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, 2001
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 15, 2002 was $392,122,171. The number of shares of common
stock, $0.001 par value, outstanding on March 15, 2002 was 52,447,402.
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 29, 2002 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
We develop enzyme therapies to treat serious, life-threatening diseases and
conditions. We leverage our expertise in enzyme biology to develop product
candidates for the treatment of genetic diseases, including MPS I, MPS VI and
PKU, as well as other critical care situations such as cardiovascular surgery
and serious burns. Our product candidates address markets for which no products
are currently available or where current products have been associated with
major deficiencies. We focus on conditions with well-defined patient
populations, including genetic diseases, which require chronic therapy.
Our lead product candidate, Aldurazyme(TM), which recently completed a Phase 3
trial, is being developed for the treatment of Mucopolysaccharidosis I (MPS I)
disease. MPS I is a debilitating and life-threatening genetic disease caused by
the deficiency of (alpha)-L-iduronidase, an enzyme responsible for breaking down
certain carbohydrates. MPS I is a progressive disease that afflicts patients
from birth and frequently leads to severe disability and early death. There are
currently no drugs on the market for the treatment of MPS I. Aldurazyme has
received both fast track designation from the United States Food and Drug
Administration (FDA) and orphan drug designation for the treatment of MPS I in
the United States and in the European Union. The impact of these designations is
discussed in the "Government Regulation" section, which begins on page 6. We are
developing Aldurazyme through a joint venture with Genzyme Corporation. In
collaboration with Genzyme, we completed a double-blinded, placebo-controlled
Phase 3 clinical trial of Aldurazyme in August 2001. On November 2, 2001, we
announced positive results from this trial. On April 1, 2002, we announced that
together with our joint venture partner, Genzyme, we have filed with European
regulatory authorities for approval to market Aldurazyme. Our joint venture
submitted a Marketing Authorization Application (MAA) to the European Medicines
Evaluation Agency (European Union)(or EMEA) on March 1, 2002. The EMEA has
accepted our MAA and validated that it is complete and ready for scientific
review. Accordingly, the EMEA's Committee for Proprietary Medicinal Products
(CPMP) will now evaluate the application to determine whether to approve
Aldurazyme for the treatment of MPS I in all 15 member states of the European
Union. Norway and Iceland also participate in the CPMP but have a seperate
approval process. In the United States, we along with Genzyme have been in
discussions with the FDA regarding the filing of a Biologics License Application
(BLA). We plan to initiate the BLA filing as soon as possible.
We are developing our second product candidate, Neutralase(TM), for reversal of
anticoagulation by heparin in patients undergoing Coronary Artery Bypass Graft,
or CABG, surgery and angioplasty. We acquired rights to Neutralase through our
acquisition of the pharmaceutical assets of IBEX Technologies Inc. in the fourth
quarter of 2001. Heparin is a carbohydrate drug commonly used to prevent
coagulation, or blood clotting, during certain types of major surgery.
Neutralase is a carbohydrate-modifying enzyme that cleaves heparin, allowing
coagulation of blood and aiding patient recovery following CABG surgery and
angioplasty. Based on data from previous trials, we plan to initiate a Phase 3
trial in CABG surgery in 2002.
In addition to Aldurazyme and Neutralase, we are developing other enzyme-based
therapeutics for the treatment of a variety of diseases and conditions. In 2001,
we announced a Phase 1 trial of AryplaseTM (formerly referred to as rhASB) for
the treatment of MPS VI, another seriously debilitating genetic disease. Based
on data from this previous trial, we plan to initiate a Phase 2 trial of
Aryplase in early 2002. We are also developing VibrilaseTM (formerly referred to
as Vibriolysin Topical), a topical enzyme product for use in removing burned
skin tissue in preparation for skin grafting or other therapy. We initiated a
Phase 1 clinical trial of Vibrilase in the United Kingdom in the fourth
quarter of 2001, and expect to begin a Phase 2 clinical trial in either the
United States or the United Kingdom following the completion of this Phase 1
trial. In addition, we are pursuing preclinical development of other enzyme
product candidates for genetic and other diseases.
1
Recent Developments
On April 1, 2002, we announced that together with our joint venture partner,
Genzyme, we have filed with European regulatory authorities for approval to
market Aldurazyme. Our joint venture submitted an MAA to the EMEA on March 1,
2002. The EMEA has accepted our MAA and validated that it is complete and ready
for scientific review. Accordingly, the EMEA's Committee for Proprietary
Medicinal Products (CPMP) will now evaluate the application to determine whether
to approve Aldurazyme for the treatment of MPS I in all 15 member states of the
European Union. Norway and Iceland also participate in the CPMP but have a
seperate approval process. In the United States, we along with Genzyme have been
in discussions with the FDA regarding the filing of a BLA. We plan to initiate
the BLA filing as soon as possible.
On March 21, 2002, we acquired Synapse Technologies Inc. Synapse owns the rights
to certain patented and proprietary technology which, based on the results of
preclinical trials, has the potential to deliver therapeutic enzymes and other
drugs across the blood-brain barrier by means of traditional intravenous
injections. Under the terms of the agreement, we purchased 100% of the
outstanding shares of Synapse for approximately $10.2 million payable in 885,242
shares of our common stock. We also may make future contingent payments of up to
approximately $6 million. These payments are payable in cash or stock, at our
option.
On February 25, 2002, we decided to close the analytics product catalog business
of our wholly-owned subsidiary, Glyko, Inc. The majority of the Glyko, Inc.
employees will be incorporated into our pharmaceutical business and such
employees will continue to provide necessary analytic and diagnostic support to
our therapeutic products. Certain operating assets of Glyko, Inc. may be offered
for sale.
On February 7, 2002, we announced that we had reached a definitive agreement to
acquire all of the outstanding capital stock of Glyko Biomedical Ltd. (GBL).
GBL's principal asset is its 22% ownership interest in our common stock. GBL
owns approximately 11.4 million shares of our common stock. Under the terms of
the acquisition agreement, GBL's common shareholders will receive approximately
11.4 million shares of our common stock in exchange for all of GBL's outstanding
common stock. There will be no net effect on the number of shares of our common
stock outstanding, as we plan to retire the existing shares of our common stock
currently held by GBL upon closing.
On December 12, 2001, we completed a public offering of our common stock. In the
offering, we sold 8,050,000 shares, including 1,050,000 shares to cover
underwriters' over-allotments, at a price to the public of $12.00 per share, or
a total offering price of $96.6 million. The net proceeds, after expenses and
underwriting discounts, were approximately $90.4 million. We intend to use the
net proceeds from this sale of shares for:
o the development and commercialization of our lead product candidate,
Aldurazyme;
o additional clinical trials and manufacturing of Neutralase;
o preclinical studies and clinical trials for our other product
candidates;
o potential licenses and other acquisitions of complementary
technologies and products;
o general corporate purposes; and
o working capital.
On November 2, 2001, we along with Genzyme, announced positive results from a
preliminary analysis of data from the Phase 3 clinical trial of Aldurazyme for
the treatment of MPS I. Patients were evaluated at defined intervals to assess
progress in meeting two primary endpoints. The preliminary data analysis showed
a statistically significant increase in pulmonary capacity (p=0.028) and
demonstrated a positive trend in endurance as measured by a six-minute walk test
(p=0.066). Among other endpoints measured in the trial, the main findings of an
earlier open-label study of Aldurazyme were confirmed: a reduction in liver size
and a reduction in excretion of urinary glycosaminoglycans, or GAGs, the
carbohydrate substances that accumulate in patients with MPS I. Based on the
strength of the trial's results, we, along with Genzyme, have met jointly with
U.S. and European regulatory authorities to discuss applications to market
Aldurazyme. Based on these discussions, the MAA has been submitted to the EMEA.
We plan to file the BLA with the FDA as soon as possible.
On October 31, 2001, we acquired the pharmaceutical assets of IBEX Technologies
Inc. and its subsidiaries. The product candidates and technologies that we
gained in this transaction, primarily the Neutralase and Phenylase programs, are
complementary to our existing product portfolio and core competencies. Under the
terms of the agreements, we acquired these assets in exchange for consideration
of $10.4 million, with $8.4 million payable in shares of our common stock and
$2.0 million payable in cash. In addition, we agreed to make contingent cash
payments of up to approximately $9.5 million to IBEX upon FDA approval of
products acquired from IBEX.
2
Aldurazyme
Our lead product candidate, Aldurazyme, is being developed for the treatment of
MPS I. MPS I is a genetic disease caused by the deficiency of
(alpha)-L-iduronidase. 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 growth, enlarged livers and spleens,
skeletal and joint deformities, airway obstruction, heart disease, reduced
endurance and pulmonary function impaired hearing and vision, and in some cases,
delayed mental development. Most patients with MPS I will die from complications
associated with the disease as children or teenagers. About 3,400 individuals in
developed countries have MPS I, including about 1,000 in the United States and
Canada.
There are currently no approved drugs for the treatment of MPS I. Bone marrow
transplantation has been used to treat severely affected patients, generally
under the age of two, with limited success. Bone marrow transplantation is
associated with high morbidity and mortality rates as well as with problems
inherent in the procedure itself, including graft vs. host disease, graft
rejection, and donor availability, which severely limit its utility and
application.
Aldurazyme is a specific form of recombinant human (alpha)-L-iduronidase that
replaces a genetic deficiency of (alpha)-L-iduronidase in MPS I patients, thus
reduces or eliminates the build-up of certain carbohydrates in the lysosomes of
cells. By eliminating this carbohydrate build-up, Aldurazyme is able to
significantly reduce the physical symptoms experienced by these patients. The
Phase 1 trial results of this product candidate reported no neutralizing
antibodies, indicating its applicability for chronic administration. In
collaboration with Genzyme, we completed a 45-patient, double-blinded,
placebo-controlled Phase 3 clinical trial of Aldurazyme in August 2001, which
was conducted at five sites in the U.S., Europe and Canada. All patients
completed the trial and elected to receive Aldurazyme in an open label extension
study. On November 2, 2001, we announced positive results from this trial. We
intend to continue the development of this drug and recently filed an MAA with
the EMEA. We plan to file a BLA with the FDA as soon as possible.
Aldurazyme has received fast track designation from the FDA for the treatment of
MPS I. The FDA has granted Aldurazyme orphan drug designation, which will result
in 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,
giving the potential for market exclusivity in Europe for 10 years. In September
1998, we formed a 50/50 joint venture with Genzyme for the worldwide development
and commercialization of Aldurazyme. Genzyme is responsible for regulatory
submissions in international markets and marketing, distribution, sales and
obtaining reimbursement for Aldurazyme worldwide. We are responsible for U.S.
regulatory submissions and the development and manufacturing of
(alpha)-L-iduronidase.
Neutralase
We are developing Neutralase for the reversal of anticoagulation by heparin in
patients undergoing Coronary Artery Bypass Graft, or CABG, surgery and
angioplasty. Patients undergoing CABG surgery and angioplasty are treated with
heparin to prevent coagulation during surgery. Once the procedure is completed,
anticoagulant reversal agents are administered to prevent excessive bleeding.
Currently, protamine is the only product commercially available for the reversal
of heparin anticoagulation. In medical studies, protamine has been associated
with adverse side effects, such as abnormal changes in blood pressure,
depression of heart function and acute allergic reactions. There were
approximately 571,000 CABG procedures and 1,069,000 angioplasties in the United
States in 1999 (as published by the American Heart Association in their 2002
Heart and Stroke Statistical Update) that could have potentially benefited from
heparin reversal. We believe that an additional substantial market opportunity
exists in Europe and the rest of the world.
We believe Neutralase has the potential to reverse heparin anticoagulation
without many of the serious side effects associated with protamine. Neutralase
is a carbohydrate-modifying enzyme that breaks down heparin in a manner that
inactivates heparin's anticoagulation effect and restores the normal coagulation
of blood. Neutralase has the potential for use as a reversal agent for heparin
anticoagulation in open-heart surgery such as CABG procedures, interventional
cardiology procedures such as angioplasty, and in other procedures where heparin
or heparin-like anticoagulants are used, such as in hip and knee surgeries.
Data from Phase 1 and Phase 2 clinical trials suggest that Neutralase can
reverse heparin anticoagulation without the adverse changes in blood pressure
associated with protamine usage. Building on the work undertaken so far, we
intend to initiate a Phase 3 trial for CABG in 2002, followed by a Phase 2B
trial for angioplasty.
3
Other Product Development Programs
Aryplase
We are developing recombinant, human N-acetylgalactosamine 4-sulfatase
(Aryplase) for the treatment of MPS VI, a debilitating genetic disease similar
to MPS I. Aryplase has received fast track designation from the FDA as well as
orphan drug designation for the treatment of MPS VI in the United States and in
the European Union. Based on clinical data to date, we plan to initiate a Phase
2 trial of Aryplase early in 2002.
Vibrilase
We are developing Vibrilase for use in removing burned skin in preparation for
skin grafting or other therapy. In the fourth quarter of 2001, we initiated a
Phase 1 clinical trial of this product candidate in the United Kingdom, and
expect to begin a Phase 2 clinical trial in either the United States or the
United Kingdom following the completion of this Phase 1 trial.
Phenylase
We are developing Phenylase as an oral enzyme therapy for patients with
phenylketonuria (PKU) a genetic disease in which the body cannot properly
metabolize the amino acid phenylalanine. If left untreated, elevated levels of
phenylalanine lead to brain damage and severe mental retardation. Phenylase is
currently in preclinical development.
BioMarin's Strategy
Our strategy is to develop therapeutic enzyme products to treat a variety of
diseases and conditions. The principal elements of this strategy are to:
Develop and successfully commercialize our lead product candidates
We are seeking to develop and globally commercialize Aldurazyme for the
treatment of MPS I, Neutralase for the reversal of anticoagulation agents,
Aryplase for MPS VI, and Vibrilase for serious burns, each of which is in human
clinical testing. With regard to Aldurazyme,in concert with our joint venture
partner, Genzyme, we are developing strategies for the effective launch of this
product. We believe we will benefit from Genzyme's marketing organization, which
has extensive worldwide experience marketing drugs to well-defined patient
populations with chronic genetic diseases.
