U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-K
(Mark One)
[X] Annual Report Under Section 13 or 15(d) of the Securities Exchange Act of
1934 For the fiscal year ended December 31, 1999 Or
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 For the transition
period from ______________ to _____________.
Commission File Number: 000-26727
BioMarin Pharmaceutical Inc.
(Exact name of small business issuer as specified in its charter)
Delaware 68-039782
(State of other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
371 Bel Marin Keys Blvd., #210, Novato, California 94949
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (415) 884-6700
Securities registered pursuant to Section
12(b) of the Act: None Securities
registered under Section 12(g) of the
Act:
Common Stock, $.001 par value
(Title of Class)
Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act during the past
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers in response to Item
405 of Regulation S-K is not contained in this form, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III to the Form 10-K or any
amendment to this Form 10-K. __
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of February 16, 2000 was $225,377,169. The number of shares of
common stock, $0.001 par value, outstanding on February 16, 2000 was 34,951,086.
Transitional small business disclosure format (check one)
Yes__ ; No X
The documents incorporated by reference are as follows:
(1) Proxy Statement of the Annual Meeting of Stockholders to be held on
June 16, 2000 incorporated into Part III, Items 10 - 13.
(2) Registration Statements on Form S-1 (Registration No. 333-77701) filed
on May 4, June 14, July 6 and July 21, 1999 incorporated into
Part V, Item 1.
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BIOMARIN PHARMACEUTICAL INC.
Part I
FORWARD LOOKING STATEMENTS
This Form 10-K contains "forward-looking statements" as defined under securities
laws. Many of these statements can be identified by the use of terminology such
as "believes," "expects," "anticipates," "plans," "may," "will," "projects,"
"continues," "estimates," "potential," "opportunity" and so on. These
forward-looking statements may be found in the "Risk Factors," "Description of
Business," and other sections of this Annual Report on Form 10-K. Our actual
results or experience could differ significantly from the forward-looking
statements. Factors that could cause or contribute to these differences include
those discussed in "Additional Factors That Might Affect Future Results," as
well as those discussed elsewhere in this Form 10-K. You should carefully
consider that information before you make an investment decision.
You should not place undue reliance on these statements, which speak only as of
the date that they were made. These cautionary statements should be considered
in connection with any written or oral forward-looking statements that we may
issue in the future. We do not undertake any obligation to release publicly any
revisions to these forward-looking statements after completion of the filing of
this Form 10-K to reflect later events or circumstances or to reflect the
occurrence of unanticipated events.
Item 1. Description of Business
Overview
BioMarin Pharmaceutical Inc. or BioMarin or the Company is a developer of
carbohydrate enzyme therapies for debilitating, life-threatening, chronic
genetic disorders and other diseases and conditions. In April 1999, we completed
a twelve-month patient evaluation for the initial clinical trial of our lead
drug product, AldurazymeTM, for the treatment of mucopolysaccharidosis-I or
MPS-I, a serious genetic disorder and presented the results at the American
Society for Human Genetics in October 1999. We are currently collecting data
during an additional twelve-month follow-up period for the initial clinical
trial. In September 1998, we established a joint venture with Genzyme for the
worldwide development and commercialization of AldurazymeTM. AldurazymeTM has
received fast track designation for the treatment of the more severe forms of
MPS-I. The U.S. Food and Drug Administration or FDA has granted AldurazymeTM an
orphan drug designation giving us exclusive rights to market AldurazymeTM to
treat MPS-I for seven years from the date of FDA approval if AldurazymeTM is the
first enzyme ((alpha)-L-iduronidase) to be approved by the FDA for the treatment
of MPS-I.
MPS-I is a life-threatening genetic disorder caused by the lack of a sufficient
quantity of the enzyme (alpha)-L-iduronidase, which affects about 3,400 patients
in developed countries, including approximately 1,000 in the United States and
Canada. Patients with MPS-I have multiple debilitating symptoms resulting from
the buildup of carbohydrate residues in all tissues in the body. These symptoms
include delayed physical and mental growth, enlarged livers and spleens,
skeletal and joint deformities, airway obstruction, heart disease, reduced
endurance and pulmonary function, and impaired hearing and vision. Most children
with MPS-I will die from complications associated with the disease before
adulthood.
AldurazymeTM is a specific form of recombinant human (alpha)-L-iduronidase that
replaces a genetic deficiency of (alpha)-L-iduronidase in MPS-I patients. The
initial clinical trial treated ten patients with MPS-I at five medical centers
in the United States. Based on data collected during the initial twelve-month
evaluation period, AldurazymeTM met the primary endpoints set forth in the
investigational new drug application. In addition, AldurazymeTM demonstrated
efficacy according to various secondary endpoints in each of the patients. In
collaboration with Genzyme, we intend to initiate a Phase III Confirmatory
Clinical Trial of AldurazymeTM in mid-year 2000 and to complete the filing of a
biologics license application or BLA with the FDA in mid-year 2001.
Carbohydrate-active Enzyme Therapeutics
Carbohydrates are a fundamental class of biological molecules that play diverse
and critical roles in maintaining the health and functional integrity of all
cells and tissues. Enzymes are proteins that act as catalysts for many vital
biological reactions. Enzymes that act on carbohydrates, called
carbohydrate-active enzymes, cleave, construct or otherwise modify carbohydrates
to regulate their production, maintenance and degradation. These
carbohydrate-active enzymes are critical to a wide range of functions within the
body, including cell proliferation, digestion, blood clotting, immune response,
wound healing, conception and control of infection and inflammation. The body,
when functioning normally, produces appropriate quantities of
carbohydrate-active enzymes to perform these functions. Carbohydrate-active
enzymes have the potential to play an important therapeutic role in certain
diseases or disorders by either replacing deficient enzymes or supplementing the
enzymes that are naturally present in the body.
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Role of Carbohydrate-active Enzymes in Genetic Diseases
We believe that there are more than 70 genetic diseases that are known to be
caused by the deficiency of a single enzyme. In these genetic diseases the body
fails to produce sufficient or functional quantities of certain enzymes. Most of
these genetic diseases are rare, affecting only a few hundred to a few thousand
people in the United States. Examples of genetic diseases include Gaucher
disease, hemophilia and MPS disorders. Since there is not extensive literature
regarding these rare genetic diseases we hired a consultant, the Frankel Group,
to conduct research regarding this potential market. The figures cited in the
following paragraph were developed by the Frankel Group.
