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Exhibit 99.2
RENAGEL LLC
FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 1999 AND 1998 AND THE
PERIOD JUNE 6, 1997 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 1997
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RENAGEL LLC
INDEX TO FINANCIAL STATEMENTS
PAGE(S)
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Report of Independent Accountants 1
Balance Sheets as of December 31, 1999 and 1998 2
Statements of Operations for the years ended December 31, 1999 and 1998 and
the period June 6, 1997 (date of inception) through December 31, 1997 3
Statements of Changes in Venturers' Capital for the years ended December 31, 1999
and 1998 and the period June 6, 1997 (date of inception) through December 31, 1997 4
Statements of Cash Flows for the years ended December 31, 1999 and 1998 and the
period June 6, 1997 (date of inception) through December 31, 1997 5
Notes to Audited Financial Statements 6-10
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Steering Committee of
RenaGel LLC:
In our opinion, the accompanying balance sheets and the related statements of
operations, of cash flows and of changes in Venturers' capital present fairly,
in all material respects, the financial position of RenaGel LLC at December 31,
1999 and 1998, and the results of its operations and its cash flows for the
years ended December 31, 1999 and 1998, in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the Steering Committee of the Joint Venture; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above. The financial statements of RenaGel LLC for the
period from June 6, 1997 (date of inception) through December 31, 1997 were
audited by other independent accountants whose report dated February 9, 1998
expressed an unqualified opinion on those statements.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
February 22, 2000
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RENAGEL LLC
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
(IN THOUSANDS)
1999 1998
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 7,855 $ 1,140
Trade accounts receivable, net 2,693 2,213
Inventory 11,751 6,577
Prepaid expenses and other current assets 421 --
-------- --------
Total current assets 22,720 9,930
Fixed assets:
Equipment 6,601 6,540
Accumulated depreciation (1,352) (395)
-------- --------
Equipment, net 5,249 6,145
Construction-in-progress 1,930 600
-------- --------
Total fixed assets 7,179 6,745
Intangible assets, net 786 464
-------- --------
Total assets $ 30,685 $ 17,139
======== ========
LIABILITIES AND VENTURERS' CAPITAL
Current liabilities:
Accounts payable $ 3,649 $ 2,855
Due to Venturers 2,806 3,345
Deferred revenue -- 1,947
Accrued expenses 1,638 --
-------- --------
Total current liabilities 8,093 8,147
Commitments and contingencies
Venturers' capital:
Capital contributions 58,182 28,708
Accumulated deficit (35,590) (19,716)
-------- --------
Total Venturers' capital 22,592 8,992
-------- --------
Total liabilities and Venturers' capital $ 30,685 $ 17,139
======== ========
The accompanying notes are an integral part of the financial statements.
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RENAGEL LLC
STATEMENTS OF OPERATIONS
For the years ended December 31, 1999 and 1998 and
for the period June 6, 1997 (date of inception) through
December 31, 1997
(in thousands)
1999 1998 1997
---- ---- ----
Revenues:
Net product sales $ 19,543 $ 266 $ --
Research and development 1,557 -- --
-------- -------- -------
Total revenues 21,100 266
Operating costs and expenses:
Cost of products sold 7,362 113 --
Selling, general and administrative 18,624 6,493 35
Research and development 11,154 8,778 4,588
-------- -------- -------
Total operating costs and expenses 37,140 15,384 4,623
-------- -------- -------
Operating loss (16,040) (15,118) (4,623)
Other income:
Interest income 166 22 3
-------- -------- -------
Net loss $(15,874) $(15,096) $(4,620)
======== ======== =======
The accompanying notes are an integral part of the financial statements.
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RENAGEL LLC
STATEMENTS OF CHANGES IN VENTURERS' CAPITAL
For the years ended December 31, 1999 and 1998 and
for the period June 6, 1997 (date of inception) through
December 31, 1997
(in thousands)
Total
GelTex Genzyme Venturers'
PHARMACEUTICALS, INC. CORPORATION CAPITAL
--------------------- ----------- ---------
Balance at June 6, 1997 $ -- $ -- $ --
Capital contributions 4,899 4,899 9,798
Net loss (2,310) (2,310) (4,620)
-------- ------- --------
Balance at December 31, 1997 2,589 2,589 5,178
Capital contributions 8,780 10,130 18,910
Net loss (7,548) (7,548) (15,096)
-------- ------- --------
Balance at December 31, 1998 3,821 5,171 8,992
Capital contributions 15,412 14,062 29,474
Net loss (7,937) (7,937) (15,874)
-------- ------- --------
Balance at December 31, 1999 $ 11,296 $11,296 $ 22,592
======== ======= ========
The accompanying notes are an integral part of the financial statements.
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RENAGEL LLC
STATEMENTS OF CASH FLOWS
For the years ended December 31, 1999 and 1998 and
for the period June 6, 1997 (date of inception) through
December 31, 1997
(in thousands)
1999 1998 1997
---- ---- ----
Operating activities:
Net loss ................................................... $(15,874) $(15,096) $(4,620)
Reconciliation of net loss to net cash used
in operating activities:
Depreciation and amortization .......................... 1,135 431 --
Provision for bad debt ................................. 180 -- --
Provision for sales returns ............................ 202 -- --
Write-off of facility design costs ..................... 1,250 -- --
Increase (decrease) in cash from changes in working capital:
Trade accounts receivable .............................. (862) (2,213) --
Inventory .............................................. (5,174) (6,577) --
Prepaid expenses and other current assets .............. (421) 102 (102)
Due to Venturers ....................................... (539) 1,546 1,799
Accounts payable, accrued expenses and
deferred revenue ................................. 485 4,802 --
-------- -------- -------
Net cash used in operating activities .................. (19,618) (17,005) (2,923)
Investing activities:
Purchases of equipment ................................... (2,641) (2,375) (4,765)
Purchase of technology license ........................... (500) (500) --
-------- -------- -------
Net cash used in investing activities .................. (3,141) (2,875) (4,765)
Financing activities:
Capital contributions .................................... 29,474 18,910 9,798
-------- -------- -------
Net cash provided by financing activities .............. 29,474 18,910 9,798
-------- -------- -------
Increase (decrease) in cash and equivalents ................ 6,715 (970) 2,110
Cash and equivalents at beginning of period ................ 1,140 2,110 --
-------- -------- -------
Cash and equivalents at end of period ...................... $ 7,855 $ 1,140 $ 2,110
======== ======== =======
The accompanying notes are an integral part of the financial statements.
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RENAGEL LLC
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND ORGANIZATION:
RenaGel LLC (the "Joint Venture") is a limited liability company
organized under the laws of the State of Delaware. The Joint Venture is
owned 50% by GelTex Pharmaceuticals, Inc. ("GelTex") and 50% by Genzyme
Corporation ("Genzyme"), which are hereafter referred to together as the
"Venturers". The Joint Venture was organized in June 1997 to function as
a joint venture between the Venturers for the final development and
commercialization of Renagel(R) Capsules (sevelamer hydrochloride)
("Renagel(R) Capsules"), and other potential collaboration products.
Marketing approval for Renagel(R) Capsules was granted by the U.S. Food
and Drug Administration in October 1998, and the Joint Venture began the
sale and distribution of Renagel(R) Capsules in November 1998. The
Steering Committee of the Joint Venture is comprised of representatives
of each Venturer. The Steering Committee serves as the governing body of
the Joint Venture and is responsible for determining the overall strategy
for the program, coordinating activities of the Venturers as well as
performing other such functions as appropriate.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ACCOUNTING METHOD
The financial statements have been prepared under the accrual method of
accounting in conformity with accounting principles generally accepted in
the United States. Certain prior year information has been reclassified
to conform with the current year's presentation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reported period. Actual results could differ from
those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents, consisting principally of money market funds
and municipal notes purchased with initial maturities of three months or
less, are valued at cost plus accrued interest, which approximates
market.
