Quarterly Report (10-q)

Date : 08/07/2019 @ 8:45PM
Source : Edgar (US Regulatory)
Stock : Sangamo Therapeutics Inc (SGMO)
Quote : 9.41  -0.045 (-0.48%) @ 1:00AM
After Hours
Last Trade
Last $ 9.45 ▲ 0.04 (0.43%)

Quarterly Report (10-q)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________________
FORM 10-Q
________________________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission file number 000-30171
________________________________________________
SANGAMO THERAPEUTICS, INC .
(Exact name of registrant as specified in its charter)
________________________________________________
Delaware
 
 
 
68-0359556
(State or other jurisdiction of
incorporation or organization)
 
 
 
(I.R.S. Employer
Identification No.)
 
 
 
 
 
501 Canal Boulevard
Richmond
California
 
94804
(Address of principal executive offices)
 
(Zip Code)
( 510 ) 970-6000
(Registrant’s telephone number, including area code)
________________________________________________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock, par value $0.01 per share
 
SGMO
 
NASDAQ Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes    x     No   o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes    x     No   o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
Accelerated filer
o
Non-accelerated filer
o
 
Smaller reporting company
 
 
 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes         No   x
As of August 2, 2019 , 115,675,077 shares of the issuer’s common stock, par value $0.01 per share, were outstanding.
 



INDEX
SANGAMO THERAPEUTICS, INC.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unless otherwise indicated or the context suggests otherwise, references in this Quarterly Report on Form 10-Q, or Quarterly Report, to “Sangamo,” the “Company,” “we,” “us,” and “our” refer to Sangamo Therapeutics, Inc. and our subsidiaries, including Sangamo Therapeutics France S.A.S (formerly TxCell S.A.).
ZFP Therapeutic ® , Engineering Genetic Cures ® , and Pioneering Genetic Cures ® are registered trademarks of Sangamo Therapeutics, Inc. Any third-party trade names, trademarks and service marks appearing in this Quarterly Report are the property of their respective holders.

2


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some statements contained in this report are forward-looking with respect to our operations, research, development and commercialization activities, clinical trials, operating results and financial condition. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. Forward-looking statements may include, but are not limited to, statements about:
our strategy;
anticipated product candidate development and potential commercialization of any resulting products;
the initiation, scope, rate of progress, enrollment, anticipated results and timing of our preclinical studies and clinical trials and those of our collaborators or strategic partners;
the therapeutic and commercial potential of, and the ability of Sangamo and our collaborators or strategic partners to advance the development of, product candidates using our zinc finger protein, or ZFP, technology platform, including our ability to effectively deliver our zinc finger nucleases, or ZFNs, and ZFP transcription factors, or ZFP TFs, to produce a clinical benefit;
the benefits of the acquisition of TxCell S.A., now known as Sangamo Therapeutics France S.A.S.;
our ability to establish and maintain collaborative, licensing and other similar arrangements;
anticipated revenues from existing and new collaborations and the timing thereof;
our research and development and other expenses;
our ability to obtain adequate preclinical and clinical supplies of our product candidates from current and potential new suppliers and manufacturers;
the ability of Sangamo and our collaborators or strategic partners to obtain and maintain regulatory approvals for product candidates using our ZFP technology platform;
our ability to comply with, and the impact of, regulatory requirements, obligations and restrictions on our business;
our ability to protect our intellectual property and operate our business without infringing upon the intellectual property rights of others, including our ability to obtain rights to the gene transfer technologies required to develop and commercialize our product candidates;
our estimates regarding the sufficiency of our cash resources and our expenses, capital requirements and need for additional financing, and our ability to obtain additional financing;
our ability to manage the growth of our business;
our projected operating and financial performance;
our operational and legal risks; and
our plans, objectives, expectations and intentions and any other statements that are not historical facts.
In some cases, you can identify forward-looking statements by terms such as: “anticipates,” “believes,” “continues,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “seeks,” “should” and “will” and similar expressions intended to identify forward-looking statements. These statements reflect our current views with respect to future events, are based on assumptions and are subject to risks and uncertainties. Given these risks and uncertainties, you should not place undue reliance on these forward-looking statements. We discuss many of these risks in greater detail under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” in this Quarterly Report. Except as required by law, we undertake no obligation to update or revise any forward-looking statements to reflect new information or future events or developments. Readers are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q.

3


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

 
$
140,418

Restricted cash, current portion
2,000

 

Marketable securities
271,877

 
259,715

Interest receivable
766

 
375

Accounts receivable
12,095

 
4,673

Prepaid expenses and other current assets
5,848

 
5,340

Total current assets
461,808

 
410,521

Marketable securities, non-current
8,450

 

Property and equipment, net
21,019

 
78,723

Intangible assets
53,892

 
54,243

Goodwill
39,795

 
40,044

Operating lease right-of-use assets
79,435

 

Other non-current assets
7,582

 
3,364

Non-current restricted cash
1,500

 
3,500

Total assets
$
673,481

 
$
590,395

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

 
$
21,457

Accrued compensation and employee benefits
8,714

 
9,490

Deferred revenues
50,826

 
47,564

Total current liabilities
82,045

 
78,511

Deferred revenues, non-current
94,189

 
108,273

Long-term portion of lease liabilities
41,550

 
27,689

Deferred income tax
6,661

 
6,705

Other non-current liabilities
3,288

 
1,960

Total liabilities
227,733

 
223,138

Commitments and contingencies

 

Stockholders' equity:
 
 
 
Preferred stock

 

Common stock
1,156

 
1,022

Additional paid-in capital
1,078,976

 
929,632

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

 
366,518

Non-controlling interest
614

 
739

Total stockholders' equity
445,748

 
367,257

Total liabilities and stockholders' equity
$
673,481

 
$
590,395

See accompanying Notes to Condensed Consolidated Financial Statements.

4


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

 
$
21,416

 
$
25,619

 
$
34,053

Operating expenses:
 
 
 
 
 
 
 
Research and development
36,455

 
29,255

 
71,305

 
52,802

General and administrative
14,597

 
11,301

 
31,715

 
21,388

Total operating expenses
51,052

 
40,556

 
103,020

 
74,190

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

 
2,500

 
4,842

 
3,310

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

 
(125
)
 

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

 
97,267

 
108,360

 
91,831

See accompanying Notes to Condensed Consolidated Financial Statements.

5


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

 

 
(62
)
 

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

 
230

 
737

 
131

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

 
(125
)
 

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

6


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

 
$
1,022

 
$
929,632

 
$
(562,696
)
 
$
(1,440
)
 
$
739

 
$
367,257

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

 

 

 
897

 

 

 
897

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

 
1

 
215

 

 

 

 
216

Issuance costs related to public offering

 

 
(258
)
 

 

 

 
(258
)
Stock-based compensation

 

 
4,523

 

 

 

 
4,523

Foreign currency translation adjustment

 

 

 

 
(1,504
)
 

 
(1,504
)
Net unrealized gain on marketable securities

 

 

 

 
253

 

 
253

Net loss

 

 

 
(42,150
)
 

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

 
1,023

 
934,112

 
(603,949
)
 
(2,691
)
 
686

 
329,181

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

 
5

 
2,439

 

 

 

 
2,444

Issuance of common stock under employee stock purchase plan
132

 
1

 
1,137

 

 

 

 
1,138

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

 
127

 
136,439

 

 

 

 
136,566

Issuance costs related to TxCell Acquisition

 

 
(18
)
 

 

 


 
(18
)
Stock-based compensation

 

 
4,867

 

 

 

 
4,867

Foreign currency translation adjustment

 

 

 

 
1,442

 

 
1,442

Net unrealized gain on marketable securities

 

 

 

 
484

 

 
484

Net loss

 

 

 
(30,284
)
 

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

 
$
1,156

 
$
1,078,976

 
$
(634,233
)
 
$
(765
)
 
$
614

 
$
445,748



See accompanying Notes to Condensed Consolidated Financial Statements.

7


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

 
$
856

 
$
682,809

 
$
(495,479
)
 
$
(286
)
 
$

 
$
187,900

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

 

 

 
1,117

 

 

 
1,117

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

 
14

 
10,570

 

 

 

 
10,584

Stock-based compensation

 

 
3,050

 

 

 

 
3,050

Net unrealized loss on marketable securities

 

 

 

 
(99
)
 

 
(99
)
Net loss

 

 

 
(20,187
)
 

 

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

 
870

 
696,429

 
(514,549
)
 
(385
)
 

 
182,365

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

 
2

 
1,952

 

 

 

 
1,954

Issuance of common stock under employee stock purchase plan
163

 
2

 
688

 

 

 

 
690

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

 
142

 
215,614

 

 

 


 
215,756

Stock-based compensation

 

 
3,514

 

 

 

 
3,514

Foreign currency translation adjustment

 

 

 

 
(2
)
 

 
(2
)
Net unrealized gain on marketable securities

 

 

 

 
230

 

 
230

Net loss

 

 

 
(16,640
)
 

 

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

 
$
1,016

 
$
918,197

 
$
(531,189
)
 
$
(157
)
 
$

 
$
387,867

See accompanying Notes to Condensed Consolidated Financial Statements.

8


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

 
1,207

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

Stock-based compensation
9,390

 
6,564

Net loss on lease termination
218

 

Other
11

 
465

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

 

Accounts payable and accrued liabilities
1,811

 
2,733

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

Long-term portion of lease liabilities
(563
)
 

Other non-current liabilities
1,327

 

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

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

 
133,297

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

 
215,756

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

 
13,285

Net cash provided by financing activities
140,106

 
228,984

Effects of changes in foreign exchange rates
592

 

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

 
9,580

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

 
53,326

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

 
$
62,906

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

 
$
1,836

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

 
$

See accompanying Notes to Condensed Consolidated Financial Statements.