Currently, only eight genetic diseases have effective treatments, and five of
these eight are treated through enzyme replacement. Historically, enzyme
replacement therapy has been limited by the inability of manufacturers to
produce the correct form of enzymes in sufficient quantities. Manufacture of
sufficient quantities to support a therapeutic program has now become possible
with advancements in recombinant DNA production methods. In these cases,
recombinant production methods apply human DNA to host mammalian cells to
produce human enzymes the cells would not naturally produce. In 1998, the
worldwide sales of pharmaceuticals used to treat genetic diseases by enzyme
replacement were approximately $2.7 billion.
Genzyme's treatment for Gaucher disease is an example of a treatment using
enzyme replacement therapy. Gaucher disease, which afflicts approximately 5,000
people in the developed world, is caused by a deficiency in the enzyme
glucocerebrosidase. In April 1991, following a single clinical trial involving
13 patients, Genzyme's treatment for Gaucher disease was approved for marketing
by the FDA. Approximately 2,500 patients worldwide are using Genzyme's treatment
for Gaucher disease. Sales of Genzyme's treatments for Gaucher disease,
Cerezyme(R) enzyme and Ceredase(R) enzyme, generated total revenue of
approximately $479 million in 1999.
Other Therapeutic Roles for Carbohydrate-active Enzymes
Carbohydrate-active enzymes can also treat conditions other than those caused by
genetic diseases, such as burn debridement and systemic fungal infections.
Supplementing the amount of enzymes naturally present in a patient's body or
adding a new enzyme can enable or enhance the body's ability to respond to
certain conditions and accelerate the healing process. For example, using a
topical enzymatic formulation to supplement naturally occurring enzymes may
speed skin grafting for severe burns by removing dead or damaged tissue. Adding
or increasing the concentration of an enzyme that selectively targets and kills
microbes may help the body fight infection.
Business Strategy
Our business strategy is to develop therapeutic products to treat a variety of
diseases and conditions involving carbohydrates. We use our proprietary
carbohydrate-active enzyme technology to develop these products. The principal
elements of this strategy are:
o Focus on Drug Candidates with Known Biology and Low Technical
Risk. We identify potential products that treat serious diseases
or conditions where the biological role of carbohydrate-active
enzymes is well understood and the method of treatment is
straightforward. As part of this strategy, we are initially
focusing on treating genetic diseases such as MPS-I and MPS-VI,
which are caused by the deficiency of a single enzyme.
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o Select Products that We Believe May Be Developed Relatively
Quickly. We are initially developing therapeutic products for
serious diseases or conditions that we believe will require
relatively limited time and capital to conduct preclinical studies
and small numbers of patients for clinical trials. Because many of
our potential drug products are intended for serious or
life-threatening conditions and may address unmet medical needs
for these conditions, we believe that they will qualify for fast
track designation by the FDA. In September 1998, we received from
the FDA fast track designation for AldurazymeTM for the treatment
of Hurler and Hurler-Scheie syndromes, which are the more severe
syndromes within MPS-I.
o Pursue Well-defined, Niche Markets. We develop potential drug
products to treat small patient populations for diseases for which
there are currently no effective therapies. Often these markets
are for life threatening diseases which offer the potential for a
clear reimbursement rationale and life extension. We believe that
such products will be reimbursed at favorable rates. We believe we
will receive orphan drug designation from the FDA for many of our
products, providing us with market exclusivity for our drug
formulation for seven years if we are first to gain product
approval to treat the specific disease.
o Develop Direct Sales and Marketing Organization for Select
Markets. We will be able to directly market some of our potential
drug products because the conditions they treat have small patient
populations, for which the treatments are often concentrated in
specialized institutions, and because of the existence of patient
support groups for many of our initial disease targets. We may
develop a small sales and marketing organization to target markets
where we believe we can effectively reach the targeted patient and
physician groups. Alternatively, we may pursue strategic
collaborations with biopharmaceutical or other companies to
develop products targeted at markets with larger patient
populations.
o Enhance Enzymatic Expertise through Glyko, Inc. Our
wholly-owned subsidiary, Glyko, Inc. contributes its technical
knowledge and expertise in cloning enzymes to our technology base.
Glyko, Inc. provides access to cloning assets, including cell
lines, which are colonies of cells with a common genetic make-up.
In addition, Glyko, Inc.'s research and development in
glycobiology, the study of carbohydrates in living organisms,
provides us with a strategic opportunity to keep current with new
developments and opportunities in that field.
Products Under Development
Mucopolysaccharidosis Disorders
MPS disorders are a group of seriously debilitating genetic disorders
characterized by the accumulation in the body of mucopolysaccharides, which are
also known as glycosaminoglycans or GAGs. GAGs are complex carbohydrates
synthesized by all cells in the body. At least ten enzymes are required for the
complete breakdown of GAGs. The normal breakdown of GAGs is incomplete or
blocked if any one of these enzymes is not present in sufficient quantity.
Ten possible single enzyme deficiencies cause ten distinct disorders. Patients
with MPS are usually diagnosed by six to 24 months of age. MPS disorders are
progressive diseases that frequently lead to early death. During the course of
the disease, the build-up of GAGs in all cells of the body results in one or
more of the following symptoms:
o Inhibited growth
o Delayed mental or physical development
o Enlarged liver and spleen
<PAGE>
o Skeletal deformities
o Coarse facial features
o Upper airway obstruction and reduced pulmonary function
o Joint deformities and reduced range of motion
o Heart disease
o Impaired vision and hearing
o Sleep disorders
o Malaise and reduced endurance
MPS-I. MPS-I is a genetic disorder caused by the deficiency of the enzyme
(alpha)-L-iduronidase. About 3,400 patients in developed countries have MPS-I,
including about 1,000 in the United States and Canada. If untreated, almost all
children diagnosed with the more severe forms of MPS-I will die before reaching
adulthood. Patients with milder forms of MPS-I still exhibit many of the
symptoms described above. Currently, the only available treatment for MPS-I is a
bone marrow transplant. However, few patients find an appropriate bone marrow
donor. Of the patients that find appropriate donors, many choose not to receive
the therapy because of its serious side effects.
AldurazymeTM. We are developing a specific form of recombinant, human
(alpha)-L-iduronidase, designated AldurazymeTM, for the treatment of MPS-I.
