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SGMO > SEC Filings for SGMO > Form 10-Q on 4-Nov-2013All Recent SEC Filings

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Form 10-Q for SANGAMO BIOSCIENCES INC


4-Nov-2013

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The discussion in "Management's Discussion and Analysis of Financial Condition and Results of Operations" contains trend analysis, estimates and other forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements include, without limitation, statements containing the words "believes," "anticipates," "expects," "continue," and other words of similar import or the negative of those terms or expressions. Such forward-looking statements are subject to known and unknown risks, uncertainties, estimates and other factors that may cause 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. 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, 2012 as filed with the SEC.

Overview

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 current mission is to develop ZFP Therapeutics, or human therapeutics based on our proprietary ZFP technology, through early stage clinical testing, strategically partner with biopharmaceutical companies at points of value inflection and have the partner execute late-stage clinical trials and commercial development. In the long term, our goal is to integrate marketing and development operations and to capture the value of late-stage and commercial ZFP Therapeutic products for ourselves.

We, and our licensed partners, are the leaders in the research, development and commercialization of zinc finger DNA-binding proteins (ZFPs), a naturally occurring class of proteins. We have used our knowledge and expertise to develop a proprietary technology platform. ZFPs can be engineered to make ZFP nucleases (ZFNs), proteins that can be used to modify DNA sequences in a variety of ways and ZFP transcription factors (ZFP TFs), proteins that can be used to turn genes on or off. As ZFPs act at the DNA level, they have broad potential applications in several areas including human therapeutics, plant agriculture and research reagents, as well as production of transgenic animals and cell-line engineering.

The main focus for our company is the development of novel human therapeutics and we are building a pipeline of ZFP Therapeutics. Our lead ZFP Therapeutic, SB-728-T, a ZFN-modified autologous T-cell product for the treatment of HIV/AIDS, is the first therapeutic application of our ZFN technology and is being evaluated in ongoing clinical trials, the most advanced of which are a Phase 2 study (SB-728-902 Cohort 5) and a Phase 1/2 study (SB-728-1102) in HIV-infected subjects. We expect to present data from these programs at appropriate scientific and medical meetings in 2013.

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 and ß-thalassemia and several lysosomal storage disorders. In addition, we have research stage programs in other monogenic diseases, including certain immunodeficiencies.

We believe the potential commercial applications of ZFPs are broad-based and we have also licensed our ZFP platform in fields outside human therapeutics as follows to facilitate the sale or license of ZFNs and ZFP TFs:

• We have a license agreement with the research reagent company Sigma-Aldrich Corporation (Sigma). Sigma has the exclusive rights to develop and market high value laboratory research reagents based upon our ZFP technology as well as ZFP-modified cell lines for commercial production of protein pharmaceuticals and ZFP-engineered transgenic animals. Sigma is marketing ZFN-derived gene editing tools under the trademark CompoZr®.

• We have a license agreement with Dow AgroSciences, LLC (DAS), a wholly owned subsidiary of Dow Chemical Corporation. Under the agreement, we have provided DAS with access to our ZFP technology and the exclusive rights to use it to modify the genomes or alter protein expression of plant cells, plants, or plant cell cultures. DAS markets our ZFN technology under the trademark EXZACTTM Precision Technology. We have retained rights to use plants or plant-derived products to deliver ZFP TFs or ZFNs into human or animals for diagnostic, therapeutic, or prophylactic purposes

On October 1, 2013, we acquired Ceregene, Inc., ("Ceregene") a privately held biotechnology company focused on the development of adeno-associated virus ("AAV") gene therapies. The acquired assets include all of Ceregene's therapeutic programs, including CERE-110, an AAV vector delivery system for the treatment of Alzheimer's disease that is currently in a Phase 2 clinical trial, certain intellectual property rights relating to the manufacturing of AAV, and certain toxicology and safety data from Ceregene's human clinical trials.


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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, payments from corporate collaborations and research grants.