9


SANGAMO THERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2019
(Unaudited)
NOTE 1—ORGANIZATION, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Overview
Sangamo Therapeutics, Inc. (“Sangamo” or the “Company”) was incorporated in the State of Delaware in June 1995 and changed its name from Sangamo Biosciences, Inc. in January 2017. Sangamo is focused on the research, development and commercialization of novel therapeutic strategies for unmet medical needs. Sangamo’s genome editing and gene regulation technology platform is enabled by the engineering of a class of transcription factors known as zinc finger DNA-binding proteins (“ZFPs”). Potential applications of Sangamo’s technology include development of human therapeutics, plant agriculture and enhancement of pharmaceutical protein production.
Sangamo is currently working on a number of long-term development projects that will involve experimental technology. The projects may require several years and substantial expenditures to complete and ultimately may be unsuccessful. The Company plans to finance operations with available cash resources, collaborations and strategic partnerships funds, research grants and from the issuance of equity or debt securities. Sangamo believes that its available cash, cash equivalents and investments as of June 30, 2019 , and expected revenues from collaborations, strategic partnerships and research grants, will be adequate to fund its operations at least through the next twelve months from the date the financial statements are issued. Sangamo will require additional financial resources to complete the development and commercialization of its products including ZFP Therapeutic products. Additional capital may not be available on terms acceptable to the Company, or at all. If adequate funds are not available, or if the terms of potential funding sources are unfavorable, the Company’s business and ability to develop its technology and ZFP Therapeutic products would be harmed. Furthermore, any sales of additional equity securities may result in dilution to the Company’s stockholders, and any debt financing may include covenants that restrict the Company’s business.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019 . The condensed consolidated balance sheet data at December 31, 2018 was derived from the audited consolidated financial statements included in Sangamo’s Annual Report on Form 10-K for the year ended December 31, 2018 (the “ 2018 Annual Report”) as filed with the SEC on March 1, 2019. The accompanying condensed consolidated financial statements and related financial information should be read in conjunction with the audited financial statements and footnotes thereto for the year ended December 31, 2018 , included in the 2018 Annual Report.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. On an ongoing basis, management evaluates its estimates including critical accounting policies or estimates related to revenue recognition, clinical trial accruals, fair value of assets and liabilities, including from acquisitions, and stock-based compensation. Estimates are based on historical experience and on various other market specific and other relevant assumptions that the Company believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates. In March 2019 , the Company recorded an adjustment to revenue related to a change in estimate in connection with the hemophilia A collaboration agreement with Pfizer Inc. (“Pfizer”) as result of a decision made in a joint steering committee of Pfizer and Sangamo in March 2019 to increase the project scope and related project cost, which resulted in a decrease in the measure of the proportional performance. This adjustment decreased revenue by $3.0 million , increased net loss by $3.0 million and increased the Company’s basic net loss per share by $0.03 for the six months ended June 30, 2019 .
Foreign Currency Translation
The functional currency of the Company’s foreign subsidiaries is primarily the Euro. Assets and liabilities denominated in foreign currencies are translated to U.S. dollars using the exchange rates at the balance sheet date. Foreign currency translation

10


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

11


Leases
The Company determines if an arrangement is or contains a lease at inception by assessing whether the arrangement contains an identified asset and whether it has the right to control the identified asset. Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Lease liabilities are recognized at the lease commencement date based on the present value of future lease payments over the lease term. ROU assets are based on the measurement of the lease liability and also include any lease payments made prior to or on lease commencement and exclude lease incentives and initial direct costs incurred, as applicable.
As the implicit rate in the Company’s leases is generally unknown, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of remaining lease payments. The incremental borrowing rate represents an estimate of the interest rate the Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease in a similar economic environment. The Company gives consideration to its credit risk, term of the lease, total lease payments and adjusts for the impacts of collateral, as necessary, when calculating its incremental borrowing rates. The lease terms may include options to extend or terminate the lease when it is reasonably certain the Company will exercise any such options. Rent expense for the Company’s operating leases is recognized on a straight-line basis over the lease term.
The Company has elected to not separate lease and non-lease components for its real estate and copier leases and, as a result, accounts for any lease and non-lease components as a single lease component. The Company has also elected to not apply the recognition requirement to any leases with a term of 12 months or less and does not include an option to purchase the underlying asset that the Company is reasonably certain to exercise.
Revenue Recognition
Effective January 1, 2018, the Company adopted the provisions of Accounting Standards Codification (“ASC”) Topic 606 - Revenue from Contracts with Customers (“ASC Topic 606”) using the modified retrospective method, resulting in a change to its accounting policy for revenue recognition. ASC Topic 606 establishes a unified model to determine how revenue is recognized.
Revenues from research activities made under strategic partnering agreements and collaborations are recognized as the services are provided when there is persuasive evidence that an arrangement exists, delivery has occurred, the price is fixed or determinable, and collectability is reasonably assured. Revenue generated from research and licensing agreements typically includes upfront signing or license fees, cost reimbursements, research services, minimum sublicense fees, milestone payments and royalties on future licensee’s product sales.
The Company’s contract revenues consist of strategic partnering collaboration agreements and research activity grants and licensing. Research and licensing agreements typically include upfront signing or license fees, cost reimbursements, research services, minimum sublicense fees, milestone payments and royalties on future licensee’s product sales. The Company has both fixed and variable consideration. Non-refundable upfront fees and funding of research and development activities are considered fixed, while milestone payments are identified as variable consideration. Sangamo’s research grants are typically multi-year agreements and provide for the reimbursement of qualified expenses for research and development as defined under the terms of the grant agreement. Revenues under research grant agreements are recognized when the related qualified research expenses are incurred. Deferred revenue represents the portion of research or license payments received but not earned.
In determining the appropriate amount of revenue to be recognized as it fulfills its obligations under its agreements, the Company performs the following steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations based on estimated selling prices; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in ASC Topic 606. The Company’s performance obligations include license rights, development services and services associated with regulatory submission and approval processes. Significant management judgment is required to determine the level of effort required under an arrangement and the period over which the Company expects to complete its performance obligations under the arrangement. If the Company cannot reasonably estimate when its performance obligations either are completed or become inconsequential, then revenue recognition is deferred until the Company can reasonably make such estimates. The Company includes the unconstrained amount of estimated variable consideration in the transaction price. The amount included in the transaction price is constrained to the amount for which it is probable that a significant reversal of cumulative revenue recognized will not occur. At the end of each subsequent reporting period, the Company re-evaluates the estimated variable consideration included in the transaction price and any related constraint and, if necessary, adjusts its estimate

12


of the overall transaction price. Revenue is then recognized over the remaining estimated period of performance using the cumulative catch-up method. The estimated period of performance and project costs are reviewed quarterly and adjusted, as needed, to reflect the Company’s current assumptions regarding the timing of its deliverables.
As part of the accounting for these arrangements, the Company must develop assumptions that require judgment to determine the stand-alone selling price of each performance obligation identified in the contract. The Company uses key assumptions to determine the stand-alone selling price which may include forecasted revenues, development timelines, reimbursement rates for personnel costs, discount rates and probabilities of technical and regulatory success. Related costs and expenses under these arrangements have historically approximated the revenues recognized.
For the six months ended June 30, 2019 , revenues related to Kite Pharma, Inc. (“Kite”), a wholly-owned subsidiary of Gilead Sciences, Inc., the hemoglobinopathies agreement with Bioverativ Inc., (now Sanofi Genzyme, a global business unit of Sanofi S.A. (“Sanofi”)), and the Company’s hemophilia A collaboration agreement with Pfizer represented 61% , 18% and 16% , respectively, of the Company’s total revenue, excluding the above change in estimate. For the three months ended June 30, 2019 , revenues related to Kite, the Company’s hemophilia A collaboration agreement with Pfizer and the hemoglobinopathies agreement with Sanofi represented 52% , 26% and 17% , respectively, of the Company’s total revenue. During the six months ended June 30, 2018 , revenues related to the Company’s hemophilia A collaboration agreement with Pfizer, the hemoglobinopathies agreement with Sanofi and the agreement with Kite represented 47% , 26% and 22% , respectively, of the Company’s total revenue. For the three months ended June 30, 2018 , revenues related to the Company’s hemophilia A collaboration agreement with Pfizer, Kite and the hemoglobinopathies agreement with Sanofi represented 38% , 35% and 21% , respectively, of the Company’s total revenue. Receivables from collaborations are typically unsecured and are concentrated in the biopharmaceutical industry. Accordingly, the Company may be exposed to credit risk generally associated with biopharmaceutical companies or specific to its collaboration agreements. To date, the Company has not experienced any losses related to these receivables.
Funds received from third parties under contract or grant arrangements are recorded as revenue if the Company is deemed to be the principal participant in the arrangements because the activities under the contracts or grants are part of the Company’s development programs. Contract funds received are not refundable and are recognized when the related qualified research and development costs are incurred and there is reasonable assurance that the funds will be received. Funds received in advance are recorded as deferred revenue.
Recent Accounting Pronouncements
Recently Adopted
Simplified Disclosure
In August 2018, the SEC adopted amendments to certain disclosure requirements in Securities Act Release No. 33-10532, Disclosure Update and Simplification , as updated. These amendments eliminate, modify, or integrate into other SEC requirements certain disclosure rules. Among the amendments is the requirement to present an analysis of changes in stockholders’ equity in the interim financial statements included in quarterly reports on Form 10-Q. The analysis, which can be presented as a footnote or separate statement, is required for the current and comparative quarter and year-to-date interim periods. The amendments are effective for all filings made on or after November 5, 2018. As such, the Company adopted these SEC amendments on November 5, 2018 and has presented the analysis of changes in stockholders’ equity in these interim financial statements for June 30, 2019 and 2018 presented in this Quarterly Report on Form 10-Q. The Company’s adoption of these SEC amendments had no material effect on the Company’s reporting of financial position, results of operations, cash flows or stockholders’ equity.
Accounting for Leases
In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016 -2 , Leases (“ASC Topic 842”). ASC Topic 842 amends a number of aspects of lease accounting, including requiring lessees to recognize almost all leases with a term greater than one year as a ROU asset and corresponding liability, measured at the present value of the lease payments. On January 1, 2019, the Company adopted ASC Topic 842 using the modified retrospective approach with a cumulative-effect adjustment of $0.9 million reflected as a decrease to the opening balance of accumulated deficit as of the adoption date. Results for the three and six months ended June 30, 2019 are presented under ASC Topic 842. No prior period amounts were adjusted and continue to be reported in accordance with previous lease guidance, ASC Topic 840 — Leases (“ASC Topic 840”).
ASC Topic 842 provides a number of optional practical expedients in transition. The Company elected the practical expedients to not reassess its prior conclusions about lease identification under the new standard, to not reassess lease classification, and to not reassess initial direct costs. The Company did not elect the practical expedient allowing the use-of-hindsight which would require the Company to reassess the lease term of its leases based on all facts and circumstances through

