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THERAPEUTIC PRODUCT DEVELOPMENT

ZFP TherapeuticSangamo Product Development Programs

Figure 4:

Sangamo’s Therapeutic Pipeline

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Clinical Stage Programs

Table 1: Summary of our ongoing clinical trials.

(*Investigator sponsored trial)

Index to Financial Statements

Human Immunodeficiency Virus (HIV) and Acquired Immunodeficiency Syndrome (AIDS)

HIV infection results+ N.Eng. J. Med. 2014: 370:897-906 “Gene Editing of CCR5 in the deathAutologous CD4 T-cells of immune system cells, particularly CD4+ T-cells, and thus leads to AIDS, a condition in which the body’s immune system is depleted to such a degree that the patient is unable to fight off common infections. Ultimately, these patients succumb to opportunistic infections or cancers. According to UNAIDS/WHO, over 2.5 million people were newly infected with HIV in 2011. An estimated 1.7 million people died of AIDS in the same year. There are now over 34 million people living with HIV and AIDS worldwide. The United States Centers for Disease Control and Prevention (CDC) estimates that, in 2009 in the United States alone, there were 1.2 million people living with HIV/AIDS. Approximately 50,000 new infections occurred each year between 2006 and 2009, and more than 21,000 people with AIDS died in 2009.

Current Treatments and Unmet Medical Need

Currently, there are over 30 antiretroviral drugs approved by the U.S. Food and Drug Administration (FDA) to treat people infectedPersons Infected with HIV. These drugs fall into four major classes: reverse transcriptase inhibitors, protease inhibitors, integrase inhibitors”

Lead Therapeutic Programs

         In 2017, Sangamo is planning to conduct Phase 1/2 clinical trials evaluating product candidates for two blood disorders, hemophilia A and entryhemophilia B, and fusion inhibitors. This latter class also includes a small molecule antagonist of the CCR5 receptor, Selzentry^® (maraviroc)two lysosomal storage disorders, Mucopolysaccharidosis type I (MPS I, Hurler syndrome) and Mucopolysaccharidosis Type II (MPS II Hunter syndrome). This drug is being used in combination with other antiretroviral agents for treatment-experienced adult patients infected with CCR5-tropic HIV-1 strains that are resistant to multiple antiretroviral agents. The drug carries a black box warning of liver toxicity.

As HIV reproduces, variants of the virus emerge, including some that are resistant to antiretroviral drugs. Therefore, doctors recommend that people infected with HIV take a combination of antiretroviral drugs known as highly active antiretroviral therapy, or ART. This strategy typically combines drugsWe expect data from at least three different classes of antiretroviral drugs. Currently available drugs do not cure HIV infection or AIDS. They can suppress the virus, even to undetectable levels, but they cannot eliminate HIV from the body. Hence, people with HIV need to take antiretroviral drugs continuously. The drugs are expensive and can have significant side effects over time. There is no therapeutic approach available which protects CD4+ T-cells, reduces viral load and does not require daily dosing.

Sangamo’s Therapeutic Approach

Our therapeutic approach aims to use our ZFN-mediated gene editing technology to replicate a naturally occurring human mutation which renders individuals largely resistant to infection with the most common strain of HIV. CCR5 is a co-receptor for HIV entry into T-cells and if CCR5 is not expressed on their surface HIV infects them with lower efficiency. A population of individuals that is immune to HIV infection, despite multiple exposures to the virus, has been identified and extensively studied. The majorityeach of these individuals have a natural mutation, CCR5 delta-32, resulting in the expression of a shortened, or truncated, and non-functional CCR5 protein. This mutation appears to have no observable deleterious effect. Individuals who carry the CCR5 delta-32 mutation on only one of their two CCR5 gene copies (heterozygotes), tend to take longer to develop AIDS and are classified as so-called “long-term non-progressors.” In addition, a study published inBlood in December 2010 reported an effective cure when an AIDS patient with leukemia received a bone marrow transplant from a “matched” donor with this CCR5 delta-32 mutation. This approach transferred the HSCs residing in the bone marrow from the delta-32 donor, and provided a self-renewable and potentially lifelong source of HIV-resistant immune cells. After transplantation, the AIDS patient was able to discontinue allanti-HIV drug treatments, CD4 counts increased and viral load dropped to an undetectable level, demonstrating effective transplantation of protection from HIV infection.

We are using our ZFN-mediated gene disruption technology to disrupt the CCR5 gene in cells of a patient’s immune system to make these cells permanently resistant to HIV infection. The aim is to provide a population of HIV-resistant cells that can fight HIV and opportunistic infections mimicking the situation in individuals that carry the natural mutation. In December 2008, in collaboration with scientists at the University of Pennsylvania, an IND was filed for a Phase 1 trial of our CCR5 ZFP Therapeutic, SB-728-T. This single-dose, investigator-sponsored trial began enrolling subjects in February 2009, at the University of Pennsylvania. In September 2009,

Index to Financial Statements

we filed an IND application and initiated a dose-escalation Phase 1 clinical trial (SB-728-902) of SB-728-T. Both Phase 1 studies were in HIV-infected individuals who were on ART. The studies were designed primarily to evaluate the safety and tolerability of this ZFP Therapeutic approach; however, subjects’ CD4 T-cell counts, levels of CCR5-modified T-cells and viral burden were also monitored. Preliminary data from both trials were presented in the first quarter of 2011 and demonstrated that the approach was well-tolerated in these subjects. In addition, we observed durable engraftment and persistence of SB-728-T, the ability of these cells to traffic to the gut mucosa and improvements in the overall CD4 T-cell count and the CD4:CD8 ratio in multiple subjects. Data from the study carried out at the University of Pennsylvania demonstrated that the treatment was well tolerated and that ZFN-modified cells show long-term engraftment and have a survival advantage over non-modified cells during an ART treatment interruption (TI).

In January 2012, we announced the initiation of two new studies (SB-728-1101 and SB-728-902, Cohort 5), based on data from our Phase 1 trials that demonstrated a correlation between the estimated numbers of circulating engrafted cells in which both copies of the CCR5 gene were modified (biallelic modification) and the reduction in viral load in treated subjects that underwent a TI. Using different approaches, both studies aim to increase the engraftment of cells that have undergone biallelic modification in SB-728-T-treated subjects and to evaluate the effect of increasing the numbers of these cells on the immune system and on viral load during a TI. Ten CCR5 delta-32 heterozygote subjects have been accrued and treated on the SB-728-902, Cohort 5 study and twelve subjects have been accrued and treated on the SB-728-1101 study, a trial which evaluated the effect of increasing doses of Cytoxan conditioning prior to SB-728-T administration on engraftment of cells that have undergone biallelic ZFN modification. Data presented at scientific meetings in 2013 further supported a correlation between the estimated numbers of engrafted biallelically modified cells and the reduction in viral load with one subject in the SB-728-902 study demonstrating a prolonged control of viral load at or below the limits of detection during TI. An additional six subjects are being enrolled into SB-728-1101 for evaluation of the effect of higher doses of Cytoxan and a further twelve subjects will be treated at the optimum Cytoxan dose. We expect to present data from the SB-728-1101 study in 2014.

We also have a preclinical stage program to investigate this approach to treating HIV in HSCs. Together with our collaborators at City of Hope Medical Center and the University of Southern California, we have funding for this program from a four-year $14.5 million Disease Team Research Award granted by the California Institute for Regenerative Medicine (CIRM), a State of California entity, in October 2009. We have received $5.2 million in funding through December 31, 2013, which is our total prescribed amount under the agreement. In 2014, we expect to file an IND application based on this work.