For the three months ended September 30, 2013, we incurred a consolidated net loss of $6.1 million, or $0.11 per share, compared to a net loss of $5.8 million, or $0.11 per share, for the same period in 2012. As of September 30, 2013, we had cash, cash equivalents, marketable securities and interest receivable totaling $133.1 million compared to $76.3 million as of December 31, 2012. As of September 30, 2013, we had an accumulated deficit of $294.0 million.

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.

In the development of our ZFP technology platform, we are focusing our resources on higher-value ZFP Therapeutic product development and less on our non-therapeutic applications. 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 program 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.

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.

Results of Operations

Three months and nine months ended September 30, 2013 and 2012

Revenues



                                                      Three months ended September 30,                               Nine months ended September 30,
                                                  (in thousands, except percentage values)                      (in thousands, except percentage values)
                                             2013                  2012             Change       %           2013              2012          Change         %
Revenues:
Collaboration agreements                 $       4,825         $       4,190       $    635       15 %    $    15,065       $     9,665      $ 5,400         56 %
Research grants                                    882                   717            165       23 %          2,199             3,058         (859 )      (28 %)

Total revenues                           $       5,707         $       4,907       $    800       16 %    $    17,264       $    12,723      $ 4,541         36 %

Total revenues consist of revenues from collaboration agreements, strategic partnerships 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 May 2013, the California Institute for Regenerative Medicine (CIRM) granted us a $6.4 million Strategic Partnership Award to develop a potentially curative ZFP Therapeutic for beta-thalassemia based on the application of our ZFN gene-editing technology in hematopoietic stem cells (HSCs). The four year grant provides matching funds to support a potential Investigational New Drug (IND) application and a Phase 1 clinical trial in transfusion-dependent beta-thalassemia patients.

Revenues from our corporate collaboration and strategic partnering agreements were $4.8 million for the three months ended September 30, 2013, compared to $4.2 million in the corresponding period in 2012. The $0.6 million increase in collaboration agreement revenues was primarily due to an increase of $1.3 million in research service revenues related to our collaboration and license agreement with Shire. The revenues from Shire include amortization of an upfront payment of $13.0 million and revenues from research services. These increases were partially offset by a $0.5 million decrease in revenues related to research services under the agreement with DAS and $0.2 million decrease in revenues related to other collaboration agreements. Research grant revenues were approximately $0.9 million for the three months ended September 30, 2013, compared to $0.7 million in the corresponding period in 2012.


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Revenues from our corporate collaboration and strategic partnering agreements were $15.1 million for the nine months ended September 30, 2013, compared to $9.7 million in the corresponding period in 2012. The increase of $5.4 million in collaboration agreement revenues was primarily attributable to an increase in revenues of $6.8 million related to the agreement with Shire, partially offset by $1.3 million in lower revenues related to our agreement with DAS and $0.1 million decrease in revenues related to other collaboration agreements. Research grant revenues were $2.2 million for the nine months ended September 30, 2013, compared to $3.1 million in the corresponding period in 2012. The decrease of $0.9 million in research grant revenues 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 September 30,                              Nine months ended September 30,
                                                    (in thousands, except percentage values)                     (in thousands, except percentage values)
                                                 2013                 2012          Change       %             2013                2012          Change       %
Operating expenses:
Research and development                     $       8,703        $      7,570      $ 1,133       15 %    $       26,201       $     22,427      $ 3,774       17 %
General and administrative                           3,163               3,139           24        1 %             9,595              9,125          470        5 %

Total expenses                               $      11,866        $     10,709      $ 1,157       11 %    $       35,796       $     31,552      $ 4,244       13 %

Research and development

Research and development expenses consist primarily of salaries and personnel related expenses, including stock-based compensation, laboratory supplies, pre-clinical and clinical studies, manufacturing expenses, allocated facilities expenses, subcontracted research expenses and expenses for 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 HIV/AIDS program in the clinic and if we are able to move our earlier stage ZFP Therapeutic product candidates into clinical trials. We also expect that expenses related to research performed under our collaboration and license agreement with Shire will increase our research and development expenses during the term of the agreement. 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 related to the programs. The reimbursement funds received from Shire will be recognized as revenue as the costs are incurred and collection is assured.

