SANGAMO THERAPEUTICS, INC. The discussion in "Management's Discussion and Analysis of Financial Condition and Results of Operations" contains trend analysis, estimates and other forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act of 1934, as amended. These forward-looking statements include, without limitation, statements containing the words "anticipates," "believes," "continues," "could," "estimates," "expects," "intends," "may," "plans," "seeks," "should," "will," and other words of similar import or the negative of those terms or expressions. Such forward-looking statements are subject to known and unknown risks, uncertainties, estimates and other factors that may cause our actual results, performance or achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Actual results could differ materially from those set forth in such forward-looking statements as a result of, but not limited to, the "Risk Factors" described in Part I, Item 1A our Annual Report on Form 10-K for the year endedDecember 31, 2021 as filed with theSecurities and Exchange Commission onFebruary 24, 2022 , or the 2021 Annual Report, as supplemented by the risks described under "Risk Factors" in Part II, Item 1A of this Quarterly Report on Form 10-Q. You should also read the following discussion and analysis in conjunction with our Condensed Consolidated Financial Statements and accompanying notes included in this report and the Consolidated Financial Statements and accompanying notes thereto included in our 2021 Annual Report. Overview We are a clinical-stage genomic medicine company committed to translating ground-breaking science into medicines that transform the lives of patients and families afflicted with serious diseases. We plan to deliver on this mission through development of our clinical and preclinical product candidates leveraging our novel science and our in-house manufacturing capabilities.
Clinical Programs Updates:
•Fabry Disease: Isaralgagene civaparvovec, also known as ST-920, is our wholly-owned gene therapy product candidate for the treatment of Fabry disease and is currently being evaluated in our Phase 1/2 STAAR clinical study. Sangamo recently presented updated preliminary data from the STAAR study at three medical conferences. Data were presented at theSociety for the Study of Inborn Errors of Metabolism (SSIEM) Annual Meeting in August, as of theFebruary 14, 2022 cutoff date. Updated preliminary data as of theJuly 21, 2022 cutoff date were presented at the 29thCongress of theEuropean Society of Gene & Cell Therapy , or ESGCT, andNational Organization for Rare Disorders , or NORD, conference in October. The updated preliminary data showed that all nine patients from the dose escalation phase exhibited sustained elevated ?-Gal A activity, ranging from nearly 2-fold to 30-fold of mean normal, for up to 23 months post dosing, as of the last date of measurement. Four patients were withdrawn from enzyme replacement therapy, or ERT, and maintained significantly elevated levels of ?-Gal A activity up to 28 weeks post withdrawal. Since theJuly 21, 2022 cutoff date, the fifth and final patient in the dose escalation phase who started the study on ERT was withdrawn from ERT. All patients withdrawn have remained off ERT. The Phase 1/2 STAAR study has transitioned into the expansion phase, with the first five expansion patients dosed at the 5e13 vg/kg dose level, including the first two female patients. We have multiple patients in screening, including both male and female candidates. We also continue to actively plan for a potential pivotal Phase 3 trial and are engaging with health authorities, patient advocacy groups and investigators. •Sickle Cell Disease: BIVV003, formerly known asSAR445136 , is our zinc finger nuclease, or ZFN, gene-edited autologous cell therapy product candidate for the treatment of sickle cell disease, or SCD, and is currently being evaluated in our Phase 1/2 PRECIZN-1 clinical study. InOctober 2022 , we dosed the sixth patient in the Phase 1/2 study, who is the second patient in the study to receive a product candidate manufactured using improved methods that have been shown in internal experiments to increase the number of long-term progenitor cells in the final product. InAugust 2022 , the FDA granted Sangamo's request for regenerative medicine advanced therapy, or RMAT, designation for BIVV003. RMAT designation is granted to regenerative medicine therapies intended to treat, modify, reverse, or cure a serious condition, for which preliminary clinical evidence indicates that the medicine has the potential to address an unmet medical need. We plan to present updated data, of which a summary of the accepted abstract is located below, from the Phase 1/2 PRECIZN-1 study in a poster presentation at the 64thAmerican Society of Hematology , or ASH, Annual Meeting & Exposition taking placeDecember 10-13, 2022 inNew Orleans, Louisiana . Phase 3 study design, enabling activities and manufacturing readiness continue. •Renal Transplant Rejection: TX200 is our wholly-owned Chimeric Antigen Receptor, or CAR, engineered regulatory T cell, or CAR-Treg, cell therapy product candidate for the prevention of immune-mediated rejection in HLA-A2 mismatched kidney transplantation from a living donor and is currently being evaluated in our Phase 1/2 STEADFAST clinical study. InSeptember 2022 , we dosed the second patient in the Phase 1/2 study. The product candidate continues 27
