<PAGE>
United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to _________.
Commission file number: 000-26727
BIOMARIN PHARMACEUTICAL INC.
(Exact name of registrant issuer as specified in its charter)
Delaware 68-0397820
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
371 Bel Marin Keys Blvd., Suite 210, Novato, California 94949
(address of principal executive offices)
(Zip Code)
(415) 884-6700
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the past 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes____ No_____
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: 36,729,025 shares
common stock, par value $0.001, outstanding as of October 15, 2000.
<PAGE>
BIOMARIN PHARMACEUTICAL INC.
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited).
Consolidated Balance Sheets....................................................2
Consolidated Statements of Operations for the three-month
periods ended September 30, 1999 and 2000....................................3
Consolidated Statements of Operations for the nine-month
periods ended September 30, 1999 and 2000 and for the period
from March 21, 1997 (inception) through September 30, 2000..............4
Consolidated Statements of Cash Flows..........................................5
Notes to Consolidated Financial Statements....................................6
Item 2. Management's Discussion and Analysis..................................8
Item 3. Quantitative and Qualitative Disclosure about Market Risk............18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings....................................................19
Item 2. Changes in Securities and Uses of Proceeds...........................19
Item 3. Defaults upon Senior Securities......................................19
Item 4. Submission of Matters to a Vote of Security Holders..................19
Item 5. Other Information....................................................19
Item 6. Exhibits and Reports on Form 8-K.....................................19
SIGNATURE.....................................................................21
<PAGE>
PART 1. FINANCIAL INFORMATION
BioMarin Pharmaceutical Inc. and Subsidiaries
(a development-stage company)
Consolidated Balance Sheets as of
December 31, 1999 and September 30, 2000
($ Thousands)
<TABLE>
December 31, September 30,
1999 2000
------------------- ------------------
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 23,413 $ 16,098
Short-term investments 39,573 31,407
Accounts receivable, net 1,047 1,278
Due from Glyko Biomedical Ltd. 139 194
Due from BioMarin/Genzyme LLC 1,280 1,488
Inventories 676 446
Prepaid expenses 294 503
------------------- ------------------
Total current assets 66,422 51,414
Property, plant and equipment, net 25,093 20,031
Goodwill and other intangibles, net 11,462 10,345
Investment in BioMarin/Genzyme LLC 421 1,201
Deposits 151 333
------------------- ------------------
Total assets $ 103,549 $ 83,324
=================== ==================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 3,095 $ 1,792
Accrued liabilities 1,966 1,789
Notes payable - short-term 26 28
------------------- ------------------
Total current liabilities 5,087 3,609
Long-term liabilities:
Long term portion of notes 85 63
------------------- ------------------
Total liabilities 5,172 3,672
Stockholders' equity:
Common stock, $0.001 par value: 75,000,000 shares
authorized, 34,832,578 and 36,725,595
shares issued and outstanding at December 31,
1999 and September 30, 2000, respectively 35 37
Additional paid in capital 146,592 153,156
Common stock warrants 128 -
Deferred compensation (2,591) (1,605)
Notes from stockholders (2,638) (1,817)
Accumulated deficit (43,149) (70,119)
------------------- ------------------
Total stockholders' equity 98,377 79,652
------------------- ------------------
Total liabilities and stockholders' equity $ 103,549 $ 83,324
=================== ==================
</TABLE>
The accompanying notes are an integral part of these statements.
2
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BioMarin Pharmaceutical Inc. and Subsidiaries
(a development-stage company)
Consolidated Statements of Operation
For the Three Month Periods Ended September 30, 1999 and 2000
(In Thousands, except for per share data)
(Unaudited)
<TABLE>
Three Months Ended September 30,
-------------------------------------------
1999 2000
-------------------- --------------------
<S> <C> <C>
Revenues:
Revenues - products $ 489 $ 662
Revenues - services 3 9
Revenues from BioMarin/Genzyme LLC 1,507 2,136
Revenues - other - -
-------------------- --------------------
Total revenues 1,999 2,807
Operating Costs and Expenses:
Cost of products 117 188
Cost of services 1 6
Research and development 7,658 8,529
Selling, general and administrative 1,955 2,331
Carson Street closure - -
-------------------- --------------------
Total operating costs and expenses 9,731 11,054
-------------------- --------------------
Loss from operations (7,732) (8,247)
Interest income 724 691
Interest expense (167) (2)
Loss from BioMarin/Genzyme LLC (468) (590)
-------------------- --------------------
Net loss $ (7,643) $ (8,148)
==================== ====================
Net loss per share, basic and diluted $ (0.24) $ (0.23)
==================== ====================
Weighted average common shares outstanding 32,476 36,064
==================== ====================
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
BioMarin Pharmaceutical Inc. and Subsidiaries
(a development-stage company)
Consolidated Statements of Operations