13


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

 
$
(62,500
)
 
$
16,223

Operating lease right-of-use assets

 
8,753

 
8,753

Prepaid rent

 
36,025

 
36,025

 
 
 
 
 
 
Liabilities:
 
 
 
 
 
Operating lease liabilities - current (1)

 
1,408

 
1,408

Deferred rent (1)
271

 
(271
)
 

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

 
(27,689
)
 

Operating lease liabilities - long-term (2)

 
7,933

 
7,933

 
 
 
 
 
 
Accumulated deficit
(562,696
)
 
897

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

14


NOTE 2—FAIR VALUE MEASUREMENTS
The Company measures certain financial assets and liabilities at fair value on a recurring basis, including cash equivalents, available-for-sale marketable securities and the free share asset/liability. Fair value is determined based on a three-tier hierarchy under the authoritative guidance for fair value measurements and disclosures that prioritizes the inputs used in measuring fair value as follows:
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2: Quoted prices in markets that are not active or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; and
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).
The fair value measurements of the Company’s cash equivalents, available-for-sale marketable securities and the free share asset/liability are identified at the following levels within the fair value hierarchy (in thousands):
 
June 30, 2019
Fair Value Measurements
 
Total
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
Money market funds
$
71,490

 
$
71,490

 
$

 
$

Commercial paper securities
30,441

 

 
30,441

 

Total
101,931

 
71,490

 
30,441

 

Marketable securities:
 
 
 
 
 
 
 
Commercial paper securities
170,953

 

 
170,953

 

Corporate debt securities
71,383

 

 
71,383

 

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

 

 
37,991

 

Total
280,327

 

 
280,327

 

Total cash equivalents and marketable securities
$
382,258

 
$
71,490

 
$
310,768

 
$

 
 
 
 
 
 
 
 
Free shares asset
$
361

 
$

 
$

 
$
361

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

 
$
103,291

 
$

 
$

Total
103,291

 
103,291

 

 

Marketable securities:
 
 
 
 
 
 
 
Commercial paper securities
177,224

 

 
177,224

 

Corporate debt securities
63,870

 

 
63,870

 

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

 

 
18,621

 

Total
259,715

 

 
259,715

 

Total cash equivalents and marketable securities
$
363,006

 
$
103,291

 
$
259,715

 
$

Liabilities:
 
 
 
 
 
 
 
Free shares liability
$
154

 
$

 
$

 
$
154


Cash Equivalents and Marketable Securities
The Company generally classifies its marketable securities as Level 2. Instruments are classified as Level 2 when observable market prices for identical securities that are traded in less active markets are used. When observable market prices for identical securities are not available, such instruments are priced using benchmark curves, benchmarking of like securities, sector

15


groupings, matrix pricing and valuation models. These valuation models are proprietary to the pricing providers or brokers and incorporate a number of inputs, including, listed in approximate order of priority: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data including market research publications. For certain security types, additional inputs may be used, or some of the standard inputs may not be applicable. Evaluators may prioritize inputs differently on any given day for any security based on market conditions, and not all inputs listed are available for use in the evaluation process for each security evaluation on any given day.
Free Share Asset/Liability
As a result of the July 20, 2018 Share Purchase Agreement (“SPA”) with TxCell S.A., a French société anonyme (“TxCell”) (see Note 10 — Acquisition of TxCell S.A. ), the Company entered into arrangements with the holders of approximately 477,000 “free shares” of TxCell pursuant to which the Company has the right to purchase such shares from the holders thereof (a call option) and such holders have the right to sell to the Company such shares from time to time through mid-2021 (a put option). The Company initially recorded a liability of $0.2 million on the acquisition date. The put options were classified within Level 3 of the fair value hierarchy as the Company utilized a binomial-lattice pricing model (the “Monte Carlo simulation model”) that involved certain market conditions to estimate the fair value of the options. The assumptions used in this simulation model are reviewed on a quarterly basis and adjusted, as needed. Subsequent changes in the fair value of the free shares are recorded in general and administrative expenses in the Condensed Consolidated Statements of Operations. The number of free shares has not changed since the Acquisition Date. The free shares liability was approximately $0.2 million at December 31, 2018 and the Company recognized a gain due to an increase in the fair value of the free shares of approximately $0.5 million for the six months ended June 30, 2019 bringing the balance to an asset of approximately $0.4 million at June 30, 2019 .
Free Shares valuation assumptions:

June 30,
2019

December 31, 2018
Sangamo Stock Price (USD)

$
9.65


$
11.48

TxCell Stock Price (EUR)

2.24


2.58

EUR / USD Exchange Rate

0.89


0.87

Estimated Correlation Sangamo and TxCell Stock Prices

72.2%



Sangamo Stock Price (USD) Volatility Estimate

77.6%


79.9%

TxCell Stock Price (EUR) Volatility Estimate

76.2%


8.6%

EUR / USD Exchange Rate Volatility Estimate

7.0%


7.7%

Risk Free Rate and Cost of Debt by Expected Exercise Date

Varies


Varies


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

 
$
140,418

 
$
59,406

 
$
49,826

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

 

 

 

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

 
3,500

 
3,500

 
3,500

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

 
$
143,918

 
$
62,906

 
$
53,326


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

16


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

 
$

 
$

 
$
71,490

Commercial paper securities
 
30,439

 
2

 

 
30,441

Total
 
101,929

 
2

 

 
101,931

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

 
355

 

 
170,953

Corporate debt securities
 
71,280

 
108

 
(5
)
 
71,383

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

 
18

 

 
37,991

Total
 
279,851

 
481

 
(5
)
 
280,327

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

 
$
483

 
$
(5
)
 
$
382,258

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

 
$

 
$

 
$
103,291

Total
 
103,291

 

 

 
103,291

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

 

 
(129
)
 
177,224

Corporate debt securities
 
63,981

 

 
(111
)
 
63,870

U.S. government-sponsored entity debt securities
 
18,640

 

 
(19
)
 
18,621

Total
 
259,974

 

 
(259
)
 
259,715

Total cash equivalents and available-for-sale securities
 
$
363,265

 
$

 
$
(259
)
 
$
363,006


The fair value of investments available-for-sale by contractual maturity were as follows (in thousands):
 
 
June 30,
2019
 
December 31,
2018
Maturing in one year or less
 
$
271,877

 
$
259,715

Maturing after one year through five years
 
8,450

 

Total
 
$
280,327

 
$
259,715


The Company had no material realized losses of its available-for-sale securities for the three and six months ended June 30, 2019 or 2018 . Sangamo has the intent and ability to hold its investments for a period of time sufficient to allow for any anticipated recovery in market value. No investments were other-than-temporarily impaired at either June 30, 2019 or December 31, 2018 .
NOTE 4—BASIC AND DILUTED NET LOSS PER SHARE
Basic net loss per share attributable to Sangamo Therapeutics, Inc. stockholders has been computed by dividing net loss attributable to Sangamo Therapeutics, Inc. stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share attributable to Sangamo Therapeutics, Inc. stockholders is calculated by dividing net loss attributable to Sangamo Therapeutics, Inc. stockholders by the weighted-average number of shares of common stock and potential dilutive securities outstanding during the period.
The total number of shares subject to stock options and restricted stock units (“RSUs”) outstanding and the employee stock purchase plan (“ESPP”) shares reserved for issuance, which are all anti-dilutive, were excluded from consideration in the calculation of diluted net loss per share attributable to Sangamo Therapeutics, Inc. stockholders. Stock options and RSUs outstanding and ESPP shares reserved for issuance as of June 30, 2019 and 2018 totaled 10,155,033 and 8,757,528 , respectively.

