
|
|
3,576 |
|
|
|
536 |
|
|
|
15 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
$ |
8,422 |
|
|
$ |
5,849 |
|
|
$ |
2,573 |
|
|
|
44 |
% |
|
$ |
15,851 |
|
|
$ |
11,193 |
|
|
$ |
4,658 |
|
|
|
42 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
Over the past three fiscal years, research and development expenses have consisted primarily
of salaries and related personnel expenses including stock-based compensation as well as clinical
trials and manufacturing cost, laboratory supplies, allocated facilities costs, subcontracted
research expenses, trademark registration and technology licenses. We expect to continue to devote
substantial resources to research and development in the future and expect research and development
expenses to increase in the next several years if we are successful in advancing our ZFP
Therapeutic product candidates into and through clinical trials. To the extent we collaborate with
others with respect to clinical trials, increases in research and development expenses may be
reduced or avoided.
Research and development expenses for the second quarter of 2007 increased to $6.3 million
compared to $4.0 million for the second quarter of 2006. The increase in research and development
expenses for the three months ended June 30, 2007 was primarily attributable to increased external
development expenses of $1.2 million, primarily associated with clinical trials and manufacturing
cost of our diabetic neuropathy program, and increased personnel and laboratory supply expenses of
$427,000 and $329,000, respectively, primarily due to increased headcount, and increased
facility-related and licensing expenses of $124,000 and $114,000, respectively. Research and
development expenses for the first six months of 2007 increased to $11.7 million compared to $7.6
million for the corresponding period of 2006. The increase in research and development expenses for
the six months ended June 30, 2007 was primarily attributable to increased external development
expenses of $2.3 million, primarily associated with clinical trials and manufacturing cost of our
diabetic neuropathy program, increased personnel and laboratory supply expenses of $801,000 and
$574,000, respectively, due to increased headcount, and increased facility-related expenses of
$189,000.
General and administrative
General and administrative expenses consist primarily of salaries and related personnel
expenses for executive, finance and administrative personnel, stock-based compensation,
professional fees, patent prosecution expenses, allocated facilities costs, other general corporate
expenses and stock-based compensation. As we pursue commercial development of our therapeutic
leads, we expect the business aspects of the Company to become more complex. We may be required in
the future to add personnel and incur additional costs related to the maturity of our business.
General and administrative expenses were $2.1 million for the three months ended June 30,
2007, as compared to $1.8 million during the corresponding period of 2006. This increase is
primarily related to increased professional service-related expenses of $228,000. General and
administrative expenses were $4.1 million for the six months ended June 30, 2007, as compared to
$3.6 million during the corresponding period of 2006. This increase is primarily related to
increased expenses related to professional services and employee stock-based compensation of
$430,000 and $101,000, respectively.
Interest income, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
Six months ended June 30, |
|
|
(in thousands, except percentage values) |
|
(in thousands, except percentage values) |
|
|
2007 |
|
2006 |
|
Change |
|
% |
|
2007 |
|
2006 |
|
Change |
|
% |
Interest and other income, net |
|
$ |
657 |
|
|
$ |
745 |
|
|
$ |
(88 |
) |
|
|
(12 |
%) |
|
$ |
1,305 |
|
|
$ |
1,208 |
|
|
$ |
97 |
|
|
|
8 |
% |
Interest and other income, net, decreased to $657,000 for the three months ended June 30, 2007
from $745,000 in the corresponding period in 2006. The decrease was primarily related to a decrease
of foreign currency translation gain of $59,000 during the quarter ended June 30, 2007. Interest
and other income, net, increased to $1.3 million for the six months ended June 30, 2007
from $1.2 million in the corresponding period of 2006. The increase was primarily related to a
increase interest income of $184,000 related to higher average investment balances during the six
months ended June 30, 2007 from the June 2006 equity financing. This increase was partially offset
by a decrease foreign currency translation gain of $86,000 during the six months ended June 30,
2007.
17
Liquidity and Capital Resources
Since inception, we have financed our operations primarily through the sale of equity securities,
payments from corporate collaborators, research grants and financing activities such as a bank line
of credit. As of June 30, 2007, we had cash, cash equivalents, investments and interest receivable
totaling $44.6 million. On May 18, 2007, we entered into a sales agreement with Cantor Fitzgerald &
Co., as sales agent, pursuant to which we may issue and sell, from time to time through Cantor
Fitzgerald & Co, up to 3,000,000 shares of common stock. No shares of common stock have been sold
under this agreement. On July 10, 2007, in connection with a license agreement with Sigma, Sangamo
issued one million shares of common stock at a price of $7.75 per share to Sigma, resulting in
gross proceeds of approximately $7.75 million and will receive an additional $5.75 million as an
upfront license fee. On July 20, 2007, Sangamo completed a registered direct offering to a group
of institutional investors, in which Sangamo sold an aggregate of 3,278,689 shares of common stock
at a price of $9.15 per share to such investors, resulting in net proceeds of approximately $28.0
million.
Net cash used for operating activities was $10.4 million for the six months ended June 30,
2007. Net cash used consisted of the net loss for the six-month period of $10.5 million,
amortization of premium on investment of $953,000 and a net change of $124,000 in operating assets
and liabilities. This was partially offset by stock-based compensation charges of $1.1 million and
depreciation and amortization of $110,000. Net cash used for operating activities was $8.2 million
for the six months ended June 30, 2006. Net cash used consisted primarily of the net loss for the
six-month period of $6.1 million, a net change of $3.1 million in operating assets and liabilities
and amortization of premium on investment of $108,000. This was partially offset by stock-based
compensation charges of $950,000 and depreciation and amortization of $92,000.
Net cash provided by investing activities was $6.7 million for the six months ended June 30,
2007 and was primarily comprised of proceeds associated with maturities of investments $43.7
million, partially offset by cash used to purchase investments and fixed assets of $36.4 million
and $568,000, respectively. Net cash used in investing activities was $1.9 million for the six
months ended June 30, 2006 and was primarily comprised of cash used to purchase investments and
fixed assets of $16.0 million and $137,000, respectively, partially offset by cash proceeds
associated with maturities of investments of $14.2 million.
Net cash provided by financing activities for the six-month period ended June 30, 2007 was
$679,000. Proceeds were solely related to proceeds from the issuance of common stock related to
stock option exercises. Net cash provided by financing activities for the six month period ended
June 30, 2006 was $20.5 million. In June 2006, in an underwritten public offering and pursuant to
an effective registration statement, we sold 3,100,000 shares of common stock at a price of $6.75
per share, resulting in net proceeds of approximately $20.15 million after deducting underwriters
discount. All other cash provided by financing activities for the first six months of 2006 were
related to proceeds from the issuance of common stock related to stock option exercises.
