Sangamo Therapeutics, Inc: Form 10-Q for the period ended Sep 30, 2024

The discussion in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contains trend analysis, estimates and other forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. These forward-looking statements include, without limitation, statements containing the words “anticipates,” “believes,” “continues,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “seeks,” “should,” “will,” and other words of similar import or the negative of those terms or expressions. Such forward-looking statements are subject to known and unknown risks, uncertainties, estimates and other factors that may cause our actual results, performance or achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Actual results could differ materially from those set forth in such forward-looking statements as a result of, but not limited to, the “Risk Factors” described in Part I, Item 1A our Annual Report on Form 10-K for the year ended December 31, 2023 as filed with the Securities and Exchange Commission on March 13, 2024, or the 2023 Annual Report, as supplemented by the risks described under “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q. You should also read the following discussion and analysis in conjunction with our Condensed Consolidated Financial Statements and accompanying notes included in this Quarterly Report and the Consolidated Financial Statements and accompanying notes thereto included in our 2023 Annual Report.

Overview

We are a genomic medicine company committed to translating ground-breaking science into medicines that transform the lives of patients and families afflicted with serious neurological diseases. We believe our zinc finger epigenetic regulators are ideally suited to potentially address devastating neurology disorders and our capsid engineering platform has demonstrated the ability to expand delivery beyond currently available intrathecal delivery capsids, including in the central nervous system, or CNS, in preclinical studies.

Corporate Updates

Epigenetic Regulation and Capsid Delivery License Agreement with Genentech

On August 2, 2024, we entered into a global epigenetic regulation and capsid delivery license agreement, or the Genentech Agreement, with Genentech, Inc., a member of the Roche Group, or Genentech, to develop intravenously administered genomic medicines to treat certain neurodegenerative diseases. Under the Genentech Agreement, we granted an exclusive license to Genentech for our proprietary zinc finger repressors, or ZFRs, that are directed to tau and a second undisclosed neurology target. We also granted an exclusive license to Genentech to our proprietary, neurotropic adeno-associated virus capsid, STAC-BBB, for use with therapies directed to tau or to the second neurology target. Under the terms of the Genentech Agreement, we were responsible for completing a technology transfer and certain preclinical activities, and Genentech is solely responsible for all clinical development, regulatory interactions, manufacturing and global commercialization of resulting products.

Under the Genentech Agreement, we have received from Genentech a $40.0 million upfront license fee and a $10.0 million milestone payment, or the Genentech Payments. In addition, we are eligible to earn up to $1.9 billion in development and commercial milestones spread across multiple potential products under the Genentech Agreement and tiered mid-single digit to sub-teen double digit royalties on the net sales of such products, subject to certain specified reductions.

Financial Position – Going Concern

Based on our current operating plan, our cash and cash equivalents as of September 30, 2024, together with the $10.0 million milestone payment that we received from Genentech in October 2024, are expected to allow us to meet our liquidity requirements only into the first quarter of 2025. Our history of significant losses, negative cash flows from operations, limited liquidity resources currently on hand and dependence on our ability to obtain additional financing to fund our operations have resulted in management’s assessment that there is substantial doubt about our ability to continue as a going concern for at least the next 12 months from the date the financial statements included in this Quarterly Report are issued. Our ability to continue to operate as a going concern is dependent upon our ability to raise substantial additional capital to fund our operations and support our research and development endeavors, including to progress our preclinical and clinical programs as described in our 2023 Annual Report and in this Quarterly Report. Although we received the Genentech Payments, and raised capital via a registered direct offering to institutional investors of common stock and accompanying warrants in March 2024, we will still need substantial additional capital in order to continue to operate as a going concern and fund our operations. We have been actively seeking, and continue to actively seek, substantial additional capital, including through additional strategic collaborations and other direct investments in our programs, public or private equity or debt financing, royalty financing and other sources. We may be unable to attract new investments as a result of the speculative nature of our newly reprioritized core neurology preclinical programs and additional capital may not be available on acceptable terms or at all. If adequate funds are not available to us on a timely basis, or at all, we will be required to take additional actions to address our liquidity needs, including additional cost reduction measures such as further reducing operating expenses and delaying, reducing the scope of, discontinuing or altering our research and development activities, which would have a material adverse effect on our business and prospects, or we may be required to cease operations entirely, liquidate all or a portion of our assets, and/or seek protection under the U.S. Bankruptcy Code, and you may lose all or part of your investment. We have explored, and will continue to explore, whether filing for bankruptcy protection is in the best interest of our Company and our stakeholders.

Core Neurology Programs and Technologies

Our neurology pipeline is focused on two innovative areas aligned with our strategic transformation: (i) development of epigenetic regulation therapies treating serious neurological diseases and (ii) development of novel engineered adeno-associated virus, or AAV, capsids to deliver our therapies to the intended neurological targets. Indications for our wholly-owned neurology programs include idiopathic small fiber neuropathy, or iSFN, a type of chronic neuropathic pain, and prion disease.

Neurology Epigenetic Regulation Programs

• We have submitted an investigational new drug, or IND, application to the U.S. Food and Drug Administration, or FDA, for ST-503, an investigational epigenetic regulator for the treatment of intractable pain due to iSFN.
• Subject to clearance of this IND application by the FDA, we would expect to start the Phase 1/2 study of ST-503 in the middle of 2025, subject to our ability to secure adequate funding.
• In September 2024, we published a manuscript in bioRxiv titled, “Potent and selective repression of SCN9A by engineered ZFRs for the treatment of neuropathic pain,” demonstrating that ZFRs can selectively and potently reduce the expression of Nav1.7 sodium channels in sensory neurons, following a single intrathecal administration of ST-503, an AAV encoding a ZFR targeting the SCN9A gene.
• Clinical trial authorization, or CTA, enabling activities continue to advance for our epigenetic regulation program to treat prion disease, leveraging our novel proprietary neurotropic AAV capsid variant, known as STAC-BBB, which demonstrated industry-leading blood-brain barrier, or BBB, penetration in nonhuman primates, or NHPs, following intravenous administration.
• We presented updated data at the Prion 2024 Conference in October 2024, showing the potency of Sangamo’s ZFR in a disease mouse model at multiple dose levels. The ZFR significantly reduced expression of prion mRNA and protein in the brain, extended mouse survival and limited the formation of toxic prion aggregates. Additionally, we presented NHP data at the Prion 2024 Conference, showing that a single intravenous administration of the prion ZFR, delivered via STAC-BBB, resulted in potent and widespread repression of the prion gene in transduced neurons.
• A CTA submission for the prion program is expected in the fourth quarter of 2025, subject to our ability to secure adequate funding.

Novel AAV Capsid Delivery Technology

• We continue to engage in business development discussions with new potential collaborators for STAC-BBB for use in delivering intravenously administered genomic medicines to treat certain specified neurological diseases.

Clinical Programs

Fabry Disease

• In October 2024, we announced the outcome of a successful interaction with the FDA, providing a clear regulatory pathway to Accelerated Approval for isaralgagene civaparvovec, or ST-920, our investigational gene therapy for the treatment of Fabry disease.
• The FDA has agreed in a Type B interaction that data from the ongoing Phase 1/2 STAAR study can serve as the primary basis for approval under the Accelerated Approval Program, using estimated glomerular filtration rate, or eGFR, slope at 52 weeks across all patients as an intermediate clinical endpoint.
• We engaged with the FDA on alternative pathways to potential approval following analysis of clinical data from the Phase 1/2 STAAR study showing encouraging safety and efficacy data, including promising preliminary evidence of improved kidney function. In the 18 male and female patients treated with isaralgagene civaparvovec with more than one year of follow-up data, a statistically significant positive mean annualized eGFR slope was observed.
• Based on these latest data, the FDA agreed that eGFR slope at 52 weeks can serve as an intermediate clinical endpoint to support a potential Accelerated Approval. The FDA also advised that eGFR slope at 104 weeks may be assessed to verify clinical benefit.
• The complete dataset to support an Accelerated Approval pathway will be available in the first half of 2025. This approach enables a potential Biologics License Application, or BLA, submission in the second half of 2025, three years ahead of previous estimates, and avoids the requirement for an additional, costly registrational study to establish clinical efficacy.
• Dosing was completed in the Phase 1/2 STAAR study in April 2024, with 33 patients dosed in the study. The longest treated patient recently achieved four years of follow-up.
• In September 2024, the 18th and final patient who started the study on enzyme replacement therapy, or ERT, was withdrawn from ERT. All 18 patients remain off ERT as of November 12, 2024.
• We have begun to execute BLA readiness activities for isaralgagene civaparvovec, while continuing to advance ongoing business development discussions with potential collaboration partners.

