Quarterly Report (10-q)

Date : 05/08/2019 @ 9:39PM
Source : Edgar (US Regulatory)
Stock : Sangamo Therapeutics, Inc. (SGMO)
Quote : 11.76  -0.24 (-2.00%) @ 4:11PM

Quarterly Report (10-q)

Ion

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 March 31, 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)

 

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       No  

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       No  

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

 

 

 

 

Non-accelerated filer

  

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.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes       No  

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

As of May 3, 2019, 115,361,866 shares of the issuer’s common stock, par value $0.01 per share, were outstanding.

 

 

 

 


 

INDEX

SANGAMO THERAPEUTICS, INC.

 

PART I. FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements (Unaudited)

4

 

Condensed Consolidated Balance Sheets at March 31, 2019 and December 31, 2018

4

 

Condensed Consolidated Statements of Operations for the Three Months Ended
March 31, 2019 and 2018

5

 

Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended
March 31, 2019 and 2018

6

 

Condensed Statements of Stockholders’ Equity for the Three Months Ended March 31, 2019 and 2018

7

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2019 and 2018

8

 

Notes to Condensed Consolidated Financial Statements

9

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

25

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

30

Item 4.

Controls and Procedures

30

 

 

PART II. OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

32

Item 1A

Risk Factors

32

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

65

Item 3.

Defaults Upon Senior Securities

65

Item 4.

Mine Safety Disclosures

65

Item 5.

Other Information

65

Item 6.

Exhibits

65

 

 

SIGNATURES

66

 

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 TxCell S.A.

ZFP Therapeutic ® , Engineering Genetic Cures ® , and Pioneering Genetic Cures ® are registered trademarks of Sangamo Therapeutics, Inc. A ny 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 ZFP technology platform, including our ability to effectively deliver our ZFNs and ZFP TFs to produce a beneficial therapeutic effect;

 

the benefits of the acquisition of TxCell S.A.;

 

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. FINAN CIAL INFORMATION

 

ITEM 1.

FINANCIAL STATEMENTS

SANGAMO THERAPEUTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited; in thousands)

 

 

 

March 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

80,968

 

 

$

140,418

 

Marketable securities

 

 

270,028

 

 

 

259,715

 

Interest receivable

 

 

594

 

 

 

375

 

Accounts receivable

 

 

7,311

 

 

 

4,673

 

Prepaid expenses and other current assets

 

 

3,727

 

 

 

5,340

 

Total current assets

 

 

362,628

 

 

 

410,521

 

Property and equipment, net

 

 

18,281

 

 

 

78,723

 

Intangible assets

 

 

53,170

 

 

 

54,243

 

Goodwill

 

 

39,283

 

 

 

40,044

 

Operating lease right-of-use assets

 

 

28,190

 

 

 

 

Prepaid rent

 

 

33,559

 

 

 

 

Other non-current assets

 

 

4,118

 

 

 

3,364

 

Non-current restricted cash

 

 

3,500

 

 

 

3,500

 

Total assets

 

$

542,729

 

 

$

590,395

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

30,135

 

 

$

21,457

 

Accrued compensation and employee benefits

 

 

6,168

 

 

 

9,490

 

Deferred revenues

 

 

54,824

 

 

 

47,564

 

Total current liabilities

 

 

91,127

 

 

 

78,511

 

Deferred revenues, non-current

 

 

100,639

 

 

 

108,273

 

Long-term portion of lease liabilities

 

 

13,299

 

 

 

27,689

 

Deferred income tax

 

 

6,572

 

 

 

6,705

 

Other non-current liabilities

 

 

1,911

 

 

 

1,960

 

Total liabilities

 

 

213,548

 

 

 

223,138

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Preferred stock

 

 

 

 

 

 

Common stock

 

 

1,023

 

 

 

1,022

 

Additional paid-in capital

 

 

934,112

 

 

 

929,632

 

Accumulated deficit

 

 

(603,949

)

 

 

(562,696

)

Accumulated other comprehensive loss

 

 

(2,691

)

 

 

(1,440

)

Total Sangamo Therapeutics Inc. stockholders' equity

 

 

328,495

 

 

 

366,518

 

Non-controlling interest

 

 

686

 

 

 

739

 

Total stockholders' equity

 

 

329,181

 

 

 

367,257

 

Total liabilities and stockholders' equity

 

$

542,729

 

 

$

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

 

 

 

March 31,

 

 

 

2019

 

 

2018

 

Revenues

 

$

8,071

 

 

$

12,637

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

34,850

 