Clinical Development Programs Acquired from Ceregene

CERE-110 (AAV-NGF), a gene therapy approach designed to deliver NGF directly to the brain using an AAV vector for the treatment of AD, was developed by Ceregene. The program and ongoing Phase 2 clinical trial were assets that we acquired from Ceregene in October 2013. In November 2013, we released preliminary data from a Phase 1 dose escalation study of CERE-110 demonstrating that surgical delivery of CERE-110 to the brain results in the long-term expression of bioactive NGF, the therapeutic protein. Clinicians also observed apparent stabilization of brain cell metabolic activity in treated subjects, as determined by PET-scans measuring glucose use, which may reflect a slowing of cell deterioration. The treatment was well-tolerated at all dose levels. The Phase 2 clinical trial is fully accrued and is being carried out in collaboration with the Alzheimer’s Disease Cooperative Study (ADCS) based at the University of California San Diego (UCSD) and funded by a grant from the National Institute on Aging (NIA). Forty-nine (49) patients with mild to moderate AD have been treated with a single administration of CERE-110 at ten clinical sites throughout the U.S. Approximately half of the patients received CERE-110 while the other half received an appropriate sham surgery control treatment. Patients are being followed for a minimum of two years with respect to safety, brain imaging as well as standard tests used in Alzheimer’sfour planned clinical trials to measure cognitive functionby year end 2017 or early 2018.

Hemophilia A and quality of life. Enrollment was completed in March 2013 and we expect to present data in 2015.

Index to Financial Statements

ZFP Therapeutic Pre-Clinical Stage Programs

Programs Partnered with Shire

Hemophilia

Hemophilia, a rare bleeding disorder in which the blood does not clot normally, is an example of a monogenic disease (a disease that is caused by a genetic defect in a single gene). There are several types of hemophilia caused by mutations in genes that encode factors which help the blood clot and stop bleeding when blood vessels are injured. Individuals with hemophilia experience bleeding episodes after injuries and spontaneous bleeding episodes that often leadslead to joint disease such as arthritis. The most prevalent form of the disease, hemophilia A, is caused by a defect in clotting Factor VIII, while defects in clotting Factor IX lead to hemophilia B. The most severe forms of hemophilia affect males. According to the National Hemophilia Foundation and the World Federation of Hemophilia, hemophilia A occurs in about one in every 5,000 male births in the US with approximately 25,00016,000 males currently affected in the US, and hemophilia B in about 1 in every 25,000 male births with approximately 5,0004,000 males currently affected. The

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standard treatment for individuals with hemophilia is replacement of the defective clotting factor with regular infusion of recombinant clotting factors or plasma concentrates. These therapies are expensive carry the risk of transmission of blood-borne diseases such as hepatitis and other viral infections and sometimes stimulate the body to produce antibodies against the factors that inhibit the benefits of treatment. In these situations, other clotting factors such as Factor VII and X may be used to treat patients.

In collaboration with Shire,Sangamo’s Therapeutic Approaches in Hemophilia

Hemophilia A

For hemophilia A, we are working on fourevaluating SB-525, a gene targets,therapy approach utilizing an adeno-associated virus (AAV) carrying a clotting factors VII, VIII, IX and XFactor 8 gene construct driven by our proprietary synthetic liver specific promoter. In January 2017, the Company’s investigational new drug (IND) application for this program has been cleared by the U.S. Federal Drug Administration (FDA) enabling the company to develop ZFP Therapeutics to treat hemophilia. Usingbegin a Phase 1/2 clinical trial in adults with severe hemophilia A.

Hemophilia B

For hemophilia B, we are evaluating, SB-FIX, an in vivo genome editing approach. Utilizing our ZFN technology, we are pursuing two approaches in the development of these therapeutics: correction of the disease-causing mutation in the endogenousadding a new therapeutic copy of the Factor VIII or IX gene precisely into the Albumin gene locus, and addition of a new correct copyusing the strong Albumin promoter to drive expression of the Factor VIII or IX gene into a safe-harbor site, the Albumin gene or locus, using our In Vivo Protein Replacement Platform (IVPRP).newly inserted gene. We have published data demonstrating functional correctionthe potential utility of the human factorthis approach for several different monogenic disease applications in addition to hemophilia B (Blood. 2015 Oct 8;126(15):1777-84). Preclinical studies of this approach have demonstrated that therapeutic levels of Factor IX gene in the liver by direct intravenous delivery of ZFNscould be generated in a mouse model of the disease. We have ongoing preclinical studiesdose-dependent manner in non-human primates (NHPs). There were no significant alterations in circulating albumin levels.  Studies in mice also demonstrated stable Factor IX production for over one year. The Albumin locus genome editing approach is designed to develop therapiesbe a broadly applicable strategy for hemophilia A and B whichgene replacement that will provide a permanent correction thatfor the lifetime of the patient, thus increasing its potential usefulness in a pediatric population and would reduce or eliminate the need for chronic infusions of replacement proteins or clotting factor products. The SB-FIX hemophilia B program was reviewed by the NIH Recombinant DNA Advisory Committee (RAC) and an IND application for the program has been cleared by the FDA. We have initiated a Phase 1/2, open-label, dose-escalation clinical trial.  

MPS I and MPS II

Lysosomal storage disorders (LSDs) are a heterogeneous group of inherited disorders including Mucopolysaccharidosis type I (MPS I, Hurler syndrome) and Mucopolysaccharidosis Type II (MPS II, Hunter syndrome), Fabry disease, Gaucher disease, and many others. They are caused by defects in genes that encode proteins known as enzymes, which break down and eliminate unwanted substances in cells. These enzymes are found in structures called lysosomes which act as recycling sites in cells, breaking down unwanted material into simple products. A defect in a lysosomal enzyme leads to the accumulation of toxic levels of the substance that the enzyme would normally eliminate and resulting cell damage which can lead to serious health problems. There are nearly 50 of these disorders altogether and they may affect different parts of the body, including the skeleton, skin, heart and CNS. While their individual incidence tends to be rare, this group as a whole has an incidence of more than 1:5,000 live births according to the National Institute of Neurological Disorders and Stroke.

MPS I is caused by mutations in the gene encoding the alpha-L-iduronidase (IDUA) enzyme, resulting in a deficiency of IDUA which is required for the degradation of the glycosaminoglycans (GAGs) dermatan sulfate and heparin sulfate. The inability to degrade GAGs leads to their accumulation within the lysosomes throughout the body and individuals with this mutation experience multi-organ dysfunction and damage. Depending on the severity of the mutations and degree of residual enzyme activity, affected individuals may develop organomegaly, joint stiffness, skeletal deformities, corneal clouding, hearing loss and cognition impairments. Three forms of MPS I, in order of increasing severity, include Scheie, Hurler-Scheie and Hurler syndromes. According to the National MPS Society, one in 500,000 births in the U.S. will result in Scheie syndrome, one in 115,000 births in Hurler/Scheie, and one in 100,000 births results in Hurler syndrome. There are approximately 2,000 MPS I patients in the U.S.

          The current therapies for individuals with MPS I include hematopoietic stem cell transplantation (HSCT) for those with the most severe form of the disease (Hurler) and enzyme replacement therapy (ERT) for patients with the attenuated forms of the disease (Hurler-Scheie, Scheie).  However, the reported mortality rate after HSCT is approximately 15% and the survival rate with successful engraftment is 56%. Most patients with milder forms of the disease receive weekly enzyme replacement therapy (ERT), usually in a doctor’s office. For MPS I, IDUA infusions take on average four to six hours, however within hours, the replacement enzyme cannot be detected in the circulation.

MPS II is an X-linked disorder primarily affecting males and caused by mutations in the gene encoding the iduronate-2-sufatase (IDS) enzyme.  This results in a deficiency of IDS which is required for the degradation of GAGs. The inability to degrade GAGs

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leads to their accumulation within the lysosomes throughout the body and individuals with this mutation experience multi-organ dysfunction and damage. Children with MPS II appear normal at birth but begin showing symptoms of developmental delay by age 2 – 3 years.  Depending on the severity of the mutations and degree of residual enzyme activity, affected individuals may develop delayed development, enlarged internal organs, cardiovascular disorders, stunted growth and skeletal abnormalities and hearing loss. The disorder is progressive and symptoms range from mild (normal cognitive function) to severe (cognitively impaired). According to the National MPS Society, one in 100,000 male births in the U.S. will result in MPS II. There are approximately 500 MPS II patients in the U.S.