17


NOTE 5—MAJOR CUSTOMERS, PARTNERSHIPS AND STRATEGIC ALLIANCES
Collaboration Agreements
Kite Pharma, Inc.
In February 2018, the Company entered into a global collaboration and license agreement with Kite for the research, development and commercialization of potential engineered cell therapies for cancer. In this collaboration, Sangamo is working together with Kite on a research program under which the companies are designing ZFNs and adeno-associated viral vectors (“AAVs”) to disrupt and insert certain genes in T-cells and natural killer cells (“NK-cells”) including the insertion of genes that encode chimeric antigen receptors, T-cell receptors, and NK-cell receptors directed to mutually agreed targets. Kite is responsible for all clinical development and commercialization of any resulting products and has announced that they expect to initiate a clinical trial evaluating KITE-037, an allogeneic anti-CD19 CAR-T cell therapy, in 2020. The Kite agreement became effective on April 5, 2018 when the waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and other customary closing conditions were completed.
Subject to the terms of this agreement, the Company granted Kite an exclusive, royalty-bearing, worldwide sublicensable license under the Company’s relevant patents and know-how to develop, manufacture and commercialize, for the purpose of treating cancer, specific cell therapy products that may result from the research program and that are engineered ex vivo using selected zinc finger nucleases (“ZFNs”) and AAVs developed under the research program to express chimeric antigen receptors (“CARs”), T-cell receptors (“TCRs”) or NK-cell receptors (“NKRs”) directed to candidate targets.
During the research program term and subject to certain exceptions except pursuant to this agreement, the Company is prohibited from researching, developing, manufacturing and commercializing, for the purpose of treating cancer, any cell therapy product that, as a result of ex vivo genome editing, expresses a CAR, TCR or NKR that is directed to a target expressed on or in a human cancer cell. After the research program term concludes and subject to certain exceptions, except pursuant to this agreement, the Company will be prohibited from developing, manufacturing and commercializing, for the purpose of treating cancer, any cell therapy product that, as a result of ex vivo genome editing, expresses a CAR, TCR or NKR that is directed to a candidate target.
Following the effective date, in April 2018, the Company received a $150.0 million upfront payment from Kite. In addition, Kite will reimburse the Company’s direct costs to conduct the joint research program, and Kite will be responsible for all subsequent development, manufacturing and commercialization of any licensed products. Sangamo is also eligible to receive contingent development- and sales-based milestone payments that could total up to $3.01 billion if all of the specified milestones set forth in this agreement are achieved. Of this amount, approximately $1.26 billion relates to the achievement of specified research, clinical development, regulatory and first commercial sale milestones, and approximately $1.75 billion relates to the achievement of specified sales-based milestones if annual worldwide net sales of licensed products reach specified levels. Each development- and sales-based milestone payment is payable (i) only once for each licensed product regardless of the number of times that the associated milestone event is achieved by such licensed product, and (ii) only for the first ten times that the associated milestone event is achieved regardless of the number of licensed products that may achieve such milestone event. In addition, the Company will be entitled to receive escalating, tiered royalty payments with a percentage in the single digits based on potential future annual worldwide net sales of licensed products. These royalty payments will be subject to reduction due to patent expiration, entry of biosimilar products to the market and payments made under certain licenses for third-party intellectual property.
The initial research term in the agreement is six years . Kite has an option to extend the research term of the agreement for up to two additional one-year periods for a separate upfront fee of $10.0 million per year. All contingent payments under the agreement, when earned, will be non-refundable and non-creditable. The Company concluded the transaction price under this agreement is $185.9 million and includes the upfront license fee of $150.0 million and $35.9 million estimated reimbursable service costs for identified research projects over the estimated performance period. Further, the Company concluded the estimated fees for the presumed exercise of the research term extension options and all milestone amounts are fully constrained. As part of its evaluation of the constraint, the Company considered numerous factors, including the fact that achievement of the milestones at this time is uncertain and contingent upon future periods when the uncertainty related to the variable consideration is resolved. The Company will re-evaluate the transaction price including the estimated variable consideration included in the transaction price and all constrained amounts in each reporting period and as uncertain events are resolved or other changes in circumstances occur. None of the development and sales-based milestone payments have been included in the transaction price.
Kite has the right to terminate this agreement in its entirety or on a per licensed product or per candidate target basis for any reason after a specified notice period. Each party has the right to terminate this agreement on account of the other party’s bankruptcy or material, uncured breach.
The Company has identified the primary performance obligations within the Kite agreement as a license to the technology and on-going services. The Company concluded that the license is not discrete as it does not have stand-alone value to

18


Kite apart from the services to be performed by the Company pursuant to the agreement. As a result, the Company recognizes revenue from the upfront payment on a straight-line basis through June 2024, the estimated period the Company will perform research services. The estimated period of performance and project cost is reviewed quarterly and adjusted, as needed, to reflect the Company’s current assumptions regarding the timing of its deliverables. As of June 30, 2019 and December 31, 2018 , the Company had deferred revenue of $119.1 million and $131.5 million , respectively, related to this agreement.
Revenues recognized under the agreement for the three and six months ended June 30, 2019 and 2018 were as follows (in thousands):
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Revenue related to Kite agreement:
 
 
 
 
 
 
 
Recognition of upfront fee
$
6,227

 
$
5,953

 
$
12,386

 
$
5,953

Research services
2,833

 
1,562

 
4,986

 
1,562

Total
$
9,060

 
$
7,515

 
$
17,372

 
$
7,515


Pfizer Inc.
SB -525 Global Collaboration and License Agreement
In May 2017, the Company entered into an exclusive global collaboration and license agreement with Pfizer, pursuant to which it established a collaboration for the research, development and commercialization of SB-525, its gene therapy product candidate for hemophilia A, and closely related products.
Under this agreement, the Company is responsible for conducting the Phase 1/2 clinical trial and for certain manufacturing activities for SB-525, while Pfizer is responsible for subsequent worldwide development, manufacturing, marketing and commercialization of SB-525. Sangamo may also collaborate in the research and development of additional AAV-based gene therapy products for hemophilia A.
The Company originally received an upfront fee of $70.0 million and is eligible to receive development milestone payments contingent on the achievement of specified clinical development, intellectual property, regulatory and first commercial sale milestones for SB-525 and potentially other products. In addition, Sangamo is eligible to receive up to $208.5 million in payments upon the achievement of specified clinical development, intellectual property and regulatory milestones and up to $266.5 million in payments upon first commercial sale milestones for SB-525 and potentially other products. The total amount of potential clinical development, intellectual property, regulatory and first commercial sale milestone payments, assuming the achievement of all specified milestones in the hemophilia A Pfizer agreement, is up to $475.0 million , which includes up to $300.0 million for SB-525 and up to $175.0 million for other products that may be developed under the agreement, subject to reduction on account of payments made under certain licenses for third-party intellectual property. In addition, Pfizer agreed to pay the Company royalties for each potential licensed product developed under the agreement that are an escalating tiered, double-digit percentage of the annual net sales of such product and are subject to reduction due to patent expiration, entry of biosimilar products to the market and payment made under certain licenses for third-party intellectual property. To date, no milestone payments have been received and no products have been approved and therefore no royalty fees have been earned under the hemophilia A Pfizer agreement. Sangamo is responsible for internal and external research costs as part of the upfront fee and has the ability to request additional reimbursement from Pfizer if certain conditions are met.
None of the clinical or regulatory milestones have been included in the $70.0 million transaction price, as all milestone amounts are fully constrained. As part of its evaluation of the constraint, the Company considered numerous factors, including the fact that achievement of the milestones at this time is uncertain and contingent upon future periods when the uncertainty related to the variable consideration is resolved. The Company will re-evaluate the transaction price, including its estimated variable consideration included in the transaction price and all constrained amounts in each reporting period and as uncertain events are resolved or other changes in circumstances occur.
Subject to the terms of the agreement, the Company granted Pfizer an exclusive worldwide royalty-bearing license, with the right to grant sublicenses, to use certain technology controlled by the Company for the purpose of developing, manufacturing and commercializing SB-525 and related products. Pfizer granted the Company a non-exclusive, worldwide, royalty free, fully paid license, with the right to grant sublicenses, to use certain manufacturing technology developed under the agreement and controlled by Pfizer to manufacture the Company’s products that utilize the AAV delivery system. During a specified period, neither the Company nor Pfizer will be permitted to clinically develop or commercialize, outside of the collaboration, certain AAV-based gene therapy products for hemophilia A.

19


Unless earlier terminated, the agreement has a term that continues on a per product and per country basis until the later of (i) the expiration of patent claims that cover the product in a country, (ii) the expiration of regulatory exclusivity for a product in a country, and (iii) fifteen years after the first commercial sale of a product in a country Pfizer has the right to terminate the agreement without cause in its entirety or on a per product or per country basis. The agreement may also be terminated by either party based on an uncured material breach by the other party or the bankruptcy of the other party. Upon termination for any reason, the license granted by the Company to Pfizer to develop, manufacture and commercialize SB-525 and related products will automatically terminate. Upon termination by the Company for cause or by Pfizer in any country or countries, Pfizer will automatically grant the Company an exclusive, royalty-bearing license under certain technology controlled by Pfizer to develop, manufacture and commercialize SB-525 in the terminated country or countries.
The Company has identified the performance obligations within the hemophilia A Pfizer agreement as a license to the technology and on-going services. The Company concluded that the license is not discrete as it does not have stand-alone value to Pfizer apart from the services to be performed by the Company pursuant to the agreement. As a result, the Company recognizes revenue from the upfront payment based on proportional performance of the on-going services through 2020, the estimated period the Company will perform research services. The estimated period of performance and project cost is reviewed quarterly and adjusted, as needed, to reflect the Company’s current assumptions regarding the timing of its deliverables. As of June 30, 2019 and December 31, 2018 , the Company had deferred revenue of $14.3 million and $10.0 million , respectively, related to this agreement.
Revenues recognized under the agreement for the three and six months ended June 30, 2019 and 2018 were as follows (in thousands):
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Recognition of upfront fee related to Pfizer SB-525 agreement
$
4,635