AldurazymeTM treats MPS-I by replacing a deficiency in (alpha)-L-iduronidase. In
September 1998, we established a joint venture with Genzyme for the worldwide
development and commercialization of AldurazymeTM. Until now, enzyme replacement
therapy for MPS-I has been impractical because no one has been able to
manufacture adequate supplies of (alpha) -L-iduronidase with the proper
structure and purity. The proper structure is essential to ensure a therapeutic
effect at relatively low doses. Using production and purification processes
licensed by us and subsequently improved, we are able to produce sufficient
quantities of AldurazymeTM with the proper structure and purity.
In 1994, preclinical studies of AldurazymeTM were conducted using dogs with
canine MPS-I. Dogs with canine MPS-I have symptoms similar to those exhibited by
humans with MPS-I. AldurazymeTM diminished canine MPS-I symptoms in the dogs.
Stored carbohydrate material was cleared from the dogs' major organs. This
scientific research, which we have licensed, was performed at Harbor-UCLA
Research and Education Institute.
In April 1999, we completed a twelve-month evaluation period for our initial
clinical trial of AldurazymeTM. Initiated in December 1997, this clinical trial
treated ten patients with MPS-I at five medical centers in the United States. We
are treating and monitoring these patients for an additional 12-month follow-up
period. Patients were treated with a slow intravenous infusion of AldurazymeTM
once a week at a dose of 125,000 units per kilogram of patient weight.
The primary endpoints set forth in the investigational new drug application for
AldurazymeTM were a reduction in liver or spleen size and a reduction in urinary
GAG levels. Eight of the ten patients achieved the primary endpoint goal of a
20% reduction of liver size within the six-month evaluation period. Of the two
patients who did not achieve the targeted liver reduction, one patient achieved
a liver size in the normal range and the second patient, who had hepatitis at
the end of the six-month period, achieved the 20% reduction after the six-month
period. Five of the ten patients achieved a 20% reduction in spleen size. All of
the ten patients achieved the primary endpoint goal of at least a 50% reduction
in urinary GAG levels.
Each patient with MPS-I presents us with a different mix of clinical symptoms.
We tested each patient at intervals throughout the six-month evaluation period
measuring a variety of secondary endpoints to determine whether the primary
endpoints are reasonably likely to predict clinical benefit. The secondary
endpoints we used included joint disease, eye disease and cardiac function.
Additional measures of efficacy included sleep apnea and airway evaluations,
endurance and fatigue, and evaluations of bone. Except for the evaluations of
the patient's bones, where no improvement was expected due to the short duration
of the trial, most patients who exhibited physical symptoms of the disease
achieved improvement in those symptoms during the course of the evaluation
period for the secondary endpoints and additional clinical measures of efficacy.
During the twelve-month evaluation period, four of the ten patients experienced
immune responses specific to the enzyme. No long term effects of these immune
responses have been observed at this time. A few patients experienced side
effects, primarily hives in five patients, which probably were related to
AldurazymeTM. The hives became recurrent with each infusion in four patients but
eventually decreased and resolved with increased pre-medication. No patients had
life-threatening allergic reactions. Of the events that probably were related to
AldurazymeTM, the symptoms occurred during the infusions only, were manageable
with medications, and did not impact the health or well-being of the patient
outside the administration setting. Neither clinical nor laboratory evaluations
showed any harmful effect of AldurazymeTM therapy.
<PAGE>
In collaboration with our joint venture partner, Genzyme, we plan to initiate a
Phase III confirmatory clinical trial in mid-year 2000 and we intend to complete
the filing of our biologics license application by mid-year 2001.
The joint venture plans to continue assessment of the efficacy of treatment with
AldurazymeTM in its confirmatory trial. The parameters for this clinical study
are expected to include:
o A 6-minute walk test (a test of endurance)
o Pulmonary function (Force Vital Capacity (FVC-1), a measure of
lung capacity)
Secondary parameters will include:
o Joint range of motion
o Functional ability assessment questionnaire
o Hepatomegaly (enlargement of the liver)
Tertiary parameters will include:
o Urinary GAGs
o Patient's quality of life
o Growth velocity
o Visual acuity
o Electrocardiogram and echocardiogram (cardiac function)
o Sleep study
o Pulmonary function testing
o Investigator global assessment
o Parents' quality of life
We received orphan drug designation for AldurazymeTM from the FDA. This orphan
drug designation gives us exclusive rights to market a product using
(alpha)-L-iduronidase to treat MPS-I in the United States for seven years if we
receive FDA approval of AldurazymeTM before any other company receives approval
of (alpha)-L-iduronidase to treat MPS-I. In addition, we received notice from
the FDA that AldurazymeTM for the treatment of Hurler and Hurler-Scheie
syndromes, which are the two more severe MPS-I disorders, received fast track
designation. Drugs that show a potential to address an unmet medical need for a
serious or life threatening disease may be eligible to receive fast track
designation. Fast track designation does not guarantee a faster approval. The
FDA may still require additional studies or data regarding AldurazymeTM which
may delay approval and subsequent commercial sales. See "Risk Factors--If we
fail to obtain regulatory approval to commercially manufacture or sell any of
our future drug products, or if approval is delayed, we will be unable to
generate revenue from the sale of our products--If our joint venture with
Genzyme were terminated, our ability to commercialize AldurazymeTM would be
delayed."
At the request of the FDA, the joint venture intends to conduct a clinical trial
to investigate the effect of AldurazymeTM on the prevention or stabilization of
the progressive mental dysfunction experienced by patients with Hurler Syndrome,
the most severe form of MPS-I. The trial, which will enroll up to 20 patients
and will last two years, is expected to begin in mid-year 2001. This Hurler
trial for mental dysfunction is independent of the two clinical trials intended
to support the biologics license application submission for AldurazymeTM.
<PAGE>
MPS-VI. MPS-VI, also known as Maroteaux-Lamy syndrome, is a genetic disorder
caused by a deficiency of the enzyme N-acetylgalactosamine 4-sulfatase (also
known as arylsulfatase B), which is designated BM102. Estimates from frequency
studies estimate that there are approximately 1,100 patients suffering with
MPS-VI in the developed world and 340 in the United States and Canada. Patients
with MPS-VI have symptoms similar to those for MPS-I. However, MPS-VI patients
do not have impairment of mental function. If untreated, the average life span
of MPS-VI patients is estimated to be between ten years in the severe form to
over 30 years in the mild form. MPS-VI has been treated by bone marrow
transplants. However, few patients find an appropriate bone marrow donor. Of the
patients who find an appropriate donor, many choose not to receive a bone marrow
transplant because of its serious side effects.