The current therapy for individuals with MPS II includes weekly ERT. In contrast with Hurler syndrome, hematopoietic stem cell transplantation (HSCT) does not ameliorate neurologic symptoms.

Sangamo’s Therapeutic Approaches in MPS I and MPS II

MPS I

Our goalalbumin locus ZFN-mediated in vivo genome editing platform has the potential to provide a broadly applicable genetic approach to enzyme replacement for MPS I.  Our MPS I program, SB-318, was reviewed by the NIH Recombinant DNA Advisory Committee (RAC) and an IND application for the program has been cleared by the FDA. In addition, in January 2017, the FDA granted orphan drug designation to SB-318, which provides additional incentives to advance the development of this program to commercialization and regulatory approval. In 2017, we are planning to conduct a Phase 1/2, open-label, dose-escalation clinical trial.  

MPS II

Our albumin locus ZFN-mediated in vivo genome editing platform has the potential to provide a broadly applicable genetic approach to enzyme replacement for MPS II.  An IND application for the MPS II program, SB-923, has been cleared by the FDA. In 2017, we are planning to conduct a Phase 1/2, open-label, dose-escalation clinical trial.  

Programs Partnered with Bioverativ

Hemoglobinopathies: Sickle cell disease and Beta-thalassemia

Mutations in the gene encoding beta-globin, the oxygen carrying protein of red blood cells, lead to hemoglobinopathies such as SCD and beta-thalassemia. The mutation that gives rise to SCD causes the red blood cells to form an abnormal sickle or crescent shape. The cells are fragile and deliver less oxygen to the body’s tissues. They can also get stuck more easily in small blood vessels and break into pieces that can interrupt healthy blood flow which further decrease the amount of oxygen flowing to body tissues. Almost all patients with SCD experience these painful vaso-occlusive crises, which can last from hours to days and may cause irreversible organ damage. Current standard of care is to submit IND applicationsmanage and control symptoms, and to limit the number of crises. Treatments include administration of hydroxyurea, blood transfusions, iron-chelation therapy, pain medications and antibiotics. The CDC estimates that there are 90,000 to 100,000 Americans living with SCD which occurs in approximately 1 out of every 500 African-American births and 1 out of every 36,000 Hispanic-American births.

There are several forms of beta-thalassemia. Broadly, the disorder results in greatly impaired production of healthy red blood cells despite bone marrow over activity, leading to life-threatening anemia, enlarged spleen, liver and heart, and bone abnormalities. Beta-thalassemia major is a severe form of thalassemia that requires regular, often monthly, blood transfusions and subsequent iron-chelation therapy to treat iron overload. The CDC estimates that 1,000 people have beta-thalassemia major in the United States, and an unknown number carry the genetic trait and can pass it on to their children. Thalassemia is most common among people of Mediterranean descent and is also found among people from Southeast Asia, the Arabian Peninsula, Iran, Africa and Southern China.

In collaboration with Bioverativ, we are developing cell therapies for these ZFP Therapeuticsboth SCD and beta-thalassemia based on the use of our ZFN genome editing technology to modify a patient’s own (autologous) HSPCs. Our ZFN genome editing technology enables multiple approaches to the correction of SCD and beta-thalassemia. Both diseases manifest in 2014.the months after birth, when patients switch from producing functional fetal gamma-globin to a mutant form of adult beta-globin, which results in their condition. Naturally occurring increased levels of fetal hemoglobin have been shown to reduce the severity of both SCD and beta-thalassemia disorders. In HSPCs, our genome editing technology can be used to precisely disrupt regulatory sequences that control the expression of key transcriptional regulators, such as BCL11A, to reverse the switch from expression of the mutant adult beta-globin back to the production of functional fetal gamma-globin.

Huntington’s diseaseA bone marrow transplant (BMT), of HSPCs from a “matched” related donor (allogeneic BMT) is curative for both diseases. However, this therapy is limited due to the scarcity of matched donors and the significant risk of Graft versus Host Disease (GvHD) after transplantation of the foreign cells. By performing genome editing in HSPCs that are isolated from and subsequently returned to the same patient (i.e. an autologous HSPC transplant), our approach eliminates both the need for a matched donor and the risk of acute and chronic GvHD. The goal of this approach is to develop a one-time long-lasting treatment for SCD and beta-thalassemia.

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Program Partnered with Shire

Huntington’s disease (HD)

HD is an inherited, progressive neurologic disease for which there is no treatment or cure. The disease is caused by a particular type of mutation in a single gene, the HTT gene. Most patients inherit one normal and one defective or mutant copy of the HTT gene, which is enough to causecauses HD. The mutation is characterized by expansion of a repeated stretch of DNA sequence within the gene called a “CAG repeat.” A normal copy of the HTT gene usually has 10 to 29 of these CAG repeats but a defective copy has many more—generally greater than 39 repeats. While the protein produced by the normal copy of the gene appears to be essential for development (mice lacking the gene do not survive to birth), the product of the mutated gene is damaging to nerve cells. Symptoms, which include deterioration of muscle control, cognition and memory, usually develop between 35 and 44 years of age. It is known that the greater the number of CAG repeats, the earlier the onset. HD is usually fatal within 1015 to 20 years after the onset of symptoms. The disease has a high prevalence for an inherited disorder, affectingdisorder. According to the Huntington’s disease Society of America (HDSA) approximately 30,000 people (one in 10,000) in the US. An additional 150,000 people in the U.S. carry a 50%have HD. In addition, it is estimated that approximately 200,000 people in the U.S. are at risk of developing the disease.

Research in animal models of the disease has shown that lowering the levels of the defectivemutant HTT protein can prevent, or even reverse, disease progression. However, to date most “HTT-lowering” methods decrease levels of both the normal and mutant forms of HTT, raising potential safety concerns given the importance of normal HTT protein. In collaboration with Shire, we are developing ZFP TFs that can selectively repress the expression of the mutant disease-causing form of HTT while leaving expression levels of the normal gene unchanged. Preclinical studies in animal models of the disease are ongoing and our goalShire is to file anresponsible for all clinical development activities including filing the IND application for a ZFP Therapeutic for HD in 2015.

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Programs Partnered with Biogen

Hemoglobinopathies: Sickle cell disease and Beta-thalassemia

Mutations in the genes encoding globin, the oxygen carrying protein of red blood cells, lead to hemoglobinopathies such as sickle cell disease (SCD) and beta-thalassemia. The mutation that gives rise to SCD causes the red blood cells to form an abnormal sickle or crescent shape. The cells are fragile and deliver less oxygen to the body’s tissues. They can also get stuck more easily in small blood vessels and break into pieces that can interrupt healthy blood flow which further decrease the amount of oxygen flowing to body tissues. Almost all patients with SCD have painful episodes (called crises), which can last from hours to days. Current standard of care is to manage and control symptoms, and to limit the number of crises. Treatments include blood transfusions, iron-chelation therapy and administration of hydroxyurea, pain medications and antibiotics. As of 2011, the CDC estimates that there are 90,000 to 100,000 Americans living with SCD which occurs in approximately 1 out of every 500 African-American births and 1 out of every 36,000 Hispanic-American births.

There are several forms of beta-thalassemia. Broadly, the disorder results in excessive destruction of red blood cells leading to life-threatening anemia, enlarged spleen, liver and heart, and bone abnormalities. Beta-thalassemia major is a severe form of thalassemia that requires regular, often monthly, blood transfusions and subsequent iron-chelation therapy to treat iron overload. The CDC estimates that 1,000 people havebeta-thalassemia major in the United States, and an unknown number carry the genetic trait and can pass it on to their children. Thalassemia is most common among people of Mediterranean descent and is also found among people from the Arabian Peninsula, Iran, Africa, Southeast Asia and Southern China.

