United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-K
(Mark One)
[X] Annual Report Under Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the fiscal year ended December 31,
2000
Or
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 For the transition
period from ______________ to _____________.
Commission File Number: 000-26727
BioMarin Pharmaceutical Inc.
(Exact name of small business issuer as specified in its charter)
Delaware 68-0397820
(State of other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
371 Bel Marin Keys Blvd., #210, Novato, California 94949
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (415) 884-6700
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered under Section
12(g) of the Act:
Common Stock, $.001 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the past 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
----- ----
Indicate by check mark if disclosure of delinquent filers in response to Item
405 of Regulation S-K is not contained in this form, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. __
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of March 9, 2001 was $181,664,320. The number of shares of common
stock, $0.001 par value, outstanding on March 9, 2001 was 37,115,610.
The documents incorporated by reference are as follows:
Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held May 17, 2001 are incorporated by reference into Part
III.
BIOMARIN PHARMACEUTICAL INC.
Part I
FORWARD LOOKING STATEMENTS
This Form 10-K contains "forward-looking statements" as defined under
securities laws. Many of these statements can be identified by the use of
terminology such as "believes," "expects," "anticipates," "plans," "may,"
"will," "projects," "continues," "estimates," "potential," "opportunity"
and so on. These forward-looking statements may be found in the " Factors
That May Affect Future Results," "Description of Business," and other
sections of this Annual Report on Form 10-K. Our actual results or
experience could differ significantly from the forward-looking statements.
Factors that could cause or contribute to these differences include those
discussed in "Factors That May Affect Future Results," as well as those
discussed elsewhere in this Form 10-K. You should carefully consider that
information before you make an investment decision.
You should not place undue reliance on these statements, which speak only
as of the date that they were made. These cautionary statements should be
considered in connection with any written or oral forward-looking
statements that we may issue in the future. We do not undertake any
obligation to release publicly any revisions to these forward-looking
statements after completion of the filing of this Form 10-K to reflect
later events or circumstances or to reflect the occurrence of
unanticipated events.
Item 1. Description of Business
Overview
BioMarin Pharmaceutical Inc. (BioMarin) is a developer of enzyme therapies for
debilitating, life-threatening, chronic genetic diseases and other diseases and
conditions. We are currently focusing our research and development efforts on
three potential products, AldurazymeTM , rhASB and Vibriolysin.
Aldurazyme for MPS-I
In April 1999, we completed a twelve-month patient evaluation for the initial
clinical trial of our lead drug product, Aldurazyme, for the treatment of
mucopolysaccharidosis-I or MPS-I, a life threatening genetic disease.
Aldurazyme is a specific form of recombinant human (alpha)-L-iduronidase that
replaces a genetic deficiency of (alpha)-L-iduronidase in MPS-I patients. The
26-week clinical results were presented at the American Society for Human
Genetics in October 1999. The initial clinical trial treated ten patients with
MPS-I at six medical centers in the United States. Based on data collected
during the initial twelve-month evaluation period, Aldurazyme met the primary
endpoints set forth in the investigational new drug application. In addition,
Aldurazyme demonstrated efficacy according to various secondary endpoints in
each of the patients. We continue to collect data from the ongoing treatment of
these original patients. In January of 2001, 52-week study results were reported
in the New England Journal of Medicine.
The New England Journal of Medicine article, titled "Enzyme Replacement Therapy
in Mucopolysaccharidosis I," describes the results of the open label trial in
ten MPS-I patients conducted at Harbor-UCLA Medical Center and five other sites
in the U.S. The study subjects ranged in age from 5 to 22 years and included a
wide spectrum of clinical severity. All patients received 52 weeks of weekly
intravenous infusions of Aldurazyme and an intensive series of assessments at 0,
6, 12, 26 and 52 weeks.
Key clinical outcomes reported in the publication include:
1. Significantly decreased liver or spleen size in all subjects, with 8 of 10
subjects showing a normal liver size at 26 weeks and 52 weeks.
2. Reduced excretion of complex carbohydrates in the urine within 3-4 weeks,
reaching near normal excretions in 9 of 10 subjects.
3. Improved range of motion in the shoulder, as patients were able to raise
their right and left arms an average of 28 and 26 degrees higher than
before.
4. Clinically significant improvements in sleep apnea, with a 61 percent
reduction in night-time episodes of interrupted breathing (apnea or
hypopnea).
5. In the 6 prepubertal patients, height growth rate increased 85% and the
weight growth rate increased by 131%.
6. Improvements in physical function reported by all subjects by one class or
more using the four classes of the New York Heart Association functional
scoring system.
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In addition, study findings showed Aldurazyme therapy to be well tolerated in
all study subjects. Adverse events consisted primarily of allergic reactions
including rash in 5 subjects and facial and throat swelling in 3 subjects. These
allergic reactions were manageable with pre-medications and slower rates of
infusion. No neutralizing antibodies were reported.
In September 1998, we established a joint venture with Genzyme for the worldwide
development and commercialization of Aldurazyme. In collaboration with Genzyme,
we are conducting a randomized double-blind, placebo-controlled Phase III
clinical trial of Aldurazyme at five sites in the United States, Canada and
Europe. This pivotal trial began in December 2000 and is evaluating up to 45
MPS-I patients, for a period of six months; patient enrollment was completed in
March 2001. All patients will be dosed weekly, and will be evaluated using both
clinical and biochemical measures of efficacy. Primary clinical endpoints
include measures of pulmonary function and exercise tolerance. Secondary and
tertiary endpoints include both surrogate markers of efficacy as well as
additional measures of clinical benefit. We intend to file a Biologics License
Application (BLA) with the U.S. Food and Drug Administration (FDA) late in 2001,
pending the successful outcome of the Phase III Trial.
Aldurazyme has received fast track designation for the treatment of the more
severe forms of MPS-I. The FDA has granted Aldurazyme an orphan drug designation
giving us exclusive rights to market Aldurazyme to treat MPS-I for seven years
from the date of FDA approval if Aldurazyme is the first product to be approved
by the FDA for the treatment of MPS-I. In addition, the European Commission has
designated Aldurazyme for the treatment of MPS-I as an orphan medicinal product
in the European Community, giving us similar market exclusivity in Europe for 10
years.
MPS-I is a life-threatening genetic disease caused by the lack of a sufficient
quantity of the enzyme (alpha)-L-iduronidase, which affects about 3,400 patients
in developed countries, including approximately 1,000 in the United States and
Canada. Patients with MPS-I have multiple debilitating symptoms resulting from
the buildup of carbohydrate residues in all tissues in the body. These symptoms
include delayed physical and mental growth, enlarged livers and spleens,
skeletal and joint deformities, airway obstruction, heart disease, reduced
endurance and pulmonary function, and impaired hearing and vision. Most children
with MPS-I will die from complications associated with the disease before
adulthood.
In August 2000, our Galli Drive manufacturing facility and a smaller clinical
manufacturing laboratory in our Bel Marin Keys Boulevard facility were both
subjected to an extensive inspection by the State of California Food and Drug
Branch and were granted licenses to produce clinical product. We are
manufacturing bulk Aldurazyme in our Galli Drive manufacturing facility in
compliance with current Good Manufacturing Practices (cGMP) regulations.
RhASB for MPS-VI
In October 2000, we initiated a clinical trial of recombinant human
N-acetylgalactosamine-4-sulfatase also known as arylsulfatase B or rhASB in
enzyme replacement therapy for MPS-VI; patient enrollment was completed in
February 2001. MPS-VI, also known as Maroteaux-Lamy syndrome, is similar in its
clinical symptoms to MPS-I. However, MPS-VI does not appear to have the central
nervous system involvement and mental retardation characteristics of the most
severe form of MPS-I. We are manufacturing clinical bulk rhASB in the Bel Marin
Keys Boulevard facility in compliance with cGMP regulations. RhASB has received
fast track and orphan drug designations by the FDA. In addition, the European
Commission has designated rhASB for the treatment of MPS-VI as an orphan
medicinal product in the European Community.
Vibriolysin for the debridement of serious burns
We have successfully conducted preclinical studies in two animal models of our
burn enzyme, Vibriolysin, for use in burn debridement (cleaning) in wound
preparation for skin grafting. We expect to submit an application to the FDA or
a foreign equivalent to begin a clinical trial for Vibriolysin by mid-year 2001.
Carbohydrate-active Enzyme Therapeutics
Carbohydrates are a fundamental class of biological molecules that play diverse
and critical roles in maintaining the health and functional integrity of all
cells and tissues. Enzymes are proteins that act as specific tools that allow
cells to build up and break down many vital components. Carbohydrate-active
enzymes construct cleave, or otherwise modify carbohydrates to regulate their
production, maintenance and degradation. These carbohydrate-active enzymes are
critical to a wide range of functions within the body, including cell
proliferation, digestion, blood clotting, immune response, wound healing,
conception and control of infection and inflammation. The body, when functioning
normally, produces appropriate quantities of carbohydrate-active enzymes to
perform these functions. Carbohydrate-active enzymes have the potential to play
an important therapeutic role in certain diseases or disorders by either
replacing deficient enzymes or supplementing the enzymes that are naturally
present in the body.
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Role of Carbohydrate-active Enzymes in Genetic Diseases
There are more than 70 genetic diseases that are known to be caused by the
deficiency of a single enzyme. In these genetic diseases the body fails to
produce sufficient or functional quantities of certain enzymes. Most of these
genetic diseases are rare, affecting only a few dozen to a few thousand people
in the United States. Examples of genetic diseases include Gaucher disease,
hemophilia and MPS diseases. Since there is not extensive literature regarding
these rare genetic diseases, we hired a market research consultant, The Frankel
Group, to conduct research regarding this potential market. The figures cited in
the following paragraph were developed by The Frankel Group.
Currently, only eight genetic diseases have effective treatments, and five of
these eight are treated through enzyme replacement. Historically, enzyme
replacement therapy has been limited by the inability of manufacturers to
produce the correct form of enzymes in sufficient quantities. Manufacture of
sufficient quantities to support a therapeutic program has now become possible
with advancements in recombinant DNA production methods. In these cases,
recombinant production methods apply human DNA to host mammalian cells to
produce human enzymes the host cells would not naturally produce. In 1998, the
worldwide sales of pharmaceuticals used to treat genetic diseases by enzyme
replacement were approximately $2.7 billion.
Genzyme's treatment for Gaucher disease is an example of a treatment using
enzyme replacement therapy. Gaucher disease, which afflicts approximately 5,000
people in the developed world, is caused by a deficiency in the enzyme
glucocerebrosidase. In April 1991, following a single clinical trial involving
13 patients, Genzyme's treatment for Gaucher disease was approved for marketing
by the FDA. Approximately 2,500 patients worldwide are using Genzyme's treatment
for Gaucher disease. Sales of Genzyme's treatments for Gaucher disease,
Cerezyme(R) enzyme and Ceredase(R) enzyme, generated total revenue of
approximately $537 million in 2000.
Business Strategy
Our business strategy is to develop therapeutic products to treat a variety of
diseases and conditions involving enzymes and/or carbohydrates. The principal
elements of this strategy are:
o Focus on Drug Candidates with Known Biology and Low Technical Risk. We
identify potential products that treat serious diseases or conditions where
the biological role of enzymes is well understood and the method of
treatment is straightforward. As part of this strategy, we are initially
focusing on treating genetic diseases such as MPS-I and MPS-VI, which are
caused by the deficiency of a single enzyme.
o Select Products that May Be Developed Relatively Quickly. We are developing
therapeutic products for serious diseases or conditions that we believe
will require relatively limited time and capital to conduct preclinical
studies and small numbers of patients for clinical trials. Because many of
our potential drug products are intended for serious or life-threatening
conditions and may address unmet medical needs for these conditions, we
believe that they will qualify for fast track designation by the FDA. If a
preliminary review of the clinical data suggests that the producte is
effective, the FDA may initiate review of sections of a license application
for a fast track product before teh application is complete. This rolling
review is available if the applicant provides a schedule for submission of
remaining information and pays applicable user fees. In September 1998, we
received from the FDA fast track designation for Aldurazyme for the
treatment of severe MPS-I. Similarly, in July 2000, we received fast track
designation for rhASB for the treatment of MPS-VI.
o Pursue Well-defined, Niche Markets. We develop potential drug products to
treat small patient populations for diseases for which there are currently
no effective therapies. Often these markets are for life threatening
diseases, which offer the potential for a clear reimbursement rationale and
life extension. We believe that such products will be reimbursed at
favorable rates. We believe we will receive orphan drug designation from
the FDA and European Commission for many of our products, providing us with
market exclusivity for our drug formulation for seven years in the United
States and ten years in Europe if we are first to gain product approval to
treat the specific disease.
o Develop Direct Sales and Marketing Organization for Select Markets. We will
be able to directly market some of our potential drug products because the
conditions they treat have small patient populations, for which the
treatments are often concentrated in specialized institutions, and because
of the existence of patient support groups for many of our initial disease
targets. We may develop a small sales and marketing organization to target
markets where we believe we can effectively reach the targeted patient and
physician groups. Alternatively, we may pursue strategic collaborations
with biopharmaceutical or other companies to develop products targeted at
markets with larger patient populations.
Products Under Development
Mucopolysaccharidosis Diseases
MPS diseases are seriously debilitating genetic diseases characterized by the
systemic accumulation of mucopolysaccharides, which are now better known as
glycosaminoglycans or GAGs. GAGs are complex carbohydrates synthesized by all
cells in the body and are needed to form the structure of tissues and to give
3
them special properties, like the resilience of cartilage. At least ten enzymes
are required for the complete breakdown in the cell of GAGs. The normal
breakdown of GAGs is incomplete or blocked if any one of these enzymes is not
present in sufficient quantity. The cell is then unable to excrete the
carbohydrate residues and they accumulate in the lysosomes of the cell.
Patients with MPS diseases are usually diagnosed by one to five years of age.
MPS diseases are progressive diseases that afflict patients from birth and that
frequently lead to severe disability and early death. During the course of the
disease, the build-up of GAGs results in one or more of the following symptoms:
o Inhibited growth
o Delay and regression of mental development
o Impaired vision and hearing
o Impaired cardiovascular and heart function especially heart valve
dysfunction
o Coarse facial features
o Upper airway obstruction and reduced pulmonary function
o Enlarged liver and spleen
o Joint deformities and reduced range of motion
o Sleep disorders
o Malaise and reduced endurance
MPS-I. MPS-I is a genetic disease caused by the deficiency of the enzyme
(alpha)-L-iduronidase. About 3,400 patients in developed countries have MPS-I,
including about 1,000 in the United States and Canada. If untreated, almost all
children diagnosed with the more severe forms of MPS-I will die before reaching
adulthood. Patients with milder forms of MPS-I still exhibit many of the
symptoms described above and require extensive medical care. Currently, the only
available treatment for MPS-I is a bone marrow transplant that is primarily
performed in youngm, more severely affected patients. However, many patients
cannot find an appropriate bone marrow donor. Of the patients that do find
appropriate donors, many choose not to receive a bone marrow transplant because
of its risks and serious side effects.
Aldurazyme. We are developing a specific form of recombinant, human
(alpha)-L-iduronidase, designated Aldurazyme, for the treatment of MPS-I.
Aldurazyme treats MPS-I by replacing a deficiency in (alpha)-L-iduronidase
caused by genetic defects. Until now, enzyme replacement therapy for MPS-I has
been impractical because no one has been able to manufacture adequate supplies
of (alpha)-L-iduronidase with the proper structure and purity. The proper
structure of mannose-6-phosphate structures on the enzyme is essential to ensure
efficient uptake of the enzyme by the cells and enable a therapeutic effect at
relatively low doses. Using production and purification processes licensed by us
and subsequently improved, we are able to produce sufficient quantities of
Aldurazyme with the proper structure and purity.
In April 1999, we completed a twelve-month evaluation period for our initial
clinical trial of Aldurazyme. Initiated in December 1997, this clinical trial
treated ten patients with MPS-I at six medical centers in the United States. We
continue to treat and monitor eight of these ten patients according to an
extension protocol. Patients are treated with a slow intravenous infusion of
Aldurazyme once a week at a dose of 100 units per kilogram of patient weight.
(The activity of the product used in the pre-clinical and early clinical studies
was defined at 125,000 units/ml. Due to a subsequent optimization and validation
of the product activity assay, the same product activity is now defined at 100
units/ml. This change does not represent a change in either the actual dose or
the formulation of the product, merely a change in assay conditions and activity
definition.)
The primary endpoints set forth in the investigational new drug application for
Aldurazyme were a reduction in liver or spleen size and a reduction in urinary
GAG levels. Eight of the ten patients achieved the primary endpoint goal of a
20% reduction of liver size within the six-month evaluation period. Of the two
patients who did not achieve the targeted liver reduction, one patient achieved
a liver size in the normal range and the second patient, who had hepatitis at
the end of the six-month period, achieved the 20% reduction after the six-month
period. Five of the ten patients achieved a 20% reduction in spleen size. All of
the ten patients achieved the primary endpoint goal of at least a 50% reduction
in urinary GAG levels.
Each patient with MPS-I exhibits a different mix of clinical symptoms. We tested
each patient at intervals throughout the six-month evaluation period measuring a
variety of secondary endpoints to determine whether the primary endpoints are
reasonably likely to predict clinical benefit. The secondary endpoints we used
included joint disease, eye disease and cardiac function. Additional measures of
efficacy included sleep apnea and airway evaluations, endurance and fatigue, and
evaluations of bone. Except for the evaluations of the patient's bones, in which
no improvement was expected due to the short duration of the trial, most
4
patients who exhibited physical symptoms of the disease achieved improvement in
those symptoms during the course of the evaluation period for the secondary
endpoints and additional clinical measures of efficacy.
During the twelve-month evaluation period, four of the ten patients experienced
immune responses specific to the enzyme. No long-term effects of these immune
responses have been observed at this time. A few patients experienced side
effects, primarily hives in five patients, which probably were related to
Aldurazyme. The hives became recurrent with each infusion in four patients but
eventually decreased and resolved with increased pre-medication. No patients had
life-threatening allergic reactions. Of the events that probably were related to
Aldurazyme, the symptoms occurred during the infusions only, were manageable
with medications, and did not impact the health or well-being of the patient
outside the administration setting as can be determined at this time. Neither
clinical nor laboratory evaluations showed any harmful effect of Aldurazyme
therapy.
At 103 weeks of therapy, a seven year old patient in the initial trial died
suddenly of a respiratory arrest due to a systemic viral illness associated with
significant pulmonary and cardiac infection. The death took place during an
airplane flight. The contribution of altitude and altered oxygenation to her
demise is unclear. The principal investigator believes the event was unrelated
to treatment with Aldurazyme and at this time we concur. A second patient in the
study died after 2 1/2 years of therapy due to a complication following surgery
for a pre-existing MPS-I related skeletal problem.
In collaboration with Genzyme, we initiated a Phase III clinical trial of
Aldurazyme in December 2000 with the intention to file a BLA with the FDA late
in 2001, pending the successful outcome of the Phase III Trial.