While we expect our rate of cash usage to increase in the future, in particular, in support of
our product development endeavors, we believe that the available cash resources, funds received
from corporate collaborators, strategic partners and research grants will be sufficient to finance
our operations through 2009. We may need to raise additional capital to fund our ZFP Therapeutic
development activities. Additional capital may not be available in terms acceptable to us, or at
all. If adequate funds are not available, our business and our ability to develop our technology
and our ZFP Therapeutic products would be harmed.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk for changes in interest rates relates primarily to our cash equivalents
and investments. The investments are available-for-sale. We do not use derivative financial
instruments in our investment portfolio. We attempt to ensure the safety and preservation of our
invested funds by limiting default and market risks. Our cash and investments policy emphasizes
liquidity and preservation of principal over other portfolio considerations. We select investments
that maximize interest income to the extent possible within these guidelines. We satisfy liquidity
requirements by investing excess cash in securities with different maturities to match projected
cash needs and limit concentration of credit risk by diversifying our investments among a variety
of high credit-quality issuers. We mitigate default risk by investing in only investment-grade
securities. The portfolio includes marketable securities with active secondary or resale markets to
ensure portfolio liquidity. All investments have a fixed interest rate and are carried at market
value, which approximates cost.
Our market risks at June 30, 2007 have not changed materially from those discussed in Item 7A of
our Form 10-K for the year ended December 31, 2006 on file with the Securities and Exchange
Commission.
18
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
The Companys management, with the participation of the Companys Chief Executive Officer and
Principal Financial Officer, evaluated the effectiveness of the Companys disclosure controls and
procedures (as defined in Exchange Act Rule 13a-15(e) or 15d-15(e)) as of the end of the period
covered by this report. Based on that evaluation, the Chief Executive Officer and Principal
Financial Officer concluded that the Companys disclosure controls and procedures as of the end of
the period covered by this report are functioning effectively to provide reasonable assurance that
the information required to be disclosed by the Company in reports filed under the Securities
Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time
periods specified in the SECs rules and forms, and that such information is accumulated and
communicated to management, including our Chief Executive Officer and Principal Financial Officer,
or persons performing similar functions, as appropriate to allow timely decisions regarding
required disclosure.
(b) Change in Internal Control over Financial Reporting
No change in the Companys internal control over financial reporting occurred during the
Companys most recent fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the Companys internal control over financial reporting.
19
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are not party to any material pending legal proceedings, other than routine litigation
incidental to our business.
ITEM 1A. RISKS FACTORS
This Form 10-Q contains forward-looking information based on our current expectations. Because our
actual results may differ materially from any forward-looking statements made by or on behalf of
Sangamo, this section includes a discussion of important factors that could affect our actual
future results, including, but not limited to, our revenues, expenses, net loss and loss per share.
We have increased the focus of our research and development programs on human therapeutics,
which will increase operating expenditures and the uncertainty of our business. We are increasing
the emphasis and focus of our internal research and development activities on ZFP Therapeutics and
have fewer resources invested in non therapeutic programs. In the short term, this change may
reduce our revenues and increase operating expenditures due to larger financial outlays to fund
preclinical studies, manufacturing, and clinical research. The focus on ZFP Therapeutics will also
increase the visibility of our lead therapeutic programs and the potential impact on the stock
price of news releases relating to these programs.
We are conducting proprietary research to discover ZFP Therapeutic product candidates. These
programs increase our financial risk of product failure, may significantly increase our research
expenditures, and may involve conflicts with our collaborators and strategic partners. Our
proprietary research programs consist of research which is funded largely by the Company and where
the Company retains exclusive rights to therapeutic products generated by the research. This is in
contrast to certain of our non therapeutic programs that may be funded by corporate partners and in
which we may share in the value of any resulting products. We have conducted proprietary research
since our inception; however, in the past several years, our strategy has shifted toward placing
greater emphasis on proprietary research and therapeutic development and we expect this trend will
continue in 2007 as we prosecute our first Phase 2 clinical trials and bring new ZFP Therapeutics
into clinical trials. Conducting proprietary research programs may not generate corresponding
revenue and may create conflicts with our collaborators or strategic partners. The implementation
of this strategy will involve substantially greater business risks, the expenditure of
significantly greater funds than our historic research activities and will require substantial
commitments of time from our management and staff.
In addition, disagreements with our collaborators or strategic partners could develop over
rights to our intellectual property with respect to our proprietary research activities. Any
conflict with our collaborators or strategic partners could reduce our ability to enter into future
collaboration or strategic partnering agreements and negatively impact our relationship with
existing collaborators and strategic partners, which could reduce our revenue and delay or
terminate our product development.
We have initiated two Phase 2 clinical trials in our lead ZFP Therapeutic program, and ZFP
Therapeutics have undergone limited testing in humans. We have completed enrollment and treatment
of the patients in a Phase 1 clinical trial of SB-509 for diabetic neuropathy and thus far have not
observed any serious drug-related adverse events. However if our lead ZFP Therapeutic fails one of
its initial safety studies, it could reduce our ability to attract new investors and corporate
partners. In January 2005, we filed an IND with the FDA for SB-509, a ZFP TF activator of VEGF-A,
for the treatment of mild to moderate diabetic neuropathy. We have completed enrollment and
treatment of a Phase 1, single blind, dose-escalation trial to measure the laboratory and clinical
safety of SB-509 and initiated a Phase 2 clinical trial for this indication. In addition, Phase 1
clinical trials of an identical ZFP TF has been carried out in subjects with peripheral artery
disease. These early studies of a ZFP Therapeutic are a highly visible test of our ZFP Therapeutic
approach. Since we have increased our focus on ZFP Therapeutic research and development, investors
will increasingly assess the value of our technology based on the continued progress of ZFP
Therapeutic products into and through clinical trials. If the initial safety study of our lead
therapeutic was halted due to safety concerns or for other reasons, this would negatively affect
the value of our stock.
The results of our Phase 1 trials are based on a small number of patients over a short period
of time, and our progress may not be indicative of results in a large number of patients or of
long-term efficacy. The results in early phases of clinical testing are based upon limited numbers
of patients and a limited follow-up period. For example, the initial results from the Phase 1
clinical trial of our ZFP Therapeutic, SB-509, became available in
the first half of 2006 and additional data were presented in June 2007. The
primary end point of the trial was clinical and laboratory safety, however we collected some
preliminary efficacy data that showed early evidence of clinical improvement in some subjects.
Typically, our Phase 1 clinical trials for indications of safety enroll less than 50 patients. We
have designed our initial Phase 2 clinical
20
trial for safety and efficacy to enroll approximately 100 patients. Actual results with more
data points may not confirm the favorable results from earlier stage trials. A number of companies
in the pharmaceutical and biotechnology industries have suffered significant setbacks in late stage
clinical trials even after achieving promising results in earlier stage clinical trials. In
addition, we do not yet know if early results will be reproducible. If a larger population of
patients does not experience positive results, or if these results are not reproducible, our
products may not receive approval from the FDA. Failure to demonstrate the safety and effectiveness
of our ZFP Therapeutic products in larger patient populations could have a material adverse effect
on our business that would cause our stock price to decline significantly.