For the Nine-Month Periods Ended September 30, 1999 and 2000 and for
the Period from March 21, 1997 (inception) through September 30, 2000
(In Thousands, except for per share data)
(unaudited)
<TABLE>
Period from
March 21, 1997
Nine Months Ended September 30, (inception), to
---------------------------------------- September 30,
1999 2000 2000
------------------- ------------------- ------------------
<S> <C> <C> <C>
Revenues:
Revenues - products $ 1,018 $ 1,749 $ 3,288
Revenues - services 81 177 374
Revenues from BioMarin/Genzyme LLC 3,411 7,262 13,399
Revenues - other 151 - 293
------------------- ------------------- ------------------
Total revenues 4,661 9,188 17,354
Operating Costs and Expenses:
Cost of products 234 480 891
Cost of services 99 59 220
Research and development 18,029 25,109 64,731
Selling, general and administrative 4,759 6,517 17,768
Carson Street closure - 4,423 4,423
------------------- ------------------- ------------------
Total operating costs and expenses 23,121 36,588 88,033
------------------- ------------------- ------------------
Loss from operations (18,460) (27,400) (70,679)
Interest income 1,177 2,281 4,863
Interest expense (728) (6) (738)
Loss from BioMarin/Genzyme LLC (1,023) (1,845) (3,565)
------------------- ------------------- ------------------
Net loss $ (19,034) $ (26,970) $ (70,119)
=================== =================== ==================
Net loss per share, basic and diluted $ (0.67) $ (0.76) $ (2.91)
=================== =================== ==================
Weighted average common shares outstanding 28,299 35,493 24,165
=================== =================== ==================
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
BioMarin Pharmaceutical Inc. and Subsidiaries
(a development-stage compnay)
Consolidated Statements of Cash Flows
For the Nine-Month Periods Ended September 30, 1999 and 2000, and for
the Period from March 21, 1997 (inception) to September 30, 2000
($ Thousands)
(unaudited)
<TABLE>
Period from
Nine Months Ended March 21, 1997
September 30, (inception) to
----------------------------------- September 30,
1999 2000 2000
--------------- ---------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (19,034) $ (26,970) $ (70,118)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 2,353 3,234 7,621
Amortization of deferred compensation 965 986 2,512
Amortization of goodwill 841 1,118 2,532
Compensation in the form of common stock and -
common stock options - - 18
Loss from BioMarin/Genzyme LLC 4,433 9,947 16,967
Write off of in-process technology - - 2,625
Carson Street closure - 4,423 4,423
Changes in operating assets and liabilities: -
Accounts receivable (284) (285) (1,470)
Due from BioMarin/Genzyme LLC (1,766) (208) (1,488)
Inventories (867) 230 153
Prepaid expenses 148 (209) (502)
Deposits (41) (182) (333)
Accounts payable 3,620 (1,303) 1,791
Accrued liabilities (17) (808) 1,157
--------------- ---------------- ----------------
Total adjustments 9,385 16,943 36,006
--------------- ---------------- ----------------
Net cash used in operating activities (9,649) (10,027) (34,112)
Cash flows from investing activities:
Purchase of property and equipment (19,063) (1,962) (31,441)
Purchase of Biochemical Research Reagent Division
of Oxford Glycosciences (OGS) (1,500) - (1,500)
Investment in BioMarin/Genzyme LLC (5,260) (10,727) (18,168)
Intangible and other assets, net 750 -
Sale/(Purchase) of short-term investments (37,596) 8,165 (31,408)
--------------- ---------------- ----------------
Net cash used in investing activitities (62,669) (4,524) (82,517)
Cash flows from financing activities:
Proceeds from note payable - 842 976
Bridge loan - - 880
Proceeds from issuance of convertible notes payable - - 25,615
Accrued interest on notes receivable from stockholders (112) 68 (120)
Proceeds from exercise of common stock options and warrants - 6,347 6,495
Repayment of equipment loan (18) (21) (45)
Proceeds from sale of common stock, net of issuance costs 95,619 - 98,926
--------------- ---------------- ----------------
Net cash provided by financing activities 95,489 7,236 132,727
--------------- ---------------- ----------------
Net increase (decrease) in cash and cash equivalents 23,171 (7,315) 16,098
Cash and cash equivalents, beginning of period 9,414 23,413 -
--------------- ---------------- ----------------
Cash and cash equivalents, end of period $ 32,585 $ 16,098 $ 16,098
=============== ================ ================
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
BIOMARIN PHARMACEUTICAL INC. AND SUBSIDIARIES
(a development-stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION:
---------------------
BioMarin Pharmaceutical Inc. (BioMarin or Company) is a publicly-traded (Nasdaq
National Market and SWX New Market: BMRN) biopharmaceutical company specializing
in the development of carbohydrate enzyme therapies for debilitating,
life-threatening, chronic genetic disorders and other diseases or conditions.
Since inception, the Company has devoted substantially all of its efforts to
research and development activities, including preclinical studies and clinical
trials, the establishment of laboratory and manufacturing facilities, clinical
manufacturing, and related administrative activities. BioMarin was incorporated
in October 1996 as a wholly-owned subsidiary of Glyko Biomedical Ltd. (GBL)
(TSE: GBL). The Company was funded by GBL and began operations on March 21, 1997
(the date of inception). In October 1998, the Company acquired Glyko, Inc., a
wholly-owned subsidiary of GBL, in a transaction valued at $14.5 million.
The Company completed its Initial Public Offering (IPO) of 4.5 million shares of
common stock at $13 per share on July 23, 1999, raising net proceeds of
approximately $51.9 million. In a private placement concurrent with the IPO,
Genzyme invested $10.0 million at the IPO price of $13 per share (769,230 shares
of common stock). In addition, the $26.0 million of convertible notes sold by
the Company on April 13, 1999, plus accrued interest, were converted into
2,672,020 shares of common stock at $10 per share. The underwriters'
over-allotment exercise of 675,000 shares in August 1999 raised additional net
proceeds of $8.1 million at the IPO price.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information on substantially the same basis as the annual audited
financial statements. However, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments, consisting
of normal recurring adjustments, considered necessary for a fair presentation
have been included. Operating results for the nine-month period ended September
30, 2000 are not necessarily indicative of the results that may be expected for
the year ending December 31, 2000. These consolidated financial statements
should be read in conjunction with the financial statements and footnotes
thereto for the year ended December 31, 1999 included in the Company's Form 10-K
Annual Report.
2. 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.
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.
Short-term Investments
The Company records its investment securities as available-for-sale because the
sale of such securities may be required prior to maturity. These securities are
recorded at cost, which approximates fair market value. These securities are
comprised mainly of Federal Agency investments, including Federal National
Mortgage and Federal Home Loans, and A1/P1 rated commercial paper and bank
certificates of deposit.
6
<PAGE>
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 ($ thousands):
December 31, September 30, Estimated
1999 2000 Useful Life
------- ------- -------------------
Computer hardware and software $ 426 $ 516 3 years
Office furniture and equipment 1,017 1,000 5 years
Manufacturing/laboratory equipment 8,254 8,681 5 years
Leasehold improvements 19,768 16,796 Shorter of life of
asset or lease term
-------- --------
29,465 26,993
Less: Accumulated depreciation (4,372) (6,962)
-------- --------
Total, net $25,093 $20,031
======== ========
Research and Development
Research and development expenses include the expenses associated with contract
research and development provided by third parties, research and development
provided in connection with BioMarin/Genzyme LLC, a joint venture, including
clinical manufacturing, clinical operations and regulatory costs, and internal
research and development costs. All research and development costs discussed
above are expensed as incurred.
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 anti-dilutive.
3. CARSON STREET CLOSURE:
----------------------
During the first quarter of 2000, the Company decided to close its Carson Street
clinical manufacturing facility. In connection with this decision the Company
recorded a charge of approximately $4.4 million. The facility was no longer
required for the production of Aldurazyme(TM), the initial purpose of the plant,
after a decision by the BioMarin/Genzyme LLC (joint venture) to use the
Company's Galli Drive facility for the manufacture of bulk Aldurazyme both for
the confirmatory Phase III trial and for the commercial launch of Aldurazyme.
This decision was based in part on U.S. Food and Drug Administration guidance to
use an improved production process, which was installed in the Galli Drive
facility, for the clinical trial, the biologics license application submission
and for commercial production. The majority of the Company's technical staff at
the Carson Street facility in Torrance, California transferred to the Galli
Drive facility in Novato, California in May. The charge primarily consisted of
write-downs of leasehold improvements and equipment located in the Carson Street
facility.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
FORWARD-LOOKING STATEMENTS
The following discussion and analysis of financial condition and results
of operations contains "forward-looking statements" as defined under
securities laws. These statements can often be identified by the use of
terminology such as "believes," "expects," "anticipates," "plans," "may,"
"will," "projects," "continues," "estimates," "potential," "opportunity"
and so on. These forward-looking statements may be found in the "Factors
that May Affect Future Operating Results," and other sections of this
document. Our actual results or experience could differ significantly
from the forward-looking statements. Factors that could cause or
contribute to these differences include those discussed in " Factors that
May Affect Future Operating Results," as well as those discussed
elsewhere in this document.
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 Ltd. (GBL). BioMarin was
initially funded by GBL and began operations on March 21, 1997, the date of
inception.
We have incurred net losses since inception and had an accumulated deficit
through September 30, 2000 of $70.1 million. Our losses have resulted primarily
from research and development activities and related administrative expenses. We
expect to continue to incur operating losses at least through 2001.
To date, we have not generated revenues from the sale of our drug candidates.
Our lead product is Aldurazyme, alronidase for injection, (recombinant human
(alpha)-L-iduronidase), which is undergoing clinical trials for use in enzyme
replacement therapy for Mucopolysaccharidosis-I (MPS-I). In August, the Galli
Drive manufacturing facility and a smaller clinical manufacturing laboratory in
our Bel Marin Keys Boulevard facility were both subjected to an extensive
inspection by the State of California Food and Drug Branch and were granted
licenses to produce clinical product. We submitted an Investigational New Drug
Application (IDA) for recombinant human N-acetylgalactosamine-4-sulfatase also
known as arylsulfatase B or rhASB (formerly referred to as BM102) and received
U.S. Food and Drug Administration (FDA) approval to begin a Phase I/II clinical
trial in enzyme replacement therapy for Mucopolysaccharidosis-VI (MPS-VI), which
was initiated on October 11, 2000. MPS-VI, also known as Maroteaux-Lamy
syndrome, is similar in its clinical symptoms to MPS-I. MPS-VI does not appear
to have the central nervous system involvement and mental retardation
characteristic of the most severe form of MPS-I. We are manufacturing clinical
bulk enzyme in the Bel Marin Keys facility.
Our financial results may vary depending on many factors, including:
. The progress of Aldurazyme in the clinical and regulatory processes
and possible subsequent sales activities
. The progress of rhASB in clinical trials and regulatory processes
. The investment in manufacturing process development and in
manufacturing capacity for Aldurazyme, rhASB and other product candidates
. The acceleration of our other pharmaceutical candidates into preclinical
and clinical trials with BM202 for burn debridement the most advanced
candidate
. The progress of our additional research and development efforts
. Related facility and administrative expenses to support the above
activities
In September 1998, we established a joint venture with Genzyme for the worldwide
development and commercialization of Aldurazyme for the treatment of MPS-I.
Under the agreement with Genzyme, 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 Aldurazyme. We will
share equally in any profits generated from the sales of Aldurazyme.
8
<PAGE>
In October 1998, we acquired Glyko, Inc., a wholly-owned subsidiary of GBL 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.
In July 1999, we completed our initial public offering (IPO) of 4.5 million
shares of our common stock at $13 per share raising net proceeds of
approximately $51.9 million. In a private placement concurrent with the IPO,
Genzyme purchased $10.0 million of our common stock (769,230 shares) at the IPO
price of $13. In addition, the $26 million of convertible notes sold by the
Company on April 13, 1999, plus accrued interest, were converted into 2,672,020
shares of common stock at $10 per share.
In August 1999, the underwriters exercised their over-allotment option for
675,000 shares at the IPO price of $13 per share, raising additional net
proceeds of $8.1 million.
Results of Operations
The Quarters Ended September 30, 2000 and 1999
Revenues for the third quarter of 2000 totaled $2.8 million compared to revenues
of $2.0 million in the third quarter of 1999. Third quarter 2000 revenues
included $2.1 million for services provided to the joint venture for Aldurazyme
compared to $1.5 million in the same period in 1999. The increase was primarily
the result of increased services provided to the joint venture for the start-up
of manufacturing operations in the Galli Drive facility in preparation for the
supply of clinical trial bulk enzyme. Third quarter 2000 revenues also included
$671,000 generated by Glyko, Inc. compared to $492,000 for the third quarter of
1999.
Cost of products and cost of services related to Glyko, Inc. operations were
$194,000 in the third quarter of 2000 and were $118,000 in the comparable period
of 1999. Glyko's total external product and service costs as a percent of the
sales of products and services were 29% in the third quarter of 2000 and 24% in
the third quarter of 1999. The change was due primarily to a less favorable mix,
with a greater percentage of lower margin product sales.
Research and development expenses for the third quarter of 2000 increased by
$800,000 to $8.5 million in the third quarter of 2000 from $7.7 million in the
third quarter of 1999. This increase was due primarily to increased activities
in support of the joint venture for Aldurazyme, the Company's enzyme product
candidate rhASB and our enzyme for burn debridement.
Selling, general and administrative expenses increased to $2.3 million in the
third quarter of 2000 from $2.0 million in the third quarter 1999. This increase
was primarily due to the acceleration of the amortization of goodwill for the
purchase of Glyko, Inc. The estimated life of the goodwill had been decreased
from ten years to seven years.
The Company's equity in the loss of its joint venture with Genzyme was $590,000
for the third quarter 2000 compared to $468,000 for the same period of 1999 as
the joint venture continued the original clinical trial and prepared for a
confirmatory Phase III clinical trial.
Interest income was $691,000 for the third quarter of 2000 compared to $724,000
for the same period of 1999. In the third quarter of 1999, the interest expense
accrued on the April 1999 convertible notes totaled $167,000. These notes
converted in the initial public offering on July 23, 1999 and, consequently,
interest expense in the third quarter of 2000 was only $2,000, representing
investment on our equipment loan.
Net loss was $8.1 million ($0.22 per share) in the third quarter of 2000
compared to a net loss of $7.6 million ($0.24 per share) in the comparable
period of 1999.
The Nine Months Ended September 30, 2000 and 1999
For the nine-month periods ended September 30, 2000 and 1999, revenues were $9.2
million and $4.7 million, respectively. Joint venture revenues were $7.3 million
and Glyko, Inc. revenues were $1.9 million for the first nine months of 2000, as
compared to $3.4 million and $1.1 million, respectively, for the same period in
1999. The primary reasons for these increases in revenues are the same as
described for the third quarter increases in revenues.
Cost of products and cost of services related to Glyko, Inc. operations were
$539,000 for the first nine months of 2000 compared to $333,000 for the same
period in 1999. Glyko's total external product and service costs as a percent of
the sales of products and services were 28% and 30% for the nine-month periods
ended September 30, 2000 and 1999, respectively.
9
<PAGE>
Research and development expenses increased to $25.1 million in the first nine
months of 1999 from $18.0 million in the comparable period of 2000. Increased
expenses in support of the Aldurazyme joint venture with Genzyme, especially
manufacturing requirements, and of the MPS-VI program were the major factors in
the growth of research and development expenses.
Selling, general and administrative expenses increased to $6.5 million in the
first nine months of 2000 to $4.8 million in the first nine months of 1999. The
increase resulted primarily form an increase in staffing and expenses in
BioMarin administration in 2000 compared to 1999, including the effect of
increased expenses associated with being a public company and the acceleration
of the amortization of goodwill as described for the third quarter.
In the first quarter of 2000, the Company recorded a provision of $4.4 million
for the closure of its Carson Street clinical manufacturing facility. The
facility was no longer required for the production of Aldurazyme, the initial
purpose of the plant, after a decision by the BioMarin/Genzyme LLC (joint
venture) to use BioMarin's Galli Drive facility for the manufacture of bulk
Aldurazyme both for the confirmatory Phase III trial and for the commercial
launch of Aldurazyme. This decision was based in part on U.S. Food and Drug
Administration (FDA) guidance to use an improved production process, which was
installed in the Galli facility, for the clinical trial, the biologics license
application (BLA) submission and for commercial production. The majority of its
technical staff at the Carson Street facility transferred to the Galli Drive
facility in Novato, California in May. The provision primarily consisted of
write-downs of leasehold improvements and equipment located in the Carson Street
facility.
BioMarin's equity in the loss of its joint venture with Genzyme was $1.8 million
for the first nine months of 2000 compared to $1.0 million for the same period
of 1999. The primary reasons for this increase in the loss of the joint venture
are the same as described for the third quarter.
Interest income increased by $1.1 million to $2.3 million in the first nine
months of 2000 from $1.2 million in the first nine months of 1999 primarily due
to increased cash reserves in 2000 resulting from the initial public offering,
concurrent with an investment by Genzyme, in July 1999.
The net loss was $27.0 million ($0.76 per share) and $19.0 million ($0.67 per
share) for the first nine months of 2000 and 1999, respectively.
Liquidity and Capital Resources
We have financed our operations since our inception by the issuance of common
stock and convertible notes and the related interest income earned on cash
balances available for short-term investment. Since inception, we have raised
aggregate net proceeds of approximately $133.0 million. We were initially funded
by GBL with a $1.5 million investment. We have since raised additional capital
from the sale of common stock in private placements, the sale of promissory
notes convertible into common stock, an investment of $8.0 million by Genzyme as
part of our joint venture with them, an initial public offering including the
underwriters' over-allotment exercise, the concurrent $10.0 million Genzyme
investment in our Company and pursuant to stock option and warrant exercises.
Our combined cash, cash equivalents and short-term investments totaled $63.0
million at December 31, 1999 and decreased $15.5 million to $47.5 million at
September 30, 2000. The primary use of cash during the nine months ended
September 30, 2000 was to finance operations, fund the joint venture and
purchase equipment and leasehold improvements. The primary source of cash during
this period was the issuance of common stock pursuant to the exercise of stock
options under the 1997 Stock Plan and pursuant to the exercise of common stock
warrants. For the nine months ended September 30, 2000, operations used $10.0
million, we invested $10.7 million in the joint venture (which was consumed in
joint venture operations), we purchased $2.0 million of equipment and leasehold
improvements, we raised $6.3 million from the exercise of stock options and
warrants and we received $842,000 from the repayment of a promissory note.
From our inception through September 30, 2000, we have purchased approximately
$31.4 million of leasehold improvements and equipment. We expect that our
investment in leasehold improvements and equipment will increase significantly
during the next two years because we will provide facilities and equipment for a
larger staff and increase manufacturing capacity.
As part of the acquisition of Glyko, Inc., we acquired in-process research and
development projects, the value of which was expensed as a portion of the
purchase price at the time of the acquisition. The 11 projects acquired are each
relatively small and can be grouped into two categories, analytic projects and
diagnostic projects.
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The analytic projects are intended to expand the analytic product line by adding
new enzymes for reagent sales, new kits for agricultural applications, new
instrument capabilities for protein analysis and a major upgrade of software
capabilities. At the time of the acquisition of Glyko, Inc., all of the analytic
projects had completed feasibility work and the software projects were 75%
complete and have since been completed. The development of specialized materials
supporting instrument capabilities is deemed to be the most difficult technical
hurdle for the completion and commercialization of the analytic projects. The
fair value of the analytic projects was $1.7 million at the time of the
acquisition.
The diagnostic projects are intended to expand a product line based on very
precise measurements of the level of complex carbohydrates in blood and urine as
indicators of serious disease conditions including heart disease, kidney disease
and mucopolysaccharidoses or carbohydrate storage diseases. At the time of the
Glyko, Inc. acquisition, preliminary feasibility work had been done for all of
the projects and a software project was well advanced as to programming, which
has since been completed. The development of new more sensitive carbohydrate
chemistry techniques is deemed to be the most difficult technical hurdle for the
completion and commercialization of the diagnostic products. The fair value of
the diagnostic projects was $924,000 at the time of the acquisition.
As of September 30, 2000, we had expended to date approximately $950,000 on the
analytic projects and $1.0 million on the diagnostic projects. If all acquired
in-process research and development projects proceed to completion, we expect to
spend approximately $200,000 in incremental direct expense to complete the
analytic projects in phases over approximately 9 months. We expect to spend
approximately $450,000 to complete the diagnostic projects in phases within the
next 12 months. None of these projects have been terminated to date.
Since the acquisition of these in-process research and development projects,
there have been no subsequent developments which indicate that the completion
and commercialization of either of the projects are less likely to be completed
on the original planned schedule or less likely to be a commercial success.
We have made and plan to make substantial commitments to capital projects,
including expanding the Aldurazyme and rhASB manufacturing facilities,
developing new research and development facilities, and expanding our
administrative and support offices.
In September 1998, we established a joint venture with Genzyme for the worldwide
development and commercialization of Aldurazyme for the treatment of MPS-I. We
share expenses and profits from the joint venture equally with Genzyme. Genzyme
purchased $8.0 million in common stock upon signing the agreement and $10.0
million of common stock at the IPO price of $13 per share in a private placement
concurrent with the IPO. Genzyme has committed to pay us an additional $12.1
million upon approval of the biologics license application for Aldurazyme.
We expect our current funds to last at least through 2001. Until we can generate
sufficient levels of cash from our operations, we expect to continue to finance
future cash needs through:
. The sale of equity securities
. Equipment-based financing
. Collaborative agreements with corporate partners
We do not expect to generate positive cash flow from operations at least through
2002 because we expect to increase operational expenses and manufacturing
investment for the joint venture and to increase research and development
activities, including:
. Preclinical studies, clinical trials and regulatory review
. Commercialization of our drug candidates
. Development of manufacturing operations
. Process development
. Scale-up of manufacturing facilities
We anticipate a need for additional financing to fund the future operations of
our business, including the commercialization of our drug candidates currently
under development. We cannot assure you that additional financing will be
obtained or, if obtained, will be available on reasonable terms or in a timely
manner.
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Our future capital requirements will depend on many factors, including, but not
limited to:
. The progress of our research and development programs
. The progress of preclinical studies and clinical trials
. The time and cost involved in obtaining regulatory approvals
. Scaling up, installing and validating manufacturing capacity
. Competing technological and market developments
. Changes and developments in collaborative, licensing and other
relationships
. The development of commercialization activities and arrangements
. The leasing and build-out of additional facilities
. The purchase of additional capital equipment
We plan to continue our policy of investing available funds in government
securities and investment grade, interest-bearing securities, primarily with
maturities of one year or less. We do not invest in derivative financial
instruments, as defined by Statement of Financial Accounting Standards No. 119.
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FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
We operate in a highly competitive and rapidly changing industry that is subject
to a number of risks, some of which are beyond our control. The following
discussion highlights some of these risks.
Research and Development/Rapid Growth
A substantial portion of our business plan is based upon the development,
production and sale of carbohydrate enzyme therapies for various medical
applications. Although we currently have several products at various stages of
research and development, none of our products is approved for marketing and
sales. All of the products currently in development will require substantial
additional research and development including clinical trials prior to
distribution and sales.
To be able to effectively address all of the issues associated with developing
commercially viable products, we need to continue to develop and improve our
research and development capabilities, manufacturing and quality capacities,
sales and marketing capabilities, and financial and administrative systems. Our
systems, procedures and controls may not be adequate to support our operations
and our management may not be able to successfully manage future market
opportunities or our relationships with customers and other third parties.
Because the development and manufacture of our carbohydrate enzyme therapy
products require specialized technical expertise, the loss of key scientific,
technical and managerial personnel may delay or otherwise harm our product
development programs. We rely heavily on our ability to attract and retain
qualified scientific, technical and managerial personnel. The competition for
qualified personnel in the biopharmaceutical field is intense. Our location is
in the San Francisco Bay Area, which has a rapidly growing concentration of
biopharmaceutical companies, exposes us to particularly intense competition for
qualified staff at all levels. We may not be able to continue to attract and
retain qualified personnel necessary for the development of our business.
Capital Resources
Developing and bringing our carbohydrate enzyme therapy products to market is a
particularly time consuming and capital intensive process which requires
substantial expenditures. We believe that the cash, cash equivalents, and
short-term investment securities balances at September 30, 2000 will be
sufficient to meet our operating and capital requirements through 2001. This
estimate is based on assumptions and estimates, which may prove to be wrong. As
a result, we may need or choose to obtain additional financing during that time.
Such financing may not 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.
Regulatory Considerations
We must obtain regulatory approval before marketing or selling our 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 drug products.
Because of the risks and uncertainties in biopharmaceutical development, our
drug candidates could take a significantly longer time to gain regulatory
approval than we expect or may never gain approval. If regulatory approval is
delayed, our management's credibility, the value of our Company, and our
operating results will be adversely affected.
As part of the FDA approval process, we must conduct, at our own expense,
preclinical studies in the laboratory, on animals, and clinical trials on humans
for each drug candidate. 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, the results of prior
studies, and trials and regulations applicable to the particular drug. Even if
we obtain favorable results in preclinical studies on animals, the results in
humans may be different. Adverse or inconclusive clinical results would stop us
from filing for regulatory approval of our products.
