<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 June 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: 35,504,378 shares common stock,
par value $0.001, outstanding as of July 31, 2000.
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BIOMARIN PHARMACEUTICAL INC.
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited).
Consolidated Balance Sheets....................................................2
Consolidated Statements of Operations for the three-month
Periods ended June 30, 1999 and 2000........................................3
Consolidated Statements of Operations for the six-month
Periods ended June 30, 1999 and 2000 and for the period From
March 21, 1997 (inception) through June 30, 2000.............4
Consolidated Statements of Cash Flows..........................................5
Notes to Consolidated Financial Statements....................................6
Item 2. Management's Discussion and Analysis.................................8
Item 3. Quantitative and Qualitative Disclosure about Market Risk...........18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings....................................................19
Item 2. Changes in Securities and Uses of Proceeds...........................19
Item 3. Defaults upon Senior Securities......................................19
Item 4. Submission of Matters to a Vote of Security Holders..................19
Item 5. Other Information....................................................19
Item 6. Exhibits and Reports on Form 8-K.....................................19
SIGNATURE.....................................................................21
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<TABLE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
BioMarin Pharmaceutical Inc. and Subsidiaries
(a development stage company)
Consolidated Balance Sheets as of
December 31, 1999 and June 30, 2000
($ Thousands)
December 31, June 30,
1999 2000
-------------------------------------------
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 23,413 $ 10,609
Short-term investments 39,573 38,803
Accounts receivable, net 1,186 1,542
Due from BioMarin/Genzyme LLC 1,280 1,476
Inventories 676 495
Prepaid expenses 294 607
----------------------- -----------------
Total current assets 66,422 53,532
Property, plant and equipment, net 25,093 20,387
Goodwill and other intangible assets 11,462 10,856
Investment in BioMarin/Genzyme LLC 421 982
Deposits 151 333
------------------------ -----------------
Total assets $ 103,549 $ 86,090
======================== =================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 3,095 $ 990
Accrued liabilities 1,966 1,807
Notes payable, short-term 26 29
------------------------ -----------------
Total current liabilities 5,087 2,826
Long-term liabilities:
Long-term portion of notes payable 85 68
------------------------ -----------------
Total liabilities 5,172 2,894
------------------------ -----------------
Stockholders' equity:
Common stock, $0.001 par value: 75,000,000
Authorized. 34,832,578 and 35,477,870 shares
issued and outstanding December 31,
1999 and June 30, 2000, respectively 35 35
Additional paid-in capital 146,592 149,641
Common stock warrants and options 128 128
Deferred compensation (2,591) (1,938)
Notes from stockholders (2,638) (2,700)
Deficit accumulated during development stage (43,149) (61,970)
----------------------- ------------------
Total stockholders' equity 98,377 83,196
----------------------- ------------------
Total liabilities and stockholders' equity $ 103,549 $ 86,090
======================= ==================
The accompanying notes are an integral part of these statements.
2
</TABLE>
<PAGE>
BioMarin Pharmaceutical Inc. and Subsidiaries
(a development stage company)
Consolidated Statement of Operations
For the Three Month Periods Ended June 30, 1999 and 2000
(In Thousands, except for per share data)
<TABLE>
Three Months Ended June 30,
-----------------------------------------
1999 2000
--------------------- -------------------
(unaudited) (unaudited)
<S> <C> <C>
Revenues:
Revenues - products $ 327 $ 595
Revenues - services 31 118
Revenues from BioMarin/Genzyme LLC 1,157 2,370
Revenues - other 42 -
--------------------- -------------------
Total revenues 1,557 3,083
--------------------- -------------------
Operating Costs and Expenses:
Cost of products 33 144
Cost of services 19 20
Research and development 6,539 7,917
Selling, general and administrative 1,111 2,190
--------------------- -------------------
Total operating costs and expenses 7,702 10,271
--------------------- -------------------
Loss from operations (6,145) (7,188)
Interest income 299 802
Interest expense (561) (2)
Loss from BioMarin/Genzyme LLC (375) (698)
--------------------- -------------------
Net loss $ (6,782) $ (7,086)
===================== ===================
Net loss per share, basic and diluted $ (0.26) $ (0.20)
===================== ===================
Weighted average common shares outstanding 26,176 35,397
===================== ===================
</TABLE>
The accompanying notes are an integral part of these statements.