Continue to build a diversified portfolio of product candidates
In addition to the products in human clinical testing noted above, we are
conducting research on other enzyme products, including those intended to treat
phenylketonuria (Phenylase), ischemia (Extravase), and diseases in which it is
necessary to treat the brain (Synapse.)
Target underserved markets
We intend to continue to target market opportunities where there is little or no
competition, such as the markets for MPS I and MPS VI. We also target markets
where we believe that our technology will enable us to become a market leader in
a relatively short time period, such as the market for Neutralase. Our strategy
is to avoid situations where market differentiation is a function of marketing
strength and not technical expertise.
Seek to license or acquire complementary products and technologies
We intend to supplement our internal drug discovery efforts through the
acquisition of products and technologies that complement our general product
development strategy. Two examples of this are our recent acquisition of the
pharmaceutical assets of IBEX Technologies, which added three complementary
product candidates to our portfolio and our acquisition of Synapse Technologies,
Inc., which added technology intended to enable certain drug products to cross
the blood-brain-barrier by means of traditional intravenous injection. We intend
to continue to identify, evaluate and pursue the licensing or acquisition of
other strategically valuable products and organizations.
Leverage our core competencies
We believe that we have significant expertise in enzyme biology and
manipulation, which we have used to establish a strong platform for the
development of enzyme-related pharmaceutical products. We intend to leverage
these competencies to develop high-value products for markets with unmet medical
needs. When strategically advantageous, we may seek partnerships with industry
leaders for the further advancement of our product candidates.
4
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 3 clinical trial and other clinical studies.
The bulk production is being done in our Galli Drive (Novato, California)
manufacturing facility. Following the recently completed expansion, Galli is a
51,800 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 either our joint venture partner or contract manufacturers.
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 and other
regulatory agencies in connection with the BLA and other marketing applications.
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
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.
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
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.
5
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 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. In June 2000, the FDA designated Aryplase a fast
track product for the treatment of MPS VI. We cannot predict the ultimate
impact, if any, of the fast track process on the timing or likelihood of FDA
approval of Aldurazyme, Aryplase or any of our other potential products.
Orphan Drug Designation. In September 1997, Aldurazyme received orphan drug
designation from the FDA. In February 1999, Aryplase 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, which for this program is defined
as having a prevalence less 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 Aryplase received designation as orphan medicinal
products by the European Commission in February 2001.
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 in the U.S. and ten years in Europe. Although obtaining approval to market
a product with orphan drug exclusivity may be advantageous, we cannot be
certain:
o that we will be the first to obtain approval for any drug for
which we obtain orphan drug designation,
o that orphan drug designation will result in any commercial
advantage or reduce competition, nor
o that the limited exceptions to this exclusivity will not be
invoked by the relevant regulatory authority.
Competition
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:
Aldurazyme for MPS I. On November 21, 2000 and May 29, 2001, respectively,
Transkaryotic Therapies, Inc. (TKTX) announced that two US patents on
(alpha)-L-iduronidase had been issued and that these patents had been
exclusively licensed to TKTX. We have examined the patents, the patent files,
the prior art and other information. We believe that the patents 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 patents, in order to gain marketing approvals as rapidly as
possible and to provide MPS I patients with the benefits of Aldurazyme. If
either or both of the patents are deemed (or ruled) to be valid, the joint
venture will need to reach an accommodation with the holder of the license to
the patent.
6
These patents do 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 announced that it has novel enzymatic technology to make
enzymes with proper glycosylation and phosphorylation. Since that announcement,
that company has been acquired by our joint venture partner, Genzyme. Pursuant
to our joint venture agreement with Genzyme, both Genzyme and our Company must
mutually agree on any technological developments relating to Aldurazyme. 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. Our 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.
Neutralase for anticoagulation reversal. Currently protamine sulfate (US) and
protamine chloride (EU) are the only products used to reverse heparin.
Neutralase, if approved, would have to compete with protamine in the market
place. Protamine is relatively inexpensive; for Neutralase to achieve
significant market share, clinical data will be needed to demonstrate advantages
in safety or efficacy or both for the reversal of heparin. We believe that
Neutralase has superior characteristics but cannot predict that clinical studies
will demonstrate this superiority. Other than protamine, there are no
significant competitive drugs in clinical trials for the reversal of heparin.
An alternative source of competition comes from substitutes for heparin, and
hence reducing the need for Neutralase. The Medicines Company has an approved
drug AngiomaxTM (hirudin) that is a substitute for heparin in angioplasty and
potentially other indications. We cannot predict how much this competitor will
reduce the potential market size of Neutralase for angioplasty or other
indications. One additional source of competition comes from changes in medical
practice that may decrease the use of procedures that require heparin and so
Neutralase. Off-pump coronary artery bypass surgery has increased in frequency
and the amount of heparin used is less, though heparin is still used. Increased
off-pump CABG could reduce the use of heparin to some degree and therefore
decrease the market for Neutralase. Other unpredictable changes in medical
practice or other non-heparin-like anticoagulants could occur or be approved and
potentially reduce the market for Neutralase. At this time, we do not foresee a
large competitive challenge to heparin or the need for heparin reversal.
Aryplase 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.
Vibrilase 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 Vibrilase continues to be surgical
debridement.
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 15, 2002, we had 216 full-time employees, 111 of whom are in
operations, 80 of whom are in research and development and 25 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.
7
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
product candidates. As of December 31, 2001, we had an accumulated deficit of
approximately $148.1 million. We expect to continue to operate at a net loss for
the foreseeable future. Our future profitability depends on our receiving
regulatory approval of our product 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.
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. The amount of capital we will need depends on many
factors, including:
. 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 manufacturing
processes, including quality systems and to build or acquire
manufacturing capabilities;
. the time and cost necessary to respond to technological and market
developments; and
. any changes made or new developments in our existing collaborative,
licensing and other commercial relationships or 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:
. additional leases for new facilities and capital equipment;
. additional licenses and collaborative agreements;
. additional contracts for consulting, maintenance and administrative
services; and
. additional contracts for product manufacturing.
We believe that our cash, cash equivalents and short term investment securities
balances at December 31, 2001 will be sufficient to meet our operating and
capital requirements through 2003. These estimates are 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 and our operating results will be
adversely affected.
We must obtain regulatory approval before marketing or selling our drug products
in the U.S. and in foreign jurisdictions. In the U.S., 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 products 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.
8
To obtain regulatory approval to market our products, preclinical studies and
costly and lengthy clinical trials will 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 product. 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 drug products. Additional factors that can cause delay or termination of
our clinical trials include:
. slow or insufficient patient enrollment;
. slow recruitment of, and completion of necessary institutional
approvals at clinical sites;
. longer treatment time required to demonstrate efficacy;
. lack of sufficient supplies of the product candidate;
. adverse medical events or side effects in treated patients;
. lack of effectiveness of the product candidate being tested; and
. regulatory requests for additional clinical trials.
Typically, if a drug product is intended to treat a chronic disease, as is the
case with most of the product candidates we are developing, 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 May 2001, we completed a 24-month patient evaluation for the initial clinical
trial of our lead drug product, Aldurazyme, for the treatment of MPS I. Two of
the original ten patients enrolled in this trial died in 2000. One of these
patients received 103 weeks of Aldurazyme treatment and the other received 37
weeks of treatment. One of the original forty-five patients who completed the
Phase 3 clinical trial died after 16 weeks of the Phase 3 extension study. One
patient treated under a single-patient use protocol died after 31 weeks of
Aldurazyme treatment. Based on medical data collected from clinical
investigative sites, none of these cases directly implicated treatment with
Aldurazyme as the cause of death. If cases of patient complications or death are
ultimately attributed to Aldurazyme, our chances of commercializing this drug
would be seriously compromised.
The fast track designation for our product candidates may not actually lead to a
faster review process.
Although Aldurazyme and Aryplase have obtained fast track designations, 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 process qualification batches to final specifications under cGMP
controls for each of our drug products before the marketing applications can be
approved. Although we have completed process qualification batches for
Aldurazyme, these batches may be rejected by the regulatory authorities, and we
may be unable to manufacture the process qualification batches for our other
products or pass the inspections in a timely manner, if at all.
9
If we fail to obtain orphan drug exclusivity for some of our products, our
competitors may sell products to treat the same conditions and our revenues will
be reduced.
As part of our business strategy, we intend to develop some 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 first
obtains 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.
Even though we have obtained orphan drug designation for certain of our product
candidates 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, if we do, that exclusivity would
effectively protect the product from competition. Orphan drug designation
neither shortens the development time or regulatory review time of a drug nor
gives the drug any advantage in the regulatory review or approval process.
Because the target patient populations for some of our products are small, we
must achieve significant market share and obtain high per patient prices for our
products to achieve profitability.
Two of our lead drug candidates, Aldurazyme and Aryplase, target diseases with
small patient populations. As a result, our per-patient prices must be
relatively high in order to recover our development costs and achieve
profitability. Aldurazyme targets patients with MPS I and Aryplase targets
patients with MPS VI. 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 payers, there would be no commercially viable markets for our
products.
The course of treatment for patients with MPS I using Aldurazyme and for
patients with MPS VI using Aryplase 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 or
Aryplase without reimbursement from third-party payers.
Third-party payers, such as government or private health care insurers,
carefully review and increasingly challenge the prices charged for drugs.
Reimbursement rates from private companies vary depending on the third-party
payer, 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 payers will pay for the costs of our drugs.
Even if we are able to obtain reimbursement from third-party payers, 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 payers 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. Patent protection may not be available for some of the enzymes we
are developing. 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 have been published and are believed to be
in the public domain. The composition and genetic sequences of other MPS enzymes
that 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 broad composition-of-matter patents, other forms of
patent protection or orphan drug status may provide us with a competitive
advantage. As a result of these uncertainties, investors should not rely on
patents as a means of protecting our product candidates, including Aldurazyme.
10
We own or license patents and patent applications to certain of our product
candidates. However, these patents and patent applications do not ensure the
protection of our intellectual property for a number of other reasons, including
the following:
. We do not know whether our patent applications will result in issued
patents. For example, we may not have developed a method for treating
a disease before others developed similar methods.
. 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. In litigation, a competitor could claim that our
issued patents are not valid for a number of reasons. If a court
agrees, we would lose that patent. 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. Management would spend less time and resources on
developing products, which could increase our research and development
expense and delay product programs.
. Receipt of a patent 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 the following:
. 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 crosslicenses 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 two patents that
relate to (alpha)-L-iduronidase. If we are not able to successfully challenge
these patents, we may be prevented from producing Aldurazyme unless and until we
obtain a license.
The United States Patent and Trademark Office recently issued two patents that
include composition of matter and method of use claims for recombinant
(alpha)-L-iduronidase. Our lead drug product, Aldurazyme, is based on
recombinant (alpha)-L-iduronidase. We believe that these patents are invalid on
a number of grounds. A corresponding patent application was filed in the
European Patent Office claiming composition of matter for recombinant
(alpha)-L-iduronidase, and it was rejected over prior art and withdrawn and
cannot be re-filed. Nonetheless, under U.S. law, issued patents are entitled to
a presumption of validity, and our challenges to the U.S. patents may be
unsuccessful. Even if we are successful, challenging the U.S. patents may be
expensive, require our management to devote significant time to this effort and
may delay commercialization of Aldurazyme in the United States.
11
The patent holder has granted an exclusive license for products relating to
these patents to one of our competitors. If we are unable to successfully
challenge the patents, we may be unable to produce Aldurazyme in the United
States unless we can obtain a sublicense 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.
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 other enzyme-based products to the marketing of our initial
drug product, 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.
If the joint venture is terminated for breach, the non-breaching party 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
the breaching party's interest in the joint venture. If we are the breaching
party, we would lose our rights to Aldurazyme and the related intellectual
property and regulatory approvals. If the joint venture is terminated without
cause, the non-terminating party would have the option, exercisable for one
year, to buy out the terminating party's interest in the joint venture and
obtain all rights to Aldurazyme exclusively. In the 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 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.
Although we have successfully manufactured Aldurazyme at commercial scale within
our cost parameters, we cannot guarantee that we will be able to manufacture any
other drug product successfully with a commercially viable process or at a scale
large enough to support their respective commercial markets or at acceptable
margins.
Our manufacturing processes may not meet initial expectations and we may
encounter problems with any of the following measurements of performance if we
attempt to increase the scale or size or improve the commercial viability of our
manufacturing processes:
. design, construction and qualification of manufacturing facilities
that meet regulatory requirements;
. schedule;
. reproducibility;
. production yields;
. purity;
. costs;
12
. quality control and assurance systems;
. shortages of qualified personnel; and
. compliance with regulatory requirements.
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 becomes 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.
The availability of suitable contract manufacturing at scheduled or optimum
times is not certain. The cost of contract manufacturing is greater than
internal manufacturing and therefore our manufacturing processes must be of
higher productivity to yield equivalent margins.
The manufacture of Neutralase involves the fermentation of a bacterial species.
We have never used a bacterial production process for the production of any
commercial product. IBEX Technologies Inc., from which we acquired Neutralase,
had contracted with a third party for the manufacture of the Neutralase used in
prior clinical trials.
We have built-out approximately 51,800 square feet at our Novato facilities for
manufacturing capability for Aldurazyme and Aryplase including related quality
control laboratories, materials capabilities, and support areas. We expect to
add additional capabilities in stages over time, which could create additional
operational complexity and challenges. We expect that the manufacturing process
of all of our new drug products, including Aryplase and Neutralase, will require
significant time and resources before we can begin to manufacture them (or have
them manufactured by third parties) in commercial quantity at acceptable cost.