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Typically, if a drug product, such as Aldurazyme, is intended to treat a chronic
disease, safety and efficacy data must be gathered over an extended period of
time, which can range from six months to three years or more. In addition,
clinical trials on humans are typically conducted in three phases. The FDA
generally requires two pivotal clinical trials that demonstrate substantial
evidence of safety, efficacy and appropriate dosing in a broad patient
population at multiple sites to support an application for regulatory approval.
If a drug is intended for the treatment of a serious or life-threatening
condition and the drug demonstrates the potential to address unmet medical needs
for this condition, fewer trials may be sufficient to prove safety and efficacy
under the FDA's Modernization Act of 1997.
Where appropriate, we intend to seek fast track designation from the FDA for our
drug candidates. To date, Aldurazyme and rhASB are our only candidates to have
received a fast track designation. However, obtaining a fast track designation
does not guarantee a faster review process or faster approval compared to the
normal FDA procedures.
In addition to the risks associated with obtaining regulatory approval for our
products, we must comply with strict regulatory requirements relating to the
manufacture of our drug candidates that can be costly and delay or prevent our
production efforts. Our manufacturing facilities must obtain regulatory
certification prior to production and upon any material change to the production
process, before and after product approval, and are continuously subject to
inspection by the FDA, the State of California and foreign regulatory
authorities. Our Galli Drive and our Bel Marin Keys Boulevard manufacturing
facilities have been inspected and licensed by the State of California for
clinical pharmaceutical manufacture. We cannot guarantee that these facilities
will pass federal or international regulatory inspection. Manufacture of our
drug products must comply with the FDA's current Good Manufacturing Practices
regulations, commonly known as cGMP. The cGMP regulations govern quality control
and documentation policies and procedures. We cannot guarantee that the Company,
or any potential third-party manufacturer of our drug products, will be able to
comply with cGMP regulations.
Protection of Intellectual Property
We are dependent on the protection of our intellectual property. We employ
several strategies to attempt to prevent our competitors from utilizing our
research and technical information. However, these strategies may not be
successful.
Where appropriate, we seek patent protection for certain aspects of our
technology. Meaningful patent protection may not be available for some of the
enzymes we are developing, including Aldurazyme and rhASB. 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, including the
structure of the enzymes, the methods for purifying or producing the enzymes and
the methods of treatment, has existed in the public domain for many years.
Publication of this information may prevent us from obtaining
composition-of-matter patents, which are generally believed to offer the
strongest patent protection.
Even if we seek a patent on an aspect of our technology, obtaining the patent
may be difficult or impossible and may require the expenditure of substantial
time and money. Competitors may interfere with our patent process in a variety
of ways, including claiming that they invented the claimed invention prior to us
or that we are infringing on their patents. Competitors may also contest our
patents by showing the patent examiner that the invention was obvious or was not
original or novel.
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. Also, 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.
In addition to seeking patent protection for our intellectual property, we
attempt to protect our trade secrets from disclosure to our competitors. We
accomplish this in a number of ways, including limiting access to information to
necessary employees and requiring persons with access to trade secrets to enter
into nondisclosure agreements.
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It is 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. Also, 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.
Orphan Drug Status
As part of our business strategy, and as a further means of protecting our
intellectual property, we intend to develop certain 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 in
the United States. The company that obtains the first FDA approval for a
designated orphan drug for a given rare disease receives marketing exclusivity
for use of that drug for the stated condition for a period of seven years.
However, different drugs can be approved for the same condition.
Because the extent and scope of patent protection for our drug products is
limited, orphan drug designation is particularly important for our products that
are eligible for orphan drug designation. We plan to rely on the exclusivity
period under the orphan drug designation to maintain a competitive position. If
we do not obtain orphan drug exclusivity for any one of our drug products and we
are unable to otherwise protect the product, our competitors may then sell the
same drug to treat the same condition.
We received orphan drug designation from the FDA for Aldurazyme in September
1997. In February 1999, we received orphan drug designation from the FDA for
rhASB for the treatment of MPS-VI. Even though we have obtained orphan drug
designation for these drugs and even if we obtain orphan drug designation for
other products we develop, we cannot guarantee that we will be the first to
obtain marketing approval for any orphan indication or that exclusivity would
effectively protect the product from competition. Orphan drug designation
neither shortens the development or FDA review time of a drug so designated nor
gives the drug any advantage in the FDA review or approval process.
Issues Relating to Our Joint Venture
We have entered into a joint venture with Genzyme Corporation to assist us in
obtaining international regulatory approval for Aldurazyme as well as marketing
and commercializing the product worldwide. 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. Because it is
our initial product, our operations are substantially dependent upon the
development of Aldurazyme.
Genzyme may not devote the resources necessary to successfully market
Aldurazyme. In addition, either party may terminate the joint venture for
specified reasons, including if the other party is in material breach of the
agreement or has experienced a change of control or has declared bankruptcy and
also is in breach of the agreement.
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If the joint venture is terminated, one party, as determined by the joint
venture agreement, must buy out the other party's interest in the joint venture
and will then own all rights to Aldurazyme. If Genzyme were obligated to buy out
our interest in the joint venture, Genzyme would be granted, exclusively, all of
the rights to Aldurazyme and any related intellectual property and regulatory
approvals. We would then effectively be unable to develop and commercialize
Aldurazyme. If we were obligated to buy out Genzyme's interest in the joint
venture, we would then be granted all of these rights to Aldurazyme exclusively.