Research and development expenses were $8.7 million for the three months ended September 30, 2013, compared to $7.6 million in the corresponding period in 2012. The increase of $1.1 million in research and development expenses was primarily due to an increase of $1.0 million in external expenses, lab supplies and other costs related to our hemophilia, hemoglobinopathies and Huntington's disease programs and $0.2 million in salaries and benefits, partially offset by a decrease of $0.1 million in clinical trial expenses.

Research and development expenses were $26.2 million for the nine months ended September 30, 2013, compared to $22.4 million in the corresponding period in 2012. The increase of $3.8 million in research and development expenses was primarily due to an increase of $4.2 million in external expenses, lab supplies and other costs related to our hemophilia, hemoglobinopathies and Huntington's disease programs and $0.6 million in salaries and benefits, partially offset by a decrease of $1.0 million in clinical trial and manufacturing expenses, primarily attributable to our SB-728-T HIV/AID programs.

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.

General and administrative expenses were $3.2 million for the three month period ended September 30, 2013 and $3.1 million for the corresponding period in 2012. The increase was primarily related to higher corporate legal fees of $0.1 million.

General and administrative expenses were $9.6 million for the nine month period ended September 30, 2013 and $9.1 million for the corresponding period in 2012. The increase was primarily related to higher patent related legal fees of $0.3 million, higher professional fees of $0.1 million and higher employee related costs of $0.2 million, partially offset by lower allocated expenses of $0.1 million.


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Liquidity and Capital Resources

Liquidity

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 September 30, 2013, we had cash, cash equivalents, marketable securities and interest receivable totaling $133.1 million compared to $76.3 million as of December 31, 2012 with the increase primarily attributable to the completion of an underwritten public offering of the Company's common stock in September 2013, in which 7,015,000 shares of Sangamo common stock were sold at a public offering price of $10.58 per share. The net proceeds to the Company from the sale of shares in this offering, after deducting underwriting discounts and commissions and other estimated offering expenses, were approximately $69.5 million.

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, which can include 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.

Under our 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.

Under the terms of our agreement to acquire Ceregene, we issued 100,000 shares of our common stock, with a market value of approximately $1.2 million on the closing date of the acquisition, to the stockholders of Ceregene, and we also agreed to make certain contingent earn-out payments to the stockholders of Ceregene based upon revenues generated from license or sales transaction of certain existing products of Ceregene. We do not expect the acquisition, including the operation of the ongoing Phase 2 clinical trial of Ceregene product candidates, to have any significant impact on our operating expenses or cash balance in 2013.

Cash Flow

Net cash used in operating activities for the nine months ended September 30, 2013 and 2012 was $17.8 million and $8.3 million, respectively. Net cash used in operating activities for the nine months ended September 30, 2013 primarily reflected the net loss for the period, the decrease in deferred revenues related to our collaboration agreement with Shire and decrease in account payable and accrued liability, partially offset by stock-based compensation and other non-cash expenses included in net loss. Net cash used in operating activities for the nine months ended September 30, 2012 primarily reflects the net loss for the period, an increase in deferred revenues due to the $13.0 million upfront received from Shire under the collaboration and license agreement, a decrease in accounts payable and accrued liabilities and an decrease in accounts receivable, partially offset by stock-based compensation.

Net cash provided by investing activities for the nine months ended September 30, 2013 and 2012 was $0.1 million and $4.4 million, respectively. Cash flows from investing activities for both periods primarily related to purchases and maturities of investments.

Net cash provided by financing activities for the nine months ended September 30, 2013 and 2012 was $75.6 million and $1.0 million, respectively. The increase for the nine month period ended September 30, 2013 was primarily attributable to $69.5 million in net proceeds from the public offering of the Company's common stock completed in September 2013, as well as proceeds from the issuance of common stock upon exercise of stock options. Net cash provided by financing activities for the nine month period ended September 30, 2012 was primarily 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 our rate of cash usage may 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.


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

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

• 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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