BM102. We are developing BM102, recombinant, human N-acetylgalactosamine
4-sulfatase, for the treatment of MPS-VI. We believe that BM102 may treat MPS-VI
by replacing a deficiency in the enzyme N-acetylgalactosamine 4-sulfatase.
During 1994 through 1999, preclinical studies of BM102 were conducted on cats
with naturally occurring feline MPS-VI. Cats with MPS-VI have physiological
characteristics and clinical symptoms similar to those exhibited by humans with
MPS-VI. We are conducting additional studies in cats using alternative dosing
regimens to better determine the likely dosing regimen in humans. We believe
that preclinical studies conducted on over 40 afflicted cats treated with
recombinant enzyme will provide a sufficient basis to support an investigational
new drug application for BM102. We must receive approval of our investigational
new drug application before beginning clinical trials.
In August 1998, we licensed rights to use data on feline MPS-VI and a cell line
for BM102 from Women's and Children's Hospital in Adelaide, Australia. We are
developing improved production and purification processes for BM102, first in
clinical and then in commercial processes. We received in February 1999 an
orphan drug designation for BM102 to treat MPS-VI. We intend to file an
investigational new drug application and initiate a clinical trial for the use
of BM102 to treat MPS-VI in mid-year 2000. . The FDA may require additional
preclinical testing, clinical trials or additional patients or trial duration
before approving BM102 if it is ever approved.
Enzyme Replacement Therapy in Other Genetic Diseases
We intend to develop additional enzyme replacement therapies for other genetic
diseases. We have identified genetic diseases that we believe will respond well
to enzyme replacement therapy. We are developing enzyme replacement therapies
that we believe qualify for orphan drug designation. We are in the process of
cloning and producing enzymes for additional potential genetic diseases. Due to
the small patient populations for these other genetic diseases and the known
biologic mechanism of proposed enzyme replacement therapies, we believe that the
size and scope of our human clinical trials for future genetic diseases may be
similar in size and scope to those for MPS-I.
Other Diseases And Conditions
Burns
In 1997, approximately 65,000 patients in the United States were admitted to
hospitals with burns. Approximately 20% of these patients had very severe burns
that destroyed all layers of the skin, referred to as full-thickness or
third-degree burns. Full-thickness burns require major skin grafts. This
typically requires admission to one of approximately 150 major burn centers in
the United States. Full-thickness burns are treated by removing unhealthy and
dead tissue, a process called debridement, to prevent infection and to prepare
the burned site for skin grafting or other therapy. Currently, full-thickness
burns are debrided by multiple surgical procedures that are complicated by loss
of blood, loss of healthy tissue, continued trauma and pain and scarring. In
many instances, surgery must be delayed in severely compromised patients.
Additionally, certain parts of the body, such as the hands and face, are
difficult to treat by this method.
A limited number of topical debridement products are available as an alternative
to surgery. Topical enzymatic products, however, have not been widely accepted
by physicians because they are ineffective and often cause the patient pain and
cause the patient to bleed.
A significant part of human skin is made up of carbohydrates and proteins. We
believe that there is an opportunity for more selective enzyme debridement
products that have greater specificity at digesting carbohydrates or proteins in
dead tissue. We currently have one product under preclinical development for the
treatment of full-thickness burns. We intend to file an investigational new drug
application and initiate a clinical trial for this product in mid-year 2000.
<PAGE>
Based on discussions with general wound specialists, we believe that if the
products successfully debride full-thickness burns, they will effectively
debride other types of wounds as well.
BM201. BM201 is a carbohydrate-specific enzyme therapeutic which we developed in
mice in a model developed at the University of California at San Diego, or UCSD.
BM201 accelerated the rate of debridement of burn wounds without signs of
topical or systemic toxicity. In addition, BM201 significantly reduced the total
time in which grafts were successfully made and wounds closed when compared to
phosphate buffered saline, which was used as a control, and to selected topical
enzymatic products. The total time required for the debridement using BM 201 and
graft take was significantly less than the total time for debridement using
standard surgical debridement techniques. This product failed to debride pig
burns at Vanderbilt. We are not currently planning any more burn injury-related
studies with this product.
BM202. BM202 is an enzyme that acts on proteins discovered by W.R. Grace & Co.
Upon review of the data from preclinical studies that were conducted by W.R.
Grace, we obtained a three-year option in May of 1998 to obtain an exclusive
license to BM202. In preclinical studies supported by W.R. Grace, BM202 was
shown to safely debride full-thickness burns in pigs, and accelerate wound
healing in less severe lesions. In studies sponsored by us and conducted at
UCSD, BM202 debrided wounds and allowed graft acceptance in mice with
full-thickness burns. BM202 is now being assessed for its compatibility to allow
for graft acceptance in a pig burn model.
Anti-fungal Enzymes
We are developing two naturally occurring enzymes to combat infection by
Aspergillus spp. Aspergillus is one of the most common fungi in the environment.
Although aspergillus is not usually harmful to people with healthy immune
systems, it can pose a life-threatening risk to those with compromised immune
systems, such as cancer patients undergoing chemotherapy, organ and bone marrow
transplant recipients and people with late-stage AIDS. Aspergillosis, a fungal
infection caused by aspergillus, begins as an upper airway infection and can
become a systemic fungal infection in immuno-compromised patients. It is
difficult to diagnose, currently has no adequate treatment and often proves
fatal.
We believe that an effective drug for systemic aspergillosis may be used as a
preventative measure for immuno-compromised patients. In the year 2000 experts
estimate that over 85,000 patients in the United States may be at risk for
contracting systemic aspergillosis. We believe that a carbohydrate-active enzyme
that breaks down the carbohydrates in the cell walls of aspergillus will kill
the fungi and treat the infection.
BM301 and BM302. We have conducted preclinical research on the use of BM301 and
BM302, recombinant forms of two naturally occurring enzymes, to treat
aspergillosis. BioMarin-sponsored preclinical studies on mice conducted at
Boston University Medical Center or BU demonstrated that BM301 and BM302
effectively treated aspergillosis. Approximately 20% of the mice treated with
BM301 or BM302 died. For comparison, all of the untreated, infected mice died.
