<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 11, 2000
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
SANGAMO BIOSCIENCES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 8731 68-0359556
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
501 CANAL BOULEVARD, SUITE A100
RICHMOND, CA 94804
(510) 970-6000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF THE
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
EDWARD O. LANPHIER II
PRESIDENT AND CHIEF EXECUTIVE OFFICER
SANGAMO BIOSCIENCES, INC.
501 CANAL BOULEVARD, SUITE A100
RICHMOND, CA 94804
(510) 970-6000
(NAME AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF AGENT FOR SERVICE)
COPIES TO:
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JOHN W. LARSON, ESQ. WILLIAM J. CERNIUS, ESQ.
ELIZABETH A. R. YEE, ESQ. JOSEPH G. MCCARTHY, ESQ.
BROBECK, PHLEGER & HARRISON LLP LATHAM & WATKINS
ONE MARKET 650 TOWN CENTER DRIVE, 20TH FLOOR
SPEAR STREET TOWER COSTA MESA, CA 92626
SAN FRANCISCO, CA 94105 (714) 540-1235
(415) 442-0900
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
------------------------
If the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES TO BE AGGREGATE OFFERING PRICE
REGISTERED AMOUNT TO BE REGISTERED(1)(2) AMOUNT OF REGISTRATION FEE
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Common Stock, $0.01 par value................... $100,000,000 $27,800
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</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o).
(2) Includes amount subject to the over-allotment option granted to the
Underwriters.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT
AN OFFER TO SELL THESE SECURITIES, AND IT IS NOT SOLICITING AN OFFER TO BUY
THESE SECURITIES, IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED FEBRUARY , 2000
PROSPECTUS
SHARES
[SANGAMO LOGO]
SANGAMO BIOSCIENCES, INC.
COMMON STOCK
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This is our initial public offering of shares of common stock. We are
offering shares. No public market currently exists for our
shares.
We intend to apply to have our common stock approved for quotation on the
Nasdaq National Market under the symbol "SGMO."
INVESTING IN THE SHARES INVOLVES RISK. "RISK FACTORS" BEGIN ON PAGE 5.
<TABLE>
<CAPTION>
PER
SHARE TOTAL
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<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting discounts...................................... $ $
Proceeds to Sangamo......................................... $ $
</TABLE>
We have granted the underwriters a 30-day option to purchase up to
additional shares of common stock on the same terms and
conditions as set forth above solely to cover over-allotments, if any.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Lehman Brothers expects to deliver the shares on or about April , 2000.
- --------------------------------------------------------------------------------
LEHMAN BROTHERS
CHASE H&Q
ING BARINGS
WILLIAM BLAIR & COMPANY
, 2000
<PAGE> 3
TABLE OF CONTENTS
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PAGE
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Prospectus Summary................ 1
Risk Factors...................... 5
Use of Proceeds................... 17
Dividend Policy................... 17
Capitalization.................... 18
Dilution.......................... 19
Selected Financial Data........... 20
Management's Discussion and
Analysis of Financial Condition
and Results of Operations....... 21
Business.......................... 25
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Management........................ 42
Related Party Transactions........ 55
Principal Stockholders............ 56
Description of Capital Stock...... 58
Shares Eligible for Future Sale... 61
Underwriting...................... 63
Legal Matters..................... 65
Experts........................... 65
Where You Can Find Additional
Information..................... 65
Index to Financial Statements..... F-1
</TABLE>
ABOUT THIS PROSPECTUS
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information that is different
from that contained in this prospectus. We are offering to sell, and seeking
offers to buy, shares of common stock only in jurisdictions where offers and
sales are permitted. The information contained in this prospectus is accurate
only as of the date of this prospectus, regardless of the time of delivery of
this prospectus or of any sale of common stock.
This preliminary prospectus is subject to completion prior to this
offering. Among other things, this preliminary prospectus describes our company
as we currently expect it to exist at the time of this offering.
Some of the statements under the captions "Prospectus Summary," "Risk
Factors," "Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business" and elsewhere in this
prospectus are "forward-looking statements." These forward-looking statements
include, but are not limited to, statements about our plans, objectives,
expectations and intentions and other statements contained in the prospectus
that are not historical facts. When used in this prospectus, the words
"anticipates," "believes," "continue," "could," "estimates," "expects,"
"intends," "may," "plans," "seeks," "should" or "will" or the negative of these
terms or similar expressions are generally intended to identify forward-looking
statements. Because these forward-looking statements involve risks and
uncertainties, there are important factors that could cause actual results to
differ materially from those expressed or implied by these forward-looking
statements, including our plans, objectives, expectations and intentions and
other factors discussed under "Risk Factors."
Universal Gene Recognition(TM), Universal GeneTools(TM),
ZFP-Diagnostics(TM), ZFP-Therapeutics(TM), ZFP-Transgenics(TM) and ZFP(TM) are
our trademarks. We will apply to register Universal Gene Recognition, Universal
GeneTools, ZFP-Diagnostics, ZFP-Therapeutics, ZFP-Transgenics and ZFP. All
trademarks and trade names appearing elsewhere in this prospectus are the
property of their respective holders.
Until , 2000, 25 days after the date of this prospectus, all
dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This is
in addition to the dealers' obligations to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
i
<PAGE> 4
PROSPECTUS SUMMARY
This summary highlights some of the information found in greater detail
elsewhere in this prospectus. Unless otherwise indicated, information in this
prospectus assumes that the underwriters do not exercise their over-allotment
option, assumes the conversion of all of our preferred stock into common stock
upon completion of this offering and a 2-for-1 stock split to be effected prior
to consummation of the offering.
Sangamo BioSciences, Inc. is a leader in the development of novel
transcription factors for the regulation of gene expression. Transcription
factors are proteins that turn genes on or off by recognizing specific DNA
sequences. Our Universal Gene Recognition technology platform enables the
engineering of a class of transcription factors known as zinc finger DNA binding
proteins, or ZFPs. By engineering ZFPs so that they can selectively bind to and
regulate a target gene, we have created ZFP transcription factors that can
control gene expression and, consequently, cell function. We intend to establish
Universal Gene Recognition as a broadly-used technology platform for commercial
applications in pharmaceutical discovery, human therapeutics, DNA diagnostics,
and agricultural and industrial biotechnology.
Enormous scientific and financial resources are being dedicated to the
sequencing of the human genome through both private and public initiatives such
as the Human Genome Project. This is creating significant opportunities for
pharmaceutical and other life science companies. The challenge facing these
companies is how to derive medically and commercially valuable knowledge from
this large accumulation of new genomic information.
We believe our Universal Gene Recognition technology platform has the
potential to address these challenges and has broad applicability to the sectors
below, each of which represents a significant target market with unmet needs:
- Universal GeneTools for Pharmaceutical Discovery are ZFP transcription
factors for the identification and validation of commercially relevant
gene targets in human, animal or microbial cells and for improved
efficiency in the screening of chemical compounds for pharmaceutical
discovery;
- ZFP-Therapeutics are ZFP transcription factors developed as
pharmaceutical product candidates to treat a broad spectrum of diseases
through the direct therapeutic regulation of disease-related genes and
for the production of protein pharmaceuticals;
- ZFP-Diagnostics for Pharmacogenomics and DNA Diagnostics are ZFPs used
for the identification of genetic variations among individuals and for
the detection of specific DNA sequences to determine an individual's
potential susceptibility to disease or probable response to drug therapy;
and
- ZFP Transcription Factors for Agricultural and Industrial Biotechnology
are designed to be used for agricultural genomics, agrochemical
discovery, creation of novel plants with improved properties and for the
biological production of industrial chemicals.
We believe our engineered ZFP transcription factors have numerous
advantages for the regulation of gene expression including:
- ZFP transcription factors normally and naturally regulate gene expression
in the cells of virtually all higher organisms;
- ZFPs can be designed to recognize unique DNA sequences resulting in the
ability to recognize a single gene within an entire genome;
- ZFP transcription factors can activate or repress a target gene,
enhancing their versatility;
1
<PAGE> 5
- ZFP transcription factors can be used to regulate gene expression in
multiple organisms including humans, animals, plants, microbes and
viruses; and
- ZFP transcription factors can themselves be "turned on" and "turned off"
with molecular switches, allowing conditional and reversible regulation
of a target gene.
To date, we have engineered hundreds of ZFP transcription factors and have
tested their ability to bind to their target sequences and to function in
cell-based models. In similar models, we have also demonstrated the ability of
ZFP transcription factors to regulate a limited number of commercially important
genes.
We intend to develop our Universal Gene Recognition technology platform for
application in pharmaceutical discovery, human therapeutics, DNA diagnostics,
and agricultural and industrial biotechnology. To establish Universal Gene
Recognition as a broadly-used technology platform in life science industries,
and to fund internal research and development activities, we have established
and will continue to pursue collaborations with selected pharmaceutical and
biotechnology companies. We have signed Universal GeneTools agreements, which we
refer to as collaborations, with 17 pharmaceutical or biotechnology companies
including the following companies or their subsidiaries: Pfizer Inc., SmithKline
Beecham plc, Millennium Pharmaceuticals, Inc., AstraZeneca PLC, Schering AG,
Bayer Corporation, Glaxo Wellcome plc, DuPont Pharmaceuticals Company, Japan
Tobacco Inc., F. Hoffmann-La Roche Ltd., Immunex Corporation, Pharmacia & Upjohn
Company, Genset SA, Warner-Lambert Company, Merck KGaA, Zaiya Incorporated and
Johnson & Johnson.
We have also entered into a strategic partnership with Edwards LifeScience,
Inc., formerly the CardioVascular Group of Baxter Healthcare Corporation, for
the development and commercialization of ZFP-Therapeutics in cardiovascular and
peripheral vascular diseases. We expect to enter into other strategic
partnerships to accelerate the development of ZFP transcription factors as
potential pharmaceutical candidates.
Sangamo was founded and incorporated in Delaware in 1995. Our principal
offices are located at 501 Canal Boulevard, Suite A100, Richmond, CA 94804, and
our telephone number is (510) 970-6000.
2
<PAGE> 6
THE OFFERING
Common stock offered by Sangamo..... shares
Common stock to be outstanding after
the offering........................ shares
Use of proceeds..................... For research and development, repayment
of a note and general corporate
purposes. See "Use of Proceeds" for
more information regarding our planned
use of the proceeds from this offering.
Proposed Nasdaq National Market
symbol.............................. SGMO
The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of December 31, 1999 adjusted to
reflect the issuance of 666,666 shares of common stock in January 2000 and the
issuance of a $5 million note which converts into common stock at the initial
public offering price upon the consummation of the offering, and excludes:
- a total of 1,872,666 shares issuable upon the exercise of outstanding
options at a weighted average exercise price of $0.15 per share;
- a total of 259,962 shares issuable upon the exercise of outstanding
warrants at a weighted average exercise price of $2.00 per share; and
- a total of 2,400,000 shares available for future issuance under our stock
plans.
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<PAGE> 7
SUMMARY FINANCIAL DATA
The following table sets forth summary financial data for our company. You
should read this information together with the financial statements and the
notes to those statements appearing elsewhere in this prospectus and the
information under "Selected Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations." Please see the
financial statements and the notes to the statements appearing elsewhere in this
prospectus for the determination of the number of shares used in computing the
basic and diluted and pro forma basic and diluted net loss per share.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1997 1998 1999
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(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues.............................................. $1,152 $ 2,038 $ 2,182
Operating expenses:
Research and development.................................. 1,675 4,057 3,991
General and administrative................................ 447 1,029 1,578
Amortization of deferred stock compensation............... -- -- 96
------ ------- -------
Total operating expenses.................................... 2,122 5,086 5,665
Loss from operations........................................ (970) (3,048) (3,483)
------ ------- -------
Interest income, net........................................ 44 173 131
------ ------- -------
Net loss.................................................... $ (926) $(2,875) $(3,352)
====== ======= =======
Basic and diluted net loss per share........................ $(0.17) $ (0.49) $ (0.56)
====== ======= =======
Shares used in computing basic and
diluted net loss per share................................ 5,485 5,843 5,991
====== ======= =======
Pro forma basic and diluted net loss per share
(unaudited)............................................... $ (0.26)
=======
Shares used in computing pro forma basic and diluted net
loss per share (unaudited)................................ 13,102
=======
</TABLE>
The following table is a summary of our balance sheet as of December 31,
1999. The pro forma column reflects the issuance in January 2000 of 666,666
shares of common stock and the issuance and conversion into common stock of a $5
million note which converts into common stock at the initial public offering
price upon consummation of the offering. The pro forma as adjusted column also
reflects our receipt of the estimated net proceeds from the sale of the shares
of common stock offered in this offering at an assumed initial public offering
price of $ per share after deducting the estimated underwriting discount and
offering expenses payable by us, and the repayment of $250,000 of long-term
debt. See "Use of Proceeds" and "Capitalization" and Notes 1, 4, and 7 of Notes
to Financial Statements.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------ --------- -----------
(IN THOUSANDS)
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BALANCE SHEET DATA:
Cash, cash equivalents, and short-term investments........ $7,503 $ 14,003
Working capital........................................... 7,206 13,706
Total assets.............................................. 9,287 15,787
Long-term debt............................................ 250 250
Accumulated deficit....................................... (7,478) (7,478)
Total stockholders' equity................................ 8,007 14,507
</TABLE>
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<PAGE> 8
RISK FACTORS
An investment in our common stock is risky. You should carefully consider
the following risks, as well as the other information contained in this
prospectus. If any of the following risks actually occurs, our business could be
harmed. In that case, the trading price of our common stock could decline, and
you might lose all or a part of your investment. The risks and uncertainties
described below are not the only ones facing us. Additional risks and
uncertainties not presently known to us or that we currently see as immaterial,
may also harm our business.
RISKS RELATED TO OUR BUSINESS
OUR GENE REGULATION TECHNOLOGY PLATFORM IS UNPROVEN, AND WE MAY BE UNABLE TO USE
THIS TECHNOLOGY IN ALL OF OUR INTENDED APPLICATIONS.
Our technology platform involves new and unproven approaches to gene
regulation. Although we have generated some ZFP transcription factors for some
gene sequences, we have not created ZFP transcription factors for all gene
sequences and we cannot assure you that we will be able to create ZFP
transcription factors for all gene sequences. In addition, while we have
demonstrated the function of engineered ZFP transcription factors in cell
cultures, we have not done so in animals and humans and many other organisms,
and the failure to do so could restrict our ability to develop commercially
viable products. Furthermore, delivery of ZFP transcription factors into cells
in these and other environments is limited by a number of technical challenges,
which we may be unable to surmount.
Moreover, the utility of our ZFP transcription factors is in part based on
the belief that the regulation of gene expression may help scientists better
understand the role of human, animal, plant and microbial genes in drug
discovery, as well as therapeutic, diagnostic, agricultural and industrial
biotechnology applications. There is only a limited understanding of the role of
genes in all these fields. Few products in any of these fields have been
developed and commercialized based on results from genomic research or the
ability to regulate gene expression. Our technology may not enable us, our
Universal GeneTools collaborators or our strategic partners to identify and
validate drug targets or other targets in order to develop commercial products.
Even if our Universal GeneTools collaborators or strategic partners are
successful in identifying drug targets or other targets based on discoveries
made using our ZFP transcription factors, our collaborators or strategic
partners may not be able to discover or develop commercially viable products or
may determine to pursue products that do not use our technology.
Finally, no company has developed or commercialized any therapeutic,
diagnostic, agricultural or industrial biotechnology products based on our
technology. If our technology fails to provide safe, effective, useful or
commercially viable approaches to the discovery and development of these
products, the company and our business would be significantly adversely
affected.
INITIAL EVALUATIONS OF OUR ENGINEERED ZFP TRANSCRIPTION FACTORS DELIVERED TO OUR
UNIVERSAL GENETOOLS COLLABORATORS HAVE PRODUCED MIXED RESULTS.
Some of our Universal GeneTools collaborators have been able to confirm the
potential utility of our gene regulation technology. Two of our collaborators,
however, have not yet been able to regulate gene expression using our
technology. These collaborators are continuing to evaluate our technology.
Further, most of our collaborators have not yet started testing or have not yet
generated the final results of their testing. We cannot assure you that the ZFP
transcription factors that we have generated for our other collaborators or our
strategic partner will function as intended or that
5
<PAGE> 9
ZFP transcription factors engineered in the future for other collaborators or
strategic partners will function as intended. If we are unsuccessful in
engineering ZFP transcription factors that achieve positive results for our
collaborators or strategic partners, our business will be significantly harmed.
IF OUR COMPETITORS DEVELOP, ACQUIRE OR MARKET TECHNOLOGIES OR PRODUCTS THAT ARE
MORE EFFECTIVE THAN OURS, OUR COMMERCIAL OPPORTUNITY WILL BE REDUCED OR
ELIMINATED.
Any products that we or our collaborators or strategic partners develop
using our Universal Gene Regulation technology platform will participate in
highly competitive markets. Even if we are able to generate ZFP transcription
factors that achieve useful results, competing technologies may prove to be more
effective or less expensive which would limit or eliminate our revenue
opportunities. Competing technologies may include other methods of regulating
gene expression. Our competitors include biotechnology companies with competing
proprietary technology platforms, substantially greater capital resources,
larger research and development staffs and facilities, greater experience in
product development and in obtaining regulatory approvals and patent protection
and greater manufacturing and marketing capabilities than we do. These
organizations also compete with us to:
- attract qualified personnel;
- attract parties for acquisitions, joint ventures or other collaborations;
and
- license the proprietary technologies of academic and research
institutions that are competitive with our technology which may preclude
us from pursuing similar opportunities.
Accordingly, our competitors may succeed in obtaining patent protection or
commercializing products before us. In addition, any products that we develop
may compete with existing products or services that are well-established in the
marketplace.
FAILURE TO ATTRACT, RETAIN AND MOTIVATE SKILLED PERSONNEL AND CULTIVATE KEY
ACADEMIC COLLABORATIONS WILL DELAY OUR PRODUCT DEVELOPMENT PROGRAMS AND OUR
RESEARCH AND DEVELOPMENT EFFORTS.
We are a small company with 36 employees, and our success depends on our
continued ability to attract, retain and motivate highly qualified management
and scientific personnel, and our ability to develop and maintain important
relationships with leading academic and other research institutions and
scientists. Competition for personnel and academic and other research
collaborations is intense. The success of our technology development programs
depends on our ability to attract and retain highly trained personnel. If we
lose the services of personnel with these types of skills, it could impede
significantly the achievement of our research and development objectives. If we
fail to negotiate additional acceptable collaborations with academic and other
research institutions and scientists, or if our existing collaborations were to
be unsuccessful, our technology development programs may be delayed or may not
succeed.
At present the scope of our needs is somewhat limited to the expertise of
personnel who are able to engineer ZFP transcription factors and apply them to
gene regulation. In the future, we will need to hire additional personnel and
develop additional academic collaborations as we continue to expand our research
and development activities and to work on some of our planned projects. In
addition, if we are able to expand our relationships with Universal GeneTools
collaborators and strategic partners, we will require additional expertise in
disciplines applicable to the products we would develop with them. Further, our
planned activities will require existing management to develop additional
expertise. We do not know if we will be able to attract, retain or motivate the
required personnel. The inability to acquire these services or to develop this
expertise could impair our business.
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<PAGE> 10
WE MAY HAVE DIFFICULTY MANAGING OUR GROWTH, WHICH COULD HARM OUR BUSINESS.
We have recently experienced, and expect to continue to experience, growth
in the number of our employees and the scope of our operating and financial
systems. This growth has resulted in an increase in responsibilities for both
existing and new management personnel. Our ability to manage growth effectively
will require us to continue to implement and improve our operational, financial
and management information systems and to recruit, train, motivate and manage
our employees. We cannot assure you that we will be able to manage our growth
and expansion, and the failure to do so would harm our business.
WE ARE AT AN EARLY STAGE OF DEVELOPMENT AND MAY NOT SUCCEED OR BECOME
PROFITABLE.
We began operations in 1995 and are at an early stage of development. We
have incurred significant losses to date and our revenues have been limited to
federal government research grants and Universal GeneTools collaborators and a
strategic partner. Our initial ZFP transcription factors delivered to our
Universal GeneTools collaborators are being evaluated and may not provide
sufficient value to those collaborators to convince them to continue in these
relationships. This may also impair our ability to attract additional
collaborators. As a result, our business is subject to all of the risks inherent
in the development of a new technology, which includes the need to:
- attract additional new Universal GeneTools collaborators and strategic
partners;
- attract and retain qualified scientific and technical staff and
management, particularly scientific staff with expertise to further apply
and develop our early stage technology;
- attract and enter into research collaborations with academic and other
research institutions and scientists;
- obtain sufficient capital to support the expense of developing our
technology platform and developing, testing and commercializing products;
- develop a market for our products; and
- successfully transition from a company with a research focus to a company
capable of supporting commercial activities.
Our operations are likely to be affected by problems frequently encountered
with research, development and commercialization of new technologies and
products and by the competitive environment in which we operate.
IF WE CONTINUE TO INCUR OPERATING LOSSES FOR A PERIOD LONGER THAN ANTICIPATED,
WE MAY BE UNABLE TO CONTINUE OUR OPERATIONS.
We have generated operating losses since we began operations in 1995. The
extent of our future losses and the timing of profitability are highly
uncertain, and we may not be profitable in the foreseeable future. We have been
engaged in developing our Universal Gene Recognition technology platform since
inception, which has and will continue to require significant research and
development expenditures. To date, our revenues have primarily been generated by
federal government research grants, Universal GeneTools collaboration agreements
and a strategic partnership agreement. As of December 31, 1999, we had an
accumulated deficit of approximately $7.5 million. Even if we succeed in
increasing our current product and research revenue or develop additional
commercial products, we expect to incur losses in the near future and may
continue to incur losses for the next several years. These losses may increase
as we expand our research and development activities. If the time required to
generate significant product revenues and achieve profitability is longer than
anticipated, we may not be able to continue our operations.
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<PAGE> 11
IF WE FAIL TO OBTAIN THE CAPITAL NECESSARY TO FUND OUR OPERATIONS, WE WILL BE
UNABLE TO SUCCESSFULLY DEVELOP OUR TECHNOLOGY AND PRODUCTS.
Significant additional financing may be required to fund future operations.
We do not know whether additional financing will be available when needed, or
that, if available, it will be on terms favorable to our stockholders or us. We
have consumed substantial amounts of cash to date and expect capital outlays and
operating expenditures to increase over the next several years as we expand our
infrastructure and research and development activities. We may raise this
financing through public or private financings or additional Universal GeneTools
collaborations, strategic partnerships or licensing arrangements.
We believe that the net proceeds from the offering, existing cash and
investment securities will be sufficient to support our current operating plan
through at least the end of 2002. We have based this estimate on assumptions
that may prove to be wrong. Our future capital requirements depend on many
factors that affect our research, development, collaboration and strategic
partnering activities. If we fail to raise sufficient funds, we may have to
curtail or cease operations.
OUR TECHNOLOGY INFRASTRUCTURE IS NOT YET COMPLETE AND ANY DELAY OR FAILURE TO
COMPLETE IT COULD HARM OUR BUSINESS.
Part of our strategy involves building additional technology infrastructure
to support our Universal Gene Recognition platform. This strategy includes the
continued research and development of improved and automated processes for
design and production of our ZFP transcription factors. In addition, we intend
to continue to assemble ZFP libraries for use in pharmaceutical target
discovery. Because this infrastructure is an important part of our platform, any
delay or failure to complete it could harm our business.
OUR UNIVERSAL GENETOOLS COLLABORATION AGREEMENTS WITH COMPANIES ARE OF LIMITED
SCOPE, AND IF WE ARE NOT ABLE TO EXPAND THE SCOPE OF OUR EXISTING COLLABORATIONS
OR ENTER INTO NEW ONES, OUR BUSINESS WILL BE ADVERSELY AFFECTED.
Our Universal GeneTools collaborations are important to us as they permit
us to introduce our technology to multiple companies by supplying them with a
specified ZFP transcription factor for a payment without licensing any of our
technology. The collaboration agreements are of limited scope, however. Under
most of our current Universal GeneTools collaborations we receive a payment for
supplying ZFP transcription factors for gene targets specified by the companies.
These companies are not obligated to make continuing payments to us in
connection with their research efforts or to pursue any product development
program with us. As a result, we may not develop long-term relationships with
these companies that could lead to additional revenues. If we are not able to
expand the scope of our existing collaborations or enter into new ones, our
business will be adversely affected.
COMMERCIALIZATION OF OUR TECHNOLOGIES DEPENDS ON STRATEGIC PARTNERING WITH OTHER
COMPANIES, AND IF WE ARE NOT ABLE TO FIND STRATEGIC PARTNERS IN THE FUTURE, WE
MAY NOT BE ABLE TO DEVELOP OUR TECHNOLOGIES OR PRODUCTS.
We expect to rely, to some extent, on our strategic partners to provide
funding in support of our research and to perform some independent research,
preclinical and clinical testing. We currently have only one strategic partner.
Since we do not currently possess the resources necessary to develop and
commercialize potential products that may result from our technologies, or the
resources or capabilities to complete any approval processes that may be
required for the products, we must enter into additional strategic partnerships
to develop and commercialize products. If we do not enter into
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additional strategic partnering agreements, our revenue will be reduced and our
potential products may not be developed or commercialized. The loss of our
current or any future strategic partnering agreement would not only delay or
terminate the potential development or commercialization of any products we may
derive from our technologies but also delay or terminate our ability to test ZFP
transcription factors for specific gene targets. If our present strategic
partner or any of our future strategic partners were to breach or terminate
their agreement with us or otherwise fail 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. We cannot control the amount and timing
of resources our present strategic partner or our future strategic partners will
devote to our programs or potential products. In addition, we expect to rely on
our strategic partners for commercialization of some of our products.
Our existing strategic partnering agreement is, and we would expect any
future arrangement to be, milestone based. These are different from our
Universal GeneTools agreements in that under the strategic partnering agreements
we would receive revenue for the research and development of a therapeutic
product based on achievement of specific milestones. Achieving these milestones
will depend, in part, on the efforts of our strategic partner as well as our
own. In contrast, under our current Universal GeneTools collaboration agreements
we are paid only for supplying ZFP transcription factors for the collaborator's
independent use, rather than for future results of the collaborator's efforts.
If we or our present strategic partner or our future strategic partners fail to
meet specific milestones, then the strategic partnership can be terminated. If
we fail to maintain our existing strategic partnership or enter into more of
these strategic partnering agreements, we will not be able to increase our
revenues, and our business will be harmed.
OUR UNIVERSAL GENETOOLS COLLABORATIONS AND STRATEGIC PARTNERSHIPS MAY NOT LEAD
TO COMMERCIALLY VIABLE PRODUCTS.