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to be generally well tolerated in both patients. InOctober 2022 , the second patient in the Phase 1/2 STEADFAST study experienced a serious adverse event, or SAE, of duodenal ileus. The patient was also noted to be COVID positive. The Principal Investigator and theSafety Monitoring Committee for the TX200 study assessed the SAE as unrelated to the TX200 treatment, and the patient has since fully recovered. Clinical activities continue to progress in preparation for patient three. We plan to provide guidance on timing of dosing of the third patient once the kidney transplant has been scheduled and we have confirmed a potential dosing date. •Hemophilia A: Giroctocogene fitelparvovec, also known as SB-525, is a gene therapy product candidate for the treatment of moderately severe to severe hemophilia A and is the subject of our Phase 1/2 Alta study and the registrational Phase 3 AFFINE clinical trial. We are developing giroctocogene fitelparvovec with our collaborator Pfizer Inc., or Pfizer. We and Pfizer plan to present updated data, of which a summary of the accepted abstract is located below, from the Phase 1/2 Alta study in a poster presentation at ASH onDecember 10-13, 2022 . InSeptember 2022 , we and Pfizer jointly announced that the Phase 3 AFFINE trial had re-opened recruitment following a voluntary pause and subsequent clinical hold. Trial sites resumed enrollment in September, and dosing is expected to resume shortly. All trial sites are anticipated to be active by the end of 2022, and a pivotal readout is expected in the first half of 2024.
Summary of Preliminary Safety and Efficacy Results from the Phase 1/2 PRECIZN-1 Study of BIVV003
•BIVV003 is a novel therapeutic product candidate comprising autologous CD34 hematopoietic stem progenitor cells, or HSPCs, modified ex vivo by ZFNs targeting specifically the BCL11A gene erythroid-specific enhancer, or ESE, to increase endogenous fetal hemoglobin, or HbF, production in erythrocytes. •PRECIZN-1 is an ongoing first-in-human, open label, single arm, multi-site study evaluating safety and tolerability of BIVV003 in patients (n=8; aged 18-40 years) with severe SCD across sixU.S. sites. •Eligible patients underwent mobilization and apheresis with plerixafor. Autologous HSPC, were transfected ex vivo with ZFN messenger ribonucleic acid to manufacture BIVV003. A single IV infusion was administered at least 72 hours after pre-conditioning with busulfan.
•Patients were monitored for stem cell engraftment and hematopoietic recovery, adverse events, or AEs, clinical and laboratory hemolysis markers, total hemoglobin and HbF, percentage of red blood cells containing HbF, and SCD related events.
•As of the cutoff date of
•A fifth patient was dosed with BIVV003 onMay 4, 2022 and has engrafted. This patient received BIVV003 manufactured using an improved process that has been shown in internal experiments to increase the number of ZFN-modified long-term progenitors in the product candidate. •Of the four patients dosed prior to the cutoff date, three have improved clinically since BIVV003 infusion through the cutoff date. For these three patients, the percent HbF levels stabilized at 30% or greater by 26 weeks after BIVV003 infusion and persisted for up to 104 weeks for the longest treated patient (2 years) (see Figure 1 below). The percentage of F cells (red blood cells that contained HbF) were sustained at 90% or greater for up to 104 weeks. Total hemoglobin levels were maintained in the range of 9.4-12.7 g/dL. The one patient whose percent HbF level stabilized at less than 20% and who did not sustain HbF levels above 10 pg per cell experienced two severe VOCs at 9- and 16-months post-infusion. 28
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Figure 1: Total Hb and Hb fractionation over time
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As of the
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Summary of Updated Preliminary Results from the Phase 1/2 Alta Study of Giroctocogene Fitelparvovec
Eleven male patients participated in the study overall, with five patients in the 3e13-vg/kg highest dose cohort. As of theMay 20, 2022 cutoff date, patients had been followed for 147 to 247 weeks, with two not having completed three years (156 weeks). •As of theMay 20, 2022 cutoff date, the most commonly reported treatment-related AEs in the highest dose cohort (3e13-vg/kg) included elevated liver enzymes and infusion-related reactions: increased alanine aminotransferase, or ALT 3/5 (60.0%), increased aspartate aminotransferase, or AST 2/5 (40.0%), pyrexia 3/5 (60.0%), and tachycardia 2/5 (40.0%). •Treatment-related SAEs were reported in one patient in the highest dose cohort who experienced hypotension and fever with onset approximately six hours after giroctocogene fitelparvovec infusion; the events fully resolved with treatment and did not delay post-infusion discharge the next day. ALT elevations requiring more than seven days of corticosteroid treatment were observed in four of the five patients in the highest dose cohort as of theMay 20, 2022 cutoff date; elevations in ALT were managed with a tapering course of corticosteroids (median 56 days; range: 7-135 days), with maintenance of clinically meaningful levels of factor VIII, or FVIII, activity, as evidenced by a lack of bleeding events around the time of corticosteroid treatment and minimal bleeding events afterwards.