INVENTORY
Inventory is valued at the lower of cost (first-in, first-out method) or
market.
Continued
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RENAGEL LLC
NOTES TO FINANCIAL STATEMENTS
FIXED ASSETS
Equipment is stated at cost and is being depreciated using the
straight-line method over an estimated useful life of seven years.
Certain costs incurred for products expected to be commercialized are
capitalized to construction-in-progress. Capitalization of such costs
begins when the product and related process are deemed to have
demonstrated technological feasibility and ends when the related assets
are substantially complete and ready for their intended use. For the
years ended December 31, 1999 and 1998, the Joint Venture had equipment
depreciation expense of $957,000 and $395,000, respectively. There was no
depreciation expense for the period from June 6, 1997 (date of inception)
through December 31, 1997.
Construction-in-progress at December 31, 1999 and 1998 of $1,930,000 and
$350,000, respectively, are comprised of progress payments for the Joint
Venture's plant expansion project. As of December 31, 1999, there were
no further costs expected to complete this project. The additional
production equipment was placed in service in January 2000.
During the years ended December 31, 1999 and 1998, the Joint Venture
incurred $1,000,000 and $250,000, respectively, of design costs related
to further expansion of the Joint Venture's manufacturing facilities. At
December 31, 1998, $250,000 of these costs were included in
construction-in-progress. In December of 1999, the Joint Venture elected
not to further expand the existing manufacturing facilities and
therefore, the $1,250,000 of capitalized costs were written-off as
research and development expense. The decision not to expand the
manufacturing facility was due to the Joint Venture selecting Genzyme to
manufacture the active ingredient Renagel(R) Capsules.
INTANGIBLE ASSETS
Intangible assets consist of licensed technology rights, which are stated
at cost and amortized using the straight-line method over an estimated
life of seven years.
As of December 31, 1999 and 1998, accumulated amortization of
intangible assets were $214,000 and $36,000, respectively.
TRANSACTIONS WITH AFFILIATES
The majority of the Joint Venture's operating expenses are from payments
to the Venturers for project expenses incurred, either as internal
operating costs or as third-party obligations incurred on behalf of the
Joint Venture. At December 31, 1999 and 1998, the Joint Venture owed
$2,806,000 and $3,345,000, respectively, to the Venturers for project
expenses and other costs, including inventory, fixed assets, incurred by
the Venturers on behalf of the Joint Venture.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed in the period incurred. These
costs are primarily comprised of development efforts performed by the
Venturers, on behalf of the Joint Venture, or payments to third parties
made by the Venturers, on behalf of the Joint Venture, during the
respective periods.
INCOME TAXES
The Joint Venture is organized as a pass-through entity; accordingly, the
financial statements do not include a provision for income taxes. Taxes,
if any, are the liability of Genzyme and GelTex, as Venturers.
Continued
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RENAGEL LLC
NOTES TO FINANCIAL STATEMENTS
UNCERTAINTIES
The Joint Venture is subject to risks common to companies in the
biotechnology industry, including (i) the accuracy of the Joint Venture's
estimates of size and characteristics of markets addressed or to be
addressed by the Joint Venture's products, (ii) market acceptance of the
Joint Venture's products, (iii) the Joint Venture's ability to obtain
reimbursement of its products from third-party payers, where appropriate,
(iv) the ability of the Joint Venture to obtain and maintain adequate
patent and other proprietary rights protection for its products, (v) the
ability of the Joint Venture and its contract manufacturers to produce
sufficient quantities of its products at a cost acceptable for
development and commercialization activities, (vi) the ability of the
Joint Venture to obtain timely regulatory approval for its products and
the timing and content of decisions made by regulatory authorities, (vii)
the accuracy of the Joint Venture's information concerning resources of
competitors and potential competitors and (viii) the results of clinical
trials and other development activity.