Additional studies at BU suggested that there was toxicity associated with the
most highly purified forms of both enzymes, but we don't know the basis for
this. Our studies are now focused on establishing that the products are safe and
defining the upper limit of dosing in animals that provides therapeutic benefit.
We intend to apply for FDA orphan drug designation for these anti-fungal
enzymes.
Other Research and Development
We are also focusing a portion of our research and development on
carbohydrate-active enzymes that we believe can treat certain inflammatory
conditions. We have initiated a research program to develop a
carbohydrate-active enzyme to treat psoriasis, an inflammatory skin condition
and have identified and produced sufficient amounts of a candidate enzyme to
conduct preclinical studies. We initiated these studies in the third quarter of
1998 at Brigham and Women's Hospital in Boston. We have since expanded our
preclinical studies to include other inflammatory conditions.
<PAGE>
Carbohydrate Analysis, Products and Services
Glyko, Inc., our wholly-owned subsidiary, sells carbohydrate analysis products
and services. These products and services provide sophisticated carbohydrate
analysis to research institutions and commercial laboratories. Commercial
laboratories use carbohydrate analysis to determine carbohydrate structure,
sequence and quantity. Glyko, Inc.'s key technology, Fluorphore Assisted
Carbohydrate Electrophoresis, also known as FACE(R), is a rapid and relatively
inexpensive method of analyzing complex carbohydrates. In a typical application,
FACE(R) will rapidly process a sample of unknown composition. It will then
identify the carbohydrate structures present, quantify their abundance and
prepare a detailed report.
Glyko, Inc.'s primary product is the FACE(R) Imaging System, an electrophoretic
system that includes an imager and software designed to separate, identify and
quantify carbohydrates. Glyko, Inc. also sells the consumable products required
for the system's operation, including four specialized gels, 13 types of kits
and the consumable reagents necessary for carbohydrate analysis.
In addition, Glyko, Inc. provides:
o Reagents used in carbohydrate chemistry, including
carbohydrate-active enzymes
o Custom analytical services for profiling and sequencing complex
carbohydrates
o Research services on carbohydrate related problems
o Diagnostic methods and services for lysosomal storage diseases,
diseases in which residues build up in lysosomes because of
deficiencies in enzymes.
Glyko, Inc. also markets the only urinary screening test cleared by the FDA
for lysosomal storage diseases. Glyko, Inc. also provides a lysosomal storage
diseases screening service using its test and related diagnostic technology.
Glyko, Inc.'s diagnostics line includes software for the automated diagnosis of
oligosaccharidoses, a subclass of lysosomal storage diseases. Glyko, Inc. is
developing similar software for MPS disorders. Glyko, Inc. is expanding its
ability to measure GAGs in urine. In addition to MPS-I, elevated or reduced
levels of GAGs in urine may serve as early, non-invasive indicators for a number
of diseases, including osteoporosis, degenerative joint diseases, kidney
diseases as well as lysosomal storage diseases. In addition, Glyko, Inc.
provides analysis of plasma heparin, a type of GAG, and is developing an
automated analyzer for heparin in whole blood. The direct analysis of heparin
concentration in blood or plasma allows for close monitoring of patients on
heparin-based anti-coagulation therapy. Over-or under-dosing of heparin can
result in serious adverse side effects.
Glyko, Inc. purchased the reagent business of Oxford GlycoSciences May of
1999. This business adds a product line of chromatography equipment and
disposables as well as additional reagents and enzymes to the current technology
offered by Glyko, Inc.
Corporate Collaborations
Joint Venture with Genzyme Corporation
In September 1998, we established a joint venture with Genzyme for the worldwide
development and commercialization of AldurazymeTM for the treatment of MPS-I.
Our lead responsibilities within the joint venture include:
o Conducting certain clinical trials including the initial clinical
trial, a Hurler syndrome trial and potentially a compassionate use
trial intended to provide enzyme replacement therapy for those in
dire need
o Obtaining the necessary U.S. regulatory approvals
o Manufacturing bulk AldurazymeTM for clinical and commercial
purposes
<PAGE>
Genzyme has lead responsibility for:
o Conducting the Phase III confirmatory clinical trial
o Obtaining the necessary international regulatory approvals
o Providing pricing and reimbursement requirements
o Providing overall sales and marketing
o Providing fill and finish manufacturing services and physical
distribution of the final product
Under the agreement, BioMarin and Genzyme are each required to make capital
contributions to the joint venture equal to 50% of the direct costs and expenses
associated with the development and commercialization of Aldurazyme TM. BioMarin
and Genzyme will share equally in any profits generated from sales of Aldurazyme
TM. Genzyme purchased $8.0 million of our common stock in a private placement in
September 1998 and purchased an additional $10.0 million of our common stock at
the initial public offering (IPO) price in a private placement concurrent with
the IPO. Genzyme has also committed to pay us $12.1 million in cash upon
approval of the BLA for Aldurazyme TM. We have sub-licensed to the joint venture
certain of our intellectual property rights related to Aldurazyme TM.
If either party fails to fund its 50% share of costs and expenses, then the
other party may buy out the party that breaches on the terms described below,
otherwise, the profit sharing interests and the future funding obligations of
the parties will be adjusted to correspond to the cumulative amount of capital
contributions made by each party. From the start of the joint venture through
December 31, 1999, Genzyme and BioMarin have each contributed approximately $8.3
million to the joint venture.
The collaboration agreement is the document, which contains the rights and
responsibilities of each of Genzyme and us in the joint venture. Upon
termination of the collaboration agreement, one party must buy out the other
party's interest in the joint venture, as described below. The acquiring party
will then obtain all rights to AldurazymeTM and any related intellectual
property and regulatory approvals, and the other party would be barred from
developing and commercializing AldurazymeTM.
Upon a breach of the collaboration agreement, the non-breaching party may
terminate the agreement. In this event, the terminating party will be obligated
to buy out the breaching party's interest in the joint venture for 90% of its
"fair value." The purchase price would be payable over four years. Under the
agreement, the "fair value" of a party's interest in the joint venture is
defined as the price a willing and well informed buyer, under no compulsion,
would be willing to pay and that a willing and well informed seller, under no
compulsion, would be willing to accept, as determined by mutual agreement
between Genzyme and us. Should Genzyme and we be unable to agree, the fair value
is to be determined by an investment banking firm selected by Genzyme and us.
Our management currently believes that the value of the joint venture represents
a majority of our value as a public company.
