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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
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SANGAMO BIOSCIENCES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 8731 68-0359556
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR IDENTIFICATION NUMBER) CLASSIFICATION CODE NUMBER)
ORGANIZATION)
501 CANAL BOULEVARD, SUITE A100
RICHMOND, CA 94804
(510) 970-6000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF THE REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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Securities registered pursuant to Section 12(b) of the act: None
Securities registered pursuant to Section 12(g) of the act: Common stock $.01
par value
(TITLE OF CLASS)
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 Exchange 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 / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. / /
The aggregate market value of the voting stock held by non-affiliates of the
Registrant of the Common Stock listed on the NASDAQ Stock Market was
$250,548,818 based on a closing stock price of $11.25 per share on March 15,
2001.
The total number of shares outstanding of the Registrant's Common Stock was
22,271,006 as of March 15, 2001.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Definitive Proxy Statement filed with the
Commission pursuant to Regulation 14A in connection with the Annual Meeting are
incorporated herein by reference into Part III of this Report. Certain Exhibits
filed with the Registrant's Registration Statement on Form S-1 (Registration
No. 000-30171), are incorporated herein by reference into Part IV of this
Report.
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TABLE OF CONTENTS
PAGE
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PART I
Item 1. Business............................................ 3
Item 2. Properties.......................................... 28
Item 3. Legal Proceedings................................... 28
Item 4. Submission of Matters to a Vote of Security
Holders................................................... 28
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters....................................... 29
Item 6. Selected Consolidated Financial Data................ 30
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................. 31
Item 8. Financial Statements and Supplementary Data......... 35
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................. 50
PART III
Item 10. Directors and Executive Officers of the
Registrant................................................ 51
Item 11. Executive Compensation............................. 55
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 55
Item 13. Certain Relationships and Related Transactions..... 55
PART IV
Item 14. Exhibits, Financial Statement Schedules and Report
on Form 8-K............................................... 56
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some statements contained in this prospectus are forward-looking with
respect to our operations, economic performance and financial condition.
Statements that are forward-looking in nature should be read with caution
because they involve risks and uncertainties, which are included, for example,
in specific and general discussions about:
- our strategy;
- sufficiency of our cash resources;
- revenues from existing and new collaborations;
- product development;
- our research and development and other expenses;
- our operational and legal risks; and
- our plans, objectives, expectations and intentions and any other
statements that are not historical facts.
Various terms and expressions similar to them are intended to identify these
cautionary statements. These terms include: "anticipates," "believes,"
"continues," "could," "estimates," "expects," "intends," "may," "plans,"
"seeks," "should" and "will." Actual results may differ materially from those
expressed or implied in those statements. Factors that could cause these
differences include, but are not limited to, those discussed under "Risk
Factors" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations." Sangamo undertakes no obligation to publicly release any
revisions to forward-looking statements to reflect events or circumstances
arising after the date of this report. Readers are cautioned not to place undue
reliance on the forward-looking statements, which speak only as of the date of
this Annual Report.
2
BUSINESS
OVERVIEW
Sangamo is a leader in the research, development, and commercialization of
transcription factors for the regulation of gene expression. Our Universal Gene
Recognition-TM- platform is a proprietary technology based on engineering a
naturally occurring class of transcription factors referred to as zinc finger
DNA-binding proteins, or ZFPs. We believe that Universal Gene Recognition-TM- is
a fundamentally enabling technology, widely applicable to pharmaceutical
discovery, development of human therapeutics, plant agriculture, industrial
biotechnology and clinical diagnostics. We intend to commercialize our
technology broadly over its many applications.
BACKGROUND
GENES AND GENE EXPRESSION. Deoxyribonucleic acid, or DNA, is present in all
cells and is responsible for determining the inherited characteristics of all
living organisms. DNA is arranged on chromosomes in individual units called
genes. Genes encode proteins, which are assembled through the processes of
transcription, whereby DNA is transcribed into ribonucleic acid, or RNA, and
translation, whereby RNA is translated into protein. DNA, RNA, and proteins
represent many of the molecular targets for pharmaceutical drug discovery and
therapeutic intervention.
The human body is composed of specialized cells that perform different
functions and are thus organized into tissues and organs. All cells in an
individual's body contain the same set of genes. However, only a fraction of
these genes are turned on, or expressed, in an individual human cell at any
given time. Genes are turned on or turned off (activated or repressed) in
response to a wide variety of stimuli and developmental signals. Different sets
of genes are expressed in distinct types of cells. It is this pattern of gene
expression that determines the structure, biological function, and health of all
cells, tissues, and organisms. The aberrant expression of certain genes can lead
to disease.
TRANSCRIPTION FACTORS. Regulation of gene expression is controlled by
proteins, called transcription factors, which bind to DNA. A transcription
factor regulates gene expression by recognizing and binding to a specific DNA
sequence associated with a particular gene and causing that gene to be activated
or repressed. In all higher organisms, transcription factors consist of two
components: the first is a DNA-binding element, or domain, that recognizes a
specific DNA sequence and thereby directs the transcription factor to the proper
chromosomal location; the second is a functional domain that determines whether
the gene at that location is activated or repressed.
CHROMATIN ARCHITECTURE. In order to efficiently organize the massive
amounts of genetic information present in every cell, DNA is packaged within a
structure known as chromatin, which renders certain areas of DNA less accessible
than others. One way that cells are able to control chromatin structure, and
make it accessible, is through the action of specific enzymes that target
certain regulatory regions within chromatin. It is through the action of these
enzymes that the chromatin structure within the nucleus is altered, and DNA is
made more or less accessible to transcriptional machinery. Our process for the
identification of ZFP transcription factors that regulate a target gene involves
examining the chromatin structure of the gene to identify regions that are
accessible for binding to ZFP transcription factors.
THE GENOMICS REVOLUTION. Genomics refers to the sequencing and functional
analysis of the complete set of genes of diverse organisms throughout the
animal, plant, and microbial world. Enormous scientific and financial resources
have been dedicated to the sequencing of all human genes, including the Human
Genome Project and other publicly and privately funded genomics initiatives. The
sequence of the human genome was published in 2001.
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Over the past decade, genomics research has produced a significant quantity
of information on the location, sequence, and structure of thousands of genes.
The number of genes in the human genome is currently believed to be
approximately 30,000 unique genes. The challenge facing the pharmaceutical and
other life science industries is how to derive medically and commercially
valuable knowledge about the function of these genes from this large
accumulation of new genomic sequence information.
GENOME-BASED DRUG DISCOVERY AND OTHER APPLICATIONS. The completion of the
sequence of the entire human genome, with its bounty of new genes and potential
drug discovery targets, simultaneously poses a competitive challenge and offers
a significant commercial opportunity for every pharmaceutical company to:
- accelerate the identification of drug targets from thousands of newly
discovered genes whose functions are unknown or poorly understood;
- sort through the hundreds of potential drug targets to confirm those for
which proprietary drugs may be successfully developed;
- increase the accuracy and efficiency of the process by which
pharmaceutical researchers screen large libraries of chemical compounds to
identify those which have therapeutic activity, known as compound
screening; and
- discover new therapeutics that can control disease through the regulation
of genes.
The genomics revolution is also providing the sequences of plant genomes.
Likewise, this poses a similar set of challenges and opportunities to
agricultural biotechnology researchers, including identification of
agriculturally important genes, the assessment of which genes may provide
commercially important traits and the development of improved agrochemicals and
crops. In another application of genomics research, bacteria, yeast and plants
may be used for the biological production of industrial chemicals.
Our technology, which enables the design of transcription factors to
regulate genes, could have significant commercial utility in each of the
applications listed above.
SANGAMO'S UNIVERSAL GENE RECOGNITION-TM- TECHNOLOGY PLATFORM
Our Universal Gene Recognition-TM- platform is a proprietary technology for
the regulation of gene expression. The Sangamo platform combines the engineering
of a class of transcription factors called zinc finger DNA-binding proteins (or
ZFPs) with our knowledge of the chromatin structure of individual target genes.
ZFP transcription factors (or ZFP TFs) have two distinct elements, or domains: a
DNA-recognition domain that directs the transcription factor to the proper
chromosomal location by recognizing a specific DNA sequence, and a functional
domain that causes the gene to be activated or repressed. This two-component
structure of our engineered ZFP TFs is modeled on the structure of naturally
occurring transcription factors in all higher organisms.
Consistent with this two-domain structure, we take a modular approach to the
design of engineered ZFP TFs. The recognition domain is composed of one or more
zinc fingers. Each finger recognizes and binds to a three base pair sequence of
DNA. Multiple fingers can be linked together to recognize longer stretches of
DNA. By modifying those portions of a ZFP that interact with DNA, we believe we
can create new ZFPs capable of recognizing DNA sequences in virtually any gene
whose sequence is known.
The ZFP DNA recognition domain is coupled to a functional domain, creating a
ZFP TF capable of controlling or regulating the target gene in a desired manner.
For instance, an activation domain causes a target gene to be turned on.
Alternatively, a repression domain causes the gene to be turned off. It is also
possible to use the ZFP TF in a way that temporarily activates or represses a
gene. This
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conditional regulation of a gene allows the effects of gene expression to be
controlled in a reversible fashion.
An important variable influencing the expression of a specific gene in an
individual cell is the surrounding chromosomal environment. Though every gene
exists within every cell in the human body, only a small percentage of genes are
activated in any given cell. To manage this genetic information efficiently,
nature has evolved a sophisticated system that facilitates access to specific
genes. This system relies on a DNA-protein complex called chromatin to
efficiently package the genetic information that exists within each cell,
thereby making certain genes in certain cells more readily accessible to
transcription factors. By manipulating chromatin, Sangamo scientists have been
able to more effectively access and regulate specific genes. Complementing this
understanding of chromosomal architecture is a growing appreciation of the role
that regulatory DNA sequences play in gene regulation. Regulatory DNA determines
when and how a gene is regulated. By applying our knowledge of this specialized
regulatory machinery, we believe we can more efficiently and predictably control
gene function.
In order to regulate a gene, the ZFP TF must be delivered to a cell. We have
licensed gene transfer technology from Targeted Genetics, Inc. for use with our
Universal GeneTools-TM- in pharmaceutical discovery. We are evaluating this and
other technologies for the delivery of ZFP TFs into cells for IN VITRO and IN
VIVO applications.
To date, we have generated thousands of ZFPs and have tested their affinity,
or tightness of binding, to their DNA target, and their specificity, or
preference for their intended DNA target. We have developed standardized methods
for the design, selection and assembly of ZFPs capable of binding to a wide
spectrum of DNA sequences. We have linked ZFPs to functional domains to create
ZFP TFs and have demonstrated the ability of these ZFP TFs to regulate a number
of commercially important genes. We have also shown that engineered ZFP TFs can
detect discrete changes in the sequences of medically interesting genes.
THE SANGAMO ADVANTAGE
We believe that the unique features of our ZFP TFs will result in important
technical advantages as compared to other technologies. Among the advantages of
our ZFP TF-based approach to gene regulation are:
- ZFP TFs normally regulate genes in all higher organisms;
- ZFPs can be designed to recognize unique DNA sequences, resulting in the
ability to distinguish a single gene within the entire genome;
- ZFP TFs can activate or repress genes, enhancing their versatility;
- ZFP TFs can be used to regulate gene expression in humans, animals,
plants, microbes and viruses; and
- ZFP TFs can themselves be activated and repressed, allowing conditional
and reversible regulation of a gene.
We believe that the technical advantages of Universal Gene Recognition-TM-
create leverage across multiple applications, products, markets, and commercial
partners. While there are multiple market opportunities for our technology, we
are concentrating our internal resources primarily on pharmaceutical discovery
research and human therapeutics. While we also intend to leverage our technology
in the areas of plant agriculture, diagnostics, and industrial biotechnology,
this will be done in conjunction with corporate partners who have an established
commercial focus in those areas.
5
HUMAN THERAPEUTICS
- HUMAN THERAPEUTICS. ZFP-Therapeutics-TM- are transcription factors
developed as pharmaceutical products to treat a broad spectrum of diseases
through the regulation of disease-related genes in the patient.
- MANUFACTURING OF PROTEIN PHARMACEUTICALS. We believe that ZFP-engineered
cell lines can be used in methods for production of commercially relevant
protein pharmaceuticals.
PHARMACEUTICAL DISCOVERY RESEARCH
- DISCOVERY OF NEW GENES AND TARGETS. ZFP TFs can be used to change patterns
of gene expression in cells and to determine the consequences associated
with these changes.
- VALIDATION OF GENE TARGETS. ZFP TFs can be engineered to target a specific
gene which is critical to researchers trying to confirm the validity of
gene targets for drug development.
- ANIMAL MODELS OF HUMAN DISEASES. The reversible expression of ZFP TFs and
the regulation of a specific gene IN VIVO is a desirable feature in animal
models.
- ASSAY DEVELOPMENT. The regulation of multiple genes may be an effective
approach to the engineering of proprietary cells for the screening and
identification of new pharmaceutical product candidates.
AGRICULTURAL AND INDUSTRIAL BIOTECHNOLOGY
- AGRICULTURAL BIOTECHNOLOGY. ZFP TFs can be used to regulate genes in
plants, potentially leading to applications in the identification of plant
genes, agrochemical discovery, and the development of new crops with
enhanced nutritional properties.
- INDUSTRIAL BIOTECHNOLOGY. ZFP TFs may be used to regulate genes in yeast,
other microorganisms and plants which may permit the expanded use of
engineered organisms for the manufacture of industrial chemicals.
DNA DIAGNOSTICS
- SNP DETECTION. The specificity of ZFPs permits the detection of single
base pair differences in DNA, also known as single nucleotide
polymorphisms, or SNPs. We believe SNPs are likely to become increasingly
important in clinical diagnosis to determine an individual's
susceptibility to disease or probable response to drug therapy.
COMMERCIAL APPLICATIONS
We are pursuing commercial applications of our Universal Gene
Recognition-TM- technology in pharmaceutical discovery, therapeutics for the
treatment of human diseases, plant agricultural, industrial biotechnology, and
clinical diagnostics.
SANGAMO'S BUSINESS PLATFORM
UNIVERSAL GENETOOLS-TM- FOR PHARMACEUTICAL DISCOVERY
We are applying Universal GeneTools-TM- to assist pharmaceutical researchers
in their efforts to capitalize on the large accumulation of new genetic
information being generated by the genomics revolution. Among the challenges
that researchers must address are:
- identifying disease-related genes;
- confirming the validity of these genes and their protein products as
appropriate targets for drug discovery by determining the function and
suitability of targets for therapeutic intervention;
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- testing the gene targets in both cell-based and animal-based model
systems; and
- for validated drug targets, screening large collections of chemicals to
identify chemical leads for drug development.
We believe our Universal GeneTools-TM- can accelerate the pace and quality
of genome-based drug discovery at each of these critical steps.
UNIVERSAL GENETOOLS-TM- FOR VALIDATION OF DRUG TARGETS
As the number of genes identified as potential drug targets increases, the
need to rapidly and efficiently confirm their role in disease increases as well.
ZFP TFs are designed to regulate the expression of genes in cells and animals to
determine their role in a particular disease. We, and our Universal
GeneTools-TM- collaborators, have demonstrated the use of ZFP TFs in gene
regulation in multiple cell models of gene expression, and are applying the
technology to validate gene targets in animal models of human disease.
The use of ZFP TFs addresses a number of technical challenges associated
with target validation studies in animals. Typically, animal models are
genetically engineered mice in which a target gene has been disrupted, or
knocked out. Generating a knockout mouse is labor intensive and can take one
year or more. We believe the development time for mice which have been
engineered with ZFP TFs, or ZFP-Transgenic-TM- mice, may be much faster than
standard knockouts. In addition, researchers should gain more information from
ZFP-Transgenic-TM- models because ZFP TFs can themselves be regulated thus
permitting the reversible regulation of a target gene. This conditional control
of genes in ZFP-Transgenic-TM- models should be a distinct advantage over
conventional knockouts for the functional study of genes required during normal
development. If an essential gene is knocked out, the knockout mouse will not
grow to maturity. With ZFP TF gene regulation, however, we believe researchers
will be able to regulate essential genes at virtually any point in the animal's
development. This enables the study of a gene's function in mature animals
without altering the animal's normal development. We are working closely with
some of our Universal GeneTools-TM- collaborators, as well as with academic
collaborators on ZFP-Transgenic-TM- models.
To date, we have entered into Universal GeneTools-TM- agreements with 22
leading pharmaceutical and biotechnology companies or their subsidiaries. These
collaborators are applying our ZFP TFs to the validation of gene targets from
several organisms for drug discovery. ZFP TFs are being incorporated into both
cells and animals for this purpose. We are working with many of these companies
to lay the basis for additional and expanded collaborations and increased market
acceptance of our Universal GeneTools-TM- (see "Corporate
Collaborations--Universal GeneTools-TM- Collaborations").
ZFP-ENGINEERED CELLS FOR IDENTIFICATION OF DRUG CANDIDATES
We, as well as certain Universal GeneTools-TM- collaborators, are
incorporating ZFP TFs into appropriate cell lines for the purpose of screening
chemical compounds for drug discovery. In particular, we are engineering cell
lines that permit the regulation of validated gene targets. Activating a gene
may allow pharmaceutical researchers to increase the sensitivity, or
responsiveness, to a given concentration of test compound in an assay. In
addition, if a response is observed when the gene is both activated or
repressed, it can be concluded that the test compound is not acting through the
protein encoded by that gene and may be showing a false positive result.
We intend to commercialize ZFP-engineered cell lines for screening drug
product candidates by developing relationships with strategic partners in our
Universal GeneTools-TM- business. Cell lines will be engineered and optimized by
Sangamo scientists and transferred to our partners for use in their drug
screening operations.
7
ZFP-THERAPEUTICS-TM-
The promise of genome-based drug discovery includes the increasing supply of
new drug targets, some of which are not amenable to current drug development
approaches. ZFP TFs may offer a highly specific approach to regulation of
disease-related genes. Due to alternative gene splicing, human genes make many
more and different proteins per gene than lower organisms. Because our ZFP TFs
act directly on the endogenous gene, they allow us to control this important
variable. In addition, the regulatory patterns governing human genes are more
complex than those of other organisms. Understanding this regulatory DNA is
important, and Sangamo is a leader in the analysis and utilization of the
regulatory genome. We are developing ZFP-Therapeutics-TM-, for the treatment of
human illnesses such as cardiovascular, infectious and ophthalmic diseases, and
cancer.
CARDIOVASCULAR DISEASE
Cardiovascular disease is the leading cause of death in the United States
with nearly one million deaths annually. Approximately 700,000 Americans undergo
angioplasty (a procedure designed to open coronary blood vessels) each year due
to cardiovascular disease. Approximately 35% of these patients suffer from
restenosis, or partial reclosing of treated blood vessels, and require a second
procedure or more invasive surgery such as coronary bypass.
There is increasing interest in the development of therapeutic approaches to
cardiovascular disease that might stimulate the human body's natural ability to
form new blood vessels. This natural process is called angiogenesis. We have
developed ZFP TFs designed to activate the expression of angiogenic factors
called vascular endothelial growth factors, or VEGFs for this purpose.