 

 

23,547

 

General and administrative

 

 

17,118

 

 

 

10,087

 

Total operating expenses

 

 

51,968

 

 

 

33,634

 

Loss from operations

 

 

(43,897

)

 

 

(20,997

)

Interest and other income, net

 

 

1,694

 

 

 

810

 

Net loss

 

 

(42,203

)

 

 

(20,187

)

Net loss attributable to non-controlling interest

 

 

(53

)

 

 

 

Net loss to Sangamo Therapeutics, Inc. stockholders

 

$

(42,150

)

 

$

(20,187

)

Basic and diluted net loss per share attributable to Sangamo

   Therapeutics, Inc. stockholders

 

$

(0.41

)

 

$

(0.23

)

Shares used in computing basic and diluted net loss per share attributable to

   Sangamo Therapeutics, Inc. stockholders

 

 

102,270

 

 

 

86,334

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

5


 

SANGAMO THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited; in thousands)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2019

 

 

2018

 

Net loss

 

$

(42,203

)

 

$

(20,187

)

Foreign currency translation adjustment

 

 

(1,504

)

 

 

 

Change in unrealized gain (loss) on available-for-sale securities

 

 

253

 

 

 

(99

)

Comprehensive loss

 

 

(43,454

)

 

 

(20,286

)

Comprehensive loss attributable to non-controlling interest

 

 

(53

)

 

 

 

Comprehensive loss attributable to Sangamo Therapeutics, Inc.

 

$

(43,401

)

 

$

(20,286

)

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

6


 

SANGAMO THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited; in thousands, except share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional

 

 

 

 

 

 

Other

 

 

Non-

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

Paid-in

 

 

Accumulated

 

 

Comprehensive

 

 

Controlling

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income (Loss)

 

 

Interest

 

 

Equity

 

Balances at December 31, 2018

 

 

102,187,471

 

 

$

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

 

 

141,281

 

 

 

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

 

 

102,328,752

 

 

$

1,023

 

 

$

934,112

 

 

$

(603,949

)

 

$

(2,691

)

 

$

686

 

 

$

329,181

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional

 

 

 

 

 

 

Other

 

 

Non-

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

Paid-in

 

 

Accumulated

 

 

Comprehensive

 

 

Controlling

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income (Loss)

 

 

Interest

 

 

Equity

 

Balances at December 31, 2017

 

 

85,598,534

 

 

$

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

 

 

1,442,674

 

 

 

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

 

 

87,041,208

 

 

$

870

 

 

$

696,429

 

 

$

(514,549

)

 

$

(385

)

 

$

 

 

$

182,365

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

7


 

SANGAMO THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; in thousands)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2019

 

 

2018

 

Operating Activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(42,203

)

 

$

(20,187

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

715

 

 

 

588

 

Amortization of discount on marketable securities

 

 

(1,238

)

 

 

(459

)

Gain on free shares

 

 

(545

)

 

 

 

Stock-based compensation

 

 

4,523

 

 

 

3,050

 

Build-to-suit leases

 

 

 

 

 

217

 

Net loss on lease termination

 

 

218

 

 

 

 

Other

 

 

44

 

 

 

 

Net changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Interest receivable

 

 

(219

)

 

 

(133

)

Accounts receivable

 

 

(2,638

)

 

 

(232

)

Prepaid expenses and other assets

 

 

1,152

 

 

 

(1,334

)

Operating lease right-of-use assets

 

 

782

 

 

 

 

Prepaid rent

 

 

(12,101

)

 

 

 

Accounts payable and accrued liabilities

 

 

10,183

 

 

 

(77

)

Accrued compensation and employee benefits

 

 

(3,306

)

 

 

(2,268

)

Deferred revenues

 

 

(370

)

 

 

2,701

 

Long-term portion of lease liabilities

 

 

(66

)

 

 

 

Other non-current liabilities

 

 

(50

)

 

 

 

Net cash used in operating activities

 

 

(45,119

)

 

 

(18,134

)

Investing Activities:

 

 

 

 

 

 

 

 

Purchases of marketable securities

 

 

(87,075

)

 

 

(63,401

)

Maturities of marketable securities

 

 

78,253

 

 

 

54,450

 

Purchases of property and equipment

 

 

(5,977

)

 

 

(2,616

)

Net cash used in investing activities

 

 

(14,799

)

 

 

(11,567

)

Financing Activities:

 

 

 

 

 

 

 

 

Taxes paid related to net share settlement of equity awards

 

 