We have limited experience in conducting clinical trials. Our ZFP Therapeutics may fail to
show the desired safety and efficacy in initial clinical trials. We have completed a Phase 1 trial
and begun two Phase 2 clinical trials, however, the FDA will require additional clinical testing
which involves significantly greater resources, commitments and expertise that may require us to
enter into a collaborative relationship with a pharmaceutical company that could assume
responsibility for late-stage development and commercialization.
We may not be able to find acceptable patients or may experience delays in enrolling patients
for our clinical trials. We or the FDA may suspend our clinical trials at any time if
either believes that we are exposing the subjects participating in these trials to unacceptable
health risks. The FDA or institutional review boards and/or institutional biosafety committees at
the medical institutions and healthcare facilities where we sponsor clinical trials may suspend any
trial indefinitely if they find deficiencies in the conduct of these trials. The FDA and
institutional review boards may also require large numbers of patients, and the FDA may require
that we repeat a clinical trial.
Our potential therapeutic products are subject to a lengthy and uncertain regulatory process,
and we may encounter unanticipated toxicity or adverse events or fail to demonstrate efficacy,
causing us to delay, suspend or terminate the the development of a ZFP Therapeutics. If these
potential products are not approved, we will not be able to commercialize those products.
The FDA must approve any human therapeutic product before it can be marketed in the United
States. The process for receiving regulatory approval is long and uncertain, and a potential
product may not withstand the rigors of testing under the regulatory approval processes.
Before commencing clinical trials in humans, we must submit an Investigational New Drug (IND)
application to the FDA. The FDA has 30 days to comment on the IND. If the FDA does not comment on
the IND, we or our commercial partner may begin clinical trials.
Clinical trials are subject to oversight by institutional review boards and the FDA. In
addition, our proposed clinical studies will require review from the Recombinant DNA Advisory
Committee, or RAC, which is the advisory board to the National Institutes of Health, or NIH,
focusing on clinical trials involving gene transfer. We will typically submit a proposed clinical
protocol and other product-related information to the RAC three to six months prior to the expected
IND filing date.
Clinical trials:
|
|
|
must be conducted in conformance with the FDAs good clinical practices, ICH guidelines and
other applicable regulations; |
|
|
|
|
must meet requirements for institutional review board (IRB) oversight; |
|
|
|
|
must follow Institutional Biosafety Committee (IBC) and NIH RAC guidelines where applicable; |
|
|
|
|
must meet requirements for informed consent; |
|
|
|
|
are subject to continuing FDA oversight; |
|
|
|
|
may require large numbers of test subjects; and |
|
|
|
|
may be suspended by a commercial partner, the FDA, or us at any time if it is believed that
the subjects participating in these trials are being exposed to unacceptable health risks or
if the FDA finds deficiencies in the IND or the conduct of these trials. |
21
Clinical trials are lengthy and are typically conducted in three sequential phases, but the phases
may overlap or be combined. Each trial must be reviewed and approved by an independent ethics
committee or institutional review board before it can begin. Phase 1 usually involves the initial
introduction of the investigational drug into healthy volunteers or patients to evaluate certain
factors, including its safety, dosage tolerance and, if possible, to gain an early indication of
its effectiveness. Phase 2 usually involves trials in a limited patient population to evaluate
dosage tolerance and appropriate dosage, identify possible adverse effects and safety risks, and
evaluate preliminarily the efficacy of the drug for specific indications. Phase 3 trials usually
further evaluate clinical efficacy and test further for safety by using the drug in its final form
in an expanded patient population. Later clinical trials may fail to support the findings of
earlier trials, which would delay, limit or prevent regulatory approvals.
While we have stated our intention to file additional IND applications and conduct additional
clinical trial during the next several years, this is only a statement of intent, and we may not be
able to do so because the associated product candidates may not meet the necessary preclinical
requirements. In addition, there can be no assurance that, once filed, an IND application will
result in the actual initiation of clinical trials.
We cannot predict whether or when we will obtain regulatory approval to commercialize our
product candidates, therefore we cannot predict the timing of any future revenue from these product
candidates. We cannot commercialize any of our ZFP Therapeutics to generate revenue
until the appropriate regulatory authorities have reviewed and approved the applications for the
product candidates. We cannot assure you that the regulatory agencies will complete their review
processes in a timely manner or that we will obtain regulatory approval for any product candidate
that we or our collaborators develop. Satisfaction of regulatory requirements typically takes many
years, is dependent upon the type, complexity and novelty of the product and requires the
expenditure of substantial resources. Regulatory approval processes outside the United States
include all of the risks associated with the FDA approval process. In addition, we may experience
delays or rejections based upon additional government regulation from future legislation or
administrative action or changes in FDA policy during the period of product development, clinical
trials and FDA regulatory review.
Our collaborators may control aspects of our clinical trials, which could result in delays and
other obstacles in the commercialization of our proposed products. For some programs we may be
dependent on third party collaborators to design and conduct our clinical trials. As a result, we
may not be able to conduct these programs in the manner or on the time schedule we currently
contemplate. In addition, if any of these collaborative partners withdraw support for our programs
or proposed products or otherwise impair their development; our business could be negatively
affected.
Our gene regulation and gene modification technology is relatively new, and if we are unable
to use this technology in all our intended applications, it would limit our revenue
opportunities. Our technology involves a relatively new approach to gene regulation and
gene modification. Although we have generated ZFP TFs for thousands of gene sequences, we have not
created ZFP TFs for all gene sequences and may not be able do so, which could limit the usefulness
of our technology. In addition, while we have demonstrated the function of engineered ZFP TFs in
mammalian cell culture, yeast, insects, plants, and animals, we have not yet definitively done so
in humans, and the failure to do so could restrict our ability to develop commercially viable
products. If we, and our collaborators or strategic partners, are unable to extend our results to
new commercially important genes, experimental animal models, and human clinical studies, we may be
unable to use our technology in all its intended applications. Also, delivery of ZFP TFs and ZFNs
into cells and organisms, including humans, in these and other environments is limited by a number
of technical hurdles, which we may be unable to surmount. This is a particular challenge for
therapeutic applications of our technology that will require the use of gene transfer systems that
may not be effective for the delivery of our ZFP TFs or ZFNs in a particular therapeutic
application.
The expected value and utility of our ZFP TFs and ZFNs is in part based on our belief that the
targeted or specific regulation of gene expression and targeted gene modification may enable us to
develop a new therapeutic approach as well as to help scientists better understand the role of
human, animal, and other genes in disease and to aid their efforts in drug discovery and
development. We also believe that the regulation of gene expression and targeted gene addition will
have utility in agricultural applications. There is only a limited understanding of the role of
specific genes in all these fields. Life sciences companies have developed or commercialized only a
few products in any of these fields based on results from genomic research or the ability to
regulate gene expression. We, our collaborators, or our strategic partners, may not be able to use
our technology to identify and validate drug targets or to develop commercial products in the
intended markets.