 
$
8,183

 
$
1,595

 
$
15,841


In March 2019, the Company received new data results in the hemophilia A collaboration agreement with Pfizer, and expansion of patients for the ongoing trial. As a result, the estimated project cost increased and the proportional performance was updated based on the actual services delivered to Pfizer as a percentage of the updated project cost as of March 31, 2019. The increase in project cost resulted in a decrease in the measure of the proportional cumulative performance. During the six months ended June 30, 2019 , the Company recognized $1.6 million in revenues related to the Pfizer SB-525 agreement which were net of the approximately $3.0 million reduction in revenues recorded in the three months ended March 31, 2019 related to the updated estimated project cost.
C 9 ORF 72 Research Collaboration and License Agreement
In December 2017 , the Company entered into a separate exclusive, global collaboration and license agreement with Pfizer for the development and commercialization of potential gene therapy products that use ZFP transcription factors (“TFs”) to treat amyotrophic lateral sclerosis (“ALS”) and frontotemporal lobar degeneration (“FTLD”) linked to mutations of the C 9 ORF 72 gene. Pursuant to this agreement, the Company agreed to work with Pfizer on a research program to identify, characterize and preclinically develop ZFP TFs that bind to and specifically reduce expression of the mutant form of the C 9 ORF 72 gene.
The Company received a $12.0 million upfront payment from Pfizer and is eligible to receive up to $60.0 million in development milestone payments from Pfizer contingent on the achievement of specified preclinical development, clinical development and first commercial sale milestones, and up to $90.0 million commercial milestone payments if annual worldwide net sales of the licensed products reach specified levels. In addition, Pfizer will pay the Company royalties based on an escalating tiered, mid- to high-single digit percentage of the annual worldwide net sales of the licensed products. These royalty payments are subject to reduction due to patent expiration, entry of biosimilar products to the market and payments made under certain licenses for third party intellectual property. Each party will be responsible for the cost of its performance of the research program. Pfizer will be operationally and financially responsible for subsequent development, manufacturing and commercialization of the licensed products.
None of the clinical or regulatory milestones have been included in the $12.0 million transaction price, as all milestone amounts are fully constrained. As part of its evaluation of the constraint, the Company considered numerous factors, including the fact that achievement of the milestones at this time is uncertain and contingent upon future periods when the uncertainty related to the variable consideration is resolved. The Company will re-evaluate the transaction price, including its estimated variable consideration included in the transaction price and all constrained amounts, in each reporting period and as uncertain events are resolved or other changes in circumstances occur.
Subject to the terms of this agreement, the Company granted Pfizer an exclusive, royalty-bearing, worldwide license under the Company’s relevant patents and know‑how to develop, manufacture and commercialize gene therapy products that use

20


resulting ZFP TFs that satisfy pre‑agreed criteria. During a specified period, neither the Company nor Pfizer will be permitted to research, develop, manufacture or commercialize outside of the collaboration any ZFPs that specifically bind to the C9ORF72 gene.
Unless earlier terminated, the agreement has a term that continues on a per licensed product and per country basis until the later of (i) the expiration of patent claims that cover the licensed product in a country, (ii) the expiration of regulatory exclusivity for a licensed product in a country, and (iii) fifteen years after the first commercial sale of a licensed product in a major market country. Pfizer also has the right to terminate the agreement without cause in its entirety or on a per product or per country basis. The agreement may also be terminated by either party based on an uncured material breach by the other party or the bankruptcy of the other party. The agreement will also terminate if the Company is unable to identify any lead candidates for development within a specified period of time or if Pfizer elects not to advance a lead candidate beyond a certain development milestone within a specified period of time. Upon termination for any reason, the license granted by the Company to Pfizer to develop, manufacture and commercialize licensed products under the agreement will automatically terminate. Upon termination by the Company for cause or by Pfizer without cause for any licensed product or licensed products in any country or countries, the Company will have the right to negotiate with Pfizer to obtain a non-exclusive, royalty-bearing license under certain technology controlled by Pfizer to develop, manufacture and commercialize the licensed product or licensed products in the terminated country or countries.
Following termination by the Company for Pfizer’s material breach, Pfizer will not be permitted to research, develop, manufacture or commercialize ZFPs that specifically bind to the C 9 ORF 72 gene for a period of time. Following termination by Pfizer for the Company’s material breach, the Company will not be permitted to research, develop, manufacture or commercialize ZFPs that specifically bind to the C 9 ORF 72 gene for a period of time.
The Company has identified the performance obligations within this agreement as a license to the technology and on-going services. The Company concluded that the license is not discrete as it does not have stand-alone value to Pfizer apart from the services to be performed by the Company pursuant to the agreement. As a result, the Company recognizes revenue from the upfront payment based on proportional performance of the on-going services, over the estimated period the Company will perform research services. The estimated period of performance and project cost is reviewed quarterly and adjusted, as needed, to reflect the Company’s current assumptions regarding the timing of its deliverables. As of June 30, 2019 and December 31, 2018 , the Company had deferred revenue of $8.7 million and $9.8 million , respectively, related to this agreement.
Revenues recognized under the agreement for the three and six months ended June 30, 2019 and 2018 were as follows (in thousands):
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Recognition of upfront fee related to Pfizer C9ORF72 agreement
$
455

 
$
617

 
$
1,070

 
$
1,076


Sanofi Genzyme
In January 2014, the Company entered into an exclusive worldwide collaboration and license agreement to develop therapeutics for hemoglobinopathies, focused on beta thalassemia and sickle cell disease (“SCD”). The agreement was originally signed with Biogen MA Inc., who subsequently assigned it to Bioverativ Inc., which was later acquired by Sanofi. Under the agreement, the Company is jointly conducting two research programs: the beta thalassemia program and the SCD program. In the beta thalassemia program, the Company is responsible for all discovery, research and development activities through the first human clinical trial. In the SCD program, both parties are responsible for research and development activities through the submission of an investigational new drug (“IND”) application for ZFP therapeutics intended to treat SCD.
Under both programs, Sanofi is responsible for subsequent worldwide clinical development, manufacturing and commercialization of licensed products developed under the agreement. At the end of the specified research terms for each program or under certain specified circumstances, Sanofi has the right to step in and take over any of the Company’s remaining activities. Furthermore, the Company has an option to co-promote in the U.S. any licensed products to treat beta thalassemia and SCD developed under the agreement, and Sanofi will compensate the Company for such co-promotion activities. Subject to the terms of the agreement, the Company has granted Sanofi an exclusive, royalty-bearing license, with the right to grant sublicenses, to use certain ZFP and other technology controlled by the Company for the purpose of researching, developing, manufacturing and commercializing licensed products developed under the agreement. The Company also granted Sanofi a non-exclusive worldwide, royalty-free fully paid license with the right to grant sublicenses, under the Company’s interest in certain other intellectual property developed pursuant to the agreement. During the term of the agreement, the Company is not permitted to research, develop, manufacture or commercialize, outside of the agreement, certain gene therapy products that target genes relevant to the licensed products.

21


Under the agreement, the Company received an upfront license fee of $20.0 million and is eligible to receive development and sales milestone payments upon the achievement of specified regulatory, clinical development and sales milestones. In addition, the Company will also be eligible to receive up to $115.8 million in payments upon the achievement of specified clinical development and regulatory milestones, as well as up to $160.5 million in payments upon the achievement of specified sales milestones. The total amount of potential regulatory, clinical development and sales milestone payments, assuming the achievement of all specified milestones in the agreement, is up to $276.3 million . In addition, the Company will receive royalty payments for each licensed product that are a tiered double-digit percentage of annual net sales of each product. Sanofi reimburses Sangamo for agreed upon costs incurred in connection with research and development activities conducted by Sangamo. To date, no milestone payments have been received and no products have been approved and therefore no royalty fees have been earned under the Sanofi agreement.
The agreement may be terminated by (i) the Company or Sanofi for the uncured material breach of the other party, (ii) the Company or Sanofi for the bankruptcy or other insolvency proceeding of the other party; (iii) Sanofi, upon 180 days’ advance written notice to the Company and (iv) Sanofi, for certain safety reasons upon written notice to, and after consultation with, the Company. As a result, actual future milestone payments could be lower than the amounts stated above.
All contingent payments under the agreement, when earned, will be non-refundable and non-creditable. The transaction price of $75.7 million includes the upfront license fee of $20.0 million and $55.7 million estimated reimbursable service costs for identified research projects over the estimated performance period, as all milestone amounts are fully constrained. As part of its evaluation of the constraint, the Company considered numerous factors, including the fact that achievement of the milestones at this time is uncertain and contingent upon future periods when the uncertainty related to the variable consideration is resolved. The Company will re-evaluate the transaction price, including the estimated variable consideration included in the transaction price and all constrained amounts, in each reporting period and as uncertain events are resolved or other changes in circumstances occur. None of the clinical or regulatory milestones have been included in the transaction price.
The Company has identified the performance obligations within this arrangement as a license to the technology and on-going research services activities. The Company concluded that the license is not discrete as it does not have stand-alone value to Sanofi apart from the research services to be performed pursuant to the agreement. As a result, the Company recognizes revenue from the upfront payment based on proportional performance of the ongoing services through 2022, the estimated period the Company will perform research services. The estimated period of performance and project cost is reviewed quarterly and adjusted, as needed, to reflect the Company’s current assumptions regarding the timing of its deliverables. As of June 30, 2019 and December 31, 2018 , the Company had deferred revenue of $2.9 million and $4.6 million , respectively, related to this agreement.
Revenues recognized under the agreement for the three and six months ended June 30, 2019 and 2018 were as follows (in thousands):
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Revenue related to Sanofi agreement:
 
 
 
 
 
 
 