•As of the
•The three patients in the 3e13-vg/kg cohort with available data through Week 156 had mean FVIII activity maintained in the mild to normal range, as shown in the table below. Of the data available for the remaining two patients, one maintained FVIII activity levels in the mild range through Week 130 and one had FVIII activity levels below lower level of quantification (<3%) as measured with a chromogenic assay and 5.4% measured with a 1-stage assay at Week 130. •In the 3e13-vg/kg cohort, the annualized bleeding rate, meaning the number of all bleeding episodes starting three weeks after the product candidate infusion divided by the observation period in years, was zero for the first year post-infusion and 0.9 throughout the total duration of follow-up. In this cohort, two patients experienced a total of 12 bleeding events (six traumatic, four spontaneous, two unknown) necessitating treatment with exogenous FVIII. As of theMay 20, 2022 cutoff date, no patients in this cohort have resumed prophylaxis.
Table. Factor VIII Activity Levels by 1-Stage and Chromogenic Assay for the Giroctocogene Fitelparvovec 3e13-vg/kg Cohort
Factor VIII Activity, Study Week
% Normal, Median (min, max)
Assay Week 12 Week 24 Week 52 Week 78 Week 104 Week 130 Week 156
1-stage clotting 93.7 104.8 31.1 57.5 27.5 23.3 22.9
(82.7, 167.7) (30.5, 212.6) (12.0, 191.3) (3.8, 144.2) (4.1, 99.1) (5.4, 164.5) (22.6, 129.0)
Chromogenic 62.1 70.1 20.1 40.1 16.3 12.3 12.5
(51.8, 109.5) (20.4, 123.8) (7.8, 122.3) (0.9, 114.7) (0.9, 71.6) (0.9, 113.2) (11.8, 91.1)
Patients, n 5 5 4a 4a 5 4a 3b(a) There was one patient each who was unable to attend visits at Weeks 52, 78, and 130. (b) Two patients had not yet reached Week 156 at the time of the data cut. min, max = minimum, maximum
Preclinical Programs
Our preclinical development is focused in two innovative priority areas: (i) CAR-Treg cell therapies for autoimmune disorders and (ii) genome engineering for neurological diseases. Indications for our preclinical programs include neurodevelopmental disorders, cancer, inflammatory bowel disease, tauopathies and neurodegenerative diseases such as amyotrophic lateral sclerosis, multiple sclerosis, and Huntington's disease, some of which we are developing with our collaboratorsBiogen MA, Inc. andBiogen International GmbH , which we refer to together as Biogen,Novartis Institutes for BioMedical Research, Inc. , or Novartis, Pfizer, and Takeda Pharmaceutical Company Limited.
Collaborations
Our multiple collaborations with biopharmaceutical companies bring us important
financial and strategic benefits and reinforce the potential of our research and
development efforts and our ZFP technology platform. They leverage our
collaborators' therapeutic and clinical expertise and commercial resources with
the goal to bring our medicines more rapidly to
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patients. We believe these collaborations reflect the value of our ZFP technology platform and will potentially expand the addressable markets of our product candidates. To date, we have received approximately$815.0 million in upfront licensing fees, milestone payments and proceeds from sales of our common stock to collaborators and have the right to earn up to$6.7 billion in future milestone payments from our collaborations, in addition to potential product royalties. In-House Manufacturing We believe that our in-house manufacturing capacity provides us a competitive advantage. We currently operate an adeno-associated virus, or AAV, manufacturing facility in ourBrisbane, California headquarters and cell therapy manufacturing facilities inBrisbane, California andValbonne, France . Our manufacturing strategy is to provide greater flexibility, quality and control to our product candidate pipeline by building a balanced and necessary capacity achieved through our in-house manufacturing, contract manufacturing organizations, or CMOs, and partnerships; investing in manufacturing processes and analytics; and developing a strong supply chain.