We cannot assure you that any current or future Universal GeneTools
collaborations or strategic partnerships will ultimately succeed in delivering
commercially viable products, and we cannot assure you that any products, if
approved, will gain market acceptance. Significant time may be required to
secure additional collaborations or strategic partners because of the need to
effectively market the benefits of our technology to these future collaborators
and strategic partners, including 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. We may expend substantial
funds and management effort with no assurance that a collaboration or strategic
partnership will result. Our quarterly operating results may fluctuate
significantly depending on the initiation of new Universal GeneTools
collaboration or strategic partnering agreements or the termination of existing
collaboration and strategic partnering agreements.
Because many of our Universal GeneTools collaborators or strategic partners
are likely to be working on more than one research project, they could choose to
shift their resources to projects other than those they are working on with us.
If they do so, that would delay our ability to test our technology and would
delay or terminate the development of potential products based on our gene
regulation technology. Further, our collaborators and strategic partners may
elect not to develop products arising out of our collaborative and strategic
partnering arrangements or to devote sufficient resources to the development,
manufacturing, marketing or sale of these products. We cannot assure you that
our collaborators or strategic partners will not adopt alternative technology of
our competitors. If any of these events occur, we may not be able to develop our
technologies or commercialize our products.
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WE INTEND TO CONDUCT PROPRIETARY RESEARCH PROGRAMS TO DISCOVER THERAPEUTIC
PRODUCT CANDIDATES. THESE PROGRAMS INCREASE OUR RISK OF PRODUCT FAILURE, MAY
SIGNIFICANTLY INCREASE OUR RESEARCH EXPENDITURES, AND MAY INVOLVE CONFLICTS WITH
OUR COLLABORATORS AND STRATEGIC PARTNERS.
An important part of our strategy involves conducting proprietary research
programs. The implementation of this strategy will involve substantially greater
business risks and the expenditure of significantly greater funds than our
current research activities. In addition, these programs will require
substantial commitments of time from our management and staff. Moreover, we have
no experience in preclinical or clinical testing, obtaining regulatory approval
or commercial-scale manufacturing and marketing of therapeutic products, and we
currently do not have the resources or capability to manufacture therapeutic
products on a commercial scale. In order for us to commercialize these products
directly, we would need to develop, or obtain through outsourcing arrangements,
the capability to execute all of these functions, market and sell products. We
do not have these capabilities, and we may not be able to develop or otherwise
obtain the requisite preclinical, clinical, regulatory, manufacturing, marketing
and sales capabilities.
In addition, disagreements with our Universal GeneTools 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.
BECAUSE IT IS DIFFICULT AND COSTLY TO PROTECT OUR PROPRIETARY RIGHTS, WE CANNOT
ENSURE THEIR PROTECTION.
Our commercial success will depend in part on obtaining patent protection
of our technology and successfully defending these patents against third party
challenges. The patent positions of pharmaceutical and biotechnology companies
can be highly uncertain and involve complex legal and factual questions. No
consistent policy regarding the breadth of claims allowed in biotechnology
patents has emerged to date. Accordingly, we cannot predict the breadth of
claims allowed in patents we own or license.
We are a party to various license agreements that give us rights under
specified patents and patent applications. We currently hold an exclusive
sublicense for ZFP transcription factor technology which is limited to using the
technology in human and animal healthcare. The scope of this license may be
subject to dispute. We may need to license additional rights to commercialize
our technology outside human and animal healthcare. We will seek to obtain a
sublicense to these patent applications for use in our agricultural and
industrial biotechnology efforts. If we are not able, however, to license these
additional rights, it could harm our business. Similarly, our current licenses,
and our future licenses will, contain performance obligations, and 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, our product development and research activities may be delayed or
terminated.
With respect to our present and any future sublicenses, since our rights
derive from those granted to our sublicensor, we are subject to the risk that
our sublicensor may fail to perform its obligations under the master license or
fail to inform us of useful improvements in, or additions to, the underlying
intellectual property owned by the original licensor.
We are unable to exercise the same degree of control over intellectual
property that we license from third parties as we exercise over our internally
developed intellectual property. We generally do
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not control the prosecution of patent applications that we license from third
parties; therefore, the patent applications may not be prosecuted in a timely
manner.
The degree of future protection for our proprietary rights is uncertain and
we cannot ensure that:
- we or our licensors were the first to make the inventions covered by each
of our pending patent applications;
- we or our licensors were the first to file patent applications for these
inventions;
- others will not independently develop similar or alternative technologies
or reverse engineer any of our products, processes or technologies;
- any of our pending patent applications will result in issued patents;
- any patents issued or licensed to us or our Universal GeneTools
collaborators or strategic partners will provide a basis for commercially
viable products or will provide us with any competitive advantages or
will not be challenged and invalidated by third parties;
- we will develop additional products, processes or technologies that are
patentable; or
- the patents of others will not have an adverse effect on our ability to
do business.
Others have filed and in the future are likely to file patent applications
that are similar to ours. We are aware that there are academic groups and other
companies that are attempting to develop technology which is based on the use of
zinc finger DNA binding proteins. More particularly, we are aware of pending
patent applications with claims directed to zinc finger libraries and methods of
designing zinc finger DNA binding proteins. These applications are not issued
patents. If the pending claims were granted in their present form, however, they
could interfere with our right to commercialize our products and processes. If
these or other patents issue, it is possible that the holder of any patent or
patents granted on these applications may bring an infringement action against
our collaborators, strategic partner or us claiming damages and seeking to
enjoin commercial activities relating to the affected products and processes.
The costs of litigating the claim could be substantial. Moreover, we cannot
predict whether our Universal GeneTools collaborators, strategic partners or we
would prevail in any actions. In addition, if the relevant patent claims were
upheld as valid and enforceable and our products or processes were found to
infringe the patent or patents, we could be prevented from making, using or
selling the relevant product or process unless we could obtain a license or were
able to design around the patent claims. While we believe that our proprietary
intellectual property would give us substantial leverage to secure a
cross-license, we cannot assure you that any license required under that patent
or patents would be made available on commercially acceptable terms, if at all.
We believe that there may be significant litigation in the genomics industry
regarding patent and other intellectual property rights which could subject us
to litigation. If we become involved in litigation, it could consume a
substantial portion of our managerial and financial resources.
We have received unsolicited invitations to license existing patented
technology from a number of third parties, at least one of which contained an
allegation of infringement. Upon careful analysis of each of these technologies,
we have determined that we already own rights to these technologies or that our
scientific and commercial interests would not benefit from the acquisition of
rights to these technologies. Further, we believe that the making, using or
selling of our products and processes need not infringe any claims in the
proffered patents. Accordingly, we have declined to enter into license
negotiations with these parties. We cannot assure you, however, that these
parties will not bring future actions against us, our Universal GeneTools
collaborators or our strategic partners alleging infringement of their patents.
As detailed above, the outcome of any litigation, particularly lawsuits
involving biotechnology patents, is difficult to predict and likely to be costly
regardless of the
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outcome. In these circumstances, the risks of a negative impact on our business
can neither be clearly defined nor entirely eliminated.
We rely on trade secrets to protect technology where we believe patent
protection is not appropriate or obtainable. Trade secrets, however, are
difficult to protect. While we require employees, academic collaborators and
consultants to enter into confidentiality agreements, we may not be able to
adequately protect our trade secrets or other proprietary information or enforce
these confidentiality agreements.
Our Universal GeneTools 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 our ability to receive patent protection or protect our
proprietary information will be imperiled. See "Business -- Intellectual
Property and Technology Licenses."
OUR POTENTIAL THERAPEUTIC PRODUCTS ARE SUBJECT TO A LENGTHY AND UNCERTAIN
REGULATORY PROCESS, AND IF THESE POTENTIAL PRODUCTS ARE NOT APPROVED, WE WILL
NOT BE ABLE TO COMMERCIALIZE THOSE PRODUCTS.
The Food and Drug Administration, or FDA, must approve any therapeutic and
some diagnostic products based on ZFP technology before it can be marketed in
the United States. The process for receiving regulatory approval is long and
uncertain, and we cannot assure you that if we had a potential product, this
product would withstand the rigors of testing under the regulatory approval
processes.
Before commencing clinical trials in humans, we must submit and receive
approval from the FDA of an Investigational New Drug Application. Clinical
trials are subject to oversight by institutional review boards and the FDA and
these trials must meet particular conditions, such that they:
- must be conducted in conformance with the FDA's good clinical practice
regulations;
- must meet requirements for institutional review board oversight;
- must meet requirements for informed consent;
- are subject to continuing FDA oversight;
- may require large numbers of test subjects; and
- may be suspended by us or the FDA at any time if it is believed that the
subjects participating in these trials are being exposed to unacceptable
health risks or if the FDA finds deficiencies in the Investigational New
Drug application or the conduct of these trials.
We must also demonstrate that the product is safe and effective in the
patient population that will be treated. Data obtained from preclinical and
clinical activities are susceptible to varying interpretations that could delay,
limit or prevent regulatory clearances. In addition, delays or rejections may be
encountered 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. Failure to comply with
applicable FDA or other applicable regulatory requirements may result in
criminal prosecution, civil penalties, recall or seizure of products, total or
partial suspension of production or injunction, as well as other regulatory
action against our potential products or us. Additionally, we have no experience
in conducting and managing the clinical trials necessary to obtain regulatory
approval.
In addition, we may also require approval from the Recombinant DNA Advisory
Committee, or RAC, which is the advisory board to the National Institutes of
Health, or NIH, focusing on clinical trials involving gene transfer.
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Even after investing significant time and expenditures, we may not obtain
regulatory approval for our products. Even if we receive regulatory approval,
this approval may entail limitations of the indicated use for which we can
market a product. Further, once regulatory approval is obtained, a marketed
product and its manufacturer are subject to continual review, and 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 certain countries, regulatory
agencies also set or approve prices.
We have not submitted an application with the FDA or any other regulatory
authority for any product candidate, and neither the FDA nor any other
regulatory authority has approved any therapeutic, diagnostic, agricultural or
industrial product candidate developed with our technology for commercialization
in the United States or elsewhere.
Even if regulatory clearance of a product is granted, this clearance will
be limited to those specific states and conditions for which the product is
useful, demonstrated through clinical trials to be safe and effective. We cannot
ensure that any therapeutic product developed by us, alone or with others, will
prove to be safe and effective in clinical trials and will meet all of the
applicable regulatory requirements needed to receive marketing clearance.
Outside the United States, our ability to market a product is contingent
upon receiving a marketing authorization from the appropriate regulatory
authorities so we cannot predict whether or when we would be permitted to
commercialize our product. These foreign regulatory approval processes include
all of the risks associated with FDA clearance described above.
LAWS OR PUBLIC SENTIMENT MAY LIMIT OUR PRODUCTION OF GENETICALLY ENGINEERED
AGRICULTURAL PRODUCTS IN THE FUTURE, AND THESE LAWS COULD REDUCE OUR ABILITY TO
SELL THESE PRODUCTS.
We may develop genetically engineered agricultural products for ourselves
or with our strategic partners. The field testing, production and marketing of
genetically engineered plants and plant products are subject to federal, state,
local and foreign governmental regulation. Regulatory agencies administering
existing or future regulations or legislation may not allow production and
marketing of our genetically engineered products in a timely manner or under
technically or commercially feasible conditions. In addition, regulatory action
or private litigation could result in expenses, delays or other impediments to
our product development programs or the commercialization of resulting products.
The FDA currently applies the same regulatory standards to foods developed
through genetic engineering as applied to foods developed through traditional
plant breeding. Genetically engineered food products, however, will be subject
to premarket review if these products raise safety questions or are deemed to be
food additives. Our products may be subject to lengthy FDA reviews and
unfavorable FDA determinations if they raise questions, are deemed to be food
additives, or if the FDA changes its policy. Governmental authorities could
also, for social or other purposes, limit the use of genetically engineered
products created with our gene regulation technology.
The FDA has also announced in a policy statement that it will not require
that genetically engineered agricultural products be labeled as such, provided
that these products are as safe and have the same nutritional characteristics as
conventionally developed products. The FDA may reconsider or change its labeling
policies, or local or state authorities may enact labeling requirements. Any
labeling requirements could reduce the demand for our products. Further,
negative public reaction to genetically modified organisms and products could
result in greater government regulation of genetic research and the resulting
products, including stricter label requirements and could cause a decrease in
the demand for our products.
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Even if we are able to obtain regulatory approval of genetically engineered
products, our success will also depend on public acceptance of the use of
genetically engineered products including drugs, plants and plant products.
Claims that genetically engineered products are unsafe for consumption or pose a
danger to the environment may influence public attitudes. Our genetically
engineered products may not gain public acceptance. The subject of genetically
modified organisms has received negative publicity in Europe, which has aroused
public debate. The adverse publicity in Europe could lead to greater regulation
and trade restrictions on imports of genetically altered products. If similar
adverse public reaction occurs in the United States, genetic research and its
resulting products could be subject to greater domestic regulation and could
decrease the demand for our technology and products.
IF CONFLICTS ARISE BETWEEN US AND OUR COLLABORATORS, STRATEGIC PARTNERS,
SCIENTIFIC ADVISORS OR DIRECTORS, THESE PARTIES MAY ACT IN THEIR SELF-INTEREST,
WHICH MAY BE ADVERSE TO YOUR BEST INTERESTS.
If conflicts arise between us and our corporate or academic collaborators,
strategic partners or scientific advisors or directors, the other party may act
in its self-interest and not in the interest of our stockholders. Some of our
Universal GeneTools or academic collaborators or strategic partners are
conducting multiple product development efforts within each area that is the
subject of the collaboration with us. Generally, in each of our collaborations,
we have agreed not to conduct independently, or with any third party, any
research that is competitive with the research conducted under our
collaborations. Our collaborations may have the effect of limiting the areas of
research that we may pursue, either alone or with others. Our collaborators or
strategic partners, however, may develop, either alone or with others, products
in related fields that are competitive with the products or potential products
that are the subject of these collaborations. Competing products, either
developed by the collaborators or strategic partners or to which the
collaborators or strategic partners have rights, may result in their withdrawal
of support for our product candidates.
Certain of our collaborators or strategic partners could also become
competitors in the future. Our collaborators or strategic partners could develop
competing products, preclude us from entering into collaborations with their
competitors, fail to obtain timely regulatory approvals, terminate their
agreements with us prematurely or fail to devote sufficient resources to the
development and commercialization of products. Any of these developments could
harm our product development efforts.
OUR COLLABORATIONS WITH OUTSIDE SCIENTISTS MAY BE SUBJECT TO CHANGE WHICH COULD
LIMIT OUR ACCESS TO THEIR EXPERTISE.
We work with scientific advisors and collaborators at academic research
institutions. These scientists are not our employees and may have other
commitments that would limit their availability to us. Although our scientific
advisors generally agree not to do competing work, if a conflict of interest
between their work for us and their work for another entity arises, we may lose
their services. Although our scientific advisors and academic collaborators sign
agreements not to disclose our confidential information, it is possible that
some of our valuable proprietary knowledge may become publicly known through
them.
IF WE USE BIOLOGICAL AND HAZARDOUS MATERIALS IN A MANNER THAT CAUSES INJURY OR
VIOLATES LAWS, WE MAY BE LIABLE FOR DAMAGES.
Our research and development activities involve the controlled use of
potentially harmful biological materials as well as hazardous materials,
chemicals and various radioactive compounds. We cannot completely eliminate the
risk of accidental contamination or injury from the use, storage,
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handling or disposal of these materials. In the event of contamination or
injury, we could be held liable for damages that result, and any liability could
exceed our resources. We are subject to federal, state and local laws and
regulations governing the use, storage, handling and disposal of these materials
and specified waste products. The cost of compliance with these laws and
regulations could be significant.
ANTI-TAKEOVER PROVISIONS IN OUR CERTIFICATE OF INCORPORATION AND DELAWARE LAW
COULD ADVERSELY AFFECT THE RIGHTS OF OUR COMMON STOCKHOLDERS.
Anti-takeover provisions of Delaware law, in our certificate of
incorporation and equity benefit plans may make a change in control of our
company more difficult, even if a change in control would be beneficial to our
stockholders. These provisions may allow our board of directors to prevent or
make changes in the management and control of our company. In particular, our
board of directors will be able to issue up to 5,000,000 shares of preferred
stock with rights and privileges that might be senior to our common stock,
without the consent of the holders of the common stock. Further, without any
further vote or action on the part of the stockholders, the board of directors
will have the authority to determine the price, rights, preferences, privileges
and restrictions of the preferred stock. This preferred stock, if it is ever
issued, may have preference over and harm the rights of the holders of common
stock. Although the issuance of this preferred stock will provide us with
flexibility in connection with possible acquisitions and other corporate
purposes, this issuance may make it more difficult for a third party to acquire
a majority of our outstanding voting stock. Similarly, our authorized but
unissued common stock is available for future issuance without stockholder
approval.
A NATURAL DISASTER COULD ADVERSELY AFFECT OUR BUSINESS.
Our sole facility is located in Richmond, California. In the event that a
fire or other natural disaster, such as an earthquake, prevents us from
operating our business, our business would be materially, adversely affected. We
maintain earthquake coverage for our facility, but we do not maintain the same
coverage for personal property or resulting business interruption.
RISKS RELATED TO THIS OFFERING
OUR STOCK PRICE MAY BE VOLATILE, WHICH COULD RESULT IN SUBSTANTIAL LOSSES FOR
INVESTORS PURCHASING SHARES IN THIS OFFERING.
Prior to this offering, you could not buy or sell our common stock
publicly. An active public market for our common stock may not develop or be
sustained after this offering. We will negotiate and determine the initial
public offering price with the representatives of the underwriters based on
several factors. You may be unable to sell your shares of common stock at or
above the initial public offering price, which may result in substantial losses
to you. In addition, the market price of our common stock may be highly
volatile. The market prices of securities of other technology-based companies,
particularly biotechnology companies, currently are highly volatile. The market
price of our common stock may fluctuate significantly in response to the
following factors, some of which are beyond our control:
- changes in market valuations of similar companies and stock market price
and volume fluctuations generally;
- 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;
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- regulatory developments;
- additions or departures of key personnel;
- deviations in our results of operations from the estimates of securities
analysts;
- changes in securities analysts' estimates of our financial performance;
- variations in our quarterly operating results; and
- future sales of our common stock or other securities.
Our initial public offering price may not be indicative of the price of our
stock that will prevail in the trading market. In the past, securities class
action litigation has often been brought against a company following periods of
volatility in the market price of its securities. We may in the future be the
target of similar litigation. Securities litigation could result in substantial
costs and divert management's attention and resources.
OUR STOCK PRICE COULD BE ADVERSELY AFFECTED BY SHARES BECOMING AVAILABLE FOR
SALE.
Sales of a substantial number of shares of our common stock, or the
perception that these sales could occur, could depress the market price of our
common stock and could impair our ability to raise capital through the sale of
additional equity securities. In addition, we have entered into registration
rights agreements with some investors that entitle these investors to have their
shares registered for sale in the public market. The exercise of these rights
could affect the market price of our common stock. See "Shares Eligible for
Future Sale" for further information concerning potential sales of our shares
after this offering.
PURCHASERS IN THIS OFFERING WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION.
We expect that the initial public offering price of our common stock will
be substantially higher than the book value per share of the outstanding common
stock. As a result, you will incur immediate and substantial dilution of $
per share in the net tangible book value per share of common stock from the
initial public offering price. In the past, we issued options and warrants to
acquire common stock at prices significantly below the initial public offering
price. The exercise of options and warrants currently outstanding could cause
additional, substantial dilution to you. See "Dilution" for more detailed
information regarding the potential dilution you may incur.
INSIDERS WILL CONTINUE TO HAVE SUBSTANTIAL CONTROL OVER SANGAMO AFTER THIS
OFFERING AND COULD DELAY OR PREVENT A CHANGE IN CORPORATE CONTROL.
The interest of management could conflict with the interest of our other
stockholders. Upon completion of this offering, our executive officers,
directors and principal stockholders will beneficially own, in the aggregate,
approximately % of our outstanding common stock. As a result, these
stockholders, if they choose to act together, will be able to exercise control
over all matters requiring stockholder approval, including the election of
directors and approval of significant corporate transactions. This could have
the effect of delaying or preventing a change of control of Sangamo, which in
turn could reduce the market price of our stock.
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USE OF PROCEEDS
Our net proceeds from the sale of the shares of common stock
we are offering are estimated to be $ million, or $ million if the
underwriters' over-allotment option is exercised in full, based on an assumed
initial offering price of $ per share, after deducting the estimated
underwriting discount and commissions and the estimated offering expenses.
We currently expect to use the net proceeds of this offering for research
and development, repayment of a loan and general corporate purposes. We also
expect to repay the loan which bears interest at a rate of 6.5%. The loan
matures in May 2003 and has a current balance of $250,000. We may also use a
portion of the net proceeds to acquire or invest in businesses, products and
technologies that are complementary to our own, although no acquisitions are
planned or being negotiated as of the date of this prospectus, and no portion of
the net proceeds has been allocated for any specific acquisition or for
acquisitions generally. Pending these uses, the net proceeds will be invested in
short term, investment grade, interest-bearing securities.
The principal purposes of the offering are to increase our capitalization
and financial flexibility, to provide a public market for our common stock and
to facilitate access to public equity markets. As of the date of this
prospectus, we cannot specify with certainty all of the particular uses for the
net proceeds we will have upon completion of the offering. Accordingly, our
management will have broad discretion in the application of net proceeds.
DIVIDEND POLICY
We have never paid dividends on our common or preferred stock. We currently
intend to retain any future earnings to support the development of our business.
Therefore, we do not currently anticipate paying any cash dividends in the
foreseeable future.
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CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999:
- on an actual basis
- on a pro forma basis to give effect to:
- automatic conversion of all outstanding shares of preferred stock into
9,711,834 shares of common stock upon consummation of the offering;
- the issuance of 666,666 shares of common stock in January 2000;
- the issuance of a $5 million note in January 2000 which converts into
shares of common stock at an assumed initial public
offering price upon consummation of the offering of $ .
- on a pro forma as adjusted basis to give effect to the sale of
shares of our common stock at an assumed initial public
offering price of $ per share in this offering, after deducting the
estimated underwriting discounts and commissions and our estimated
offering expenses, and the repayment of $250,000 of long-term debt.
This table should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Financial
Statements and Notes to the Financial Statements appearing elsewhere in this
prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
---------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt, less current portion........................ $ 250 $ 250 $ --
------- ------- -------
Stockholders' equity:
Preferred stock, $0.01 par value, 6,000,000 shares
authorized, actual and pro forma, 5,000,000 shares
authorized, as adjusted; 4,855,917 shares issued and
outstanding, actual, no shares issued and outstanding,
pro forma and pro forma as adjusted.................... 15,088 -- --
Common stock, $0.01 par value, 15,000,000 authorized,
actual, 80,000,000 shares authorized, pro forma and pro
forma as adjusted; 6,132,060 shares issued and
outstanding, actual, shares issued and
outstanding, pro forma and shares issued
and outstanding, pro forma as adjusted................. 1,700 23,288
Deferred stock compensation............................... (1,386) (1,386) (1,386)
Accumulated deficit....................................... (7,478) (7,478) (7,478)
Accumulated other comprehensive income.................... 83 83 83
------- ------- -------
Total stockholders' equity........................... 8,007 14,507
------- ------- -------
Total capitalization................................. $ 8,257 $14,757 $
======= ======= =======
</TABLE>
The number of shares of common stock outstanding excludes:
- 1,872,666 shares of common stock issuable upon exercise of stock options
outstanding at a weighted average exercise price of $0.15 per share;
- 259,962 shares of common stock issuable upon the exercise of outstanding
warrants at a weighted average exercise price of $2.00 per share; and
- a total of 2,400,000 shares of common stock available for future issuance
under our stock option plans.
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DILUTION
The pro forma net tangible book value per share of our common stock as of
December 31, 1999 was $ . Pro forma net tangible book value per share
represents total pro forma tangible assets less liabilities, divided by pro
forma net common shares outstanding. Pro forma net tangible book value reflects
our actual net tangible book value at December 31, 1999, and includes the pro
forma effect of the conversion of all outstanding shares of preferred stock into
9,711,834 shares of common stock upon the consummation of the offering, the
issuance in January 2000 of 666,666 shares of common stock and the issuance of a
$5 million note which converts into shares of common stock at an assumed
initial public offering price of $ upon consummation of the offering.
After giving effect to our sale of shares of common stock in this offering
and after deducting the underwriting discounts and commissions and our estimated
offering expenses, our pro forma net tangible book value as of December 31, 1999
would have been million, or per share. This
represents an immediate increase in pro forma net tangible book value of
per share to existing stockholders and an immediate dilution of
per share to new investors. Dilution in pro forma net tangible
book value per share represents the difference between the amount per share paid
by purchasers of shares of our common stock in this offering and the pro forma
net tangible book value per share of our common stock immediately following this
offering. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share................... $
Pro forma net tangible book value per share as of
December 31, 1999.................................... $
Increase per share attributable to the offering.........
--------
Pro forma net tangible book value per share after the
offering................................................
--------
Dilution per share to new investors....................... $
========
</TABLE>
The following table summarizes on December 31, 1999, based on the same pro
forma assumptions as above and assuming an initial public offering price of
$ , the differences between the existing stockholders and new investors
with respect to the number of shares of common stock purchased from us, the
total consideration paid to us, and the average price per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------ -------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
-------- ------- --------- -------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.................... % $ % $
New investors............................
-------- --- -------- ---
Totals................................. % $ %
======== === ======== ===
</TABLE>
- -------------------------
This table excludes the following shares as of December 31, 1999:
- 1,872,666 shares issuable upon exercise of outstanding options at a
weighted average exercise price of $0.15 per share;
- 259,962 shares issuable upon exercise of outstanding warrants at a
weighted average exercise price of $2.00 per share; and
- a total of 2,400,000 shares available for future issuance under our stock
plans.
See "Management -- Stock Plans" and Note 4 of Notes to Financial
Statements.