We are currently engaged in the research and development of a new application of our
technology platform: ZFP-mediated gene modification using ZFNs to effect gene disruption, gene
correction or gene addition. Using this technique, Sangamo scientists have engineered ZFNs to cut
DNA at a specific site within a target gene, and to rejoin the two ends of the break which
frequently results in the disruption of the genes function; to correct the adjacent sequences with newly
synthesized DNA copied from an introduced DNA
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template, resulting in gene correction; or to specifically add a new DNA sequence into a target site. ZFP-mediated gene modification is at an
early stage of development. Our scientists have shown ZFP-mediated gene modification to work in
isolated cells; however, a significant amount of additional research will be needed before this
technique can be evaluated in animals or plants and subsequently tested for applications in human
healthcare and plant agriculture.
We may be unable to license gene transfer technologies that we may need to commercialize our
ZFP TF and ZFN technology. In order to regulate a gene in a cell, the ZFP TF or ZFN must be
efficiently delivered to the cell. We have licensed certain gene transfer technologies for use with
our non therapeutic programs, which are ZFP TFs and ZFNs used in pharmaceutical discovery research
and protein production. We are evaluating these systems and other technologies that may need to be
used in the delivery of ZFP TFs or ZFNs into cells for in vitro and in vivo applications, including
ZFP Therapeutics. However, we may not be able to license the gene transfer technologies required to
develop and commercialize our ZFP Therapeutics. We have not developed our own gene transfer
technologies, and where necessary we rely on our ability to enter into license agreements to
provide us with rights to the necessary gene transfer technology. The inability to obtain a license
to use gene transfer technologies with entities which own such technology on reasonable commercial
terms, if at all, could delay or prevent the preclinical evaluation, clinical testing, and/or
commercialization of our therapeutic product candidates.
We do not currently have the infrastructure or capability to manufacture therapeutic products
on a commercial scale. In order for us to commercialize these products directly, we would need to
develop, or obtain through outsourcing arrangements, the capability to execute all of these
functions. If we are unable to develop or otherwise obtain the requisite preclinical, clinical,
regulatory, manufacturing, marketing, and sales capabilities, we would be unable to directly
commercialize our therapeutics products which would limit our future growth.
Even if our technology proves to be effective, it still may not lead to commercially viable
products. Even if our collaborators or strategic partners are successful in using our
ZFP technology in research reagents, protein production, therapeutic development, or plant
agriculture, they may not be able to commercialize the resulting products or may decide to use
other methods competitive with our technology. To date, no company has received marketing approval
or has developed or commercialized any therapeutic or agricultural products based on our
technology. Should our technology fail to provide safe, effective, useful, or commercially viable
approaches to the discovery and development of these products, this would significantly limit our
business and future growth and would adversely affect our value.
Even if our product development efforts are successful and even if the requisite regulatory
approvals are obtained, our ZFP Therapeutics may not gain market acceptance among physicians,
patients, healthcare payers and the medical community. A number of additional factors may limit
the market acceptance of products including the following:
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rate of adoption by healthcare practitioners; |
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rate of a products acceptance by the target population; |
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timing of market entry relative to competitive products; |
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availability of alternative therapies; |
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price of our product relative to alternative therapies; |
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availability of third-party reimbursement; |
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extent of marketing efforts by us and third-party distributors or agents retained by us; and |
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side effects or unfavorable publicity concerning our products or similar products. |
Adverse events in the field of gene therapy and siRNA may negatively impact regulatory
approval or public perception of our potential products. Our potential therapeutic
products are delivered to patients as nucleic acid-based drugs. The clinical and commercial success
of our potential products will depend in part on public acceptance of the use of gene therapy and
siRNA for the prevention or treatment of human diseases. Public attitudes may be influenced by
claims that gene therapy is unsafe or that siRNA is ineffective, and, consequently, our products may not gain the acceptance of the public or the
medical community. Negative public reaction to gene therapy in general could result in greater
government regulation and stricter labeling requirements of gene therapy products, including any of
our products, and could cause a decrease in the demand for any products we may develop.
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Our stock price is also influenced by public perception. Reports of serious adverse
events in a retroviral gene transfer trial for infants with X-linked severe combined
immunodeficiency (X-linked SCID) in France and subsequent FDA actions putting related trials on
hold in the United States had a significant negative impact on the public perception and stock
price of certain companies involved in gene therapy. Stock prices of these companies declined
whether or not the specific company was involved with retroviral gene transfer for the treatment of
infants with X-linked SCID, or whether the specific companys clinical trials were placed on hold
in connection with these events. Other potential adverse events in the field of siRNA or gene
therapy may occur in the future that could result in greater governmental regulation of our
potential products and potential regulatory delays relating to the testing or approval of our
potential products
We are at the development phase of operations and may not succeed or become profitable.
We began operations in 1995 and are in the early phases of ZFP Therapeutic product
development. We have incurred significant losses and our net losses for the past three fiscal years
ended 2006, 2005 and 2004 were $17.9 million, $13.3 million and $13.8 million, respectively. To
date, our revenues have been generated from non therapeutic collaborations, strategic partners, and
research grants. Since 2005, we have placed more emphasis on higher-value therapeutic product
development and related strategic partnerships. This shift in emphasis has the potential to
increase the return on investment to our stockholders by allocating capital resources to higher
value, therapeutic product development activities. At the same time, it increases our financial
risk by increasing expenses associated with product development. In addition, the preclinical or
clinical failure of any single product may have a significant effect on the actual or perceived
value of our shares. Our business is subject to all of the risks inherent in the development of a
new technology, which included the need to:
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attract and retain qualified scientific and technical staff and management, particularly
scientific staff with expertise to develop our early-stage technology into therapeutic
products; |
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obtain sufficient capital to support the expense of developing our technology platform
and developing, testing, and commercializing products; |
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develop a market for our products; |
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successfully transition from a company with a research focus to a company capable of supporting commercial activities; and |
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attract and enter into research collaborations with research and academic institutions and scientists. |
Commercialization of our technologies will depend, in part, on strategic partnering with other
companies. If we are not able to find strategic partners in the future or our strategic partners do
not diligently pursue product development efforts, we may not be able to develop our technologies
or products, which could slow our growth and decrease our value. We expect to rely, to some
extent, on our strategic partners to provide funding in support of our research and to perform
independent research and preclinical and clinical testing. Our technology is broad based, and we do
not currently possess the resources necessary to fully develop and commercialize potential products
that may result from our technologies or the resources or capabilities to complete the lengthy
marketing approval processes that may be required for the products. Therefore, we plan to rely on
strategic partnerships to help us develop and commercialize ZFP Therapeutic products. If those
partners are unable or unwilling to advance our programs, or if they do not diligently pursue
product approval, this may slow our progress and defer our revenues. Our partners may sublicense or
abandon development programs or we may have disagreements with our partners, which would cause
associated product development to slow or cease. There can be no assurance that we will be able to
establish strategic collaborations for ZFP Therapeutic product development. We may require
significant time to secure collaborations or strategic partners because we need to effectively
market the benefits of our technology to these future collaborators and strategic partners, which
use the time and efforts of research and development personnel and our management. Further, each
collaboration or strategic partnering arrangement will involve the negotiation of terms that may be
unique to each collaborator or strategic partner. These business development efforts may not result
in a collaboration or strategic partnership.