Even if we can establish the necessary capacity, we cannot be certain that
manufacturing costs will be commercially reasonable, especially if contract
manufacturing is employed or 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 makeup;
. improving the manufacturing 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 that is used to
produce an enzyme or other protein that it would not have otherwise produced.
The development of a stable, high production cell line for any given enzyme is
difficult, 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 create 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 capabilities either by developing our own 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.
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 products.
With our acquisition of Neutralase from IBEX Technologies Inc., we have an
enzyme product that has a significantly larger potential patient population than
Aldurazyme and Aryplase and will be marketed and sold to different target
audiences with different therapeutic and financial requirements and needs. As a
result, we will be competing with other pharmaceutical companies with
experienced and well-funded sales and marketing operations targeting these
specific physician and institutional audiences. We may not be able to create our
own sales and marketing force or of a size that would allow us to compete with
these other companies. If we elect to enter into third-party marketing and
distribution agreements in order to sell into these markets, we may not be able
to enter into these agreements on acceptable terms, if at all. If we cannot
compete effectively in these specific physician and institutional markets, it
would adversely affect sales of Neutralase.
13
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 that 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 in the U.S. and
ten years in the European Union. 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.
If we do not achieve milestones as expected, our stock price may decline.
For planning purposes, we estimate the timing of the accomplishment of various
scientific, clinical, regulatory and other milestones, such as the commencement
or completion of scientific studies and clinical trials and the submission of
regulatory filings. These estimates, some of which are included in this
prospectus, are based on a variety of assumptions. The actual timing of these
milestones can vary dramatically compared to our estimates, in many cases for
reasons beyond our control.
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 and/or foreign government 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 Emil D. Kakkis, M.D., Ph.D., our
Senior Vice President of Scientific Affairs or Christopher M. Starr, Ph.D., our
Senior Vice President for Research and Development, could be detrimental to us
if we cannot recruit suitable replacements in a timely manner. While Mr. Price,
Dr. Kakkis 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.
If we fail to effectively integrate the recently acquired Neutralase and
Phenylase programs and those acquired from Synapse Technologies, Inc. into our
current operations, the efficient execution of these product programs could be
delayed and our operating and research and development expenditures could
increase beyond anticipated levels.
Our recent acquisition of assets from IBEX Technologies Inc., including the
Neutralase and Phenylase product programs and from Synapse Technologies, Inc.,
will need to be integrated with our current operations. This will include
several technical and administrative challenges, including managing the
information transfer, integrating certain of our former technical staff members
at Ibex and Synapse into our research and development structure and managing
multiple operations in different countries. If we do not accomplish this
integration effectively, our programs could be delayed and our operating and
research and development expenditures could increase beyond anticipated levels.
Additionally, the integration could require a significant time commitment from
our senior management.
Changes in methods of treatment of disease could reduce demand for our products.
Even if our drug products are approved, doctors must use treatments that require
using those products. If doctors elect a different course of treatment from that
which includes our drug products, this decision would reduce demand for our drug
products.
14
Examples include the potential use in the future of effective gene therapy for
the treatment of genetic diseases. The use of gene therapy could theoretically
reduce or eliminate the use of enzyme replacement therapy in MPS diseases.
Sometimes, this change in treatment method can be caused by the introduction of
other companies' products or the development of new technologies or surgical
procedures which may not directly compete with ours, but which have the effect
of changing how doctors decide to treat a disease. For example, Neutralase is
being developed for heparin reversal in CABG surgery. It is possible that
alternative non-surgical methods of treating heart disease could be developed.
If so, then the demand for Neutralase would likely decrease.
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 Aryplase and Vibrilase. We may be subject to claims in connection
with our current clinical trials for Aldurazyme, Aryplase and Vibrilase for
which the joint venture's or our insurance coverages are not adequate. We cannot
be certain that if Aldurazyme, Aryplase or Vibrilase receives FDA approval, the
product liability insurance the joint venture or we will need to obtain in
connection with the commercial sales of Aldurazyme, Aryplase or Vibrilase 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, Neutralase, Aryplase and our other lead drug
products through the regulatory process, especially regulatory actions
in the United States related to Aldurazyme;
. results of clinical trials, announcements of technological innovations
or new products by us or our competitors;
. government regulatory action affecting our drug products or our
competitors' drug products in both the United States and foreign
countries;
. developments or disputes concerning patent or proprietary rights;
. general market conditions and fluctuations for the emerging growth and
biopharmaceutical market sectors;
. 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,
which may cause the market price of our common stock to fluctuate;
and
. 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; and
. 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.
15
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 28% of the outstanding shares
of our common stock. Glyko Biomedical Ltd. owns approximately 22% 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:
. 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.
16
Item 2. Properties
We are currently leasing a total of seven buildings. Five of our buildings are
located in Novato, California, each within a half-mile radius. The five
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 79 Digital Drive facility
o 95 Digital Drive facility
The sixth building is located in Torrance, California and is currently being
subleased until the lease expires in August 2002. The seventh building is
located in Montreal, Ontario, Canada, which we sublease from IBEX Technologies,
Inc. for our research and development efforts relating to Neutralase and
Phenylase. The Montreal sublease expires in October 2002.
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 2004. We have an option to extend the lease for one
additional three-year period.
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.
Our 79 Digital Drive facility leased commencing in late 2001 provides
warehousing support for our entire organization. Its primary focus is to provide
controlled access warehousing and the required segregation and testing of all
cGMP raw materials used in our manufacturing operations. In addition, 79 Digital
serves as the primary shipping, receiving and storage point for all other
materials used throughout our entire organization.
The 95 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.
Our administrative office space is expected to be adequate until the end of
2002, at which time we may add additional office space. We may need to
supplement our production facilities' capacity if the market penetration rates
are such that the output from our facilities would be less than the markets'
demands. Based on the timelines for Neutralase and Vibrilase, we will have to
develop, purchase from third parties, or enter into agreements with third
parties for contact manufacturing for these products 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, 2001.
17
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 high and low sales prices for our common stock for the periods noted,
as reported by Nasdaq National Market.
Prices
Year Period High Low
2000 First Quarter $41.25 $11.00
2000 Second Quarter $30.38 $16.00
2000 Third Quarter $21.86 $15.75
2000 Fourth Quarter $18.50 $15.75
2001 First Quarter $13.25 $6.56
2001 Second Quarter $13.29 $7.50
2001 Third Quarter $13.74 $8.07
2001 Fourth Quarter $14.40 $8.65
On March 15, 2002, the last reported sale price on the Nasdaq National Market
for our common stock was $10.55. 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 15, 2002, there were 80 holders of record of 52,447,402 outstanding
shares of our common stock. Additionally, on such date options to acquire
7,573,124 shares of our common stock and warrants to acquire 752,427 shares of
our common stock were outstanding.
Unregistered Securities
On October 31, 2001, we issued 814,647 shares of common stock to IBEX
Technologies Inc. and its subsidiaries as partial consideration for our purchase
of the intellectual property and other assets associated with the IBEX
therapeutic enzyme drug products (including Neutralase and Phenylase). These
shares were issued pursuant to an exemption from registration under Section
4(2), of the Securities Act of 1933. These shares were appropriately legended to
indicate that the shares may not be resold unless registered under the
Securities Act or an exemption from registration is available. We have since
registered these shares for resale through a registration statement on Form S-3.
18
Item 6. Selected consolidated financial data (in thousands, except per share
data)
The selected consolidated financial data set forth below contain only a portion
of our 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.
We derived the statement of operations data for the interim period from March
21, 1997 through December 31, 1997 and the years ended December 31, 1998, 1999,
2000 and 2001 and balance sheet data as of December 31, 1997, 1998, 1999, 2000
and 2001 from audited financial statements. Historical results are not
necessarily indicative of results that we may expect in the future.
<table>
Period from
March 21, 1997
(inception) to
December 31, Year ended December 31,
----------------------------------------------------------------------------
Consolidated statements
of operations data: 1997 1998 1999 2000 2001
- ----------------------------------------------- ----------------------------------------------------------------------------
(in thousands, except for per share data)
Revenues $ -- $ 854 $ 5,300 $ 9,714 $ 11,699
Operating costs and expenses:
Research and development 1,914 10,288 26,341 34,459 45,283
General and administrative 914 3,146 4,757 6,507 6,718
In-process research and development 11,647
Facility closure -- -- -- 4,423
------ ------ ------ ------ -------
Total operating costs and expenses 2,828 13,434 31,098 45,389 63,648
------ ------ ------ ------ -------
Loss from operations (2,828) (12,580) (25,798) (35,675) (51,949)
Interest income 65 685 1,832 2,979 1,871
Interest expense -- -- (732) (7) (17)
Equity in loss of joint venture -- (47) (1,673) (2,912) (7,333)
------ ------ ------ ------ -------
Net loss continuing operations (2,763) (11,942) (26,371) (35,615) (57,428)
Loss from discontinued operations - (372) (1,701) (1,749) (2,266)
Loss from disposal of discontinued operations - - - - (7,912)
------ ------ ------- ------ -------
Net loss $(2,763) $(12,314) $(28,072) $(37,364) $(67,606)
====== ====== ======= ====== =======
Net loss per share, basic and diluted
Loss from continued operations $(0.34) $(0.53) $(0.88) $(0.99) $(1.40)
====== ====== ====== ======= =======
Loss from discontinued operations $ - $(0.02) $(0.06) $(0.05) $ (0.06)
====== ====== ====== ======= =======
Loss on disposal of discontinued operations $ - $ - $ - $ - $ (0.19)
====== ====== ====== ======= =======
Net loss $(0.34) $(0.55) $(0.94) $(1.04) $ (1.65)
====== ====== ====== ======= =======
Weighted average common shares outstanding 8,136 22,488 29,944 35,859 41,083
====== ====== ====== ======= =======
December 31,
-------------------- -----------------------------------------------------
Consolidated 1997 1998 1999 2000 2001
balance sheet data:
- ------------------------------------------------- -------------------- ------------ ------------ ------------ --------------
Cash, cash equivalents and short-term $6,888 $11,389 $62,986 $40,201 $131,097
investments
Total current assets 7,507 12,819 66,422 44,541 136,783
Total assets 7,653 31,510 103,549 76,933 171,811
Long-term liabilities -- 110 85 56 3,961
Total stockholders' equity 7,380 29,394 98,377 69,994 159,548
- ---------------------------
</table>
See notes to our consolidated financial statements incorporated by reference in
this prospectus for a description of the number of shares used in the
computation of the net loss per common share.
19
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 develop enzyme therapies to treat serious, life-threatening diseases and
conditions. We leverage our expertise in enzyme biology to develop product
candidates for the treatment of genetic diseases, including MPS I, MPS VI and
PKU, as well as other critical care situations such as cardiovascular surgery
and serious burns. Our product candidates address markets for which no products
are currently available or where current products have been associated with
major deficiencies. We focus on conditions with well-defined patient
populations, including genetic diseases, which require chronic therapy.
Our lead product candidate, Aldurazyme, which recently completed a Phase 3
trial, is being developed for the treatment of Mucopolysaccharidosis I (MPS I)
disease. We are developing our second product candidate, Neutralase, for
reversal of anticoagulation by heparin in patients undergoing Coronary Artery
Bypass Graft, or CABG, surgery and angioplasty. In addition to Aldurazyme and
Neutralase, we are developing other enzyme-based therapeutics for the treatment
of a variety of diseases and conditions. These include Aryplase for the
treatment of MPS VI, Vibrilase, a topical enzyme product for use in removing
burned skin tissue in preparation for skin grafting or other therapy, and other
enzyme product candidates, currently in preclinical development for genetic and
other diseases.
Results of Operations
In February 2002, we decided to close the carbohydrate analytical business
portion of our wholly owned subsidiary, Glyko, Inc., which provided all of
Glyko, Inc.'s revenues. The decision to close Glyko, Inc. has resulted in the
operations of Glyko Inc. being classified as discontinued operations in our
consolidated financial statements and, accordingly, we have segregated the
assets and liabilities of the discontinued operations in our consolidated
balance sheets. In addition, we have segregated the operating results in our
consolidated statements of operations and have segregated cash flows from
discontinued operations in our consolidated statements of cash flows.
Years Ended December 31, 2001 and 2000
For the years ended December 31, 2001 and 2000, revenues were $11.7 million and
$9.7 million, respectively. Revenues from our joint venture with Genzyme were
$11.3 million and $9.7 million, and other revenues were $0.4 million and zero
representing grant revenues for the years ended December 31, 2001 and 2000,
respectively. The increase in joint venture revenues in 2001 was primarily the
result of increased manufacturing activities in support of our Phase 3 clinical
trial and our Phase 1 and Phase 3 extension studies, increased regulatory,
clinical and plant and process validation efforts in preparation for a BLA that
will be filed as soon as possible.
Research and development expenses increased to $45.3 million in 2001 from $34.5
million in 2000. The major factors in the growth of research and development
expenses include increased expenses in support of the Aldurazyme joint venture
with Genzyme, especially manufacturing, regulatory and clinical requirements, of
manufacturing and clinical requirements to support our Phase 1 clinical trial of
Aryplase, of the contract manufacturing requirements to support our Phase 1
clinical trial of Vibrilase and the increased manufacturing and research staff,
including the scientific staff we assumed in Montreal, Canada in our purchase of
the therapeutic assets of IBEX Technologies, Inc. and its subsidiaries in
October 2001, to support our product programs. We anticipate research and
development expenditures to increase in the future in order to further develop
our drug product candidates.
General and administrative expenses increased to $6.7 million in 2001 from $6.5
million in 2000. This increase was primarily due to the costs incurred in 2001
in legal and other fees associated with the potential purchase of all of the
outstanding capital stock of Glyko Biomedical Ltd. by us (in exchange for our
common stock) anticipated to close in the second quarter of 2002, increased
staffing in finance, business development, information systems and purchasing,
partially offset by savings due to the elimination of the President position
from our executive team. We anticipate general and administrative expenditures
to increase in the future relating to the increased headcount and facilities to
support the growth of our Company.