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<PAGE> 23
SELECTED FINANCIAL DATA
The following selected statement of operations data for the period from
inception to December 31, 1995 and for the years ended December 31, 1996, 1997,
1998 and 1999, and the balance sheet data as of December 31, 1995, 1996, 1997,
1998 and 1999, are derived from the audited financial statements, which have
been audited by Ernst & Young LLP. The diluted net loss per share computation
excludes potential shares of common stock (preferred stock, options and warrants
to purchase common stock and common stock subject to repurchase rights that we
hold), since their effect would be antidilutive. See Note 4 of Notes to
Financial Statements for a detailed explanation of the determination of the
shares used to compute actual and pro forma basic and diluted net loss per
share. Our historical results are not necessarily indicative of results to be
expected for future periods. You should read the following selected financial
data in conjunction with our Financial Statements and related Notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1995 1996 1997 1998 1999
------ ------ ------ ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues.................................. $ 183 $ 632 $1,152 $ 2,038 $ 2,182
------ ------ ------ ------- -------
Operating expenses:
Research and development...................... 150 628 1,675 4,057 3,991
General and administrative.................... 50 322 447 1,029 1,578
Amortization of deferred stock compensation... -- -- -- -- 96
------ ------ ------ ------- -------
Total operating expenses................... 200 950 2,122 5,086 5,665
------ ------ ------ ------- -------
Loss from operations............................ (17) (318) (970) (3,048) (3,483)
Interest income, net............................ -- 10 44 173 131
------ ------ ------ ------- -------
Net loss........................................ (17) $ (308) $ (926) $(2,875) $(3,352)
====== ====== ====== ======= =======
Basic and diluted net loss per share............ $(0.00) $(0.06) $(0.17) $ (0.49) $ (0.56)
====== ====== ====== ======= =======
Shares used in computing basic and diluted net
loss per share................................ 5,000 5,143 5,485 5,843 5,991
====== ====== ====== ======= =======
Pro forma basic and diluted net loss per share
(unaudited)................................... $ (0.26)
=======
Shares used in computing pro forma basic and
diluted net loss per share (unaudited)........ 13,102
=======
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------------------
1995 1996 1997 1998 1999
---- ----- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments.................................... $243 $ 358 $ 6,314 $ 3,058 $ 7,503
Working capital.................................. 308 434 6,233 3,161 7,206
Total assets..................................... 346 539 6,896 4,219 9,287
Long-term debt................................... -- -- -- 250 250
Accumulated deficit.............................. (17) (325) (1,251) (4,126) (7,478)
Total stockholders' equity....................... 308 434 6,409 3,591 8,007
</TABLE>
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<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with
the "Selected Financial Data" and the Financial Statements and Notes attached to
those statements included elsewhere in this prospectus.
OVERVIEW
We were incorporated in June 1995. From our inception through December 31,
1999, our activities related primarily to establishing a research and
development organization and developing relationships with our Universal
GeneTools collaborators. We have incurred net losses since inception and expect
to incur losses in the near future as we expand our research and development
activities. To date, we have funded our operations primarily through the
issuance of equity securities, borrowings, and payments from federal government
research grants and from Universal GeneTools collaborators. As of December 31,
1999, we had an accumulated deficit of $7.5 million.
Our revenues consist primarily of federal government research grant funding
and revenues from our Universal GeneTools collaborators. We expect that in the
near future, our revenues will also include payments from strategic partners for
technology access fees, committed research funding and research milestone
payments.
In January 2000, we announced that we had entered into a strategic partner
agreement with Edwards LifeScience, Inc., formerly the CardioVascular Group of
Baxter Healthcare Corporation for the development of ZFPs in cardiovascular and
peripheral vascular diseases. Under this agreement, Baxter has purchased a $5
million convertible note which will convert into common stock upon consummation
of this offering, and we have received $1 million in initial research funding
from Baxter. In the future, we may receive option fees, milestone payments,
royalties and additional research funding from this agreement. See
"Business -- Corporate Collaborations" and Note 16 of Notes to Financial
Statements.
Research and development expenses consist primarily of salaries and related
personnel expenses, subcontracted research expenses, and technology license
expenses. As of December 31, 1999, all research and development costs have been
expensed as incurred. We believe that continued investment in research and
development is critical to attaining our strategic objectives. We expect these
expenses will increase significantly in the future as we continue to develop our
Universal Gene Recognition technology platform.
General and administrative expenses consist primarily of salaries and
related personnel expenses for executive, finance and administrative personnel,
professional fees, and other general corporate expenses. As we add personnel and
incur additional costs related to the growth of our business, general and
administrative expenses will also increase.
STOCK COMPENSATION
During the year ended December 31, 1999, in connection with the grant of
stock options to employees, we recorded deferred stock compensation totaling
$1.5 million, representing the difference between the deemed fair value of our
common stock for financial reporting purposes on the date such options were
granted and the exercise price. This amount is included as a reduction of
stockholders' equity and is being amortized over the vesting period of the
individual options, generally four years, using the graded vesting method. The
graded vesting method provides for vesting of portions of the overall award at
interim dates and results in higher vesting in earlier years than straight-line
vesting.
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<PAGE> 25
We recorded amortization of deferred stock compensation of $96,000 for the year
ended December 31, 1999. At December 31, 1999, we had a total of $1.4 million
remaining to be amortized over the vesting periods of the stock options. In
January 2000, we recorded additional deferred stock compensation of $2.8 million
and anticipate additional deferred stock compensation will be recorded for
options granted prior to the closing of this offering. You should read Note 4 of
Notes to Financial Statements for more information.
RESULTS OF OPERATIONS
Years Ended December 31, 1999 and 1998
Total revenues. Total revenues consist of revenues from collaboration
agreements and federal government research grants. Revenues from our Universal
GeneTools agreements were $1.0 million in 1999, compared with $150,000 during
1998, an increase of $850,000. The increase in 1999 was principally attributable
to revenues recognized from collaboration agreements signed since the third
quarter of 1998. We expect revenues from these agreements to continue to
increase as additional agreements are signed or existing agreements are
expanded. Federal government research grant revenues were $1.2 million in 1999,
compared to $1.9 million in 1998, a decrease of $706,000. The decrease in 1999
was principally due to an increased focus on Universal GeneTools collaborations
and strategic partners in 1999 as some existing federal research government
grants ended. We plan to continue to apply for federal government research
grants.
Research and development expenses. Research and development expenses were
$4.0 million for 1999, compared with $4.1 million during 1998, a decrease of
$66,000. Research and development expenses decreased as a result of a reduction
in laboratory supplies and equipment expenses. We expect research and
development expenses to increase significantly in future periods, particularly
as we increase the scientific staff to continue to develop the Universal Gene
Recognition technology platform and to meet the needs of our Universal GeneTools
collaborators and strategic partners.
General and administrative expenses. General and administrative expenses
increased by $549,000, from $1.0 million in 1998 to $1.6 million in 1999. This
increase was primarily attributable to increased staffing to support our
expanded research and development activities and development of our Universal
Gene Recognition technology platform. We expect that general and administrative
expenses will increase in the future to support continued growth of our research
and development efforts.
Amortization of deferred stock compensation. Amortization of deferred stock
compensation was $96,000 in 1999. There was no amortization of deferred stock
compensation in 1998. We recorded aggregate deferred stock compensation of $1.5
million in 1999 for common stock options awarded to employees with exercise
prices below the deemed fair value for financial reporting purposes on their
respective grant dates.
Interest income, net. Interest income, net decreased by $42,000 from
$173,000 in 1998 to $131,000 in 1999. The decrease in interest income, net
resulted from lower average interest-bearing balances and higher debt balances
during 1999.
Years Ended December 31, 1998 and 1997
Total revenues. Federal government research grant revenues increased by
$736,000 from $1.2 million in 1997 to $1.9 million in 1998. This increase was
principally attributable to revenue from new federal government research grants
and by the Department of Commerce under the Advanced Technology Program
initiated in late 1997.
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<PAGE> 26
Research and development expenses. Research and development expenses
increased $2.4 million from $1.7 million in 1997 to $4.1 million in 1998. This
increase was primarily attributable to increases in staffing as we added
additional employees to invest in the development of our Universal Gene
Recognition technology platform. In addition, we incurred additional expense
from expanded laboratory facilities in 1998, our first full year in our new
facility in Richmond, California.
General and administrative expenses. General and administrative expenses
increased by $582,000 from $447,000 in 1997 to $1.0 million in 1998. This
increase reflected increased administrative staffing in support of our expanding
research and development activities.
Interest income, net. Interest income, net increased by $129,000 from
$44,000 in 1997 to $173,000 in 1998. This increase was due primarily to higher
interest-bearing balances as a result of preferred stock financings in late
1997.
We incurred net operating losses in 1997, 1998 and 1999 and consequently we
did not pay any federal, state or foreign income taxes.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations primarily through the
private placements of preferred stock, federal government research grants,
payments from Universal GeneTools collaborators and a strategic partner and
financing activities such as a bank line of credit. As of December 31, 1999, we
had cash, cash equivalents and short-term investments totaling $7.5 million.
Net cash used in operating activities was $2.4 million for 1999, $3.2
million in 1998 and $818,000 in 1997. In all periods, net cash used in operating
activities was primarily due to funding of net operating losses.
Net cash used in investing activities was $6.0 million in 1999, $2.2
million in 1998 and $124,000 in 1997. Cash was used during these periods to
purchase short-term investments and property and equipment.
Net cash provided by financing activities during 1999 was $7.5 million as a
result of the private placement of preferred stock. Net cash provided by
financing activities in 1998 was $253,000 primarily representing the proceeds
from a bank note payable used to finance equipment purchases. Net cash provided
by financing activities in 1997 was $6.9 million primarily from proceeds from
the private placement of preferred stock.
We believe that the net proceeds of this offering, together with available
cash resources, funds received under federal government research grants and from
Universal GeneTools collaborators and a strategic partner are sufficient to
finance our operations through at least 2002. To date, we have been awarded
research grants from the National Institute of Standards and Technology and the
National Institutes of Health amounting to approximately $5.6 million, of which
approximately $5.0 million has been used through December 31, 1999. We may need
to raise substantial additional capital to fund subsequent operations. We cannot
assure you, however, that funding will be available on favorable terms, if at
all.
As of December 31, 1999, we had federal net operating loss carryforwards of
approximately $7.9 million to offset future taxable income. We also had federal
research and development tax credit carryforwards of approximately $100,000. If
not used, net operating loss and credit carryforwards will begin to expire in
2010. Use of the net operating losses and credits may be subject to a
substantial annual limitation due to ownership change limitations provided by
the Internal Revenue Code of 1986. The annual limitation may result in the
expiration of our net operating losses and credits before
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<PAGE> 27
they can be used. Also, if we do not become profitable, we will not be able to
use these net operating losses and credits.
DISCLOSURE ABOUT MARKET RISK
Our exposure to market risk for changes in interest rates relates primarily
to our cash equivalents and short-term investments. The short-term investments
are available for sale. We do not use derivative financial instruments in our
investment portfolio. We attempt to ensure the safety and preservation of our
invested funds by limiting default and market risks. Our cash and investments
policy emphasizes liquidity and preservation of principal over other portfolio
considerations. We select investments that maximize interest income to the
extent possible within these guidelines. We satisfy liquidity requirements by
investing excess cash in securities with different maturities to match projected
cash needs and limit concentration of credit risk by diversifying our
investments among a variety of high credit-quality issuers. We mitigate default
risk by investing in only investment-grade securities. The portfolio includes
marketable securities with active secondary or resale markets to ensure
portfolio liquidity. All short-term investments have a fixed interest rate and
are carried at market value, which approximates cost. Our investment portfolio
at December 31, 1999 has an average maturity of 104 days.
YEAR 2000 ISSUES
We did not experience any significant problems associated with Year 2000
issues, and we are not aware that any of our vendors or suppliers experienced
any of these problems.
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<PAGE> 28
BUSINESS
OVERVIEW
Sangamo BioSciences, Inc. is a leader in the development of novel
transcription factors for the regulation of gene expression. Transcription
factors are proteins that turn genes on or off by recognizing specific DNA
sequences. Our Universal Gene Recognition technology platform enables the
engineering of a class of transcription factors known as zinc finger DNA binding
proteins, or ZFPs. By engineering ZFPs so that they can selectively bind to and
regulate a target gene, we have created ZFP transcription factors that can
control gene expression and, consequently, cell function. We intend to establish
Universal Gene Recognition as a broadly-used technology platform for commercial
applications in pharmaceutical discovery, human therapeutics, DNA diagnostics,
and agricultural and industrial biotechnology.
BACKGROUND
Genes and Gene Expression. Deoxyribonucleic acid, or DNA, is present in all
living cells and is responsible for determining the inherited characteristics of
all living organisms. DNA is arranged on chromosomes in individual units called
genes. Genes encode proteins, which are assembled through the processes of
transcription, whereby DNA is transcribed into ribonucleic acid, or RNA, and
translation, whereby RNA is translated into protein. DNA, RNA, and proteins
represent a large percentage of the targets for pharmaceutical drug discovery.
The human body is composed of specialized cells that perform different
functions and are thus organized into tissues and organs. All cells in the human
body contain the same set of genes. It is believed, however, that only about 10%
of these genes are activated, or expressed, in an individual human cell. Genes
are "turned on" or "turned off," or regulated, in response to a wide variety of
stimuli and developmental signals. Different sets of genes are expressed in
distinct cell types. It is this pattern of gene expression that determines the
structure, biological function and health of all cells, tissues and organisms.
Aberrant gene expression, or the under- or over-expression of certain genes, can
lead to disease.
Transcription Factors. Regulation of gene expression is controlled by DNA
binding proteins called transcription factors. A transcription factor regulates
gene expression by recognizing and binding to a specific DNA sequence associated
with a particular gene and by causing the activation or repression of that gene.
In virtually all higher organisms, transcription factors consist of two
components: the first is a DNA binding domain that recognizes a specific DNA
sequence and thereby directs the transcription factor to the proper chromosomal
location; and the second is a functional domain that determines whether the gene
is activated or repressed.
The Genomics Revolution. Genomics refers to the mapping, sequencing and
functional analysis of the complete set of genes of diverse organisms throughout
the animal, plant and microbial world. Enormous scientific and financial
resources are being dedicated to the sequencing of the human genome, including
the Human Genome Project and other publicly and privately funded genomics
initiatives. It is expected that a preliminary sequence of the human genome will
be completed in the year 2000.
Over the past decade, genomics research has produced a significant quantity
of information on the chromosomal location, sequence and structure of thousands
of genes. The human genome may contain upwards of 140,000 unique genes. The
challenge facing the pharmaceutical and other life science industries is how to
derive medically and commercially valuable knowledge about the function of these
genes from this large accumulation of new genomic information.
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<PAGE> 29
Genome-Based Drug Discovery and Other Applications. The delivery of the
entire human DNA sequence, with its bounty of new genes and potential drug
discovery targets, simultaneously poses a competitive challenge and significant
commercial opportunity to every pharmaceutical company to:
- accelerate the identification of novel drug targets from thousands of
newly discovered genes whose functions are unknown;
- filter through the hundreds of potential drug targets to confirm those
for which proprietary drugs may be successfully developed;
- increase the accuracy and efficiency of compound screening, the process
by which pharmaceutical researchers screen large libraries of chemical
compounds to identify those which have therapeutic activity; and
- discover new therapeutics that can control disease through the regulation
of gene expression.
The genomics revolution poses a similar set of challenges and opportunities
to agricultural biotechnology researchers, including identification of novel
agrochemical targets among thousands of newly discovered genes, the assessment
of which targets may be commercially viable and the efficient development of
agrochemicals and crops optimized for yield, nutritional benefit or resistance
to pathogenic organisms. In another application of genomics research, bacteria,
yeast and plants may be used for the biological production of industrial
chemicals.
Commercial Opportunities Based on the Regulation of Gene Expression. The
ability to regulate the expression of target genes has the potential to enable
far-reaching applications in the human healthcare, agricultural and industrial
biotechnology sectors, including:
- discovery of new genes and analysis of how they function;
- therapeutic products for the regulation of disease-related genes;
- manufacture of protein pharmaceutical products;
- engineering cell lines for the screening of pharmaceutical compounds;
- DNA sequence detection for applications in pharmaceutical research and
clinical diagnostics;
- engineering transgenic plants with improved properties; and
- manufacture of industrial chemicals using biological systems.
A technology platform enabling the design of novel transcription factors to
regulate the expression of target genes could have significant commercial
utility in each of the applications listed above.
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<PAGE> 30
SANGAMO'S UNIVERSAL GENE RECOGNITION TECHNOLOGY PLATFORM
Our Universal Gene Recognition platform is a proprietary technology for the
regulation of gene expression that is enabled by the engineering of a class of
transcription factors called zinc finger DNA binding proteins, or ZFPs. We
believe that Universal Gene Recognition is a fundamentally enabling technology,
widely applicable to pharmaceutical discovery, human therapeutics, DNA
diagnostics, plant agriculture and industrial biotechnology. ZFP transcription
factors have two distinct domains: a DNA recognition domain that directs the
transcription factor to the proper chromosomal location by recognizing a
specific DNA sequence and a functional domain that regulates the activation or
repression of the target gene. This two-domain structure of our engineered ZFP
transcription factors is modelled on the structure of naturally occurring
transcription factors in virtually all higher organisms.
[FIGURE: ZFP-DBD TWO-DOMAIN PROTEIN]
[The figure is a "bar-bell" type structure identifying the DNA domain and the
functional domains of the ZFP transcription factor. Also included is a list of
functional domains.]
Consistent with this two-domain structure, we take a modular approach to
the design of ZFP transcription factors, each of which includes a DNA
recognition domain and a functional domain. The recognition domain is composed
of one or more ZFPs. Each ZFP recognizes and binds to a three base pair sequence
of DNA. Multiple ZFPs can be linked together to recognize longer stretches of
DNA thereby increasing their specificity. By modifying those portions of a ZFP
that interact with DNA, we believe we can create new ZFPs capable of recognizing
DNA sequences in virtually any gene whose sequence is known.
The ZFP DNA recognition domain is coupled to a functional domain, which
causes the ZFP transcription factor to control or regulate the gene in a desired
manner. For instance, an activation domain can cause a target gene to be turned
on. Alternatively, a repression domain can cause the gene to be turned off.
Similarly, a detection domain could be used to identify or detect the target DNA
sequence in a DNA diagnostic test. It is also possible to link the ZFP
transcription factor with a molecular switch that permits a target gene to be
temporarily activated or repressed. This conditional regulation of a gene allows
the effects of gene expression to be controlled in a reversible fashion.
In order to regulate a target gene, the ZFP transcription factor must be
delivered to a target cell. We have licensed gene transfer technology from
Targeted Genetics, Inc. for use with our Universal GeneTools in pharmaceutical
discovery. We are evaluating this and other available delivery technologies for
pharmaceutical discovery and other applications.
To date, we have generated hundreds of ZFPs and have tested their affinity,
or tightness of binding, to their DNA target, and specificity, or preference for
their intended DNA target. We have developed software and standardized methods
for the assembly of ZFPs capable of binding to a wide spectrum of DNA sequences.
We have linked ZFPs to functional domains to create ZFP transcription factors
and have demonstrated in cell-based models their ability to regulate
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<PAGE> 31
commercially important genes. We have also shown that engineered ZFPs can detect
single-base changes in clinically interesting gene targets.
THE SANGAMO ADVANTAGE
We believe that the unique features of ZFP transcription factors will
result in important technical advantages, as compared to alternative
technologies, when applied to pharmaceutical discovery, human therapeutics,
plant agriculture and industrial biotechnology. Among the advantages of our ZFP
transcription factor-based approach to gene regulation are:
- ZFP transcription factors normally and naturally regulate gene expression
in the cells of virtually all higher organisms;
- ZFPs can be designed to recognize unique DNA sequences resulting in the
ability to recognize a single gene within the entire genome;
- ZFP transcription factors can activate or repress target genes, enhancing
their versatility;
- ZFP transcription factors can be used to regulate gene expression in
multiple organisms including humans, animals, plants, microbes and
viruses; and
- ZFP transcription factors can themselves be "turned on" and "turned off"
with molecular switches, allowing conditional and reversible regulation
of a target gene.
We believe that the technical advantages of Universal Gene Recognition will
create leverage across multiple applications, products, markets and commercial
partners:
Pharmaceutical Discovery Research
- DISCOVERY OF NEW GENES AND TARGETS. ZFP transcription factors can be used
to change patterns of gene expression in cells, to stimulate clinically
interesting changes in these cells, and to determine the genes associated
with these changes;
- VALIDATION OF GENE TARGETS. ZFP transcription factors can be used to
target specific genes which is critical to researchers trying to confirm
the function and validity of gene targets for drug development;
- TRANSGENIC ANIMAL MODELS. The conditional expression of ZFP transcription
factors permits the reversible expression of a target gene, a desirable
feature in animal models;
- ASSAY DEVELOPMENT. The coordinate regulation of multiple gene targets may
be an effective approach to the engineering of proprietary cell lines for
the screening and selection of pharmaceutical product candidates from
large chemical libraries;
- SNP DETECTION. The single-base specificity of ZFPs permits the detection
of single nucleotide polymorphisms, or SNPs, which are single base pair
differences in the DNA of different individuals, and the study of their
relationship to disease and drug response, also known as
pharmacogenomics.
Human Therapeutics
- HUMAN THERAPEUTICS. Regulation of disease-related genes may provide
targeted ZFP-Therapeutics for the potential treatment of a broad spectrum
of diseases;
- MANUFACTURING OF PROTEIN PHARMACEUTICALS. We believe ZFP-engineered human
cell lines can be used for production of commercially relevant protein
pharmaceuticals;
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<PAGE> 32
DNA Diagnostics
- SNP DETECTION. The single-base specificity of ZFPs permits the detection
of SNPs, which we believe are likely to become increasingly important in
clinical diagnosis to determine an individual's susceptibility to disease
or probable response to drug therapy;
- AUTOMATION. Unlike conventional DNA detection technologies, ZFPs
recognize double-stranded genomic DNA, which may permit a proprietary and
automated approach to the development of DNA diagnostic assays.
Agricultural and Industrial Biotechnology
- AGRICULTURAL BIOTECHNOLOGY. ZFP transcription factors can be used to
regulate gene expression in plants, potentially leading to applications
in agricultural genomics, agrochemical discovery and the development of
new crops with enhanced nutritional properties;
- INDUSTRIAL BIOTECHNOLOGY. ZFP transcription factors may be used to
regulate gene expression in yeast, other microbial production organisms
and plants which may permit the expanded use of engineered organisms for
the manufacture of industrial chemicals.
OUR STRATEGY
Our strategic objective is to be the worldwide leader in the research and
development of ZFP gene regulation technology and to commercialize this
technology broadly in pharmaceutical discovery, human therapeutics, DNA
diagnostics, plant agriculture and industrial biotechnology. The key elements of
our strategy are as follows:
Develop the Universal Gene Recognition Platform Across Multiple
Applications. Our core competence, the generation of ZFP transcription factors
for the regulation of target genes in multiple organisms, creates leverage
across multiple commercial applications. We intend to establish ZFP gene
regulation as a widely accepted technology with applications and competitive
advantages in each of our target markets.
Build the Technical Infrastructure of ZFP Gene Regulation. Our objective is
to establish ZFPs as a broadly used technology platform for the regulation of
gene expression and DNA sequence detection. We are currently building an
electronic "ZFP directory," or database that, when given a target gene or DNA
sequence, is designed to select optimal sites for ZFP binding and the
corresponding ZFPs. Because of the modular nature of our engineered ZFP
transcription factors, these ZFPs can be efficiently combined with a variety of
functional domains, gene expression systems, and methods of delivery to target
cells. We also intend to automate the assembly and testing of engineered ZFP
transcription factors.
Develop Proprietary Drug Targets and Therapeutics. As we continue to build
our technology platform and expand our revenue base through Universal GeneTools
collaborations and strategic partnerships, we plan to apply ZFP transcription
factors to the identification and validation of drug targets, and to the
generation of proprietary data on new drug targets that can form the basis for
future strategic partnerships as well as internal product development (see
"Universal GeneTools for Pharmaceutical Discovery"). We also intend to develop
ZFP transcription factors as human therapeutics for the direct regulation of
disease-related genes (see "ZFP-Therapeutics").
Multi-tiered Business Model. We intend to leverage the broad applicability
of ZFP gene regulation into commercial opportunities across multiple product
markets. We are currently selling our proprietary Universal GeneTools on a
non-exclusive basis to collaborators engaged in target validation for
pharmaceutical discovery. We also intend to develop ZFP transcription factors
for
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<PAGE> 33
human therapeutics with pharmaceutical and biotechnology companies on an
exclusive basis in milestone- and royalty-based strategic partnerships. We plan
to enter into several similar strategic partnerships across the pharmaceutical
discovery, human therapeutics, DNA diagnostics, plant agriculture and industrial
biotechnology markets. We further intend to capture additional value through our
proprietary programs, which we may commercialize directly or enter into
partnerships at a later stage to increase the economic benefit we retain.
COMMERCIAL APPLICATIONS
We are pursuing commercial applications of our Universal Gene Recognition
technology platform in pharmaceutical discovery, human therapeutics, DNA
diagnostics, plant agriculture and industrial biotechnology.
[GRAPHIC]
[Graphic showing the four different commercial applications of our Universal
Gene Recognition technology platform.]
Universal GeneTools for Pharmaceutical Discovery
We are applying Universal GeneTools to assist pharmaceutical researchers in
their efforts to capitalize on the large accumulation of new gene sequence
information being generated by the genomics revolution. Among the issues that
researchers must address are:
- identifying disease-related genes;
- confirming the validity of these genes and their protein products as
appropriate targets for drug discovery by determining the function and
suitability of targets for therapeutic intervention;
- for validated drug targets, screening large chemical libraries to
identify chemical leads for drug development; and
- identifying variations, or SNPs, in these gene sequences among patients
and determining the relationship of these genetic variations with
susceptibility to disease and probable response to drug therapy.
We believe that Universal GeneTools can accelerate the pace and quality of
genome-based drug discovery at each of these critical steps.
Universal GeneTools for Validation of Drug Targets
As the number of genes identified as potential drug targets increases, the
need to rapidly and efficiently confirm their role in disease increases as well.
ZFP transcription factors are designed to regulate the expression of target
genes in cell-based and animal models to determine their role in a particular
disease. We and our Universal GeneTools collaborators have demonstrated the use
of ZFP
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transcription factors in gene regulation in several cell-based models of gene
expression and our collaborators are applying the technology to target
validation in animal models.
The use of ZFP transcription factors addresses a number of technical
challenges associated with target validation studies in transgenic animal
models. Typically, transgenic animal models are genetically engineered mice in
which a target gene has been inactivated, or knocked out. Generating a knockout
mouse is labor intensive and can take up to one year. We believe the generation
time for mice which have been engineered with ZFP transcription factors, or
ZFP-Transgenic mice, may be much faster than the generation time for standard
knockouts. In addition, researchers should gain more information from
ZFP-Transgenics because ZFP transcription factors can themselves be regulated
thus permitting the activation or repression of the target gene in a reversible
fashion. This conditional control of target genes in ZFP transcription factors
should be a distinct advantage for the functional study of genes required in
normal development. Typically, if an essential gene is knocked out, the knockout
mouse will not grow to maturity. With ZFP gene regulation, however, we believe
researchers can activate or repress essential genes at virtually any point in
the animal's development. This enables the study of a gene's function in mature
animals without altering the animal's normal development. We are working closely
with some of our Universal GeneTools collaborators on ZFP-Transgenic models.
To date, we have entered into Universal GeneTools agreements with 17
leading pharmaceutical and biotechnology companies or their subsidiaries
including Pfizer Inc., SmithKline Beecham plc, Millennium Pharmaceuticals, Inc.,
AstraZeneca PLC, Schering AG, Bayer Corporation, Glaxo Wellcome plc, DuPont
Pharmaceuticals Company, Japan Tobacco Inc., F. Hoffmann-La Roche Ltd., Immunex
Corporation, Pharmacia & Upjohn Company, Genset SA, Warner-Lambert Company,
Merck KGaA, Zaiya Incorporated and Johnson & Johnson. These collaborators are
applying our ZFP transcription factors to the validation of human gene targets
for drug discovery. ZFP transcription factors are being incorporated into both
cell-based and animal models for this purpose. We are working with many of these
companies to lay the basis for additional and expanded collaborations and
increased market acceptance of our Universal GeneTools. See "Corporate
Collaborations -- Universal GeneTools Collaborations."