The collaboration agreement may be terminated without cause by either Genzyme or
us upon one year's prior written notice at any time after the earlier of the
approval of the biologics license application for AldurazymeTM by the FDA or
December 31, 2000. If the agreement is terminated by us without a breach by
Genzyme, Genzyme would have the option, exercisable for one year, to buy out our
interest in the joint venture for 100% of its "fair value," as defined in the
preceding paragraph. If the agreement is terminated by Genzyme without a breach
by us, we would immediately have the option to buy out Genzyme's interest in the
joint venture. Under the collaboration agreement, the amount we would pay to buy
out Genzyme is calculated differently depending upon whether Genzyme terminated
the agreement prior to or after December 31, 2000. If Genzyme terminated the
agreement without a breach by us prior to December 31, 2000, we would have the
right to purchase Genzyme's interest for an amount equal to the aggregate amount
of Genzyme's capital contributions to the joint venture to the date of
termination minus two million dollars. Since as of December 31, 1999, Genzyme
had contributed approximately $8.3 million to the joint venture, this buy out
amount as of December 31, 1999 would be approximately $6.3 million. If Genzyme
terminated the agreement without a breach by us after December 31, 2000, we
would have the right to purchase Genzyme's interest for 100% of its "fair
value." In the event of termination of the buy out option without exercise by
the non-terminating party as described above, all right and title to
AldurazymeTM is to be sold to the highest bidder, with the proceeds to be split
equally between Genzyme and us.
<PAGE>
If the agreement were terminated by us because Genzyme failed to pay us the
agreed upon $12.1 million in cash upon the approval by the FDA of the biologics
license application for AldurazymeTM, we would be obligated to buy out Genzyme's
interest in the joint venture for an amount equal to the aggregate amount of
Genzyme's capital contributions to the joint venture to that date minus two
million dollars. We estimate that as of February 29, 2000, that amount would be
approximately $8.7 million.
If the agreement is terminated by either party because the other declares
bankruptcy and is in breach of the agreement, the terminating party would be
obligated to immediately buy out the other party's interest in the joint venture
for 100% of its "fair value." If the agreement is terminated by a party because
the other party experienced a change of control, the terminating party shall
notify the other party, the offeree, of its intent to buy out the offeree's
interest in the joint venture for a stated amount, set by the terminating party
at its discretion. The offeree must then either accept this offer or agree to
buy the terminating party's interest in the joint venture on those same terms.
If we were required to buy out Genzyme's interest in the joint venture other
than for their failure to make the $12.1 million payment, we may be required to
seek additional financing to pay Genzyme. If we obtain this financing by selling
our stock, existing investors would suffer a dilution of their investment. We
cannot assure you that this financing, if necessary, will be available at all or
at a commercially reasonable cost. We would then be unable to buy out Genzyme's
interest in the joint venture and would be in breach of the agreement.
See "Additional Factors That Might Affect Future Results--If our joint venture
with Genzyme were terminated, our ability to commercialize AldurazymeTM would be
delayed."
Grant Agreements and Licenses
We have entered into research and development collaboration agreements with
various academic and research institutions. Under these agreements, we fund
research and development by these institutions. Some of the agreements also
provide for the grant to us of exclusive, royalty-bearing licenses or rights of
first negotiation regarding licenses to intellectual property and other subject
matter developed by these institutions in the course of this research.
Typically, these agreements are terminable for cause by either party upon
90-days written notice.
In April 1997, we entered into the Grant Terms and Conditions Agreement with
Harbor-UCLA. Under this agreement, we funded a two-year research program related
to (alpha)-L-iduronidase and obtained an exclusive, worldwide license to certain
cell lines and methods related to the production and purification of the enzyme
and intellectual property and materials developed by Harbor-UCLA. This license
is perpetual, subject to our obligation to pay ongoing license fees. In exchange
for the license, we pay Harbor-UCLA an annual licensing fee and, separately,
royalties for 10 years or for the duration of any patents based on the licensed
technology, if longer. This agreement may be terminated by either party for
breach upon 90 days prior written notice. In connection with Dr. Kakkis' prior
employment with Harbor-UCLA, he will receive a portion of the royalties paid to
Harbor-UCLA by BioMarin. Under this agreement we are required to pursue the
development of enzyme therapy with due diligence acceptable to Harbor-UCLA in
order to maintain the license. Our joint venture with Genzyme, which has been
sublicensed the technology originally licensed to us by Harbor-UCLA, is
currently using this technology in part to develop our initial enzyme
replacement therapy product, AldurazymeTM. We are required to fund 50% of the
costs and expenses associated with the development of AldurazymeTM.
In May 1998, we entered into an agreement with W.R. Grace regarding BM202, an
enzyme that breaks down proteins, which may be used for the debridement of
burns. Under this agreement, we have obtained an option to acquire from W.R.
Grace an exclusive license, with the right to grant and authorize sublicenses
for certain patents related to BM202. We may exercise our option at any time
until May 2001 so long as we have made certain payments to W.R. Grace. Under the
terms of the agreement, we would pay W.R. Grace certain milestone payments and
annual licensing fees. We must pay W.R. Grace the greater of (1) annual
royalties based on net annual sales of BM202, or (2) a minimum annual royalty
stipulated in the agreement. If we cannot reach agreement with W.R. Grace on the
additional terms and conditions of the license within six months of the exercise
of our option, then we may initiate binding arbitration proceedings to establish
the other terms of the license. The agreement also requires us to use our best
efforts to produce material toxicology studies on BM202 between May 1, 1999, and
May 1, 2000, and to begin clinical testing of products based on BM202. We will
bear the cost of both toxicology studies and the clinical testing.
<PAGE>
In August 1998, we entered into a license agreement with Women's and Children's
Hospital of Adelaide, Australia under which Women's and Children's Hospital of
Adelaide granted us a worldwide, exclusive, perpetual license to certain
technology and products for use in enzyme replacement therapy for MPS-VI. The
licensed technology includes the feline MPS-VI preclinical data and a host cell
line that expresses this enzyme. We paid Women's and Children's Hospital of
Adelaide an initial license fee and will continue to pay royalties based on net
sales with a minimum annual royalty. The royalty rate is reduced if a product
competitive with MPS-VI enters the market. The terms of the license agreement
require that both parties reach agreement on the design of the MPS-VI clinical
trials within a specified period. The license agreement further requires us to
file an investigational new drug application with the FDA or equivalent
regulatory authority in another country and to begin clinical trials within
specified time periods. The term of the agreement is ten years and we have an
option to renew the agreement for two one-year periods.