Partnered Program

Hemophilia A

• Pfizer plans to present detailed data from the Phase 3 AFFINE trial of giroctocogene fitelparvovec, an investigational gene therapy that we have co-developed with and licensed to Pfizer for the treatment of adults with moderately severe to severe hemophilia A, in an oral presentation at the 66th American Society for Hematology Annual Meeting and Exposition on December 9, 2024 and in a poster presentation. Summaries of the accepted abstracts are more fully described below.
• Pfizer is discussing these data with regulatory authorities.
• We are eligible to earn from Pfizer up to $220.0 million in potential milestone payments upon the achievement of certain regulatory and commercial milestones for giroctocogene fitelparvovec and product sales royalties of 14% - 20% if giroctocogene fitelparvovec is approved and commercialized, subject to reductions due to patent expiration, entry of biosimilar products to the market and payment made under certain licenses for third-party intellectual property.

Summary of Results from the Hemophilia Α Cohort of the Non-Investigational Lead-in Study: Prospective Collection of Bleeding Rate in Participants with Hemophilia Α Prior to Phase 3 Study (AFFINE) of Giroctocogene Fitelparvovec

• Giroctocogene fitelparvovec (PF-07055480) is a liver-directed recombinant adeno-associated virus serotype 6, or AAV6, gene therapy vector encoding a B-domain-deleted variant of human factor VIII, or FVIII, that enables sustained endogenous FVIII expression.
• AFFINE (NCT04370054) is an ongoing, pivotal phase 3 trial to evaluate the efficacy and safety of giroctocogene fitelparvovec in individuals with hemophilia A.
• The primary endpoint of the AFFINE trial is to demonstrate non-inferiority in total (treated and untreated) annualized bleeding rate, or ABR, compared with routine prophylactic FVIII replacement therapy collected prospectively in a separate lead-in trial.
• The lead-in trial was initiated to establish prospective bleeding and infusion rates while on FVIII prophylaxis replacement therapy in the usual care setting of participants with hemophilia A.
• The baseline data obtained in this trial will be used for comparison with data collected post gene therapy for those participants who subsequently enrolled in the giroctocogene fitelparvovec phase 3 AFFINE trial.
• This study (NCT03587116) is a prospective, noninterventional, phase 3 lead-in trial that enrolled adult men ≥18 to <65 years old with moderately severe to severe hemophilia A (FVIII ≤1%) on stable prophylaxis FVIII replacement therapy who tested negative for neutralizing antibodies, or nAb, to AAV6. The trial is multi-regional in 18 countries in North America, South America, Asia Pacific, Europe, and the Middle East.
• Participants were instructed to record infusions and bleeding events in an electronic diary, with most participants providing ≥6 months of data prior to entry in the phase 3 AFFINE trial.
• Selected safety data (serious adverse events, or SAEs, and medically important events of FVIII inhibitor, thrombotic events, and factor hypersensitivity reactions) of FVIII replacement therapy were also collected.
• In all, 241 patients with hemophilia A were screened and 101 were enrolled in the hemophilia A cohort of this lead-in trial. The most common reason for screen failure was nAb positivity at screening in 115 (82.1%) of the 140 screen failures. The mean (range) age of those enrolled was 31.8 (18 to 64) years. Most participants were 18-44 years of age (84

[83.2%]), White (78 [77.2%]), and not Hispanic or Latino (76 [75.2%]). Target joints were identified in 47 (46.5%) participants.

• Overall, 84 (83.2%) participants had ≥180 days of follow-up; the mean (SD) follow-up duration of these participants was 351.3 (197.32) days and 23 (22.8%) had ≥1 year of follow-up. Overall, 17 (16.8%) participants had <180 days of follow-up; the mean (SD) follow-up duration of these participants was 84.8 (43.64) days. The overall mean (SD) follow-up duration was 306.5 (206.55) days.
• The mean (SD) total ABR was 6.1 (10.6), mean (SD) treated ABR was 4.87 (7.2), and mean (SD) annualized infusion rate, or AIR, was 127.1 (51.8). The mean (SD) annualized total FVIII replacement therapy consumption was 304,998 (153,932) IU.
• Of the 101 participants, four (4.0%) experienced four SAEs (hemorrhoidal hemorrhage, upper gastrointestinal hemorrhage, wound infection, and B-cell lymphoma; n=1 [1.0%] each); all SAEs were severe except upper gastrointestinal hemorrhage, which was moderate in severity. No adverse events of special interest were reported, and no safety signals were identified for FVIII replacement therapy.
• The ABR and AIR collected in this lead-in trial are representative of FVIII prophylaxis in hemophilia A populations.
• Although FVIII prophylaxis was well tolerated, with no emerging safety signals, a total ABR of 6.1 illustrates the limitations of current standard of care prophylaxis.
• The total ABR reported in a subset of participants who went on to enroll in the phase 3 AFFINE trial of giroctocogene fitelparvovec will be used as the comparator for the primary endpoint evaluating noninferiority post gene therapy, in accordance with the AFFINE trial protocol.

Summary of Primary Analysis Results from Phase 3 AFFINE Trial

• Giroctocogene fitelparvovec (PF-07055480), a hepatocyte-directed recombinant AAV serotype 6 vector encoding a B-domain–deleted variant of human FVIII, is a single-dose gene therapy aimed at enabling sustained endogenous FVIII expression in individuals with hemophilia A, or HA.
• AFFINE (NCT04370054) is a phase 3, open-label, single-arm trial that enrolled adult men with HA (FVIII:C ≤1%) who had completed a lead-in study while on exogenous FVIII prophylaxis therapy prior to administration of a single infusion of 3e13 vg/kg giroctocogene fitelparvovec.
• Primary and secondary endpoints were assessed in the efficacy population corresponding to participants with ≥15 months follow-up post-infusion and at least six months follow-up in the lead-in study (n=50).
• The primary endpoint was ABR for total (treated and untreated) bleeds from Week 12 (onset of clinically meaningful transgene-derived FVIII levels) through ≥15 months post-infusion compared to the pre-infusion prophylaxis period.
• Key secondary endpoints were the percentage of participants with FVIII activity >5%, as assessed via chromogenic assay, at 15 months and ABR for treated bleeds. AIR of exogenous FVIII replacement from Week 12 to ≥15 months post-infusion was a secondary endpoint. Additional secondary endpoints, including the incidence and severity of adverse events, or AEs, were assessed for all dosed participants (n=75).
• As of June 2024, 75 participants (median age, 30 [range 19–59] years) were dosed with giroctocogene fitelparvovec (median duration of follow-up, 16.8 [range 7.8–44.4] months). Of those 75 participants, 50 were included in the efficacy population (median duration of follow-up, 33.6 [range 14.5–44.4] months).
• Within this efficacy population, the study met its primary endpoint with a statistically significant decrease (non-inferiority and superiority; one-sided p-value=0.004) in total ABR from Week 12 through ≥15 months post-infusion compared to pre-infusion prophylaxis (mean total ABR, 1.2 vs 4.7; treatment difference, -3.49 [95% CI: -6.06, -0.91]). At Month 15, 84% of participants (95% CI: 70.9%, 92.8%; one-sided p-value=0.0086 vs null hypothesis of ≤68%) had FVIII activity >5%. Participants continued to maintain FVIII activity >5%, with 82.8% of participants [n=29] continuing to maintain FVIII activity >5% at 2-years post-infusion and 63% of participants [n=8] at 3-years post-infusion respectively. Treated ABR during Week 12 through ≥15 months post-infusion was significantly reduced compared to prophylaxis (mean treated ABR, 0.07 vs 4.1; treatment difference, -4.01 [95% CI: -5.57, -2.45; one-sided p-value<0.0001]), also demonstrating superiority. During the same period, 64% of participants had no bleeds, and 88% of participants had no treated bleeds. AIR post-infusion was reduced by 99.8% compared to the pre-infusion period (mean AIR, 0.2 vs 124.4).
• As of the June 2024 cutoff date, one (1.3%) dosed participant had resumed prophylaxis (at 16.1 months post-infusion). A total of 624 AEs, mostly mild or moderate, were reported in 74 (98.7%) participants. There were 26 serious AEs, or

SAEs, in 15 (20%) participants, with pyrexia most common (5 [6.7%] participants). The most common treatment-related AEs were pyrexia (54.7% of participants), alanine aminotransferase, or ALT, increased (46.7%), and headache (38.7%). There have been no study discontinuations.