ZFP-Engineered Cells for Identification of Drug Candidates
We plan to incorporate ZFP transcription factors into appropriate cell
lines for the purpose of screening chemical compounds for drug discovery. In
particular, we plan to engineer cell lines that permit the activation or
repression of validated gene targets. Activation of a target may allow
pharmaceutical researchers to increase the sensitivity, or responsiveness, to a
given concentration of test compound in an assay. In addition, if a response is
observed when the target is both activated and repressed, it can be concluded
that the test compound is not acting through the target and may be showing a
false positive result.
We intend to commercialize ZFP-engineered cell lines for identification of
therapeutic product candidates by developing relationships with strategic
partners in our Universal GeneTools business. Cell lines will be engineered and
optimized by Sangamo scientists and transferred to our partners for use in their
drug screening operations.
ZFP Libraries for Target Discovery
Pharmaceutical researchers are also interested in accelerating an important
step in the first stages of genome-based drug discovery: the initial
identification of new drug targets.
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ZFP transcription factors can be used to change patterns of gene expression
in cells, to stimulate clinically interesting changes in these cells, and to
determine the genes associated with these changes. ZFP libraries are large
collections of ZFP transcription factors that can be incorporated into
populations of cells such that each cell receives one ZFP transcription factor.
In any given cell, the ZFP transcription factor may change the function or
health of the cell, causing it to change in appearance. The ZFP transcription
factor that triggers this change can be purified, and its gene target
identified. In this manner, these genes could be identified as potential targets
for further study, validation, and drug screening.
We intend to commercialize our ZFP libraries by establishing strategic
partnerships. We anticipate that ZFP libraries will be optimized by Sangamo
scientists and used to identify targets in our partners' drug discovery
programs. We also plan to use ZFP libraries to discover novel gene targets in
our future, proprietary product development programs.
ZFP-Therapeutics
The promise of genome-based drug discovery includes the increasing supply
of new drug targets. ZFP transcription factors may offer a highly specific
approach to therapeutic gene regulation. We are developing ZFP transcription
factors for human therapeutics, or ZFP-Therapeutics, for cardiovascular, viral,
and ophthalmic diseases and cancer.
Cardiovascular Disease
Cardiovascular disease is the leading cause of death in the United States
with nearly one million deaths annually. Approximately 400,000 Americans undergo
angioplasty, or opening, of coronary blood vessels each year due to
cardiovascular disease. Approximately 35% of these patients suffer from
restenosis, or partial reclosing of treated blood vessels, and require a second
procedure or more invasive surgery such as coronary bypass.
There is increasing interest in the development of therapeutic approaches
to cardiovascular disease that might stimulate the human body's natural ability
to form new blood vessels. This natural process is called angiogenesis. In
partnership with Edwards LifeScience, Inc., formerly the Cardiovascular Group of
Baxter Healthcare Corporation, or Baxter, we are developing ZFP transcription
factors designed to activate the expression of vascular endothelial growth
factors, or VEGFs, and VEGF receptors in heart muscle cells.
ZFP transcription factors for therapeutic angiogenesis may also be used in
peripheral vascular diseases. We believe an advantage of the ZFP-Therapeutic
approach is the potential ability to activate multiple genes as necessary to
provide effective biological stimulation of angiogenesis. Our experiments on
VEGF activation are ongoing.
Hepatitis B Viral Disease
Hepatitis B Virus, or HBV, is a worldwide health problem and is endemic in
many regions of Asia and Africa. Although HBV infection can generally be
prevented by vaccination, HBV remains a major clinical problem. It is estimated
that there are more than 350 million chronic HBV carriers worldwide. The
consequences of HBV infection include chronic active hepatitis and liver
cirrhosis, the latter of which is a major cause of mortality. The risk of liver
cancer in HBV carriers is estimated to be 100 times greater than in uninfected
individuals.
In 1998, we initiated a research collaboration with Dr. Alan McLachlan of
The Scripps Research Institute. The purpose of the collaboration is to evaluate
our ZFP transcription factors designed to
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repress the expression of HBV genes and viral replication in liver cells. Dr.
McLachlan is an expert in the regulation of HBV gene expression and has
developed several biological assays for the measurement of HBV gene expression
and viral replication. Preliminary data suggest that our ZFP transcription
factors can repress the expression of HBV genes in cell models. We are
continuing these studies to confirm and extend these results.
HIV Disease
HIV is the causative agent of AIDS, a disease that killed approximately
17,000 patients in the United States in 1998. Despite advances in pharmaceutical
therapy, there are currently approximately 400,000 HIV-infected individuals in
the United States and over 30 million people carrying the virus worldwide. The
new combination therapies, known as cocktail therapies, have been demonstrated
to be effective in clinical trials; however, the complexity of these regimens
often results in poor patient compliance and, with the virus' ability to mutate,
reduced efficacy.
In collaboration with Dr. Leonid Stamatatos of the Aaron Diamond AIDS
Research Center, we are testing our ZFP transcription factors designed to
repress HIV gene expression in human cells. These transcription factors could
provide the basis for the inhibition of HIV proliferation in patients infected
with HIV. Preliminary data suggest these ZFP transcription factors can repress
HIV gene expression in cell models. Further experiments are ongoing.
In collaboration with Dr. Jeremy Berg of the Johns Hopkins University
School of Medicine, we are also testing ZFP transcription factors designed to
repress the expression of the human CCR5 gene, which encodes a protein used by
HIV to gain entry into cells of the immune system. Repression of CCR5 expression
in immune system cells may prevent HIV infection of these cells. Preliminary
data suggest that our ZFP transcription factors can repress CCR5 gene expression
in cell models. Further experiments are ongoing.
Repression of Angiogenesis for Diabetic Retinopathy and Cancer
In contrast to cardiovascular disease, there are diseases that might
benefit from the inhibition of angiogenesis. Diabetic retinopathy, the leading
cause of blindness among diabetics, is the result of uncontrolled
vascularization of the retina and appears to be due to the secretion of
angiogenic factors such as VEGF. We believe that ZFP transcription factors
designed to repress the expression of VEGF and other angiogenic factors may
reverse this process.
Solid tumors require the ingrowth of new blood vessels if they are to grow
beyond even a few millimeters in diameter. Tumor cells frequently signal for
additional blood supply by secreting VEGF. Repression of VEGF expression in
tumor cells with ZFP-Therapeutics may prevent this angiogenesis and slow or halt
solid tumor growth.
We have designed multiple ZFP transcription factors designed to repress the
expression of the VEGF gene. These ZFP transcription factors have shown
inhibition of VEGF in cultured human cells. We intend to test this same approach
in animal models of angiogenesis and cancer and, if successful, to enter into
human clinical trials with a future strategic partner.
Commercialization of ZFP-Therapeutics
We plan to develop and commercialize ZFP-Therapeutics in partnership with
pharmaceutical and biotechnology companies. We intend to negotiate partnerships
with terms that will provide partners with exclusive rights to the regulation of
specific genes, delineating in exact terms the
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clinical indications and geographic areas covered under the agreement. We intend
to commence additional therapeutic programs and may retain commercial rights to
some of these products.
ZFP-Engineered Cell Lines for the Production of Protein Pharmaceuticals
Protein pharmaceuticals manufactured with genetically modified cells now
account for approximately $10 billion in annual worldwide sales. By using ZFP
transcription factors to activate the expression of genes encoding therapeutic
proteins in human cells, we are able to genetically engineer cells for
production of protein pharmaceuticals. We plan to develop ZFP-engineered cell
lines for production of commercially relevant proteins in partnership with
pharmaceutical and biotechnology companies.
ZFPs for Pharmacogenomics and DNA Diagnostics
Single nucleotide polymorphisms, or SNPs, are single base differences at
specific chromosomal sites in the DNA sequences of individuals. SNPs have been
the subject of increasing research in recent years. It is now believed that some
SNPs may be strongly associated with some disease states, providing indicators
of disease susceptibility and as to how individual patients might respond to a
particular drug therapy. The pharmaceutical industry is investing in technology
to monitor and record patient SNPs in clinical trials and to correlate clinical
outcomes with SNP status.
We have shown that ZFPs can effectively detect single nucleotide
differences and therefore may be used to detect SNPs in clinical samples. In
addition, ZFPs bind to double-stranded DNA, permitting simplified preparation of
DNA for analysis. Further, ZFPs are stable proteins and therefore amenable to
the types of assays and instrumentation used in standard clinical and molecular
biology laboratories. Combined with sensitive detection technologies, ZFPs have
the potential to eliminate the amplification of patient DNA samples, reducing
the time and cost, and increasing the accuracy of diagnostic assays.
We intend to commercialize ZFPs for SNP detection and DNA diagnostics in
conjunction with partners engaged in the development of SNP diagnostic
technology or the manufacturing and marketing of clinical diagnostics.
ZFP Transcription Factors for Agricultural and Industrial Biotechnology
Agricultural Biotechnology
The multibillion-dollar agrochemical industry is undergoing a transition to
genomics-based product discovery that is parallel to that of the worldwide
pharmaceutical industry. In a relatively recent development, the genomics
revolution has been applied to the sequencing of plant genomes for some of the
world's largest commercial crops. We believe that the genomes of most
commercially important plants will be sequenced over the next several years.
Similar to trends in pharmaceutical research, discovery of thousands of plant
genes is creating enormous demand for technologies that can help ascertain gene
function, identify important gene and agrochemical targets and regulate those
gene targets through improved transgenic plants.
ZFP transcription factors are a central mode of gene regulation in plants.
The ability to identify and subsequently regulate the expression of target genes
with ZFP transcription factors could lead to the creation of transgenic plants
that may increase yields, lower production costs, resist herbicides, pesticides
and plant pathogens, and permit the development of branded agricultural products
with unique nutritional and processing characteristics. In addition, ZFP
transcription factors may be used
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to confirm the role of newly discovered genes in plant growth, metabolism and
resistance to pathogens.
Modification of fatty acid composition in soybean seed oil is an example of
this approach. Soybean seed oil accounts for approximately 70% of the 14 billion
pounds of edible oil consumed annually in the United States. This oil is low in
monounsaturated fatty acids as compared with the oil extracted from other seeds,
and has reduced value because it must be chemically modified for some
applications. Therefore, a genetically modified strain of soybean that yielded a
higher mix of monounsaturated fatty acids in its seed oil would be highly
desirable. FAD2-1 is a soybean gene that encodes an enzyme responsible for
lowering the levels of monounsaturated fatty acids. We have generated ZFP
transcription factors designed to bind the FAD2-1 gene and repress its
expression in soybean seed. We have initiated studies of FAD2-1 repression in
soybeans.
To commercialize ZFP transcription factors in agricultural biotechnology,
we intend to seek strategic relationships with corporate partners having
capabilities in research, development and commercialization of agricultural
products.
Industrial Biotechnology
The U.S. chemical industry is undertaking a major strategic initiative to
develop bacterial, fungal and plant biological systems for the production of
industrial chemicals. This initiative is motivated by considerations of product
performance, capital costs, environmental impact and dependence on fossil fuels,
which provide the raw material for the production of many chemical feedstocks in
the United States and around the world.
A principal challenge in harnessing biological systems for this purpose is
engineering microbial cells and plants to achieve predictable, specific,
inducible and coordinate regulation of multiple gene targets. We believe ZFP
transcription factors are well suited to this task because of their natural
ability to discriminate among closely related genes and their ability to
regulate gene expression in a conditional fashion.
We believe that ZFP transcription factors will prove to be a commercially
feasible approach for the engineering of microbial cells and plants for the
biological production of industrial chemicals and food additives. We intend to
seek strategic relationships with corporate partners in the chemical and food
processing industries to develop and commercialize applications of Universal
Gene Recognition in industrial biotechnology.
CORPORATE COLLABORATIONS
We intend to apply the ZFP technology platform in several commercial
applications where the products provide our strategic partners and collaborators
with technical and economic advantages. We have established and will continue to
pursue Universal GeneTools collaborations and strategic partnerships with
selected pharmaceutical and biotechnology companies to fund internal research
and development activities and to assist in product commercialization.
Baxter CardioVascular Group Strategic Partnership
In January 2000, we announced the initiation of a multiyear, therapeutic
product development collaboration with Edwards LifeScience, Inc., formerly the
CardioVascular Group of Baxter Healthcare Corporation. Under the agreement, we
have licensed to Baxter on a worldwide, exclusive basis our ZFP-Therapeutics for
the activation of VEGFs and VEGF receptors in cardiovascular and peripheral
vascular diseases. Baxter has an option to purchase a three-year right of first
refusal to
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negotiate a license for additional ZFP-Therapeutics regulating gene targets
other than VEGF and VEGF receptor genes for applications in cardiovascular and
peripheral vascular diseases. We will be responsible for advancing product
candidates into preclinical animal efficacy testing. Baxter will be responsible
for preclinical development, regulatory affairs, clinical development and the
sales and marketing of the ZFP-Therapeutic products. Under this agreement,
Baxter has purchased a $5 million convertible note which will convert into
common stock upon consummation of this offering, and we have received $1 million
in initial research funding from Baxter. In the future, we may receive option
fees, milestone payments, royalties and additional research funding from this
agreement.
Universal GeneTools Collaborations
We began marketing our Universal GeneTools products to the pharmaceutical
and biotechnology industry in 1998. Our Universal GeneTools business is based
upon the delivery of an engineered ZFP transcription factor which is capable of
regulating the expression of a gene for which it is specifically designed and
targeted. Our collaborators, which consist of pharmaceutical and large
biotechnology companies, provide us with the gene target they wish to study and
we design and deliver at least two ZFP transcription factors designed
specifically for that collaborator's gene target.
Our Universal GeneTools agreements generally contain the following terms:
- ZFP transcription factors are provided for the collaborator's internal
research purposes only;
- we retain all ZFP intellectual property rights, including the rights to
make, use, develop and sell any product or service utilizing ZFPs, ZFP
transcription factors and the genes that encode them; and
- we do not disclose to any third party a specific collaborator's
confidential gene target.
To date, we have not licensed any intellectual property rights to our
current Universal GeneTools collaborators. Our Universal GeneTools collaborators
are under no obligation to pursue product development programs with us, to use
our technology, or to purchase any additional product from us. See "Risk
Factors -- Commercialization of our technologies depends on strategic partnering
with other companies, and if we are not able to find strategic partners in the
future, we may not be able to develop our technologies or products."
We have entered into 17 Universal GeneTools collaborations with the
following pharmaceutical or biotechnology companies or their subsidiaries:
Pfizer Inc., SmithKline Beecham plc, Millennium Pharmaceuticals, Inc.,
AstraZeneca PLC, Schering AG, Bayer Corporation, Glaxo Wellcome plc, DuPont
Pharmaceuticals Company, Japan Tobacco Inc., F. Hoffmann-La Roche Ltd., Immunex
Corporation, Pharmacia & Upjohn Company, Genset SA, Warner-Lambert Company,
Merck KGaA, Zaiya Incorporated and Johnson & Johnson.
RESEARCH GRANTS
We have received awards and government grants during the past several years
that have totaled approximately $5.6 million. These grants have provided
non-dilutive research funding to develop our technology platform for specific
applications, primarily in the areas of diagnostics and anti-viral therapeutics.
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SUMMARY OF MAJOR U.S. GOVERNMENT GRANTS
<TABLE>
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
AREA OF GRANT GRANTING AGENCY DESCRIPTION GRANT DATE DOLLAR AMOUNT
- ---------------------------------------------------------------------------------------------------------------------
DNA Diagnostics National Institute of Generation and development of novel August 1995 $2,000,000
Standards and nucleic acid binding proteins and their (completed)
Technology use as DNA diagnostics
- ---------------------------------------------------------------------------------------------------------------------
Antiviral National Institute of Development of novel DNA binding proteins May 1997 $2,000,000
Therapeutics Standards and as antiviral therapeutics targeting HIV
Technology and Hepatitis B
- ---------------------------------------------------------------------------------------------------------------------
HIV National Institutes Designer DNA binding proteins targeting May 1999 $ 533,000
of Health HIV genes
- ---------------------------------------------------------------------------------------------------------------------
Agriculture U.S. Department of Demonstrating commercial potential of ZFPs September 1999 $ 220,000
Agriculture for generating value added crops
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
INTELLECTUAL PROPERTY AND TECHNOLOGY LICENSES
Our success and ability to compete is dependent in part on the protection
of our proprietary technology and information. We rely on a combination of
patent, copyright, trademark and trade secret laws, as well as confidentiality
agreements and licensing agreements, to establish and protect our proprietary
rights. We have licensed intellectual property covering the design, composition
and use of ZFPs and ZFP transcription factors for the recognition and regulation
of genes. To date, Sangamo has licensed rights to three issued U.S. patents and
five U.S. and four Patent Cooperation Treaty, or P.C.T., patent applications
covering the design, generation and use of ZFPs. We have also licensed five
issued U.S. patents covering the linking of DNA recognition domains to
additional functional domains that provide various DNA-related functions such as
detection and inactivation. We have also filed 11 U.S. and two P.C.T. patent
applications covering improvements in the design and use of ZFPs and ZFP
transcription factors. We plan to continue to license and to generate internally
intellectual property covering the design, selection, generation and composition
of ZFPs, the genes encoding these proteins and the application of ZFPs and ZFP
transcription factors in pharmaceutical discovery, human therapeutics, DNA
diagnostics, plant agriculture and industrial biotechnology applications.
Although we have filed for patents on some aspects of our technology, we
cannot assure you that patents will issue as a result of these pending
applications or that any patent that has or may be issued will be upheld.
Despite our efforts to protect our proprietary rights, existing patent,
copyright, trademark and trade secret laws afford only limited protection, and
we cannot assure you that our intellectual property rights, if challenged, will
be upheld as valid or will be adequate to protect our proprietary technology and
information. In addition, the laws of some foreign countries may not protect our
proprietary rights to the same extent as do the laws of the United States.
Attempts may be made to copy or reverse engineer aspects of our technology or to
obtain and use information that we regard as proprietary. Our patent filings may
be subject to interferences. Litigation or opposition proceedings may be
necessary in the future to enforce or uphold our intellectual property rights,
to determine the scope of our licenses, or determine the validity and scope of
the proprietary rights of others. The defense and prosecution of intellectual
property suits, United States Patent and Trademark Office interference
proceedings and related legal and administrative proceedings in the United
States and internationally involve complex legal and factual questions. As a
result, these proceedings are costly and time-consuming to pursue, and result in
diversion of resources. The outcome of these proceedings is uncertain and could
significantly harm our business.
We have received unsolicited invitations to license existing patented
technology from a number of third parties, at least one of which contained an
allegation of infringement. Upon careful analysis of each of these technologies,
we have determined that we already own rights to these technologies or
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that our scientific and commercial interests would not benefit from the
acquisition of rights to these technologies. Further, we believe that the
making, using or selling of our products and processes need not infringe any
claims in the proffered patents. Accordingly, we have declined to enter into
license negotiations with these parties. We cannot assure you, however, that
these parties that own patents with claims directed to nucleic acid binding
approaches other than ZFPs will not bring future actions against us, our
collaborators or strategic partners alleging infringement of their patents. As
detailed above, the outcome of any litigation, particularly lawsuits involving
biotechnology patents, is difficult to predict and likely to be costly
regardless of the outcome. In these circumstances, litigation, the risks of a
negative impact on our business can neither be clearly defined nor entirely
eliminated.
In the future, however, third parties may assert patent, copyright,
trademark and other intellectual property rights to technologies that are
important to our business. Any claims asserting that our products infringe or
may infringe proprietary rights of third parties, if determined adversely to us,
could significantly harm our business. Any claims, with or without merit, could
result in costly litigation, divert the efforts of our technical and management
personnel or require us to enter into or modify existing royalty or licensing
agreements, any of which could significantly harm our business. Royalty or
licensing agreements, if required, may not be available on terms acceptable to
us, if at all. See "Risk Factors -- Because it is difficult and costly to
protect our proprietary rights, we cannot ensure their protection."
COMPETITION
We believe that we are a leader in the field of ZFP gene regulation. We are
aware that there are many companies focused on other methods for regulating gene
expression and a limited number of commercial and academic groups pursuing the
development of ZFP gene regulation technology. The field of regulation of gene
expression is highly competitive, and we expect competition to persist and
intensify in the future from a number of different sources, including
pharmaceutical and biotechnology companies, academic and research institutions,
and government agencies that will seek to develop technologies that will compete
with our Universal Gene Recognition technology platform.
Any products that we develop using our Universal Gene Recognition
technology platform will participate in highly competitive markets. Many of our
potential competitors in these markets, either alone or with their collaborative
partners, may have substantially greater financial, technical and personnel
resources than we do, and they may succeed in developing technologies and
products that would render our technology obsolete or noncompetitive. In
addition, many of those competitors have significantly greater experience than
we do in their respective fields.
Accordingly, our competitors may succeed in obtaining patent protection,
receiving FDA approval or commercializing ZFP transcription factors or other
competitive products before us. If we commence commercial product sales, we will
be competing against companies with greater marketing and manufacturing
capabilities, areas in which we have limited or no experience. In addition, any
product candidate that we successfully develop may compete with existing
products that have long histories of safe and effective use.
Competition may also arise from other drug development technologies and
methods of preventing or reducing the incidence of disease, small molecule
therapeutics, or other classes of therapeutic agents.
We expect to face intense competition from other companies for
collaborative arrangements with pharmaceutical, biotechnology, agricultural and
chemical companies, for establishing relationships with academic and research
institutions, and for licenses to proprietary technology. These competitors,
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either alone or with their collaborative partners, may succeed in developing
technologies or products that are more effective or less costly than ours.
Our ability to compete successfully will depend, in part, on our ability
to:
- develop proprietary products;
- develop and maintain products that reach the market first, are
technologically superior to or are of lower cost than other products in
the market;
- attract and retain scientific and product development personnel;
- obtain and enforce patents, licenses or other proprietary protection for
our products and technologies;
- obtain required regulatory approvals; and
- manufacture, market and sell any product that we develop.
GOVERNMENT REGULATION
We have not applied for any regulatory approvals with respect to any of our
technology or products under development. We anticipate that the production and
distribution of any therapeutic or diagnostic products developed, either alone
or with our strategic partners or collaborators, will be subject to extensive
regulation in the United States and other countries. We intend to pursue
therapeutic, diagnostic, agricultural and industrial biotechnology products,
some of which may be subject to different government regulation.
Before marketing in the United States, any pharmaceutical, therapeutic or
diagnostic products developed by us must undergo rigorous preclinical testing
and clinical trials and an extensive regulatory clearance process implemented by
the FDA under the federal Food, Drug and Cosmetic Act. The FDA regulates, among
other things, the development, testing, manufacture, safety, efficacy, record
keeping, labeling, storage, approval, advertising, promotion, sale and
distribution of biopharmaceutical products. The regulatory review and approval
process, which includes preclinical testing and clinical trials of each product
candidate, is lengthy, expensive and uncertain. Securing FDA approval requires
the submission of extensive preclinical and clinical data and supporting
information to the FDA for each indication to establish a product candidate's
safety and efficacy. The approval process takes many years, requires the
expenditure of substantial resources, involves post-marketing surveillance, and
may involve ongoing requirements for post-marketing studies. Before commencing
clinical investigations in humans, we must submit to, and receive approval from,
the FDA of an Investigational New Drug application. We expect to rely on some of
our strategic partners to file Investigational New Drug applications and
generally direct the regulatory approval process for some products developed
using our Universal Gene Recognition technology platform.
Clinical testing must meet requirements for:
- institutional review board oversight;
- informed consent;
- good clinical practices; and
- FDA oversight.
Before receiving FDA clearance to market a product, we must demonstrate
that the product is safe and effective on the patient population that will be
treated. If regulatory clearance of a product is granted, this clearance will be
limited to those specific states and conditions for which the product is useful,
as demonstrated through clinical studies. Marketing or promoting a drug for an
unapproved indication is generally prohibited. Furthermore, clearance may entail
ongoing requirements for post-
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marketing studies. Even if this regulatory clearance is obtained, a marketed
product, its manufacturer and its manufacturing facilities are subject to
continual review and periodic inspections by the FDA. Discovery of previously
unknown problems with a product, manufacturer or facility may result in
restrictions on this product or manufacturer, including costly recalls or
withdrawal of the product from the market.
The length of time necessary to complete clinical trials varies
significantly and may be difficult to predict. Clinical results are frequently
susceptible to varying interpretations that may delay, limit or prevent
regulatory approvals. Additional factors that can cause delay or termination of
our clinical trials, or the costs of these trials to increase, include:
- slow patient enrollment due to the nature of the protocol, the proximity
of patients to clinical sites, the eligibility criteria for the study or
other factors;
- inadequately trained or insufficient personnel at the study site to
assist in overseeing and monitoring clinical trials;
- delays in approvals from a study site's review board;
- longer treatment time required to demonstrate effectiveness or determine
the appropriate product dose;
- lack of sufficient supplies of the product candidate;
- adverse medical events or side effects in treated patients; and
- lack of effectiveness of the product candidate being tested.
In addition, the field testing, production and marketing of genetically
engineered plants and plant products are subject to federal, state, local and
foreign governmental regulation. Regulatory action or private litigation could
also result in expenses, delays or other impediments to our product development
programs or the commercialization of resulting products.
The FDA currently applies the same regulatory standards to foods developed
through genetic engineering as applied to foods developed through traditional
plant breeding. Genetically engineered food products, however, will be subject
to premarket review if these products raise safety questions or are deemed to be
food additives. Our products or those of our strategic partners may be subject
to lengthy FDA reviews and unfavorable FDA determinations.
International Biosafety Protocols were recently announced in which
signatory states may require that genetically engineered food products be
labeled as such. Additional and more restrictive international or foreign
policies may be developed which further limit our ability to pursue our business
plan in relation to agricultural biotechnology.
Outside the United States, our ability to market a product is contingent
upon receiving a marketing authorization from the appropriate regulatory
authorities. The requirements governing the conduct of clinical trials,
marketing authorization, pricing and reimbursement vary widely from country to
country. At present, foreign marketing authorizations are applied for at a
national level, although within the European Community registration procedures
are available to companies wishing to market a product in more than one EC
member state. If the regulatory authority is satisfied that adequate evidence of
safety, quality and efficacy has been presented, a marketing authorization will
be granted. This foreign regulatory approval process involves all of the risks
associated with FDA clearance discussed above.
We intend to consult with, and when appropriate, to hire personnel with
expertise in regulatory affairs to assist us in obtaining appropriate regulatory
approvals as required. We also intend to work with our strategic partners and
collaborators that have experience in regulatory affairs to assist us in
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obtaining regulatory approvals for collaborative products. See "Risk
Factors -- Our potential therapeutic products are subject to a lengthy and
uncertain regulatory process, and if these potential products are not approved,
we will not be able to commercialize those products."