The loss of any future strategic partnering agreements would not only delay or terminate the
potential development or commercialization of products we may derive from our technologies, but it
may also delay or terminate our ability to test ZFP TFs for specific genes. If any strategic
partner fails to conduct the collaborative activities successfully and in a timely manner, the
preclinical or clinical development or commercialization of the affected product candidates or research
programs could be delayed or terminated.
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If our competitors develop, acquire, or market technologies or products that are more
effective than ours, this would reduce or eliminate our commercial opportunity. Any
products that we or our collaborators or strategic partners develop by using our ZFP technology
platform will enter into highly competitive markets. Even if we are able to generate ZFP
Therapeutics that are safe and effective for their intended use, competing technologies may prove
to be more effective or less expensive, which, to the extent these competing technologies achieve
market acceptance, will limit our revenue opportunities. In some cases, competing technologies have
proven to be satisfactorily effective and less expensive. ZFP TFs and ZFNs have broad application
in the life sciences and compete with a broad array of new technologies and approaches being
applied to genetic research by many companies. Competing proprietary technologies with our product
development focus include:
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small molecule drugs; |
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monoclonal antibodies; |
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recombinant proteins; |
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gene therapy /cDNAs; |
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antisense; and |
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siRNA approaches. |
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For our non therapeutic Applications: |
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For protein production: gene amplification, meganucleases, insulator technology, mini-chromosomes; |
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For research reagents: antisense, siRNA; and |
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For plant agriculture: recombination approaches, mutagenesis approaches, meganucleases, mini-chromosomes. |
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In addition to possessing competing technologies, our competitors include biotechnology companies with: |
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substantially greater capital resources than ours; |
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larger research and development staffs and facilities than ours; and |
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greater experience in product development and in obtaining regulatory approvals and patent protection. |
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These organizations also compete with us to: |
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attract qualified personnel; |
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attract parties for acquisitions, joint ventures or other collaborations; and |
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license the proprietary technologies of academic and research institutions that are
competitive with our technology, which may preclude us from pursuing similar opportunities. |
Accordingly, our competitors may succeed in obtaining patent protection or commercializing
products before us. In addition, any products that we develop may compete with existing products or
services that are well established in the marketplace.
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Our collaborators or strategic partners may decide to adopt alternative technologies or may be
unable to develop commercially viable products with our technology, which would negatively impact
our revenues and our strategy to develop these products. Our collaborators or strategic partners may adopt alternative technologies, which could decrease
the marketability of ZFP technology. Additionally, because many of our collaborators or strategic
partners are likely to be working on more than one development project, they could choose to shift
their resources to projects other than those they are working on with us. If they do so, this would
delay our ability to test our technology and would delay or terminate the development of potential
products based on our ZFP technology. Further, our collaborators and strategic partners may elect
not to develop products arising out of our collaborative and strategic partnering arrangements or
to devote sufficient resources to the development, manufacturing, marketing, or sale of these
products. If any of these events occur, we may not be able to develop our technologies or
commercialize our products.
We anticipate continuing to incur operating losses for the next several years. If material
losses continue for a significant period, we may be unable to continue our operations.
We have incurred operating losses since we began operations in 1995. The extent of our future
losses and the timing of profitability are uncertain, and we expect to incur losses for the
foreseeable future. We have been engaged in developing our ZFP TF technology since inception, which
has and will continue to require significant research and development expenditures. In July 2007,
we completed a registered direct offering to a group of institutional investors, in which we sold
an aggregate of 3,278,689 shares of common stock at a price of $9.15 per share to such investors,
resulting in net proceeds of approximately $28.0 million. In June 2006, in an underwritten public
offering and pursuant to an effective registration statement, we sold 3,100,000 shares of common
stock at a public offering price of $6.75 per share, resulting in net proceeds of approximately
$20.15 million after deducting underwriters discount. In November 2005, we completed a registered
direct offering to institutional and strategic investors for a total of 5,080,000 shares of common
stock at a price of $3.85 per share to the investors, resulting in net proceeds to Sangamo of
approximately $18.2 million. To date, we have generated all other revenue from non therapeutic
collaborations, ZFP Therapeutic, strategic partnering agreements, research grants and grants
awarded by research foundations. As of June 30, 2007, we had an accumulated deficit of
approximately $138.8 million. We expect to incur losses for the foreseeable future. These losses
will increase as we expand and extend our research and development activities into human
therapeutic product development. If the time required to generate significant product revenues and
achieve profitability is longer than we currently anticipate or if we are unable to generate
liquidity through equity financing, we may not be able to sustain our operations.
We may be unable to raise additional capital, which would harm our ability to develop our
technology and products. We have incurred significant operating losses and negative
operating cash flows since inception and have not achieved profitability. We expect capital outlays
and operating expenditures to increase over the next several years as we expand our infrastructure
and research and ZFP Therapeutic product development activities. While we believe our financial
resources will be adequate to sustain our current operations at least through 2009, we may seek
additional sources of capital through equity or debt financing. In addition, as we focus our
efforts on proprietary human therapeutics, we will need to seek FDA approval of potential products,
a process that could cost in excess of $100 million per product. We cannot be certain that we will
be able to obtain financing on terms acceptable to us, or at all. If adequate funds are not
available, our business and our ability to develop our technology and ZFP Therapeutic products
would be harmed.
Our stock price has been volatile and may continue to be volatile, which could result in
substantial losses for investors. During the quarter ended June 30, 2007, our stock
price range from a low of $6.57 to high of $8.54. During the past two years, our common stock price
has fluctuated significantly, ranging from a low of $4.10 to a high of $8.00 during the year ended
December 31, 2006, and a low of $3.54 to a high of $5.81 during the year ended December 31, 2005.