REVENUE RECOGNITION
Product revenue is recognized when goods are shipped and title has passed
and is net of third party allowances and rebates, as applicable. During
1998, the Joint Venture made sales to wholesalers which had terms other
than the Joint Venture's standard payment and discount terms. For these
sales, revenue was recognized when the product was sold by wholesalers to
end-users. As of December 31, 1998, $1,947,000 of revenue was deferred
related to 1998 shipments of product with extended payment terms which
had not been sold by the wholesaler by year-end. There were no sales to
wholesalers during 1999 which had terms other than the Joint Venture's
standard payment and discount terms, and therefore, no revenue was
deferred as of December 31, 1999.
Research and development revenue relates to development payments received
pursuant to collaborative arrangements. Revenue is recognized by the
Joint Venture when services are performed and all performance obligations
have been met.
3. ACCOUNTS RECEIVABLE
The Joint Venture's trade receivables primarily represent amounts due
from healthcare product distributors. The Joint Venture performs ongoing
credit evaluations of its customers and generally does not require
collateral. Accounts receivable are stated at fair value after reflecting
the allowance for doubtful accounts of $180,000 and the allowance for
sales returns of $202,000 at December 31, 1999. The was no allowance for
doubtful accounts or allowance for sales returns at December 31, 1998.
Continued
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RENAGEL LLC
NOTES TO FINANCIAL STATEMENTS
4. INVENTORIES
Inventories as of December 31, 1999 and 1998 were comprised of work in
progress of $8,077,000 and $3,988,000, respectively and finished goods of
$3,674,000 and $2,589,000, respectively. Approximately $892,000 of
finished goods at December 31, 1998 related to product shipped to
wholesalers in 1998 for which revenue was deferred as of December 31,
1998. Such product was held at the wholesalers at December 31, 1998.
There was no revenue deferred as of December 31, 1999.
5. ACCRUED EXPENSES
Accrued expenses at December 31, 1999 consisted of accrued
rebates of $981,000 and accrued sales commissions of $651,000.
6. VENTURERS' CAPITAL
As of December 31, 1999 and 1998, Venturers' capital is comprised of
monthly capital contributions made by the Venturers to fund budgeted
costs and expenses of the Joint Venture in accordance with the
Collaboration Agreement, net of losses allocated to the Venturers. As of
December 31, 1998 there was an unpaid capital contribution of $1,349,000
owed to the Joint Venture by GelTex, which was netted against 1998
Venturers' capital in the accompanying financial statements. This amount
was subsequently paid in January 1999. There were no unpaid capital
contributions owed to the Joint Venture from either Venturer as of
December 31, 1999.
7. FINANCIAL INFORMATION BY GEOGRAPHIC AREA AND SIGNIFICANT CUSTOMERS AND
SUPPLIERS
The Joint Venture operates in the human healthcare industry and
manufactures and markets its products in the United States. The Joint
Venture's principal manufacturing facilities are located in the United
States. The Joint Venture purchases substantially all of its raw material
from one supplier and is highly dependent upon the manufacturing
capabilities of that supplier.
Continued
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RENAGEL LLC
NOTES TO FINANCIAL STATEMENTS
8. COMMITMENTS AND CONTINGENCIES
GelTex entered into a Contract Manufacturing Agreement with Dow Chemical
Company. This agreement requires the Joint Venture to purchase minimum
quantities of product. The minimums are based upon the Joint Venture's
estimated product requirements and are subject to increase as product
sales increase and as the manufacturer increases capacity of the product.
Additionally, the Joint Venture and Genzyme have entered into a contract
manufacturing agreement dated January 1, 1998, under which Genzyme will
manufacture a portion of the Joint Venture's minimum supply requirements
of product. This agreement also requires the Joint Venture to purchase
minimum quantities of product. These minimums are based upon the Joint
Venture's estimated product requirements.
9. SUBSEQUENT EVENTS
In February 2000, the European Commission granted marketing approval in
Europe for Renagel(R) Capsules. The marketing approval is valid in the
fifteen member states of the European Union. Also in February 2000, the
Health Protection Branch of the Canadian Government granted marketing
approval in Canada for Renagel(R) Capsules. The Joint Venture began
marketing Renagel(R) Capsules in Europe and Canada in March 2000.
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