We are developing ZFP Therapeutics for both SCD and beta-thalassemia based on the use of our ZFN gene editing technology in a patient’s own (autologous) bone marrow stem cells. Our ZFN genome editing technology enables multiple approaches to the correction of SCD and beta-thalassemia. Both diseases manifest in the months after birth, when patients switch from producing functional fetal gamma-globin to a mutant form of adult beta-globin, which results in their condition. Naturally occurring increased levels of therapeutic fetal hemoglobin have been shown to reduce the severity of both SCD and beta-thalassemia disorders. In HSCs, our genome editing technology can be used to precisely disrupt key transcriptional regulators, such asBCL11A, to reverse the switch from expression of the mutant adult beta-globin back to the production of functional fetal gamma-globin. Alternatively, the technology can be used to precisely insert a new corrected beta-globin gene to replace the defective copy.

A bone marrow transplant (BMT), of HSCs from a “matched” related donor (allogeneic BMT) is curative for both diseases. However, this therapy is limited due to the scarcity of matched donors and the significant risk of Graft versus Host Disease (GvHD) after transplantation of the foreign cells. By performing genome editing in HSCs that are isolated from and subsequently returned to the same patient (i.e. an autologous HSC transplant), our approach eliminates both the need for a matched donor and the risk of acute and chronic GvHD. The ultimate goal of this approach is to develop a one-time curative treatment for SCD and beta-thalassemia.

In May 2013, CIRM granted us a $6.4 million Strategic Partnership Award to develop this potentially curative ZFP Therapeutic for beta-thalassemia. The four-year grant provides matching funds for preclinical studies that will support an IND application and a Phase 1 clinical trial in transfusion-dependent beta-thalassemia patients, which will be carried out at Children’s Hospital & Research Center Oakland, and City of Hope. We are in currently in preclinical development in collaboration with Biogen and our goal is to file an IND application for beta-thalassemia in 2014 and for SCD in 2015.

ProprietaryEarly Research Programs

Lysosomal Storage Disorders

Lysosomal storage disorders (LSDs) are a heterogeneous group of inherited disorders including Fabry disease, Gaucher disease, Pompe disease and Hurler syndrome. They are caused by defects in genes that encode

Index to Financial Statements

proteins known as enzymes, which break down and eliminate unwanted substances in the cells of the body. These enzymes are found in structures called lysosomes which act as recycling sites in cells, breaking down unwanted material into simple products for the cell to use to build new materials. A defect in a lysosomal enzyme leads to the accumulation of toxic levels of the substance that the enzyme would normally eliminate and resulting cell damage which can lead to serious health problems. There are nearly 50 of these disorders altogether and they may affect different parts of the body, including the skeleton, brain, skin, heart and CNS. While their individual incidence tends to be rare, this group as a whole has a prevalence of more than 1:5,000 live births according to the National Institute of Neurological Disorders and Stroke.

There is no cure for LSDs, and treatments have not yet been developed for many of these diseases. For certain disorders, including Gaucher and Fabry, enzyme replacement therapies (ERTs) are available. However, these require frequent administration, are costly and there is a risk that over time patients develop an immunogenic response to the administered protein lessening its efficacy.

We are developing a genetic approach to enzyme replacement for several LSDs based on systemic delivery of our ZFN gene editing technology to the liver to enable production of the corrective enzyme by the body. We are in preclinical development with several product candidates and our goal is to file two IND applications for such product candidates in 2015.

ZFP Therapeutic Research Programs

We have research stage programs in other monogenic diseases, in CNS disorders and in cancer immunotherapy.

Legacy Clinical Research Programs

Human Immunodeficiency Virus (HIV) and Acquired Immunodeficiency Syndrome (AIDS)

HIV infection results in the death of immune system cells, particularly CD4+ T-cells, and thus leads to AIDS, a condition in which the body’s immune system is depleted to such a degree that the patient is unable to fight off common infections. Ultimately, these patients succumb to opportunistic infections or cancers. According to the most recent data from The United States Centers for Disease Control and Prevention (CDC) over 2 million people were newly infected with HIV in 2014. An estimated 1.2 million people died of AIDS-related illnesses in the same year. There are now over 36 million people living with HIV and AIDS worldwide. At the end of 2012, (the most recent data available) it is estimated that there were 1.2 million people living with HIV/AIDS in the United States, of which approximately 13% were unaware that they were infected. It is estimated that approximately 50,000 people are newly infected with HIV each year in the United States. Approximately 48,000 new infections occurred in 2010, and more than 13,700 people with AIDS died in the United States in 2012.

Current Treatments and Unmet Medical Need

Currently, there are over 30 antiretroviral drugs approved by the U.S. Food and Drug Administration (FDA) to treat people infected with HIV. While these drugs can suppress virus in the blood to undetectable levels, they cannot eliminate the reservoir of cells containing genomically-integrated HIV from the body. Hence, individuals infected with HIV need to take antiretroviral drugs continuously. The drugs are expensive and can have significant side effects over time. There is no therapeutic approach available which protects CD4+ T-cells, suppresses viral load, reduces the viral reservoir and does not require daily dosing.

Sangamo’s Therapeutic Approach

Our therapeutic approach aims to use our ZFN-mediated genome editing technology to replicate a naturally occurring human mutation which renders individuals largely resistant to infection with the most common strain of HIV. CCR5 is a co-receptor for HIV entry into T-cells and if CCR5 is not expressed on their surface HIV infects them with lower efficiency. A population of individuals that is immune to HIV infection, despite multiple exposures to the virus, has been identified and extensively studied. The majority of these individuals have a natural mutation, CCR5 delta-32, of both of their CCR5 gene copies (homozygous), resulting in the expression of a shortened non-functional CCR5 protein. This mutation appears to have no observable deleterious effect. Individuals who carry the CCR5 delta-32 mutation in only one of their two CCR5 gene copies (heterozygotes), tend to take longer to develop AIDS and are classified as so-called “long-term non-progressors.” In addition, a study published in Blood in December 2010 reported an effective cure when an AIDS patient with leukemia received a bone marrow transplant from a “matched” donor who was

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homozygous for this CCR5 delta-32 mutation. This approach transferred the HSPCs residing in the bone marrow from the delta-32 donor, and provided a self-renewable and potentially lifelong source of HIV-resistant immune cells. After transplantation, the AIDS patient was able to discontinue all anti-HIV drug treatments, CD4 counts increased and viral load dropped to an undetectable level, demonstrating effective transplantation of protection from HIV infection.

We are using our ZFN-mediated genome editing technology to disrupt the CCR5 gene in cells of a patient’s immune system to make these cells permanently resistant to HIV infection. The aim is to provide a population of HIV-resistant cells that can fight HIV and opportunistic infections mimicking the situation in individuals that carry the natural CCR5 delta-32 mutation.

We began clinical trials in this program in late 2009 and over the past seven years have conducted several studies in different populations of HIV infected subjects designed to evaluate, safety and tolerability of SB-728-T treatment.  We have treated over 80 subjects and to date these studies have shown that the treatment is well-tolerated.  In addition we have evaluated the effect of SB-728-T on subjects’ CD4 T-cell counts, levels of CCR5-modified T-cells, viral burden during a treatment interruption (TI) from anti-retroviral therapy (ART) and levels of HIV DNA in peripheral blood mononuclear cells as a measure of the viral reservoir.  We have also studied the effect of Cytoxan preconditioning on levels of cell engraftment, treatment with modified CD4 T-cells alone and treatments that include both modified CD4 and CD8 T-cells. In addition our studies have compared the effectiveness of the SB-728-T cell product when ZFNs were delivered to T-cells using either Adenovirus or mRNA and electroporation. The data have demonstrated durable engraftment and persistence of SB-728-T, ability of the ZFN-modified cells to traffic to the gut mucosa and that the modified cells have a survival advantage over unmodified cells during a TI from ART.  In addition, our studies have demonstrated improvements in the overall CD4 T-cell count and the CD4:CD8 ratio in multiple subjects as well as a decrease in the viral reservoir and the ability of certain subjects to control their viral loads for prolonged periods in the absence of ART. The data from our first Phase 1 study were published in the New England Journal of Medicine in 2014 (N.Eng. J. Med. 2014: 370:897-906).  