EMPLOYEES
As of January 31, 2000, we had 36 full-time employees, 9 of whom hold Ph.D.
degrees and 25 of whom hold other graduate or technical degrees. Of our total
workforce, 30 are engaged in research and development activities and six are
engaged in business development, finance and administration. None of our
employees is represented by a collective bargaining agreement, nor have we
experienced work stoppages. We believe that our relations with our employees are
good.
FACILITIES
We lease approximately 15,000 square feet of research and office space
located at 501 Canal Boulevard in Richmond, California under two separate
leases. The leases expire in 2004. We believe that the facilities we currently
lease are sufficient for approximately the next 24 months.
LEGAL PROCEEDINGS
We are not a party to any material litigation.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information regarding our executive
officers, directors and key employees as of January 31, 2000:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Edward O. Lanphier II................. 43 President,
Chief
Executive
Officer and
Director
Casey C. Case, Ph.D. ................. 44 Vice
President,
Research
Peter Bluford......................... 45 Vice
President,
Corporate
Development
Shawn K. Johnson...................... 32 Director
of
Finance
Eric T. Rhodes........................ 39 Director
of
Commercial
Development
S. Kaye Spratt, Ph.D. ................ 47 Director
of
Delivery
Technology
Herbert W. Boyer, Ph.D. .............. 63 Director
William G. Gerber, M.D. .............. 53 Director
John W. Larson........................ 64 Director
William J. Rutter, Ph.D. ............. 71 Director
Michael C. Wood....................... 47 Director
</TABLE>
Edward O. Lanphier II, the founder of Sangamo BioSciences, Inc., has served
as President, Chief Executive Officer and as a member of the board of directors
since inception. Mr. Lanphier has eighteen years of experience in the
pharmaceutical and biotechnology industry. From June 1992 to May 1997, he held
various positions at Somatix Therapy Corporation, a gene therapy company,
including Executive Vice President, Commercial Development and Chief Financial
Officer. Prior to Somatix, Mr. Lanphier was President and Chief Executive
Officer of BioGrowth, Inc., a biotechnology company that merged with Celtrix
Laboratories to form Celtrix Pharmaceuticals, Inc. in 1991. From 1986 to 1987,
Mr. Lanphier served as Vice President of Corporate Development at
Biotherapeutics, Inc. From 1984 to 1986 he served as Vice President of Corporate
Development at Synergen Inc. Prior to Synergen, he was employed by Eli Lilly and
Company, a pharmaceutical company, in the strategic business
planning-biotechnology group. Mr. Lanphier is a member of the Biotechnology
Industry Organization (BIO) Emerging Companies Section and the BIO board of
directors. Mr. Lanphier has a B.A. in biochemistry from Knox College.
Casey C. Case, Ph.D. has served as Vice President, Research since November
1997. From June 1993 to November 1997, Dr. Case served as Director, Cell Biology
at Tularik, Inc., a pharmaceutical company focusing on gene regulating drugs,
where he was part of the team that established Tularik's cell-based, high
throughput screening of small molecule modulators of specific transcription
factors. From June 1989 to June 1993, Dr. Case was Director of Transcriptional
Research at Oncogene Science, Inc., a pharmaceutical company, where he led
Oncogene's research efforts in the development of mammalian cell-based assays
for gene transcription and the automation of these assays for selection of
therapeutic targets and compounds. Dr. Case earned a Ph.D. in biochemistry from
the University of California, Davis and a B.S. in biology from San Diego State
University.
Peter Bluford has served as Vice President, Corporate Development since
December 1997 and since joining us has had operating responsibility for
Sangamo's licensing, intellectual property and business planning activities. Mr.
Bluford also served as Senior Director, Corporate Development, from October 1996
to November 1997. From October 1992 to September 1996, Mr. Bluford served as
Director, Commercial Development at Somatix Therapy Corporation, where he was
responsible for Somatix's strategic business planning activities while also
serving as Project Team Leader, Oncology from 1995 to 1996. From 1991 to 1992,
Mr. Bluford was with Celtrix Pharmaceuticals, Inc. as Manager, Strategic Market
Planning. From 1990 to 1991, he was Manager of Strategic Planning with
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<PAGE> 46
BioGrowth, Inc. Mr. Bluford received an M.B.A. and a B.S. in biochemistry from
the University of California, Berkeley.
Shawn K. Johnson has served as Director of Finance since December 1997.
From July 1995 to October 1997, Mr. Johnson was Director of Finance at
Neurobiological Technologies, Inc., a neuroscience company developing drugs.
From July 1993 to June 1995, he managed various accounting functions for
Glycomed, Inc., a pharmaceutical company. Prior to Glycomed, Mr. Johnson was the
Controller for Cognitive Systems, Inc., a software technology company. He holds
an M.B.A. from the University of California, Berkeley and a B.S. in accounting
from City University in Bellevue, Washington.
Eric T. Rhodes has served as Director of Commercial Development since July
1998 and has primary responsibility for management of our Universal GeneTools
business. Prior to joining Sangamo, Mr. Rhodes served in a variety of capacities
at Incyte Pharmaceuticals, Inc., a genomic database and data management software
company, from March 1994 to July 1998. He initially served as part of the team
responsible for expansion of Incyte's high throughput sequencing capabilities
and later worked in the business development group where his primary focus was
the evaluation and acquisition of new technologies. From 1991 to 1994, Mr.
Rhodes directed the molecular biology group at Anergen, Inc., a biotechnology
company focusing on treatment of autoimmune disease and prior to that he was
with BioGrowth, Inc., from 1989 to 1991 and Triton BioSciences, a biotechnology
company, as a molecular biologist from 1987 to 1989. Mr. Rhodes received a B.S.
in microbiology and immunology from the University of California, Berkeley.
S. Kaye Spratt, Ph.D. has served as Director of Delivery Technology since
January 1998 and is currently directing Sangamo's cell biology and gene therapy
efforts for the evaluation and delivery of engineered zinc finger proteins. From
June 1997 to January 1998, Dr. Spratt was employed by Acacia Biosciences, a
biotechnology research company, as Project Manager. From June 1992 to June 1997,
Dr. Spratt was employed by Somatix Therapy Corporation as Section Manager and
Senior Scientist responsible for the design, development and production of
research and clinical grade gene therapy vectors. From 1987 to 1992, Dr. Spratt
was Senior Scientist and Project Leader for BioGrowth Inc. Dr. Spratt received a
Ph.D. in microbial genetics from Meharry Medical College and a B.S. in biology
from Langston University.
Herbert W. Boyer, Ph.D. has served as a Director since July 1997. Dr. Boyer
is the co-inventor of recombinant DNA technology with Dr. Stanley Cohen and
founded Genentech, Inc., a biopharmaceutical company, in 1976. Dr. Boyer is
currently Professor Emeritus at the University of California, San Francisco. Dr.
Boyer has served as a director of Genentech since 1976 and was Vice President of
Research from 1976 to 1990. Dr. Boyer was also a Professor of biochemistry and
biophysics at the University of California, San Francisco from 1966 to 1991
where he retains the position of Professor Emeritus. He was also an Investigator
for the Howard Hughes Medical Institute from 1976 to 1983. He has authored over
100 scientific publications and is a member of the National Academy of Sciences.
Dr. Boyer has received numerous research awards including the National Medal of
Science, the National Medal of Technology and the Albert Lasker Basic Medical
Research Award. Dr. Boyer is Chairman of the Board of Directors of Allergan,
Inc., a pharmaceutical company and a trustee of the Scripps Research Institute.
Dr. Boyer received a Ph.D. in microbiology from the University of Pittsburgh and
a B.A. in biology from St. Vincent College.
William G. Gerber, M.D. has served as a member of our board of directors
since June 1997. Dr. Gerber is currently Chief Executive Officer and a Director
of Epoch Pharmaceuticals, Inc., a biomedical company, where he has been since
September 1999. From April 1998 to July 1999, he was President of diaDexus LLC,
a pharmacogenomics company. Previous to his appointment at diaDexus, he was
Chief Operating Officer of Onyx Pharmaceuticals. Before joining Onyx in 1995,
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<PAGE> 47
Dr. Gerber was with Chiron Corporation, a biopharmaceutical, vaccine and blood
testing company, where he was President of the Chiron Diagnostics business unit
after Chiron's merger with Cetus Corporation in December 1991. He joined Cetus
in 1987 as senior director of corporate ventures and was named Vice President
and General Manager of the PCR (Polymerase Chain Reaction) Division in November
1988. Dr. Gerber earned his B.S. and M.D. degrees from the University of
California, San Francisco School of Medicine.
John W. Larson has served as a member of our board of directors since
January 1996. Mr. Larson has served as senior partner at the law firm of
Brobeck, Phleger & Harrison LLP since March 1996. From 1988 until March 1996,
Mr. Larson was Chief Executive Officer of the firm. He has been a partner with
the firm since 1969, except for the period from July 1971 to September 1973 when
he was in government service as Assistant Secretary of the United States
Department of the Interior and Counselor to George P. Shultz, Chairman of the
Cost of Living Council. Mr. Larson holds an L.L.B. and a B.A., with distinction,
in Economics, from Stanford University.
William J. Rutter, Ph.D. has served as a member of our board of directors
since January 2000. He is the co-founder of Chiron Corporation, a
biopharmaceutical, vaccine and blood testing company, and served as its Chairman
of the Board of Directors from Chiron's inception in 1981 until May 1999. From
August 1983 through April 1989, in addition to his responsibilities at Chiron,
Dr. Rutter was the Director of the Hormone Research Institute at UCSF, and he
became a Professor Emeritus in 1991. In 1969, Dr. Rutter joined the faculty of
the University of California, San Francisco as a Herzstein Professor, and served
as the chairman of the Department of Biochemistry and Biophysics at UCSF from
1969 to 1982. Dr. Rutter has also served on the Board of Overseers at Harvard
University since 1992, on the Board of Trustees at the Carnegie Institution of
Washington since 1995 and several private company boards. Dr. Rutter received
his Ph.D. in biochemistry from the University of Illinois, an M.S. in
biochemistry from the University of Utah and a B.A. in biochemistry from Harvard
University.
Michael C. Wood has served as a member of our board of directors since our
inception. Mr. Wood is currently President of Knowledge Kids Enterprises, Inc.,
an educational company which he founded in January 1995. Mr. Wood has 15 years
of experience in the corporate legal representation of high technology firms and
venture capital partnerships. From 1991 through 1994, he was a partner of the
emerging technology companies group at Cooley Godward LLP. From 1979 to 1991,
Mr. Wood practiced corporate law in the high technology practice of Crosby Heafy
Roach & May. Mr. Wood received a J.D. from the Hastings College of Law, an
M.B.A. from the University of California, Berkeley and his B.A. in political
science from Stanford University.
SCIENTIFIC ADVISORY BOARD
We use scientists and physicians to advise us on scientific matters as a
part of our Scientific Advisory Board, including experts in molecular biology,
structural biology, biophysics, biochemistry, cell biology, and gene expression.
Generally, our scientific advisors have received options to purchase our common
stock as compensation for their consulting services.
The following individuals are members of our Scientific Advisory Board:
Carl Pabo, Ph.D. (Chairman) is a professor of biophysics and structural
biology at the Massachusetts Institute of Technology and an investigator in the
Howard Hughes Medical Institute. Dr. Pabo is a pioneer in the structural
analysis and modification of zinc finger DNA binding proteins and has made many
of the fundamental observations as to how ZFPs interact with their DNA binding
sites. Dr. Pabo received a Ph.D. in biochemistry and molecular biology from
Harvard
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<PAGE> 48
University and a B.S. in molecular biophysics and biochemistry from Yale
College. He is a member of the National Academy of Sciences and of the American
Academy of Arts and Sciences.
Jeremy M. Berg, Ph.D. is Professor and Director of the Department of
Biophysics and Biophysical Chemistry at The Johns Hopkins University School of
Medicine, where he has been since 1990. He is a leader in the field of ZFPs, and
the Berg laboratory was one of the first to demonstrate the use of designed zinc
finger arrays for the generation of novel, sequence-specific ZFPs. From 1986 to
1990, Dr. Berg was an associate professor in the Department of Chemistry at The
Johns Hopkins University, and a postdoctoral fellow in the School of Medicine
from 1984 to 1986. Dr. Berg received his Ph.D. in chemistry from Harvard
University and a B.S. and M.S. degrees in chemistry from Stanford University.
Judith Campisi, Ph.D. is Head, Center for Research and Education in Aging
Life Sciences Division of the Berkeley National Laboratory, where she has been
conducting aging and cancer research since 1990. From 1984 to 1990, Dr. Campisi
held professorships within the Department of Biochemistry at the Boston
University School of Medicine. Dr. Campisi received her Ph.D. in biochemistry
and a B.A. in chemistry from the State University of New York, Stony Brook.
Srinivasan Chandrasegaran, Ph.D. is an associate professor at The Johns
Hopkins University School of Hygiene and Public Health, and a leading expert on
the molecular biology, structure and function of type IIs restriction
endonucleases. He has collaborated with Sangamo on the development of our DNA
diagnostic program. Dr. Chandrasegaran received his Ph.D. in chemistry from
Georgetown University, and B.S. and M.S. degrees in chemistry from Madras
University.
George N. ("Joe") Cox, Ph.D. is President and Chief Scientific Officer of
Bolder Biotech, a protein delivery biotechnology company. Dr. Cox was Vice
President, Research and Development at Sangamo from March 1995 to June 1998. He
spent the previous 12 years of his career at Synergen, Inc., in various
positions including Group Leader, Discovery Research, Chairman of Synergen's
science counsel, Director of Animal Health Care, and Senior Scientist. He
received a Ph.D. in biology from the University of California, Santa Cruz and a
B.S. in biology from Wesleyan University.
Hamilton O. Smith, M.D. is currently a Professor Emeritus of molecular
biology and genetics at The Johns Hopkins University School of Medicine and
Director of DNA Resources at Celera Genomics Corporation. Dr. Smith received the
1978 Nobel Prize in Medicine for his co-discovery of type IIs restriction
enzymes. Dr. Smith has gone on to publish extensively on the genetic and genomic
analysis of haemophilus influenzae and its natural transformation system. Dr.
Smith is an American Cancer Society Research Professor and member of the
National Academy of Sciences. He received his M.D. from The Johns Hopkins
University School of Medicine, an A.B. in mathematics from the University of
California, Berkeley, and a B.S. from the University of Illinois, Urbana.
Kevin Struhl, Ph.D. is the David Wesley Gaiser Professor of Biological
Chemistry in the Department of Biological Chemistry and Molecular Pharmacology
at Harvard Medical School. Dr. Struhl has established many of the principles
involved in the molecular mechanisms of transcriptional activation and
repression in eukaryotic cells including the recruitment of gene-specific and
general transcription factors as well as histone deacetylases. Dr. Struhl
received his Ph.D. in biochemistry from Stanford University, and S.M. and S.B.
degrees from the Massachusetts Institute of Technology.
Elton T. ("Ted") Young, Ph.D. is a professor of biochemistry and genetics
at the University of Washington in Seattle. Dr. Young has published numerous
articles in the field of transcription factors and this remains a focus of his
ongoing research at the University of Washington. Dr. Young has served as an
editor for the Journal of Molecular and Cellular Biology since 1983. He received
his
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<PAGE> 49
Ph.D. in biophysics from the California Institute of Technology and has a B.A.
in chemistry from the University of Colorado at Boulder.
Alan P. Wolffe, Ph.D. is Chief, Laboratory of Molecular Embryology at the
National Institutes of Health. His research has focused on chromatin structure
and its role in the regulation of gene expression. Dr. Wolffe's work has been
fundamental to the understanding of the importance of histone acetylation and
deacetylation in the regulation of gene expression. Dr. Wolffe received a Ph.D.
in molecular biology from the Medical Research Council and a B.A. in
biochemistry from Oxford University.
BOARD COMMITTEES
Audit Committee. We have established an audit committee composed of
independent directors that review and supervise our financial controls,
including the selection of our auditors, reviews our books and accounts, meets
with our officers regarding our financial controls, acts upon recommendations of
our auditors and takes further actions as the audit committee deems necessary to
complete an audit of our books and accounts, as well as other matters that may
come before it or as directed by the board. The audit committee currently
consists of Dr. Gerber, Dr. Rutter and Mr. Wood.
Compensation Committee. We have also established a compensation committee
that reviews and approves the compensation and benefits for our executive
officers, administers our compensation and stock plans, makes recommendations to
the board of directors regarding such matters and performs other duties as may
from time-to-time be determined by the board. The compensation committee
currently consists of Dr. Boyer and Mr. Larson.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the compensation committee of the board of directors are Dr.
Boyer and Mr. Larson. None of our compensation committee members has been an
officer or employee of Sangamo at any time. Mr. Larson is a senior partner at
Brobeck, Phleger & Harrison LLP, our legal counsel. None of our executive
officers serves on the board of directors or compensation committee of any
entity that has one or more executive officers serving as a member of our board
or our compensation committee.
COMPENSATION OF DIRECTORS
Other than expenses in connection with attendance at meetings and other
customary expenses, we currently do not compensate any non-employee member of
the board. Directors who are also employees do not receive additional
compensation for serving as directors.
Under our 2000 Stock Incentive Plan, non-employee directors will receive
automatic option grants upon becoming directors each of which is determined by
the board of directors and 10,000 shares on the date of each annual meeting of
stockholders. The 2000 Stock Incentive Plan also contains a director fee option
grant program. Should this program be activated in the future, each non-employee
board member will have the opportunity to apply all or a portion of any annual
retainer fee otherwise payable in cash to the acquisition of an option with an
exercise price below the then fair market value of our shares. Non-employee
directors will also be eligible to receive discretionary option grants and
direct stock issuances under our 2000 Stock Incentive Plan. See
"Management -- Stock Plans."
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<PAGE> 50
EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation earned
during the fiscal year ended December 31, 1999 by our Chief Executive Officer
and our other executive officers whose total annual compensation exceeded
$100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
FISCAL --------------------- UNDERLYING OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS COMPENSATION($)
- --------------------------- ------ --------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Edward O. Lanphier II....... 1999 $195,000 $73,788 -- $12,500
President and Chief
Executive Officer
Casey C. Case, Ph.D. ....... 1999 131,250 10,000 30,000 --
Vice President, Research
Peter Bluford............... 1999 120,750 10,000 40,000 --
Vice President, Corporate
Development
</TABLE>
On January 4, 1998, Mr. Lanphier received a loan from us in the principal
amount of $250,000. The loan bears interest at a rate of 6% per year. As a
special bonus program for Mr. Lanphier the balance of the loan will be forgiven
in forty-eight equal monthly installments of principal, together with accrued
interest for the year, upon completion of each month of employment with us over
the forty-eight month period measured from the date the loan was made.
Accordingly, Mr. Lanphier's reported bonus amount represents the $73,788 of loan
forgiveness which occurred on December 31, 1999.
Other compensation for Mr. Lanphier consists of an insurance premium paid
by Sangamo on a split dollar life insurance policy. Sangamo will be reimbursed
for these insurance premiums out of the cash surrender value of its policy paid
by Mr. Lanphier during his lifetime or out of the proceeds paid under the policy
upon his death.
OPTION GRANTS
The following table sets forth summary information regarding the option
grants made to our Chief Executive Officer and the other executive officers
whose total annual compensation exceeded $100,000 for 1999. Options granted
under our 1995 Stock Option Plan are generally immediately exercisable for all
the option shares by the optionee but exercised shares are subject to a right of
repurchase according to the vesting schedule of each specific grant. In the
event that a purchaser ceases to provide service to Sangamo, we have the right
to repurchase any of that person's unvested shares of common stock at the
original option exercise price. The exercise price per share is equal to the
fair market value of our common stock on the date of grant as determined by our
board of directors. Twenty-five percent of the option shares vest on the one
year anniversary of employment and the remainder vest in a series of equal
monthly installments beginning on the one year anniversary of employment and
continuing over the next three years of service. The percentage of total options
was calculated based on options to purchase an aggregate of 305,500 shares of
common stock granted to employees under our 1995 Stock Option Plan in 1999. The
potential realizable value
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<PAGE> 51
was calculated based on the ten-year term of the options and assumed rates of
stock appreciation of 5% and 10%, compounded annually from the date the options
were granted to their expiration date based on the fair market value of the
common stock on the date of grant.
OPTION GRANTS IN 1999
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT
ASSUMED ANNUAL
RATES OF
NUMBER OF PERCENTAGE OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION ---------------------
NAME GRANTED FISCAL 1999 (PER SHARE) DATE 5% 10%
---- ----------- ------------- -------------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Edward O. Lanphier II...... -- --% $ -- -- $ -- $ --
Casey C. Case, Ph.D. ...... 30,000 9.8 0.225 12/8/09 4,245 10,758
Peter Bluford.............. 40,000 13.1 0.225 12/8/09 5,660 14,343
</TABLE>
FISCAL YEAR-END 1999 OPTION VALUES
The following table sets forth summary information regarding the number and
value of options held as of December 31, 1999 for our Chief Executive Officer
and our most highly compensated executive officers whose total annual
compensation exceeded $100,000. Our Chief Executive Officer and our most highly
compensated executive officers did not acquire any shares upon exercise of
options in 1999. Amounts shown in the value of unexercised in-the-money options
at December 31, 1999 column are based on $0.225, the fair market value of the
common stock as of December 31, 1999, multiplied by the number of shares
underlying the option, less the aggregate exercise price payable for these
shares.
1999 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1999 DECEMBER 31, 1999
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Edward O. Lanphier II............... 400,000 -- $24,000 $--
Casey C. Case, Ph.D. ............... 210,000 -- 13,500 --
Peter Bluford....................... 260,000 -- 31,500 --
</TABLE>
STOCK PLANS
2000 STOCK INCENTIVE PLAN. The 2000 Stock Incentive Plan is intended to
serve as the successor program to our 1995 Stock Option Plan. The 2000 Stock
Incentive Plan was adopted by the board in February 2000 and was approved by the
stockholders in 2000. The 2000 Stock Incentive Plan will become
effective when the underwriting agreement for this offering is signed. At that
time, all outstanding options under our 1995 Stock Option Plan will be
transferred to the 2000 Stock Incentive Plan, and no further option grants will
be made under the 1995 Stock Option Plan. The transferred options will continue
to be governed by their existing terms, unless our compensation committee
decides to extend one or more features of the 2000 Stock Incentive Plan to those
options. Except as otherwise noted below, the transferred options from the 2000
Stock Incentive Plan have substantially the same terms as will be in effect for
grants made under the discretionary option grant program of our 2000 Stock
Incentive Plan.
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<PAGE> 52
Authorized shares
A total of 4,161,666 shares of our common stock have been authorized for
issuance under the 2000 Stock Incentive Plan. This share reserve consists of the
number of shares we estimate will be carried over from the 1995 Stock Option
Plan including the shares subject to outstanding options thereunder, plus an
additional increase of approximately 1,129,926 shares. The number of shares
authorized for issuance under our 2000 Stock Incentive Plan will automatically
increase on the first trading day of the fiscal year, beginning in 2001, by an
amount equal to three and one-half percent of the total number of shares of our
common stock outstanding on the last trading day immediately preceding fiscal
year, but in no event will this annual increase exceed 2,000,000 shares. In
addition, the 2000 Stock Incentive Plan prohibits stock option grants or direct
stock issuances for more than 2,000,000 shares of common stock in total in any
calendar year.
Stock Options
Our 2000 Stock Incentive Plan has five separate programs:
- the discretionary option grant program, under which eligible individuals
in our employ may be granted options to purchase shares of our common
stock at an exercise price not less than the fair market value of those
shares on the grant date;
- the stock issuance program, under which eligible individuals may be
issued shares of common stock directly through the purchase of such
shares at a price not less than 100% of the then fair market value at
time of issuance or as a bonus tied to the attainment of performance
milestones or the completion of a specified period of services;
- the salary investment option grant program, under which our executive
officers and other highly compensated employees may be given the
opportunity to apply a portion of their base salary each year to the
acquisition of special below market stock option grants;
- the automatic option grant program, under which option grants will
automatically be made at periodic intervals to eligible non-employee
members of our board of directors to purchase shares of common stock at
an exercise price equal to the fair market value of those shares on the
grant date; and
- the director fee option grant program, under which non-employee members
of our board of directors may be given the opportunity to apply a portion
of any retainer fee otherwise payable to them in cash each year to the
acquisition of special below-market option grants.
The individuals eligible to participate in our 2000 Stock Incentive Plan
include our officers and other employees, our board members and any consultants
we hire.
Plan Administration
The discretionary option grant and stock issuance programs will be
administered by our compensation committee. This committee will determine which
eligible individuals are to receive option grants or stock issuances under those
programs, the time or times when the grants or issuances are to be made, the
number of shares subject to each grant or issuance, the status of any granted
option as either an incentive stock option or a non-statutory stock option under
the federal tax laws, the vesting schedule to be in effect for the option grant
or stock issuance and the maximum term for which any granted option is to remain
outstanding. The compensation committee will also have the authority to select
the executive officers and other highly compensated employees who may
participate in the salary investment option grant program if that program is put
into effect for one or more calendar years.
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<PAGE> 53
Our 2000 Stock Incentive Plan will include the following features:
- The exercise price for any options granted under the 2000 Stock Incentive
Plan may be paid in cash or in shares of our common stock valued at fair
market value on the exercise date. The option may also be exercised
through a same-day sale program without any cash outlay by the optionees.
The compensation committee may provide financial assistance to one or
more optionees in the exercise of their options by allowing such
individuals to deliver full-recourse interest-bearing promissory notes in
payment of the exercise price and any associated withholding taxes.
- The compensation committee will have the authority to cancel outstanding
options under the discretionary option grant program, including any
transferred options from our 1995 Stock Option Plan, in return for the
grant of new options for the same or a different number of option shares
with an exercise price per share based upon the fair market value of our
common stock on the new grant date.
- Stock appreciation rights may be issued under the discretionary option
grant program. These rights will provide the holders with the election to
surrender their outstanding options for a payment from us equal to the
fair market value of the shares subject to the surrendered options less
the exercise price payable for those shares. We may make the payment in
cash or in shares of our common stock. None of the options under our 1995
Stock Option Plan have any stock appreciation rights.
Changes in Control
The 2000 Stock Incentive Plan will include the following change in control
provisions which may result in the accelerated vesting of outstanding option
grants and stock issuances:
- If we are acquired by merger or asset sale, each outstanding option under
the discretionary option grant program which is not to be assumed by the
successor corporation will immediately become exercisable for all the
option shares, and all outstanding unvested shares will immediately vest,
except to the extent our repurchase rights with respect to those shares
are to be assigned to the successor corporation.
- The compensation committee will have complete discretion to grant one or
more options that will become exercisable for all the option shares if
those options are assumed in the acquisition but the optionee's service
with us or the acquiring entity is subsequently terminated. The vesting
of any outstanding shares under the stock issuance programs may be
accelerated upon similar terms and conditions. The compensation committee
will also have the authority to grant options which will immediately vest
in the event we are acquired, whether or not those options are assumed.
