| SANGAMO BIOSCIENCES INC Item 1A Risk Factors We have increased the focus of our research and development programs on human therapeutics, which may increase operating expenditures and the uncertainty of our business |
| We are increasing the emphasis and focus of our research and development activities on ZFP Therapeutics and have relatively fewer resources invested in our Enabling Technology programs |
| In the short term, this change in resource allocation may reduce our revenues and increase operating expenditures due to larger financial outlays to fund preclinical studies, manufacturing, and clinical research |
| The transition will also increase the visibility of our lead therapeutic programs and the potential impact on the stock price of news releases relating to these programs |
| We are conducting proprietary research to discover ZFP Therapeutic product candidates |
| These programs increase our financial risk of product failure, may significantly increase our research expenditures, and may involve conflicts with our collaborators and strategic partners |
| Our proprietary research programs consist of research which is funded solely by the Company and where the Company retains exclusive rights to therapeutic products generated by the research |
| This is in contrast to certain of our research programs that may be funded by corporate partners and in which we may share rights to any resulting products |
| We have conducted proprietary research since inception, however, in the past year, our strategy has shifted toward placing greater emphasis on proprietary research and therapeutic development and we expect this trend will continue in 2006 as we initiate our first Phase 2 clinical trial and bring new ZFP Therapeutics into clinical trials |
| 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, the expenditure of significantly greater funds than our historic research activities and will require substantial commitments of time from our management and staff |
| In addition, disagreements with our 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 |
| We, and our partner, Edwards Lifesciences, have initiated Phase 1 clinical trials in our respective lead ZFP Therapeutic programs, and ZFP Therapeutics have never before been tested in humans |
| We have completed enrollment and treatment of the patients in the first of these trials of SB-509 for diabetic neuropathy and thus far have not observed any drug-related adverse events |
| However if our lead ZFP Therapeutic fails its initial safety study, it could reduce our ability to attract new investors and corporate partners |
| In January 2005, Sangamo filed an IND with the FDA for SB-509, a ZFP TF activator of VEGF-A, for the treatment of mild to moderate diabetic neuropathy |
| We have completed enrollment and treatment of a Phase 1, single blind, dose-escalation trial to measure the laboratory and clinical safety of SB-509 and reported that we did not observe dose-limiting toxicity or any severe adverse drug-related events |
| We expect to present data from this trial in the first half of 2006 and to initiate a Phase 2 clinical trial of SB-509 in the second half of 2006 |
| Edwards Lifesciences also filed an investigational new drug (IND) application with the US Food and Drug Administration (FDA) on February 10, 2004 and initiated a Phase 1 clinical trial in humans in August, 2004 and a second in the first half of 2005 |
| The first Phase 1 studies of a 23 _________________________________________________________________ [73]Table of Contents ZFP Therapeutic will be a highly visible test of the Company’s ZFP Therapeutic approach |
| Since we have increased our focus on ZFP Therapeutic research and development, investors will increasingly assess the value of the Company’s technology based on the continued progress of ZFP Therapeutic products into and through clinical trials |
| If the initial safety study of our lead therapeutic was halted due to safety concerns, this would negatively affect the value of the Company’s stock |
| Our collaborators may control aspects of our clinical trials, which could result in delays and other obstacles in the commercialization of our proposed products |
| For some programs we are dependent on third party collaborators to design and conduct our clinical trials |
| In addition, if any of these collaborative partners withdraw support for our programs or proposed products or otherwise impair their development, our business could be negatively affected |
| We have limited experience in conducting clinical trials, and we may encounter unanticipated toxicity or adverse events or fail to demonstrate the efficacy, causing us to delay, suspend or terminate the development of our ZFP Therapeutics |
| Our ZFP Therapeutics may fail to show the desired safety and efficacy in initial clinical trials |
| Even if we successfully complete Phase 1 trials, the FDA will require additional Phase 2 and Phase 3 clinical testing which involves significantly greater resources, commitments and expertise that may require us to enter into a collaborative relationship with a pharmaceutical company that would assume responsibility for late-stage development and commercialization |
| Our potential therapeutic products are subject to a lengthy and uncertain regulatory process,and we may encounter unanticipated toxicity or adverse events or fail to demonstrate efficacy, causing us to delay, suspend or teminate the the development of a ZFP Therapeutics and if these potential products are not approved, we will not be able to commercialize those products |
| The FDA must approve any human therapeutic products before they can be marketed in the United States |
| The process for receiving regulatory approval is long and uncertain, and a potential product may not withstand the rigors of testing under the regulatory approval processes |
| Before commencing clinical trials in humans, we or our commercial partner must submit an Investigational New Drug (IND) application to the FDA The FDA has 30 days to comment on the IND If the FDA does not comment on the IND, we or our commercial partner may begin clinical trials |