An investigator initiated a Phase 1/2 clinical study (SB-729mR-HSPC) to investigate this approach to treat HIV in hematopoietic stem progenitor cells (HSPCs), using electroporation of mRNA to deliver the ZFNs. In May 2014 California Institute for Regenerative Medicine (CIRM) agreed to fund a $5.6 million Strategic Partnership Award for clinical studies of this program at City of Hope.

We intend to seek partnerships before investing further in the development of human therapeutics for HIV/AIDS.

CORPORATE RELATIONSHIPS

We have established collaborative and strategic partnerships for several of our ZFP Therapeutictherapeutic programs and inalso for several non-therapeutic areas.applications of our technology. We will continue to pursue further partnerships when appropriate with selected pharmaceutical, biotechnology and chemical companies to fund internal research and development activities and to assist in product development and commercialization. We are applying our ZFPZFN technology platform to several commercial applications in which our products provide us and our strategic partners and collaborators with potential technical, competitive and economic advantages.

Therapeutic Collaborations

Collaboration and License Agreement with Shire International GmbH (formerly Shire AG) in Human Therapeutics and Diagnostics

In January 2012, we entered into a collaboration and license agreement with Shire, pursuant to which we are collaborating to research, develop and commercialize human therapeutics and diagnostics based on our ZFP technology. Under the agreement, the two companies may develop potential human therapeutic or diagnostic products for seven gene targets. The initial four gene targets are blood clotting Factors VII, VIII, IX and X, and products developed for such initial gene targets would be used for treating or diagnosing hemophilia. In June 2012, Shire selected a fifth gene target for the development of a ZFP therapeutic for treating HD. Shire has the right, subject to certain limitations, to designate two additional gene targets. Pursuant to the agreement, we have granted Shire an exclusive, world-wide, royalty-bearing license, with the right to grant sublicenses, to use our ZFP technology for the purpose of developing and commercializing human therapeutic and diagnostic products for the gene targets.

The initial research term of the agreement is six years and is subject to extensions upon mutual agreement and under other specified circumstances. We are responsible for all research activities through the submission of an IND or European Clinical Trial Application (CTA), while Shire is responsible for clinical development and

Index to Financial Statements

commercialization of products generated from the research program from and after the acceptance of an IND or CTA for the product. Shire reimburses us for our internal and external research program-related costs.

Under the agreement, we received an upfront license fee of $13.0 million. In addition, for each gene target, we are eligible to receive $33.5 million in payments upon the achievement of specified research, regulatory, clinical development milestones, as well as $180 million in payments upon the achievement of specified commercialization and sales milestones. The total amount of potential milestone payments for each of the seven gene targets, assuming the achievement of all specified milestones in the Agreement, is $213.5 million. The milestone payments for each gene target through the acceptance of an IND or CTA submission total $8.5 million. We will also receive royalty payments that are a tiered double-digit percentage of net sales of products developed under the collaboration. To date, we have not received any payments from Shire related to milestone or royalty payments.

The agreement may be terminated by (i) us or Shire, in whole or in part, for the uncured material breach of the other party, (ii) us or Shire for the bankruptcy or other insolvency proceeding of the other party and (iii) Shire, in its entirety, beginning 24 months after the effective date of the agreement upon 90 days’ advance written notice. In addition, Shire may terminate the agreement with respect to an individual gene target at any time, and under certain circumstances may designate a replacement gene target for a terminated gene target. As a result, actual future milestone payments could be lower than the amounts stated above.

Collaboration and License Agreement with Biogen IdecBioverativ Inc. in Human Therapeutics and Diagnostics

In January 2014 we entered into an exclusive worldwide collaboration and license agreement with Biogen focused on the development ofBiogen. to develop therapeutics for hemoglobinopathies, and targetingfocused on beta-thalassemia and SCD.SCD, and in January 2017 this agreement was assigned by Biogen, Inc. to its hemophilia and other rare blood disorders spin-off, Bioverativ. Under the agreement, the two companiesSangamo and Bioverativ will jointly conduct two research programs: the beta-thalassemia program and the SCD program. In the beta-thalassemia program, we are responsible for all discovery, research and development activities through the first human clinical trial. In the SCD program, both parties are responsible for research and development activities through the submission of an IND application for ZFP therapeutics intended to treat SCD. Biogen will reimburseBioverativ reimburses us for ouragreed upon internal and external program-related costs.

Under both programs, BiogenBioverativ is responsible for subsequent worldwide clinical development, manufacturing and commercialization of licensed products developed under the agreement. At the end of the specified research terms for each program or under certain specified circumstances, BiogenBioverativ retains the right to step in and take over any of our remaining activities. Furthermore, we have an option to co-promote in the United StatesU.S. any licensed product to treat beta-thalassemia and SCD developed under the agreement, and BiogenBioverativ will compensate us for such co-promotion activities. Subject to the terms of the agreement, we have granted Biogen an exclusive, royalty-bearing license, with the right to grant sublicenses, to use certain ZFP and other technology controlled by Sangamo for the purpose of researching, developing, manufacturing and commercializing licensed products developed under the agreement. We have also granted BiogenBioverativ a non-exclusive, worldwide, royalty-free, fully paid license, with the right to grant sublicenses, of our interest in certain other intellectual property developed pursuant to the agreement.

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Under the agreement, we will receivereceived an upfront license fee of $20.0 million and are eligible to receive development milestone payments upon the achievement of specified regulatory, clinical development and commercialization milestones. The total amount of potential regulatory, clinical development, commercialization and sales milestone payments, assuming the achievement of all specified milestones in the agreement, is $293.8$276.3 million, including Phase 1 milestone payments of $7.5 million for each ofthe SCD program and $6.0 million for the beta-thalassemia and SCD programs.program. In addition, we will also receive royalty payments for each licensed product that are a tiered double-digit percentage of annual net sales of each product.

Index to Financial Statements

The Agreement may be terminated by (i) us or BiogenBioverativ for the uncured material breach of the other party, (ii) us or BiogenBioverativ for the bankruptcy or other insolvency proceeding of the other party; (iii) Biogen,Bioverativ, upon 180 days’ advance written notice to us and (iv) Biogen,Bioverativ, for certain safety reasons upon written notice to, and after consultation with, us. As a result, actual future milestone payments could be lower than the amounts stated above.

Amended Collaboration and License Agreement with Shire International GmbH (formerly Shire AG) in Human Therapeutics and Diagnostics

In January 2012 we entered into a collaboration and license agreement with Shire to research, develop and commercialize human therapeutics and diagnostics based on our ZFP technology. Under the agreement, we received an upfront license fee of $13.0 million. The two companies agreed to develop potential human therapeutic or diagnostic products for seven gene targets. The initial four gene targets were blood clotting Factors VII, VIII, IX and X, and products developed for such initial gene targets would be used for treating or diagnosing hemophilia. In June 2012, Shire selected a fifth gene target for the development of a ZFP therapeutic for treating HD. Shire had the right, subject to certain limitations, to designate two additional gene targets. Pursuant to the agreement, we granted Shire an exclusive, world-wide, royalty-bearing license, with the right to grant sublicenses, to use our ZFP technology for the purpose of developing and commercializing human therapeutic and diagnostic products for the gene targets.

On September 1, 2015, the Shire Agreement was amended such that Shire agreed to return to Sangamo the exclusive, world-wide rights to gene targets for the development and commercialization of genome editing therapies for hemophilia A and B.  Shire retains the rights and will becomecontinue to develop a ZFP-mediated genomic therapy for Huntington’s disease.  Sangamo will provide certain target feasibility services, and upon Shire’s request, certain research activities according to a research plan as agreed upon by both companies. Such research activities performed by Sangamo will be reimbursed by Shire. Shire’s rights with respect to other targets contemplated in the original agreement revert to Sangamo. Under the revised agreement, each company is responsible for expenses associated with its own programs and will reimburse the other for any ongoing services provided. Shire is responsible for reimbursement of expenses related to obligations prior to the amendment date which will be recognized as revenue as expenses are incurred. Sangamo has granted Shire a right of first negotiation to license the hemophilia A and B genome editing programs. Under the amended agreement, Shire does not have any milestone payment obligations with respect to the retained programs, but it is required to pay single digit percentage royalties to Sangamo, up to a specified maximum cap, on the commercial sales of therapeutic products from such programs. Under the Agreement, Sangamo has full control over, and full responsibility for the costs of, the hemophilia programs returned to the Company, subject to certain diligence obligations and Shire’s right of first negotiation to obtain a license to such programs under certain circumstances. Sangamo is required to pay single digit percentage royalties to Shire, up to a specified maximum cap, on commercial sales of therapeutic products from such returned programs.