Recognition of upfront fee
$
901

 
$
1,184

 
$
1,654

 
$
2,338

Research services
2,158

 
3,332

 
3,355

 
6,560

Total
$
3,059

 
$
4,516

 
$
5,009

 
$
8,898


California Institute for Regenerative Medicine
In May 2018, the California Institute for Regenerative Medicine (“CIRM”) granted a Strategic Partnership Award for $8.0 million to fund the clinical studies of a potentially curative ZFP therapeutic for the treatment of beta thalassemia based on the application of Sangamo’s ZFN genome editing technology. The grant exists through December 31, 2022 and provides matching funds to support the evaluate ST-400, a gene-edited cell therapy candidate for people with transfusion-dependent beta thalassemia. As of June 30, 2019 and December 31, 2018 , the Company had received $3.0 million and $1.7 million , respectively, under the award.
Under the terms of the CIRM grants, the Company is obligated to pay royalties and licensing fees based on a low single digit royalty percentage on net sales of CIRM-funded product candidates or CIRM-funded technology. The Company has the option to decline any and all amounts awarded by CIRM and as an alternative to revenue sharing, the Company has the option to convert the award to a loan. No such election has been made as of the date of the issuance of these financial statements. In the event that the Company terminates a CIRM-funded clinical trial, it will be obligated to repay the remaining CIRM funds on hand, therefore as of June 30, 2019 and December 31, 2018 , the $3.3 million and $1.8 million , respectively, including interest, related to

22


this award are recorded as a loan in other long-term liabilities on the accompanying Condensed Consolidated Balance Sheets as the Company does not expect to repay these amounts with the next 12 months.
NOTE 6—INCOME TAXES
The Company maintains 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 costs. Realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain based on Sangamo’s history of losses. Accordingly, the Company’s net deferred tax assets have been fully offset by a valuation allowance. 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—STOCK-BASED COMPENSATION
The following table shows total stock-based compensation expense included in the Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2019 and 2018 (in thousands):

Three Months Ended
June 30,

Six Months Ended
June 30,

2019

2018

2019

2018
Research and development
$
2,763


$
2,120


$
5,061


$
3,879

General and administrative
2,104


1,394


4,329


2,685

Total stock-based compensation expense
$
4,867


$
3,514


$
9,390


$
6,564


NOTE 8—COMMITMENTS AND CONTINGENCIES
Leases
Sangamo occupies approximately 87,700 square feet of office and research and development laboratory facilities in Brisbane, CA pursuant to a lease that expires in May 2029 . Sangamo also leases approximately 37,900 square feet of office and laboratory space in Richmond, CA through August 2026. The Company leases approximately 7,700 square feet of additional research and office space located in Richmond, CA pursuant to a lease that expires in December 2019. In addition, the Company leases two properties in Valbonne, France. The first lease is for approximately 14,036 square feet of research and office space that expires in June 2025 . The second lease, which commenced on April 1, 2019 , is for approximately 6,800 square feet of office space and expires in March 2028 .
Certain of these leases also include renewal options at the election of the Company to renew or extend the lease for an additional five to ten years . These optional periods have not been considered in the determination of the ROU assets or lease liabilities associated with these leases as the Company did not consider it reasonably certain it would exercise the options.
With respect to the Brisbane lease, the commencement date for approximately 35,080 square feet of the office space occurred in January 2019 while the commencement date for the remaining approximately 52,620 square feet occurred in June 2019. The Company has the right to make tenant improvements, including the addition of laboratory space, with a lease incentive allowance of $6.8 million on the first portion of the space occupied and $10.2 million on the portion of the lease that commenced in June 2019. This lease includes two renewal options at the election of the Company to extend the lease for an additional five years each. These optional periods have not been considered in the determination of the ROU assets or lease liabilities associated with these leases as the Company did not consider it reasonably certain it would exercise the options.
The Company performed evaluations of its contracts and determined each of its identified leases are operating leases. For the three and six months ended June 30, 2019 , the Company incurred $1.6 million and $2.8 million , respectively, of lease costs included in operating expenses in the Condensed Consolidated Statements of Operations in relation to these operating leases. Variable lease expense was $0.4 million and $0.6 million for the three and six months ended June 30, 2019 , respectively, and was not included in the measurement of the Company’s operating ROU assets and lease liabilities. The variable expense consists primarily of the Company’s proportionate share of operating expenses, property taxes and insurance and is classified as lease expense due to the Company’s election to not separate lease and non-lease components.
Cash paid for amounts included in the measurement of operating lease liabilities for the six months ended June 30, 2019 was $1.1 million and was included in net cash used in operating activities in the Company’s Condensed Consolidated Statements of Cash Flows.

23


As of June 30, 2019 , the maturities of the Company’s operating lease liabilities were as follows (in thousands):
 
Total
Six months ending December 31, 2019
$
2,135

2020
6,065

2021
6,107

2022
6,175

2023
6,253

Thereafter
31,969

Total lease payments
58,704

Less:
 
Imputed interest
(14,669
)
Total
$
44,035

 
 
Reported as of June 30, 2019:
 
Operating lease liabilities - current (included in Accounts payable and accrued liabilities on the Condensed Consolidated Balance Sheet)
$
2,485

Operating lease liabilities - long-term
41,550

Total
$
44,035


As of June 30, 2019 , the weighted-average remaining lease term is 9.3  years and the weighted-average incremental borrowing rate used to determine the operating lease liability was 6.9% for the Company’s operating leases.
The Company does not have any financing leases.
Contingencies
Sangamo is not party to any material pending legal proceedings or contingencies. From time to time, the Company may be involved in legal proceedings arising in the ordinary course of business.
NOTE 9—STOCKHOLDERS’ EQUITY
Common Stock
In April 2019 , Sangamo completed an underwritten public offering of its common stock, in which the Company sold an aggregate of 12.7 million shares of its common stock at a public offering price of $11.50 per share. The net proceeds to Sangamo from the sale of shares in this offering, after deducting underwriting discounts and commissions and other estimated offering expenses, were approximately $136.3 million .
In April 2018 , Sangamo completed an underwritten public offering of its common stock, in which the Company sold an aggregate of 14.2 million shares of its common stock at a public offering price of $16.25 per share. The net proceeds to Sangamo from the sale of shares in this offering, after deducting underwriting discounts and commissions and other estimated offering expenses, were approximately $215.8 million .
At-the-Market Offering Agreement
In May 2017, the Company entered into an amended and restated “at-the-market” offering program sales agreement with Cowen and Company, LLC (“Cowen”), pursuant to which the Company may issue and sell from time to time up to $75.0 million of the Company’s common stock through Cowen as the sales agent (the “ATM Agreement”). Sales of the Company’s common stock, if any, will be made at market prices by any method that is deemed to be an “at-the-market offering” as defined in Rule 415 under the Securities Act of 1933, as amended. As of June 30, 2019 , the Company has not sold any common stock under the ATM Agreement and the full $75.0 million remained available for sale, subject to certain conditions as specified in the agreement.
NOTE 10—ACQUISITION OF TXCELL S.A.
On July 20, 2018, Sangamo entered into several agreements with TxCell S.A. (“TxCell”), a French publicly-listed company specialized in the development of cellular immunotherapy products based on regulator T-cells (“Tregs”) to treat severe autoimmune and inflammatory diseases, and certain of its shareholders, with the goal of eventually acquiring 100% of TxCell’s share capital.

24


Under a Share Purchase Agreement (“SPA”) signed with certain shareholders of TxCell, the Company acquired 13,519,036 ordinary shares of TxCell (“TxCell Ordinary Shares”), representing approximately 53% of the outstanding share capital and voting rights of TxCell, (the “Block Transaction”) at a price of €2.58 per share. The Block Transaction closed on October 1, 2018 (the “Acquisition Date”).
Additionally, the Company and TxCell entered into a Tender Offer Agreement (“TOA”), pursuant to which the Company agreed to acquire 11,981,867 TxCell Ordinary Shares not acquired as part of the Block Transaction following a public tender offer (the “Tender Offer”) at a price of €2.58 per share. The Tender Offer closed on November 23, 2018.
Following the Block Transaction and the Tender Offer, the Company owns 98.2% of TxCell Ordinary Shares.
In addition, the Company also entered into arrangements with the holders of approximately 477,000 “free shares” of TxCell pursuant to which the Company has the right to purchase such shares from the holders thereof (a call option) and such holders have the right to sell to the Company such shares from time to time through mid-2021 (a put option) (collectively the “Free Shares Options”) so as to increase the Company’s ownership of TxCell to 100% should all free shares be acquired following through the exercise of either the call or the put options.
The purchase price for each such free share acquired by the Company upon exercise of a Free Shares Option will be based on the performance of the Company’s stock price from the announcement of the transactions contemplated by the SPA and TOA through the Acquisition Date. At the Acquisition Date, the Free Shares Options purchase price was valued at €2.58 per share or approximately $2.99 per share using an exchange rate of $1.16 . If the Company’s stock price increases during that time period, the Free Shares Options purchase price per share will proportionately increase. If the Company’s stock price decreases, the Free Shares Options purchase price will proportionately decrease, the minimum purchase price of €2.58 per share only applies to vested Free Shares Options that are not yet transferable shares, subject to certain exceptions.
At the Acquisition Date, the fair value of the Free Shares Options was estimated to be a liability of $0.2 million based on an option pricing method. The value was included in the purchase consideration and is recorded as a non-controlling interest on the Condensed Consolidated Balance Sheets. The fair value of the Free Shares Options will vary based on future changes in the Company’s stock price during the option period. The Company assesses this fair value on a quarterly basis with changes in fair value being recognized in operations. The fair value of the Free Shares Options was estimated to be an asset of $0.4 million as of June 30, 2019 .
In September 2018, the Company provided TxCell with a $5.2 million loan (the “TxCell Loan”) that was deemed to be part of the purchase consideration for accounting purposes. The TxCell Loan, together with $40.5 million cash paid to acquire the TxCell Ordinary Shares and the $0.2 million estimated fair value of the Free Shares Options, comprise the aggregate purchase consideration of $45.9 million as of the Acquisition Date.
Management estimated the fair value of tangible and intangible assets and liabilities in accordance with the applicable accounting guidance for business combinations and utilized the services of third-party valuation consultants. Balances subject to adjustment primarily include the valuations of acquired assets (tangible and intangible), liabilities assumed, as well as tax-related matters. During the measurement period, the Company may record adjustments to the provisional amounts recognized. There were no adjustments to the provisional values subsequent to the Acquisition Date.
The acquisition of TxCell was accounted for as a business combination in accordance with ASC Topic 805, Business Combinations . The operating results of TxCell after the Acquisition Date have been included in the Company’s Condensed Consolidated Statements of Operations. In June 2019, TxCell became a sociéte par actions simplifiée (S.A.S.) and was renamed “Sangamo Therapeutics France.”
Fair Value Estimate of Assets Acquired and Liabilities Assumed
Under ASC Topic 805, an acquirer recognizes and consolidates assets acquired, liabilities assumed, and any non-controlling interest at 100% of their fair values as of the acquisition date (regardless of the acquirer’s percentage ownership in the acquiree). As goodwill is calculated as a residual, all goodwill of the acquired business, not just the acquirer’s share, is recognized under this “full-goodwill” approach. Recognized goodwill is allocated between the controlling and non-controlling interests. Although this allocation is not presented separately on the acquirer’s balance sheet, it is necessary so that a goodwill impairment charge recognized in a period following the business combination by an acquirer is appropriately allocated between controlling and non-controlling interests. There were no goodwill impairments during the six months ended June 30, 2019 or during 2018 and, as noted below, substantially all of the non-controlling interest on the Acquisition Date was subsequently acquired by the Company and, accordingly, substantially all of the goodwill is allocated to the Company as of June 30, 2019 and December 31, 2018 .