• Post-infusion, 62.7% of participants received at least one dose of corticosteroids due to ALT elevations or decreases in FVIII activity (median time to initiation, 84 [range 7–193] days; mean total time on corticosteroids, 114.6 [11–296] days). AEs related to corticosteroids were reported in 19 (25.3%) participants.
• Transient FVIII activity >150% (defined as ≥1 central chromogenic assay measurement >150%) was reached in 37 (49.3%) participants, with 23 (30.7%) treated with prophylactic direct oral anticoagulants based on protocol and investigator’s recommendation, which was well tolerated.
• Giroctocogene fitelparvovec yielded endogenous FVIII expression in the mild to normal range in most participants, resulting in superior bleed protection versus routine FVIII prophylaxis and significant reductions in bleeding. A single infusion was well tolerated and demonstrated durable efficacy on all primary and key secondary endpoints.

Collaborations

Our collaborations with biopharmaceutical companies bring us important financial and strategic benefits and reinforce the potential of our research and development efforts and our zinc finger, or ZF, technology platform. They leverage our collaborators’ therapeutic and clinical expertise and commercial resources with the goal of bringing our medicines more rapidly to patients. We believe these collaborations will potentially expand the addressable markets of our product candidates. To date, we have received approximately $867.0 million in upfront licensing fees, milestone payments and proceeds from sale of our common stock to collaborators and have the opportunity to earn up to $3.8 billion in potential future milestone payments from our ongoing collaborations, in addition to potential product royalties.

Manufacturing & Process Development

Following restructuring of our operations initiated in 2023, we expect to be substantially reliant on external partners to manufacture clinical supply for our neurology portfolio. We are retaining our in-house analytical and process development capabilities.

Macroeconomic Conditions

Our business and operations and those of our collaborators may be affected by financial instability and declining economic conditions in the United States and other countries caused by political instability and conflict, including the ongoing conflict between Russia and Ukraine and conflicts in the Middle East, or by general health crises, which have in the past led to market disruptions, including significant volatility in commodity prices, credit and capital markets instability, including disruptions in access to bank deposits and lending commitments, supply chain interruptions, rising interest rates and global inflationary pressures. These macroeconomic factors could materially and adversely affect our ability to continue to operate as a going concern and could otherwise have a material adverse effect on our business, operations, operating results and financial condition as well as the price of our common stock. In particular, our ability to raise the substantial additional capital we need in order to fund our business and to continue to operate as a going concern may be adversely impacted by these macroeconomic factors, and we cannot be certain that we will be able to obtain financing on terms acceptable to us, or at all.

Certain Components of Results of Operations

Our revenues have consisted primarily of revenues from collaboration agreements, which included upfront licensing fees, reimbursements for research services, and milestone achievements, and research grant funding. In 2023, our collaboration agreements with Biogen MA, Inc. and Biogen International GmbH, which we refer to together as Biogen, and Novartis Institutes for BioMedical Research, Inc., or Novartis, were terminated, and the collaboration agreement with Kite Pharma, Inc., a Gilead Sciences, Inc. subsidiary, or Kite, expired pursuant to its terms in April 2024. We expect revenues to continue to fluctuate from period to period and there can be no assurance that new collaborations or partner reimbursements will continue beyond their initial terms or that we are able to meet the milestones specified in these agreements. For additional information concerning the terms of our ongoing collaboration agreements, see Note 5 – Major Customers, Partnerships and Strategic Alliances in the accompanying notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

We have incurred net losses since inception and expect to incur losses for at least the next several years as we continue our research and development activities. To date, we have funded our operations primarily through the issuance of equity securities and revenues from collaborations and research grants.

Although we expect research and development expenses to decrease in the near-term in connection with the restructuring of operations and reduction in workforce and significant reduction in our internal manufacturing and allogeneic research footprints in California announced in April 2023, or the April 2023 Restructuring, the further restructuring of operations and corresponding reduction in workforce announced in November 2023, or the November 2023 Restructuring, and the wind-down of operations in France and corresponding reduction in workforce, including closure of our cell therapy manufacturing facility and research labs in Valbonne, France, or the France Restructuring, we expect to continue to devote substantial resources to research and development in the future and expect research and development expenses to increase in the next several years if we are successful in advancing our product candidates from research stage through clinical trials.

General and administrative expenses consist primarily of salaries and personnel related expenses for executive, finance and administrative personnel, stock-based compensation expense, professional fees, allocated facilities and information technology expenses, patent prosecution expenses and other general corporate expenses. Although we expect general and administrative expenses to decrease in the near-term in connection with the April 2023 Restructuring, November 2023 Restructuring and France Restructuring, we expect the growth of our business to require increased general and administrative expenses as we continue to advance our product candidates into and through the clinic.

Critical Accounting Policies and Estimates

Our Condensed Consolidated Financial Statements and the related disclosures have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these Condensed Consolidated Financial Statements requires us to make estimates, assumptions and judgments that affect the reported amounts in our Condensed Consolidated Financial Statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe the following policies to be the most critical to an understanding of our financial condition and results of operations because they require us to make estimates, assumptions and judgments about matters that are inherently uncertain.

We believe our critical accounting policies and estimates relating to valuation of long-lived assets are the most significant estimates and assumptions used in the preparation of our Condensed Consolidated Financial Statements. See Note 1 – Organization, Basis of Presentation and Summary of Significant Accounting Policies in the accompanying notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

There have been no significant changes in our critical accounting policies and estimates during the three and nine months ended September 30, 2024, as compared to the critical accounting policies and estimates disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Part II, Item 7 of the 2023 Annual Report.

Results of Operations for the Three and Nine Months Ended September 30, 2024 and 2023

Revenues

(in thousands, except percentage values)

(in thousands, except percentage values)

Revenues during the three and nine months ended September 30, 2024 primarily consisted of revenues from the collaboration agreement with Genentech and royalties from our license agreements with Sigma-Aldrich Corporation, or Sigma, and Open Monoclonal Technology, Inc. (now Ligand Pharmaceuticals Inc.), or Ligand. We anticipate revenues in the future will be derived primarily from our license agreements. The terminations of our collaboration agreements with Biogen and Novartis became effective in June 2023, following which we are not entitled to any further milestone payments or royalties from either Biogen or Novartis, nor does either Biogen or Novartis have any further obligations to develop or to reimburse us the costs of any of the programs previously subject to the Biogen and Novartis collaborations. Further, our collaboration agreement with Kite expired pursuant to its terms in April 2024.

The increase of $40.0 million in revenues for the three months ended September 30, 2024, compared to the same period in 2023, was primarily attributed to $49.2 million in revenue relating to our collaboration agreement with Genentech. This increase was offset by a decrease of $5.5 million in revenue relating to our collaboration agreement with Kite which expired pursuant to its terms in April 2024, a decrease of $2.2 million in revenue relating to our research evaluation and option agreement with Prevail Therapeutics, and a decrease of $1.5 million in revenue relating to our other license agreements.

The decrease of $123.9 million in revenues for the nine months ended September 30, 2024, compared to the same period in 2023, was primarily attributed to decreases of $134.8 million and $12.2 million in revenues relating to our collaboration agreements with Biogen and Novartis, respectively, due to the termination of collaboration agreements in June 2023, a decrease of $19.0 million in revenue relating to our collaboration agreement with Kite which expired pursuant to its terms in April 2024, a decrease of $4.3 million in revenue relating to our license agreements with Sigma and Ligand, and a decrease of $2.8 million in revenue relating to our other license agreements. These decreases were offset by $49.2 million in revenue relating to our collaboration agreement with Genentech.

Operating expenses

(in thousands, except percentage values)

(in thousands, except percentage values)

Research and Development Expenses

Research and development expenses consisted primarily of compensation related expenses, including restructuring charges and stock-based compensation, laboratory supplies, preclinical and clinical studies, manufacturing clinical supply, contracted research and development, and allocated facilities and information technology expenses.