3
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<TABLE>
BioMarin Pharmaceutical Inc. and Subsidiaries
(a development stage company)
Consolidated Statement of Operations
For the Six-Month Periods Ended June 30, 1999 and 2000 and for
the Period from March 17, 1997 (inception) through June 30, 2000
(In Thousands, except for per share data)
Period from
Six Months Ended March 21, 1997
June 30, (Inception), to
---------------------------------------- June 30,
1999 2000 2000
-------------------- ------------------ --------------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
Revenues:
Revenues - products $ 529 $ 1,087 $ 2,626
Revenues - services 78 168 365
Revenues from BioMarin/Genzyme LLC 1,904 5,126 11,263
Revenues - other 151 - 293
-------------------- ------------------ -------------------
Total revenues 2,662 6,381 14,547
-------------------- ------------------ --------------------
Operating Costs and Expenses:
Cost of products 117 292 703
Cost of services 38 53 214
Research and development 10,431 16,580 56,202
Selling, general and administrative 2,804 4,186 15,437
Carson Street closure - 4,423 4,423
-------------------- ------------------ -------------------
Total operating costs and expenses 13,390 25,534 76,979
-------------------- ------------------ --------------------
Loss from operations (10,728) (19,153) (62,432)
Interest income 453 1,590 4,172
Interest expense (561) (4) (736)
Loss from BioMarin/Genzyme LLC (555) (1,255) (2,975)
-------------------- ------------------ --------------------
Net loss $ (11,391) $ (18,822) $ (61,971)
==================== ================== ====================
Net loss per share, basic and diluted $ (0.44) $ (0.53) $ (2.66)
==================== ================== ====================
Weighted average common shares outstanding 26,176 35,206 23,298
==================== ================== ====================
</TABLE>
The accompanying notes are an integral part of these statements.
4
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BioMarin Pharmaceutical Inc. and Subsidiaries
(a development stage compnay)
Consolidated Statements of Cash Flows
For the Six-Month Periods Ended June 30, 1999 and
2000, and for the Period from March 21, 1997 (inception) to June 30, 2000
($ Thousands)
<TABLE>
Period from
Six Months Ended March 21, 1997
June 30, (inception) to
---------------------------------- June 30,
1999 2000 2000
---------------------------------- --------------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (11,391) $ (18,822) $ (61,971)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 1,040 2,186 6,573
Amortization of deferred compensation 636 639 2,165
Amortization of goodwill 543 606 2,020
Compensation in the form of common stock and
common stock options - - 18
Loss from BioMarin/Genzyme LLC 2,459 6,362 13,382
Write off of in-process technology - - 2,625
Carson Street closure - 4,423 4,423
Changed in operating assets and liabilities:
Accounts receivable (292) (355) (1,540)
Due from BioMarin/Genzyme LLC (523) (196) (1,476)
Inventories 15 181 104
Prepaid expenses (671) (313) (606)
Deposits (10) (182) (333)
Accounts payable 4,676 (2,105) 989
Accrued liabilities 457 (787) 1,179
---------------------------------- --------------------
Total adjustments 8,330 10,459 29,523
---------------------------------- --------------------
Net cash used in operating activities (3,061) (8,363) (32,448)
Cash flows from investing activities:
Purchase of property and equipment (11,770) (1,275) (30,754)
Purchase od Biochemical Research Reagent Division
of Oxford Glycosciences (750) - (1,500)
Investment in BioMarin/Genzyme LLC (3,108) (6,923) (14,364)
(Purchase)/Sale of short-term investments 1,722 770 (38,803)
---------------------------------- --------------------
Net cash used in investing activitities (13,906) (7,428) (85,421)
Cash flows from financing activities:
Proceeds from note payable - - 134
Bridge loan - - 880
Proceeds from issuance of convertible notes payable 24,884 - 25,615
Accrued interest on notes receivable from stockholders (75) - (188)
Proceeds from exercise of common stock options - 3,001 3,149
Repayment of equipment loan (12) (14) (38)
roceeds from sale of common stock, net of issuance costs - - 98,926
---------------------------------- --------------------
Net cash provided by financing activities 24,797 2,987 128,478
---------------------------------- --------------------
Net increase (decrease) in cash and cash equivalents 7,830 (12,804) 10,609
Cash and cash equivalents, beginning of period 9,414 23,413 -
---------------------------------- --------------------
Cash and cash equivalents, end of period $ 17,244 $ 10,609 $ 10,609
================================== ====================
The accompanying notes are an integral part of these statements.