| Clinical trials are subject to oversight by institutional review boards and the FDA In addition, our proposed clinical studies will require review 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 will typically submit a proposed clinical protocol and other product-related information to the RAC three to six months prior to the expected IND filing date |
| Clinical trials: • must be conducted in conformance with the FDA’s good clinical practices ICH guidelines and other applicable regulations; • must meet requirements for institutional review board oversight; • must follow Institutional Biosafety Committee (IBC) and NIH RAC guidelines where applicable; • must meet requirements for informed consent; • are subject to continuing FDA oversight; • may require large numbers of test subjects; and • may be suspended by our commercial partner, the FDA, or us 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 IND or the conduct of these trials |
| Clinical trials are lengthy and are typically conducted in three sequential phases, but the phases may overlap or be combined |
| Each trial must be reviewed and approved by an independent ethics committee or institutional review board before it can begin |
| Phase 1 usually involves the initial introduction of the investigational drug into healthy 24 _________________________________________________________________ [74]Table of Contents volunteers or patients to evaluate certain factors, including its safety, dosage tolerance and, if possible, to gain an early indication of its effectiveness |
| Phase 2 usually involves trials in a limited patient population to evaluate dosage tolerance and appropriate dosage, identify possible adverse effects and safety risks, and evaluate preliminarily the efficacy of the drug for specific indications |
| Phase 3 trials usually further evaluate clinical efficacy and test further for safety by using the drug in its final form in an expanded patient population |
| Later clinical trials may fail to support the findings of earlier trials, which would delay, limit or prevent regulatory approvals |
| While we have stated our intention to file an additional IND applications during the next several years, this is only a statement of intent, and we may not be able to do so because the associated product candidates may not meet the necessary preclinical requirements |
| In addition, there can be no assurance that, once filed, an IND application will result in the actual initiation of clinical trials |
| We may not be able to find acceptable patients or may experience delays in enrolling patients for our clinical trials |
| The FDA or we may suspend our clinical trials at any time if either believes that we are exposing the subjects participating in these trials to unacceptable health risks |
| The FDA or institutional review boards and/or institutional biosafety committees at the medical institutions and healthcare facilities where we sponsor clinical trials may suspend any trial indefinitely if they find deficiencies in the conduct of these trials |
| The FDA and institutional review boards may also require large numbers of patients, and the FDA may require that we repeat a clinical trial |
| The results of early Phase 1 trials are based on a small number of patients over a short period of time, and our success may not be indicative of results in a large number of patients or of long-term efficacy |
| The results in early phases of clinical testing are based upon limited numbers of patients and a limited follow-up period |
| The primary end point of the trial is clinical and laboratory safety, however we expect to be able to collect some preliminary efficacy data |
| Typically, our Phase 1 clinical trials for indications of safety enroll less than 50 patients |
| We anticipate that our Phase 2 clinical trials for efficacy would typically enroll approximately 100 patients |
| Actual results with more data points may not confirm favorable results from our earlier stage trials |
| A number of companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late stage clinical trials even after achieving promising results in earlier stage clinical trials |
| If a larger population of patients does not experience positive results, or if these results do not have a lasting effect, our products may not receive approval from the FDA Failure to demonstrate the safety and effectiveness of our gene based products in larger patient populations could have a material adverse effect on our business that would cause our stock price to decline significantly |
| We cannot predict whether or when we will obtain regulatory approval to commercialize our product candidates, therefore we cannot predict the timing of any future revenue from these product candidates |
| We cannot commercialize any of our product candidates to generate revenue until the appropriate regulatory authorities have reviewed and approved the applications for the product candidates |
| We cannot assure you that the regulatory agencies will complete their review processes in a timely manner or that we will obtain regulatory approval for any product candidate that we or our collaborators develop |
| Satisfaction of regulatory requirements typically takes many years, is dependent upon the type, complexity and novelty of the product and requires the expenditure of substantial resources |
| Regulatory approval processes outside the United States include all of the risks associated with the FDA approval process |
| In addition, we may experience 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 and FDA regulatory review |
| Our gene regulation and gene modification technology is relatively new, and if we are unable to use this technology in all our intended applications, it would limit our revenue opportunities |
| Our technology involves a relatively new approach to gene regulation and gene modification |