The decrease of $29.4 million in research and development expenses for the three months ended September 30, 2024, compared to the same period in 2023, was primarily attributable to lower preclinical, clinical and manufacturing expenses of $14.7 million primarily related to the deferral and reprioritization of certain programs, lower compensation and other personnel costs of $5.6 million due to lower headcount as a result of restructurings of operations and corresponding reductions in workforce announced during 2023, lower allocated overhead costs of $4.9 million due to changes in the pool of allocable costs as a result of restructuring of operations, and lower facilities and infrastructure related expenses of $4.7 million, including depreciation. Stock-based compensation expense included in research and development expenses was $1.5 million and $3.2 million for the three months ended September 30, 2024 and 2023, respectively.

The decrease of $95.5 million in research and development expenses for the nine months ended September 30, 2024, compared to the same period in 2023, was primarily attributable to lower preclinical, clinical and manufacturing expenses of $39.6 million primarily related to the termination of collaboration agreements with Biogen and Novartis and deferral and reprioritization of certain programs, lower compensation and other personnel costs of $33.7 million due to lower headcount as a result of restructurings of operations and corresponding reductions in workforce announced during 2023 and restructuring expenses, lower allocated overhead costs of $11.5 million due to changes in the pool of allocable costs as a result of restructuring of operations, and lower facilities and infrastructure related expenses of $10.4 million, including depreciation. Stock-based compensation expense included in research and development expenses was $4.2 million and $12.0 million for the nine months ended September 30, 2024 and 2023, respectively.

We expect to continue to devote substantial resources to research and development in the future. While we anticipate that our research and development expenses will decrease in the near-term in connection with the April 2023 Restructuring, November 2023 Restructuring and France Restructuring and the related reprioritization of certain programs and deferral of certain new investments, we ultimately expect research and development expenses to increase in the next several years if we are successful in advancing our clinical programs and if we are able to progress our preclinical product candidates into clinical trials and/or if we are successful in securing new collaborations or other capital necessary to advance our clinical programs.

The length of time required to complete our development programs and our development costs for those programs may be impacted by the results of preclinical testing, scope and timing of enrollment in clinical trials for our product candidates, our decisions to pursue development programs in other therapeutic areas, whether we pursue development of our product candidates with a partner or collaborator or independently and our ability to secure the necessary funding to progress the development of our programs. For example, our current focus is on our core neurology preclinical program, and we do not yet know whether and to what extent we will progress any resulting product candidates from our preclinical program into the clinic and in what therapeutic areas. We are actively seeking collaboration partners or a direct external investment, as applicable, to progress our Fabry disease program and STAC-BBB and modular integrase platforms. Furthermore, the scope and number of clinical trials required to obtain regulatory approval for each pursued therapeutic area is subject to the input of the applicable regulatory authorities, and we have not yet sought such input for all potential therapeutic areas that we may elect to pursue, and even after having given such input, applicable regulatory authorities may subsequently require additional clinical studies prior to granting regulatory approval based on new data generated by us or other companies, or for other reasons outside of our control. As a condition to any regulatory approval, we may also be subject to post-marketing development commitments, including additional clinical trial requirements. As a result of the uncertainties discussed above, we are unable to determine the duration of or complete costs associated with our development programs.

Our potential therapeutic products are subject to a lengthy and uncertain regulatory process that may not result in our receipt of any necessary regulatory approvals. Failure to receive the necessary regulatory approvals would prevent us from commercializing the product candidates affected. In addition, clinical trials of our product candidates may fail to demonstrate safety and efficacy, which could prevent or significantly delay regulatory approval. A discussion of the risks and uncertainties with respect to our research and development activities, including completing the development of our product candidates, and the consequences to our business, financial position and growth prospects can be found in “Risk Factors” in Part I, Item 1A of the 2023 Annual Report, as supplemented by the risks described under “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q.

General and Administrative Expenses

General and administrative expenses consist primarily of compensation related expenses including restructuring charges and stock-based compensation for executive, legal, finance and administrative personnel, professional fees, allocated facilities and information technology expenses, and other general corporate expenses.

The decrease of $2.9 million in general and administrative expenses for the three months ended September 30, 2024, compared to the same period in 2023, was primarily attributable to lower external professional services expenses of $2.4 million, lower facilities and infrastructure related costs of $2.4 million, an adjustment of $2.2 million to expense relating to settlement of obligations under a manufacturing agreement, and lower compensation and other personnel costs of $0.7 million due to lower headcount as a result of the April 2023 Restructuring and November 2023 Restructuring. These decreases were partially offset by higher allocated overhead costs of $4.9 million due to changes in the pool of allocable costs as a result of restructuring of operations. Stock-based compensation expense included in general and administrative expenses was $1.8 million and $3.0 million for the three months ended September 30, 2024 and 2023, respectively.

The decrease of $13.2 million in general and administrative expenses for the nine months ended September 30, 2024, compared to the same period in 2023, was primarily attributable to lower compensation and other personnel costs of $9.8 million due to lower headcount as a result of restructurings of operations and corresponding reductions in workforce announced during 2023 and restructuring expenses, lower external professional services expenses of $6.3 million, lower facilities and infrastructure related costs of $5.6 million, and Biogen contract cost asset amortization of $2.6 million recorded in 2023 due to the termination of the collaboration agreement. These decreases were partially offset by higher allocated overhead costs of $11.5 million due to changes in the pool of allocable costs as a result of restructuring of operations. Stock-based compensation expense included in general and administrative expenses was $4.9 million and $9.3 million for the nine months ended September 30, 2024 and 2023, respectively.

While we anticipate that our general and administrative expenses will decrease modestly in the near-term in connection with the April 2023 Restructuring, November 2023 Restructuring and France Restructuring, we expect higher general and administrative expenses in the next several years if we are successful in advancing our clinical programs and if we are able to progress our preclinical product candidates into clinical trials and/or if we are successful in securing new collaborations or other capital.

Restructuring Charges

In 2023, we executed a series of restructurings of operations and corresponding reductions in workforce announced in April 2023 and November 2023. In 2024, we are executing a wind-down of our French operations and a corresponding workforce reduction announced in March 2024. These restructurings were designed to reduce overall costs and advance our strategic transformation into a neurology focused genomic medicine company focused on epigenetic regulation programs addressing serious neurological diseases and novel AAV capsid delivery technology. Restructuring charges associated with the April 2023 Restructuring are complete as of September 30, 2024. In connection with the November 2023 Restructuring and France Restructuring, the expenses incurred and adjustments recorded during the three and nine months ended September 30, 2024 related to employee severance and notice period payments, benefits, and other employee-related costs were not material.

For more information see Note 10 – Restructuring Charges in the accompanying notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Impairment

During the three months ended September 30, 2024, there were no indicators of impairment for any of the Company’s asset groups and no additional impairment was recorded. During the nine months ended September 30, 2024, we recognized impairment charges of $5.5 million. During the nine months ended September 30, 2024, our Board of Directors approved the France Restructuring, we initiated several actions aimed at reducing costs, including activities related to the closure of our facility in Brisbane, California, and we faced a sustained decline in our stock price and related market capitalization. There was also a decline in the market rates for facility subleases, indicating the carrying values of right of use and leasehold improvement assets could be impaired. As a result of these factors, we concluded certain long-lived assets, primarily comprising right-of-use assets, related leasehold improvements, and certain manufacturing and laboratory equipment, were impaired.

During the three and nine months ended September 30, 2023, we recognized impairment charges of $44.8 million and $154.7 million, respectively. During the nine months ended September 30, 2023, we experienced a sustained decline in our stock price and related market capitalization, deferral and reprioritization of certain research and development programs, and our collaboration agreements with Biogen and Novartis were terminated. As a result of these factors, we concluded our goodwill, indefinite-lived intangible asset, and long-lived assets, primarily comprising right-of-use assets, related leasehold improvements and construction-in-progress, and manufacturing and laboratory equipment, were impaired.

For more information see Note 6 – Impairment and Write-Down of Assets Held For Sale in the accompanying notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Interest and other income, net

Interest and other income, net was $0.1 million and $3.5 million for the three months ended September 30, 2024 and 2023, respectively. The decrease of $3.4 million was primarily driven by a decrease of $1.0 million in interest income due to a decrease in marketable securities, a decrease of $1.8 million in research tax credits, and a decrease of $0.8 million related to fluctuations in foreign currency exchange rates.