For additional information regarding our business, see "Business" in Part I, Item 1 of the 2021 Annual Report.
Impacts of the Ongoing COVID-19 Pandemic
We have experienced and continue to experience impacts from the ongoing and evolving COVID-19 pandemic on our business and operations and could continue to experience these or potentially more severe impacts as the pandemic evolves inthe United States ,France , theUnited Kingdom and locations of our clinical studies and trials, such as the new sites for our STAAR study inCanada ,Italy andAustralia . For example, we have experienced periodic short-term disruptions to our onsite operations while addressing positive cases of COVID-19 by onsite workers and clinical trial patients, and our operations could experience longer term disruptions in the future in the event of a significant outbreak of COVID-19 among our onsite workers or clinical trial patients. Moreover, from time to time, we have been required to reorganize and prioritize our resources to mitigate moderate COVID-19 impacts arising from travel restrictions, density restrictions and supply constraints. If our programs encounter longer-term disruptions, it could impact our ability to support our biopharmaceutical partners as contemplated in our collaboration agreements and could result in adjustments to our timelines. Additionally, our Phase 1/2 STAAR clinical study evaluating isaralgagene civaparvovec has experienced and continues to experience delays in its timeline due in part to COVID-19 impacts and the diversion of healthcare resources to fight the pandemic. For example, we have experienced delays in recruiting, enrolling and dosing patients for this study, due in part to the hesitation of patients to travel by plane to trial sites not within driving distance and to enter medical facilities during the pandemic and also due in part to trial sites prioritizing COVID-19 clinical care over research activities such as the STAAR study. The study has also experienced delays when certain patients have decided to take the COVID-19 vaccine or tested positive for COVID-19 prior to enrollment or dosing in the study, and when certain patient candidates decided not to take the COVID-19 vaccine, which disqualified them from study participation. Moreover, we had experienced some short-term delays in sourcing the necessary raw materials to manufacture supplies for the STAAR study and in transporting clinical trial materials due to COVID-19 impacts. We estimated that these challenges set back our initial STAAR study timelines by approximately three to six months. Clinical timelines for this study could be revised again if COVID-19 impacts to our recruitment, screening, enrollment and dosing of patients and to our sourcing of raw materials for this study intensify because of vaccination delays, new COVID-19 variants or unexpected events. In addition, our STEADFAST study evaluating TX200, our wholly-owned CAR-Treg cell therapy product candidate for the treatment of kidney transplant rejection, has experienced delays in its timeline due to COVID-19 impacts related to manufacturing and technology transfer challenges with our CMOs and due to patients and donors testing positive for COVID-19. Our timelines for this study could be adjusted if COVID-19 impacts result in additional delays. With respect to our partnered programs, the timelines for the studies and trials managed by our collaborators are also subject to potential delay in the future if these studies and trials experience similar challenges that we have experienced and continue to experience in our STAAR and STEADFAST studies. Going forward, we will continue to monitor the impact of COVID-19 on our operations, research commitments and clinical trials and those of our collaborators, clinical trial sites and CMOs. The magnitude of these impacts will depend, in part, on the length and severity of the COVID-19 pandemic and related government orders and restrictions, and how the pandemic limits the ability of us and our business partners to operate business in the ordinary course. Disruptions to these operations, and possibly more severe disruptions in the future that could arise due to restrictions applicable in the places we operate or our industry generally or to us and our facilities specifically, could impede our ability to conduct research in a timely manner, comply with our research obligations to our collaborators and advance the development of our therapeutic programs. These delays and disruptions could result in adverse material impacts to our business, operating results and financial condition. We do not anticipate any material negative impact on our financial condition in 2022 as a result of the COVID-19 pandemic. We believe we are well positioned financially in the near term to execute on our wholly-owned and partnered research 32
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and clinical programs. As ofSeptember 30, 2022 , we had$350.3 million in cash, cash equivalents, and marketable securities. Although we believe we are well-capitalized currently, the effects of the evolving pandemic (along with the effects of war inUkraine , inflation, climate change, rising interest rates and other economic uncertainty and volatility) could result in further disruption of global financial markets, impairing our ability to access capital, which could negatively affect our liquidity in the future. We do not currently anticipate any material impairments to the valuation of the financial assets or goodwill on our balance sheet as a result of the COVID-19 pandemic. We do not believe that the remote workplace arrangements we have implemented for our office-based employees have affected our financial reporting or control systems. The extent to which the COVID-19 pandemic will impact our business, operations and financial condition, either directly or indirectly, will depend on future developments that remain highly uncertain at the present time. These developments include the ultimate duration and severity of the pandemic, the impacts of new COVID-19 variants, travel restrictions, new public health restrictions inthe United States ,France , theUnited Kingdom and other countries, business closures or business disruptions and the effectiveness and timeliness of actions taken inthe United States ,France , theUnited Kingdom and other countries to contain and treat the disease, including the effectiveness and timing of vaccination programs. The surge of new variants of the virus, including the recent Omicron variant and its subvariants, has resulted and may in the future result in the return of prior, or imposition of new, orders and restrictions. As our understanding of events evolves and additional information becomes available, we may materially change our guidance relating to our revenues, expenses and timelines for manufacturing, clinical trials and research and development. See the section titled "Risk Factors" included in Part I, Item 1A of the 2021 Annual Report for additional information on risks and uncertainties related to the evolving COVID-19 pandemic.