- The compensation committee may grant options and structure repurchase
rights so that the shares subject to those options or repurchase rights
will immediately vest in connection with a successful tender offer for
more than 50% of our outstanding voting stock or a change in the majority
of our board through one or more contested elections. This accelerated
vesting may occur either at the time of this type of transaction or upon
the subsequent termination of the individual's service.
- If we are acquired by merger or asset sale, the options currently
outstanding under the 1995 Stock Option Plan will accelerate in full if
the options are not assumed by the acquiring entity and the optionee's
employment with us is involuntarily terminated within 12 months following
the acquisition. If the options are not so assumed, they will accelerate
and become exercisable for fully vested shares immediately before the
acquisition and will terminate upon the completion of the acquisition.
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Salary Investment Option Grant Program
If the compensation committee decides to put the salary investment option
grant program into effect for one or more calendar years, each of our executive
officers and other highly compensated employees may elect to reduce his or her
base salary for the calendar year by an amount not less than $10,000 nor more
than $50,000. Each selected individual who makes this election will
automatically be granted, on the first trading day in January of the calendar
year for which his or her salary reduction is to be in effect, an option to
purchase that number of shares of common stock determined by dividing the salary
reduction amount by two-thirds of the fair market value per share of our common
stock on the grant date. The option will have an exercise price per share equal
to one-third of the fair market value of the option shares on the grant date. As
a result, the option will be structured so that the fair market value of the
option shares on the grant date less the exercise price payable for those shares
will be equal to the amount of the salary reduction. The option will become
exercisable in a series of twelve equal monthly installments over the calendar
year for which the salary reduction is to be in effect.
Automatic Option Grant Program
Under the automatic option grant program, each individual who first becomes
a non-employee board member at any time after the effective date of this
offering will receive an option grant to purchase the number of shares of common
stock as determined by the board on the date the individual joins the board. In
addition, on the date of each annual stockholders meeting held in 2001 and
thereafter, each non-employee board member who is to continue to serve as a
non-employee board member, including each of our current non-employee board
members, will automatically be granted an option to purchase 10,000 shares of
common stock, provided the individual has served on the board for at least six
months.
Each automatic grant will have an exercise price per share equal to the
fair market value per share of our common stock on the grant date and will have
a term of 10 years, subject to earlier termination following the optionee's
cessation of board service. The option will be immediately exercisable for all
of the option shares; however, we may repurchase, at the exercise price paid per
share, any shares purchased under the option which are not vested at the time of
the optionee's cessation of board service. The shares subject to each initial
option grant will vest in a series of 36 equal monthly installments upon the
optionee's completion of each month of board service measured from the grant
date. The shares subject to each 10,000 share annual option grant will vest in a
series of 12 equal monthly installments upon completion of each month of board
service over the 12-month period measured from the grant date. The shares
subject to each option will immediately vest in full over the 36-month period
upon the optionee's death or disability while a board member.
Director Fee Option Grant Program
If the director fee option grant program is put into effect in the future,
then each non-employee board member may elect to apply all or a portion of any
cash retainer fee for the year to the acquisition of a below-market option
grant. The option grant will automatically be made on the first trading day in
January in the year for which the retainer fee would otherwise be payable in
cash. The option will have an exercise price per share equal to one-third of the
fair market value of the option shares on the grant date, and the number of
shares subject to the option will be determined by dividing the amount of the
retainer fee applied to the program by two-thirds of the fair market value per
share of our common stock on the grant date. As a result, the option will be
structured so that the fair market value of the option shares on the grant date
less the exercise price payable for those shares will be equal to the portion of
the retainer fee applied to that option. The option will become
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<PAGE> 55
exercisable in a series of 12 equal monthly installments over the calendar year
for which the election is in effect. The option, however, will become
immediately exercisable for all the option shares upon the death or disability
of the optionee while serving as a board member.
Our 2000 Stock Incentive Plan will also have the following features:
- Outstanding options under the salary investment option grant program and
the automatic and director fee option grant programs will immediately
vest if we are acquired by a merger or asset sale or if there is a
successful tender offer for more than 50% of our outstanding voting stock
or a change in the majority of our board through one or more contested
elections.
- Limited stock appreciation rights will automatically be included as part
of each grant made under the salary investment option grant program and
the automatic and director fee option grant programs, and these rights
may also be granted to one or more officers as part of their option
grants under the discretionary option grant program. Options with this
feature may be surrendered to us upon the successful completion of a
hostile tender offer for more than 50% of our outstanding voting stock.
In return for the surrendered option, the optionee will be entitled to a
cash distribution from us in an amount per surrendered option share based
upon the highest price per share of our common stock paid in that tender
offer.
- The board may amend or modify the 2000 Stock Incentive Plan at any time,
subject to any required stockholder approval. The 2000 Stock Incentive
Plan will terminate no later than February 7, 2010.
EMPLOYEE STOCK PURCHASE PLAN. Our Employee Stock Purchase Plan was adopted
by the board in February 2000 and approved by the stockholders in ,
2000. The Employee Stock Purchase Plan will become effective immediately upon
the signing of the underwriting agreement for this offering. The plan is
designed to allow our eligible employees and the eligible employees in our
participating subsidiaries, if any, to purchase shares of common stock, at
semi-annual intervals, with their accumulated payroll deductions.
Authorized Shares
A total of 400,000 shares of our common stock will initially be reserved
for issuance under our Employee Stock Purchase Plan. The reserve will
automatically increase on the first trading day of the second fiscal quarter
each year, beginning in the year 2001, by an amount equal to one percent of the
total number of outstanding shares of our common stock on the last trading day
of the immediately preceding first fiscal quarter. In no event will any annual
reserve increase exceed 600,000 shares.
Plan Administration
The plan will have a series of successive overlapping offering periods,
with a new offering period beginning on the first business day of May and
November of each year. Each offering period will continue for a period of 24
months, unless otherwise determined by our compensation committee. The initial
offering period, however, will start on the date the underwriting agreement for
this offering is signed and will end on the last business day of April 2002. The
next offering period will start on the first business day of November 2000.
Individuals scheduled to work more than 20 hours per week for more than
five calendar months per year may join an offering period on the start date of
that period. Employees may participate in only one offering period at any time.
A participant may contribute up to 15% of his or her cash earnings through
payroll deductions, and the accumulated deductions will be applied to the
purchase of shares on each semi-annual
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<PAGE> 56
purchase date. Semi-annual purchase dates will occur on the last business day of
April and October each year, with the first purchase to occur on the last
business day of October 2000. The purchase price per share on each semi-annual
purchase date will be equal to 85% of the fair market value per share on the
start date of the offering period or, if lower, 85% of the fair market value per
share on the semi-annual purchase date. A participant, however, may not purchase
more than 2,000 shares on any purchase date, and not more than 200,000 shares
may be purchased in total by all participants on any purchase date. Our
compensation committee will have the authority to change these limitations for
any subsequent offering period.
Changes in Control
If the fair market value per share of our common stock on any purchase date
is less than the fair market value per share on the start date of the 24-month
offering period, then that offering period will automatically terminate, and all
participants in the terminated offering will be transferred to the new offering
period commencing immediately thereafter.
Should we be acquired by merger or sale of substantially all of our assets
or more than 50% of our voting securities, then all outstanding purchase rights
will automatically be exercised immediately prior to the effective date of the
acquisition. The purchase price will be equal to 85% of the market value per
share on the start date of the offering period in which the acquisition occurs
or, if lower, 85% of the fair market value per share immediately prior to the
acquisition.
The following provisions will also be in effect under the Employee Stock
Purchase Plan:
- The plan will terminate no later than the last business day of January
2010.
- The board may at any time amend, suspend or discontinue the Employee
Stock Purchase Plan. Some amendments may require stockholder approval.
TERMINATION OF EMPLOYMENT ARRANGEMENT AND CHANGE IN CONTROL ARRANGEMENTS
In May 1997, we entered into an agreement with Edward O. Lanphier II, our
current President and Chief Executive Officer. Under the terms of the agreement,
Mr. Lanphier will receive an annual salary, an optional bonus payment and common
stock and stock options based on the achievement of some milestones. If Mr.
Lanphier is terminated without cause, he will be entitled to his base salary for
a period of twelve months plus customary benefits for that period. In the event
of a change in control, the unvested portion of his options will vest.
On January 4, 1998, Mr. Lanphier received a loan from us in the principal
amount of $250,000. The loan bears interest at a rate of 6% per year and will be
forgiven in forty-eight equal monthly installments of principal together with
all accrued interest upon his completion of each month of employment with us
over the forty-eight month period measured from the date the loan was made. If
Mr. Lanphier is terminated without cause, the balance of the loan will be
forgiven. A change of control will be deemed a termination without cause.
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LIMITATION OF LIABILITY AND INDEMNIFICATION
Our certificate of incorporation eliminates, to the maximum extent allowed
by the Delaware General Corporation Law, directors' personal liability to us or
our stockholders for monetary damages or breaches of fiduciary duties. The
certificate of incorporation of Sangamo does not, however, eliminate or limit
the personal liability of a director for the following:
- any breach of the director's duty of loyalty to us or our stockholders;
- acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
- any transaction from which the director derived an improper personal
benefit.
Our bylaws provide that we shall indemnify our directors and executive
officers to the fullest extent permitted under the Delaware General Corporation
Law and may indemnify our other officers, employees and other agents as set
forth in the Delaware General Corporation Law. In addition, we have entered into
an indemnification agreement with each of our directors and executive officers.
The indemnification agreements contain provisions that require us, among other
things, to indemnify our directors and executive officers against liabilities
(other than liabilities arising from intentional or knowing and culpable
violations of law) that may arise by reason of their status or service as
directors or executive officers of Sangamo or other entities to which they
provide service at our request and to advance expenses they may incur as a
result of any proceeding against them as to which they could be indemnified. We
believe that these bylaw provisions and indemnification agreements are necessary
to attract and retain qualified directors and officers.
Prior to the consummation of the offering, we will obtain additional
insurance which covers directors and officers for claims they may otherwise be
required to pay or for which we are required to indemnify them and which will
become effective upon consummation of the offering.
At present, there is no pending litigation or proceeding involving any of
our directors, officers, employees or agents where indemnification will be
required or permitted, and we are not aware of any threatened litigation or
proceeding that may result in a claim for indemnification.
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RELATED PARTY TRANSACTIONS
Since October 23, 1995, we have issued shares of our preferred stock and
warrants to purchase our preferred stock to investors in private placement
transactions as follows: a total of 791,250 shares of Series A preferred stock
at a price of $1.00 per share and warrants to purchase 65,000 shares of Series A
preferred stock at a price of $1.00 from October 1995 to June 1996; a total of
2,398,000 shares of Series B preferred stock at a price of $3.00 per share and
warrants to purchase 64,981 shares of Series B preferred stock at an exercise
price of $3.00 per share from November 1997 to February 1998; and a total of
2,000,000 shares of Series C preferred stock at a price of $4.50 per share from
August 1999 to January 2000. The following table summarizes the shares of
preferred stock purchased by, and warrants to purchase shares of preferred stock
issued to our executive officers, directors and 5% stockholders and persons and
entities associated with them in these private placement transactions. Shares
and warrants held by affiliated persons and entities have been aggregated. See
"Principal Stockholders." In connection with the above transactions, we entered
into and agreement with the investors providing for registration rights with
respect to these shares. See "Description of Capital Stock -- Registration
Rights."
<TABLE>
<CAPTION>
SERIES B
SERIES A SERIES B PREFERRED SERIES C
PREFERRED PREFERRED STOCK PREFERRED
STOCK STOCK WARRANTS STOCK
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
DIRECTORS
John W. Larson................................. 75,000 84,548 12,682 --
William J. Rutter, Ph.D. ...................... -- -- -- 333,333
5% STOCKHOLDERS
Entities affiliated with JAFCO Co., Ltd. ...... -- 1,000,000 -- 222,223
Lombard Odier & Cie............................ -- 1,000,000 -- 222,222
Stephens-Sangamo BioSciences LLC............... -- -- -- 1,000,000
</TABLE>
AGREEMENTS WITH OFFICERS AND DIRECTORS
In May 1997, we entered into an agreement with Edward O. Lanphier II, our
current President and Chief Executive Officer. Under the terms of the agreement,
Mr. Lanphier will receive an annual salary, an optional bonus payment, and
forgiveness of twenty-five percent of an outstanding loan, and common stock and
stock options based on the achievement of some milestones.
On January 4 , 1998, Mr. Lanphier received a loan from us in the principal
amount of $250,000. The loan bears interest at a rate of 6% per year and will be
forgiven in forty-eight equal monthly installments of principal, together with
all accrued interest, upon his completion of each month of employment with us
over the forty-eight month period measured from the date the loan was made.
$73,788 of the loan was forgiven in 1999. The loan is secured by 500,000 shares
of our common stock. If Mr. Lanphier is terminated without cause, the balance of
the loan will be forgiven. A change of control will be deemed a termination
without cause.
Mr. Larson, a Director, is also a partner at Brobeck, Phleger & Harrison
LLP, Sangamo's legal counsel.
We believe that all of the transactions set forth above were made on terms
no less favorable to us than could have been otherwise obtained from
unaffiliated third parties. All future transactions, including loans, if any,
between us and our officers, directors and principal stockholders and their
affiliates and any transactions between us and any entity with which our
officers, directors or 5% stockholders are affiliated, will be approved by a
majority of the board of directors, including a majority of the independent and
disinterested outside directors of the board of directors and will be on terms
no less favorable to us than could be obtained from unaffiliated third parties.
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<PAGE> 59
PRINCIPAL STOCKHOLDERS
The table below sets forth information regarding the beneficial ownership
of our common stock as of January 31, 2000, and as adjusted for this offering,
by:
- each person or entity who is known by us to own beneficially more than 5%
of our outstanding stock;
- our Chief Executive Officer and our other executive officers whose total
annual compensation exceeded $100,000;
- each of our directors; and
- all directors and executive officers as a group.
Each stockholder's percentage ownership in the following table is based on
15,843,894 shares of common stock outstanding as of December 31, 1999. Unless
otherwise indicated, the principal address of each of the stockholders below is
c/o Sangamo BioSciences, Inc., 501 Canal Boulevard, Suite A100, Richmond, CA
94804. Except as otherwise indicated, and subject to applicable community
property laws, except to the extent authority is shared by both spouses under
applicable law, we believe the persons named in the table have sole voting and
investment power with respect to all shares of common stock held by them.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF SHARES
SHARES BENEFICIALLY OWNED
BENEFICIALLY --------------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED PRIOR TO OFFERING AFTER THE OFFERING
------------------------------------ ------------ ----------------- ------------------
<S> <C> <C> <C>
Entities Affiliated with JAFCO Co., Ltd.(1)..... 2,444,446 15.4%
1-8-2 Marunouchi, Chiyoda-ku
Tokyo 100, Japan
Lombard Odier & Cie............................. 2,444,444 15.4
Toedistrasse 36, CH-8027
Zurich, Switzerland
Stephens-Sangamo BioSciences LLC................ 2,000,000 12.6
Edward O. Lanphier II(2)........................ 4,030,000 24.7
Casey C. Case, Ph.D.(3)......................... 210,000 1.3
Peter Bluford(4)................................ 260,000 1.6
Herbert W. Boyer, Ph.D.(5)...................... 100,000 *
William G. Gerber, M.D.(6)...................... 100,000 *
John W. Larson(7)............................... 484,460 3.0
William J. Rutter, Ph.D.(8)..................... 766,666 4.8
Michael C. Wood(9).............................. 1,550,000 9.8
All directors and executive officers as a group 7,711,126 44.5%
(11 persons)(10)..............................
</TABLE>
- -------------------------
* Less than one percent.
(1) Represents 844,446 shares held by JAFCO Co., Ltd; 246,574 shares held by
JAFCO G-6(A) Investment Enterprise Partnership; 246,574 shares held by
JAFCO G-6(B) Investment Enterprise Partnership; 334,246 shares held by
JAFCO G-7(A) Investment Enterprise Partnership; 334,246 shares held by
JAFCO G-7(B) Investment Enterprise Partnership; 164,388 shares held by
JAFCO JS-3 Investment Enterprise Partnership; and 273,972 shares held by
JAFCO R-3 Investment Enterprise Partnership.
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<PAGE> 60
(2) Includes 400,000 shares of common stock issuable upon exercise of
immediately exercisable options within 60 days of December 31, 1999. Also
includes 400,000 shares held by Mr. Lanphier's minor children.
(3) Includes 210,000 shares of common stock issuable upon exercise of
immediately exercisable options within 60 days of December 31, 1999.
(4) Includes 260,000 shares of common stock issuable upon exercise of
immediately exercisable options within 60 days of December 31, 1999.
(5) Includes 100,000 shares of common stock issuable upon exercise of
immediately exercisable options within 60 days of December 31, 1999.
(6) Includes 100,000 shares of common stock issuable upon exercise of
immediately exercisable options within 60 days of December 31, 1999.
(7) Includes 50,000 shares of common stock issuable upon exercise of
immediately exercisable options within 60 days of December 31, 1999. Also
includes warrants to purchase 25,364 shares of common stock.
(8) Includes 100,000 shares of common stock issuable upon exercise of
immediately exercisable options within 60 days of December 31, 1999.
(9) Includes 50,000 shares of common stock issuable upon exercise of
immediately exercisable options within 60 days of December 31, 1999.
(10) Includes 1,470,000 shares of common stock issuable upon exercise of
immediately exercisable options within 60 days of December 31, 1999.
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DESCRIPTION OF CAPITAL STOCK
At the closing of this offering, we will be authorized to issue 80,000,000
shares of common stock, $0.01 par value, and 5,000,000 shares of undesignated
preferred stock, $0.01 par value, following the conversion of our existing
preferred stock. The following description of capital stock gives effect to the
amended and restated certificate of incorporation to be filed prior to the
closing of this offering. Immediately following the completion of this offering,
and assuming no exercise of the underwriters' over-allotment option, a total of
shares of common stock will be issued and outstanding, and no shares
of preferred stock will be issued and outstanding. As of January 31, 2000, there
were 88 stockholders.
The following description of our capital stock is subject to and qualified
by our amended and restated certificate of incorporation and bylaws, which are
included as exhibits to the registration statement of which this prospectus
forms a part, and by the provisions of the applicable Delaware law.
COMMON STOCK
The holders of our common stock are entitled to one vote per share on all
matters to be voted upon by our stockholders. Subject to preferences that may
apply to any outstanding preferred stock that we may issue, the holders of
common stock are entitled to receive ratably those dividends, if any, as may be
declared from time to time by the board of directors out of funds legally
available for dividends. See "Dividend Policy." In the event of our liquidation,
dissolution or winding up, the holders of our common stock are entitled to share
ratably in all assets remaining after payment of liabilities, subject to prior
distribution rights of preferred stock, if any, then outstanding. Our common
stock has no preemptive or conversion rights or other subscription rights. There
are no redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are fully paid and nonassessable, and the
shares of common stock outstanding upon completion of this offering will be
fully paid and nonassessable.
PREFERRED STOCK
Our board of directors is authorized to issue, from time-to-time, without
stockholder authorization, in one or more designated series, any or all of our
authorized but unissued shares of preferred stock with any dividend, redemption,
conversion and exchange provisions as may be provided in the particular series.
Any series of preferred stock may possess voting, dividend, liquidation and
redemption rights superior to those of the common stock.
The rights of the holders of our common stock will be subject to, and may
be adversely affected by, the rights of the holders of any preferred stock that
may be issued in the future. Issuance of a new series of preferred stock, while
providing desirable flexibility in connection with financing possible
acquisitions and other corporate purposes, could have the effect of entrenching
our board of directors and making it more difficult for a third-party to
acquire, or discourage a third-party from acquiring, a majority of our
outstanding voting stock. We have no present plans to issue any shares of or
designate any series of preferred stock.
WARRANTS
At December 31, 1999, there were warrants outstanding to purchase a total
of 259,962 shares of our common stock, all of which will remain outstanding
after the completion of this offering and have various expiration dates. Some of
these warrants have net exercise provisions under which the holder may, in lieu
of payment of the exercise price in cash, surrender the warrant and receive a
net amount of shares based on the fair market value of our common stock at the
time of exercise of the warrant after deduction of the total exercise price.
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REGISTRATION RIGHTS
Pursuant to the Amended and Restated Investors Rights Agreement dated
January 20, 2000, some of our current stockholders and warrantholders have
registration rights for 5,697,948 shares of common stock held by them, or
issuable upon exercise of their warrants. Six months after the effective date of
this offering, the stockholders may demand that we file a registration statement
under the Securities Act covering all or a portion of the investors' registrable
securities. The stockholders demanding a registration must hold at least 40% of
the then outstanding registrable securities with an aggregate offering price,
net of underwriting discounts and commissions, of at least $7.5 million. These
registration rights are subject to our right to delay the filing of a
registration statement for a period not to exceed 120 days after receiving the
registration demand, although we cannot delay more than once in a twelve-month
period. In addition, the managing underwriter, if any, of the offering has the
right to limit the number of the registrable securities proposed to be included
in the registration. We are only obligated to effect one such demand
registration. However, stockholders with registration rights may require us to
file additional registration statements on Form S-3, subject to conditions and
limitations.
These stockholders also have "piggyback" registration rights. Subject to
exceptions, if we propose to register our securities under the Securities Act
other than pursuant to the stockholders' demand registration rights noted above,
the stockholders may require us to include all or a portion of their registrable
securities in the registration. Again, the managing underwriter has the right to
limit the number of the registrable securities proposed to be included in the
registration.
We will bear all registration expenses incurred in connection with a
registration effected pursuant to the rights described in the two foregoing
paragraphs, though limited to two registrations on Form S-3. The expenses for
all subsequent registrations on Form S-3 will be paid by the selling
stockholders pro rata in proportion to the number of securities sold. In any
registration, each selling stockholder will pay all underwriting discounts and
selling commissions applicable to the sale of its registrable securities.
These registration rights terminate on the earlier of two years after the
close of this offering or the date that all of its registrable securities may be
sold during any 90-day period under Rule 144 of the Securities Act. The
registration rights of each investor will also terminate when it owns less than
1% of our common stock.
ANTITAKEOVER EFFECTS OF PROVISIONS OF THE DELAWARE LAW AND FUTURE ISSUANCE OF
PREFERRED STOCK
We are subject to Section 203 of the Delaware General Corporation Law, an
anti-takeover law. In general, Section 203 prohibits a Delaware corporation from
engaging in any business combination with any interested stockholder for a
period of three years following the date that the stockholder became an
interested stockholder, unless:
- prior to that date, the board of directors of the corporation approved
either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder;
- upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of our voting stock outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding those shares owned by:
(i) persons who are directors and also officers; and
(ii) employee stock plans in which employee participants do not have the
right to determine confidentially whether shares held subject to 2000
Employee Stock Purchase Plan will be tendered in a tender or exchange
offer; or
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<PAGE> 63
- on or subsequent to that date, the business combination is approved by
the board of directors of the corporation and authorized at an annual or
special meeting of stockholders, and not by written consent, by the
affirmative vote of at least 66 2/3% of the outstanding voting stock that
is not owned by the interested stockholder.
Section 203 defines "business combination" to include the following:
- any merger or consolidation involving the corporation and the interested
stockholder;
- any sale, transfer, pledge or other disposition of 10% or more of the
assets of the corporation involving the interested stockholder;
- subject to some exceptions, any transaction that results in the issuance
or transfer by the corporation of any stock of the corporation to the
interested stockholder;
- any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock of any class or series of
the corporation beneficially owned by the interested stockholder; or
- the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
In general, Section 203 defines an interested stockholder as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by any of these entities or persons.
Our amended and restated certificate of incorporation authorizes our board
of directors to issue blank check preferred stock to increase the amount of
outstanding shares.
Delaware law and the issuance of preferred stock in certain circumstances
may have the effect of deterring hostile takeovers or delaying changes in
control of our management, which could depress the market price of our common
stock.
TRANSFER AGENT AND REGISTRAR
Our transfer agent and registrar for our common stock is Equiserve L.P. Its
telephone number is (781) 575-2469.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to the offering, there has been no public market for our common
stock. Future sales of substantial amounts of our common stock in the public
market could reduce prevailing market prices. Furthermore, since no shares will
be available for sale shortly after this offering because of contractual and
legal restrictions on resale as described below, sales of substantial amounts of
our common stock in the public market after these restrictions lapse could
adversely affect the prevailing market price and our ability to raise equity
capital in the future.
Upon completion of this offering, we will have outstanding an aggregate of
shares of common stock, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options or warrants issued
after December 31, 1999. Of these shares, all of the shares sold in this
offering will be freely tradable without restriction or further registration
under the Securities Act, unless these shares are purchased by affiliates. The
remaining shares of common stock held by existing stockholders are
restricted securities. Restricted securities may be sold in the public market
only if registered for resale or if they qualify for an exemption from
registration described below under Rules 144, 144(k) or 701 promulgated under
the Securities Act.
Pursuant to the contractual restrictions described below and the provisions
of Rules 144, 144(k) and 701, the restricted shares will be available for sale
in the public market as follows:
- unless held by affiliates, the shares sold in the public
offering will be freely tradable upon completion of this offering;
- shares will be eligible for sale beginning 90 days after the
date of this prospectus;
- shares will be eligible for sale upon the expiration of the
lock-up agreements, described below, beginning 180 days after the date of
this prospectus; and
- shares will be eligible for sale upon the exercise of vested
options 180 days after the date of this prospectus.
Lock-Up Agreements. All of our executive officers and directors, and
stockholders holding an aggregate of at least 90% of the shares of our capital
stock, have agreed under lock-up agreements that, without the prior written
consent of Lehman Brothers Inc., they will not, directly or indirectly, offer,
sell or otherwise dispose of any shares of common stock or any securities which
may be converted into or exchanged for any such shares for the period ending 180
days after the date of this prospectus. Transfers or dispositions can be made
sooner only with the prior written consent of Lehman Brothers Inc. See
"Underwriting".
Rule 144. In general, under Rule 144 as currently in effect, beginning 90
days after the date of this prospectus a person or persons whose shares are
aggregated, who has beneficially owned restricted securities for at least one
year, including the holding period of any prior owner except an affiliate, would
be entitled to sell within any three-month period a number of shares that does
not exceed the greater of:
- 1% of the number of shares of our common stock then outstanding, which
will equal approximately shares immediately after the offering;
or
- the average weekly trading volume of our common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to the sale.
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
Sangamo.
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Rule 144(k). Under Rule 144(k), a person who is not deemed to have been one
of our affiliates at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner except an affiliate, is entitled
to sell these shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
shares of our common stock will qualify as "144(k) shares" within 180 days after
the date of this prospectus.
Rule 701. In general, under Rule 701 of the Securities Act as currently in
effect, any of our employees, consultants or advisors, other than affiliates,
who purchase or receive shares from us in connection with a compensatory stock
purchase plan or option plan or other written agreement will be eligible to
resell their shares beginning 90 days after the date of this prospectus, subject
only to the manner of sale provisions of Rule 144, and by affiliates under Rule
144 without compliance with its holding period requirements.