In-process research and development represents all of the purchase price of our
acquisition of the IBEX therapeutic assets in October 2001 plus related expenses
totaling $11.7 million. On October 31, 2001, we purchased from IBEX Technologies
Inc. and its subsidiaries the intellectual property and other assets associated
with the IBEX therapeutic enzyme drug products (including Neutralase and
Phenylase) for $10.4 million, consisting of $2 million in cash and $8.4 million
in our common stock at $10.218 per share (814,647 shares). In connection with
the purchase of the IBEX therapeutic assets, we issued options to purchase
43,861 shares of our common stock. These options were valued using the
Black-Scholes option pricing model and the resulting valuation of $291,000 was
included as additional purchase price. The purchase agreement includes up to
approximately $9.5 million in contingency payments upon regulatory approval of
Neutralase and Phenylase, provided that approval occurs prior to October 31,
2006.
20
Facility closure in 2000, represents a charge of $4.4 million for the closure of
our Carson Street clinical manufacturing facility. The charge primarily
consisted of impairment reserves for leasehold improvements and equipment
located in the Carson Street facility.
Interest income decreased by $1.1 million to $1.9 million in 2001 from $3.0
million in 2000 primarily due to the decrease in cash available for investment
through most of the 2001 (as our significant follow-on offering occurred in
December 2001) and the decrease in interest rates available on short-term
investments.
Interest expense for 2001 and 2000 were immaterial. We expect interest expense
to increase in future years due to an equipment loan executed for $5.5 million
in December 2001.
Our equity in the loss of our joint venture with Genzyme was $7.3 million for
2001 compared to $2.9 million for 2000, as the joint venture conducted a
multi-site, placebo-controlled Phase 3 clinical trial of 45 patients which
commenced in December 2000 and continued extension studies of the original Phase
1 clinical trial and the Phase 3 clinical trial of Aldurazyme.
Net loss from continuing operations was $57.4 million ($1.40 per share, basic
and diluted) and $35.6 million ($0.99 per share, basic and diluted) for 2001 and
2000, respectively.
Loss from discontinued operations relating to the Glyko, Inc. analytics business
increased by $0.6 million to $2.3 million in 2001 compared to $1.7 million in
2000 due to the increased sales and production staff in 2001 in an attempt to
grow the core analytics business.
Loss from disposal of discontinued operations represents the Glyko, Inc. closure
expense of $7.9 million in 2001 consisting primarily of an impairment reserve
against the unamortized balance of goodwill and other intangible assets related
to the initial acquisition of Glyko, Inc. The majority of the Glyko, Inc.
employees will be incorporated into our business and such employees will
continue to provide necessary analytic and diagnostic support to the Company's
therapeutic products.
Net loss was $67.6 million ($1.65 per share, basic and diluted) and $37.4
million ($1.04 per share, basic and diluted) for 2001 and 2000, respectively.
Years Ended December 31, 2000 and 1999
For the years ended December 31, 2000 and 1999, revenues were $9.7 million and
$5.3 million, respectively representing revenues from our joint venture with
Genzyme. 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.
Research and development expenses increased to $34.5 million in 2000 from $26.3
million in 1999. Increased expenses in support of the Aldurazyme joint venture
with Genzyme, especially manufacturing requirements, and of the Aryplase program
were the major factors in the growth of research and development expenses.
General and administrative expenses increased to $6.5 million in 2000 from $4.8
million in 1999. This increase was partially due to tthe increase in staffing
and facilities in 2000.
In the first quarter of 2000, we recorded a charge of $4.4 million for the
closure of our 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 our
Galli Drive facility for the manufacture of bulk Aldurazyme both for the Phase 3
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, for 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 2000. The charge primarily consisted of impairment reserves for leasehold
improvements and equipment located in the Carson Street facility.
Interest income increased 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.
21
Interest expense decreased by $0.7 million in 2000 compared to 1999 due to the
interest accrued in 1999 from April through July on our convertible notes
payable which, along with the accrued interest converted into our common stock
issued to note holders concurrent with our initial public offering.
Our equity in the loss of our 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 3 clinical trial.
Net loss from continuing operations was $35.6 million ($0.99 per share, basic
and diluted) and $26.4 million ($0.88 per share, basic and diluted) for 2000 and
1999, respectively.
Loss from discontinued operations was $1.7 million for 2000 and 1999
representing the Glyko, Inc. analytics business.
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.
Liquidity and Capital Resources
We have financed our operations since our inception by the issuance of common
stock and convertible notes, equipment financing and the related interest income
earned on cash balances available for short-term investment. Since inception, we
have raised aggregate net proceeds of approximately $286 million. We were
initially funded by an investment from GBL. We have since raised additional
capital from the sale of our common stock in both public and private offerings
and the sale of our other securities, all of which have since converted into
common stock.
Our combined cash, cash equivalents and short-term investments totaled $131.1
million at December 31, 2001 an increase of $90.9 million from $40.2 million at
December 31, 2000. The primary uses of cash during the year ended December 31,
2001 were to finance operations, fund the joint venture, purchase leasehold
improvements and equipment and purchase the therapeutic assets of IBEX. The
primary sources of cash during the year were:
o the issuance of common stock in a follow-on offering in December 2001 netting
us approximately $90.4 million;
o the issuance of common stock in a private placement in May 2001 netting us
approximately $41.6 million;
o the issuance of common stock to Acqua Wellington and its affiliates during
2001 pursuant to our agreement with Acqua Wellington, including their
participation in our private placement, netting us, in the aggregate,
approximately $14.2 million;
o equipment financing of $5.5 million; and
o the issuance of common stock pursuant to the exercise of stock options under
the 1997 Stock Plan and the 1998 Director Plan and pursuant to our Employee
Stock Purchase Plan, the aggregate exercise price of which totaled
approximately $1.6 million.
For the year ended December 31, 2001, operations used $23.1 million, we invested
$18.2 million in the joint venture (which was consumed in joint venture
operations), we purchased $17.8 million of leasehold improvements and equipment
and we purchased the therapeutic assets of IBEX in exchange for our common stock
plus $3 million in cash and out of pocket expenses.
From our inception through December 31, 2001, we have purchased approximately
$51.1 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.
We have made and plan to make substantial commitments to capital projects,
including 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
has committed to pay us an additional $12.1 million upon approval of the BLA for
Aldurazyme.
On May 16, 2001, we sold 4,763,712 shares of our common stock at $9.45 per share
and, for no additional consideration, issued three-year warrants to purchase
714,554 shares of common stock at an exercise price of $13.10 per share and
received net proceeds of approximately $41.6 million. Also, on May 17, 2001, a
fund managed by Acqua Wellington purchased 105,821 shares of common stock and
received warrants to purchase 15,873 shares of common stock on the same price
and terms as the May 16, 2001 transaction; we received net proceeds of
approximately $1 million.
In August 2001, we signed an amended agreement with Acqua Wellington North
American Equities Fund Ltd. (Acqua Wellington) for an equity investment in us.
The agreement allows for the purchase of up to $27.7 million (approximately
2,500,000 shares). Under the terms of the agreement, we will have the option to
request that Acqua Wellington invest in us through sales of registered common
stock at a small discount to market price. The maximum amount that we may
request to be bought in any one month is dependent upon the market price of the
stock (or an amount that can be mutually agreed-upon by both parties) and is
referred to as the "Draw Down Amount." Subject to certain conditions, Acqua
Wellington is obligated to purchase this amount if requested to do so by us. In
addition, we may, at our discretion, grant a "Call Option" to Acqua Wellington
for an additional investment in an amount up to the "Draw Down Amount" which
Acqua Wellington may or may not choose to exercise. During 2001, Acqua
Wellington purchased 1,344,194 shares for $13.5 million ($13.2 million net of
issuance costs). Under this agreement, Acqua Wellington may also purchase stock
and receive similar terms of any other equity financing by us.
22
On December 13, 2001, we completed a follow-on public offering of our common
stock. In the offering, we sold 8,050,000 shares, including 1,050,000 shares to
cover over-allotments, at a price to the public of $12.00 per share. The net
proceeds to us were approximately $90.4 million.
During December 2001, we entered into three separate agreements with General
Electric Capital Corporation for secured loans totaling $5.5 million. The notes
bear interest (ranging from 9.1% to 9.31%) and are secured by certain
manufacturing and laboratory equipment. Additionally, one of the agreements is
subject to a covenant that requires us to maintain a minimum unrestricted cash
balance of $25 million. Should the unrestricted cash balance fall below $25
million, the note is subject to prepayment, including prepayment penalties
ranging from 1% to 4%.
The net proceeds from any sales of our common stock or equipment financing 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, Neutralase for heparin reversal, Aryplase for
MPS VI and Vibrilase for burn wounds. In addition, net proceeds may also be used
for research and development of other pipeline products, building of our
supporting infrastructure, and other general corporate purposes.
We expect our current funds to last through 2003.
We do not expect to generate positive cash flow from operations at least until
2004 because we expect to increase operational expenses and manufacturing
investment for the joint venture and to increase research and development
activities, including:
. Preclinical studies and clinical trials
. Process development, including quality systems for product manufacture
. Regulatory processes in the United States and international jurisdictions
. Clinical and commercial scale manufacturing capabilities
. Expansion of sales and marketing activities
Until we can generate sufficient levels of cash from our operations, we expect
to continue our operations through the expenditure of our current cash, cash
equivalents and short-term investments and possibly supplement our cash, cash
equivalents and short-term investments through:
. The sale of equity securities;
. Equipment-based financing; and
. Collaborative agreements with corporate partners.
We anticipate a need for additional financing to fund the future operations of
our business, including the commercialization of our drug products 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, 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 manufacturing
processes, including quality systems and to build or acquire
manufacturing capabilities
23
. 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 or any new collaborative,
licensing and other commercial relationships that we may establish
We plan to continue our policy of investing available funds in government,
investment grade and interest-bearing securities. We do not invest in derivative
financial instruments, as defined by Statement of Financial Accounting Standards
No. 119.
New Accounting Pronouncements
SFAS No. 141
On June 29, 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 141, Business
Combinations, and SFAS No. 142, Goodwill and Intangible Assets. Major provisions
of these Statements are as follows: all business combinations initiated after
June 30, 2001 must use the purchase method of accounting; intangible assets
acquired in a business combination must be recorded separately; all acquired
goodwill must be assigned to reporting units for purposes of impairment testing
and segment reporting; effective January 1, 2002, goodwill and intangible assets
with indefinite lives will not be amortized but will be tested for impairment
annually using a fair value approach; other intangible assets will continue to
be valued and amortized over their estimated lives; in-process research and
development acquired in business combinations will continue to be written off
immediately. We do not expect this standard to have a material impact on our
consolidated financial position or results of operations.
SFAS No. 143
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." We do not expect this standard to have a material impact on our
consolidated financial position or results of operations.
SFAS No. 144
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS No. 144 broadens the presentation of
discontinued operations to include more transactions and eliminates the need to
accrue for future operating losses. Additionally, SFAS No. 144 prohibits the
retroactive classification of assets as held for sale and requires revisions to
the depreciable lives of long-lived assets to be abandoned. SFAS No. 144 will be
effective January 1, 2002 for us. We do not expect this standard to have a
material impact on our consolidated financial position or results of operations.
Critical Accounting Policies
Investment in BioMarin/Genzyme LLC and Related Revenue--Under the terms of our
joint venture agreement with Genzyme, Genzyme and we 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 us 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. We provided
$39.3 million in funding to the joint venture from inception through December
31, 2001.
During the years ended December 31, 1999, 2000, 2001 and for the period from
March 21, 1997 (inception) through December 31, 2001, we incurred expenses and
billed $10.6 million, $19.4 million, $22.6 million and $54.4 million,
respectively, for services provided to the joint venture under our Agreement. Of
these amounts, $5.3 million, $9.7 million, $11.3 million and $27.2 million,
respectively, or 50 percent, was recognized as revenue in accordance with our
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, 2000,
and 2001, we had receivables of $1.8 million and $3.1 million, respectively,
related to these billings.
We account for our investment in the joint venture using the equity method.
Accordingly, we record a reduction in our investment in the joint venture for
our 50 percent share of the loss of the joint venture. The percentage of the
costs incurred by us and billed to the joint venture that are funded by us (50
percent), is recorded as a credit to our equity in the loss of the joint
venture.
Discontinued Operations - The decision to close Glyko, Inc. has resulted in the
operations of Glyko Inc. being classified as discontinued operations in our
consolidated financial statements and, accordingly, we have segregated the
assets and liabilities of the discontinued operations in our consolidated
balance sheets as of December 31, 2000 and 2001. In addition, we have segregated
the operating results in our consolidated statements of operations for the years
ended December 31, 1999, 2000 and 2001 and for the period from March 21, 1997
(inception) to December 31, 2001; and have segregated cash flows from
discontinued operations in our consolidated statements of cash flows for the
same periods. The notes to our consolidated financial statements reflect the
classification of Glyko Inc. operations as discontinued operations.
The loss on disposal of discontinued operations included in our consolidated
statement of operations reflects certain adjustments required at December 31,
2001 primarily to record an impairment reserve against the unamortized goodwill
related to Glyko, Inc. of approximately $7.8 million.
24
Goodwill and Other Intangible Assets--In connection with the acquisition of
Glyko, Inc. in 1998, we recorded intangible assets of $11.7 million. Additional
intangible assets of $891,000 were recorded in connection with the acquisition
by Glyko, Inc. of the key assets of the bio-chemical research reagent division
of Oxford GlycoSciences Plc. (OGS), a company not related to Glyko, Inc. During
2000, we revised our estimate of the useful life of these intangible assets
downward to 7 years; the effect of this change increased amortization expense in
2000. We recorded an impairment reserve against the unamortized balance of $7.8
million at December 31, 2001 as a result of our decision to close the business.
Impairment of Long-Lived Assets--We regularly review long-lived assets and
identifiable intangibles whenever events or circumstances indicate that the
carrying amount of such assets may not be fully recoverable. We evaluate 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.
Income taxes - We record a valuation allowance to reduce our deferred tax assets
to the amount that is more likely than not to be realized. For all periods
presented, we have recorded a full valuation allowance against our net deferred
tax asset. While we have considered future taxable income and ongoing prudent
and feasible tax planning strategies in assessing the need for the valuation
allowance, in the event we were to determine that we would be able to realize
our deferred tax assets in the future in excess of our net recorded amount, an
adjustment to the deferred tax asset would increase income in the period such
determination was made.
25
Item 7A. Quantitative and Qualitative Disclosure about Market Risk.
Our exposure to market risk for changes in interest rates relates primarily to
our investment portfolio. By policy, we place our investments with highly rated
credit issuers and limit the amount of credit exposure to any one issuer. As
stated in our policy, we seek to improve the safety and likelihood of
preservation of our invested funds by limiting default risk and market risk. We
have no investments denominated in foreign country currencies and therefore are
not subject to foreign exchange risk.
We mitigate default risk by investing in high credit quality securities and by
positioning our 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 our investment portfolio. The
carrying value approximates fair value at December 31, 2001.
Investment portfolio:
Carrying value
(in $ thousands)
Cash and cash equivalents...................... $ 12,528
Short-term investments......................... 118,569*
--------
Total.......................................... $131,097
========
* 19% invested in A1/P1 rated commercial paper and 81% in United States agency
securities.
Item 8. Financial Statements and Supplementary Data
The information required to be filed in this item appears on pages F1 to F19 and
is incorporated herein by reference.
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure.
Not applicable.
26
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 2002
annual meeting of stockholders.
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 2002 annual meeting of
stockholders.
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 2002 annual
meeting of stockholders.
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 2002 annual
meeting of stockholders.
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 October 10, 2001, we filed a Current Report on Form 8-K regarding the
announcement of our definitive agreement with IBEX Technologies Inc. relating to
the acquisition of the rights to all IBEX pharmaceutical assets.
On October 26, 2001, we filed a Current Report on Form 8-K regarding the
announcement of our financial results for the quarter ended September 30, 2001.
On November 2, 2001, we filed a Current Report on Form 8-K regarding the results
of our Phase III trial of Aldurazyme for the treatment of MPS I.
On November 2, 2001, we filed a Current Report on Form 8-K regarding the
completion of our acquisition of the rights to all of the pharmaceutical assets
of IBEX Technologies Inc. This Current Report was subsequently amended and
restated on November 14, 2001 and again on January 15, 2002.
On December 17, 2001, we filed a Current Report on Form 8-K regarding the
announcement of the completion of our public offering of 8,050,000 shares of our
common stock.
27
Part V
Item 1.
- -------------- -----------------------------------------------------------------------------------------------
EXHIBIT DESCRIPTION OF DOCUMENT
NUMBER
- -------------- -----------------------------------------------------------------------------------------------
2.1** Canadian Asset Purchase Agreement dated October 9, 2001 by and among the Company, BioMarin
Pharmaceutical Nova Scotia Company, IBEX Technologies Inc., IBEX Pharmaceutical Inc., IBEX
Technologies LLC, IBEX Technologies Corp. and Technologies IBEX R&D Inc., previously filed
with the Commission on December 26, 2001 as Exhibit 10.1 to the Registrant's Registration
Statement on Form S-3 (Registration No. 333-72866), which is incorporated herein by reference.
- -------------- -----------------------------------------------------------------------------------------------
2.2** United States Asset Purchase Agreement dated October 9, 2001 by and among the Company,
BioMarin Enzymes Inc., IBEX Technologies Inc., IBEX Pharmaceutical Inc., IBEX Technologies
LLC, IBEX Technologies Corp. and Technologies IBEX R&D Inc., previously filed with the
Commission on November 6, 2001 as Exhibit 10.2 to the Registrant's Registration Statement on
Form S-3 (Registration No. 333-72866), which is incorporated herein by reference.
- -------------- -----------------------------------------------------------------------------------------------
2.3 Amendment to Canadian Asset Purchase Agreement dated October 31, 2001 by and among the
Company, BioMarin Pharmaceutical Nova Scotia Company, IBEX Technologies Inc., IBEX
Pharmaceutical Inc., IBEX Technologies LLC, IBEX Technologies Corp. and Technologies IBEX R&D
Inc., previously filed with the Commission on November 6, 2001 as Exhibit 10.3 to the
Registrant's Registration Statement on Form S-3 (Registration No. 333-72866), which is
incorporated herein by reference.
- -------------- -----------------------------------------------------------------------------------------------
2.4 Amendment to United States Asset Purchase Agreement dated October 31, 2001 by and among the
Company, BioMarin Enzymes Inc., IBEX Technologies Inc., IBEX Pharmaceutical Inc., IBEX
Technologies LLC, IBEX Technologies Corp. and Technologies IBEX R&D Inc., and IBEX
Technologies Delaware Corp., previously filed with the Commission on November 6, 2001 as
Exhibit 10.4 to the Registrant's Registration Statement on Form S-3 (Registration No.
333-72866), which is incorporated herein by reference.
- -------------- -----------------------------------------------------------------------------------------------
2.5* Acquisition Agreement for a Plan of Arrangement by and among the Company, BioMarin
Acquisition (Nova Scotia) Company, and Glyko Biomedical Ltd., dated February 6, 2002.
- -------------- -----------------------------------------------------------------------------------------------
3.1 Amended and Restated Certificate of Incorporation of BioMarin Pharmaceutical Inc., a Delaware
Corporation, previously filed with the Commission on July 6, 1999 as Exhibit 3.1 to the
Company's Amendment No. 2 to Registration Statement on Form S-1 (Registration No. 333-77701),
which is incorporated herein by reference.
- -------------- -----------------------------------------------------------------------------------------------
3.2* Amended and Restated Bylaws of BioMarin Pharmaceutical Inc., a Delaware corporation.
- -------------- -----------------------------------------------------------------------------------------------
10.1 Form of Indemnification Agreement for Directors and Officers, previously filed with the
Commission on May 4, 1999 as Exhibit 10.1 to the Company's Registration Statement on Form S-1
(Registration No. 333-77701), which is incorporated herein by reference.
- -------------- -----------------------------------------------------------------------------------------------
10.2 1997 Stock Plan, as amended on December 22, 1998, and forms of agreements, previously filed
with the Commission on May 4, 1999 as Exhibit 10.2 to the Company's Registration Statement on
Form S-1 (Registration No. 333-77701), which is incorporated herein by reference.
- -------------- -----------------------------------------------------------------------------------------------
10.3 1998 Director Option Plan and forms of agreements thereunder, previously filed with the
Commission on May 4, 1999 as Exhibit 10.3 to the Company's Registration Statement on Form S-1
(Registration No. 333-77701), which is incorporated herein by reference.
- -------------- -----------------------------------------------------------------------------------------------
10.4 1998 Employee Stock Purchase Plan and forms of
agreements thereunder, previously filed with the Commission on
May 4, 1999 as Exhibit 10.4 to the Company's Registration
Statement on Form S-1 (Registration No. 333-77701), which is
incorporated herein by reference.
- -------------- -----------------------------------------------------------------------------------------------
10.5 Form of Amended and Restated Registration Rights Agreement by and among the Company and the
investors named therein, previously filed with the Commission on May 4, 1999 as Exhibit 4.1
to the Company's Registration Statement on Form S-1 (Registration No. 333-77701), which is
incorporated herein by reference.
- -------------- -----------------------------------------------------------------------------------------------
10.6 Amended and Restated Founder's Stock Purchase Agreement with Grant W. Denison, Jr. dated as
of October 1, 1997 with exhibits, previously filed with the Commission on May 4, 1999 as
Exhibit 10.6 to the Company's Registration Statement on Form S-1 (Registration No.
333-77701), which is incorporated herein by reference.
- -------------- -----------------------------------------------------------------------------------------------
10.7 Amended and Restated Founder's Stock Purchase
Agreement with Dr. Christopher M. Starr dated as of October 1,
1997 with exhibits, previously filed with the Commission on May
4, 1999 as Exhibit 10.7 to the Company's Registration Statement
on Form S-1 (Registration No. 333-77701), which is incorporated
herein by reference.
- -------------- -----------------------------------------------------------------------------------------------
28
- -------------- -----------------------------------------------------------------------------------------------
10.8 Employment Agreement with Fredric D. Price dated December 22, 2000, previously filed with the
Commission on January 11, 2001 as Exhibit 10.1 to the Company's Amendment No. 1 to
Registration Statement on Form S-3 (Registration No. 333-48800), which is incorporated herein
by reference.
- -------------- -----------------------------------------------------------------------------------------------
10.9 Employment Agreement with Dr. Christopher M. Starr dated June 26, 1997, as amended,
previously filed with the Commission on May 4, 1999 as Exhibit 10.10 to the Company's
Registration Statement on Form S-1 (Registration No. 333-77701), which is incorporated herein
by reference.
- -------------- -----------------------------------------------------------------------------------------------
10.10 Employment Agreement with Stuart J. Swiedler, M.D., Ph.D., dated May 29, 1998, as amended,
previously filed with the Commission on May 4, 1999 as Exhibit 10.12 to the Company's
Registration Statement on Form S-1 (Registration No. 333-77701), which is incorporated herein
by reference.
- -------------- -----------------------------------------------------------------------------------------------
10.11 Employment Agreement with Emil Kakkis, M.D., Ph.D., dated June 30, 1998, as amended,
previously filed with the Commission on May 4, 1999 as Exhibit 10.13 to the Company's
Registration Statement on Form S-1 (Registration No. 333-77701), which is incorporated herein
by reference.
- -------------- -----------------------------------------------------------------------------------------------
10.12 Employment Agreement between Brian K. Brandley, Ph.D. and Glyko, Inc. dated February 22,
1998, as amended, previously filed with the Commission on May 4, 1999 as Exhibit 10.14 to the
Company's Registration Statement on Form S-1 (Registration No. 333-77701), which is
incorporated herein by reference.
- -------------- -----------------------------------------------------------------------------------------------
10.13 Employment Agreement with Robert Baffi dated April 20,
2000, previously filed with the Commission on March 20, 2001 as
Exhibit 10.29 to the Company's Annual Report on Form 10-K, which
is incorporated herein by reference.
- -------------- -----------------------------------------------------------------------------------------------
10.14** License Agreement with W.R. Grace & Co. effective January 1, 2001, previously filed with the
Commission on May 10, 2001 as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q,
which is incorporated herein by reference.
- -------------- -----------------------------------------------------------------------------------------------
10.15** Grant Terms and Conditions Agreement with Harbor-UCLA
Research and Education Institute dated April 1, 1997, as amended,
previously filed with the Commission July 21, 1999 as Exhibit
10.17 to the Company's Amendment No. 3 to Registration Statement
on Form S-1 (Registration No. 333-77701), which is incorporated
herein by reference.
- -------------- -----------------------------------------------------------------------------------------------
10.16** License Agreement with Women's and Children's Hospital, Adelaide, Australia dated August 14,
1998, previously filed with the Commission July 21, 1999 as Exhibit 10.18 to the Company's
Amendment No. 3 to Registration Statement on Form S-1 (Registration No. 333-77701), which is
incorporated herein by reference.
- -------------- -----------------------------------------------------------------------------------------------
10.17 Lease Agreement dated May 18, 1998 for 371 Bel Marin Keys Boulevard, as amended, previously
filed with the Commission on May 4, 1999 as Exhibit 10.19 to the Company's Registration
Statement on Form S-1 (Registration No. 333-77701), which is incorporated herein by reference.
- -------------- -----------------------------------------------------------------------------------------------
10.18* Amendment To Lease Agreement dated October 3, 2000 for 371 Bel Marin Keys Boulevard.
- -------------- -----------------------------------------------------------------------------------------------
10.19 Standard NNN Lease dated June 25, 1998 for 46 Galli Drive, previously filed with the
Commission on May 4, 1999 as Exhibit 10.20 to the Company's Registration Statement on Form
S-1 (Registration No. 333-77701), which is incorporated herein by reference.
- -------------- -----------------------------------------------------------------------------------------------
10.20* First Amendment to Lease dated April 14, 2000 for 46 Galli Drive.
- -------------- -----------------------------------------------------------------------------------------------
10.21 Standard Industrial Commercial Single-Tenant Lease
dated May 29, 1998 for 95 Digital Drive (formerly referred to as
110 Digital Drive), as amended, previously filed with the
Commission on May 4, 1999 as Exhibit 10.21 to the Company's
Registration Statement on Form S-1 (Registration No. 333-77701),
which is incorporated herein by reference.
- -------------- -----------------------------------------------------------------------------------------------
10.22* Agreement of Sublease dated July 27, 2001 for 79 Digital Drive.
- -------------- -----------------------------------------------------------------------------------------------
10.23 Collaboration Agreement with Genzyme Corporation dated September 4, 1998, previously filed
with the Commission on July 21, 1999 as Exhibit 10.24 to the Company's Amendment No. 3 to
Registration Statement on Form S-1 (Registration No. 333-77701), which is incorporated herein
by reference.
- -------------- -----------------------------------------------------------------------------------------------
29
- -------------- -----------------------------------------------------------------------------------------------
10.24 Operating Agreement with Genzyme Corporation, previously filed with the Commission on July
21, 1999 as Exhibit 10.30 to the Company's Amendment No. 2 to Registration Statement on Form
S-1 (Registration No. 333-77701), which is incorporated herein by reference.
- -------------- -----------------------------------------------------------------------------------------------
10.25 Common Stock Purchase Agreement between the Company. and Acqua Wellington North American
Equities Fund, Ltd. dated January 26, 2001, previously filed with the Commission on January
29, 2002 as Exhibit 10.2 to the Company's Amendment No. 2 to Registration Statement on Form
S-3 (Registration No. 333-48800), which is incorporated herein by reference.
- -------------- -----------------------------------------------------------------------------------------------
10.26* Second Amended and Restated Agreement for Plan of Arrangement by and among the Company,
BioMarin Delivery Canada Inc. and Synapse Technologies Inc., dated February 4, 2002.
- -------------- -----------------------------------------------------------------------------------------------
21.1* List of Subsidiaries.
- -------------- -----------------------------------------------------------------------------------------------
23.1* Consent of Independent Public Accountants.
- -------------- -----------------------------------------------------------------------------------------------
24.1* Power of Attorney (Included in Signature Page)
- -------------- -----------------------------------------------------------------------------------------------
99.1* Letter from the Company to the SEC pursuant to Temporary Note 3T
- -------------- -----------------------------------------------------------------------------------------------
* Filed herewith
** This exhibit has been granted confidential treatment
30
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 25, 2002 By: /s/ Fredric D. Price
- ---------------------------------- ----------------------------
Fredric D. Price
Chairman, Chief Executive
Officer and Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Fredric D. Price, 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 25, 2002
- ----------------------------------- --------------
Fredric D. Price Chairman, Chief Executive
Officer and Director
(Principal Executive Officer)
/s/ Kim R. Tsuchimoto-Evans March 25, 2002
- ----------------------------------- --------------
Kim R. Tsuchimoto-Evans Vice President, Controller
(Principal Accounting Officer)
/s/ Grant W. Denison, Jr. March 25, 2002
- ----------------------------------- --------------
Grant W. Denison, Jr. Director
/s/ Phyllis I. Gardner, M.D. March 25, 2002
- ----------------------------------- --------------
Phyllis I. Gardner, M.D. Director
/s/ Erich Sager March 25, 2002
- ----------------------------------- --------------
Erich Sager Director
/s/ Gwynn R. Williams March 25, 2002
- ----------------------------------- --------------
Gwynn R. Williams Director
31
INDEX TO FINANCIAL STATEMENTS
BioMarin Pharmaceutical Inc. Financial Statements
Report of Independent Public Accountants F1
Consolidated Balance Sheets F2
Consolidated Statements of Operations F3
Consolidated Statements of Changes in Stockholders' Equity F4
Consolidated Statements of Cash Flows F7
Notes to Consolidated Financial Statements F8
32
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, 2000 and 2001, and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows for
the years ended December 31, 1999, 2000, and 2001 and for the period from March
21, 1997 (inception) to December 31, 2001. 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, 2000 and 2001 and the results of their
operations and their cash flows for the years ended December 31, 1999, 2000, and
2001 and for the period from March 21, 1997 (inception) to December 31, 2001 in
conformity with accounting principles generally accepted in the United States.
/s/ Arthur Andersen LLP
San Francisco, California
February 21, 2002
F1
BioMarin Pharmaceutical Inc. and Subsidiaries
(a development-stage company)
Consolidated Balance Sheets as of December 31, 2000 and 2001
(In thousands, except for share and per share data)
<table>
<s> <c> <c>
December 31,
-------------------------------------------
2000 2001
--------------------- ---------------------
Assets
Current assets:
Cash and cash equivalents $ 16,530 $ 12,528
Short-term investments 23,671 118,569
Due from BioMarin/Genzyme LLC 1,799 3,096
Current assets of discontinued operations
of Glyko, Inc. 918 668
Other current assets 1,623 1,922
--------------------- ---------------------
Total current assets 44,541 136,783
Property and equipment, net 20,715 32,560
Investment in BioMarin/Genzyme LLC 1,482 1,145
Note receivable from officer - 889
Non-current assets of discontinued operations
of Glyko, Inc. 9,862 -
Deposits 333 434
--------------------- ---------------------
Total assets $ 76,933 $ 171,811
===================== =====================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 4,647 $ 4,284
Accrued liabilities 1,951 2,198
Current liabilities of discontinued operations
of Glyko, Inc. 258 229
Current portion of capital lease obligations - 66
Short term portion of notes payable 27 1,525
--------------------- ---------------------
Total current liabilities 6,883 8,302
Long-term liabilities:
Long term portion of notes payable 56 3,864
Long term portion of capital lease obligations - 97
--------------------- ---------------------
Total liabilities 6,939 12,263
--------------------- ---------------------
Commitments and Contingencies (note 8)
Stockholders' equity:
Common stock, $0.001 par value: 75,000,000 shares
authorized, 36,921,966 and 52,402,355 shares
issued and outstanding at December 31, 2000
and 2001, respectively 37 52
Additional paid-in capital 153,940 305,230
Warrants - 5,134
Deferred compensation (1,530) (699)
Notes receivable from stockholders (1,940) (2,037)
Foreign currency translation adjustment - (13)
Deficit accumulated during the development stage (80,513) (148,119)
-------------------------------------------
Total stockholders' equity 69,994 159,548
-------------------------------------------
Total liabilities and stockholders' equity $ 76,933 $ 171,811
===========================================
The accompanying notes are an integral part of these statements.
</table>
F2
BioMarin Pharmaceutical Inc. and Subsidiaries
(a development-stage company)
Consolidated Statements of Operations for
the Years Ended December 31, 1999, 2000 and 2001 and for
the Period from March 21, 1997 (inception) to December 31, 2001
(In thousands, except per share data)
Period from
March 21, 1997
December 31, (inception) to
------------------------------------------------ December 31,
1999 2000 2001 2001
--------------- -------------- -------------- -------------
Revenues:
BioMarin/Genzyme LLC 5,300 9,714 11,330 27,198
Other revenues - - 369 369
--------------- -------------- -------------- -------------
Total revenues 5,300 9,714 11,699 27,567
--------------- -------------- -------------- -------------
Operating costs and expenses:
Research and development 26,341 34,459 45,283 118,283
General and administrative 4,757 6,507 6,718 22,044
In-process research and development - - 11,647 11,647
Facility closure - 4,423 - 4,423
--------------- -------------- -------------- --------------
Total operating costs and expenses 31,098 45,389 63,648 156,397
--------------- -------------- -------------- --------------
Loss from operations (25,798) (35,675) (51,949) (128,830)
Interest income 1,832 2,979 1,871 7,432
Interest expense (732) (7) (17) (756)
Equity in loss of BioMarin/Genzyme LLC (1,673) (2,912) (7,333) (11,965)
--------------- -------------- -------------- ---------------
Net loss from continuing operations (26,371) (35,615) (57,428) (134,119)
Loss from discontinued operations (1,701) (1,749) (2,266) (6,088)
Loss from disposal of discontinued operations - - (7,912) (7,912)
--------------- -------------- -------------- ---------------
Net loss $ (28,072) $ (37,364) $ (67,606) $ (148,119)
=============== ============== ============== ===============
Net loss per share, basic and diluted
Loss from continuing operations $ (0.88) $ (0.99) $ (1.40) $ (4.72)
=============== ============== ============== ===============
Loss from discontinuing operations $ (0.06) $ (0.05) $ (0.06) $ (0.22)
=============== ============== ============== ===============
Loss on disposal of discontinued operations $ - $ - $ (0.19) $ (0.28)
=============== ============== ============== ===============
Net loss $ (0.94) $ (1.04) $ (1.65) $ (5.22)
=============== ============== ============== ===============
Weighted average common shares outstanding 29,944 35,859 41,083 28,391
=============== ============== ============== ===============
The accompanying notes are an integral part of these statements.
F3
BioMarin Pharmaceutical Inc. and Subsidiaries
(a development stage company)
Consolidated Statements of Changes in Stockholders' Equity for the
Years ended December 31, 1999, 2000 and 2001
(In thousands, except per share data)
Deficit
Note Foreign Accumulated
Additional Receivable Currency During Total
Common Stock Paid-in Warrants Deferred from Trans- Development Stockholders'
Shares Amount Capital Amount Comp. Stockholder lation Stage Equity
------ ------ ---------- ------- --------- ------------ -------- ----------- -------------
Balance at January 1, 2001 36,947 $37 $153,940 - $(1,530) $ (1,940) $ - $ (80,513) $ 69,994
Issuance of common stock under ESPP
on April 30 and October 31, 2001 at
$9.22 and $9.51 per share,
respectively 35 - 288 - - - - - 288
Issuance of 1,345 shares of common stock
to Acqua Wellington for cash in five
transactions priced from $9.60 to $10.16
per share net of issuance costs 1,344 1 13,163 - - - - - 13,164
Issuance of 4,870 shares of common stock
and warrants to purchase 753 shares of
common stock on May 16 and 17, 2001 at
$9.45 per share, net of issuance costs 4,870 5 37,507 5,134 - - - - 42,646
Issuance of 814 shares of common stock
on October 31, 2001 at $10.218 per share
to purchase certain therapeutic assets
of IBEX 814 1 8,323 - - - - - 8,324
Issuance of stock options on October 31,
2001 in connection with the IBEX
acquisition - - 291 - - - - - 291
Issuance of 8,050 shares of common stock
on December 13, 2001 in a public offering
at $12 per share net of issuance costs 8,050 8 90,363 - - - - - 90,371
Exercise of common stock options 342 - 1,258 - - - - - 1,258
Interest accrued on notes receivable - - 97 - - (97) - - -
Foreign currency translation - - - - - - (13) - (13)
Amortization of deferred compensation - - - - 831 - - - 831
Net loss - - - - - - - (67,606) (67,606)
------ ------ -------- ------ -------- --------- ------- ---------- ---------
Balance at December 31, 2001 52,402 $ 52 $305,230 $5,134 $(699) $(2,037) $ (13) $(148,119) $159,548
====== ====== ======== ====== ======== ========= ======= ========== =========
The accompanying notes are an integral part of these statements.
F4
BioMarin Pharmaceutical Inc. and Subsidiaries
(a development stage company)
Consolidated Statements of Changes in Stockholders' Equity for the
Years ended December 31, 1999, 2000 and 2001
(In thousands, except per share data)
Deficit
Note Accumulated
Additional Receivable Foreign During Total
Common Stock Paid-in Warrants Deferred from Currency Development SH's
Shares Amount Capital Shares Amount Comp. Stockholder Translation Stage Equity
------ ------ ------- ------ ------ ------ ------------ ----------- ----------- ------
Balance at January 1, 2000 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 25 - 325 - - (325) - - - -
Net loss - - - - - - - - (37,364) (37,364)
------ ------ -------- ------ ------ -------- --------- --------- --------- -------
Balance at December 31, 2000 36,947 $ 37 $153,940 - $ - $(1,530) $(1,940) $ - $(80,513) $69,994
====== ====== ========= ====== ====== ========= ========= ========= ========= =======
The accompanying notes are an integral part of these statements.
F5
BioMarin Pharmaceutical Inc. and Subsidiaries
(a development stage company)
Consolidated Statements of Changes in Stockholders' Equity for the
Years ended December 31, 1999, 2000 and 2001
(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.
F6
BioMarin Pharmaceutical Inc. and Subsidiaries
(a development-stage company)
Consolidated Statements of Cash Flows
the Years Ended December 31, 1999, 2000 and 2001 and for
the Period from March 21, 1997 (inception) to December 31, 2001
(In thousands)
Period from March 21,
December 31, 1997 (inception) to
-------------------------------------------- December 31,
1999 2000 2001 2001
------------------------------------------------------------------
Cash flows from operating activities:
Net loss from continuing operations $ (26,371) $ (35,615) $ (57,428) $ (134,119)
Adjustments to reconcile net loss to net
cash used in operating activities:
In-process research and development - - 11,647 11,647
Facility closure - 3,791 - 3,791
Depreciation 4,074 4,347 6,173 14,907
Amortization of deferred compensation 1,341 1,386 831 3,761
Loss from bioMarin/Genzyme LLC 6,973 12,635 18,509 38,164
Changes in operating assets and liabilities:
Due from BioMarin/Genzyme LLC (861) (519) (1,297) (3,096)
Other current assets 383 (720) (299) (1,266)
Note receivable from officer - - (889) (889)
Deposits (72) (182) (101) (434)
Accounts Payable 1,754 1,552 (363) 4,383
Accrued liabilities 1,326 148 247 2,519
------------------------------------------------------------------
Net cash used in continuing operations (11,453) (13,177) (22,970) (60,632)
Net cash provided by (used in) discontinued operations (1,487) 444 (95) 749
------------------------------------------------------------------
Cash flows from investing activities:
Purchase of property and equipment (22,944) (3,760) (17,812) (51,051)
Investment in BioMarin/Genzyme LLC (6,709) (13,696) (18,172) (39,309)
Purchase of IBEX therapeutic assets - - (3,032) (3,032)
Purchase (sale) of short-term investments (37,597) 15,902 (94,898) (118,569)
------------------------------------------------------------------
Net cash used in continuing operations (67,250) (1,554) (133,914) (211,961)
Net cash used in discontinued operations (1,500) (163) - (1,663)
------------------------------------------------------------------
Net cash used in investing activities (68,750) (1,717) (133,914) (213,624)
------------------------------------------------------------------
Cash flows from financing activities:
Net proceeds from sale of common stock, net 69,951 - 133,017 232,823
Proceeds from issuance of convertible notes 25,615 - - 25,615
Net proceeds from Acqua Wellington agreement - - 13,163 13,163
Proceeds from exercise of common
stock options and warrants 148 6,477 1,258 7,695
Net proceeds from notes payable - - 5,505 5,639
Repayment of notes payable (24) (28) (198) (250)
Repayment of capital lease obligations - - (43) (43)
Receipts from notes receivable from stockholders - 804 - 804
Issuance of common stock for ESPP, and other - 314 288 602
------------------------------------------------------------------
Net cash provided by financing activities 95,690 7,567 152,990 286,048
------------------------------------------------------------------
Effect of foreign currency translation on cash - - (13) (13)
------------------------------------------------------------------
Net increase (decrease) in cash 14,000 (6,883) (4,002) 12,528
Cash and cash equivalents:
Beginning of period 9,413 23,413 16,530 -
------------------------------------------------------------------
End of period $ 23,413 $16,530 $12,528 $12,528
==================================================================
The accompanying notes are an integral part of these statements.
F7
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 or BioMarin) is a biopharmaceutical
company specializing in the development of enzyme therapies for debilitating
life-threatening chronic genetic diseases and other diseases and conditions.
Since March 21, 1997 (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 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 22 percent at December 31,
2001.
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.
In February 2002, the Company decided to close the carbohydrate analytical
business portion of Glyko, Inc. which provided all of Glyko, Inc.'s revenues.
Accordingly, the Company recorded a Glyko, Inc. closure expense of $7.9 million
in the 2001 consolidated statements of operations. This charge consisted
primarily of an impairment reserve against the unamortized balance of goodwill
and other intangible assets related to the acquisition of Glyko, Inc. The
majority of the Glyko, Inc. employees will be incorporated into the BioMarin
business and such employees will continue to provide necessary analytic and
diagnostic support to the Company's therapeutic products.
The net loss of Glyko, Inc.'s operations is included in the accompanying
consolidated statements of operations as loss from discontinued operations.
Revenues from Glyko, Inc. for the years ended December 31, 1999, 2000 and 2001
and the period from March 21, 1997 (inception) to December 31, 2001 were $1.7
million, $2.6 million, $2.7 million and $7.4 million respectively.
In September 2001, the Company formed BioMarin Enzymes, Inc. as a wholly-owned
subsidiary incorporated in Delaware and BioMarin Pharmaceutical Nova Scotia
Company, an unlimited liability company formed in Nova Scotia and a wholly-owned
subsidiary of BioMarin Enzymes, Inc. Both entities were formed to purchase the
therapeutic assets of IBEX Technologies Inc. and its subsidiaries on October 31,
2001.
On October 31, 2001, the Company purchased from IBEX Technologies Inc. (TSE:
IBT) and its subsidiaries the intellectual property and other assets associated
with the IBEX therapeutic enzyme drug products (including NeutralaseTM and
PhenylaseTM) for $10.4 million, consisting of $2 million in cash and $8.4
million in BioMarin common stock at $10.218 per share (814,647 shares). See also
Note 3.
Through December 31, 2001, the Company had accumulated losses during its
development stage of approximately $148.1 million. Based on current plans,
management expects to incur further losses at least through 2003. Management
believes that the Company's cash, cash equivalents and short-term investment
balances at December 31, 2001 will be sufficient to meet the Company's
obligations through the end of 2003.
F8
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 Certain of the Company's 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 populations,
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 and its wholly-owned subsidiaries: Glyko, Inc., BioMarin
Enzymes, Inc., BioMarin Nova Scotia and BioMarin Genetics, Inc. All significant
intercompany transactions have been eliminated.
Discontinued Operations--The decision to close Glyko, Inc. has resulted in the
operations of Glyko Inc. being classified as discontinued operations in the
accompanying consolidated financial statements and, accordingly, the Company has
segregated the assets and liabilities of the discontinued operations in the
accompanying consolidated balance sheets as of December 31, 2000 and 2001. In
addition, the Company has segregated the operating results in the accompanying
consolidated statements of operations for the years ended December 31, 1999,
2000 and 2001 and for the period from March 21, 1997 (inception) to December 31,
2001; and has segregated cash flows from discontinued operations in the
accompanying consolidated statements of cash flows for the same periods. The
notes to the accompanying consolidated financial statements reflect the
classification of Glyko Inc. operations as discontinued operations.
The loss on disposal of discontinued operations included in the accompanying
consolidated statement of operations reflects certain adjustments required at
December 31, 2001 primarily to record an impairment reserve against the
unamortized goodwill related to Glyko, Inc. of approximately $7.8 million.
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.
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.
Cash and Cash Equivalents--For the consolidated statements of cash flows, the
Company treats liquid investments with original maturities of less than three
months when purchased as cash and cash equivalents.
Short-Term Investments--The Company records its investments as held-to-
maturity. These investments are recorded at amortized cost at December 31, 2001.
These securities are comprised mainly of Federal Agency investments, commercial
paper and bank certificates of deposit.
F9
Investment in BioMarin/Genzyme LLC and Related Revenue - Under the terms of the
Company's joint venture agreement with Genzyme (see note 10), 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. BioMarin provided $39.3 million in funding to
the joint venture from inception through December 31, 2001.
During the years ended December 31, 1999, 2000, 2001 and for the period from
March 21, 1997 (inception) through December 31, 2001, the Company incurred
expenses and billed $10.6 million, $19.4 million, $22.6 million and $54.4
million, respectively, for services provided to the joint venture under the
Agreement. Of these amounts, $5.3 million, $9.7 million, $11.3 million and $27.2
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, 2000, and 2001, the Company had receivables of $1.8 million and
$3.1 million, respectively, related to these billings.
The Company accounts for its investment in the joint venture using the equity
method. Accordingly, the Company records a reduction in its investment in the
joint venture for its 50 percent share of the loss of the joint venture. The
percentage of the costs incurred by the Company and billed to the joint venture
that are funded by the Company (50 percent), is recorded as a credit to the
Company's equity in the loss of the joint venture.
The following table summarizes the components of the Company's recorded equity
in loss of BioMarin/Genzyme LLC (in thousands):
<s> <c> <c> <c> <c>
March 21, 1997
(inception) to
Years ended December 31, December 31, 2001
------------------------------------ ---------------------
---------- ------------ ------------
1999 2000 2001
---------- ------------ ------------
50 percent of joint venture net loss $(6,973) $(12,643) $(18,663) $(39,163)
50 percent of services billed by the
Company to joint venture 5,300 9,731 11,330 27,198
---------- ------------ ------------ ---------------------
$(1,673) $ (2,912) $ (7,333) $(11,965)
========== ============ ============ =====================
</table>
At December 31, 2001 the summarized assets and liabilities of the joint venture
and its results of operations from inception to December 31, 2001 are as follows
(in thousands):
Assets $ 7,628
========
Liabilities $ 5,338
Net equity 2,290
--------
$ 7,628
========
Cumulative net loss $ 77,918
========
Property and Equipment--Property and equipment are stated at cost. Depreciation
is computed using the straight-line method over the related estimated useful
lives. Significant additions and improvements are capitalized, while repairs and
maintenance are charged to expense as incurred.
As of December 31, 2000 and 2001, property and equipment consisted of the
following (in thousands):
<table>
<s> <c> <c> <c>
December 31,
-------------------------------
Category 2000 2001 Estimated Useful Lives
- ------------------------------------ --------------- --------------- ------------------------
Computer hardware and software $ 678 $ 1,532 3 years
Office furniture and equipment 1,056 1,557 5 years
Manufacturing/Laboratory Equipment 9,323 11,769 5 years
Leasehold improvements 16,685 30,886 Shorter of life of asset
or lease term
Construction in progress 1,048 1,064
-------------------------------
28,790 46,808
Less: Accumulated depreciation (8,075) (14,248)
-------------------------------
Total property and equipment, net $20,715 $32,560
===============================
</table>
Depreciation expense for the years ended December 31, 1999, 2000 and 2001 and
for the period March 21, 1997 (inception) to December 31, 2001, was, $4.1
million, $4.3 million, $6.2 million and $14.9 million, respectively.
F10
Goodwill and Other Intangible Assets--In connection with the acquisition of
Glyko, Inc. in 1998, the Company recorded intangible assets of $11.7 million.
Additional intangible assets of $891,000 were recorded in connection with the
acquisition by Glyko, Inc. of the key assets of the bio-chemical research
reagent division of Oxford GlycoSciences Plc. (OGS), a company not related to
Glyko, Inc. During 2000, the Company revised its estimate of the useful life of
these intangible assets downward to 7 years; the effect of this change increased
amortization expense in 2000. As indicated in Note 1, the Company recorded an
impairment reserve against the unamortized balance of $7.8 million at December
31, 2001 as a result of the Company's decision to close the business.
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.
Accrued Liabilities--As of December 31, 2000 and 2001, accrued liabilities
consisted of the following:
December 31,
-----------------------------
2000 2001
-------------- --------------
Vacation $ 365 $ 602
Construction in progress 225 -
ESPP/401K 167 528
Other 1,194 1,068
-------------- --------------
Total $ 1,951 $ 2,198
============== ==============
Revenue Recognition--Revenue from the joint venture is recognized to the extent
that research and development costs billed by the Company have been funded by
Genzyme.
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 are expensed as incurred.
Net Income (Loss) per Share--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,
--------------------------------------
1999 2000 2001
------------ ------------ ------------
Options to purchase common stock 5,450 5,539 7,767
Warrants to purchase common stock 802 - 753
------------ ------------ ------------
Total 6,252 5,539 8,520
============ ============ ============
Segment Reporting--The Company operates in two segments. The Analytic and
Diagnostic segment represents the operations of Glyko, Inc. which involve the
manufacture and sale of analytic and diagnostic products (See Note 1 regarding
closure of Glyko, Inc. and the associated discontinued operations treatment).
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 immaterial to the Company's overall
activities and, thus, disclosure of segment information is not required.
F11
Recent Accounting Pronouncements--On June 29, 2001, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS)
No. 141, Business Combinations, and SFAS No. 142, Goodwill and Intangible
Assets. Major provisions of these Statements are as follows: all business
combinations initiated after June 30, 2001 must use the purchase method of
accounting; intangible assets acquired in a business combination must be
recorded separately; all acquired goodwill must be assigned to reporting units
for purposes of impairment testing and segment reporting; effective January 1,
2002, goodwill and intangible assets with indefinite lives will not be amortized
but will be tested for impairment annually using a fair value approach; other
intangible assets will continue to be valued and amortized over their estimated
lives; in-process research and development acquired in business combinations
will continue to be written off immediately. Management does not expect this
standard to have a material impact on the Company's consolidated financial
position or results of operations.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." Management does not expect this standard to have a material impact
on the Company's consolidated financial position or results of operations.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS No. 144 broadens the presentation of
discontinued operations to include more transactions and eliminates the need to
accrue for future operating losses. Additionally, SFAS No. 144 prohibits the
retroactive classification of assets as held for sale and requires revisions to
the depreciable lives of long-lived assets to be abandoned. SFAS No. 144 will be
effective January 1, 2002 for the Company. Management does not expect this
standard to have a material impact on the Company's consolidated financial
position or results of operations.
Reclassifications--Certain items in the prior year consolidated financial
statements have been reclassified to conform to the current year presentation.
3. PURCHASE OF IBEX THERAPEUTIC ASSETS
On October 31, 2001, the Company purchased from IBEX Technologies Inc. (TSE:
IBT) and its subsidiaries the intellectual property and other assets associated
with the IBEX therapeutic enzyme drug products (including Neutralase and
Phenylase) for $10.4 million, consisting of $2 million in cash and $8.4 million
in BioMarin common stock at $10.218 dollars per share (814,647 shares). In
connection with the purchase of IBEX, the Company issued options to purchase
43,861 shares of the Company's common stock. These options were valued using the
Black-Scholes option pricing model and the resulting valuation of $291,000 was
included as additional purchase price. The purchase agreement includes up to
approximately $9.5 million in contingency payments upon regulatory approval of
Neutralase and Phenylase, provided that approval occurs prior to October 31,
2006.
The transaction did not meet the criteria of a business combination as outlined
in EITF 98-3 "Determining Whether a Nonmonetary Transaction Involves Receipt of
Productive Assets or of a Business" as, upon acquisition, the assets acquired
did not have any significant business outputs. Accordingly, all of the purchase
price plus related expenses totaling $11.7 million was attributed to in-process
research and development and was expensed in the accompanying consolidated
statements of operations.
The following unaudited pro forma summary financial information (in thousands,
except for per share information) displays the consolidated results of
operations of the Company as if the acquisition of the assets of IBEX had
occurred on January 1, 2000 and was carried forward through December 31, 2001.
Preparation of the pro forma summary information was based on assumptions deemed
appropriate by the Company. The pro forma information is not necessarily
indicative of the results that actually would have occurred if the acquisition
had been consummated on January 1, 2000 nor does it purport to represent the
future financial position of operations for future periods:
Year ended December 31
2000 2001
---------------- ---------------
Revenues $ 9,731 $ 11,699
Operating expenses (59,163) (53,457)
---------------- ---------------
Loss from continuing operations (49,372) (47,237)
Net loss (50,956) (57,282)
Net loss per share (basic and diluted) $(1.39) $(1.37)
Weighted average common shares outstanding
(basic and diluted) 36,674 41,898
4. STOCKHOLDERS' EQUITY:
Common Stock and Warrants--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
August 2000.
F12
In July 1999, the Company completed its initial public offering raising net
proceeds (including the exercise of the over-allotment) of $60 million.
On May 16, 2001, the Company sold 4,763,712 shares of common stock at $9.45 per
share and, for no additional consideration, issued three-year warrants to
purchase 714,554 shares of common stock at an exercise price of $13.10 per share
and received net proceeds of $41.6 million. Also, on May 17, 2001, a fund
managed by Acqua Wellington purchased 105,821 shares of common stock and
received warrants to purchase 15,873 shares of common stock on the same price
and terms as the May 16, 2001 transaction; the Company received net proceeds of
$1 million. The Company allocated a portion of the proceeds to warrants in the
consolidated balance sheet based on the estimated fair value of the warrants.
The fair value of the warrants was calculated using the Black-Scholes option
pricing model.
In August 2001, the Company signed an amended agreement with Acqua Wellington
North American Equities Fund Ltd. (Acqua Wellington) for an equity investment in
the Company. The agreement allows for the purchase of up to $27.7 million
(approximately 2,500,000 shares). Under the terms of the agreement, the Company
will have the option to request that Acqua Wellington invest in the Company
through sales of registered common stock at a small discount to market price.
The maximum amount that the Company may request to be bought in any one month is
dependent upon the market price of the stock (or an amount that can be mutually
agreed-upon by both parties) and is referred to as the "Draw Down Amount."
Subject to certain conditions, Acqua Wellington is obligated to purchase this
amount if requested to do so by the Company. In addition, the Company may, at
its discretion, grant a "Call Option" to Acqua Wellington for an additional
investment in an amount up to the "Draw Down Amount" which Acqua Wellington may
or may not choose to exercise. During 2001, Acqua Wellington purchased 1,344,194
shares for $13.5 million ($13.2 million net of issuance costs). Under this
agreement, Acqua Wellington may also purchase stock and receive similar terms of
any other equity financing by the Company.
On December 13, 2001, the Company completed a follow-on public offering of its
common stock. In the offering, the Company sold 8,050,000 shares, including
1,050,000 shares to cover over-allotments, at a price to the public of $12.00
per share. The net proceeds to the Company were approximately $90.4 million.
Notes Receivable from Stockholders--These originated from the October 1997
issuance of 2.5 million shares of Founders' Stock to three officers. The notes
carried an interest rate of 6%; since this was less than the then-market rate of
9%, an interest discount and related deferred compensation of $200,000 was
recorded. The deferred compensation was recognized as an expense over the term
of the notes.
The notes were originally due on March 31, 2001 and are secured by the
underlying stock. The notes contained buy-back and vesting provisions. Two of
the three executives have left the Company. For the first officer, the Company
repurchased 33,334 of his shares at his original purchase price and reduced his
note balance by the same amount. This officer repaid the remaining balance and
interest in 2000. The second and third officers have not yet fully repaid their
loans but repayment is expected in 2002 including interest that is continuing to
be accrued.
The notes are classified in the accompanying consolidated balance sheets as a
reduction of stockholders' equity.
Deferred Compensation--In connection with certain stock option and stock grants
to employees from 1998 to 2000, the Company recorded deferred compensation
totaling $4.2 million, which is being amortized over the estimated service
periods of the grantees. Amortization expense recognized during the years ended
December 31, 1999, 2000, and 2001 was $1.3 million, $1.4 million and $0.8
million, respectively.
5. STOCK OPTION PLANS:
The Board of Directors and stockholders have approved two plans:
o The 1997 Stock Plan (the 1997 Plan) provides for the grant of stock
options and the issuance of common stock to employees, officers,
directors and consultants. As of December 31, 2001, 9,172,451 shares
were reserved for issuance under the 1997 Plan.
o The 1998 Director Option Plan (the Director Plan) provides for the
grant of stock options and the issuance of common stock to
non-employee directors. As of December 31, 2001, options to purchase
185,000 shares were outstanding and options to purchase 500,000 shares
were authorized by the Director Plan.
Options currently outstanding under the 1997 Plan and 1998 Director Plan (the
Plans) generally have vesting schedules of up to four years. Options terminate
from 5-10 years from the date of grant or 90 days after termination of
employment.
F13
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:
<table>
<s> <c> <c> <c> <c>
Period from
March 21, 1997
Years ended December 31, (Inception) to
-------------------------------------------- December 31,
1999 2000 2001 2001
-------------- -------------- -------------- --------------
Net loss as reported $ (28,072) $ (37,364) $ (67,606) $ (148,119)
Pro forma effect of SFAS No. 123 (1,074) (5,412) (13,875) (20,544)
-------------- -------------- -------------- --------------
Pro forma net loss $ (29,146) $ (42,776) $ (81,481) $ (168,663)
============== ============== ============== ==============
Net loss per common share as reported $ (0.94) $ (1.04) $ (1.65) $ (5.22)
============== ============== ============== ==============
Pro forma loss per common share $ (0.97) $ (1.19) $ (1.98) $ (5.94)
============== ============== ============== ==============
</table>
A summary of the status of the Company's Plans is as follows:
<table>
<s> <c> <c> <c> <c>
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
-------------
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
=============
Granted 2,877,430 11.35 $8.80
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
============= =============
Granted 2,844,206 10.80 $8.22
Exercised (343,560) 3.72
Canceled (273,226) 14.21
---------------
Outstanding at December 31, 2001 7,766,678 11.18 3,682,150
=============== =============
</table>
There were 1,048,661 and 219,560 options available for grant under the Plans at
December 31, 2000 and 2001, respectively.
F14
As of December 31, 2001, the options outstanding consisted of the
following:
<table>
<s> <c> <c> <c> <c> <c>
Options Outstanding Options Exercisable
- ------------------------------------------------------------------- ---------------------------------------
Weighted
Average Weighted Average Weighted
Range of Exercise Number of Options Contractual Exercise Number of Options Average Exercise
Prices Outstanding Life Price Exercisable Price
- ------------------- ------------------- ------------- ---------- ------------------- ------------------
$0.00 to $3.50 103,523 0.7 $1.07 103,523 $1.07
$3.50 to $7.00 1,699,903 4.0 $5.35 1,376,818 $5.24
$7.01 to $10.50 1,644,037 8.9 $9.43 539,178 $9.45
$10.51 to $14.00 3,030,947 7.1 $12.60 1,026,982 $12.68
$14.01 to $17.50 691,394 4.6 $15.83 358,365 $15.81
$17.51 to $21.00 265,874 6.5 $19.40 132,621 $19.66
$21.01 to $24.50 220,000 8.1 $21.63 93,541 $21.96
$24.51 to $28.00 96,000 3.2 $25.88 43,935 $25.90
$28.00 to $31.50 15,000 3.2 $31.25 7,187 $31.25
------------------- -------------------
7,766,678 3,682,150
=================== ===================
</table>
The following summarizes the assumptions used to determine the fair value of
each option using the Black-Scholes option pricing model:
<table>
<s> <c> <c> <c> <c>
Dividend
Dates of Grant Interest Rate Yield Life Volatility
- -------------------------------------- --------------- ----------- ----------- -----------
Inception to July 22, 1999 (pre-IPO) 4.6% to 5.7% 0.00% 4 years 0%
July 22, 1999 to December 31, 1999 5.8% to 6.1% 0.00% 4 years 39%
January 1, 2000 to December 31, 2000 4.6% to 6.8% 0.00% 4 years 105%
January 1, 2001 to December 31, 2001 3.9% to 4.9% 0.00% 4 years 76%
</table>
6. NOTE PAYABLE:
During December 2001, the Company entered into three separate agreements with
General Electric Capital Corporation for secured loans totaling $5.5 million.
The notes bear interest (ranging from 9.1% to 9.31%) and are secured by certain
manufacturing and laboratory equipment not purchased with the proceeds.
Additionally, one of the agreements is subject to a covenant that requires the
Company to maintain a minimum unrestricted cash balance of $25 million. Should
the unrestricted cash balance fall below $25 million, the note is subject to
prepayment, including prepayment penalties ranging from 1 percent to 4 percent.
Principal payments due on notes payable subsequent to December 31, 2001, are as
follows (in thousands):
2002 $ 1,525
2003 1,803
2004 1,948
2005 113
----------------
$ 5,389
================
7. INCOME TAXES:
The Company utilizes the asset and liability method of accounting for income
taxes. Under this method, deferred taxes are determined based on the difference
between the financial statement and tax bases of assets and liabilities using
tax rates expected to be 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.
F15
As of December 31, 2001, net operating loss carryforwards are approximately
$120.6 million and $57.6 million for federal and California income tax purposes,
respectively. These net operating loss carryforwards include net operating
losses of $12.6 million for federal purposes 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 of approximately $3.2 million and $3.1
million, respectively, at December 31, 2001. These credits include credits
related to Glyko, Inc. of approximately $0.7 million and $0.4 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 $13.6 million at December 31, 2001.
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. As a
result of this and the proposed exiting of the Glyko business, there can be no
assurance that the Company will be able to utilize net operating loss
carryforwards and credits before expiration.
The Company has a cumulative net operating loss carryforward since inception,
resulting in net deferred tax assets of approximately $61.5 million. A valuation
allowance has been placed on the net deferred tax assets to reduce them to an
assumed net realizable value of zero.
8. 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):
2002................. $ 2,548
2003................. 2,566
2004................. 2,392
2005................. 2,093
2006................. 1,924
Thereafter........... 5,715
----------
Total...... $ 17,238
==========
Rent expense for the years ended December 31, 1999, 2000 and 2001, and for the
period from March 21, 1997 (inception), to December 31, 2001, was $1.1 million,
$1.5 million, $2.2 million and $5.2 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 as of December 31, 2001
to these institutions for future years are as follows (in thousands):
2002.................. $ 652
2003.................. 330
2004.................. 255
2005.................. 255
2006.................. 255
---------
Total....... $ 1,747
=========
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. As of December 31, 2001, such minimum commitments were $255,000.
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 AldurazymeTM,
AryplaseTM or VibrilaseTM results in adverse effects during testing or
commercial sale. BioMarin/Genzyme LLC (the LLC) and the Company carry product
liability insurance to cover the clinical trials of Aldurazyme (by the LLC) and
Aryplase and Vibrilase (by the Company). 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. To date, there have not been any such
claims.
F16
9. RELATED-PARTY TRANSACTIONS:
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.
In April 2001, the Company loaned a Company officer $860,000 to purchase a
property and received a promissory note secured by the property. The note
matures on October 31, 2004 (subject to various conditions in the employment
agreement) and bears interest at the Federal mid-term rate (3.9% as of December
31, 2001).
Due to the terms of the collaborative agreement with Genzyme outlined in Note
10, Genzyme is considered to be a related party. See also Notes 1 and 10 for
Genzyme related-party transactions.
10. COLLABORATIVE AGREEMENTS:
Genzyme--In 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.
11. COMPENSATION PLANS:
Employment Agreements--The Company has entered into employment agreements with
eight officers. Seven of these agreements can be terminated without cause by the
Company upon six months prior notice, or by the officer upon three months prior
written notice to the Company. The employment agreement with the Company's Chief
Executive Officer (CEO) 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 under
these employment agreements total approximately $2.0 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 senior officers based upon the
Company's market capitalization through June 30, 2000. Bonuses for the three
senior officers (two of whom are no longer with the company) totaled $294,000
and $0 in 2000 and 2001, respectively. The bonuses for the CEO totaled $279,000
in 2001.
401(k) Plan--The Company sponsors 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 20 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 50% of the first 2% contributed to the employee accounts. The Company's
matching contribution vests over four years from employment commencement and was
$0, $30,000, $90,000 and $123,000 for the years ended December 31, 1999, 2000,
2001 and for the period from March 21, 1997 (inception) through December 31,
2001, respectively.
F17
1998 Employee Stock Purchase Plan (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, 2001, 63,083 shares have been issued under the 1998 Purchase
Plan.
12. 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,
1999 2000 2001 2001
-------------- ------------ -------------- ------------------
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 - - - 1,518
Common stock surrendered by stockholders'
for payment of principle and interest - 170 - 170
Compensation in the form of common stock
and common stock options - - - 18
Issuance of common stock to acquire the
therapeutic assets of IBEX at $10.218 per share - - 8,324 8,324
Fair value of common stock options issued in
connection with IBEX acquisition - - 291 291
Fair value of restricted stock grant issued
pursuant to an employment contract - 313 - 313
Borrowings under capital lease arrangements - - 206 206
13. SUBSEQUENT EVENTS (unaudited)
In December 2001, the Company signed a definitive agreement with Synapse
Technologies Inc. (a privately held Canadian company) to acquire all of its
outstanding capital stock for approximately $10.2 million in Company common
stock plus future contingent milestone payments totaling $6 million payable in
cash or common stock at the Company's discretion. The Company will issue
approximately 885,000 shares of common stock for the purchase. The acquisition
will be recorded upon closing in the first quarter of 2002 using the purchase
method of accounting. All of the purchase price along with related expenses will
be expensed as in-process research and development costs.
In February 2002, the Company signed a definitive agreement to purchase all of
the outstanding capital stock of Glyko Biomedical Ltd. (GBL). Upon closing
(anticipated to be in the second quarter of 2002) GBL shareholders will receive
11,367,617 shares of Company common stock in exchange for their GBL stock. In
turn, the Company will retire the existing 11,367,617 shares of restricted
common stock of the Company currently held by GBL. There will be no net effect
on the common stock outstanding. It is anticipated that $2.1 million of expenses
will be incurred and expensed as reorganization costs for this transaction in
2002. Approximately $400,000 of transaction costs were incurred and expensed in
2001.
14. 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 82 common stockholders of record at December 31, 2001. No
dividends have ever been paid by the Company.
F18
Quarter Ended
-------------------------------------------------------------------
March 31, June 30, September 30, December 31,
2001 (In thousands, except per share data)
Total revenue $ 2,690 $ 3,012 $ 3,101 $ 2,896
Loss from continuing operations (9,083) (11,331) (10,642) (26,372)
Loss from discontinued operations (617) (638) (373) (638)
Loss from disposal of Glyko, Inc. - - - (7,912)
Net loss (9,700) (11,969) (11,015) (34,922)
Net loss per share, basic and diluted (0.26) (0.30) (0.26) (0.77)
Common stock price per share:
High $ 12.063 $ 13.210 $ 13.610 $ 14.160
Low 7.313 7.500 9.120 9.400
Quarter Ended
-------------------------------------------------------------------
March 31, June 30, September 30, December 31,
2000 (In thousands, except per share data)
Total revenue $ 2,791 $ 2,258 $ 1,950 $ 2,715
Loss from continuing operations (11,202) (6,854) (7,731) (9,828)
Loss from discontinued operations (534) (232) (417) (566)
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 $ 17.625
Low 12.750 16.750 16.375 7.156
F19