We believe an advantage of the ZFP-therapeutic approach is the potential
ability to activate several therapeutically relevant genes by targeting a
conserved DNA sequence in each gene. If successful this may provide a more
effective biological stimulation of angiogenesis. To date we have seen
encouraging preclinical results in two animal models. We are currently planning
more extensive studies in an animal model designed to mimic the human disease
condition. Our VEGF program is unique among approaches being explored by other
companies. Rather than utilize a specific protein or single cDNA clone in which
only a single form of VEGF is administered, we are activating the endogenous
VEGF gene in its many forms. This is a critical difference as VEGF, in its
natural state, has multiple variants that are involved in the normal
physiological response. Our scientists have published research demonstrating
that we can stimulate the production of VEGF splice variants in the same
proportions normally observed in nature. In addition, our researchers are
actively investigating other cardiovascular targets.
REPRESSION OF ANGIOGENESIS FOR CANCER AND DIABETIC RETINOPATHY
In contrast to cardiovascular disease, there are diseases that might benefit
from the inhibition of angiogenesis. Solid tumors require the ingrowth of new
blood vessels if they are to grow beyond a few millimeters in diameter. Tumor
cells frequently signal for additional blood supply by secreting VEGF.
Inhibition of new blood vessel growth with ZFP-Therapeutics-TM- may prevent this
angiogenesis and slow or halt solid tumor growth. Other ZFP TF approaches that
we are investigating involve tumor suppressor genes and activation of immune
stimulants.
Diabetic retinopathy, the leading cause of blindness among diabetics, is the
result of uncontrolled vascularization of the retina and appears to be due to
the over production of angiogenic factors such as VEGF. We believe that ZFP TFs
designed to repress the expression of VEGF and other angiogenic factors may slow
or reverse this process.
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We have designed multiple ZFP TFs designed to repress the expression of the
VEGF gene. These ZFP TFs have shown repression of VEGF expression in cultured
cells derived from primary human tumors. We intend to test this same approach in
animal models of angiogenesis and cancer.
HEPATITIS B VIRAL DISEASE
Hepatitis B Virus, or HBV, is a worldwide health problem and is endemic in
many regions of Asia and Africa. Although HBV infection can generally be
prevented by vaccination, HBV remains a major clinical problem. It is estimated
that there are 400 million chronic HBV carriers worldwide. The consequences of
HBV infection include chronic active hepatitis and liver cirrhosis, the latter
of which is a major cause of death. The risk of liver cancer in HBV carriers is
estimated to be 100 times greater than in uninfected individuals.
Sangamo has designed several candidate ZFP TFs for the repression of HBV
genes and tested these in cell-based models of HBV gene expression and HBV
replication. Preliminary data suggests that some of these ZFP TFs can
efficiently repress HBV gene expression. These proteins are being prepared for
testing in animal models of HBV disease.
COMMERCIALIZATION OF ZFP-THERAPEUTICS-TM-
We plan to develop and commercialize ZFP-Therapeutics-TM- in partnership
with pharmaceutical and biotechnology companies. For certain
ZFP-Therapeutics-TM- we intend to negotiate partnerships with terms that will
provide partners with exclusive rights to the regulation of specific genes,
delineating in exact terms the clinical indications and geographic areas covered
under the agreement. We intend to commence additional therapeutic programs and,
for certain ZFP-Therapeutics-TM-, we intend to retain commercial product rights.
ZFP TRANSCRIPTION FACTORS FOR PLANT AGRICULTURE
The multibillion-dollar agrochemical industry is undergoing a transition to
genome-based product discovery that is parallel to that of the worldwide
pharmaceutical industry. In a relatively recent development, the genomics
revolution has been applied to the sequencing of plant genes from some of the
world's largest commercial crops. We believe that the genomes of most
commercially important plants will be sequenced over the next several years.
Similar to trends in pharmaceutical research, discovery of thousands of plant
genes is creating enormous demand for technologies that can help ascertain gene
function, identify important gene and agrochemical targets and regulate those
genes through improved transgenic plants.
Natural ZFP TFs also regulate genes in plants. The ability to identify and
subsequently regulate the expression of genes with ZFP TFs could lead to the
creation of new plants that may increase crop yields, lower production costs,
resist herbicides, pesticides and plant pathogens, and permit the development of
branded agricultural products with unique nutritional and processing
characteristics. In addition, ZFP TFs may be used to confirm the role of newly
discovered genes in plant growth, metabolism and resistance to pathogens.
ZFP-ENGINEERED CELL LINES FOR THE PRODUCTION OF PHARMACEUTICALS
Protein pharmaceuticals manufactured with genetically modified cells now
account for more than $10 billion in annual worldwide sales. By using ZFP TFs to
activate the expression of endogenous genes encoding therapeutic proteins in
cells, we are able to genetically engineer these cells for new production
methods for protein pharmaceuticals and for the expression of therapeutically
relevant antigens for creation of antibodies.
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ZFPS FOR PHARMACOGENOMICS AND CLINICAL DIAGNOSTICS
Single nucleotide polymorphisms, or SNPs, are DNA sequence variations at
specific chromosomal sites. SNPs have been the subject of increasing research in
recent years. Some SNPs are strongly associated with some disease states,
providing indicators of disease susceptibility and how individual patients might
respond to a particular drug therapy. The pharmaceutical industry is investing
in technology to monitor and record patient SNPs in clinical trials and to
correlate clinical outcomes with SNP status.
We have shown that ZFPs can effectively detect small variations in DNA
sequences and therefore may be used to detect SNPs in clinical samples. Further,
we believe that ZFPs have the potential to eliminate the extensive manipulation
of patient DNA samples, reducing the time and cost, and increasing the accuracy
of diagnostic assays.
We intend to commercialize ZFPs for SNP detection and DNA diagnostics in
conjunction with partners engaged in the development of SNP diagnostic
technology or the manufacturing and marketing of clinical diagnostics.
ZFP TRANSCRIPTION FACTORS FOR INDUSTRIAL BIOTECHNOLOGY
The U.S. chemical industry is undertaking a major strategic initiative to
develop bacterial, fungal, and plant biological systems for the production of
industrial chemicals. This initiative is motivated by considerations of product
performance, capital costs, environmental impact, and dependence on fossil fuels
to provide the raw materials for the production of many chemical intermediates
in the United States and around the world.
A principal challenge in harnessing biological systems for this purpose is
engineering bacterial and fungal cells and plants to achieve predictable and
specific regulation of multiple genes. ZFP TFs may be applicable for this task.
ZFP TFs may prove to be a commercially feasible approach for the engineering
of cells and plants for the biological production of industrial chemicals and
food additives. We intend to seek strategic relationships with corporate
partners in the chemical and food processing industries to develop and
commercialize applications of Universal Gene Recognition-TM- in industrial
biotechnology.
CORPORATE COLLABORATIONS
We intend to apply our ZFP TF technology platform in several commercial
applications where the products provide ourselves and our strategic partners and
collaborators with technical and economic advantages. We have established and
will continue to pursue Universal GeneTools-TM- collaborations and strategic
partnerships with selected pharmaceutical and biotechnology companies to fund
internal research and development activities and to assist in product
commercialization.
EDWARDS LIFESCIENCES STRATEGIC PARTNERSHIP
In January 2000, we announced the initiation of a therapeutic product
development collaboration with Edwards Lifesciences Corporation. Under the
agreement, we have licensed to Edwards on a worldwide, exclusive basis,
ZFP-Therapeutics-TM- for use in the activation of VEGFs and VEGF receptors in
cardiovascular and peripheral vascular diseases. Edwards purchased a $5 million
note that converted, together with accrued interest, into common stock at the
time of our initial public offering at the IPO price. We have received
$1 million in research funding from Edwards, some of which has not yet been
recognized. In March 2000, Edwards purchased a $7.5 million convertible note in
exchange for a right of first refusal for three years to negotiate a license for
additional ZFP-Therapeutics-TM- in cardiovascular and peripheral vascular
diseases. Together with accrued interest, this note converted into common stock
at the time of our initial public offering at the IPO price. We will be
responsible for advancing product
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candidates into preclinical animal testing. Edwards will be responsible for
preclinical development, regulatory affairs, clinical development and the sales
and marketing of the ZFP-Therapeutic-TM- products. In the future, we may receive
up to $26 million in milestone payments in connection with the development and
commercialization of the first product under this agreement. Sangamo will also
receive royalties on product sales. There is no assurance that the companies
will achieve our development and commercialization milestones. Edwards has the
right to terminate the agreement at any time upon 90 days written notice. In the
event of termination, we retain all payments previously received.
UNIVERSAL GENETOOLS-TM- COLLABORATIONS
We began marketing our Universal GeneTools-TM- products to the
pharmaceutical and biotechnology industry in 1998. Our Universal GeneTools-TM-
business is based upon the delivery of an engineered ZFP TF which is capable of
regulating the expression of a gene for which it is specifically designed and
targeted. Since 1998, we have entered into Universal GeneTools-TM-
collaborations with 22 leading pharmaceutical or biotechnology companies or
their subsidiaries.
Our Universal GeneTools-TM- agreements generally contain the following
terms:
- collaborators provide us with the gene target they wish to study and we
design and deliver ZFP TFs designed specifically for that collaborator's
gene target;
- collaborators retain all their rights in confidential gene targets and any
data they generate with our ZFP TFs;
- collaborators must provide us with the DNA sequence for the genes they
wish to regulate;
- in most agreements, we retain the rights to make, use, develop, and sell
any product or service utilizing the ZFP TFs we provide to our
collaborators. In the other agreements, however, our rights are limited,
but we do not regard these limitations as material to our business;
- many of our agreements provide that collaborators make a partial payment
for ZFP TFs during the design stage, and complete their payment after
receipt of the ZFP TFs. The agreements do not provide for milestone or
royalty payments.
To date, we have not licensed any intellectual property rights to our
current Universal GeneTools-TM- collaborators that we believe are material to
our business. Our Universal GeneTools-TM- collaborators are under no obligation
to pursue product development programs with us, to use our technology, or to
purchase any additional product from us. See "Risk Factors--Commercialization of
our technologies depends on strategic partnering with other companies, and if we
are not able to find strategic partners in the future, we may not be able to
develop our technologies or products which could slow our growth and decrease
our revenues."
PLANT AGRICULTURE COLLABORATION
To commercialize ZFP TFs in agricultural biotechnology, we intend to seek
strategic relationships with corporate partners having capabilities in the
research, development and commercialization of agricultural products. In
January 2001, we announced our first plant agriculture collaboration with
Renessen LLC, a joint venture between Cargill and Monsanto Company. Under the
terms of the agreement, Sangamo will receive certain payments, including
research funding and royalties on product sales. In return, Renessen will
receive the right to commercialize ZFP-engineered seeds for specific
applications in the animal feed and processing industries.
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INTELLECTUAL PROPERTY AND TECHNOLOGY LICENSES
Our success and ability to compete is dependent in part on the protection of
our proprietary technology and information. We rely on a combination of patent,
copyright, trademark and trade secret laws, as well as confidentiality
agreements and licensing agreements, to establish and protect our proprietary
rights. We have licensed intellectual property directed to the design, selection
and use of ZFPs and ZFP TFs for gene regulation from the Massachusetts Institute
of Technology, Johnson and Johnson, The Scripps Research Institute and the
Medical Research Council. These licenses grant us rights to make, use and sell
ZFPs and ZFP TFs under seven families of patent filings. All of these patent
families have been filed in the United States and three have been filed
internationally in selected countries. These patent filings have resulted in
four issued U.S. patents to date. We believe these licensed patents and patent
applications include several of the early and important patent filings directed
to design, selection and use of ZFPs and ZFP TFs.
We also have pending twenty families of U.S. patent filings based on
Sangamo's internal research, four of which have been filed internationally in
selected countries to date, directed to improvements in the design and use of
ZFPs and ZFP TFs. We have also licensed five issued U.S. patents directed to
hybrid DNA-binding proteins in which a DNA-binding domain is linked to a
detection domain for diagnostic purposes. In the aggregate, we believe that our
licensed patents and patent applications, as well as the pending Sangamo patent
applications, will protect the commercial development of ZFPs and ZFP TFs. If we
are successful in the development and commercialization of our products, we will
be obligated by our license agreements to make milestone and royalty payments to
some or all of the licensors mentioned above. We believe that total payments
under these agreements over the next three years should not exceed $1 million.
For risks associated with our intellectual property, see "Risk Factors--Because
it is difficult and costly to protect our proprietary rights, and third parties
have filed patent applications that are similar to ours, we cannot ensure the
proprietary protection of our technologies and products." We plan to continue to
license and to internally generate intellectual property covering the design,
selection, generation and composition of ZFPs, the genes encoding these proteins
and the application of ZFPs and ZFP TFs in pharmaceutical discovery,
therapeutics for the treatment of human diseases, clinical diagnostics, and
agricultural and industrial biotechnology applications.
Although we have filed for patents on some aspects of our technology, we
cannot assure you that patents will issue as a result of these pending
applications or that any patent that has or may be issued will be upheld.
Despite our efforts to protect our proprietary rights, existing patent,
copyright, trademark and trade secret laws afford only limited protection, and
we cannot assure you that our intellectual property rights, if challenged, will
be upheld as valid or will be adequate to protect our proprietary technology and
information. In addition, the laws of some foreign countries may not protect our
proprietary rights to the same extent as do the laws of the United States.
Attempts may be made to copy or reverse engineer aspects of our technology or to
obtain and use information that we regard as proprietary. Our patent filings may
be subject to interferences. Litigation or opposition proceedings may be
necessary in the future to enforce or uphold our intellectual property rights,
to determine the scope of our licenses, or determine the validity and scope of
the proprietary rights of others. The defense and prosecution of intellectual
property lawsuits, United States Patent and Trademark Office interference
proceedings and related legal and administrative proceedings in the United
States and internationally involve complex legal and factual questions. As a
result, these proceedings would be costly and time-consuming to pursue, and
result in diversion of resources. The outcome of these proceedings is uncertain
and could significantly harm our business.
We have received unsolicited invitations to license existing patented
technology from a number of third parties, at least one of which contained an
allegation of infringement. No litigation is being threatened and no license
fees have been proposed. Upon careful analysis of each of these technologies, we
have determined that we already own rights to these technologies or that our
scientific
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and commercial interests would not benefit from the acquisition of rights to
these technologies. Further, we believe that the making, using or selling of our
products and processes need not infringe any claims in the proffered patents.
Accordingly, we have declined to enter into license negotiations with these
parties. We cannot assure you, however, that these parties will not bring future
actions against us, our collaborators or strategic partners alleging
infringement of their patents. As detailed above, the outcome of any litigation,
particularly lawsuits involving biotechnology patents, is difficult to predict
and likely to be costly regardless of the outcome. In these circumstances, i.e.
litigation, the risks of a negative impact on our business can neither be
clearly defined nor entirely eliminated.
In the future, however, third parties may assert patent, copyright,
trademark and other intellectual property rights to technologies that are
important to our business. Any claims asserting that our products infringe or
may infringe proprietary rights of third parties, if determined adversely to us,
could significantly harm our business. Any claims, with or without merit, could
result in costly litigation, divert the efforts of our technical and management
personnel or require us to enter into or modify existing royalty or licensing
agreements, any of which could significantly harm our business. Royalty or
licensing agreements, if required, may not be available on terms acceptable to
us, if at all. See "Risk Factors--Because it is difficult and costly to protect
our proprietary rights, and third parties have filed patent applications that
are similar to ours, we cannot ensure the proprietary protection of our
technologies and products."
COMPETITION
We believe that we are a leader in the field of ZFP TF gene regulation. We
are aware that there are many companies focused on other methods for regulating
gene expression and a limited number of commercial and academic groups pursuing
the development of ZFP gene regulation technology. The field of regulation of
gene expression is highly competitive, and we expect competition to persist and
intensify in the future from a number of different sources, including
pharmaceutical and biotechnology companies, academic and research institutions,
and government agencies that will seek to develop technologies that will compete
with our Universal Gene Recognition technology platform.
Any products that we develop using our Universal Gene Recognition-TM-
technology will participate in highly competitive markets. Many of our potential
competitors in these markets, either alone or with their collaborative partners,
may have substantially greater financial, technical and personnel resources than
we do, and they may succeed in developing technologies and products that would
render our technology obsolete or noncompetitive. In addition, many of those
competitors have significantly greater experience than we do in their respective
fields.
Accordingly, our competitors may succeed in obtaining patent protection,
receiving FDA approval or commercializing ZFP TFs or other competitive products
before us. If we commence commercial product sales, we will be competing against
companies with greater marketing and manufacturing capabilities, areas in which
we have limited or no experience. In addition, any product candidate that we
successfully develop may compete with existing products that have long histories
of safe and effective use.
Competition may also arise from other drug development technologies and
methods of preventing or reducing the incidence of disease, small molecule
therapeutics, or other classes of therapeutic agents.
We expect to face intense competition from other companies for collaborative
arrangements with pharmaceutical, biotechnology, agricultural and chemical
companies, for establishing relationships with academic and research
institutions, and for licenses to proprietary technology. These competitors,
either alone or with their collaborative partners, may succeed in developing
technologies or products that are more effective or less costly than ours.
13
Our ability to compete successfully will depend, in part, on our ability to:
- develop proprietary products;
- develop and maintain products that reach the market first, are
technologically superior to or are of lower cost than other products in
the market;
- attract and retain scientific and product development personnel;
- obtain and enforce patents, licenses or other proprietary protection for
our products and technologies;
- obtain required regulatory approvals; and
- manufacture, market and sell any product that we develop.
GOVERNMENT REGULATION
We have not applied for any regulatory approvals with respect to any of our
technology or products under development. We anticipate that the production and
distribution of any therapeutic or diagnostic products developed, either alone
or with our strategic partners or collaborators, will be subject to extensive
regulation in the United States and other countries. We intend to pursue
therapeutic, diagnostic, agricultural and industrial biotechnology products,
some of which may be subject to different government regulation.
Before marketing in the United States, any pharmaceutical, therapeutic or
diagnostic products developed by us must undergo rigorous preclinical testing
and clinical trials and an extensive regulatory clearance process implemented by
the FDA under the federal Food, Drug and Cosmetic Act. The FDA regulates, among
other things, the development, testing, manufacture, safety, efficacy, record
keeping, labeling, storage, approval, advertising, promotion, sale and
distribution of biopharmaceutical products. The regulatory review and approval
process, which includes preclinical testing and clinical trials of each product
candidate, is lengthy, expensive and uncertain. Securing FDA approval requires
the submission of extensive preclinical and clinical data and supporting
information to the FDA for each indication to establish a product candidate's
safety and efficacy. The approval process takes many years, requires the
expenditure of substantial resources, involves post-marketing surveillance, and
may involve ongoing requirements for post-marketing studies. Before commencing
clinical investigations in humans, we must submit to, and receive approval from,
the FDA of an Investigational New Drug application. We expect to rely on some of
our strategic partners to file Investigational New Drug applications and
generally direct the regulatory approval process for some products developed
using our Universal Gene Recognition-TM- technology.
Clinical testing must meet requirements for:
- institutional review board oversight;
- informed consent;
- good clinical practices; and
- FDA oversight.