| Although we have generated ZFP TFs for hundreds of gene sequences, we have not created ZFP TFs for all gene sequences and may not be able do so, which could 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 yet done so in humans, and the failure to do so could restrict our ability to develop commercially viable products |
| If we, and our collaborators or strategic partners, are unable to extend our results to new commercially important genes, experimental animal 25 _________________________________________________________________ [75]Table of Contents models, and human clinical studies, we may be unable to use our technology in all its intended applications |
| Also, delivery of ZFP TFs and ZFNs into cells and organisms, including humans, in these and other environments is limited by a number of technical hurdles, which we may be unable to surmount |
| This is a particular challenge for therapeutic applications of our technology that will require the use of gene transfer systems that may not be effective for the delivery of our ZFP TFs or ZFNs in a particular therapeutic application |
| The expected value and utility of our ZFP TFs and ZFNs is in part based on our belief that the targeted or specific regulation of gene expression and targeted gene modification may enable us to develop a new therapeutic approach as well as to help scientists better understand the role of human, animal, and other genes in disease and to aid their efforts in drug discovery and development |
| We also believe that the regulation of gene expression and targeted gene insertion will have utility in agricultural applications |
| 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 collaborators, or our strategic partners may not be able to use our technology to identify and validate drug targets or to develop commercial products in the intended markets |
| We are currently engaged in the research and development of a new application of our technology platform: ZFP-mediated gene modification using ZFNs to effect either gene correction or gene disruption |
| Using this technique, Sangamo scientists have engineered ZFNs to cut DNA at a specific site within a target gene, and to then to either correct the adjacent sequences with newly synthesized DNA copied from an introduced DNA template, gene correction, or to rejoin the two ends of the break which frequently results in the disruption of the gene’s function |
| In so doing, we are attempting to “correct” an abnormal or disease-related mutation or DNA sequence or to disrupt a gene that is involved in disease pathology |
| ZFP-mediated gene modification is at an early stage of development |
| Our scientists have shown ZFP-mediated gene modification to work in isolated cells; however, a significant amount of additional research will be needed before this technique can be evaluated in animals or plants and subsequently tested for applications in human healthcare and plant agriculture |
| We may be unable to license gene transfer technologies that we may need to commercialize our ZFP TF technology |
| In order to regulate a gene in a cell, the ZFP TF or ZFN must be efficiently delivered to the cell |
| We have licensed certain gene transfer technologies for use with our Enabling Technologies, which are ZFP TFs and ZFNs used in pharmaceutical discovery research and protein production |
| We are evaluating these systems and other technologies which may need to be used in the delivery of ZFP TFs or ZFNs into cells for in vitro and in vivo applications, including ZFP Therapeutics |
| However, we may not be able to license the gene transfer technologies required to develop and commercialize our ZFP Therapeutics |
| We have not developed our own gene transfer technologies, and we 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 do not currently have the infrastructure 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 |
| If we are unable to develop or otherwise obtain the requisite preclinical, clinical, regulatory, manufacturing, marketing, and sales capabilities, we would be unable to directly commercialize our therapeutics products which would limit our future growth |
| Even if our technology proves to be effective, it still may not lead to commercially viable products |
| Even if our collaborators or strategic partners are successful in using our ZFP technology in drug discovery, protein production, therapeutic development, or plant agriculture, they may not be able to commercialize the resulting products or may decide to use other methods competitive with our technology |
| To date, no company has received marketing approval or has developed or commercialized any therapeutic or agricultural 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 and future growth and would adversely affect our value |
| Even if our product development efforts are successful and even if the requisite regulatory approvals are obtained, our ZFP Therapeutics may not gain market acceptance among physicians, patients, healthcare payers 26 _________________________________________________________________ [76]Table of Contents and the medical community |
| A number of additional factors may limit the market acceptance of products including the following: • rate of adoption by healthcare practitioners; • rate of a product’s acceptance by the target population; • timing of market entry relative to competitive products; • availability of alternative therapies; • price of our product relative to alternative therapies; • availability of third-party reimbursement; • extent of marketing efforts by us and third-party distributors or agents retained by us; and • side effects or unfavorable publicity concerning our products or similar products |
| Adverse events in the field of gene therapy may negatively impact regulatory approval or public perception of our potential products |
| Our potential therapeutic products are delivered to patients as gene-based drugs, or gene therapy |