Certain Components of Results of Operations
Our revenues have consisted primarily of revenues from upfront licensing fees, reimbursements for research services, milestone achievements and research grant funding. We expect revenues to continue to fluctuate from period to period and there can be no assurance that new collaborations or partner reimbursements will continue beyond their initial terms or that we are able to meet the milestones specified in these agreements.
We have incurred net losses since inception and expect to incur losses for at least the next several years as we continue our research and development activities. To date, we have funded our operations primarily through the issuance of equity securities and revenues from collaborations and research grants.
We expect to continue to devote substantial resources to research and development in the future and expect research and development expenses to increase in the next several years if we are successful in advancing our product candidates from research stage through clinical trials. Pursuant to the terms of our agreements with Biogen,Kite Pharma, Inc. , or Kite, and Novartis, certain expenses related to research and development activities will be reimbursed to us. The reimbursement funds to be received from Biogen, Kite, and Novartis will be recognized as revenue as the related costs are incurred and collection is reasonably assured. General and administrative expenses consist primarily of salaries and personnel related expenses for executive, finance and administrative personnel, stock-based compensation expenses, professional fees, allocated facilities expenses, patent prosecution expenses and other general corporate expenses. As we continue to advance our product candidates into and through the clinic, we expect the growth of our business to require increased general and administrative expenses.
Critical Accounting Policies and Estimates
The accompanying management's discussion and analysis of our financial condition and results of operations are based upon our Condensed Consolidated Financial Statements and the related disclosures, which have been prepared in accordance with generally accepted accounting principles inthe United States . The preparation of these Condensed Consolidated Financial Statements requires us to make estimates, assumptions and judgments that affect the reported amounts in our Condensed Consolidated Financial Statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe our critical accounting policies and estimates relating to revenue recognition and valuation of long-lived assets including goodwill and intangible assets are the most significant estimates and assumptions used in the preparation of our Condensed Consolidated Financial Statements. There have been no significant changes in our critical accounting policies and estimates during the three and nine months endedSeptember 30, 2022 , as compared to the critical accounting policies and estimates disclosed in "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in Part II, Item 7 of the 2021 Annual Report. 33
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Results of Operations for the Three and Nine Months EndedSeptember 30, 2022 and 2021 Revenues Three Months Ended September 30, Nine Months Ended September 30, (in thousands, except percentage values) (in thousands, except percentage values) 2022 2021 Change % 2022 2021 Change % Revenues$ 26,460 $ 28,563 $ (2,103) (7%)$ 84,069 $ 82,715 $ 1,354 2% Total revenues primarily consisted of revenues from collaboration agreements. We anticipate revenues over the next several years will be derived primarily from our collaboration agreements with Biogen, Novartis, Kite, and Pfizer as we continue to recognize upfront and milestone payments received under such agreements over time. The decrease of$2.1 million in revenues for the three months endedSeptember 30, 2022 , compared to the same period in 2021, was primarily attributed to a decrease of$1.9 million in revenue related to our collaboration agreement with Novartis, and a decrease of$1.6 million in revenue related to our collaboration agreement with Biogen. These decreases were partially offset by a$1.9 million adjustment to revenue related to the collaboration agreement withSanofi S.A. , or Sanofi, during 2021, primarily due to a change in estimate regarding project costs, resulting in an adjustment to revenue under the agreement, offset by a decrease of$1.1 million in revenue due to the termination of collaboration agreement with Sanofi, and an increase of$0.5 million in revenue related to our collaboration agreement with Kite. The increase of$1.4 million in revenues for the nine months endedSeptember 30, 2022 , compared to the same period in 2021, was primarily attributed to a$1.9 million adjustment to revenue related to the collaboration agreement with Sanofi during 2021, primarily due to a change in estimate regarding project costs, resulting in an adjustment to revenue under the agreement, offset by a decrease of$0.1 million in revenue due to the termination of collaboration agreement with Sanofi, an increase of$0.5 million in revenue related to our collaboration agreement with Kite, and an increase of$0.5 million in revenue related to our collaboration agreement with Novartis. These increases were partially offset by a decrease of$1.5 million in revenue related to our collaboration agreement with Biogen. Operating expenses Three Months Ended September 30, Nine Months Ended September 30, (in thousands, except percentage values) (in thousands, except percentage values) 2022 2021 Change % 2022 2021 Change % Operating expenses: Research and development$ 65,116 $ 62,498 $ 2,618 4%$ 183,719 $ 179,018 $ 4,701 3% General and administrative 16,238 14,501 1,737 12% 46,239 47,135 (896) (2%) Total operating expenses$ 81,354 $ 76,999 $ 4,355 6%$ 229,958 $ 226,153 $ 3,805 2%