Volatility in our common stock could cause stockholders to incur substantial losses. An active
public market for our common stock may not be sustained, and the market price of our common stock
may continue to be highly volatile. The market price of our common stock has fluctuated
significantly in response to the following factors, some of which are beyond our control:
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announcements by us about the development and commercialization status of ZFP Therapeutics; |
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changes in market valuations of similar companies; |
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deviations in our results of operations from the guidance given by us or estimates of securities analysts; |
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announcements by us or our competitors of new or enhanced products, technologies or
services or significant contracts, acquisitions, strategic relationships, joint ventures or
capital commitments; |
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regulatory developments; |
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additions or departures of key personnel; |
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future sales of our common stock or other securities by the Company, management or
directors; future sale or liquidation of our common stock by institutional investors with
large holding of our stock; and |
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decreases in our cash balances. |
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Our common stock is relatively thinly traded, which means large transactions in our common
stock may be difficult to conduct in a short time frame. We have a relatively low volume
of daily trades in our common stock on the Nasdaq Global Market. For example, the average daily
trading volume in our common stock on the Nasdaq Global Market over the ten-day trading period
prior to July 27, 2007 was approximately 591,390 shares per day. Any large transactions in our
common stock may be difficult to conduct and may cause significant fluctuations in the price of our
common stock.
Failure to attract, retain, and motivate skilled personnel and cultivate key academic
collaborations will delay our product development programs and our research and development
efforts. We are a small company with 80 full-time employees as of July 31, 2007 and our
success depends on our continued ability to attract, retain, and motivate highly qualified
management and scientific personnel and our ability to develop and maintain important relationships
with leading research and academic institutions and scientists. Competition for personnel and
academic and other research collaborations is intense. The success of our technology development
programs depends on our ability to attract and retain highly trained personnel. We have experienced
a rate of employee turnover that we believe is typical of emerging biotechnology companies. If we
lose the services of personnel with the necessary skills, it could significantly impede the
achievement of our research and development objectives. We are not presently aware of any plans of
specific employees to retire or otherwise leave the company. If we fail to negotiate additional
acceptable collaborations with academic and other research institutions and scientists, or if our
existing collaborations are unsuccessful, our ZFP Therapeutic development programs may be delayed
or may not succeed.
If conflicts arise between us and our collaborators, strategic partners, scientific advisors,
or directors, these parties may act in their self-interest, which may limit our ability to
implement our strategies. If conflicts arise between our corporate or academic
collaborators, strategic partners, or scientific advisors or directors and us, the other party may
act in its self-interest, which may limit our ability to implement our strategies. Some of our
academic collaborators and strategic partners are conducting multiple product development efforts
within each area that is the subject of the collaboration with us. Our collaborators or strategic
partners, however, may develop, either alone or with others, products in related fields that are
competitive with the products or potential products that are the subject of these collaborations.
Competing products, either developed by the collaborators or strategic partners or to which the
collaborators or strategic partners have rights, may result in the withdrawal of partner support
for our product candidates.
Some of our collaborators or strategic partners could also become competitors in the future.
Our collaborators or strategic partners could develop competing products, preclude us from entering
into collaborations with their competitors, fail to obtain timely regulatory approvals, terminate
their agreements with us prematurely, or fail to devote sufficient resources to the development and
commercialization of products. Any of these developments could harm our product development
efforts.
Because it is difficult and costly to protect our proprietary rights, and third parties have
filed patent applications that are similar to ours, we cannot ensure the proprietary protection of
our technologies and products. Our commercial success will depend in part on obtaining patent
protection of our technology and successfully defending any of our patents that may be challenged.
The patent positions of pharmaceutical and biotechnology companies can be highly uncertain and can
involve complex legal and factual questions. No consistent policy regarding the breadth of claims
allowed in biotechnology patents has emerged to date. Accordingly, we cannot predict the breadth of
claims allowed in patents we own or license.
We are a party to various license agreements that give us rights under specified patents and
patent applications. Our current licenses, as our future licenses frequently will, contain
performance obligations. If we fail to meet those obligations, the licenses could be terminated. If
we are unable to continue to license these technologies on commercially reasonable terms, or at
all, we may be forced to delay or terminate our product development and research activities.
With respect to our present and any future sublicenses, since our rights derive from those
granted to our sublicensor, we are subject to the risk that our sublicensor may fail to perform its
obligations under the master license or fail to inform us of useful improvements in, or additions
to, the underlying intellectual property owned by the original licensor.
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We are unable to exercise the same degree of control over intellectual property that we
license from third parties as we exercise over our internally developed intellectual property. We
do not control the prosecution of certain of the patent applications that we
license from third parties; therefore, the patent applications may not be prosecuted exactly
as we desire or in a timely manner.
The degree of future protection for our proprietary rights is uncertain, and we cannot ensure
that:
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we or our licensors were the first to make the inventions covered by each of our pending patent applications; |
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we or our licensors were the first to file patent applications for these inventions; |
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the patents of others will not have an adverse effect on our ability to do business; |
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others will not independently develop similar or alternative technologies or reverse
engineer any of our products, processes or technologies; |
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any of our pending patent applications will result in issued patents; |
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any patents issued or licensed to us or our collaborators or strategic partners will
provide a basis for commercially viable products or will provide us with any competitive
advantages; |
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any patents issued or licensed to us will not be challenged and invalidated by third parties; or |
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we will develop additional products, processes or technologies that are patentable. |
Others have filed and in the future are likely to file patent applications that are similar to
ours. We are aware that there are academic groups and other companies that are attempting to
develop technology that is based on the use of zinc finger and other DNA binding proteins, and that
these groups and companies have filed patent applications. Several patents have been issued,
although we have no current plans to use the associated inventions. If these or other patents
issue, it is possible that the holder of any patent or patents granted on these applications may
bring an infringement action against our collaborators, strategic partners, or us claiming damages
and seeking to enjoin commercial activities relating to the affected products and processes. The
costs of litigating the claim could be substantial. Moreover, we cannot predict whether we, our
collaborators, or strategic partners would prevail in any actions. In addition, if the relevant
patent claims were upheld as valid and enforceable and our products or processes were found to
infringe the patent or patents, we could be prevented from making, using, or selling the relevant
product or process unless we could obtain a license or were able to design around the patent
claims. We can give no assurance that such a license would be available on commercially reasonable
terms, or at all, or that we would be able to successfully design around the relevant patent
claims. There may be significant litigation in the genomics industry regarding patent and other
intellectual property rights, which could subject us to litigation. If we become involved in
litigation, it could consume a substantial portion of our managerial and financial resources.
Third parties have challenged some of our intellectual property and we expect they will
continue to do so. We may not be successful in defending all of our intellectual property that is
challenged which could impede our ability to conduct our business and exclude potential competitors
from using our technology. One of our licensed patents, European Patent No. 0 682 699, entitled
Functional Domains in Flavobacterium Okeanokoites Restriction Endonuclease was granted on May 7,
2003 and contained claims covering technologies used in our programs in targeted recombination,
targeted integration and gene correction. In December 2005, an interlocutory decision revoking this
patent was issued by the European Patent Office and in March 2007, the European Patent Office
upheld its decision. We do not believe this decision will have a material impact on our ongoing
ability, both in Europe and the United States, to exclude potential competitors in the fields of
ZFNs and to develop, partner and commercialize our ZFP technology.