The joint venture plans to continue assessment of the efficacy of treatment with
Aldurazyme in this Phase III trial. The parameters for this clinical study are
expected to include:
o Pulmonary function (Forced Vital Capacity (FVC-1), a measure of lung
capacity)
o A 6-minute walk test (a test of overall physical function)
Secondary parameters will include:
o Functional ability assessment questionnaire
o Hepatomegaly (enlargement of the liver)
o Sleep apnea
o Urinary GAGs
Tertiary parameters will include:
o Joint range of motion
o Patient's quality of life
o Growth velocity
o Visual acuity
o Electrocardiogram and echocardiogram (cardiac function)
o Other pulmonary function testing
o Investigator global assessment
o Parents' quality of life
The FDA designated Aldurazyme a fast track product for the treatment of severe
MPS-I. Drugs that show a potential to address an unmet medical need for a
serious or life threatening disease may be eligible to receive fast track
designation. Fast track designation does not guarantee a faster approval. The
FDA may still require additional studies or data regarding Aldurazyme, which may
delay approval and subsequent commercial sales. See "Factors That May Affect
Future Results--If we fail to obtain regulatory approval to commercially
manufacture or sell any of our future drug products, or if approval is delayed,
we will be unable to generate revenue from the sale of our products--If our
joint venture with Genzyme were terminated, our ability to commercialize
Aldurazyme would be delayed."
The joint venture intends to investigate the safety of Aldurazyme in patients
with severe MPS-I. An initial trial to confirm safety in this patient population
is expected to begin in 2001. This information is intended to be available
during the BLA review with the FDA.
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MPS-VI. MPS-VI, also known as Maroteaux-Lamy syndrome, is a genetic disease
caused by a deficiency of the enzyme N-acetylgalactosamine 4-sulfatase (also
known as arylsulfatase B). Estimates from disease frequency studies indicate
that there are approximately 1,100 patients suffering with MPS-VI in the
developed world of which approximately 340 are in the United States and Canada.
Patients with MPS-VI have symptoms similar to those for MPS-I. However, MPS-VI
patients do not have impairment of mental function. If untreated, the average
life span of MPS-VI patients is estimated to be between the teenage years in the
severe form to over 30 years in the mild form. MPS-VI has been treated by bone
marrow transplants. However, many patients do not find an appropriate bone
marrow donor. Of the patients who find an appropriate donor, many choose not to
receive a bone marrow transplant because of its serious risks and side effects.
rhASB. We are developing recombinant, human N-acetylgalactosamine 4-sulfatase or
rhASB, for the treatment of MPS-VI. We believe that rhASB will treat MPS-VI by
replacing a deficiency in the enzyme N-acetylgalactosamine 4-sulfatase.
From 1994 through 2000, preclinical studies of rhASB were conducted on cats with
naturally occurring feline MPS-VI. Cats with feline MPS-VI have physiological
characteristics and clinical symptoms similar to those exhibited by humans with
MPS-VI. RhASB was shown to be well tolerated for at least six months in three
cat studies of rhASB in feline MPS-VI. Additionally, biochemical activity was
confirmed as a significant reduction in stored carbohydrate material (GAG's) was
observed in the cats' major organ systems and peripheral circulation. Clinical
benefit was also shown in the cats' skeletal and neurological systems. These
studies were summarized in the rhASB investigational new drug application.
We are continuing to develop improved production and purification processes for
rhASB for the clinical and commercial manufacturing processes. RhASB has
received fast track and orphan drug designations from the FDA. In addition, the
European Commission has designated rhASB for the treatment of MPS-VI as an
orphan medicinal product in the European Community. An investigational new drug
application was filed with the FDA and a Phase I clinical trial for the use of
rhASB at two dose levels to treat MPS-VI in six patients began in October 2000.
Patient enrollment in this trial was completed in February 2001, and initial
clinical results from this trial should be available in September 2001.
Other Diseases And Conditions
Burn Debridement
In 1997, approximately 65,000 patients in the United States were admitted to
hospitals with serious burns. Approximately 20% of these patients had very
severe burns that destroyed all layers of the skin, referred to as
full-thickness or third-degree burns. Full-thickness burns require major skin
grafts. This typically requires admission to one of approximately 150 major burn
centers in the United States. Full-thickness burns are treated by removing
unhealthy and dead tissue, a process called debridement, to prevent infection
and to prepare the burned site for skin grafting or other therapy. Currently,
full-thickness burns are debrided by multiple surgical procedures that are
complicated by loss of blood, loss of healthy tissue, continued trauma and pain
and scarring. In many instances, surgery must be delayed in severely compromised
patients. Additionally, certain parts of the body, such as the hands and face,
are difficult to treat by this method.
A limited number of topical debridement products are available as an alternative
to surgery. Topical enzymatic products, however, have not been widely accepted
by physicians treating burn patients because the products either act too slowly
and are ineffective, or act indiscriminately on both dead and living skin
causing the patient intolerable pain.
A significant part of human skin is made up of carbohydrates and proteins. We
believe that there is an opportunity for more selective enzyme debridement
products that have greater specificity at digesting carbohydrates or proteins in
dead tissue.
Based on discussions with general wound specialists, we believe that if the
products successfully debride full-thickness burns, they have the potential to
effectively debride partial thickness burns and other types of wounds as well.
Vibriolysin.
Vibriolysin is an enzyme from a marine bacterium that acts preferentially on
denatured (unfolded) proteins and was discovered by scientists at W.R. Grace &
Co. Upon review of the data from preclinical studies that were conducted by W.R.
Grace, in May 1998 we obtained a three-year option to obtain an exclusive
license to Vibriolysin. In January 2001, we notified W.R. Grace that we were
exercising that option and we are currently in negotiations to finalize this
agreement. In preclinical studies supported by W.R. Grace, Vibriolysin was shown
to safely debride full-thickness burns in pigs, and accelerate wound healing in
less severe burn lesions. In studies sponsored by us and conducted at UCSD and
Vanderbilt, the ability of Vibriolysin to debride full-thickness burns was
confirmed in mice, rats and pigs. Tests to apply skin grafts to burns debrided
by Vibriolysin were successful in mice and pigs (tests in rats were not
attempted). Based on the successful completion of appropriate toxicology and
pharmacokinetic studies, the Company expects to initiate a clinical trial in
2001 pending regulatory submission and approval in the US or Europe.
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Other Research and Development
We intend to develop additional enzyme replacement therapies for other genetic
diseases. We have identified genetic diseases that we believe will respond well
to enzyme replacement therapy. We are developing enzyme replacement therapies
that we believe qualify for orphan drug designation. Due to the known biologic
mechanism of proposed enzyme replacement therapies, we believe that the human
clinical trials for future genetic diseases may be similar to those for MPS-I.
We are applying a portion of our research and development efforts on enzymes for
the treatment of other non-genetic disease conditions where the biology of the
disease is well understood and therefore the potential therapeutic value of
these types of enzymes can be assessed. This would include diseases currently
without effective therapies where we can leverage our core competence and
technology to move quickly through preclinical development and into clinical
trials.
Carbohydrate Analysis, Products and Services
Glyko, Inc., our wholly-owned subsidiary, sells carbohydrate analytical products
and services. These products and services provide sophisticated carbohydrate
analysis to research institutions and commercial laboratories. Commercial
laboratories use carbohydrate analysis to determine carbohydrate structure,
sequence and quantity. Glyko, Inc.'s key technology, Fluorphore Assisted
Carbohydrate Electrophoresis, also known as FACE(R), is a rapid and relatively
inexpensive method of analyzing complex carbohydrates. In a typical application,
FACE(R) will rapidly process a sample of unknown composition. It will then
identify the carbohydrate structures present, quantify their abundance and
prepare a detailed report.
Glyko, Inc.'s primary product is the FACE(R)Imaging System, an electrophoretic
system that includes an imager and software designed to separate, identify and
quantify carbohydrates. Glyko, Inc. also sells the consumable products required
for the system's operation.
In addition, Glyko, Inc. provides:
o Reagents used in carbohydrate chemistry, including carbohydrate-active
enzymes
o Custom analytical services for profiling and sequencing complex
carbohydrates
o Research services on carbohydrate related problems
o Diagnostic methods and services for lysosomal storage diseases, diseases in
which residues build up in lysosomes because of deficiencies in enzymes.
Glyko, Inc. also markets the only urinary screening test cleared by the FDA for
lysosomal storage diseases. Glyko, Inc. also provides a lysosomal storage
diseases screening service using its test and related diagnostic technology.
Glyko, Inc.'s diagnostics line includes software for the automated diagnosis of
oligosaccharidoses, a subclass of lysosomal storage diseases. Glyko, Inc. is
developing similar software for MPS diseases. Glyko, Inc. is expanding its
ability to measure GAGs in urine. In addition to MPS-I, elevated or reduced
levels of GAGs in urine may serve as early, non-invasive indicators for a number
of diseases, including osteoporosis, degenerative joint diseases, kidney
diseases as well as lysosomal storage diseases. In addition, Glyko, Inc.
provides analysis of plasma heparin, a type of GAG, and is developing an
automated analyzer for heparin in whole blood and in urine. The direct analysis
of heparin concentration in blood or plasma allows for close monitoring of
patients on heparin-based anti-coagulation therapy. Over-or under-dosing of
heparin can result in serious adverse side effects.
Glyko, Inc. purchased the reagent business of Oxford GlycoSciences in May of
1999. This business adds a product line of chromatography columns and
disposables as well as additional reagents and enzymes to the current technology
offered by Glyko, Inc. As of March 2001, Glyko, Inc. markets 17 kits, 63
enzymes, 110 carbohydrate standards, as well as HPLC columns, miscellaneous
reagents, analytical and diagnostic services.
7
Manufacturing
The drug candidates we are currently developing require the manufacture of
recombinant enzymes. For our genetic disease programs, we expect to manufacture
the bulk enzymes. We believe that we will be able to manufacture sufficient
quantities of our genetic disease drug products for clinical trials and
commercial sales in part because relatively low doses are required for treatment
and because the targeted patient populations are small. In general, we expect to
contract with outside service providers for certain manufacturing services,
including final product fill and finish operations and bulk enzyme production
for clinical and early commercial production where the production requirements
exceed our manufacturing capacity.
In the first quarter of 2000, we began production of Aldurazyme for clinical
requirements including the Phase III clinical trial and other clinical studies.
The bulk production is being done in our Galli Drive (Novato, California)
manufacturing facility. Galli is a 32,800 square foot cGMP production facility
including support areas housing utilities, laboratories and administrative
functions. We expect to support the commercial launch of Aldurazyme from this
facility. Vialing and packaging will be performed using contract manufacturing.
We are developing additional manufacturing capacity to support commercial sales
of Aldurazyme, rhASB or other genetic diseases enzymes. We intend to complete
this phase of development in 2001 by selective additions to certain support
activities in our Galli Drive manufacturing facility.
In 2000, the manufacturing facilities in Novato were inspected and subsequently
licensed by the State of California Food and Drug Branch for the production of
clinical trial material. These facilities will be inspected by the FDA or other
regulatory agencies after the filing of a BLA or other marketing application.
These facilities, and those of any third-party manufacturers, will be subject to
periodic inspections confirming compliance with applicable law. Our facilities
must be cGMP certified before we can manufacture our drugs for commercial sales.
Failure to comply with these requirements could result in the shutdown of our
facilities, fines or other penalties.
Sales and Marketing
Pharmaceutical Sales and Marketing. We have no experience marketing or selling
pharmaceutical products. To commercially market our products once the necessary
regulatory approvals are obtained, we must either develop our own sales and
marketing force or enter into arrangements with third parties.
We established a joint venture with Genzyme for the worldwide development and
commercialization of Aldurazyme for the treatment of MPS-I. Under the joint
venture, Genzyme will be responsible for marketing, distribution, sales and
obtaining reimbursement of Aldurazyme worldwide.
In the future, we may develop the capability to market and sell our drug
products that are targeted at small or concentrated patient populations. In many
cases, we believe that these patient populations are typically well-informed and
well-connected to the medical community. Often family/patient groups suffering
from niche diseases are capable users of the internet to share experiences and
gather information. We believe that direct marketing to these families or
patients would be effective. We may also market our products through
distributors or other collaborators, particularly for those products targeted at
larger patient populations or for countries where the development of an
infrastructure is not economically attractive.
Sales and Marketing of Carbohydrate Analytical Products and Services. Glyko,
Inc. sells its products and services primarily to distributors of research
products, quality control laboratories and research laboratories. Glyko, Inc.
has a sales staff of three, who cover the United States, Canada and Europe.
Direct sales efforts accounted for approximately 70% of Glyko, Inc.'s revenues
in 2000. Glyko, Inc. has established a network of distributors to expand its
coverage in the analytical products market. Glyko, Inc. has relationships with
three major research products distributors worldwide and with one distributor
for North America. These distribution agreements allow these companies to sell
Glyko, Inc. manufactured products under the distributor's own name (OEM). Glyko,
Inc. also has distribution agreements with third parties covering Asia,
Australia, Europe and Mexico. Sales by distributors accounted for approximately
24% of Glyko, Inc.'s revenues in 2000. The remaining 19% of Glyko, Inc.'s
revenues are from OEM sales. Services provided to BioMarin accounted for
approximately 20% of Glyko, Inc.'s overall revenue in 2000.
Patents and Proprietary Rights
Our success depends in part on our ability to:
o Obtain patents
o Protect trade secrets
o Operate without infringing the proprietary rights of others
o Prevent others from infringing on our proprietary rights
8
We may obtain licenses to patents and patent applications from others.
We have thirteen patent applications presently pending in the United States
Patent and Trademark Office. We have filed six foreign counterpart applications
and expect to file a foreign counterpart to one of the other pending U.S. patent
applications at the proper time.
Glyko, Inc. owns twelve issued U.S. patents. In addition, Glyko, Inc. has
licensed four U.S. patents and their foreign counterparts from AstroMed Ltd. and
its successor Astroscan Ltd. on an exclusive, worldwide, perpetual and
royalty-free basis. Glyko, Inc. has also licensed six U.S. patents from Glycomed
Incorporated on an exclusive, worldwide, perpetual and royalty-free basis. These
patents are all related to Glyko, Inc.'s products and services.
Government Regulation
Food and Drug Administration Modernization Act of 1997. The Food and Drug
Administration Modernization Act of 1997 was enacted, in part, to ensure the
availability of safe and effective drugs, biologics and medical devices by
expediting the FDA review process for new products. The Modernization Act
establishes a statutory program for the approval of fast track products,
including biologics. The fast track provisions essentially codify the FDA's
accelerated approval regulations for drugs and biologics. A fast track product
is defined as a new drug or biologic intended for the treatment of a serious or
life-threatening condition that demonstrates the potential to address unmet
medical needs for this condition. Under the new fast track program, the sponsor
of a new drug or biologic may request the FDA designate the drug or biologic as
a fast track product at any time during the clinical development of the product.
The Modernization Act specifies that the FDA must determine if the product
qualifies for fast track designation within 60 days of receipt of the sponsor's
request.
Approval of a license application for a fast track product can be based on an
effect on a clinical endpoint or on a surrogate endpoint that is reasonably
likely to predict clinical benefit. Approval of a license application for a fast
track product based on a surrogate endpoint may be subject to:
o Post-approval studies to validate the surrogate endpoint or confirm the
effect on the clinical endpoint
o Prior review of all promotional materials
If a preliminary review of the clinical data suggests that the product is
effective, the FDA may initiate review of sections of a license application for
a fast track product before the application is complete. This rolling review is
available if the applicant provides a schedule for submission of remaining
information and pays applicable user fees. However, the time period specified in
the Prescription Drug User Fees Act, which governs the time period goals the FDA
has committed to reviewing a license application, does not begin until the
complete application is submitted.
In September 1998, the FDA designated Aldurazyme a fast track product for the
more severe forms of MPS-I. We cannot predict the ultimate impact, if any, of
the fast track process on the timing or likelihood of FDA approval of Aldurazyme
or any of our other potential products.
Orphan Drug Designation. In September 1997, Aldurazyme received orphan drug
designation from the FDA. In February 1999, rhASB received orphan drug
designation from the FDA. Orphan drug designation is granted by the FDA to drugs
intended to treat a rare disease or condition. A rare disease or condition is
one, which generally affects fewer than 200,000 individuals in the United
States. Orphan drug designation must be requested before submitting a biologics
license application. After the FDA grants orphan drug designation, the generic
identity of the therapeutic agent and its potential orphan use are disclosed
publicly by the FDA. A similar system for orphan drug designation exists in the
European Community. Both Aldurazyme and rhASB received designation as orphan
medicinal products by the European Commission in February 2001. In Europe this
designation allows for 10 years of market exclusivity.
Orphan drug designation does not shorten the regulatory review and approval
process for an orphan drug, nor does it give that drug any advantage in the
regulatory review and approval process. If an orphan drug later receives
approval for the indication for which it has designation, the relevant
regulatory authority may not approve any other applications to market the same
drug for the same indication, except in very limited circumstances, for seven
years. Although obtaining approval to market a product with orphan drug
exclusivity may be advantageous, we cannot be certain that we will be the first
to obtain approval for any drug for which we obtain orphan drug designation. Nor
can we be certain that orphan drug designation will result in any commercial
advantage or reduce competition. Nor can we be certain that the limited
exceptions to this exclusivity will not be invoked by the relevant regulatory
authority.
Competition
Pharmaceutical Products. The biopharmaceutical industry is rapidly evolving and
highly competitive. The following is a summary competitive analysis for known
competitive threats for each of our major biopharmaceutical product programs:
9
Aldurazyme for MPS-I. On November 21, 2000, Transkaryotic Therapies, Inc. (TKTX)
announced that a US patent on (alpha)-L-iduronidase had been issued and that
this patent had been exclusively licensed to TKTX. We have examined the patent,
the patent file, the prior art and other factors. Our assessment is that there
is reason to believe that the patent may not survive a challenge. However, the
processes of patent law are uncertain and any patent proceeding is subject to
multiple unanticipated outcomes. We believe that it is in the best interests of
our joint venture with Genzyme to pursue the development of Aldurazyme with
commercial diligence, concurrent with our challenge of the patent, in order to
gain marketing approvals as rapidly as possible and to provide MPS-I patients
with the benefits of Aldurazyme. If the patent is valid, the joint venture will
need to reach an accommodation with the holder of the license to the patent.
This patent does not affect our ability to market Aldurazyme in Europe or Japan,
both major pharmaceutical markets. A patent making the same claims was rejected
by the European Community and cannot be refiled.
A small private company has announced that it has novel enzymatic technology to
make enzymes with proper glycosylation and phosphorylation. The proper
carbohydrate and phosphate structural elements of the enzyme are essential to
facilitate uptake of the enzyme by the patient's cells to have efficient enzyme
replacement therapy. This company has stated an intention to begin clinical
trials of its enzyme for MPS-I in 2001. BioMarin's preclinical analysis
indicates that Aldurazyme is highly efficient in being taken up by cells during
enzyme replacement therapy as a result of the proper mannose-6-phosphate ligands
(glycosylation and phosphorylation) on the enzyme. We do not have any
comparative data to assess directly the relative potential therapeutic qualities
of Aldurazyme and the other enzyme.
RhASB for MPS-VI. We know of no active competitive program for enzyme
replacement therapy for MPS-VI that has entered clinical trials.