Before receiving FDA clearance to market a product, we must demonstrate that
the product is safe and effective on the patient population that will be
treated. If regulatory clearance of a product is granted, this clearance is
limited to those specific states and conditions for which the product is useful,
as demonstrated through clinical studies. Marketing or promoting a drug for an
unapproved indication is generally prohibited. Furthermore, clearance may entail
ongoing requirements for post-marketing studies. Even if this regulatory
clearance is obtained, a marketed product, its manufacturer and its
manufacturing facilities are subject to continual review and periodic
inspections by the FDA. Discovery
14
of previously unknown problems with a product, manufacturer or facility may
result in restrictions on this product or manufacturer, including costly recalls
or withdrawal of the product from the market.
The length of time necessary to complete clinical trials varies
significantly and may be difficult to predict. Clinical results are frequently
susceptible to varying interpretations that may delay, limit or prevent
regulatory approvals. Additional factors that can cause delay or termination of
our clinical trials, or the costs of these trials to increase, include:
- slow patient enrollment due to the nature of the protocol, the proximity
of patients to clinical sites, the eligibility criteria for the study or
other factors;
- inadequately trained or insufficient personnel at the study site to assist
in overseeing and monitoring clinical trials;
- delays in approvals from a study site's review board;
- longer treatment time required to demonstrate effectiveness or determine
the appropriate product dose;
- lack of sufficient supplies of the product candidate;
- adverse medical events or side effects in treated patients; and
- lack of effectiveness of the product candidate being tested.
In addition, the field testing, production and marketing of genetically
engineered plants and plant products are subject to federal, state, local and
foreign governmental regulation. Regulatory action or private litigation could
also result in expenses, delays or other impediments to our product development
programs or the commercialization of resulting products.
The FDA currently applies the same regulatory standards to foods developed
through genetic engineering as applied to foods developed through traditional
plant breeding. Genetically engineered food products, however, will be subject
to premarket review if these products raise safety questions or are deemed to be
food additives. Our products or those of our strategic partners may be subject
to lengthy FDA reviews and unfavorable FDA determinations.
International Biosafety Protocols have been announced in which signatory
states may require that genetically engineered food products be labeled as such.
Additional and more restrictive international or foreign policies may be
developed which further limit our ability to pursue our business plan in
relation to agricultural biotechnology.
Outside the United States, our ability to market a product is contingent
upon receiving a marketing authorization from the appropriate regulatory
authorities. The requirements governing the conduct of clinical trials,
marketing authorization, pricing and reimbursement vary widely from country to
country. At present, foreign marketing authorizations are applied for at a
national level, although within the European Community registration procedures
are available to companies wishing to market a product in more than one EC
member state. If the regulatory authority is presented with adequate evidence of
safety, quality and efficacy they will grant a marketing authorization. This
foreign regulatory approval process involves all of the risks associated with
FDA clearance discussed above.
We intend to consult with, and when appropriate, to hire personnel with
expertise in regulatory affairs to assist us in obtaining appropriate regulatory
approvals as required. We also intend to work with our strategic partners and
collaborators that have experience in regulatory affairs to assist us in
obtaining regulatory approvals for collaborative products. See "Risk
Factors--Our potential therapeutic products are subject to a lengthy and
uncertain regulatory process, and if these potential products are not approved,
we will not be able to commercialize those products" and "--Regulatory approval,
if
15
granted, may be limited to specific uses or geographic areas which could limit
our ability to generate revenues."
EMPLOYEES
As of February 29, 2001, we had 66 full-time employees, 28 of whom hold
Ph.D. degrees and 34 of whom hold other graduate or technical degrees. Of our
total workforce, 58 are engaged in research and development activities and 8 are
engaged in business development, finance and administration. None of our
employees is represented by a collective bargaining agreement, nor have we
experienced work stoppages. We believe that our relations with our employees are
good.
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RISK FACTORS
AN INVESTMENT IN OUR COMMON STOCK IS RISKY. YOU SHOULD CAREFULLY CONSIDER
THE FOLLOWING RISKS, AS WELL AS THE OTHER INFORMATION CONTAINED IN THIS REPORT.
IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCURS, IT WOULD HARM OUR BUSINESS. IN
THAT CASE, THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU MIGHT
LOSE ALL OR A PART OF YOUR INVESTMENT. THE RISKS AND UNCERTAINTIES DESCRIBED
BELOW ARE NOT THE ONLY ONES FACING US. ADDITIONAL RISKS AND UNCERTAINTIES NOT
PRESENTLY KNOWN TO US OR THAT WE CURRENTLY SEE AS IMMATERIAL, MAY ALSO HARM OUR
BUSINESS.
RISKS RELATED TO OUR BUSINESS
OUR GENE REGULATION TECHNOLOGY IS UNPROVEN AND IF WE ARE UNABLE TO USE THIS
TECHNOLOGY IN ALL OUR INTENDED APPLICATIONS, IT WOULD LIMIT OUR REVENUE
OPPORTUNITIES.
Our technology involves new and unproven approaches to gene regulation.
Although we have generated some ZFP TFs for some gene sequences, we have not
created ZFP TFs for all gene sequences and we may not be able to create ZFP TFs
for all gene sequences which would limit the usefulness of our technology. In
addition, while we have demonstrated the function of engineered ZFP TFs in
mammalian cell culture, yeast, insects, plants and animals, we have not done so
in humans and many other organisms, and the failure to do so could restrict our
ability to develop commercially viable products. If we and our Universal
GeneTools-TM- collaborators or strategic partners are unable to extend our
results to new gene sequences and experimental animal models, we may be unable
to use our technology in all its intended applications. Also, delivery of ZFP
TFs into cells in these and other environments is limited by a number of
technical challenges, which we may be unable to surmount.
The utility of our ZFP TFs is in part based on the belief that the
regulation of gene expression may help scientists better understand the role of
human, animal, plant and other genes in drug discovery, as well as therapeutic,
diagnostic, agricultural and industrial biotechnology applications. There is
only a limited understanding of the role of genes in all these fields. Life
sciences companies have developed or commercialized only a few products in any
of these fields based on results from genomic research or the ability to
regulate gene expression. We, our Universal GeneTools-TM- collaborators or our
strategic partners may not be able to use our technology to identify and
validate drug targets or other targets in order to develop commercial products.
IF OUR TECHNOLOGY DOES PROVE TO BE EFFECTIVE, IT STILL MAY NOT LEAD TO
COMMERCIALLY VIABLE PRODUCTS, WHICH WOULD REDUCE OUR REVENUE OPPORTUNITIES.
Even if our Universal GeneTools-TM- collaborators or strategic partners are
successful in identifying drug targets or other targets based on discoveries
made using our ZFP TFs, they may not be able to discover or develop commercially
viable products or may determine to pursue products that do not use our
technology. To date, no company has developed or commercialized any therapeutic,
diagnostic, agricultural or industrial biotechnology products based on our
technology. The failure of our technology to provide safe, effective, useful or
commercially viable approaches to the discovery and development of these
products would significantly limit our business plan and future growth.
INITIAL EVALUATIONS OF OUR ENGINEERED ZFP TFS DELIVERED TO OUR UNIVERSAL
GENETOOLS-TM- COLLABORATORS HAVE PRODUCED MIXED RESULTS.
Some of our Universal GeneTools-TM- collaborators were unable to
substantiate the effects of our gene regulation technology. All reported
failures were re-evaluated at Sangamo using our current approach of examining
the local chromatin structure for accessible sites and then targeting ZFP TFs to
these areas. Consequently, additional ZFP TFs were designed and tested for these
targets, and data was generated at Sangamo, or by our partners, confirming the
ability to regulate these targets. Sangamo now performs this more extensive
validation on all Universal GeneTools-TM- targets prior to use by
17
external parties. However, there can be no assurances that we will be able to
regulate all gene targets. Further, some of our collaborators have not yet
generated the final results of their testing, and no assurances can be given
that our collaborators will be able to achieve the same results we have
demonstrated. These ZFP TFs, or ones engineered in the future, may not function
as intended. If we are unsuccessful in engineering ZFP TFs that achieve positive
results for our collaborators or strategic partners, this would significantly
harm our business by reducing our revenues.
IF OUR COMPETITORS DEVELOP, ACQUIRE OR MARKET TECHNOLOGIES OR PRODUCTS THAT ARE
MORE EFFECTIVE THAN OURS, THIS WOULD REDUCE OR ELIMINATE OUR COMMERCIAL
OPPORTUNITY.
Any products that we or our collaborators or strategic partners develop
using our Universal Gene Regulation-TM- technology platform will participate in
highly competitive markets. Even if we are able to generate ZFP TFs that achieve
useful results, competing technologies may prove to be more effective or less
expensive which would limit or eliminate our revenue opportunities. Competing
technologies may include other methods of regulating gene expression. Universal
Gene Recognition-TM- has broad application in the life sciences, and competes
with a broad array of new technologies and approaches being applied to genetic
research by many companies. Competitive technologies include those used to
analyze the expression of genes in cells or tissues, determine gene function,
discover new genes, analyze genetic information and regulate genes. Our
competitors include biotechnology companies with:
- competing proprietary technology;
- substantially greater capital resources than ours;
- larger research and development staffs and facilities than ours;
- greater experience in product development and in obtaining regulatory
approvals and patent protection; and
- greater manufacturing and marketing capabilities than we do.
These organizations also compete with us to:
- attract qualified personnel;
- attract parties for acquisitions, joint ventures or other collaborations;
and
- license the proprietary technologies of academic and research institutions
that are competitive with our technology which may preclude us from
pursuing similar opportunities.
Accordingly, our competitors may succeed in obtaining patent protection or
commercializing products before us. In addition, any products that we develop
may compete with existing products or services that are well established in the
marketplace.
FAILURE TO ATTRACT, RETAIN AND MOTIVATE SKILLED PERSONNEL AND CULTIVATE KEY
ACADEMIC COLLABORATIONS WILL DELAY OUR PRODUCT DEVELOPMENT PROGRAMS AND OUR
RESEARCH AND DEVELOPMENT EFFORTS.
We are a small company with 66 employees, and our success depends on our
continued ability to attract, retain and motivate highly qualified management
and scientific personnel, and our ability to develop and maintain important
relationships with leading academic and other research institutions and
scientists. Competition for personnel and academic and other research
collaborations is intense. The success of our technology development programs
depends on our ability to attract and retain highly trained personnel. If we
lose the services of personnel with these types of skills, it could impede
significantly the achievement of our research and development objectives. If we
fail to negotiate additional acceptable collaborations with academic and other
research institutions and scientists, or if our existing collaborations are
unsuccessful, our technology development programs may be delayed or may not
succeed.
18
At present the scope of our needs is somewhat limited to the expertise of
personnel who are able to engineer ZFP TFs and apply them to gene regulation. In
the future, we will need to hire additional personnel and develop additional
academic collaborations as we continue to expand our research and development
activities and to work on some of our planned projects because these activities
and projects will require additional expertise in disciplines applicable to the
products we would develop with them. Further, our planned activities will
require existing management to develop additional expertise. We do not know if
we will be able to attract, retain or motivate the required personnel to achieve
our goals.
WE MAY HAVE DIFFICULTY MANAGING OUR GROWTH, WHICH MAY SLOW OUR GROWTH RATE OR
GIVE RISE TO INEFFICIENCIES WHICH WOULD REDUCE OUR PROFITS.
We have recently experienced, and expect to continue to experience, growth
in the number of our employees and the scope of our operating and financial
systems. This growth has resulted in an increase in responsibilities for both
existing and new management personnel. Our ability to manage growth effectively
will require us to continue to implement and improve our operational, financial
and management information systems and to recruit, train, motivate and manage
our employees. We may not be able to manage our growth and expansion, and the
failure to do so may slow our growth rate or give rise to inefficiencies which
would reduce our profits.
WE ARE AT AN EARLY STAGE OF DEVELOPMENT AND MAY NOT SUCCEED OR BECOME
PROFITABLE.
We began operations in 1995 and are at an early stage of development. We
have incurred significant losses to date, and our revenues have been generated
from federal government research grants, Universal GeneTools-TM- collaborators
and a strategic partner. Our Universal GeneTools-TM- collaborators are
evaluating our ZFP TFs. If the ZFP TFs do not provide sufficient value to those
collaborators, then they may not continue to work with us. This may also impair
our ability to attract additional collaborators. As a result, our business is
subject to all of the risks inherent in the development of a new technology,
which includes the need to:
- attract additional new Universal GeneTools-TM- collaborators and strategic
partners and expand existing relationships;
- attract and retain qualified scientific and technical staff and
management, particularly scientific staff with expertise to further apply
and develop our early stage technology;
- attract and enter into research collaborations with academic and other
research institutions and scientists;
- obtain sufficient capital to support the expense of developing our
technology platform and developing, testing and commercializing products;
- develop a market for our products; and
- successfully transition from a company with a research focus to a company
capable of supporting commercial activities.
In addition to competitive pressures, problems frequently encountered with
research, development and commercialization of new technologies and products
will likely affect us. Most of our ZFP TF design and testing procedures take
place on a relatively small scale. In the future, we intend to apply ZFP TF
design and testing procedures at a scale involving hundreds of genes per year.
We may not be able to successfully or efficiently achieve this scale. In
addition, while we have had success in applying ZFP TF gene regulation in our
laboratories, we may have difficulty in transferring our technology to our
collaborators' and strategic partners' laboratories.
19
WE ANTICIPATE CONTINUING TO INCUR OPERATING LOSSES FOR AT LEAST TWO YEARS. IF
MATERIAL LOSSES CONTINUE FOR A LONGER PERIOD, WE MAY BE UNABLE TO CONTINUE OUR
OPERATIONS.
We have generated operating losses since we began operations in 1995. The
extent of our future losses and the timing of profitability are highly
uncertain, and we may not be profitable in the foreseeable future. We have been
engaged in developing our Universal Gene Recognition-TM- technology since
inception, which has and will continue to require significant research and
development expenditures. To date, we have generated our revenues from federal
government research grants, Universal GeneTools-TM- collaboration agreements and
a strategic partnership agreement. As of December 31, 2000, we had an
accumulated deficit of approximately $17.9 million. Even if we succeed in
increasing our current product and research revenue or developing additional
commercial products, we expect to incur losses in the near future and may
continue to incur losses for at least the next two years. These losses may
increase as we expand our research and development activities. If the time
required to generate significant product revenues and achieve profitability is
longer than we currently anticipate, we may not be able to sustain our
operations.
WE MAY REQUIRE ADDITIONAL FINANCING. IF WE ARE UNABLE TO OBTAIN THIS FINANCING,
WE WILL BE UNABLE TO DEVELOP OUR TECHNOLOGY AND PRODUCTS.
We do not know whether we will require additional financing, or that, if
acquired, it will be on terms favorable to our stockholders or us. We have
consumed substantial amounts of cash to date and expect capital outlays and
operating expenditures to increase over the next several years as we expand our
infrastructure and research and development activities. We may raise this
financing through public or private financings or additional Universal
GeneTools-TM- collaborations, strategic partnerships or licensing arrangements.
If additional financing becomes necessary in the future, it would likely be at
least tens of millions of dollars.
While we believe our current financial resources should be adequate to
sustain our operations for two years, it is not possible to estimate our
financial requirements thereafter. However, to the extent we concentrate our
efforts on proprietary human therapeutics, we will require FDA approval and
extensive clinical trials of our potential products. This process may cost in
excess of $100 million per product.
FACTORS BEYOND OUR CONTROL COULD CAUSE OUR QUARTERLY RESULTS TO FLUCTUATE.
We believe that period-to-period comparisons of our results of operations
are not necessarily meaningful and should not be relied upon as indicators of
future performance. The variability of receipt of funds from corporate partners,
as well as revenue recognition accounting rules, including the SEC staff
accounting bulletin No. 101, may lead to quarterly fluctuations in our revenue.
We generally operate with limited backlog in our Universal GeneTools-TM-
business because our ZFP TFs are typically designed and engineered as orders are
received. As a result, product sales in any quarter are generally dependent on
orders received and shipped in that quarter. Universal GeneTools-TM- sales are
also difficult to forecast because demand varies substantially from customer to
customer and from period to period. While strategic partnerships may provide us
with committed quarterly research funding, the signing of such deals, and the
subsequently initiation of revenue recognition, is also uncertain.
Due to all of the foregoing factors, it is possible that in one or more
future quarters our results may fall below the expectations of public market
analysts and investors. In such event, the trading price of our common stock
would likely be adversely impacted.
20
OUR UNIVERSAL GENETOOLS-TM- COLLABORATION AGREEMENTS WITH COMPANIES ARE OF
LIMITED SCOPE, AND IF WE ARE NOT ABLE TO EXPAND THE SCOPE OF OUR EXISTING
COLLABORATIONS OR ENTER INTO NEW ONES, OUR REVENUES WILL BE NEGATIVELY IMPACTED
AND OUR RESEARCH INITIATIVES MAY BE SLOWED OR HALTED.
Our Universal GeneTools-TM- collaborations are important to us because they
permit us to introduce our technology to many companies by supplying them with a
specified ZFP TF for a payment without licensing any of our technology. The
collaboration agreements, however, are of limited scope. Under most of our
current Universal GeneTools-TM- collaborations we receive a payment for
supplying ZFP TFs for gene targets specified by the companies. These companies
are not obligated to make continuing payments to us in connection with their
research efforts or to pursue any product development program with us. As a
result, we may not develop long-term relationships with these companies that
could lead to additional revenues. If we are not able to expand the scope of our
existing collaborations or enter into new ones, we may have reduced revenues and
be forced to slow or halt research initiatives.
COMMERCIALIZATION OF OUR TECHNOLOGIES DEPENDS ON STRATEGIC PARTNERING WITH OTHER
COMPANIES, AND IF WE ARE NOT ABLE TO FIND STRATEGIC PARTNERS IN THE FUTURE, WE
MAY NOT BE ABLE TO DEVELOP OUR TECHNOLOGIES OR PRODUCTS, WHICH COULD SLOW OUR
GROWTH AND DECREASE OUR REVENUES.
We expect to rely, to some extent, on our strategic partners to provide
funding in support of our research and to perform some independent research,
preclinical and clinical testing. Our technology is broad based and we do not
currently possess the resources necessary to develop and commercialize potential
products that may result from our technologies, or the resources or capabilities
to complete any approval processes that may be required for the products,
therefore we must enter into additional strategic partnerships to develop and
commercialize products. Of the thousands of ZFP TFs which target specific genes,
our current collaborators and strategic partners are working with less than 100,
therefore in order to fully utilize our ZFP transcriptions factors we would need
a number of new Universal GeneTools-TM- collaborators and strategic partners to
accomplish our research.
We may require significant time to secure additional collaborations or
strategic partners because we need to effectively market the benefits of our
technology to these future collaborators and strategic partners, which uses the
time and efforts of research and development personnel and our management.
Further, each collaboration or strategic partnering arrangement will involve the
negotiation of terms that may be unique to each collaborator or strategic
partner. These business development efforts may not result in a collaboration or
strategic partnership.
If we do not enter into additional strategic partnering agreements, we will
experience reduced revenues and may not develop or commercialize our products.
The loss of our current or any future strategic partnering agreement would not
only delay or terminate the potential development or commercialization of any
products we may derive from our technologies but also delay or terminate our
ability to test ZFP TFs for specific genes. If any strategic partner fails to
conduct the collaborative activities successfully and in a timely manner, the
preclinical or clinical development or commercialization of the affected product
candidates or research programs could be delayed or terminated.