We rely on trade secrets to protect technology where we believe patent protection is not
appropriate or obtainable. Trade secrets, however, are difficult to protect. While we require
employees, academic collaborators, and consultants to enter into confidentiality agreements, we may
not be able to adequately protect our trade secrets or other proprietary information or enforce
these confidentiality agreements.
Our collaborators, strategic partners, and scientific advisors have rights to publish data and
information in which we may have rights. If we cannot maintain the confidentiality of our
technology and other confidential information in connection with our collaborations and strategic
partnerships, then we may not be able to receive patent protection or protect our proprietary
information.
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If we do not successfully commercialize ZFP based research reagents under our agreement with
Sigma, Sigma may terminate our agreement and Sangamos ability to generate revenue under the
license agreement may be limited. On July 10, 2007, we entered into a license agreement with Sigma to collaborate in the application and development of ZFP-based
products for use in the laboratory research reagents markets. The license agreement provides Sigma
with access to Sangamos proprietary zinc finger DNA-binding protein (ZFP) technology and the
exclusive right to use Sangamos ZFP technology to develop and commercialize products for use as
research reagents and to offer services in related research fields. In addition to an upfront
payment of $13.5 million, Sangamo may also receive additional license fees, shared sublicensing
revenues, royalty payments and milestone payments depending on the success of the development and
commercialization of the licensed products and services. The commercial milestones and royalties
are based upon net sales of licensed products. We believe that the last commercial milestone
payment may not be received before 2011. Royalties for the longer of (i) the expiration of the
last to expire valid claim of such licensed product and (ii) the 15th anniversary of the
effective date. We cannot be certain that Sigma and Sangamo will succeed in the development of
commercially viable products in these fields of use, and there is no guarantee that Sangamo and
Sigma will achieve the milestones set forth in the license agreement. To the extent Sangamo and
Sigma do not succeed in developing and commercializing products or if Sangamo and Sigma fail to
achieve such milestones, Sangamos revenues and benefits under the license agreement will be
limited. In addition, the license agreement may be terminated by Sigma at any time by providing us
with a 90-day notice. In the event Sigma decides to terminate the license agreement, our ability
to generate revenue under the license agreement will cease.
If we do not successfully commercialize certain ZFP Therapeutic programs relating to diabetic
neuropathy under our agreement with JDRF, JDRF may have the right to continue to advance the
program and we may lose control of the intellectual property generated in the collaboration and
development of the product and may only receive a portion of the revenue generated if
commercialization by JDRF is successful. On October 24, 2006, we entered into a Research,
Development and Commercialization Agreement with JDRF. Under the agreement and subject to its
terms and conditions, including our achievement of certain milestones associated with our Phase 2
clinical trial of SB-509 for the treatment of mild to moderate diabetic neuropathy, JDRF will pay
us up to $3,000,000. We are obligated to cover the costs of the Phase 2 trial that are not covered
by JDRFs grant.
Under the agreement, we are obligated to use commercially reasonable efforts to carry out the
Phase 2 trial and, thereafter, to develop and commercialize, a product containing SB-509 for the
treatment of diabetes and complications of diabetes. If we fail to satisfy these obligations, JDRF
may have the right, subject to certain limitations, to obtain an exclusive, sublicensable license,
to the intellectual property generated by us in the course of the Phase 2 trial, to make and
commercialize products containing SB-509 for the treatment of diabetes and complications of
diabetes. If JDRF obtains such a license, it is obligated to pay us a percentage of its revenues
from product sales and sublicensing arrangements. If JDRF fails to satisfy its obligations to
develop and commercialize a product containing SB-509 under the Agreement, then their license
rights will terminate, all rights will be returned to Sangamo and we will receive a non-exclusive,
fully paid license, for any intellectual property developed during JDRFs use of the license, to
research, develop and commercialize products containing SB-509 for the treatment of diabetes and
complications of diabetes. There is no guarantee that we will be successful in commercializing a
product containing SB-509 in the future. If we fail to do so under the agreement with JDRF, we may
lose control of the intellectual property generated in the development of the product and may only
receive a portion of the revenue generated if commercialization by JDRF is successful.
Regulatory approval, if granted, may be limited to specific uses or geographic areas, which
could limit our ability to generate revenues. Regulatory approval will be limited to the
indicated use for which we can market a product. Further, once regulatory approval for a product is
obtained, the product and its manufacturer are subject to continual review. Discovery of previously
unknown problems with a product or manufacturer may result in restrictions on the product,
manufacturer, and manufacturing facility, including withdrawal of the product from the market. In
Japan and Europe, regulatory agencies also set or approve prices.
Even if regulatory clearance of a product is granted, this clearance is limited to those
specific states and conditions for which the product is useful, as demonstrated through clinical
trials. We cannot ensure that any ZFP Therapeutic product developed by us, alone or with others,
will prove to be safe and effective in clinical trials and will meet all of the applicable
regulatory requirements needed to receive marketing clearance in a given country.
Outside the United States, our ability to market a product is contingent upon receiving a
marketing authorization from the appropriate regulatory authorities, so we cannot predict whether
or when we would be permitted to commercialize our product. These foreign regulatory approval
processes include all of the risks associated with FDA clearance described above.
Our collaborations with outside scientists may be subject to change, which could limit
our access to their expertise. We work with scientific advisors and collaborators at
academic research institutions. These scientists are not our employees and may have other
commitments that would limit their availability to us. Although our scientific advisors generally
agree not to do competing work, if a
29
conflict of interest between their work for us and their work for another entity arises, we may lose their services. Although our
scientific advisors and academic collaborators sign agreements not to disclose our confidential information, it is possible that some of our valuable proprietary knowledge may become
publicly known through them.
Laws or public sentiment may limit the production of genetically modified agricultural
products in the future, and these laws could reduce our partners ability to sell these
products. Genetically modified products are currently subject to public debate and
heightened regulatory scrutiny, either of which could prevent or delay production of agricultural
products. Effective as of October 1, 2005, we entered into a Research License and Commercial Option
Agreement with DAS. Under this agreement, we will provide DAS with access to our proprietary ZFP
technology and the exclusive right to use our ZFP technology to modify the genomes or alter the
nucleic acid or protein expression of plant cells, plants, or plant cell cultures. The
field-testing, production, and marketing of genetically modified plants and plant products are
subject to federal, state, local, and foreign governmental regulation. Regulatory agencies
administering existing or future regulations or legislation may not allow production and marketing
of our genetically modified products in a timely manner or under technically or commercially
feasible conditions. In addition, regulatory action or private litigation could result in expenses,
delays, or other impediments to our product development programs or the commercialization of
resulting products.
The FDA currently applies the same regulatory standards to foods developed through
genetic engineering as those applied to foods developed through traditional plant breeding.
