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SGMO > SEC Filings for SGMO > Form 10-Q on 9-May-2013All Recent SEC Filings

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Quarterly Report


The discussion in "Management's Discussion and Analysis of Financial Condition and Results of Operations" contains trend analysis, estimates and other forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements include, without limitation, statements containing the words "believes," "anticipates," "expects," "continue," and other words of similar import or the negative of those terms or expressions. Such forward-looking statements are subject to known and unknown risks, uncertainties, estimates and other factors that may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. 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 in Part I, Item 1A. You should read the following discussion and analysis along with the "Selected Financial Data" and the financial statements and notes attached to those statements included elsewhere in this report.


We are a clinical stage biopharmaceutical company focused on the research, development and commercialization of engineered DNA-binding proteins for the development of novel therapeutic strategies for unmet medical needs. 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. Our strategy is to develop highly specific ZFP nucleases (ZFNs) and ZFP transcription factors (ZFP TFs) through early stage clinical testing and strategically partner with biopharmaceutical companies at points of value inflection to execute late-stage clinical trials and commercial development. In the long term, our goal is to forward integrate to capture the value of late-stage and commercial ZFP Therapeutic products for ourselves.

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 corporate collaborations and research grants.

Our revenues have consisted primarily of revenues from our corporate partners for ZFNs and ZFP TFs, 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 funding will continue beyond their initial terms or that we are able to meet the milestones specified in these agreements.

In the development of our ZFP technology platform, we are focusing our resources on higher-value ZFP Therapeutic product development. We are conducting a Phase 2 and two Phase 1/2 clinical trials to evaluate a ZFP Therapeutic for the treatment of HIV/AIDS. Development of novel therapeutic products is costly and is subject to a lengthy and uncertain regulatory process by the FDA. Our future products will be gene-based therapeutics. Adverse events in both our own clinical programs and other programs may have a negative impact on regulatory approval, the willingness of potential commercial partners to enter into agreements and the perception of the public.

In January 2012, we established a collaborative partnership with Shire AG (Shire) to research, develop and commercialize some of our preclinical ZFP Therapeutic development programs, including programs in hemophilia, Huntington's disease and other monogenic diseases. We also have several proprietary preclinical programs in monogenic diseases, including hemoglobinopathies such as sickle cell disease (SCD) and -thalassemia and several lysosomal storage disorders. In addition, we have research stage programs in other monogenic diseases, including certain immunodeficiencies.

For the three months ended March 31, 2013, we incurred a consolidated net loss of $6.9 million, or $0.13 per share, compared to a net loss of $7.3 million, or $0.14 per share, for the same period in 2012. As of March 31, 2013, we had cash, cash equivalents, marketable securities and interest receivable totaling $70.3 million, compared to $76.3 million as of December 31, 2012. As of March 31, 2013, we had an accumulated deficit of $282.4 million.

Critical Accounting Estimates

The accompanying discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements and the related disclosures, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts in our consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe that there have been no significant changes in our critical accounting policies and estimates disclosed in our Annual Report on Form 10-K for the year ended December 31, 2012, as filed with the SEC.

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Results of Operations

Three months ended March 31, 2013 and 2012


                                             Three months ended March 31,
                                       (in thousands, except percentage values)
                                    2013             2012          Change          %
      Collaboration agreements   $    4.083       $    1,663       $  2,420        145 %
      Research grants                   540            1,579         (1,039 )      (66 %)

      Total revenues             $    4,623       $    3,242       $  1,381         43 %

Total revenues consisted of revenues from collaboration agreements and research grants. We anticipate revenues over the next several years will primarily be derived from our collaboration agreements with Shire, Sigma-Aldrich Corporation (Sigma) and Dow AgroSciences LLC (DAS), a wholly-owned subsidiary of Dow Chemical Corporation. In April 2013, we received a $1.25 million payment from Sigma related to a sublicense agreement.

Revenues from our corporate collaboration agreements were $4.1 million for the three months ended March 31, 2013, compared to $1.7 for the same period in 2012. The increase in 2013 from 2012 was primarily due to increased revenues of $2.8 million in connection with our license agreement with Shire, which was entered into in January 2012. These revenues included amortization of a $13.0 million upfront license payment and revenues for research services provided to Shire. This is partially offset by decreased revenues of $0.4 million in connection with our license agreement with DAS for research and manufacturing services provided to DAS.

Research grant revenues were $0.5 million for the three months ended March 31, 2013, compared to $1.6 for the same period in 2012. The decrease of $1.1 million in 2013 from 2012 was primarily due to the completion of our research grants with Juvenile Diabetes Research Foundation International and the CHDI Foundation in 2012.

Operating Expenses

                                              Three months ended March 31,
                                        (in thousands, except percentage values)
                                     2013              2012          Change         %
     Operating expenses:
     Research and development     $     8,220       $     7,283     $   (937 )      (13 %)
     General and administrative         3,308             3,242          (66 )       (2 %)

     Total expenses               $    11,528       $    10,525     $ (1,003 )      (10 %)

Research and Development

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 HIV/AIDS program in the clinic and if we are able to progress our earlier stage ZFP therapeutic product candidates into clinical trials as well as our programs under collaboration with Shire. Pursuant to the terms of the agreement with Shire, future expenses related to research activities related to the collaboration will be reimbursed by Shire, including employee and external research costs. The reimbursement funds received from Shire will be recognized as revenue as the costs are incurred and collection is reasonably assured.