Our existing strategic partnering agreement is, and we would expect any
future arrangement to be based on the achievement of milestones. Under the
strategic partnering agreements, we expect to receive revenue for the research
and development of a therapeutic product based on achievement of specific
milestones. Achieving these milestones will depend, in part, on the efforts of
our strategic partner as well as our own. In contrast, our current Universal
GeneTools-TM- collaboration agreements only pay us to supply ZFP TFs for the
collaborator's independent use, rather than for future results of the
collaborator's efforts. If we or any strategic partner fails to meet specific
milestones, then the strategic partnership can be terminated which could
decrease our revenues.
21
OUR UNIVERSAL GENETOOLS-TM- COLLABORATORS AND STRATEGIC PARTNERS MAY DECIDE TO
ADOPT ALTERNATIVE TECHNOLOGIES OR MAY BE UNABLE TO DEVELOP COMMERCIALLY VIABLE
PRODUCTS USING OUR TECHNOLOGY, WHICH WOULD NEGATIVELY IMPACT OUR REVENUES AND
OUR STRATEGY TO DEVELOP THESE PRODUCTS.
Our collaborators or strategic partners may adopt alternative technologies
of our competitors which could decrease the marketability of our technology.
Because many of our Universal GeneTools-TM- collaborators or strategic partners
are likely to be working on more than one research project, they could choose to
shift their resources to projects other than those they are working on with us.
If they do so, that would delay our ability to test our technology and would
delay or terminate the development of potential products based on our gene
regulation technology. Further, our collaborators and strategic partners may
elect not to develop products arising out of our collaborative and strategic
partnering arrangements or to devote sufficient resources to the development,
manufacturing, marketing or sale of these products. If any of these events
occur, we may not be able to develop our technologies or commercialize our
products.
WE MAY BE UNABLE TO LICENSE GENE TRANSFER TECHNOLOGIES THAT WE MAY NEED TO
COMMERCIALIZE OUR UNIVERSAL GENE RECOGNITION-TM- TECHNOLOGY.
In order to regulate an endogenous gene, the ZFP TF must be delivered to a
cell. We have licensed certain gene transfer technology for use with our
Universal GeneTools-TM- in pharmaceutical discovery. We are evaluating this and
other technologies which may need to be used in the delivery of ZFP TFs into
cells for IN VITRO and IN VIVO applications. However, we may not be able to
license the gene transfer technologies required to develop and commercialize our
Universal Gene Recognition-TM- technology. We have not developed our own gene
transfer technologies and rely on our ability to enter into license agreements
to provide us with rights to the necessary gene transfer technology. The
inability to obtain a license to use gene transfer technologies with entities
which own such technology on reasonable commercial terms, if at all, could delay
or prevent the preclinical evaluation, clinical testing and/or commercialization
of our therapeutic product candidates.
WE INTEND TO CONDUCT PROPRIETARY RESEARCH PROGRAMS TO DISCOVER THERAPEUTIC
PRODUCT CANDIDATES. THESE PROGRAMS INCREASE OUR RISK OF PRODUCT FAILURE, MAY
SIGNIFICANTLY INCREASE OUR RESEARCH EXPENDITURES, AND MAY INVOLVE CONFLICTS WITH
OUR COLLABORATORS AND STRATEGIC PARTNERS.
Conducting proprietary research programs may not generate corresponding
revenue and may create conflicts with our collaborators or strategic partners.
The implementation of this strategy will involve substantially greater business
risks and the expenditure of significantly greater funds than our current
research activities. In addition, these programs will require substantial
commitments of time from our management and staff. Moreover, we have no
experience in preclinical or clinical testing, obtaining regulatory approval or
commercial-scale manufacturing and marketing of therapeutic products, and we
currently do not have the resources or capability to manufacture therapeutic
products on a commercial scale. In order for us to commercialize these products
directly, we would need to develop, or obtain through outsourcing arrangements,
the capability to execute all of these functions, market and sell products. We
do not have these capabilities, and we may not be able to develop or otherwise
obtain the requisite preclinical, clinical, regulatory, manufacturing, marketing
and sales capabilities.
In addition, disagreements with our Universal GeneTools-TM- collaborators or
strategic partners could develop over rights to our intellectual property with
respect to our proprietary research activities. Any conflict with our
collaborators or strategic partners could reduce our ability to enter into
future collaboration or strategic partnering agreements and negatively impact
our relationship with existing collaborators and strategic partners, which could
reduce our revenue and delay or terminate our product development.
22
BECAUSE IT IS DIFFICULT AND COSTLY TO PROTECT OUR PROPRIETARY RIGHTS, AND THIRD
PARTIES HAVE FILED PATENT APPLICATIONS THAT ARE SIMILAR TO OURS, WE CANNOT
ENSURE THE PROPRIETARY PROTECTION OF OUR TECHNOLOGIES AND PRODUCTS.
Our commercial success will depend in part on obtaining patent protection of
our technology and successfully defending these patents against third party
challenges. The patent positions of pharmaceutical and biotechnology companies
can be highly uncertain and involve complex legal and factual questions. No
consistent policy regarding the breadth of claims allowed in biotechnology
patents has emerged to date. Accordingly, we cannot predict the breadth of
claims allowed in patents we own or license.
We are a party to various license agreements that give us rights under
specified patents and patent applications. Our current licenses, and our future
licenses will, contain performance obligations. If we fail to meet those
obligations, the licenses could be terminated. If we are unable to continue to
license these technologies on commercially reasonable terms, or at all, we may
be forced to delay or terminate our product development and research activities.
With respect to our present and any future sublicenses, since our rights
derive from those granted to our sublicensor, we are subject to the risk that
our sublicensor may fail to perform its obligations under the master license or
fail to inform us of useful improvements in, or additions to, the underlying
intellectual property owned by the original licensor.
We are unable to exercise the same degree of control over intellectual
property that we license from third parties as we exercise over our internally
developed intellectual property. We generally do not control the prosecution of
patent applications that we license from third parties; therefore, the patent
applications may not be prosecuted in a timely manner.
The degree of future protection for our proprietary rights is uncertain and
we cannot ensure that:
- we or our licensors were the first to make the inventions covered by each
of our pending patent applications;
- we or our licensors were the first to file patent applications for these
inventions;
- others will not independently develop similar or alternative technologies
or reverse engineer any of our products, processes or technologies;
- any of our pending patent applications will result in issued patents;
- any patents issued or licensed to us or our Universal GeneTools-TM-
collaborators or strategic partners will provide a basis for commercially
viable products or will provide us with any competitive advantages or will
not be challenged and invalidated by third parties;
- we will develop additional products, processes or technologies that are
patentable; or
- the patents of others will not have an adverse effect on our ability to do
business.
Others have filed and in the future are likely to file patent applications
that are similar to ours. We are aware that there are academic groups and other
companies that are attempting to develop technology which is based on the use of
zinc finger and other DNA-binding proteins, and that these groups and companies
have filed patent applications. Several patents have been issued, although
Sangamo has no current plans to use the associated inventions. More
particularly, we are aware of pending patent applications with claims directed
to zinc finger libraries and methods of designing zinc finger DNA-binding
proteins. These applications are not issued patents. If the pending claims were
granted in their present form, however, they could interfere with our right to
commercialize our products and processes. If these or other patents issue, it is
possible that the holder of any patent or patents granted on these applications
may bring an infringement action against our collaborators,
23
strategic partner or us claiming damages and seeking to enjoin commercial
activities relating to the affected products and processes. The costs of
litigating the claim could be substantial. Moreover, we cannot predict whether
our Universal GeneTools-TM-collaborators, strategic partners or we would prevail
in any actions. In addition, if the relevant patent claims were upheld as valid
and enforceable and our products or processes were found to infringe the patent
or patents, we could be prevented from making, using or selling the relevant
product or process unless we could obtain a license or were able to design
around the patent claims. While we believe that our proprietary intellectual
property would give us substantial leverage to secure a cross-license, it is
uncertain that any license required under that patent or patents would be made
available on commercially acceptable terms, if at all. We believe that there may
be significant litigation in the genomics industry regarding patent and other
intellectual property rights which could subject us to litigation. If we become
involved in litigation, it could consume a substantial portion of our managerial
and financial resources.
We rely on trade secrets to protect technology where we believe patent
protection is not appropriate or obtainable. Trade secrets, however, are
difficult to protect. While we require employees, academic collaborators and
consultants to enter into confidentiality agreements, we may not be able to
adequately protect our trade secrets or other proprietary information or enforce
these confidentiality agreements.
Our Universal GeneTools-TM- collaborators, strategic partners and scientific
advisors have rights to publish data and information in which we may have
rights. If we cannot maintain the confidentiality of our technology and other
confidential information in connection with our collaborations and strategic
partnerships, then we may not be able to receive patent protection or protect
our proprietary information. See "Business--Intellectual Property and Technology
Licenses."
OUR POTENTIAL THERAPEUTIC PRODUCTS ARE SUBJECT TO A LENGTHY AND UNCERTAIN
REGULATORY PROCESS, AND IF THESE POTENTIAL PRODUCTS ARE NOT APPROVED, WE WILL
NOT BE ABLE TO COMMERCIALIZE THOSE PRODUCTS.
The FDA must approve any therapeutic and some diagnostic products based on
ZFP TF technology before it can be marketed in the United States. The process
for receiving regulatory approval is long and uncertain, and even if we had a
potential product, this product may not withstand the rigors of testing under
the regulatory approval processes.
Before commencing clinical trials in humans, we must submit and receive
approval from the FDA of an Investigational New Drug Application. Clinical
trials are subject to oversight by institutional review boards and the FDA and
these trials must meet particular conditions, such that they:
- must be conducted in conformance with the FDA's good clinical practice
regulations;
- must meet requirements for institutional review board oversight;
- must meet requirements for informed consent;
- are subject to continuing FDA oversight;
- may require large numbers of test subjects; and
- may be suspended by us or the FDA at any time if it is believed that the
subjects participating in these trials are being exposed to unacceptable
health risks or if the FDA finds deficiencies in the Investigational New
Drug application or the conduct of these trials.
We must also demonstrate that the product is safe and effective in the
patient population that will be treated. Data obtained from preclinical and
clinical activities are susceptible to varying interpretations that could delay,
limit or prevent regulatory clearances. In addition, we may encounter delays or
rejections based upon additional government regulation from future legislation
or administrative action or changes in FDA policy during the period of product
development, clinical trials
24
and FDA regulatory review. Failure to comply with applicable FDA or other
applicable regulatory requirements may result in criminal prosecution, civil
penalties, recall or seizure of products, total or partial suspension of
production or injunction, as well as other regulatory action against our
potential products or us. Additionally, we have no experience in conducting and
managing the clinical trials necessary to obtain regulatory approval.
In addition, we may also require approval from the Recombinant DNA Advisory
Committee, or RAC, which is the advisory board to the National Institutes of
Health, or NIH, focusing on clinical trials involving gene transfer.
We have not submitted an application with the FDA or any other regulatory
authority for any product candidate, and neither the FDA nor any other
regulatory authority has approved any therapeutic, diagnostic, agricultural or
industrial product candidate developed with our technology for commercialization
in the United States or elsewhere.
REGULATORY APPROVAL, IF GRANTED, MAY BE LIMITED TO SPECIFIC USES OR GEOGRAPHIC
AREAS WHICH COULD LIMIT OUR ABILITY TO GENERATE REVENUES.
Regulatory approval may limit the indicated use for which we can market a
product. Further, once regulatory approval for a product is obtained, it and its
manufacturer are subject to continual review. Discovery of previously unknown
problems with a product or manufacturer may result in restrictions on the
product, manufacturer and manufacturing facility, including withdrawal of the
product from the market. In Japan and Europe, regulatory agencies also set or
approve prices.
Even if regulatory clearance of a product is granted, this clearance is
limited to those specific states and conditions for which the product is useful
as demonstrated through clinical trials. We cannot ensure that any therapeutic
product developed by us, alone or with others, will prove to be safe and
effective in clinical trials and will meet all of the applicable regulatory
requirements needed to receive marketing clearance.
Outside the United States, our ability to market a product is contingent
upon receiving a marketing authorization from the appropriate regulatory
authorities so we cannot predict whether or when we would be permitted to
commercialize our product. These foreign regulatory approval processes include
all of the risks associated with FDA clearance described above.
LAWS OR PUBLIC SENTIMENT MAY LIMIT OUR PRODUCTION OF GENETICALLY ENGINEERED
AGRICULTURAL PRODUCTS IN THE FUTURE, AND THESE LAWS COULD REDUCE OUR ABILITY TO
SELL THESE PRODUCTS.
Genetically engineered products are currently subject to public debate and
heightened regulatory scrutiny, either of which could prevent or delay
production of agricultural products. We may develop genetically engineered
agricultural products for ourselves or with our strategic partners. The field
testing, production and marketing of genetically engineered plants and plant
products are subject to federal, state, local and foreign governmental
regulation. Regulatory agencies administering existing or future regulations or
legislation may not allow production and marketing of our genetically engineered
products in a timely manner or under technically or commercially feasible
conditions. In addition, regulatory action or private litigation could result in
expenses, delays or other impediments to our product development programs or the
commercialization of resulting products.
The FDA currently applies the same regulatory standards to foods developed
through genetic engineering as applied to foods developed through traditional
plant breeding. Genetically engineered food products, however, will be subject
to premarket review if these products raise safety questions or are deemed to be
food additives. Governmental authorities could also, for social or other
purposes, limit the use of genetically engineered products created with our gene
regulation technology.
25
Even if we are able to obtain regulatory approval of genetically engineered
products, our success will also depend on public acceptance of the use of
genetically engineered products including drugs, plants and plant products.
Claims that genetically engineered products are unsafe for consumption or pose a
danger to the environment may influence public attitudes. Our genetically
engineered products may not gain public acceptance. The subject of genetically
modified organisms has received negative publicity in Europe, which has aroused
public debate. The adverse publicity in Europe could lead to greater regulation
and trade restrictions on imports of genetically altered products. If similar
adverse public reaction occurs in the United States, genetic research and its
resulting products could be subject to greater domestic regulation and could
decrease the demand for our technology and products.
IF CONFLICTS ARISE BETWEEN US AND OUR COLLABORATORS, STRATEGIC PARTNERS,
SCIENTIFIC ADVISORS OR DIRECTORS, THESE PARTIES MAY ACT IN THEIR SELF-INTEREST,
WHICH MAY LIMIT OUR ABILITY TO IMPLEMENT OUR STRATEGIES.
If conflicts arise between us and our corporate or academic collaborators,
strategic partners or scientific advisors or directors, the other party may act
in its self-interest which may limit our ability to implement our strategies.
Some of our Universal GeneTools-TM- or academic collaborators or strategic
partners are conducting multiple product development efforts within each area
that is the subject of the collaboration with us. Generally, in each of our
collaborations, we have agreed not to conduct independently, or with any third
party, any research that is competitive with the research conducted under our
collaborations. Our collaborations may cause us to limit the areas of research
that we pursue, either alone or with others. Our collaborators or strategic
partners, however, may develop, either alone or with others, products in related
fields that are competitive with the products or potential products that are the
subject of these collaborations. Competing products, either developed by the
collaborators or strategic partners or to which the collaborators or strategic
partners have rights, may result in their withdrawal of support for our product
candidates.
Some of our collaborators or strategic partners could also become
competitors in the future. Our collaborators or strategic partners could develop
competing products, preclude us from entering into collaborations with their
competitors, fail to obtain timely regulatory approvals, terminate their
agreements with us prematurely or fail to devote sufficient resources to the
development and commercialization of products. Any of these developments could
harm our product development efforts.
OUR COLLABORATIONS WITH OUTSIDE SCIENTISTS MAY BE SUBJECT TO CHANGE WHICH COULD
LIMIT OUR ACCESS TO THEIR EXPERTISE.
We work with scientific advisors and collaborators at academic research
institutions. These scientists are not our employees and may have other
commitments that would limit their availability to us. Although our scientific
advisors generally agree not to do competing work, if a conflict of interest
between their work for us and their work for another entity arises, we may lose
their services. Although our scientific advisors and academic collaborators sign
agreements not to disclose our confidential information, it is possible that
some of our valuable proprietary knowledge may become publicly known through
them.
IF WE USE BIOLOGICAL AND HAZARDOUS MATERIALS IN A MANNER THAT CAUSES INJURY OR
VIOLATES LAWS, WE MAY BE LIABLE FOR DAMAGES.
Our research and development activities involve the controlled use of
potentially harmful biological materials as well as hazardous materials,
chemicals and various radioactive compounds. We cannot completely eliminate the
risk of accidental contamination or injury from the use, storage, handling or
disposal of these materials. In the event of contamination or injury, we could
be held liable for damages that result, and any liability could exceed our
resources. We are subject to federal, state and
26
local laws and regulations governing the use, storage, handling and disposal of
these materials and specified waste products. The cost of compliance with these
laws and regulations could be significant.
ANTI-TAKEOVER PROVISIONS IN OUR CERTIFICATE OF INCORPORATION AND DELAWARE LAW
COULD PREVENT A POTENTIAL ACQUIROR FROM BUYING YOUR STOCK.
Anti-takeover provisions of Delaware law, in our certificate of
incorporation and equity benefit plans may make a change in control of our
company more difficult, even if a change in control would be beneficial to our
stockholders. These provisions may allow our board of directors to prevent or
make changes in the management and control of our company. In particular, our
board of directors will be able to issue up to 5,000,000 shares of preferred
stock with rights and privileges that might be senior to our common stock,
without the consent of the holders of the common stock. Further, without any
further vote or action on the part of the stockholders, the board of directors
will have the authority to determine the price, rights, preferences, privileges
and restrictions of the preferred stock. This preferred stock, if it is ever
issued, may have preference over and harm the rights of the holders of common
stock. Although the issuance of this preferred stock will provide us with
flexibility in connection with possible acquisitions and other corporate
purposes, this issuance may make it more difficult for a third party to acquire
a majority of our outstanding voting stock. Similarly, our authorized but
unissued common stock is available for future issuance without stockholder
approval.
In addition, our certificate of incorporation:
- states that stockholders may not act by written consent but only at a
stockholders' meeting;
- establishes advance notice requirements for nominations for election to
the board of directors or proposing matters that can be acted upon at
stockholders' meetings; or
- limits who may call a special meeting of stockholders.
OUR STOCK PRICE MAY BE VOLATILE, WHICH COULD RESULT IN SUBSTANTIAL LOSSES FOR
INVESTORS.
Volatility in the biotechnology market could cause you to incur substantial
losses. An active public market for our common stock may not be sustained and
the market price of our common stock may become highly volatile. The market
prices of securities of biotechnology companies are currently highly volatile.
The market price of our common stock may fluctuate significantly in response to
the following factors, some of which are beyond our control:
- changes in market valuations of similar companies;
- announcements by us or our competitors of new or enhanced products,
technologies or services or significant contracts, acquisitions, strategic
relationships, joint ventures or capital commitments;
- regulatory developments;
- additions or departures of key personnel;
- deviations in our results of operations from the estimates of securities
analysts; and
- future sales of our common stock or other securities.