Research and Development Expenses
Research and development expenses consisted primarily of compensation related expenses including stock-based compensation, laboratory supplies, preclinical and clinical studies costs, clinical supply manufacturing costs, contracted research, and facilities and information technology expenses. The increase of$2.6 million in research and development expenses for the three months endedSeptember 30, 2022 , compared to the same period in 2021, was primarily attributable to higher facilities and information technology costs of$2.7 million driven by overall cost increases and progress made on projects resulting in reassignment of additional space to our research and development departments, an increase of$0.8 million in compensation and other personnel costs as a result of increased headcount to support our programs, and an increase of$0.5 million in travel and entertainment expenses. These increases were partially offset by a decrease of$0.4 million in preclinical, clinical and lab supply expenses due to the timing of certain research and development activities, and$0.9 million in reimbursement of certain research and development expenses by Sanofi. Stock-based compensation expense included in research and development expenses was$4.4 million and$4.9 million for the three months endedSeptember 30, 2022 and 2021, respectively. The increase of$4.7 million in research and development expenses for the nine months endedSeptember 30, 2022 , compared to the same period in 2021, was primarily driven by higher facilities and information technology costs of$7.8 million driven by overall cost increases and progress made on projects resulting in reassignment of additional space to our research and development departments, an increase of$0.9 million in travel and entertainment expenses, and an increase of$0.8 million in compensation and other personnel costs as a result of increased headcount to support our programs. These increases were partially offset by a decrease of$3.7 million in preclinical, clinical and lab supply expenses due to the timing of certain research and development activities, and$0.9 million in reimbursement of certain research and development expenses by Sanofi. Stock-based 34
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compensation expense included in research and development expenses was
We expect to continue to devote substantial resources to research and development in the future and expect research and development expenses to increase in the next several years if we are successful in advancing our clinical programs and if we are able to progress our earlier stage product candidates into clinical trials.
The length of time required to complete our development programs and our development costs for those programs may be impacted by the scope and timing of enrollment in clinical trials for our product candidates, our decisions to pursue development programs in other therapeutic areas, and whether we pursue development of our product candidates with a partner or collaborator or independently. For example, our product candidates are being developed in multiple therapeutic areas, and we do not yet know how many of those therapeutic areas we will continue to pursue. Furthermore, the scope and number of clinical trials required to obtain regulatory approval for each pursued therapeutic area is subject to the input of the applicable regulatory authorities, and we have not yet sought such input for all potential therapeutic areas that we may elect to pursue, and even after having given such input, applicable regulatory authorities may subsequently require additional clinical studies prior to granting regulatory approval based on new data generated by us or other companies, or for other reasons outside of our control. As a condition to any regulatory approval, we may also be subject to post-marketing development commitments, including additional clinical trial requirements. As a result of the uncertainties discussed above, we are unable to determine the duration of or complete costs associated with our development programs. Our potential therapeutic products are subject to a lengthy and uncertain regulatory process that may not result in our receipt of any necessary regulatory approvals. Failure to receive the necessary regulatory approvals would prevent us from commercializing the product candidates affected. In addition, clinical trials of our product candidates may fail to demonstrate safety and efficacy, which could prevent or significantly delay regulatory approval. A discussion of the risks and uncertainties with respect to our research and development activities, including completing the development of our product candidates, and the consequences to our business, financial position and growth prospects can be found in "Risk Factors" in Part I, Item 1A of the 2021 Annual Report, as supplemented by the risks described under "Risk Factors" in Part II, Item 1A of this Quarterly Report on Form 10-Q.