Research and development expenses were $8.2 million for the three months ended March 31, 2013, compared to $7.3 million in the corresponding period in 2012. The increase of $0.9 million in research and development expenses was primarily due to an increase of $1.6 million in external expenses and lab supplies related to our hemophilia, hemoglobinopathies and Huntington's disease programs, partially offset by a decrease of $0.7 million in clinical and manufacturing costs related to our HIV/AIDS program.

General and Administrative

General and administrative expenses consist primarily of salaries and personnel related expenses for executive, finance and administrative personnel, stock-based compensation expenses, professional fees, allocated facilities expenses, patent prosecution expenses and other general corporate expenses. As we pursue commercial development of our therapeutic programs, 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.

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General and administrative expenses were $3.3 million for the three month period ended March 31, 2013 compared to $3.2 million for the corresponding period in 2012. The increase was primarily related to higher employee related costs of $0.2 million and higher patent related legal fees of $0.1 million, partially offset by lower professional service fees of $0.2 million.

Liquidity and Capital Resources


Since inception, we have incurred significant net losses and we have funded our operations primarily through the issuance of equity securities, payments from corporate collaborators and strategic partners and research grants.

As of March 31, 2013, we had cash, cash equivalents, marketable securities and interest receivable totaling $70.3 million, compared to $76.3 million as of December 31, 2012. The decrease was primarily attributable to capital required to fund our continuing operations, including the advancement of our ZFP Therapeutic programs.

Our most significant use of capital pertains to salaries and benefits for our employees and external development expenses, such as manufacturing and clinical trial activities, related to our ZFP Therapeutic programs. Our cash and investment balances are held in a variety of interest bearing instruments, including obligations of U.S. government agencies, U.S. treasury debt securities, corporate debt securities and money market funds. Cash in excess of immediate requirements is invested in accordance with our investment policy with a view toward capital preservation and liquidity.

In January 2012, we entered into a collaboration and license agreement with Shire, pursuant to which we are collaborating with Shire to research, develop and commercialize certain gene targets in human therapeutics and diagnostics for hemophilia, Huntington's disease and other monogenic diseases based on our ZFP technology. Under the agreement with Shire, we received an upfront license fee of $13.0 million. We are also eligible to receive milestone payments, however, our eligibility is based on our achievement of specified research, regulatory, clinical development, commercialization and sales milestones and depends upon ours and Shire's ability to continue to progress our programs under collaboration. We will also be eligible to receive royalty payments that are a tiered double-digit percentage of net sales of products developed under the collaboration, if any.

Cash Flow

Net cash used in operating activities was $8.0 million for the three months ended March 31, 2013, while cash provided by operating activities was $2.9 million for the three months ended March 31, 2012. Net cash used in operating activities for the three months ended March 31, 2013 primarily reflected the net loss for the period and the decrease in deferred revenues related to our collaboration agreement with Shire, partially offset by stock-based compensation and other non-cash expenses included in net loss. The cash provided by operations for the three months ended March 31, 2012 related primarily to the receipt of the $13.0 million upfront license fee under the Shire agreement, partially offset by cash used for operating expenses and a decrease in accrued liabilities and accounts payable.

Net cash used by investing activities was $3.7 million for the three months ended March 31, 2013, while cash provided by investing activities was $4.7 million for the three months ended March 31, 2012. Cash flows from investing activities for both periods primarily related to purchases and maturities of investments.

Net cash provided by financing activities for the three months ended March 31, 2013 and March 31, 2012 was $2.2 million and $0.1 million, respectively. Financing activities for both periods were attributable to proceeds from the issuance of common stock upon exercise of stock options.

Operating Capital and Capital Expenditure Requirements

We anticipate continuing to incur operating losses for at least the next several years. While we expect our rate of cash usage to increase in the future, in particular to support our product development endeavors, we believe that the available cash resources as well as funds received from corporate collaborators, strategic partners and research grants will enable us to maintain our currently planned operations through 2014. Future capital requirements will be substantial and if our capital resources are insufficient to meet future capital requirements, we will need to raise additional capital to fund our operations, including ZFP Therapeutic development activities, through equity or debt financing. We regularly consider fund raising opportunities and may decide, from time to time, to raise capital based on various factors, including market conditions and our plans of operation. Additional capital may not be available on terms acceptable to us, or at all. If adequate funds are not available, or if the terms of potential funding sources are unfavorable, our business and our ability to develop our technology and our ZFP Therapeutic products would be harmed. Furthermore, any sales of additional equity securities may result in dilution to our stockholders, and any debt financing may include covenants that restrict our business.

Our future capital requirements will depend on many factors, including but are not limited to the following:

the initiation, progress, timing and completion of clinical trials for our product candidates;

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the outcome, timing and cost of regulatory approvals;

the success of our collaboration with Shire;

delays that may be caused by changing regulatory requirements;

the number of product candidates that we pursue;

the costs involved in filing and prosecuting patent applications and enforcing and defending patent claims;

the timing and terms of future in-licensing and out-licensing transactions;

the cost of procuring clinical and commercial supplies of our product candidates;

the extent to which we acquire or invest in businesses, products or technologies; and

the costs of litigation.

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