Genetically engineered food products, however, will be subject to pre-market review if these
products raise safety questions or are deemed to be food additives. Governmental authorities could
also, for social or other purposes, limit the use of genetically modified products created with our
gene regulation technology.
Even if we are able to obtain regulatory approval for genetically modified products, our
success will also depend on public acceptance of the use of genetically modified products including
drugs, plants, and plant products. Claims that genetically modified products are unsafe for
consumption or pose a danger to the environment may influence public attitudes. Our genetically
modified products may not gain public acceptance. The subject of genetically modified organisms has
received negative publicity in the United States and particularly in Europe, and such publicity has
aroused public debate. The adverse publicity in Europe could lead to greater regulation and trade
restrictions on imports of genetically altered products. Similar adverse public reaction in the
United States to genetic research and its resulting products could result in greater domestic
regulation and could decrease the demand for our technology and products.
If we use biological and hazardous materials in a manner that causes injury or violates
laws, we may be liable for damages. Our research and development activities involve the
controlled use of potentially harmful biological materials as well as hazardous materials,
chemicals, and various radioactive compounds typically employed in molecular and cellular biology.
We routinely use cells in culture and gene delivery vectors, and we employ small amounts of
radioisotopes in trace experiments. Although we maintain up-to-date licensing and training
programs, we cannot completely eliminate the risk of accidental contamination or injury from the
use, storage, handling, or disposal of these materials. In the event of contamination or injury, we
could be held liable for damages that result, and any liability could exceed our resources. We
currently carry insurance covering claims arising from our use of these materials. However, if we
are unable to maintain our insurance coverage at a reasonable cost and with adequate coverage, our
insurance may not cover any liability that may arise. We are subject to federal, state, and local
laws and regulations governing the use, storage, handling, and disposal of these materials and
specified waste products. To date, we have not experienced significant costs in complying with
regulations regarding the use of these materials.
30
Anti-takeover provisions in our certificate of incorporation and Delaware law could make
an acquisition of the Company more difficult and could prevent attempts by our stockholders to
remove or replace current management. Anti-takeover provisions of Delaware law, our
certificate of incorporation and our bylaws may discourage, delay or prevent a change in control of
our company, even if a change in control would be beneficial to our stockholders. In addition,
these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our
current management by making it more difficult for stockholders to replace members of our board of
directors. In particular, under our certificate of incorporation our board of directors may issue
up to 5,000,000 shares of preferred stock with rights and privileges that might be senior to our
common stock, without the consent of the holders of the common stock. Moreover, without any further
vote or action on the part of the stockholders, the board of directors would have the authority to
determine the price, rights, preferences, privileges, and restrictions of the preferred stock. This
preferred stock, if it is ever issued, may have preference over, and harm the rights of, the
holders of common stock. Although the issuance of this preferred stock would provide us with
flexibility in connection with possible acquisitions and other corporate purposes, this issuance
may make it more difficult for a third party to acquire a majority of our outstanding voting stock.
Similarly, our authorized but unissued common stock is available for future issuance without
stockholder approval.
In addition, our certificate of incorporation:
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states that stockholders may not act by written consent but only at a stockholders
meeting; |
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establishes advance notice requirements for nominations for election to the board of
directors or proposing matters that can be acted upon at stockholders meetings; and |
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limits who may call a special meeting of stockholders. |
We are also subject to Section 203 of the Delaware General Corporation Law, which provides,
subject to certain exceptions, that if a person acquires 15% of our voting stock, the person is an
interested stockholder and may not engage in business combinations with us for a period of
three years from the time the person acquired 15% or more or our voting stock.
Insiders have substantial control over Sangamo and could delay or prevent a change in
corporate control. The interest of management could conflict with the interest of our
other stockholders. Our executive officers and directors beneficially own, in the aggregate,
approximately 16% of our outstanding common stock. As a result, these stockholders, if they choose
to act together, will be able to have a material impact on all matters requiring stockholder
approval, including the election of directors and approval of significant corporate transactions.
This could have the effect of delaying or preventing a change of control of Sangamo, which in turn
could reduce the market price of our stock.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
As of June 30, 2007, Sangamo has used the net proceeds from its initial public offering,
registered direct offering and underwritten public offering of common stock to invest in short-term
and long-term, interest bearing, investment-grade securities and has used its existing cash
balances to fund general operations. The proceeds are being used for general corporate purposes,
including working capital and product development. A portion of the net proceeds will also be used
to acquire or invest in complementary businesses or products or to obtain the right to use
complementary technologies. Sangamo has no agreements or commitments with respect to any such
acquisition and is not currently engaged in any material negotiations with respect to any such
transaction.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders was held on June 7, 2007. Two matters were voted on and each was
approved. The results are as follows:
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PROPOSAL I
The following directors were elected at the meeting to serve until our annual meeting following the
end of fiscal year 2007 or until their successors are duly elected and qualified:
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NOMINEE |
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VOTES FOR |
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VOTES WITHHELD |
Edward O. Lanphier, II |
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29,366,806 |
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308,236 |
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William G. Gerber, M.D. |
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29,395,465 |
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279,577 |
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John W. Larson |
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26,929,253 |
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2,745,789 |
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Margaret A. Liu, M.D. |
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29,431,946 |
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243,096 |
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Steven J. Mento, Ph.D. |
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29,435,046 |
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239,996 |
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H. Ward Wolff |
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29,429,216 |
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245,826 |
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Michael C. Wood |
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29,324,941 |
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350,101 |
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PROPOSAL II
The proposal to ratify the selection of Ernst & Young LLP as the Companys independent registered
public accounting firm for the fiscal year ending December 31, 2007 was approved.
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FOR |
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AGAINST |
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ABSTAINED |
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NON VOTES |
29,368,082
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247,564 |
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59,396 |
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0 |
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ITEM 6. EXHIBITS
(a) Exhibits:
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10.1(+)
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Research and License Agreement dated April 27, 2007 between Genentech, Inc., and Sangamo
BioSciences, Inc. |
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10.2
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Sales Agreement by and between Sangamo BioSciences, Inc. and Cantor Fitzgerald & Co. dated
May 18, 2007. (incorporated by reference to Exhibit 10.1 to the Form 8-K filed on May 18,
2007. |
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31.1
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Rule 13a 14(a) Certification by President and Chief Executive Officer |
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31.2
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Rule 13a 14(a) Certification by Principal Financial and Accounting Officer |
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32.1
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Certification Pursuant to 18 U.S.C. Section 1350. |
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(+) |
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Confidential Treatment has been requested for certain information contained in this document.
Such information has been omitted and filed separately with the Securities and Exchange
Commission. |
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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Dated: August 8, 2007 |
SANGAMO BIOSCIENCES, INC.
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/s/ Greg S. Zante
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Greg S. Zante |
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Vice President, Finance and Administration
(Principal Financial and Accounting Officer) |
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