<PAGE>
As filed with the Securities and Exchange Commission on July 6, 1999
Registration No. 333-77701
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------
AMENDMENT NO. 2 TO
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
---------------
BIOMARIN PHARMACEUTICAL INC.
(Exact name of Registrant as specified in its charter)
Delaware 2834 68-0397820
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification Number)
incorporation or Classification Code
organization) Number)
371 Bel Marin Keys Boulevard, Suite 210
Novato, CA 94949
(415) 884-6700
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
---------------
Raymond W. Anderson
Chief Financial Officer
BioMarin Pharmaceutical Inc.
371 Bel Marin Keys Boulevard, Suite 210
Novato, CA 94949
(415) 884-6700
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copies to:
Francis S. Currie, Esq. Patrick A. Pohlen, Esq. William Hinman, Esq.
Donna M. Petkanics, Esq. Cooley Godward LLP Shearman & Sterling
Wilson Sonsini Goodrich Five Palo Alto Square 1550 El Camino Real
& Rosati 3000 El Camino Real Menlo Park, CA 94025
Professional Corporation Palo Alto, CA 94306 (650) 330-2200
650 Page Mill Road (650) 843-5000
Palo Alto, CA 94304
(650) 493-9300
---------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the Securities and Exchange Commission +
+declares our registration statement effective. This prospectus is not an +
+offer to sell these securities and is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to completion, dated July 6, 1999
4,500,000 Shares
BIOMARIN PHARMACEUTICAL INC.
Common Stock
$ per share
[LOGO OF BIOMARIN PHARMACEUTICALS INC.]
- --------------------------------------------------------------------------------
. BioMarin . This is a firm
Pharmaceutical Inc. is commitment initial
offering 4,500,000 public offering and no
shares. public market
currently exists for
. We anticipate that the our shares.
initial public
offering price will be . Proposed trading
between $11.00 and symbol: Nasdaq
$13.00 per share. National Market and
Swiss Exchange-- BMRN.
---------------------
This investment involves risk. See "Risk Factors" beginning on page 7.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Per Share Total
--------- ------------
<S> <C> <C>
Public offering price................................... $x.xx $xxx,xxx,xxx
Underwriting discounts.................................. $x.xx $ x,xxx,xxx
Proceeds to BioMarin Pharmaceutical Inc................. $x.xx $xxx,xxx,xxx
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The underwriters have a 30-day option to purchase up to 675,000 additional
shares of common stock from us to cover over-allotments, if any.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
U.S. Bancorp Piper Jaffray Bank J. Vontobel & Co AG
Schroders & Co. Inc.
Leerink Swann & Company
The date of this prospectus is , 1999.
<PAGE>
INSIDE FRONT COVER
Picture of face of 12 year-old
MPS-I child
LEGEND:
A-L-Idvronidase MPS-I is
caused by a deficiency
of this enzyme.
Computer-generated image of enzyme
LEGEND:
Children with MPS-I suffer
from chronic, progressive,
and debilitating symptoms
and a majority die before adulthood.
Picture of face of 1 year-old child
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary............................................................... 4
Risk Factors.......................................................... 7
History of Our Company................................................ 19
Use of Proceeds....................................................... 20
Dividend Policy....................................................... 20
Forward-Looking Statements............................................ 21
Capitalization........................................................ 22
Dilution.............................................................. 23
Selected Consolidated Financial Data.................................. 24
Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................ 26
Business.............................................................. 35
Management............................................................ 56
Certain Transactions.................................................. 67
Principal Stockholders................................................ 70
Description of Capital Stock.......................................... 72
Shares Eligible for Future Sale....................................... 74
Underwriting.......................................................... 76
Legal Matters......................................................... 79
Experts............................................................... 79
Where You Can Find More Information................................... 79
Index to Financial Statements ........................................ F-1
</TABLE>
-------------------------------
You should rely only on the information contained in this prospectus. We have
not, and the underwriters have not, authorized any other person to provide you
with different information. The prospectus is not an offer to sell, nor is it
seeking an offer to buy, these securities in any state where the offer or sale
is not permitted. The information in this prospectus is complete and accurate
as of the date of the front cover, but the information may have changed since
that date.
3
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SUMMARY
The items in the following summary are described in more detail later in this
prospectus. This summary provides an overview of selected information and does
not contain all the information you should consider. Therefore, you should also
read the more detailed information set out in this prospectus, including the
financial statements. Except as set forth in the consolidated financial
statements or as otherwise specified in this prospectus, all information in
this prospectus: (1) assumes no exercise of the underwriters' over-allotment
option and (2) reflects the issuance of 2,600,000 shares of common stock,
excluding shares issuable upon conversion of accrued interest, upon the
automatic conversion of the convertible promissory notes upon the completion of
this offering.
Business of BioMarin
BioMarin Pharmaceutical Inc. is a developer of carbohydrate enzyme therapies
for debilitating, life-threatening, chronic genetic disorders and other
diseases and conditions. In October 1998, we completed a six-month evaluation
of patients being treated with BioMarin's lead product, BM101, for the
treatment of mucopolysaccharidosis-I, or MPS-I. Patients were treated with
BM101 as part of a pivotal clinical trial completed to determine the safety and
efficacy of the drug in humans. A pivotal clinical trial produces data from
human patients sufficient to enable the FDA to determine whether to approve a
product for sale. We are currently analyzing data from an additional six-month
follow-up period. Based on the 12-month data from this clinical trial, we
intend to complete the filing of a biologics license application with the Food
and Drug Administration, or FDA, in the second half of 1999. We established a
joint venture with Genzyme Corporation for the worldwide development and
commercialization of BM101.
MPS-I is a life-threatening genetic disorder caused by a deficiency of the
enzyme A-L-iduronidase. MPS-I affects about 3,400 patients in developed
countries, including approximately 1,000 in the United States and Canada.
Patients with MPS-I have multiple debilitating symptoms resulting from the
buildup of carbohydrates in all tissues in the body. These symptoms include
delayed physical and mental growth, enlarged livers and spleens, skeletal and
joint deformities, airway obstruction, heart disease and impaired hearing and
vision. Most children with MPS-I will die from complications associated with
the disease before adulthood. BM101 is a specific form of A-L-iduronidase that
is intended to replace a deficiency of A-L-iduronidase in MPS-I patients.
In the clinical trial for BM101, ten patients with MPS-I were treated at five
medical centers in the United States and evaluated as to the achievement of two
primary endpoints. Primary endpoints are the specific clinical or surrogate
effects on patients which are meant to demonstrate whether a drug effectively
treats the disease for which it is being tested. Based on data collected during
the initial six-month evaluation period, all ten patients met one of the
primary endpoints set forth in the investigational new drug application for
BM101. Eight of the ten patients met the other primary endpoint. In addition to
these primary endpoints, the FDA has requested that we evaluate this data using
other criteria. We believe this clinical trial for BM101 constitutes a pivotal
clinical trial. We received notice from the FDA that our biologics license
application for BM101 has been designated for accelerated review for the
treatment of the more severe forms of MPS-I, which account for approximately
60% of all cases. The FDA refers to the accelerated review designation as fast
track designation. The FDA has granted us exclusive rights to market BM101 to
treat MPS-I for seven years from the date of FDA approval if BM101 is the first
A-L-iduronidase drug to be approved by the FDA for the treatment of MPS-I. Drug
products which have been granted these exclusivity rights are said to have
received orphan drug designation.
Under the terms of our BM101 joint venture with Genzyme, we will share equally
with Genzyme the expenses and profits from the joint venture. In addition,
Genzyme invested $8.0 million to purchase our common stock upon signing the
joint venture agreement and has agreed to purchase $10.0 million
4
<PAGE>
- --------------------------------------------------------------------------------
of common stock at the initial public offering price in a private placement
concurrent with this offering. Genzyme has committed to pay us an additional
$12.1 million upon approval of the biologics license application for BM101.
We are also developing enzyme replacement therapies for other life-threatening
genetic diseases. We are developing BM102 for the treatment of MPS-VI, another
mucopolysaccharide disease. We received an orphan drug designation for BM102 to
treat MPS-VI and intend to file an investigational new drug application for
BM102 in the fourth quarter of 1999. We are also developing carbohydrate
enzymes intended to improve the burn healing process and to act as
anti-fungals. Through a wholly-owned subsidiary, Glyko, Inc., we provide
products and services for carbohydrate analysis and medical diagnosis to
research institutions and commercial laboratories.
Office Location
Our principal executive offices are located at 371 Bel Marin Keys Boulevard,
Suite 210, Novato, CA 94949 and our telephone number is (415) 884-6700.
The Offering
<TABLE>
<C> <S>
Common stock offered by us.................. 4,500,000 shares. Of these
shares are being offered in
the United States and Canada and
shares are being offered
outside the United States and
Canada. The final allocation may
vary.
Common stock issued to Genzyme in the
concurrent private placement............... 833,333 shares, assuming a
$12.00 per share offering price.
Common stock outstanding after this 34,109,513 shares. This number
offering................................... excludes 3,773,226 shares of
common stock issuable upon
exercise of options outstanding
at May 31, 1999, with a weighted
average exercise price of $4.68
per share and warrants to
purchase 801,500 shares of
common stock with an exercise
price of $1.00 per share.
Offering price.............................. $ per share
Use of proceeds............................. To fund our 50% share of the
expenses of the joint venture
with Genzyme for the worldwide
development and
commercialization for BM101, to
fund additional product
programs, including BM102 and
other enzyme therapies, to fund
process development, clinical
and commercial manufacturing
facilities and general corporate
purposes. See "Use of Proceeds."
Proposed Nasdaq National Market and Swiss
Exchange symbol............................ BMRN
</TABLE>
Corporate Information
We were incorporated in Delaware in October 1996 and began operations on March
21, 1997. We acquired Glyko, Inc. in October 1998. Unless otherwise specified,
the terms "us" and "we" refer to both BioMarin and Glyko, Inc.
This prospectus contains our trademarks. Each trademark, trade name or service
mark of any other company appearing in this prospectus belongs to its holder.
- --------------------------------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------
Summary Consolidated Financial Data
(in thousands, except per share data)
<TABLE>
<CAPTION>
Period from
March 21, 1997 Three Months Period from
(Inception) to Year Ended Ended March 31, March 21, 1997
December 31, December 31, ---------------- (Inception) to
Consolidated Statements of 1997 1998 1998 1999 March 31, 1999
Operations Data (1): -------------- ------------ ------- ------- --------------
<S> <C> <C> <C> <C> <C>
Revenues.................. $ -- $ 1,190 $ -- $ 1,104 $ 2,295
Operating costs and
expenses:
Cost of products and
services............... -- 108 -- 103 211
Research and
development............ 1,914 10,502 1,108 3,892 16,308
General and
administrative......... 914 3,531 303 1,693 6,138
------- -------- ------- ------- --------
Loss from operations...... (2,828) (12,951) (1,411) (4,584) (20,362)
Interest income........... 65 684 92 154 904
Equity in loss of joint
venture.................. -- (47) -- (180) (227)
------- -------- ------- ------- --------
Net loss.................. $(2,763) $(12,314) $(1,319) $(4,610) $(19,685)
======= ======== ======= ======= ========
Net loss per common share,
basic and diluted........ $ (0.34) $ (0.55) $ (0.06) $ (0.18) $ (1.13)
======= ======== ======= ======= ========
Weighted average common
shares outstanding....... 8,136 22,488 20,567 26,176 (/2/) 17,441
</TABLE>
<TABLE>
<CAPTION>
As of March 31,
As of December 31, As of March 31, 1999 1999
1998 ---------------------- Pro Forma
Consolidated Balance Actual Actual Pro Forma (/3/) As Adjusted (/4/)
Sheet Data: ------------------ ------ --------------- -----------------
<S> <C> <C> <C> <C>
Cash, cash equivalents
and short-term
investments............ $11,389 $3,829 $28,724 $87,444
Total current assets.... 12,819 5,526 30,421 89,141
Total assets............ 31,509 26,778 52,778 110,393
Long-term liabilities... 110 103 26,103 103
Total stockholders'
equity................. 29,395 25,045 25,045 108,660
</TABLE>
- ------------------------------
(/1/) BioMarin's acquisition of Glyko, Inc. was accounted for as a purchase.
As a result, the consolidated statements of operations data of BioMarin
include the operations of Glyko, Inc. from October 7, 1998, the date of
its acquisition by BioMarin, through March 31, 1999. Financial
information for Glyko, Inc. for the years ended December 31, 1994, 1995,
1996, 1997 and the period ended October 7, 1998 is included in the
Selected Consolidated Financial Data and financial statements for Glyko,
Inc. for the year ended December 31, 1997 and the period ended October
7, 1998 are included in the Financial Statements elsewhere in the
prospectus.
(/2/) Weighted average common shares outstanding as of March 31, 1999 excludes
3,553,526 shares of common stock issuable upon exercise of outstanding
options at March 31, 1999 with a weighted average exercise price of
$4.51 per share and warrants to purchase 801,500 shares of common stock
with an exercise price of $1.00 per share. See "Capitalization,"
"Management--Stock Plans," "Underwriting" and Notes 3, 5, 9 and 11 of
Notes to Consolidated Financial Statements of BioMarin.
(/3/) Reflects the sale on April 13, 1999 of $26.0 million of convertible
promissory notes, net of issuance costs of $1.1 million.
(/4/) As adjusted for (1) the sale of 4,500,000 shares of common stock by
BioMarin at an assumed initial public offering price of $12.00 per share
net of estimated underwriters' discounts and commissions and offering
expenses of $5.3 million; (2) the sale of $10.0 million of common stock
to Genzyme at the initial public offering price in a private placement
concurrent with this offering; and (3) the issuance of 2,600,000 shares
of common stock, excluding shares issuable upon conversion of accrued
interest, upon the automatic conversion of the convertible promissory
notes on the date of the final prospectus for this offering, after
deducting underwriting discounts and commissions and estimated offering
expenses. See "Use of Proceeds," "Capitalization" and "Underwriting."
- --------------------------------------------------------------------------------
6
<PAGE>
RISK FACTORS
You should carefully consider the following risk factors before you decide to
buy our common stock. You should also consider the other information in this
prospectus. In addition, the risks and uncertainties described below are not
the only ones facing BioMarin because we are also subject to additional risks
and uncertainties not presently known to us. If any of these risks 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 part or all of your investment.
Risks Related To The Company
If we continue to incur operating losses for a period longer than anticipated,
we may be unable to continue our operations.
We are in an early stage of development and have operated at a net loss since
we were formed. Since we began operations in March 1997, we have been engaged
primarily in research and development. We have no sales revenues from any of
our drug products. As of March 31, 1999, we had an accumulated deficit of
approximately $19.7 million. Our future profitability depends on our receiving
regulatory approval of our drug candidates and our ability to successfully
manufacture and market any approved drugs, either by ourselves or jointly with
others. The extent of our future losses and the timing of profitability are
highly uncertain. If we fail to become profitable or are unable to sustain
profitability on a quarterly or annual basis, then we may be unable to continue
our operations.
Because of the relative small size and scale of our wholly-owned subsidiary,
Glyko, Inc., profits from products and services offered by it are expected to
be insufficient to offset the expenses associated with our pharmaceutical
business. As a result, we expect that operating losses will continue and
increase for the foreseeable future.
If we fail to obtain the capital necessary to fund our operations we will be
unable to complete our product development programs.
In the future, we may need to raise substantial additional capital to fund
operations. We cannot be certain that any financing will be available when
needed. If we fail to raise additional financing as we need it, we will have to
delay or terminate our product development programs.
We expect to continue to spend substantial amounts of capital for our
operations for the foreseeable future. Activities which will require additional
expenditures include:
. research and development programs
. preclinical studies and clinical trials
. regulatory processes
. establishment of commercial scale manufacturing capabilities and
. expansion of sales and marketing activities.
The amount of capital we may need depends on many factors, including:
. The progress, timing and scope of our research and development
programs
. The progress, timing and scope of our preclinical studies and
clinical trials
. The time and cost necessary to obtain regulatory approvals
7
<PAGE>
. The time and cost necessary to build our manufacturing facilities and
obtain the necessary regulatory approvals for those facilities
. The time and cost necessary to respond to technological and market
developments
. Any changes made or new developments in our existing collaborative,
licensing and other commercial relationships
. Any new collaborative, licensing and other commercial relationships
that we may establish
Moreover, our fixed expenses such as rent, license payments and other
contractual commitments are substantial and will increase in the future. These
fixed expenses will increase because we may enter into:
. additional leases for new facilities and capital equipment
. additional licenses and collaborative agreements
. additional contracts for consulting, maintenance and administrative
services
. additional expenses associated with being a public company.
We believe that the net proceeds of this offering, together with our available
cash, cash equivalents, short-term investment securities and investment income,
will be sufficient to meet our operating and capital requirements through at
least the next 12 months. This estimate is based on assumptions which may prove
to be wrong. As a result, we may need additional financing prior to that time.
If we fail to obtain regulatory approval to commercially manufacture or sell
any of our future drug products, or if approval is delayed, we will be unable
to generate revenue from the sale of our products.
We must obtain regulatory approval to market our products in the U.S. and
foreign jurisdictions.
We must obtain regulatory approval before marketing or selling our future drug
products. In the United States, we must obtain FDA approval for each drug that
we intend to commercialize. The FDA approval process is typically lengthy and
expensive, and approval is never certain. Products distributed abroad are also
subject to foreign government regulation. None of our drug products has
received regulatory approval to be commercially marketed and sold. If we fail
to obtain regulatory approval we will be unable to market and sell our future
drug products. We have several drug products in various stages of preclinical
and clinical development. BM101, our first drug product, is not expected to be
commercially available until at least 2000. Our other drug product will not be
commercially available for at least several more years. Because of the risks
and uncertainties in biopharmaceutical development, our drug candidates could
take a significantly longer time to gain regulatory approval than we expect or
may never gain approval. If regulatory approval is delayed our management's
credibility, the value of our company and our operating results may be
adversely affected.
To obtain regulatory approval to market our products, preclinical studies and
costly and lengthy clinical trials may be required and the results of the
studies and trials are highly uncertain.
As part of the FDA approval process, we must conduct, at our own expense,
preclinical studies on animals and clinical trials on humans on each drug
candidate. We expect the number of preclinical studies and clinical trials that
the FDA 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 different.
After we have conducted preclinical studies in animals we must demonstrate that
our drug products are safe and effective for use on the target human patients
in order to receive regulatory approval for
8
<PAGE>
commercial sale. Adverse or inconclusive clinical results would stop us from
filing for regulatory approval of our products. Additional factors that can
cause delay or termination of our clinical trials include:
. Slow patient enrollment
. Longer treatment time required to demonstrate efficacy
. Lack of sufficient supplies of the drug candidate
. Adverse medical events or side effects in treated patients
. Lack of effectiveness of the drug candidate being tested
Typically, if a drug product is intended to treat a chronic disease safety and
efficacy data must be gathered over an extended period of time which ranges
from six months to three years. In addition, clinical trials on humans are
typically conducted in three phases. The FDA generally requires two pivotal
clinical trials that demonstrate substantial evidence of safety and efficacy
and appropriate dosing in a broad patient population at multiple sites to
support an application for regulatory approval. If a drug is intended for the
treatment of a serious or life-threatening condition and the drug demonstrates
the potential to address unmet medical needs for this condition, a single trial
may be sufficient to prove safety and efficacy under the FDA's Modernization
Act of 1997.
Our strategy to conduct only one clinical trial on a small number of patients
for products developed to treat genetic disorders may not be sufficient to
obtain regulatory approval.
We believe that our enzyme drug products will be regulated by the FDA as
biologics rather than drugs because they are manufactured by biological
processes. Our strategy for the development of therapeutics for genetic
disorders is to conduct only one clinical trial on a small number of patients,
which would then be the basis for our submission of a biologics license
application to the FDA. For example, at the end of October 1998, we completed a
six-month evaluation of ten patients on our first drug candidate BM101. Because
12-month data will be available, the FDA has requested that we evaluate data
for these patients for the 12-month period rather than the six-month period
which formed the basis of our initial evaluation. In addition the FDA has also
requested that we evaluate this data using other criteria. We are currently
performing this evaluation. We cannot assure you that this evaluation will
support our findings with regard to the primary endpoints in the clinical
trial. If this analysis does not support our findings with regard to the
primary endpoints, it could delay the filing of the biologics license
application and could jeopardize FDA approval of BM101. The FDA may request
additional trials to be conducted. If we have to conduct further clinical
trials, whether for BM101 or other products we develop in the future, it would
significantly increase our expenses and delay marketing of our product. Also,
the results of initial smaller clinical trials could differ from the results
obtained from subsequent more extensive long-term trials. A significant
difference in the results of multiple clinical trials could cause the FDA to
require still more clinical trials which would significantly delay the approval
process.
The fast track designation for BM101 may not actually lead to a faster review
process.
Although BM101 has obtained a fast track designation, we cannot guarantee a
faster review process or faster approval compared to the normal FDA procedures.
If BM101 is approved, we will be required to conduct a study after we obtain
approval of BM101 to demonstrate that the primary endpoints used in our single
study are reasonably likely to predict clinical benefits to the patients. If
this post-approval study fails to verify the clinical benefit of BM101 or
demonstrates that BM101 is not safe or effective, our FDA approval can be
withdrawn on an expedited basis. Furthermore, if adverse effects are identified
after marketing, FDA approval may be rapidly revoked and we could not market
the drug.
We will not be able to sell our products if we fail to comply with
manufacturing regulations.
Before we can begin commercially manufacturing our products we must obtain
regulatory approval of our manufacturing facility and process. In addition,
manufacture of our drug products must comply
9
<PAGE>
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. Because we are currently in the
process of developing the manufacturing site and process for commercial
manufacture of BM101, our facility has not yet been inspected by any
governmental entity. We cannot guarantee that BioMarin, or any potential third-
party manufacturer of our drug products, will be able to comply with cGMP
regulations. Material changes to the manufacturing processes after approvals
have been granted are also subject to review and approval by the FDA or other
regulatory agencies.
We currently have a contract with Harbor-UCLA Research and Education Institute
to manufacture BM101 in limited quantities for use in preclinical studies and
clinical trials. In order to produce initial commercial requirements for BM101
in our facility we will have to prove that the product manufactured at our
facility is comparable to the clinical trial product produced in the Harbor-
UCLA facility. This will require laboratory testing and may require clinical
trials. We must pass FDA and state inspections and manufacture three process
qualification batches to final specifications under cGMP controls before the
BM101 BLA can be approved. We cannot assure you that we will pass the
inspections in a timely manner, if at all.
If we fail to obtain orphan drug exclusivity for our products, our competitors
may sell products to treat the same conditions and our revenues may be reduced.
As part of our business strategy, we intend to develop drugs that may be
eligible for FDA 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. The company that obtains the first FDA approval for a designated
orphan drug for a given rare disease receives marketing exclusivity for use of
that drug for the stated condition for a period of seven years. However,
different drugs can be approved for the same condition.
Because the extent and scope of patent protection for our drug candidates 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 any one of our drug
products, our competitors may then sell the same drug to treat the same
condition.
We received orphan drug designation from the FDA for BM101 in September 1997.
In February 1999, we received orphan drug designation from the FDA for BM102.
Even if we obtain orphan drug designation, we cannot guarantee that we will be
the first to obtain marketing approval for any orphan indication or that
exclusivity would effectively protect the product from competition. Orphan drug
designation does not shorten the development or FDA review time of a drug so
designated nor give the drug any advantage in the FDA review or approval
process.
Because the target patient populations for our products are small we must
achieve significant market share and obtain high per patient prices for our
products to achieve profitability.
Our initial drug candidates target disorders with small patient populations. As
a result, our prices must be high enough to recover our development costs and
achieve profitability. For example, two of our initial drug products in genetic
disorders, BM101 and BM102, target patients with MPS-I and MPS-VI,
respectively. We estimate that there are approximately 3,400 patients with MPS-
I and 1,100 patients with MPS-VI in the developed world. We believe that we
will need to market worldwide to achieve significant market share. In addition,
we are developing other drug candidates to treat conditions, such as other
genetic diseases and serious burns, 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.
10
<PAGE>
If we fail to obtain an adequate level of reimbursement for our drug products
by third-party payors there would be no commercially viable markets for our
products.
The course of treatment for patients with MPS-I using BM101 is expected to be
expensive. We expect patients to need treatment throughout their lifetimes. We
expect that families of patients will not be capable of paying for this
treatment themselves. There will be no commercially viable market for BM101
without reimbursement from third-party payors.
Third-party payors, such as government or private health care insurers,
carefully review and increasingly challenge the price charged for drugs.
Reimbursement rates from private companies vary depending on the third-party
payor, the insurance plan and other factors. Reimbursement systems in
international markets vary significantly by country and by region, and
reimbursement approvals must be obtained on a country-by-country basis. We
cannot be certain that third-party payors will pay for the costs of our drugs
and the courses of treatment. Even if we are able to obtain reimbursement from
third-party payors, we cannot be certain that reimbursement rates will be
enough to allow us to profit from sales of our drugs.
We currently have no expertise obtaining reimbursement. We expect to rely on
the expertise of our partner Genzyme to obtain reimbursement for BM101. We
cannot predict what the reimbursement rates will be. In addition, we will need
to develop our own reimbursement expertise for future drug candidates unless we
enter into collaborations with other companies with the necessary expertise.
We expect that in the future reimbursement will be increasingly restricted both
in the United States and internationally. The escalating cost of health care
has led to increased pressure on the health care industry to reduce costs.
Governmental and private third-party payors have proposed health care reforms
and cost reductions. A number of federal and state proposals to control the
cost of health care, including the cost of drug treatments have been made in
the United States. In some foreign markets, the government controls the pricing
which would affect the profitability of drugs. Current government regulations
and possible future legislation regarding health care may affect our future
revenues from sales of our drugs and may adversely affect our business and
prospects.
If we are unable to protect our proprietary technology we may not be able to
compete as effectively.
Where appropriate, we seek patent protection for certain aspects of our
technology. Meaningful patent protection may not be available for some of the
enzymes we are developing, including BM101 and BM102. If we must spend
significant time and money protecting our patents, designing around patents
held by others or licensing, for excessively large fees, patents or other
proprietary rights held by others, our business and prospects may be harmed.
The patent positions of biotechnology companies are extremely 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 enzyme, the methods for purifying or
producing the enzyme or the methods of treatment. The composition and genetic
sequences of many of our enzymes, including those for BM101, BM102, have been
published and are in the public domain. The composition and genetic sequences
of other MPS enzymes which we intend to develop as products have also been
published. Publication of this information has prevented us from obtaining
composition of matter patents, which are generally believed to offer the
strongest patent protection. For enzymes with no prospect of composition of
matter patents, we will depend on orphan drug status.
11
<PAGE>
In addition, our owned and licensed patents and patent applications do not
ensure the protection of our intellectual property for a number of other
reasons:
. We do not know whether our patent applications will result in actual
patents. For example, we may not have developed a method for treating
a disease before others developed similar methods.
. 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, novel or was
obvious. As a Company, we have no meaningful experience with
competitors interfering with our patents or patent applications.
. Even if we receive a patent, it may not provide much practical
protection. If we receive a patent with a narrow scope, then it will
be easier for competitors to design products that do not infringe on
our patent.
. Enforcing patents is expensive and may absorb significant time by our
management. In litigation, a competitor could claim that our issued
patents are not valid for a number of reasons. If the court agrees,
we would lose that patent.
In addition, competitors also seek patent protection for their technology.
There are many patents in our field of technology, and we cannot guarantee that
we do not infringe on those patents or that we will not infringe on patents
granted in the future. If a patent holder believes our product infringes on
their patent, the patent holder may sue us even if we have received patent
protection for our technology. If someone else claims we infringe on their
technology, we would face a number of issues, including:
. Defending a lawsuit takes significant time and can be very expensive.
. If the court decides that our product infringes on the competitor's
patent, we may have to pay substantial damages for past infringement.
. The court may prohibit us from selling or licensing the product
unless the patent holder licenses the patent to us. The patent holder
is not required to grant us a license. If a license is available, we
may have to pay substantial royalties or grant cross-licenses to our
patents.
. Redesigning our product so it does not infringe may not be possible
and 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.
12
<PAGE>
If our joint venture with Genzyme were terminated, our ability to commercialize
BM101 would be delayed.
We are relying on Genzyme to apply the expertise it has developed through the
launch and sale of Ceredase(R) and Cerezyme(R) enzymes for Gaucher disease, a
rare genetic disorder, to the marketing of our initial drug product, BM101. 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. Termination of our joint venture with Genzyme would
seriously hamper our ability to commercialize BM101.
We cannot guarantee that Genzyme will devote the resources necessary to
successfully market BM101. In addition, either party may terminate the joint
venture for any reason. If Genzyme were to terminate the joint venture, we
would be required to undertake Genzyme's responsibilities ourselves.
Termination of the joint venture could cause 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.
We have no experience manufacturing drug products in volumes that will be
necessary to support commercial sales. Our unproven manufacturing process may
not meet initial expectations as to schedule, reproducibility, yields, purity,
costs, quality, and other measurements of performance. Improvements in
manufacturing processes typically are very difficult to achieve and are often
very expensive. We cannot know with any certainty how long it might take to
make improvements if it became necessary to do so. If we contract for
manufacturing services with an unproven process, our contractor is subject to
the same uncertainties, high standards and regulatory controls.
If we are unable to establish and maintain commercial scale manufacturing
within our planned time and cost parameters, sales of our products and our
financial performance will be adversely affected.
We may encounter problems with any of the following if we attempt to increase
the scale or size of manufacturing:
. Design, construction and qualification of manufacturing facilities
that meet regulatory requirements
. Production yields
. Purity
. Quality control and assurance
. Shortages of qualified personnel
. Compliance with FDA regulations
We are developing a total of 31,000 square feet of space at two facilities, one
in Novato and one in Torrance, for the manufacture of BM101. The construction
and qualification of these facilities may take longer than planned and the
actual construction costs of these facilities may be higher than those which we
have budgeted. We expect that the manufacturing process of all of our new
products, including BM102, will also require lengthy development time before we
can begin manufacturing them in commercial quantity. Even if we can establish
this capacity, we cannot be certain that manufacturing costs will be
commercially reasonable, especially if reimbursement is substantially lower
than expected.
13
<PAGE>
In order to achieve our product cost targets we must develop efficient
manufacturing processes either by
. improving the colonies of cells which have a common genetic make-up,
or cell lines,
. improving the processes licensed from others, or
. developing a recombinant cell line and production processes.
A recombinant cell line is a cell line with foreign DNA inserted which is used
to produce a protein that it would not have otherwise produced and related
purification. The development of a stable, high production cell line for any
given enzyme is risky, expensive and unpredictable and may not yield adequate
results. In addition, the development of protein purification processes is
difficult and may not produce the high purity required with acceptable yield
and costs. 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 greater losses in manufacturing
start-up phases.
If we are unable to increase our marketing and distribution capabilities or to
enter into agreements with third parties to do so, our ability to generate
revenues will be diminished.
If we cannot increase our marketing capabilities either by developing our sales
and marketing organization or by entering into agreements with others, we may
be unable to successfully sell our products. If we are unable to effectively
sell our drug products, our ability to generate revenues will be diminished.
To increase our distribution and marketing for both our drug candidates and our
Glyko, Inc. products, we will have to increase our current sales force and/or
enter into third-party marketing and distribution agreements. We cannot
guarantee that we will be able to hire in a timely manner, the qualified sales
and marketing personnel we need if at all. Nor can we guarantee that we will be
able to enter into any marketing or distribution agreements on acceptable
terms, if at all. If we cannot increase our marketing capabilities as we
intend, either by increasing our sales force or entering into agreements with
third parties, sales of our products may be adversely affected.
We have recently entered into a joint venture with Genzyme where Genzyme will
be responsible for marketing and distributing BM101. We cannot guarantee that
we will be able to establish sales and distribution capabilities or that
BioMarin, the joint venture or any future collaborators will successfully sell
any of our drug candidates.
If we fail to compete successfully, our revenues and operating results will be
adversely affected.
Our competitors may develop, manufacture and market products that are more
effective or less expensive than ours. They may also obtain regulatory
approvals for their products faster than we can obtain them, including orphan
drug designation, or commercialize their products before we do. If our
competitors successfully commercialize a product which treats a given rare
genetic disease before we do, we will effectively be precluded from developing
a product to treat that disease because the patient populations of the rare
genetic diseases are so small. These companies also compete with us to attract
qualified personnel and parties for acquisitions, joint ventures or other
collaborations. They also compete with us to attract academic research
institutions as partners and to license these institution's 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.
14
<PAGE>
Universities and public and private research institutions are also competitors.
While these organizations primarily have educational objectives, they may
develop proprietary technology and acquire patents that we may need for the
development of our drug products. We will attempt to license this proprietary
technology, if available. These licenses may not be available to us on
acceptable terms, if at all. We also directly compete with a number of these
organizations to recruit personnel, especially scientists and technicians.
We believe that established technologies provided by other companies, such as
laboratory and testing services firms compete with Glyko Inc.'s products and
services. For example, Glyko, Inc.'s FACE Imaging System competes with
alternative carbohydrate analytical technologies, including capillary
electrophoresis, high-pressure liquid chromatography, mass spectrometry and
nuclear magnetic resonance spectrometry. These competitive technologies have
established customer bases and are more widely used and accepted by scientific
and technical personnel because they can be used for non-carbohydrate
applications. Companies competing with Glyko, Inc. may have greater financial,
manufacturing and marketing resources and experience.
If we fail to manage our growth or fail to recruit and retain personnel, our
product development programs may be delayed.
Our rapid growth has strained our managerial, operational, financial and other
resources. We expect this growth to continue. We recently entered into a joint
venture with Genzyme. If we receive FDA approval to market BM101, the joint
venture will be required to devote additional resources to support the
commercialization of BM101.
To manage expansion effectively, we need to continue to develop and improve our
operating and financial systems, sales and marketing capabilities. We cannot
guarantee that our 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 our product development programs. Any harm to
our research and development programs would harm our business and prospects.
Because of the specialized scientific 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 Grant W. Denison, Jr.,
Chairman and Chief Executive Officer, John C. Klock, M.D., President and
Secretary or Christopher M. Starr, Ph.D., Vice President for Research and
Development would be detrimental to us. While each of these individuals is
party to an employment agreement with us, which includes financial incentives
for each of them to remain employed with us, these agreements each terminate in
June 2000 and we cannot guarantee that any of them will remain employed with us
beyond that time. 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 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 drug treatments. We currently do
not maintain insurance against product liability lawsuits. Although we intend
to obtain product liability insurance within the next three months for our
clinical trials of BM102 and shortly before initiating clinical trials for our
other products, we cannot be certain that we will be able to obtain adequate
insurance coverage. In addition, we may be subject to claims in connection with
our current clinical trials for BM101 for which we have no insurance coverage.
We cannot be certain that if BM101 receives FDA approval, the product liability
insurance we will need to
15
<PAGE>
obtain in connection with the commercial sales of BM101 will be available 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.
If we experience any problems with Year 2000 compliance our operations may be
disrupted.
The following is intended to constitute "Year 2000 Readiness Disclosure" under
the Year 2000 Information and Readiness Disclosure Act of 1998.
Beginning in the year 2000, the date fields coded in certain software products
and computer systems will need to accept four digit entries in order to
distinguish 21st century dates from 20th century dates (commonly known as the
year 2000 problem). It is not clear what potential problems may arise as the
biopharmaceutical industry, and other industries, try to resolve this year 2000
problem.
It is possible that our currently installed computer systems, software products
or other business systems, or those of our suppliers or service providers,
working either alone or in conjunction with other software or systems, will not
accept input of, store, manipulate and output dates for the years 1999, 2000 or
subsequent years without error or interruption. We have formed a team to review
and resolve those aspects of the year 2000 problem that are within our direct
control and adjust to or influence those aspects that are not within our direct
control. The team has reviewed our software products, including those under
development, and determined that our software products do not use date data and
are year 2000 compliant. Our biopharmaceutical products do not have any year
2000 exposure. Based on representations from our vendors, the team has reviewed
the year 2000 compliance status of our major internal information technology
programs and systems used for administrative requirements and determined that
they are year 2000 compliant.
Some risks associated with the year 2000 problem are beyond our ability to
control, including the extent to which our suppliers and service providers can
address the year 2000 problem. The failure by a third party to adequately
address the year 2000 issue could have an adverse effect on their operations,
which could have an adverse effect on us. We are assessing the possible effects
on our operations of the possible failure of our key suppliers and providers,
contractors and collaborators to identify and remedy potential year 2000
problems.
Our stock price may be volatile and your investment in our stock could suffer a
decline in value.
Prior to this offering there has been no public market for our common stock.
The initial public offering price will be negotiated among the underwriters and
us and may not be indicative of prices that will prevail in the trading markets
after the offering. Accordingly, the initial public offering price will be
determined through negotiations between BioMarin and the underwriters. Our
valuation and the initial public offering stock price have no meaningful
relationship to current or historical earnings, asset values, book value or any
other criteria of value. The market price of the common stock after this
offering will fluctuate and may be higher or lower than the initial public
offering price due to factors including:
. Progress of BM101 and our other lead drug candidates through the
regulatory process, especially BM101 regulatory actions in the United
States
. Results of clinical trials, announcements of technological
innovations or new products by us or our competitors
. Government regulatory action affecting our drug candidates or our
competitors' drug candidates in both the United States and foreign
countries
. Developments or disputes concerning patent or proprietary rights
. General market conditions for emerging growth and biopharmaceutical
companies
. Economic conditions in the United States or abroad
16
<PAGE>
. Actual or anticipated fluctuations in our operating results
. Broad market fluctuations may cause the market price of our common
stock to fluctuate
. Changes in 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. We cannot be certain
what effect, if any, the dual listing will have on the price of our stock in
either 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 trading volume
In the past, following periods of large price declines in the public market
price of a company's securities, securities class action litigation has often
been initiated against that company. Litigation of this type could result in
substantial costs and diversion of management's attention and resources, which
would hurt our business. Any adverse determination in litigation could also
subject us to significant liabilities.
If our officers, directors and largest stockholder elect to act together they
may be able to control our management and operations, acting in their best
interests and not necessarily those of other stockholders.
After this offering, our directors and officers will control approximately
11.0% of the outstanding shares of our common stock. If the underwriters
exercise their over-allotment option in its entirety then the officers and
directors will own approximately 10.8%. Glyko Biomedical will own 33.3% of the
outstanding shares of capital stock after this offering. Three of six Glyko
Biomedical directors are officers or directors of BioMarin. As a result, after
this offering, due to their concentration of stock ownership, directors and
officers, together with Glyko Biomedical if they act together, may be able to
otherwise 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
. 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.
BioMarin is incorporated in Delaware. Certain anti-takeover provisions of
Delaware law and our charter documents as in effect at the time of the closing
may make a change in control of BioMarin 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 will have after the
closing of this offering 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 such 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 the outstanding voting stock of BioMarin.
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. The 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.
17
<PAGE>
Risks Related To This Offering
Shares eligible for future sale: the sale of a substantial number of shares of
common stock could cause the market price of our common stock to decline.
After this offering, we will have a total of 34,109,513 shares of common stock
outstanding. If the underwriters exercise their entire over-allotment option we
will have 34,784,513 shares outstanding. The sale by our company or the resale
by stockholders of shares of our common stock in the public market after the
offering could cause the market price of the common stock to decline. The
federal securities laws impose restrictions on the ability of stockholders to
resell their shares of common stock. In addition, all of our stockholders prior
to this offering have agreed not to sell their shares for 180 days following
the offering. The 34,109,513 shares of common stock outstanding after this
offering will be available for resale on The Nasdaq National Market as follows:
<TABLE>
<CAPTION>
Number of Shares Date Available for Resale
---------------- -------------------------
<C> <S>
4,500,000 Immediately
1,973 181 days following the offering without volume limitations
23,674,207 181 days following the offering with volume and other
limitations
5,933,333 Various dates beginning 181 days following the offering
with volume limitations
</TABLE>
Beginning 181 days after the date of this prospectus all 29,609,513 shares of
common stock held by existing stockholders shall be eligible for sale on the
Swiss Exchange. Sales of these shares on the Swiss Exchange, however, will
still be subject to U.S. securities laws including Regulation S or Rule 144
which may, as applicable to each stockholder, restrict these sales. Under Rule
144, a stockholder who is not an "affiliate," as defined in Rule 144, will be
able to sell restricted securities held for at least a year, subject to volume
limits, manner of sale and other restrictions. Shares held for two years by a
non-"affiliate" stockholder would be saleable on the Swiss Exchange without
these restrictions. Under Regulation S, a stockholder who is not an affiliate
and is not a distributor will be able to sell on the Swiss Exchange without
restriction.
After this offering, holders of 29,607,540 shares of the common stock may
require us to register their shares for resale under federal securities laws.
Registration of these shares would allow these stockholders to immediately
resell their shares on The Nasdaq National Market or the Swiss Exchange. The
market price of the common stock could decline if any of these sales were made
or even anticipated.
We also intend to file a registration statement following the offering to
permit the sale of approximately 5,450,000 shares of common stock under our
stock plans beginning 181 days after the offering. As of May 31, 1999, options
to purchase 3,773,226, shares of BioMarin common stock upon exercise of options
with a weighted average exercise price per share of $4.68 were outstanding.
Many of these shares are subject to vesting that generally occurs over a period
of four years following the date of grant however. All vested options are
subject to agreements with the underwriters not to sell such shares for 180
days after the offering.
18
<PAGE>
HISTORY OF OUR COMPANY
We were incorporated as a wholly-owned subsidiary of Glyko Biomedical in
October 1996. We began operations in March 1997 and were initially funded by
Glyko Biomedical. In June 1997, Glyko Biomedical licensed to BioMarin important
intellectual property for use in therapeutic applications.
Glyko Biomedical's original 100% ownership position in our company has been
reduced to 41.7% of the total shares of common stock outstanding before this
offering due to the following transactions:
. In October 1997, we sold 2,500,000 shares of our common stock to three
founders.
. In December 1997 and June and August 1998, we completed two private
placements of our common stock to independent investors and Glyko
Biomedical.
. In September 1998, we entered into a joint venture with Genzyme to
develop and commercialize BM101. As part of that transaction, Genzyme
purchased 1,333,333 shares of our common stock and committed to purchase
an additional $10.0 million of our common stock concurrent with this
offering.
. In October 1998, we purchased Glyko Biomedical's analytical and
diagnostic subsidiary, Glyko, Inc., by issuing 2,259,039 shares of our
common stock and assuming responsibility for employee stock options.
. In April 1999, we raised $26.0 million from the sale of convertible
notes in a private placement. Glyko Biomedical purchased $4.3 million in
principal amount of these convertible notes.
Upon the automatic conversion of the convertible notes at the completion of
this offering, the issuance of common stock to Genzyme concurrent with this
offering and the issuance of shares in this offering, Glyko Biomedical's
ownership interest will be reduced to 33.3%. Glyko Biomedical is currently, and
after completion of these transactions, will remain our largest stockholder.
19
<PAGE>
USE OF PROCEEDS
The net proceeds to us from the sale of 4,500,000 shares of common stock in
this offering at an assumed public offering price of $12.00 per share and the
sale of $10.0 million of common stock to Genzyme at the initial public offering
price in a private placement concurrent with this offering, are estimated to be
$58.7 million after deducting underwriting discounts and commissions and
estimated offering expenses payable by us. The net proceeds to us are estimated
to be $66.3 million if the underwriters' over-allotment option is exercised in
full.
We intend to use the net proceeds of this offering over the 12 months following
this offering for the following purposes:
. To fund our share of costs associated with the development and
commercialization of BM101. We estimate that this use will require
approximately $10.0 million.
. To fund research and development including clinical trials,
regulatory processes and process development, scale-up and start-up
of manufacturing activities for our other pharmaceutical product
programs. We estimate that this use will require approximately
$22.0 million.
. For research, development, clinical and commercial manufacturing
facilities, including related equipment. We estimate that this use
will require $26.0 million.
. General corporate purposes, including working capital. We estimate
that this use will consume the remaining proceeds.
A portion of the proceeds may also be used to acquire or invest in
complementary businesses or products or to obtain rights to use complementary
technologies.
We may require additional funds in the 12-month period following this offering
to accelerate product programs or to undertake new initiatives or enter into
collaborative arrangements.
The amounts and timing of our actual expenditures for each of these purposes
may vary significantly depending upon numerous factors, including the status of
our product development efforts, regulatory approvals, competition, sales and
marketing activities and market acceptance of our products. Pending use for
these or other purposes, we intend to invest the net proceeds of this offering
in short-term, investment-grade, interest-bearing securities. See "Risk
Factors--If we fail to obtain the capital necessary to fund our operations we
will be unable to complete our product development programs."
DIVIDEND POLICY
We have never paid cash dividends on our common stock. We currently intend to
retain all of our future earnings to finance the growth and development of our
business. We do not intend to pay cash dividends on our common stock in the
foreseeable future.
20
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus contains "forward-looking statements" as defined under
securities laws. 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 "Summary," "Risk Factors,"
"Business," and other sections of this prospectus. 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 "Risk Factors," as well as those discussed elsewhere in this
prospectus. 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 offering
to reflect later events or circumstances or to reflect the occurrence of
unanticipated events.
21
<PAGE>
CAPITALIZATION
The following table sets forth our actual capitalization at March 31, 1999. The
pro forma capitalization gives effect to the sale of $26.0 million of
convertible promissory notes, net of issuance costs of $1.1 million. The as
adjusted data reflects (1) the sale of 4,500,000 shares of common stock by
BioMarin at an assumed initial public offering price of $12.00 per share; (2)
the sale of $10.0 million of common stock to Genzyme at the initial public
offering price in a private placement concurrent with the offering; and (3) the
issuance of 2,600,000 shares of common stock, excluding shares issuable upon
conversion of accrued interest, upon the automatic conversion of the
convertible promissory notes on the date of the final prospectus for this
offering, after deducting underwriting discounts and commissions and estimated
offering expenses:
<TABLE>
<CAPTION>
As of March 31, 1999,
----------------------------
Pro As
Actual Forma Adjusted
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Cash, cash equivalents and investments........... $ 3,829 $ 28,724 $ 87,444
======== ======== ========
Long-term liabilities (/1/)...................... $ 103 $ 26,103 $ 103
Stockholders' equity:
Common stock, $0.001 par value; 50,000,000
shares authorized, actual; 50,000,000 shares
authorized, pro forma; 75,000,000 shares
authorized, as adjusted; 26,176,180 shares
issued and outstanding, actual and pro forma;
34,109,513 shares issued and outstanding, as
adjusted (/2/)................................ 26 26 34
Preferred stock, $0.001 par value; no shares
authorized, actual and pro forma; 1,000,000
shares authorized, as adjusted; no shares
issued and outstanding actual, pro forma and
as adjusted................................... -- -- --
Additional paid-in capital..................... 50,692 50,692 134,299
Warrants....................................... 128 128 128
Notes receivable from stockholders............. (2,525) (2,525) (2,525)
Deferred compensation.......................... (3,590) (3,590) (3,590)
Accumulated deficit............................ (19,686) (19,686) (19,686)
-------- -------- --------
Total stockholders' equity................... 25,045 25,045 108,660
-------- -------- --------
Total capitalization....................... $ 25,148 $ 51,148 $108,763
======== ======== ========
</TABLE>
- -------------------------------
(/1/) See Notes 3 and 12 of Notes to BioMarin's Financial Statements.
(/2/) Excludes (1) 3,553,526 shares of common stock issuable upon exercise of
outstanding options at March 31, 1999 with a weighted average exercise
price of $4.51 per share, and (2) 801,500 shares of common stock
issuable upon exercise of outstanding warrants at an exercise price of
$1.00 per share.
22
<PAGE>
DILUTION
Our net tangible book value as of March 31, 1999, was $13,612,968 or $0.52 per
share of common stock. Pro forma net tangible book value per share represents
the amount of BioMarin's pro forma stockholders' equity, less intangible
assets, divided by the pro forma number of shares of common stock outstanding
as of March 31, 1999 after giving effect to:
. The application of the net proceeds from the sale on April 13, 1999
of $26.0 million of convertible promissory notes and the issuance of
2,600,000 shares of common stock, excluding shares issuable upon
conversion of accrued interest, upon the automatic conversion of the
convertible promissory notes on the date of the final prospectus for
this offering
. The application of the net proceeds from the sale of 4,500,000 shares
of common stock by BioMarin at an assumed initial public offering
price of $12.00 per share
. The sale of $10.0 million of common stock to Genzyme at the initial
public offering price in a private placement concurrent with this
offering
As of March 31, 1999, after giving effect to the items above, the pro forma net
tangible book value of BioMarin would have been $97,227,968 or $2.85 per share.
This represents an immediate increase in net tangible book value to existing
stockholders of $2.33 per share and an immediate dilution to new investors of
$9.15 per share. The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................... $12.00
Net tangible book value per share as of March 31, 1999........... 0.52
Increase in net tangible book value per share attributable to new
investors....................................................... 2.33
----
Pro forma net tangible book value per share after the offering..... 2.85
------
Dilution per share to new investors................................ $ 9.15
======
</TABLE>
The following table enumerates the number of shares of common stock purchased,
the total consideration paid and the average price per share paid by our
existing stockholders. The following table also enumerates the number of shares
of common stock purchased and the total consideration paid, calculated before
deduction of underwriting discounts and commissions and estimated offering
expenses, and the average price per share paid by the new investors in this
offering.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------ -------------------- Price
Number Percent Amount Percent Per Share
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders....... 29,609,513 86.8% $ 68,270,981 55.8% $2.31
New investors in this
offering................... 4,500,000 13.2 54,000,000 44.2 12.00
---------- ---- ------------ ---- -----
Total................... 34,109,513 100% $122,270,981 100% $3.58
========== ==== ============ ==== =====
</TABLE>
The table above is calculated on a pro forma basis as of March 31, 1999,
assuming the issuance of 2,600,000 shares of common stock upon conversion of
outstanding convertible promissory notes, excluding shares issuable upon
conversion of interest accrued on the notes.
The table above assumes no exercise of the underwriters over-allotment option
and no exercise of stock options outstanding at March 31, 1999. As of March 31,
1999, there were options outstanding to purchase a total of 3,553,526 shares,
at a weighted average exercise price of $4.51 per share. As of March 31, 1999,
there were warrants outstanding to purchase 801,500 shares of common stock at
an exercise price of $1.00 per share. See "Capitalization," "Management--
Compensation of Directors," "--Executive Compensation" and Notes 3 and 12 of
Notes to BioMarin's Consolidated Financial Statements.
23
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
The selected consolidated balance sheet data of BioMarin Pharmaceutical Inc. as
of December 31, 1997 and 1998 and the statements of operations data for the
period from March 21, 1997 (inception) and the year ended December 31, 1998
presented below are derived from the consolidated financial statements of
BioMarin Pharmaceutical Inc. and subsidiaries, including Glyko, Inc. from
October 7, 1998, the date on which it was acquired by BioMarin. These
consolidated financial statements of BioMarin and subsidiaries have been
audited by Arthur Andersen LLP, independent public accountants. The
consolidated balance sheets as of December 31, 1997 and 1998, and the related
consolidated statements of operations for the period from March 21, 1997
(inception) to December 31, 1997, and the year ended December 31, 1998, and the
related report, are included elsewhere in this prospectus.
The selected financial data of Glyko, Inc. presented below are derived from the
financial statements of Glyko, Inc. These financial statements have been
audited by Arthur Andersen LLP, independent public accountants. The balance
sheets as of December 31, 1997 and October 7, 1998 and the statements of
operations for the years ended December 31, 1996 and 1997 and for the period
ended October 7, 1998, and the related report, are included elsewhere in this
prospectus. The balance sheets as of December 31, 1994, 1995 and 1996 and the
statements of operations for the years ended December 31, 1994 and 1995, are
not included in this prospectus.
The selected financial data set forth below as of March 31, 1999 and for the
three months ended March 31, 1998 and 1999 and the period from March 21, 1997
(inception) to March 31, 1999 are derived from the Company's unaudited
financial statements which are included elsewhere in this prospectus and which
include, in the opinion of the Company, all adjustments, consisting of normal
recurring adjustments, that are necessary for a fair presentation of its
financial position and the results of operations for those periods. Operating
results for the three months ended March 31, 1999 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1999.
The selected consolidated financial data set forth below contain only a portion
of BioMarin's and Glyko, Inc.'s financial statement information and should be
read in conjunction with the Consolidated Financial Statements of BioMarin
Pharmaceutical Inc. and the Financial Statements of Glyko, Inc. and related
Notes and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Period from Period from
March 21, 1997 Three Months Ended March 21, 1997
(Inception) to Year ended March 31, (Inception) to
December 31, December 31, ----------------------- March 31,
1997 1998 1998 1999 1999
-------------- ------------ ----------- ----------- --------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
BioMarin's Consolidated
Statements of
Operations Data:
Revenues................ $ -- $ 1,190 $ -- $ 1,104 $ 2,295
Operating costs and
expenses:
Cost of products and
services -- 108 -- 103 211
Research and
development.......... 1,914 10,502 1,108 3,892 16,308
General and
administrative....... 914 3,531 303 1,693 6,138
------- -------- ------- -------- --------
Loss from operations.... (2,828) (12,951) (1,411) (4,584) (20,362)
Interest income......... 65 684 92 154 904
Equity in loss of joint
venture................ -- (47) -- (180) (227)
------- -------- ------- -------- --------
Net loss................ $(2,763) $(12,314) $(1,319) $ (4,610) $(19,685)
======= ======== ======= ======== ========
Net loss per common
share, basic and
diluted................ $ (0.34) $ (0.55) $ (0.06) $ (0.18) $ (1.13)
======= ======== ======= ======== ========
Weighted average
common shares
outstanding.......... 8,136 22,488 20,567 26,176 17,441
======= ======== ======= ======== ========
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
As of December
31, As of
-------------- March 31,
BioMarin's Consolidated 1997 1998 1999
Balance Sheet Data: ------ ------- ----------
<S> <C> <C> <C> <C>
Cash, cash equivalents
and short-term
investments............ $6,888 $11,389 $3,829
Total current assets.... 7,507 12,819 5,526
Total assets............ 7,653 31,509 26,778
Long-term liabilities... -- 110 103
Total stockholders'
equity................. 7,380 29,395 25,045
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------- Period From January 1
Glyko, Inc.'s Statements 1994 1995 1996 1997 to October 7, 1998
of Operations Data: ------- ------- ------- ------ ---------------------
<S> <C> <C> <C> <C> <C>
Revenues................ $ 883 $ 1,569 $ 1,331 $2,064 $1,160
Operating costs and
expenses:
Cost of products and
services............. 320 512 509 483 285
Research and
development.......... 1,141 1,096 1,015 633 613
Selling, general and
administrative....... 1,695 1,640 1,490 563 521
Other................. -- -- -- -- (166)
------- ------- ------- ------ ------
Income (loss) from
operations............. (2,273) (1,679) (1,683) 385 (93)
Other income (loss)..... (1) -- 87 (2) (1)
Interest income......... 18 30 18 12 28
------- ------- ------- ------ ------
Income (loss) before
income taxes........... (2,256) (1,649) (1,578) 395 (66)
Provision for income
taxes.................. -- -- -- -- --
------- ------- ------- ------ ------
Net income (loss)....... $(2,256) $(1,649) $(1,578) $ 395 $ (66)
======= ======= ======= ====== ======
</TABLE>
<TABLE>
<CAPTION>
As of December 31, As of
------------------------------ October 7,
1994 1995 1996 1997 1998
Glyko, Inc.'s Balance Sheet Data: ----- ------ ------- ------- ----------
<S> <C> <C> <C> <C> <C>
Cash, cash equivalents and short-
term investments.................. $ 79 $ 621 $ 211 $ 528 $ 24
Total current assets............... 438 1,098 478 867 407
Total assets....................... 619 1,212 588 988 503
Long-term liabilities.............. 93 77 3,652 3,804 --
Total stockholders' equity
(deficit)......................... (485) 449 (3,712) (3,316) 298
</TABLE>
25
<PAGE>
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
the financial statements of Glyko, Inc. and their notes appearing elsewhere in
this prospectus.
Overview
We are a developer of carbohydrate enzyme therapies for debilitating, life-
threatening, chronic genetic disorders and other diseases or conditions. Since
our inception on March 21, 1997, we have been engaged in research and
development activities, including preclinical studies, clinical trials and
clinical manufacturing, the establishment of laboratory and manufacturing
facilities, and administrative activities. BioMarin was incorporated in October
1996 as a wholly-owned subsidiary of Glyko Biomedical. BioMarin was funded by
Glyko Biomedical and began operations on March 21, 1997, the date of inception.
We have incurred net losses since inception and had an accumulated deficit
through March 31, 1999 of $19.7 million. Our losses have resulted primarily
from research and development activities and related administrative expenses.
We expect to continue to incur operating losses through at least the year 2000.
To date, we have not generated revenues from the sale of our drug candidates.
Our financial results may vary depending on many factors, including:
. The progress of BM101 in the regulatory processes and initial sales
activities
. The investment in manufacturing process development and in
manufacturing capacity for BM101 and other product candidates
. The acceleration of our other pharmaceutical candidates into
preclinical studies and clinical trials
. The progress of our additional research and development efforts
In September 1998, we established a joint venture with Genzyme for the
worldwide development and commercialization of BM101 for the treatment of MPS-
I. Under the agreement, our company and Genzyme are each required to make
capital contributions to the joint venture equal to 50% of the expenses
associated with the development and commercialization of BM101. We will share
equally in any profits generated from the sales of BM101.
On April 13, 1999, we issued $26.0 million of convertible promissory notes. The
notes will convert into 2,600,000 shares of our common stock, excluding shares
issuable upon conversion of interest, on the date of the final prospectus for
this offering at an initial conversion price, subject to adjustment, of $10.00
per share.
Acquisition of Glyko, Inc.
In October 1998, we acquired Glyko, Inc., a wholly-owned subsidiary of Glyko
Biomedical in a transaction valued at $14.5 million. Glyko, Inc. provides
products and services that perform carbohydrate analysis and medical diagnosis
to research institutions and commercial laboratories. As consideration for the
acquisition of all of the outstanding shares of Glyko, Inc., we: (1) issued
2,259,039 shares of common stock to Glyko Biomedical, (2) assumed the stock
options of Glyko, Inc. employees exercisable for 255,540 shares of our common
stock and (3) paid $500 in cash.
26
<PAGE>
Historical Results of Operations--BioMarin
Quarters ended March 31, 1998 and 1999
Revenue. BioMarin generated revenues of $1.1 million for the quarter ended
March 31, 1999 consisting primarily of $746,000 of revenues from the
BioMarin/Genzyme LLC joint venture. These revenues were derived from services
performed by BioMarin for the joint venture, $202,000 from the sale of Glyko,
Inc. products, $47,000 from the sale of Glyko, Inc. services and $109,000 of
other revenues. The $109,000 of other revenues were derived from grants
received from the federal government to fund various research projects. Glyko,
Inc. sells products and services to BioMarin at a 27% distributor discount.
BioMarin had no revenues in the quarter ended March 31, 1998. For further
explanation of the expenses incurred by BioMarin in connection with the joint
venture see note 1 to the consolidated financial statements.
Cost of Sales. In the quarter ended March 31, 1999, BioMarin recorded cost of
sales of $103,000 from the sale of Glyko, Inc. products and services. In the
comparable 1998 period, BioMarin had no sales and, consequently, no cost of
sales.
Research and Development. Research and development expenses were $3.9 million
in the quarter ended March 31, 1999, compared to $1.1 million in the comparable
1998 period. The increase was due primarily to the significant expansion of our
product programs, staff and facilities in the second half of 1998 and the first
quarter of 1999 in contrast to limited start-up research and development
activities in the first quarter of 1998. The increase includes a significant
increase in research and development salaries and benefits, a significant
increase in leased laboratory space and related facilities expenses and a
significant increase in technical materials and technical consulting expenses
related to our research programs. We expect to substantially increase our
research and development expenditures in future quarters to support the
continued development of BM101 and our other drug products.
General and Administrative. General and administrative expenses were $1.7
million in the quarter ended March 31, 1999 compared to $303,000 in the
comparable 1998 period. General and administrative expenses increased in the
first quarter of 1999 to support the significantly expanded scale of operations
in the second half of 1998 and the first quarter of 1999 compared to the
smaller administrative requirements in the comparable 1998 period. The increase
included a significant increase in salaries and benefits for administrative
staff, a significant increase in the facilities costs and an increase in
professional service fees. We expect to substantially increase our general and
administrative expenses, primarily administrative staffing and related
expenses, to support our increased scale of operations.
Interest Income. Interest income in the quarter ended March 31, 1999 was
$154,000 while interest income totaled $92,000 in the comparable 1998 period.
The higher interest income in the first quarter ended March 31, 1999 resulted
from higher cash balances available for investment in 1999 as a result of the
second private placement in mid 1998 and the Genzyme investment in the third
quarter of 1998.
Equity in Loss of Joint Venture. Equity in loss of joint venture was $180,000
in the quarter ended March 31, 1999. Because the joint venture did not begin
operations until September 4, 1998, there was no equity in loss of joint
venture for the comparable 1998 period. See note 1 to the consolidated
financial statements of BioMarin for details of accounting for the joint
venture.
Deferred Compensation. We record deferred compensation representing the
difference between the exercise price of options granted and the deemed fair
market value of the common stock at the time of grant. We recorded deferred
compensation of approximately $600,000 for the quarter ended March 31, 1999,
related to the grant of options. We will recognize deferred compensation as an
expense over the related four-year vesting period of the options. No deferred
compensation was recorded for the quarter ended March 31, 1998.
27
<PAGE>
The Period From March 21, 1997 (Inception) to December 31, 1997 and the Year
Ended December 31, 1998
In October 1998, we acquired Glyko, Inc. from Glyko Biomedical. The acquisition
was accounted for as a purchase. As a result, our consolidated statements of
operations data include the operations of Glyko, Inc. from October 7, 1998, the
date of the acquisition, through December 31, 1998.
Revenue. BioMarin generated revenues of $1.2 million in 1998 consisting
primarily of $837,000 of revenues from the BioMarin/Genzyme LLC joint venture
representing services performed by BioMarin for the joint venture, $138,000
from the sale of Glyko, Inc. products since its acquisition on October 8, 1998,
$112,000 from the sale of Glyko, Inc. services since its acquisition on October
8, 1998 and $103,000 of other revenues representing grants received from the
federal government to fund various research projects. Glyko, Inc. sells
products and services to BioMarin at a 27% distributor discount.There were no
revenues in the 1997 period. For further explanation of BioMarin's revenues see
note 1 to the consolidated financial statements.
Cost of Goods Sold. In 1998, BioMarin had cost of goods sold of $108,000 as a
result of the sale of Glyko, Inc. products. In the 1997 period, BioMarin had no
sales and, consequently, no cost of goods sold.
Research and Development. Research and development expenses were $10.5 million
in 1998, compared to $1.9 million in the 1997 period. The increase was due
primarily to a full year of BM101 expenses including 12 months of clinical
trials in 1998, compared to only one month of clinical trials in the 1997
period. In addition, we expanded significantly our product programs, staff and
facilities in 1998 in contrast to limited start-up research and development
activities in the 1997 period.
General and Administrative. General and administrative expenses were $3.5
million in 1998 compared to $914,000 in the 1997 period. General and
administrative expenses increased in 1998 to support the significantly expanded
scale of operations in 1998 compared to the smaller administrative requirements
in the shorter, start-up 1997 period. These increased administrative expenses
included significant increases in salaries and benefits for administrative
staff, an increase in facilities costs and an increase in professional service
fees.
Interest Income. Interest income in 1998 was $685,000 while interest income
totaled $65,000 in the 1997 period. The higher interest income in 1998 resulted
from higher cash balances available for investment in 1998 as a result of the
first private placement late in 1997, a second private placement in mid-year
1998 and the Genzyme investment in the third quarter of 1998.
Equity in Loss of Joint Venture. BioMarin entered the BM101 joint venture in
September 1998 and recorded a net loss of $47,000 for 1998. See note 1 to the
consolidated financial statements of BioMarin for details of accounting for the
joint venture.
Deferred Compensation. We recorded deferred compensation representing the
difference between the exercise price of options granted and the deemed fair
market value of the common stock at the time of grant. We recorded deferred
compensation of approximately $3.2 million for the year ended December 31, 1998
related to the grant of options. We will recognize deferred compensation as an
expense over the related four-year vesting period of the options.
In 1997 we recorded deferred compensation of $200,000. This $200,000
represented interest imputed at 9% on notes receivable of $2.5 million from
three executive officers, Grant W. Denison Jr., Dr. John Klock and Dr.
Christopher Starr. The executive officers used the principal of the notes to
purchase 2.5 million shares of BioMarin's common stock. The notes bear an
interest rate of 6% per year, expire on July 31, 2000, and are secured by the
underlying stock. Deferred compensation is amortized over the life of the
notes.
28
<PAGE>
Historical Results of Operations--Glyko, Inc.
Period from January 1, 1998 to the Date of Acquisition by BioMarin, October 7,
1998,
and Year Ended December 31, 1997
During most of 1997, Glyko, Inc. and BioMarin were commonly owned by Glyko
Biomedical. During this period, Glyko, Inc. and BioMarin shared facilities and
personnel for which expenses were accounted for separately by each company. The
year ended December 31, 1998, only includes Glyko, Inc.'s operations for the
nine month and seven day period from January 1, 1998 through October 7, 1998,
the date of Glyko, Inc.'s acquisition by BioMarin. The comparisons below, as
they relate to Glyko, Inc., are for twelve months of 1997 versus nine months
seven days of 1998.
Revenue. Revenues in the 1998 period were $1.2 million and consisted of sales
of products of $750,000, sales of services of $115,000 and other revenues
representing development fees of $25,000 and grant revenues of $270,000. Sales
of products include sales of chemical analysis kits and imaging systems and
sales of services include custom analytic services. The decline in product
revenues in 1998 was due to a decrease in sales volume and due to the sale of
Glyko, Inc. to BioMarin in October 1998. The decrease in other revenues was due
to development, technology and licensing fees received in 1997 that did not
recur in 1998.
Revenues in 1997 were $2.1 million and consisted of sales of products of $1.0
million, and sales of services of $186,000, other revenues of $704,000 and
grant revenues of $157,000. Other revenues include $25,000 in development fees
for the development of a heparin analyzer prototype, $429,000 in licensing fees
from a domestic distributor and $250,000 in diagnostic product distribution
fees from a foreign distributor.
Product revenues are recognized upon shipment of products. Service revenues are
recognized upon completion of services as evidenced by the transmission of
reports to customers. Other revenues, principally licensing, distribution and
development fees are recognized upon completion of contractual obligations,
such as, signing of contract, milestone payments and anniversaries from the
effective date.
Cost of Products and Services. Glyko, Inc.'s cost of products and services was
$285,000 in the 1998 period compared to $483,000 in 1997. The decrease in cost
of products and services was primarily due to lower sales resulting from the
shorter sales period of nine months in 1998 compared to 12 months in 1997. In
addition, in 1998 Glyko, Inc.'s product cost was reduced due to increased
efficiency in manufacturing products.
Research and Development. Glyko, Inc.'s research and development expenses in
the 1998 period were $613,000 compared to $633,000 in 1997. Even though the
absolute expenses decreased, the rate of spending was higher in the 1998 period
due to increased laboratory expenses related to new diagnostic products.
Selling, General and Administrative. Glyko, Inc.'s selling, general and
administrative expenses were $521,000 in the 1998 period compared to $563,000
in 1997. The decrease was due to the shorter period in 1998. Selling, general
and administrative expenses increased on an annualized basis due to a reversal
in 1997 of prior years' expenses accrued in Glyko Biomedical's statements of
operations which reduced these expenses in 1997 by $20,000 and a small increase
in advertising and sales travel in 1998.
Other Operating Expenses. At December 31, 1997, we had recorded an amount
payable to stockholder of $366,000 representing the amount claimed by the
stockholder relating to a facilities dispute with us. We had a cross-claim for
royalty income which would reduce the stockholder's claim. Glyko, Inc.'s other
operating expenses in the 1998 period represents the settlement of the claim at
a gain of $166,000. As of April 1998, the claimant no longer was a stockholder
of Glyko Biomedical.
Interest Income. Glyko, Inc.'s interest income in 1998 and 1997 of $28,000 and
$13,000, respectively, reflected earnings on cash invested in short term
interest bearing accounts. The increase in interest income in the 1998 period
resulted from higher cash balances available for investment compared to 1997.
Interest expense in 1998 and 1997 was immaterial.
29
<PAGE>
Years Ended December 31, 1997 and 1996
Revenue. Revenues in 1997 were $2.1 million and consisted of sales of products
of $1.0 million, and sales of services of $186,000, other revenues of $704,000
and grant revenues of $157,000. Sales of products include sales of chemical
analysis kits and imaging systems and sales of services include custom analytic
services. Other revenues include $25,000 in development fees for the
development of a heparin analyzer prototype, $429,000 in licensing fees from a
domestic distributor and $250,000 in diagnostic product distribution fees from
a foreign distributor.
Revenues in 1996 were $1.3 million and consisted of sales of products of $1.1
million, and sales of services of $211,000 and other revenues representing
grant revenues of $34,000.
The decline in product revenues in 1997 was due principally to the relocation
of Glyko, Inc.'s California facilities in February 1997 which caused delays in
fulfilling orders. Glyko, Inc.'s inability to fulfill orders immediately
before, during and immediately after the move prompted customers to place
orders with competing companies. Glyko, Inc. was unable to re-establish
relations with some of these former customers. The increase in other revenues
was due to new or revised development, technology and licensing agreements
negotiated in 1997.
Cost of Products and Services. Glyko, Inc.'s cost of products and services was
approximately $483,000 in 1997 compared to $509,000 in 1996. The decrease in
1997 was primarily due to reduced sales of products and services in 1997. Cost
of products and services as a percent of sales of 40% in 1997 was slightly
higher than the same percentage in 1996, which was 39%. This increase was due
to changes in the nature of the products Glyko, Inc. sold. In 1996 more FACE
imagers and systems were sold which yield a significantly higher profit margin
than chemical kits and services.
Research and Development. Glyko, Inc.'s research and development expenses in
1997 were $633,000 compared to approximately $1.0 million in 1996. The decrease
was due, in part, to the transfer of lab personnel in 1997 to BioMarin
programs. The decrease was also due, in part, to the reduction of salary and
benefits allocated to Glyko, Inc. for Dr. Christopher Starr, Vice President of
Research and Development, whose time allocated to Glyko, Inc. went from 100% in
1996 to 30% in 1997. One other full-time Ph.D. was shifted 100% to BioMarin in
1997. The reallocation of human resources during this period from Glyko, Inc.
to BioMarin was in response to changing staffing needs in both companies. Also,
in October 1996, Glyko, Inc. reduced its workforce, which included one full-
time lab technician, in an effort to reduce expenditures to offset declining
revenues.
Selling, General and Administrative. Glyko, Inc.'s selling, general and
administrative expenses were $563,000 in 1997, compared to $1.5 million in
1996. Marketing and promotional expenses were lower in 1997 due to the cut-back
of two full-time marketing positions in October 1996 in an effort to reduce
expenditures. General and administrative expenses were reduced due to the
reduction of rent expense resulting from Glyko, Inc.'s relocation to a smaller
facility in 1997 and due to the sublease rental income from BioMarin in 1997.
Rent expense in 1996 was offset by a write-off of the deferred rent balance of
$62,538 at December 31, 1996 related to a lease abandonment. For more detail
regarding this lease abandonment, see note 5 of the financial statements of
Glyko, Inc. General and administrative expenses were also reduced due to the
cut-back of administrative staff in October 1996 in an effort to reduce
expenditures plus the reduction of salary and benefits allocated to Glyko, Inc.
for Dr. John Klock, President, whose time allocated to Glyko, Inc. went from
100% in 1996 to 30% in 1997.
Interest Income. Glyko, Inc.'s interest income in 1997 and 1996 was $13,000 and
$18,000, respectively, as a result of interest earned on cash balances
available for short-term investment. Interest expense in 1997 and 1996 was
immaterial.
Liquidity and Capital Resources
We have financed our operations since our inception by the issuance of common
stock and convertible notes and the related interest income earned on cash
balances available for short-term investment. Since
30
<PAGE>
inception, we have raised aggregate net proceeds of $54.7 million. We were
initially funded by Glyko Biomedical with a $1.5 million investment. We have
since raised additional capital from the sale of common stock in private
placements, the sale of promissory notes convertible, according to their terms,
into common stock and an investment of $8.0 million by Genzyme as part of our
joint venture with them.
Our combined cash, cash equivalents and short-term investments totaled $3.8
million at March 31, 1999, a decrease of $7.6 million from December 31, 1998.
The primary use of cash during the quarter ended March 31, 1999 was to finance
operations and to purchase property and equipment. For the quarter ended March
31, 1999, operations used $4.1 million, we purchased $2.8 million of property,
equipment and leasehold improvements and invested $641,000 in the joint
venture.
From our inception through March 31, 1999, we have purchased approximately $9.3
million of property, equipment and leasehold improvements. We expect that our
investment in property, equipment and leasehold improvements will increase
significantly during the next two years because we will provide facilities and
equipment for an increased number of staff and increase manufacturing capacity.
As part of the acquisition of Glyko, Inc., we acquired in-process research and
development projects, the value of which was expensed as a portion of the
purchase price at the time of the acquisition. The 11 projects acquired are
each relatively small and can be grouped into two categories, analytic projects
and diagnostic projects.
The analytic projects are intended to expand the analytic product line by
adding new enzymes for reagent sales, new kits for agricultural applications,
new instrument capabilities for protein analysis and a major upgrade of
software capabilities. At the time of the acquisition of Glyko, Inc., all of
the analytic projects had completed feasibility work and the software projects
were 75% complete and have since been completed. The development of specialized
materials supporting instrument capabilities is deemed to be the most difficult
technical hurdle for the completion and commercialization of the analytic
projects.
The diagnostic projects are intended to expand a product line based on very
precise measurements of the level of complex carbohydrates in blood and urine
as indicators of serious disease conditions including heart disease, kidney
disease and mucopolysaccharidoses or carbohydrate storage diseases. At the time
of the Glyko, Inc. acquisition, preliminary feasibility work had been done for
all of the projects and a software project was well advanced as to programming,
which has since been completed. The development of new more sensitive
carbohydrate chemistry techniques is deemed to be the most difficult technical
hurdle for the completion and commercialization of the diagnostic products.
As of March 31, 1999, we had expended to date approximately $600,000 on the in-
process research and development projects and $600,000 on the diagnostic
projects. If all acquired in-process research and development projects proceed
to completion, we expect to spend approximately $500,000 in incremental direct
expense to complete the analytic projects in phases over approximately 24
months. We expect to spend approximately $1.1 million to complete the
diagnostic projects in phases completed from 12 to 24 months in the future.
None of these projects have been terminated to date.
Since the acquisition of these in-process research and development projects six
months ago, there have been no subsequent developments which indicate that the
completion and commercialization of either of the projects are less likely to
be completed on the original planned schedule or less likely to be a commercial
success.
We have made and plan to make substantial commitments to capital projects,
including the BM101 manufacturing facility in Torrance, California, a
manufacturing facility in Novato, and new research and development facilities
in Novato. If all product programs proceed on schedule, these current capital
commitments and plans for future capital requirements combined will require
approximately $32.0 million in the 18-month period beginning in January 1999.
31
<PAGE>
In September 1998, we established a joint venture with Genzyme for the
worldwide development and commercialization of BM101 for the treatment of MPS-
I. We will share expenses and profits from the joint venture equally with
Genzyme. Genzyme invested $8.0 million upon signing the agreement and has
agreed to purchase $10.0 million of common stock at the initial public offering
price in a private placement concurrent with this offering. Genzyme has
committed to pay us an additional $12.1 million upon approval of the biologics
license application for BM101.
On October 7, 1998, we purchased Glyko, Inc. from Glyko Biomedical for an
aggregate purchase price of $14.5 million. The purchase price was paid for with
2,259,039 shares of our common stock, our assumption of certain stock options
held by Glyko, Inc. employees which were exercisable into a maximum of 255,540
shares of our common stock and $500 in cash.
On April 13, 1999, we sold a total of $26.0 million of convertible promissory
notes. The notes are convertible into our common stock at an initial conversion
price of $10.00 per share, subject to proportional adjustment in the event of
stock splits or adjustments, reverse stock splits or redemption of any shares
of our common stock. These notes bear an interest rate of 10% annually. These
notes also have weighted average anti-dilution protection for subsequent
private placements of equity securities of BioMarin made after the date of
issuance of the notes but before their conversion, subject to limited
exemptions.
In May 1999, Glyko, Inc. acquired key assets of the Biochemical Research
Reagent Division of Oxford GlycoSciences Plc. The acquisition was made to
increase Glyko, Inc.'s product offerings and was valued from $1.5 million to
$2.1 million, depending on the future sales of the acquired products.
We expect our current funds including the proceeds of this offering to last for
a period of approximately 12 months following this offering.
Until we can generate sufficient levels of cash from our operations, we expect
to continue to finance future cash needs through:
. The sale of equity securities
. Equipment-based financing
. Collaborative agreements with corporate partners
We do not expect to generate positive internal cash flow for at least the next
two years because we expect to increase operational expenses and manufacturing
investment for the joint venture and to increase research and development
activities, including:
. Preclinical studies, clinical trials and regulatory review
. Commercialization of our drug candidates
. Development of manufacturing operations
. Process development
. Scale-up of manufacturing facilities
. Sales and marketing activities
We anticipate a need for additional financing to fund the future operations of
its business, including the commercialization of our drug candidates currently
under development. We cannot assure you that additional financing will be
obtained or, if obtained, will be available on reasonable terms.
Our future capital requirements will depend on many factors, including, but not
limited to:
. The progress of its research and development programs
. The progress of preclinical studies and clinical trials
. The time and cost involved obtaining regulatory approvals
32
<PAGE>
. Scaling up, installing and validating manufacturing capacity
. Competing technological and market developments
. Changes and developments in collaborative, licensing and other
relationships
. The development of commercialization activities and arrangements
. The leasing and build-out of additional facilities
. The purchase of additional capital equipment
We plan to continue our policy of investing available funds in government
securities and investment grade, interest-bearing securities, primarily with
maturities of one year or less. We do not invest in derivative financial
instruments, as defined by Statement of Financial Accounting Standards No. 119.
At December 31, 1998, we had tax net operating loss carryforwards of
approximately $24.1 million for federal income tax purposes and $12.4 million
for California income tax purposes. At December 31, 1998, we had research tax
credits of approximately $1.8 million for federal purposes and $580,000 for
California, which will begin to expire in the year 2012. The Tax Reform Act of
1986 contains provisions that may limit the net operating loss carryforwards
and research and development credit available in any given year should certain
events occur, including sale of equity securities and other changes in
ownership. Based on the $14.5 million purchase price of Glyko, Inc., the
amounts available may be limited to approximately $730,000 per year. The
acquisition of Glyko, Inc. and the related issuance of stock represented a
change of ownership under these provisions. In addition, the net operating loss
carryforwards and research tax credits related to Glyko, Inc. can only be used
to offset future taxable income and tax, respectively, if any, of Glyko, Inc.
The net operating losses and research tax credits related to Glyko, Inc. at
December 31, 1998 were approximately $4.6 million and $701,000 respectively. We
cannot assure you that we will be able to use our net operating loss
carryforwards and credits before expiration.
Impact of Year 2000
The following constitutes "Year 2000 Readiness Disclosure" under the Year 2000
Information and Readiness Disclosure Act of 1998.
We are aware of the potential problems associated with computer programs and
systems that use only two digits to identify the year in the date field.
Application and system programs may be unable correctly to process date
information for dates after December 31, 1999. This year 2000 defect could
cause the disruption or failure of computer systems. The year 2000 defect could
affect both our internal information technology systems and other functional
systems that use embedded computer programs for control or other purposes. The
defect could also affect the information technology and other functional
systems of suppliers of products and services to us. The defect could affect
the overall economy and have a significant impact on us.
We have formed a team to review and resolve those aspects of the year 2000
problem which are within our direct control and adjust to or influence those
aspects which are not within our direct control. The team has reviewed our
software products (including those under development) and determined that our
software products do not use date data and are year 2000 compliant. Our
biopharmaceutical products do not have any year 2000 exposure. The team has
reviewed the year 2000 compliance status of our major internal information
technology programs and systems used for administrative requirements and
determined that these systems are year 2000 compliant. We have reviewed the
computer systems used to control our analytical instruments and production
equipment. Due to the recent design of our equipment, the embedded computers
are year 2000 compliant. We believe that the expense of repairing or replacing
any undetected year 2000 defects will not be material. We believe that we can
resolve our significant internal year 2000 compliance issues before the year
2000 with expenditures that are currently estimated not to be material. If we
do not achieve on a timely basis year 2000 compliance for our internal systems,
our operations and business could be adversely affected.
33
<PAGE>
With respect to our suppliers, we do not currently process orders, payments and
other business communications electronically from computer to computer.
However, if our suppliers' and ultimate customers' own systems are not yet year
2000 compliant, their disruptions could have a significant direct or indirect
impact on our operations and business. The following consequences of the year
2000 problem could disrupt our business:
. Financial institutions may not be able to process checks, accept
deposits, provide records, process wire transfers, provide stock
ownership and transfer records or facilitate many other financial
transactions and services.
. Suppliers may not be able to process orders, manufacture products,
deliver in accordance with production schedules, or in general
provide the current level of timely products and services.
. Voice and data communication systems used by us and our customers and
suppliers might be disrupted.
. Health care suppliers and third-party payors may be unable to process
patient records, add to or modify the content of their pharmacy
authorizations, accept or make payments, and handle the many other
data requirements of the modern health care system. The added costs
for back-up systems, for temporary or emergency fixes and the ongoing
requirements to handle critical functions on a timely basis combined
with the resultant managerial distractions may delay the review and
delay our introduction of new drugs and therapeutic practices.
34
<PAGE>
BUSINESS
Overview
BioMarin is a developer of carbohydrate enzyme therapies for debilitating,
life-threatening, chronic genetic disorders and other diseases and conditions.
In October 1998, we completed a six-month evaluation for the pivotal clinical
trial of our lead drug product, BM101, for the treatment of
mucopolysaccharidosis-I or MPS-I. We are currently collecting data for an
additional six-month follow-up period. Based on the 12-month data from that
trial, we intend to complete the filing of a biologics license application with
the FDA in the second half of 1999. We established a joint venture with Genzyme
for the worldwide development and commercialization of BM101.
MPS-I is a life-threatening genetic disorder caused by the lack of a sufficient
quantity of the enzyme A- L-iduronidase, which affects about 3,400 patients in
developed countries, including approximately 1,000 in the United States and
Canada. Patients with MPS-I have multiple debilitating symptoms resulting from
the buildup of carbohydrates in all tissues in the body. These symptoms include
delayed physical and mental growth, enlarged livers and spleens, skeletal and
joint deformities, airway obstruction, heart disease and impaired hearing and
vision. Most children with MPS-I will die from complications associated with
the disease before adulthood.
BM101 is a specific form of a-L-iduronidase that is intended to replace a
deficiency of A-L-iduronidase in MPS-I patients. In October 1998, we completed
a six-month evaluation for the pivotal clinical trial for BM101. This clinical
trial treated ten patients with MPS-I at five medical centers in the United
States. Based on data collected during the initial six-month evaluation period,
BM101 met the primary endpoints set forth in the investigational new drug
application. In addition, BM101 met various secondary endpoints in each of the
patients. Secondary endpoints are measurements intended to determine whether
primary endpoints are reasonably likely to predict clinical benefit. In
addition to these primary endpoints, the FDA has requested that we evaluate
this data using other criteria. We received notice from the FDA that our BM101
will receive fast track designation for the treatment of the more severe forms
of MPS-I, which account for approximately 60% of all cases. The FDA has granted
BM101 an orphan drug designation giving us exclusive rights to market BM101 to
treat MPS-I for seven years from the date of FDA approval if BM101 is the first
drug to be approved by the FDA for the treatment of MPS-I.
Carbohydrate-active Enzyme Therapeutics
Carbohydrates are a fundamental class of biological molecules that play diverse
and critical roles in maintaining the health and functional integrity of all
cells and tissues. Enzymes are proteins that act as catalysts for many vital
biological reactions. Enzymes that act on carbohydrates, called carbohydrate-
active enzymes, cleave, construct or otherwise modify carbohydrates to regulate
their production, maintenance and degradation. These carbohydrate-active
enzymes are critical to a wide range of functions within the body, including
cell proliferation, digestion, blood clotting, immune response, wound healing,
conception and control of infection and inflammation. The body, when
functioning normally, produces appropriate quantities of carbohydrate-active
enzymes to perform these functions. Carbohydrate-active enzymes have the
potential to play an important therapeutic role in certain diseases or
disorders by either replacing deficient enzymes or supplementing the enzymes
that are naturally present in the body.
Role of Carbohydrate-active Enzymes in Genetic Diseases
We believe that there are more than 70 genetic diseases that are known to be
caused by the deficiency of a single enzyme. In these genetic diseases the body
fails to produce sufficient or functional quantities
35
<PAGE>
of certain enzymes. Most of these genetic diseases are rare, affecting only a
few hundred to a few thousand people in the United States. Examples of genetic
diseases include Gaucher disease, hemophilia and MPS disorders. Since there is
not extensive literature regarding these rare genetic diseases we hired a
consultant, the Frankel Group, to conduct research regarding this potential
market. The figures cited in the following paragraph were developed by the
Frankel Group.
Currently, only eight genetic diseases have effective treatments, and five of
these eight are treated through enzyme replacement. Historically, enzyme
replacement therapy has been limited by the inability of manufacturers to
produce the correct form of enzymes with sufficient quantities. Production of
sufficient quantities to support a therapeutic program has now become possible
with advancements in recombinant production methods. Recombinant production
methods apply foreign DNA to cells to produce enzymes the cells would not
naturally produce. In 1998, the worldwide sales of pharmaceuticals used to
treat genetic diseases by enzyme replacement were approximately $2.7 billion.
Genzyme's treatment for Gaucher disease is an example of a treatment using
enzyme replacement therapy. Gaucher disease, which afflicts approximately 5,000
people in the developed world, is caused by a deficiency in the enzyme
glucocerebrosidase. In April 1991, following a single clinical trial involving
13 patients, Genzyme's treatment for Gaucher disease was approved for marketing
by the FDA. Approximately 2,400 patients worldwide are using Genzyme's
treatment for Gaucher disease. Sales of Genzyme's treatments for Gaucher
disease, Cerezyme(R) enzyme and Ceredase(R) enzyme, generated total revenue of
$411.1 million in 1998.
Other Therapeutic Roles for Carbohydrate-active Enzymes
Carbohydrate-active enzymes can also treat conditions other than those caused
by genetic diseases, such as burns and infections. Supplementing the amount of
enzymes naturally present in a patient's body or adding a new enzyme can enable
or enhance the body's ability to respond to certain conditions and accelerate
the healing process. For example, using a topical enzymatic formulation to
supplement naturally occurring enzymes may speed the healing process of burns
by removing dead tissue. Adding or increasing the concentration of an enzyme
that selectively targets and kills microbes may help the body fight infection.
Business Strategy
Our business strategy is to develop therapeutic products to treat a variety of
diseases and conditions involving carbohydrates. We use our proprietary
carbohydrate-active enzyme technology to develop these products. The principal
elements of this strategy are:
. Focus on Drug Candidates with Known Biology and Low Technical
Risk. We identify potential products that treat serious diseases or
conditions where the biological role of carbohydrate-active enzymes
is well understood and the method of treatment is straightforward. As
part of this strategy, we are initially focusing on treating genetic
diseases which are caused by the deficiency of a single enzyme such
as MPS-I and MPS-VI. We believe that the clinical trial we must
perform in order to obtain approval for our products from the FDA
will be of short duration. The clinical trial patient evaluation
period for MPS-I was six months, although the patients will continue
to be monitored for an additional 18 months.
. Select Products that We Believe May Be Developed and Approved
Quickly. We are initially developing therapeutic products for serious
diseases or conditions that we believe will require limited time and
capital to conduct preclinical studies and small numbers of patients
for clinical trials. Because many of our potential drug products are
intended for serious or life-threatening conditions and may address
unmet medical needs for these conditions, we believe that they will
qualify for fast track designation by the FDA. In September 1998, we
received from the FDA fast track designation for BM101 for the
36
<PAGE>
treatment of Hurler and Hurler-Scheie syndromes, which are the more
severe syndromes within MPS-I.
. Pursue Well-defined, Niche Markets. We develop potential drug
products to treat small patient populations for diseases for which
there are currently no effective therapies. Additionally, we focus on
niche markets in which we believe we will be reimbursed for our
products at favorable rates. We believe we will receive orphan drug
designation from the FDA for many of our products, providing us with
market exclusivity for our drug formulation for seven years if we are
first to gain product approval to treat the specific disease.
. Develop Direct Sales and Marketing Organization for Select
Markets. We will be able to directly market some of our potential
drug products because the conditions they treat have small patient
populations, for which the treatments are often concentrated in
specialized institutions, and because of the existence of patient
support groups for many of our initial disease targets. We may
develop a small sales and marketing organization to target markets
where we believe we can effectively reach the targeted patient and
physician groups. Alternatively, we may pursue strategic
collaborations with biopharmaceutical or other companies to develop
products targeted at markets with larger patient populations.
. Enhance Enzymatic Expertise through Glyko, Inc. Glyko, Inc.
contributes its technical knowledge and expertise in cloning enzymes
to our technology base. Glyko, Inc. provides access to cloning
assets, including cell lines, which are colonies of cells with a
common genetic make-up. In addition, Glyko, Inc.'s research and
development in glycobiology, the study of carbohydrates in living
organisms, provides us with a strategic opportunity to keep current
with new developments and opportunities in that field.
Products Under Development
Mucopolysaccharidosis Disorders
MPS disorders are a group of seriously debilitating genetic disorders
characterized by the accumulation in the body of mucopolysaccharides, which
are also known as glycosaminoglycans or GAGs. GAGs are complex carbohydrates
synthesized by all cells in the body. At least ten enzymes are required for
the complete breakdown of GAGs. The normal breakdown of GAGs is blocked if any
one of these enzymes is not present in sufficient quantity.
Ten possible enzyme deficiencies cause ten distinct disorders. Patients with
MPS are usually diagnosed by six to 24 months of age. MPS disorders are
progressive diseases that frequently lead to early death. During the course of
the disease, the build-up of GAGs in all cells of the body results in one or
more of the following symptoms:
. Inhibited growth
. Delayed mental or physical development
. Enlarged liver and spleen
. Skeletal deformities
. Coarse facial features
. Upper airway obstruction
. Joint deformities and reduced range of motion
. Heart disease
. Impaired vision and hearing
. Sleep disorders
. Malaise and reduced endurance
37
<PAGE>
MPS-I. MPS-I is a genetic disorder caused by the deficiency of the enzyme A-L-
iduronidase. About 3,400 patients in developed countries have MPS-I, including
about 1,000 in the United States and Canada. If untreated, almost all children
diagnosed with the more severe forms of MPS-I will die before reaching
adulthood. Patients with milder forms of MPS-I still exhibit many of the
symptoms described above. Currently, the only available treatment for MPS-I is
a bone marrow transplant. However, few patients find an appropriate bone marrow
donor. Of the patients that find appropriate donors, many choose not to receive
the therapy because of its serious side effects.
BM101. We are developing a specific form of A-L-iduronidase, designated BM101,
for the treatment of MPS-I. BM101 treats MPS-I by replacing a deficiency in A-
L-iduronidase. In September 1998, we established a joint venture with Genzyme
for the worldwide development and commercialization of BM101. Until now, enzyme
replacement therapy for MPS-I has been impractical because no one has been able
to manufacture adequate supplies of A-L-iduronidase with the proper structure.
The proper structure is essential to ensure a therapeutic effect at relatively
low doses. Using production and purification processes licensed by us, we are
able to produce sufficient quantities of BM101 with the proper structure.
In 1994, preclinical studies of BM101 were conducted using dogs with canine
MPS-I. Dogs with canine MPS-I have symptoms similar to those exhibited by
humans with MPS-I. BM101 diminished canine MPS-I symptoms in the dogs. Stored
carbohydrate material was cleared from the dogs' major organs, including their
brains. This scientific research, which we have licensed, was performed at
Harbor-UCLA Research and Education Institute.
In October 1998, we completed a six-month evaluation period for what we believe
is our pivotal clinical trial for BM101. Initiated in December 1997, this
clinical trial treated ten patients with MPS-I at five medical centers in the
United States. We are treating and monitoring these patients for an additional
18-month follow-up period. Patients were treated with a slow intravenous
infusion of BM101 once a week at a dose of 125,000 units per kilogram of
patient weight.
The primary endpoints set forth in the investigational new drug application for
BM101 were a reduction in liver or spleen size and a reduction in urinary GAG
levels. Eight of the ten patients achieved the primary endpoint goal of a 20%
reduction of liver size within the six-month evaluation period. Of the two
patients who did not achieve the targeted liver reduction, one patient achieved
a liver size in the normal range and the second patient, who had hepatitis at
the end of the six-month period, achieved the 20% reduction after the six-month
period. Five of the ten patients achieved a 20% reduction in spleen size. All
of the ten patients achieved the primary endpoint goal of at least a 50%
reduction in urinary GAG levels.
Each patient with MPS-I presents us with a different mix of clinical symptoms.
We tested each patient at intervals throughout the six-month evaluation period
measuring a variety of secondary endpoints to determine whether the primary
endpoints are reasonably likely to predict clinical benefit. The secondary
endpoints we used included joint disease, eye disease and cardiac function.
Additional measures of efficacy included sleep apnea and airway evaluations,
central nervous system abnormalities, endurance and fatigue, and evaluations of
bone. Except for the evaluations of the patient's bones, where no improvement
was expected due to the short duration of the trial, most patients who
exhibited physical symptoms of the disease achieved improvement in those
symptoms during the course of the evaluation period for each of the secondary
endpoints and additional clinical measures of efficacy. We believe that the
clinical results on secondary endpoints and additional measures of efficacy
demonstrate adequately that the primary endpoints were valid measures of the
clinical benefit of BM101.
During the six-month evaluation period, four of the ten patients experienced
immune responses to the enzyme, with one patient exhibiting symptoms of the
immune response. No long term effects of these immune responses have been
observed at this time. A few patients experienced side effects, primarily
38
<PAGE>
hives in five patients, which may have been related to BM101. No patients had
life-threatening allergic reactions. Of the events that probably were related
to BM101, the symptoms occurred during the infusions only, were manageable with
medications, and did not impact the health or well-being of the patient outside
the administration setting. Neither clinical nor laboratory evaluations showed
any harmful effect of BM101 therapy.
On behalf of the joint venture, we intend to complete the filing of our
biologics license application with the FDA in the second half of 1999. Because
12-month data will be available, the FDA has requested that we evaluate these
patients for the 12-month period rather than the six-month period which formed
the basis of our initial evaluation. We have completed twelve months of patient
evaluation and are currently analyzing the data for our biologics license
application.
In addition to the primary endpoints set forth in our investigational new drug
application, the FDA has requested that we evaluate the data using other
criteria. These criteria are an assessment of normalization of the patients'
liver and spleen sizes and their urinary GAG levels. We are currently compiling
information to establish guidelines for normal urinary GAG levels because that
standard is not readily available. We are also analyzing the data using the
normalization criteria. We do not know if this data will form the basis of our
biologics license application. In addition, we cannot be certain that the
results of the analysis over the 12-month period or using the normalization
criteria will be sufficiently strong to support a claim of safety and efficacy.
If the results of this analysis are materially and adversely different from our
analysis of the six-month data using the primary endpoints set forth in our
investigational new drug application, the FDA may require us to conduct
additional clinical trials, include additional patients or otherwise require us
to take steps that could delay or prevent the filing or approval of our
biologics license application.
The joint venture plans to complete the validation of the primary endpoints
from the pivotal clinical trial by the long-term monitoring of the original
trial patients and the continuing assessment of the efficacy of treatment with
BM101. The parameters for this follow-on clinical study are expected to
include:
. Patient growth in height and weight
. Cardiac function
. Pulmonary hypertension
. Corneal clouding
. Visual acuity
. Joint range of motion
. Airway function
. Endurance and fatigue
In addition, the FDA has requested that the joint venture conduct another
clinical trial to support the primary endpoints from the pivotal clinical
trial. The filing and approval of our biologics license application for BM101
is not contingent on the completion of this additional clinical trial.
We received orphan drug designation for BM101 from the FDA. This orphan drug
designation gives us exclusive rights to market a product using A-L-iduronidase
to treat MPS-I in the United States for seven years if we receive FDA approval
of BM101 before any other company receives approval of A-L-iduronidase to treat
MPS-I. In addition, we received notice from the FDA that our BLA for BM101 for
the treatment of Hurler and Hurler-Scheie syndromes, which are the two more
severe MPS-I disorders and account for approximately 60% of MPS-I patients,
will receive fast track designation. Drugs that show a potential to address an
unmet medical need for a serious or life threatening disease may be eligible to
receive fast track designation. Fast track designation does not guarantee a
faster approval. The FDA may still require additional studies or data regarding
BM101 which may delay approval and
39
<PAGE>
subsequent commercial sales. See "Risk Factors--If we fail to obtain regulatory
approval to commercially manufacture or sell any of our future drug products,
or if approval is delayed, we will be unable to generate revenue from the sale
of our products--If our joint venture with Genzyme were terminated, our ability
to commercialize BM101 would be delayed."
At the request of the FDA, the joint venture will conduct a clinical trial to
investigate the effect of BM101 on the prevention or stabilization of the
progressive mental dysfunction experienced by patients with Hurler Syndrome,
the most severe form of MPS-I. The trial, which will enroll six patients and
will last two years, is expected to begin in the fourth quarter of 1999. This
Hurler trial for mental dysfunction is independent of the pivotal trial that is
intended to support the biologics license application submission for BM101.
MPS-VI. MPS-VI, also known as Maroteaux-Lamy syndrome, is a genetic disorder
caused by a deficiency of the enzyme N-acetylgalactosamine 4-sulfatase, which
is designated BM102. Of approximately 1,100 patients suffering with MPS-VI in
the developed world, about 340 are in the United States and Canada. Patients
with MPS-VI have symptoms similar to those for MPS-I. However, MPS-VI patients
do not suffer mental retardation. If untreated, the average life span of MPS-VI
patients is estimated to be between ten years in the severe form to 30 years in
the mild form. MPS-VI has been treated by bone marrow transplants. However, few
patients find an appropriate bone marrow donor. Of the patients who find an
appropriate donor, many choose not to receive a bone marrow transplant because
of its serious side effects.
BM102. We are developing BM102 for the treatment of MPS-VI. BM102 may treat
MPS-VI by replacing a deficiency in the enzyme N-acetylgalactosamine 4-
sulfatase.
During 1994 through 1996, preclinical studies of BM102 were conducted on cats
with feline MPS-VI. Cats with MPS-VI have physiological characteristics and
clinical symptoms similar to those exhibited by humans with MPS-VI. We are
conducting additional studies in cats using alternative dosing regimens to
better match the likely dosing regimen in humans. We believe that preclinical
studies conducted on over 50 afflicted cats treated with BM102 will provide a
sufficient basis to support an investigational new drug application for BM102.
We must receive approval of our investigational new drug application before
beginning clinical trials.
In August 1998, we licensed rights to use data on feline MPS-VI and a cell line
for BM102 from Women's and Children's Hospital in Adelaide, Australia. We are
developing improved production and purification processes for BM102, first in
clinical and then in commercial processes. We received an orphan drug
designation for BM102 in February 1999 to treat MPS-VI and intend to file an
investigational new drug application for the use of BM102 to treat MPS-VI in
the fourth quarter of 1999. We cannot assure you that the FDA will allow
clinical trials based on the limited testing on cats conducted to date. We will
make a request to the FDA that a single clinical trial with a small number of
MPS-VI patients is sufficient to support a biologics license application.
However, the FDA may require additional preclinical testing, clinical trials or
additional patients or trial duration before approving BM102 if it is ever
approved.
Enzyme Replacement Therapy in Other Genetic Diseases
We intend to develop additional enzyme replacement therapies for other genetic
diseases. We have identified genetic diseases that we believe will respond well
to enzyme replacement therapy. We are only developing enzyme replacement
therapies that we believe qualify for orphan drug designation. We are in the
process of cloning and producing enzymes for additional potential genetic
diseases. Due to the small patient populations for these other genetic diseases
and the known biologic mechanism of proposed enzyme replacement therapies, we
believe that the size and scope of our human clinical trials for future genetic
diseases may be similar in size and scope to those for MPS-I.
40
<PAGE>
Other Diseases And Conditions
Burns
In 1997, approximately 65,000 patients in the United States were admitted to
hospitals with burns. Approximately 20% of these patients had very severe burns
that destroyed all layers of the skin, referred to as full-thickness or third-
degree burns. Full-thickness burns require major skin grafts. This typically
requires admission to one of approximately 150 major burn centers in the United
States. Full-thickness burns are treated by removing unhealthy and dead tissue,
a process called debridement, to prevent infection and to prepare the burned
site for skin grafting or other therapy. Currently, full-thickness burns are
debrided by multiple surgical procedures that are complicated by loss of blood,
loss of healthy tissue, continued trauma and pain and scarring. In many
instances, surgery must be delayed in severely compromised patients.
Additionally, certain parts of the body, such as the hands and face, are
difficult to treat by this method.
A limited number of topical debridement products are available as an
alternative to surgery. Topical enzymatic products, however, have not been
widely accepted by physicians because they are ineffective and often cause the
patient pain and cause the patient to bleed.
A significant part of human skin is made up of carbohydrates and proteins. We
believe that there is an opportunity for more selective enzyme debridement
products that have greater specificity at digesting carbohydrates or proteins
in dead tissue. We currently have two products under preclinical development
for the treatment of full-thickness burns. We intend to file an investigational
new drug application for one of these products in the second half of 1999. We
will determine which of the products we will file the investigational new drug
application for based on the activity and safety profiles obtained in
preclinical studies that are in progress.
Based on discussions with general wound specialists, we believe that if the
products successfully debride full-thickness burns, they will effectively
debride other types of wounds as well.
BM201. BM201 is a carbohydrate-specific enzyme therapeutic which we developed
in mice in a model developed at the University of California at San Diego, or
UCSD. BM201 accelerated the rate of debridement of burn wounds without signs of
topical or systemic toxicity. In addition, BM201 significantly reduced the
total time in which grafts were successfully made and wounds closed when
compared to phosphate buffered saline, which was used as a control, and to
selected topical enzymatic products. The total time required for the
debridement using BM102 and graft take was significantly less than the total
time for debridement using standard surgical debridement techniques. The enzyme
is now being evaluated for its ability to debride wounds and influence graft
acceptance in a more stringent model of full-thickness burn treatment in pigs
at Vanderbilt Medical Center.
BM202. BM202 is an enzyme that acts on proteins discovered by W.R. Grace & Co.
Upon review of the data from preclinical studies that were conducted by W.R.
Grace, we obtained a three-year option in May of 1998 to obtain an exclusive
license to BM202. In preclinical studies supported by W.R. Grace, BM202 was
shown to safely debride full-thickness burns in pigs, and accelerate wound
healing in less severe lesions. In studies sponsored by us and conducted at
UCSD, BM202 debrided wounds and allowed graft acceptance in mice with full-
thickness burns. BM202 is now being assessed for its compatibility to allow for
graft acceptance in a pig burn model at Vanderbilt Medical Center.
Anti-fungal Enzymes
We are developing two naturally occurring enzymes to combat infection by
Aspergillus spp. Aspergillus is one of the most common fungi in the
environment. Although aspergillus is not usually harmful to people with healthy
immune systems, it can pose a life-threatening risk to those with compromised
immune systems, such as cancer patients undergoing chemotherapy, organ and bone
marrow transplant recipients and people with late-stage AIDS. Aspergillosis, a
fungal infection caused by aspergillus, begins as an upper
41
<PAGE>
airway infection and can become a systemic fungal infection in immuno-
compromised patients. It is difficult to diagnose, currently has no adequate
treatment and often proves fatal.
We believe that an effective drug for systemic aspergillosis may be used as a
preventative measure for immuno-compromised patients. By the year 2000 experts
estimate that over 85,000 patients in the United States may be at risk for
contracting systemic aspergillosis. We believe that a carbohydrate-active
enzyme that breaks down the carbohydrates in the cell walls of aspergillus will
kill the fungi and treat the infection.
BM301 and BM302. We are conducting preclinical research on the use of BM301 and
BM302, recombinant forms of two naturally occurring enzymes, to treat
aspergillosis. In BioMarin-sponsored preclinical studies on mice conducted at
Boston University Medical Center demonstrated that BM301 and BM302 effectively
treated aspergillosis. Approximately 20% of the mice treated with BM301 or
BM302 died. For comparison, all of the untreated, infected mice died. No
toxicity or other adverse side effects were observed in these animal studies.
We intend to apply for FDA orphan drug designation for these anti-fungal
enzymes.
Clinical trials may not show that our products are safe or effective. We may
fail to develop products that can be marketed. See "Risk Factors--If we
continue to incur operating losses for a period longer than anticipated, we may
be unable to continue our operations--If we fail to obtain regulatory approval
to commercially manufacture or sell any of our future drug products, or if
approval is delayed, we will be unable to generate revenue from the sale of our
products--If we fail to obtain orphan drug exclusivity for our products, our
competitors may sell products to treat the same conditions and our revenues may
be reduced."
Other Research and Development
We are also focusing a portion of our research and development on carbohydrate-
active enzymes that we believe can treat certain inflammatory conditions. We
have initiated a research program to develop a carbohydrate-active enzyme to
treat psoriasis, an inflammatory skin condition. We have identified and
produced sufficient amounts of product to conduct preclinical studies. We
initiated these studies in the third quarter of 1998 at Brigham and Women's
Hospital in Boston.
We have also initiated a research program to develop a carbohydrate-based
product to increase movement and vitality of sperm. Carbohydrate-active enzymes
can break down mucosal carbohydrates in cervical and seminal fluids. This break
down allows sperm to move more easily through these fluids.
Carbohydrate Analysis, Products and Services
Glyko, Inc., our wholly-owned subsidiary, sells carbohydrate analysis products
and services. These products and services provide sophisticated carbohydrate
analysis to research institutions and commercial laboratories. Commercial
laboratories use carbohydrate analysis to determine carbohydrate structure,
sequence and quantity. Glyko, Inc.'s key technology, Fluorphore Assisted
Carbohydrate Electrophoresis, also known as FACE(R), is a rapid and relatively
inexpensive method of analyzing complex carbohydrates. In a typical
application, FACE will rapidly processes a sample of unknown composition. It
will then identify the carbohydrate structures present, quantify their
abundance and prepare a detailed report.
Glyko, Inc.'s primary product is the FACE Imaging System, an electrophoretic
system that includes an imager and software designed to separate, identify and
quantify carbohydrates. Glyko, Inc. also sells the consumable products required
for the system's operation, including four specialized gels, 13 types of kits
and the consumable reagents necessary for carbohydrate analysis.
In addition, Glyko, Inc. provides:
. Reagents used in carbohydrate chemistry, including carbohydrate-
active enzymes
42
<PAGE>
. Custom analytical services for profiling and sequencing complex
carbohydrates
. Research services on carbohydrate related problems
. Diagnostic methods and services for lysosomal storage diseases,
diseases in which residues build up in lysosomes because of
deficiencies in enzymes.
Glyko, Inc. also markets the only urinary screening test cleared by the FDA for
lysosomal storage diseases. Glyko, Inc. also provides a lysosomal storage
diseases screening service using its test and related diagnostic technology.
Glyko, Inc.'s diagnostics line includes software for the automated diagnosis of
oligosaccharidoses, a subclass of lysosomal storage diseases. Glyko, Inc. is
developing similar software for MPS disorders. Glyko, Inc. is expanding its
ability to measure GAGs in urine. In addition to MPS-I, elevated or reduced
levels of GAGs in urine may serve as early, non-invasive indicators for a
number of diseases, including osteoporosis, degenerative joint diseases, kidney
diseases as well as lysosomal storage diseases. In addition, Glyko, Inc.
provides analysis of plasma heparin, a type of GAG, and is developing an
automated analyzer for heparin in whole blood. The direct analysis of heparin
concentration in blood or plasma allows for close monitoring of patients on
heparin-based anti-coagulation therapy. Over-or under-dosing of heparin can
result in serious adverse side effects.
Corporate Collaborations
Joint Venture with Genzyme Corporation
In September 1998, we established a joint venture with Genzyme for the
worldwide development and commercialization of BM101 for the treatment of MPS-
I. Our responsibilities within the joint venture include:
. Obtaining the necessary U.S. regulatory approvals
. Manufacturing BM101 for clinical and commercial purposes
Genzyme is responsible for:
. Obtaining the necessary international regulatory approvals
. Providing pricing and reimbursement requirements
. Providing overall sales and marketing
Under the agreement, BioMarin and Genzyme are each required to make capital
contributions to the joint venture equal to 50% of the costs and expenses
associated with the development and commercialization of BM101. BioMarin and
Genzyme will share equally in any profits generated from sales of BM101.
Genzyme purchased $8.0 million of our common stock in a private placement in
September 1998. Genzyme has agreed to purchase an additional $10.0 million of
our common stock at the initial public offering price in a private placement
concurrent with this offering. Genzyme has also committed to pay us $12.1
million in cash upon approval of the BLA for BM101. We have licensed to the
joint venture certain of our intellectual property rights related to BM101.
If either party fails to fund its 50% share of costs and expenses, then the
other party may buy out the party that breaches, otherwise, the profit sharing
interests and the future funding obligations of the parties will be adjusted to
correspond to the cumulative amount of capital contributions made by each
party.
The joint venture may be terminated in the event one party declares bankruptcy,
experiences a change of control or commits a material breach of the agreement.
Without a breach, the joint venture may be terminated by either party only
after the terminating party has given the other party one year prior written
notice. Notice of termination may be given at any time after the earlier of
approval of the biologics license application for BM101 or December 31, 2000.
Upon termination of the collaboration agreement, the terminating party's share
of the joint venture may be bought out by the other party. The non-terminating
party or the party not in material breach, as applicable, has the right to
obtain a license to all intellectual property assigned to or subsequently
developed by the joint venture.
43
<PAGE>
Grant Agreements and Licenses
We have entered into research and development collaboration agreements with
various academic and research institutions. Under these agreements, we fund
research and development by these institutions. Some of the agreements also
provide for the grant to us of exclusive, royalty-bearing licenses or rights of
first negotiation regarding licenses to intellectual property and other subject
matter developed by these institutions in the course of this research.
Typically, these agreements are terminable for cause by either party upon 90-
days written notice.
In April 1997, we entered into the Grant Terms and Conditions Agreement with
Harbor-UCLA. Under this agreement, we funded a two-year research program
related to A-L-iduronidase and obtained an exclusive, worldwide license to
certain cell lines and methods related to the production and purification of
the enzyme and intellectual property and materials developed by Harbor-UCLA.
This license is perpetual, subject to our obligation to pay ongoing license
fees. In exchange for the license, we pay Harbor-UCLA an annual licensing fee
and certain royalties. This agreement may be terminated by either party for
breach upon 90 days prior written notice. In connection with Dr. Kakkis' prior
employment with Harbor-UCLA, he will receive a portion of the royalties paid to
Harbor-UCLA by BioMarin.
In May 1998, we entered into an agreement with W.R. Grace regarding BM202, an
enzyme that breaks down proteins, which may be used for the debridement of
burns. Under this agreement, we have obtained an option to acquire from W.R.
Grace an exclusive license, with the right to grant and authorize sublicenses
for certain patents related to BM202. We may exercise our option at any time
until May 2001 so long as we have made certain payments to W.R. Grace. Under
the terms of the agreement, we would pay W.R. Grace certain milestone payments
and annual licensing fees. We must pay W.R. Grace the greater of (1) annual
royalties based on net annual sales of BM202, or (2) a minimum annual royalty
stipulated in the agreement. If we cannot reach agreement with W.R. Grace on
the additional terms and conditions of the license within six months of the
exercise of our option, then we may initiate binding arbitration proceedings to
establish the other terms of the license. The agreement also requires us to use
our best efforts to produce material toxicology studies on BM202 between May 1,
1999, and May 1, 2000, and to begin clinical testing of products based on
BM202. We will bear the cost of both toxicology studies and the clinical
testing. See "Risk Factors--If our joint venture with Genzyme were terminated,
our ability to commercialize BM101 would be delayed."
In August 1998, we entered into a license agreement with Women's and Children's
Hospital of Adelaide, Australia under which Women's and Children's Hospital of
Adelaide granted us a worldwide, exclusive, perpetual license to certain
technology and products for use in enzyme replacement therapy for MPS-VI. The
licensed technology includes the feline MPS-VI preclinical data and a host cell
line that expresses this enzyme. We paid Women's and Children's Hospital of
Adelaide an initial license fee and will continue to pay royalties based on net
sales with a minimum annual royalty. The royalty rate is reduced if a product
competitive with MPS-VI enters the market. The terms of the license agreement
require that both parties reach agreement on the design of the MPS-VI clinical
trials within a specified period. The license agreement further requires us to
file an investigational new drug application with the FDA or equivalent
regulatory authority in another country and to begin clinical trials within
specified time periods. The term of the agreement is ten years and we have an
option to renew the agreement for two one-year periods.
Manufacturing
Pharmaceutical Manufacturing. The drug candidates we are currently developing
require the manufacture of recombinant enzymes. For our genetic disease
programs, we expect to manufacture the carbohydrate-active enzymes. We believe
that we will be able to manufacture sufficient quantities of our genetic
disease drug products for clinical trials and commercial sale in part because
relatively low doses are required for treatment and because the targeted
patient populations are small.
44
<PAGE>
Under the agreement with Harbor-UCLA, Harbor-UCLA produces BM101 for MPS-I
clinical trials and will continue to do so into the second quarter of 1999. We
are developing an 8,000 square foot facility in Torrance, California, dedicated
to the production of BM101. We are required by the FDA to demonstrate
compliance with cGMP in our new facility. Because clinical supplies of BM101
were produced in a different facility and at a smaller scale, we will be
required to demonstrate comparability between batches of BM101 produced at the
two sites. The FDA may also require that we conduct additional studies or
clinical trials in order to demonstrate equivalence with the drugs used in the
clinical trial. Genzyme will package the bulk BM101 in its final dosage form at
its Massachusetts facilities.
We are currently developing a 23,000 square foot cGMP production facility in
Novato, California. This facility has utility systems and support laboratories
and offices sufficient to support an additional manufacturing suite of
approximately 10,000 square feet in a second phase of development. Following
the first phase we will have the capacity to conduct process development and
commercial production of BM101.
We have a 1,200 square foot cGMP laboratory designed for clinical production of
enzymes for our genetic disease programs. This laboratory has the capability
for cell culture production, purification and filling of small-scale production
lots. Initially, this facility will be used to produce BM102 in sufficient
quantity to support a clinical trial of MPS-VI.
We have also developed a 1,000 square foot bacterial fermentation facility for
preclinical studies and clinical trial requirements for burn and anti-fungal
drug candidates. We use third-party contract manufacturers to produce clinical
trial material made in bacterial or fungal cells.
Additionally, we have leased a 36,000 square foot shell that is expected to be
completed in the third quarter of 1999. This facility may be used for
additional manufacturing capacity if needed.
We are developing the manufacturing capacity to support commercial sales of
BM101 and eventually BM102. We cannot assure you that we will be able to do so
in a timely manner or that this capacity will be sufficient to supply the
market demand if sales exceed projections. As a company, we have no experience
manufacturing BM101 or other enzymes in commercial quantity, although we have
hired and are in the process of hiring additional experienced personnel who do
have experience manufacturing commercial quantities of drug products.
Because our manufacturing facilities are in the process of construction,
validation, and process qualification, we have yet to be subject to
governmental inspection for compliance with cGMP. We will have to register our
manufacturing facilities with the FDA, the State of California and other
foreign regulatory agencies. 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. A shutdown or fine could have a serious effect on our business
financial condition and results of operations. See "Risk Factors--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--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."
Carbohydrate Analysis Products Manufacturing. Glyko, Inc. assembles its FACE
Imaging System and kits from standard components readily available from
multiple commercial sources. A key component of the FACE Imaging System is the
operating and interpretative software, which Glyko, Inc. writes and tests
itself. Glyko, Inc. mixes and casts its gels using proprietary and patented
formulations best suited for carbohydrate applications. Glyko, Inc. also
manufactures its carbohydrate-active enzymes. Glyko,
45
<PAGE>
Inc. believes that it has adequate manufacturing capacity to produce much
larger quantities of its products than are currently required.
Sales and Marketing
Pharmaceutical Sales and Marketing. We have no experience marketing or selling
pharmaceutical products. To commercially market our products once the necessary
regulatory approvals are obtained, we must either develop our own sales and
marketing force or enter into arrangements with third parties. We established a
joint venture with Genzyme for the worldwide development and commercialization
of BM101 for the treatment of MPS-I. Under the joint venture, Genzyme will be
responsible for marketing, distribution, sales and reimbursement of BM101
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. We
believe that these patient populations are typically well-informed and well-
connected to the medical community. We believe that direct marketing to these
patients would be effective. We may also market our products through
distributors or other collaborators, particularly those products targeted at
larger patient populations.
We cannot guarantee that Genzyme will devote the resources necessary to
successfully market BM101. In addition, either party may terminate the joint
venture for any reason. If Genzyme were to terminate the joint venture, we
would be required to undertake Genzyme's responsibilities ourselves. We have no
experience in marketing, selling or obtaining reimbursement for pharmaceutical
products. In addition, we would be required to pursue foreign regulatory
approvals. As a result, termination of the joint venture by Genzyme may delay
the launch of BM101.
Sales and Marketing of Carbohydrate Analysis Products and Services. Glyko, Inc.
sells its products and services primarily to distributors of research products,
quality control laboratories and research laboratories. Glyko, Inc. has a sales
staff of two, who cover the United States and Canada. Direct sales efforts
accounted for approximately 40% of Glyko, Inc.'s revenues in 1998. Glyko, Inc.
has established a network of distributors to expand its reach in the analytical
products market. Glyko, Inc. has relationships with three major research
products distributors worldwide and with one distributor for North America.
These distribution agreements allow these companies to sell Glyko, Inc.
manufactured products under the distributor's own name. Glyko, Inc. also has
distribution agreements with third parties covering Asia, Australia, Europe and
Mexico. Sales by distributors accounted for approximately 22% of Glyko, Inc.'s
revenues in 1998. The remaining 38% of Glyko, Inc.'s revenues are from sales of
contract services, including services sold to us, and government grants.
Services provided to us accounted for approximately 5% of Glyko, Inc.'s overall
revenue in 1998. See "Risk Factors--If our joint venture with Genzyme were
terminated, our ability to commercialize BM101 would be delayed--If we are
unable to effectively sell and market our products, our ability to generate
revenues will be diminished--If we fail to compete successfully, our revenues
and operating results will be adversely affected."
Patents and Proprietary Rights
Our success depends in part on our ability to:
. Obtain patents
. Protect trade secrets
. Operate without infringing the proprietary rights of others
. Prevent others from infringing on our proprietary rights
We may obtain licenses to patents and patent applications from others.
46
<PAGE>
We have five patent applications presently pending in the United States Patent
and Trademark Office. We have filed one foreign counterpart application and
expect to file foreign counterparts to the other four pending U.S. patent
applications at the proper times.
Glyko, Inc. owns seven issued U.S. patents and two pending applications, one of
which has been allowed. 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 seven 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.
We primarily protect our proprietary information by filing U.S. and foreign
patent applications related to our proprietary technology, inventions and
improvements. Proprietary rights relating to our technologies will be protected
from unauthorized use by third parties only to the extent that they are covered
by valid and enforceable patents or are effectively maintained as trade
secrets. The patent positions of biotechnology companies are extremely complex
and uncertain. The scope and extent of our patent protections for some of our
products, including BM101 and BM102, are particularly uncertain because some of
the enzymes we are developing have existed in the public domain for many years.
Other parties have published the structure of the enzyme, the methods for
purifying or producing the enzyme and the methods of treatment or use. The
publication of this information limits the scope of our patents and may prevent
us from obtaining any meaningful patent protection. We cannot assure you that
any patents owned by, or licensed to, us will afford protection against
competitors. Nor can we assure you that any patent applications will result in
patents being issued.
In addition, the laws of certain foreign countries do not protect our
intellectual property rights to the same extent as do the laws of the United
States. The patent position of biopharmaceutical companies involves complex
legal and factual questions. We cannot predict whether the intellectual
property laws of foreign countries will be enforceable. We cannot assure you
that any of our patents or patent applications, if issued, will not be
challenged, invalidated or designed around. Nor can we assure you that the
patents will provide proprietary protection or competitive advantages to us.
Furthermore, we cannot assure you that others will not independently develop
similar technologies or duplicate any technology developed by us.
Our commercial success depends significantly on our ability to operate without
infringing the patents and other proprietary rights of third parties. We cannot
assure you that our technologies do not and will not infringe the patents or
violate other proprietary rights of third parties. In the event any of our
technologies are found to infringe or violate the intellectual property rights
of others, we and our corporate partners may be prevented from pursuing
research, development or commercialization of our products.
There has been extensive litigation regarding patents and other intellectual
property rights in the biotechnology and pharmaceutical industries. The defense
and prosecution of intellectual property suits and related legal and
administrative proceedings in the United States and abroad involve complex
legal and factual questions. These proceedings are costly and time-consuming to
pursue and their outcome is uncertain. Litigation may be necessary to enforce
patents issued to or licensed by us, to protect trade secrets or know-how owned
or licensed by us and to determine the enforceability, scope and validity of
the proprietary rights of others.
We will incur substantial expense and be forced to divert significant effort
and resources of our technical and management personnel in the event we must
prosecute or defend any litigation or other administrative proceeding. If an
adverse determination were made, we could incur significant liabilities to
third parties or be required to seek licenses which may not be available from
third parties or may be prevented from selling our products in certain markets,
if at all. Although patent and intellectual
47
<PAGE>
property disputes are often settled through licensing or similar arrangements,
costs associated with these arrangements may be substantial and could include
ongoing royalties. Furthermore, we cannot assure you that the necessary
licenses would be available to us on satisfactory terms, if at all.
In addition to patents, we rely on trade secrets and proprietary know-how,
which we seek to protect, in part, through confidentiality agreements with our
employees. We cannot assure you that these confidentiality or proprietary
information agreements will meaningfully protect our technology or provide us
with adequate remedies in the event of unauthorized use or disclosure of this
information. Nor can we assure you that the parties to such agreements will not
breach these agreements or that our trade secrets will not otherwise become
known to or be independently developed by competitors. See "Risk Factors--If we
are unable to protect our proprietary technology we may not be able to compete
as effectively--If we fail to compete successfully, our revenues and operating
results will be adversely affected."
Government Regulation
Our pharmaceutical products are subject to extensive government regulation in
the United States. If we distribute our products abroad, these products will
also be subject to extensive foreign government regulation. In the United
States, pharmaceutical and biological products are regulated by the FDA. FDA
regulations govern the testing, manufacturing, advertising, promotion,
labeling, sale and distribution of our products. Currently, we believe that
BM101 and other enzyme drug products that we may develop will be regulated by
the FDA as biologics rather than as drugs because they are manufactured by
biological processes.
The FDA approval process for a biologic includes:
. Preclinical studies
. Submission of an investigational new drug application for clinical
trials
. Adequate and well-controlled human clinical trials to establish the
safety and effectiveness of the product
. Submission of a biologics license application
. Review of the biologics license application
. Inspection of the facilities used in the manufacturing of the
biologic to assess compliance with the Current Good Manufacturing
Processes, or cGMP regulations
The biologics license application includes comprehensive, complete descriptions
of the pre-clinical testing, clinical trials, and the chemical, manufacturing
and control requirements of a drug which enable the FDA to determine the drug's
safety and efficacy. A biologics license application must be filed and then
approved by the FDA before a biologic can be marketed commercially.
The FDA testing and approval process requires substantial time, effort and
money. We cannot assure you that any approval will ever be granted.
Preclinical studies include laboratory evaluation of the product, as well as
animal studies to assess the potential safety and effectiveness of the product.
These studies must be performed according to good laboratory practices. The
results of the preclinical studies, together with manufacturing information and
analytical data, are submitted to the FDA as part of the investigational new
drug application. Clinical trials may begin 30 days after the investigational
new drug application is received, unless the FDA raises concerns or questions
about the conduct of the clinical trials. If concerns or questions are raised,
the investigational new drug application sponsor and the FDA must resolve any
outstanding concerns before clinical trials can proceed. We cannot assure you
that submission of an investigational new drug application will result in
authorization to commence clinical trials. Nor can we assure you that if
clinical trials are approved, that data will result in marketing approval.
48
<PAGE>
Clinical trials involve the administration of the product that is the subject
of the trial to volunteers or patients under the supervision of a qualified
principal investigator. Furthermore, each clinical trial must be reviewed and
approved by an independent institutional review board at each institution at
which the study will be conducted. The institutional review board will
consider, among other things, ethical factors, the safety of human subjects and
the possible liability of the institution. Also, clinical trials must be
performed according to good clinical practices. Good clinical practices are
enumerated in FDA regulations and guidance documents.
Clinical trials typically are conducted in three sequential phases, Phases I,
II and III, with Phase IV studies conducted after approval and generally
required for fast track designated drugs. These phases may overlap. In Phase I
clinical trials, the drug is usually tested on healthy volunteers to determine:
. Safety
. Any adverse effects
. Dosage tolerance
. Absorption
. Metabolism
. Distribution
. Excretion
. Other drug effects
In Phase II clinical trials, the drug is usually tested on a limited number of
afflicted patients to:
. Evaluate the efficacy of the drug for specific, targeted indications
. Determine dosage tolerance and optimal dosage
. Identify possible adverse effects and safety risks
In Phase III clinical trials, the drug is usually tested on a larger number of
afflicted patients, an expanded patient population and at multiple clinical
sites. The FDA may require that we suspend clinical trials at any time on
various grounds, including a finding that the subjects are being exposed to an
unacceptable health risk. In addition, FDA approval may be conditioned and
limit the indicated uses for our products.
In Phase IV clinical trials, after a drug has received FDA approval, additional
studies are conducted to gain experience from the treatment of afflicted
patients in the intended therapeutic indication. Additional studies are also
conducted to document a clinical benefit where drugs are approved under fast
track designation and based on surrogate endpoints. In clinical trials,
surrogate endpoints are alternative measurements of the symptoms of a disease
or condition, often by biochemical or other tests, that are substituted for
measurements of observable clinical symptoms. Failure to promptly conduct Phase
IV clinical trials could result in expedited withdrawal of approval for
products approved under fast track designation.
Our regulatory strategy is to conduct only one clinical trial to support a
biologics license application for each drug product treating genetic diseases.
This sole clinical trial would be, in each instance, intended to satisfy the
requirements of Phase I, Phase II and Phase III clinical trials. We believe
that we can obtain regulatory approval with one clinical trial despite the fact
that multiple clinical trials are normally required because our target patient
populations are so small. In addition, Genzyme obtained FDA approval of
Ceredase(R)/Cerezyme(R) after one clinical trial. The FDA may require us to
conduct additional clinical trials or expand the scope of our existing trial
for BM101. Regulatory approval would be delayed if we were required to
undertake additional clinical trials or expand the existing trial to include
more patients.
49
<PAGE>
We expect that for each product for which a single clinical trial is
authorized, that we will be required to conduct extended Phase IV clinical
trials to monitor the long-term effects of the therapy and assure the FDA that
the primary endpoints were reasonable predictors of the drug product's clinical
benefits. For example, we are conducting an additional 18 month trial of
patients from the original BM101 pivotal clinical trial to monitor their health
and the effects of the therapy.
We will also be subject to a variety of foreign regulations governing clinical
trials, manufacture and sales of our products. Whether or not FDA approval has
been obtained, approval of a product by the comparable regulatory authorities
of foreign countries must still be obtained prior to marketing in those
countries. The approval process varies from country to country and the time
needed to secure approval may be longer or shorter than that required for FDA
approval.
Food and Drug Administration Modernization Act of 1997. The Food and Drug
Administration Modernization Act of 1997 was enacted, in part, to ensure the
availability of safe and effective drugs, biologics and medical devices by
expediting the FDA review process for new products. The Modernization Act
establishes a statutory program for the approval of fast track products,
including biologics. The fast track provisions essentially codify the FDA's
accelerated approval regulations for drugs and biologics. A fast track product
is defined as a new drug or biologic intended for the treatment of a serious or
life-threatening condition that demonstrates the potential to address unmet
medical needs for this condition. Under the new fast track program, the sponsor
of a new drug or biologic may request the FDA to 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 an application for fast track designation for a 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 an
application for fast track designation will be subject to:
. Post-approval studies to validate the surrogate endpoint or confirm
the effect on the clinical endpoint
. 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 an application for fast
track designation for a 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 an application, does not begin
until the complete application is submitted.
In September 1998, the FDA granted our application for fast track designation
for BM101 for the more severe forms of MPS-I. We cannot predict the ultimate
impact, if any, of the fast track process on the timing or likelihood of FDA
approval of BM101 or any of our other potential products.
Orphan Drug Designation. In September 1997, BM101 received orphan drug
designation from the FDA. In February 1999, BM102 received orphan drug
designation from the FDA. Orphan drug designation is granted by the FDA to
drugs intended to treat a rare disease or condition. A rare disease or
condition is one which generally affects fewer than 200,000 individuals in the
United States. Orphan drug designation must be requested before submitting a
biologics license application. After the FDA grants orphan drug designation,
the generic identity of the therapeutic agent and its potential orphan use are
disclosed publicly by the FDA.
50
<PAGE>
Orphan drug designation does not shorten the FDA regulatory review and approval
process for an orphan drug, nor does it give that drug any advantage in the FDA
regulatory review and approval process. If an orphan drug later receives FDA
approval for the indication for which it has designation, the FDA may not
approve any other applications to market the same drug for the same indication,
except in very limited circumstances, for seven years. Although obtaining FDA
approval to market a product with orphan drug exclusivity may be advantageous,
we cannot be certain that we will be the first to obtain FDA approval for any
drug for which we obtain orphan drug designation. Nor can we be certain that
orphan drug designation will result in any commercial advantage or reduce
competition. Nor can we be certain that the limited exceptions to this
exclusivity will not be invoked by the FDA.
Regulation of Glyko, Inc.'s Diagnostic Tests as Medical Devices. Our
subsidiary, Glyko, Inc., develops diagnostic tests that screen for diseases
such as lysosomal storage diseases. The FDA regulates these tests as medical
devices. The FDA requires companies that desire to market new medical devices
to obtain either 510(k) clearance or approval of a Pre-market Approval
Application, or PMA, before they are sold. Regulation under a PMA can be
significantly more costly and time consuming than clearance under a 510(k)
notification. Glyko, Inc. has received 510(k) clearance from the FDA for a
urinary carbohydrate analysis test and is developing other diagnostic tests,
which we believe qualify for 510(k) clearance.
Glyko, Inc.'s diagnostic tests may be regulated as medical devices by the FDA
as Class I, Class II or Class III devices. The degree of regulation, as well as
the cost and time required to obtain regulatory approvals or clearances,
generally increases from Class I to Class III. Most diagnostic tests are
regulated as Class I or Class II devices. Glyko, Inc.'s diagnostic test for
urinary carbohydrate analysis has been classified as a Class I device. Under
the Food and Drug Administration Modernization Act of 1997, most Class I
devices are exempt from the 510(k) clearance requirement. Based on the advice
of our regulatory consultants and the experience with our first test, we expect
that all of our currently planned diagnostic tests will require a 510(k)
notification and clearance process.
A 510(k) notification is sufficient for a device that is "substantially
equivalent" to a legally marketed Class I or Class II device, or a Class III
"predicate" device for which the FDA has not yet required submission of PMAs.
Following submission of a 510(k) notification, a company may not market the
device for clinical use until the FDA finds that product is substantially
equivalent to a legally marketed predicate device. It generally takes four to
12 months from the date of submission of a 510(k) to obtain the FDA's
determination, but it may take longer. The FDA may determine that the device is
not substantially equivalent and require submission and approval of a PMA.
Alternatively, the FDA may require further information before making a
determination regarding substantial equivalence. The FDA requires a new 510(k)
submission and a separate FDA determination of substantial equivalence for any
devices cleared through the 510(k) process that have had modifications or
enhancements that could significantly affect their safety or effectiveness, or
that change their intended use.
If a device does not qualify for the 510(k) premarket notification procedure, a
company must file a PMA application. The PMA review and approval process can be
expensive, uncertain and lengthy. A PMA application must be supported by
extensive data, including laboratory and clinical trial data establishing the
safety and effectiveness of the device, as well as extensive manufacturing
information. After a preliminary review, the FDA makes an initial determination
about whether a PMA application is sufficiently complete to permit a
substantive review. If the FDA finds the PMA application sufficiently complete,
the FDA accepts the application for filing. Once the PMA application is
accepted for filing, the FDA begins a more in-depth review, which likely
includes review by a scientific advisory panel. During the PMA review process,
the FDA will conduct an inspection of the manufacturer's facilities to ensure
compliance with the applicable Quality System Regulation or QSR requirements.
The FDA may determine that additional clinical data is necessary or request
other information, which may delay the regulatory review process.
51
<PAGE>
Modifications to a device that is the subject of an approved PMA, its labeling,
manufacturing or clinical use may require approval by the FDA of PMA
supplements or new PMAs. PMA supplements often require submission of the same
type of information required for the initial PMA except that the supplement
generally is limited to that data needed to support the proposed changes.
Regulatory approval, if granted, may limit the uses for which the device may be
marketed. Approvals, once granted, may be withdrawn if problems occur after
initial marketing.
Sales of medical devices outside of the United States are subject to regulatory
requirements that vary from country to country. The time required to obtain
international regulatory clearance or approval for international sales may be
longer or shorter than that required for FDA clearance approval. The
requirements may differ as well. We cannot assure you that we will be able to
obtain the required regulatory approval in a timely manner, if at all.
Regulation of Glyko, Inc.'s Manufacturing. Glyko, Inc. is required to comply
with the FDA's quality system regulation requirements when manufacturing its
diagnostic tests. The quality system regulation requirements incorporate the
FDA's former current Good Manufacturing Processes into medical devices
regulations. Quality system regulation requirements address the design,
controls, methods, facilities and quality assurance controls used in
manufacturing, packing, storing and installing medical devices. In addition,
certain international markets have quality assurance and manufacturing
requirements that may be more or less rigorous than those in the United States.
A failure by us to comply with quality system regulation requirements or other
requirements could have a serious impact on our business and services.
Regulation of Clinical Laboratories. Laboratories using Glyko, Inc.'s
diagnostic tests for clinical use in the United States are regulated under
Clinical Laboratory Improvement Amendments of 1998, or CLIA. CLIA establishes
requirements for laboratories and laboratory personnel governing:
. Administration of laboratories
. Participation and proficiency testing
. Patient test management
. Quality control
. Personnel
. Quality assurance
. Inspection
The complexity of the tests being performed by the laboratory will determine
which CLIA requirements apply. Under CLIA regulations, all laboratories
performing moderately complex or highly complex tests will be required to
obtain either a registration certificate or certificate of accreditation from
the Health Care Financing Administration. A laboratory using our diagnostic
tests is required to be qualified to perform moderately or highly complex
tests. All of the laboratories known to us that are performing the diagnostic
procedures which might use our test are qualified at the appropriate levels.
If, in the future, a competitor develops a simpler diagnostic test that can be
performed in less qualified laboratories and if medical institutions begin to
use these less qualified laboratories to perform the competitive test, then
CLIA requirements will prevent the less qualified laboratories from performing
the current Glyko, Inc. test. The development of a simpler competitive
diagnostic test by a competitor may have a negative financial impact on our
revenues and results of operations. Glyko, Inc. has CLIA certification and a
California state laboratory license to perform urinary carbohydrate analysis
tests. The California laboratory license only allows testing for patients in
California. We may be required to obtain other licenses to perform our
laboratory services in other states or to provide services to patients or
health care professionals who reside or practice medicine in other states.
52
<PAGE>
See "Risk Factors--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."
Competition
Pharmaceutical Products. The biopharmaceutical industry is rapidly evolving and
highly competitive. We face significant competition from biotechnology and
pharmaceutical companies. Many of these companies have significantly greater
financial, manufacturing, marketing and product research resources and
experience than we have. Large pharmaceutical companies in particular have
extensive experience in clinical testing and in obtaining regulatory approvals,
including orphan drug designations. Accordingly, competitors may obtain
regulatory approvals for and commercialize their products faster than we will.
In addition, these companies will compete with us to attract qualified
personnel, and to attract parties for acquisitions, joint ventures or other
collaborations. Several pharmaceutical and biotechnology companies have
established themselves in the field of enzyme therapeutics, including Genzyme,
our joint venture partner.
Many colleges, universities and public and private research organizations are
also active in the human health care field. While these entities focus on
education, they may develop proprietary technology and acquire patents that we
may require for the development of our products. We may attempt to obtain
licenses to this proprietary technology. We cannot assure you, though, that we
will be able to obtain these licenses. We also compete with a number of these
organizations to recruit scientists and technicians.
We believe that the primary competitive factors in the market for biological
drug products are:
. Product safety
. Effectiveness of these products
. Ability to obtain orphan drug exclusivity
. Distribution channels
. Price
. Time required to develop new products
. Time required to obtain regulatory and reimbursement approval
. Ability to respond quickly to medical and technological changes
. Ability to develop new products
We believe, based on our progress developing BM101, that we can compete
successfully with regard to those competitive factors requiring timely
execution. With regard to other competitive factors including those regarding
distribution channels and low prices, we are at a competitive disadvantage. We
do not yet have established distribution channels and because our target
patient populations are small we expect that our drug products will be
relatively expensive. We do not intend to compete with others who have already
established successful treatments for specific genetic disorders, which should
ameliorate some of our competitive disadvantages.
Carbohydrate Analysis Products and Services. The FACE Imaging System's primary
competitors are alternative carbohydrate analytical technologies including:
. Capillary electrophoresis
. High pressure liquid chromatography
. Mass spectrometry
. Nuclear magnetic resonance spectrometry
53
<PAGE>
The major advantages of FACE are:
. Low cost
. Quantification of carbohydrates present
. Easy application to samples of unknown composition
. User friendly procedures and software
. Provides versatility for other non-carbohydrate applications
The major disadvantages of FACE are:
. FACE requires single-use specialized gels which give FACE systems a
higher disposable cost than some competitive products which have
reusable components.
. Some competitive products may provide a more precise measurement of
the molecular weight of a sample.
. One competitive technology can provide more complete structural
information about the sample.
The competition in the carbohydrate-active enzymes business is comprised
primarily of distributors of broad lines of research products and supplies,
particularly fine chemicals and reagents. Glyko, Inc. competes on the basis of
the catalog of products it offers and the number of carbohydrate-active enzymes
it offers and their proprietary nature. Glyko, Inc. believes that it also
provides superior service because it provides customers with sales information
and assistance based on scientific understanding of carbohydrate chemistry and
function. However, it does not offer as many products as some of its
competitors. Glyko, Inc. plans to expand its enzyme product offerings over the
next several years to compete with the broadest product lines offered today by
competitors. However, neither we nor Glyko, Inc. can assure you that Glyko,
Inc. will successfully broaden its product offerings or will otherwise compete
successfully.
Glyko, Inc.'s diagnostic product line competes primarily with alternative
technologies and laboratory services. Glyko, Inc. believes that its diagnostic
approaches are novel. Glyko, Inc. has the only urinary screening test cleared
by the FDA for certain lysosomal storage diseases. Glyko, Inc. believes that
the test may be used as a screening tool for early detection of a number of
lysosomal storage diseases and that success of the product will depend on
whether it becomes widely adopted. See "Risk Factors--If we fail to compete
successfully, our revenues and operating results will be adversely affected."
Facilities
We currently have operations in a total of six 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:
. Bel Marin Keys facility
. Galli Drive facility
. Pimentel Court facility
. Digital Drive facility
. Digital Drive sublease facility
The sixth building, the Carson Street facility, is located in Torrance,
California.
The Bel Marin Keys facility houses administrative staff and a clinical
production laboratory. It consists of approximately 13,400 square feet. The
lease expires in May 2001. We have an option to extend the lease for up to two
additional three-year periods.
54
<PAGE>
The Galli Drive facility consists of a total of approximately 31,000 square
feet and currently houses 6,700 square feet of modular laboratory space used
for research and development. We are currently developing an additional 23,400
square feet for a manufacturing facility, including core utility and support
functions sufficient for the entire building once fully developed. This
development will also create approximately 3,000 square feet of additional
mezzanine office space. This development is scheduled to be completed in the
third quarter of 1999. The lease expires in August 2003. We have an option to
extend the lease for one additional five-year period.
The Pimentel Court facility houses the administrative staff and research and
manufacturing operations of Glyko, Inc. It consists of approximately 11,000
square feet. The lease expires in March 2000. We have subleased a portion of
this facility to a third party.
The Digital Drive facility, when completed, is intended to house either a
research or a manufacturing facility. It is currently under construction. When
completed, it will consist of approximately 35,000 square feet. Construction of
the shell of the building is scheduled to be completed in the third quarter of
1999. The lease expires ten years and sixty days after the shell of the
building is completed.
The Digital Drive sublease facility houses a chemistry laboratory. It consists
of approximately 1,200 square feet. The facility has been subleased from a
third party. The sublease expires in January 2000.
The Carson Street facility houses our initial commercial manufacturing facility
for BM101 and consists of approximately 8,000 square feet. The lease expires in
June 2001. We have an option to extend the lease until April 2003.
In general, we believe that our facilities are well-suited for the specific
functions and objectives for which they were leased, designed and developed.
Our administrative office space is expected to be adequate for approximately
the next 18 months. We should have adequate space for research and development
activities in our Digital Drive facility into 2001. Our BM101 production
facilities' capacity may have to be supplemented beginning in 2001 if the MPS-I
market penetration rates are higher than currently expected. Based on the
timelines for other genetic disorders such as MPS-VI, productive capacity for
these products will have to be developed for larger scale commercial production
which may begin as early as 2001.
Employees
As of May 31, 1999, we had 80 full-time employees, 37 of whom are in research
and development, 30 of whom are in manufacturing, two of whom are in sales and
marketing and 11 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.
Legal Proceedings
We have no material legal proceedings pending.
55
<PAGE>
MANAGEMENT
Executive Officers, Directors and Key Employees
Set forth below is certain information regarding our executive officers,
directors and key employees:
<TABLE>
<CAPTION>
Name Age Position with BioMarin
---- --- ----------------------
<C> <C> <S>
Grant W. Denison, Jr................ 49 Chief Executive Officer and
Chairman of the Board
John C. Klock, M.D.................. 54 President, Secretary and Director
Raymond W. Anderson................. 57 Chief Financial Officer, and Vice
President, Finance and
Administration
Christopher M. Starr, Ph.D.......... 46 Vice President, Research and
Development
John L. Jost, Ph.D.................. 55 Vice President, Manufacturing
Emil D. Kakkis, M.D., Ph.D.......... 38 Vice President of BioMarin and
President, BioMarin Genetics,
a division of BioMarin
Stuart J. Swiedler, M.D., Ph.D...... 43 Vice President, Scientific and
Clinical Affairs
Brian K. Brandley, Ph.D............. 42 Vice President of BioMarin and
Managing Director, Glyko, Inc.,
a wholly-owned subsidiary of
BioMarin
Ansbert S. Gadicke, M.D.(/1/)(/2/).. 41 Director
Erich Sager(/1/).................... 41 Director
Gwynn R. Williams(/1/)(/2/)......... 65 Director
</TABLE>
-------------------------------
(/1/) Member of the Compensation Committee.
(/2/) Member of the Audit Committee.
Each director will hold office until the next annual meeting of stockholders
and until his successor is elected and qualified or until his earlier
resignation or removal. Each officer serves at the discretion of the Board of
Directors.
Grant W. Denison, Jr. has served as a director and Chief Executive Officer of
BioMarin since its inception and as Chairman of the Board since April 1997.
From July 1993 to April 1997, Mr. Denison served as President, Consumer
Products and Corporate Senior Vice President, Business Development at Searle, a
pharmaceutical company. From April 1986 to June 1993, Mr. Denison served as
Vice President Corporate Planning and President, U.S. Operations at Monsanto
Company, a diversified life sciences company. From 1985 to 1986, Mr. Denison
served as Vice President, International Operations at Squibb Medical Systems, a
medical devices company. From 1980 to 1985, Mr. Denison served as Vice
President, Planning and Business Development at Pfizer, Inc., a pharmaceutical
company. Mr. Denison serves as a director of Nastech Pharmaceutical Company
Inc., Dentalview, Inc. and Clubb BioCapital. Mr. Denison received an A.B. in
Mathematical Economics from Colgate University and an M.B.A. from Harvard
Graduate School of Business Administration.
John C. Klock, M.D. has served as the President and Secretary of BioMarin and
served as a director since its inception. Dr. Klock has served as the President
of Glyko, Inc. since October 1989. Dr. Klock was a founder of Glyko Biomedical
Ltd. and has served as a director since December 1992. Dr. Klock was a founder
of Glycomed Incorporated, a biotechnology company, at which he served as Vice
President, Medical Affairs from July 1987 to July 1990. Dr. Klock was a
scientific director at the Institute of Cancer Research at California Pacific
Medical Center from July 1981 to July 1987. Dr. Klock was an academic physician
and carbohydrate researcher at the University of California at San Francisco
from 1982 to 1986. Dr. Klock received a B.S. in Zoology from Louisiana State
University and received an M.D. from Tulane University.
Raymond W. Anderson has served as Chief Financial Officer and Vice President,
Finance and Administration since June 1998. Mr. Anderson served as the Vice
President, Finance and
56
<PAGE>
Chief Financial Officer at Fusion Medical Technologies, Inc., a medical
technology company developing drug delivery systems, from July 1997 to June
1998. Mr. Anderson served as the Vice President, Finance and Chief Financial
Officer at Fidus Medical Technology, Inc., a medical technology company
specializing in cardiac arrhythmias, from October 1996 to July 1997. Mr.
Anderson served as a director of Recombinant Capital, a consulting firm, from
July 1994 to October 1996. Mr. Anderson served as the Vice President, Finance
and Chief Financial Officer of Glycomed Incorporated, a biotechnology company,
from April 1989 to July 1994. Mr. Anderson was the Chief Financial Officer at
Chiron Corporation, a biotechnology company, from 1985 to 1989. Mr. Anderson
was a Controller and Director of Financial Planning and Analysis at Syntex
Laboratories, a pharmaceutical company, from 1981 to 1985. Mr. Anderson has
served as a director of Glyko Biomedical, Ltd. and its predecessor, Glyko,
Inc., since October 1989. Mr. Anderson received a B.S. in Engineering from the
United States Military Academy, an M.S. in Administration from George
Washington University and an M.B.A. from the Harvard Graduate School of
Business Administration.
Christopher M. Starr, Ph.D. has served as the Vice President, Research and
Development of BioMarin since its inception. From July 1991 to April 1998, Dr.
Starr has served as the Vice President, Research and Development for Glyko,
Inc., a carbohydrate analytical and diagnostic company. Dr. Starr held the
position as National Research Associate at the National Institutes of Health in
Bethesda, Maryland from August 1986 to June 1991. Dr. Starr received a B.S. in
Biology from Syracuse University and a Ph.D. in Biochemistry and Molecular
Biology from the State University of New York, Health Science Center, Syracuse,
NY.
John L. Jost, Ph.D. has served as the Vice President, Manufacturing of BioMarin
since June 1999. Dr. Jost devoted his time from November 1997 to June 1999 to
personal affairs. Dr. Jost served in several positions at Genentech, Inc., a
biotechnology company, from February 1983 to November 1997. From June 1992 to
November 1997, he was Director of Manufacturing Sciences at Genentech. From
1971 to 1983, he served in various scientific positions in process development
at The Upjohn Company, a pharmaceutical company, ending as a Senior Research
Scientist. Dr. Jost received a B.S. and a Ph.D. in Chemical Engineering from
the University of Minnesota.
Emil D. Kakkis, M.D., Ph.D. has served as Vice President of BioMarin and
President of BioMarin Genetics, a division of BioMarin, since September 1998.
From July 1994 to August 1998, Dr. Kakkis was a Physician Specialist at the
Department of Pediatrics at Harbor-UCLA Medical Center. From July 1991 to June
1994, Dr. Kakkis completed a Fellowship in Genetics at the UCLA Intercampus
Medical Genetics Training Program. Dr. Kakkis received a B.A. in Biology from
Pomona College and received a Ph.D. in Biological Chemistry from UCLA. Dr.
Kakkis received an M.D. from UCLA.
Stuart J. Swiedler, M.D., Ph.D. has served as Vice President of Scientific and
Clinical Affairs of BioMarin since June 1998. From November 1997 to June 1998,
Dr. Swiedler was as an independent biotechnology consultant. From February 1993
to November 1997, Dr. Swiedler has served, in chronological order, with
Glycomed Incorporated, a biotechnology company, as Assistant Vice President,
Biology from February 1993 to July 1994, as Assistant Vice President, Research
from July 1994 to May 1995, and as Vice President, Research from May 1995 to
November 1997. Dr. Swiedler received a B.S. in Biology from the State
University of New York at Albany. Dr. Swiedler received an M.D. and a Ph.D. in
Biochemistry from the Johns Hopkins University School of Medicine.
Brian K. Brandley, Ph.D. has served as Vice President of BioMarin since October
1998. Dr. Brandley has served as the Managing Director of Glyko, Inc., a
carbohydrate analytical and diagnostic company, since April 1998. He was an
Assistant Professor at Rush University from July 1995 to April 1998, and was
the Senior Scientist, Head of Cell Biology at Glycomed Incorporated, a
biotechnology company, from July 1988 to July 1995. Dr. Brandley received a
B.S. and an M.S. in Biology from the University of Miami. Dr. Brandley received
a Ph.D. in Biology from the University of Sydney, Australia.
57
<PAGE>
Ansbert S. Gadicke, M.D. has served as a director of BioMarin since December
1997. Since July 1992, Dr. Gadicke has served as the Chairman of the Board and
Managing Director of MPM Capital, L.P., an investment company specializing in
the healthcare industry. From 1989 to 1992, Dr. Gadicke was a consultant with
Boston Consulting Group. Dr. Gadicke currently serves on the boards of
MediGene AG, Genome Pharmaceuticals Corporation AG, t.Breeders Inc., Idea and
Novirio Pharmaceuticals, Ltd. Dr. Gadicke received a Ph.D. and an M.D. from
J.W. Goethe Universitat, Frankfurt, Germany.
Erich Sager has served as a director of BioMarin since November 1997. Since
September 1996, Mr. Sager has served as the Chairman of LaMont Asset
Management S.A., a private investment management firm. From April 1994 to
August 1996, Mr. Sager served as Senior Vice President, Head of Private
Banking for Dresdner Bank (Switzerland) Ltd. From September 1991 to
March 1994, Mr. Sager served as Vice President, Private Banking-Head German
Desk for Deutsche Bank (Switzerland) Ltd. From 1981 to 1989, Mr. Sager held
various positions at a number of banks in Switzerland. Mr. Sager serves as a
director of BioNebraska, Inc., Comptec Industries Ltd., Dentalview, Inc.,
LaMont Asset Management, S.A., and Sermont Asset Management. Mr. Sager
received a Business Degree from the School of Economics and Business
Administration in Zurich, Switzerland.
Gwynn R. Williams has served as a director of BioMarin since its inception.
Mr. Williams founded AstroMed Limited and Astroscan Limited, UK manufacturers
of scientific equipment, in March 1984, which entities, in December 1997,
merged into Life Science Resources Ltd. Previously, Mr. Williams was a partner
in Arthur Andersen & Co., a mathematician with General Motors Research, and a
mathematician with British Steel. Mr. Williams was a founder of
Glyko Biomedical Ltd. and its predecessor Glyko, Inc. Mr. Williams received a
B.S. in Theoretical Physics from the University of Wales.
Board Committees
The board has established an Audit Committee and a Compensation Committee. The
Audit Committee, which consists of Dr. Gadicke and Mr. Williams, reviews
BioMarin's financial statements and accounting practices, makes
recommendations to the board regarding the selection of independent auditors
and reviews the results and scope of the audit and other services provided by
BioMarin's independent auditors.
The Compensation Committee, which consists of Dr. Gadicke, Mr. Sager and Mr.
Williams, sets general compensation policy for BioMarin and has final approval
power over compensation to executive officers. The Compensation Committee also
has final approval power over guidelines and criteria for employees' bonuses
and administers the 1997 Stock Plan and 1998 Director Option Plan.
Director Compensation
Directors do not receive cash compensation for their services as directors of
BioMarin but are reimbursed for their reasonable expenses in attending
meetings of the board and while performing services for BioMarin. Prior to the
effectiveness of the 1998 Director Option Plan, BioMarin had granted each non-
employee director an option to purchase 20,000 shares of BioMarin common stock
with an exercise price set at the fair market value on the dates of grant,
$1.00, upon their election to the board as consideration for their willingness
to sit on the board. In March 1999, BioMarin also issued to each non-employee
director, for services performed as a director, an additional option to
purchase 15,000 shares of common stock with an exercise price set at the fair
market value on the date of grant, $7.00, as consideration for their ongoing
services to BioMarin as directors. In March 1999, Mr. Sager and Mr. Gadicke
were each also issued an option to purchase an additional 20,000 shares of
common stock of BioMarin at an exercise price set at the fair market value on
the date of grant, $7.00, as consideration for services rendered by them to
BioMarin in connection with this offering.
58
<PAGE>
1998 Director Option Plan
The 1998 Director Option Plan was adopted by the board in December 1998. It was
approved by the stockholders as of January 15, 1999. The plan provides for the
grant of nonstatutory stock options to non-employee directors. A total of
200,000 shares of BioMarin common stock has been reserved for issuance under
the plan. The plan also provides for an annual increase in this number of
shares equal to the lesser of: (1) 0.5% of BioMarin's outstanding capital
stock, (2) 200,000 shares, or (3) a lesser amount determined by the board.
As of December 1998, no options had been granted under the 1998 Director Option
Plan. In March 1999, options to purchase 45,000 shares of common stock had been
granted under the 1998 Director Plan.
The 1998 Director Option Plan provides that each non-employee director shall
automatically be granted an option to purchase 20,000 shares of BioMarin common
stock on the date which that person first becomes a non-employee director. This
option shall have a term of ten years. The shares subject to this initial
option shall vest over one year. Each non-employee director shall thereafter
also be automatically granted an option to purchase 15,000 shares of BioMarin
common stock on the anniversary of the date of their respective initial
appointments to the board and each anniversary thereafter, provided that he or
she retains the board seat on his or her anniversary date. The shares subject
to this annual option shall vest in full one year from the date of grant and
shall have a term of ten years. These options shall continue to vest only while
the director serves. The exercise price of each of these options shall be 100%
of the fair market value of a share of BioMarin common stock at the date of the
option.
In the event of a merger or the sale of substantially all of the assets of
BioMarin, each option may be assumed or substituted by the successor
corporation. If an option is assumed or substituted, it shall continue to vest
as provided in the plan. However, if a non-employee director's status as a
director of BioMarin or the successor corporation, as applicable, is
terminated, other than upon a voluntary resignation by the non-employee
director, the option shall immediately become fully vested and exercisable. If
the successor corporation does not agree to assume or substitute for the
option, each option shall become fully vested and exercisable for a period of
30 days from the date the board notifies the optionee of the option's full
exercisability, after which period the option shall terminate.
Options granted under the plan must be exercised within three months of the end
of the optionee's tenure as a director, or within 12 months after termination
by death or disability, but in no event later than the expiration of the
option's ten-year term. No option granted under the plan is transferable by the
optionee other than by will or the laws of descent or distribution. Each option
is exercisable, during the lifetime of the optionee, only by such optionee.
Unless sooner terminated by the board, the plan will terminate automatically
ten years from the effective date of the plan.
59
<PAGE>
Executive Compensation
Summary Compensation Table. The following table sets forth all compensation
awarded to, earned by, or paid for services rendered to BioMarin in all
capacities during the year ended December 31, 1998, by (1) BioMarin's chief
executive officer and (2) the other four most highly compensated executive
officers other than the chief executive officer who were serving as executive
officers as of December 31, 1998, collectively, the "Named Executive Officers".
Fiscal 1998 Summary Compensation Table
<TABLE>
<CAPTION>
1998 Annual Compensation Long-Term Compensation
---------------------------------- ------------------------
Number of
Name and Principal All Other Shares Underlying
Position Salary($) Bonus($) Compensation($) Options Granted(#) (/1/)
- ------------------ --------- -------- --------------- ------------------------
<S> <C> <C> <C> <C>
Grant W. Denison, Jr.... 202,500 87,550 -- 400,000
Chief Executive Officer
John C. Klock, M.D...... 222,450 87,550 2,142 300,000
President
Christopher M. Starr,
Ph.D................... 139,560 87,550 876 200,000
Vice President,
Research and
Development
Emil D. Kakkis, M.D.,
Ph.D................... 75,000 50,000 18 200,000
Vice President of
BioMarin, President of
BioMarin Genetics, a
division of the Company
Brian K. Brandley,
Ph.D................... 101,620 -- 348 --
Vice President of
BioMarin, Managing
Director of Glyko,
Inc., a wholly-owned
subsidiary of BioMarin
</TABLE>
- -------------------------------
(/1/) In connection with BioMarin's acquisition of Glyko, Inc. on October 7,
1998, the following individuals executed Share Exchange Agreements under
which they agreed that, upon exercise of certain of their options to
purchase common shares of Glyko Biomedical granted in connection with
services previously rendered by each of them to Glyko, Inc., they would
receive the following number of shares of BioMarin common stock in lieu
of common shares of Glyko Biomedical, to John C. Klock: 66,246 shares; to
Christopher M. Starr: 40,275 shares; and to Brian K. Brandley: 65,415
shares. These shares are not reflected in this column because they are
not issuable upon the exercise of options to purchase BioMarin common
stock granted for services rendered to BioMarin.
For the year ended December 31, 1997, Dr. Klock was paid $146,914 in salary as
compensation for services rendered by him in his capacity as President of
BioMarin.
Until October 1998, Mr. Denison devoted 70% of his time to BioMarin.
Subsequently, Mr. Denison has devoted 100% of his time to BioMarin. Since
October 1998 Mr. Denison's annual salary has been $257,000. Until April 1998,
Dr. Klock and Dr. Starr devoted, respectively, 70% of their time to BioMarin
and 30% to Glyko, Inc. Since April 1998, Dr. Klock and Dr. Starr have devoted
100% of their time to BioMarin. In 1998, Dr. Klock's annual salary was $250,000
and Dr. Starr's annual salary was $150,000. Dr. Kakkis' employment began in
September 1998 as Vice President of BioMarin and as President of BioMarin
Genetics, a division of BioMarin. His starting annual salary was $225,000.
Dr. Brandley began employment with Glyko, Inc. in April 1998. His starting
annual salary was $135,000.
As of April 20, 1999, the board has granted options to purchase the following
number of shares of BioMarin common stock: 100,000 shares to Grant W. Denison,
Jr., 75,000 shares to John C. Klock, 50,000 shares to Christopher M. Starr,
20,375 shares to Emil D. Kakkis and 17,270 shares to Brian K. Brandley.
60
<PAGE>
Stock Option Grants Table. The following table sets forth further information
regarding options granted to each of the Named Executive Officers during 1998.
Fiscal 1998 Stock Option Grants
<TABLE>
<CAPTION>
Option Term
-------------------------
Potential Realizable
Value at Assumed
Number of Percent of Annual Rates of Stock
Securities Total Options Price Appreciation
Underlying Granted to Exercise Price for Option Term (/4/)
Options Employees Per Expiration ---------------------
Name Granted (/1/) in 1998 (/2/) Share($) (/3/) Date 5% 10%
---- ------------- ------------- -------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Grant W. Denison, Jr.... 400,000 18% $4.00 6/08 $5,846,375 $9,718,149
John C. Klock, M.D...... 300,000 13% $4.00 6/08 $4,384,782 $7,288,612
Christopher M. Starr,
Ph.D................... 200,000 9% $4.00 6/08 $2,923,188 $4,859,074
Emil D. Kakkis, M.D.,
Ph.D................... 200,000 9% $4.00 6/08 $2,923,188 $4,859,074
Brian K. Brandley,
Ph.D................... -- -- -- -- -- --
</TABLE>
- -------------------------------
(/1/) These options are incentive stock options that vest over four years as
follows: (1) for Mr. Denison, Dr. Klock and Dr. Starr, 2/3 of the total
shares subject to such options shall vest at a rate of 1/48 of this
subtotal per month, with the remaining 1/3 of such total to vest upon
the completion of this offering or upon completion of four years of
continued employment, and (2) for Dr. Kakkis, 12.5% of the total shares
subject to his options vest six months after the vesting commencement
date and 1/48 of his total shall vest monthly thereafter. In connection
with BioMarin's acquisition of Glyko, Inc. on October 7, 1998, the
following individuals executed Share Exchange Agreements under which
they agreed that, upon exercise of certain of their options to purchase
common shares of Glyko Biomedical granted in connection with services
previously rendered by each of them to Glyko, Inc., they would receive
the following number of shares of BioMarin common stock in lieu of
common shares of Glyko Biomedical: to John C. Klock: 66,246 shares; to
Christopher M. Starr: 40,275 shares; and to Brian K. Brandley: 65,415
shares. These shares are not reflected in this column because they are
not issuable upon the exercise of options to purchase BioMarin common
stock granted for services rendered to BioMarin.
(/2/) Based on an aggregate of 2,252,120 shares subject to options granted by
BioMarin during 1998 to employees, consultants and the Named Executive
Officers.
(/3/) Options were granted at an exercise price equal to the fair market value
of the common stock, as determined by the Board of Directors, on the
date of grant.
(/4/) The 5% and 10% assumed annual rates of compounded stock price
appreciation are mandated by rules of the Securities and Exchange
Commission. BioMarin cannot assure any executive officer or any other
holder of its securities that the actual stock price appreciation over
the option term will be at the assumed 5% and 10% levels or at any other
defined level. Unless the market price of its common stock appreciates
over the option term, no value will be realized from the option grants
made to the executive officers. The potential realizable value is
calculated by assuming that the initial public offering price of $12.00
per share appreciates at the indicated rate for the entire term of the
option and that the option is exercised at the exercise price and sold
on the last day of its term at the appreciated price. The potential
realizable value computation is net of the applicable exercise price,
but does not take into account applicable federal or state income tax
consequences and other expenses of option exercises or sales of
appreciated stock. The values shown do not consider non-transferability
or termination of the options upon termination of such employee's
employment with BioMarin.
61
<PAGE>
Fiscal Year-End Option Value Table. The following table sets forth the number
of shares covered by both exercisable and unexercisable stock options held by
each of the Named Executive Officers at December 31, 1998. No shares were
acquired upon the exercise of stock options during 1998.
Aggregate 1998 Fiscal Year-End Option Value Table
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at Year-End (/1/) at Year-End (/2/)
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Grant W. Denison, Jr...... 50,000 350,000 $400,000 $2,800,000
John C. Klock, M.D........ 37,500 262,500 $300,000 $2,100,000
Christopher M. Starr,
Ph.D..................... 25,000 175,000 $200,000 $1,400,000
Emil D. Kakkis, M.D.,
Ph.D..................... 25,000 175,000 $200,000 $1,400,000
Brian K. Brandley, Ph.D... -- -- $ -- $ --
</TABLE>
- -------------------------------
(/1/) These options are incentive stock options that vest over four years as
follows: (1) for Mr. Denison Dr. Klock and Dr. Starr, 2/3 of the total
shares subject to such options shall vest at a rate of 1/48 of this
subtotal per month, with the remaining 1/3 of such total to vest upon the
completion of this offering or upon four years of service, and (2) for
Dr. Kakkis, at a rate of 12.5% of the total shares subject to his options
vest six months from vesting commencement date and 1/48 of his total
shall vest monthly thereafter. In connection with BioMarin's acquisition
of Glyko, Inc. on October 7, 1998, the following individuals executed
Share Exchange Agreements under which they agreed that, upon exercise of
certain of their options to purchase common shares of Glyko Biomedical
granted in connection with services previously rendered by each of them
to Glyko, Inc., they would receive the following number of shares of
BioMarin common stock in lieu of common shares of Glyko Biomedical: to
John C. Klock: 66,246 shares; to Christopher M. Starr: 40,275 shares; and
to Brian K. Brandley: 65,415 shares. These shares are not reflected in
this column because they are not issuable upon the exercise of options to
purchase BioMarin common stock granted for services rendered to BioMarin.
See "Employee Benefits Plans" for a description of the material terms of
these options.
(/2/) Based on the assumed public offering price of $12.00 per share, less the
exercise price.
62
<PAGE>
Employment Agreements
We are party to employment agreements with the executive officers and on the
terms enumerated on the chart below. Each of these employment agreements is
terminable without cause by BioMarin upon six months prior written notice, or
by the officer upon three months prior written notice to BioMarin. BioMarin is
obligated to pay the officer's salary and benefits until this termination. In
the event that the officer is involuntarily terminated within one year of a
change of control of BioMarin he will receive:
. a severance payment equal to six months of his annual salary,
. a bonus equal to 50% of the annual bonus that he would otherwise be
entitled to, and
. immediate vesting of 50% of the unvested portion of his outstanding
options to purchase BioMarin capital stock.
<TABLE>
<CAPTION>
1998 Initial Grant of Right Agreement
Name of Executive Annual to Purchase Termination
Officer Salary Rate Annual Bonus Equity Securities Date
- ----------------- ----------- ------------ ---------------------- -----------
<S> <C> <C> <C> <C>
Grant W. Denison, Jr. $257,000 Based upon 1,300,000 shares of June 26,
BioMarin's market BioMarin's stock at 2000
capitalization purchase price of
$1.00 per share.
John C. Klock, M.D. $250,000 Based upon 800,000 shares of June 26,
Biomarin's market BioMarin's stock at 2000
capitalization purchase price of
$1.00 per share.
Christopher M. Starr, $150,000 Based upon 400,000 shares of June 26,
Ph.D. BioMarin's market BioMarin's stock at 2000
capitalization purchase price of
$1.00 per share.
Brian K. Brandley, Ph.D. $135,000 Annual bonus, Option to purchase None
payable in cash or up to 150,000
stock, customarily shares of Glyko
between 10-15% of Biomedical's common
his annual salary. stock. Now
exercisable for
65,415 shares of
our common stock.
Raymond W. Anderson $185,000 Eligible to receive Option to purchase None
a cash bonus. 200,000 shares of
common stock.
John L. Jost, Ph.D. $200,000 Eligible to receive Option to purchase None
a cash bonus. 200,000 shares of
common stock.
Emil Kakkis, M.D., Ph.D. $225,000 Contingent upon Option to purchase None
regulatory filings 200,000 shares of
and approvals. common stock.
Stuart Swiedler, M.D., $150,000 Annual bonus, Option to purchase None
Ph.D. payable in cash or 150,000 shares of
stock, customarily common stock.
between 10-15% of
his annual salary.
</TABLE>
We provided a three-year loan to each of Mr. Denison, Dr. Klock and Dr. Starr
for the purchase of their shares referenced in column four of the table above.
Each loan bears interest at a rate of 6%. For each of them, respectively, if
his employment is terminated by us for any reason, he has the right to sell
63
<PAGE>
any or all of these shares of common stock to us at a price per share equal to
the lesser of the then-current per share market price of the shares or the
original per share purchase price, $1.00. In the event he ceases employment
with us for any reason, we also have the right, but not the obligation, to
repurchase the unvested portion of the shares at their original per share
purchase price, $1.00. Fifty percent of the shares vested after one year from
the date of his employment, with the remainder vesting at a rate of 1/24 per
month thereafter.
Dr. Brandley's employment agreement was with Glyko, Inc. but was assigned to us
in connection with our acquisition of Glyko, Inc.
The founder's annual cash bonus for each of Mr. Denison, Dr. Klock and Dr.
Starr is based on the difference between a minimum market capitalization and
BioMarin's quarterly market capitalization. The annual cash bonus is calculated
as follows:
The board of directors established a minimum market capitalization of $20.0
million for the first quarter of 1998. The minimum market capitalization
increases by $1.0 million per quarter until the end of the agreement in the
second quarter of 2000. Our quarterly market capitalization is calculated at
the end of each calendar quarter by multiplying the number of our common shares
outstanding times the average closing price of our common stock for the last
ten trading days of the quarter. If our common stock is not publicly traded the
quarterly market capitalization is determined by multiplying the shares of our
common stock outstanding by the price at which of our common stock was sold in
the latest significant investment by an independent third-party investor. For
each full $5.0 million that the quarterly market capitalization exceeds the
minimum market capitalization, the founders each receive a cash bonus of $1,200
in the first calendar quarter, $1,250 in the second and third calendar
quarters, and $1,300 in the fourth calendar quarter. Each founder's annual cash
bonus is the sum of all the four quarterly bonuses.
Each founder's total annual cash bonus may not exceed 100% of base salary in
any year. Additional amounts beyond the cash limit that may be earned in the
year will be paid in stock options using the Black-Scholes option pricing model
to calculate the value of the stock option based on year-end parameters.
This offering will increase the bonuses paid to the founders because it will
increase our market capitalization. Assuming that the offering is for the base
number of shares, the underwriters do not exercise the over allotment option,
and the per share price in this offering is in the midpoint of the pricing
range, this bonus increase would be $130,000 per founder for the second half of
1999. There are no adjustments in the founders' annual salaries that result
from increases in market capitalization.
In December 1998, the board approved a form of indemnification agreement to be
entered into between us and each of our officers and directors. This
indemnification agreement requires us, among other things, to indemnify
officers and directors against liabilities that may arise by reasons of their
status or performance of their duties as officers or directors and to advance
their expenses incurred as a result of any proceeding against them as to which
they could be indemnified.
For a description of other transactions between BioMarin and affiliates of
BioMarin, see "--Management; and --Compensation Committee Interlocks and
Insider Participation."
Compensation Committee Interlocks and Insider Participation
No member of the Compensation Committee of the board has at any time since our
formation been an officer or employee of BioMarin. Other than Dr. Klock and Mr.
Anderson, who are each directors of Glyko Biomedical, no executive officer of
BioMarin serves as a member of the board of directors or
64
<PAGE>
compensation committee of any entity that has one or more executive officers
serving on the Board or the Compensation Committee of the Board. Mr. Anderson
also serves on the Compensation Committee of Glyko Biomedical.
Employee Benefit Plans
1997 Stock Plan. On November 14, 1997, the board adopted the 1997 Stock Plan
and approved the reservation of a total of 3,000,000 shares of common stock for
issuance under the 1997 Stock Plan. The stockholders approved the 1997 Stock
Plan in April 1998. In December 1998, the board approved an amendment to the
1997 Stock Plan. The stockholders approved the amendment as of January 15,
1999. The amendment increases the number of shares reserved for issuance under
the 1997 Stock Plan to an aggregate of 5,000,000. The amendment also added an
"evergreen provision" providing for an annual increase in the number of shares
that may be optioned or sold under the 1997 Stock Plan without need for
additional board or stockholder actions, which increase shall be the lesser of:
(1) 4% of the then-outstanding capital stock of BioMarin, (2) 2,000,000 shares,
or (3) a lower amount set by the board. The 1997 Stock Plan provides for the
grant of stock options and the issuance of restricted stock by BioMarin to its
employees, officers, directors and consultants. The 1997 Stock Plan permits the
grant of options that are either incentive stock options, or ISOs, as defined
in Section 422 of the Internal Revenue Code of 1986, as amended, or
nonqualified stock options, or NSOs, on terms, including the exercise price,
which may not be less than 85% of the fair market value of our common stock for
NSOs, and the vesting schedule, determined by the board, subject to certain
statutory limitations and other limitations in the 1997 Stock Plan.
Options granted under the 1997 Stock Plan are generally not transferable by the
optionee. Options granted under the 1997 Stock Plan must generally be exercised
within three months after the end of the optionee's status as an employee,
director or consultant of BioMarin, or within twelve months after the
optionee's termination by death or disability, but in no event later than the
expiration of the option's term.
The exercise price of all incentive stock options granted under the 1997 Stock
Plan must be at least equal to the fair market value of BioMarin common stock
on the date of grant. The exercise price of NSOs granted under the 1997 Stock
Plan is determined by the board at an exercise price not less than 85% of fair
market value. With respect to nonstatutory stock options intended to qualify as
"performance-based compensation" within the meaning of Section 162(m) of the
Internal Revenue Code, the exercise price must be at least equal to the fair
market value of BioMarin common stock on the date of grant. With respect to any
participant who owns stock possessing more than 10% of voting power of all
classes of BioMarin's outstanding capital stock, the exercise price of any
incentive stock option granted must be at least equal to 110% of the fair
market value on the grant date and the term of such incentive stock option must
not exceed five years. The term of all other options granted under the 1997
Stock Plan may not exceed ten years.
The 1997 Stock Plan provides that in the event of a merger of BioMarin with or
into another corporation, or a sale of substantially all of BioMarin's assets,
each option may be assumed or an equivalent option substituted for by the
successor corporation. If the outstanding options are not assumed or
substituted, the administrator shall provide for the optionee to have the right
to exercise the option as to all of the optioned stock, including shares as to
which it would not otherwise be exercisable.
1998 Employee Stock Purchase Plan. In December 1998, the board adopted, and as
of January 15, 1999, the stockholders approved, the 1998 Employee Stock
Purchase Plan. A total of 250,000 shares of BioMarin common stock has been
reserved for issuance under the 1998 Employee Stock Purchase Plan. The plan
also contains an "evergreen provision" providing for an annual increase in the
number of shares which may be sold under the plan equal to the lesser of (1)
0.5% of the then-outstanding BioMarin capital stock, (2) 200,000 shares, or (3)
a lesser amount set by the board.
65
<PAGE>
As of December 31, 1998, no shares have been issued under the 1998 Employee
Stock Purchase Plan. This plan will become effective upon the completion of
this offering.
The 1998 Employee Stock Purchase Plan is intended to qualify under Section 423
of the Internal Revenue Code and contains consecutive, overlapping, 24 month
offering periods. Each offering period includes four six-month purchase
periods. The offering periods generally start on the first trading day on or
after May 1 and November 1 of each year, except for the first offering period
that commences on the first trading day on or after the effective date of this
offering and ends on the last trading day on or before October 31, 2000.
Employees are eligible to participate if they are customarily employed by
BioMarin or a participating subsidiary for at least 20 hours per week and more
than five months in any calendar year. However, any employee who either: (1)
immediately after grant owns stock possessing 5% or more of the total combined
voting power or value of all classes of BioMarin capital stock, or (2) whose
rights to purchase stock under all of BioMarin's employee stock purchase plans
accrue at a rate which exceeds $25,000 worth of stock for each calendar year,
may not be granted an option to purchase stock under the 1998 Employee Stock
Purchase Plan. The 1998 Employee Stock Purchase Plan permits employees to
purchase common stock through payroll deduction of up to 10% of the employee's
compensation that is base earnings and commissions, excluding overtime, shift
premium, incentive payments and bonuses. The maximum number of shares an
employee may purchase during a single purchase period is 5,000 shares.
The price of stock purchased under the 1998 Employee Stock Purchase Plan is
generally 85% of the lower of the fair market value of the common stock: (1) at
the beginning of the offering period or (2) at the end of the purchase period.
In the event the fair market value at the end of a purchase period is less than
the fair market value at the beginning of the offering period, the employees
will be withdrawn from the current offering period following exercise and
automatically re-enrolled in a new offering period. The new offering period
will use the lower fair market value as of the first date of the new offering
period to determine the purchase price for future purchase periods. Employees
may end their participation at any time during an offering period, and they
will be paid their payroll deductions to date. Participation ends automatically
upon termination of employment with BioMarin.
Rights granted under the 1998 Employee Stock Purchase Plan are generally not
transferable by an employee other than by will or the laws of descent and
distribution. In the event of a merger of BioMarin with or into another
corporation or a sale of substantially all of BioMarin's assets, each
outstanding option under the 1998 Employee Stock Purchase Plan may be assumed
or substituted for by the successor corporation. If the successor corporation
refuses to assume or substitute for the outstanding options, the offering
period then in progress will be shortened and a new exercise date will be set.
The board of directors has the authority to terminate or amend the 1998
Employee Stock Purchase Plan to the extent necessary to avoid unfavorable
financial accounting consequences by altering the purchase price for any
offering period, shortening any offering period or allocating remaining shares
among the participants. The 1998 Employee Stock Purchase plan will terminate
automatically ten years from the effective date of this offering unless it is
terminated sooner by the board.
401(k) Plan. BioMarin sponsors the Glyko Retirement Savings Plan or the 401(k)
Plan. Employees are eligible to participate immediately following the start of
their employment, on the earlier of the next occurring January 1 or July 1.
Participants may contribute up to approximately 15% of their current
compensation, up to a statutorily prescribed annual limit, to the 401(k) Plan.
Each participant is fully vested in his or her salary reduction contributions.
Participant contributions are held in trust as required by law. Individual
participants may direct the trustee to invest their accounts in authorized
investment alternatives. BioMarin pays the direct expenses of the 401(k) Plan
but does not currently match or make contributions to employee accounts. The
401(k) Plan is intended to qualify under Section 401(a) of the Internal Revenue
Code so that contributions to the 401(k) Plan, and income earned on such
contributions, are not taxable to participants until withdrawn or distributed
from the 401(k) Plan.
66
<PAGE>
CERTAIN TRANSACTIONS
On April 19, 1997, BioMarin sold to Glyko Biomedical, 1,500,000 shares of
BioMarin's common stock for aggregate consideration of $1.5 million. Dr. John
Klock, who is the President and Secretary of BioMarin, as well as a director,
is also the President, Chief Executive Officer and Chief Financial Officer of
Glyko Biomedical, as well as a director thereof. On June 26, 1997, BioMarin
entered into a license agreement with Glyko Biomedical pursuant to which
BioMarin was granted an exclusive, worldwide, perpetual royalty-free license to
certain technology for therapeutic uses. On September 24, 1997, BioMarin issued
7,000,000 shares of our common stock to Glyko Biomedical as consideration for
the license granted to it under the Glyko Biomedical license agreement.
BioMarin entered into a pre-emptive rights agreement, dated June 26, 1997, with
Glyko Biomedical, pursuant to which Glyko Biomedical was granted the right to
purchase a pro rata share of new issuances of securities by BioMarin, subject
to limited exemptions. This agreement terminates immediately prior to the
initial public offering.
On April 18, 1997, Gwynn Williams was appointed one of the three initial
directors of BioMarin. Mr. Williams is a holder of 11% of the outstanding
capital stock of Glyko Biomedical.
On October 1, 1997, BioMarin sold 800,000 shares of common stock to Dr. Klock
in exchange for a full recourse, three-year promissory note secured by the
shares in the principal amount of $800,000. On October 1, 1997, BioMarin sold
1,300,000 shares of common stock to Mr. Denison in exchange for a full
recourse, three-year promissory note secured by the shares in the principal
amount of $1.3 million. On October 1, 1997, BioMarin sold 400,000 shares of
common stock to Dr. Starr in exchange for a full recourse, three-year
promissory note secured by the shares in the principal amount of $400,000.
These loans bear interest at a rate of 6%. If their respective employments are
terminated by BioMarin for any reason, each of Mr. Denison, Dr. Klock and Dr.
Starr has the right to sell any or all of these shares to BioMarin at a per
share price equal to the lesser of the then-current per share market price of
the shares or the original per share purchase price of $1.00. In the event any
of these officers ceases to be an employee for any reason, BioMarin has the
right, but not the obligation, to repurchase the unvested portion of the shares
at their original purchase price. Fifty percent of the shares vested after one
year from their date of employment with the remainder vesting at a rate of
1/24 per month thereafter.
On November 14, 1997, Erich Sager, Chairman of LaMont Asset Management S.A., a
holder of 13% of the outstanding capital stock of Glyko Biomedical, was
appointed to the board of BioMarin. Since November 14, 1997, BioMarin has sold
675,000 common shares at $1.00 per share, 260,000 common shares at $6.00 per
share and $9.7 million of convertible notes to LaMont Asset Management S.A.
BioMarin entered into an Agency Agreement dated August 5, 1997 with Clubb
Capital Ltd., or Clubb, an entity with which Mr. Denison is affiliated through
his directorship of Clubb Biocapital, an entity affiliated with Clubb, pursuant
to which BioMarin was to pay Clubb a placement agent's commission in connection
with a proposed $8.5 million private placement financing. Between October 1,
1997 and December 30, 1997, as part of an approximately $8.8 million private
placement financing, BioMarin issued as a commission 801,500 shares of common
stock and warrants to purchase an aggregate of 801,500 shares of Common Stock
to Clubb under the terms of the Agency Agreement dated August 5, 1997. These
warrants have an exercise price of $1.00 per share and a three year term. These
warrants contain a net exercise provision which allows Clubb, at its
discretion, to exercise the warrant without paying the exercise price in cash
by exercising it for less than the full number of shares subject to the
warrant.
On December 30, 1997, BioMarin entered into a preemptive rights agreement with
BB BioVentures L.P., or BBB, in connection with its purchase of 5,000,000
shares of common stock of BioMarin, pursuant to which BBB was granted the right
to purchase a pro rata share of new issuances of securities by BioMarin,
subject to limited exemptions. This agreement terminates immediately prior to
the initial public offering. Also in connection with such investment by BBB,
Dr. Gadicke, an affiliate
67
<PAGE>
of BBB, was appointed to the board of BioMarin. Also in connection with this
investment, BioMarin, Dr. Klock, Mr. Denison, Dr. Starr and Glyko Biomedical
entered into a voting agreement pursuant to which each party agreed to vote all
shares of BioMarin's outstanding capital stock held by them in favor of a BBB
nominee to BioMarin's board, so long as BBB held at least 5% of the outstanding
capital stock of BioMarin, which agreement shall terminate upon the initial
public offering of BioMarin's capital stock, in a firm commitment underwriting
with aggregate gross proceeds to BioMarin of at least $5.0 million. As long as
BBB holds a board position in BioMarin, BBB has a right to participate in the
management of BioMarin. In the event that BBB does not retain a board position
in BioMarin, BBB is entitled to certain board observation rights which
terminate upon the offering.
On November 14, 1997, for their services as directors, the board approved the
grant to each of Mr. Sager and Mr. Williams of an option to purchase 20,000
shares of common stock at an exercise price of $1.00 per share.
On January 22, 1998, for his services as a director, the board approved a grant
to Dr. Gadicke of an option to purchase 20,000 shares of common stock at an
exercise price of $1.00 per share.
On June 15, 1998, the board approved the following option grants, each at an
exercise price of $4.00 per share, to officers of BioMarin:
. to Mr. Denison of an option to purchase 400,000 shares
. to Dr. Klock of an option to purchase 300,000 shares
. to Dr. Starr of an option to purchase 200,000 shares
. to Mr. Anderson of an option to purchase 200,000 shares
. to Dr. Kakkis of an option to purchase 200,000 shares
. to Dr. Swiedler to purchase 150,000 shares
BioMarin entered into a second Agency Agreement with Clubb, dated June 26,
1998, pursuant to which BioMarin was to pay Clubb placement agent's commission
in connection with an $11.5 million private placement financing. Between June
30, 1998 and August 3, 1998, BioMarin issued, as a commission, 98,000 shares of
BioMarin's common stock to Clubb or its affiliates.
Under the pre-emptive rights agreement, on June 30, 1998, BioMarin sold an
additional 166,667 shares of BioMarin's common stock to Glyko Biomedical for
aggregate consideration of $1.0 million.
On July 14, 1998, BioMarin sold to BBB, a holder of greater than 10% of
BioMarin's outstanding Capital Stock, MPM BioVentures Parallel Fund L.P. and
MPM Asset Management Investors 1998 L.L.C., the latter two entities being
affiliated with BBB, a total of 416,667 shares of common stock for an aggregate
consideration of $2.5 million. MPM BioVentures Parallel Fund L.P. and MPM Asset
Management Investors 1998 L.L.C. are each managed by MPM Capital, L.P. of which
Dr. Gadicke is the Chairman of the Board and Managing Director.
On September 4, 1998, BioMarin received $8.0 million from Genzyme upon
execution of a joint venture agreement in which we issued 1,333,333 shares of
common stock to Genzyme. As a result of this joint venture agreement, BioMarin
has a 50% interest in the income or loss of the joint venture, BioMarin/Genzyme
LLC.
On October 7, 1998, BioMarin purchased Glyko, Inc., a wholly-owned subsidiary
of Glyko Biomedical, from Glyko Biomedical, for an aggregate purchase price of
$14.5 million. Such purchase price was paid for with 2,259,039 shares of common
stock of BioMarin, valued at $6.00 per share, the assumption by BioMarin of
certain stock options held by Glyko, Inc. employees which were exercisable into
a maximum of 255,540 shares of common stock of BioMarin at an average exercise
price of $2.30 per share, and $500 in cash. Included in the assumed stock
options was an option granted to Dr. Brandley,
68
<PAGE>
which is exercisable for 65,415 shares of BioMarin's common stock at an
exercise price of $5.27 per share, when fully vested, and options granted to
Dr. Klock exercisable for a total of 66,246 shares of BioMarin's common stock
at a weighted average exercise price of $1.02 per share when fully vested and
options to Dr. Starr exercisable for a total of 40,275 shares of our common
stock at a weighted average exercise price of $1.02 per share when fully
vested.
BioMarin had contractual agreements for office space and administrative,
research, and development functions with Glyko, Inc. prior to the acquisition
date of October 7, 1998. BioMarin reimbursed Glyko, Inc. for rent, salaries and
related benefits, and other administrative costs. Glyko, Inc. also reimbursed
BioMarin for salaries and related benefits. BioMarin reimbursed Glyko, Inc. for
a net $240,848, $223,418, and $342,736 for the period from March 21, 1997
(inception) to December 31, 1997, the year ended December 31, 1998, and the
period from March 21, 1997 (inception) to October 7, 1998.
On December 22, 1998, the board approved indemnification agreements with each
officer and each director of BioMarin.
On January 15, 1999, the board approved the following option grants, each at an
exercise price of $7.00 per share, to officers of BioMarin:
. to Mr. Denison an option to purchase 100,000 shares
. to Dr. Klock an option to purchase 75,000 shares
. to Dr. Starr an option to purchase 50,000 shares
. to Mr. Anderson an option to purchase 25,000 shares
. to Dr. Kakkis an option to purchase 16,667 shares
. to Dr. Swiedler an option to purchase 23,438 shares
. to Dr. Brandley an option to purchase 12,265 shares
On March 22, 1999, options were granted to Dr. Gadicke, Mr. Sager and Mr.
Williams to purchase 15,000 shares each at an exercise price of $7.00 per share
as compensation for their services as directors under the 1998 Director Option
Plan.
On March 22, 1999, the board approved option grants to Dr. Gadicke and Mr.
Sager to purchase 20,000 shares each at an exercise price of $7.00 per share as
compensation for services provided to the management of BioMarin in regards to
the offering.
Also on March 22, 1999, the board approved the following option grants, each at
an exercise price of $7.00 per share, to officers of BioMarin:
. to Mr. Anderson an option to purchase 4,573 shares
. to Dr. Kakkis an option to purchase 3,708 shares
. to Dr. Swiedler an option to purchase 4,634 shares
. to Dr. Brandley an option to purchase 5,005 shares.
On April 12, 1999, BioMarin sold a total of $26.0 million worth of three-year
promissory notes convertible, according to their terms, into BioMarin common
stock, at an initial conversion price, subject to adjustment, of $10.00 per
share. Glyko Biomedical purchased $4.3 million worth of these notes and LaMont
Asset Management S.A. purchased $9.7 million worth of these notes. In
connection with this transaction, BioMarin also entered into an agency
agreement with LaMont Asset Management S.A., pursuant to which BioMarin agreed
to pay LaMont Asset Management S.A. a cash commission of $1.1 million on sales
of notes to certain European purchasers introduced to BioMarin by LaMont Asset
Management S.A.
On June 15, 1999, the Compensation Committee approved the grant to Dr. Jost of
an option to purchase 200,000 shares of BioMarin common stock at an exercise
price equal to the offering price.
69
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of our common stock as of May 31, 1999, and as adjusted to
reflect the sale of 4,500,000 shares of common stock in this offering, by:
. each person, or group of affiliated persons, who is known by us to
own beneficially more than 5% of the common stock
. each of our directors
. each of our Named Executive Officers
. all of our directors and current executive officers as a group
Except as otherwise noted, the persons or entities in this table have sole
voting and investing power with respect to all the shares of common stock
beneficially owned by them subject to community property laws, where
applicable.
The "Number of Shares Beneficially Owned" column below is based on 26,176,180
shares of common stock outstanding at May 31, 1999, and 34,109,513 shares of
common stock outstanding after the offering. Shares of common stock subject to
options or warrants that are currently exercisable or exercisable within 60
days of May 31, 1999 are deemed to be outstanding and to be beneficially owned
by the person holding the options or warrants for the purpose of computing the
percentage ownership of such person but are not treated as outstanding for the
purpose of computing the percentage ownership of any other person.
The "Number of Shares Subject to Options" enumerates for each principal
stockholder, director and Named Executive Officer and for all officers and
directors in aggregate, the shares of common stock subject to options
exercisable within 60 days of May 31, 1999 and options exercisable upon
completion of the offering. These shares are included in the calculation of the
"Number of Shares Beneficially Owned."
The "Percentage of Shares Beneficially Owned After Offering" column below is
calculated after giving effect to the sale to Genzyme of $10.0 million worth of
common stock at an assumed purchase price of $12.00 per share, the conversion
of outstanding convertible promissory notes into 2,600,000 shares of common
stock, assuming no interest on these notes is converted into shares of common
stock, and the sale and issuance of 4,500,000 shares of common stock in this
offering.
70
<PAGE>
<TABLE>
<CAPTION>
Percentage of
Shares
Beneficially
Number of Number of Owned
Shares Shares -----------------
Beneficially Subject Before After
Name of Beneficial Owner Owned to Options Offering Offering
- ------------------------ ------------ ---------- -------- --------
<S> <C> <C> <C> <C>
Glyko Biomedical Ltd................ 10,925,706 0 41.7% 33.3%
371 Bel Marin Keys Blvd., Suite 210
Novato, CA 94949
BB BioVentures, L.P.(/1/)........... 5,416,667 0 20.7% 15.9%
One Cambridge Center, 9th Floor
Cambridge, MA 02142
Genzyme Corporation................. 1,333,333 0 5.1% 6.4%
One Kendall Square
Cambridge, MA 02139
LaMont Asset Management S.A......... 935,000 0 3.6% 5.6%
Baarerstrasse 10
P.O. Box 4639
6304 Zug, Switzerland
Grant W. Denison, Jr................ 1,536,806 236,805 5.8% 4.5%
John C. Klock, M.D.(/2/)............ 11,969,556 243,850 45.3% 35.1%
Christopher M. Starr, Ph.D.......... 558,679 158,679 2.1% 1.6%
Emil D. Kakkis, M.D., Ph.D.......... 60,305 60,305 * *
Brian K. Brandley, Ph.D............. 28,599 28,599 * *
Ansbert S. Gadicke(/3/)............. 5,464,167 47,500 20.8% 16.0%
Erich Sager(/4/).................... 814,100 47,500 3.1% 2.4%
Gwynn R. Williams(/5/).............. 10,953,206 27,500 41.8% 32.1%
All current executive officers and
directors as a group
(10 persons)(/6/).................. 20,619,385 1,010,412 75.8% 60.5%
</TABLE>
- -------------------------------
* Represents less than 1% of the Company's outstanding common stock.
(/1/) Includes shares held by MPM Asset Management 1998 Investors L.L.C. and
MPM BioVentures Parallel Fund L.P., both of which are affiliated with
BB BioVentures L.P.
(/2/) Includes 10,925,706 shares held by Glyko Biomedical Ltd. of which Dr.
Klock is an officer, director and stockholder. Dr. Klock disclaims
beneficial ownership of these shares, except to the extent of his
pecuniary interest.
(/3/) Includes 5,416,667 shares currently held by BB BioVentures, L.P.,
MPM Asset Management 1998 Investors L.L.C. and MPM BioVenture Parallel
Fund L.P., of which Dr. Gadicke is an affiliate. Dr. Gadicke disclaims
beneficial ownership in these shares except to the extent of his
pecuniary interest.
(/4/) Includes 265,000 shares of common stock currently held by LaMont Asset
Management, and 236,600 shares held by Belmont Capital Ltd. S.A. Mr.
Sager is an affiliate of each entity. Mr. Sager disclaims beneficial
ownership of the shares of Belmont Capital Ltd., except to the extent
of his pecuniary interest.
(/5/) Includes 10,925,706 shares of common stock currently held by Glyko
Biomedical Ltd., of which Mr. Williams is a stockholder and a director.
Mr. Williams disclaims beneficial ownership of these shares except to
the extent of his pecuniary interest.
(/6/) See footnotes 2 through 5.
71
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Immediately following the closing of this offering, the authorized capital
stock of BioMarin will consist of 75,000,000 shares of common stock, $0.001 par
value per share, and 1,000,000 shares of preferred stock, $0.001 par value per
share. As of May 31, 1999, there were outstanding 26,176,180 shares of common
stock held of record by 48 stockholders, warrants to purchase 801,500 shares of
common stock and options to purchase 3,773,286 shares of common stock.
Common Stock
Subject to preferences that may apply to shares of preferred stock outstanding
at the time, the holders of outstanding shares of common stock are entitled to
receive dividends out of assets legally available therefore as the board may
from time to time determine. Each stockholder is entitled to one vote for each
share of common stock held on all matters submitted to a vote of stockholders.
Cumulative voting for the election of directors is not provided for in
BioMarin's certificate of incorporation, which means that the holders of a
majority of the shares voted can elect all of the directors then standing for
election. The common stock is not entitled to preemptive rights and is not
subject to conversion or redemption. Each outstanding share of common stock is,
and all shares of common stock to be outstanding upon completion of this
offering will be, fully paid and nonassessable.
Preferred Stock
Immediately following the closing of this offering, pursuant to BioMarin's
amended and restated certificate of incorporation, the board of directors will
have the authority, without further action by the stockholders, to issue up to
1,000,000 shares of preferred stock in one or more series and to fix the
designations, powers, preferences, privileges, and relative participating,
optional or special rights as well as the qualifications, limitations or
restrictions of those shares, including dividend rights, conversion rights,
voting rights, terms of redemption and liquidation preferences, any or all of
which may be greater than the rights of the common stock. The board of
directors, without stockholder approval, will be able to issue preferred stock
with voting, conversion or other rights that could adversely affect the voting
power and other rights of the holders of common stock. Preferred stock could
thus be issued quickly with terms calculated to delay or prevent a change in
control of BioMarin or make removal of management more difficult. Additionally,
the issuance of preferred stock may have the effect of decreasing the market
price of the common stock, and may adversely affect the voting and other rights
of the holders of common stock. At present, there are no shares of preferred
stock outstanding.
Anti-Takeover Provisions
Delaware Law
Section 203 of the Delaware General Corporation Law is applicable to corporate
takeovers of Delaware corporations. Subject to certain exceptions enumerated in
Section 203, Section 203 provides that a corporation shall not engage in any
business combination with any "interested stockholder" for a three-year period
following the date that the stockholder becomes an interested stockholder
unless:
. prior to that date, the board of directors of the corporation
approved either the business combination or the transaction that
resulted in the stockholder becoming an interested stockholder,
. upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at
the time the transaction commenced, though some shares may be
excluded from the calculation,
. on or subsequent to that date, the business combination is approved
by the board of directors of the corporation and by the affirmative
votes of holders of at least two-thirds of the outstanding voting
stock that is not owned by the interested stockholder. Except as
72
<PAGE>
specified in Section 203, an interested stockholder is generally
defined to include any person who, together with any affiliates or
associates of that person, beneficially owns, directly or indirectly,
15% or more of the outstanding voting stock of the corporation, or is
an affiliate or associate of the corporation and was the owner of 15%
or more of the outstanding voting stock of the corporation, any time
within three years immediately prior to the relevant date. Under
certain circumstances, Section 203 makes it more difficult for an
interested stockholder to effect various business combinations with a
corporation for a three-year period, although the stockholders may
elect not to be governed by this section, by adopting an amendment to
our certificate of incorporation or bylaws, effective 12 months after
adoption. BioMarin's certificate of incorporation and its bylaws do
not exclude BioMarin from the restrictions imposed under Section 203.
It is anticipated that the provisions of Section 203 may encourage
companies interested in acquiring BioMarin to negotiate in advance
with the board since the stockholder approval requirement would be
avoided if a majority of the directors then in office excluding an
interested stockholder approve either the business combination or the
transaction that resulted in the stockholder becoming an interested
stockholder. These provisions may have the effect of deterring
hostile takeovers or delaying changes in control of BioMarin, which
could depress the market price of the common stock and which could
deprive stockholders of opportunities to realize a premium on shares
of the common stock held by them.
Charter and Bylaw Provisions
Immediately following the closing of this offering, BioMarin's amended and
restated certificate of incorporation and Bylaws will contain provisions that
could discourage potential takeover attempts and make more difficult attempts
by stockholders to change management. BioMarin's amended and restated
certificate of incorporation will provide that stockholders may not take action
by written consent but may only act at a stockholders' meeting, and that
special meetings of the stockholders of BioMarin may only be called by the
Chairman of the Board or a majority of the board.
Registration Rights
Beginning six months after the effective date of the registration statement,
the holders of 29,607,540 shares of common stock, the registrable securities,
will have rights with respect to the registration of those shares under the
Act. If holders of at least 30% of the registrable securities request that
BioMarin register at least 30% of the registrable securities, BioMarin must
file a registration statement to register those securities. In addition, if
BioMarin proposes to register any of its shares of common stock under the
Securities Act other than in connection with a BioMarin employee benefit plan
or certain corporate acquisitions, mergers or reorganizations, the holders of
the registrable securities may require BioMarin to include all or a portion of
their shares in such registration, subject to certain rights of the managing
underwriter of a public offering of such shares to limit the number of shares
in any such offering.
Further, the holders of registrable securities may require BioMarin to register
all or any portion of their registrable securities on Form S-3 when that form
becomes available to BioMarin, as long as the aggregate offering price of would
exceed $2.5 million, subject to other conditions and limitations.
All expenses incurred in connection with such registrations (other than
underwriters' discounts and commissions) will be borne by BioMarin. No holder
of registrable securities will be entitled to registration rights when they can
sell registrable securities in compliance with Rule 144 of the Securities Act
during any two successive three-month periods.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is ChaseMellon
Shareholder Services LLC, 85 Challenger Road, Ridgefield Park, NJ 07660.
73
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for the common stock and we
cannot assure you that a liquid trading market for the common stock will
develop or be sustained after this offering. Future sales of substantial
amounts of common stock, including shares issued upon exercise of outstanding
options and warrants, in the public market after this offering or the
anticipation thereof could adversely affect market prices prevailing from time
to time and could impair BioMarin's ability to raise capital through sales of
its equity securities. As described below, no shares currently outstanding will
be available for sale immediately after this offering due to contractual
restrictions on their resale. Sales of substantial amounts of common stock of
BioMarin in the public market after these restrictions lapse or the
anticipation thereof could adversely affect the prevailing market price of the
common stock and the ability of BioMarin to raise equity capital in the future.
Upon completion of this offering, BioMarin will have outstanding 34,109,513
shares of common stock, assuming no exercise of the Underwriters' over-
allotment option and no exercise of outstanding options or warrants. Of these
shares, the shares sold in this offering will be freely tradable without
restriction under the Securities Act unless purchased by "affiliates" of
BioMarin as that term is defined in Rule 144 under the Securities Act. The
remaining 29,609,513 restricted shares held by existing stockholders, are
subject to various lock-up agreements providing that, with limited exceptions,
the stockholder will not offer, sell, contract to sell, grant an option to
purchase, effect a short sale or otherwise dispose of or engage in any hedging
or other transaction that is designed or reasonably expected to lead to a
disposition of any shares of common stock or any option to purchase common
stock or any securities exchangeable for or convertible into common stock for a
period of 180 days after the date of this prospectus. Though these shares may
be eligible for earlier sale under the provisions of Rules 144, 144(k) and 701
under the Securities Act, none of these shares will be saleable until 181 days
after the date of this prospectus as a result of these lock-up agreements.
Beginning 181 days after the date of this prospectus, 23,676,180 restricted
shares will be eligible for sale in the U.S. public market, although all but
1,973 shares will be subject to volume limitations. Thereafter, 5,933,333
shares will become eligible for sale in the U.S. public market after the end of
the lock-up period. Beginning 181 days after the date of this prospectus all
29,607,540 restricted shares held by existing stockholders shall be eligible
for sale on the Swiss Exchange. Sales of restricted securities on the Swiss
Exchange, however, will still be subject to U.S. securities laws including
Regulation S or Rule 144 which may, as applicable to each stockholder, restrict
such sales. Under Rule 144, a stockholder who is not an "affiliate" of the
BioMarin, as defined in Rule 144, will be able to sell restricted securities
held for at least a year, subject to volume limits, manner of sale and other
restrictions. Shares held for two years by a non-"affiliate" stockholder would
be saleable on the Swiss Exchange without these limits. Under Regulation S, a
stockholder who is not an affiliate of us and is not a distributor will be able
to sell shares on the Swiss Exchange without restriction. In addition, as of
April 20, 1999, there were outstanding options to purchase 3,706,476 shares of
common stock, none of which options are expected to be exercised prior to the
closing of the offering. All of the shares issued upon such exercises will be
subject to lock-up agreements.
In general, under Rule 144 as currently in effect, beginning 90 days after the
date of this prospectus, a person, or persons whose shares are aggregated, who
has beneficially owned restricted shares for at least one year is entitled to
sell within any three-month period up to that number of shares that does not
exceed the greater of: (1) 1% of the number of shares of common stock then
outstanding, which is approximately 341,095 shares, or (2) the average weekly
trading volume of the common stock during the four calendar weeks preceding the
filing of a Form 144 with respect to such sale. Sales under Rule 144 are also
subject to certain "manner of sale" provisions and notice requirements and to
the requirement that current public information about BioMarin be available.
Under Rule 144(k), a person who is not deemed to have been an affiliate of
BioMarin at any time during the three months preceding
74
<PAGE>
a sale, and who has beneficially owned the shares proposed to be sold for at
least two years, including the holding period of any prior owner except an
affiliate, is entitled to sell those shares without complying with the manner
of sale, public information, volume limitation or notice provisions of
Rule 144.
Rule 701 permits resales of qualified shares held by some affiliates in
reliance upon Rule 144 but without compliance with some restrictions, including
the holding period requirement, of Rule 144. Any employee, officer or director
of or consultant to BioMarin who purchased his or her shares pursuant to a
written compensatory plan or contract may be entitled to rely on the resale
provisions of Rule 701. Rule 701 further provides that non-affiliates may sell
shares in reliance on Rule 144 without having to comply with the holding
period, public information, volume limitation or notice provisions of Rule 144.
All holders of Rule 701 shares of common stock are required to wait until 90
days after the date of this prospectus before selling shares. However, all
shares issued pursuant to Rule 701 are subject to lock-up agreements and will
only become eligible for sale at the earlier of the expiration of the 180-day
lock-up.
75
<PAGE>
UNDERWRITING
The U.S. underwriters named below, acting through their global coordinators,
U.S. Bancorp Piper Jaffray Inc. and Bank J. Vontobel & Co AG, have severally
agreed to purchase from us the number of shares of BioMarin common stock set
forth opposite their respective names below.
<TABLE>
<CAPTION>
Number
of
U.S. Underwriters Shares
----------------- ------
<S> <C>
U.S. Bancorp Piper Jaffray Inc...........................................
Bank J. Vontobel & Co AG.................................................
Schroders & Co. Inc......................................................
Leerink Swann & Company..................................................
------
</TABLE>
<TABLE>
<S> <C>
Total............................................................... 4,500,000
=========
</TABLE>
Sales by Bank J. Vontobel & Co AG in the United States will be made by Vontobel
Securities Ltd., a U.S. broker-dealer affiliate of Bank J. Vontobel & Co AG. No
dealer will make any sales of BioMarin common stock in any jurisdiction unless
it is registered to do so or it obtains an exemption from the registered dealer
requirements of the jurisdiction.
We have entered into an international underwriting agreement with the managers
of the international offering providing for the concurrent sale of shares
of BioMarin common stock in Switzerland and elsewhere outside the United States
and Canada. The closing of the international offering is a condition to the
closing of the U.S. offering and vice versa.
We have granted the U.S. underwriters and the international managers an option
to purchase up to an additional 675,000 shares of BioMarin common stock to
cover over-allotments, if any. The option is exercisable by the global
coordinators for 30 days after the date of this prospectus at the public
offering price less the underwriting discount. To the extent that this option
is exercised, each of the underwriters will have a firm commitment, subject to
certain conditions, to purchase approximately the same percentage of the option
shares as the number of shares to be purchased initially by that underwriter.
The global coordinators have advised us that the U.S. underwriters propose to
offer the shares of BioMarin common stock offered hereby to the public in the
United States and on a private placement basis in Canada initially at the
public offering price set forth on the cover page of this prospectus. The
global coordinators intend to offer the shares to certain dealers at such price
less a concession not in excess of $ per share. The U.S. underwriters may
allow, and such dealers may reallow, a discount not in excess of $ per
share on sales to certain other dealers. After the public offering of the
BioMarin common stock, the public offering price, concession and discount may
be changed. The public offering price, the underwriting discounts and
concession and discount to dealers for the international offering are the same
as for the U.S. offering.
76
<PAGE>
The prospectus is intended for use only in connection with offers and sales of
BioMarin common stock in the U.S. offering and any shares initially offered in
the international offering that are resold in the United States by underwriters
or, for a period of 25 days after the date of this prospectus, by dealers. The
initial offers and sales of BioMarin common stock in the international offering
are not being registered under the Securities Act and this prospectus is not to
be sent or given to any person outside the United States and Canada.
BioMarin has been informed that the U.S. underwriters and the international
managers have entered into an intersyndicate agreement which provides for the
coordination of their activities. Under the terms of the intersyndicate
agreement, the U.S. underwriters and the international managers are permitted
to sell shares of BioMarin common stock to each other.
We are initially offering shares of BioMarin common stock in the United
States and Canada and shares concurrently in the international offering in
Switzerland and elsewhere outside the United States and Canada. The final
allocation of BioMarin common stock between the U.S. offering and the
international offering may differ from these amounts. Under the intersyndicate
agreement, sales may be made between the U.S. underwriters and the
international managers. To the extent such sales are made, the number of shares
of BioMarin common stock initially available for sale by the U.S. underwriters
or by the international managers may be more or less than the above amounts.
Under the intersyndicate agreement, each of the U.S. underwriters has agreed
that it has not offered or sold, and will not offer or sell, directly or
indirectly, any shares of BioMarin common stock or distribute any prospectus
relating to the BioMarin common stock outside the United States or Canada or to
any dealer who does not so agree. Each international manager has agreed that it
has not offered or sold, and will not offer or sell, directly or indirectly,
any shares of BioMarin common stock or distribute any prospectus relating to
the BioMarin common stock in the United States or Canada or to any dealer who
does not so agree. These limitations do not apply to transactions between the
international managers and the U.S. underwriters under the intersyndicate
agreement. As used in this prospectus, "United States" means the United States
of America (including the States and the District of Columbia), its
territories, possessions and other areas subject to its jurisdiction, "Canada"
means Canada, its provinces, territories, possessions and other areas subject
to its jurisdiction. An offer or sale will be deemed made in the United States
or Canada if it is made to any individual resident in the United States or
Canada or any corporation, partnership, pension, profit-sharing or other trust
or other entity (including any such entity acting as an investment adviser with
discretionary authority) whose office most directly involved with the purchase
is located in the United States or Canada.
BioMarin has applied to have its common stock approved for quotation on The
Nasdaq National Market and the Swiss Exchange under the symbol BMRN.
We have agreed to indemnify the underwriters against certain liabilities which
may be incurred in connection with the offering of the BioMarin common stock
and the exercise of the over-allotment options, including liabilities under the
Securities Act and other applicable securities laws.
The underwriters have informed us that they do not expect to confirm sales of
BioMarin common stock offered in this offering to any accounts over which they
exercise discretionary authority.
Prior to this offering, there has been no public market for the BioMarin common
stock. Accordingly, the initial public offering price for the shares will be
determined by negotiation among us and the global coordinators. In determining
the price, we and the global coordinators will consider various factors,
including:
. market conditions for initial public offerings,
. the history of and prospects for our business,
77
<PAGE>
. our past and present operations,
. the present state of our development,
. our financial information,
. an assessment of our management,
. the market for securities of companies in businesses similar to ours,
. the general condition of the securities markets,
. other factors which we and the global coordinators believe are
relevant.
We cannot be certain that the initial public offering price will correspond to
the price at which the BioMarin common stock will trade in the public market
subsequent to the offering. We also cannot be certain that an active trading
market for the BioMarin common stock will develop and continue after the
offering.
U.S. Bancorp Piper Jaffray Inc. and Bank J. Vontobel & Co AG, on behalf of the
underwriters, may engage in over-allotment, stabilizing transactions, syndicate
covering transactions and penalty bids. Over-allotment involves syndicate sales
in excess of the offering size, which creates a syndicate short position.
Stabilizing transactions permit bids to purchase the underlying security so
long as the stabilizing bids do not exceed a specified maximum. Syndicate
covering transactions involve purchases of BioMarin common stock in the open
market after the distribution has been completed in order to cover syndicate
short positions. Penalty bids permit the underwriters to reclaim a selling
concession from a syndicate member when the BioMarin common stock originally
sold by the syndicate member is purchased in a syndicate covering transaction
to cover syndicate short positions. These stabilizing transactions, syndicate
covering transactions and penalty bids may cause the price of the BioMarin
common stock to be higher than it would otherwise be in the absence of these
transactions. These transactions may be effected on The Nasdaq National Market
and the Swiss Exchange or otherwise and, if commenced, may be discontinued at
any time.
We and our executive officers and directors and other existing stockholders
have agreed that we will not, for a period of 180 days following the date of
the final prospectus directly or indirectly, offer to sell, grant any option
for the sale of, or otherwise dispose of, any shares of BioMarin common stock
or any securities convertible into or exchangeable or exercisable for any
shares of BioMarin common stock, subject to certain limited exceptions.
78
<PAGE>
LEGAL MATTERS
The validity of the common stock offered by this prospectus will be passed upon
for BioMarin by Wilson Sonsini Goodrich & Rosati, Professional Corporation,
Palo Alto, California. Certain legal matters in connection with this offering
will be passed upon for the underwriters by Cooley Godward LLP, Palo Alto,
California.
EXPERTS
The financial statements included in this prospectus and elsewhere in this
registration statement, to the extent and for the periods indicated in their
reports, have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
giving said reports.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-1 with the SEC for the stock
we are offering by this prospectus. This prospectus does not include all of the
information contained in the registration statement. You should refer to the
registration statement and its exhibits for additional information. While we
have disclosed the material terms of any of our contracts, agreements or other
documents referenced in this prospectus, you should refer to the exhibits
attached to the registration statement for copies of the actual contract,
agreement or other document. When we complete this offering, we will also be
required to file annual, quarterly and special reports, proxy statements and
other information with the SEC.
You can read our SEC filings, including the registration statement, over the
Internet at the SEC's web site at http://www.sec.gov. You may also read and
copy any document we file with the SEC at its public reference facilities at
450 Fifth Street, NW, Washington, DC 20549, 7 World Trade Center, Suite 1300,
New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511. You may also obtain copies of the documents
at prescribed rates by writing to the Public Reference Section of the SEC at
450 Fifth Street, NW, Washington, DC 20549. Please call the SEC at 1-800-SEC-
0330 for further information on the operation of the public reference
facilities. Our SEC filings are also available at the office of the Nasdaq
National Market. For further information on obtaining copies of our public
filings at the Nasdaq National Market you should call (212) 656-5060.
79
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
BioMarin Pharmaceutical Inc. Financial Statements
Report of Independent Public Accountants................................... F-2
Consolidated Balance Sheets................................................ F-3
Consolidated Statements of Operations...................................... F-4
Statement of Changes in Stockholders' Equity............................... F-5
Consolidated Statements of Cash Flows...................................... F-7
Notes to Consolidated Financial Statements................................. F-8
Glyko, Inc. Financial Statements
Report of Independent Public Accountants................................... F-23
Balance Sheets............................................................. F-24
Statements of Operations................................................... F-25
Statements of Changes in Stockholders' Equity (Deficit).................... F-26
Statements of Cash Flows................................................... F-27
Notes to Financial Statements.............................................. F-28
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
BioMarin Pharmaceutical Inc.:
We have audited the consolidated balance sheets of BioMarin Pharmaceutical Inc.
(a Delaware corporation in the development stage) and subsidiaries as of
December 31, 1997 and 1998, and the related consolidated statements of
operations, changes in stockholders' equity, and cash flows for the period from
March 21, 1997 (inception) to December 31, 1997, the year ended December 31,
1998 and the period from March 21, 1997 (inception) to December 31, 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
BioMarin Pharmaceutical Inc. and subsidiaries as of December 31, 1997 and 1998,
and the results of its operations and its cash flows for the period from March
21, 1997 (inception) to December 31, 1997, the year ended December 31, 1998 and
the period from March 21, 1997 (inception) to December 31, 1998, in conformity
with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
San Francisco, California,
March 17, 1999
(Except for the matter discussed in
the fifth paragraph of Note 1, for
which the date is April 13, 1999)
F-2
<PAGE>
BIOMARIN PHARMACEUTICAL INC. AND SUBSIDIARIES
(a development-stage company)
Consolidated Balance Sheets
As of December 31, 1997 and 1998, and March 31, 1999
<TABLE>
<CAPTION>
December 31,
------------------------- March 31,
1997 1998 1999
----------- ------------ -----------
ASSETS (unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.... $ 5,987,433 $ 9,413,662 $ 3,574,697
Short-term investments....... 900,827 1,975,800 254,000
Accounts receivable, net..... -- 148,396 183,980
Due from Glyko Biomedical,
Ltd......................... 79,607 114,005 119,165
Due from BioMarin/Genzyme
LLC......................... -- 418,712 628,444
Inventories.................. -- 71,730 59,486
Prepaid expenses............. 539,445 676,214 706,018
----------- ------------ -----------
Total current assets....... 7,507,312 12,818,519 5,525,790
PROPERTY AND EQUIPMENT, net.... 145,683 6,223,058 8,584,212
GOODWILL AND OTHER INTANGIBLE
ASSETS........................ -- 11,703,726 11,432,452
INVESTMENT IN BIOMARIN/GENZYME
LLC........................... -- 684,657 1,146,337
DEPOSITS....................... -- 79,142 88,843
----------- ------------ -----------
Total assets............... $ 7,652,995 $ 31,509,102 $26,777,634
=========== ============ ===========
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES:
Accounts payable............. $ 168,062 $ 1,340,355 780,300
Accrued liabilities.......... 43,395 640,016 823,663
Due to Glyko, Inc............ 61,072 -- --
Notes payable short-term..... -- 24,366 24,803
----------- ------------ -----------
Total current liabilities.. 272,529 2,004,737 1,628,766
LONG-TERM LIABILITIES: Long-
term portion of notes
payable....................... -- 109,845 103,448
----------- ------------ -----------
Total liabilities.......... 272,529 2,114,582 1,732,214
----------- ------------ -----------
STOCKHOLDERS' EQUITY:
Common stock, $0.001 par
value: 50,000,000 shares
authorized, 20,566,500,
26,176,180 and 26,176,180
shares issued and
outstanding at December 31,
1997 and 1998, and March 31,
1999 respectively........... 20,567 26,176 26,176
Additional paid-in capital... 12,548,924 50,058,434 50,692,379
Warrants..................... 128,240 128,240 128,240
Deferred compensation........ (217,000) (3,254,411) (3,590,558)
Notes receivable from
stockholders................ (2,337,500) (2,487,500) (2,525,000)
Deficit accumulated during
the development stage....... (2,762,765) (15,076,419) (19,685,817)
----------- ------------ -----------
Total stockholders'
equity.................... 7,380,466 29,394,520 25,045,420
----------- ------------ -----------
Total liabilities and
stockholders' equity...... $ 7,652,995 $ 31,509,102 $26,777,634
=========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
BIOMARIN PHARMACEUTICAL INC. AND SUBSIDIARIES
(a development-stage company)
Consolidated Statements of Operations
For the Period from March 21, 1997 (inception) to December 31, 1997,
the Year ended December 31, 1998, the Three Month Periods ended March 31, 1998
and 1999 and for the Period from March 21, 1997 (inception) to March 31, 1999
<TABLE>
<CAPTION>
Period from Period from
March 21, 1997 Three months ended March 21, 1997
(inception), to Year ended March 31, (inception), to
December 31, December 31, ------------------------ March 31,
1997 1998 1998 1999 1999
--------------- ------------ ----------- ----------- ---------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Revenues--products..................... $ -- $ 138,162 $ -- $ 202,038 $ 340,200
Revenues--services..................... -- 112,135 -- 46,882 159,017
Revenues from BioMarin/ Genzyme LLC.... -- 837,457 -- 746,272 1,583,729
Revenues--other........................ -- 102,655 -- 109,126 211,781
----------- ------------ ----------- ----------- ------------
Total revenues......................... -- 1,190,409 -- 1,104,318 2,294,727
Operating Costs and Expenses:
Cost of products....................... -- 49,247 -- 84,040 133,287
Cost of services....................... -- 58,695 -- 18,661 77,356
Research and development............... 1,913,795 10,502,636 1,108,223 3,892,002 16,308,433
General and administrative............. 914,299 3,530,886 302,655 1,692,758 6,137,943
----------- ------------ ----------- ----------- ------------
Loss from operations................... (2,828,094) (12,951,055) (1,410,888) (4,583,143) (20,362,292)
Interest income........................ 65,329 684,572 92,393 153,611 903,512
Equity in loss of BioMarin/ Genzyme
LLC................................... -- (47,171) -- (179,866) (227,037)
----------- ------------ ----------- ----------- ------------
Net loss............................... $(2,762,765) $(12,313,654) $(1,318,495) $(4,609,398) $(19,685,817)
=========== ============ =========== =========== ============
Net loss per share, basic and diluted.. $ (0.34) $ (0.55) $ (0.06) $ (0.18) $ (1.13)
=========== ============ =========== =========== ============
Weighted average common shares
outstanding........................... 8,136,475 22,488,481 20,566,500 26,176,180 17,441,374
=========== ============ =========== =========== ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
BIOMARIN PHARMACEUTICAL INC. AND SUBSIDIARIES
(a development stage company)
Consolidated Statement of Changes in Stockholders' Equity
For the Period from March 21, 1997 (inception) to December 31, 1997,
for the Year ended December 31, 1998, for the Three Months ended March 31,
1999 and for the Period from March 21, 1997 (inception), to March 31, 1999
<TABLE>
<CAPTION>
Deficit
Notes Accumulated
Common Stock Additional Warrants Receivable During Total
------------------ Paid-in ---------------- Deferred from Development Stockholders'
Shares Amount Capital Shares Amount Compensation Stockholders Stage Equity
---------- ------- ----------- ------- -------- ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, MARCH 21,
1997............... -- $ -- $ -- -- $ -- $ -- $ -- $ -- $ --
Issuance of common
stock to Glyko
Biomedical, Ltd.
on March 21, 1997,
for cash, $1.00
per share......... 1,500,000 1,500 1,498,500 -- -- -- -- -- 1,500,000
Issuance of common
stock to Glyko
Biomedical, Ltd.
in June 1997 in
exchange for tech-
nology, $1.00 per
share............. 7,000,000 7,000 (7,000) -- -- -- -- -- --
Issuance of common
stock in October
1997, $1.00 per
share (net of is-
suance costs of
$439,720, includ-
ing the issuance
of 299,000 shares
of common stock,
$1.00 per share,
and warrants to
purchase an addi-
tional 299,000
shares of common
stock for broker-
age services)..... 4,039,000 4,039 3,595,241 299,000 47,840 -- -- -- 3,647,120
Issuance of common
stock to employees
in exchange for
notes in October
1997, $1.00 per
share............. 2,500,000 2,500 2,497,500 -- -- (200,000) (2,300,000) -- --
Issuance of common
stock and warrants
on December 31,
1997, $1.00 per
share (net of is-
suance costs of
$592,309, includ-
ing the issuance
of 502,500 shares
of common stock,
$1.00 per share,
and warrants to
purchase an addi-
tional 502,500
shares of common
stock for broker-
age services)..... 5,527,500 5,528 4,929,663 502,500 80,400 -- -- -- 5,015,591
Common stock op-
tions granted in
exchange for serv-
ices.............. -- -- 35,020 -- -- (17,000) -- -- 18,020
Interest on notes
receivable........ -- -- -- -- -- -- (37,500) -- (37,500)
Net loss for the
period from March
21, 1997 (incep-
tion), to December
31, 1997.......... -- -- -- -- -- -- -- (2,762,765) (2,762,765)
---------- ------- ----------- ------- -------- --------- ----------- ----------- -----------
BALANCE, DECEMBER
31, 1997........... 20,566,500 $20,567 $12,548,924 801,500 $128,240 $(217,000) $(2,337,500) $(2,762,765) $ 7,380,466
========== ======= =========== ======= ======== ========= =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
BIOMARIN PHARMACEUTICAL INC. AND SUBSIDIARIES
(a development stage company)
Consolidated Statement of Changes in Stockholders' Equity
For the Period from March 21, 1997 (inception) to December 31, 1997,
for the Year ended December 31, 1998, for the Three Months ended March 31,
1999 and for the Period from March 21, 1997 (inception), to March 31, 1999
<TABLE>
<CAPTION>
Deficit
Notes Accumulated
Common Stock Additional Warrants Receivable During Total
------------------ Paid-in ---------------- Deferred from Development Stockholders'
Shares Amount Capital Shares Amount Compensation Stockholders Stage Equity
---------- ------- ----------- ------- -------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY
1, 1998........... 20,566,500 $20,567 $12,548,924 801,500 $128,240 $ (217,000) $(2,337,500) $ (2,762,765) $ 7,380,466
Issuance of com-
mon stock on June
30, 1998, for
cash, $6.00 per
share (net of is-
suance costs of
$263,208, includ-
ing the issuance
of 31,368 shares
of common stock,
$6.00 per share,
for brokerage
services)........ 598,535 598 3,327,404 -- -- -- -- -- 3,328,002
Issuance of com-
mon stock on July
14, 1998, for
cash, $6.00 per
share (net of is-
suance costs of
$387,474, includ-
ing the issuance
of 64,579 shares
of common stock,
$6.00 per share,
for brokerage
services)........ 1,385,414 1,386 7,923,624 -- -- -- -- -- 7,925,010
Issuance of com-
mon stock on Au-
gust 3, 1998, for
cash, $6.00 per
share (net of is-
suance costs of
$12,318, includ-
ing the issuance
of 2,053 shares
of common stock,
$6.00 per share,
for brokerage
services)........ 31,386 31 175,967 -- -- -- -- -- 175,998
Issuance of com-
mon stock to
Genzyme Corpora-
tion on September
4, 1998, for
cash, $6.00 per
share............ 1,333,333 1,333 7,998,665 -- -- -- -- -- 7,999,998
Issuance of com-
mon stock to
Glyko Biomedical,
Ltd. for the pur-
chase of Glyko,
Inc. on October
7, 1998, for com-
mon shares, $6.00
per share and the
assumption of op-
tions of Glyko,
Inc. employees
(see Note 1)..... 2,259,039 2,259 14,859,063 -- -- -- -- -- 14,861,322
Exercise of com-
mon stock op-
tions............ 1,973 2 1,971 -- -- -- -- -- 1,973
Interest on notes
receivable....... -- -- -- -- -- -- (150,000) -- (150,000)
Deferred compen-
sation on stock
options.......... -- -- 3,222,816 -- -- (3,222,816) -- -- --
Amortization of
deferred compen-
sation........... -- -- -- -- -- 185,405 - -- 185,405
Net loss......... -- -- -- -- -- -- -- (12,313,654) (12,313,654)
---------- ------- ----------- ------- -------- ----------- ----------- ------------ ------------
BALANCE, DECEMBER
31, 1998.......... 26,176,180 $26,176 $50,058,434 801,500 $128,240 $(3,254,411) $(2,487,500) $(15,076,419) $ 29,394,520
Interest on notes
receivable....... -- -- -- -- -- -- (37,500) -- (37,500)
Deferred compen-
sation on stock
options.......... -- -- 633,945 -- -- (633,945) -- -- --
Amortization of
deferred compen-
sation........... -- -- -- -- -- 297,798 - -- 297,798
Net loss......... -- -- -- -- -- -- -- (4,609,398) (4,609,398)
---------- ------- ----------- ------- -------- ----------- ----------- ------------ ------------
BALANCE, March 31,
1999 (unaudited) 26,176,180 $26,176 $50,692,379 801,500 $128,240 $(3,590,558) $(2,525,000) $(19,685,817) $ 25,045,420
========== ======= =========== ======= ======== =========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
BIOMARIN PHARMACEUTICAL INC. AND SUBSIDIARIES
(a development-stage company)
Consolidated Statements of Cash Flows
For the Period from March 21, 1997 (inception) to December 31, 1997, the Year
ended
December 31, 1998, the Three Month Periods ended March 31, 1998 and 1999
and for the Period from March 21, 1997 (inception) to March 31, 1999
<TABLE>
<CAPTION>
Period from
March 21, 1997 Three months ended Period from
(inception), to Year ended March 31, March 21, 1997
December 31, December 31, ------------------------ (inception), to
1997 1998 1998 1999 March 31, 1999
--------------- ------------ ----------- ----------- ---------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss.................................... $(2,762,765) $(12,313,654) $(1,318,495) $(4,609,398) $(19,685,817)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation................................ 4,790 307,645 14,916 420,103 732,538
Amortization of deferred compensation....... -- 185,405 -- 297,798 483,203
Amortization of goodwill.................... -- 271,274 -- 271,274 542,548
Compensation in the form of common stock and
common stock options....................... 18,020 -- -- -- 18,020
Loss from BioMarin/Genzyme LLC.............. -- 47,131 -- 179,866 226,997
Write-off of in-process technology.......... -- 2,625,000 -- -- 2,625,000
Changes in operating assets and liabilities:
Accounts receivable......................... -- (148,396) (105,178) (35,584) (183,980)
Due from Glyko Biomedical, Ltd.............. (79,607) (34,398) -- (5,160) (119,165)
Due from BioMarin/Genzyme LLC............... -- (418,712) -- (209,732) (628,444)
Inventories................................. -- (71,730) -- 12,244 (59,486)
Prepaid expenses............................ (539,445) (136,769) 89,194 (29,804) (706,018)
Deposits.................................... -- (79,142) (10,000) (9,701) (88,843)
Accounts payable............................ 168,062 1,172,293 (1,293) (560,055) 780,300
Accrued liabilities......................... 43,395 596,621 (43,395) 183,647 823,663
Due to Glyko, Inc........................... 61,072 (61,072) -- -- --
----------- ------------ ----------- ----------- ------------
Net cash used in operating activities...... (3,086,478) (8,058,504) (1,374,251) (4,094,502) (15,239,484)
----------- ------------ ----------- ----------- ------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of property and equipment.......... (150,473) (6,385,020) (136,762) (2,781,257) (9,316,750)
Investment in BioMarin/Genzyme LLC.......... -- (731,788) -- (641,546) (1,373,334)
Sale (purchase) of short-term investments... (900,827) (1,074,973) (4,071,675) 1,721,800 (254,000)
----------- ------------ ----------- ----------- ------------
Net cash used in investing activities...... (1,051,300) (8,191,781) (4,208,437) (1,701,003) (10,944,084)
----------- ------------ ----------- ----------- ------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from note payable.................. -- 134,211 -- -- 134,211
Bridge loan................................. 880,000 -- -- -- 880,000
Accrued interest on notes receivable from
stockholders............................... (37,500) (150,000) (37,500) (37,500) (225,000)
Repayment of equipment loan................. -- -- -- (5,960) (5,960)
Proceeds from sale of common stock, net of
issuance costs............................. 9,282,711 19,692,303 -- -- 28,975,014
----------- ------------ ----------- ----------- ------------
Net cash provided by financing activities.. 10,125,211 19,676,514 (37,500) (43,460) 29,758,265
----------- ------------ ----------- ----------- ------------
Net increase (decrease) equivalents........ 5,987,433 3,426,229 (5,620,188) (5,838,965) 3,574,697
CASH AND CASH EQUIVALENTS:
Beginning of period......................... -- 5,987,433 5,987,433 9,413,662 --
----------- ------------ ----------- ----------- ------------
End of period............................... $ 5,987,433 $ 9,413,662 $ 367,245 $ 3,574,697 $ 3,574,697
=========== ============ =========== =========== ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE>
BIOMARIN PHARMACEUTICAL INC. AND SUBSIDIARIES
(a development-stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information with respect to the periods ended March 31, 1998 and 1999 and the
period from March 21, 1997 (inception) to March 31, 1999 is unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Nature of Operations and Business Risks--BioMarin Pharmaceutical Inc. (BioMarin
or the Company) is a privately held biopharmaceutical company specializing in
the development of carbohydrate enzyme therapies for debilitating life-
threatening chronic genetic disorders and other diseases and conditions. With
its recent acquisition of Glyko, Inc., BioMarin added analytical and diagnostic
products and services in the area of carbohydrate biology. BioMarin was
incorporated on October 25, 1996, in the state of Delaware. BioMarin first
began business on March 21, 1997 (inception), and issued 1,500,000 shares of
common stock to Glyko Biomedical, Ltd. (GBL) for $1,500,000. Beginning in
October 1997, BioMarin issued stock to outside investors, resulting in Glyko
Biomedical's ownership of BioMarin being reduced to 41.3 percent at December
31, 1997.
Since inception, the Company has devoted substantially all of its efforts to
research and development activities, including preclinical studies and clinical
trials, the establishment of laboratory and clinical scale manufacturing
facilities, clinical manufacturing, and related administrative activities.
On September 4, 1998, the Company entered into an agreement with Genzyme
Corporation (Genzyme) to establish a joint venture dedicated to the development
and commercialization of a-L-iduronidase (BM101) to treat
mucopolysaccharidosis-I (MPS-I) (Note 8).
On October 7, 1998, the Company acquired Glyko, Inc., a wholly-owned subsidiary
of Glyko Biomedical, in a transaction valued at $14,500,500. 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. As consideration for the acquisition of all of the
outstanding shares of Glyko, Inc., BioMarin issued 2,259,039 shares of common
stock to Glyko Biomedical, assumed Glyko, Inc.'s employee stock options
exercisable for 255,540 shares of BioMarin common stock, and paid $500 in cash
(see Note 11). As a result of this transaction, Glyko Biomedical's ownership of
BioMarin was increased from 36.2 percent to 41.7 percent at October 7, 1998.
Through March 31, 1999 the Company had accumulated losses during its
development stage of $19,685,817 and has continued to incur significant losses
subsequent to March 31, 1999. Management expects to incur further losses in
1999 and beyond. As further discussed in Note 12, the Company entered into a
convertible note financing in the amount of $26,000,000 on April 13, 1999.
Management believes that this financing will be sufficient to meet the
Company's minimum obligations through at least December 31, 1999. However, the
Company will seek additional financing in the near term to execute its business
strategies and meet its longer term obligations.
The Company's lead product candidate, BM101, has completed clinical trials.
There can be no assurance that the Company's research and development efforts
will be successfully completed or that its products will be shown to be safe
and effective. There can be no assurance that its products will be approved for
marketing by the U.S. Food and Drug Administration (FDA) or any equivalent
foreign government agency or that its products will be successfully
commercialized or achieve any significant degree of market acceptance.
BioMarin's core technology is based on the biological applications of
carbohydrate-active enzymes in therapeutic indications. In June 1997, rights to
certain related technology were transferred to BioMarin
F-8
<PAGE>
BIOMARIN PHARMACEUTICAL INC. AND SUBSIDIARIES
(a development-stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information with respect to the periods ended March 31, 1998 and 1999 and the
period from March 21, 1997 (inception) to March 31, 1999 is unaudited)
by Glyko Biomedical in exchange for 7,000,000 shares of BioMarin common stock
(see Note 3). Certain of the Company's products 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.
In order to grow significantly, the Company must expand its efforts to develop
new products in pharmaceutical applications. The Company will also need to
establish manufacturing capabilities and to develop marketing capabilities
and/or enter into collaborative arrangements with third parties having the
capacity for such manufacturing or marketing.
BioMarin's product candidates require regulatory approval by government
agencies. This includes preclinical and clinical testing and approval processes
in the United States and other countries. Approvals can take several years and
can require substantial expenditures. There can be no assurance that
difficulties or excessive costs will not be encountered by the Company in this
process, which could delay or preclude the Company's marketing of its products.
There can be no assurance that any of BioMarin's current or future product
candidates will be successfully developed, prove to be effective in clinical
trials, receive required regulatory approvals, be capable of being produced in
commercial quantities at reasonable costs, gain reasonable reimbursement
levels, or be successfully marketed.
In addition, the Company is subject to a number of risks, including the need
for additional financing, dependence on key personnel, small patient
population, patent protection, significant competition from larger
organizations, dependence on corporate partners and collaborators, and expected
increased restrictions on reimbursement, as well as other changes in the
healthcare industry.
Basis of Presentation--These consolidated financial statements include the
accounts of BioMarin, Glyko, Inc., a wholly-owned subsidiary of BioMarin (since
October 7, 1998), and BioMarin Genetics, Inc., a wholly-owned subsidiary of
BioMarin formed for the purpose of the joint venture discussed in Note 8. All
significant intercompany transactions have been eliminated.
The accompanying financial statements as of March 31, 1999 and for the quarters
ended March 31, 1998 and 1999 are unaudited, but in the opinion of management,
include all adjustments consisting of normal recurring adjustments necessary
for a fair presentation of results for the interim periods. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted,
although the Company believes that the disclosures included are adequate to
make the information presented not misleading. Results for the quarter ended
March 31, 1999 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1999.
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 and disclosure of contingent assets and liabilities at the dates
F-9
<PAGE>
BIOMARIN PHARMACEUTICAL INC. AND SUBSIDIARIES
(a development-stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information with respect to the periods ended March 31, 1998 and 1999 and the
period from March 21, 1997 (inception) to March 31, 1999 is unaudited)
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Significant estimates made by management include determination of progress to
date under research and development contracts and the amortization period of
goodwill and other intangibles (see Notes 6 and 8).
Cash and Cash Equivalents--For the statements of cash flows, the Company treats
liquid investments with original maturities of less than three months as cash
and cash equivalents.
Available-for-Sale Securities--The Company records its investment securities as
available-for-sale because the sale of such securities may be required prior to
maturity.
Inventories--Inventories consist of analytic kits, and instrument-based systems
held for sale. Inventories are stated at the lower of cost (first-in, first-out
method) or estimated market value. All inventories at December 31, 1998 and
March 31, 1999 belong to Glyko, Inc.
Investment in BioMarin/Genzyme LLC and Related Revenue--Under the terms of the
Company's joint venture agreement with Genzyme (Note 7 and 8), the Company and
Genzyme have each agreed to provide 50 percent of the funding for the joint
venture. All research and development, sales and marketing, and other
activities performed by Genzyme and the Company on behalf of the joint venture
are billed to the joint venture at cost. Any profits of the joint venture will
be shared equally by the two parties. Losses of the joint venture ($1,769,257
for the year ended December 31, 1998 and $1,852,276 for the three months ended
March 31, 1999) are allocated in proportion to the funding provided by each
joint venture partner. Through March 31, 1999, each joint venture partner had
provided $2,957,103 of funding to the joint venture.
During the year ended December 31, 1998 and quarter ended March 31, 1999, the
Company billed $1,674,915 and $1,444,953, respectively, under the agreement, of
which $837,457 and $746,272, 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 have been funded by Genzyme.
At December 31, 1998 and March 31, 1999 the Company had receivables of $418,712
and $628,444, respectively, related to these billings.
The Company accounts for its investment in the joint venture on the equity
method. Accordingly, the Company recorded a reduction in its investment in the
joint venture of $884,628 during the year ended December 31, 1998 and $926,138
during the quarter ended March 31, 1999 representing its 50 percent share of
the loss of the joint venture. The percentage of the research and development
costs billed to the joint venture that was funded by the Company (50 percent,
or $837,457 for the year ended December 31, 1998 and $746,272 for the quarter
ended March 31, 1999) was recorded as a credit to the Company's equity in the
loss of the joint venture.
At December 31, 1998 the summarized assets and liabilities of the joint venture
and its results of operations from inception to December 31, 1998 are as
follows:
<TABLE>
<S> <C>
Cash 1,691,054
=========
Liabilities 444,707
Venturer's capital 1,246,346
---------
1,691,054
=========
Net loss 1,769,257
=========
</TABLE>
F-10
<PAGE>
BIOMARIN PHARMACEUTICAL INC. AND SUBSIDIARIES
(a development-stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information with respect to the periods ended March 31, 1998 and 1999 and the
period from March 21, 1997 (inception) to March 31, 1999 is unaudited)
Research and Development--Research and development expenses include the
expenses associated with contract research and development provided to third
parties, research and development provided in connection with the joint venture
including clinical and regulatory costs, and internal research and development
costs. All research and development costs discussed above are expensed as
incurred.
Property and Equipment--Property and equipment are stated at cost. Depreciation
is computed using the straight-line method. Leasehold improvements are
amortized over the life of the asset or the term of the lease, whichever is
shorter. Significant additions and improvements are capitalized, while repairs
and maintenance are charged to expense as incurred.
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31
--------------------
1997 1998 Estimated Useful Lives
-------- ---------- ------------------------
<S> <C> <C> <C>
Computer hardware and
software................... $ 27,688 $ 161,994 3 years
Office furniture and
equipment.................. -- 372,037 5 years
Laboratory equipment........ 119,002 3,468,978 5 years
Shorter of life of asset
Leasehold improvements...... 3,783 2,532,484 or lease term
-------- ----------
150,473 6,535,493
Less: Accumulated
depreciation............... (4,790) (312,435)
-------- ----------
Total, net.............. $145,683 $6,223,058
======== ==========
</TABLE>
Depreciation expense for the period from March 21, 1997 (inception) to December
31, 1997, the year ended December 31, 1998 and for the period from March 21,
1997 (inception) to December 31, 1998, was $4,790, $307,645, and $312,435,
respectively.
Goodwill and Other Intangible Assets--In connection with the acquisition of
Glyko, Inc., the Company acquired certain intangible assets including developed
technology, customer relationships and goodwill.
The purchase price of $14,500,500 was allocated to the net tangible and
intangible assets acquired, based on the relative fair value of these assets.
In connection with this allocation $2,625,000 was expensed as a charge for the
purchase of in-process research and development. Of the $11,736,000 designated
as intangible assets (after the write-off of in process research and
development), $1,233,000 was allocated to developed technology and amortized
over six years, $73,000 was allocated to assembled work force and amortized
over seven years, and $10,430,000 was allocated to goodwill (customer
relationships, trade name, pure business goodwill) and amortized over twelve
years. In performing this allocation, the Company considered, among other
factors, Glyko, Inc.'s technology research and development projects in-process
at the date of acquisition. With regard to the in-process research and
development projects, the Company considered factors such as the stage of
development of the technology at the time of acquisition, the importance of
each project to the overall development plan, alternative future use of the
technology and the projected incremental cash flows from the projects when
completed and any associated risks.
The Income Approach was the primary technique utilized in valuing the purchased
research and development. The assumptions underlying the cash flow projections
used were derived primarily from investment banking reports, historical
results, company records and discussions with management.
F-11
<PAGE>
BIOMARIN PHARMACEUTICAL INC. AND SUBSIDIARIES
(a development-stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information with respect to the periods ended March 31, 1998 and 1999 and the
period from March 21, 1997 (inception) to March 31, 1999 is unaudited)
Revenue estimates for each in-process project were developed by management and
based on an assessment of the industry. Cost of goods sold for each project are
expected to be in line with historical results.
The Capital Asset Pricing Model was used to determine the cost of capital
(discount rate) for Glyko's in-process projects. Due to the conservative nature
of the forecast and the risks associated with the projected growth and
profitability of the development projects, a discount rate of 16 percent was
used to discount cash flows from the in-process products.
The Company believes that the foregoing assumptions used in the forecasts were
reasonable at the time of the acquisition. No assurance can be given, however,
that the underlying assumptions used to estimate sales, development costs or
profitability, or the events associated with such projects, will transpire as
estimated. For these reasons, actual results may vary from projected results.
The most significant and uncertain assumptions relating to the in-process
projects relate to the projected timing of completion and revenues attributable
to each project.
Total amortization expense from October 7, 1998 (date of acquisition), to
December 31, 1998, was $271,274.
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 its carrying value of such assets, the assets are adjusted to their
fair values (based on discounted cash flows). No such adjustments have been
made during any period presented.
The Company's long-lived tangible assets consist primarily of property and
equipment and its investment in the BioMarin/Genzyme LLC joint venture. The
Company will review all of these assets together for purposes of assessing any
potential impairment due to the fact that these assets will be used together to
generate joint cash flows.
All of the Company's goodwill and other intangible assets were recorded as a
result of the Company's acquisition of Glyko, Inc. The Company will assess any
possible impairment taking into regard all future cash flows to be generated
from the intangible assets acquired, including developed technology, assembled
work force, customer lists and goodwill.
Accrued Liabilities--Accrued liabilities consisted of the following:
<TABLE>
<CAPTION>
December 31
----------------
1997 1998
------- --------
<S> <C> <C>
Vacation.................................................... $25,579 $123,274
Other....................................................... 17,816 516,742
------- --------
Total..................................................... $43,395 $640,016
======= ========
</TABLE>
Revenue Recognition--The Company recognizes product revenues and related cost
of sales upon shipment of products. Service revenues are recognized upon
completion of services as evidenced by the
F-12
<PAGE>
BIOMARIN PHARMACEUTICAL INC. AND SUBSIDIARIES
(a development-stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information with respect to the periods ended March 31, 1998 and 1999 and the
period from March 21, 1997 (inception) to March 31, 1999 is unaudited)
transmission of reports to customers. Other revenues, principally licensing,
distribution and development fees, are recognized upon our satisfaction of our
contractual obligations such as 1) execution of contract; 2) certain
milestones; and 3) certain anniversary dates from the effective date of the
contract.
Revenue from the joint venture is recognized to the extent that research and
development costs billed by the Company have been funded by Genzyme.
Net Income (Loss) per Share--Basic net income (loss) per share is calculated by
dividing net income (loss) by the weighted average common shares outstanding
during the period. Diluted net income per share is calculated by dividing net
income by the weighted average of common stock 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, such potential common shares are excluded from the computation of
diluted net loss per share, as their effect is antidilutive.
Potentially dilutive securities include:
<TABLE>
<CAPTION>
December 31
------------------- March 31,
1997 1998 1999
--------- --------- -----------
(unaudited)
<S> <C> <C> <C>
Options to purchase common stock............. 297,000 2,801,240 3,553,526
Warrants to purchase common stock............ 801,500 801,500 801,500
--------- --------- ---------
Total...................................... 1,098,500 3,602,740 4,355,026
========= ========= =========
</TABLE>
Segment Reporting--For the year ended December 31, 1998, the Company adopted
the provisions of SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information". The Company operates two segments. The Analytic and
Diagnostic segment represents the operations of Glyko, Inc. which involve the
manufacture and sale of analytic and diagnostic products. The Pharmaceutical
segment represents the research and development activities related to the
development and commercialization of carbohydrate enzyme therapeutics.
Management of the Company has concluded that the operations of the Analytic and
Diagnostic segment are, and will continue to be, immaterial with respect to the
Company's overall activities and, thus, disclosure of segment information is
not required.
New Accounting Standards--In June 1998, the FASB issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 is
not expected to have a material impact on the Company's financial position or
results of operations.
2. BRIDGE LOANS:
In the third quarter of 1997, the Company drew upon a bridge loan from certain
stockholders in the amount of $880,000. This bridge loan was converted into
880,000 shares of common stock in the fourth quarter of 1997.
3. STOCKHOLDERS' EQUITY:
Common Stock and Warrants--On March 21, 1997, BioMarin's parent company, GBL,
provided initial equity funding by purchasing 1,500,000 shares of common stock
for $1,500,000.
F-13
<PAGE>
BIOMARIN PHARMACEUTICAL INC. AND SUBSIDIARIES
(a development-stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information with respect to the periods ended March 31, 1998 and 1999 and the
period from March 21, 1997 (inception) to March 31, 1999 is unaudited)
BioMarin and GBL have entered into a License Agreement dated June 26, 1997,
pursuant to which GBL granted BioMarin an exclusive, worldwide, perpetual,
irrevocable, royalty-free right and license to certain of its worldwide
patents, trade secrets, copyrights, and other proprietary rights to all know-
how, processes, formulae, concepts, data, and other such intellectual property,
whether patented or not, owned or licensed by GBL and its subsidiaries as of
the date of the license agreement for application in therapeutic uses,
including without limitation, drug discovery and genomics. As consideration for
this license, BioMarin issued to GBL 7,000,000 shares of BioMarin common stock.
Under the same License Agreement, BioMarin granted GBL an exclusive, worldwide,
perpetual, irrevocable, royalty-free cross-license to all improvements BioMarin
may make upon the licensed intellectual property. As this transaction was
between the Company and its parent, the Company recorded the license at its
historical cost on GBL's financial statements, which was zero.
As disclosed in the accompanying statements of stockholders' equity, the
Company closed a number of private placements in 1997 and 1998. In connection
with these placements, an entity with which the chief executive officer and
chairman of the board is affiliated (see Note 7) was issued a total of 899,500
shares (valued at $1,389,500) and warrants (valued at $128,240) 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 expire on various dates in 2001.
In addition, 880,000 shares were issued to stockholders to retire an $880,000
bridge loan.
Notes Receivable from Stockholders--Notes receivable from stockholders relate
to 2,500,000 shares of common stock issued in October 1997 to three executive
officers under the terms of the Founder's Stock Purchase Agreement (the
Agreement). These notes bear interest at 6 percent per annum, and are due on
July 31, 2000, or on the date of the employee's termination, whichever is
earlier. The notes are secured by the underlying stock and are with full
recourse. Interest was imputed at nine percent, resulting in an interest
discount and related deferred compensation of $200,000, which is being
amortized over the life of the notes. Amortization expense for the period from
March 21, 1997 (inception) to December 31, 1997, the year ended December 31,
1998 and for the period from March 21, 1997 (inception), to December 31, 1998,
was $0, $66,667, and $66,667, respectively. In the event that their employment
is terminated by the Company, the Company has the obligation, if requested by
the officer, to repurchase any or all of the shares issued under the Agreement
at the lower of the original purchase price or the current market value of the
shares. In the event one of these officers ceases to be an employee, the
Company has the right, but not the obligation, to repurchase the unvested
portion of the shares at their original purchase price. Pursuant to the terms
of the Agreement, 50% of the shares vest after one year from the date of
employment, with the remainder vesting at a rate of 1/24 per month thereafter.
Deferred Compensation--In connection with certain stock option grants during
the year ended December 31, 1998 and for the quarter ended March 31, 1999 the
Company recognized deferred compensation totaling $3,222,816 and $633,945,
respectively, which is being amortized over the four-year estimated service
periods of the grantees. Amortization expense recognized during the year ended
December 31, 1998, and during the quarter ended March 31, 1999, was $185,405
and $297,798 respectively.
F-14
<PAGE>
BIOMARIN PHARMACEUTICAL INC. AND SUBSIDIARIES
(a development-stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information with respect to the periods ended March 31, 1998 and 1999 and the
period from March 21, 1997 (inception) to March 31, 1999 is unaudited)
4. INCOME TAXES:
The significant components of net deferred tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
December 31
-------------------------
1997 1998
----------- ------------
<S> <C> <C>
Net operating loss carryforwards................. $ 1,052,000 $ 9,792,000
Research and development credit carryforwards.... 210,000 1,760,000
Research and development capitalized............. 0 50,000
Other............................................ (255,000) (160,000)
Valuation allowance.............................. (1,007,000) (11,442,000)
----------- ------------
Net deferred tax asset........................... $ -- $ --
=========== ============
</TABLE>
The net operating loss carryforwards and research and development credit
carryforwards at December 31, 1998 include the net operating loss carryforwards
($4,567,000) and research and development credits carryforwards ($701,000) and
related valuation allowances ($5,269,000) of Glyko, Inc.
The reconciliation of the effective tax rate is as follows:
<TABLE>
<CAPTION>
Period from
March 21, Period from
1997 March 21, 1997
(Inception) Year ended (Inception), to
to December December 31, December 31,
31, 1997 1998 1998
-------------- ---------------- ----------------
Amount % Amount % Amount %
--------- --- ----------- --- ----------- ---
<S> <C> <C> <C> <C> <C> <C>
U.S. statutory tax rate... $(821,000) (34) $(4,164,000) (34) $(4,985,000) (33)
State taxes, net of
federal income tax
benefit.................. (145,000) (6) (735,000) (6) (880,000) (6)
Research and development
tax credit............... (142,000) (5) (634,000) (5) (776,000) (5)
Other..................... 149,000 5 656,000 5 805,000 5
Change in valuation
allowance................ 959,000 40 4,877,000 40 5,836,000 39
--------- --- ----------- --- ----------- ---
Provision for income
taxes.................... $ -- -- $ -- -- $ -- --
========= === =========== === =========== ===
</TABLE>
As of December 31, 1998, net operating loss carryforwards are approximately
$24.1 million and $12.4 million for federal and California income tax purposes,
respectively. These federal and state carryforwards expire beginning in the
year 2011 and 2004, respectively.
The Company also has research and development credits available to reduce
future federal and California income taxes, if any, of approximately $1,760,000
and $580,000, respectively, at December 31, 1998. These federal and state
carryforwards expire beginning in 2012 and 2013, respectively.
The net operating loss carryforwards and research and development credits
related to Glyko, Inc. as of October 7, 1998, can only be utilized to offset
future taxable income and tax, respectively, if any, of Glyko, Inc. In
addition, the Tax Reform Act of 1986 contains provisions that may limit the net
operating loss carryforwards and research and development credits available to
be used in any given year should certain events occur, including sale of equity
securities and other changes in ownership. The acquisition of Glyko, Inc. and
the related issuance of stock represented a change of ownership
F-15
<PAGE>
BIOMARIN PHARMACEUTICAL INC. AND SUBSIDIARIES
(a development-stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information with respect to the periods ended March 31, 1998 and 1999 and the
period from March 21, 1997 (inception) to March 31, 1999 is unaudited)
under these provisions. There can be no assurance that the Company will be able
to utilize net operating loss carryforwards and credits before expiration.
Deferred income taxes are recorded to reflect the tax consequences on future
years of differences between the tax basis of assets and liabilities and their
financial reporting amounts at each period-end. The Company has a cumulative
net operating loss carryforward since inception, resulting in net deferred tax
assets. A valuation allowance is placed on the net deferred tax assets to
reduce them to an assumed net realizable value of zero.
5. STOCK OPTION PLANS:
The Company's 1997 Stock Option Plan (the Plan) provides for the grant of
incentive common stock options and nonstatutory common stock options to
employees, directors, and consultants of the Company. The maximum aggregate
number of shares that may be optioned and sold under the Plan is 5,000,000
shares. Options currently outstanding generally have vesting schedules of up to
four years and options terminate after five to ten years.
Had compensation cost for the Plan been determined consistent with SFAS No. 123
for option grants to employees, the effect on the Company's net loss would have
been as follows:
<TABLE>
<CAPTION>
Period from Period from
March 21, 1997 March 21, 1997
(Inception), Year ended (Inception),
to December December 31, to December
31, 1997 1998 31, 1998
-------------- ------------ --------------
<S> <C> <C> <C>
Net loss as reported.............. $(2,762,765) $(12,313,654) $(15,076,419)
Pro forma effect of SFAS No. 123.. (1,640) (468,000) (469,640)
----------- ------------ ------------
Pro forma net loss................ $(2,764,405) $(12,781,654) $(15,546,059)
=========== ============ ============
Net loss per common share as
reported......................... (0.34) (0.55) (0.93)
=========== ============ ============
Pro forma loss per common share... (0.34) (0.57) (0.96)
=========== ============ ============
</TABLE>
A summary of the status of the Company's stock option plan is as follows:
<TABLE>
<CAPTION>
Weighted Weighted
Average Exercisable Average Fair
Option Exercise at End of Value of Options
Shares Price Year Granted
--------- -------- ----------- ----------------
<S> <C> <C> <C> <C>
Outstanding at March 21,
1997..................... -- $ --
Granted................. 297,000 1.00 $0.22
Exercised............... -- --
Canceled................ -- --
---------
Outstanding at December
31, 1997................. 297,000 1.00 232,000
=======
Granted................. 2,507,660 4.18 $2.40
Exercised............... (1,973) 1.00
Canceled................ (1,447) 1.00
---------
Outstanding at December
31, 1998................. 2,801,240 $3.85 761,609
--------- =======
Granted................. 789,774 6.91 $1.92
Canceled................ (37,488) 5.81
---------
Outstanding at March 31,
1999..................... 3,553,526 $4.51 815,740
========= =======
</TABLE>
F-16
<PAGE>
BIOMARIN PHARMACEUTICAL INC. AND SUBSIDIARIES
(a development-stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information with respect to the periods ended March 31, 1998 and 1999 and the
period from March 21, 1997 (inception) to March 31, 1999 is unaudited)
There are 2,198,760 and 1,446,474 options available for grant under the Plan at
December 31, 1998 and March 31, 1999, respectively. The average remaining
contractual life of the options outstanding at December 31, 1998, is four
years.
As of March 31, 1999, the 3,553,526 options outstanding consist of the
following:
<TABLE>
<CAPTION>
Number of Options Exercise Weighted Average Number of Options
Outstanding Price Contractual Life Exercisable
----------------- -------- ---------------- -----------------
<S> <C> <C> <C>
396,850 $1.00 3.88 347,333
255,222 2.30 3.11 180,846
1,548,000 4.00 9.03 202,875
631,680 6.00 4.69 30,555
721,774 7.00 4.96 54,131
--------- -------
3,553,526 815,740
========= =======
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions used for
grants in 1997 and 1998: risk-free interest rates ranging from 5.2 to 6.2
percent; expected dividend yield of 0 percent; expected life of four years for
the Plan's options; and expected volatility of 0 percent.
6. COMMITMENTS AND CONTINGENCIES:
Lease Commitments--The Company leases office space and research and testing
laboratory space in various facilities under operating agreements expiring at
various dates through 2009. Future minimum lease payments for the year ended
December 31 are as follows:
<TABLE>
<S> <C>
1999........................................................... $1,336,910
2000........................................................... 1,173,573
2001........................................................... 1,019,827
2002........................................................... 1,014,837
2003........................................................... 866,405
Thereafter..................................................... 2,820,662
----------
Total...................................................... $8,232,214
==========
</TABLE>
Rent expense for the period from March 21, 1997 (inception) to December 31,
1997, the year ended December 31, 1998 and for the period from March 21, 1997
(inception), to December 31, 1998, was $34,613, $380,187, and $414,800,
respectively.
Research and Development Funding and Technology Licenses--The Company uses
experts and laboratories at universities and other institutions to perform
research and development activities. Funding commitments to these institutions
for the year ended December 31 are as follows:
<TABLE>
<S> <C>
1999........................................................... $1,076,335
2000........................................................... 305,900
2001........................................................... 50,000
2002........................................................... 50,000
2003........................................................... 50,000
----------
Total...................................................... $1,532,235
==========
</TABLE>
F-17
<PAGE>
BIOMARIN PHARMACEUTICAL INC. AND SUBSIDIARIES
(a development-stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information with respect to the periods ended March 31, 1998 and 1999 and the
period from March 21, 1997 (inception) to March 31, 1999 is unaudited)
The Company has also licensed technology from certain institutions, for which
it is required to pay a royalty upon future sales, subject to certain minimums.
Consulting Agreements--BioMarin had agreements with two consultants whereby the
consultants were paid cash and granted common stock options in exchange for
services. Options for 206,000 shares of common stock were granted in
satisfaction for these services. These options were valued at $35,020 and were
expensed during the period from March 21, 1997 (inception), through December
31, 1997.
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 its
technology results in adverse effects during testing or commercial sale. The
Company currently does not maintain product liability insurance. There can be
no assurance that the Company will be able to obtain product liability
insurance coverage at economically reasonable rates or that such insurance will
provide adequate coverage against all possible claims.
7. RELATED-PARTY TRANSACTIONS:
BioMarin had contractual agreements for office space and certain
administrative, research, and development functions with Glyko, Inc. prior to
the acquisition date of October 7, 1998. BioMarin reimbursed Glyko, Inc. for
rent, salaries and related benefits, and other administrative costs. Glyko,
Inc. also reimbursed BioMarin for salaries and related benefits.
Reimbursement of expenses:
<TABLE>
<CAPTION>
Paid
from
Glyko, Paid from
Inc. to BioMarin to
BioMarin Glyko, Inc. Net
-------- ----------- --------
<S> <C> <C> <C>
March 21, 1997 (inception) to December 31,
1997....................................... $133,000 $373,848 $240,848
Year ended December 31, 1998................ 75,073 298,491 223,418
Quarter ended March 31, 1999................ 46,544 158,146 111,602
-------- -------- --------
March 21, 1997 (inception) to March 31,
1999....................................... $254,617 $830,485 $575,868
======== ======== ========
</TABLE>
BioMarin also purchased products and services from Glyko, Inc. at a 27%
discount. This is the same discount that Glyko grants to any other company that
it treats as a distributor. Purchases of products and services from Glyko, Inc.
from March 21, 1997 (inception) to October 8, 1998 were $160,455.
In the fourth quarter of 1998 and the first quarter of 1999, BioMarin loaned to
Glyko, Inc. $200,000 and $160,000, respectively, to fund its operations. As of
March 31, 1999, Glyko, Inc. owes $449,116 to BioMarin and BioMarin owes $23,873
to Glyko, Inc. These amounts have been eliminated upon consolidation.
As discussed in Note 3, during August 1997, the Company entered into an agency
agreement with an entity with which the chief executive officer and chairman of
the board is affiliated. During June 1998, the Company entered into a second
agency agreement. The Company issued a total of 899,500 shares of common stock
and warrants to purchase another 801,500 shares of common stock to this entity
and its affiliates for brokerage services pursuant to the terms of these
agreements, also discussed in Note 3.
F-18
<PAGE>
BIOMARIN PHARMACEUTICAL INC. AND SUBSIDIARIES
(a development-stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information with respect to the periods ended March 31, 1998 and 1999 and the
period from March 21, 1997 (inception) to March 31, 1999 is unaudited)
As further discussed in Note 12, on April 13, 1999, the Company entered into a
convertible note financing agreement in the amount of $26,000,000. Of this
amount GBL purchased $4,300,000 worth of such notes and LaMont Asset Management
("LAM") purchased $9,700,000. 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 5 percent cash commission on sales to
certain note purchasers.
Since October 8, 1998, Glyko Biomedical Ltd. has agreed to pay BioMarin a
monthly management fee for its services to Glyko Biomedical Ltd. primarily
relating to management, accounting, finance and government reporting. BioMarin
has accrued a receivable from Glyko Biomedical Ltd. of $27,152 and $23,312 for
the year ended December 31, 1998 and the quarter ended March 31, 1999,
respectively.
Due to the terms of the collaborative agreement with Genzyme outlined in Note
8, Genzyme is considered a related party. See also Notes 1 and 8 for Genzyme
related party transactions.
At December 31, 1997 and 1998 and March 31, 1999, the Company had recorded
amounts due from GBL of $79,607, $114,005 and $119,165 respectively (including
the amounts discussed above.)
8. COLLABORATIVE AGREEMENTS:
Genzyme--Effective September 4, 1998, the Company entered into an agreement
(the Collaboration Agreement) with Genzyme to establish a joint venture
dedicated to the worldwide development and commercialization of BM101 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, BioMarin 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 BM101. The parties also agree to share the profits equally
from such commercialization. In addition, Genzyme purchased 1,333,333 shares of
BioMarin common stock at $6.00 per share for total proceeds of $7,999,998 in a
private placement and is obligated to purchase an additional $10,000,000 of
common stock at the initial public offering price in a private placement
concurrent with the initial public offering of the Company's stock. Genzyme has
also agreed to pay BioMarin $12,100,000 in cash upon FDA approval of the BLA
for BM101.
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.
9. COMPENSATION PLANS:
Employment Agreements--The Company has entered into employment agreements with
seven officers of the Company. All of these agreements are terminable without
cause by the Company upon six
F-19
<PAGE>
BIOMARIN PHARMACEUTICAL INC. AND SUBSIDIARIES
(a development-stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information with respect to the periods ended March 31, 1998 and 1999 and the
period from March 21, 1997 (inception) to March 31, 1999 is unaudited)
months' prior notice, or by the officer upon three months' prior written notice
to the Company, with the Company obligated to pay salary and benefits hereunder
until such termination. The annual salaries committed to under these agreements
total approximately $1,000,000. In addition, three of the agreements provide
for the payment of an annual cash bonus of up to 100 percent of the base annual
salary of the three officers based upon the Company's market capitalization. At
December 31, 1998 and for the quarter ended March 31, 1999, the Company has
accrued compensation expense of $112,650 and $0, respectively, under these
bonus provisions.
401(k) Plan--The Company participates in the Glyko Retirement Savings Plan (the
401(k) Plan). Most employees (the Participants) are eligible to participate
following the start of their employment, on the earlier of the next occurring
January 1 or July 1. Participants may contribute up to 15 percent of their
current compensation to the 401(k) Plan or an amount up to a statutorily
prescribed annual limit. The Company pays the direct expenses of the 401(k)
Plan but does not currently match or make contributions to employee accounts.
1997 Stock Plan--In November 1997, the Board adopted, and in April 1998, the
stockholders approved, the 1997 Stock Plan (the 1997 Plan), which provided for
the reservation of a total of 3,000,000 shares of common stock for issuance
under the 1997 Plan. In December 1998, the Board adopted, and in January 1999,
the stockholders approved, an amendment to the 1997 Plan to increase the number
of shares reserved for issuance under it to an aggregate of 5,000,000 and to
add an "evergreen provision" providing for an annual increase in the number of
shares which may be optioned or sold under the 1997 Plan without need for
additional Board or stockholder action to approve such increase (which increase
shall be the lesser of 4 percent of the then-outstanding capital stock,
2,000,000 shares, or a lower amount set by the Board). The 1997 Plan provides
for the grant of stock options and the issuance of restricted stock by the
Company to its employees, officers, directors, and consultants.
1998 Employee Stock Purchase Plan--In December 1998 the Board adopted, and in
January 1999 the stockholders approved, the 1998 Employee Stock Purchase Plan
(the 1998 Purchase Plan). A total of 250,000 shares of Company common stock has
been reserved for issuance under the 1998 Purchase Plan, plus annual increases
equal to the lesser of 0.5 percent of the outstanding capital stock, 200,000
shares, or a lesser amount set by the Board. As of December 31, 1998, no shares
have been issued under the 1998 Purchase Plan. The implementation of this plan
is contingent on the completion of an initial public offering.
1998 Director Option Plan--The 1998 Director Option Plan (the Director Plan)
was adopted by the Board of Directors in December 1998 and approved by the
stockholders in January 1999. The Director Plan provides for the grant of
nonstatutory stock options to nonemployee directors. A total of 200,000 shares
of Company common stock, plus an annual increase equal to the number of shares
needed to restore the maximum aggregate number of shares available for sale
under the Director Plan or the lesser of 0.5 percent of the outstanding capital
stock, 200,000 shares, or a lesser amount set by the Board, have been reserved
for issuance under the Director Plan. As of December 1998, no options were
granted under the Director Plan.
During the first quarter of 1999, the Board granted 789,774 stock options under
the 1997 Plan to employees and directors of the Company at an average exercise
price of $6.91 per share. The Company's management estimates that these stock
option prices reflect current fair value.
F-20
<PAGE>
BIOMARIN PHARMACEUTICAL INC. AND SUBSIDIARIES
(a development-stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information with respect to the periods ended March 31, 1998 and 1999 and the
period from March 21, 1997 (inception) to March 31, 1999 is unaudited)
10. SUPPLEMENTAL CASH FLOW INFORMATION:
The following noncash transactions took place for the periods presented:
<TABLE>
<CAPTION>
Period from Period from
March 21, 1997 March 21, 1997
(Inception), Year ended (Inception),
to December December 31, to December
31, 1997 1998 31, 1998
-------------- ------------ --------------
<S> <C> <C> <C>
Common stock issued in exchange
for notes....................... $2,500,000 $ -- $2,500,000
Compensation in the form of
common stock and common stock
options......................... 18,020 -- 18,020
Common stock and common stock
warrants issued in exchange for
brokerage services.............. 929,740 588,000 1,517,740
Bridge loan converted to common
stock........................... 880,000 -- 880,000
</TABLE>
11. GLYKO, INC.:
On October 7, 1998, the Company entered into an agreement to acquire all of the
outstanding stock of its affiliate, Glyko, Inc. The total consideration for the
acquisition was $14,500,500, comprising 2,259,039 shares of common stock of the
Company, valued at $6.00 per share, the assumption of options held by certain
Glyko, Inc. employees to purchase shares of GBL's common stock, which would
require 255,540 shares of the Company's common stock to be issued if fully
exercised, and $500 in cash. The acquisition was accounted for as a purchase.
The following unaudited pro forma consolidated financial information reflects
the results of operations for the year ended December 31, 1998 and for the
periods from March 21, 1997 (inception), to December 31, 1997 and 1998 as if
the acquisition had occurred on January 1, 1998 and March 21, 1997 (inception),
respectively:
<TABLE>
<CAPTION>
Period from Period from
March 21, 1997 March 21, 1997
(Inception), to Year ended (Inception), to
December 31, December 31, December 31,
1997 1998 1998
--------------- ------------ ---------------
<S> <C> <C> <C>
Revenues..................... $ 1,995,562 $ 2,530,325 $ 4,345,887
Loss from operations......... (6,027,890) (13,044,201) (17,532,186)
Net loss..................... (5,953,934) (12,379,832) (16,797,384)
Net loss per share, basic and
diluted..................... (0.57) (0.51) (0.93)
Weighted average number of
common shares outstanding... 10,464,474 24,214,135 18,133,509
</TABLE>
12. SUBSEQUENT EVENT:
On April 13, 1999, the Company entered into a convertible note financing
agreement in the amount of $26,000,000. Of this amount, GBL invested
$4,300,000. These notes bear interest at 10 percent per annum.
F-21
<PAGE>
BIOMARIN PHARMACEUTICAL INC. AND SUBSIDIARIES
(a development-stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information with respect to the periods ended March 31, 1998 and 1999 and the
period from March 21, 1997 (inception) to March 31, 1999 is unaudited)
All unpaid principal, together with all unpaid interest, shall be due and
payable upon the earlier of (a) April 2002 (the "Maturity Date"), (b)
immediately prior to a sale of all of the assets of the Company or a merger or
acquisition of the Company with another entity, or (c) an initial public
offering with net proceeds to the Company of at least $20,000,000.
On the Maturity Date, in lieu of any repayment in cash, the Company has the
right to convert the amounts owed under the notes, in whole or part, into fully
paid and nonassessable shares of common stock of the Company.
At any time prior to the Maturity Date, the notes automatically convert to
shares of common stock of the Company immediately prior to (a) any merger or
acquisition of the Company, (b) a sale of all the assets of the Company, or (c)
an initial public offering with net proceeds to the Company of at least
$20,000,000.
The price at which the notes will convert into shares of common stock is
initially set at $10.00 per share and is subject to certain adjustments for
possible future events. The convertible note agreement also contains certain
anti-dilutive provisions.
In May 1999, BioMarin's wholly-owned subsidiary, Glyko, Inc., acquired key
assets of the Biochemical Research Reagent Division of Oxford GlycoSciences
Plc. The acquisition was made to increase Glyko, Inc.'s product offerings and
was valued from $1.5 million to $2.1 million, depending on the future sales of
the acquired products.
F-22
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Glyko, Inc.:
We have audited the balance sheets of Glyko, Inc. as of December 31, 1997, and
October 7, 1998 (acquisition date), and the related statements of operations,
changes in stockholders' equity (deficit), and cash flows for the years ended
December 31, 1996 and 1997, and for the period from January 1, 1998 to October
7, 1998. 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 generally accepted auditing
standards. 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 Glyko, Inc. as of December 31,
1997 and October 7, 1998, and the results of its operations and its cash flows
for the years ended December 31, 1996 and 1997, and for the period from January
1, 1998 to October 7, 1998, in conformity with generally accepted accounting
principles.
/s/ ARTHUR ANDERSEN LLP
San Francisco, California,
March 17, 1999
F-23
<PAGE>
GLYKO, INC.
BALANCE SHEETS
AS OF DECEMBER 31, 1997, AND OCTOBER 7, 1998
<TABLE>
<CAPTION>
December 31, October 7,
1997 1998
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................ $ 528,280 $ 24,010
Accounts receivable, net of allowance for
doubtful accounts of $10,000, and $20,000,
respectively.................................... 141,744 186,340
Due from related parties......................... 86,425 108,097
Inventories...................................... 95,210 76,595
Other assets..................................... 15,178 12,478
------------ ------------
Total current assets........................... 866,837 407,520
PROPERTY AND EQUIPMENT, net........................ 118,910 93,368
OTHER ASSETS....................................... 2,206 2,206
------------ ------------
Total assets................................... $ 987,953 $ 503,094
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable................................. $ 20,380 $ 88,490
Accrued expenses................................. 96,116 102,805
Deferred rent.................................... 7,418 12,066
Deferred revenue................................. 10,675 1,525
Payable to former stockholder.................... 365,880 0
------------ ------------
Total current liabilities...................... 500,469 204,886
DUE TO GLYKO BIOMEDICAL, LTD....................... 3,803,820 0
------------ ------------
Total liabilities.............................. 4,304,289 204,886
------------ ------------
STOCKHOLDERS' EQUITY (DEFICIT):
Convertible preferred stock, $0.01 par value,
5,000 shares authorized, 2,000 shares issued and
outstanding at December 31, 1997, and October 7,
1998 (acquisition date)......................... 20 20
Common stock, $0.01 par value, 15,000 shares
authorized, 3,882 shares issued and outstanding
at December 31, 1997, and October 7, 1998
(acquisition date).............................. 39 39
Additional paid-in capital....................... 8,999,005 12,679,727
Accumulated deficit.............................. (12,315,400) (12,381,578)
------------ ------------
Total stockholders' equity (deficit)........... (3,316,336) 298,208
------------ ------------
Total liabilities and stockholders' equity
(deficit)..................................... $ 987,953 $ 503,094
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-24
<PAGE>
GLYKO, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997, AND FOR
THE PERIOD ENDED OCTOBER 7, 1998
<TABLE>
<CAPTION>
Period
from
January 1,
Year Ended Year Ended 1998, to
December December October 7,
31, 1996 31, 1997 1998
----------- ---------- ----------
<S> <C> <C> <C>
REVENUES:
Sales of products........................ $ 1,086,414 $1,016,665 $ 750,145
Sales of services........................ 210,709 186,317 115,019
Other revenues........................... 33,512 860,935 294,752
----------- ---------- ----------
Total revenues......................... 1,330,635 2,063,917 1,159,916
OPERATING COSTS AND EXPENSES:
Cost of products ........................ 391,194 400,841 231,423
Cost of services......................... 118,054 81,929 53,437
Research and development................. 1,014,966 633,086 613,055
Selling general and administrative....... 1,490,244 563,231 521,060
Other.................................... 0 0 (165,880)
----------- ---------- ----------
Income (Loss) from operations.......... (1,683,823) 384,830 (93,179)
OTHER (LOSS) INCOME........................ 87,418 (2,045) (1,300)
INTEREST INCOME............................ 18,367 12,610 28,301
----------- ---------- ----------
Income (Loss) before income taxes...... (1,578,038) 395,395 (66,178)
Provision for income taxes............. -- -- --
----------- ---------- ----------
Net income (Loss)...................... $(1,578,038) $ 395,395 $ (66,178)
=========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-25
<PAGE>
GLYKO, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997, AND FOR
THE PERIOD ENDED OCTOBER 7, 1998
<TABLE>
<CAPTION>
Preferred Total
Stock Common Stock Additional Stockholders'
------------- ------------- Paid-in Accumulated Equity
Shares Amount Shares Amount Capital Deficit (Deficit)
------ ------ ------ ------ ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, January 1,
1996................... 2,000 $20 3,882 $39 $ 8,999,005 $(11,132,757) $(2,133,693)
Net loss............... 0 0 0 0 0 (1,578,038) (1,578,038)
----- --- ----- --- ----------- ------------ -----------
BALANCE, December 31,
1996................... 2,000 20 3,882 39 8,999,005 (12,710,795) (3,711,731)
Net income............. 0 0 0 0 0 395,395 395,395
----- --- ----- --- ----------- ------------ -----------
BALANCE, December 31,
1997................... 2,000 20 3,882 39 8,999,005 (12,315,400) (3,316,336)
Balance due to Glyko
Biomedical, Ltd.
converted to
additional paid-in
capital............... 0 0 0 0 3,680,722 0 3,680,722
Net loss for the period
ended October 7, 1998
(acquisition date).... 0 0 0 0 0 (66,178) (66,178)
----- --- ----- --- ----------- ------------ -----------
BALANCE, October 7,
1998................... 2,000 $20 3,882 $39 $12,679,727 $(12,381,578) $ 298,208
===== === ===== === =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-26
<PAGE>
GLYKO, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997, AND FOR
THE PERIOD ENDED OCTOBER 7, 1998 (ACQUISITION DATE)
<TABLE>
<CAPTION>
Period
from
January
1, 1998,
Year Ended Year Ended to
December December 31, October
31, 1996 1997 7, 1998
----------- ------------ ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income....................... $(1,578,038) $ 395,395 $ (66,178)
Adjustments to reconcile net (loss)
income to net cash (used in) provided
by operating activities:
Depreciation.......................... 61,139 58,914 34,376
Loss on disposal of fixed assets...... 4,046 1,230 0
Gain on lease abandonment............. (62,538) 0 0
Gain on settlement of claim........... 0 0 (165,880)
Changes in operating assets and
liabilities:
Accounts receivable................... 200,630 14,432 (44,596)
Inventories........................... 40,066 (26,758) 18,615
Due from related parties.............. 0 (69,898) (21,672)
Other assets.......................... (20,854) 10,841 2,701
Accounts payable...................... 52,357 (154,352) 68,110
Accrued expenses...................... (20,097) (113,195) 15,825
Deferred rent......................... 0 7,418 4,648
Deferred revenue...................... (174,386) 10,675 (9,150)
Payable to former stockholder......... 0 0 (200,000)
Payable to related parties............ 0 0 (132,235)
----------- --------- ---------
Net cash (used in) provided by
operating activities............... (1,497,675) 134,702 (495,436)
----------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment...... (61,061) (71,009) (8,834)
----------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of capital lease obligations.... (14,016) 0 0
Investment from Glyko Biomedical........ 1,163,024 253,595 0
----------- --------- ---------
Net cash provided by financing
activities......................... 1,149,008 253,595 0
----------- --------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS.............................. (409,728) 317,288 (504,270)
CASH AND CASH EQUIVALENTS:
Beginning of period..................... 620,720 210,992 528,280
----------- --------- ---------
End of period........................... $ 210,992 $ 528,280 $ 24,010
=========== ========= =========
SUPPLEMENTAL DISCLOSURE OF NONCASH
TRANSACTIONS:
Balance due to Glyko Biomedical
converted to equity.................... 0 0 3,680,722
=========== ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-27
<PAGE>
GLYKO, INC.
NOTES TO FINANCIAL STATEMENTS
1. THE COMPANY AND DESCRIPTION OF THE BUSINESS:
Glyko, Inc. (the Company) is a Delaware corporation that was incorporated in
October 1990. Until October 7, 1998, the Company had been a wholly owned
subsidiary of Glyko Biomedical, Ltd. (GBL), a Canadian company. The Company's
principal activities are the sale of chemical kits and equipment incorporating
its proprietary carbohydrate technology and the development of commercial
applications based on complex carbohydrates. The Company has developed a line
of analytic instrumentation laboratory products that include an imaging system,
analysis software, and a chemical analysis kit referred to as analytic and
diagnostic products, which are used in carbohydrate testing, including
detection, separation, and sequencing. Shipment of these products began in
December 1992. The Company's technology is called "FACE" or Fluorophore-
Assisted Carbohydrate Electrophoresis. The Company is continuing to develop
additional chemical kits for use with the imaging system and is also developing
a line of diagnostic products based on carbohydrate technology.
As further discussed in Note 10, on October 7, 1998, the Company was acquired
by its affiliate, BioMarin Pharmaceutical Inc. (BioMarin). BioMarin is a
biopharmaceutical company specializing in the discovery, development and
commercialization of carbohydrate enzyme therapeutics. As consideration for the
acquisition of all of the outstanding shares of the Company, BioMarin issued
2,259,039 shares of common stock to GBL and assumed stock options held by
certain employees of the Company to purchase shares of GBL's common stock,
which will require 255,540 shares of the Company's common stock to be issued,
if fully exercised and paid $500 in cash.
The accompanying financial statements include the balance sheet of the Company
as of October 7, 1998 (acquisition date), and the statements of operations,
changes in stockholders equity, and cash flows for the period from January 1,
1998, to October 7, 1998.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Use of Estimates
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires management to make certain
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the
dates of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates. Significant estimates made by management include allowance for
doubtful accounts receivable and certain other reserves.
Cash and Cash Equivalents
Cash and cash equivalents consist of amounts held with banks and short-term
investments with original maturities of 90 days or less.
Inventories
Inventories consist of raw materials, analytic and diagnostic kits, and
instrument-based systems held for sale. Inventories are stated at the lower of
cost (first-in, first-out method) or estimated market value. The components of
inventories are as follows:
<TABLE>
<CAPTION>
December 31, 1997 October 7, 1998
----------------- ---------------
<S> <C> <C>
Raw materials............................ $90,647 $73,845
Finished products........................ 4,563 2,750
------- -------
$95,210 $76,595
======= =======
</TABLE>
F-28
<PAGE>
GLYKO, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Property and Equipment
Property and equipment are stated at cost. The cost and accumulated
depreciation for property and equipment sold, retired, or otherwise disposed of
are relieved from the accounts, and the resulting gains or losses are reflected
in the statements of operations. Depreciation is computed using the straight-
line method over the following estimated useful lives:
<TABLE>
<S> <C>
Office furniture................................................ 5 years
Computer equipment.............................................. 3 years
Lab and production equipment.................................... 5 years
</TABLE>
Revenue Recognition
The Company recognizes product revenues and related cost of sales upon shipment
of products. Service revenues are recognized upon completion of services as
evidenced by the transmission of reports to customers. Other revenues,
principally licensing, distribution and development fees, are recognized upon
our satisfaction of our contractual obligations such as i) execution of
contract; ii) certain milestones; and iii) certain anniversary dates from the
effective date of the contract. There are no refund provisions related to these
licensing, distribution and development fees.
Payments received in advance for future product shipments or hardware
maintenance and service contracts are classified as deferred revenue on the
accompanying balance sheets. Upon shipment of products, revenue is recognized
and the corresponding liability (deferred revenue) is reduced. Revenues from
maintenance and service contracts are recognized monthly pro rata over the
period of the contract, and the corresponding liability (deferred revenue) is
reduced.
Income Taxes
The Company provides for income taxes under Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes." Under SFAS No. 109,
deferred income taxes are recorded to reflect the tax consequences on future
years of differences between the tax basis of assets and liabilities and their
financial reporting amounts at each period-end. The Company has a cumulative
net operating loss carryforward since inception, resulting in net deferred tax
assets. A valuation allowance is placed on the net deferred tax assets to
reduce them to their net realizable values.
3. PROPERTY AND EQUIPMENT:
Property and equipment at December 31, 1997, and October 7, 1998 consisted of
the following:
<TABLE>
<CAPTION>
December 31, 1997 October 7, 1998
----------------- ---------------
<S> <C> <C>
Lab equipment............................ $ 229,701 $ 231,586
Computer equipment....................... 94,712 101,661
Production equipment..................... 37,164 37,164
Office furniture......................... 13,510 13,510
Leasehold improvements................... 68,343 68,343
--------- ---------
443,430 452,264
Less: Accumulated depreciation........... (324,520) (358,896)
--------- ---------
Property and equipment, net............ $ 118,910 $ 93,368
========= =========
</TABLE>
Total depreciation expense for the years ended December 31, 1996 and 1997, and
for the period from January 1, 1998 to October 7, 1998 was $61,139, $58,914,
and $34,376, respectively.
F-29
<PAGE>
GLYKO, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
4. INCOME TAXES:
The significant components of net deferred tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
December 31, 1997 October 7, 1998
----------------- ---------------
<S> <C> <C>
Net operating loss carryforwards....... $ 4,573,000 $ 4,520,000
Research and development capitalized... 60,000 782,000
Research and development credit
carryforwards......................... 595,000 668,000
Other.................................. (255,000) (249,000)
Valuation allowance.................... (4,973,000) (5,721,000)
----------- -----------
Net deferred tax asset................. $ 0 $ 0
=========== ===========
</TABLE>
The reconciliation of the effective tax rate is as follows:
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------ Period Ended
1996 1997 October 7, 1998
-------------- ------------- ----------------
Amount % Amount % Amount %
--------- --- -------- --- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
U.S. statutory tax rate..... $(495,000) (34)% $ 96,000 34% $ 6,000 34%
State taxes, net of federal
income tax benefit......... (87,000) (6) 17,000 6 1,000 6
Research and development tax
credit..................... (17,000) (1) (37,000) (13) (48,000) (259)
Other....................... (155,000) (10) 4,000 2 53,000 284
Change in valuation
allowance.................. 754,000 51 (80,000) (29) (12,000) (65)
--------- --- -------- --- --------- -----
Provision for income
taxes.................... $ 0 0% $ 0 0% $ 0 0%
========= === ======== === ========= =====
</TABLE>
As of October 7, 1998, net operating loss carryforwards are approximately $11.9
million and $5.3 million for federal and California income tax purposes,
respectively. Federal operating loss carryforwards expire from 2006 to 2012,
and state operating loss carryforwards expire from 1998 to 2001.
The Company also has research and development credits available to reduce
future federal and California income taxes, if any, of approximately $452,000
and $216,000, respectively, at October 7, 1998 (acquisition date). These
federal and state carryovers expire from 2007 to 2011.
The Tax Reform Act of 1986 contains provisions that may limit, for federal and
state tax purposes, the net operating loss carryforwards and research and
development credits available to be used in any given year in certain
situations, including sale of equity securities and other significant changes
in ownership. As a result of the acquisition and the resultant change in
ownership of the Company by BioMarin, the utilization of the Company's net
operating losses will be limited and such net operating losses will only be
available to offset the taxable income, if any, of the Company.
F-30
<PAGE>
GLYKO, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
5. COMMITMENTS AND CONTINGENCIES:
Leases
The Company leases its facilities and office and other equipment under
agreements that expire at various dates through 2000. Future minimum annual
rental commitments under operating leases are as follows:
<TABLE>
<CAPTION>
Years Ending October 7
----------------------
<S> <C>
1999........................................................... $ 81,660
2000........................................................... 43,915
2001........................................................... --
2002........................................................... --
2003 and thereafter............................................ --
--------
$125,575
========
</TABLE>
Total rent expense for the years ended December 31, 1996 and 1997, and for the
period from January 1, 1998 to October 7, 1998 was $274,284, $57,950 (net of
sublease rental income) and $35,636 (net of sublease rental income),
respectively.
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 its technology results in adverse effects during
testing or commercial sale. The Company currently does not maintain product
liability insurance. 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.
6. CONVERTIBLE PREFERRED STOCK:
The Company has authorized 5,000 shares of convertible preferred stock with a
par value of $0.01 per share. The convertible preferred stock is entitled to a
preference of $1,000 per share plus any declared but unpaid dividends upon
voluntary or involuntary liquidation, dissolution, or winding up of the
Company. The convertible preferred stock is convertible at the option of the
holder into common stock of the Company. The number of shares of common stock
into which shares of preferred may be converted is determined by multiplying
the number of preferred shares to be converted by the conversion ratio in
effect on the date of conversion. The conversion ratio is subject to adjustment
in certain events. Holders of preferred stock are entitled to the number of
votes as is equal to the number of shares of common stock into which such
shares of preferred could be converted on the record date for the vote.
7. STOCK OPTION PLAN:
GBL has a stock option plan (the Plan) under which options to purchase common
stock in GBL may be granted by the Board of Directors to GBL's directors,
officers, and consultants at not less than fair market value, less any
permissible discounts, on the date of grant. Options granted under the Plan may
be incentive stock options (as defined under Section 422 of the U.S. Internal
Revenue Code) or nonstatutory stock options. Options are exercisable over a
number of years specified at the time of the grant, which cannot exceed ten
years. The maximum aggregate number of shares that may be granted and sold
under the Plan is 3,000,000 shares. Directors, officers, consultants, and
employees of the Company are also eligible under the Plan.
F-31
<PAGE>
GLYKO, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Company accounts for these option grants under APB Opinion No. 25, under
which no compensation cost has been recognized, except for options granted to
consultants, because, under the Plan, the option exercise price equals the
market value of stock on the date of grant. In general, plan options vest over
48 months, and all options expire after five years or 90 days after employee
termination.
Had compensation cost for the Plan been determined consistently with FASB
Statement No. 123, the Company's net income (loss) would have been increased to
the following pro forma amounts to reflect the compensation expense associated
with the grants to the Company's directors, officers, consultants, and
employees:
<TABLE>
<CAPTION>
Year Ended December
31
--------------------- Period Ended
1996 1997 October 7, 1998
----------- -------- ---------------
<S> <C> <C> <C>
Net income (loss):
As reported......................... $(1,578,038) $395,395 $ (66,178)
Pro forma........................... (1,646,866) 312,666 (188,379)
</TABLE>
Because the FASB Statement No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.
The fair value of each option granted is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1996, 1997, and 1998, respectively: risk-free
weighted average interest rates of 5.3 percent, 6.3 percent, and 5.4 percent;
expected dividend yield of zero percent; expected life of four years for the
Plan's options; expected volatility of 87 percent, 92 percent, 65 percent.
8. 401(k) PLAN:
The Company participates in the Glyko Retirement Savings Plan (the 401(k)
Plan). Most employees (Participants) are eligible to participate following the
start of their employment on the earlier of the next occurring January 1 or
July 1. Participants may contribute up to approximately 15 percent of their
current compensation, up to a statutorily prescribed annual limit, to the
401(k) Plan.
9. RELATED-PARTY TRANSACTIONS:
The Company subleases office and lab space, certain administrative functions,
and research and development functions to BioMarin. BioMarin reimburses the
Company for rent, salaries and related Company benefits, and other
administrative costs, and the Company reimburses BioMarin for salaries and
related benefits.
Reimbursement of expenses:
<TABLE>
<CAPTION>
Paid
from
Glyko, Paid from
Inc. to BioMarin to
BioMarin Glyko, Inc. Net
-------- ----------- --------
<S> <C> <C> <C>
March 21, 1997 (inception) to December 31,
1997....................................... $133,000 $373,848 $240,848
Year ended December 31, 1998................ 75,073 298,491 223,418
Quarter ended March 31, 1999................ 46,544 158,146 111,602
-------- -------- --------
March 21, 1997 (inception) to March 31,
1999....................................... $254,617 $830,485 $575,868
======== ======== ========
</TABLE>
F-32
<PAGE>
GLYKO, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
BioMarin also purchased products and services from Glyko, Inc. at a 27%
discount. This is the same discount that Glyko grants to any other company that
it treats as a distributor. Purchases of products and services from Glyko, Inc.
from BioMarin's inception (March 21, 1997) to October 8, 1998 were $160,455.
At December 31, 1997, the Company had recorded an amount payable to stockholder
of $365,880 representing the amount claimed by the stockholder relating to a
facilities dispute with the Company. The Company had a cross-claim for royalty
income which would reduce the stockholder's claim. This claim was settled
during the year ended December 31, 1998, and the Company recorded a gain of
$165,880, as the amount of the settlement was less than the amount provided for
by the Company.
10. ACQUISITION BY BIOMARIN:
On October 7, 1998, GBL entered into an agreement to sell all of the
outstanding stock of the Company to its affiliate, BioMarin. The total
consideration for the acquisition was $14,500,500, comprising 2,259,039 shares
of common stock of BioMarin, valued at $6.00 per share, the assumption of
options held by certain employees of the Company to purchase shares of GBL's
common stock, which will require 255,540 shares of BioMarin common stock to be
issued if fully exercised, and $500 in cash. The acquisition was accounted for
as a purchase. In conjunction with the sale, GBL converted $3,680,722 of its
intercompany receivable into equity in the Company. The remaining balance of
$1,212,278 was repaid to GBL in cash.
F-33
<PAGE>
Liver biopsy from a dog with MPS-I
LEGEND: Liver biopsy from a dog with MPS-I showing excessive carbohydrate
storage
Liver biopsy from a dog with MPS-I
treated with BM101
LEGEND: Liver biopsy from a dog with MPS-I showing
significant removal of stored carbohydrate
after treatment with our enzyme
Gel image of MPS material in children with various MPS diseases
LEGEND: Color enhanced image of a BioMarin diagnostic
gel owing a distinctive carbohydrate
composition in the urine of a child with an MPS
disease.
LEGEND: Culture of Aspergillus, a fungus which causes life-threatening
infections in patients with comprised immune systems.
Aspergillus culture
Aspergillus culture treated with BM 104
<PAGE>
4,500,000 Shares
BIOMARIN PHARMACEUTICAL INC.
Common Stock
[LOGO OF BIOMARIN PHARMACEUTICALS, INC.]
---------------------
PROSPECTUS
---------------------
Until , all dealers that effect transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealers' obligation to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
U.S. Bancorp Piper Jaffray Bank J. Vontobel & Co AG
Schroders & Co. Inc.
Leerink Swann & Company
, 1999
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than underwriting
discounts and commissions, payable by the Registrant in connection with the
sale of Common Stock being registered. All amounts are estimates except the
registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
Amount
To Be
Paid
----------
<S> <C>
Registration fee............................................... $ 18,703
NASD filing fee................................................ 6,350
Nasdaq National Market listing fee............................. 90,000
Swiss Exchange filing fees..................................... 15,000
Printing and engraving......................................... 365,000
Legal fees and expenses........................................ 525,000
Accounting fees and expenses................................... 105,000
Blue Sky fees and expenses..................................... 20,000
Transfer Agent fees............................................ 10,000
Miscellaneous.................................................. 345,000
----------
Total...................................................... $1,500,053
==========
</TABLE>
- -------------------------------
*Indicates that these fees shall be filed by amendment.
Item 14. Indemnification of Directors and Officers
Reference is made to the Amended and Restated Certificate of Incorporation of
the Registrant; the Bylaws of the Registrant; Section 145 of the Delaware
General Corporation Law; and the form of indemnification agreement filed
herewith as Exhibit 10.1 which, among other things, and subject to certain
conditions, authorize the Registrant to indemnify, or indemnify by their terms,
as the case may be, the directors and officers of the Registrant against
certain liabilities and expenses incurred by such persons in connection with
claims made by reason of their being such a director or officer.
The form of the Underwriting Agreement filed as Exhibit 1.1 to this
Registration Statement provides for indemnification by the Underwriters and
their controlling persons, on the one hand of the Registrant and its
controlling persons on the other hand, for certain liabilities arising under
the Securities Act of 1933, as amended (the "Act"), the Securities Exchange Act
of 1934, as amended or otherwise.
The Registrant maintains director's and officer's insurance providing
indemnification against certain liabilities for certain of the Registrant's
directors, officers, affiliates, partners or employees.
The indemnification provisions in the Registrant's Bylaws, and the
indemnification agreements entered into between the Registrant and its
directors and executive officers, may be sufficiently broad to permit
indemnification of the Registrant's officers and directors for liabilities
arising under the Act.
Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein: (1) the form of Underwriting Agreement, filed as
Exhibit 1.1; (2) the Amended and Restated Certificate of Incorporation, filed
as Exhibit 3.1B; (3) the Bylaws of the Registrant, filed as Exhibit 3.2; and
(4) the form of Indemnification Agreement entered into by the Registrant with
each of its directors and executive officers, filed as Exhibit 10.1.
II-1
<PAGE>
Item 15. Recent Sales of Unregistered Securities
Since its inception, the Registrant has issued the following unregistered
securities:
(1) On April 19, 1997, the Registrant issued and sold 1,500,000 shares
of common stock to an institutional investor for aggregate consideration
of $1,500,000.
(2) On September 24, 1997, the Registrant issued and sold 7,000,000
shares of common stock to an institutional investor in exchange for a
license valued at $7,000,000.
(3) On October 1, 1997, the Registrant issued and sold 2,500,000 shares
of common stock to three founders for aggregate consideration in the
form of promissory notes in the aggregate principal amount of
$2,500,000.
(4) On October 1, 1997, the Registrant issued and sold 3,289,000 shares
of common stock and a warrant to purchase 299,000 shares of common stock
to a group of institutional investors, individuals and venture capital
funds for aggregate consideration of $2,911,500.
(5) On October 16, 1997, the Registrant issued and sold 750,000 shares
of common stock to a group of individuals for aggregate consideration of
$750,000.
(6) On December 30, 1997, the Registrant issued and sold 5,527,500
shares of common stock and a warrant to purchase 502,500 shares of
common stock to an institutional investor and a venture capital fund for
aggregate consideration of $5,016,000.
(7) On June 30, 1998, the Registrant issued and sold 598,535 shares of
common stock to a group of institutional investors and a venture capital
fund for aggregate consideration of $3,328,000.
(8) On July 14, 1998, the Registrant issued and sold a total of
1,385,414 shares of common stock to a group of institutional investors,
individuals and venture capital funds for aggregate consideration of
$7,915,010.
(9) On August 3, 1998, the Registrant issued and sold a total of 31,386
shares of common stock to a group of institutional investors and
individuals for aggregate consideration of $175,998.
(10) On September 4, 1998, the Registrant issued and sold a total of
1,333,333 shares of common stock to an institutional investor for
aggregate consideration of $7,999,998.
(11) On October 7, 1998, the Registrant issued 2,259,039 shares of
common stock to Glyko Biomedical, valued at $13,554,234, and assumed
certain stock options which were converted into options to purchase
255,540 shares of common stock of the Registrant as consideration for
the acquisition of 100% of the voting securities of a subsidiary of
Glyko Biomedical.
(12) On April 12, 1999, the Registrant issued and sold to a group of
institutional investors $26.0 million convertible promissory notes
convertible, according to their terms, into shares of the Registrant's
common stock initially at a price of $10.00 per share, subject to
subsequent adjustment.
(13) From November 1997 to May 31, 1999, the Registrant issued and sold
1,973 shares of common stock to employees and directors of and
consultants to the Registrant upon exercise of stock options granted
pursuant to the Registrant's 1997 Stock Plan and 1998 Director Plan.
There were no underwriters employed in connection with any of the transactions
set forth in Item 15.
For additional information concerning these equity investment transactions,
reference is made to the information contained under the caption "Certain
Transactions" in the form of prospectus included herein.
II-2
<PAGE>
The issuances described in Items 15(1), 15(2), and 15(4) through 15(12) were
deemed to be exempt from registration under the Act in reliance on Section 4(2)
of the Act as transactions by an issuer not involving a public offering. In
addition, the issuances described in Items 15(3) and 15(13) were deemed exempt
from registration under the Act in reliance on Rule 701 promulgated thereunder
as transactions pursuant to compensatory benefit plans and contracts relating
to compensation. The recipients of securities in each such transaction
represented their intention to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof and
appropriate legends were affixed to the share certificates and other
instruments issued in such transactions. All recipients either received
adequate information about the Registrant or had access, through employment or
other relationships, to such information.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
1.1* Form of Underwriting Agreement.
2.1** Share Exchange Agreement with Glyko Biomedical, Ltd.
3.1A** Amended and Restated Certificate of Incorporation of BioMarin
Pharmaceutical Inc., a Delaware Corporation, as filed on March
22, 1999.
3.1B(1) Form of Amended and Restated Certificate of Incorporation of
BioMarin Pharmaceutical Inc., a Delaware Corporation.
3.2 Amended and Restated Bylaws of BioMarin Pharmaceutical Inc., a
Delaware corporation.
4.1** Form of Amended and Restated Registration Rights Agreement, by
and among the Company and the investors named therein.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati.
10.1** Form of Indemnification Agreement for directors and officers.
10.2** 1997 Stock Plan, as amended on December 22, 1998, and forms of
agreements thereunder.
10.3** 1998 Director Option Plan and forms of agreements thereunder
10.4** 1998 Employee Stock Purchase Plan and forms of agreements
thereunder.
10.5** Amended and Restated Founder's Stock Purchase Agreement with Dr.
John C. Klock dated as of October 1, 1997 with exhibits.
10.6** Amended and Restated Founder's Stock Purchase Agreement with
Grant W. Denison, Jr. dated as of October 1, 1997 with exhibits.
10.7** Amended and Restated Founder's Stock Purchase Agreement with
Dr. Christopher M. Starr dated as of October 1, 1997 with
exhibits.
10.8** Employment Agreement with Dr. John C. Klock dated June 26, 1997,
as amended.
10.9** Employment Agreement with Grant W. Denison, Jr. dated June 26,
1997, as amended.
10.10** Employment Agreement with Dr. Christopher M. Starr dated June 26,
1997, as amended.
10.11** Employment Agreement with Raymond W. Anderson dated June 22,
1998, as amended.
10.12** Employment Agreement with Stuart J. Swiedler, M.D., Ph.D., dated
May 29, 1998, as amended.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
---------- -----------------------
<C> <S>
10.13** Employment Agreement with Emil Kakkis, M.D., Ph.D., dated
June 30, 1998, as amended.
10.14** Employment Agreement between Brian K. Brandley, Ph.D and
Glyko, Inc. dated February 22, 1998, as amended.
10.15** License Agreement with Glyko Biomedical, Ltd. dated June 26,
1997 with exhibits attached.
10.16(2)** Option Agreement with W.R. Grace & Co. dated as of May 1,
1998.
10.17(2)** Grant Terms and Conditions Agreement with Harbor-UCLA
Research and Education Institute dated April 1, 1997, as
amended.
10.18(2)** License Agreement with Womens and Children's Hospital,
Adelaide, Australia dated August 14, 1998.
10.19** Lease Agreement dated May 18, 1998 for 371 Bel Marin Keys
Boulevard, as amended.
10.20** Standard NNN Lease dated June 25, 1998 for 46 Galli Drive.
10.21** Standard Industrial Commercial Single-Tenant Lease dated May
29, 1998 for 110 Digital Drive, as amended.
10.22** Sublease dated June 24, 1998 for 1123 West Carson Street.
10.23** Commercial Lease and Deposit Receipt with Glyko, Inc. for 11
Pimintel Court and 13 Pimintel Court, dated December 23,
1996.
10.24(2)** Collaboration Agreement with Genzyme Corporation dated
September 4, 1998.
10.25** Purchase Agreement with Genzyme Corporation dated September
4, 1998.
10.26** Subscription Agreement with Genzyme dated September 4, 1998.
10.27** Form of Convertible Note Purchase Agreement dated as of April
12, 1999 with form of convertible promissory note.
10.28** Astro License Agreement dated December 18, 1990 among Glyko,
Inc., Astromed, Ltd., and Astroscan, Ltd.
10.29** Glycomed License Agreement dated December 18, 1990 between
Glyko, Inc., and Glycomed, Inc.
10.30 Operating Agreement with Genzyme Corporation
21.1** List of Subsidiaries
23.1 Consent of Independent Public Accountants.
23.2* Consent of Counsel (included in Exhibit 5.1).
24.1** Power of Attorney.
27.1** Financial Data Schedule (available in EDGAR format only).
</TABLE>
-------------------------------
* To be filed by Amendment.
** Previously filed
(1) As proposed to be filed with the Secretary of State of the State of
Delaware prior to the effectiveness of the offering.
(2) This Exhibit has been filed separately with the Commission pursuant
to an application for confidential treatment. The confidential
portions of this Exhibit have been omitted and are marked by an
asterisk.
II-4
<PAGE>
(b) Financial Statement Schedule
None.
Schedules not listed above have been omitted because the information required
to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
Item 17. Undertakings
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the provisions referenced in Item 14 of this Registration Statement
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act, and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer,
or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered
hereunder, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.
The undersigned Registrant hereby undertakes that for the purpose of
determining any liability under the Act, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new Registration
Statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
For purposes of determining any liability under the Securities Act of 1933, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
The undersigned Registrant hereby undertakes to provide to the underwriter at
the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
II-5
<PAGE>
SIGNATURES
Pursuant to the of the Securities Act of 1933, the Registrant has duly caused
this amended Registration Statement on Form S-1 to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Novato, State of
California, on this 6th day of July, 1999.
Biomarin Pharmaceutical Inc.
/s/ Raymond W. Anderson
By: _________________________________
Raymond W. Anderson
Chief Financial Officer and Vice
President of Finance and
Administration
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Grant W. Denison, Jr.* Chief Executive Officer July 6, 1999
______________________________________ and Chairman of the Board
Grant W. Denison, Jr. (Principal Executive
Officer)
/s/ Raymond W. Anderson Chief Financial Officer July 6, 1999
______________________________________ and Vice President of
Raymond W. Anderson Finance and
Administration (Principal
Financial and Accounting
Officer)
Ansbert S. Gadicke* Director July 6, 1999
______________________________________
Ansbert S. Gadicke, M.D., Ph.D.
John C. Klock, M.D.* Director July 6, 1999
______________________________________
John C. Klock, M.D.
Erich Sager* Director July 6, 1999
______________________________________
Erich Sager
Gwynn R. Williams* Director July 6, 1999
______________________________________
Gwynn R. Williams
</TABLE>
/s/ Raymond W. Anderson
*By: ____________________________
Raymond W. Anderson
Attorney-in-fact
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
1.1* Form of Underwriting Agreement.
2.1** Share Exchange Agreement with Glyko Biomedical, Ltd.
3.1A** Amended and Restated Certificate of Incorporation of BioMarin
Pharmaceutical Inc., a Delaware Corporation, as filed on March 22,
1999.
3.1B(1) Form of Amended and Restated Certificate of Incorporation of
BioMarin Pharmaceutical Inc., a Delaware Corporation.
3.2 Amended and Restated Bylaws of BioMarin Pharmaceutical Inc., a
Delaware corporation.
4.1** Form of Amended and Restated Registration Rights Agreement, by and
among the Company and the investors named therein.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati.
10.1** Form of Indemnification Agreement for directors and officers.
10.2** 1997 Stock Plan as amended on December 22, 1998 and forms of
agreements thereunder.
10.3** 1998 Director Option Plan and forms of agreements thereunder.
10.4** 1998 Employee Stock Purchase Plan and forms of agreements
thereunder.
10.5** Amended and Restated Founder's Stock Purchase Agreement with Dr.
John C. Klock dated as of October 1, 1997, with exhibits.
10.6** Amended and Restated Founder's Stock Purchase Agreement with Grant
W. Denison, Jr. dated as of October 1, 1997, with exhibits.
10.7** Amended and Restated Founder's Stock Purchase Agreement with
Dr. Christopher M. Starr dated as of October 1, 1997, with
exhibits.
10.8** Employment Agreement with Dr. John C. Klock dated June 26, 1997, as
amended.
10.9** Employment Agreement with Grant W. Denison, Jr. dated June 26,
1997, as amended.
10.10** Employment Agreement with Dr. Christopher M. Starr dated June 26,
1997, as amended.
10.11** Employment Agreement with Raymond W. Anderson dated June 22, 1998,
as amended.
10.12** Employment Agreement with Stuart J. Swiedler, M.D., Ph.D., dated
May 29, 1998, as amended.
10.13** Employment Agreement with Emil Kakkis, M.D., Ph.D., dated June 30,
1998, as amended.
10.14** Employment Agreement between Brian K. Brandley PhD and Glyko Inc.
dated February 22, 1998, as amended.
10.15** License Agreement with Glyko Biomedical, Ltd. dated June 26, 1997
with exhibits attached.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
---------- -----------------------
<C> <S>
10.16(2)** Option Agreement with W.R. Grace & Co. dated as of May 1, 1998.
10.17(2)** Grant Terms and Conditions Agreement with Harbor-UCLA Research
and Education Institute dated April 1, 1997, as amended.
10.18(2)** License Agreement with Womens and Children's Hospital Adelaide,
Australia dated August 14, 1998.
10.19** Lease Agreement dated May 18, 1998 for 371 Bel Marin Keys
Boulevard, as amended.
10.20** Standard NNN Lease dated June 25, 1998 for 46 Galli Drive.
10.21** Standard Industrial Commercial Single-Tenant Lease dated May 29,
1998 for 110 Digital Drive, as amended.
10.22** Sublease dated June 24, 1998 for 1123 West Carson Street.
10.23** Commercial Lease and Deposit Receipt with Glyko, Inc. for 11
Pimintel Court and 13 Pimintel Court, dated December 23, 1996.
10.24(2)** Collaboration Agreement with Genzyme Corporation dated September
4, 1998.
10.25** Purchase Agreement with Genzyme Corporation dated September 4,
1998.
10.26** Subscription Agreement with Genzyme dated September 4, 1998.
10.27** Form of Convertible Note Purchase Agreement dated as of April 12,
1999 with form of convertible promissory note.
10.28** Astro License Agreement dated December 18, 1990 among Glyko,
Inc., Astromed, Ltd., and Astroscan, Ltd.
10.29** Glycomed License Agreement dated December 18, 1990 between Glyko,
Inc., and Glycomed, Inc.
10.30 Operating Agreement with Genzyme Corporation
21.1** List of Subsidiaries
23.1 Consent of Independent Public Accountants.
23.2* Consent of Counsel (included in Exhibit 5.1).
24.1** Power of Attorney.
27.1** Financial Data Schedule (available in EDGAR format only).
</TABLE>
--------
* To be filed by Amendment.
** Previously filed.
(1) As proposed to be filed with the Secretary of State of the State of
Delaware prior to the effectiveness of the offering.
(2) This Exhibit has been filed separately with the Commission pursuant to
an application for confidential treatment. The confidential portions of
this Exhibit have been omitted and are marked by an asterisk.
<PAGE>
EXHIBIT 3.1B
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
BIOMARIN PHARMACEUTICAL INC.
BioMarin Pharmaceutical Inc., a corporation organized and existing under
the laws of the State of Delaware, hereby certifies as follows:
A. The name of the Corporation is BioMarin Pharmaceutical Inc. The
Corporation was originally incorporated under the same name and the original
Certificate of Incorporation of the Corporation was filed with the Delaware
Secretary of State on October 25, 1996, and subsequently restated on May 6,
1997. An Amended and Restated Certificate of Incorporation was filed with the
Delaware Secretary of State on March 22, 1999, and was subsequently corrected on
April 21, 1999.
B. Pursuant to Sections 242 and 245 of the General Corporation Law of the
State of Delaware, this Amended and Restated Certificate of Incorporation
restates and amends the provisions of the Amended and Restated Certificate of
Incorporation of this Corporation previously filed on March 22, 1999, as
corrected.
C. The text of the Amended and Restated Certificate of Incorporation
previously filed on March 22, 1999, as corrected, is hereby amended and restated
in its entirety to read as follows:
ARTICLE I.
The name of the corporation (the "Corporation") is BioMarin Pharmaceutical
Inc.
ARTICLE II.
The address of the Corporation's registered office in the State of Delaware
is Corporation Trust Center, 1209 Orange Street, City of Wilmington, County of
New Castle, Delaware 19801. The name of its registered agent at such address is
The Corporation Trust Company.
ARTICLE III.
The purpose of the Corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation law of
Delaware.
ARTICLE IV.
The Corporation is authorized to issue two classes of stock to be
designated, respectively, as "Common Stock" and "Preferred Stock." The number
of shares of Common Stock which the
<PAGE>
Corporation is authorized to issue is Seventy Five Million (75,000,000) shares,
par value $0.001 per share (the "Common Stock"). The number of shares of
Preferred Stock which the Corporation is authorized to issue is one million
(1,000,000) shares, par value $0.001 per share (the "Preferred Stock").
Shares of Common Stock may be issued from time to time for such
consideration as the Board of Directors may determine pursuant to a resolution
or resolutions providing for such issue duly adopted by the Board of Directors
(authority to do so being hereby expressly vested in the Board). Shares of
Preferred Stock may be issued from time to time in one or more series pursuant
to a resolution or resolutions providing for such issue duly adopted by the
Board of Directors (authority to do so being hereby expressly vested in the
Board). The Board of Directors is further authorized to determine or alter the
rights, preferences, privileges and restrictions granted to or imposed upon any
wholly unissued series of Preferred Stock and to fix the number of shares of any
series of Preferred Stock and the designation of any such series of Preferred
Stock. The Board of Directors, within the limits and restrictions stated in any
resolution or resolutions of the Board of Directors originally fixing the number
of shares constituting any series, may increase or decrease (but not below the
number of shares in any such series then outstanding) the number of shares of
any series subsequent to the issue of shares of that series.
The Corporation shall from time to time in accordance with the laws of the
State of Delaware increase the authorized amount of its Common Stock if at any
time the number of shares of Common Stock remaining unissued and available for
issuance shall not be sufficient to permit conversion of the Preferred Stock.
Except as otherwise required by law or herein, the holder of each share of
Common Stock issued and outstanding shall have one vote with respect to such
share and the holder of each share of Preferred Stock shall be entitled with
respect to such share to a number of votes equal to the number of shares of
Common Stock into which such share of Preferred Stock could be converted at the
record date for determination of the stockholders entitled to vote on such
matters, or, if no such record date is established, at the date such vote is
taken or any written consent of stockholders is solicited, such votes to be
counted together with all other shares of stock of the Company having general
voting power and not separately as a class (except as required by the General
Corporation Law of Delaware). Holders of Common Stock and Preferred Stock shall
be entitled to notice of any stockholders' meeting in accordance with the Bylaws
of the Corporation. Fractional votes by the holders of Preferred Stock shall
not, however, be permitted and any fractional voting rights shall (after
aggregating all shares into which shares of Preferred Stock held by each holder
could be converted) be rounded to the nearest whole number.
ARTICLE V.
The Corporation reserves the right to amend, alter, change, or repeal any
provisions contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon the stockholders
herein are granted subject to this right.
-2-
<PAGE>
ARTICLE VI.
The Corporation is to have perpetual existence.
ARTICLE VII.
1. Limitation of Liability. To the fullest extent permitted by the
-----------------------
General Corporation Law of the State of Delaware as the same exists or as may
hereafter be amended, a director of the Corporation shall not be personally
liable to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director.
2. Indemnification. The Corporation shall indemnify to the fullest
---------------
extent permitted by law any person made or threatened to be made a party to an
action or proceeding, whether criminal, civil, administrative or investigative,
by reason of the fact that such person or his or her testator or intestate is or
was a director, officer or employee of the Corporation, or any predecessor of
the Corporation, or serves or served at any other enterprise as a director,
officer or employee at the request of the Corporation or any predecessor to the
Corporation.
3. Amendments. Neither any amendment nor repeal of this Article VII, nor
----------
the adoption of any provision of the Corporation's Amended and Restated
Certificate of Incorporation inconsistent with this Article VII, shall eliminate
or reduce the effect of this Article VII, in respect of any matter occurring, or
any action or proceeding accruing or arising or that, but for this Article VII,
would accrue or arise, prior to such amendment, repeal, or adoption of an
inconsistent provision.
ARTICLE VIII.
Elections of Directors need not be by written ballot unless the Bylaws of
the Corporation shall at the time of any such election so provide.
ARTICLE IX.
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, alter, amend or repeal
the Bylaws of the Corporation.
ARTICLE X.
Following the date of the final prospectus in connection with the initial
public offering of the Corporation's Common Stock pursuant to a firm commitment
underwriting, no action shall be taken by the stockholders of the Corporation
except at an annual meeting of the stockholders or special meeting of the
stockholders called, in accordance with the Bylaws, by the Chairman of the Board
of Directors or by a majority of the then-current directors, and no action shall
be taken by the stockholders by written consent. The affirmative vote of sixty-
six and two-thirds percent (66 2/3%) of the then issued and outstanding voting
securities of the Corporation, voting together as a single class, shall be
required to amend, repeal or modify the provisions of
-3-
<PAGE>
this Article X of this Amended and Restated Certificate of Incorporation or
Sections 2.3 (Special Meeting), or 2.10 (Stockholder Action by Written Consent
Without a Meeting) of the Corporation's Bylaws.
ARTICLE XI.
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside of the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.
ARTICLE XII.
The name and mailing address of the incorporator are:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304-1050
Attn: Francis S. Currie, Esq.
D. The Amended and Restated Certificate of Incorporation set forth herein
has been duly approved by the Board of Directors of the Corporation pursuant to
Section 242 of the Delaware General Corporation Law. This Amended and Restated
Certificate of Incorporation has been duly approved by the required vote of
stockholders in accordance with Sections 228 and 242 of the Delaware General
Corporation Law. The number of shares of Common Stock voting in favor of the
amendment and restatement equaled or exceeded the vote required. The percentage
vote required was more than 50% of the outstanding Common Stock.
E. I declare under penalty of perjury under the laws of the State of
Delaware that the matters set forth in the foregoing Amended and Restated
Certificate of Incorporation are true and correct of my own knowledge.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by John C. Klock, its President and Secretary, this ___ day of July,
1999.
_____________________________________________
John C. Klock, President and Secretary
-4-
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED BYLAWS
---------------------------
OF
--
BIOMARIN PHARMACEUTICAL INC.
----------------------------
ARTICLE I
CORPORATE OFFICES
-----------------
1.1 REGISTERED OFFICE
-----------------
The registered office of the corporation shall be in the City of
Wilmington, County of New Castle, State of Delaware. The name of the registered
agent of the corporation at such location is The Corporation Trust Company.
1.2 OTHER OFFICES
-------------
The board of directors may at any time establish other offices at any place
or places where the corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
2.1 PLACE OF MEETINGS
-----------------
Meetings of stockholders shall be held at any place, within or outside the
State of Delaware, designated by the board of directors. In the absence of any
such designation, stockholders' meetings shall be held at the registered office
of the corporation.
2.2 ANNUAL MEETING
--------------
The annual meeting of stockholders shall be held each year on a date and at
a time designated by the board of directors. In the absence of such
designation, the annual meeting of stockholders shall be held on the third
Wednesday of June in each year at 10 a.m.. However, if such day falls on a
legal holiday, then the meeting shall be held at the same time and place on the
next succeeding full
1
<PAGE>
business day. At the meeting, directors shall be elected and any other proper
business may be transacted.
2.3 SPECIAL MEETING
---------------
A Special meeting of the Stockholders may be called, at any time for any
purpose or purposes, by the Board of Directors or by such person or persons as
may be authorized by the Certificate of Incorporation or the Bylaws.
Upon the effective date of the final prospectus in connection with the
initial public offering of the Corporation's capital stock, a special meeting of
the stockholders may be called at any time for any purpose or purposes by the
Chairman of the Board of Directors or by a majority of the then-current members
of the Board of Directors.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
--------------------------------
All notices of meetings with stockholders shall be in writing and shall be
sent or otherwise given in accordance with Section 2.5 of these bylaws not less
than ten (10) nor more than sixty (60) days before the date of the meeting to
each stockholder entitled to vote at such meeting. The notice shall specify the
place, date, and hour of the meeting, and, in the case of a special meeting, the
purpose or purposes for which the meeting is called.
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
--------------------------------------------
Written notice of any meeting of stockholders, if mailed, is given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation. An
affidavit of the secretary or an assistant secretary or of the transfer agent of
the corporation that the notice has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein.
2.6 QUORUM
------
The holders of a majority of the stock issued and outstanding and entitled
to vote thereat, present in person or represented by proxy, shall constitute a
quorum at all meetings of the stockholders for the transaction of business
except as otherwise provided by statute or by the certificate of incorporation.
If, however, such quorum is not present or represented at any meeting of the
stockholders, then the stockholders entitled to vote thereat, present in person
or represented by proxy, shall have power to adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum is
present or represented. At such adjourned meeting at which a quorum is present
or represented, any business may be transacted that might have been transacted
at the meeting as originally noticed.
2.7 ADJOURNED MEETING; NOTICE
-------------------------
When a meeting is adjourned to another time or place, unless these bylaws
otherwise require, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the corporation may transact any business that
might have been transacted at the original meeting. If the adjournment is for
more
2
<PAGE>
than thirty (30) days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
2.8 VOTING
------
The stockholders entitled to vote at any meeting of stockholders shall be
determined in accordance with the provisions of Section 2.11 of these bylaws,
subject to the provisions of Sections 217 and 218 of the General Corporation Law
of Delaware (relating to voting rights of fiduciaries, pledgors and joint owners
of stock and to voting trusts and other voting agreements).
Except as provided in the last paragraph of this Section 2.8, or as may be
otherwise provided in the certificate of incorporation, each stockholder shall
be entitled to one vote for each share of capital stock held by such
stockholder.
At a stockholders' meeting at which directors are to be elected, or at
elections held under special circumstances, a stockholder shall be entitled to
cumulate votes (i.e., cast for any candidate a number of votes greater than the
number of votes which such stockholder normally is entitled to cast). Each
holder of stock, or of any class or classes or of a series or series thereof,
who elects to cumulate votes shall be entitled to as many votes as equals the
number of votes which (absent this provision as to cumulative voting) he would
be entitled to cast for the election of directors with respect to his shares of
stock multiplied by the number of directors to be elected by him, and he may
cast all of such votes for a single director or may distribute them among the
number to be voted for, or for any two or more of them, as he may see fit.
2.9 WAIVER OF NOTICE
----------------
Whenever notice is required to be given under any provision of the General
Corporation Law of Delaware or of the certificate of incorporation or these
bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice unless so
required by the certificate of incorporation or these bylaws.
2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
-------------------------------------------------------
Unless otherwise provided in the certificate of incorporation, any action
required by this chapter to be taken at any annual or special meeting of
stockholders of a corporation, or any action that may be taken at any annual or
special meeting of such stockholders, may be taken without a meeting, without
prior notice, and without a vote if a consent in writing, setting forth the
action so taken, is signed by the holders of outstanding stock having not less
than the minimum number of
3
<PAGE>
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted.
Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing. If the action which is consented to is such as
would have required the filing of a certificate under any section of the General
Corporation Law of Delaware if such action had been voted on by stockholders at
a meeting thereof, then the certificate filed under such section shall state, in
lieu of any statement required by such section concerning any vote of
stockholders, that written notice and written consent have been given as
provided in Section 228 of the General Corporation Law of Delaware.
Upon the effective date of the final prospectus in connection with the
initial public offering of any of the Corporation's securities, the stockholders
of the Corporation may not take any action by written consent without a meeting
but must take any such action at a duly called annual or special meeting of
stockholders.
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS
-----------------------------------------------------------
In order that the corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
or entitled to express consent to corporate action in writing without a meeting,
or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the board of directors may fix, in advance, a record date, which shall
not be more than sixty (60) nor less than ten (10) days before the date of such
meeting, nor more than sixty (60) days prior to any other action.
If the board of directors does not so fix a record date:
(i) The record date for determining stockholders entitled to notice
of or to vote at a meeting of stockholders shall be at the close of business on
the day next preceding the day on which notice is given, or, if notice is
waived, at the close of business on the day next preceding the day on which the
meeting is held.
(ii) The record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting, when no prior
action by the board of directors is necessary, shall be the day on which the
first written consent is expressed.
(iii) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the board of
directors adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the board of directors may fix a new record date for the
adjourned meeting.
2.1 PROXIES
-------
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for
4
<PAGE>
him by a written proxy, signed by the stockholder and filed with the secretary
of the corporation, but no such proxy shall be voted or acted upon after three
(3) years from its date, unless the proxy provides for a longer period. A proxy
shall be deemed signed if the stockholder's name is placed on the proxy (whether
by manual signature, typewriting, telegraphic transmission or otherwise) by the
stockholder or the stockholder's attorney-in-fact. The revocability of a proxy
that states on its face that it is irrevocable shall be governed by the
provisions of Section 212(c) of the General Corporation Law of Delaware.
2.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE
-------------------------------------
The officer who has charge of the stock ledger of a corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
ARTICLE III
DIRECTORS
---------
3.1 POWERS
------
Subject to the provisions of the General Corporation Law of Delaware and
any limitations in the certificate of incorporation or these bylaws relating to
action required to be approved by the stockholders or by the outstanding shares,
the business and affairs of the corporation shall be managed and all corporate
powers shall be exercised by or under the direction of the board of directors.
3.2 NUMBER OF DIRECTORS
-------------------
The authorized number of directors shall be five (5). This number may
be changed by a duly adopted amendment to the certificate of incorporation or by
an amendment to this bylaw adopted by the vote or written consent of the holders
of a majority of the stock issued and outstanding and entitled to vote or by
resolution of a majority of the board of directors.
No reduction of the authorized number of directors shall have the effect of
removing any director before that director's term of office expires.
5
<PAGE>
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS
-------------------------------------------------------
Except as provided in Section 3.4 of these bylaws, directors shall be
elected at each annual meeting of stockholders to hold office until the next
annual meeting. Directors need not be stockholders unless so required by the
certificate of incorporation or these bylaws, wherein other qualifications for
directors may be prescribed. Each director, including a director elected to fill
a vacancy, shall hold office until his successor is elected and qualified or
until his earlier resignation or removal.
Elections of directors need not be by written ballot.
3.4 RESIGNATION AND VACANCIES
-------------------------
Any director may resign at any time upon written notice to the corporation.
When one or more directors so resigns and the resignation is effective at a
future date, a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each director so chosen shall hold office as provided in this
section in the filling of other vacancies.
Unless otherwise provided in the certificate of incorporation or these
bylaws:
(i) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
(ii) Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the provisions of the
certificate of incorporation, vacancies and newly created directorships of such
class or classes or series may be filled by a majority of the directors elected
by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the certificate of incorporation or these bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created directorship,
the directors then in office constitute less than a majority of the whole board
(as constituted immediately prior to any such
6
<PAGE>
increase), then the Court of Chancery may, upon application of any stockholder
or stockholders holding at least ten (10) percent of the total number of the
shares at the time outstanding having the right to vote for such directors,
summarily order an election to be held to fill any such vacancies or newly
created directorships, or to replace the directors chosen by the directors then
in office as aforesaid, which election shall be governed by the provisions of
Section 211 of the General Corporation Law of Delaware as far as applicable.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
----------------------------------------
The board of directors of the corporation may hold meetings, both regular
and special, either within or outside the State of Delaware.
Unless otherwise restricted by the certificate of incorporation or these
bylaws, members of the board of directors, or any committee designated by the
board of directors, may participate in a meeting of the board of directors, or
any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
3.6 FIRST MEETINGS
--------------
The first meeting of each newly elected board of directors shall be held at
such time and place as shall be fixed by the vote of the stockholders at the
annual meeting and no notice of such meeting shall be necessary to the newly
elected directors in order legally to constitute the meeting, provided a quorum
shall be present. In the event of the failure of the stockholders to fix the
time or place of such first meeting of the newly elected board of directors, or
in the event such meeting is not held at the time and place so fixed by the
stockholders, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
board of directors, or as shall be specified in a written waiver signed by all
of the directors.
3.7 REGULAR MEETINGS
----------------
Regular meetings of the board of directors may be held without notice at
such time and at such place as shall from time to time be determined by the
board.
3.8 SPECIAL MEETINGS; NOTICE
------------------------
Special meetings of the board of directors for any purpose or purposes may
be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two (2) directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the corporation. If the notice is mailed, it
shall be deposited in the United States mail at least four (4) days before the
time of the holding of the
7
<PAGE>
meeting. If the notice is delivered personally or by telephone or by telegram or
by facsimile, it shall be delivered personally or by telephone or to the
telegraph company at least one (1) hour before the time of the holding of the
meeting. Any oral notice given personally or by telephone may be communicated
either to the director or to a person at the office of the director who the
person giving the notice has reason to believe will promptly communicate it to
the director. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of the
corporation.
3.9 QUORUM
------
At all meetings of the board of directors, a majority of the authorized
number of directors shall constitute a quorum for the transaction of business
and the act of a majority of the directors present at any meeting at which there
is a quorum shall be the act of the board of directors, except as may be
otherwise specifically provided by statute or by the certificate of
incorporation. If a quorum is not present at any meeting of the board of
directors, then the directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
is present.
3.10 WAIVER OF NOTICE
----------------
Whenever notice is required to be given under any provision of the General
Corporation Law of Delaware or of the certificate of incorporation or these
bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the directors, or members of a committee of directors, need be specified in
any written waiver of notice unless so required by the certificate of
incorporation or these bylaws.
3.11 ADJOURNED MEETING; NOTICE
-------------------------
If a quorum is not present at any meeting of the board of directors, then
the directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum is present.
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
-------------------------------------------------
Unless otherwise restricted by the certificate of incorporation or these
bylaws, any action required or permitted to be taken at any meeting of the board
of directors, or of any committee thereof, may be taken without a meeting if all
members of the board or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the board or committee.
8
<PAGE>
3.13 FEES AND COMPENSATION OF DIRECTORS
----------------------------------
Unless otherwise restricted by the certificate of incorporation or these
bylaws, the board of directors shall have the authority to fix the compensation
of directors.
3.14 APPROVAL OF LOANS TO OFFICERS
-----------------------------
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiary, including any officer or employee who is a director of the
corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the board of
directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing in this section contained shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
3.15 REMOVAL OF DIRECTORS
--------------------
Unless otherwise restricted by statute, by the certificate of incorporation
or by these bylaws, any director or the entire board of directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors.
No reduction of the authorized number of directors shall have the effect of
removing any director prior to the expiration of such director's term of office.
ARTICLE IV
COMMITTEES
----------
4.1 COMMITTEES OF DIRECTORS
-----------------------
The board of directors may, by resolution passed by a majority of the whole
board, designate one or more committees, with each committee to consist of one
or more of the directors of the corporation. The board may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the board of
directors to act at the meeting in the place of any such absent or disqualified
member. Any such committee, to the extent provided in the resolution of the
board of directors or in the bylaws of the corporation, shall have and may
exercise all the powers and authority of the board of directors in the
management of the business and affairs of the corporation, and may authorize the
seal of the corporation to be affixed to all papers that may require it; but no
9
<PAGE>
such committee shall have the power or authority to (i) amend the certificate of
incorporation (except that a committee may, to the extent authorized in the
resolution or resolutions providing for the issuance of shares of stock adopted
by the board of directors as provided in Section 151(a) of the General
Corporation Law of Delaware, fix any of the preferences or rights of such shares
relating to dividends, redemption, dissolution, any distribution of assets of
the corporation or the conversion into, or the exchange of such shares for,
shares of any other class or classes or any other series of the same or any
other class or classes of stock of the corporation), (ii) adopt an agreement of
merger or consolidation under Sections 251 or 252 of the General Corporation Law
of Delaware, (iii) recommend to the stockholders the sale, lease or exchange of
all or substantially all of the corporation's property and assets, (iv)
recommend to the stockholders a dissolution of the corporation or a revocation
of a dissolution, or (v) amend the bylaws of the corporation; and, unless the
board resolution establishing the committee, the bylaws or the certificate of
incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend, to authorize the issuance of stock, or to adopt
a certificate of ownership and merger pursuant to Section 253 of the General
Corporation Law of Delaware.
4.2 COMMITTEE MINUTES
-----------------
Each committee shall keep regular minutes of its meetings and report the
same to the board of directors when required.
4.3 MEETINGS AND ACTION OF COMMITTEES
---------------------------------
Meetings and actions of committees shall be governed by, and held and taken
in accordance with, the provisions of Article III of these bylaws, Section 3.5
(place of meetings and meetings by telephone), Section 3.7 (regular meetings),
Section 3.8 (special meetings and notice), Section 3.9 (quorum), Section 3.10
(waiver of notice), Section 3.11 (adjournment and notice of adjournment), and
Section 3.12 (action without a meeting), with such changes in the context of
those bylaws as are necessary to substitute the committee and its members for
the board of directors and its members; provided, however, that the time of
regular meetings of committees may also be called by resolution of the board of
directors and that notice of special meetings of committees shall also be given
to all alternate members, who shall have the right to attend all meetings of the
committee. The board of directors may adopt rules for the government of any
committee not inconsistent with the provisions of these bylaws.
10
<PAGE>
ARTICLE V
OFFICERS
--------
5.1 OFFICERS
--------
The officers of the corporation shall be a president, one or more vice
presidents, a secretary, and a treasurer. The corporation may also have, at the
discretion of the board of directors, a chairman of the board, one or more
assistant vice presidents, assistant secretaries, assistant treasurers, and any
such other officers as may be appointed in accordance with the provisions of
Section 5.3 of these bylaws. Any number of offices may be held by the same
person.
5.2 ELECTION OF OFFICERS
--------------------
The officers of the corporation, except such officers as may be appointed
in accordance with the provisions of Sections 5.3 or 5.5 of these bylaws, shall
be chosen by the board of directors, subject to the rights, if any, of an
officer under any contract of employment.
5.3 SUBORDINATE OFFICERS
--------------------
The board of directors may appoint, or empower the president to appoint,
such other officers and agents as the business of the corporation may require,
each of whom shall hold office for such period, have such authority, and perform
such duties as are provided in these bylaws or as the board of directors may
from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
-----------------------------------
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the board of directors at any regular or
special meeting of the board or, except in the case of an officer chosen by the
board of directors, by any officer upon whom such power of removal may be
conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
5.5 VACANCIES IN OFFICES
--------------------
Any vacancy occurring in any office of the corporation shall be filled by
the board of directors.
11
<PAGE>
5.6 CHAIRMAN OF THE BOARD
---------------------
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise and perform
such other powers and duties as may from time to time be assigned to him by the
board of directors or as may be prescribed by these bylaws. If there is no
president, then the chairman of the board shall also be the chief executive
officer of the corporation and shall have the powers and duties prescribed in
Section 5.7 of these bylaws.
5.7 PRESIDENT
---------
Subject to such supervisory powers, if any, as may be given by the board of
directors to the chairman of the board, if there be such an officer, the
president shall be the chief executive officer of the corporation and shall,
subject to the control of the board of directors, have general supervision,
direction, and control of the business and the officers of the corporation. He
shall preside at all meetings of the shareholders and, in the absence or
nonexistence of a chairman of the board, at all meetings of the board of
directors. He shall have the general powers and duties of management usually
vested in the office of president of a corporation and shall have such other
powers and duties as may be prescribed by the board of directors or these
bylaws.
5.8 VICE PRESIDENT
--------------
In the absence or disability of the president, the vice presidents, if any,
in order of their rank as fixed by the board of directors or, if not ranked, a
vice president designated by the board of directors, shall perform all the
duties of the president and when so acting shall have all the powers of, and be
subject to all the restrictions upon, the president. The vice presidents shall
have such other powers and perform such other duties as from time to time may be
prescribed for them respectively by the board of directors, these bylaws, the
president or the chairman of the board.
5.9 SECRETARY
---------
The secretary shall keep or cause to be kept, at the principal executive
office of the corporation or such other place as the board of directors may
direct, a book of minutes of all meetings and actions of directors, committees
of directors, and shareholders. The minutes shall show the time and place of
each meeting, whether regular or special (and, if special, how authorized and
the notice given), the names of those present at directors' meetings or
committee meetings, the number of shares present or represented at shareholders'
meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal executive
office of the corporation or at the office of the corporation's transfer agent
or registrar, as determined by resolution of the board of directors, a share
register, or a duplicate share register, showing the names of all shareholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates evidencing such shares, and the number and date of
cancellation of every certificate surrendered for cancellation.
12
<PAGE>
The secretary shall give, or cause to be given, notice of all meetings of
the shareholders and of the board of directors required to be given by law or by
these bylaws. He shall keep the seal of the corporation, if one be adopted, in
safe custody and shall have such other powers and perform such other duties as
may be prescribed by the board of directors or by these bylaws.
5.10 TREASURER
---------
The treasurer shall keep and maintain, or cause to be kept and maintained,
adequate and correct books and records of accounts of the properties and
business transactions of the corporation, including accounts of its assets,
liabilities, receipts, disbursements, gains, losses, capital, retained earnings,
and shares. The books of account shall at all reasonable times be open to
inspection by any director.
The treasurer shall deposit all money and other valuables in the name and
to the credit of the corporation with such depositaries as may be designated by
the board of directors. He shall disburse the funds of the corporation as may
be ordered by the board of directors, shall render to the president and
directors, whenever they request it, an account of all of his transactions as
treasurer and of the financial condition of the corporation, and shall have such
other powers and perform such other duties as may be prescribed by the board of
directors or these bylaws.
5.11 ASSISTANT SECRETARY
-------------------
The assistant secretary, or, if there is more than one, the assistant
secretaries in the order determined by the stockholders or board of directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the secretary or in the event of his or her inability
or refusal to act, perform the duties and exercise the powers of the secretary
and shall perform such other duties and have such other powers as the board of
directors or the stockholders may from time to time prescribe.
5.12 ASSISTANT TREASURER
-------------------
The assistant treasurer, or, if there is more than one, the assistant
treasurers, in the order determined by the stockholders or board of directors
(or if there be no such determination, then in the order of their election),
shall, in the absence of the treasurer or in the event of his or her inability
or refusal to act, perform the duties and exercise the powers of the treasurer
and shall perform such other duties and have such other powers as the board of
directors or the stockholders may from time to time prescribe.
13
<PAGE>
5.13 AUTHORITY AND DUTIES OF OFFICERS
--------------------------------
In addition to the foregoing authority and duties, all officers of the
corporation shall respectively have such authority and perform such duties in
the management of the business of the corporation as may be designated from time
to time by the board of directors or the stockholders.
ARTICLE VI
INDEMNITY
---------
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
-----------------------------------------
The corporation shall, to the maximum extent and in the manner permitted by
the General Corporation Law of Delaware, indemnify each of its directors and
officers against expenses (including attorneys' fees), judgments, fines,
settlements, and other amounts actually and reasonably incurred in connection
with any proceeding, arising by reason of the fact that such person is or was an
agent of the corporation. For purposes of this Section 6.1, a "director" or
"officer" of the corporation includes any person (i) who is or was a director or
officer of the corporation, (ii) who is or was serving at the request of the
corporation as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise, or (iii) who was a director or officer of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
6.2 INDEMNIFICATION OF OTHERS
-------------------------
The corporation shall have the power, to the extent and in the manner
permitted by the General Corporation Law of Delaware, to indemnify each of its
employees and agents (other than directors and officers) against expenses
(including attorneys' fees), judgments, fines, settlements, and other amounts
actually and reasonably incurred in connection with any proceeding, arising by
reason of the fact that such person is or was an agent of the corporation. For
purposes of this Section 6.2, an "employee" or "agent" of the corporation (other
than a director or officer) includes any person (i) who is or was an employee or
agent of the corporation, (ii) who is or was serving at the request of the
corporation as an employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, or (iii) who was an employee or agent of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
6.3 INSURANCE
---------
The corporation may purchase and maintain insurance on behalf of any person
who is or was a director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him and incurred by him
in any
14
<PAGE>
such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the provisions of the General Corporation Law of Delaware.
ARTICLE VII
RECORDS AND REPORTS
-------------------
7.1 MAINTENANCE AND INSPECTION OF RECORDS
-------------------------------------
The corporation shall, either at its principal executive office or at such
place or places as designated by the board of directors, keep a record of its
shareholders listing their names and addresses and the number and class of
shares held by each shareholder, a copy of these bylaws as amended to date,
accounting books, and other records.
Any stockholder of record, in person or by attorney or other agent, shall,
upon written demand under oath stating the purpose thereof, have the right
during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in Delaware or at its principal place of
business.
The officer who has charge of the stock ledger of a corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
7.2 INSPECTION BY DIRECTORS
-----------------------
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his position as a director. The Court of Chancery
is hereby vested with the exclusive jurisdiction to determine whether a director
is entitled to the inspection sought. The Court may summarily order the
15
<PAGE>
corporation to permit the director to inspect any and all books and records, the
stock ledger, and the stock list and to make copies or extracts therefrom. The
Court may, in its discretion, prescribe any limitations or conditions with
reference to the inspection, or award such other and further relief as the Court
may deem just and proper.
7.3 ANNUAL STATEMENT TO STOCKHOLDERS
--------------------------------
The board of directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the stockholders,
a full and clear statement of the business and condition of the corporation.
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
----------------------------------------------
The chairman of the board, the president, any vice president, the
treasurer, the secretary or assistant secretary of this corporation, or any
other person authorized by the board of directors or the president or a vice
president, is authorized to vote, represent, and exercise on behalf of this
corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of this corporation. The authority granted
herein may be exercised either by such person directly or by any other person
authorized to do so by proxy or power of attorney duly executed by such person
having the authority.
ARTICLE VIII
GENERAL MATTERS
---------------
8.1 CHECKS
------
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS
------------------------------------------------
The board of directors, except as otherwise provided in these bylaws, may
authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
16
<PAGE>
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES
--------------------------------------
The shares of a corporation shall be represented by certificates, provided
that the board of directors of the corporation may provide by resolution or
resolutions that some or all of any or all classes or series of its stock shall
be uncertificated shares. Any such resolution shall not apply to shares
represented by a certificate until such certificate is surrendered to the
corporation. Notwithstanding the adoption of such a resolution by the board of
directors, every holder of stock represented by certificates and upon request
every holder of uncertificated shares shall be entitled to have a certificate
signed by, or in the name of the corporation by the chairman or vice-chairman of
the board of directors, or the president or vice-president, and by the treasurer
or an assistant treasurer, or the secretary or an assistant secretary of such
corporation representing the number of shares registered in certificate form.
Any or all of the signatures on the certificate may be a facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate has ceased to be such officer, transfer agent
or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer, transfer agent or
registrar at the date of issue.
The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, upon the books and records of the corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the corporation shall
declare a dividend upon partly paid shares of the same class, but only upon the
basis of the percentage of the consideration actually paid thereon.
8.4 SPECIAL DESIGNATION ON CERTIFICATES
-----------------------------------
If the corporation is authorized to issue more than one class of stock or
more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the corporation shall issue to represent
such class or series of stock a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences, and the relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
8.5 LOST CERTIFICATES
-----------------
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and canceled
17
<PAGE>
at the same time. The corporation may issue a new certificate of stock or
uncertificated shares in the place of any certificate theretofore issued by it,
alleged to have been lost, stolen or destroyed, and the corporation may require
the owner of the lost, stolen or destroyed certificate, or his legal
representative, to give the corporation a bond sufficient to indemnify it
against any claim that may be made against it on account of the alleged loss,
theft or destruction of any such certificate or the issuance of such new
certificate or uncertificated shares.
8.6 CONSTRUCTION; DEFINITIONS
-------------------------
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Delaware General Corporation Law shall
govern the construction of these bylaws. Without limiting the generality of this
provision, the singular number includes the plural, the plural number includes
the singular, and the term "person" includes both a corporation and a natural
person.
8.7 DIVIDENDS
---------
The directors of the corporation, subject to any restrictions contained in
the certificate of incorporation, may declare and pay dividends upon the shares
of its capital stock pursuant to the General Corporation Law of Delaware.
Dividends may be paid in cash, in property, or in shares of the corporation's
capital stock.
The directors of the corporation may set apart out of any of the funds of
the corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserve. Such purposes shall include but not be
limited to equalizing dividends, repairing or maintaining any property of the
corporation, and meeting contingencies.
8.8 FISCAL YEAR
-----------
The fiscal year of the corporation shall be fixed by resolution of the
board of directors and may be changed by the board of directors.
8.9 SEAL
----
The corporation shall adopt a corporate seal, which may be altered at
pleasure, and use the same by causing it or a facsimile thereof, to be impressed
or affixed or in any other manner reproduced.
8.10 TRANSFER OF STOCK
-----------------
Upon surrender to the corporation or the transfer agent of the corporation
of a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignation or authority to transfer, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate, and record the transaction in its books.
18
<PAGE>
8.11 STOCK TRANSFER AGREEMENTS
-------------------------
The corporation shall have power to enter into and perform any agreement
with any number of shareholders of any one or more classes of stock of the
corporation to restrict the transfer of shares of stock of the corporation of
any one or more classes owned by such stockholders in any manner not prohibited
by the General Corporation Law of Delaware.
8.12 REGISTERED STOCKHOLDERS
-----------------------
The corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends and
to vote as such owner, shall be entitled to hold liable for calls and
assessments the person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of another person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE IX
AMENDMENTS
----------
The original or other bylaws of the corporation may be adopted, amended or
repealed by the stockholders entitled to vote; provided, however, that the
corporation may, in its certificate of incorporation, confer the power to adopt,
amend or repeal bylaws upon the directors. The fact that such power has been so
conferred upon the directors shall not divest the stockholders of the power, nor
limit their power to adopt, amend or repeal bylaws.
ARTICLE X
DISSOLUTION
-----------
If it should be deemed advisable in the judgment of the board of directors
of the corporation that the corporation should be dissolved, the board, after
the adoption of a resolution to that effect by a majority of the whole board at
any meeting called for that purpose, shall cause notice to be mailed to each
stockholder entitled to vote thereon of the adoption of the resolution and of a
meeting of stockholders to take action upon the resolution.
At the meeting a vote shall be taken for and against the proposed
dissolution. If a majority of the outstanding stock of the corporation entitled
to vote thereon votes for the proposed dissolution, then a certificate stating
that the dissolution has been authorized in accordance with the provisions of
Section 275 of the General Corporation Law of Delaware and setting forth the
names and residences
19
<PAGE>
of the directors and officers shall be executed, acknowledged, and filed and
shall become effective in accordance with Section 103 of the General Corporation
Law of Delaware. Upon such certificate's becoming effective in accordance with
Section 103 of the General Corporation Law of Delaware, the corporation shall be
dissolved.
Whenever all the stockholders entitled to vote on a dissolution consent in
writing, either in person or by duly authorized attorney, to a dissolution, no
meeting of directors or stockholders shall be necessary. The consent shall be
filed and shall become effective in accordance with Section 103 of the General
Corporation Law of Delaware. Upon such consent's becoming effective in
accordance with Section 103 of the General Corporation Law of Delaware, the
corporation shall be dissolved. If the consent is signed by an attorney, then
the original power of attorney or a photocopy thereof shall be attached to and
filed with the consent. The consent filed with the Secretary of State shall
have attached to it the affidavit of the secretary or some other officer of the
corporation stating that the consent has been signed by or on behalf of all the
stockholders entitled to vote on a dissolution; in addition, there shall be
attached to the consent a certification by the secretary or some other officer
of the corporation setting forth the names and residences of the directors and
officers of the corporation.
ARTICLE XI
CUSTODIAN
---------
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES
-------------------------------------------
The Court of Chancery, upon application of any stockholder, may appoint one
or more persons to be custodians and, if the corporation is insolvent, to be
receivers, of and for the corporation when:
(i) at any meeting held for the election of directors the
stockholders are so divided that they have failed to elect successors to
directors whose terms have expired or would have expired upon qualification of
their successors; or
(ii) the business of the corporation is suffering or is threatened
with irreparable injury because the directors are so divided respecting the
management of the affairs of the corporation that the required vote for action
by the board of directors cannot be obtained and the stockholders are unable to
terminate this division; or
(iii) the corporation has abandoned its business and has failed
within a reasonable time to take steps to dissolve, liquidate or distribute its
assets.
20
<PAGE>
11.2 DUTIES OF CUSTODIAN
-------------------
The custodian shall have all the powers and title of a receiver appointed
under Section 291 of the General Corporation Law of Delaware, but the authority
of the custodian shall be to continue the business of the corporation and not to
liquidate its affairs and distribute its assets, except when the Court of
Chancery otherwise orders and except in cases arising under Sections 226(a)(3)
or 352(a)(2) of the General Corporation Law of Delaware.
21
<PAGE>
CERTIFICATE OF SECRETARY
------------------------
I, the undersigned, do hereby certify:
1. That I am the duly elected and acting Secretary of BioMarin Pharmaceutical
Inc.; and
2. That the foregoing Bylaws, comprising 21 pages, constitute the Bylaws of
said corporation as duly adopted by the Board of Directors of the
corporation on July _____, 1999.
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the seal
of the corporation as of the ____ day of July, 1999.
/s/ John C. Klock
------------------------------------------
John C. Klock, Secretary
22
<PAGE>
EXHIBIT 10.30
OPERATING AGREEMENT
of
BIOMARIN/GENZYME LLC
dated as of September 4, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1. FORMATION AND MEMBERSHIP 1
1.1 Formation 1
1.2 Members 1
1.3 Management 1
ARTICLE 2. OFFICES, NAME, ETC 2
2.1 Principal Office 2
2.2 Registered Office; Resident Agent 2
2.3 Name 2
2.4 Term 2
2.5 Business Ventures 2
ARTICLE 3. PURPOSES AND POWERS 2
3.1 Purpose 2
3.2 Powers 2
ARTICLE 4. MEMBERS AND THEIR CONTRIBUTIONS AND LOANS 2
4.1 Contributions 2
4.2 Capital Accounts 3
4.3 Loans 4
4.4 Additional Members 4
4.5 Liability of Members 4
4.6 Withdrawal of Members 4
ARTICLE 5. ALLOCATIONS 4
5.1 Certain Definitions 4
5.2 Allocations of Profit and Loss 6
5.3 Special Allocations 6
ARTICLE 6. DISTRIBUTIONS 8
6.1 Distribution of Company Funds 8
ARTICLE 7. INDEMNIFICATION 8
7.1 Indemnification of Members 8
7.2 Assignment 9
7.3 Substitute Members 9
7.4 Rights of Assignees 10
7.5 Other Restrictions 10
ARTICLE 8. FISCAL YEAR, ACCOUNTING, INSPECTION OF BOOKS 10
8.1 Fiscal Year and Accounting 10
8.2 Inspection of Books 10
ARTICLE 9. DISSOLUTION 10
9.1 Events of Dissolution 10
9.2 Consent to Continue Company 11
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
9.3 Distribution Upon Dissolution 11
ARTICLE 10. GENERAL PROVISIONS 11
10.1 Complete Agreement; Modification 11
10.2 Governing Law; Severability 12
10.3 Notice 12
10.4 Headings 12
10.5 Successors and Assigns 12
10.6 Counterparts 12
</TABLE>
3
<PAGE>
OPERATING AGREEMENT
OF
BIOMARIN/GENZYME LLC
THIS OPERATING AGREEMENT (the "Agreement") is made and adopted as of
---------
September 4, 1998 by and among Genzyme Corporation, a Massachusetts corporation
having its principal place of business at One Kendall Square, Cambridge,
Massachusetts 02139 ("Genzyme"), BioMarin Pharmaceutical Inc., a Delaware
-------
corporation having its principal place of business at 11 Pimentel Court, Novato,
California 94949 ("BioMarin"), BioMarin Genetics, Inc., a Delaware corporation
--------
and a wholly-owned subsidiary of BioMarin having its principal place of business
at 11 Pimentel Court, Novato, California 94949 ("Subsidiary") and such other
----------
persons who may become members of BioMarin/Genzyme LLC (the "Company") in
-------
accordance with law or the terms hereof (hereinafter collectively referred to as
the "Members" and individually as a "Member"). BioMarin and Subsidiary are
------- ------
hereinafter collectively referred to as the "BioMarin Companies." Capitalized
------------------
terms used but not defined herein shall be given the same meaning as provided in
the Collaboration Agreement of even date herewith among the Company, BioMarin
and Genzyme (the "Collaboration Agreement").
-----------------------
ARTICLE 1. FORMATION AND MEMBERSHIP
1.1 Formation. The Company has been organized as a limited liability
---------
company pursuant to the Delaware Limited Liability Company Act (the "Act"). The
---
Act shall govern the rights and liabilities of the parties hereto except as
otherwise expressly stated herein.
1.2 Members. The sole initial Member of the Company was BioMarin.
-------
Following the execution and delivery of the Collaboration Agreement, BioMarin
assigned one percent (1%) of its interest in the Company to Subsidiary, and
Subsidiary was admitted as a Member of the Company. The Company elected under
Section 754 of the Internal Revenue Code of 1986, as amended ("IRC"), to apply
---
the provisions of Sections 734(b) and 743(b) of the IRC. Thereafter, effective
upon execution and delivery of the Purchase Agreement of even date herewith by
and between BioMarin and Genzyme (the "Purchase Agreement"), BioMarin has sold
------------------
and assigned to Genzyme a fifty percent (50%) interest in the Company (subject
to adjustment as provided herein and in Section 4.1 of the Collaboration
Agreement). Upon execution and delivery of this Agreement, BioMarin and
Subsidiary each hereby consent to the admission of Genzyme as a Member of the
Company and Genzyme is hereby admitted as a Member of the Company. Hence, the
Members of the Company are those persons listed on Schedule A attached hereto,
----------
as amended from time to time.
1.3 Management. Subject to the authority granted herein or in the
----------
Collaboration Agreement to the Members, the Company shall be managed by the
Steering Committee provided for in Section 8.2 of the Collaboration Agreement.
4
<PAGE>
ARTICLE 2. OFFICES, NAME, ETC.
2.1 Principal Office. The principal office of the Company shall be
----------------
located at One Kendall Square, Cambridge, Massachusetts 02139 or such place
within the Commonwealth of Massachusetts as may be determined by the Members
from time to time. The Company shall maintain its records at such address.
2.2 Registered Office; Resident Agent. The name and address of the
---------------------------------
Company's registered agent for service of process in the State of Delaware shall
be Corporation Service Company, 1013 Centre Road, Wilmington, Delaware 19805-
1297. The name and address of the Company's registered agent for service of
process in the Commonwealth of Massachusetts shall be Genzyme Corporation, One
Kendall Square, Cambridge, Massachusetts 02139. The name and address of the
Company's registered agent for service of process in the State of California
shall be BioMarin Pharmaceutical Inc.,11 Pimentel Court, Novato, California
94949.
2.3 Name. The business of the Company shall be conducted under the
----
name of "BioMarin/Genzyme LLC".
2.4 Term. The term of the Company shall commence upon the filing of
----
the Certificate of Formation (the "Effective Date") and shall be perpetual until
--------------
it is terminated as hereinafter provided.
2.5 Business Ventures. Subject to Section 2.2 of the Collaboration
-----------------
Agreement, any Member may engage independently or with others in other business
ventures of every nature and description, and neither the Company nor any Member
shall have any rights in and to such independent ventures or the income or
profits derived therefrom.
ARTICLE 3. PURPOSES AND POWERS
3.1 Purpose. The purpose of the Company is to: (i) develop and
-------
commercialize the Collaboration Products; (ii) act as a partner in limited
partnerships, general partnerships and limited liability partnerships, and as a
member of limited liability companies; and (iii) engage in any other business
permitted under the Act that the Members shall deem desirable or expedient.
3.2 Powers. The Company shall have all the powers necessary or
------
convenient to the conduct, promotion or attainment of the business, trade,
purposes or activities of the Company, including, without limitation, all the
powers of an individual, partnership, corporation or other entity.
ARTICLE 4. MEMBERS AND THEIR CONTRIBUTIONS AND LOANS
4.1 Contributions.
-------------
(a) Each Member has agreed with each other to contribute the (i)
amounts and/or property set forth in Sections 3.1, 3.2, 3.4, 4.1 and 4.2 of the
Collaboration Agreement. The cash and agreed value of any property contributed
by each Member as of the date hereof is set
5
<PAGE>
forth in Schedule A attached hereto.
----------
(b) Pursuant to the terms of the Collaboration Agreement, BioMarin,
on behalf of the BioMarin Companies, and Genzyme have undertaken to make monthly
Capital Contributions to the Company in the amounts specified therein. Such
undertakings regarding Capital Contributions are by and between, and shall
create rights and obligations between, BioMarin, on behalf of the BioMarin
Companies, and Genzyme only, and may not be relied upon or enforced by the
Company or any third parties, including without limitation creditors of the
Company or its members.
If either Genzyme or BioMarin (on behalf of the BioMarin Companies) fails
to make all or any portion of a monthly Capital Contribution, the other Member
may elect to make such Contribution (or a portion thereof). If either Genzyme
or BioMarin (on behalf of the BioMarin Companies) fails to make all or any
portion of a monthly Capital Contribution, the Percentage Interests (as defined
below) shall be adjusted to correspond to the percentage of cumulative Capital
Contributions made by or on behalf of each Member and subsequent monthly Capital
Contributions shall be made by the Members in proportion to their adjusted
Percentage Interests.
(c) No interest shall accrue on any Capital Contributions, and no
Member shall have the right to withdraw or to be repaid any capital it has
contributed, except as specifically provided in this Agreement.
(d) Each Member's percentage interest ("Percentage Interest") is as
-------------------
set forth in Schedule A hereto, subject to adjustment as provided in Section
----------
4.1(b) of this Agreement.
4.2 Capital Accounts. A separate account (a "Capital Account") shall
---------------- ---------------
be maintained for each Member and adjusted in accordance with Treasury
Regulation Section 1.704-1(b) as follows:
(a) There shall be credited to each Member's Capital Account the
amount of such Member's Capital Contribution as of the date, and to the extent,
that such Capital Contribution has been paid, and such Member's allocable share
of Net Profits (and any items in the nature of income or gain separately
allocated to such Member); and there shall be charged against each Member's
Capital Account the amount of all distributions to such Member and such Member's
allocable share of Net Losses (and any items in the nature of losses or
deductions separately allocated to such Member). Capital Contributions made by
or on behalf of the BioMarin Companies shall be credited to their Capital
Accounts in proportion to their relative Percentage Interests.
(b) If the Company at any time distributes any of its assets in kind
to any Member, the Capital Account of each Member shall be adjusted to account
for that Member's allocable share (as determined under Section 5.1) of the Net
Profits or Net Losses that would have been realized by the Company had it sold
the assets that were distributed at their respective fair market values
immediately prior to their distribution.
(c) In the event any Member's interest is transferred in accordance
with the terms of this Agreement, the transferee shall succeed to the Capital
Account of the transferor to the extent
6
<PAGE>
it relates to the transferred interest.
4.3 Loans. The Members shall not make loans to the Company unless
-----
the Members unanimously agree in writing to make such loans.
4.4 Additional Members. Except as otherwise provided in Section 8.2
------------------
below with respect to Substitute Members, additional Members may only be
admitted with the prior written unanimous approval of the Members. Such
additional Members shall execute and acknowledge a counterpart to this Agreement
or shall otherwise evidence in writing their agreement to be bound by the terms
hereof in such manner as the Members shall determine .
4.5 Liability of Members.
--------------------
(a) No Member shall be liable for the obligations of the Company
solely by reason of being a Member.
(b) No Member shall be required to make any contributions to the
capital of the Company other than as provided in this Article 4.
(c) No Member shall be personally liable to the Company or its other
Members for monetary damages for breach of fiduciary duty as a Member to the
extent permitted by applicable law; provided, however, that this provision shall
not eliminate the liability of a Member (i) for any breach of the Member's duty
of loyalty to the Company or its other Members, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law or (iii) for any transaction from which the Member derived an improper
personal benefit. No amendment to or repeal of this Section 4.5(c) shall apply
to or affect the liability or alleged liability of any Member for or with
respect to any acts or omissions of such Member occurring prior to such
amendment or repeal.
4.6 Withdrawal of Members. No Member shall have the right to withdraw
---------------------
from the Company or to demand a return of its capital interest at any time
except upon termination and dissolution of the Company, unless agreed to by the
unanimous written consent of the other Members.
ARTICLE 5. ALLOCATIONS
5.1 Certain Definitions. For purposes of this Agreement, the
-------------------
following terms shall have the meanings given them in this Article 5:
(a) "Adjusted Capital Account" for a Member means such Member's
------------------------
Capital Account (i) reduced by the net adjustments, allocations and
distributions described in Treasury Regulation Sections 1.704-1(b)(2)(ii)(d)(4),
(5) and (6) which, as of the end of the Company's taxable year are reasonably
expected to be made to such Member, and (ii) increased by the sum of (A) the
amounts a Member is deemed obligated to restore pursuant to the penultimate
sentence of Treasury Regulation Sections 1.704-2(g)(1) or the penultimate
sentence of Treasury Regulation Section 1.704-2(i)(5), (B) the excess, if any,
of such Member's Capital Contribution over such Member's actual paid-in capital
contribution and (C) that portion of any indebtedness of the Company (other than
"partner nonrecourse debt" as defined in Treasury Regulation Section
7
<PAGE>
1.704-2(b)(4)) with respect to which the Member bears the economic risk of loss
that such indebtedness would not be repaid out of the assets of the Company if
all of the assets of the Company were sold at their respective book values as of
the end of the fiscal period and the proceeds from the sales together with any
amounts described in clause (B) above, were used to pay the liabilities of the
Company.
(b) "Net Profits" and "Net Losses" mean the taxable income or loss,
----------- ----------
as the case may be, for a period (or from a transaction) as determined in
accordance with Section 703(a) of the IRC (for this purpose, all items of
income, gain, loss or deduction required to be separately stated pursuant to IRC
Section 703(a)(1) shall be included in taxable income or loss) computed with the
following adjustments:
(i) To the extent required by (and in the manner
described in) Treasury Regulation 1.704-1(b)(2),
items of gain, loss and deduction shall be
computed based upon the book values of the
Company's assets rather than upon such assets'
adjusted bases for federal income tax purposes (if
different);
(ii) Any tax-exempt income received by the Company
shall be included as an item of gross income;
(iii) The amount of any adjustments to the adjusted
bases (or book values if clause (i) above applies)
of any assets of the Company pursuant to IRC
Section 743 shall not be taken into account; and
(iv) Any expenditure of the Company described or
treated as being described in IRC Section
705(a)(2)(B) shall be treated as a deductible
expense.
(c) "Member Loan Nonrecourse Deductions" means any Company deductions
----------------------------------
that would be Nonrecourse Deductions if they were not attributable to a
liability owed to or guaranteed by a Member within the meaning and intent of
Treasury Regulation Section 1.704-2(i).
(d) "Member Loan Minimum Gain" has the meaning set forth in Treasury
------------------------
Regulation Section 1.704-2(i)(3).
(e) "Minimum Gain" has the meaning set forth in Treasury Regulation
------------
Section 1.704-2(d). Minimum Gain shall be computed separately for each Member in
a manner consistent with the Treasury Regulations under IRC Section 704(b).
(f) "Nonrecourse Deductions" has the meaning set forth in Treasury
----------------------
Regulation Section 1.704-2(b)(1). The amount of Nonrecourse Deductions for a
taxable year of the Company shall be determined according to the provisions of
Treasury Regulation Section 1.704-2(c).
8
<PAGE>
(g) "Nonrecourse Liability" means any liability of the Company with
---------------------
respect to which no Member has personal liability, as determined in accordance
with IRC Section 752 and the Treasury Regulations promulgated thereunder.
5.2 Allocations of Profit and Loss. As of the end of each fiscal year
------------------------------
of the Company, or at the time any allocation is determined to be necessary by
the Members, Net Profits or Net Losses shall be allocated as follows:
(a) Except as provided in Section 5.3, any allocation required by
-----------------------------
this Section 5.2 to be made to the Members shall be allocated among the Members
in proportion to their respective Percentage Interests.
(b) With respect to the allocation of Net Losses or Net Profits
pursuant to this Section 5.2 among the Members for any fiscal year in which an
additional or substitute Member is admitted to the Company or there is an
adjustment to the Percentage Interests during such fiscal year, all Net Losses
or Net Profits so allocable shall be allocated in a manner which takes into
account the varying Percentage Interests during such fiscal year based on an
accounting convention chosen by the Members. In no event shall a retroactive
allocation of Net Losses be made pursuant to this Section 5.2.
5.3 Special Allocations. Notwithstanding the provisions of Section
-------------------
5.2, the following allocations of Net Profits and Net Losses and items thereof
shall be made:
(a) If, during any year a Member unexpectedly receives any
adjustment, allocation or distribution described in Treasury Regulation Section
1.704-1(b)(2)(ii)(d)(4), (5) or (6) and, as a result of such adjustment,
allocation or distribution, such Member's Adjusted Capital Account has a
negative balance (computed with the adjustments set forth in clauses (i) and
(ii) of Section 5.1(a)), then items of gross income for such year (and, if
necessary, subsequent years) shall first be allocated to such Member in the
amount necessary to eliminate such negative balance as quickly as possible. This
Section 5.3(a) is intended to constitute a "qualified income offset" provision
within the meaning of the above Treasury Regulations, and shall be so
interpreted.
(b) Nonrecourse Deductions for a taxable year or other period shall
be specially allocated among the Members in proportion to their Percentage
Interests.
(c) Any Member Loan Nonrecourse Deduction for any taxable year or
other period shall be specially allocated to the Member or Members who bear the
risk with respect to the loan to which the Member Loan Nonrecourse Deduction is
attributable in accordance with Treasury Regulation Section 1.704-2(b).
(d) In no event shall Net Losses of the Company be allocated to a
Member if such allocation would cause or increase a negative balance in such
Member's Adjusted Capital Account.
(e) Except as set forth in Treasury Regulation Section 1.704-2(f)(2),
(3) and (4), if, during any taxable year, there is a net decrease in Minimum
Gain, each Member, prior to any other allocation pursuant to this Article 5,
shall be specially allocated items of gross income and
9
<PAGE>
gain for such taxable year (and, if necessary, subsequent taxable years) in an
amount equal to that Member's share of the net decrease in Minimum Gain,
computed in accordance with Treasury Regulation Section 1.704-2(g). Allocation
of gross income and gain pursuant to this Section 5.3(e) shall be made first
from gain recognized from the disposition of Company assets subject to non-
recourse liabilities (within the meaning of the Treasury Regulations promulgated
under IRC Section 752), to the extent of the Minimum Gain attributable to those
assets, and thereafter, from a pro rata portion of the Company's other items of
income and gain for the taxable year. It is the intent of the parties hereto
that any allocation pursuant to this Section 5.3(e) shall constitute a "minimum
gain chargeback" under Treasury Regulation Section 1.704-2(f). With respect to a
net decrease in Member Loan Minimum Gain, items of gross income shall be
specially allocated consistent with the preceding sentence, and Treasury
Regulation Section 1.704-2(i)(4).
(f) In the event that Net Profits, Net Losses or items thereof are
allocated to one or more Members pursuant to paragraphs (a) or (d) above,
subsequent Net Profits and Net Losses will first be allocated (subject to the
provisions of paragraphs (a) through (d)) to the Members in a manner designed to
result in each Member having a Capital Account balance equal to what it would
have been had the original allocation of Net Profits, Net Losses or items
thereof pursuant to paragraphs (a) or (d) not occurred.
(g) The respective Percentage Interests in the Net Profits and Net
Losses or items thereof shall remain as set forth above (subject to adjustment
as provided in Section 4.1(b) and Article 5) unless changed by amendment to this
Agreement or by an assignment of an interest in the Company authorized by the
terms of this Agreement. Except as otherwise provided herein, for tax purposes,
all items of income, gain, loss, deduction or credit shall be allocated to the
Members in the same manner as are Net Profits and Net Losses; provided, however,
that if, as a result of clause (i) of Section 5.1(b), the book value of any
property of the Company was used in computing Net Profits or Net Losses, then
items of income, gain, deduction or credit related to such property for tax
purposes shall be allocated among the Members so as to take account of the
variation between the adjusted basis of the property for tax purposes and its
book value in accordance with the "traditional method" described in Treasury
Regulation Section 1.704-3(b).
(h) If a Member's Percentage Interest is reduced (provided the
reduction does not result in a complete termination of the Member's interest in
the Company), the Member's share of the Company's "unrealized receivables" and
"substantially appreciated inventory" (within the meaning of IRC Section 751)
shall not be reduced, so that, notwithstanding any other provisions of this
Agreement to the contrary, that portion of the Net Profit otherwise allocable
upon a liquidation or dissolution of the Company pursuant to Article 5 hereof
which is taxable as ordinary income (recaptured) for federal income tax purposes
shall, to the extent possible without increasing the total gain to the Company
or to any Member, be specially allocated among the Members in proportion to the
deductions (or basis reductions treated as deductions) giving rise to such
recapture.
(i) In each taxable year of the Company, items of deduction and
credit attributable to Program Costs shall be allocated to the Members in
proportion to the Capital Contributions which funded the applicable expenditure.
10
<PAGE>
ARTICLE 6. DISTRIBUTIONS
6.1 Distribution of Company Funds. The timing of distributions by the
-----------------------------
Company (other than distributions in dissolution to which Section 10.3 applies)
shall be determined in accordance with the provisions of Section 4.3 of the
Collaboration Agreement. Such distributions shall be made to the Members first
in proportion to the excess of the positive balances in their Capital Accounts
over the amounts of their Capital Contributions, and then in proportion to their
remaining positive Capital Account balances; provided, however, that the amount
distributable to the Members pursuant to this Section 6.1 shall be reduced by
the amount required to fund the budgeted capital, working capital and reserve
requirements of the Company during the one hundred and eighty (180) day period
following the proposed distribution date and by such other amounts as the
Steering Committee reasonably determines to be necessary or appropriate for the
operation of the Company.
ARTICLE 7. INDEMNIFICATION
7.1 Indemnification of Members.
--------------------------
(a) The Company shall, to the fullest extent permitted by the Act, as
amended from time to time, indemnify each Member, each Member's Affiliates, and
the respective directors, officers, employees and agents of each Member and its
Affiliates (collectively, "Indemnified Persons") from and against all expenses
-------------------
and liabilities (including counsel fees, judgments, fines, excise taxes,
penalties and amounts paid in settlements) reasonably incurred by or imposed
upon an Indemnified Person in connection with any threatened, pending or
completed action, suit or other proceeding, whether civil, criminal,
administrative or investigative, in which such Indemnified Person may become
involved by reason of (i) any act performed by such Indemnified Person in
connection with the performance of and within the scope of the authority
conferred by the Collaboration Agreement or (ii) such Indemnified Person's
service as a director, officer, manager or member of the Company or any of its
subsidiaries or, if such service was undertaken at the request of the Company,
such Indemnified Person's service as a director, officer or trustee of, or in a
similar capacity with, another organization.
(b) Indemnification may include payment by the Company of expenses in
defending an action or proceeding in advance of the final disposition of such
action or proceeding upon receipt of an undertaking by the Indemnified Person to
repay such payment if it is ultimately determined that such Indemnified Person
is not entitled to indemnification under this Article 7, which undertaking may
be accepted without reference to the financial ability of the Indemnified Person
to make such repayments.
(c) The Company shall not indemnify any Indemnified Person in connection
with a proceeding (or part thereof) initiated by such person unless such
Indemnified Person is successful on the merits, the proceeding was authorized by
the Members or the proceeding seeks a declaratory judgment regarding such
Indemnified Person's own conduct.
(d) The indemnification rights provided in this Article 7 (i) shall not be
deemed exclusive of any other rights to which Indemnified Persons may be
entitled under any law,
11
<PAGE>
agreement or vote of disinterested Members or otherwise and (ii) shall inure to
the benefit of the heirs, executors and administrators of Indemnified Persons.
The Company may, to the extent authorized from time to time by its Members,
grant indemnification rights to employees or agents of the Company or persons
other than Indemnified Persons serving the Company and such rights may be
equivalent to, or greater or less than, those set forth in this Article 7.
(e) No indemnification shall be provided for any Indemnified Person with
respect to (i) any matter as to which such Indemnified Person shall have been
finally adjudicated in any proceeding not to have acted in good faith in the
reasonable belief that such Indemnified Person's action was in the best
interests of the Company, (ii) any act which constitutes gross negligence or
willful misconduct or (iii) any matter disposed of by a compromise payment by
such Indemnified Person, pursuant to a consent decree or otherwise, unless the
payment and indemnification thereof have been approved by the Members, which
approval shall not unreasonably be withheld, or by a court of competent
jurisdiction.
(f) Any amendment or repeal of the provisions of this Article 7 shall not
adversely affect any right or protection of an Indemnified Person with respect
to any act or omission of such Indemnified Person occurring prior to such
amendment or repeal.
7.2 Assignment.
----------
(a) Except in accordance with Section 14.6 of the Collaboration Agreement,
a Member may not assign his or her interest in whole or in part to any assignee
which is not already a Member without the prior written consent of all of the
other Members, which consent may be withheld in their absolute discretion.
(b) An assignment of a Member's interest does not of itself dissolve the
Company or permit the assignee to participate in the business and affairs of the
Company or to become a Member or exercise any rights or powers of a Member.
7.3 Substitute Members. No assignee of a Member's interest (other than an
------------------
assignee which is already a Member) shall have the right to be admitted as a
substitute member in place of the assignor (a "Substitute Member") unless:
-----------------
(a) the assignor shall designate in writing satisfactory to the other
Members the intention that the assignee is to become a Substitute Member;
(b) the assignee shall agree in writing to be bound by all of the terms of
this Agreement;
(c) all of the other Members consent in writing to the admission of the
assignee as a Substitute Member, which consent may be withheld in their absolute
discretion;
(d) the assignee shall execute and/or deliver such instruments, including
without limitation, an opinion of counsel satisfactory to the Members, to the
effect that such proposed
12
<PAGE>
assignment and substitution does not violate the registration requirements of
state or federal securities laws, and such instrument as the Members deem
necessary or desirable to effect such assignee's admission as a Substitute
Member and to evidence the assignee's acceptance of the terms of this Agreement;
and
(e) the assignee shall pay all reasonable expenses of the Company in
connection with the assignee's admission as a Substitute Member.
7.4 Rights of Assignees. An assignee who does not become a Substitute
-------------------
Member shall succeed only to the rights of the assignor to receive allocations
and distributions from the Company as provided in Articles 5, 6 and 10 hereof,
and shall not have the right to become a Member or exercise any rights or powers
of a Member.
7.5 Other Restrictions. A Member may not pledge, encumber or
------------------
hypothecate any of its interest without the consent of the other Members.
ARTICLE 8. FISCAL YEAR, ACCOUNTING, INSPECTION OF BOOKS
8.1 Fiscal Year and Accounting. Except as otherwise approved by the
--------------------------
Members, or required by law, the fiscal year of the Company shall be the
calendar year and the books of the Company shall be kept on the accrual method.
8.2 Inspection of Books. The books of the Company shall at all times be
-------------------
available for inspection and audit by any Member at the Company's principal
place of business during business hours. The Company shall furnish each Member
with all necessary tax reporting information as to its interest in the Company,
with an annual balance sheet and profit and loss statement and with a cash flow
statement showing any distributions made to the Members, within sixty (60) days
after the close of each fiscal year.
ARTICLE 9. DISSOLUTION
9.1 Events of Dissolution. The term of the Company shall commence on the
---------------------
Effective Date and shall continue until the earliest of the following:
(a) the sale or disposition of all or substantially all of the Company's
property;
(b) the approval of the dissolution of the Company by the unanimous
written consent of the Members;
(c) the bankruptcy or dissolution of a Member other than Subsidiary;
provided, however, that if there are at least two (2) remaining Members, the
Members may consent to the continuation of the business of the Company after the
occurrence of such an event, pursuant to Section 18-802 of the Act and Section
10.2 of this Agreement;
13
<PAGE>
(d) the entry of a decree of judicial dissolution under Section 18-802 of
the Act;
(e) the occurrence of any event, other than those referred to in paragraph
(d), which causes dissolution of a limited liability company under the Act; or
(f) upon the occurrence of an event and at the time specified in Article
13 of the Collaboration Agreement.
Notwithstanding the dissolution of the Company, the business of the Company
shall continue to be governed by this Agreement until the winding up of the
Company occurs.
9.2 Consent to Continue Company. The Members may vote to continue the
---------------------------
business of the Company within ninety (90) days after the occurrence of an event
of dissolution set forth in Section 10.1(d) of this Agreement, pursuant to and
in accordance with Section 18-801(4) of the Act. The agreement of the remaining
Members holding a majority of the remaining Percentage Interests shall
constitute the consent of the Members to the continuation of the Company.
9.3 Distribution Upon Dissolution.
-----------------------------
(a) After payment of liabilities owing to creditors, the Members or
liquidator shall set up such reserves as they deem reasonably necessary for any
contingent or unforeseen liabilities or obligations of the Company, including
the expenses of liquidation. Such reserves may be paid over by the Members or
liquidator to a bank, to be held in escrow for the purpose of paying any such
contingent or unforeseen liabilities or obligations and, at the expiration of
such period as the Members or liquidator may deem advisable, such reserves shall
be distributed to all of the Members or their assigns in the manner set forth in
Section 10.3(b) below. In the event that any part of such net assets consists
of securities or other non-cash assets, the Members or liquidator may (but shall
not be required to) take whatever steps they deem appropriate to convert such
assets into cash or into any other form that would facilitate the distribution
thereof.
(b) After payment has been made pursuant to Section 10.3(a) above, the
Members or the liquidator shall cause the remaining net assets of the Company to
be distributed to and among the Members in proportion to and to the extent of
their positive Capital Account balances (after such balances have been adjusted
to reflect all allocations of Net Profits and Net Losses and distributions
pursuant to Article 6). Cash and non-cash assets shall be distributed to each
Member on a pro rata basis, or in such other manner as the Members may agree,
with all noncash assets being distributed on the basis of their fair market
value.
(c) The Company shall terminate when all property has been distributed
among the Members. Upon such termination, the Members shall execute and cause
to be filed a certificate of cancellation of the Company, as provided for in
Section 18-203 of the Act, and any and all other documents necessary in
connection with the termination of the Company.
ARTICLE 10. GENERAL PROVISIONS
14
<PAGE>
10.1 Complete Agreement; Modification. This Agreement and the
--------------------------------
Collaboration Agreement together contain a complete statement of all the
agreements among the parties with respect to the Company. There are no
representations, agreements, arrangements or undertakings, oral or written,
between or among the parties to this Agreement relating to the subject matter of
this Agreement which are not fully expressed in such Agreements. This Agreement
may be amended or modified only with the unanimous consent of the Members.
10.2 Governing Law; Severability. All questions with respect to the
---------------------------
construction of this Agreement and the rights and liabilities of the parties
shall be determined in accordance with the applicable provisions of the laws of
the State of Delaware, and this Agreement is intended to be performed in
accordance with, and only to the extent permitted by, all applicable laws,
ordinances, rules and regulations of such state. If any provision of this
Agreement, or the application thereof to any person or circumstances, shall, for
any reason and to any extent, be invalid or unenforceable, the remainder of this
Agreement and the application of that provision to other persons or
circumstances shall not be affected but rather be enforced to the extent
permitted by law.
10.3 Notice. All notices, requests, consents and statements hereunder
------
shall be deemed to have been properly given if mailed from within the United
States by prepaid certified mail, return receipt requested, or if sent by
prepaid telegram, or overnight delivery service, or if hand delivered, addressed
in each case if to the Company at its principal place of business and, if to any
Member, to the address set forth herein, or to such other address or addresses
as any such Member shall have theretofore designated in writing to the Company
in accordance with this Section 11.3.
10.4 Headings The headings of Articles and Sections are included only
--------
for convenience and shall not affect the meaning or construction of this
Agreement.
10.5 Successors and Assigns. Subject to Article 8, this Agreement shall
----------------------
be binding upon and inure to the benefit of all parties hereto and their heirs,
successors, assigns and legal representatives.
10.6 Counterparts. This Agreement may be signed in one or more
------------
counterparts and all counterparts so executed shall constitute one agreement
binding on all parties hereto, notwithstanding that all parties have not signed
the original or the same counterpart.
15
<PAGE>
IN WITNESS WHEREOF, we have affixed our signatures as of the day first
above written.
MEMBERS:
- -------
GENZYME CORPORATION
By: /s/ signature
Title: Executive Vice President
Date: September 4, 1998
BIOMARIN PHARMACEUTICAL, INC.
By: /s/ John C. Klock
Title: President
Date: September 4, 1998
BIOMARIN GENETICS, INC.
By: /s/ John C. Klock
Title: President
Date: September 4, 1998
16
<PAGE>
Schedule A
----------
<TABLE>
<CAPTION>
Members Capital Contribution Percentage Interest
- ------- -------------------- --------------------
<S> <C> <C>
Genzyme Corporation $12,100,000 50.00%
BioMarin Pharmaceutical, Inc. $11,858,000 49.00%
BioMarin Genetics, Inc. $ 242,000 1.00%
----------- ------
TOTAL: $24,200,000 100.00%
</TABLE>
17
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS [/R]
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our firm) included in or made a part of this
registration statement.
Arthur Andersen LLP
July 6, 1999
San Francisco, California