General and Administrative Expenses
General and administrative expenses consist primarily of compensation related expenses including stock-based compensation for executive, legal, finance and administrative personnel, professional fees, facilities and information technology expenses, and other general corporate expenses. The increase of$1.7 million in general and administrative expenses for the three months endedSeptember 30, 2022 , compared to the same period in 2021, was primarily driven by an increase of$2.1 million in compensation and other personnel costs, and an increase of$1.0 million in legal and professional fees. These increases were partially offset by a decrease of$1.6 million in allocated costs attributable to progress made on projects resulting in reassignment of additional space to our research and development departments. Stock-based compensation expense included in general and administrative expenses was$3.4 million and$2.9 million for the three months endedSeptember 30, 2022 and 2021, respectively. The decrease of$0.9 million in general and administrative expenses for the nine months endedSeptember 30, 2022 , compared to the same period in 2021, was primarily driven by a decrease of$4.3 million in allocated costs attributable to progress made on projects resulting in reassignment of additional space to our research and development departments. This decrease was partially offset by an increase of$3.4 million in compensation and other personnel costs, legal and professional fees, and travel and entertainment expenses. Stock-based compensation expense included in general and administrative expenses was$9.7 million and$10.2 million for the nine months endedSeptember 30, 2022 and 2021, respectively.
As we continue to build out our product portfolio and advance our product candidates into the clinic, we expect higher general and administrative expenses to support the growth of the business.
Interest and other income, net
Interest and other income, net, increased by$0.9 million for the three months endedSeptember 30, 2022 , compared to the same period in 2021, primarily driven by an increase of$1.2 million in interest income reflecting increases in market interest rates, and a decrease in interest expense of$0.2 million related to dissolution of the repayment obligation of a grant fromCalifornia Institute for Regenerative Medicine associated with the discontinuation of the ST-400 program in 2021. These increases were partially offset by a decrease of$0.5 million related to fluctuations in foreign currency exchange rates. Interest and other income, net, increased by$2.7 million for the nine months endedSeptember 30, 2022 , compared to the same period in 2021, as we benefited from$3.0 million of Employee Retention Credit under the Coronavirus Aid, Relief, and Economic Security Act, an increase of$1.4 million in interest income reflecting increase in market interest rates, and a decrease 35
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in interest expense of
Liquidity and Capital Resources
Liquidity
Since inception, we have incurred significant net losses, and we have funded our operations primarily through the issuance of equity securities, payments from corporate collaborators and strategic partners and research grants. As ofSeptember 30, 2022 , we had cash, cash equivalents, and marketable securities totaling$350.3 million , compared to$464.7 million as ofDecember 31, 2021 . Our most significant use of capital was for employee compensation and external research and development expenses, including manufacturing, clinical trials and preclinical activity related to our therapeutic programs. Our cash and investment balances are held in a variety of interest-bearing instruments, includingU.S. government-sponsored entity debt securities, commercial paper securities, money market funds, corporate debt securities, asset-backed securities and certificates of deposit. Cash in excess of immediate requirements is invested in accordance with our investment policy with a view toward capital preservation and liquidity. InAugust 2020 , we entered into an Open Market Sale Agreement?, or the sales agreement, withJefferies LLC , providing for the sale of up to$150.0 million of our common stock from time to time in "at-the-market" offerings under an existing shelf registration statement. During the nine months endedSeptember 30, 2022 , we sold 14,711,770 shares of our common stock under the sales agreement for net proceeds of approximately$66.4 million , of which approximately$0.6 million was received inOctober 2022 and recorded within prepaid expenses and other current assets on our Condensed Consolidated Balance Sheet as ofSeptember 30, 2022 . Subsequently in October, we sold 1,921,594 shares of our common stock under the sales agreement for net proceeds of approximately$8.7 million . While we expect our rate of cash usage to increase in the future, in particular to support our product development endeavors, we currently believe that our available cash, cash equivalents, and marketable securities and expected revenues from collaborations and strategic partnerships will be adequate to fund our currently planned operations through at least the next 12 months from the date our Condensed Consolidated Financial Statements are issued. We expect to raise additional capital through additional collaborative agreements and/or the sale of additional equity or debt financing to fund our future needs beyond the next 12 months. During this period of uncertainty and volatility, we will continue to monitor our liquidity.