Gene therapy is a potential competitive threat to enzyme replacement therapies
for both MPS-I and MPS-VI. We know of no competitive program using gene therapy
for the treatment of either MPS-I or MPS-VI that has entered clinical trials.
Vibriolysin for debridement of serious burns. Other enzymatic products exist
which might be possibly used for the debridement of serious second or third
degree burns. Those products in their current form have not captured any
meaningful share of the debridement function in the treatment of burn patients.
We know of no clinical program of a new enzymatic product for the debridement of
serious burns. The primary competition for Vibriolysin continues to be surgical
debridement.
Carbohydrate Analysis Products and Services. The FACE(R)Imaging System's primary
competitors are alternative carbohydrate analytical technologies including:
o Capillary electrophoresis
o High-pressure liquid chromatography
o Mass spectrometry
o Nuclear magnetic resonance spectrometry
The major advantages of FACE(R) are:
o Low cost
o Quantification of carbohydrates present
o Easy application to samples of unknown composition
o User friendly procedures and software
o Provides versatility for other non-carbohydrate applications
The major disadvantages of FACE(R) are:
o FACE(R) requires single-use specialized gels which give FACE(R) systems a
higher disposable cost than some competitive products which have reusable
components.
o Some competitive products may provide a more precise measurement of the
molecular weight of a sample.
o One competitive technology can provide more complete structural information
about the sample.
The acquisition of the Oxford GlycoSciences reagents business has given Glyko,
Inc. the ability to compete directly with companies with expertise in HPLC
technologies. The competition in the carbohydrate-active enzymes business is
comprised primarily of distributors of broad lines of research products and
supplies, particularly fine chemicals and reagents. Glyko, Inc. competes on the
basis of the catalog of products it offers and the number of carbohydrate-active
enzymes it offers and their proprietary nature. Glyko, Inc. believes that it
also provides superior service because it provides customers with sales
information and assistance based on scientific understanding of carbohydrate
10
chemistry and function. However, it does not offer as many products as some of
its competitors. Glyko, Inc. plans to expand its enzyme product offerings over
the next several years to compete with the broadest product lines offered today
by competitors. However, neither we nor Glyko, Inc. can assure you that Glyko,
Inc. will successfully broaden its product offerings or will otherwise compete
successfully.
Glyko, Inc.'s diagnostic product line competes primarily with alternative
technologies and laboratory services. Glyko, Inc. believes that its diagnostic
approaches are novel. Glyko, Inc. has the only urinary screening test cleared by
the FDA for certain lysosomal storage diseases. Glyko, Inc. believes that the
test may be used as a screening tool for early detection of a number of
lysosomal storage diseases and that success of the product will depend on
whether it becomes widely adopted. See "Factors that May Affect Future
Results--If we fail to compete successfully, our revenues and operating results
will be adversely affected."
Employees
As of March 9, 2001, we had 174 full-time employees, 100 of whom are in
manufacturing, 51 of whom are in research and development, 5 of whom are in
sales and marketing of the Glyko, Inc. products and 18 of whom are in
administration.
We consider our employee relations to be good. Our employees are not covered by
a collective bargaining agreement. We have not experienced employment related
work stoppages. We cannot assure you that we will be able to continue attracting
qualified personnel in sufficient numbers to meet our needs.
11
FACTORS THAT MAY AFFECT FUTURE RESULTS
An investment in our common stock involves a high degree of risk. We
operate in a dynamic and rapidly changing industry that involves numerous risks
and uncertainties. The risks and uncertainties described below are not the only
ones we face. Other risks and uncertainties, including those that we do not
currently consider material, may impair our business. If any of the risks
discussed below actually occur, our business, financial condition, operating
results or cash flows could be materially adversely affected. This could cause
the trading price of our common stock to decline, and you may lose all or part
of your investment.
If we continue to incur operating losses for a period longer than anticipated,
we may be unable to continue our operations at planned levels and be forced to
reduce or discontinue operations.
We are in an early stage of development and have operated at a net loss since we
were formed. Since we began operations in March 1997, we have been engaged
primarily in research and development. We have no sales revenues from any of our
drug products. As of December 31, 2000, we had an accumulated deficit of
approximately $80.5 million. We expect to continue to operate at a net loss at
least through 2002. Our future profitability depends on our receiving regulatory
approval of our drug candidates and our ability to successfully manufacture and
market any approved drugs, either by ourselves or jointly with others. The
extent of our future losses and the timing of profitability are highly
uncertain. If we fail to become profitable or are unable to sustain
profitability on a continuing basis, then we may be unable to continue our
operations.
Because of the relative small size and scale of our wholly-owned subsidiary,
Glyko, Inc., profits from its products and services will be insufficient to
offset the expenses associated with our pharmaceutical business. As a result, we
expect that operating losses will continue and increase for the foreseeable
future.
If we fail to obtain the capital necessary to fund our operations, we will be
unable to complete our product development programs.
In the future, we may need to raise substantial additional capital to fund
operations. We cannot be certain that any financing will be available when
needed. If we fail to raise additional financing as we need it, we will have to
delay or terminate some or all of our product development programs.
We expect to continue to spend substantial amounts of capital for our operations
for the foreseeable future. Activities which will require additional
expenditures include:
Research and development programs
Preclinical studies and clinical trials
Process development, including quality systems for product manufacture
Regulatory processes in the United States and international jurisdictions
Commercial scale manufacturing capabilities
Expansion of sales and marketing activities
The amount of capital we will need depends on many factors, including:
The progress, timing and scope of our research and development programs
The progress, timing and scope of our preclinical studies and clinical
trials
The time and cost necessary to obtain regulatory approvals
The time and cost necessary to develop commercial processes, including
quality systems
The time and cost necessary to build our manufacturing facilities and
obtain the necessary regulatory approvals for those facilities
The time and cost necessary to respond to technological and market
developments
Any changes made or new developments in our existing collaborative,
licensing and other commercial relationships
Any new collaborative, licensing and other commercial relationships that we
may establish
Moreover, our fixed expenses such as rent, license payments and other
contractual commitments are substantial and will increase in the future. These
fixed expenses will increase because we may enter into:
12
Additional leases for new facilities and capital equipment
Additional licenses and collaborative agreements
Additional contracts for consulting, maintenance and administrative
services
Additional contracts for product manufacturing
We believe that the cash, cash equivalents and short-term investment securities
balances at December 31, 2000 will be sufficient to meet our operating and
capital requirements through 2001. This estimate is based on assumptions and
estimates, which may prove to be wrong. As a result, we may need or choose to
obtain additional financing during that time.
If we fail to obtain regulatory approval to commercially manufacture or sell any
of our future drug products, or if approval is delayed, we will be unable to
generate revenue from the sale of our products.
We must obtain regulatory approval before marketing or selling our drug products
in the U.S. and in foreign jurisdictions. In the United States, we must obtain
FDA approval for each drug that we intend to commercialize. The FDA approval
process is typically lengthy and expensive, and approval is never certain.
Products distributed abroad are also subject to foreign government regulation.
None of our drug products has received regulatory approval to be commercially
marketed and sold. If we fail to obtain regulatory approval, we will be unable
to market and sell our drug products. Because of the risks and uncertainties in
biopharmaceutical development, our drug candidates could take a significantly
longer time to gain regulatory approval than we expect or may never gain
approval. If regulatory approval is delayed, our management's credibility, the
value of our Company and our operating results will be adversely affected.
To obtain regulatory approval to market our products, preclinical studies and
costly and lengthy clinical trials may be required and the results of the
studies and trials are highly uncertain.
As part of the regulatory approval process, we must conduct, at our own expense,
preclinical studies in the laboratory on animals, and clinical trials on humans
for each drug candidate. We expect the number of preclinical studies and
clinical trials that the regulatory authorities will require will vary depending
on the drug product, the disease or condition the drug is being developed to
address and regulations applicable to the particular drug. We may need to
perform multiple preclinical studies using various doses and formulations before
we can begin clinical trials, which could result in delays in our ability to
market any of our drug products. Furthermore, even if we obtain favorable
results in preclinical studies on animals, the results in humans may be
significantly different.
After we have conducted preclinical studies in animals, we must demonstrate that
our drug products are safe and efficacious for use on the target human patients
in order to receive regulatory approval for commercial sale. Adverse or
inconclusive clinical results would stop us from filing for regulatory approval
of our products. Additional factors that can cause delay or termination of our
clinical trials include:
Slow patient enrollment
Longer treatment time required to demonstrate efficacy
Lack of sufficient supplies of the drug candidate
Adverse medical events or side effects in treated patients
Lack of effectiveness of the drug candidate being tested
Regulatory requests for additional clinical trials
Typically, if a drug product is intended to treat a chronic disease, safety and
efficacy data must be gathered over an extended period of time, which can range
from six months to three years or more. In addition, clinical trials on humans
are typically conducted in three phases. The FDA generally requires two pivotal
clinical trials that demonstrate substantial evidence of safety and efficacy and
appropriate dosing in a broad patient population at multiple sites to support an
application for regulatory approval. If a drug is intended for the treatment of
a serious or life-threatening condition and the drug demonstrates the potential
to address unmet medical needs for this condition, fewer clinical trials may be
sufficient to prove safety and efficacy under the FDA's Modernization Act of
1997.
13
In April 1999, we completed a twelve-month patient evaluation for the initial
clinical trial of our lead drug product, Aldurazyme, for the treatment of MPS-I.
The results were presented at the American Society for Human Genetics in October
1999. We continue to collect data from the ongoing treatment of these original
patients. The initial clinical trial treated ten patients with MPS-I at six
medical centers in the United States. Two of the original ten patients enrolled
in the first clinical trial of Aldurazyme died in 2000. Based on medical data
collected from clinical investigative sites, neither case directly implicated
treatment with Aldurazyme as the cause of death. The data suggest that one
patient died due to a combination of systemic viral illness, residual MPS I
coronary disease, and external factors. This patient had received 103 weeks of
Aldurazyme administration. For the other patient, the data suggest that the
patient died due to complications following posterior spinal fusion for
scoliosis. This patient had received 127 weeks of Aldurazyme administration.
The fast track designation for our product candidates may not actually lead to a
faster review process.
Although Aldurazyme and rhASB have obtained a fast track designation, we cannot
guarantee a faster review process or faster approval compared to the normal FDA
procedures.
We will not be able to sell our products if we fail to comply with manufacturing
regulations.
Before we can begin commercial manufacture of our products, we must obtain
regulatory approval of our manufacturing facility and process. In addition,
manufacture of our drug products must comply with the FDA's current Good
Manufacturing Practices regulations, commonly known as cGMP. The cGMP
regulations govern quality control and documentation policies and procedures.
Our manufacturing facilities are continuously subject to inspection by the FDA,
the State of California and foreign regulatory authorities, before and after
product approval. Our Galli Drive and our Bel Marin Keys Boulevard manufacturing
facilities have been inspected and licensed by the State of California for
clinical pharmaceutical manufacture. We cannot guarantee that these facilities
will pass federal or international regulatory inspection. We cannot guarantee
that we, or any potential third-party manufacturer of our drug products, will be
able to comply with cGMP regulations.
We must pass Federal, state and European regulatory inspections, and we must
manufacture three process qualification batches (five process qualification
batches for Europe) to final specifications under cGMP controls before the
Aldurazyme marketing applications can be approved. We cannot ensure that we will
manufacture the process qualification batches or pass the inspections in a
timely manner, if at all.
If we fail to obtain orphan drug exclusivity for our products, our competitors
may sell products to treat the same conditions and our revenues may be reduced.
As part of our business strategy, we intend to develop drugs that may be
eligible for FDA and European Community orphan drug designation. Under the
Orphan Drug Act, the FDA may designate a product as an orphan drug if it is a
drug intended to treat a rare disease or condition, defined as a patient
population of less than 200,000 in the United States. The company that obtains
the first FDA approval for a designated orphan drug for a given rare disease
receives marketing exclusivity for use of that drug for the stated condition for
a period of seven years. However, different drugs can be approved for the same
condition. Similar regulations are available in the European Community with a
ten-year period of market exclusivity.
Because the extent and scope of patent protection for our drug products is
limited, orphan drug designation is particularly important for our products that
are eligible for orphan drug designation. We plan to rely on the exclusivity
period under the orphan drug designation to maintain a competitive position. If
we do not obtain orphan drug exclusivity for our drug products, which do not
have patent protection, our competitors may then sell the same drug to treat the
same condition.
We received orphan drug designation from the FDA for Aldurazyme in September
1997. In February 1999, we received orphan drug designation from the FDA for
rhASB for the treatment of MPS-VI. In February 2001 we received orphan drug
designation from the European Community for both products. Even though we have
obtained orphan drug designation for these drugs and even if we obtain orphan
drug designation for other products we develop, we cannot guarantee that we will
be the first to obtain marketing approval for any orphan indication or that
exclusivity would effectively protect the product from competition. Orphan drug
designation neither shortens the development time or regulatory review time of a
drug so designated nor gives the drug any advantage in the regulatory review or
approval process.
Because the target patient populations for our products are small we must
achieve significant market share and obtain high per patient prices for our
products to achieve profitability.
14
Our initial drug candidates target diseases with small patient populations. As
a result, our per patient prices must be high enough to recover our development
costs and achieve profitability. For example, two of our initial drug products
in genetic diseases, Aldurazyme and rhASB, target patients with MPS-I and
MPS-VI, respectively. We estimate that there are approximately 3,400 patients
with MPS-I and 1,100 patients with MPS-VI in the developed world. We believe
that we will need to market worldwide to achieve significant market share. In
addition, we are developing other drug candidates to treat conditions, such as
other genetic diseases and serious burn wounds, with small patient populations.
We cannot be certain that we will be able to obtain sufficient market share for
our drug products at a price high enough to justify our product development
efforts.
If we fail to obtain an adequate level of reimbursement for our drug products by
third-party payors, there would be no commercially viable markets for our
products.
The course of treatment for patients with MPS-I using Aldurazyme is expected to
be expensive. We expect patients to need treatment throughout their lifetimes.
We expect that most families of patients will not be capable of paying for this
treatment themselves. There will be no commercially viable market for Aldurazyme
without reimbursement from third-party payors.
Third-party payors, such as government or private health care insurers,
carefully review and increasingly challenge the price charged for drugs.
Reimbursement rates from private companies vary depending on the third-party
payor, the insurance plan and other factors. Reimbursement systems in
international markets vary significantly by country and by region, and
reimbursement approvals must be obtained on a country-by-country basis. We
cannot be certain that third-party payors will pay for the costs of our drugs
and the courses of treatment. Even if we are able to obtain reimbursement from
third-party payors, we cannot be certain that reimbursement rates will be enough
to allow us to profit from sales of our drugs or to justify our product
development expenses.
We currently have no expertise obtaining reimbursement. We expect to rely on the
expertise of our joint venture partner Genzyme to obtain reimbursement for the
costs of Aldurazyme. We cannot predict what the reimbursement rates will be. In
addition, we will need to develop our own reimbursement expertise for future
drug candidates unless we enter into collaborations with other companies with
the necessary expertise.
We expect that in the future, reimbursement will be increasingly restricted both
in the United States and internationally. The escalating cost of health care has
led to increased pressure on the health care industry to reduce costs.
Governmental and private third-party payors have proposed health care reforms
and cost reductions. A number of federal and state proposals to control the cost
of health care, including the cost of drug treatments have been made in the
United States. In some foreign markets, the government controls the pricing
which would affect the profitability of drugs. Current government regulations
and possible future legislation regarding health care may affect our future
revenues from sales of our drugs and may adversely affect our business and
prospects.
If we are unable to protect our proprietary technology, we may not be able to
compete as effectively.
Where appropriate, we seek patent protection for certain aspects of our
technology. Meaningful patent protection may not be available for some of the
enzymes we are developing, including Aldurazyme and rhASB. If we must spend
significant time and money protecting our patents, designing around patents held
by others or licensing, for large fees, patents or other proprietary rights held
by others, our business and financial prospects may be harmed.
The patent positions of biotechnology products are complex and uncertain. The
scope and extent of patent protection for some of our products are particularly
uncertain because key information on some of the enzymes we are developing has
existed in the public domain for many years. Other parties have published the
structure of the enzymes, the methods for purifying or producing the enzymes or
the methods of treatment. The composition and genetic sequences of animal and/or
human versions of many of our enzymes, including those for Aldurazyme and rhASB,
have been published and are believed to be in the public domain. The composition
and genetic sequences of other MPS enzymes which we intend to develop as
products have also been published. Publication of this information may prevent
us from obtaining composition-of-matter patents, which are generally believed to
offer the strongest patent protection. For enzymes with no prospect of
composition-of-matter patents, we will depend on orphan drug status to provide
us a competitive advantage.
In addition, our owned and licensed patents and patent applications do not
ensure the protection of our intellectual property for a number of other
reasons:
We do not know whether our patent applications will result in actual patents.
For example, we may not have developed a method for treating a disease before
others developed similar methods.
15
Competitors may interfere with our patent process in a variety of ways.
Competitors may claim that they invented the claimed invention prior to us.
Competitors may also claim that we are infringing on their patents and therefore
cannot practice our technology as claimed under our patent. Competitors may also
contest our patents by showing the patent examiner that the invention was not
original, was not novel or was obvious. As a Company, we have no meaningful
experience with competitors interfering with our patents or patent applications.
Enforcing patents is expensive and may absorb significant time of our
management. In litigation, a competitor could claim that our issued patents are
not valid for a number of reasons. If the court agrees, we would lose that
patent.
Even if we receive a patent, it may not provide much practical protection. If we
receive a patent with a narrow scope, then it will be easier for competitors to
design products that do not infringe on our patent.
In addition, competitors also seek patent protection for their technology. There
are many patents in our field of technology, and we cannot guarantee that we do
not infringe on those patents or that we will not infringe on patents granted in
the future. If a patent holder believes our product infringes on their patent,
the patent holder may sue us even if we have received patent protection for our
technology. If someone else claims we infringe on their technology, we would
face a number of issues, including:
Defending a lawsuit takes significant time and can be very expensive.
If the court decides that our product infringes on the competitor's patent, we
may have to pay substantial damages for past infringement.
The court may prohibit us from selling or licensing the product unless the
patent holder licenses the patent to us. The patent holder is not required to
grant us a license. If a license is available, we may have to pay substantial
royalties or grant cross-licenses to our patents.
Redesigning our product so it does not infringe may not be possible or could
require substantial funds and time.
It is also unclear whether our trade secrets will provide useful protection.
While we use reasonable efforts to protect our trade secrets, our employees or
consultants may unintentionally or willfully disclose our information to
competitors. Enforcing a claim that someone else illegally obtained and is using
our trade secrets, like patent litigation, is expensive and time consuming, and
the outcome is unpredictable. In addition, courts outside the United States are
sometimes less willing to protect trade secrets. Our competitors may
independently develop equivalent knowledge, methods and know-how.
We may also support and collaborate in research conducted by government
organizations or by universities. We cannot guarantee that we will be able to
acquire any exclusive rights to technology or products derived from these
collaborations. If we do not obtain required licenses or rights, we could
encounter delays in product development while we attempt to design around other
patents or even be prohibited from developing, manufacturing or selling products
requiring these licenses. There is also a risk that disputes may arise as to the
rights to technology or products developed in collaboration with other parties.