Manufacturing
Pharmaceutical Manufacturing. The drug candidates we are currently developing
require the manufacture of recombinant enzymes. For our genetic disease
programs, we eventually expect to manufacture the bulk carbohydrate-active
enzymes. We believe that we will be able to manufacture sufficient quantities of
our genetic disease drug products for clinical trials and commercial sales in
part because relatively low doses are required for treatment and because the
targeted patient populations are small. In general, we expect to contract with
outside service providers for certain manufacturing services, including final
product fill and finish operations and bulk enzyme production for clinical and
early commercial production where the production requirements exceed our
manufacturing capacity.
In the first quarter of 2000, we began production of bulk AldurazymeTM for
clinical requirements including the Confirmatory Phase III clinical trial and
eventually the other clinical requirements. This production is being done in the
first phase of our Galli Drive (Novato California) manufacturing facility. Galli
phase I is a 32,800 square foot Current Good Manufacturing Processes or cGMP
production facility including support areas housing utilities, laboratories and
administrative functions. We expect to support the United States commercial
launch of Aldurazyme(TM) from the facility's first phase. Genzyme will package
the bulk AldurazymeTM into its final dosage form at its Massachusetts
facilities.
We developed an 11,000 square foot facility on Carson Street in Torrance,
California, originally designed and dedicated to the production of AldurazymeTM.
As a result of changes in the production process for improved purity and of FDA
guidance on production process, we will not use the facility for its original
purpose. We plan to suspend production operations at Carson Street for
AldurazymeTM production in May 2000 after manufacture of clinical product for
the continuation of our initial trial of AldurazymeTM. At the time of this
report, we do not have a future use planned for this facility. We have offered
transfers to the Novato facility to fill open positions to a majority of the
Carson Street staff.
We have a 1,400 square foot cGMP complex of laboratory and support areas
designed for clinical production of enzymes for our other genetic disease
programs. This laboratory has the capability for cell culture production,
purification and filling of small-scale production lots. Initially, this
facility will be used to produce BM102 in sufficient quantity to support an
initial clinical trial of MPS-VI.
We have also developed a 1,000 square foot bacterial fermentation and
purification facility for preclinical studies for burn and anti-fungal drug
candidates. We use third-party contract manufacturers to produce clinical trial
material made in bacterial or fungal cells.
We are developing the manufacturing capacity to support commercial sales of
AldurazymeTM and eventually BM102 and other genetic diseases enzymes. We cannot
assure you that we will be able to do so in a timely manner or that this
capacity will be sufficient to supply the market demand if sales exceed
projections. As a company, we have no experience manufacturing AldurazymeTM or
other enzymes in commercial quantity, although we have hired and are in the
process of hiring additional personnel who do have experience manufacturing
commercial quantities of drug products including therapeutic proteins.
Because our initial manufacturing facilities are in the process of validation,
and process qualification before filing of a BLA, we have yet to be subject to
governmental inspection for compliance with cGMP. We will have to register our
manufacturing facilities with the FDA, the State of California and other foreign
regulatory agencies. These facilities, and those of any third-party
manufacturers, will be subject to periodic inspections confirming compliance
with applicable law. Our facilities must be cGMP certified before we can
manufacture our drugs for commercial sales. Failure to comply with these
requirements could result in the shutdown of our facilities, fines or other
penalties. A shutdown or fine could have a serious effect on our business
financial condition and results of operations. See "Risk Factors--If we are
unable to manufacture our drug products in sufficient quantities and at
acceptable cost, we may be unable to meet demand for our products and lose
potential revenues--If we fail to obtain regulatory approval to commercially
manufacture or sell any of our future drug products, or if approval is delayed,
we will be unable to generate revenue from the sale of our products."
<PAGE>
Carbohydrate Analysis Products Manufacturing. Glyko, Inc. assembles its FACE(R)
Imaging System and kits from standard components readily available from multiple
commercial sources. A key component of the FACE(R)Imaging System is the
operating and interpretative software, which Glyko, Inc. writes and tests
itself. Glyko, Inc. mixes and casts its gels using proprietary and patented
formulations best suited for carbohydrate applications. Glyko, Inc. also
manufactures its carbohydrate-active enzymes. Glyko, Inc. believes that it has
adequate manufacturing capacity to produce much larger quantities of its
products than are currently required.
Sales and Marketing
Pharmaceutical Sales and Marketing. We have no experience marketing or selling
pharmaceutical products. To commercially market our products once the necessary
regulatory approvals are obtained, we must either develop our own sales and
marketing force or enter into arrangements with third parties. We established a
joint venture with Genzyme for the worldwide development and commercialization
of AldurazymeTM for the treatment of MPS-I. Under the joint venture, Genzyme
will be responsible for marketing, distribution, sales and insurance
reimbursement of AldurazymeTM worldwide.
In the future, we may develop the capability to market and sell our drug
products that are targeted at small or concentrated patient populations. We
believe that these patient populations are typically well-informed and
well-connected to the medical community. Often family/patient groups suffering
from niche diseases are capable users of the internet to share experiences and
gather information. We believe that direct marketing to these families or
patients would be effective. We may also market our products through
distributors or other collaborators, particularly for those products targeted at
larger patient populations.
We cannot guarantee that Genzyme will devote the resources necessary to
successfully market AldurazymeTM or that the methods that provided success in
Gaucher disease will provide equal success in MPS-I. In addition, either party
may terminate the joint venture for any reason. If Genzyme were to terminate the
joint venture, we would be required to undertake Genzyme's responsibilities
ourselves. We have no experience in marketing, selling or obtaining
reimbursement for pharmaceutical products. In addition, we would be required to
pursue foreign regulatory approvals. As a result, termination of the joint
venture by Genzyme may delay the launch of AldurazymeTM.
Sales and Marketing of Carbohydrate Analysis Products and Services. Glyko, Inc
sells its products and services primarily to distributors of research products,
quality control laboratories and research laboratories. Glyko, Inc. has a sales
staff of three, who cover the United States, Canada and Europe. Direct sales
efforts accounted for approximately 59% of Glyko, Inc.'s revenues in 1999.