Cash Flows
Operating activities
Net cash used in operating activities was$166.6 million for the nine months endedSeptember 30, 2022 , primarily reflecting our net loss of$140.3 million , a decrease in deferred revenues of$65.0 million , an increase in prepaid expenses and other assets by$5.8 million , and a decrease in lease liabilities by$3.3 million . These decreases were partially offset by$38.2 million of non-cash expenses related to stock-based compensation, depreciation and amortization, amortization of premium on marketable securities, and amortization of operating lease right-of-use assets and a$9.4 million increase in accounts payable and other accrued liabilities. Net cash used in operating activities was$180.5 million for the nine months endedSeptember 30, 2021 , primarily reflecting our net loss of$140.8 million , a decrease in deferred revenues of$62.3 million , an increase in prepaid expenses and other assets by$6.5 million , a decrease in accounts payable and other accrued liabilities by$4.7 million , a decrease in long term portion of lease liabilities by$3.2 million , an increase in accounts receivable by$2.7 million , and a decrease in accrued compensation and employee benefits by$1.9 million . These decreases were partially offset by$40.1 million of non-cash expenses related to stock-based compensation, depreciation and amortization, amortization of premium (discount) on marketable securities, and amortization and other changes in operating lease right-of-use assets.
Investing activities
Net cash provided by investing activities was
Net cash provided by investing activities for the nine months ended
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Financing activities
Net cash provided by financing activities was$65.1 million for the nine months endedSeptember 30, 2022 , mostly related to$67.5 million of proceeds from the at-the-market offering, net of offering expenses of$1.7 million , and proceeds from purchases of common stock under the employee stock purchase plan of$1.1 million , partially offset by taxes paid related to net share settlement of equity awards of$2.0 million . Net cash provided by financing activities was$30.7 million for the nine months endedSeptember 30, 2021 , mostly related to$27.9 million of proceeds from the at-the-market offering, net of offering expenses of$0.8 million , and proceeds from the exercise of stock options and purchases under the employee stock purchase plan of$6.6 million , partially offset by taxes paid related to net share settlement of equity awards of$3.0 million .
Operating Capital and Capital Expenditure Requirements
We anticipate continuing to incur operating losses for at least the next several years. Although we believe we are well capitalized currently, the effects of the ongoing COVID-19 pandemic, war inUkraine , inflation, rising interest rates and other economic uncertainty and volatility could result in significant disruption of global financial markets, impairing our ability to access capital, which could in the future negatively affect our liquidity. Future capital requirements beyond the next 12 months will be substantial, and we will need to raise substantial additional capital to fund the development, manufacturing and potential commercialization of our product candidates through additional collaboration agreements and/or equity or debt financing. In addition, as we focus our efforts on proprietary human therapeutics, we will need to seek FDA approvals of our product candidates, a process that could cost in excess of hundreds of millions of dollars per product. We regularly consider fund-raising opportunities and may continue to decide, from time to time, to raise additional capital based on various factors, including market conditions and our plans of operation. Additional capital may not be available on terms acceptable to us, or at all. If adequate funds are not available, or if the terms of potential funding sources are unfavorable, our business and our ability to advance our product candidate pipeline would be harmed. Furthermore, any sales of additional equity securities, including additional sales pursuant to our at-the-market offering program, may result in dilution to our stockholders, and any debt financing may include covenants that restrict our business.
Our future capital requirements will depend on many forward-looking factors, including the following:
•the initiation, progress, timing and completion of clinical trials for our product candidates and potential product candidates;
•the outcome, timing and cost of regulatory approvals;
•the success of our collaboration agreements;
•delays that may be caused by changing regulatory requirements;
•the number of product candidates that we pursue;
•the costs involved in filing and prosecuting patent applications and enforcing and defending patent claims;
•the timing and terms of future in-licensing and out-licensing transactions;
•the cost and timing of establishing sales, marketing, manufacturing and distribution capabilities;
•the cost of procuring clinical and commercial supplies of our product candidates;
•the extent to which we acquire or invest in businesses, products or technologies, including the costs associated with such acquisitions and investments; and
•the costs of potential disputes and litigation.
Contractual Obligations
Our future minimum contractual obligations as ofDecember 31, 2021 were reported in the 2021 Annual Report. During the nine months endedSeptember 30, 2022 , there have been no other material changes outside the ordinary course of our business from the contractual obligations previously disclosed in our 2021 Annual Report.
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