Interest and other income, net was $3.7 million and $9.6 million for the nine months ended September 30, 2024 and 2023, respectively. The decrease of $5.9 million was primarily driven by a decrease of $4.6 million in interest income due to a decrease in marketable securities, and a decrease of $2.3 million in research tax credits, partially offset by $0.6 million from gain on sale of investments, and $0.3 million related to fluctuations in foreign currency exchange rates.

Liquidity and Capital Resources

Liquidity

Since inception, we have incurred significant net losses, and we have funded our operations primarily through the issuance of equity securities, payments from corporate collaborators and strategic partners and research grants.

As of September 30, 2024, we had cash and cash equivalents totaling $39.2 million, compared to cash, cash equivalents, and marketable securities of $81.0 million as of December 31, 2023. Our most significant use of capital during the year was for employee compensation and external research and development expenses, such as manufacturing, clinical trials and preclinical activity related to our therapeutic programs. Cash in excess of immediate requirements is invested in accordance with our investment policy with a view toward capital preservation and liquidity.

In August 2020, we entered into an Open Market Sale Agreement℠, or the sales agreement, with Jefferies LLC, providing for the sale of up to $150.0 million of our common stock from time to time in “at-the-market” offerings under an existing shelf registration statement. In December 2022, we entered into an amendment to the Open Market Sale Agreement℠, which increased the aggregate offering price under the sales agreement by an additional $175.0 million. No shares were sold during the three and nine months ended September 30, 2024. Approximately $194.5 million remained available under the sales agreement as of September 30, 2024.

Under Accounting Standard Codification Topic 205-40, Presentation of Financial Statements—Going Concern, or ASC Topic 205-40, we have the responsibility to evaluate whether conditions and/or events raise substantial doubt about our ability to meet our future financial obligations as they become due within one year after the date that the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q are issued. As required under ASC Topic 205-40, management’s evaluation should initially not take into consideration the potential mitigating effects of management’s plans that have not been fully implemented as of the date the Condensed Consolidated Financial Statements are issued. When substantial doubt exists, management evaluates whether the mitigating effects of its plans sufficiently alleviate the substantial doubt about the company’s ability to continue as a going concern. The mitigating effects of management’s plans, however, are only considered if both (i) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued, and (ii) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. Generally, to be considered probable of being effectively implemented, the plans must have been approved by the company’s board of directors before the date that the financial statements are issued.

Based on our current operating plan, our cash and cash equivalents as of September 30, 2024, together with the $10.0 million milestone payment that we received from Genentech in October 2024, are expected to allow us to meet our liquidity requirements only into the first quarter of 2025. Our history of significant losses, negative cash flows from operations, limited liquidity resources currently on hand and dependence on our ability to obtain additional financing to fund our operations have resulted in management’s assessment that there is substantial doubt about our ability to continue as a going concern for at least the next 12 months from the date the financial statements included in this Quarterly Report are issued. Our ability to continue to operate as a going concern is dependent upon our ability to raise substantial additional capital to fund our operations and support our research and development endeavors, including to progress our preclinical and clinical programs as described in our 2023 Annual Report and in this Quarterly Report. Although we received the Genentech Payments, and raised capital via a registered direct offering to institutional investors of common stock and accompanying warrants in March 2024, we will still need substantial additional capital in order to continue to operate as a going concern and fund our operations. We have been actively seeking, and continue to actively seek, substantial additional capital, including through public or private equity or debt financing, royalty financing or other sources, such as strategic collaborations and other direct investments in our programs. We may be unable to attract new investments as a result of the speculative nature of our newly reprioritized core neurology preclinical programs. Additional capital may not be available on acceptable terms or at all. If adequate funds are not available to us on a timely basis, or at all, we will be required to take additional actions to address our liquidity needs, including additional cost reduction measures such as further reducing operating expenses and delaying, reducing the scope of, discontinuing or altering our research and development activities, which would have a material adverse effect on our business and prospects, or we may be required to cease operations entirely, liquidate all or a portion of our assets, and/or seek protection under the U.S. Bankruptcy Code, and you may lose all or part of your investment. We have explored, and will continue to explore, whether filing for bankruptcy protection is in the best interest of our Company and our stakeholders.

While the April 2023 Restructuring was completed in the third quarter of 2024, and we expect the France Restructuring and November 2023 Restructuring to be complete by the fourth quarter of 2024 and second quarter of 2025, respectively, we may also incur other charges or cash expenditures not currently contemplated due to events that may occur as a result of, or associated with, each of the restructurings. In addition, we may not achieve the expected benefits of these cost reduction measures and other cost reduction plans on the anticipated timeline, or at all, or we may use our available capital more quickly than we expect, which could otherwise accelerate our liquidity needs and could force us to further curtail or suspend, or entirely cease, our operations.

Moreover, we rely in part on our collaboration partners to provide funding for and otherwise advance our preclinical and clinical programs. While we continue to advance ongoing business development discussions with potential collaboration partners regarding our Fabry disease program and our novel STAC-BBB capsid and our modular integrase platforms, we may not be successful in doing so in a timely manner, on acceptable terms or at all, and we may otherwise fail to raise sufficient additional capital to advance our programs, in which case, we may not receive the expected return on our investments in these programs, platforms and technologies. In any event, we need substantial additional funding in order to execute on our current operating plan. If we raise additional capital through public or private equity offerings, including sales pursuant to our at-the-market offering program with Jefferies LLC, the ownership interest of our existing stockholders will be diluted, and such dilution may be substantial given our current stock price decline, and the terms of any new equity securities may have a preference over, and include rights superior to, our common stock. If we raise additional capital through royalty financings or other collaborations, strategic alliances or licensing arrangements with third parties, we may need to relinquish certain valuable rights to our product candidates, technologies, future revenue streams or research programs or grant licenses on terms that may not be favorable. If we raise additional capital through debt financing, we may be subject to specified financial covenants or covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or pursuing certain transactions, any of which could restrict our ability to commercialize our product candidates or operate as a business.

In addition, as we focus our efforts on proprietary human therapeutics, we will need to seek regulatory approvals of our product candidates from the FDA or other comparable foreign regulatory authorities, a process that could cost in excess of hundreds of millions of dollars per product. We may experience difficulties in accessing the capital markets due to external factors beyond our control, such as volatility in the equity markets for emerging biotechnology companies and general economic and market conditions both in the United States and abroad. In particular, our ability to raise the substantial additional capital we need in order to fund our business may be adversely impacted by global economic conditions and disruptions to and volatility in the credit and financial markets in the United States and worldwide, such as has been experienced recently due in part to, among other things, the ongoing conflict between Russia and Ukraine and conflicts in the Middle East. We cannot be certain that we will be able to obtain financing on terms acceptable to us, or at all.

Cash Flows

Operating activities

Net cash used in operating activities was $63.8 million for the nine months ended September 30, 2024, primarily due to:

• a net loss of $74.5 million, adjusted for non-cash long-lived asset impairment charges of $5.5 million, other non-cash expenses related to stock-based compensation of $9.1 million, depreciation and amortization of $3.9 million, and amortization of operating lease right-of-use assets of $3.4 million, offset partially by accretion of discounts and impairment of marketable securities of $0.3 million; and
• an increase in accounts receivable by $9.6 million, a decrease in accounts payable and other accrued liabilities by $6.9 million, and a decrease in lease liabilities by $4.1 million. These were partially offset by a decrease in prepaid expenses and other assets by $6.4 million, an increase in accrued compensation and employee benefits by $2.1 million, an increase in deferred revenue by $0.8 million, and a decrease in interest receivable by $0.4 million.

Net cash used in operating activities was $174.3 million for the nine months ended September 30, 2023, primarily due to:

• a net loss of $197.5 million, adjusted for non-cash goodwill, indefinite-lived intangible assets, and long-lived asset impairment charges of $154.7 million, other non-cash expenses related to stock-based compensation of $21.3 million, depreciation and amortization of $13.2 million, and amortization of operating lease right-of-use assets of $5.9 million, offset by income tax benefit of $6.2 million related to reversal of the deferred tax liability as a result of impairment on the associated indefinite-lived intangible assets, accretion of discounts and impairment of marketable securities of $2.0 million, and other non-cash adjustments of $1.1 million; and
• a decrease in deferred revenues of $159.7 million, mainly attributed to the impact of the termination and related contract modification of our collaboration agreement with Biogen and a change in estimate for our collaboration agreement with Kite, a decrease in accounts payable and other accrued liabilities by $5.2 million, a decrease in accrued compensation and employee benefits by $4.2 million, and a decrease in lease liabilities by $3.7 million. These were partially offset by decrease in prepaid expenses and other assets by $5.2 million, and a decrease in accounts receivable by $2.5 million.