The United States Patent and Trademark Office recently issued a patent that
related to (alpha)-L-iduronidase. If Aldurazyme infringes on this patent and we
are not able to successfully challenge it, we may be prevented from producing
Aldurazyme unless and until we obtain a license.
The United States Patent and Trademark Office recently issued a patent that
includes claims related to (alpha)-L-iduronidase. Our lead drug product,
Aldurazyme, may infringe on this patent. We believe that this patent is invalid
on a number of grounds. A patent making the same claims was filed in Europe and
has been rejected and cannot be refiled. Our challenges to the U.S. patent may
be unsuccessful, but the rejection of the European application supports our
strategy to challenge the validity of the U.S. patent. Even if we are
successful, challenging the patent may be expensive, require our management to
devote significant time to this effort and may delay commercialization of our
product in the United States.
The patent holder has granted an exclusive license for products relating to this
patent to one of our competitors. If we are unable to successfully challenge the
patent, we may be unable to produce Aldurazyme in the United States unless we
can obtain a sub-license from the current licensee. The current licensee is not
required to grant us a license and even if a license is available, we may have
to pay substantial license fees, which could adversely affect our business and
operating results.
16
If our joint venture with Genzyme were terminated, we could be barred from
commercializing Aldurazyme or our ability to commercialize Aldurazyme would be
delayed or diminished.
We are relying on Genzyme to apply the expertise it has developed through the
launch and sale of Ceredase(R) and Cerezyme(R) enzymes for Gaucher disease, a
rare genetic disease, to the marketing of our initial drug product, Aldurazyme.
Because it is our initial product, our operations are substantially dependent
upon the development of Aldurazyme. We have no experience selling, marketing or
obtaining reimbursement for pharmaceutical products. In addition, without
Genzyme we would be required to pursue foreign regulatory approvals. We have no
experience in seeking foreign regulatory approvals.
We cannot guarantee that Genzyme will devote the resources necessary to
successfully market Aldurazyme. In addition, either party may terminate the
joint venture for specified reasons, including if the other party is in material
breach of the agreement or has experienced a change of control or has declared
bankruptcy and also is in breach of the agreement. Either party may also
terminate the agreement upon one-year prior written notice for any reason.
Furthermore, we may terminate the joint venture if Genzyme fails to fulfill its
contractual obligation to pay us $12.1 million in cash upon the approval of the
BLA for Aldurazyme.
Upon termination of the joint venture one party must buy out the other party's
interest in the joint venture. The party who buys out the other will then also
obtain, exclusively, all rights to Aldurazyme and any related intellectual
property and regulatory approvals.
If the joint venture is terminated by Genzyme for a breach on our part, Genzyme
would be granted, exclusively, all of the rights to Aldurazyme and any related
intellectual property and regulatory approvals and would be obligated to buy out
our interest in the joint venture. We would then effectively be unable to
develop and commercialize Aldurazyme. If we terminated the joint venture for a
breach by Genzyme, we would be obligated to buy out Genzyme's interest in the
joint venture and, we would then be granted all of these rights to Aldurazyme
exclusively. While we could then continue to develop Aldurazyme, that
development would be slowed because we would have to divert substantial capital
to buy out Genzyme's interest in the joint venture. We would then either have to
search for a new partner to commercialize the product and to obtain foreign
regulatory approvals or have to develop these capabilities ourselves.
If the joint venture is terminated by us without cause, Genzyme would have the
option, exercisable for one year, to immediately buy out our interest in the
joint venture and obtain all rights to Aldurazyme exclusively. If the agreement
is terminated by Genzyme without cause, we would have the option, exercisable
for one year, to immediately buy out Genzyme's interest in the joint venture and
obtain these exclusive rights. In event of termination of the buy out option
without exercise by the non-terminating party as described above, all right and
title to Aldurazyme is to be sold to the highest bidder, with the proceeds to be
split equally between Genzyme and us.
If the joint venture is terminated by us because Genzyme fails to make the $12.1
million payment to us upon FDA approval of the BLA for Aldurazyme, we would be
obligated to buy Genzyme's interest in the joint venture and would obtain all
rights to Aldurazyme exclusively. If the joint venture is terminated by either
party because the other declared bankruptcy and is also in breach of the
agreement, the terminating party would be obligated to buy out the other and
would obtain all rights to Aldurazyme exclusively. If the joint venture is
terminated by a party because the other party experienced a change of control,
the terminating party shall notify the other party, the offeree, of its intent
to buy out the offeree's interest in the joint venture for a stated amount set
by the terminating party at its discretion. The offeree must then either accept
this offer or agree to buy the terminating party's interest in the joint venture
on those same terms. The party who buys out the other would then have exclusive
rights to Aldurazyme.
If we were obligated, or given the option, to buy out Genzyme's interest in the
joint venture, and gain exclusive rights to Aldurazyme, we may not have
sufficient funds to do so and we may not be able to obtain the financing to do
so. If we fail to buy out Genzyme's interest we may be held in breach of the
agreement and may lose any claim to the rights to Aldurazyme and the related
intellectual property and regulatory approvals. We would then effectively be
prohibited from developing and commercializing the product.
Termination of the joint venture in which we retain the rights to Aldurazyme
could cause us significant delays in product launch in the United States,
difficulties in obtaining third-party reimbursement and delays or failure to
obtain foreign regulatory approval, any of which could hurt our business and
results of operations. Since Genzyme funds 50% of the joint venture's operating
expenses, the termination of the joint venture would double our financial burden
and reduce the funds available to us for other product programs.
If we are unable to manufacture our drug products in sufficient quantities and
at acceptable cost, we may be unable to meet demand for our products and lose
potential revenues or have reduced margins.
17
With the exception of Aldurazyme, we have no experience manufacturing drug
products in volumes that will be necessary to support commercial sales. Our
manufacturing process may not meet initial expectations as to schedule,
reproducibility, yields, purity, costs, quality, and other measurements of
performance. Improvements in manufacturing processes typically are very
difficult to achieve and are often very expensive. We cannot know with certainty
how long it might take to make improvements if it became necessary to do so. If
we contract for manufacturing services with an unproven process, our contractor
is subject to the same uncertainties, high standards and regulatory controls.
If we are unable to establish and maintain commercial scale manufacturing within
our planned time and cost parameters, sales of our products and our financial
performance will be adversely affected.
Although we have successfully manufactured Aldurazyme at commercial scale within
our cost parameters, we cannot guarantee that we will be able to manufacture
rhASB, Vibriolysin or any future product candidates successfully in a scale
large enough to support their respective commercial markets.
We may encounter problems with any of the following if we attempt to increase
the scale or size of manufacturing:
Design, construction and qualification of manufacturing facilities that
meet regulatory requirements
Production yields
Purity
Quality control and assurance systems
Shortages of qualified personnel
Compliance with regulatory requirements
We have constructed and built-out a total of 41,200 square feet at our Novato
facilities for manufacturing capability for Aldurazyme and rhASB. We expect to
expand the Galli Drive facility in stages over time, which creates additional
operational complexity and challenges. We expect that the manufacturing process
of all of our new products, including rhASB, will require lengthy significant
time and resources before we can begin to manufacture them (or have them
manufactured by third parties) in commercial quantity. Even if we can establish
the necessary capacity, we cannot be certain that manufacturing costs will be
commercially reasonable, especially if third-party reimbursement is
substantially lower than expected.
In order to achieve our product cost targets we must develop efficient
manufacturing processes either by:
Improving the product yield from our current cell lines, colonies of cells
which have a common genetic make-up,
Improving the processes licensed from others, or
Developing more efficient, lower cost recombinant cell lines and production
processes.
A recombinant cell line is a cell line with foreign DNA inserted which is used
to produce a protein that it would not have otherwise produced. The development
of a stable, high production cell line for any given enzyme is risky, expensive
and unpredictable and may not result in adequate yields. In addition, the
development of protein purification processes is difficult and may not produce
the high purity required with acceptable yield and costs or may not result in
adequate shelf-lives of the final products. If we are not able to develop
efficient manufacturing processes, the investment in manufacturing capacity
sufficient to satisfy market demand will be much greater and will place heavy
financial demands upon us. If we do not achieve our manufacturing cost targets,
we will have lower margins and reduced profitability in commercial production
and larger losses in manufacturing start-up phases.
If we are unable to increase our marketing and distribution capabilities or to
enter into agreements with third parties to do so, our ability to generate
revenues will be diminished.
If we cannot increase our marketing capabilities either by developing our sales
and marketing organization or by entering into agreements with others, we may be
unable to successfully sell our products. If we are unable to effectively sell
our drug products, our ability to generate revenues will be diminished.
To increase our distribution and marketing for both our drug candidates and our
Glyko, Inc. products, we will have to increase our current sales force and/or
enter into third-party marketing and distribution agreements. We cannot
guarantee that we will be able to hire in a timely manner, the qualified sales
and marketing personnel we need, if at all. Nor can we guarantee that we will be
able to enter into any marketing or distribution agreements on acceptable terms,
if at all. If we cannot increase our marketing capabilities as we intend, either
by increasing our sales force or entering into agreements with third parties,
sales of our products may be adversely affected.
18
Under our joint venture with Genzyme, Genzyme is responsible for marketing and
distributing Aldurazyme. We cannot guarantee that we will be able to establish
sales and distribution capabilities or that the joint venture, any future
collaborators or we will successfully sell any of our drug candidates.
If we fail to compete successfully, our revenues and operating results will be
adversely affected.
Our competitors may develop, manufacture and market products that are more
effective or less expensive than ours. They may also obtain regulatory approvals
for their products faster than we can obtain them, including those products with
orphan drug designation, or commercialize their products before we do. If our
competitors successfully commercialize a product, which treats a given rare
genetic disease before we do, we will effectively be precluded from developing a
product to treat that disease because the patient populations of the rare
genetic diseases are so small. If our competitor gets orphan drug exclusivity,
we could be precluded from marketing our version for seven years. However,
different drugs can be approved for the same condition. These companies also
compete with us to attract qualified personnel and organizations for
acquisitions, joint ventures or other collaborations. They also compete with us
to attract academic research institutions as partners and to license these
institutions' proprietary technology. If our competitors successfully enter into
partnering arrangements or license agreements with academic research
institutions, we will then be precluded from pursuing those specific
opportunities. Since each of these opportunities is unique, we may not be able
to find a substitute. Several pharmaceutical and biotechnology companies have
already established themselves in the field of enzyme therapeutics, including
Genzyme, our joint venture partner. These companies have already begun many drug
development programs, some of which may target diseases that we are also
targeting, and have already entered into partnering and licensing arrangements
with academic research institutions, reducing the pool of available
opportunities.
Universities and public and private research institutions are also competitors.
While these organizations primarily have educational or basic research
objectives, they may develop proprietary technology and acquire patents that we
may need for the development of our drug products. We will attempt to license
this proprietary technology, if available. These licenses may not be available
to us on acceptable terms, if at all. We also directly compete with a number of
these organizations to recruit personnel, especially scientists and technicians.
We believe that established technologies provided by other companies, such as
laboratory and testing services firms, compete with Glyko, Inc.'s products and
services. For example, Glyko's FACE(R) Imaging System competes with alternative
carbohydrate analytical technologies, including capillary electrophoresis,
high-pressure liquid chromatography, mass spectrometry and nuclear magnetic
resonance spectrometry. These competitive technologies have established customer
bases and are more widely used and accepted by scientific and technical
personnel because they can be used for non-carbohydrate applications. Companies
competing with Glyko may have greater financial, manufacturing and marketing
resources and experience.
If we fail to manage our growth or fail to recruit and retain personnel, our
product development programs may be delayed.
Our rapid growth has strained our managerial, operational, financial and other
resources. We expect this growth to continue. We have entered into a joint
venture with Genzyme. If we receive FDA approval to market Aldurazyme, the joint
venture will be required to devote additional resources to support the
commercialization of Aldurazyme.
To manage expansion effectively, we need to continue to develop and improve our
research and development capabilities, manufacturing and quality capacities,
sales and marketing capabilities and financial and administrative systems. We
cannot guarantee that our staff, financial resources, systems, procedures or
controls will be adequate to support our operations or that our management will
be able to manage successfully future market opportunities or our relationships
with customers and other third parties.
Our future growth and success depend on our ability to recruit, retain, manage
and motivate our employees. The loss of key scientific, technical and managerial
personnel may delay or otherwise harm our product development programs. Any harm
to our research and development programs would harm our business and prospects.
Because of the specialized scientific and managerial nature of our business, we
rely heavily on our ability to attract and retain qualified scientific,
technical and managerial personnel. In particular, the loss of Fredric D. Price,
our Chairman and Chief Executive Officer, or Christopher M. Starr, Ph.D., our
Vice President for Research and Development, could be detrimental to us if we
cannot recruit suitable replacements in a timely manner. While Mr. Price and Dr.
Starr are parties to employment agreements with us, we cannot guarantee that
they will remain employed with us in the future. In addition, these agreements
do not restrict their ability to compete with us after their employment is
terminated. The competition for qualified personnel in the biopharmaceutical
field is intense. We cannot be certain that we will continue to attract and
retain qualified personnel necessary for the development of our business.
19
If product liability lawsuits are successfully brought against us, we may incur
substantial liabilities.
We are exposed to the potential product liability risks inherent in the testing,
manufacturing and marketing of human pharmaceuticals. The BioMarin/Genzyme LLC
maintains product liability insurance for our clinical trials of Aldurazyme. We
have obtained insurance against product liability lawsuits for the clinical
trials for rhASB. We may be subject to claims in connection with our current
clinical trials for Aldurazyme and rhASB for which the joint venture's or our
insurance coverages are not adequate. We cannot be certain that if Aldurazyme
receives FDA approval, the product liability insurance the joint venture will
need to obtain in connection with the commercial sales of Aldurazyme will be
available in meaningful amounts or at a reasonable cost. In addition, we cannot
be certain that we can successfully defend any product liability lawsuit brought
against us. If we are the subject of a successful product liability claim which
exceeds the limits of any insurance coverage we may obtain, we may incur
substantial liabilities which would adversely affect our earnings and financial
condition.
Our stock price may be volatile and an investment in our stock could suffer a
decline in value.
Our valuation and stock price since the beginning of trading after our initial
public offering have had no meaningful relationship to current or historical
earnings, asset values, book value or many other criteria based on conventional
measures of stock value. The market price of our common stock will fluctuate due
to factors including:
Progress of Aldurazyme and our other lead drug products through the
regulatory process, especially Aldurazyme regulatory actions in the
United States
Results of clinical trials, announcements of technological innovations or
new products by us or our competitors
Government regulatory action affecting our drug candidates or our
competitors' drug candidates in both the United States and foreign
countries Developments or disputes concerning patent or proprietary rights
General market conditions for emerging growth and biopharmaceutical
companies
Economic conditions in the United States or abroad
Actual or anticipated fluctuations in our operating results
Broad market fluctuations in the United States or in Europe may cause the
market price of our common stock to fluctuate
Changes in company assessments or financial estimates by securities
analysts
In addition, the value of our common stock may fluctuate because it is listed on
both the Nasdaq National Market and the Swiss Exchange's SWX New Market. Listing
on both exchanges may increase stock price volatility due to:
Trading in different time zones
Different ability to buy or sell our stock
Different market conditions in different capital markets
Different trading volume
In the past, following periods of large price declines in the public market
price of a company's securities, securities class action litigation has often
been initiated against that company. Litigation of this type could result in
substantial costs and diversion of management's attention and resources, which
would hurt our business. Any adverse determination in litigation could also
subject us to significant liabilities.
If our officers, directors and largest stockholder elect to act together, they
may be able to control our management and operations, acting in their best
interests and not necessarily those of other stockholders.
Our directors and officers control approximately 46% of the outstanding shares
of our common stock. Glyko Biomedical Ltd. owns 31% of the outstanding shares of
our capital stock. The president and chief executive officer of Glyko Biomedical
and a significant shareholder of Glyko Biomedical serve as two of our directors.
As a result, due to their concentration of stock ownership, directors and
officers, if they act together, may be able to control our management and
operations, and may be able to prevail on all matters requiring a stockholder
vote including:
20
The election of all directors;
The amendment of charter documents or the approval of a merger, sale of
assets or other major corporate transactions; and
The defeat of any non-negotiated takeover attempt that might otherwise
benefit the public stockholders.
Anti-takeover provisions in our charter documents and under Delaware law may
make an acquisition of us, which may be beneficial to our stockholders, more
difficult.
We are incorporated in Delaware. Certain anti-takeover provisions of Delaware
law and our charter documents as currently in effect may make a change in
control of our company more difficult, even if a change in control would be
beneficial to the stockholders. Our anti-takeover provisions include provisions
in the certificate of incorporation providing that stockholders' meetings may
only be called by the board of directors and a provision in the bylaws providing
that the stockholders may not take action by written consent. Additionally, our
board of directors has the authority to issue 1,000,000 shares of preferred
stock and to determine the terms of those shares of stock without any further
action by the stockholders. The rights of holders of our common stock are
subject to the rights of the holders of any preferred stock that may be issued.
The issuance of preferred stock could make it more difficult for a third party
to acquire a majority of our outstanding voting stock. Delaware law also
prohibits corporations from engaging in a business combination with any holders
of 15% or more of their capital stock until the holder has held the stock for
three years unless, among other possibilities, the board of directors approves
the transaction. Our board of directors may use these provisions to prevent
changes in the management and control of our company. Also, under applicable
Delaware law, our board of directors may adopt additional anti-takeover measures
in the future.
Item 2. Properties
We are currently leasing a total of six buildings. Four of our buildings are
located in Novato, California, each within a half-mile radius. The four
buildings, each named for the streets on which they are located, are:
o Bel Marin Keys facility
o Galli Drive facility
o Pimentel Court facility
o Digital Drive facility
The fifth and sixth buildings, collectively the Carson Street facility, are
located in Torrance, California.
The Bel Marin Keys facility houses administrative staff and a clinical
production laboratory. It consists of approximately 13,400 square feet. The
lease expires in May 2001. We have an option to extend the lease for up to two
additional three-year periods.
The Galli Drive facility consists of approximately 69,800 rentable square feet.
It currently houses research and development laboratories, storage and warehouse
functions, administrative offices, and our Aldurazyme manufacturing facility.
The lease expires in August 2010 and has the option to extend for two additional
five-year periods.
The Pimentel Court facility, with approximately 11,500 square feet, houses the
manufacturing, research and administrative operations of Glyko, Inc. The lease
expires in April 2003 and has options for two 2-year extensions.
The Digital Drive facility, 34,000 rentable square feet, is planned to house
research and process development functions. The building shell has been
completed. Development of internal laboratory space is on hold until at least
2002. When fully developed, it will consist of approximately 42,000 square feet.
The lease expires in November 2009.