The agreement may be terminated by (i) us or Shire, in whole or in part, for the uncured material breach of the other party, (ii) us or Shire for the bankruptcy or other insolvency proceeding of the other party and (iii) Shire, in its entirety, effective upon the satisfaction of certain customary conditions.at least 90 days’ advance written notice.

Strategic Partnerships in Non Therapeutic Applications of the Technology

Agreement with Sigma-Aldrich Corporation in Laboratory Research Reagents, Transgenic Animal and Commercial Protein Production Cell-line Engineering

In July 2007 we entered into a license agreement with Sigma. Under the license agreement, we agreed to provide Sigma with access to our proprietary ZFP technology and the exclusive right to use the technology to develop and commercialize research reagents products and services in the research field, excluding certain agricultural research uses that we previously licensed to DAS. Under the agreement, we and Sigma agreed to conduct a three-year research program to develop laboratory research reagents using our ZFP technology during which time we assisted Sigma in connection with its efforts to market and sell services employing our technology in the research field. We transferred the ZFP manufacturing technology to Sigma.

In October 2009 we expanded the license agreement with Sigma. In additionSigma to the original terms of the license agreement, Sigma receivedinclude exclusive rights to develop and distribute ZFP-modified cell lines for commercial production of protein pharmaceuticals and certain ZFP-engineered transgenic animals for commercial applications. Under the terms of the agreement, Sigma made an upfront cash payment of $20.0 million, consisting of a $4.9 million purchase of 636,133 shares of our common stock, valued at $4.9 million, and a $15.1 million upfront license fee. Under the terms of the agreement, we arewere eligible to receive commercial license fees of $5.0 million based on a percentage of net sales and sublicensing revenue and thereafter a reduced royalty rate of 10.5% of net sales and sublicensing revenue. During the term of the license agreement, Sigma is obligated to pay us minimum annual payments, a share of certain revenues received by Sigma from sublicensees and royalty payments on the sale of licensed products and services. Sigma also has the right to sublicense the ZFP

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technology for research applications and we will receive 50% of any sublicensing revenues in the first two years and 25% of any sublicensing revenues thereafter.revenues. We retain the sole right to use and license our ZFP technology for GMP production purposes, for the production of materials used in or administered to humans, and for any other industrial commercial use. In addition, upon the achievement of certain cumulative commercial milestones Sigma will make milestone payments to us up to an aggregate of $25.0 million. The agreements may be terminated by Sigma at any time with a 90-day notice or by either party upon an uncured material breach of the other party. As a result, actual future milestone payments could be lower than the amounts stated above. In the event of any termination, all rights to use our ZFP technology will revert to us, and Sigma will no longer be permitted to practice our ZFP technology or to develop or, except in limited circumstances, commercialize any products derived from our ZFP technology.

Other Programs and Partners in Transgenic Animal and Commercial Protein Production Cell-line Engineering

Prior to our agreement with Sigma, we marketed our ZFP TF and ZFN technology and intellectual property in products and areas outside ZFP Therapeutics directly to the pharmaceutical and biotechnology industry. We established agreements in cell line engineering for pharmaceutical protein production with Genentech and in the development of transgenic animals with Open Monoclonal Technology, Inc. (OMT) and F. Hoffmann-La Roche Ltd and Hoffmann-La Roche Inc. (collectively, Roche).

Index to Financial Statements

Genentech has continuing obligations to pay us an annual technology access fee and, for each product developed by Genentech containing a protein expressed by the modified cell line created using our ZFN technology, aggregate milestone payments of up to $5.4 million upon achievement of specified milestones relating to the development and commercialization of such products.

In December 2015 Ligand Pharmaceuticals Inc. (Ligand) acquired OMT.  For any given OMT product OMTdeveloped using ZFN technology, Ligand will pay us milestone payments upon the achievement of certain clinical and regulatory milestone events and also a small royalty and sublicense revenue sharing payment. Ligand has the right to buy out its future royalty payment and sublicense revenue sharing payment obligations under the license agreement, on a product-by-product basis, by paying a specified fixed lump sum fee to us.

Roche will pay milestone payments upon the achievement of certain clinical development milestones relating to products produced under such commercial license, and low-single-digit royalties on sales of such products. The aggregate milestone payments for all therapeutic products will not exceed $5.75$5.8 million, but the diagnostics milestone payments are not similarly capped. Under the research and license agreement, on a product-by-product basis, Roche has the right to buy out its future royalty payment obligations by paying specified fixed amounts.

Agreement with Dow AgroSciences in Plant Agriculture

We and our collaborators have shown that ZFNs and ZFP TFs can be used to regulate and modify genes in plants. The ability to regulate gene expression with engineered ZFP TFs may lead to the creation of new plants that increase crop yields, lower production costs and are more resistant to herbicides, pesticides, and plant pathogens, which could permit the development of branded agricultural products with unique nutritional and processing characteristics. In addition, ZFNs may be used to facilitate the efficient and reproducible generation of transgenic plants.

In October 2005 we entered into an exclusive commercial license with DAS. Under this agreement, we provided DAS with access to our proprietary ZFP technology and the exclusive right to use the technology to modify the genomes or alter the nucleic acid or protein expression of plant cells, plants, or plant cell cultures. DAS also obtained a license to sell products incorporating or derived from plant cells generated using our ZFP technology, including agricultural crops, industrial products and plant-derived biopharmaceuticals. We have retained rights to use plants or plant-derived products to deliver ZFNs and ZFP TFs into humans or animals for diagnostic, therapeutic, or prophylactic purposes. Our agreement with DAS provided for an initial three-year research term. In June 2008, DAS exercised its option under the agreement to obtain a commercial license to sell products incorporating or derived from plant cells generated using our ZFP technology, including agricultural crops, industrial products and plant-derived biopharmaceuticals.

We agreed to supply DAS and its sublicensees with ZFNs and ZFP TFs for both research and commercial use over the initial three year period of the agreement and have amended and extended this provision. The agreement also provides for minimum sublicense fees each year due to us every October, provided the agreement is not terminated by DAS. Annual fees range from $250,000 to $3.0 million and total $25.3 million over 11 years. Furthermore, DAS has the right to sublicense our ZFP technology to third parties for use in plant cells, plants, or plant cell cultures, and we will be entitled to 25% of any cash consideration received by DAS under such sublicenses. We do not have any performance obligations with respect to the sublicensing activities to be conducted by DAS. DAS has the right to terminate the agreement at any time; accordingly, our actual sublicense fees over the term of the agreement could be lower than $25.3 million. In addition, each party may terminate the agreement upon an uncured material breach of the agreement by the other party. In the event of any termination of the agreement, all rights to use our ZFP technology will revert to us, and DAS will no longer be permitted to practice our ZFP technology or to develop or, except in limited circumstances, commercialize any products derived from our ZFP technology.

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Funding from Research Foundations

California Institute for Regenerative Medicine

In October 2009, CIRM granted a $14.5 million Disease Team Research Award to develop an HIV therapy based on the application of ZFN gene editing technology in HSCs. The four year grant supports an innovative research project conducted by a multidisciplinary team of investigators, including investigators from the University of Southern California, City of Hope National Medical Center and Sangamo BioSciences.

Index to Financial Statements

Through December 31, 2013, we have received total funding of $5.2 million, which is the total amount awarded to us as prescribed in the agreement. The award is intended to substantially fund our research and development efforts related to the agreement. The State of California has the right to receive, subject to the terms and conditions of the agreement, payments from us or our collaborators, resulting from sales of a commercial product resulting from research and development efforts supported by the grant, not to exceed two times the amount we receive in funding under the agreement with CIRM.