Investing activities

Net cash provided by investing activities was $36.2 million for the nine months ended September 30, 2024, related to sales of marketable securities of $34.7 million, maturities of marketable securities of $1.1 million, and sales of assets classified as held for sale of $0.5 million.

Net cash provided by investing activities was $115.8 million for the nine months ended September 30, 2023, related to maturities of marketable securities of $193.9 million, partially offset by purchases of marketable securities of $59.6 million, and purchases of property and equipment of $18.5 million.

Financing activities

Net cash provided by financing activities was $21.4 million for the nine months ended September 30, 2024, related to $21.9 million of proceeds from issuance of common stock, net of offering expenses of $2.1 million, and proceeds from issuance of common stock under employee stock purchase plan of $0.1 million, partially offset by taxes paid related to net share settlement of equity awards of $0.7 million.

Net cash provided by financing activities was $14.4 million for the nine months ended September 30, 2023, related to $15.1 million of proceeds from the at-the-market offering, net of offering expenses of $0.4 million, and proceeds from purchases of common stock under the employee stock purchase plan of $0.7 million, partially offset by taxes paid related to net share settlement of equity awards of $1.4 million.

Operating Capital and Capital Expenditure Requirements

We anticipate continuing to incur operating losses for at least the next several years and need to raise substantial additional capital. The effects of the current macroeconomic environment, including the effects of war in Ukraine and conflicts in the Middle East, inflation, climate change, rising interest rates and other economic uncertainty and volatility, has resulted and may continue to result in significant disruption of global financial markets, which could impair our ability to access capital on terms that are acceptable or at all, and in turn could negatively affect our liquidity and our ability to continue to operate as a going concern. Future capital requirements beyond the first quarter of 2025, the period into which we expect our existing cash and cash equivalents, including the Genentech Payments, will be sufficient to fund our planned operations, will be substantial, and we need to raise substantial additional capital to continue to operate as a going concern and to fund the development, manufacturing and potential commercialization of our product candidates (see “–Financial Position–Going Concern” and “–Liquidity and Capital Resources–Liquidity” above).

As we focus our efforts on proprietary human therapeutics, we will need to seek FDA approvals of our product candidates, a process that could cost in excess of hundreds of millions of dollars per product. Our future capital requirements will depend on many forward-looking factors, including the following:

• the results of preclinical testing of our early-stage core neurology program product candidates;
• the initiation, progress, timing and completion of clinical trials for our product candidates and potential product candidates;
• the outcome, timing and cost of regulatory approvals;
• the success of our collaboration agreements;
• delays that may be caused by changing regulatory requirements;
• the number of product candidates that we pursue;
• the costs involved in filing and prosecuting patent applications and enforcing and defending patent claims;
• the timing and terms of future in-licensing and out-licensing transactions;
• the cost and timing of establishing sales, marketing, manufacturing and distribution capabilities;
• the cost of procuring clinical and commercial supplies of our product candidates;
• the extent to which we acquire or invest in businesses, products or technologies, including the costs associated with such acquisitions and investments; and
• the costs of potential disputes and litigation.

Contractual Obligations

Our future minimum contractual obligations as of December 31, 2023 were reported in the 2023 Annual Report. During the nine months ended September 30, 2024, there have been no material changes outside the ordinary course of our business from the contractual obligations previously disclosed in our 2023 Annual Report.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Under the supervision of our principal executive officer and principal financial officer, we evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of September 30, 2024. Based on that evaluation, as of September 30, 2024, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective at the reasonable assurance level.

Inherent Limitations on Controls and Procedures

Our management, including the principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures and our internal control over financial reporting will prevent all error and all fraud. A control system, no matter how well designed and operated, can only provide reasonable assurances that the objectives of the control system are met. The design of a control system reflects resource constraints; the benefits of controls must be considered relative to their costs. Because there are inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, for our company have been or will be detected. As these inherent limitations are known features of the disclosure and financial reporting processes, it is possible to design into the processes safeguards to reduce, though not eliminate, these risks. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events. While our disclosure controls and procedures and our internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives, there can be no assurance that any design will succeed in achieving its stated goals under all future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with the policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Below we are providing, in supplemental form, changes to our risk factors from those previously disclosed in Part I, Item 1A of the 2023 Annual Report. Our risk factors disclosed in Part I, Item 1A of the 2023 Annual Report provide additional discussion about these supplemental risks and we encourage you to read and carefully consider the risk factors disclosed in Part I, Item 1A of the 2023 Annual Report for a more complete understanding of the risks and uncertainties material to our business.

We have historically incurred significant operating losses since inception and anticipate that we will incur continued losses for the foreseeable future.

We have a history of recurring net losses, including $74.5 million for the nine months ended September 30, 2024 and $257.8 million and $192.3 million for the years ended December 31, 2023 and 2022, respectively, and we have otherwise generated operating losses since we began operations in 1995. The extent of our future losses and the timing of profitability are uncertain, and we expect to incur losses for the foreseeable future. We have been engaged in developing our zinc finger, or ZF, technology since inception, which has and will continue to require significant research and development expenditures. To date, we have generated our funding from issuance of equity securities, revenues derived from collaboration agreements, other strategic partnerships in non-therapeutic applications of our technology, federal government research grants and grants awarded by research foundations. We expect to continue to incur additional operating losses for the next several years as we continue to develop our preclinical core neurology therapeutic programs and capsid engineering platform. If the time required to generate significant product revenues and achieve profitability is longer than we currently anticipate or if we are unable to generate liquidity through equity financing or other sources of funding, we may be forced to further curtail or suspend, or entirely cease, our operations.

There is substantial doubt about our ability to continue to operate as a going concern. We need substantial additional funding to execute our operating plan and to continue to operate as a going concern. If adequate funds are not available to us on a timely basis, or at all, we will be required to take additional actions to address our liquidity needs, including additional cost reduction measures such as further reducing operating expenses and delaying, reducing the scope of, discontinuing or altering our research and development activities, which would have a material adverse effect on our business and prospects, or we may be required to cease operations entirely, liquidate all or a portion of our assets, and/or seek protection under the U.S. Bankruptcy Code, and you may lose all or part of your investment. Future sales and issuances of equity securities would also result in substantial dilution to our stockholders.

We have incurred significant operating losses and negative operating cash flows since inception and have not achieved profitability. Based on our current operating plan, our cash and cash equivalents as of September 30, 2024, including the $40.0 million in upfront license fee, together with the $10.0 million milestone payment that we received from Genentech in October 2024, or the Genentech Payments, will be sufficient to fund our planned operations only into the first quarter of 2025. Our financial position raises substantial doubt about our ability to continue to operate as a going concern. Our ability to continue to operate as a going concern is dependent upon our ability to raise substantial additional capital to fund our operations and support our research and development endeavors, including to progress our preclinical and clinical programs as described in our 2023 Annual Report and in this Quarterly Report. In this regard, we have been seeking, and continue to actively seek substantial additional capital, including through public or private equity or debt financing, royalty financing or other sources, such as strategic collaborations and other direct investments in our programs. Although we received the Genentech Payments, and raised capital via a registered direct offering to institutional investors of common stock and accompanying warrants in March 2024, or the 2024 Registered Direct Offering, for net proceeds of approximately $21.8 million after deducting placement agents’ fees and estimated offering expenses payable by us, we will still need substantial additional capital in order to continue to operate as a going concern and fund our operations. Additional capital may not be available on acceptable terms or at all. In particular, the perception of our ability to continue to operate as a going concern may make it more difficult to obtain financing for the continuation of our operations, particularly in light of currently challenging macroeconomic and market conditions. Further, we may be unable to attract new investments as a result of the speculative nature of our newly reprioritized core neurology preclinical programs. If adequate funds are not available to us on a timely basis, or at all, we will be required to take additional actions to address our liquidity needs, including additional cost reduction measures such as further reducing operating expenses and delaying, reducing the scope of, discontinuing or altering our research and development activities, which would have a material adverse effect on our business and prospects, or we may be required to cease operations entirely, liquidate all or a portion of our assets, and/or seek protection under the U.S. Bankruptcy Code, and you may lose all or part of your investment. We have explored, and will continue to explore, whether filing for bankruptcy protection is in the best interest of our Company and our stakeholders.