25


The following table summarizes the estimated fair value of the net assets acquired as of the Acquisition Date (in thousands):
 
October 1, 2018
Consideration transferred
$
45,911

Fair value of non-controlling interest
35,829

Fair value of TxCell
$
81,740

 
 
Cash
$
4,779

Current assets
2,427

Property and equipment
1,857

IPR&D
55,019

Other assets
155

Current liabilities
(9,761
)
Assumed debt liabilities
(4,933
)
Deferred tax liability, net
(6,798
)
Fair value of net identifiable assets acquired
42,745

Goodwill
38,995

Total fair value of net assets acquired
$
81,740


Consideration Transferred
Consideration transferred as of October 1, 2018 consisted of the 13,519,036 TxCell Ordinary Shares acquired by the Company on the Acquisition Date of approximately $2.99 per share, the $5.2 million TxCell Loan and approximately $0.2 million for the fair value of the Free Shares Options.
Non-controlling Interest
The fair value of the non-controlling interest at the Acquisition Date was based on the $2.99 acquisition price per share for the 11,981,867 Ordinary Shares that were not purchased by the Company on the Acquisition Date.
On November 1, 2018, pursuant to the TOA, the Company commenced a cash tender offer (the “Offer”) to acquire all of the TxCell Ordinary Shares not held by the Company for the same per share price paid in the Block Transaction. Following the completion of the Offer on November 23, 2018, the Company initiated compulsory squeeze-out procedures applicable to French public companies to acquire the remaining TxCell Ordinary Shares, other than the free shares that were subject to the Free Shares Options. Subsequent to the Acquisition Date and through December 31, 2018 , the Company acquired 11,528,635  TxCell Ordinary Shares which, when aggregated with the 13,519,036 Ordinary Shares acquired at the Acquisition Date, resulted in the Company owning 98.2% of all TxCell Ordinary Shares as of December 31, 2018 . The 11,528,635 shares acquired subsequent to the Acquisition Date were acquired for total consideration of approximately $33.9 million , or $2.94 per share. As of December 31, 2018 , the aggregate purchase consideration was approximately $80.4 million through the completion of this purchase, with approximately 453,000 Ordinary Shares (vested free shares), which remain outstanding and are subject to purchase by the Company as noted above, with an estimated fair value of approximately $0.6 million as of June 30, 2019 .
Non-controlling interest as of June 30, 2019 was as follows (in thousands):
Non-controlling interest at January 1, 2018
$

Non-controlling interest at Acquisition Date
35,829

Shares acquired post acquisition
(34,516
)
Non-controlling interest of acquired entity
1,313

Foreign currency effect
(19
)
Loss attributable to non-controlling interest
(555
)
Non-controlling interest at December 31, 2018
739

Loss attributable to non-controlling interest
(125
)
Non-controlling interest at June 30, 2019
$
614




26



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,” “intend,” “plan,” “will” 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 our actual results, performance or achievements, 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” in Part II, Item 1A of this Quarterly Report on Form 10-Q. 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, 2018 , or the 2018 Annual Report, as filed with the Securities and Exchange Commission, or SEC, on March 1, 2019.
Overview
We are a clinical stage biotechnology company focused on translating ground-breaking science into genomic medicines with the potential to transform patients’ lives using our platform technologies in gene therapy, ex vivo gene-edited cell therapy, in vivo genome editing and gene regulation.
Our strategy is to maximize the value and therapeutic use of our technology platforms. In certain therapeutic areas we intend to capture the value of our proprietary gene therapy and genome editing products by forward integrating into manufacturing, development and commercial operations. In other therapeutic areas we intend to partner with biopharmaceutical companies to develop products as appropriate. Decisions to partner product candidates or not will be based on the best way to bring new medicines to patients and on an evaluation of our capacity to bring such products to commercial stage rapidly and efficiently on our own. For our proprietary clinical development programs, we are focused on three therapeutic areas: inherited metabolic diseases, or IMDs, central nervous system diseases and inflammatory and autoimmune diseases.
We are a leader in the research and development of zinc finger proteins, or ZFPs, a naturally occurring class of proteins found in humans. We have used our knowledge and expertise to develop a proprietary technology platform in both genome editing and gene regulation. ZFPs can be engineered to make zinc finger nucleases, or ZFNs, proteins that can be used to specifically modify DNA sequences by adding or knocking out specific genes, or genome editing, and ZFP transcription factors, or ZFP TFs, proteins that can be used to increase or decrease gene expression, or gene regulation. In the process of developing this platform, we have accrued significant scientific, manufacturing and development capabilities and know-how that are generally applicable in the broader field of gene therapy and have capitalized this knowledge into a conventional gene therapy platform.
We have a substantial intellectual property position including the design, selection, manufacture, composition and use of engineered ZFPs, CAR-Tregs and cell therapies to support our research and development activities. We continue to license and file new patent applications that strengthen our patent portfolio. We believe that our intellectual property position is a critical element in our ability to research, develop, manufacture and commercialize gene therapy, ex vivo gene-edited cell therapy, in vivo genome editing and gene regulation products and services.
Gene therapy programs
We are conducting the Phase 1/2 Alta study, an open-label, ascending-dose clinical trial to evaluate investigational SB-525 gene therapy for severe hemophilia A. SB-525 is being developed under global collaboration with Pfizer Inc., or Pfizer, for the research, development and commercialization of gene therapy product candidates for hemophilia A. Under this agreement, we are responsible for conducting the Phase 1/2 clinical trial and certain manufacturing activities for SB-525, while Pfizer is responsible for subsequent worldwide development, manufacturing, marketing and commercialization of SB-525.
In July 2019, we and Pfizer announced updated initial data from 10 patients treated in the Alta study. Across the four dosage cohorts evaluated, patients demonstrated a dose-dependent increase in Factor VIII, or FVIII, levels, and a dose-dependent reduction in the use of FVIII replacement therapy was also observed, with patients in the highest dose cohort not requiring factor replacement therapy after initial use of prophylactic factor and experiencing no bleeding events as of the data cut-off date. For the four patients in the highest dose (3e13 vg/kg) cohort, FVIII activity data were available through 24, 19, 6, and 4 weeks of follow-up, respectively. The first two patients treated in the 3e13 vg/kg cohort (Patients 7 and 8) remained in the normal range, as measured using a chromogenic assay, through 24 and 19 weeks of follow-up, respectively. The next two patients in the 3e13 vg/