Registration Rights. Upon completion of this offering, the holders of
shares of our common stock, or their transferees, will be entitled to
rights with respect to the registration of their shares for resale under the
Securities Act. Registration of their shares for resale under the Securities Act
would result in these shares becoming freely tradable without restriction under
the Securities Act, except for shares purchased by affiliates, immediately upon
the effectiveness of that registration statement.
Stock Options. Following the offerings, we intend to file a registration
statement on Form S-8 under the Securities Act covering the shares of common
stock reserved for issuance under our 1995 Stock Option Plan, 2000 Stock
Incentive Plan and 2000 Employee Stock Purchase Plan that will become effective
upon filing. Accordingly, shares registered under that registration statement
will, subject to Rule 144 volume limitations applicable to affiliates, be
available for sale in the open market after the filing, except those shares
subject to lockup agreements and unvested shares.
62
<PAGE> 66
UNDERWRITING
Under the underwriting agreement, which is filed as an exhibit to the
registration statement relating to this prospectus, the underwriters named
below, for whom Lehman Brothers Inc., Chase Securities Inc., ING Barings LLC,
William Blair & Company, L.L.C. and Fidelity Capital Markets, a division of
National Financial Services Corporation, are acting as representatives, have
each agreed to purchase from us the respective number of shares of common stock
shown opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Lehman Brothers Inc.........................................
Chase Securities Inc........................................
ING Barings LLC.............................................
William Blair & Company, L.L.C..............................
Fidelity Capital Markets, a division of National Financial
Services
Corporation...............................................
---------
Total.....................................................
=========
</TABLE>
The underwriting agreement provides that the underwriters' obligations to
purchase shares of common stock depend on the satisfaction of the conditions
contained in the underwriting agreement. It also provides that, if any of the
shares of common stock are purchased by the underwriters under the underwriting
agreement, all of the shares of common stock that the underwriters have agreed
to purchase under the underwriting agreement, must be purchased. The conditions
contained in the underwriting agreement include the requirement that:
- the representations and warranties made by us to the underwriters are
true;
- that there is no material change in the financial markets; and
- we deliver to the underwriters customary closing documents.
The representatives have advised us that the underwriters propose to offer
the shares of common stock directly to the public at the public offering price
set forth on the cover page of this prospectus, and to dealers, who may include
the underwriters, at this public offering price less a selling concession not in
excess of $ per share. The underwriters may allow, and the dealers may
reallow, a concession not in excess of $ per share to brokers and dealers.
After completion of the offering, the underwriters may change the offering price
and other selling terms.
We have granted the underwriters an option to purchase up to
additional shares of common stock, exercisable solely to cover
over-allotments, if any, at the public offering price less the underwriting
discount shown on the cover page of this prospectus. The underwriters may
exercise this option at any time until 30 days after the date of the
underwriting agreement. If this option is exercised, each underwriter will be
committed, so long as the conditions of the underwriting agreement are
satisfied, to purchase a number of additional shares of common stock
proportionate to the underwriter's initial commitment as indicated in the table
above, and we will be obligated, under the over-allotment option, to sell the
shares of common stock to the underwriters.
We have agreed not to, without the prior consent of Lehman Brothers Inc.,
directly or indirectly, offer, sell or otherwise dispose of any shares of common
stock or any securities which may be
63
<PAGE> 67
converted into or exchanged for any such shares of common stock for a period of
180 days from the date of this prospectus. All of our executive officers and
directors, and some of our stockholders holding an aggregate of at least 90% of
the shares of our capital stock, have agreed under lock-up agreements that,
without the prior written consent of Lehman Brothers Inc., they will not,
directly or indirectly, offer, sell or otherwise dispose of any shares of common
stock or any securities which may be converted into or exchanged for any such
shares for the period ending 180 days after the date of this prospectus. See
"Shares Eligible for Future Sale."
Prior to the offering, there has been no public market for the shares of
common stock. The initial public offering price will be negotiated between the
representatives and us. In determining the initial public offering price of the
common stock, the representatives will consider, among other things and in
addition to prevailing market conditions:
- our historical performance and capital structure;
- estimates of our business potential and earning prospects;
- an overall assessment of our management; and
- the consideration of the above factors in relation to market valuations
of companies in related businesses.
We intend to apply to have our common stock approved for quotation on the
Nasdaq National Market under the symbol "SGMO."
We have agreed to indemnify the underwriters against liabilities, including
liabilities under the Securities Act and liabilities arising from breaches of
the representations and warranties contained in the underwriting agreement, and
to contribute to payments that the underwriters may be required to make for
these liabilities.
Until the distribution of the common stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the underwriters and
selling group members to bid for and purchase shares of common stock. As an
exception to these rules, the representatives are permitted to engage in
transactions that stabilize the price of the common stock. These transactions
may consist of bids or purchases for the purposes of pegging, fixing or
maintaining the price of the common stock.
The underwriters may create a short position in the common stock in
connection with the offering, which means that they may sell more shares than
are set forth on the cover page of this prospectus. If the underwriters create a
short position, then the representatives may reduce that short position by
purchasing common stock in the open market. The representatives also may elect
to reduce any short position by exercising all or part of the over-allotment
option. The underwriters have informed us that they do not intend to confirm
sales to discretionary accounts that exceed 5% of the total number of shares of
common stock offered by them.
The representatives also may impose a penalty bid on underwriters and
selling group members. This means that, if the representatives purchase shares
of common stock in the open market to reduce the underwriters' short position or
to stabilize the price of the common stock, they may reclaim the amount of the
selling concession from the underwriters and selling group members who sold
those shares as part of the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of these purchases. The
imposition of a penalty bid might have an effect on the price of a security to
the extent that it may discourage resales of the security by purchasers in an
offering.
64
<PAGE> 68
Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the common stock. In addition, neither
we nor any of the underwriters makes any representation that the representatives
will engage in these transactions or that these transactions, once commenced,
will not be discontinued without notice.
Any offers in Canada will be made only under an exemption from the
requirements to file a prospectus in the relevant province of Canada in which
the sale is made.
Purchasers of the shares of common stock offered in this prospectus may be
required to pay stamp taxes and other charges under the laws and practices of
the country of purchase, in addition to the offering price listed on the cover
of this prospectus.
Fidelity Capital Markets, a division of National Financial Services
Corporation, is acting as a selling group member in this offering and will be
facilitating electronic distribution of information through the Internet,
intranet and other proprietary electronic technology.
At our request, the underwriters have reserved up to shares
of the common stock offered by this prospectus for sale to our officers,
directors, employees and their family members and to our business associates at
the initial public offering price set forth on the cover page of this
prospectus. These persons must commit to purchase no later than the close of
business on the day following the date of this prospectus. The number of shares
available for sale to the general public will be reduced to the extent these
persons purchase the reserved shares.
Lehman Brothers Inc. and one of its affiliates are stockholders of Sangamo.
Together they own an aggregate of less than one percent of the issued and
outstanding shares of our common stock. In addition, we have entered into a
consulting agreement with an affiliate of Lehman Brothers Inc. that provides for
annual payments to the affiliate of $20,000.
LEGAL MATTERS
The validity of the common stock offered will be passed upon for us by
Brobeck, Phleger & Harrison LLP, San Francisco, California. John W. Larson, one
of our directors, is a senior partner of Brobeck, Phleger & Harrison LLP and
beneficially owns an aggregate of 484,460 shares of our common stock. Latham &
Watkins is acting as counsel for the underwriters in connection with selected
legal matters relating to the shares of common stock offered by this prospectus.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements at December 31, 1998 and 1999, and for each of the three years in the
period ended December 31, 1999, as set forth in their report. We have included
our financial statements in this prospectus and elsewhere in the registration
statement in reliance on Ernst & Young LLP's report, given on the authority of
such firm as experts in accounting and auditing.
The statements in this prospectus in the sections entitled "Risk
Factors -- Because it is difficult and costly to protect our proprietary rights,
we cannot ensure their protection" and "Business -- Intellectual Property and
Technology Licenses" have been passed upon, as to patent matters, by Townsend
and Townsend and Crew LLP, patent counsel to us, and experts on such matters,
and are included in this prospectus in reliance upon its review and approval.
65
<PAGE> 69
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission, Washington, D.C.
20549, under the Securities Act a registration statement on Form S-1 relating to
the common stock offered by this prospectus. This prospectus does not contain
all of the information set forth in the registration statement and its exhibits
and schedules. For further information with respect to us and the shares we are
offering by this prospectus, you should refer to the registration statement and
its exhibits and schedules. Statements contained in this prospectus as to the
contents of any contract, agreement or other document referred to are not
necessarily complete, and you should refer to the copy of that contract or other
document filed as an exhibit to the registration statement. You may read or
obtain a copy of the registration statement, including exhibits, at the
commission's public reference room at 450 Fifth Street, N.W., Washington, D.C.
20549. Each statement in this prospectus relating to a contract or document
filed as an exhibit is qualified in all respects by the filed exhibit. You may
obtain information on the operation of the public reference room by calling the
commission at 1-800-SEC-0330. The commission maintains a Web site that contains
reports, proxy information statements and other information regarding
registrants that file electronically with the commission. The address of this
Web site is http://www.sec.gov.
As a result of the offering, the information and reporting requirements of
the Securities Exchange Act of 1934 will apply to us. We intend to furnish
holders of our common stock with annual reports containing, among other
information, audited financial statements certified by an independent public
accounting firm and quarterly reports containing unaudited condensed financial
information for the first three quarters of each fiscal year. We intend to
furnish other reports as we may determine or as may be required by law.
66
<PAGE> 70
SANGAMO BIOSCIENCES, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Balance Sheets.............................................. F-3
Statements of Operations.................................... F-4
Statement of Stockholders' Equity........................... F-5
Statements of Cash Flows.................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 71
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Sangamo BioSciences, Inc.
We have audited the accompanying balance sheets of Sangamo BioSciences,
Inc. as of December 31, 1998 and 1999, and the related statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Sangamo BioSciences, Inc. at
December 31, 1998 and 1999, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States.
Ernst & Young LLP
Palo Alto, California
January 28, 2000,
except for Note 7, as to which the date is
February , 2000.
- --------------------------------------------------------------------------------
The foregoing opinion is in the form that will be signed upon the completion of
the stock split described in Note 7 to the financial statements.
/s/ Ernst & Young LLP
Palo Alto, California
February 11, 2000,
F-2
<PAGE> 72
SANGAMO BIOSCIENCES, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY
------------------ DECEMBER 31,
1998 1999 1999
------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 1,250 $ 251
Short-term investments.............................. 1,808 7,252
Accounts receivable................................. 384 562
Prepaid expenses.................................... 97 171
------- -------
Total current assets............................. 3,539 8,236
Property and equipment, net........................... 436 612
Other assets.......................................... 244 439
------- -------
Total assets..................................... $ 4,219 $ 9,287
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities............ $ 182 $ 348
Accrued compensation and employee benefits.......... 196 182
Deferred revenue.................................... -- 500
------- -------
Total current liabilities........................ 378 1,030
Note payable.......................................... 250 250
Commitments
Stockholders' equity:
Preferred stock, $0.01 par value; 6,000,000 shares
authorized, issuable in series, 3,148,000 and
4,855,917 shares issued and outstanding at
December 31, 1998 and 1999, respectively (none
pro forma); aggregate liquidation preference of
$15,485 at December 31, 1999..................... 7,644 15,088 $ --
Common stock, $0.01 par value; 15,000,000 shares
authorized, 5,931,018 and 6,132,060 shares issued
and outstanding at December 31, 1998 and 1999,
respectively, at amount paid-in (15,843,894
shares issued and outstanding, pro forma)........ 18 1,700 16,788
Deferred stock compensation......................... -- (1,386) (1,386)
Accumulated deficit................................. (4,126) (7,478) (7,478)
Accumulated other comprehensive income.............. 55 83 83
------- ------- -------
Total stockholders' equity....................... 3,591 8,007 $ 8,007
------- ------- =======
Total liabilities and stockholders' equity....... $ 4,219 $ 9,287
======= =======
</TABLE>
See accompanying notes.
F-3
<PAGE> 73
SANGAMO BIOSCIENCES, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1997 1998 1999
------ ------- -------
<S> <C> <C> <C>
Revenues:
Federal government research grants....................... $1,152 $ 1,888 $ 1,182
Collaboration agreements................................. -- 150 1,000
------ ------- -------
Total revenues........................................ 1,152 2,038 2,182
Operating expenses:
Research and development................................. 1,675 4,057 3,991
General and administrative............................... 447 1,029 1,578
Amortization of deferred stock compensation.............. -- -- 96
------ ------- -------
Total operating expenses.............................. 2,122 5,086 5,665
------ ------- -------
Loss from operations.................................. (970) (3,048) (3,483)
Interest income............................................ 44 185 148
Interest expense........................................... -- (12) (17)
------ ------- -------
Net loss................................................... $ (926) $(2,875) $(3,352)
====== ======= =======
Basic and diluted net loss per share....................... $(0.17) $ (0.49) $ (0.56)
====== ======= =======
Shares used in computing basic and diluted net loss per
share.................................................... 5,485 5,843 5,991
====== ======= =======
Pro forma basic and diluted net loss per share
(unaudited).............................................. $ (0.26)
=======
Shares used in computing pro forma basic and diluted net
loss per share (unaudited)............................... 13,102
=======
</TABLE>
See accompanying notes.
F-4
<PAGE> 74
SANGAMO BIOSCIENCES, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED ACCUMULATED
STOCK COMMON STOCK DEFERRED OTHER TOTAL
------------------- ------------------ STOCK ACCUMULATED COMPREHENSIVE STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT COMPENSATION DEFICIT INCOME EQUITY
--------- ------- --------- ------ ------------ ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31,
1996..................... 750,000 $ 750 5,472,500 $ 9 $ -- $ (325) $-- $ 434
Issuance of common stock
for services rendered
at $0.01 per share..... -- -- 303,800 2 -- -- -- 2
Issuance of common stock
upon exercise of
options at $0.05 per
share.................. -- -- 100,000 5 -- -- -- 5
Issuance of Series B
convertible preferred
stock for cash at $3.00
per share, net of
issuance costs of
$180................... 2,358,000 6,894 -- -- -- -- -- 6,894
Net loss and
comprehensive loss..... -- -- -- -- -- (926) -- (926)
--------- ------- --------- ------ ------- ------- --- -------
Balances at December 31,
1997..................... 3,108,000 7,644 5,876,300 16 (1,251) -- 6,409
Issuance of common stock
upon exercise of
options at $0.01 and
$0.05 per share, net of
repurchases............ -- -- 54,718 2 -- -- -- 2
Issuance of Series B
convertible preferred
stock for services
related to the issuance
of preferred stock at
$0.01 per share........ 40,000 -- -- -- -- -- -- --
Unrealized gain on
investments............ -- -- -- -- -- -- 55 55
Net loss................. -- -- -- -- -- (2,875) -- (2,875)
-------
Comprehensive loss....... (2,820)
--------- ------- --------- ------ ------- ------- --- -------
Balances at December 31,
1998..................... 3,148,000 7,644 5,931,018 18 -- (4,126) 55 3,591
Issuance of common stock
upon exercise of
options at $0.01 to
$0.15 per share........ -- -- 191,042 12 -- -- -- 12
Issuance of common stock
and options to purchase
common stock for
services rendered...... -- -- 10,000 188 -- -- -- 188
Issuance of Series A
convertible preferred
stock upon exercise of
warrants at $0.01 per
share.................. 41,250 -- -- -- -- -- -- --
Issuance of Series C
convertible preferred
stock for cash at $4.50
per share, net of
issuance costs of
$56.................... 1,666,667 7,444 -- -- -- -- -- 7,444
Deferred stock
compensation........... -- -- -- 1,482 (1,482) -- -- --
Amortization of deferred
stock compensation..... -- -- -- -- 96 -- -- 96
Unrealized gain on
investments............ -- -- -- -- -- -- 28 28
Net loss................. -- -- -- -- -- (3,352) -- (3,352)
-------
Comprehensive loss....... (3,324)
--------- ------- --------- ------ ------- ------- --- -------
Balances at December 31,
1999..................... 4,855,917 $15,088 6,132,060 $1,700 $(1,386) $(7,478) $83 $ 8,007
========= ======= ========= ====== ======= ======= === =======
</TABLE>
See accompanying notes.
F-5
<PAGE> 75
SANGAMO BIOSCIENCES, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1997 1998 1999
------ ------- -------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss.................................................. $ (926) $(2,875) $(3,352)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 2 86 164
Deferred stock compensation............................ -- -- 96
Issuance of common stock and options to purchase common
stock for technology and services rendered........... 2 -- 188
Changes in operating assets and liabilities:
Accounts receivable.................................. (226) 20 (178)
Prepaid expenses and other assets.................... (53) (284) (14)
Accounts payable and accrued liabilities............. 383 (305) 166
Accrued compensation and employee benefits........... -- 196 (14)
Deferred revenue..................................... -- -- 500
------ ------- -------
Net cash used in operating activities............. (818) (3,162) (2,444)
INVESTING ACTIVITIES:
Purchases of short-term investments......................... -- (2,921) (8,242)
Maturities to and other changes in short-term investments... -- 1,166 2,571
Purchases of property and equipment......................... (124) (400) (340)
------ ------- -------
Net cash used in investing activities............. (124) (2,155) (6,011)
FINANCING ACTIVITIES:
Proceeds from issuance of convertible preferred stock....... 5,934 -- 7,444
Proceeds from issuance of common stock...................... 5 3 12
Borrowings under note payable............................... -- 250 --
Proceeds from issuance of convertible promissory notes...... 960 -- --
------ ------- -------
Net cash provided by financing activities......... 6,899 253 7,456
------ ------- -------
Net increase in cash and cash equivalents......... 5,957 (5,064) (999)
Cash and cash equivalents, beginning of period.............. 357 6,314 1,250
------ ------- -------
Cash and cash equivalents, end of period.................... $6,314 $ 1,250 $ 251
====== ======= =======
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest...................................... $ -- $ 12 $ 17
====== ======= =======
NONCASH INVESTING AND FINANCING ACTIVITIES:
Deferred compensation related to stock options.............. $ -- $ -- $ 1,482
====== ======= =======
Conversion of convertible promissory notes to convertible
preferred stock........................................... $ 960 $ -- $ --
====== ======= =======
</TABLE>
See accompanying notes.
F-6
<PAGE> 76
SANGAMO BIOSCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SANGAMO AND BASIS OF PRESENTATION
Sangamo BioSciences, Inc. ("Sangamo") was incorporated in the State of
Delaware on June 22, 1995 and is focused on the development and
commercialization of novel transcription factors for the regulation of gene
expression. Sangamo's Universal Gene Recognition technology platform enables the
engineering of a class of transcription factors known as zinc finger DNA binding
proteins ("ZFPs"). Through December 31, 1998, Sangamo was considered to be in
the development stage. During 1999, Sangamo entered into several Universal
GeneTools collaborations and recognized revenues associated with these
agreements, and expects to continue to receive revenues under these, similar and
other agreements in the future. Consequently, Sangamo is no longer considered to
be in the development stage. Sangamo will require additional financial resources
to complete the development and commercialization of its products.
Sangamo anticipates working on a number of long-term development projects
that will involve experimental and unproven technology. The projects may require
several years and substantial expenditures to complete and ultimately may be
unsuccessful. Sangamo plans to finance its operations with available cash
resources, funds received under federal government research grants and Universal
GeneTools collaborations and strategic partnerships (see Note 7), and from the
issuance of equity or debt securities. To date, Sangamo has been awarded
research grants from the National Institute of Standards and Technology and the
National Institutes of Health amounting to approximately $5,600,000 of which
approximately $5,000,000 has been used through December 31, 1999. Sangamo
believes that its available cash, cash equivalents and short-term investments of
$7,503,000 as of December 31, 1999, along with expected federal government
research grant reimbursements and revenues from Universal GeneTools
collaborations and strategic partnerships, will be adequate to fund its
operations through at least fiscal 2000. Sangamo will need to raise substantial
additional capital to fund subsequent operations. Sangamo intends to seek
funding through the issuance of equity securities, including this offering,
through additional Universal GeneTools collaborations, strategic partnerships,
and federal government research grants. Sangamo may seek to raise additional
capital when conditions permit. We cannot assure you that funding will be
available on favorable terms, if at all.
INITIAL PUBLIC OFFERING
In February 2000, the Board of Directors authorized the management of
Sangamo to file a registration statement with the Securities and Exchange
Commission permitting Sangamo to sell shares of its common stock to the public.
If the initial public offering is closed under the terms presently anticipated,
all of the convertible preferred stock outstanding will automatically convert
into common stock (see Note 7). Unaudited pro forma stockholders' equity, as
adjusted for the assumed conversion of the preferred stock, is set forth on the
balance sheet.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and the
accompanying notes. Actual results could differ from those estimates.
F-7
<PAGE> 77
SANGAMO BIOSCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
Sangamo considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents. Sangamo's cash and
cash equivalents are maintained with two financial institutions. Cash
equivalents of $1,236,000 and $249,000 at December 31, 1998 and December 31,
1999, respectively, consist of a certificate of deposit and deposits in a money
market investment account.
SHORT-TERM INVESTMENTS
Sangamo classifies its short-term investments as "available-for-sale" and
records its investments at market value in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Available-for-sale securities are
carried at amounts that approximate fair market value based on quoted market
prices. Realized gains and losses and declines in value judged to be
other-than-temporary on available-for-sale securities are included in interest
income. Interest on securities classified as available-for-sale is also included
in interest income. Through December 31, 1999, Sangamo has experienced no losses
on its short-term investments.
At December 31, 1998 short-term investments consisted of US Treasury bills
and commercial notes with an amortized cost of $1,753,000 and a fair value of
$1,808,000. These investments matured during 1999. At December 31, 1999,
short-term investments consisted of commercial notes and a certificate of
deposit with a cost and fair market value of $7,252,000 that mature at various
dates through May 2000.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated depreciation
and amortization. Depreciation is calculated using the straight-line method
based on the estimated useful lives of the related assets (generally three to
five years). For leasehold improvements, amortization is calculated using the
straight-line method based on the shorter of the useful life or the lease term.
Certain property and equipment acquired in 1998 and 1999 were reimbursed under
federal government research grants. For equipment acquired under grant
agreements, the reimbursement has been recorded as an offset to the cost of the
property and equipment at the time of purchase and no depreciation expense has
been recognized. Sangamo has not internally developed any software for use in
its research activities.
COMPREHENSIVE INCOME
In 1998, Sangamo adopted SFAS No. 130, "Reporting Comprehensive Income,"
which established new rules for the reporting and display of comprehensive
income and its components. Comprehensive income includes all changes in equity
during a period from non-owner sources. These items include unrealized gains and
losses on investments.
F-8
<PAGE> 78
SANGAMO BIOSCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Sangamo recognizes revenue from its Universal GeneTools agreements as
earned when ZFPs are delivered to the Universal GeneTools collaborators.
Generally, Sangamo receives up-front payments from these collaborations prior to
the delivery of ZFPs and the revenues from these payments are deferred until the
ZFPs are delivered.
Sangamo's federal government research grants provide for the reimbursement
of qualified expenses for research and development as defined under the terms of
the grant agreement. Revenue under grant agreements is recognized when the
related research expenses are incurred. Grant reimbursements are received on a
quarterly or monthly basis and are subject to the issuing agency's right of
audit.
RESEARCH AND DEVELOPMENT COSTS
Research and development expenses consist of costs incurred for
company-sponsored as well as collaborative research and development activities.
These costs include direct and research-related overhead expenses and are
expensed as incurred.
STOCK-BASED COMPENSATION
Sangamo accounts for employee stock options using the intrinsic value
method in accordance with Accounting Principles Board Opinion No. 25 ("APB No.
25") and has adopted the disclosure-only alternative of SFAS No. 123,
"Accounting for Stock-Based Compensation."
INCOME TAXES
Sangamo uses the liability method to account for income taxes as required
by SFAS No. 109, "Accounting for Income Taxes." Under this method, deferred tax
assets and liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities. Deferred tax assets and
liabilities are measured using enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
NET LOSS PER SHARE
Basic and diluted net loss per share information for all periods is
presented under the requirements of SFAS No. 128, "Earnings per Share." Basic
net loss per share has been computed using the weighted-average number of shares
of common stock outstanding during the period, less shares subject to
repurchase, and excludes any dilutive effects of options, warrants, and
convertible securities. Potential dilutive securities have also been excluded
from the computation of diluted net loss per share as their inclusion would be
antidilutive.
Pro forma net loss per share has been computed as described above and also
gives effect, under Securities and Exchange Commission guidance, to the
conversion of preferred shares not included above that will automatically
convert to common shares upon completion of the Company's initial public
offering, using the if-converted method.
F-9
<PAGE> 79
SANGAMO BIOSCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The following table presents the calculation of historical basic and
diluted net loss per share and pro forma basic and diluted net loss per share
(in thousands, except per share data):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1997 1998 1999
------ ------- -------
<S> <C> <C> <C>
Historical:
Net loss................................................... $ (926) $(2,875) $(3,352)
====== ======= =======
Basic and diluted:
Weighted-average shares of common stock outstanding...... 5,519 5,919 6,053
Less: weighted-average shares subject to repurchase...... (34) (76) (62)
------ ------- -------
Shares used in computing basic and diluted net loss per
share................................................. 5,485 5,843 5,991
------ ------- -------
Basic and diluted net loss per share....................... $(0.17) $ (0.49) $ (0.56)
====== ======= =======
Pro forma:
Net loss................................................... $(3,352)
=======
Weighted-average shares of common stock outstanding (from
above)................................................... 5,991
Adjustment to reflect the weighted average effect of the
assumed conversion of convertible preferred stock from
the date of issuance
(unaudited).............................................. 7,111
-------
Shares used in computing pro forma basic and diluted net
loss per share (unaudited)............................... 13,102
=======
Pro forma basic and diluted net loss per share
(unaudited).............................................. $ (0.26)
=======
</TABLE>
If Sangamo had reported net income, the calculation of historical and pro
forma diluted earnings per share would have included approximately an additional
122,915, 284,994 and 927,652 common equivalent shares related to outstanding
stock options and warrants not included above (determined using the treasury
stock method) for 1997, 1998 and 1999, respectively.
SEGMENT REPORTING
As of January 1, 1998, Sangamo adopted SFAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information." SFAS 131 establishes annual
and interim reporting standards for an enterprise's operating segments and
related disclosures about its products, services, geographic areas, and major
customers. Sangamo has determined that it operates in only one segment.
Accordingly, the adoption of this statement had no impact on its financial
statements.
MAJOR CUSTOMERS
During 1999, Sangamo entered into Universal GeneTools agreements with 13
pharmaceutical and biotechnology companies and earned revenue of $1,000,000
under seven of these agreements. At December 31, 1999, Sangamo's accounts
receivable consisted of amounts due from two of these pharmaceutical companies.