In April 2023, we announced a restructuring of operations and a reduction in force and a significant reduction in our internal manufacturing and allogeneic research footprints in California, or the April 2023 Restructuring, and in November 2023, we announced a further restructuring of operations and reduction in force, or the November 2023 Restructuring, including a strategic transformation to focus resources on our proprietary neurology-focused epigenetic regulation programs and AAV capsid delivery technology and move all U.S. operations, including our headquarters, to our Richmond, California facility. On March 1, 2024, our board of directors approved the wind-down of our operations in France and closure of our facility in Valbonne, France by the end of 2024, or the France Restructuring. While the April 2023 Restructuring was completed in the third quarter of 2024, and we expect the France Restructuring and November 2023 Restructuring to be complete by the fourth quarter of 2024 and second quarter of 2025, respectively, we may also incur other charges or cash expenditures not currently contemplated due to events that may occur as a result of, or associated with, each of the restructurings. In addition, we may not achieve the expected benefits of these cost reduction measures and other cost reduction plans on the anticipated timeline, or at all, or we may use our available capital more quickly than we expect, which could otherwise accelerate our liquidity needs and could force us to further curtail or suspend, or entirely cease, our operations. Moreover, we have historically relied in part on collaboration partners to provide funding for and otherwise advance our preclinical and clinical programs. However, in June 2023, our collaboration agreements with Biogen and Novartis terminated, and our collaboration agreement with Kite expired pursuant to its terms in April 2024. Further, while we may identify new collaboration partners who can progress some of the programs that were the subject of these collaborations as well as our Fabry disease program and STAC-BBB and modular integrase platforms, we have not yet been, and may never be, successful in doing so in a timely manner, on acceptable terms or at all, and we may otherwise fail to raise sufficient additional capital in order to progress these and our other programs ourselves, in which case, we will not receive any return on our investments in these programs. Although we have entered into the Genentech Agreement pursuant to which we are eligible to earn future development and commercial milestone payments, and have received the Genentech Payments, we may never receive any further payments thereunder. In any event, we need substantial additional funding in order to advance our core neurology programs as well as our Fabry disease program, capsid engineering efforts and modular integrase platform, and to otherwise execute on our current operating plan.

If we raise additional capital through public or private equity offerings, including sales pursuant to our at-the-market offering program with Jefferies LLC, the ownership interest of our existing stockholders will be diluted, and such dilution may be substantial given our current stock price decline. For example, in the 2024 Registered Direct Offering, we issued 24,761,905 shares of common stock, pre-funded warrants to purchase 3,809,523 shares of common stock and accompanying warrants to purchase an aggregate of 28,571,428 shares of common stock at a price per share of common stock (or pre-funded warrant in lieu thereof) and accompanying warrant of $0.84 per share. In addition, the terms of any new equity securities we may issue may have a preference over, and include rights superior to, our common stock. If we raise additional capital through royalty financings or other collaborations, strategic alliances or licensing arrangements with third parties, we may need to relinquish certain valuable rights to our product candidates, technologies, future revenue streams or research programs or grant licenses on terms that may not be favorable. If we raise additional capital through debt financing, we may be subject to specified financial covenants or covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or pursuing certain transactions, any of which could restrict our ability to commercialize our product candidates or operate as a business.

In addition, as we focus our efforts on proprietary human therapeutics, we will need to seek regulatory approvals of our product candidates from the FDA or other comparable foreign regulatory authorities, a process that could cost in excess of hundreds of millions of dollars per product. We may experience difficulties in accessing the capital markets due to external factors beyond our control, such as volatility in the equity markets for emerging biotechnology companies and general economic and market conditions both in the United States and abroad. In particular, our ability to raise the substantial additional capital we need in order to fund our business may be adversely impacted by global economic conditions and disruptions to and volatility in the credit and financial markets in the United States and worldwide, such as has been experienced recently. We cannot be certain that we will be able to obtain financing on terms acceptable to us, or at all. Our failure to obtain adequate and timely funding will adversely affect our ability to continue to operate as a going concern and our ability to develop our technology and products candidates.

If we seek to reorganize under the U.S. Bankruptcy Code, our future operations are uncertain, and such reorganization could be unsuccessful and/or result in no recovery for holders of our common stock. If we are unable to successfully reorganize, we may be forced to pursue a liquidation of some or all of our assets.

Based on our current operating plan, our cash and cash equivalents as of September 30, 2024, together with the $10.0 million milestone payment that we received from Genentech in October 2024, are expected to allow us to meet our liquidity requirements only into the first quarter of 2025. We continue to actively seek substantial additional capital, including through public or private equity or debt financing, royalty financing or other sources, such as strategic collaborations and other direct investments in our programs. We have explored, and will continue to explore, whether filing for bankruptcy protection is in the best interest of our Company and our stakeholders. In the event we file for relief under the U.S. Bankruptcy Code, our operations, our ability to develop our product candidates and execute on our operating plan, and our ability to continue as a going concern will be subject to the risks and uncertainties associated with bankruptcy proceedings, including, among others: our ability to execute, confirm and consummate a plan of reorganization; the additional, significant costs of bankruptcy proceedings and related fees; our ability to obtain sufficient financing to allow us to emerge from bankruptcy and execute our business plan thereafter, and our ability to comply with terms and conditions of any such financing; our ability to continue our operations in the ordinary course; our ability to maintain our relationships with our collaborators, counterparties, employees and other third parties; our ability to obtain, maintain or renew contracts that are critical to our operations on reasonably acceptable terms and conditions or at all; our ability to attract, motivate and retain key employees; the ability of third parties to use certain provisions of the U.S. Bankruptcy Code to terminate contracts without first seeking Bankruptcy Court approval; the ability of third parties to seek and obtain court approval to terminate or shorten the exclusivity period for us to propose and confirm a plan of reorganization, to appoint a trustee, or to convert a proceeding under Chapter 11 of the U.S. Bankruptcy Code to a proceeding under Chapter 7 of the U.S. Bankruptcy Code; and the actions and decisions of our stakeholders and other third parties who have interests in our bankruptcy proceedings that may be inconsistent with our operational and strategic plans. Any delays in our bankruptcy proceedings would increase the risks that we may not be able to reorganize our business and emerge from bankruptcy proceedings and may increase our costs associated with the bankruptcy process or result in prolonged operational disruption. In addition, we would need the prior approval of the Bankruptcy Court for transactions outside the ordinary course of business during the course of any bankruptcy proceedings, which may limit our ability to respond timely to certain events or take advantage of certain opportunities. Because of the risks and uncertainties associated with any bankruptcy proceedings, we cannot accurately predict or quantify the ultimate impact of events that could occur during any such proceedings. There can be no guarantees that if we seek protection under the U.S. Bankruptcy Code, we will emerge from any such proceedings as a going concern or that holders of our common stock will receive any recovery from any bankruptcy proceedings.

In the event we are unable to pursue protection under Chapter 11 of the U.S. Bankruptcy Code, or, if pursued, successfully emerge from such proceedings, it may be necessary for us to pursue protection under Chapter 7 of the U.S. Bankruptcy Code for all or a part of our businesses. In such event, a Chapter 7 trustee would be appointed or elected to liquidate our assets for distribution in accordance with the priorities established by the U.S. Bankruptcy Code. We believe that liquidation under Chapter 7 would result in significantly smaller distributions being made to our stakeholders than those we might obtain under Chapter 11, or no distribution at all, primarily because of the likelihood that the assets would have to be sold or otherwise disposed of in a distressed fashion over a short period of time rather than in a controlled manner and as a going concern. In such event, you may lose part or all of your investment.

Commercialization of our technologies will depend, in part, on collaborations with other companies. If we are not able to find collaborators in the future or if our collaborators do not diligently pursue product development efforts, we may not be able to develop our technologies or product candidates, which could slow our growth and decrease the market value of our common stock.