5
</TABLE>
<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 clinical scale manufacturing
facilities, clinical manufacturing, and related administrative activities.
BioMarin was incorporated in October 1996 as a wholly-owned subsidiary of Glyko
Biomedical Ltd. (GBL). The Company was funded by GBL and began operations on
March 21, 1997 (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 $13.00 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 million at the IPO price of $13 per share (769,230 shares
of common stock). 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. 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 six-month period ended June 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 effect 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 bank certificates of deposit.
6
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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):
<TABLE>
December 31, June 30, Estimated
1999 2000 Useful Lives
---------------- ----------- ------------------
<S> <C> <C> <C>
Computer hardware and software $ 426 $ 451 3 years
Office furniture and equipment 1,017 950 5 years
Manufacturing/laboratory equipment 8,254 8,090 5 years
Leasehold improvements 19,768 16,804 Shorter of life of
asset or lease term
---------------- ----------
29,465 26,295
Less: Accumulated depreciation (4,372) (5,908)
--------------- ----------
Total, net $ 25,093 $ 20,387
=============== ==========
</TABLE>
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 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(TM) both
for the confirmatory Phase III trial and for the commercial launch of
Aldurazyme(TM). 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 facility, for the clinical trial and biologics license
application submission and for commercial production. The Carson Street facility
completed its final production lots in May. A majority of its technical staff at
the Carson Street facility in Torrance, California transfered to the Galli Drive
facility in Novato, California, which has significantly greater manufacturing
capacity. 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. or GBL (TSE: 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 June 30, 2000 of $62.0 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(TM), alronidase for injection, (recombinant human
(alpha)-L-iduronidase), which is undergoing clinical trials for use in enzyme
replacement therapy for Mucopolysaccharridosis-I or MPS-I. Our financial results
may vary depending on many factors, including:
. The progress of Aldurazyme(TM) in the regulatory processes and initial sales
activities
. The investment in manufacturing process development and in manufacturing
capacity for Aldurazyme(TM) 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 Aldurazyme(TM) 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 Aldurazyme(TM). We will share equally
in any profits generated from the sales of Aldurazyme(TM).
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 or 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.
8
<PAGE>
Results of Operations
The Quarters Ended June 30, 2000 and 1999
Revenues for the second quarter of 2000 totaled $3.1 million compared to
revenues of $1.6 million in the second quarter of 1999. Second quarter 2000
revenues included $2.4 million for services provided to the joint venture for
Aldurazyme(TM) compared to $1.2 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 material. Second quarter 2000
revenues also included $713,000 generated by Glyko, Inc. compared to $358,000
for the second quarter of 1999. Glyko's external revenues for products and
services for the second quarter of 2000 were up 100% in comparison to the second
quarter of 1999 as a result of product sales from the biochemical reagents
business of Oxford GlycoScience Plc. (LSE: OGS), which was acquired in May 1999.
Cost of products and cost of services related to Glyko, Inc. operations were
$164,000 in the second quarter of 2000 and were $52,000 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 24% in the second quarter of 2000 and 15% in
the second quarter of 1999.
Research and development expenses for the second quarter of 2000 increased by
$1.4 million from $6.5 million in the second quarter of 1999 to $7.9 million in
the second quarter of 2000. This increase was due primarily to increased
activities in support of the joint venture for Aldurazyme(TM) and in support of
the Company's enzyme product candidate for MPS-VI.