The Carson Street facility housed our initial commercial manufacturing operation
for Aldurazyme. During the first quarter of 2000, the Company decided to close
its Carson Street clinical manufacturing facility. The facility was no longer
21
required for the production of Aldurazyme, the initial purpose of the plant,
after a decision by the BioMarin/Genzyme LLC (joint venture) to use the
Company's Galli Drive facility for the manufacture of bulk Aldurazyme both for
the Phase III trial and for the commercial launch of Aldurazyme. This decision
was based in part on FDA guidance to use an improved production process, which
was installed in the Galli Drive facility, for the clinical trial, the BLA
submission and for commercial production. The majority of the Company's
technical staff at the Carson Street facility in Torrance, California
transferred to the Galli Drive facility in Novato, California in May. In 2000,
we were able to sub-lease the office facilities in Torrance, but have not
subleased the main manufacturing facility in which the lease expires in June
2001.
Our administrative office space is expected to be adequate until mid-2002. Our
Aldurazyme production facilities' capacity may have to be supplemented beginning
in 2004 if the MPS-I market penetration rates are such that the output from the
plant would be less than the market demand. Based on the timelines for other
genetic diseases such as MPS-VI, manufacturing capacity for these products will
have to be developed or purchased from third parties for production of clinical
materials, beginning in 2002. We plan to use contract manufacturing when
appropriate to provide product for both clinical and commercial requirements
until such time as we believe it prudent to develop in-house manufacturing
capability.
Item 3. Legal Proceedings
We have no material legal proceedings pending.
Item 4. Submission of Matters to a Vote of Security-Holders
No matters were submitted to a vote of our security holders during the quarter
ended December 31, 2000.
22
Part II
Item 5. Market For Common Equity and Related Stockholder Matters
As of July 1999, our common stock has been listed on the Nasdaq National Market
and the Swiss New Market SWX under the symbol "BMRN". The following table sets
forth the closing sales prices for the our common stock for the periods noted,
as reported by Nasdaq National Market.
Prices
Year Period High Low
1999 Third Quarter (beginning July 22) $18.75 $11.625
1999 Fourth Quarter $17.00 $11.625
2000 First Quarter $38.75 $12.75
2000 Second Quarter $27.75 $16.75
2000 Third Quarter $21.75 $16.375
2000 Fourth Quarter $17.62 $7.15625
On March 9, 2001, the last reported sale price on the Nasdaq National Market for
our common stock was $9.50. We have never paid any cash dividends on our common
stock and we do not anticipate paying cash dividends in the foreseeable future.
Holders
As of March 9, 2001, there were 64 holders of record of 37,115,610 outstanding
shares of our common stock. Additionally, on such date options to acquire
6,463,061 shares of our common stock were outstanding.
Unregistered Securities
In October 2000, we issued 801,500 shares of common stock to Bank Vontobel AG
pursuant to the exercise of common stock warrants issued on various dates in
1997. In connection with the exercise of the warrants, we received total
consideration of $801,500. The shares were issued pursuant to an exemption from
registration under Regulation S of the Securities Act of 1933, as amended. The
shares were appropriately legended to reflect the restrictions required by
Regulation S and we have the right to refuse to register any transfer not made
in accordance with Regulation S.
In February 2001, we issued 25,000 shares of common stock to Fredric Price, the
Company's Chief Executive Officer and Chairman of the Board, pursuant to his
employment agreement with the Company. The shares were issued pursuant to an
exemption from registration under Section 4(2) of the Securities Act of 1933, as
amended and Rule 701 under the Securities Act. The shares are appropriately
legended to indicate that the shares may not be resold unless registered under
the Securities Act or an exemption from registration is available for such sale.
Item 6. Selected consolidated financial data (in thousands, except per share
data)
The selected consolidated balance sheet data of BioMarin Pharmaceutical Inc. (a
development-stage company) as of December 31, 1997, 1998, 1999, and 2000 and the
statements of operations data for the periods from March 21, 1997 (inception) to
December 31, 2000 and the years ended December 31, 1998, 1999 and 2000 presented
below are derived from the consolidated financial statements of BioMarin
Pharmaceutical Inc. and subsidiaries, including Glyko, Inc. from October 7,
1998, the date on which it was acquired by BioMarin. These consolidated
financial statements of BioMarin and subsidiaries have been audited by Arthur
Andersen LLP, independent public accountants. The consolidated balance sheets as
of December 31, 1998, 1999 and 2000 and the related consolidated statements of
operations for the periods from March 21, 1997 (inception) to December 31, 2000,
and the years ended December 31, 1998, 1999 and 2000 and the related reports,
are included elsewhere herein.
The selected consolidated financial data set forth below contain only a portion
of BioMarin's financial statement information and should be read in conjunction
with the Consolidated Financial Statements of BioMarin Pharmaceutical Inc. and
related Notes and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere herein. All financial data
presented in thousands, except per share data.
23
Period from
March 21, 1997
(inception) to
Year Ended December 31, December 31,
----------------------------------------------------
1998 1999 2000 2000
---------------------------------------------------- ------------------
BioMarin's Consolidated
Statements of Operations
Revenues $ 1,190 $ 6,976 $ 12,326 $ 20,492
Operating costs and expenses:
Cost of products and services 108 464 719 1,291
Research and development 10,502 27,206 35,794 75,416
Selling, general and administrative 3,532 6,805 8,814 20,065
Carson Street closure - - 4,423 4,423
---------------------------------------------------- ------------------
Total costs and expenses 14,142 34,475 49,750 101,195
---------------------------------------------------- ------------------
Loss from operations (12,952) (27,499) (37,424) (80,703)
Interest income 685 1,832 2,979 5,561
Interest expense - (732) (7) (739)
Equity in loss of joint venture (47) (1,673) (2,912) (4,632)
---------------------------------------------------- ------------------
Net loss $ (12,314) $ (28,072) $ (37,364) $ (80,513)
==================================================== ==================
Net loss per common share, basic
and diluted $ (0.55) $ (0.94) $ (1.04) $ (3.21)
==================================================== ==================
Weighted average common
shares outstanding 22,488 29,944 35,859 25,057
==================================================== ==================
As of December 31,
---------------------------------------------------
BioMarin's Consolidated Balance Sheet Data: 1997 1998 1999 2000
---------------------------------------------------
Cash, cash equivalents and short-term investments $ 6,888 $ 11,389 $ 62,986 $ 40,201
Total current assets 7,507 12,819 66,422 44,541
Total assets 7,653 31,510 103,549 76,933
Long-term liabilities - 110 85 56
Total stockholders' equity 7,380 29,394 98,377 69,994
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion of the financial condition and results of operations
should be read in conjunction with our consolidated financial statements and
their notes appearing elsewhere in this document.
Overview
We are a developer of enzyme therapies for debilitating, life-threatening,
chronic genetic diseases and other diseases or conditions. Since our inception
on March 21, 1997, we have been engaged in research and development activities,
including preclinical studies, clinical trials and clinical manufacturing, the
establishment of laboratory and manufacturing facilities, and administrative
activities.
We have incurred net losses since inception and had an accumulated deficit
through December 31, 2000 of $80.5 million. Our losses have resulted primarily
from research and development activities and related administrative expenses. We
expect to continue to incur operating losses at least through 2002.
To date, we have not generated revenues from the sale of our drug candidates.
Our lead product is Aldurazyme, laronidase for injection, (recombinant human
(alpha)-L-iduronidase), which is undergoing clinical trials for use in enzyme
replacement therapy for Mucopolysaccharidosis-I or MPS-I. We have initiated a
clinical trial of rhASB, an enzyme replacement therapy for the treatment of
MPS-VI or Maroteaux-Lamy Syndrome. We have also successfully conducted
preclinical studies in pigs and mice of our burn enzyme, Vibriolysin, for use in
debridement and grafting and expect to submit an application to the FDA or
foreign equivalent to begin a clinical trial by mid-2001.
Results of Operations
Years Ended December 31, 2000 and 1999
For the years ended December 31, 2000 and 1999, revenues were $12.3 million and
$7.0 million, respectively. Revenues from our joint venture with Genzyme were
$9.7 million and $5.3 million, and Glyko, Inc. revenues were $2.6 million and
$1.5 million for the years ended December 31, 2000 and 1999, respectively. The
increase in joint venture revenues in 2000 was primarily the result of increased
manufacturing activities as we began enzyme production in our new Galli Drive
manufacturing facility in Novato, California. Glyko, Inc. revenues increase in
2000 primarily as a result of increased efforts in both the United States and
European sales offices.
Cost of products and cost of services related to Glyko, Inc. operations were
$719,000 for 2000 compared to $464,000 for 1999. Glyko's total external product
and service costs as a percent of the sales of products and services were 28%
and 31% for the years ended December 31, 2000 and 1999, respectively.
Research and development expenses increased to $35.8 million in 2000 from $27.2
million in 1999. Increased expenses in support of the Aldurazyme joint venture
with Genzyme, especially manufacturing requirements, and of the rhASB program
were the major factors in the growth of research and development expenses.
Selling, general and administrative expenses increased to $8.8 million in 2000
from $6.8 million in 1999. This increase was partially due to the acceleration
of the amortization of goodwill for the purchase of Glyko, Inc. The estimated
life of the goodwill was decreased from ten years to seven years in 2000.
In the first quarter of 2000, the Company recorded a charge of $4.4 million for
the closure of its Carson Street clinical manufacturing facility. The facility
was no longer required for the production of Aldurazyme, the initial purpose of
the plant, after a decision by the BioMarin/Genzyme LLC joint venture to use the
Company's Galli Drive facility for the manufacture of bulk Aldurazyme both for
the Phase III trial and for the commercial launch of Aldurazyme. This decision
was based in part on FDA guidance to use an improved production process, which
was installed in the Galli facility, for the clinical trial, the BLA submission
and for the commercial production. The majority of our technical staff at the
Carson Street facility transferred to the Galli Drive facility in Novato,
California in May. The charge primarily consisted of impairment reserves for
leasehold improvements and equipment located in the Carson Street facility.
BioMarin's equity in the loss of its joint venture with Genzyme was $2.9 million
for 2000 compared to $1.7 million for 1999, as the joint venture continued the
original clinical trial of Aldurazyme and began a Phase III clinical trial.
Interest income increased by $1.2 million to $3.0 million in 2000 from $1.8
million in 1999 primarily due to increased cash reserves resulting from our
initial public offering (concurrent with an investment by Genzyme) in July 1999
and funds received from exercise of stock options and warrants.
The net loss was $37.4 million ($1.04 per share, basic and diluted) and $28.1
million ($.94 per share, basic and diluted) for 2000 and 1999, respectively.
24
Years Ended December 31, 1999 and 1998
For the years ended December 31, 1999 and 1998, revenues were $7.0 million and
$1.2 million, respectively. Included in 1999 revenues is $5.3 million for
services provided to the joint venture for Aldurazyme compared to $837,000 for
1998 as a consequence of Aldurazyme being in more complex, later stages of
development and the effect of a full year of operation in 1999 compared to
approximately three months of operation in 1998. Revenues in 1999 also included
$1.5 million generated by Glyko, Inc. compared to $250,000 for 1998. We acquired
Glyko, Inc., our subsidiary engaged in the sale of analytical and diagnostic
products and services, on October 7, 1998. External revenues for products and
services for 1999 were up in comparison to 1998 as a result of revenues from the
biochemical reagents business of Oxford GlycoSciences Plc. (LSE: OGS), which was
acquired in May 1999.
Cost of products and cost of services related to Glyko, Inc. operations were
$464,000 for 1999 compared to $108,000 for 1998. Glyko's external products and
services costs as a percent of the sales of products and services were 31% for
1999 and 44% for 1998. The improvement was due to a favorable revenue mix, with
a greater percentage of higher margin product sales.
Research and development expenses increased to $27.2 million for 1999 from $10.5
million for 1998. Increased expenses in support of the Aldurazyme joint venture
with Genzyme and the rhASB and the Vibriolysin programs were the major factors
in the growth of research and development expenses.
Selling, general and administrative expenses increased to $6.8 million for 1999
from $3.5 million for 1998. This increase resulted from the consolidation of
Glyko, Inc. selling and administrative expenses in 1999 expenses, an increase in
staffing in our administration in 1999 compared to 1998, and a related increase
in facilities expense charged to administration in 1999. The increase in
administrative staff and related expense was necessary to support expanded
operations.
The equity in the loss of our joint venture with Genzyme increased to $1.7
million for 1999 from $47,000 for 1998 primarily as a result of increased
process development and clinical manufacturing expenses. The joint venture began
in September 1998 and operated for only approximately one quarter of that year
as compared to a full year of operation in 1999.
Interest income increased by $1.1 million to $1.8 million for 1999 from $685,000
for 1998 primarily due to increased cash reserves resulting from a convertible
note financing in April 1999, the initial public offering in July and August
1999, and the private placement with Genzyme in July 1999.
Interest expense related primarily to interest on the convertible notes accrued
prior to their conversion in the initial public offering.
The net loss was $28.1 million ($0.94 per share) and $12.3 million ($0.55 per
share) for 1999 and 1998, respectively.
Liquidity and Capital Resources
We have financed our operations since our inception by the issuance of common
stock and convertible notes and the related interest income earned on cash
balances available for short-term investment. Since inception, we have raised
aggregate net proceeds of approximately $133.0 million. We were initially funded
by GBL with a $1.5 million investment. We have since raised additional capital
from the sale of common stock in private placements, the sale of promissory
notes convertible into common stock, an investment of $8.0 million by Genzyme as
part of our joint venture with them, an initial public offering including the
underwriters' over-allotment exercise, the concurrent $10.0 million Genzyme
investment in us, the sale of $1.0 million in common stock to Acqua Wellington
and pursuant to stock option and warrant exercises.
Our combined cash, cash equivalents and short-term investments totaled $40.2
million at December 31, 2000 and decreased $22.8 million from $63.0 million at
December 31, 1999. The primary use of cash during the year ended December 31,
2000 was to finance operations, fund the joint venture and purchase equipment
and leasehold improvements. The primary source of cash during the year was the
issuance of common stock pursuant to the exercise of stock options under the
1997 Stock Plan and pursuant to the exercise of common stock warrants. For the
year ended December 31, 2000, operations used $12.9 million, we invested $13.7
million in the joint venture (which was consumed in joint venture operations),
we purchased $3.8 million of equipment and leasehold improvements, we raised
$7.3 million from the exercise of stock options and warrants and we received
$804,000 from the repayment of a promissory note.
From our inception through December 31, 2000, we have purchased approximately
$33.2 million of leasehold improvements and equipment. We expect that our
investment in leasehold improvements and equipment will increase significantly
during the next two years because we will provide facilities and equipment for a
larger staff and increase manufacturing capacity.
As part of the acquisition of Glyko, Inc., we acquired in-process research and
development projects, the value of which was expensed as a portion of the
purchase price at the time of the acquisition. The 11 projects acquired are each
relatively small and can be grouped into two categories, analytic projects and
diagnostic projects.
26
The analytic projects are intended to expand the analytic product line by adding
new enzymes for reagent sales, new kits for agricultural applications, new
instrument capabilities for protein analysis and a major upgrade of software
capabilities. At the time of the acquisition of Glyko, Inc., all of the analytic
projects had completed feasibility work and the software projects were 75%
complete and have since been completed. The development of specialized materials
supporting instrument capabilities is deemed to be the most difficult technical
hurdle for the completion and commercialization of the analytic projects. The
fair value of the analytic projects was $1.7 million at the time of the
acquisition.
The diagnostic projects are intended to expand a product line based on very
precise measurements of the level of complex carbohydrates in blood and urine as
indicators of serious disease conditions including heart disease, kidney disease
and mucopolysaccharidoses or carbohydrate storage diseases. At the time of the
Glyko, Inc. acquisition, preliminary feasibility work had been done for all of
the projects and a software project was well advanced as to programming, which
has since been completed. The development of new more sensitive carbohydrate
chemistry techniques is deemed to be the most difficult technical hurdle for the
completion and commercialization of the diagnostic products. The fair value of
the diagnostic projects was $924,000 at the time of the acquisition.
As of December 31, 2000, we had expended to date approximately $1.0 million on
the analytic projects and $1.1 million on the diagnostic projects. If all
acquired in-process research and development projects proceed to completion, we
expect to spend approximately $150,000 in incremental direct expense to complete
the analytic projects in phases over approximately 6 months. We expect to spend
approximately $400,000 to complete the diagnostic projects in phases within the
next 9 months. None of these projects have been terminated to date.
Since the acquisition of these in-process research and development projects,
there have been no subsequent developments which indicate that the completion
and commercialization of either of the projects are less likely to be completed
on the original planned schedule or less likely to be a commercial success.
We have made and plan to make substantial commitments to capital projects,
including expanding the Aldurazyme and rhASB manufacturing facilities,
developing new research and development facilities, and expanding our
administrative and support offices.
In September 1998, we established a joint venture with Genzyme for the worldwide
development and commercialization of Aldurazyme for the treatment of MPS-I. We
share expenses and profits from the joint venture equally with Genzyme. Genzyme
purchased $8.0 million in common stock upon signing the agreement and $10.0
million of common stock at the IPO price of $13 per share in a private placement
concurrent with the IPO. Genzyme has committed to pay us an additional $12.1
million upon approval of the BLA for Aldurazyme.
In January 2001, the Company signed an agreement with Acqua Wellington North
American Equities Fund Ltd. (Acqua Wellington) for an equity investment in the
Company of up to $50 million. Subject to certain conditions, including the
market price of BioMarin stock, these funds will be available, at the Company's
discretion, over the course of the next 20 months from sales of registered
common stock to be sold at a small discount to the market price. In the initial
transaction under this agreement on February 2, 2001, Acqua Wellington purchased
$1 million of the Company's common stock.
The net proceeds from any sales of our common stock to Acqua Wellington will be
used to fund operating costs, capital expenditures and working capital
requirements, which may include costs associated with our lead clinical programs
including Aldurazyme for MPS-I, rhASB for MPS-VI and our late-stage preclinical
program for Vibriolysin, which is being studied for the debridement (cleaning)
of severe burns. In addition, net proceeds may also be used for the research and
development of other pipeline products, building of the Company's supporting
infrastructure, and other general corporate purposes.
We expect our current funds to last at least through 2001. Until we can generate
sufficient levels of cash from our operations, we expect to continue to finance
future cash needs through:
. The sale of equity securities
. Equipment-based financing
. Collaborative agreements with corporate partners
We do not expect to generate positive cash flow from operations at least through
2002 because we expect to increase operational expenses and manufacturing
investment for the joint venture and to increase research and development
activities, including:
. Preclinical studies, clinical trials and regulatory review
. Commercialization of our drug candidates
. Development of manufacturing operations
. Process development
. Scale-up of manufacturing facilities
27
We anticipate a need for additional financing to fund the future operations of
our business, including the commercialization of our drug candidates currently
under development. We cannot assure you that additional financing will be
obtained or, if obtained, will be available on reasonable terms or in a timely
manner.
Our future capital requirements will depend on many factors, including, but not
limited to:
. The progress of our research and development programs
. The progress of preclinical studies and clinical trials
. The time and cost involved in obtaining regulatory approvals
. Scaling up, installing and validating manufacturing capacity
. Competing technological and market developments
. Changes and developments in collaborative, licensing and other
relationships
. The development of commercialization activities and arrangements
. The leasing and build-out of additional facilities
. The purchase of additional capital equipment
We plan to continue our policy of investing available funds in government
securities and investment grade, interest-bearing securities, primarily with
maturities of one year or less. We do not invest in derivative financial
instruments, as defined by Statement of Financial Accounting Standards No. 119.