In May 2013 CIRM granted us a $6.4 million Strategic Partnership Award to develop a potentially curative ZFP Therapeutictherapy for beta-thalassemia based on the application of our ZFN genegenome editing technology in HSCs.HSPCs. The four year grant provides matching funds for preclinical work that will support an IND application and a Phase 1 clinical trial in transfusion-dependent beta-thalassemia patients which will be carried out at Children’s Hospital & Research Center Oakland, and City of Hope in collaboration with our partner in this program, Biogen.Bioverativ. In May 2015 Sangamo announced a consolidated development path for its beta-thalassemia and SCD programs using the “BCL11A Enhancer” target.  Due to the switch to the BCL11A Enhancer strategy, CIRM and Sangamo terminated the Strategic Partnership Award as of June 30, 2015.  Sangamo returned $3.0 million in unused funds received from CIRM under the award in September 2015.  

In May 2014 CIRM agreed to fund a $5.6 million Strategic Partnership Award to fund clinical studies of a potentially curative therapy for HIV/AIDS based on the application of our ZFN genome editing technology in HSPCs. The four year grant provides matching funds to support evaluation of our stem cell-based program in a clinical trial in HIV-infected individuals conducted at City of Hope. The State of California has the right to receive, subject to the terms and conditions of the agreement between us and CIRM, payment from us, or our collaborators, from sales of a commercial product resulting from research and development efforts supported by grants, in accordance with Title 17, California Code of Regulations, Section 100600.

ACQUISITION OF CEREGENE

On October 1, 2013, we acquired Ceregene, a privately held biotechnology company focused on the development of AAV gene therapies, pursuant to an Agreement and Plan of Merger (the Merger Agreement). The acquired assets include all of Ceregene’s therapeutic programs, including CERE-110, an AAV-NGF for the treatment of AD that is currently in a Phase 2 clinical trial. In addition to the clinical assets acquired, we acquired certain intellectual property rights relating to the manufacturing of AAV, and certain toxicology data and safety and efficacy data from Ceregene’s human clinical trials, which will be used in the preparation and filing of IND applications for ourin vivo ZFP Therapeutics, particularly those that target the brain.

Under the Merger Agreement, the aggregate consideration paid by us at closing consisted of 100,000 shares of our common stock, with an approximate fair value of $1.2 million. In addition, we may be required to make contingent earn-out payments to the stockholders of Ceregene as follows:

INTELLECTUAL PROPERTY AND TECHNOLOGY LICENSES

Patents and licenses are important to our business. Our strategy is to file or license patent applications to protect technology, inventions and improvements to inventions that we consider important for the development of our genome editing and gene regulation technology. We seek patent protection and licenses that relate to our technology and candidates in our pipeline and/or may be important to our future. We have filed numerous patents and patent applications with the United States Patent and Trademark Office (USPTO) and foreign jurisdictions. This proprietary intellectual property includes methods relating to the design of zinc finger, and TALE (Transcription activator-like effector) proteins and CRISPR (Clustered Regularly Interspaced Short Palindromic Repeats)/Cas editing systems, therapeutic applications of genome editing technology, enabling technologies related to our platform and the use of genome editing across a variety of applications. We rely on a combination of patent, copyright, trademark, proprietary know–how, continuing technological innovations, trade secret laws, as well as confidentiality agreements, materials transfer agreements, research agreements and licensing agreements, to establish and protect our proprietary rights.

Index to Financial Statements

Technology Licenses

We have licensed intellectual property directed to the design, selection, and use of ZFPs, ZFNs and ZFP TFs for genome editing and gene modification and regulation from the Massachusetts Institute of Technology, Johnson & Johnson, The Scripps Research Institute, The Johns Hopkins University, Harvard University, the Medical Research Council, the California Institute of Technology City of Hope and the University of Utah. These licenses grant us rights to make, use and sell ZFPs, ZFNs and ZFP TFs under 1312 families of patent filings. As of February 7, 2014,2017, these patent filings have resulted in 1929 issued U.S. patents and 4643 granted foreign patents, with 6 currently pending U.S. patent applications and 265 pending applications in foreign patent offices.

We believe that these in-licensed patents and patent applications include several of the early and important patent filings directed at the design, selection, composition and use of ZFPs, ZFNs and ZFP TFs, particularly thethose licensed under agreements with Johns Hopkins University, the Massachusetts Institute of Technology, the University of Utah, Johnson & Johnson and The Scripps Research Institute.

We have licensed intellectual property directed to the composition of two AAV vectors (AAV5 and AAV6) from the National Institute of Health and the University of Washington, respectively. The AAV5 license from the National Institute of Health is a nonexclusive license that will expire in 2021. The AAV6 license from the University of Washington is also a non-exclusive license and will expire in 2017. Additionally, Sangamo has licensed intellectual property from the National Institutes of Health (NIH) relating to methods of production of production of AAV. This license will expire in 2021.

Johns Hopkins University

We entered into a license agreement with the Johns Hopkins University, or JHU, on June 29, 1995, as subsequently amended, whereby JHU granted us a worldwide exclusive license to technology and patents relating to nuclease and gene targeting technology for all fields of use, including the right to sublicense. Under the license agreement, we are obligated to pay low single-digit royalties on licensed product sales, a low single-digit percentage of license fees received from sublicensees and a high single-digit or low teens percentage of sublicense royalties received from sublicensees for sales of products. We are subject to an annual minimum royalty, which we currently pay. The license agreement expires upon the expiration of the last patent covered by the license agreement. Although many of the JHU in-licensed patents have now expired, based on currently issued patents, the license agreement will terminate on or about August 14, 2014. JHU may terminate the license agreement upon a material default by us that remains uncured following written notice. We may terminate the license agreement at any time upon six months’ written notice.

Massachusetts Institute of Technology

We entered into a patent license agreement with the Massachusetts Institute of Technology, or MIT, on May 9, 1996, as subsequently amended, whereby MIT granted us a worldwide exclusive license to technology and patents relating to the design, selection and use of ZFPs for all fields of use, including the right to sublicense. Under the patent license agreement, we are obligated to pay an annual license fee, low single-digit royalties of product sales, an up-front sublicense and annual sublicense fees, a percentage of its sublicense revenues, and milestone payments upon achievement of certain commercial development milestones. The aggregate milestone payments under the patent license agreement are $450,000, of which $150,000 has been paid. At the request of Sangamo,

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the patent license has been amended to remove some of the intellectual property in the original license agreement that does not affect the development of our technology. The patent license agreement still expires upon the expiration of the last patent covered by the patent license agreement. Based on currently issuedlicensed patents, and currently filed patent applications, the patent license agreement will terminate on or about September 23, 2025.October 9, 2019. MIT may terminate the license agreement upon a material default by us that remains uncured following written notice. We may terminate the license agreement at any time upon six months’ written notice.

University of Utah Research Foundation

IndexWe entered into a patent license agreement with the University of Utah Research Foundation, on September 8, 2004, as subsequently amended, whereby Utah granted us a worldwide license to Financial Statements

Johnson & Johnson

We entered into a sublicense agreement with Johnson & Johnson on May 9, 1996, whereby Johnson & Johnson granted us a worldwide exclusive sublicense to technology and patents for the research, development and commercialization of human and animal therapeutic and diagnostic products using engineered ZFPs, including the right to sublicense. These patents were originally exclusively licensed by Johnson & Johnson from The Scripps Research Institute. Under the sublicense agreement, we will pay low single-digit royalty payments based upon sales of license products by us or our sublicensees and a milestone payment upon the achievement of a commercial development milestone. The sublicense agreement expires upon the expiration of the last patent covered by the sublicense agreement. Based on currently issued patents and currently filed patent applications, the sublicense agreement will terminate on or about June 5, 2018. Johnson & Johnson has the right to terminate the sublicense agreement upon a breach or default by us that remains uncured following written notice of such default. We may terminate the sublicense agreement at any time upon sixty days’ written notice.