| The clinical and commercial success of our potential products will depend in part on public acceptance of the use of gene therapy for the prevention or treatment of human diseases |
| Public attitudes may be influenced by claims that gene therapy is unsafe, and, consequently, our products may not gain the acceptance of the public or the medical community |
| Negative public reaction to gene therapy in general could result in greater government regulation and stricter labeling requirements of gene therapy products, including any of our products, and could cause a decrease in the demand for any products we may develop |
| Our stock price is also influenced by public perception |
| Reports of serious adverse events in a retroviral gene transfer trial for infants with X-linked severe combined immunodeficiency (X-linked SCID) in France and subsequent FDA actions putting related trials on hold in the United States had a significant negative impact on the public perception and stock price of certain companies involved in gene therapy |
| Stock prices of these companies declined whether or not the specific company was involved with retroviral gene transfer for the treatment of infants with SCID, or whether the specific company’s clinical trials were placed on hold in connection with these events |
| Other potential adverse events in the field of gene therapy may occur in the future that could result in greater governmental regulation of our potential products and potential regulatory delays relating to the testing or approval of our potential products |
| We are at the development phase of operations and may not succeed or become profitable |
| We began operations in 1995 and are in the early phases of ZFP Therapeutic product development |
| We have incurred significant losses and our net losses for the past three fiscal years ended 2005, 2004 and 2003 were dlra13dtta3 million, dlra13dtta8 million and dlra10dtta4 million, respectively |
| To date, our revenues have been generated from Enabling Technology collaborations, strategic partners, and federal government research grants |
| In 2005, we have placed more emphasis on higher-value therapeutic product development and related strategic partnerships |
| This shift in emphasis has the potential to increase the return on investment to our stockholders by allocating capital resources to higher value, therapeutic product development activities |
| At the same time, it increases our financial risk by increasing expenses associated with product development |
| In addition, the preclinical or clinical failure of any single product may have a significant effect on the actual or perceived value of our shares |
| Our business is subject to all of the risks inherent in the development of a new technology, which include the need to: • attract and retain qualified scientific and technical staff and management, particularly scientific staff with expertise to develop our early-stage technology into therapeutic products; • obtain sufficient capital to support the expense of developing our technology platform and developing, testing, and commercializing products; • develop a market for our products; 27 _________________________________________________________________ [77]Table of Contents • successfully transition from a company with a research focus to a company capable of supporting commercial activities; and • attract and enter into research collaborations with research and academic institutions and scientists |
| Commercialization of our technologies will depend, in part, on strategic partnering with other companies |
| If we are not able to find strategic partners in the future or our strategic partners do not diligently pursue product development efforts, we may not be able to develop our technologies or products, which could slow our growth and decrease our value |
| We expect to rely, to some extent, on our strategic partners to provide funding in support of our research and to perform independent research and preclinical and clinical testing |
| Our technology is broad based, and we do not currently possess the resources necessary to fully develop and commercialize potential products that may result from our technologies or the resources or capabilities to complete the lengthy marketing approval processes that may be required for the products |
| Therefore, we plan to rely on strategic partnerships to help us develop and commercialize ZFP Therapeutic products |
| If those partners are unable or unwilling to advance our programs, or if they do not diligently pursue product approval, this may slow our progress and defer our revenues |
| Our partners may sublicense or abandon development programs or we may have disagreements with our partners, which would cause associated product development to slow or cease |
| There can be no assurance that we will be able to establish additional strategic collaborations for ZFP Therapeutic product development |
| 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 use 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 |
| The loss of our current or any future strategic partnering agreements would not only delay or terminate the potential development or commercialization of products we may derive from our technologies, but it may 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 agreements are based on the achievement of milestones |
| Under the strategic partnering agreements, we expect to receive revenue for the research and development of a ZFP Therapeutic product and 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 historic Enabling Technology collaborations 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, fail to meet specific milestones, then the strategic partnership may be terminated, which could decrease 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 by using our ZFP technology platform will enter into highly competitive markets |
| Even if we are able to generate ZFP Therapeutics that are safe and effective for their intended use, competing technologies may prove to be more effective or less expensive, which, to the extent these competing technologies achieve market acceptance, will limit our revenue opportunities |
| In some cases, competing technologies have proven to be satisfactorily effective and less expensive, as has been the case with technologies competitive with our Enabling Technology(R) |
| The effectiveness of these competing products has reduced the revenues generated by our Enabling Technology |
| Competing technologies may include other methods of regulating gene expression or modifying genes |
| ZFP TFs and ZFNs have broad application in the life sciences and compete with a broad array of new technologies and approaches being applied to genetic research by many companies |
| Competing proprietary technologies with our product development focus include: • For ZFP Therapeutics: • small molecule drugs; • monoclonal antibodies; 28 _________________________________________________________________ [78]Table of Contents • recombinant proteins; • gene therapy / cDNAs; • antisense; and • siRNA approaches • For our Enabling Technology Applications: • For protein production: gene amplification, meganucleases, insulator technology; • For target validation: antisense, siRNA; and • For plant agriculture: recombination approaches, mutagenesis approaches, meganucleases; • In addition to possessing competing technologies, our competitors include biotechnology companies with: • substantially greater capital resources than ours; • larger research and development staffs and facilities than ours; and • greater experience in product development and in obtaining regulatory approvals and patent protection; • 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 |
| Our collaborators or strategic partners may decide to adopt alternative technologies or may be unable to develop commercially viable products with our technology, which would negatively impact our revenues and our strategy to develop these products |
| Our collaborators or strategic partners may adopt alternative technologies, which could decrease the marketability of ZFP technology |
| Additionally, because many of our collaborators or strategic partners are likely to be working on more than one development 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 ZFP 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 anticipate continuing to incur operating losses for the next several years |
| If material losses continue for a significant 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 uncertain, and we expect to incur losses for the foreseeable future |
| We have been engaged in developing our ZFP TF technology since inception, which has and will continue to require significant research and development expenditures |
| In November 2005 we announced that we had completed a registered direct offering to institutional and strategic investors for a total of 5cmam080cmam000 shares of common stock at a price of dlra3dtta85 per share to the investors, resulting in net proceeds to Sangamo of approximately dlra18dtta2 million |
| To date, we have generated all other revenue from Enabling Technology collaborations, strategic partnering agreements, and federal government research grants |
| As of December 31, 2005, we had an accumulated deficit of approximately dlra110dtta4 million |
| We expect to incur losses for the foreseeable future |
| These losses will increase as we expand and extend our research and development activities into human therapeutic product development |
| 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 |
| 29 _________________________________________________________________ [79]Table of Contents We may be unable to raise additional capital, which would harm our ability to develop our technology and products |
| We have incurred significant operating losses and negative operating cash flows since inception and have not achieved profitability |
| We expect capital outlays and operating expenditures to increase over the next several years as we expand our infrastructure and research and ZFP Therapeutic product development activities |
| While we believe our financial resources will be adequate to sustain our current operations at least through 2007, we may seek additional sources of capital through equity or debt financing |
| In addition, as we focus our efforts on proprietary human therapeutics, we will need to seek FDA approval of potential products, a process that could cost in excess of dlra100 million per product |
| We cannot be certain that we will be able to obtain financing on terms acceptable to us, or at all |
| If adequate funds are not available, our business and our ability to develop our technology and ZFP Therapeutic products would be harmed |
| Our stock price has been volatile and may continue to be volatile, which could result in substantial losses for investors |
| During the past two years, our common stock price has fluctuated significantly, ranging from a low of dlra3dtta46 to a high of dlra6dtta49 during the year ended December 31, 2005, and a low of dlra3dtta00 to a high of dlra8dtta02 during the year ended December 31, 2004 |
| Volatility in our common stock could cause stockholders 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 continue to be highly volatile |
| The market price of our common stock has fluctuated significantly in response to the following factors, some of which are beyond our control: • announcements by us or our partners providing updates on the progress or development status of ZFP Therapeutics; • changes in market valuations of similar companies; • deviations in our results of operations from the guidance given by us or estimates of securities analysts; • 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; • future sales of our common stock or other securities by the company, management or directors, liquidation of institutional funds that comprised large holdings of Sangamo stock; and • decreases in our cash balances |
| Our common stock is thinly traded, which means large transactions in our common stock may be difficult to conduct in a short time frame |
| We have a low volume of daily trades in our common stock on the Nasdaq National Market |
| For example, the average daily trading volume in our common stock on the Nasdaq National Market over the ten-day trading period prior to February 1, 2006 was approximately 101cmam000 shares per day |
| Any large transactions in our common stock may be difficult to conduct and may cause significant fluctuations in the price of our common stock |
| 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 62 full-time employees as of February 14, 2006 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 research and academic 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 and we have experienced a rate of employee turnover that we believe is typical of emerging biotechnology companies |
| If we lose the services of personnel with the necessary skills, it could significantly impede the achievement of our research and development objectives |
| We are not presently aware of any plans of specific employees to retire or otherwise leave the company |
| If we fail to negotiate additional acceptable collaborations with academic and other research institutions and scientists, or if our existing collaborations are unsuccessful, our ZFP Therapeutic development programs may be delayed or may not succeed |
| 30 _________________________________________________________________ [80]Table of Contents 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 our corporate or academic collaborators, strategic partners, or scientific advisors or directors and us, the other party may act in its self-interest, which may limit our ability to implement our strategies |
| Our license agreement with Edwards Lifesciences provides Edwards with worldwide, exclusive rights for ZFP Therapeutics “for the activation of VEGF and VEGF receptors for the treatment and prevention of ischemic cardiovascular and vascular disease in humans |
| ” We have retained all rights to use our technology for all therapeutic applications of VEGF activation outside of the treatment and prevention of ischemic cardiovascular and vascular disease in humans |
| During the first quarter of 2005, Sangamo commenced a Phase 1 clinical trial for the treatment of diabetic neuropathy using a ZFP Therapeutic for the activation of VEGF Edwards has stated that its rights include diabetic neuropathy and consequently our activities relating to diabetic neuropathy constitute a breach of the agreement |
| We strongly disagree with the Edwards’ assertion because diabetic neuropathy is a neurological disease and not an ischemic vascular disease and therefore is outside the scope of the Edwards license |
| Sangamo and Edwards are in discussions regarding this issue |
| Some of our academic collaborators and strategic partners are conducting multiple product development efforts within each area that is the subject of the collaboration with us |
| 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 the withdrawal of partner 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 |
| 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 any of our patents which may be challenged |
| The patent positions of pharmaceutical and biotechnology companies can be highly uncertain and can 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, as our future licenses frequently 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 do not control the prosecution of certain of the patent applications that we license from third parties; therefore, the patent applications may not be prosecuted exactly as we desire or 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; • the patents of others will not have an adverse effect on our ability to do business; 31 _________________________________________________________________ [81]Table of Contents • 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 collaborators or strategic partners will provide a basis for commercially viable products or will provide us with any competitive advantages; • any patents issued or licensed to us will not be challenged and invalidated by third parties; or • we will develop additional products, processes or technologies that are patentable |
| 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 that 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 we have no current plans to use the associated inventions |
| 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, strategic partners, or us claiming damages and seeking to enjoin commercial activities relating to the affected products and processes |
| Moreover, we cannot predict whether we, our collaborators, or strategic partners 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 |
| We can give no assurance that such a license would be available on commercially reasonable terms, or at all, or that we would be able to successfully design around the relevant patent claims |
| 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 cannot guarantee that third parties will not challenge our intellectual property |
| One of our licensed patents, European Patent Nodtta 0 682 699, entitled “Functional Domains in Flavobacterium Okeanokoites Restriction Endonuclease” was granted on May 7, 2003 and forms the basis of Regional Phase patents in France, Germany, Great Britain, Ireland and Switzerland |
| The granted claims of the patent cover technologies used in our programs in targeted recombination and gene correction |
| On December 1, 2005 an interlocutory decision revoking this patent was issued by the European Patent Office |
| If our appeal is ultimately unsuccessful, our ability to exclude potential competitors in the field of targeted recombination and gene correction in Europe may be limited |
| These developments apply only to Europe and do not affect our ability to practice our targeted recombination and gene correction programs in Europe |
| Moreover, we also hold licenses to six US patents to the technology covered by the opposed European patent, and hold licenses to related applications pending in Canada and Japan |
| Accordingly, any effects of the opposition, up to and including invalidation of the European patent, would be restricted to Europe and would have little, if any, material adverse effect on our business |
| 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 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 |
| Regulatory approval, if granted, may be limited to specific uses or geographic areas, which could limit our ability to generate revenues |
| Regulatory approval will be limited to the indicated use for which we can market a product |
| Further, once regulatory approval for a product is obtained, the product 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 |
| 32 _________________________________________________________________ [82]Table of Contents 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 ZFP 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 in a given country |
| 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 |
| 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 |
| Laws or public sentiment may limit the production of genetically modified agricultural products in the future, and these laws could reduce our partner’s ability to sell these products |
| Genetically modified products are currently subject to public debate and heightened regulatory scrutiny, either of which could prevent or delay production of agricultural products |
| Effective as of October 1, 2005, we entered into a Research License and Commercial Option Agreement with Dow AgroSciences LLC (“DAS”), a wholly owned indirect subsidiary of Dow Chemical Corporation |
| Under this agreement, we will provide DAS with access to our proprietary ZFP technology and the exclusive right to use our ZFP technology to modify the genomes or alter the nucleic acid or protein expression of plant cells, plants, or plant cell cultures |
| The field-testing, production, and marketing of genetically modified 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 modified 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 those applied to foods developed through traditional plant breeding |
| Genetically engineered food products, however, will be subject to pre-market 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 modified products created with our gene regulation technology |
| Even if we are able to obtain regulatory approval for genetically modified products, our success will also depend on public acceptance of the use of genetically modified products including drugs, plants, and plant products |
| Claims that genetically modified products are unsafe for consumption or pose a danger to the environment may influence public attitudes |
| Our genetically modified products may not gain public acceptance |
| The subject of genetically modified organisms has received negative publicity in the United States and particularly in Europe, and such publicity has aroused public debate |
| The adverse publicity in Europe could lead to greater regulation and trade restrictions on imports of genetically altered products |
| Similar adverse public reaction in the United States to genetic research and its resulting products could result in greater domestic regulation and could decrease the demand for our technology and products |
| 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 typically employed in molecular and cellular biology |
| We routinely use cells in culture and gene delivery vectors, and we employ small amounts of radioisotopes in trace experiments |
| Although we maintain up-to-date licensing and training programs, 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 currently carry insurance covering claims arising from our use of 33 _________________________________________________________________ [83]Table of Contents these materials |
| However, if we are unable to maintain our insurance coverage at a reasonable cost and with adequate coverage, our insurance may not cover any liability that may arise |
| We are subject to federal, state, and local laws and regulations governing the use, storage, handling, and disposal of these materials and specified waste products |
| To date, we have not experienced significant costs in complying with regulations regarding the use of these materials |
| Anti-takeover provisions in our certificate of incorporation and Delaware law could make an acquisition of the Company more difficult and could prevent attempts by our stockholders to remove or replace current management |
| Anti-takeover provisions of Delaware law, our certificate of incorporation and our bylaws and may discourage, delay or prevent a change in control of our company, even if a change in control would be beneficial to our stockholders |
| In addition, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors |
| In particular, under our certificate of incorporation our board of directors may issue up to 5cmam000cmam000 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 |
| Moreover, without any further vote or action on the part of the stockholders, the board of directors would 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 would 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; and • limits who may call a special meeting of stockholders |
| We are also subject to Section 203 of the Delaware General Corporation Law, which provides, subject to certain exceptions, that if a person acquires 15prca of our voting stock, the person is an “interested stockholder” and may not engage in “business combinations” with us for a period of three years from the time the person acquired 15prca or more or our voting stock |
| The interest of management could conflict with the interest of our other stockholders |
| Our executive officers and directors beneficially own, in the aggregate, approximately 21prca of our outstanding common stock |
| As a result, these stockholders, if they choose to act together, will be able to have a material impact on 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 |