Item 7A. Quantitative and Qualitative Disclosure about Market Risk.
The Company's exposure to market risk for changes in interest rates relates
primarily to the Company's investment portfolio. The Company places its
investments with high credit issuers and by policy limits the amount of credit
exposure to any one issuer. As stated in its policy, the Company will seek to
improve the safety and likelihood of preservation of its invested funds by
limiting default risk and market risk. The Company has no investments
denominated in foreign country currencies and therefore is not subject to
foreign exchange risk.
The Company mitigates default risk by investing in high credit quality
securities and by positioning its portfolio to respond appropriately to a
significant reduction in a credit rating of any investment issuer or guarantor.
The portfolio includes only marketable securities with active secondary or
resale markets to ensure portfolio liquidity.
The table below presents the carrying value for the Company's investment
portfolio. The carrying value approximates fair value at December 31, 2000.
Investment portfolio: Carrying value
(in $ thousands)
Cash and cash equivalents........................ $16,530
Short-term investments........................... 23,393*
Certificates of deposit.......................... 278
---------
Total......................................... $40,201
=========
* 100% in United States agency securities.
Item 8. Financial Statements and Supplementary Data
The information required to be filed in this item appears on pages 34 to 49 and
is incorporated herein by reference.
Item 9. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure.
Not applicable.
28
Part III
Item 10. Directors, Executive Officers, Promoters and Control Persons
We incorporate information regarding our directors and executive officers
into this section by reference from sections captioned "Election of
Directors" and "Executive Officers" in the proxy statement for our 2001
annual meeting of shareholders.
Item 11. Executive Compensation
We incorporate information regarding our directors and executive officers
into this section by reference from the section captioned "Executive
Compensation" in the proxy statement for our 2001 annual meeting of
shareholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management
We incorporate information regarding our directors and executive officers
into this section by reference from the section captioned "Security Ownership
of Certain Beneficial Owners" in the proxy statement for our 2001 annual
meeting of shareholders.
Item 13. Certain Relationships and Related Transactions
We incorporate information regarding our directors and executive officers
into this section by reference from the section captioned "Interest of
Insiders in Material Transactions" in the proxy statement for our 2001 annual
meeting of shareholders.
29
Part IV
Item 14. Exhibits, List and Reports on Form 8-K
(a) Documents are filed as exhibits to this report as enumerated in the Index to
Exhibits hereto, Part V Item I.
(b) Reports on Form 8-K
On November 7, 2000, we filed a report on Form 8-K disclosing the
resignation of John Klock as a member of the Company's Board.
30
Part V
Item 1. Index to Exhibits
Exhibit
Number Description of Document
- ---------- --------------------------------
3.1 Amended and Restated Certificate of Incorporation of BioMarin
Pharmaceutical Inc., a Delaware Corporation, as filed onJuly 23, 1999. (1)
3.2 Amended and Restated Bylaws of BioMarin Pharmaceutical Inc., a Delaware
corporation. (1) 10.1 Form of Indemnification Agreement for directors and
officers
10.2 1997 Stock Plan, as amended on December 22, 1998, and forms of agreements.
(2) 10.3 1998 Director Option Plan and forms of agreements thereunder. (2)
10.4 1998 Employee Stock Purchase Plan and forms of agreements thereunder. (2)
10.5 Form of Amended and Restated Registration Rights Agreementby and
among the Company and the investors named therein.(2)
10.6 Amended and Restated Founder's Stock Purchase Agreement with Grant W.
Denison, Jr. dated as of October 1, 1997 with exhibits. (2)
10.7 Amended and Restated Founder's Stock Purchase Agreement with Dr.
Christopher M. Starr dated as of October 1, 1997 with exhibits. (2)
10.8 Employment Agreement with Fredric D. Price dated December 22, 2000. (3)
10.9 Employment Agreement with Dr. Christopher M.Starr dated June 26, 1997, as
amended. (2)10.10 Employment Agreement with Raymond W. Anderson dated June
22, 1998, as amended. (2)
10.11 Employment Agreement with Stuart J. Swiedler, M.D., Ph.D., dated May 29,
1998, as amended. (2) 10.12 Employment Agreement with Emil Kakkis, M.D.,
Ph.D., dated June 30, 1998, as amended. (2)
10.13 Employment Agreement between Brian K. Brandley, Ph.D and Glyko, Inc. dated
February 22, 1998, as amended. (2)
10.14 License Agreement with Glyko Biomedical, Ltd. dated June 26, 1997 with
exhibits attached. (2) 10.15 Option Agreement with W.R. Grace & Co.dated
as of May 1, 1998. (4) (*)
10.16 Grant Terms and Conditions Agreement with Harbor-UCLA Research and
Education Institute dated April 1, 1997, as amended. (4) (*)
10.17 License Agreement with Women's and Children's Hospital, Adelaide,
Australia dated August 14, 1998. (5) (*) 10.18 Lease Agreement dated May
18, 1998 for 371 Bel Marin Keys Boulevard, as amended. (2)
10.19 Standard NNN Lease dated June 25, 1998 for 46 Galli Drive. (2) 10.20
Standard Industrial Commercial Single-Tenant Lease dated May 29, 1998 for
110 Digital Drive, as amended. (2)
10.21 Sublease dated June 24, 1998 for 1123 West Carson Street. (2)
10.22 Commercial Lease and Deposit Receipt with Glyko, Inc. for 11 Pimentel
Court and 13 Pimentel Court, dated December 23, 1996. (2)
10.23 Collaboration Agreement with Genzyme Corporation dated September 4, 1998.
(5)
10.24 Astro License Agreement dated December 18, 1990 among Glyko, Inc.,
Astromed, Ltd., and Astroscan, Ltd. (4) 10.25 Glycomed License Agreement
dated December 18, 1990 between Glyko, Inc., and Glycomed, Inc. (4)
10.26 Operating Agreement with Genzyme Corporation. (1)
10.27 Form of Convertible Note Purchase Agreement dated as of April 12, 1999
with form of Convertible Promissory Note. (1)
10.28 Common Stock Purchase Agreement between BioMarin Pharmaceutical Inc. and
Acqua Wellington North American Equities Fund, Ltd.dated January 26, 2001.
(6)
10.29 Employment Agreement with Robert Baffi dated April 20, 2000.
21.1 List of Subsidiaries. (2)
23.1 Consent of Independent Public Accountants.
24.1 Power of Attorney (Included in Signature Page)
- --------------------------------------------------------------------------------
(1) Incorporated by reference from the Company's Amendment No. 2 to
Registration Statement on Form S-1 (Registration No. 333-77701) filed on
July 6, 1999.
(2) Incorporated by reference from the Company's Registration Statement on
Form S-1 (Registration No. 333-77701) filed on May 4, 1999.
(3) Incorporated by reference from the Company's Amendment No. 1 to
Registration Statement on Form S-3 (Registration No. 333-48800) filed on
January 11, 2001.
(4) Incorporated by reference from the Company's Amendment No. 1 to
Registration Statement on Form S-1 (Registration No. 333-77701) filed on
June 14, 1999.
(5) Incorporated by reference from the Company's Amendment No. 3 to
Registration Statement on Form S-1 (Registration No. 333-77701) filed on
July 21, 1999.
(6) Incorporated by reference from the Company's Amendment No. 2 to
Registration Statement on Form S-3 (Registration No. 333-48800) filed on
January 29, 2001.
(*) This exhibit has been granted confidential treatment.
31
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act
of 1934, the registrant caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BioMarin Pharmaceutical Inc.
Dated: March 15, 2001 By: \s\ Raymond W. Anderson
- ---------------------------- ----------------------------------------
Raymond W. Anderson.
Chief Financial Officer, Chief Operating
Officer and Vice President, Finance and
Administration (Principal Financial and
Accounting Officer)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Raymond W. Anderson, his
attorney-in-fact, with the power of substitution, for him in any and all
capacities, to sign any amendments to the Report on Form 10-K and to file the
same, with exhibits thereto and other documents in connection therewith, with
the Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in fact, or his substitute or substitutes, may do or
cause to be done by virtue hereof.
In accordance with the Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
Signature Title Date
\s\ Fredric D. Price March 15, 2001
- ---------------------------- -------------------
Fredric D. Price Chairman, Chief Executive Officer and Director
(Principal Executive Officer)
\s\ Grant W. Denison, Jr. March 15, 2001
- ---------------------------- -------------------
Grant W. Denison, Jr. Director
\s\ Ansbert S. Gadicke, M.D. March 15, 2001
- ---------------------------- -------------------
Ansbert S. Gadicke Director
\s\ Erich Sager March 15, 2001
- ----------------------------- -------------------
Erich Sager Director
\s\ Gwynn R. Williams March 15, 2001
- ----------------------------- -------------------
Gwynn R. Williams Director
32
INDEX TO FINANCIAL STATEMENTS
BioMarin Pharmaceutical Inc. Financial Statements
Report of Independent Public Accountants.................... 34
Consolidated Balance Sheets................................. 35
Consolidated Statements of Operations....................... 36
Consolidated Statements of Changes in Stockholders' Equity.. 37-39
Consolidated Statements of Cash Flows....................... 40
Notes to Consolidated Financial Statements.................. 41-49
33
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
BioMarin Pharmaceutical Inc.:
We have audited the accompanying consolidated balance sheets of BioMarin
Pharmaceutical Inc. (a Delaware corporation in the development stage) and
subsidiaries as of December 31, 1999 and 2000 and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows for
the years ended December 31, 1998, 1999 and 2000 and the period from March 21,
1997 (inception) to December 31, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of BioMarin Pharmaceutical Inc.
and subsidiaries as of December 31, 1999 and 2000 and the results of their
operations and their cash flows for the years ended December 31, 1998, 1999 and
2000 and the period from March 21, 1997 (inception) to December 31, 2000, in
conformity with accounting principles generally accepted in the United States.
/s/ ARTHUR ANDERSEN LLP
San Francisco, California,
February 20, 2001
34
BioMarin Pharmaceutical Inc. and Subsidiaries
(a development-stage company)
Consolidated Balance Sheets as of December 31, 1999 and 2000
(In thousands, except for share and per share data)
December 31,
----------------------------------------
1999 2000
----------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 23,413 $ 16,530
Short-term investments 39,573 23,671
Accounts receivable, net 1,186 1,135
Due from BioMarin/Genzyme LLC 1,280 1,799
Inventories 676 436
Prepaid expenses 294 970
----------------------------------------
Total current assets 66,422 44,541
Property and equipment, net 25,093 20,715
Goodwill and other intangible assets, net 11,462 9,862
Investment in BioMarin/Genzyme LLC 421 1,482
Deposits 151 333
----------------------------------------
Total assets $ 103,549 $ 76,933
========================================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 3,095 $ 4,747
Accrued liabilities 1,966 2,109
Short-term portion of notes payable 26 27
----------------------------------------
Total current liabilities 5,087 6,883
Long-term liabilities:
Long term portion of notes payable 85 56
----------------------------------------
Total liabilities 5,172 6,939
----------------------------------------
Stockholders' equity:
Common stock, $0.001 par value: 75,000,000 shares
authorized, 34,832,578 and 36,921,966 shares
issued and outstanding at December 31, 1999
and 2000, respectively 35 37
Additional paid-in capital 146,592 153,940
Warrants 128 -
Deferred compensation (2,591) (1,530)
Notes receivable from stockholders (2,638) (1,940)
Deficit accumulated during the development stage (43,149) (80,513)
----------------------------------------
Total stockholders' equity 98,377 69,994
----------------------------------------
Total liabilities and stockholders' equity $ 103,549 $ 76,933
========================================
The accompanying notes are an integral part of these statements.
35
BioMarin Pharmaceutical Inc. and Subsidiaries
(a development-stage company)
Consolidated Statements of Operations for
the Years Ended December 31, 1998, 1999 and 2000 and for
the Period from March 21, 1997 (inception) to December 31, 2000
(In thousands, except for per share data)
Period from
March 21, 1997
December 31, (inception) to
------------------------------------------ December 31,
1998 1999 2000 2000
----------------------------------------------------------
Revenues:
Product sales $ 138 $ 1,401 $ 2,345 $ 3,884
Service revenue 112 85 250 447
BioMarin/Genzyme LLC 837 5,300 9,731 15,868
Other revenues 103 190 - 293
----------------------------------------------------------
Total revenues 1,190 6,976 12,326 20,492
Operating costs and expenses:
Cost of products 49 362 635 1,046
Cost of services 59 102 84 245
Research and development 10,502 27,206 35,794 75,416
Selling, general and administrative 3,532 6,805 8,814 20,065
Carson Street closure - - 4,423 4,423
----------------------------------------------------------
Total operating costs and expenses 14,142 34,475 49,750 101,195
----------------------------------------------------------
Loss from operations (12,952) (27,499) (37,424) (80,703)
Interest income 685 1,832 2,979 5,561
Interest expense - (732) (7) (739)
Equity in loss of BioMarin/Genzyme LLC (47) (1,673) (2,912) (4,632)
-----------------------------------------------------------
Net loss $(12,314) $ (28,072) $ (37,364) $ (80,513)
==========================================================
Net loss per share, basic and diluted $ (0.55) $ (0.94) $ (1.04) $ (3.21)
==========================================================
Weighted average common shares outstanding 22,488 29,944 35,859 25,057
==========================================================
The accompanying notes are an integral part of these statements.
36
BioMarin Pharmaceutical Inc. and Subsidiaries
(a development stage company)
Consolidated Statements of Changes in Stockholders' Equity for the
Years ended December 31, 1998, 1999 and 2000
(In thousands, except per share data)
Deficit
Notes Accumulated
Additional Receivable During Total
Common Stock Paid-in Warrants Deferred from Development SH's
Shares Amount Capital Shares Amount Comp. Stockholders Stage Equity
------ ------ ------- ------ ------ ------ ------------ ------- --------
Balance, January 1, 1998 20,567 $ 21 $ 12,549 802 $ 128 $ (217) $(2,338) $(2,763) $ 7,380
Issuance of common stock on June 30,
1998, for cash, $6.00 per share (net of
issuance costs of $263 including the is-
suance of 31 shares of common stock,
$6.00 per share, for brokerage services)... 599 1 3,327 -- -- -- -- -- 3,328
Issuance of common stock on July 14,
1998,for cash, $6.00 per share (net of
issuance costs of $387, including the is-
suance of 65 shares of common stock,
$6.00 per share, for brokerage services)..1,385 1 7,924 -- -- -- -- -- 7,925
Issuance of common stock on August 3,
1998, for cash, $6.00 per share (net
of issuance costs of $12, including the is-
suance of 2 shares of common stock,
$6.00 per share, for brokerage
services)................................ 31 -- 176 -- -- -- -- -- 176
Issuance of common stock to Genzyme Cor-
poration on September 4, 1998, for
cash, $6.00 per share.................... 1,333 1 7,999 -- -- -- -- -- 8,000
Issuance of common stock to Glyko
Biomedical, Ltd. for the purchase of
Glyko, Inc. on October 7, 1998, for
common shares, $6.00 per share and
the assumption of options of Glyko,
Inc. employees (see Note 1)... 2,259 2 14,859 -- -- -- -- -- 14,861
Exercise of common stock options....... 2 -- 2 -- -- -- -- -- 2
Interest on notes receivable........... -- -- -- -- -- -- (150) -- (150)
Deferred compensation on stock options. -- -- 3,222 -- -- (3,222) -- -- --
Amortization of deferred compensation. -- -- -- -- -- 186 -- -- 186
Net loss............................... -- -- -- -- -- -- -- (12,314) (12,314)
------ ------ ------- ------ ------ ------ ------------ ------- --------
Balance, December 31, 1998............... 26,176 $ 26 $50,058 802 $ 128 $(3,253) $(2,488) $(15,077) $29,394
====== ====== ========= ====== ====== ========= ========= ========= ========
The accompanying notes are an integral part of these statements.
37
BioMarin Pharmaceutical Inc. and Subsidiaries
(a development stage company)
Consolidated Statements of Changes in Stockholders' Equity for the
Years ended December 31, 1998, 1999 and 2000
(In thousands, except per share data)
Deficit
Notes Accumulated
Additional Receivable During Total
Common Stock Paid-in Warrants Deferred from Development SH's
Shares Amount Capital Shares Amount Comp. Stockholders Stage Equity
------ ------ ------- ------ ------ ------ ------------ ------- --------
Balance, January 1, 1999............... 26,176 $ 26 $ 50,058 802 $ 128 $(3,253) $(2,488) $(15,077) $ 29,394
Issuance of common stock on July 23,
1999, in an initial public offering
(IPO) for cash at $13.00 per share
(net of issuance costs of $7) ........ 4,500 4 51,805 -- -- -- -- -- 51,809
Issuance of common stock on July 23,
1999 to Genzyme Corporation in a
private placement concurrent with the
IPO for cash at $13.00 per share..... 769 1 9,999 -- -- -- -- -- 10,000
Issuance of common stock on July 23,
1999 concurrent with the IPO upon con-
version of promissory notes plus accrued
interest of $720 at $10.00 pershare
(net of issuance costs of $1)....... 2,672 3 25,612 -- -- -- -- -- 25,615
Issuance of common stock on August 3,
1999 and August 25, 1999 from the over-
allotment exercise by underwriters at
$13.00 per share (net of issuance costs
of $1)........................ 675 1 8,141 -- -- -- -- -- 8,142
Exercise of common stock options....... 40 -- 148 -- -- -- -- -- 148
Interest on notes receivable from
stockholders.......................... -- -- 150 -- -- -- (150) -- --
Deferred compensation related to stock
options.............................. -- -- 679 -- -- (679) -- -- --
Amortization of deferred compensation. -- -- -- -- -- 1,341 -- -- 1,341
Net loss............................... -- -- -- -- -- -- -- (28,072) (28,072)
------ ------ ------- ------ ------ ------ ------------ ------- --------
Balance, December 31, 1999.............. 34,832 $ 35 $146,592 802 $ 128 $(2,591) $(2,638) $(43,149) $ 98,377
====== ====== ========= ====== ====== ========= ========= ========= ========
The accompanying notes are an integral part of these statements.
38
BioMarin Pharmaceutical Inc. and Subsidiaries
(a development stage company)
Consolidated Statements of Changes in Stockholders' Equity for the
Years ended December 31, 1998, 1999 and 2000
(In thousands, except per share data)
Deficit
Notes Accumulated
Additional Receivable During Total
Common Stock Paid-in Warrants Deferred from Development SH's
Shares Amount Capital Shares Amount Comp. Stockholders Stage Equity
------ ------ ------- ------ ------ ------ ------------ ------- --------
Balance at December 31, 1999 34,832 $35 $146,592 802 $128 $(2,591) $ (2,638) $(43,149) $98,377
Issuance of common stock on April 30,
2000 pursuant to the Employee Stock
Purchase Plan at $11.05 per share... 18 - 199 - - - - - 199
Issuance of common stock on October 31,
2000 pursuant to the Employee Stock
Purchase Plan at $11.05 per share.... 10 - 115 - - - - - 115
Exercise of common stock options....... 1,301 1 5,674 - - - - - 5,675
Exercise of common stock warrants...... 802 1 929 (802) (128) - - - 802
Common stock surrendered by stockholders
for payment of principal and interest... (41) - (170) - - - 170 - -
Repayment of notes from stockholders...... - - - - - - 804 - 804
Interest on notes receivable.............. - - 276 - - - (276) - -
Amortization of deferred compensation..... - - - - - 1,386 - - 1,386
Deferred compensation related to stock and
option issuances, net of terminations... - - 325 - - (325) - - -
Net loss................................. - - - - - - - (37,364) (37,364)
------ ------ -------- ------ ------ -------- --------- --------- --------
Balance at December 31, 2000 36,922 $ 37 $153,940 - $ - $(1,530) $(1,940) $(80,513) $69,994
====== ====== ========= ====== ====== ========= ========= ========= ========
The accompanying notes are an integral part of these statements.