These agreements generally require Sangamo to apply its research
F-10
<PAGE> 80
SANGAMO BIOSCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
expertise and technology to develop unique transcription factors, which are
delivered to the pharmaceutical companies for use in their research.
EFFECT OF NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," as amended,
which will be effective for fiscal 2001. SFAS 133 establishes accounting and
reporting standards requiring that every derivative instrument, including
certain derivative instruments imbedded in other contracts, be recorded in the
balance sheet as either an asset or liability measured at its fair value. SFAS
133 also requires that changes in the derivative's fair value be recognized in
earnings unless specific hedge accounting criteria are met. Sangamo believes the
adoption of SFAS 133 will not have a material effect on the financial
statements, since it currently does not hold derivative instruments or engage in
hedging activities.
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1998 1999
----- ------
(IN THOUSANDS)
<S> <C> <C>
Laboratory equipment........................................ $137 $ 436
Furniture and fixtures...................................... 209 227
Leasehold improvements...................................... 178 201
---- -----
524 864
Less accumulated depreciation and amortization.............. (88) (252)
---- -----
$436 $ 612
==== =====
</TABLE>
3. COMMITMENTS AND NOTES PAYABLE
Sangamo occupies office and laboratory space under operating leases in
Richmond, California that expire in 2004. Rent expense for 1997, 1998 and 1999
was $74,000, $314,000, and $336,000, respectively. Future minimum payments under
non-cancelable operating leases at December 31, 1999 consist of the following:
<TABLE>
<CAPTION>
AMOUNT
--------------
(IN THOUSANDS)
<S> <C>
2000................................................ $ 304
2001................................................ 304
2002................................................ 306
2003................................................ 308
2004................................................ 206
------
$1,428
======
</TABLE>
F-11
<PAGE> 81
SANGAMO BIOSCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. COMMITMENTS AND NOTES PAYABLE (CONTINUED)
In May 1998, Sangamo entered into a Loan and Security Agreement with a
financial institution that provides for notes payable totaling up to $500,000
for purchases of equipment. Outstanding notes payable bear interest at 6.5% per
annum and interest payments are due monthly. The outstanding balance at December
31, 1998 and 1999 was $250,000. Principal under the note is due on May 2003.
Included in other assets in the accompanying balance sheets is $250,000 pledged
in the form of a certificate of deposit used to collateralize the notes payable.
4. STOCKHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK
Convertible preferred stock consists of the following, by series:
<TABLE>
<CAPTION>
SHARES ISSUED AND
OUTSTANDING
DECEMBER 31,
----------------------
DESIGNATED 1998 1999
---------- --------- ---------
<S> <C> <C> <C>
Series
A.......................................... 856,250 750,000 791,250
B.......................................... 2,462,981 2,398,000 2,398,000
C.......................................... 2,000,000 -- 1,666,667
--------- --------- ---------
5,319,231 3,148,000 4,855,917
========= ========= =========
</TABLE>
The holders of Series A, B and C convertible preferred stock are entitled
to receive noncumulative dividends at the rate of 8% per share per year, if
declared, prior to and in preference to the payment of dividends to holders of
common stock. As of December 31, 1999, no dividends had been declared. Holders
of Series A, B and C convertible preferred stock are entitled to a liquidation
preference equal to $1.00, $3.00 and $4.50 per share, respectively, plus all
declared but unpaid dividends. In a liquidation, any assets remaining following
the payment of these amounts would be distributed to common stockholders.
Convertible preferred stock is convertible into common stock at the option
of the holder, initially at an exchange ratio of one-to-one (see Note 7).
Convertible preferred shares are automatically converted into common stock
immediately upon the closing of an underwritten public offering that is at a
price to the public of at least $6.00 per share and that results in aggregate
proceeds to Sangamo of at least $7,500,000. All convertible preferred shares
have voting rights equal to common stock on an as-if-converted basis.
COMMON STOCK
At December 31, 1999, 45,500 shares of outstanding common stock were
subject to the Company's contractual right of repurchase at a weighted average
price of $0.05 which rights generally lapse over periods not exceeding four
years.
F-12
<PAGE> 82
SANGAMO BIOSCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. STOCKHOLDERS' EQUITY (CONTINUED)
WARRANTS
At December 31, 1999, warrants to purchase 65,000 shares of Series A
convertible preferred stock were outstanding at an exercise price of $1.00 per
share, which are exercisable through September 2000, and warrants to purchase
64,981 shares of Series B convertible preferred stock were outstanding at an
exercise price of $3.00 per share, which are exercisable through August 2002.
Sangamo has reserved both preferred and common stock for issuance upon exercise
of the warrants.
STOCK OPTION PLAN
Sangamo's 1995 Stock Option Plan (the "1995 Option Plan") provides for the
issuance of common stock and grants of options for common stock to employees,
officers, directors and consultants. The exercise price per share will be no
less than 85% of the fair value per share of common stock on the option grant
date, and the option term will not exceed ten years. If the person to whom the
option is granted is a 10% stockholder, then the exercise price per share will
not be less than 110% of the fair value per share of common stock on the option
grant date, and the option term will not exceed five years. Options granted
under the 1995 Option Plan generally vest over four years at a rate of 25% one
year from the grant date and one thirty-sixth per month thereafter and expire
ten years after the grant, or earlier upon employment termination. Options
granted pursuant to the 1995 Option Plan may be exercised prior to vesting, with
the related shares subject to Sangamo's right to repurchase the shares if the
option holder terminates employment. The right of repurchase lapses over the
original option vesting period, as described above. At December 31, 1999, a
total of 3,700,000 options were reserved for issuance pursuant to the 1995
Option Plan. A summary of Sangamo's stock option activity follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------
WEIGHTED-
SHARES AVAILABLE AVERAGE
FOR GRANT OF NUMBER OF EXERCISE PER
OPTIONS SHARES SHARE PRICE
---------------- --------- ------------
<S> <C> <C> <C>
Balance at December 31, 1996..................... 785,500 392,000 $0.04
Options granted................................ (816,000) 816,000 $0.08
Options exercised.............................. -- (100,000) $0.05
Options canceled............................... 125,000 (125,000) $0.04
--------- --------- -----
Balance at December 31, 1997..................... 94,500 983,000 $0.08
Additional shares authorized................... 1,200,000 -- --
Options granted................................ (828,000) 828,000 $0.16
Options exercised.............................. -- (101,750) $0.03
Shares repurchased............................. 47,032 -- $0.01
Options canceled............................... 35,250 (35,250) $0.08
--------- --------- -----
Balance at December 31, 1998..................... 548,782 1,674,000 $0.12
Additional shares authorized................... 1,000,000 -- --
Options granted................................ (459,500) 459,500 $0.22
Options exercised.............................. -- (191,042) $0.06
Options canceled............................... 69,792 (69,792) $0.10
--------- --------- -----
Balance at December 31, 1999..................... 1,159,074 1,872,666 $0.15
========= ========= =====
</TABLE>
F-13
<PAGE> 83
SANGAMO BIOSCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. STOCKHOLDERS' EQUITY (CONTINUED)
Options outstanding at December 31, 1999 have a weighted average remaining
contractual life of 7.4 years and may be immediately exercised; however,
1,061,472 shares issued pursuant to these options would be subject to Sangamo's
right of repurchase. Vested options at December 31, 1999 total 811,194 and have
a weighted average remaining contractual life of 6.3 years. The weighted-
average fair value per share of options granted during 1998 and 1999 was $0.05
and $5.06, respectively.
As permitted by SFAS No. 123, Sangamo accounts for its stock option and
stock incentive plans in accordance with APB No. 25 and recognizes no deferred
stock compensation expense for options granted with exercise prices equal to the
fair market value of Sangamo's common stock at the date of grant. In 1999,
Sangamo granted certain options to employees with exercise prices below the
deemed fair value of Sangamo's common stock for accounting purposes and
recognized deferred stock compensation of $1,482,000, which is being amortized
to expense over the vesting term of the option.
SFAS No. 123 requires the disclosure of pro forma information regarding net
loss and net loss per share determined as if Sangamo had accounted for its stock
options under the fair value method. For purposes of this pro forma disclosure,
the estimated fair value of the options is amortized to expense over the
options' vesting period.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1997 1998 1999
------ ------- -------
<S> <C> <C> <C>
Pro forma net loss (in thousands)...................... $ (930) $(2,886) $(3,366)
====== ======= =======
Pro forma basic and diluted net loss per share......... $(0.17) $ (0.49) $ (0.56)
====== ======= =======
</TABLE>
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to 1996 and the vesting period of option grants is four
years, the above pro forma effect may not be representative of that to be
expected in future years. The fair value for all options granted in 1997, 1998
and 1999 were estimated at the date of grant using the minimum value method with
the following weighted-average assumptions:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Risk-free interest rate............................ 5.8% 5.0% 6.0%
Expected life of option............................ 5 yrs 5 yrs 5 yrs
Expected dividend yield of stock................... 0% 0% 0%
</TABLE>
In 1998 and 1999, respectively, Sangamo granted 80,000 and 154,000,
nonqualified common stock options to consultants at exercise prices that range
from $0.15 to $0.23 per share for services rendered. The options generally vest
over four years at a rate of 25% one year from the grant date and one
thirty-sixth per month thereafter and expire ten years after the grant date.
Expense of $128,000 was recognized in 1999 related to these transactions.
Options granted to consultants are periodically re-valued for financial
reporting purposes and charged to expense as they vest using a Black-Scholes
option-pricing model.
F-14
<PAGE> 84
SANGAMO BIOSCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. LOAN TO AN OFFICER
Sangamo advanced its President and Chief Executive Officer $250,000 under a
Note Receivable Agreement ("the "Note"). The Note bears interest at 6.02% per
annum and is being forgiven one forty-eighth each month beginning January 1,
1998. As of December 31, 1998 and 1999, $187,000 and $125,000, respectively, of
this Note was outstanding, which is included in other assets in the accompanying
balance sheets. The loan is secured on 500,000 shares of common stock owned by
the Officer.
6. INCOME TAXES
There has been no provision for U.S. federal, U.S. state, or foreign income
taxes for any period because Sangamo has incurred operating losses in all
periods and for all jurisdictions. Deferred income taxes reflect the net tax
effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax
purposes. Significant components of deferred tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1999
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $ 1,600 $ 2,500
Research and development credit carryforwards............. -- 100
Other reserves and accruals............................... -- 100
------- -------
1,600 2,700
Valuation allowance......................................... (1,600) (2,700)
------- -------
Net deferred tax assets..................................... $ -- $ --
======= =======
</TABLE>
Realization of deferred tax assets is dependent upon future earnings, if
any, the timing and amount of which are uncertain. Accordingly, the net deferred
tax assets have been fully offset by a valuation allowance. The valuation
allowance increased by $1,100,000 each in 1998 and 1999. As of December 31,
1999, Sangamo had net operating loss carryforwards for federal and state income
tax purposes of approximately $7,900,000. Sangamo also had federal research and
development credit carryforwards of approximately $100,000. The net operating
loss and credit carryforwards will expire at various dates beginning in 2010
through 2019, if not used. Use of the net operating loss may be subject to
substantial annual limitation due to the ownership change limitations provided
by the Internal Revenue Code and similar state provisions. The annual limitation
could result in the expiration of the net operating loss before use.
7. SUBSEQUENT EVENTS
CONVERTIBLE PREFERRED STOCK SALE
In January 2000, Sangamo sold 333,333 shares of its Series C convertible
preferred stock to a member of its Board of Directors for net proceeds of
approximately $1,500,000. Subsequent to the commencement of the initial public
offering process, Sangamo re-evaluated the deemed fair value of its common stock
as of January 2000 and determined it to be $12 per share. Accordingly, the
F-15
<PAGE> 85
SANGAMO BIOSCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. SUBSEQUENT EVENTS (CONTINUED)
incremental fair value of $6.5 million is deemed to be the equivalent of a
preferred stock dividend. Sangamo recorded the deemed dividend at the date of
issuance by offsetting charges and credits to preferred stock, without any
effect on total stockholders' equity. The preferred stock dividend increases the
loss applicable to common stockholders in the calculation of basic net loss per
share for the year ended December 31, 2000.
GRANT OF STOCK OPTIONS
During January 2000, Sangamo granted to directors options to purchase a
total of 250,000 shares of common stock at an exercise price of $0.625 per
share. Sangamo will record additional deferred stock compensation of $2,884,000
with regard to these grants.
STRATEGIC PARTNERSHIP
In January 2000, Sangamo announced that it had entered into a strategic
partner agreement with Edwards LifeScience, Inc., formerly the CardioVascular
Group of Baxter Healthcare Corporation for the development of ZFPs in
cardiovascular and peripheral vascular diseases. Under this agreement, Baxter
has purchased a $5 million convertible note which will convert into common stock
upon consummation of this offering, and Sangamo has received $1 million in
initial research funding from Baxter. In the future, Sangamo may receive option
fees, milestone payments, royalties and additional research funding from this
agreement.
EMPLOYEE STOCK PURCHASE PLAN
The Board of Directors adopted the 2000 Employee Stock Purchase Plan in
February 2000, pending stockholder approval, to be effective upon the completion
of Sangamo's initial public offering of its common stock. Sangamo has reserved a
total of 400,000 shares of common stock for issuance under the plan. Eligible
employees may purchase common stock at 85% of the lesser of the fair market
value of Sangamo's common stock on the first day of the applicable two-year
offering period or the last day of the applicable six-month purchase period.
STOCK INCENTIVE PLAN
In February 2000, the Board of Directors adopted the 2000 Stock Incentive
Plan (the "2000 Plan") and reserved 2,000,000 shares for grant under the 2000
Plan (including shares available under the 1995 Option Plan). The terms of the
2000 Plan are substantially similar to the 1995 Option Plan. The 2000 Plan also
provides for automatic grants to non-employee directors.
STOCK SPLIT
In February 2000, Sangamo's Board of Directors approved a two-for-one stock
split of its common stock, effected as a common stock dividend, that will be
effective prior to the completion of its initial public offering. As a result of
the common stock split, the conversion ratio of Sangamo's convertible preferred
stock was automatically amended to two-to-one in accordance with the Company's
articles of incorporation. All common share and options and per share amounts in
the accompanying financial statements have been adjusted retroactively to
reflect the stock split.
F-16
<PAGE> 86
SHARES
[LOGO]
SANGAMO BIOSCIENCES, INC.
COMMON STOCK
-------------------------
PROSPECTUS
, 2000
-------------------------
LEHMAN BROTHERS
CHASE H&Q
ING BARINGS
WILLIAM BLAIR & COMPANY
LOGO
<PAGE> 87
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than the
underwriting discounts and commissions, payable by us in connection with the
sale of common stock being registered. All amounts are estimates except the SEC
registration fee, the NASD filing fees and the Nasdaq National Market listing
fee.
<TABLE>
<S> <C>
SEC Registration Fee........................................ $27,800
NASD Filing Fee............................................. 10,500
Nasdaq National Market Listing Fee.......................... *
Printing and Engraving Expenses............................. *
Legal Fees and Expenses..................................... *
Accounting Fees and Expenses................................ *
Blue Sky Fees and Expenses.................................. *
Transfer Agent Fees......................................... *
Miscellaneous............................................... *
-------
Total............................................. *
=======
</TABLE>
- -------------------------
* To be provided by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to
award or a corporation's board of directors to grant indemnification to
directors and officers in terms sufficiently broad to permit the indemnification
under certain circumstances for liabilities (including reimbursement for
expenses incurred) arising under the Securities Act of 1933, as amended (the
"Securities Act"). Article VII, Section 6 of our bylaws provides for mandatory
indemnification of our directors and officers and permissible indemnification of
employees and other agents to the maximum extent permitted by the Delaware
General Corporation Law. Our certificate of incorporation provides that, subject
to Delaware law, our directors will not be personally liable for monetary
damages for breach of the directors' fiduciary duty as directors to Sangamo
BioSciences, Inc. and its stockholders. This provision in the certificate of
incorporation does not eliminate the directors' fiduciary duty, and in
appropriate circumstances equitable remedies such as injunctive or other forms
of non-monetary relief will remain available under Delaware law. In addition,
each director will continue to be subject to liability for breach of the
director's duty of loyalty to Sangamo or our stockholders for acts or omissions
not in good faith or involving intentional misconduct, for knowing violations of
law, for actions leading to improper personal benefit to the director, and for
payment of dividends or approval of stock repurchases or redemptions that are
unlawful under Delaware law. The provision also does not affect a director's
responsibilities under any other law, such as the federal securities laws or
state or federal environmental laws. We have entered into indemnification
agreements with our officers and directors, a form of which will be filed with
the Securities and Exchange Commission as an exhibit to our registration
statement on Form S-1. The indemnification agreements provide our officers and
directors with further indemnification to the maximum extent permitted by the
Delaware General Corporation Law. Reference is also made to the underwriting
agreement contained in exhibit 1.1 hereto, indemnifying our officers and
directors against specific liabilities, and our Second Amended and Restated
Registration Rights Agreement contained in Exhibit 10.4 hereto, indemnifying the
parties thereto, including controlling stockholders, against liabilities.
II-1
<PAGE> 88
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the registrant has issued unregistered
securities to a limited number of persons as described below:
1. Since inception through December 31, 1999, we have granted a total
of 2,818,000 options and stock purchase rights to purchase our common
stock, excluding options returned to our stock plans, with a weighted
average price of $.30 to a number of our employees, directors and
consultants.
2. From October 31, 1995 to June 28, 1996, we issued warrants to
purchase 106,250 shares of Series A Preferred Stock at an exercise price of
$1.00 per share to several investors.
3. From October 1995 to August 1999, we issued 791,250 shares of
Series A Preferred Stock to several investors for a total cash
consideration of $750,413.
4. In March 1996, we issued 40,000 shares of Common Stock to Colorado
Bio/Medical Venture Center, Inc. in connection with a sublease of space.
5. In June 1996, we issued 75,000 shares of Common Stock to The Johns
Hopkins University in connection with the License Agreement with us.
6. In July 1996, we issued 35,000 shares of Common Stock to Frederick
Frank as compensation for consulting services.
7. In August 1997, we issued convertible promissory notes in the
principal amount of $960,000 and warrants to purchase 64,981 shares of
Series B Preferred Stock at an exercise price of $3.00 per share to several
investors. The notes were cancelled and converted into shares of Series B
Preferred Stock on November 6, 1997.
8. In September 1997, we issued 3,800 shares of common stock to John
Colin Cahill as compensation for consulting services.
9. From September 1997 to December 1997, we issued 2,358,000 shares
of Series B Preferred Stock to several investors for a total cash
consideration of $7,074,000, which includes conversion of the convertible
promissory notes and accrued interest thereon described in Item 7 above
into a total of 324,666 shares of Series B Preferred Stock.
10. In December 1997, we issued 300,000 shares of Common Stock to
Edward O. Lanphier II pursuant to the terms of his employment agreement
with us.
11. In February 1998, we issued 40,000 shares of Series B Preferred
Stock to Lehman Brothers, Inc. as compensation for a finder's fee.
12. From August 1999 to January 2000, we issued 2,000,000 shares of
Series C Preferred Stock to several investors for a total cash
consideration of $9,000,000.
None of the foregoing transactions involved any underwriters, underwriting
discounts or commissions, or any public offering, and we believe that each
transaction was exempt from the registration requirements of the Securities Act
by virtue of Section 4(2) thereof, Regulation D promulgated thereunder or Rule
701 with respect to compensatory benefit plans and contracts relating to
compensation as provided under Rule 701. The recipients in each transaction
represented their intention to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof, and
appropriate legends were affixed to the share certificates and
II-2
<PAGE> 89
instruments issued in these transactions. All recipients had adequate access,
through their relationships with us, to information about us.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1* Amended and Restated Certificate of Incorporation.
3.2* Amended and Restated Bylaws.
4.1* Form of Specimen Common Stock Certificate.
5.1* Opinion of Brobeck, Phleger & Harrison LLP regarding the
legality of the common stock being registered.
10.1* 1995 Stock Option Plan.
10.2* 2000 Stock Incentive Plan.
10.3* 2000 Employee Stock Purchase Plan.
10.4* Second Amended and Restated Investors' Rights Agreement,
among Sangamo and certain of its stockholders, dated January
20, 2000.
10.5* Form of Indemnification Agreement to be entered into between
Sangamo and each of its directors and executive officers.
10.6* Triple Net Laboratory Lease dated May 23, 1997, between
Sangamo and Point Richmond R&D Associates II, LLC.
10.7* Form of collaboration agreement.
10.8* License Agreement between Sangamo and Baxter Healthcare
Corporation dated January 11, 2000.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2* Consent of Brobeck, Phleger & Harrison LLP (contained in
their opinion filed as Exhibit 5.1).
23.3 Consent of Townsend and Townsend and Crew LLP.
24.1 Power of Attorney. (see Page II-5)
27.1 Financial Data Schedule.
</TABLE>
- -------------------------
* To be filed by amendment.
(b) FINANCIAL STATEMENT SCHEDULE
ITEM 17. UNDERTAKINGS
We undertake to provide to the underwriters at the closing specified in the
underwriting agreement, certificates in such denominations and registered in
such names as required by the underwriters to permit prompt delivery to each
purchaser.
To the extent indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers and controlling persons
according to the Delaware General Corporation Law, our certificate of
incorporation or our bylaws, indemnification agreements entered into between us
and our officers and directors, the underwriting agreement, or otherwise, we
have been advised that in the opinion of the commission this indemnification is
against public policy as expressed in the Securities Act, and is, therefore,
unenforceable. If a claim for indemnification against these liabilities (other
than the payment by us of expenses incurred or paid by any of our directors,
officers or controlling persons in the successful defense of any action, suit or
proceeding) is asserted by a director, officer or
II-3
<PAGE> 90
controlling person in connection with the securities being registered, we will,
unless in the opinion of our counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
this indemnification by us is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of the issue.
The undersigned registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of Prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by us under Rule 424(b)(1) or (4) or 497(h) of the
Securities Act shall be deemed to be part of this registration statement as
of the time it was declared effective;
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of those securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 91
SIGNATURES
Under the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of San
Francisco, State of California, on February 11, 2000.
SANGAMO BIOSCIENCES, INC.
By: /s/ EDWARD O. LANPHIER II
------------------------------------
Edward O. Lanphier II
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints, jointly and severally, Edward O.
Lanphier II and Shawn K. Johnson, and each one of them, his true and lawful
attorneys-in-fact and agents, each with full power of substitution, for him and
in his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement,
and to sign any Registration Statement for the same offering covered by this
Registration Statement that is to be effective upon filing under Rule 462(b)
promulgated under the Securities Act of 1933, as amended, and all post-effective
amendments thereto, and to file the same, with all exhibits thereto and all
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming that each of said
attorneys-in-fact and agents or any of them, or his or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Under the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ EDWARD O. LANPHIER II President, Chief Executive February 11, 2000
- ----------------------------------------------------- Officer and Director
Edward O. Lanphier II (Principal Executive
Officer)
/s/ SHAWN K. JOHNSON Director of Finance February 11, 2000
- ----------------------------------------------------- (Principal Accounting
Shawn K. Johnson Officer)
Director February , 2000
- -----------------------------------------------------
Herbert W. Boyer, Ph.D.
</TABLE>
II-5
<PAGE> 92
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ WILLIAM G. GERBER, M.D. Director February 11, 2000
- -----------------------------------------------------
William G. Gerber, M.D.
/s/ JOHN W. LARSON Director February 11, 2000
- -----------------------------------------------------
John W. Larson
/s/ WILLIAM J. RUTTER, PH.D. Director February 11, 2000
- -----------------------------------------------------
William J. Rutter, Ph.D.
/s/ MICHAEL C. WOOD Director February 11, 2000
- -----------------------------------------------------
Michael C. Wood
</TABLE>
II-6
<PAGE> 93
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1* Amended and Restated Certificate of Incorporation.
3.2* Amended and Restated Bylaws.
4.1* Form of Specimen Common Stock Certificate.
5.1* Opinion of Brobeck, Phleger & Harrison LLP regarding the
legality of the common stock being registered.
10.1* 1995 Stock Option Plan.
10.2* 2000 Stock Incentive Plan.
10.3* 2000 Employee Stock Purchase Plan.
10.4* Second Amended and Restated Investors' Rights Agreement,
among Sangamo and certain of its stockholders, dated January
20, 2000.
10.5* Form of Indemnification Agreement to be entered into between
Sangamo and each of its directors and executive officers.
10.6* Triple Net Laboratory Lease dated May 23, 1997, between
Sangamo and Point Richmond R&D Associates II, LLC.
10.7* Form of collaboration agreement.
10.8* License Agreement between Sangamo and Baxter Healthcare
Corporation dated January 11, 2000.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2* Consent of Brobeck, Phleger & Harrison LLP (contained in
their opinion filed as Exhibit 5.1).
23.3 Consent of Townsend and Townsend and Crew LLP.
24.1 Power of Attorney. (see Page II-5)
27.1 Financial Data Schedule.
</TABLE>
- -------------------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected Financial
Data" and "Experts" and to the use of our report dated January 28, 2000, except
for Note 7, as to which the date is February 10, 2000, in the Registration
Statement (Form S-1) and related Prospectus of Sangamo BioSciences, Inc. for the
registration of shares of its common stock.
Palo Alto, California ERNST & YOUNG LLP
- ------------------------------------------------------------------------------
The foregoing consent is in the form that will be signed upon completion of the
stock split described in Note 7 to the financial statements.
/s/ ERNST & YOUNG LLP
Palo Alto, California
February 10, 2000
<PAGE> 1
EXHIBIT 23.3
[TOWNSEND AND TOWNSEND AND CREW LLP LETTERHEAD]
CONSENT OF TOWNSEND AND TOWNSEND AND CREW LLP
We consent to the reference to our firm under the caption "Experts" in
the Registration Statement on form S1 and related Prospectus of Sangamo, Inc.
for the registration of shares of its common stock.
TOWNSEND AND TOWNSEND AND CREW LLP
By: /s/ JOE LIEBESCHUETZ
-------------------------------
Joe Liebeschuetz, Partner
Palo Alto, California
February 10, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 DEC-31-1999
<CASH> 1,250 251
<SECURITIES> 1,808 7,252
<RECEIVABLES> 384 562
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 3,539 8,236
<PP&E> 524 864
<DEPRECIATION> 88 252
<TOTAL-ASSETS> 4,219 9,287
<CURRENT-LIABILITIES> 378 1,030
<BONDS> 0 0
0 0
7,644 15,088
<COMMON> 18 1,700
<OTHER-SE> 55 83
<TOTAL-LIABILITY-AND-EQUITY> 4,219 9,287
<SALES> 0 0
<TOTAL-REVENUES> 2,038 2,182
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 5,086 5,579
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 12 17
<INCOME-PRETAX> (2,875) (3,352)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (3,048) (3,483)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2,875) (3,352)
<EPS-BASIC> (0.49) (0.56)
<EPS-DILUTED> (0.49) (0.56)
</TABLE>