While we could then continue to develop Aldurazyme, that development would be
slowed because we would have to divert substantial capital to buy out Genzyme's
interest in the joint venture and would have to search for a new partner to
commercialize the product and to obtain foreign regulatory approvals or to
develop these capabilities ourselves.
Termination of the joint venture where we retain the rights to Aldurazyme could
cause us significant delays in product launch in the United States, difficulties
in obtaining third-party reimbursement and delays or failure to obtain foreign
regulatory approval, any of which could hurt our business and results of
operations. Since Genzyme funds 50% of the joint venture's operating expenses,
the termination of the joint venture would double our financial burden and
reduce the funds available to us for other product programs.
Complicated Manufacturing Process
Even once we have successfully developed a product and obtained regulatory
approval for its sale and use, there are still several factors that could limit
or prevent its commercial viability including large scale manufacturing
complications, distribution and marketing, and market demand.
We have developed a total of 41,200 square feet at our Novato facilities for the
manufacturing of Aldurazyme and rhASB. We expect that the manufacturing process
of all of our new products, including rhASB, will also require significant time
and resources before we can begin to manufacture them in commercial quantity.
We have no experience manufacturing drug products in volumes that will be
necessary to support commercial sales. The large scale, consistent production of
several of our drug candidates is complicated, expensive and unpredictable and
may not yield the high quality and high purity required with acceptable quantity
and costs. Improvements in manufacturing processes typically are very difficult
to achieve and are often very expensive. We cannot know with certainty how long
it might take to make improvements if it became necessary to do so. If we
contract for manufacturing services with an unproven process, our contractor is
subject to the same uncertainties, high standards and regulatory controls.
If we 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. Even if we can establish the necessary capacity,
we cannot be certain that manufacturing costs will be commercially reasonable,
especially if third-party reimbursement is substantially lower than expected.
Marketing and Pricing Issues
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 and the patient populations must be able to afford the
treatments. For example, two of our initial drug products in genetic disorders,
Aldurazyme and rhASB, target patients with MPS-I and MPS-VI, respectively. We
estimate that there are approximately 3,400 patients with MPS-I and 1,100
patients with MPS-VI in the developed world. We believe that we will need to
market worldwide to achieve significant market share. In addition, we are
developing other drug candidates to treat conditions, such as other genetic
diseases and serious burn wounds, with small patient populations. We cannot be
certain that we will be able to obtain sufficient market share for our drug
products at a price high enough to justify our product development efforts.
The course of treatment for patients with MPS-I using Aldurazyme and MPS-VI
using rhASB is expected to be expensive. We expect patients to need treatment
throughout their lifetimes. We expect that most families of patients will not be
capable of paying for this treatment themselves. There will be no commercially
viable market for Aldurazyme or rhASB without reimbursement from third-party
payors.
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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.
Third-party payors may not be willing to pay for the costs of our drugs and the
courses of treatment at reimbursement rates that 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 Aldurazyme. 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.
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Item 3. Quantitative and Qualitative Disclosure about Market Risk.
The Company's exposure to market risk for changes in interest rates relates
primarily to the Company's investment portfolio. The Company places its
investments with high credit issuers and by policy limits the amount of credit
exposure to any one issuer. As stated in its policy, the Company will seek to
improve the safety and likelihood of preservation of its invested funds by
limiting default risk and market risk. The Company has no investments
denominated in foreign country currencies and therefore is not subject to
foreign exchange risk.
The Company mitigates default risk by investing in high credit quality
securities and by positioning its portfolio to respond appropriately to a
significant reduction in a credit rating of any investment issuer or guarantor.
The portfolio includes only marketable securities with active secondary or
resale markets to ensure portfolio liquidity.
The table below presents the carrying value for the Company's investment
portfolio. The carrying value approximates fair value at September 30, 2000.
Investment portfolio:
Carrying value
(in $ thousands)
----------------
Cash and cash equivalents................ $16,098
Short-term investments................... 31,129*
Certificates of deposit.................. 278
-------
Total.............................. $47,505
* 84% in United States agency securities and 16% in A1/P1 rated commercial
paper.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings. None.
Item 2. Changes in Securities and Uses of Proceeds. None.
Item 3. Defaults upon Senior Securities. None.
Item 4. Submission of Matters to a Vote of Security Holders. None.
Item 5. Other Information. None.
Item 6. Exhibits and Reports on Form 8-K.
(a) The following documents are filed as part of this report
See Exhibit Index attached hereto.
(b) Reports on Form 8-K.
No reports were filed on Form 8-K during the
three months ended September 30, 2000.
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EXHIBIT INDEX
Exhibit Number Description of Document
-------------- ----------------------------
27.1 Financial Data Schedule (available in EDGAR format only).
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant caused this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
BIOMARIN PHARMACEUTICAL INC.
Dated: October 26, 2000 By: \s\ Raymond W. Anderson
------------------------------ -------------------------------------------
Raymond W. Anderson
Chief Financial Officer, Chief Operating
Officer and V.P. Finance and
Administration (on behalf of registrant
and as principle financial officer)
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