INSIDERS HAVE SUBSTANTIAL CONTROL OVER SANGAMO AND COULD DELAY OR PREVENT A
CHANGE IN CORPORATE CONTROL.
The interest of management could conflict with the interest of our other
stockholders. Our executive officers, directors and principal stockholders
beneficially own, in the aggregate, sixty-eight percent of our outstanding
common stock. As a result, these stockholders, if they choose to act
27
together, will be able to exercise control over all matters requiring
stockholder approval, including the election of directors and approval of
significant corporate transactions. This could have the effect of delaying or
preventing a change of control of Sangamo, which in turn could reduce the market
price of our stock.
ITEM 2. PROPERTIES
We currently lease approximately 22,000 square feet of research and office
space located at 501 Canal Boulevard in Richmond, California. The leases expire
in 2004. We believe that the facilities we currently lease are sufficient for
approximately the next 24 months.
ITEM 3. LEGAL PROCEEDINGS
We are not a party to any material litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
28
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Our common stock has traded on the NASDAQ National Market under the symbol
"SGMO" since April 6, 2000. The following table sets forth, for the period
indicated, the high and low bid quotations for the common stock as reported by
the NASDAQ National Market.
COMMON STOCK
PRICE
-------------------
HIGH LOW
-------- --------
Year ended December 31, 2000
Second Quarter (commencing April 6, 2000)............... $27.63 $ 7.13
Third Quarter........................................... $49.63 $26.88
Fourth Quarter.......................................... $36.25 $11.13
Year ended December 31, 2001
First Quarter (through March 15, 2001).................. $24.69 $11.00
HOLDERS
As of February 29, 2001 there were approximately 114 stockholders of record
of Sangamo's common stock.
DIVIDENDS
Sangamo has not paid dividends on its common stock, and currently does not
plan to pay any cash dividends in the foreseeable future.
USE OF PROCEEDS FROM THE SALE OF REGISTERED SECURITIES
Sangamo's Registration Statement on Form S-1 with respect to our initial
public offering was declared effective on April 6, 2000. In a public offering
managed by Lehman Brothers, Chase H&Q, ING Barings, and William Blair & Company,
Sangamo registered and sold an aggregate of 3.5 million shares of our common
stock at a public offering price of $15.00 per share for an aggregate offering
of $52.5 million of common stock.
Sangamo received net proceeds of approximately $47.4 million after deducting
offering expenses of $5.1 million including underwriting discounts and
commissions of $3.7 million and other offering expenses of $1.4 million. The
following table sets forth an estimate of all expenses incurred in connection
with the offering, other than underwriting discounts and commissions. All
amounts shown are estimated except for the registration fees of the SEC and the
National Association of Securities Dealers, Inc. ("NASD").
SEC Registration fee........................................ $ 27,800
NASD filing fee............................................. 12,000
NASDAQ National Market listing fee.......................... 95,000
Printing and engraving expenses............................. 400,000
Legal fees and expenses..................................... 500,000
Accounting fees and expenses................................ 300,000
Blue Sky fees and expenses.................................. 10,000
Transfer Agent and Registrar fees........................... 25,000
Miscellaneous............................................... 30,200
----------
Total....................................................... $1,400,000
==========
29
None of the offering expenses represented direct or indirect payments to
directors, officers or general partners of the Sangamo or their associates, to
persons owning 10 percent or more of any class of equity securities of Sangamo
or to affiliates of the Sangamo.
As of March 15, 2001, Sangamo has used the net proceeds from its public
offering of common stock to invest in short-term and long-term, interest
bearing, investment grade securities and has used its existing cash balances to
fund the general operations of the company. Sangamo intends to use the net
proceeds of the offering for research and development and general corporate
purposes and is currently assessing the specific uses and allocations for these
funds. A portion of the net proceeds may also be used to acquire or invest in
complementary business or products or to obtain the right to use complementary
technologies. Sangamo has no agreements or commitments with respect to any such
acquisition or investments and Sangamo is not currently engaged in any material
negotiations with respect to any such transaction. None of the net proceeds of
the offering is expected to be paid directly or indirectly to directors,
officers or general partners of the company or their associates, to persons
owning 10 percent or more of any class of equity securities of the company or to
affiliates of the company.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following Selected Financial Data should be read in conjunction with
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations" and "Item 8. Financial Statements and Supplementary Data"
included elsewhere in this Annual Report on Form 10-K.
SELECTED FINANCIAL DATA
YEAR ENDED DECEMBER 31,
----------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Total revenues.................................. $ 3,433 $ 2,182 $ 2,038 $ 1,152 $ 632
-------- ------- ------- ------- ------
Operating expenses:
Research and development*..................... 11,347 4,266 4,259 1,700 628
General and administrative*................... 4,569 1,822 1,237 797 322
-------- ------- ------- ------- ------
Total operating expenses.................... 15,916 6,088 5,496 2,497 950
-------- ------- ------- ------- ------
Loss from operations............................ (12,483) (3,906) (3,458) (1,345) (318)
Interest income (expense), net.................. 3,417 131 173 (55) 10
-------- ------- ------- ------- ------
Net loss........................................ (9,066) (3,775) (3,285) (1,400) (308)
Deemed dividend upon issuance of convertible
preferred stock............................... (1,500) (4,500) -- -- --
-------- ------- ------- ------- ------
Net loss attributable to common stockholders.... $(10,566) $(8,275) $(3,285) $(1,400) $ (308)
======== ======= ======= ======= ======
Basic and diluted net loss per common share..... $ (0.61) $ (1.38) $ (0.56) $ (0.26) $(0.06)
======== ======= ======= ======= ======
Shares used in computing basic and diluted net
loss per common share......................... 17,383 5,991 5,843 5,485 5,143
======== ======= ======= ======= ======
- ------------------------
* Included in operating expenses were the following deferred compensation
charges for each year (for more information, see section entitled
"Stock-Based Compensation" in footnotes to financial statements):
2000 1999 1998 1997 1996
-------- -------- -------- -------- ----------
DEFERRED COMPENSATION:
Research and development deferred compensation............. $2,885 $275 $202 $ 25 $ --
General and administrative deferred compensation........... 1,967 244 208 352 --
------ ---- ---- ---- ----------
Total deferred compensation............................ $4,852 $519 $410 $377 $ --
====== ==== ==== ==== ==========
30
SELECTED FINANCIAL DATA (CONTINUED)
AS OF DECEMBER 31,
----------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash, cash equivalents and investments............ $ 64,681 $7,503 $ 3,058 $ 6,314 $ 358
Working capital................................... 64,477 7,206 3,161 6,233 434
Total assets...................................... 68,925 9,162 4,032 6,896 539
Long-term debt.................................... -- 250 250 -- --
Accumulated deficit............................... (17,851) (8,785) (5,010) (1,725) (325)
Total stockholders' equity........................ 66,890 7,882 3,404 6,409 434
QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table sets forth certain unaudited quarterly financial data
for the eight quarters ending December 31, 2000. The unaudited information set
forth below has been prepared on the same basis as the audited information and
includes all adjustments necessary to present fairly the information set forth
herein. The operating results for any quarter are not indicative of results for
any future period. All data is in thousands except per common share data.
FISCAL YEAR 1999 FISCAL YEAR 2000
----------------------------------------- -----------------------------------------
Q1 Q2 Q3 Q4 Q1* Q2* Q3 Q4
-------- -------- -------- -------- -------- -------- -------- --------
Revenues................. $ 463 $ 488 $ 630 $ 601 $ 807 $ 747 $ 823 $1,056
Expenses................. 1,491 1,341 1,232 2,024 3,595 3,459 3,928 4,934
Net loss................. (1,007) (835) (578) (1,355) (2,718) (1,725) (1,818) (2,805)
Net loss applicable to
common................. (1,007) (835) (578) (5,855) (4,218) (1,725) (1,818) (2,805)
Net loss per share
attributable to
common**............... (0.17) (0.14) (0.10) (0.96) (0.71) (0.08) (0.08) (0.13)
- ------------------------
* Net loss per share is calculated on the basis of common shares outstanding
at the end of each quarter.
** The company completed its initial public offering on April 6, 2000, and
converted all preferred shares to common on the same day. Accordingly, the
net loss per share beginning in Q2 2000 reflects the additional shares
outstanding as of that date.
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
You should read the following discussion and analysis along with the
"Selected Financial Data" and the financial statements and notes attached to
those statements included elsewhere in this report.
OVERVIEW
We were incorporated in June 1995. From our inception through December 31,
2000, our activities related primarily to establishing a research and
development organization and developing relationships with our corporate
collaborators. We have incurred net losses since inception and expect to incur
losses in the future as we expand our research and development activities. To
date, we have funded our operations primarily through the issuance of equity
securities, borrowings, payments from federal government research grants and
from corporate collaborators and strategic partners. As of December 31, 2000, we
had an accumulated deficit of $17.9 million.
31
Our revenues consist primarily of revenues from our corporate partners for
ZFP TFs, federal government research grant funding, and payments from strategic
partners for committed research funding and research milestone payments.
Research and development expenses consist primarily of salaries and related
personnel expenses, subcontracted research expenses, and technology license
expenses. As of December 31, 2000, all research and development costs have been
expensed as incurred. We believe that continued investment in research and
development is critical to attaining our strategic objectives. We expect these
expenses will increase significantly in the future as we continue to develop our
Universal Gene Recognition-TM- technology platform.
General and administrative expenses consist primarily of salaries and
related personnel expenses for executive, finance and administrative personnel,
professional fees, and other general corporate expenses. As we add personnel and
incur additional costs related to the growth of our business, general and
administrative expenses will also increase.
DEFERRED STOCK COMPENSATION
During the years ended December 31, 2000, 1999 and 1998, in connection with
the grant of stock options to employees and directors, Sangamo recorded deferred
stock compensation totaling $6.8 million, $1.5 million and $780,000,
respectively, representing the difference between the fair value of common stock
on the date such options were granted and the exercise price. These amounts are
included as a reduction of stockholders' equity and are being amortized over the
vesting period of the individual options, generally four years, using an
accelerated vesting method. The accelerated vesting method provides for vesting
of portions of the overall award at interim dates and results in higher vesting
in earlier years than straight-line vesting. The fair value of Sangamo common
stock for purposes of this calculation was determined based on the business
factors underlying the value of common stock on the date such option grants were
made. Sangamo recorded amortization of deferred stock compensation of
$3.8 million, $519,000, and $410,000 for the years ended December 31, 2000, 1999
and 1998, respectively. During the twelve months ended December 31, 2000,
Sangamo also recognized compensation expense related to options granted to
directors and consultants. Such options are valued based on the fair value of
the Sangamo's common stock when the options vest. During the twelve months ended
December 31, 2000, compensation charges of $1.0 million were recorded for
options granted to consultants. At December 31, 2000, Sangamo had a total of
$4.7 million remaining to be amortized over the vesting periods of the employee
stock options.
DEEMED DIVIDEND UPON ISSUANCE OF CONVERTIBLE PREFERRED STOCK
In November 1999, we sold 1,000,000 shares of Series C convertible preferred
stock to an investor for net proceeds of $4.5 million. Subsequent to the
commencement of the initial public offering process, Sangamo re-evaluated the
fair value of its common stock as of November 1999 and determined it to be $6.00
per share. Accordingly, the incremental fair value, limited to the amount of the
proceeds received of $4.5 million, is deemed to be the equivalent of a preferred
stock dividend. Sangamo recorded the deemed dividend at the date of issuance by
offsetting charges and credits to preferred stock, without any effect on total
stockholders' equity. The preferred stock dividend increases the loss applicable
to common stockholders in the calculation of basic net loss per share for the
year ended December 31, 1999.
In January 2000, we sold an additional 333,333 shares of its Series C
convertible preferred stock for net proceeds of $1.5 million and similarly
recorded a deemed dividend of $1.5 million. The preferred stock dividend
increases the loss applicable to common stockholders in the calculation of basic
net loss per share for the year ended December 31, 2000.
32
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
TOTAL REVENUES. Total revenues consisted of revenues from collaboration
agreements, strategic partnerships and federal government research grants.
Revenues from our corporate collaboration and strategic partnering agreements
were $2.7 million in 2000, compared with $1.0 million and $150,000 during 1999
and 1998, respectively. The increase in 2000 was principally attributable to
revenues recognized from a therapeutics partnership signed with Edwards
Lifesciences Corporation in January 2000, as well as incremental Universal
GeneTools-TM- agreements signed during the year. The increase in 1999 was
principally attributable to revenues recognized from collaboration agreements
signed since the third quarter of 1998. We expect revenues from collaboration
agreements and strategic partnerships to continue to increase as additional
agreements are signed or existing agreements are expanded. Federal government
research grant revenues were $688,000 in 2000, $1.2 million in 1999, and
$1.9 million in 1998. The decrease in 2000 and 1999 was principally due to an
increased focus on corporate collaborations as some existing federal research
government grants ended. We plan to continue to apply for federal government
research grants.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses were
$11.3 million for 2000, as compared to $4.3 million for 1999 and 1998. The
increase in 2000 was primarily due to the company increasing its headcount from
31 persons at the end of 1999 to a total of 66 at the end of 2000, thereby
increasing personnel and associated laboratory supply costs. Headcount increases
were predominately for research personnel. Of the total expenses in 2000,
$3.9 million was related to non-cash items, including $2.9 million in deferred
compensation expense, and a $1.0 million charge related to the licensing of
certain in-process technology, as compared to a total of $275,000 and $202,000
in non-cash deferred compensation charges in the same period of 1999 and 1998,
respectively. Research and development expenses were $4.3 million for 1999 and
1998 as reductions in laboratory supplies and equipment expenses were offset by
increases in stock compensation expense. We expect research and development
expenses to increase significantly in future periods, particularly as we
increase the scientific staff to continue to develop the Universal Gene
Recognition-TM- technology and to meet the needs of our Universal GeneTools-TM-
collaborators and strategic partners.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
were $4.6 million in 2000 compared to $1.8 million and $1.2 million for the
years ended December 31, 1999 and 1998, respectively. Included in the total
expenses were non-cash deferred compensation expense of $2.0 million in 2000, as
compared to $244,000 and $208,000 in 1999 and 1998, respectively. The increase
from 1999 to 2000 was due to additional costs associated with being a public
company, as well as incremental personnel costs to support our expanded research
and development activities and development of our Universal Gene Recognition-TM-
technology. The increase from 1998 to 1999 was primarily attributable to
increased staffing costs. We expect that general and administrative expenses
will increase in the future to support continued growth of our research and
development efforts.
INTEREST INCOME (EXPENSE), NET. Interest income (expense), net was
$3.4 million in 2000 as compared to $131,000 and $173,000 in 1999 and 1998,
respectively. The change in net interest income in 2000 reflects the higher cash
balances resulting from our initial public offering and our therapeutics
partnership with Edwards Lifesciences Corporation. The decrease in interest
income between 1998 and 1999 resulted from lower average interest-bearing
balances and higher debt balances during 1999.
We incurred net operating losses in 2000, 1999, and 1998 and consequently we
did not pay any federal, state or foreign income taxes.
33
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations primarily through the sale
of equity securities, federal government research grants, payments from
corporate collaborators and financing activities such as a bank line of credit.
As of December 31, 2000, we had cash, cash equivalents, investments and interest
receivable totaling $64.7 million.
Net cash used in operating activities was $2.6 million for 2000,
$2.5 million for 1999, and $3.2 million in 1998. In all periods, net cash used
in operating activities was primarily due to funding of net operating losses.
Net cash used in investing activities was $49.0 million in 2000,
$6.0 million in 1999, and $2.2 million in 1998. Cash was used during these
periods to purchase investments and property and equipment.
Net cash provided by financing activities during 2000 was $61.3 million,
primarily as a result of the company's initial public offering as well as
proceeds received from its strategic partnership with Edwards Lifesciences
Corporation. Net cash provided by financing activities in 1999 was $7.5 million
as a result of the private placement of preferred stock. Net cash provided by
financing activities in 1998 was $253,000 primarily representing the proceeds
from a bank note payable used to finance equipment purchases.
We believe that the available cash resources, funds received from corporate
collaborators, strategic partners and federal government research grants will be
sufficient to finance our operations for at least two years. We may need to
raise substantial additional capital to fund subsequent operations and there can
be no assurance that such funds will be available on acceptable terms, if at
all.
As of December 31, 2000, we had federal and state net operating loss
carryforwards of approximately $11 million and $400,000, respectively, to offset
future taxable income. We also had federal research and development tax credit
carryforwards of approximately $770,000. If not used, net operating loss and
credit carryforwards will begin to expire in 2010. Use of the net operating
losses and credits may be subject to a substantial annual limitation due to
ownership change limitations provided by the Internal Revenue Code of 1986. The
annual limitation may result in the expiration of our net operating losses and
credits before they can be used. Also, if we do not become profitable, we will
not be able to use these net operating losses and credits.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk for changes in interest rates relates primarily
to our cash equivalents and investments. The investments are available for sale.
We do not use derivative financial instruments in our investment portfolio. We
attempt to ensure the safety and preservation of our invested funds by limiting
default and market risks. Our cash and investments policy emphasizes liquidity
and preservation of principal over other portfolio considerations. We select
investments that maximize interest income to the extent possible within these
guidelines. We satisfy liquidity requirements by investing excess cash in
securities with different maturities to match projected cash needs and limit
concentration of credit risk by diversifying our investments among a variety of
high credit-quality issuers. We mitigate default risk by investing in only
investment-grade securities. The portfolio includes marketable securities with
active secondary or resale markets to ensure portfolio liquidity. All
investments have a fixed interest rate and are carried at market value, which
approximates cost. If market interest rates were to increase by 1 percent from
December 31, 2000, the fair value of our portfolio would decline by less than
$100,000. The modeling technique used measures the change in fair values arising
from an immediate hypothetical shift in market interest rates and assumes ending
fair values include principal plus accrued interest.
34
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
SANGAMO BIOSCIENCES, INC.
INDEX TO FINANCIAL STATEMENTS
PAGE
--------
Report of Ernst & Young LLP, Independent Auditors........... 36
Balance Sheets.............................................. 37
Statements of Operations.................................... 38
Statement of Stockholders' Equity........................... 39
Statements of Cash Flows.................................... 40
Notes to Financial Statements............................... 41
35
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Sangamo BioSciences, Inc.
We have audited the accompanying balance sheets of Sangamo
BioSciences, Inc. as of December 31, 2000 and 1999, and the related statements
of operations, stockholders' equity, and cash flows for each of the three years
in the period ended December 31, 2000. These financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Sangamo BioSciences, Inc. at
December 31, 2000 and 1999, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 2000, in conformity
with accounting principles generally accepted in the United States.