39
BioMarin Pharmaceutical Inc. and Subsidiaries
(a development-stage company)
Consolidated Statements of Cash Flows
the Years Ended December 31, 1998, 1999 and 2000 and for
the Period from March 21, 1997 (inception) to December 31, 2000
(In thousands)
Period from March 21,
December 31, 1997 (inception) to
-------------------------------------------- December 31,
1998 1999 2000 2000
------------------------------------------------------------------
Cash flows from operating activities:
Net loss $ (12,314) $ (28,072) $ (37,364) $ (80,513)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 308 4,074 4,347 8,734
Amortization of deferred compensation 185 1,341 1,386 2,912
Amortization of goodwill 271 1,143 1,600 3,014
Compensation in the form of common stock
and common stock options - - - 18
Loss from BioMarin/Genzyme LLC 47 6,973 12,635 19,655
Write-off of in-process technology 2,625 - - 2,625
Carson Street closure - - 3,791 3,791
Changes in operating assets and liabilities:
Accounts receivable, net (148) (899) 51 (996)
Due from Glyko Biomedical, Ltd. (34) (25) - (138)
Due from BioMarin/Genzyme LLC (419) (861) (519) (1,799)
Inventories (72) (5) 240 163
Prepaid expenses (137) 383 (676) (969)
Deposits (79) (72) (182) (333)
Accounts payable 1,172 1,754 1,652 4,746
Accrued liabilities 597 1,326 143 2,109
Due to Glyko, Inc. (61) - - -
------------------------------------------------------------------
Net cash used in operating activities (8,059) (12,940) (12,896) (36,981)
------------------------------------------------------------------
Cash flows from investing activities:
Purchase of property and equipment (6,385) (22,944) (3,760) (33,239)
Purchase of Biochemical Research Reagent
Division of Oxford Glycosciences - (1,500) - (1,500)
Investment in BioMarin/Genzyme LLC (732) (6,709) (13,696) (21,137)
(Purchase) sale of short-term investments (1,075) (37,597) 15,902 (23,671)
------------------------------------------------------------------
Net cash used in investing activities (8,192) (68,750) (1,554) (79,547)
------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from note payable 134 - - 134
Proceeds from issuance of convertible notes
payable - 25,615 - 25,615
Proceeds from exercise of common
stock options and warrants - 148 6,477 6,625
Repayment of equipment loan - (24) (28) (52)
Repayment of notes from stockholders - - 804 804
Issuance of commons stock for ESPP - - 314 314
Proceeds from sale of common stock, net of
issuance costs 19,692 69,951 - 98,926
Other (150) - - 692
------------------------------------------------------------------
Net cash provided by financing activities 19,676 95,690 7,567 133,058
------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 3,425 14,000 (6,883) 16,530
Cash and cash equivalents:
Beginning of period 5,988 9,413 23,413 -
------------------------------------------------------------------
End of period $ 9,413 $ 23,413 $ 16,530 $ 16,530
==================================================================
The accompanying notes are an integral part of these statements.
40
BioMarin Pharmaceutical Inc. and Subsidiaries
(a development-stage company)
Notes to Consolidated Financial Statements
1. NATURE OF OPERATIONS AND BUSINESS RISKS:
BioMarin Pharmaceutical Inc. (the Company) is a biopharmaceutical company
specializing in the development of enzyme therapies for debilitating
life-threatening chronic genetic diseases and other diseases and conditions.
Since inception, the Company has devoted substantially all of its efforts to
research and development activities, including preclinical studies and clinical
trials, the establishment of laboratory, clinical and commercial scale
manufacturing facilities, clinical manufacturing, and related administrative
activities.
The Company was incorporated on October 25, 1996 in the state of Delaware and
first began business on March 21, 1997 (inception) as a wholly-owned subsidiary
of Glyko Biomedical Ltd. (GBL). Subsequently, BioMarin has issued stock to
outside investors in a series of transactions, resulting in GBL's ownership of
BioMarin's outstanding common stock being reduced to 31 percent at December 31,
2000.
On October 7, 1998, the Company acquired Glyko, Inc., a wholly-owned subsidiary
of GBL, in a transaction valued at $14.5 million. The transaction was accounted
for as a purchase and resulted in Glyko, Inc. becoming a wholly-owned subsidiary
of the Company. Glyko, Inc. provides products and services that perform
sophisticated carbohydrate analysis for research institutions and commercial
laboratories.
Through December 31, 2000, the Company had accumulated losses during its
development stage of approximately $80.5 million. Based on current plans,
management expects to incur further losses at least through 2002. Management
believes that the Company's cash and cash equivalents and short-term investment
balances at December 31, 2000 will be sufficient to meet the Company's
obligations at least through 2001.
Business Risks - The Company is exposed to the following risks:
o There can be no assurance that the Company's research and development
efforts will be successfully completed or that its product candidates
will be shown to be safe and effective.
o There can be no assurance that its product candidates will be approved
for marketing by the U.S. Food and Drug Administration (FDA) or any
equivalent foreign government agency or that its product candidates
will be successfully commercialized or achieve any significant degree
of market acceptance.
o Certain of the Company's products and product candidates rely on
proprietary technology and patents owned by certain universities and
other institutions and licensed to BioMarin. These universities also
provide research and development services. Cessation of relationships
with these universities could significantly affect the Company's future
operations.
o In order to grow significantly, the Company must expand its efforts to
develop new products in pharmaceutical applications. The Company will
also need to enhance manufacturing capabilities, to develop marketing
capabilities, and/or enter into collaborative arrangements with third
parties having the capacity for such manufacturing or marketing.
o There can be no assurance that any of the Company's current or future
product candidates will be successfully developed, prove to be
effective in clinical trials, receive required regulatory approvals, be
capable of being produced in commercial quantities at reasonable costs,
gain reasonable reimbursement levels, or be successfully marketed.
In addition, the Company is subject to a number of risks, including the need for
additional financing, dependence on key personnel, small patient population,
patent protection, significant competition from larger organizations, dependence
on corporate partners and collaborators, and expected restrictions on
reimbursement, as well as other changes in the healthcare industry.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation--These consolidated financial statements include the
accounts of BioMarin, Glyko, Inc., a wholly-owned subsidiary of BioMarin (since
October 7, 1998), and BioMarin Genetics, Inc., a wholly-owned subsidiary of
BioMarin formed for the purpose of the joint venture discussed in Note 8. All
significant intercompany transactions have been eliminated.
Concentration of Credit Risk--Financial instruments that may potentially subject
the Company to concentration of credit risk consist principally of cash, cash
equivalents, and short-term investments. All cash, cash equivalents, and
short-term investments are placed in financial institutions with strong credit
ratings, which minimizes the risk of loss due to nonpayment. The Company has not
experienced any losses due to credit impairment or other factors related to its
financial instruments.
41
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, disclosure of contingent assets and liabilities at the dates of the
financial statements, and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Significant estimates made by management include determination of progress to
date of research and development projects in-process, the amortization period of
goodwill and other intangibles, and asset impairment reserves related to certain
leasehold improvements and equipment.
Cash and Cash Equivalents--For the consolidated statements of cash flows, the
Company treats liquid investments with original maturities of less than three
months as cash and cash equivalents.
Short-Term Investments--The Company records its investments as held-to-maturity.
These investments are recorded at cost at December 31, 2000, which approximates
fair market value. These securities are comprised mainly of Federal Agency
investments, including Freddie Macs and Federal Home Loans, and bank
certificates of deposit.
Inventories--Inventories consist of analytic kits and instrument-based systems
held for sale. Inventories are stated at the lower of cost (first-in, first-out
method) or estimated market value. All inventories at December 31, 1999 and 2000
belonged to Glyko, Inc.
Investment in BioMarin/Genzyme LLC and Related Revenue--Under the terms of the
Company's joint venture agreement with Genzyme (the Agreement - see notes 7 and
8), the Company and Genzyme have each agreed to provide 50 percent of the
funding for the joint venture. All research and development, sales and
marketing, and other activities performed by Genzyme and the Company on behalf
of the joint venture are billed to the joint venture at cost. Any profits or
losses of the joint venture are shared equally by the two parties. Losses of the
joint venture ($1.7 million, $14.0 million, $25.3 million and $41.0 million for
the years ended December 31, 1998, 1999 and 2000 and for the period March 21,
1997 (inception) through December 31, 2000, respectively) are allocated in
proportion to the funding provided by each joint venture partner. BioMarin
provided $22.0 million in funding to the joint venture through 2000.
During the years ended December 31, 1999 and 2000, the Company billed $10.6
million and $19.4 million, respectively, to the joint venture under the
Agreement. Of these amounts, $5.3 million and $9.7 million respectively, or 50
percent, was recognized as revenue in accordance with the Company's policy of
recognizing revenue to the extent that research and development costs billed to
the joint venture have been funded by Genzyme. At December 31, 1999 and 2000,
the Company had receivables of $1.3 million and $1.8 million, respectively,
related to these billings.
The Company accounts for its investment in the joint venture using the equity
method. Accordingly, the Company recorded a reduction in its investment in the
joint venture of $7.0 and $12.7 million, during the years ended December 31,
1999 and 2000, respectively, representing its 50 percent share of the loss of
the joint venture. The percentage of the research and development costs incurred
by the Company and billed to the joint venture that was funded by the Company
(50 percent, or $5.3 million and $9.7 million for the years ended December 31,
1999 and 2000, respectively) was recorded as a credit to the Company's equity in
the loss of the joint venture.
At December 31, 2000 the summarized assets and liabilities of the joint venture
and its results of operations from inception to December 31, 2000 are as follows
(in thousands):
Assets $ 3,368
=+=====
Liabilities $ 2,890
Net equity 478
-------
$ 3,368
Cumulative net loss $40,971
=======
Research and Development--Research and development expenses include the expenses
associated with contract research and development provided by third parties,
research and development provided in connection with the joint venture including
manufacturing, clinical and regulatory costs, and internal research and
development costs. All research and development costs discussed above are
expensed as incurred.
Property and Equipment--Property and equipment are stated at cost. Depreciation
is computed using the straight-line method. Leasehold improvements are amortized
over the life of the assets or the term of the lease, whichever is shorter.
Significant additions and improvements are capitalized, while repairs and
maintenance are charged to expense as incurred.
As of December 31, 1999 and 2000, property and equipment consisted of the
following (in thousands):
42
December 31,
-------------------------------
Category 1999 2000 Estimated Useful Lives
- ------------------------------------- ------------------------------- --------------------------------
Computer hardware and software $ 426 $ 678 3 years
Office furniture and equipment 1,017 1,056 5 years
Manufacturing/Laboratory equipment 8,254 9,323 5 years
Leasehold improvements 18,889 16,685 Shorter of life of assets
or lease term
Construction in progress 879 1,048
-------------------------------
29,465 28,790
Less: Accumulated depreciation (4,372) (8,075)
-------------------------------
Total property and equipment, net $ 25,093 $ 20,715
===============================
Depreciation expense for the years ended December 31, 1998, 1999 and 2000 and
for the period March 21, 1997 (inception) to December 31, 2000, was $0.3
million, $4.1 million, $4.3 million and $8.7 million, respectively.
Goodwill and Other Intangible Assets--In connection with the acquisition of
Glyko, Inc., the Company acquired certain intangible assets including developed
technology, customer relationships and goodwill. In this acquisition, the
Company obtained Glyko Inc.'s ongoing business of providing products and
services to research institutions and commercial laboratories. Additionally, the
Company secured ongoing access to Glyko, Inc.'s proprietary technologies which
assist the Company in supporting the manufacturing process testing and clinical
testing for our two lead drug candidates, Aldurazyme for MPS-I and rhASB for
MPS-VI.
The purchase price of $14.5 million was allocated to the net tangible and
intangible assets acquired, based on the relative fair value of these assets. In
connection with this allocation, $2.6 million was expensed as a charge for the
purchase of in-process research and development. Of the $11.7 million designated
as intangible assets (after the write-off of in-process research and
development), $1.2 million was allocated to developed technology and amortized
over six years, $73,000 was allocated to assembled work force and amortized over
seven years, and $10.4 million was allocated to goodwill (customer
relationships, trade name, pure business goodwill) and initially amortized over
twelve years. In performing this allocation, the Company considered, among other
factors, Glyko, Inc.'s technology and research and development projects
in-process at the date of acquisition. With regard to the in-process research
and development projects, the Company considered factors such as the stage of
development of the technology at the time of acquisition, the importance of each
project to the overall development plan, alternative future uses of the
technology and the projected incremental cash flows from the projects when
completed and any associated risks.
During 2000 the Company changed its estimate of the useful life of this goodwill
from 12 years to 7 years. The effect of this change in estimate was to increase
the Company's net loss by $466,000.
Amortization expense related to the acquisition of Glyko, Inc. was $0.3 million,
$1.1 million and $1.6 million for the period from October 7, 1998 (date of
acquisition) to December 31, 1998, and the years ended December 31, 1999 and
2000, respectively.
In connection with the purchase of the key assets of the Biochemical Research
Reagent Division of Oxford GlycoSciences Plc. (OGS), the Company recorded
goodwill in the amount $891,000 which is being amortized over seven years. Total
amortization expense for the year ended December 31, 2000, was $139,000.
Impairment of Long-Lived Assets--The Company regularly reviews long-lived assets
and identifiable intangibles whenever events or circumstances indicate that the
carrying amount of such assets may not be fully recoverable. The Company
evaluates the recoverability of long-lived assets by measuring the carrying
amount of the assets against the estimated undiscounted future cash flows
associated with them. At the time such evaluations indicate that the future
undiscounted cash flows of certain long-lived assets are not sufficient to
recover the carrying value of such assets, the assets are adjusted to their fair
values (based on discounted cash flows). Except for the Carson Street closure as
discussed in Note 11 no such adjustments have been made during any period
presented.
43
Accrued Liabilities--As of December 31, 1999 and 2000, accrued liabilities
consisted of the following (in thousands):
December 31,
--------------------------
1999 2000
------------- ------------
Vacation $ 286 $ 411
Construction in progress 882 225
Carson Street - 348
Other 798 1,125
------------- ------------
Total $ 1,966 $ 2,109
============= ============
Revenue Recognition--The Company recognizes Glyko, Inc.'s product revenues and
related cost of sales upon shipment of products. Glyko, Inc.'s service revenues
are recognized upon completion of services as evidenced by the transmission of
reports to customers. Other Glyko, Inc. revenues, principally licensing,
distribution and development fees, are recognized upon satisfaction of
contractual obligations such as 1) execution of contract; 2) certain milestones;
and 3) certain anniversary dates from the effective date of the contract.
Revenue from the joint venture is recognized to the extent that research and
development costs billed by the Company have been funded by Genzyme.
Net Income (Loss) per Share--Basic net income (loss) per share is calculated by
dividing net income (loss) by the weighted average common shares outstanding
during the period. Diluted net income per share is calculated by dividing net
income by the weighted average common shares outstanding and potential common
shares during the period. Potential common shares include dilutive shares
issuable upon the exercise of outstanding common stock options, warrants, and
contingent issuances of common stock. For periods in which the Company has
losses (all periods presented), such potential common shares are excluded from
the computation of diluted net loss per share, as their effect is antidilutive.
Potentially dilutive securities include (in thousands):
December 31,
----------------------------------------
1998 1999 2000
----------------------------------------
Options to purchase common stock 2,801 5,450 5,539
Warrants to purchase common stock 802 802 -
----------------------------------------
3,603 6,252 5,539
========================================
Segment Reporting--For the year ended December 31, 1998, the Company adopted the
provisions of SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information." The Company operates two segments. The Analytic and
Diagnostic segment represents the operations of Glyko, Inc. which involve the
manufacture and sale of analytic and diagnostic products. The Pharmaceutical
segment represents the research and development activities related to the
development and commercialization of carbohydrate enzyme therapeutics.
Management of the Company has concluded that the operations of the Analytic and
Diagnostic segment are, and will continue to be, immaterial with respect to the
Company's overall activities and, thus, disclosure of segment information is not
required.
New Accounting Standards--In June 1998, the FASB issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 is
not expected to have a material impact on the Company's consolidated financial
position or results of operations.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements." SAB
101 provides guidance on applying generally accepted accounting principles to
revenue recognition issues in financial statements. The Company adopted SAB 101
as required in the first quarter of 2000 and such adoption has not had a
material effect on the Company's consolidated financial position or results of
operations.
3. STOCKHOLDERS' EQUITY:
Common Stock and Warrants - As disclosed in the accompanying consolidated
statements of changes in stockholders' equity, the Company closed a number of
private placements in 1997 and 1998. In connection with these placements, an
entity with which the former chief executive officer and chairman of the board
is affiliated (see Note 7) was issued a total of 899,500 shares (valued at $1.4
million) and warrants (valued at $0.1 million) to purchase an additional 801,500
shares of common stock at an exercise price of $1 per share. These issuances
were made for brokerage services rendered in connection with these placements
and were accounted for as a cost of raising capital. The warrants were exercised
in October 2000.
44
Notes Receivable from Stockholders--Notes receivable from stockholders relate to
2.5 million shares of common stock issued in October 1997 to three executive
officers under the terms of the Founder's Stock Purchase Agreement (the
Agreement). These notes bear interest at 6 percent per annum, and are due on
March 31, 2001, or on the date of the employee's termination, whichever is
earlier. The notes are secured by the underlying stock and are with full
recourse. Interest was imputed at nine percent, resulting in an interest
discount and related deferred compensation of $200,000, which is being amortized
over the life of the notes. In the event that their employment is terminated by
the Company, the Company has the obligation, if requested by the officer, to
repurchase any or all of the shares issued under the Agreement at the lower of
the original purchase price or the current market value of the shares. In the
event one of these officers ceases to be an employee, the Company has the right,
but not the obligation, to repurchase the unvested portion of the shares at
their original purchase price. Pursuant to the terms of the Agreement, 50% of
the shares vest after one year from the date of employment, with the remainder
vesting at a rate of 1/24th per month thereafter. Upon the former President's
resignation from the Company in July 2000, the Company repurchased 33,334 shares
at his original purchase price and concurrently reduced his promissory note to
the Company for the same amount. In August 2000, the former President paid the
balance of his promissory note plus accrued interest to the Company. During
October 2000 the Company's Chief Executive Officer resigned. His promissory
note, plus accrued interest, is due in full on March 31, 2001.