(265

)

 

 

(14

)

Proceeds from issuance of common stock

 

 

481

 

 

 

10,597

 

Net cash provided by financing activities

 

 

216

 

 

 

10,583

 

Effects of changes in foreign exchange rates

 

 

252

 

 

 

 

Net increase in cash, cash equivalents, and restricted cash

 

 

(59,450

)

 

 

(19,118

)

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

 

 

143,918

 

 

 

53,326

 

Cash, cash equivalents, and restricted cash, end of period

 

$

84,468

 

 

$

34,208

 

Supplemental disclosure of non-cash activities:

 

 

 

 

 

 

 

 

Property and equipment included in accrued liabilities

 

$

1,834

 

 

$

1,227

 

Right-of-use assets obtained in exchange for lease obligations

 

$

6,676

 

 

$

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

 

8


 

SANGAMO THERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 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 March 31, 2019, along with proceeds from the underwritten public offering in April 2019 (see Note 11 Subsequent Events ) 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 months ended March 31, 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 three months ended March 31, 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 adjustments are recorded as a component of Accumulated Other Comprehensive Income (Loss) (“AOCI”) within stockholders’ equity.

9


 

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 recor ded 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 and deposits in money market investment accounts.  

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.

Non-current Restricted Cash

Non-current restricted cash consists of a letter of credit for $3.5 million established as a deposit for the Brisbane lease. Non-current restricted cash is included in cash, cash equivalents and restricted cash on the condensed consolidated statements of cash flows.

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.

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 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.

10


 

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. 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 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.

During the three months ended March 31, 2019, total revenue was $8.1 million which included a $3.0 million reduction to revenue related to a change in estimate for the hemophilia A collaboration agreement with Pfizer. This change in estimate was the result of a joint steering committee of Pfizer and Sangamo in March 2019 to increase the project scope and related project cost, which thereby resulted in a decrease in the measure of the proportional performance. For the three months ended March 31, 2019, revenues related to Kite Pharma, Inc. (“Kite”), a wholly-owned subsidiary of Gilead Sciences, Inc., and the hemoglobinopathies agreement with Bioverativ Inc., a Sanofi Genzyme company (“Sanofi”), represented 75%, and 18%, respectively, of the Company’s total revenue, excluding the above revenue reversal. During the three months ended March 31, 2018, revenues related to the Company’s hemophilia A collaboration agreement with Pfizer and the hemoglobinopathies agreement with Sanofi represented 61% and 35%, 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

11


 

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

Revenue Recognition

ASC Topic 606 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most previous revenue recognition guidance, including industry-specific guidance. The main principle of ASC Topic 606 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. The Company adopted ASC Topic 606 effective January 1, 2018, using the modified retrospective method with a cumulative-effect adjustment of $1.1 million reflected as an increase to the opening balance of accumulated deficit and a decrease to deferred revenues.

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 March 31, 2019 and 2018 presented in this Quarterly Report on Form 10-Q. The Company’s adoption of these SEC amendments has 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 2016-02, 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 months ended March 31, 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 the effective date and did not elect the practical expedient pertaining to land easements as this is not applicable to the current contract portfolio.

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The impact of the adoption o f ASC Topic 842 on the accompanying con densed 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. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test of Goodwill Impairment (“ASU 2017-04”). The new guidance simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. ASU 2017-04 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 2017-04 requires prospective application and is effective for annual periods beginning after December 15, 2019. ASU 2017-04 will require the Company to amend its methodology for determining any goodwill impairment beginning in 2020.

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

13


 

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):

 

 

 

March 31, 2019

 

 

 

Fair Value Measurements

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

15,233

 

 

$

15,233

 

 

$

 

 

$

 

Commercial paper securities

 

 

4,990

 

 

 

 

 

 

4,990

 

 

 

 

Total

 

 

20,223

 

 

 

15,233

 

 

 

4,990

 

 

 

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper securities

 

 

180,399

 

 

 

 

 

 

180,399

 

 

 

 

Corporate debt securities

 

 

70,948

 

 

 

 

 

 

70,948

 

 

 

 

U.S. government-sponsored entity debt securities

 

 

18,681

 

 

 

 

 

 

18,681

 

 

 

 

Total

 

 

270,028

 

 

 

 

 

 

270,028

 

 

 

 

Total cash equivalents and marketable securities

 

$

290,251

 

 

$

15,233

 

 

$

275,018

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Free shares asset

 

$

355

 

 

$

 

 

$

 

 

$

355

 

 

 

 

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

 

Total