Selling, general and administrative expenses increased from $1.1 million in the
second quarter of 1999 to $2.2 million in the second quarter of 2000 due to
increased administrative staff expenses to support expanded operations and
expenses associated with its new status as a publicly traded company.
The Company's equity in the loss of its joint venture with Genzyme was $698,000
for the second quarter 2000 compared to $375,000 for the same period of 1999.
The increase in equity in loss of the joint venture reflects increased losses
generated by the joint venture.
Interest income increased by $503,000 from $299,000 in the second quarter of
1999 to $802,000 in the second quarter of 2000 due to increased cash reserves
resulting from the initial public offering on July 23, 1999, a concurrent
investment by Genzyme, and a convertible note financing in April 1999.
Net loss of $6.8 million ($0.26 per share) in the second quarter of 1999
increased to $7.1 million ($0.20 per share) in the comparable period of 2000.
The Six Months Ended June 30, 2000 and 1999
For the six-month periods ended June 30, 1999 and 2000, revenues were $2.7
million and $6.4 million, respectively. Joint venture revenues were $5.1 million
and Glyko, Inc. revenues were $1.3 million for the first six months of 2000, as
compared to $1.9 million and $607,000, respectively, for the same period in
1999. The reasons for these increases in revenues were the same as described for
the second quarter increases in revenues.
Cost of products and cost of services related to Glyko, Inc. operations were
$345,000 for the first six months of 2000 compared to $155,000 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 27% and 26% for the six-month periods
ended June 30, 2000 and 1999, respectively.
Research and development expenses increased from $10.4 million in the first six
months of 1999 to $16.6 million in the comparable period of 2000. Increased
expenses in support of the Aldurazyme(TM) joint venture with Genzyme and the
MPS-VI program were the major factors in the growth of research and development
expenses.
Selling, general and administrative expenses increased from $2.8 million in the
first six months of 1999 to $4.2 million in the first six months of 2000. The
reasons for this increase in expenses were the same as described above for the
second quarter increase in selling, general and administrative expenses.
9
<PAGE>
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(TM), 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(TM) both for the confirmatory Phase III trial and for the
commercial launch of Aldurazyme(TM). 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 and
biologics license application (BLA) submission and for commercial production.
The Carson Street facility completed its final production lots in May. A
majority of its technical staff at the Carson Street facility, which is in
Torrance, California, transfered to the Galli Drive facility in Novato,
California, which has significantly greater manufacturing capacity. 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 $1.3 million
for the first six months of 2000 compared to $555,0000 for the same period of
1999. The increase in equity in loss of the joint venture reflects increased
losses generated by the joint venture.
Interest income increased by $1.1 million from $453,000 in the first six months
of 1999 to $1.6 million in the first six months of 2000 primarily due to
increased cash reserves resulting from a convertible note financing in April
1999, the initial public offering, and a concurrent private placement with
Genzyme in July 1999.
The net loss was $11.4 million ($0.44 per share) and $18.8 million ($0.53 per
share) for the first six months of 1999 and 2000, 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 $124 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, in the sale of promissory
notes convertible into common stock, in an investment of $8.0 million by Genzyme
as part of our joint venture with them, in an initial public offering including
the underwriters' over-allotment exercise and in the concurrent $10 million
Genzyme investment in our Company.
Our combined cash, cash equivalents and short-term investments totaled $63.0
million at December 31, 1999 and decreased $13.6 million to $49.4 million at
June 30, 2000. The primary use of cash during the six months ended June 30, 2000
was to finance operations, fund the joint venture and to 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. For the six months ended June 30, 2000, operations used $8.4
million, we invested $6.9 million in the joint venture (which was consumed in
joint venture operations), we purchased $1.3 million of equipment and leasehold
improvements and we raised $3.0 million from the exercise of stock options.
From our inception through June 30, 2000, we have purchased approximately $30.8
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.
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 commercialization of the analytic projects. The fair value of the
analytic projects was $1.7 million at the time of the acquisition.
10
<PAGE>
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 June 30, 2000, we had expended to date approximately $900,000 on the
analytic projects and $950,000 on the diagnostic projects. If all acquired
in-process research and development projects proceed to completion, we expect to
spend approximately $250,000 in incremental direct expense to complete the
analytic projects in phases over approximately 12 months. We expect to spend
approximately $500,000 to complete the diagnostic projects in phases to be
completed within the next 15 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(TM) manufacturing facility in Novato and
developing new research and development facilities in Novato.