27


kg cohort (Patients 9 and 10), with 6 and 4 weeks of follow-up, respectively, demonstrated rapid FVIII activity kinetics that appear consistent with Patients 7 and 8 at similar early time points. SB-525 was generally well-tolerated, with one patient (treated with the 3e13 vg/kg dose) reporting a treatment-related serious adverse event of hypotension and fever, which occurred following vector infusion and resolved with treatment within 24 hours of completion of vector infusion. The fifth patient in the 3e13 vg/kg cohort (Patient 11) was treated in July 2019.
Based on the accumulating results from the Alta study, the U.S. Food and Drug Administration, or FDA, has granted regenerative medicine advanced therapy, or RMAT, designation for SB-525 gene therapy to treat severe hemophilia A. RMAT designation is granted to regenerative medicine therapies intended to treat, modify, reverse, or cure a serious condition, for which preliminary clinical evidence indicates that the medicine has the potential to address an unmet medical need. The RMAT designation includes all the benefits of the fast track and breakthrough therapy designation programs, including early interactions with the FDA.
We are currently working with Pfizer on plans to advance SB-525 to a registrational study. Pfizer will assume responsibility for SB-525 late-stage development and manufacturing and we have initiated the transfer of the SB-525 manufacturing process to Pfizer.
We are also evaluating our wholly-owned investigational ST-920 gene therapy for Fabry disease, an inherited metabolic disease. An investigational new drug application, or IND, was accepted by the FDA in February 2019. We have activated the first clinical site for a Phase 1/2 clinical trial and expect to treat the first subject in the study by the end of 2019.
Ex vivo gene edited cell therapy programs
We are conducting the Phase 1/2 THALES study, an open-label, single arm clinical trial to evaluate the safety and efficacy of ST-400 in up to six subjects with beta thalassemia. ST-400 is an ex vivo gene-edited beta thalassemia cell therapy that involves gene editing of a patient’s own hematopoietic stem progenitor cells using non-viral delivery of ZFN technology. ST-400 is being developed in collaboration with Sanofi Genzyme, or Sanofi, to research, develop and commercialize therapeutic gene-edited cell therapy products in hemoglobinopathies, including beta thalassemia and sickle cell disease, or SCD. Sanofi is responsible for subsequent development, manufacturing and commercialization of licensed products. The collaboration includes a related program evaluating BIVV003 for the treatment of SCD. BIVV003 uses the same technology as ST-400 and is currently being evaluated in a Phase 1/2 clinical trial conducted by Sanofi.
In April 2019, we announced early preliminary data from the first patient enrolled in the study. Recruitment of this study is ongoing, with four of six patients enrolled. We expect to present preliminary data from the first patients enrolled in the study in the fourth quarter of 2019. Until that time, we are not planning to report additional clinical data from the program. More complete results will become available and presented once enrollment is complete and patients have been followed for a longer period.
In February 2018, we entered into a global collaboration and license agreement with Kite Pharma, Inc., or Kite, a wholly owned subsidiary of Gilead Sciences, Inc., for the research, development and commercialization of potential engineered cell therapies for cancer. In this collaboration, we are working together with Kite on a research program under which we are designing ZFNs and adeno-associated viral vectors, or AAVs, to disrupt and insert certain genes in T-cells and natural killer cells, or NK-cells, including the insertion of genes that encode chimeric antigen receptors, T-cell receptors, and NK-cell receptors directed to mutually agreed targets. Kite is responsible for all clinical development and commercialization of any resulting products and has announced that they expect to initiate a clinical trial evaluating KITE-037, an allogeneic anti-CD19 CAR-T cell therapy, in 2020.
In the fourth quarter of 2018, we completed our acquisition of 98.2% of the outstanding share capital and voting rights of TxCell S.A., or TxCell, which was renamed Sangamo Therapeutics France in June 2019. With the acquisition of TxCell, or the TxCell Acquisition, we believe we can now accelerate our research and development of innovative, personalized T-cell immunotherapies for the treatment of inflammatory and autoimmune diseases with high unmet medical need. In this regard, we expect the TxCell Acquisition will accelerate our entry into the clinic with a CAR-Treg (which is a regulatory T-cell, or Treg, genetically modified with a chimeric antigen receptor, or CAR) therapy. We are evaluating the potential of CAR-Tregs in solid organ transplantation as well as a range of autoimmune diseases, such as multiple sclerosis, rheumatoid arthritis, inflammatory bowel diseases and inflammatory skin diseases. In addition, we intend to use our ZFN gene editing technology to potentially develop next-generation autologous and allogeneic CAR-Treg cell therapies for use in treating autoimmune diseases. In 2019, we anticipate submitting a clinical trial application in Europe for TX-200, an autologous CAR‑Treg cell therapy for the prevention of solid organ transplant rejection.
In vivo genome editing and gene regulation programs
We have three proprietary in vivo genome editing programs being evaluated in Phase 1/2 clinical trials: SB-913 (Mucopolysaccharidosis type II, or MPS II), SB-318 (MPS I), and SB-FIX (hemophilia B). In April 2019, we announced that we expect that no additional patients will be treated with first-generation ZFNs in the SB-913, SB-318 and SB-FIX clinical programs

28


given that clinical benefit has not been demonstrated in analyses conducted to date in the ongoing clinical trials and the expected near-term clinical development of second-generation ZFNs.
We are planning a new clinical trial for SB-913 to treat MPS III to evaluate second-generation ZFNs and other potential modifications to enhance the in vivo delivery of the ZFNs. In vitro preclinical data presented last year showed three potential advantages of second-generation ZFNs for use in the clinic: (1) improvements in efficiency and potency due to structural modifications to the ZFN architecture and expression vector; (2) the ability to function equally well in the patients with a single nucleotide polymorphism, or SNP, in the target locus in the albumin gene (~20% of the population); and (3) improvements in specificity.
We expect to initiate this next clinical trial by year end 2020. We expect to use data from the new study evaluating second generation ZFNs to make a Phase III decision for the SB-913 program and to define the next steps for the SB-318 and SB‑FIX programs.
We also have several preclinical programs evaluating our zinc finger protein transcription factor, or ZFP TF, gene regulation technology. ZFP TFs act at the DNA level to selectively repress or activate the expression of specific genes to achieve a desired therapeutic effect. Gene regulation differs from other genome editing approaches as it is designed to enable precise, robust, and long-term repression of a selected gene following a single administration of AAV and does not cut or modify the target DNA.
In March and April 2019, we presented new preclinical data describing the effects of tau-targeted ZFP TFs, delivered with AAVs in the mouse and nonhuman primate, or NHP, brain. Intrahippocampal ZFP TF delivery to adult mice resulted in more than 80% tau reduction, and intravenous ZFP TF administration reduced tau levels by 50-70% across the entire mouse brain. AAV ZFP TFs targeting tau were administered to the adult NHP hippocampus using real-time MRI-guided stereotaxic infusion. The lowering of tau in the hippocampus and entorhinal cortex of NHP was correlated with the transgene expression levels. The treatment was well tolerated for the duration of the study. We believe that together, these preclinical data from mice and NHPs highlight the potential for a single administration of ZFP TF to lower tau as a treatment for tauopathies, including Alzheimer’s disease.
In December 2017, we entered into a research collaboration and license agreement with Pfizer for the development and commercialization of potential gene therapy products that use ZFP TFs to treat amyotrophic lateral sclerosis, or ALS, and frontotemporal lobar degeneration, or FTLD, linked to mutations of the C9ORF72 gene. Under this agreement, we are working with Pfizer on a research program to identify, characterize and preclinically develop ZFP TFs that satisfy pre-agreed criteria. Pfizer is responsible for subsequent development, manufacturing and commercialization of licensed products.
Our revenues have consisted primarily of revenues from our corporate partners, contractual payments from strategic partners for research services and milestones and research grant funding. We expect revenues to 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.
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, revenues from corporate collaborations and research grants.
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 gene therapy and our genome editing programs in the clinic and, if we are able, to progress our earlier stage product candidates into clinical trials. Pursuant to the terms of the agreements with Kite and Sanofi, certain expenses related to research and development activities will be reimbursed to us. The reimbursement funds to be received from Kite and Sanofi will be recognized as revenue as the costs are incurred and collection is reasonably assured.
Comparability
We adopted Accounting Standards Codification Topic 842 —Leases , or ASC Topic 842, on January 1, 2019, resulting in changes to our accounting policy for leases. We used the modified retrospective approach and recognized the cumulative effect of initially applying ASC Topic 842 as an adjustment to the opening balances of the lease related accounts and accumulated deficit at January 1, 2019. Accordingly, comparative information has not been adjusted and continues to be reported under previous accounting standards. Refer to Note 1 in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information and details on lease related accounts impacted by ASC Topic 842.
Critical Accounting Estimates
The accompanying discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements and the related disclosures, which have been prepared in accordance with accounting

29


principles generally accepted 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 condensed 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. Except for the change in estimate for revenue reversal related to our Pfizer agreement as described in Note 1, Item 1 of this Quarterly Report on Form 10-Q, and for the change to our accounting policy for leases as a result of adopting ASC Topic 842, there have been no significant changes in our critical accounting policies and estimates disclosed in our 2018 Annual Report, as filed with the SEC on March 1, 2019.
Results of Operations for the Three and Six Months Ended June 30, 2019 and 2018
Revenues
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
(in thousands, except percentage values)
 
(in thousands, except percentage values)
 
2019
 
2018
 
Change
 
%
 
2019
 
2018
 
Change
 
%
Revenues
$
17,548

 
$
21,416

 
$
(3,868
)
 
(18%)
 
$
25,619

 
$
34,053

 
$
(8,434
)
 
(25%)
Total revenues consisted of revenues from collaboration agreements and research grants. We anticipate revenues over the next several years will be derived primarily from our collaboration agreements with Kite, Pfizer and Sanofi as we continue to recognize in revenues upfront and milestone payments received under such agreements over time.
The decrease of $3.9 million in revenues for the three months ended June 30, 2019 , compared to the same period in 2018 , was primarily due to a decrease of $3.7 million in revenues related to our agreements with Pfizer due to a change in estimate as a result of the expansion of the project scope in 2019, and a $1.5 million decrease in revenues related to Sanofi, partially offset by an increase of $1.5 million in revenue related to our agreement with Kite, which took effect in April 2018.
The decrease of $8.4 million in revenues for the six months ended June 30, 2019 , compared to the same period in 2018 , was primarily attributable to a decrease of $14.2 million in revenues related to the hemophilia A Pfizer Agreement due to a change in estimate and a $3.9 million decrease in revenues related to our agreement with Sanofi, partially offset by an increase of $9.9 million in revenue related to our agreement with Kite, which took effect in April 2018.
Operating Expenses
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
(in thousands, except percentage values)
 
(in thousands, except percentage values)
 
2019
 
2018
 
Change
 
%
 
2019
 
2018
 
Change
 
%
Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Research and development
$
36,455

 
$
29,255

 
$
7,200

 
25%
 
$
71,305

 
$
52,802

 
$