We do not have financial resources ourselves to fully develop, obtain regulatory approval for and commercialize our product candidates. We have relied, and expect to continue to rely, on collaborations with other biopharmaceutical companies to provide funding for our research and development efforts, including preclinical studies and clinical tests, and expect to rely significantly on such collaborations to provide funding for the lengthy regulatory approval processes required to commercialize our product candidates.

For example, on August 2, 2024, we entered into the Genentech Agreement with Genentech to develop intravenously administered genomic medicines to treat certain neurodegenerative diseases. Under the terms of Genentech Agreement, we were responsible for completing a technology transfer and certain preclinical activities, and Genentech is solely responsible for all clinical development, regulatory interactions, manufacturing and global commercialization of resulting products.

We were party to collaboration agreements with Novartis and Biogen to develop product candidates to treat certain neurological diseases. In June 2023, our collaboration agreements with Novartis and Biogen terminated. We were also party to a collaboration agreement with Kite to develop engineered cell therapies for cancer, which expired by its terms in April 2024. As a result of these terminations and expirations, we are no longer entitled to any milestone payments or royalties from Novartis, Biogen or Kite, and such counterparties have no further obligations to develop or to reimburse the costs of any of the programs under the applicable agreement. We cannot guarantee that we will be able to successfully secure new collaborations in the future.

If we are unable to secure additional collaborations or if our collaborators are unable or unwilling to diligently advance the development, regulatory approval and commercialization of our product candidates, our growth may slow and adversely affect our ability to generate funding for development of our technologies and product candidates as well as our ability to continue to operate as a going concern, and we may be required to cease operations. For example, although we have decided to begin executing Biologics License Application, or BLA, readiness activities for our Fabry disease program, we continue to advance ongoing business development discussions with potential collaboration partners. There can be no assurance our efforts to secure a collaboration will be successful in a timely manner, or at all, in which case, we may not receive any return on our investments in these programs and our ability to continue to operate as a going concern may be materially and adversely affected. In addition, our ongoing collaborators may sublicense or abandon development programs with little advance notice, or we may have disagreements or disputes with our collaborators, which would cause associated product development to slow or cease. In addition, the business or operations of our collaborators may change significantly through restructurings, acquisitions, other strategic transactions that may negatively impact their ability to advance our programs.

Under typical collaborations, we expect to receive revenue for the research and development of our product candidates based on achievement of specific milestones, as well as royalties based on a percentage of sales of any commercialized products. Achieving these milestones will depend, in part, on the efforts of our collaborators, which we have no control over, as well as our own efforts. In addition, business combinations, changes in a collaborator’s business strategy and financial difficulties or other factors could result in that collaborator abandoning or delaying development of any product candidates covered by our collaboration agreement with that collaborator. For example, Novartis’s and Biogen’s decisions to terminate their respective collaboration agreements with us each related to a recent strategic review. Further, if we fail or any collaboration partner fails to meet specific milestones, then the collaboration agreement may be terminated, which would preclude our ability to earn any additional milestone payments under that collaboration agreement and would reduce our revenues. In addition, even if a collaboration product candidate is successfully developed and approved for marketing by relevant regulatory authorities, if sales of the commercialized product fail to meet expectations, we could receive lower royalties than expected. In any event, the milestone and royalty payment opportunities associated with our collaborations involve a substantial degree of risk to achieve and may never be received. Accordingly, investors should not assume that we will receive all of the potential milestone payments provided for under our ongoing collaborations, and it is possible that we may never receive any further significant milestone payments or any royalty payments under our collaborations.

We have fully impaired our goodwill and indefinite-lived intangible assets, have recorded significant impairment of our long-lived assets, and may be required to record significant additional charges if our long-lived assets become further impaired in the future.

We evaluate the carrying value of long-lived assets, which include property and equipment, leasehold improvements and right-of-use assets, for impairment whenever events or changes in circumstances indicate that the carrying amounts of the asset may not be fully recoverable. Factors that may indicate potential impairment and trigger an impairment test include, but are not limited to, general macroeconomic conditions, conditions specific to the industry and market, an adverse change in legal factors, business climate or operational performance of the business, and sustained decline in the stock price and market capitalization compared to the net book value. During the year ended December 31, 2023 and the nine months ended September 30, 2024, we recognized impairment charges of $155.0 million and $5.5 million, respectively. We have fully impaired our goodwill and indefinite-lived intangible assets in 2023 and have significantly impaired our long-lived assets in both 2023 and 2024. We will continue to assess whether our long-lived assets are impaired in future periods. We are finalizing the wind-down of our France operations and corresponding reduction in force of all France employees, as well as the closure of our Brisbane facility, and we have recognized related impairments in the past twelve months. It is reasonably possible that additional impairment charges will be recognized, for example, if sublease rates of leased facilities or selling prices of the assets held for sale are less than those estimated. For additional information regarding these impairment charges, see Note 6 – Impairment and Write-Down of Assets Held For Sale in the accompanying notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

It is possible that changes in circumstances, many of which are outside of our control, or in the numerous variables associated with the assumptions and estimates used in assessing the appropriate valuation of our long-lived assets, could in the future result in significant additional impairment charges to our long-lived assets, which could adversely affect our results of operations.

Our failure to meet the listing standards of the Nasdaq Stock Market LLC, or Nasdaq, could result in the delisting of our common stock. Delisting could adversely affect the liquidity of our common stock and the market price of our common stock could decrease, and our ability to obtain sufficient additional capital to fund our operations and to continue to operate as a going concern would be substantially impaired.

On April 24, 2024, we received a deficiency notice, or the Notice, from the Listing Qualifications Staff, or the Staff of Nasdaq, notifying us that, for the prior 30 consecutive business days, the bid price of our common stock had closed below $1.00 per share, thereby failing to satisfy the minimum closing bid price requirement set forth in the continued listing requirements of Nasdaq Listing Rule 5450(a)(1), or the Bid Price Requirement. The Notice had no immediate effect on the listing of our common stock on the Nasdaq Global Select Market. In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we had 180 calendar days, or until October 21, 2024, or the Compliance Date, to regain compliance with the Bid Price Requirement by having shares of our common stock maintain a minimum closing bid price of at least $1.00 per share for a minimum of 10 consecutive trading days before the Compliance Date.

As we had not regained compliance with the Bid Price Requirement by the Compliance Date, we filed an application to transfer the listing of our Common Stock from the Nasdaq Global Select Market to the Nasdaq Capital Market. On October 24, 2024, we received approval from the Staff of Nasdaq to transfer the listing of our common stock from the Nasdaq Global Select Market to the Nasdaq Capital Market, or the Approval. Our common stock was transferred to the Nasdaq Capital Market effective as of the opening of business on October 26, 2024 and has continued to trade under the symbol “SGMO.” The Nasdaq Capital Market operates in substantially the same manner as the Nasdaq Global Select Market, and listed companies must meet certain financial requirements and comply with Nasdaq’s corporate governance requirements. As a result of the Approval, we were granted an additional 180-day grace period, or until April 21, 2025, or the Second Compliance Date, to regain compliance with the Bid Price Requirement.

On November 5, 2024, we received a letter from the Staff of Nasdaq confirming that our common stock had regained compliance with the Bid Price Requirement, and as a result, our common stock will continue to be listed on the Nasdaq Capital Market.

There can be no assurance that we will continue to meet the Bid Price Requirement, or any other Nasdaq continued listing requirements, in the future. If we fail to meet any of these requirements, including the Bid Price Requirement, Nasdaq may again notify us that we have failed to meet the minimum listing requirements and initiate the delisting process. If our common stock were delisted from Nasdaq, trading of our common stock could be conducted in the over-the-counter market or on an electronic bulletin board established for unlisted securities such as the Pink Sheets or the OTC Bulletin Board, but there can be no assurance that our common stock will be eligible for trading on such alternative exchange or market. Additionally, if our common stock were delisted from Nasdaq, the liquidity of our common stock would be adversely affected, the market price of our common stock could decrease, our ability to obtain sufficient additional capital to fund our operations and to continue to operate as a going concern would be substantially impaired and transactions in our common stock could lose federal preemption of state securities laws. Furthermore, there could also be a further reduction in our coverage by securities analysts and the news media and broker-dealers may be deterred from making a market in or otherwise seeking or generating interest in our common stock, which could cause the price of our common stock to decline further. Moreover, delisting may also negatively affect our collaborators’, vendors’, suppliers’ and employees’ confidence in us and employee morale.