In September 1998, we established a joint venture with Genzyme for the worldwide
development and commercialization of Aldurazyme(TM) 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(TM).
We expect our current funds to last at least through mid-year 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 internal cash flow 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
. Sales and marketing activities
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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 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 advanced, innovative therapies for various medical
applications. Although we currently have several products at various stages of
research and development, none of our biopharmaceutical products are approved
for full-scale marketing and sales. All of the products currently in development
will require substantial additional research and development prior to full-scale
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 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. 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 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, short-term investment
securities balances at June 30, 2000 will be sufficient to meet our operating
and capital requirements through mid-year 2001. This estimate is based on
assumptions and estimates, which may prove to be wrong. As a result, we will
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 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. 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.
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. 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(TM), 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, 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.
Where appropriate, we intend to seek fast track designation from the FDA for our
candidate products. To date, Aldurazyme(TM) is our only candidate 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 proposed products 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. 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(TM) and BM102. 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.
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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.
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
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. 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(TM) in September
1997. In February 1999, we received orphan drug designation from the FDA for
BM102 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 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.
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(TM) 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 and our financial
requirements are substantially dependent upon the timely development and
commercialization of Aldurazyme(TM).
Genzyme may not devote the resources necessary to successfully market
Aldurazyme(TM). 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(TM). If Genzyme were obligated to buy
out our interest in the joint venture, Genzyme would be granted, exclusively,
all of the rights to Aldurazyme(TM) and any related intellectual property and
regulatory approvals. We would then effectively be unable to develop and
commercialize Aldurazyme(TM). 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(TM) exclusively. While we could then continue to develop
Aldurazyme(TM), 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(TM)
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 31,000 square feet at our Novato facility for phase
1 of manufacturing capability for Aldurazyme(TM). The engineering runs of this
facility may take longer or be less productive than planned. 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.
As an integrated organization, 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 candidate products 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 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 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 this capacity, we cannot
be certain that manufacturing costs will be commercially reasonable, especially
if 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. The cost reimbursement system supporting the patient
populations must choose to reimburse our prices for the treatment. For example,
two of our initial drug products in genetic disorders, Aldurazyme(TM) 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 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(TM) 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 Aldurazyme(TM) 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(TM). 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
control the risk and liklihood 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 June 30, 2000.
Investment portfolio:
Carrying value
(in $ thousands)
----------------
Cash and cash
equivalents...........$ 10,609
Short-term
investments.......... 38,533*
Certificates of
deposit............... 270
---------
Total.............$ 49,412
* 100% in United States agency securities.
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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.
At the Company's Annual Meeting, held on June 15, 2000, the Company's
stockholders took the following action:
(a) The following directors were elected to serve until the next Annual Meeting:
Vote
Director Elected For Against Withheld
--------------------- ----------- --------- ----------
Grant W. Denison, Jr. 19,864,310 Nil 6,075
John C. Klock, M.D. 19,864,310 Nil 6,075
Ansbert S. Gadicke, M.D., Ph.D. 19,863,310 Nil 7,075
Erich Sager 19,854,310 Nil 16,075
Gwynn R. Williams 19,864,310 Nil 6,075
(b) Arthur Andersen LLP was ratified as the Company's auditors, by a vote of
19,870,050 shares in favor, 250 shares against, and 85 shares withheld. There
were 15,451,336 shares which abstained from all matters presented to the meeting
including broker non-votes.
Item 5. Other Information. None.
Item 6. Exhibitsand 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 June 30,
2000.
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EXHIBIT INDEX
Exhibit Number Description of Document
--------------- ---------------------------
27.1 Financial Data Schedule (available in EDGAR format only).
20
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SIGNATURE
Pursuant to the C 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: August 14, 2000 By:
-------------------------- -----------------------------
Raymond W. Anderson
Chief Financial Officer, Chief Operating
Officer and V.P. Finance and Administration
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