The Scripps Research Institute

We entered into a license agreement with The Scripps Research Institute on March 14, 2000, as subsequently amended, whereby The Scripps Research Institute granted us a worldwide exclusive license to technology and patents for the research, development and commercialization of products and services using engineered ZFPs, excluding the use of these engineered ZFPs in plant agriculture, therapeutics and diagnostics. Under the license agreement, we are required to pay a low-single digit royalty on sales of licensed products by us and our sublicensees, subject to an annual minimum. The license agreement expires upon the expiration of the last patent covered by the license agreement. Based on currently issued patents and currently filed patent applications, the license agreement will terminate on or about June 5, 2018. Each party may terminate the license agreement upon a material default by the other party that remains uncured following written notice.

Therapeutic Licenses

We have entered into licenses potentially useful for specific therapeutic uses of our genome editing technologies with the Regents of the University of California and the Children's Medical Center Corporation.  The patents included in these licenses relate to CNS disorders and hemoglobinopathies, respectively. These licenses include 3 patent families, including 5 issued foreign patents, 9 issued US patents, 34 pending foreign patents and 2 pending US patents.

Sangamo Intellectual Property

In addition to our in-licensed patent portfolio, as of February 7, 2014,2016, we had 133153 families of Sangamo-owned or co-owned patent filings, including 107the acquired Ceregene patent estate, which totaled approximately 157 issued U.S. patents, 290562 granted foreign patents, 122123 pending U.S. patent applications and 382516 pending foreign patent applications. These patent filings are directed to the design, composition and use of ZFPs, ZFNs, ZFP TFs, TALE proteins and TALE proteins. Sangamo’s acquisitionCRISPR/Cas systems and other technology related to our programs.

As of Ceregene’s patent estate has also brought patent filings relating to AAV, needle technology and specific methods of treating diseases ofFebruary 7, 2017, the CNS and ocular diseases. In this acquisition, Sangamo acquired 7 patent families, comprising 8 issued U.S. patents, 23 issued foreign patents, 3 pending U.S. Patent applications and 13 pending foreign patent applications.

The earliest active patents in our portfolio are set to begin expiring in 2015,2018, with the majorityaverage expiration of our currently issued patents expiring between 2019 and 2021.being mid-2026. However, these patents in our estateportfolio may be subject to Patent Term

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Adjustment (due to delays in patent prosecution by the USPTO), Patent Term Extension (due to review of a patented product by a regulatory agency) or terminal disclaimer. Additionally, patents that may be issued from our pending applications will extend the patent exclusivity of our patent estate. Accordingly, all dates given above for patent expirations are estimates and the actual dates of expirations may differ.

We believe that our licensed patents and patent applications, as well as the issued Sangamo patents and pending Sangamo patent applications, in the aggregate, will provide us with a substantial intellectual property position in our commercial development of ZFP technology.our Gene Therapy, Genome Editing, Cell Therapy and Gene Regulation programs. In this regard, patents issued to us, applied for by us, or exclusively and non-exclusively licensed to us, cover the following types of inventions, processes and products:

•

ZFP targeted regulation of endogenous genes: methods relating to activation and inhibition of endogenous cellular genes, identification of accessible regions within chromatin, and regulation of endogenous plant genes;

We have been advised that certain aspects of our technology can give us and our collaborators independence from third party patent claims to gene sequences. In general, under United States patent law, a patent may be obtained for any new and useful process, machine, manufacture, or composition of matter. An underlying theme of United StatesU.S. patent law, as related to biotechnology, is that the sequence of a gene, as it exists in the chromosome, is not new,patentable, even when newly discovered, unless it is isolated or modified from its normal chromosomal context. Asalthough a result, patent courts have heldcDNA corresponding to the transcription product of that a DNA sequence must be purified, isolated or modified to be patentable.gene may be. Accordingly, U.S. patent claims to DNA sequences can cover only isolated purifiedcDNAs, or modified nucleic acid sequences (e.g., a purified DNA fragment or a DNA sequence inserted into a vector). We have been advised that U.S. patent claims to DNA sequences do not, and cannot, cover gene sequences as they exist in their natural chromosomal environment, and international patent law is even more stringent than U.S. patent law in this regard. Most current methods for over-expression of a gene or protein involve the introduction into a cell of a vector containing a DNA encoding the protein to be over-expressed. Since such a vector contains isolated cDNA sequences which encode the protein, it would be covered by any patent claims to those sequences. In contrast, our methods for over-expression utilize ZFP TFs that target endogenous genes as they exist in thechromosome.the chromosome. As a result, our gene regulation methods do not require the use of isolated DNAcDNA sequences encoding the protein to be

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over-expressed and, our counsel has advised us, do not infringe patent claims to such sequences. Notwithstanding this advice, we realize that others could take a contrary position that could result in litigation. While we believe that we would prevail in any such litigation, the uncertainties involved in litigation generally make it impossible to provide assurance as to the ultimate outcome of such matters. See“Risk Factors—Because it is difficult and costly to protect our proprietary rights, and third parties have filed patent applications that are similar to ours, we cannot ensure the proprietary protection of our technologies and products.”

Index to Financial Statements

The patent positions of pharmaceutical and biotechnology firms, including our patent position, are uncertain and involve complex legal and factual questions for which important legal tenets are largely unresolved.unresolved and are subject to interpretation and refinement by the court system. Patent applications may not result in the issuance of patents and the coverage claimed in a patent application may be significantly reduced before a patent is issued. Although we have filed for patents on some aspects of our technology, we cannot provide assurances that patents will be issued as a result of these pending applications or that any patent that has been or may be issued will be upheld. The laws of some foreign countries may not protect our proprietary rights to the same extent as do the laws of the United States. For example, our issued European patents = EP2171052 and EP2527435 have been opposed in Europe. Our issued US patent US8153399 is currentlyEP2281050 case was revoked during Opposition in November 2016, and we do not know what the subjectfinal outcome of a re-examination procedure. Wethis case will be.  Similarly, EP2171052 and EP2527435 will undergo Opposition hearings in early 2017, and we do not know what the outcome of this procedurethese procedures will be. The claims of this patentthese patents may be amended such that claim scope is reduced or the patentpatents may be revoked as a result of this procedure.these procedures.

In the future, 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. See“Risk Factors—Because it is difficult and costly to protect our proprietary rights, and third parties have filed patent applications that are similar to ours, we cannot ensure the proprietary protection of our technologies and products.products.”

Estimated Licensing and Other Contingent Expenses

If we are successful in the development and commercialization of our products, we will be obligated by our license agreements to make sublicensing, milestone and royalty payments to some or all of the licensors mentioned above, including payments due pursuant to the acquisition of Ceregene.above. We plan to continue to license and generate intellectual property internally covering the design, selection, composition and use of ZFPs; the genes encoding these proteins; the application of ZFPs, ZFNs and ZFP TFs in ZFP Therapeutics; and non-therapeutic applications of the technology including applications in research and plant agriculture, and intellectual property relating to TALE and CRISPR/Cas design and use.

COMPETITION

We, and our licensed partners, are the leaders in the research, development, and commercialization of DNA binding proteins for gene modificationgenome editing and regulation of gene expression. We are aware of several companies focused on other methods for and modifyingediting genes and regulating gene expression and a limited number of commercial and academic groups pursuing the development of ZFP gene regulation and gene modificationgenome editing technology. The field of applied gene regulation and gene modificationgenome editing is highly competitive and we expect competition to persist and intensify in the future from a number of different sources, including pharmaceutical, agricultural, and biotechnology companies; academic and research institutions; and government agencies that will seek to develop ZFPs as well as technologies that will compete with our ZFP technology platform, such as TALE proteins and the CRISPR (Clustered Regularly Interspaced Short Palindromic Repeats)/CRISPR/Cas9 system.

Accordingly, our competitors may succeed in obtaining patent protection, receiving FDA approval, or commercializing ZFP Therapeutics or other competitive products before us. If we commence commercial product sales, we may 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.

Although we are in the clinical development phase of operations and have no current therapeutic product sales, we believe the following companies, products and/or technologies may potentially be competitive with our technology or our products under development: