<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 2000
--------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number 0-26872
GELTEX PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 04-3136767
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
153 SECOND AVENUE
WALTHAM, MASSACHUSETTS 02451
(Address of principal executive offices) (Zip Code)
781-290-5888
(Registrant's telephone number, including area code)
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 preceding 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 ___
---
The number of shares outstanding of each of the issuer's classes of common stock
as of the latest practicable date:
CLASS OUTSTANDING AT APRIL 26, 2000
----- -----------------------------
Common Stock, $.01 par value 20,066,060
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GELTEX PHARMACEUTICALS, INC.
TABLE OF CONTENTS
<TABLE>
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PAGE NO
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PART I FINANCIAL INFORMATION
ITEM 1 Financial Statements
Consolidated Balance Sheets as of March 31, 2000 and December 31, 1999............................. 3
Condensed Consolidated Statements of Operations for the three months ended
March 31, 2000 and 1999............................................................................ 4
Consolidated Statements of Comprehensive Loss for the three months ended
March 31, 2000 and 1999............................................................................ 5
Consolidated Statements of Cash Flows for the three months ended
March 31, 2000 and 1999............................................................................ 6
Notes to Consolidated Financial Statements......................................................... 7
ITEM 2 Management's Discussion and Analysis of Financial Condition and Results of Operations.............. 9
ITEM 3 Quantitative and Qualitative Disclosures About Market Risk......................................... 10
PART II OTHER INFORMATION
ITEM 6 Exhibits and Reports on Form 8-K................................................................... 11
SIGNATURES............................................................................................................... 12
EXHIBIT INDEX............................................................................................................ 13
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GELTEX PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
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ASSETS
Current assets:
Cash and cash equivalents .......................................... $ 52,916,011 $ 20,178,391
Marketable securities .............................................. 45,047,338 52,250,534
Prepaid expenses and other current assets .......................... 4,968,815 1,763,400
Due from affiliates ................................................ 411,250 411,250
Due from Joint Venture ............................................. 442,653 664,741
------------- -------------
Total current assets .................................................... 103,786,067 75,268,316
Long-term receivables ................................................... 340,500 371,750
Property and equipment, net ............................................. 10,963,002 11,117,725
Purchased goodwill, net ................................................. 6,508,139 6,753,729
Intangible assets, net .................................................. 1,330,244 1,282,490
Investment in Joint Venture ............................................. 13,154,054 11,295,056
------------- -------------
$ 136,082,006 $ 106,089,066
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable and accrued expenses .............................. $ 3,252,483 $ 5,175,756
Current portion of long-term obligations ........................... 1,579,669 1,646,296
------------- -------------
Total current liabilities ............................................... 4,832,152 6,822,052
Other long-term obligations ............................................. 167,891 5,390
Long-term obligations, less current portion ............................. 6,204,396 6,559,884
Commitments and contingencies ........................................... -- --
Stockholders' equity:
Preferred Stock, $.01 par value, 5,000,000
shares authorized, none issued or outstanding ................... -- --
Common Stock, $.01 par value, 50,000,000 shares authorized;
19,863,477 and 18,063,122 shares issued and outstanding at
March 31, 2000 and December 31, 1999, respectively .............. 198,635 180,631
Additional paid-in capital ......................................... 237,479,130 202,210,089
Deferred compensation .............................................. (402,407) (483,019)
Unrealized loss on available-for-sale securities ................... (207,062) (245,099)
Accumulated deficit ................................................ (112,190,729) (108,960,862)
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Total stockholders' equity .............................................. 124,877,567 92,701,740
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$ 136,082,006 $ 106,089,066
============= =============
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
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GELTEX PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
------------------------------
2000 1999
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Revenue:
Collaborative Joint Venture project reimbursement ............... $ 1,342,536 $ 1,882,914
Contract Revenue ................................................ 6,239,681 1,751,669
------------ ------------
Total revenue ...................................................... 7,582,217 3,634,583
Costs and expenses:
Research and development ........................................ 7,400,966 6,838,741
Collaborative Joint Venture project costs ....................... 1,342,536 1,882,914
------------ ------------
Total research and development ............................... 8,743,502 8,721,665
General and administrative ...................................... 1,579,009 1,514,126
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Total costs and expenses ........................................... 10,322,511 10,235,791
------------ ------------
Loss from operations ............................................... (2,740,294) (6,601,208)
Interest income, net ............................................... 925,429 1,148,100
Equity in net loss of Joint Venture ................................ (1,415,002) (2,283,952)
------------ ------------
Net loss ........................................................... $ (3,229,867) $ (7,737,060)
============ ============
Basic and diluted net loss per share ............................... $ (0.17) $ (0.46)
Shares used in computing basic and diluted net loss per share ...... 18,522,000 16,835,000
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
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GELTEX PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
----------------------------
2000 1999
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Net loss ............................................................ $(3,229,867) $(7,737,060)
Other Comprehensive Income (Loss):
Unrealized gain (loss) on securities held during the period ..... 38,037 (153,564)
----------- -----------
Comprehensive loss ................................................. $(3,191,830) $(7,890,624)
=========== ===========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
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GELTEX PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
-----------------------------------
2000 1999
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OPERATING ACTIVITIES
Net loss ......................................................... $ (3,229,867) $ (7,737,060)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization ................................. 705,906 491,070
Equity in net loss of Renagel Joint Venture ................... 1,415,002 2,283,952
Compensation from issuance of stock options ................... 107,264 164,367
Forgiveness of long-term receivables .......................... 31,250 31,250
Changes in operating assets and liabilities:
Prepaid expenses and other current assets ................. (3,205,415) 324,490
Due from Joint Venture .................................... 222,088 (82,563)
Long-term receivables ..................................... -- (30)
Accounts payable and accrued expenses ..................... (1,923,273) 336,685
Other long-term obligations ............................... 162,501 --
Amount due to Joint Venture ............................... -- (1,349,400)
Inventory ................................................. -- (776,954)
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Net cash used in operating activities ............................ (5,714,544) (6,314,193)
INVESTING ACTIVITIES
Purchase of marketable securities ................................ (108,976,997) (12,430,118)
Proceeds from sale and maturities of marketable securities ....... 116,191,578 16,098,566
Investment in Joint Venture ...................................... (3,274,000) (3,841,400)
Purchase of intangible assets .................................... (151,152) (147,056)
Purchase of property and equipment, net .......................... (202,195) (462,116)
------------- ------------
Net cash used in investing activities ............................ 3,587,234 (782,124)
FINANCING ACTIVITIES
Sale of Common Stock and warrants, net of issuance costs ......... 35,287,045 55,449
Payments on long-term obligation ................................. (422,115) (754,270)
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Net cash provided by financing activities ........................ 34,864,930 (698,821)
Increase (decrease) in cash and cash equivalents ................. 32,737,620 (7,795,138)
Cash and cash equivalents at beginning of period ................. 20,178,391 30,874,900
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Cash and cash equivalents at end of period ....................... $ 52,916,011 $ 23,079,762
============= ============
Interest paid .................................................... $ 149,783 $ 134,404
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
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GELTEX PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. NATURE OF BUSINESS
GelTex Pharmaceuticals, Inc. has historically focused its efforts on
the development of non-absorbed, polymer-based pharmaceuticals that selectively
bind to and eliminate target substances from the intestinal tract. With its
acquisition of SunPharm Corporation in November 1999, the Company acquired
expertise in two chemically related classes of molecules, polyamines and iron
chelators.
2. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of GelTex
Pharmaceuticals, Inc. and its wholly owned subsidiaries (the "Company") for the
three months ended March 31, 2000 and 1999, have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all the information and notes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, the accompanying consolidated financial statements
include all adjustments, consisting of normal recurring adjustments, necessary
for a fair presentation of the financial condition, results of operations and
cash flows for the periods presented. The results of operations for the interim
period ended March 31, 2000, are not necessarily indicative of the results to be
expected for the year ended December 31, 2000.
These financial statements should be read in conjunction with the
audited financial statements and notes thereto for the fiscal year ended
December 31, 1999, included in the Company's Annual Report on Form 10-K (File
Number 0-26872) as filed with the Securities and Exchange Commission.
3. BUSINESS CHANGES
In early 2000, the Company was granted approval to market Renagel(R)
Capsules for the control of hyperphosphatemia in the European Union and Canada.
In March 2000, the Company sold 1,750,000 newly issued shares of Common
Stock to certain institutional investors for net proceeds of $35.0 million. In
addition, the Company entered into an agreement with Acqua Wellington North
American Equities Fund, Ltd. for a financing facility covering the sale of up to
1,750,000 shares of Common Stock over the next twelve months. These shares may
be sold, at the Company's discretion, at a small discount to the market price.
The total amount of the investment is dependent, in part, on the Company's stock
price, with the Company to control the amount and timing of the stock sold.
These transactions were entered into, pursuant to an effective shelf
registration statement previously filed by the Company with the Securities and
Exchange Commission, covering the sale of up to 3.5 million shares of its Common
Stock.
4. RECLASSIFICATION
Certain amounts from the prior year have been reclassified to conform to
the current year presentation.
5. JOINT VENTURE AGREEMENT
In June 1997, the Company entered into a joint venture with Genzyme
Corporation for the final development and commercialization of Renagel(R)
(the "Joint Venture"). The Company accounts for its investment in the Joint
Venture using the equity method.
Summarized financial information regarding the Joint Venture for the
three months ended March 31, 2000 and March 31, 1999 is as follows:
2000 1999
---- ----
Net sales................... $ 8,001,000 $ 3,546,000
Costs and expenses.......... 10,932,000 9,283,000
Loss from operations........ (2,931,000) (5,737,000)
Net loss.................... (2,830,000) (4,541,000)
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6. SUBSEQUENT EVENTS
On April 3, 2000, the Company received $4.3 million in net proceeds
from the sale of 230,179 shares of its Common Stock under the financing facility
with Acqua Wellington North American Equities Fund, Ltd.
In April 2000, as part of a corporate evaluation of its research
pipeline, Warner-Lambert Company informed the Company of its intention to return
all rights to diethylnorspermine ("DENSPM"), which is in Phase 1/2 trials for
solid tumors. The Company acquired the alliance with Warner-Lambert as part of
its acquisition of SunPharm Corporation in November 1999. The Company will
evaluate its development plan for DENSPM within the context of the Company's
ongoing research on second-generation polyamine analogues as anti-cancer agents.
Warner-Lambert recently announced that it entered into a definitive merger
agreement with Pfizer, Inc.
7. ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin 101 ("SAB 101"), "Revenue Recognition in Financial
Statements" which provides guidance related to revenue recognition based on
interpretations and practices followed by the SEC. The effective date of this
Bulletin was deferred to no later than the second fiscal quarter beginning after
December 15, 1999. SAB 101 requires companies to report any changes in revenue
recognition as a cumulative change in accounting principle at the time of
implementation in accordance with Accounting Principles Board Opinion No. 20,
"Accounting Changes." The Company has concluded that SAB 101 will not have a
material impact on the financial position or results of operations of the
Company.
In April 2000, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation, an Interpretation of APB No. 25." The Interpretation will be
applied prospectively to new awards, modifications to outstanding awards, and
changes in employee status on or after July 1, 2000, except in certain
circumstances. The Company is currently in the process of evaluating the impact
this Interpretation will have on its financial position and results of
operations.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
The Company earned revenues of $7.6 million during the three months
ended March 31, 2000, compared with $3.6 million earned during the three months
ended March 31, 1999. Under the terms of the Collaboration Agreement the Company
has entered into with Genzyme Corporation for the commercialization of
Renagel(R) (the "Joint Venture"), the Company and Genzyme Corporation are each
expected to fund the Joint Venture in an amount equal to 50% of the budgeted
costs and expenses of the project for the relevant period. Each party that
incurs project expenses, either as internal operating costs or as third party
obligations, will be reimbursed by the Joint Venture for 100% of the costs
incurred. In the period ended March 31, 2000, $1.3 million of the total revenue
earned by the Company represents reimbursement from the Joint Venture for
certain Renagel(R) development costs incurred by the Company. In the period
ended March 31, 1999, $1.9 million of the total revenue earned by the Company
represents reimbursement from the Joint Venture for certain Renagel(R)
development costs incurred by the Company. The amount of reimbursement revenue
earned by the Company will vary according to the obligations of, and related
expenses incurred by, the Company and is expected to continue to decrease in the
future as the Company completes the development activities for the Joint
Venture.
Of the remaining $6.3 million in revenue earned in the three months
ended March 31, 2000, $3.3 million represents reimbursement revenue for research
and development expenses incurred by the Company in connection with its
collaborative agreements for Welchol(TM) (formerly Cholestagel(R)), its
second-generation lipid-altering product and other research programs, and $3.0
million represents a milestone payment from Chugai Pharmaceutical Co., Ltd.
related to the initiation of Phase 3 clinical trials of Renagel(R) in Japan.
Welchol(TM) is a registered trademark of Sankyo Pharma Inc., the Company's
partner for commercializing Welchol(TM) and its second-generation product. The
remaining $1.7 million in revenue earned in the three months ended March 31,
1999, represents non-recurring reimbursement by the Company's other Japanese
partner for certain Renagel(R) process development and manufacturing costs
incurred by the Company.
The Company's total operating expenses for the three months ended March
31, 2000, were $10.3 million, as compared to $10.2 million during the three
months ended March 31, 1999. Research and development expenses remained flat at
$8.7 million for the three months ended March 31, 2000 and 1999. These expenses
were primarily related to continued regulatory support of Renagel(R), regulatory
and manufacturing costs associated with Welchol(TM) and the Company's
second-generation lipid-altering project, as well as costs associated with the
Company's infectious diseases and other research programs.
General and administrative expenses increased to $1.6 million for the
three months ended March 31, 2000, from $1.5 million for the three months ended
March 31, 1999, due primarily to increased administrative costs, including
personnel and business development expenses.
The Company's equity in the loss of the Joint Venture with Genzyme
Corporation was $1.4 million for the three months ended March 31, 2000, as
compared to $2.3 million for the three months ended March 31, 1999. These
amounts represent the Company's portion of the Joint Venture's loss for the
relevant period, and reflect the increased sales revenue and lower research and
development expenses offsetting higher sales and marketing expenses.
Our research and development projects acquired in connection with
SunPharm Corporation are expected to continue in line with the estimates set
forth in our 1999 Annual Report on Form 10-K. Goodwill is being amortized on a
straight-line basis over seven years. Amortization expense related to the
SunPharm acquisition for the 2000 Quarterly Period was approximately $0.3
million.
Net interest income decreased to $0.9 million for the three months
ended March 31, 2000, from $1.1 million for the three months ended March 31,
1999, due primarily to decreases in average cash balances available for
investment and increases in interest expense.
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LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2000, the Company had $98.0 million in cash, cash
equivalents and marketable securities as compared with $72.4 million at December
31, 1999. The net increase in cash, cash equivalents and marketable securities
from December 31, 1999, is primarily due to the receipt of $35.0 million in net
proceeds from the sale of 1.75 million shares of the Company's Common Stock to
certain institutional investors. The Company believes that its existing cash
balances and marketable securities, coupled with the proceeds from the potential
sale, if any, of the 1.75 million shares of its Common Stock under its financing
facility with Acqua Wellington North American Equities Fund, Ltd. will be
sufficient to fund its operations through at least the year 2002.
In September 1999, the Company negotiated a $4.0 million lease line to
finance the cost of equipment purchases. As of March 31, 2000, the Company had
drawn down approximately $1.2 million on this lease line, and the Company
expects to draw down the remainder over the next 12 months. All amounts drawn on
the lease line are required to be repaid in 60 equal monthly installments
commencing in March 2001.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risks were reported in the Notes to the Financial Statements for
the Company's Annual Report on Form 10-K for the year ended December 31, 1999.
There have been no material changes in these risks since the end of the year.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
See the Exhibit Index on page 13 hereto.
(b) Reports on Form 8-K.
The Company filed a report on Form 8-K dated March 4, 2000, under
Item 5 which included the financial statements of the Company at
December 31, 1999 and 1998, and for each of the three years in the
period ending December 31, 1999, together with the accompanying
report of the Company's independent auditors dated February 22,
2000.
The Company filed a report on Form 8-K dated March 7, 2000, under
Item 5 reporting that the Company had entered into two Common Stock
purchase agreements for the sale of up to an aggregate of 3,500,000
shares of its Common Stock.
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GELTEX PHARMACEUTICALS, INC.
FORM 10-Q
MARCH 31, 2000
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
GELTEX PHARMACEUTICALS, INC.
DATE: May 15, 2000 BY: /s/ Paul J. Mellett, Jr.
---------------------------
Paul J. Mellett, Jr.
Duly Authorized Officer and
Principal Financial Officer
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EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
10.1* Term sheet dated March 13, 2000 between RenaGel
LLC and Genzyme Corporation. Filed herewith.
27.1 Financial Data Schedule
- -------------------
* Certain confidential material contained in Exhibit 10.1 has been omitted and
filed separately with the Securities and Exchange Commission.
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Certain Confidential Information has been omitted
and filed separately with the Commission
Exhibit 10.1
genzyme CONFIDENTIAL
SEVELAMER SUPPLY AGREEMENT
GENZYME CORPORATION & RENAGEL LLC
TERM SHEET: MARCH 13, 2000
BACKGROUND
The terms attached were developed by Genzyme in response to the RenaGel LLC's
Request for Proposals (RFP) of October 1999 for a [ * ] manufacturing capacity
facility (Appendix A). They reflect Genzyme's response to the RFP in our
proposal of November 9th and the revised terms of the December 16, 1999 update.
On December 16, 1999 Genzyme was informed by the LLC of our selection as the
`winner' of the RFP process for the Large Scale Plant (LSP).
Consequently, the terms below serve as the basis for a definitive supply
agreement between Genzyme and the LLC. Genzyme and the LLC each hereby
acknowledge that this Term Sheet is a legally binding and enforceable obligation
of each of the parties.
It is understood that there will be two agreements relating to the LSP. The
first agreement will be between Genzyme and the LLC for the supply of sevelamer
for the LLC's Territory. The second agreement will be between Genzyme and Chugai
Pharmaceutical Co. Ltd. for the supply of sevelamer for the Chugai Territory.
The two agreements will be prepared to work together with respect to maximum
capacity, minimum purchase commitments and volume driven pricing.
The terms below reflect discussions between Mark Bamforth and Joe Tyler on Jan.
17th, 25th, 26th, Feb 7th, 15th, 22nd, March 3rd and 9th.
TERMS:
1. The Development and Capital costs for the LSP will be paid by Genzyme.
2. The project will start in January 2000 and Genzyme will use its
commercially reasonable and diligent efforts to complete the design,
construction, commission, validation and regulatory approval of the LSP by
mid-2002.
3. The LLC requests a 50kg sample of Sevelamer manufactured by the proposed
process of the LSP for delivery by March 2000, principally for tableting
studies to be conducted. As per the November 9th proposal, Genzyme requests
reimbursement from the LLC for the incremental costs associated with
providing this sample, currently estimated at [ * ], and will not exceed
[ * ]. Genzyme does not
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<PAGE> 2
propose [ * ] the provision of this sample.
The 50kg sample will be used for tableting studies at [ * ]. The sample
will not be produced to GMP and can only be used for non-human use. The
sample must meet the following criteria:
I. Meet the current release specifications for Sevelamer API
II. Be made as far as possible by the proposed process
GelTex will be responsible for the formulation and tableting studies to be
conducted by [ * ]. In the event that the material does not meet the
tableting requirements, then GelTex will identify the areas of concern and
work with Genzyme to produce a sample to meet the requirements. Genzyme
will bear the cost associated with its efforts to develop a process to
produce a sample that meets the tableting requirements. The incremental
costs of actually producing additional material once the development work
is complete will be paid for by the LLC. Genzyme will not [ * ] to make
this material.
4. The supply agreement will be a "Take or Pay" contract for [ * ] from
facility approval, as per the RFP. At [ * ] nominal capacity, the LLC
commits to the following minimum off take:
[ * ]
Not withstanding the above, the minimum quantities to which Chugai commits
in its contract with Genzyme will serve to reduce the minimum commitment of
the LLC on a ton for ton basis (i.e., if Chugai commits to a minimum take
in 2003 of [ * ], the LLC minimum for 2003 shall be [ * ].).
5. The product price to the LLC and Chugai will be:
[ * ]
For volumes between [ * ] the price will be adjusted as per the
price schedule included in the December 16th update. All quantities
purchased by Chugai will be aggregated with those purchased by the LLC in
order to determine the appropriate product price for the LLC and Chugai.
The "Take or Pay" agreement commits the LLC to take a minimum [ * ]
output per year (less any minimum amount to which Chugai is or becomes
contractually
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<PAGE> 3
committed) or pay the fixed price (less raw materials cost) if less output
is required in a given year.
6. All prices are based on 1999 costs; future costs will be adjusted using an
agreed price index.
7. The prices quoted are based on the cost of [ * ], [ * ]. The prices are
also based on a ratio of [ * ] in the process. Genzyme will be
responsible for the freight & duty cost of [ * ] to the Haverhill site.
GelTex will be responsible for securing a source of supply of [ * ]. The
prices will be adjusted pro rata to reflect any change in the cost of
[ * ]. The prices will not be adjusted for any change in the use ratio of
[ * ].
GelTex will examine the option of a European [ * ] supply in order to
reduce material cost and the freight and duty cost for [ * ].
8. The estimated cost of manufacturing Sevelamer is made up of a variable cost
and a fixed cost. The variable cost includes materials, utilities,
consumables, direct production labour and depreciation. The fixed cost
includes other labour, site overheads and UK management overheads. Genzyme
agrees to [ * ].
9. The existing supply agreement between the LLC and Genzyme (dated Jan 1st
1998) remains in effect, with termination scheduled for [ * ].
Genzyme plans to transition all production into the LSP upon approval, i.e.
mid-2002. Therefore, the LLC's purchase commitment in the years 2002 and
2003 are expected to be as follows (subject to adjustment for Chugai's
commitment, as discussed above):
[ * ]
10. Either party can terminate the LSP agreement by giving at least [ * ]
written notice, effective on [ * ], but not before completion of [ * ]
of output from the LSP after facility approval.
11. The LLC and Chugai will each grant to Genzyme the right of first refusal to
supply the aggregate requirements of the LLC and Chugai above [ * ]
("Excess Requirements"). In connection therewith, the LLC and Chugai,
either jointly or separately as suits the particular needs of the LLC and
Chugai, shall be allowed to issue an RFP to obtain bids from third parties
for any Excess Requirements and shall provide Genzyme with a description of
the most favourable terms obtained. Genzyme shall respond to the terms
provided in a timely manner, and shall use commercially reasonable and
diligent efforts to respond in the time frame reasonably requested by the
LLC and/or Chugai, as the case may be. If Genzyme notifies the LLC and/or
Chugai, as the case may be, that it is able to match such terms for the
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Excess Requirements specified in the RFP, then Genzyme shall have the right
to manufacture such Excess Requirements. If Genzyme notifies the LLC and
/or Chugai, as the case may be, that it is unable to match the most
favourable terms obtained for such Excess Requirements, then the LLC and/or
Chugai, as the case may be, shall have the right to enter into a supply
agreement with the third party that submitted such terms; provided,
however, that the LLC and/or Chugai, as the case may be, may not offer such
third party more favorable terms than those set forth in the bid without
first offering such terms to Genzyme and providing Genzyme an opportunity
to accept such terms. Genzyme's right of first refusal shall remain in
effect for any subsequent Excess Requirements of the LLC and Chugai. For
the avoidance of doubt, it is understood that Genzyme will supply the LLC
and Chugai's aggregate requirements up to and including [ * ],
regardless of the allocation of amounts between the two companies in any
given year, and the right of first refusal described in this section
relates to the LLC and Chugai's aggregate needs in excess of [ * ].
12. Genzyme will grant the LLC a non-exclusive, worldwide, [ * ] license,
with the right to grant sublicenses to its contract manufacturers (without
the right allow such parties to grant further sublicenses), to use the
technology developed by Genzyme for the manufacture of Sevelamer in the LSP
to manufacture Sevelamer; provided, however, that the LLC will not have the
right to grant sublicenses to Chugai, Kirin Brewery Co. Ltd. or any other
party having the right to develop and/or commercialize products comprising
Sevelamer. Genzyme will also grant GelTex a non-exclusive, worldwide,
[ * ] license to use such technology for all applications other than
Sevelamer production applications for Renagel.
13. All prices have been developed using an exchange rate of $ 1.60 per
Sterling Pound. On the first business day of each quarter, the exchange
rate (US $:(pound)) published in the Financial Times will be used to
determine the price of Sevelamer for that calendar quarter.
14. Genzyme reserves the right to develop and maintain master files with
regulatory authorities in support of the manufacture of Sevelamer at its
Haverhill facilities and to provide appropriate access to these files for
drug registrations with regulatory authorities. The LLC will use
commercially reasonable and diligent efforts to submit the appropriate
regulatory applications for the territories in an expeditious manner.
15. Genzyme and Chugai will also negotiate a supply agreement for the LSP. In
connection with that agreement, Chugai has requested a 150 kg sample of
Sevelamer manufactured by the proposed process of the LSP for delivery by
March, '00, principally for tableting studies to be conducted. As per the
November 9th proposal, Genzyme requests reimbursement from Chugai for the
incremental costs associated with providing this sample, currently
estimated as [ * ], and will not exceed [ * ]. Genzyme does not propose
[ * ] the provision of this sample.
4
<PAGE> 5
The 150kg sample will be used for tableting studies at Chugai. The sample
will not be produced to GMP and can only be used for non-human use. The
sample must meet the following criteria:
I. Meet the current release specifications for Sevelamer API
II. Be made as far as possible by the proposed process
Chugai will be responsible for the formulation and tableting studies. In
the event that the material does not meet these requirements, then Chugai
will identify the areas of concern and work with Genzyme to produce a
sample to meet the requirements. Genzyme will bear the cost associated with
its efforts to develop a process to produce a sample that meets the
tableting requirements. The incremental costs of actually producing
additional material once the development work is complete, will be paid for
by Chugai. The incremental costs to actually produce additional material
once the development efforts have been completed will be paid by Chugai.
Genzyme will not [ * ] to make this material.
16. Genzyme reserves the right to develop and maintain master files with
regulatory authorities in Chugai's Territory in support of the manufacture
of Sevelamer at its Haverhill facilities and to provide appropriate access
to these files for drug registrations with regulatory authorities. Chugai
will use commercially reasonable and diligent efforts to submit the
appropriate regulatory applications for the territories in an expeditious
manner.
Dated: March 16, 2000
--------------
RENAGEL LLC GENZYME CORPORATION
By: GelTex Pharmaceuticals, Inc., its Member By: /s/ Frank Ollington
---------------------------
By: /s/ Mark Skaletsky Name: Frank Ollington
--------------------------- Title: Senior Vice President,
Name: Mark Skaletsky Operations
Title: President and CEO
By: Genzyme Corporation, its Member
By: /s/ G. Jan van Heek
--------------------------
Name: G. Jan van Heek
Title: Executive Vice President
5
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