Deferred Compensation--In connection with certain stock option and stock grants
during the years ended December 31, 1998, 1999 and 2000, the Company recorded
deferred compensation totaling $3.2 million, $0.7 million and $0.3 million,
respectively, which is being amortized over the estimated service periods of the
grantees. Amortization expense recognized during the years ended December 31,
1998, 1999 and 2000, was $0.2 million, $1.3 million and $1.4 million,
respectively.
4. INCOME TAXES:
The Company utilizes the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred taxes are determined based
on the difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse.
The Company's primary temporary differences relate to items expensed for
financial reporting purposes but not currently deductible for income tax
purposes, consisting primarily of depreciable lives for property and equipment.
As of December 31, 2000, net operating loss carryforwards are approximately
$74.9 million and $66.1 million for federal and California income tax purposes,
respectively. These net operating loss carryforwards, including net operating
losses of $12.6 million and $2.9 million for federal and California purposes,
respectively, related to Glyko, Inc. These federal and state carryforwards
expire beginning in the year 2011 and 2004, respectively.
The Company also has research and development credits available to reduce future
federal and California income taxes, if any, of approximately $2.8 million and
$2.8 million, respectively, at December 31, 2000. These credits include credits
related to Glyko, Inc. of approximately $0.6 million and $0.3 million for
federal and California purposes, respectively. These federal and state
carryforwards expire beginning in 2012 and 2013, respectively.
The Company also has orphan drug credits available to reduce future federal
income taxes, if any, of approximately $7.3 million at December 31, 2000.
The net operating loss carryforwards and research and development credits
related to Glyko, Inc. as of October 7, 1998, can only be utilized to offset
future taxable income and tax, respectively, if any, of Glyko, Inc. In addition,
the Tax Reform Act of 1986 contains provisions that may limit the net operating
loss carryforwards and research and development credits available to be used in
any given year should certain events occur, including sale of equity securities
and other changes in ownership. The acquisition of Glyko, Inc. and the related
issuance of stock represented a change of ownership under these provisions.
There can be no assurance that the Company will be able to utilize net operating
loss carryforwards and credits before expiration.
Deferred income taxes are recorded to reflect the tax consequences on future
years of differences between the tax basis of assets and liabilities and their
financial reporting amounts at each period-end. The Company has a cumulative net
operating loss carryforward since inception, resulting in net deferred tax
assets. A valuation allowance is placed on the net deferred tax assets to reduce
them to an assumed net realizable value of zero.
5. STOCK OPTION PLANS:
1997 Stock Plan--In November 1997, the Board adopted, and in April 1998, the
stockholders approved, the 1997 Stock Plan (the 1997 Plan), which provided for
the reservation of a total of 3,000,000 shares of common stock for issuance
under the 1997 Plan. In December 1998, the Board adopted, and in January 1999,
the stockholders approved, an amendment to the 1997 Plan to increase the number
45
of shares reserved for issuance under it to an aggregate of 5,000,000 and to add
an "evergreen provision" providing for an annual increase in the number of
shares which may be optioned or sold under the 1997 Plan without need for
additional Board or stockholder action to approve such increase (which increase
shall be the lesser of 4 percent of the then-outstanding capital stock,
2,000,000 shares, or a lower amount set by the Board). As of December 31, 2000,
the number of shares reserved for issuance was an aggregate of 7,695,572 under
the 1997 Plan. The 1997 Plan provides for the grant of stock options and the
issuance of common stock by the Company to its employees, officers, directors,
and consultants.
1998 Director Option Plan--The 1998 Director Option Plan (the Director Plan) was
adopted by the Board in December 1998 and approved by the stockholders in
January 1999. The Director Plan provides for the grant of nonstatutory stock
options to non-employee directors. A total of 200,000 shares of the Company's
common stock, plus an annual increase equal to the number of shares needed to
restore the maximum aggregate number of shares available for sale under the
Director Plan or the lesser of 0.5 percent of the outstanding capital stock,
200,000 shares, or a lesser amount set by the Board, have been reserved for
issuance under the Director Plan. As of December 31, 2000, options to purchase
165,000 shares were granted under the Director Plan and options to purchase
400,000 shares were authorized under the Director Plan.
Options currently outstanding under the Company's 1997 Stock Option Plan and
1998 Director Plan (the Plans) generally have vesting schedules of up to four
years and options terminate after five to ten years or 90 days after termination
of employment or contract.
The Company accounts for option grants in accordance with APB 25. Had
compensation cost for option grants to employees under the Plans been determined
consistent with the fair value provisions of SFAS No. 123, the effect on the
Company's net loss would have been as follows (in thousands, except for per
share data):
Period from
March 21, 1997
Years ended December 31, (Inception)
--------------------------------------------------------------------- to December 31,
1998 1999 2000 2000
----------------------- -------------------- -------------------- -----------------------------
Net loss as reported $ (12,314) $ (28,072) $ (37,364) $ (80,513)
Pro forma effect of
SFAS No. 123 (183) (1,074) (5,412) (6,669)
---------------------- -------------------- -------------------- -----------------------------
Pro forma net loss $ (12,497) $ (29,146) $ (42,776) $ (87,182)
====================== ==================== ==================== =============================
Net loss per common
share as reported $ (0.55) $ (0.94) $ (1.04) $ (3.21)
====================== ==================== ==================== =============================
Pro forma loss per
common share $ (0.56) $ (0.97) $ (1.19) $ (3.48)
====================== ==================== ==================== =============================
A summary of the status of the Company's Plans is as follows:
Weighted
Average Exercisable Weighted Average
Exercise at End of Fair Value of
Option Shares Price Year Options Granted
------------------------------ ------------- -------------------
Outstanding at March 21, 1997
Granted 297,000 $1.00 $0.22
Exercised - -
Canceled - -
----------------
Outstanding at December 31, 1997 297,000 1.00 232,000
=============
Granted 2,507,660 4.18 $2.40
Exercised (1,973) 1.00
Canceled (1,447) 1.00
----------------
Outstanding at December 31, 1998 2,801,240 3.85 761,609
=============
$8.80
Granted 2,877,430 11.35
Exercised (40,148) 3.69
Canceled (188,536) 9.28
----------------
Outstanding at December 31, 1999 5,449,986 7.59 1,922,041
=============
Granted 1,881,310 15.83 $13.27
Exercised (1,300,532) 4.36
Canceled (491,506) 11.70
----------------
Outstanding at December 31, 2000 5,539,258 10.92 2,067,302
=============
45
There were 900,510 and 1,048,661 options available for grant under the Plans at
December 31, 1999 and 2000, respectively.
As of December 31, 2000, the 5,539,258 options outstanding consisted of the
following:
Options Outstanding Options Exercisable
- -------------------------------------------------------------------------------------- -------------------------------------------
Range of Exercise Number of Options Weighted Average Weighted Average Number of Options Weighted Average
Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
- -------------------------------------------------------------------------------------- -------------------------------------------
$0.00 to $3.50 266,939 1.8 $1.03 254,654 $ 1.03
$3.51 to $7.00 1,930,998 4.8 $5.38 1,073,652 $ 5.23
$7.01 to $10.50 175,900 8.9 $9.45 13,446 $ 8.50
$10.51 to $14.00 1,774,658 6.6 $12.78 431,597 $12.86
$14.01 to $17.50 781,556 5.5 $15.82 199,654 $15.79
$17.51 to $21.00 330,749 7.9 $19.46 39,407 $19.65
$21.01 to $24.50 166,000 9.0 $21.95 28,124 $21.95
$24.51 to $28.00 96,000 4.9 $25.88 21,873 $25.92
$28.01 to $31.50 15,000 4.2 $31.25 3,437 $31.25
$31.51 to $35.00 1,458 0.1 $35.00 1,458 $35.00
--------------- ------------------
5,539,258 2,067,302
=============== ==================
The fair value of each option grant in 1997, 1998 and through July 22, 1999 is
estimated on the date of grant using the Black-Scholes option pricing model with
the following assumptions: risk-free interest rates ranging from 4.6 to 5.7
percent; expected dividend yield of 0 percent; expected life of four years for
the Plan's options; and expected volatility of 0 percent.
The fair value of each option grant from July 22, 1999 through December 31, 1999
is estimated on the date of grant using the Black-Scholes option pricing model
with the following assumptions: risk-free interest rates ranging from 5.8 to 6.1
percent; expected dividend yield of 0 percent; expected life of four years for
the Plan's options; and expected volatility of 38 percent.
The fair value of each option grant in 2000 is estimated on the date of grant
using the Black-Scholes option pricing model with the following assumptions used
for grants : risk-free interest rates ranging from 4.6 to 6.8 percent; expected
dividend yield of 0 percent; expected life of four years for the Plan's options;
and expected volatility of 105 percent.
6. COMMITMENTS AND CONTINGENCIES:
Lease Commitments--The Company leases office space and research and testing
laboratory space in various facilities under operating agreements expiring at
various dates through 2010. Future minimum lease payments for the years ended
December 31 are as follows (in thousands):
2001................. $ 1,888
2002.................. 1,754
2003.................. 1,627
2004................. 1,563
2005.................. 1,563
Thereafter........... 6,953
---------
Total..... $ 15,348
=========
Rent expense for the years ended December 31, 1998, 1999 and 2000, and for the
period from March 21, 1997 (inception), to December 31, 2000, was $0.4 million,
$1.1 million, $1.5 million and $3.0 million, respectively.
Research and Development Funding and Technology Licenses--The Company uses
experts and laboratories at universities and other institutions to perform
research and development activities. Funding commitments to these institutions
for the year ended December 31 are as follows (in thousands):
2001.................. 504
2002.................. 100
2003.................. 100
2004.................. 100
2005.................. 100
------
Total..... $ 904
======
The Company has also licensed technology from certain institutions, for which it
is required to pay a royalty upon future sales, subject to certain annual
minimums.
46
Product Liability and Lack of Insurance--The Company is subject to the risk of
exposure to product liability claims in the event that the use of Aldurazyme or
rhASB results in adverse effects during testing or commercial sale. The
BioMarin/Genzyme LLC and the Company do carry product liability insurance to
cover the clinical trials of Aldurazyme and rhASB, respectively. There can be no
assurance that the Company will be able to obtain product liability insurance
coverage at economically reasonable rates or that such insurance will provide
adequate coverage against all possible claims.
7. RELATED-PARTY TRANSACTIONS:
The Company had contractual agreements for office space and certain
administrative, research, and development functions with Glyko, Inc. prior to
the acquisition date of October 7, 1998. BioMarin reimburses Glyko, Inc. for
rent, salaries and related benefits, and other administrative costs. Glyko, Inc.
also reimburses BioMarin for salaries and related benefits.
Reimbursement of expenses (in thousands):
Paid from Paid from
Glyko, Inc. to BioMarin to
BioMarin Glyko, Inc. Net, to Glyko, Inc.
---------------- --------------- ---------------------
Year ended December 31, 1998 $ 75 $ 298 $ 223
Year ended December 31, 1999 68 335 267
Year ended December 31, 2000 - 155 155
March 21, 1997 (inception) to December 31, 2000 276 1,162 886
During 1997 801,500 warrants were issued to an entity with which the former
Chief Executive Officer and Chairman of the Board is affiliated (see Note 3).
Since October 8, 1998, GBL has agreed to pay the Company a monthly management
fee for its services to GBL primarily relating to management, accounting,
finance and government reporting. The Company had accrued receivables relating
to these services for GBL of $37,500 and $8,765 for the years ended December 31,
1999 and 2000, respectively.
On April 13, 1999, the Company entered into a convertible note financing
agreement in the amount of $26.0 million. Of this amount GBL purchased $4.3
million worth of such notes and LaMont Asset Management SA (LAM) purchased $9.7
million. A director of the Company is also the chairman of LAM. The Company also
entered into an agency agreement with LAM pursuant to which the Company agreed
to pay LAM a five percent cash commission on sales to certain note purchasers.
On July 23, 1999, concurrent with the Company's IPO, the Company's convertible
notes payable (including accrued interest) were converted into 2,672,020 shares
of the Company's common stock at $10 per share. GBL's $4.3 million convertible
note plus interest was converted to 441,911 shares and LAM's $9.7 million
convertible note plus interest was converted to 996,869 shares.
Due to the terms of the collaborative agreement with Genzyme outlined in Note 8,
Genzyme is considered to be a related party. See also Notes 1 and 8 for Genzyme
related-party transactions.
8. COLLABORATIVE AGREEMENTS:
Genzyme--Effective September 4, 1998, the Company entered into an agreement (the
Collaboration Agreement) with Genzyme to establish a joint venture
(BioMarin/Genzyme LLC) for the worldwide development and commercialization of
Aldurazyme to treat MPS-I. In conjunction with the formation of the joint
venture, the Company established a wholly-owned subsidiary, BioMarin Genetics,
Inc. The Company has a 49 percent interest in the joint venture, BioMarin
Genetics, Inc. has a 1 percent interest, and Genzyme has the remaining 50
percent interest.
Under the Collaboration Agreement, the Company and Genzyme are each required to
make capital contributions to the joint venture in an amount equal to 50 percent
of costs and expenses associated with the development and commercialization of
Aldurazyme. The parties also agree to share the profits equally from such
commercialization. In addition, Genzyme purchased 1,333,333 shares of the
Company's common stock at $6 per share in a private placement for proceeds of
$8.0 million and, concurrent with the IPO, purchased an additional 769,230
shares of the Company's common stock at the IPO price for an additional $10.0
million. Genzyme has also agreed to pay the Company $12.1 million in cash upon
FDA approval of the biologics license application for Aldurazyme.
Other Agreements--The Company is engaged in research and development
collaborations with various academic institutions, commercial research groups,
and other entities. The agreements provide for sponsorship of research and
development by the Company and may also provide for exclusive royalty-bearing
intellectual property licenses or rights of first negotiation regarding licenses
to intellectual property development under the collaborations. Typically, these
agreements are terminable for cause by either party upon 90 days written notice.
47
9. COMPENSATION PLANS:
Employment Agreements--The Company has entered into employment agreements with
eight officers of the Company. Seven of these agreements are terminable without
cause by the Company upon six months prior notice, or by the officer upon three
months prior written notice to the Company, with the Company obligated to pay
salary and benefits hereunder until such termination. In the employment
agreement with the Company's Chief Executive Officer the agreement shall be
renewed after three years for one additional three-year period unless either
party gives nine months notice prior to the expiration of the initial three-year
period. The annual salaries committed to under these agreements total
approximately $2 million. In addition, three of the agreements provide for the
payment of an annual cash bonus of up to 100 percent of the base annual salary
of the three officers based upon the Company's market capitalization through
June 30, 2000. Bonuses for the three officers totaled $294,000 in 2000.
401(k) Plan--The Company participates in the BioMarin Retirement Savings Plan.
Most employees (Participants) are eligible to participate following the start of
their employment, on the earlier of the next occurring January 1, April 1, July
1 or October 1. Participants may contribute up to 15 percent of their current
compensation to the 401(k) Plan or an amount up to a statutorily prescribed
annual limit. The Company pays the direct expenses of the 401(k) Plan and
matches 25% of the first 2% contributed to the employee accounts. The Company's
matching contribution vests over four years from employment commencement.
1998 Employee Stock Purchase Plan--In December 1998 the Board adopted, and in
January 1999 the stockholders approved, the 1998 Employee Stock Purchase Plan
(the 1998 Purchase Plan). A total of 250,000 shares of Company common stock has
been reserved for issuance under the 1998 Purchase Plan, plus annual increases
equal to the lesser of 0.5 percent of the outstanding capital stock, 200,000
shares, or a lesser amount set by the Board. As of December 31, 2000, 28,431
shares have been issued under the 1998 Purchase Plan.
10. SUPPLEMENTAL CASH FLOW INFORMATION:
The following non-cash transactions took place in the periods presented (in
thousands):
Period from March
21, 1997
Year Ended December 31, (Inception) to
------------------------------------------------------ December 31,
1998 1999 2000 2000
------------------------------------------------------ --------------------
Common stock issued upon conversion of
convertible notes plus interest $ - $ 25,615 $ - $25,615
Common stock issued in exchange for notes - - - 20,500
Common stock and common stock warrants
issued in exchange for brokerage services 588 - - 1,518
Bridge loan converted to common stock - - - 880
Common stock surrendered by stockholders
for payment of principal and interest - - 170 170
Compensation in the form of common stock
and common stock options - - - 18
11. CARSON STREET CLOSURE
During the first quarter of 2000, the Company decided to close its Carson Street
clinical manufacturing facility. In connection with this decision, the Company
recorded a charge of approximately $4.4 million. The facility was no longer
required for the production of Aldurazyme, the initial purpose of the plant,
after a decision by the BioMarin/Genzyme LLC joint venture to use the Company's
Galli Drive facility for the manufacture of bulk Aldurazyme both for the Phase
III trial and for the commercial launch of Aldurazyme. This decision was based
in part on U.S. Food and Drug Administration guidance to use an improved
production process, which was installed in the Galli Drive facility, for the
clinical trial, the biologics license application submission and for commercial
production. The majority of the Company's technical staff at the Carson Street
facility in Torrance, California transferred to the Galli Drive facility in
Novato, California in May. The charge primarily consisted of impairment reserves
for leasehold improvements and equipment located in the Carson Street facility.
48
12. SUBSEQUENT EVENT
In January 2001, the Company signed an agreement with Acqua Wellington North
American Equities Fund Ltd. (Acqua Wellington) whereby Acqua Wellington will
make an equity investment in the Company of up to $50 million. Subject to
certain conditions, including the market price of BioMarin stock, these funds
will be drawn down, at the Company's option, over the course of the next 20
months from sales of registered common stock to be sold at a small discount to
the market price.
In the initial transaction under this agreement on February 2, 2001, Acqua
Wellington purchased $1 million of the Company's common stock at $9.85 per
share.
13. QUARTERLY CONSOLIDATED FINANCIAL DATA (unaudited)
The Company's quarterly operating results have fluctuated in the past and may
continue to do so in the future as a result of a number of factors, including,
but not limited to, the completion of development projects and variations in
levels of production.
The Company's common stock has been traded on the NASDAQ Stock Market since July
22, 1999. There were 64 common stockholders of record at December 31, 2000. No
dividends were paid for the years ended December 31, 2000 and 1999.
Quarter Ended
-------------------------------------------------------------------
March 31, June 30, September 30, December 31,
2000 (In thousands, except per share data)
Total revenue $ 3,298 $ 3,083 $ 2,807 $ 3,138
Loss from operations (11,965) (7,188) (8,247) (10,024)
Net loss (11,736) (7,086) (8,148) (10,394)
Net loss per share, basic and diluted (0.34) (0.20) (0.23) (0.28)
Common stock price per share:
High $ 38.750 $ 27.750 $ 21.750 $ 17.62
Low 12.750 16.750 16.375 7.156
Quarter Ended
-------------------------------------------------------------------
March 31, June 30, September 30, December 31,
1999 (In thousands, except per share data)
Total revenue $ 1,104 $ 1,557 $ 1,999 $ 2,315
Loss from operations (4,583) (6,145) (7,732) (9,040)
Net loss (4,609) (6,782) (7,643) (9,038)
Net loss per share, basic and diluted (0.18) (0.26) (0.24) (0.26)
Common stock price per share:
High N/A N/A $ 18.750 $ 17.000
Low N/A N/A 11.625 11.625
49