Ernst & Young LLP
Palo Alto, California
January 26, 2001
36
SANGAMO BIOSCIENCES, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
DECEMBER 31,
-------------------
2000 1999
-------- --------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 10,151 $ 251
Marketable securities..................................... 53,359 7,252
Interest receivable....................................... 1,171 --
Accounts receivable....................................... 1,506 562
Prepaid expenses.......................................... 325 171
-------- ------
Total current assets.................................... 66,512 8,236
Property and equipment, net................................. 1,982 612
Other assets................................................ 431 314
-------- ------
Total assets............................................ $ 68,925 $9,162
======== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities.................. $ 634 $ 348
Accrued compensation and employee benefits................ 696 182
Deferred revenue.......................................... 705 500
-------- ------
Total current liabilities............................... 2,035 1,030
Note payable................................................ -- 250
Stockholders' equity:
Convertible preferred stock, $0.01 par value; 5,000,000
shares authorized, issuable in series, -0- and 4,855,917
shares issued and outstanding at December 31, 2000 and
1999, respectively...................................... -- 15,187
Common stock, $0.01 par value; 80,000,000 shares
authorized, 22,147,391 and 6,132,060 shares issued and
outstanding at December 31, 2000 and 1999,
respectively............................................ 89,764 3,258
Note receivable from stockholder.......................... (463) (125)
Deferred stock compensation............................... (4,697) (1,736)
Accumulated deficit....................................... (17,851) (8,785)
Accumulated other comprehensive income.................... 137 83
-------- ------
Total stockholders' equity.............................. 66,890 7,882
-------- ------
Total liabilities and stockholders' equity.............. $ 68,925 $9,162
======== ======
See accompanying notes.
37
SANGAMO BIOSCIENCES, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31,
------------------------------
2000 1999 1998
-------- -------- --------
Revenues:
Federal government research grants........................ $ 688 $ 1,182 $ 1,888
Collaboration agreements.................................. 2,745 1,000 150
-------- ------- -------
Total revenues.......................................... 3,433 2,182 2,038
Operating expenses:
Research and development (includes charges for stock
compensation of $2,885, $275 and $202 for 2000, 1999 and
1998, respectively)..................................... 11,347 4,266 4,259
General and administrative (includes charges for stock
compensation of $1,967, $244 and $208 for 2000, 1999 and
1998, respectively)..................................... 4,569 1,822 1,237
-------- ------- -------
Total operating expenses.................................. 15,916 6,088 5,496
-------- ------- -------
Loss from operations...................................... (12,483) (3,906) (3,458)
Interest income............................................. 3,556 148 185
Interest expense............................................ (139) (17) (12)
-------- ------- -------
Net loss.................................................... (9,066) (3,775) (3,285)
Deemed dividend upon issuance of convertible preferred
stock..................................................... (1,500) (4,500) --
-------- ------- -------
Net loss attributable to common stockholders................ $(10,566) $(8,275) $(3,285)
======== ======= =======
Basic and diluted net loss per common share................. $ (0.61) $ (1.38) $ (0.56)
======== ======= =======
Shares used in computing basic and diluted net loss per
common share.............................................. 17,383 5,991 5,843
======== ======= =======
See accompanying notes.
38
SANGAMO BIOSCIENCES, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
CONVERTIBLE
PREFERRED NOTE
STOCK COMMON STOCK RECEIVABLE DEFERRED
--------------------- --------------------- FROM STOCK ACCUMULATED
SHARES AMOUNT SHARES AMOUNT STOCKHOLDER COMPENSATION DEFICIT
---------- -------- ---------- -------- ----------- ------------- ------------
Balances at December 31, 1997...... 3,108,000 $ 7,743 5,876,300 $ 794 -- $ (403) $ (1,725)
Issuance of common stock upon
exercise of options.............. -- -- 54,718 2 -- -- --
Issuance of preferred stock for
services rendered................ 40,000 -- -- -- -- -- --
Issuance of note receivable to
stockholder...................... -- -- -- -- (250) -- --
Forgiveness of note receivable to
stockholder...................... -- -- -- -- 63 -- --
Deferred stock compensation........ -- -- -- 780 -- (780) --
Amortization of deferred stock
compensation..................... -- -- -- -- -- 410 --
Comprehensive loss:
Unrealized gain on investments..... -- -- -- -- -- -- --
Net loss........................... -- -- -- -- -- -- (3,285)
Comprehensive loss.................
---------- -------- ---------- ------- ----- ------- --------
Balances at December 31, 1998...... 3,148,000 7,743 5,931,018 1,576 (187) (773) (5,010)
Issuance of common stock upon
exercise of options.............. -- -- 191,042 12 -- -- --
Issuance of common stock and
options to purchase common stock
for services rendered............ -- -- 10,000 188 -- -- --
Issuance of preferred stock upon
exercise of warrants............. 41,250 -- -- -- -- -- --
Issuance of preferred stock, net of
issuance costs of $56............ 1,666,667 7,444 -- -- -- -- --
Forgiveness of note receivable to
stockholder...................... -- -- -- -- 62 -- --
Deferred stock compensation........ -- -- -- 1,482 -- (1,482) --
Amortization of deferred stock
compensation..................... -- -- -- -- -- 519 --
Comprehensive loss:
Unrealized gain on investments..... -- -- -- -- -- -- --
Net loss........................... -- -- -- -- -- -- (3,775)
Comprehensive loss.................
---------- -------- ---------- ------- ----- ------- --------
Balances at December 31, 1999...... 4,855,917 15,187 6,132,060 3,258 (125) (1,736) (8,785)
Issuance of common stock upon
exercise of options and warrants,
net of repurchases............... -- -- 1,156,192 706 -- -- --
Issuance of common stock for
services rendered................ -- -- 72,062 1,081 -- -- --
Issuance of preferred stock upon
exercise of warrants............. 28,158 61 -- -- -- -- --
Issuance of preferred stock........ 333,333 1,500 -- -- -- -- --
Conversion of preferred stock into
common stock..................... (5,217,408) (16,748) 10,434,816 16,748 -- -- --
Conversion of notes payable and
interest into common stock....... -- -- 842,454 12,637 -- -- --
Issuance of common stock in initial
public offering, net of issuance
costs of $5,104.................. -- -- 3,500,000 47,396 -- -- --
Issuance of common stock under
employee stock purchase plan..... -- -- 9,807 125 -- -- --
Forgiveness of note receivable to
stockholder...................... -- -- -- -- 62 -- --
Issuance of note receivable to
stockholder...................... -- -- -- -- (400) -- --
Deferred stock compensation........ -- -- -- 6,778 -- (6,778) --
Amortization of deferred stock
compensation and vesting of
non-qualified stock options...... -- -- -- 1,035 -- 3,817 --
Comprehensive loss:
Unrealized gain on investments..... -- -- -- -- -- -- --
Net loss........................... -- -- -- -- -- -- (9,066)
Comprehensive loss.................
---------- -------- ---------- ------- ----- ------- --------
Balances at December 31, 2000...... -- $ -- 22,147,391 $89,764 $(463) $(4,697) $(17,851)
========== ======== ========== ======= ===== ======= ========
ACCUMULATED
OTHER TOTAL
COMPREHENSIVE STOCKHOLDERS'
INCOME EQUITY
-------------- -------------
Balances at December 31, 1997...... -- $ 6,409
Issuance of common stock upon
exercise of options.............. -- 2
Issuance of preferred stock for
services rendered................ -- --
Issuance of note receivable to
stockholder...................... -- (250)
Forgiveness of note receivable to
stockholder...................... -- 63
Deferred stock compensation........ -- --
Amortization of deferred stock
compensation..................... -- 410
Comprehensive loss:
Unrealized gain on investments..... 55 55
Net loss........................... -- (3,285)
-------
Comprehensive loss................. (3,230)
---- -------
Balances at December 31, 1998...... 55 3,404
Issuance of common stock upon
exercise of options.............. -- 12
Issuance of common stock and
options to purchase common stock
for services rendered............ -- 188
Issuance of preferred stock upon
exercise of warrants............. -- --
Issuance of preferred stock, net of
issuance costs of $56............ -- 7,444
Forgiveness of note receivable to
stockholder...................... -- 62
Deferred stock compensation........ -- --
Amortization of deferred stock
compensation..................... -- 519
Comprehensive loss:
Unrealized gain on investments..... 28 28
Net loss........................... -- (3,775)
-------
Comprehensive loss................. (3,747)
---- -------
Balances at December 31, 1999...... 83 7,882
Issuance of common stock upon
exercise of options and warrants,
net of repurchases............... -- 706
Issuance of common stock for
services rendered................ -- 1,081
Issuance of preferred stock upon
exercise of warrants............. -- 61
Issuance of preferred stock........ -- 1,500
Conversion of preferred stock into
common stock..................... -- --
Conversion of notes payable and
interest into common stock....... -- 12,637
Issuance of common stock in initial
public offering, net of issuance
costs of $5,104.................. -- 47,396
Issuance of common stock under
employee stock purchase plan..... -- 125
Forgiveness of note receivable to
stockholder...................... -- 62
Issuance of note receivable to
stockholder...................... -- (400)
Deferred stock compensation........ -- --
Amortization of deferred stock
compensation and vesting of
non-qualified stock options...... -- 4,852
Comprehensive loss:
Unrealized gain on investments..... 54 54
Net loss........................... -- (9,066)
-------
Comprehensive loss................. (9,012)
---- -------
Balances at December 31, 2000...... $137 $66,890
==== =======
See accompanying notes.
39
SANGAMO BIOSCIENCES, INC.
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
------------------------------
2000 1999 1998
-------- -------- --------
OPERATING ACTIVITIES:
Net loss.................................................. $(9,066) $(3,775) $(3,285)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 380 164 86
Non-cash interest expense............................... 137 -- --
Amortization of deferred stock compensation............. 4,852 519 410
Issuance of common stock and options to purchase common
stock for technology and services rendered............ 1,081 188 --
Changes in operating assets and liabilities:
Accounts receivable................................... (944) (178) 20
Prepaid expenses and other assets..................... 101 (14) (284)
Accounts payable and accrued liabilities.............. 286 166 (305)
Accrued compensation and employee benefits............ 514 (14) 196
Deferred revenue...................................... 205 500 --
------- ------- -------
Net cash used in operating activities............... (2,454) (2,444) (3,162)
INVESTING ACTIVITIES:
Purchases of marketable securities........................ (54,530) (8,242) (2,921)
Maturities to and other changes in marketable
securities.............................................. 7,306 2,571 1,166
Purchases of property and equipment....................... (1,750) (340) (400)
------- ------- -------
Net cash used in investing activities............... (48,974) (6,011) (2,155)
FINANCING ACTIVITIES:
Proceeds from issuance of convertible preferred stock..... 1,561 7,444 --
Proceeds from issuance of common stock.................... 48,227 12 3
Borrowings (repayment) of note payable.................... (250) -- 250
Proceeds from issuance of convertible notes............... 12,500 -- --
Note receivable from stockholder.......................... (710) -- --
------- ------- -------
Net cash provided by financing activities........... 61,328 7,456 253
------- ------- -------
Net increase in cash and cash equivalents........... 9,900 (999) (5,064)
Cash and cash equivalents, beginning of period.............. 251 1,250 6,314
------- ------- -------
Cash and cash equivalents, end of period.................... $10,151 $ 251 $ 1,250
======= ======= =======
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest...................................... $ 2 $ 17 $ 12
======= ======= =======
NONCASH INVESTING AND FINANCING ACTIVITIES:
Deferred compensation related to stock options.............. $ 6,778 $ 1,482 $ 780
======= ======= =======
Deemed dividend upon issuance of convertible preferred
stock..................................................... $ 1,500 $ 4,500 $ --
======= ======= =======
Conversion of convertible notes payable and accrued interest
into common stock......................................... $12,637 $ -- $ --
======= ======= =======
See accompanying notes.
40
SANGAMO BIOSCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SANGAMO AND BASIS OF PRESENTATION
Sangamo BioSciences, Inc. ("Sangamo") was incorporated in the State of
Delaware on June 22, 1995 and is focused on the development and
commercialization of novel transcription factors for the regulation of gene
expression. Sangamo's Universal Gene Recognition-TM- technology platform enables
the engineering of a class of transcription factors known as zinc finger
DNA-binding proteins ("ZFPs"). Sangamo will require additional financial
resources to complete the development and commercialization of its products.
Sangamo anticipates working on a number of long-term development projects
that will involve experimental and unproven technology. The projects may require
several years and substantial expenditures to complete and ultimately may be
unsuccessful. Sangamo plans to finance its operations with available cash
resources, funds received under federal government research grants and Universal
GeneTools-TM- collaborations and strategic partnerships, and from the issuance
of equity or debt securities. Sangamo believes that its available cash, cash
equivalents and investments as of December 31, 2000, along with expected
revenues from Universal GeneTools-TM- collaborations and strategic partnerships,
will be adequate to fund its operations through at least fiscal 2002. Sangamo
will need to raise substantial additional capital to fund subsequent operations.
Sangamo intends to seek funding through the issuance of equity securities,
additional Universal GeneTools-TM- collaborations, strategic partnerships, and
federal government research grants. Sangamo may seek to raise additional capital
when conditions permit, however there is no assurance funding will be available
on favorable terms, if at all.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and the
accompanying notes. Actual results could differ from those estimates.
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.
Sangamo's cash and cash equivalents are maintained with three financial
institutions. Cash equivalents of $10.2 million and $251,000 at December 31,
2000 and 1999, respectively, consist of a certificate of deposit and deposits in
money market investment accounts.
MARKETABLE SECURITIES
Sangamo classifies its marketable securities as "available-for-sale" and
records its investments at market value in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Available-for-sale securities are
carried at amounts that approximate fair market value based on quoted market
prices. Realized gains and losses and declines in value judged to be
other-than-temporary on available-for-sale securities are included in interest
income. Interest on securities classified as available-for-sale is also included
in interest income, which is determined using the specific identification
method. Through December 31, 2000, Sangamo has no other than temporary losses on
its investments.
41
SANGAMO BIOSCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The table below summarizes the carrying value and the fair value at
December 31, 2000 and 1999 of our investments. The fair value of the investments
was based on the quoted market price at year-end (in thousands):
GROSS ESTIMATED
AMORTIZED UNREALIZED FAIR
DECEMBER 31, 2000 COST GAINS VALUE
- ----------------- --------- ---------- ---------
US government investments:
Maturing within 1 year............................... $2,021 $ 2 $2,023
Maturing between 1 and 2 years....................... 4,510 5 4,515
------ --- ------
Total government investments........................... 6,531 7 6,538
Corporate debt investments:
Maturing within 1 year............................... 34,500 44 34,544
Maturing between 1 and 2 years....................... 13,363 85 13,448
------ --- ------
Total corporate investments............................ 47,863 129 47,992
Total available-for-sale investments................... 54,394 137 54,530
====== === ======
DECEMBER 31, 1999
- -----------------
Corporate debt investments:
Maturing within 1 year............................... $6,918 $83 $7,001
Certificate of deposit............................... 251 -- 251
------ --- ------
Total available-for-sale investments................... $7,169 $83 $7,252
====== === ======
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated depreciation and
amortization. Depreciation is calculated using the straight-line method based on
the estimated useful lives of the related assets (generally three to five
years). For leasehold improvements, amortization is calculated using the
straight-line method based on the shorter of the useful life or the lease term.
Sangamo has not internally developed any software for use in its research
activities.
COMPREHENSIVE INCOME
Comprehensive income (loss) is comprised of net income (loss) and other
comprehensive income (loss). Comprehensive loss for the years ended
December 31, 2000, 1999 and 1998 is included in the Statement of Stockholders'
equity. Comprehensive loss includes all changes in equity during a period from
non-owner sources. These items include unrealized gains and losses on
investments.
REVENUE RECOGNITION
Sangamo recognizes revenue from its Universal GeneTools-TM- agreements when
ZFP Transcription Factors ("ZFP TFs") are delivered to the Universal
GeneTools-TM- collaborators and persuasive evidence of an agreement exists, the
price is fixed and determinable, and collectibility is reasonably assured.
42
SANGAMO BIOSCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Generally, Sangamo receives partial payments from these collaborations prior to
the delivery of ZFP TFs and the recognition of these revenues are deferred until
the ZFP TFs are delivered. The risk of ownership has passed to the collaborator
and all performance obligations have been satisfied at the time revenue is
recognized.
Payments to fund research activities made under strategic partnering
agreements are recognized over the period that Sangamo performs research
services. Amounts paid in advance under such agreements are deferred until the
research services are performed. Sangamo's federal government research grants
provide for the reimbursement of qualified expenses for research and development
as defined under the terms of the grant agreement. Revenue under grant
agreements is recognized when the related research expenses are incurred. Grant
reimbursements are received on a quarterly or monthly basis and are subject to
the issuing agency's right of audit.
RESEARCH AND DEVELOPMENT COSTS
Research and development expenses consist of costs incurred for
company-sponsored as well as collaborative research and development activities.
These costs include direct and research-related overhead expenses and are
expensed as incurred.
STOCK-BASED COMPENSATION
Sangamo accounts for employee and director stock options using the intrinsic
value method in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and has adopted the
disclosure-only alternative of SFAS No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). Stock options granted to non-employees, including
Scientific Advisory Board Members, are accounted for in accordance with Emerging
Issues Task Force Issue No. 96-18, "Accounting for Equity Instruments That Are
Issued to Other Than Employees for Acquiring or in Conjunction with Selling,
Goods or Services," which requires the value of such options to be measured and
compensation expenses to be recorded as they vest over a performance period. The
fair value of such options is determined using the Black-Scholes model.
INCOME TAXES
Sangamo accounts for income taxes as required by SFAS No. 109, "Accounting
for Income Taxes." Under this method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases of
assets and liabilities. Deferred tax assets and liabilities are measured using
enacted tax rates and laws that will be in effect when the differences are
expected to reverse.
NET LOSS PER SHARE
Basic and diluted net loss per share information for all periods is
presented under the requirements of SFAS No. 128, "Earnings per Share." Basic
net loss per share has been computed using the weighted-average number of shares
of common stock outstanding during the period, less
43
SANGAMO BIOSCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
shares subject to repurchase. The following table presents the calculation of
historical basic and diluted net loss per common share (in thousands, except per
share data):
YEAR ENDED DECEMBER 31,
------------------------------
2000 1999 1998
-------- -------- --------
Net loss attributable to common stockholders............. $(10,566) $(8,275) $(3,285)
======== ======= =======
Basic and diluted:
Weighted-average shares of common stock outstanding.... 17,877 6,053 5,919
Less: weighted-average shares subject to repurchase.... (494) (62) (76)
-------- ------- -------
Shares used in computing basic and diluted net loss per
common share......................................... 17,383 5,991 5,843
======== ======= =======
Basic and diluted net loss per common share.............. $ (0.61) $ (1.38) $ (0.56)
======== ======= =======
MAJOR CUSTOMERS
During 2000, Sangamo entered into Universal GeneTools-TM- agreements with
six pharmaceutical and biotechnology companies, bringing the total number of
Universal GeneTools-TM- partnerships to twenty-two. Sangamo earned revenues of
$1.8 million under eleven of these agreements during the year. At December 31,
2000, Sangamo's accounts receivable consisted of amounts due from six of these
pharmaceutical companies. These agreements generally require Sangamo to apply
its research expertise and technology to develop unique transcription factors,
which are delivered to the pharmaceutical companies for use in their research.
STRATEGIC PARTNERSHIP
In January 2000, Sangamo entered into a strategic partner agreement with
Edwards Lifesciences Corporation, formerly the CardioVascular Group of Baxter
Healthcare Corporation for the development of ZFP TFs in cardiovascular and
peripheral vascular diseases. Under this agreement, Edwards purchased a
$5 million convertible note which converted into common stock at the time of the
company's initial public offering at the IPO price, and Sangamo received
$1 million in initial research funding from Edwards which was recorded as
deferred revenue and is being recognized as revenue as related research services
are performed over the research period of one year. Through December 31, 2000,
Sangamo has substantially met all of the research goals associated with the
initial research plan outline and has recognized revenue of approximately
$945,000. In March 2000, Edwards purchased a $7.5 million convertible note in
exchange for a right of first refusal for three years to negotiate a license for
additional ZFP-Therapeutics-TM- in cardiovascular and peripheral vascular
diseases. This note also converted into common stock upon consummation of the
Company's initial public offering at the IPO price. In the future, Sangamo may
receive option fees, milestone payments, royalties and additional research
funding from this agreement.
EFFECT OF NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), as
amended, which must be adopted by Sangamo as of January 1, 2001. SFAS 133
establishes accounting and reporting standards requiring that
44
SANGAMO BIOSCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
every derivative instrument, including derivative instruments imbedded in other
contracts, be recorded in the balance sheet as either an asset or liability
measured at its fair value. SFAS 133 also requires that changes in the
derivative's fair value be recognized in earnings unless specific hedge
accounting criteria are met. Sangamo believes the adoption of SFAS 133 will not
have a material effect on the financial statements, since it currently does not
hold derivative instruments or engage in hedging activities.
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
DECEMBER 31,
-------------------
2000 1999
-------- --------
(IN THOUSANDS)
Laboratory equipment........................................ $1,314 $436
Furniture and fixtures...................................... 477 227
Leasehold improvements...................................... 823 201
------ ----
2,614 864
Less accumulated depreciation and amortization.............. (632) (252)
------ ----
$1,982 $612
====== ====
3. COMMITMENTS AND NOTES PAYABLE
Sangamo occupies office and laboratory space under operating leases in
Richmond, California that expire in 2004. Rent expense for 2000, 1999 and 1998
was $392,000, $336,000, and $314,000 respectively. Future minimum payments under
non-cancelable operating leases at December 31, 2000 consist of the following:
AMOUNT
--------------
(IN THOUSANDS)
2001........................................................ 430
2002........................................................ 438
2003........................................................ 442
2004........................................................ 297
------
$1,607
======
4. STOCKHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK
All outstanding convertible preferred stock converted into common stock upon
consummation of the initial public offering in April 2000. The Company has
5,000,000 preferred shares authorized which may be issued at the Board's
discretion.
In November 1999, Sangamo sold 1,000,000 shares of its Series C convertible
preferred stock to an investor for net proceeds of $4.5 million. Subsequent to
the commencement of the initial public
45
SANGAMO BIOSCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. STOCKHOLDERS' EQUITY (CONTINUED)
offering process, Sangamo re-evaluated the fair value of its common stock as of
November 1999 and determined it to be $6.00 per share. Accordingly, the
incremental fair value, limited to the amount of the proceeds received of
$4.5 million, was deemed to be the equivalent of a preferred stock dividend.
Sangamo recorded the deemed dividend at the date of issuance by offsetting
charges and credits to preferred stock, without any effect on total
stockholders' equity. The preferred stock dividend increases the loss applicable
to common stockholders in the calculation of basic net loss per share for the
year ended December 31, 1999.
In January 2000, Sangamo sold 333,333 shares of its Series C convertible
preferred stock for net proceeds of approximately $1.5 million. Subsequent to
the commencement of the initial public offering process, Sangamo re-evaluated
the fair value of its common stock as of January 2000 and determined it to be
$12 per share. Accordingly, the incremental fair value, limited to the amount of
the proceeds received of $1.5 million, was deemed to be the equivalent of a
preferred stock dividend. Sangamo recorded the deemed dividend at the date of
issuance by offsetting charges and credits to preferred stock, without any
effect on total stockholders' equity. The preferred stock dividend increases the
loss applicable to common stockholders in the calculation of basic net loss per
share for the year ended December 31, 2000.
COMMON STOCK
At December 31, 2000, 374,583 shares of outstanding common stock were
subject to the company's contractual right of repurchase at a weighted average
price of $0.15 which rights generally lapse over periods not exceeding four
years.
WARRANTS
At December 31, 2000, warrants to purchase 74,570 shares of common stock
were outstanding at an exercise price of $1.50 per share, and are exercisable
through August 2002. The warrants to purchase common stock were issued in
connection with a 1997 bridge loan transaction. Sangamo has reserved common
stock for issuance upon exercise of the warrants.
STOCK SPLIT
In February 2000, the Board of Directors adopted, subject to stockholder
approval (which was received in March 2000), a change in the authorized number
of shares of the common stock and preferred stock to 80,000,000 and 5,000,000,
respectively. An Amended and Restated Certificate of Incorporation was filed
following the effectiveness of the registration statement relating to the public
offering. On March 28, 2000, Sangamo effected a two-for-one stock split of its
common stock, in the form of a common stock dividend. As a result of the common
stock split, the conversion ratio of Sangamo's convertible preferred stock was
amended to two-to-one pursuant to Sangamo's Sixth Amended and Restated
Certificate of Incorporation. All common share and options and per share amounts
in the accompanying financial statements have been adjusted to reflect the stock
split.
STOCK OPTION PLAN
Sangamo's 2000 Stock Option Plan (the "2000 Option Plan"), which supersedes
the 1995 Stock Option Plan, provides for the issuance of common stock and grants
of options for common stock to employees, officers, directors and consultants.
The exercise price per share will be no less than
46
SANGAMO BIOSCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. STOCKHOLDERS' EQUITY (CONTINUED)
85 percent of the fair value per share of common stock on the option grant date,
and the option term will not exceed ten years. If the person to whom the option
is granted is a 10 percent stockholder, then the exercise price per share will
not be less than 110 percent of the fair value per share of common stock on the
option grant date, and the option term will not exceed five years. Options
granted under the 2000 Option Plan generally vest over four years at a rate of
25 percent one year from the grant date and one thirty-sixth per month
thereafter and expire ten years after the grant, or earlier upon employment
termination. Options granted pursuant to the 2000 Option Plan may be exercised
prior to vesting, with the related shares subject to Sangamo's right to
repurchase the shares that have not vested at the issue price if the option
holder terminates employment. The right of repurchase lapses over the original
option vesting period, as described above. A total of 3.7 million shares were
reserved for issuance pursuant to the 2000 Option Plan. The number of shares
authorized for issuance will automatically increase on the first trading day of
the fiscal year by an amount equal to 3.5 percent of the total number of shares
of our common stock outstanding on the last trading day of the preceding fiscal
year.
A summary of Sangamo's stock option activity follows:
OPTIONS OUTSTANDING
-------------------------
WEIGHTED-
SHARES AVAILABLE AVERAGE
FOR GRANT OF NUMBER OF EXERCISE PER
OPTIONS SHARES SHARE PRICE
---------------- ---------- ------------
Balance at December 31, 1997............................ 94,500 983,000 $0.08
Additional shares authorized.......................... 1,200,000 -- --
Options granted....................................... (828,000) 828,000 $0.16
Options exercised..................................... -- (101,750) $0.03
Shares repurchased.................................... 47,032 -- $0.01
Options canceled...................................... 35,250 (35,250) $0.08
---------- ----------
Balance at December 31, 1998............................ 548,782 1,674,000 $0.12
Additional shares authorized.......................... 1,000,000 -- --
Options granted....................................... (463,500) 463,500 $0.22
Options exercised..................................... -- (191,042) $0.06
Options canceled...................................... 69,792 (69,792) $0.10
---------- ----------
Balance at December 31, 1999............................ 1,155,074 1,876,666 $0.15
Additional shares authorized.......................... 1,603,926 -- --
Options granted....................................... (1,173,900) 1,173,900 $8.18
Options exercised..................................... -- (1,120,350) $0.59
Shares repurchased.................................... 10,734 -- $0.63
Options canceled...................................... 39,933 (39,933) $0.83
---------- ----------
Balance at December 31, 2000............................ 1,635,767 1,890,283 $4.86
========== ==========
Options outstanding at December 31, 2000 have a weighted average remaining
contractual life of 7.2 years and may be immediately exercised; however,
1.7 million shares issued pursuant to the exercise of these options would be
subject to Sangamo's right of repurchase. Vested options at December 31, 2000
total 1.8 million and have a weighted average remaining contractual life of
6.3 years. The
47
SANGAMO BIOSCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. STOCKHOLDERS' EQUITY (CONTINUED)
weighted-average fair value per share of options granted during 1998, 1999 and
2000 was $1.08, $5.06 and $8.18, respectively.
The following table summarizes information with respect to stock options
outstanding at December 31, 2000:
OPTIONS OUTSTANDING
- ---------------------------------------------------------------------
WEIGHTED
AVERAGE
RANGE OF REMAINING
EXERCISE NUMBER OF CONTRACTUAL
PRICE SHARES LIFE (IN YEARS)
- --------------------- --------- ---------------
$0.15-$0.22 1,020,633 5.71
$2.25-$8.50 473,500 9.21
$11.13-$38.00 396,150 9.93
---------
1,890,283
=========
As permitted by SFAS 123, Sangamo accounts for its stock option and stock
incentive plans in accordance with APB 25 and recognizes no deferred stock
compensation expense for options granted with exercise prices equal to the fair
market value of Sangamo's common stock at the date of grant. In 2000, 1999 and
1998, Sangamo granted options to employees with exercise prices below the fair
value of Sangamo's common stock. Such fair value was determined based on the
business factors underlying the value of the company's common stock on the date
such option grants were made, viewed in light of the company's planned initial
public offering and the expected initial public offering price per share.
Accordingly, the Company recognized deferred stock compensation of
$6.8 million, $1.5 million and $780,000 in 2000, 1999 and 1998, respectively,
which is being amortized to expense over the vesting term of the option using a
graded vesting method.
SFAS 123 requires the disclosure of pro forma information regarding net loss
and net loss per share determined as if Sangamo had accounted for its stock
options and shares issued under its employee stock purchase plan under the fair
value method. For purposes of this pro forma disclosure, the estimated fair
value of the options is amortized to expense over the options' vesting period.
YEAR ENDED DECEMBER 31,
------------------------------
2000 1999 1998
-------- -------- --------
Pro forma net loss attributable to common
stockholders (in thousands).................... $(11,123) $(8,289) $(3,296)
======== ======= =======
Pro forma basic and diluted net loss per share... $ (0.64) $ (1.38) $ (0.56)
======== ======= =======
The above pro forma effect may not be representative of that to be expected
in future years, due to subsequent years including additional grants and related
vesting. The fair value for all options granted in 2000, 1999 and 1998 were
estimated at the date of grant using the Black-Scholes method
48
SANGAMO BIOSCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. STOCKHOLDERS' EQUITY (CONTINUED)
following the Company's initial public offering and using the minimum value
method for periods prior to the initial public offering with the following
weighted-average assumptions:
YEAR ENDED DECEMBER 31,
------------------------------
2000 1999 1998
-------- -------- --------
Risk-free interest rate............................ 6.0% 6.0% 5.0%
Expected life of option............................ 5 yrs 5 yrs 5 yrs
Expected dividend yield of stock................... 0% 0% 0%
Expected volatility................................ 0.8 n/a n/a
In 2000, 1999 and 1998, respectively, Sangamo granted 375,000, 154,000 and
80,000 nonqualified common stock options to consultants at exercise prices that
range from $0.15 to $8.00 per share for services rendered. Such options are
included in the option tables disclosed above. The options generally vest over
four years at a rate of 25 percent one year from the grant date and one
thirty-sixth per month thereafter and expire ten years after the grant date.
Expense of $1.0 million and $15,000 was recognized in 2000 and 1999 related to
these options. The related expense for 1998 was not material. The fair value of
these options was determined using the Black-Scholes model with the following
assumptions: risk free interest rate--6 percent; term--10 years; dividend
yield--0 percent; and expected volatility of the company's common stock--.8.
EMPLOYEE STOCK PURCHASE PLAN
The Board of Directors adopted the 2000 Employee Stock Purchase Plan in
February 2000, effective upon the completion of Sangamo's initial public
offering of its common stock. Sangamo reserved a total of 400,000 shares of
common stock for issuance under the plan. Eligible employees may purchase common
stock at 85 percent of the lesser of the fair market value of Sangamo's common
stock on the first day of the applicable two-year offering period or the last
day of the applicable six-month purchase period. The reserve will automatically
increase on the first trading day of the second fiscal quarter each year,
beginning in 2001, by an amount equal to 1 percent of the total number of
outstanding shares of our common stock on the last trading day of the
immediately preceding first fiscal quarter.
5. LOAN TO AN OFFICER
Sangamo advanced its President and Chief Executive Officer $250,000 under a
Note Receivable Agreement (the "Note"). The Note bears interest at 6.02 percent
per annum and is being forgiven one forty-eighth each month beginning
January 1, 1998. As of December 31, 2000 and 1999, $62,500 and $125,000,
respectively, of this Note was outstanding, which is included as a component of
stockholders' equity in the accompanying balance sheets. The loan is secured by
500,000 shares of common stock owned by the officer.
On March 17, 2000 Sangamo entered into an agreement with an officer under
which the Company loaned $400,000 to enable the officer to purchase up to 50,000
shares of common stock. The loan is full recourse, bears interest at
7.0 percent per annum, is payable in three years or when the stock is sold,
whichever is earlier, and is secured by the stock being purchased. Under the
agreement we also loaned the officer $250,000 as a housing allowance payable in
four years from the date of the loan with interest at a rate of 7 percent.
Twenty-five percent of the housing loan and associated interest will be
49
SANGAMO BIOSCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. LOAN TO AN OFFICER (CONTINUED)
forgiven on each anniversary of the loan as long as the officer is a full-time
employee of Sangamo at such time.
6. INCOME TAXES
There has been no provision for U.S. federal, U.S. state or foreign income
taxes for any period because Sangamo has incurred operating losses in all
periods and for all jurisdictions. Deferred income taxes 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.
Significant components of deferred tax assets are as follows:
DECEMBER 31,
------------------------------
2000 1999 1998
-------- -------- --------
(IN THOUSANDS)
Deferred tax assets:
Net operating loss carryforwards.................. $3,700 $2,500 $1,600
Research and development credit carryforwards..... 770 100 --
Other reserves and accruals....................... 900 100 --
------ ------ ------
5,370 2,700 1,600
Valuation allowance................................. (5,370) (2,700) (1,600)
------ ------ ------
Net deferred tax assets............................. $ -- $ -- $ --
====== ====== ======
Realization of deferred tax assets is dependent upon future earnings, if
any, the timing and amount of which are uncertain. Accordingly, the net deferred
tax assets have been fully offset by a valuation allowance. As of December 31,
2000, Sangamo had net operating loss carryforwards for federal and state income
tax purposes of approximately $11,400,000. Sangamo also had federal and state
research and development credit carryforwards of approximately $500,000 and
$300,000. The net operating loss and credit carryforwards will expire at various
dates beginning in 2010 through 2020, if not used. Use of the net operating loss
may be subject to substantial annual limitation due to the ownership change
limitations provided by the Internal Revenue Code and similar state provisions.
The annual limitation could result in the expiration of the net operating loss
before use. However, management has not determined if the use of the net
operating loss carryforwards will be limited.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANT ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
50
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item with respect to our Annual Meeting of
Stockholders will be contained in our definitive Proxy Statement, under the
captions "Election of Directors--Nominees," and "Security Ownership of Certain
Beneficial Owners and Management--Compliance with the Reporting Requirement of
Section 16(a)," and is incorporated by reference.
The following table sets forth information regarding our executive officers,
directors and key employees as of March 15, 2001:
NAME AGE POSITION
- ---- -------- ------------------------------------------------
Edward O. Lanphier II........................ 44 President, Chief Executive Officer and Director
Senior Vice President and Chief Scientific
Alan P. Wolffe, Ph.D......................... 41 Officer
Peter Bluford................................ 46 Vice President, Corporate Development
Casey C. Case, Ph.D.......................... 45 Vice President, Research
Shawn K. Johnson............................. 33 Senior Director, Finance
Eric T. Rhodes............................... 40 Senior Director, Commercial Development
Julianna Wood................................ 45 Senior Director, Corporate Communications
S. Kaye Spratt, Ph.D......................... 48 Director, Delivery Technology
Herbert W. Boyer, Ph.D....................... 64 Director
William G. Gerber, M.D....................... 54 Director
Jon E. M. Jacoby............................. 62 Director
John W. Larson............................... 65 Director
William J. Rutter, Ph.D...................... 72 Director
Michael C. Wood.............................. 48 Director
EDWARD O. LANPHIER II, the founder of Sangamo BioSciences, Inc., has served
as President, Chief Executive Officer and as a member of the board of directors
since the company's inception. Mr. Lanphier has approximately twenty years of
experience in the pharmaceutical and biotechnology industry. From June 1992 to
May 1997, he held various positions at Somatix Therapy Corporation, a gene
therapy company, including Executive Vice President, Commercial Development and
Chief Financial Officer. Prior to Somatix, Mr. Lanphier was President and Chief
Executive Officer of BioGrowth, Inc., a biotechnology company that merged with
Celtrix Laboratories to form Celtrix Pharmaceuticals, Inc. in 1991. From 1986 to
1987, Mr. Lanphier served as Vice President of Corporate Development at
Biotherapeutics, Inc. From 1984 to 1986 he served as Vice President of Corporate
Development at Synergen Inc. Prior to Synergen, he was employed by Eli Lilly and
Company, a pharmaceutical company, in the strategic business
planning-biotechnology group. Mr. Lanphier is a member of the Biotechnology
Industry Organization (BIO) Emerging Companies Section and the BIO board of
directors. Mr. Lanphier has a B.A. in biochemistry from Knox College.
ALAN P. WOLFFE, PH.D. joined Sangamo as its Senior Vice President and Chief
Scientific Officer in March 2000. Dr. Wolffe is internationally recognized for
his research on chromatin structure and its role in the regulation of gene
expression, with over 250 research publications on this topic. He was Director
of the Department of Molecular Embryology at the National Institutes of Child
Health and Human Development from 1990 until March 2000. During this time,
Dr. Wolffe's laboratory discovered the determinants of chromosomal gene
regulation by ZFPs, including observations that have proven fundamental to the
understanding of histone acetylation and deacetylation in transcriptional
control. Dr. Wolffe has received numerous prizes for his research and serves as
an editor on the editorial boards of BIOCHEMISTRY, JOURNAL OF CELL SCIENCE,
MOLECULAR BIOLOGY OF THE CELL, MOLECULAR CELL BIOLOGY,
51
NUCLEIC ACIDS RESEARCH, and SCIENCE. Dr. Wolffe received a Ph.D. in molecular
biology from the Medical Research Council and a B.A. in biochemistry from Oxford
University.
PETER BLUFORD has served as Vice President, Corporate Development since
December 1997 and since joining us has had operating responsibility for
Sangamo's licensing, intellectual property and business planning activities.
Mr. Bluford also served as Senior Director, Corporate Development, from
October 1996 to November 1997. From October 1992 to September 1996, Mr. Bluford
served as Director, Commercial Development at Somatix Therapy Corporation, where
he was responsible for Somatix's strategic business planning activities while
also serving as Project Team Leader, Oncology from 1995 to 1996. From 1991 to
1992, Mr. Bluford was with Celtrix Pharmaceuticals, Inc. as Manager, Strategic
Market Planning. From 1990 to 1991, he was Manager of Strategic Planning with
BioGrowth, Inc. Mr. Bluford received an M.B.A. and a B.S. in biochemistry from
the University of California, Berkeley.
CASEY C. CASE, PH.D. has served as Vice President, Research since
November 1997. From June 1993 to November 1997, Dr. Case served as Director,
Cell Biology at Tularik, Inc., a pharmaceutical company focusing on gene
regulating drugs, where he was part of the team that established Tularik's
cell-based, high throughput screening of small molecule modulators of specific
transcription factors. From June 1989 to June 1993, Dr. Case was Director of
Transcriptional Research at Oncogene Science, Inc., a pharmaceutical company,
where he led Oncogene's research efforts in the development of mammalian
cell-based assays for gene transcription and the automation of these assays for
selection of therapeutic targets and compounds. Dr. Case earned a Ph.D. in
biochemistry from the University of California, Davis and a B.S. in biology from
San Diego State University.
SHAWN K. JOHNSON, Senior Director, Finance, joined the company in
December 1997 and has responsibility for the company's financial and
administrative operations. From July 1995 to October 1997, Mr. Johnson was
Director of Finance at Neurobiological Technologies, Inc., a pharmaceutical
product development company. From July 1993 to June 1995, he managed various
accounting functions for Glycomed Incorporated, a biotechnology research
company. Prior to Glycomed, Mr. Johnson was the Controller for Cognitive
Systems, Inc., a software technology company from 1989 to 1992. He holds an
M.B.A. from the University of California, Berkeley and a B.S. in accounting from
City University.
ERIC T. RHODES, Senior Director, Commercial Development, joined the company
in July 1998 and has primary responsibility for management of our Universal
GeneTools-TM- business. Prior to joining Sangamo, Mr. Rhodes served in a variety
of capacities at Incyte Pharmaceuticals, Inc., a genomic database and data
management software company, from March 1994 to July 1998. He initially served
as part of the team responsible for expansion of Incyte's high throughput
sequencing capabilities and later worked in the business development group where
his primary focus was the evaluation and acquisition of new technologies. From
1991 to 1994, Mr. Rhodes directed the molecular biology group at Anergen, Inc.,
a biotechnology company focusing on treatment of autoimmune disease and prior to
that he was with BioGrowth, Inc., from 1989 to 1991 and Triton BioSciences, a
biotechnology company, as a molecular biologist from 1987 to 1989. Mr. Rhodes
received a B.S. in microbiology and immunology from the University of
California, Berkeley.
JULIANNA WOOD, Senior Director, Corporate Communications, joined the company
in March 2000 and is responsible for all external communications, including
investor relations and public affairs. From November 1997 to March 2000, she was
employed by Chiron Corporation, most recently as Senior Director of Corporate
Communications and Investor Relations. Prior to Chiron, Ms. Wood served as a
communications consultant to multiple companies from July 1995 until
November 1997. Ms. Wood has also held similar communications positions with
other biotechnology companies, including Glycomed Incorporated from March 1993
until July 1995, and Somatix Therapy Corporation from 1987 to 1993.
52
Ms. Wood earned her undergraduate degree from Stanford University and has a
M.B.A. from Duke University.
S. KAYE SPRATT, PH.D. has served as Director of Delivery Technology since
January 1998 and is currently directing Sangamo's cell biology and gene therapy
efforts for the evaluation and delivery of engineered zinc finger proteins. From
June 1997 to January 1998, Dr. Spratt was employed by Acacia Biosciences, a
biotechnology research company, as Project Manager. From June 1992 to
June 1997, Dr. Spratt was employed by Somatix Therapy Corporation as Section
Manager and Senior Scientist responsible for the design, development and
production of research and clinical grade gene therapy vectors. From 1987 to
1992, Dr. Spratt was Senior Scientist and Project Leader for BioGrowth Inc.
Dr. Spratt received a Ph.D. in microbial genetics from Meharry Medical College
and a B.S. in biology from Langston University.
HERBERT W. BOYER, PH.D. has served as a Director since July 1997. Dr. Boyer
is the co-inventor of recombinant DNA technology with Dr. Stanley Cohen and
founded Genentech, Inc., a biopharmaceutical company, in 1976. Dr. Boyer is
currently Professor Emeritus at the University of California, San Francisco.
Dr. Boyer has served as a director of Genentech since 1976 and was Vice
President of Research from 1976 to 1990. Dr. Boyer was also a Professor of
biochemistry and biophysics at the University of California, San Francisco from
1966 to 1991 where he retains the position of Professor Emeritus. He was also an
Investigator for the Howard Hughes Medical Institute from 1976 to 1983. He has
authored over 100 scientific publications and is a member of the National
Academy of Sciences. Dr. Boyer has received numerous research awards including
the National Medal of Science, the National Medal of Technology and the Albert
Lasker Basic Medical Research Award. Dr. Boyer is Chairman of the Board of
Directors of Allergan, Inc., a pharmaceutical company and a trustee of the
Scripps Research Institute. Dr. Boyer received a Ph.D. in microbiology from the
University of Pittsburgh and a B.A. in biology from St. Vincent College.
WILLIAM G. GERBER, M.D. has served as a member of our board of directors
since June 1997. Dr. Gerber is currently Chief Executive Officer and a Director
of Epoch Biosciences, Inc., a biomedical company, where he has been since
September 1999. From April 1998 to July 1999, he was President of diaDexus LLC,
a pharmacogenomics company. Previous to his appointment at diaDexus, he was
Chief Operating Officer of Onyx Pharmaceuticals. Before joining Onyx in 1995,
Dr. Gerber was with Chiron Corporation, a biopharmaceutical, vaccine and blood
testing company, where he was President of the Chiron Diagnostics business unit
after Chiron's merger with Cetus Corporation in December 1991. He joined Cetus
in 1987 as senior director of corporate ventures and was named Vice President
and General Manager of the PCR (Polymerase Chain Reaction) Division in
November 1988. Dr. Gerber earned his B.S. and M.D. degrees from the University
of California, San Francisco School of Medicine.
JON E. M. JACOBY has served as a member of our board of directors since
April 2000. Mr. Jacoby is a director and an executive vice president of Stephens
Group, Inc. He is also a senior executive vice president of Stephens Inc., an
affiliate of Stephens Group, Inc., where he has been employed since 1963.
Mr. Jacoby also serves on the board of directors of Delta and Pine Land Company,
Beverly Enterprises, Inc., and Power-One, Inc., as well as on the boards of
several privately held companies. He received his B.S. degree in geology from
the University of Notre Dame and his M.B.A. from Harvard Business School.
JOHN W. LARSON has served as a member of our board of directors since
January 1996. Mr. Larson has served as senior partner at the law firm of
Brobeck, Phleger & Harrison LLP since March 1996. From 1988 until March 1996,
Mr. Larson was Chief Executive Officer of the firm. He has been a partner with
the firm since 1969, except for the period from July 1971 to September 1973 when
he was in government service as Assistant Secretary of the United States
Department of the Interior and Counselor to George P. Shultz, Chairman of the
Cost of Living Council. Mr. Larson holds an L.L.B. and a B.A., with distinction,
in Economics, from Stanford University.
53
WILLIAM J. RUTTER, PH.D. has served as a member of our board of directors
since January 2000. He is the co-founder of Chiron Corporation, a
biopharmaceutical, vaccine and blood testing company, and served as Chairman of
the Board of Directors from Chiron's inception in 1981 until May 1999. From
August 1983 through April 1989, in addition to his responsibilities at Chiron,
Dr. Rutter was the Director of the Hormone Research Institute at UCSF, and he
became a Professor Emeritus in 1991. In 1969, Dr. Rutter joined the faculty of
the University of California, San Francisco as a Herzstein Professor, and served
as the chairman of the Department of Biochemistry and Biophysics at UCSF from
1969 to 1982. Dr. Rutter has also served on the Board of Overseers at Harvard
University from 1992 to 2000, on the Board of Trustees at the Carnegie
Institution of Washington since 1995 and several private company boards.
Dr. Rutter is a member of the National Academy of Sciences and the American
Academy of Arts and Sciences. Dr. Rutter received his Ph.D. in biochemistry from
the University of Illinois, an M.S. in biochemistry from the University of Utah
and a B.A. in biochemistry from Harvard University.
MICHAEL C. WOOD has served as a member of our board of directors since our
inception. Mr. Wood is currently President of LeapFrog Enterprises, Inc., an
educational company which he founded in January 1995. Mr. Wood has 15 years of
experience in the corporate legal representation of high technology firms and
venture capital partnerships. From 1991 through 1994, he was a partner of the
emerging technology companies group at Cooley Godward LLP. From 1979 to 1991,
Mr. Wood practiced corporate law in the high technology practice of Crosby Heafy
Roach & May. Mr. Wood received a J.D. from the Hastings College of Law, an
M.B.A. from the University of California, Berkeley and his B.A. in political
science from Stanford University.
SCIENTIFIC ADVISORY BOARD
We use scientists and physicians to advise us on scientific matters as a
part of our Scientific Advisory Board, including experts in molecular biology,
structural biology, biophysics, biochemistry, cell biology, and gene expression.
Generally, our scientific advisors have received options to purchase our common
stock as compensation for their consulting services.
The following individuals are members of our Scientific Advisory Board:
CARL PABO, PH.D. (CHAIRMAN) is a professor of biophysics and structural
biology at the Massachusetts Institute of Technology and an investigator in the
Howard Hughes Medical Institute. Dr. Pabo is a pioneer in the structural
analysis and modification of zinc finger DNA-binding proteins and has made many
of the fundamental observations as to how ZFPs interact with their DNA-binding
sites. Dr. Pabo received a Ph.D. in biochemistry and molecular biology from
Harvard University and a B.S. in molecular biophysics and biochemistry from Yale
College. He is a member of the National Academy of Sciences and of the American
Academy of Arts and Sciences.
CARLOS F. BARBAS III, PH.D. is an Associate Member of The Scripps Research
Institute, where he has been since 1991. Dr. Barbas is an expert in the
selection of ZFPs and has published several papers on the use of ZFP TFs to
regulate gene expression. From 1989 to 1991, he was a postdoctoral fellow at The
Scripps Research Institute and Pennsylvania State University. Dr. Barbas
received his Ph.D. in chemistry from Texas A&M University and a B.S. in
chemistry and physics from Eckerd College.
JEREMY M. BERG, PH.D. is Professor and Director of the Department of
Biophysics and Biophysical Chemistry at The Johns Hopkins University School of
Medicine, where he has been since 1990. He is a leader in the field of ZFPs, and
the Berg laboratory was one of the first to demonstrate the use of designed zinc
finger arrays for the generation of novel, sequence-specific ZFPs. From 1986 to
1990, Dr. Berg was an associate professor in the Department of Chemistry at The
Johns Hopkins University, and a postdoctoral fellow in the School of Medicine
from 1984 to 1986. Dr. Berg received his Ph.D. in chemistry from Harvard
University and a B.S. and M.S. degrees in chemistry from Stanford University.
54
JUDITH CAMPISI, PH.D. is Head, Center for Research and Education in Aging
Life Sciences Division of the Berkeley National Laboratory, where she has been
conducting aging and cancer research since 1990. From 1984 to 1990, Dr. Campisi
held professorships within the Department of Biochemistry at the Boston
University School of Medicine. Dr. Campisi received her Ph.D. in biochemistry
and a B.A. in chemistry from the State University of New York, Stony Brook.
SRINIVASAN CHANDRASEGARAN, PH.D. is an associate professor at The Johns
Hopkins University School of Hygiene and Public Health, and a leading expert on
the molecular biology, structure and function of type IIs restriction
endonucleases. He has collaborated with Sangamo on the development of our DNA
diagnostic program. Dr. Chandrasegaran received his Ph.D. in chemistry from
Georgetown University, and B.S. and M.S. degrees in chemistry from Madras
University.
GEORGE N. ("JOE") COX, PH.D. is President and Chief Scientific Officer of
Bolder Biotech, a protein delivery biotechnology company. Dr. Cox was Vice
President, Research and Development at Sangamo from March 1995 to June 1998. He
spent the previous 12 years of his career at Synergen, Inc., in various
positions including Group Leader, Discovery Research, Chairman of Synergen's
science counsel, Director of Animal Health Care, and Senior Scientist. He
received a Ph.D. in biology from the University of California, Santa Cruz and a
B.S. in biology from Wesleyan University.
HAMILTON O. SMITH, M.D. is currently a Professor Emeritus of molecular
biology and genetics at The Johns Hopkins University School of Medicine and
Director of DNA Resources at Celera Genomics Corporation. Dr. Smith received the
1978 Nobel Prize in Medicine for his co-discovery of type IIs restriction
enzymes. Dr. Smith has gone on to publish extensively on the genetic and genomic
analysis of HAEMOPHILUS INFLUENZAE and its natural transformation system.
Dr. Smith is an American Cancer Society Research Professor and member of the
National Academy of Sciences. He received his M.D. from The Johns Hopkins
University School of Medicine, an A.B. in mathematics from the University of
California, Berkeley, and a B.S. from the University of Illinois, Urbana.
KEVIN STRUHL, PH.D. is the David Wesley Gaiser Professor of Biological
Chemistry in the Department of Biological Chemistry and Molecular Pharmacology
at Harvard Medical School. Dr. Struhl has established many of the principles
involved in the molecular mechanisms of transcriptional activation and
repression in eukaryotic cells including the recruitment of gene-specific and
general transcription factors as well as histone deacetylases. Dr. Struhl
received his Ph.D. in biochemistry from Stanford University, and S.M. and S.B.
degrees from the Massachusetts Institute of Technology.
ELTON T. ("TED") YOUNG, PH.D. is a professor of biochemistry and genetics at
the University of Washington in Seattle. Dr. Young has published numerous
articles in the field of transcription factors and this remains a focus of his
ongoing research at the University of Washington. Dr. Young has served as an
editor for the JOURNAL OF MOLECULAR AND CELLULAR BIOLOGY since 1983. He received
his Ph.D. in biophysics from the California Institute of Technology and has a
B.A. in chemistry from the University of Colorado at Boulder.
ITEMS 11-13
Pursuant to General Instruction G to Form 10-K, the information required by
Items 11,12 and 13 of Part III is incorporated by reference to our definitive
Proxy Statement with respect to our 2001 Annual Meeting of shareholders to be
filed pursuant to Regulation 14A with the Securities and Exchange Commission no
later than 120 days after December 31, 2000.
55
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements--See Index to Consolidated Financial Statements in
Item 8 of the report.
2. Financial Statement Schedules. None.
3. See Index to Exhibits.
(b) No reports on Form 8-K were filed during the last quarter of the fiscal year
ended December 31, 2000.
(c) See the Index of Exhibits
(d) See the Financial Statements beginning on page 35 of this Form 10-K
56
SIGNATURES
Under the requirements of the Securities Act of 1934, as amended, the
registrant has duly caused this report on Form 10-K to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of San Francisco,
State of California, on March 22, 2001.
SANGAMO BIOSCIENCES, INC.
By: /s/ SHAWN K. JOHNSON
------------------------------------------------
Shawn K. Johnson
SENIOR DIRECTOR OF FINANCE
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints, jointly and severely, Edward O. Lanphier
and Shawn K. Johnson, and each of them acting as individual, as his
attorney-in-fact, each with full power of substitution and resubstitution, for
him or her in any and all capacities, to sign any and all amendments to this
Annual Report on Form 10-K (including post-effective amendments), and to file
the same, with exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact full power and authority to do and perform each and every act
and thing requisite and necessary to be done in connection therewith as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact, or their substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
Under the requirements of the Securities Act of 1934, as amended, this
Form 10-K has been signed by the following persons in the capacities and on the
dates indicated:
SIGNATURE TITLE DATE
--------- ----- ----
/s/ EDWARD O. LANPHIER II President, Chief Executive Officer
------------------------------------ and Director (Principal Executive March 22, 2001
Edward O. Lanphier II Officer)
/s/ SHAWN K. JOHNSON
------------------------------------ Senior Director of Finance (Principal March 22, 2001
Shawn K. Johnson Accounting Officer)
/s/ HERBERT W. BOYER, PH.D.
------------------------------------ Director March 22, 2001
Herbert W. Boyer, Ph.D.
/s/ WILLIAM G. GERBER, M.D.
------------------------------------ Director March 22, 2001
William G. Gerber, M.D.
/s/ JON E. M. JACOBY
------------------------------------ Director March 22, 2001
Jon E. M. Jacoby
/s/ JOHN W. LARSON
------------------------------------ Director March 22, 2001
John W. Larson
/s/ WILLIAM J. RUTTER, PH.D.
------------------------------------ Director March 22, 2001
William J. Rutter, Ph.D.
/s/ MICHAEL C. WOOD
------------------------------------ Director March 22, 2001
Michael C. Wood
57
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------------------- -----------------------
1.1++ Form of Underwriting Agreement.
3.1++ Amended and Restated Certificate of Incorporation.
3.2++ Amended and Restated Bylaws.
4.1++ Form of Specimen Common Stock Certificate.
4.2++ Second Amended and Restated Investors' Rights Agreement,
among Sangamo and certain of its stockholders, dated March,
2000.
10.1++ 2000 Stock Incentive Plan.
10.2++ 2000 Employee Stock Purchase Plan.
10.3 [Intentionally left blank]
10.4++ Form of Indemnification Agreement entered into between
Sangamo and each of its directors and executive officers.
10.5++ Triple Net Laboratory Lease, between Sangamo and Point
Richmond R&D Associates II, LLC, dated May 23, 1997.
10.6++ Form of collaboration agreement.
10.7+++ License Agreement, between Sangamo and Baxter Healthcare
Corporation, dated January 11, 2000.
10.8+++ Sublicense Agreement, by and between Sangamo and Johnson &
Johnson, dated May 9, 1996.
10.9+++ ZFP Material Transfer Agreement, between Sangamo and Japan
Tobacco Inc., dated March 8, 1999.
10.10++ Financial Assistance Award from U.S. Department of Commerce,
dated March 31, 1997.
10.11++ Notice of Grant Award from National Institute of Allergy and
Infectious Diseases, dated August 9, 1999.
10.12+++ Patent License Agreement between Sangamo and Massachusetts
Institute of Technology dated May 9, 1996.
10.13+++ License Agreement between Sangamo and the Johns Hopkins
University dated July 16, 1998.
10.14+++ License Agreement between Sangamo and the Medical Research
Council dated September 1, 1996.
10.15++ Employment Agreement, between Sangamo and Edward O. Lanphier
II, dated June 1, 1997.
10.16++ 1995 Stock Option Plan.
10.17++ Research Funding Agreement, by and between Sangamo and
Baxter Healthcare Corporation, dated January 11, 2000.
10.18++ Employment Agreement, between Sangamo and Alan Wolffe,
Ph.D., dated March 17, 2000.
10.19++ License Agreement by and between The Scripps Research
Institute and Sangamo, dated March 14, 2000.
23.1(1) Consent of Ernst & Young LLP, Independent Auditors.
24.1 Power of Attorney. (See page 57)
- ------------------------
+ Confidential treatment has been granted as to portions of this exhibit.
++ Incorporated by reference from Sangamo's Registration Statement on From S-1
(Reg. No. 333-30314), as amended.
(1) filed herewith