Glyko, Inc. has established a network of distributors to expand its coverage in
the analytical products market. Glyko, Inc. hasrelationships with three major
research products distributors worldwide and with one distributor for North
America. These distribution agreements allow these companies to sell Glyko, Inc.
manufactured products under the distributor's own name. Glyko, Inc. also has
distribution agreements with third parties covering Asia, Australia, Europe and
Mexico. Sales by distributors accounted for approximately 24% of Glyko, Inc.'s
revenues in 1999. The remaining 17% of Glyko, Inc.'s revenues are from sales of
contract services, including services sold to us, and government grants.
Services provided to us accounted for approximately 5% of Glyko, Inc.'s overall
revenue in 1999.
See "Risk Factors--If our joint venture with Genzyme were terminated, our
ability to commercialize AldurazymeTM would be delayed--If we are unable to
effectively sell and market our products, our ability to generate revenues will
be diminished--If we fail to compete successfully, our revenues and operating
results will be adversely affected."
<PAGE>
Patents and Proprietary Rights
Our success depends in part on our ability to:
o Obtain patents
o Protect trade secrets
o Operate without infringing the proprietary rights of others
o Prevent others from infringing on our proprietary rights
We may obtain licenses to patents and patent applications from others.
We have eight patent applications presently pending in the United States Patent
and Trademark Office. We have filed four foreign counterpart applications and
expect to file a foreign counterpart to one of the other pending U.S. patent
applications at the proper time.
Glyko, Inc. owns eleven issued U.S. patents. In addition, Glyko, Inc. has
licensed eight U.S. patents and their foreign counterparts from AstroMed Ltd.
and its successor Astroscan Ltd. on an exclusive, worldwide, perpetual and
royalty-free basis. Glyko, Inc. has also licensed six U.S. patents from Glycomed
Incorporated on an exclusive, worldwide, perpetual and royalty-free basis. These
patents are all related to Glyko, Inc.'s products and services.
We primarily protect our proprietary information by filing U.S. and foreign
patent applications related to our proprietary technology, inventions and
improvements. Proprietary rights relating to our technologies will be protected
from unauthorized use by third parties only to the extent that they are covered
by valid and enforceable patents or are effectively maintained as trade secrets.
The patent positions of biotechnology companies are extremely complex and
uncertain. The scope and extent of our patent protections for some of our
products, including AldurazymeTM and BM102, are particularly uncertain because
some of the enzymes we are developing have existed in the public domain for many
years. Other parties have published the structure of the enzyme, the methods for
purifying or producing the enzyme and the methods of treatment or use. The
publication of this information limits the scope of our patents and may prevent
us from obtaining any meaningful patent protection. We cannot assure you that
any patents owned by, or licensed to, us will afford protection against
competitors. Nor can we assure you that any patent applications will result in
patents being issued.
In addition, the laws of certain foreign countries do not protect our
intellectual property rights to the same extent as do the laws of the United
States. The patent position of biopharmaceutical companies involves complex
legal and factual questions. We cannot predict whether the intellectual property
laws of foreign countries will be enforceable. We cannot assure you that any of
our patents or patent applications, if issued, will not be challenged,
invalidated or designed around. Nor can we assure you that the patents will
provide proprietary protection or competitive advantages to us. Furthermore, we
cannot assure you that others will not independently develop similar
technologies or duplicate any technology developed by us.
Our commercial success depends significantly on our ability to operate without
infringing the patents and other proprietary rights of third parties. We cannot
assure you that our technologies do not and will not infringe the patents or
violate other proprietary rights of third parties. In the event any of our
technologies are found to infringe or violate the intellectual property rights
of others, we and our corporate partners may be prevented from pursuing
research, development or commercialization of our products.
There has been extensive litigation regarding patents and other intellectual
property rights in the biotechnology and pharmaceutical industries. The defense
and prosecution of intellectual property suits and related legal and
administrative proceedings in the United States and abroad involve complex legal
and factual questions. These proceedings are costly and time-consuming to pursue
and their outcome is uncertain. Litigation may be necessary to enforce patents
issued to or licensed by us, to protect trade secrets or know-how owned or
licensed by us and to determine the enforceability, scope and validity of the
proprietary rights of others.
<PAGE>
We will incur substantial expense and be forced to divert significant effort and
resources of our technical and management personnel in the event we must
prosecute or defend any litigation or other administrative proceeding. If an
adverse determination were made, we could incur significant liabilities to third
parties or be required to seek licenses which may not be available from third
parties or may be prevented from selling our products in certain markets, if at
all. Although patent and intellectual property disputes are often settled
through licensing or similar arrangements, costs associated with these
arrangements may be substantial and could include ongoing royalties.
Furthermore, we cannot assure you that the necessary licenses would be available
to us on satisfactory terms, if at all.
In addition to patents, we rely on trade secrets and proprietary know-how, which
we seek to protect, in part, through confidentiality agreements with our
employees. We cannot assure you that these confidentiality or proprietary
information agreements will meaningfully protect our technology or provide us
with adequate remedies in the event of unauthorized use or disclosure of this
information. Nor can we assure you that the parties to these agreements will not
breach these agreements or that our trade secrets will not otherwise become
known to or be independently developed by competitors. See "Risk Factors--If we
are unable to protect our proprietary technology we may not be able to compete
as effectively--If we fail to compete successfully, our revenues and operating
results will be adversely affected."
Government Regulation
Our pharmaceutical products are subject to extensive government regulation in
the United States. If we distribute our products abroad, these products will
also be subject to extensive foreign government regulation. In the United
States, pharmaceutical and biological products are regulated by the FDA. FDA
regulations govern the testing, manufacturing, advertising, promotion, labeling,
sale and distribution of our products. Currently, we believe that AldurazymeTM
and other enzyme drug products that we may develop will be regulated by the FDA
as biologics rather than as drugs because they are manufactured by biological
processes.
The FDA approval process for a biologic includes:
o Preclinical studies
o Submission of an investigational new drug application for clinical
trials
o Adequate and well-controlled human clinical trials to establish
the safety and effectiveness of the product
o Submission of a biologics license application
o Review of the biologics license application
o Inspection of the facilities used in the manufacturing of the
biologic to assess compliance with the Current Good Manufacturing
Processes, or cGMP regulations
The biologics license application includes comprehensive, complete descriptions
of the pre-clinical testing, clinical trials, and the chemical, manufacturing
and control requirements of a drug which enable the FDA to determine the drug's
safety and efficacy. A biologics license application must be filed and then
approved by the FDA before a biologic can be marketed commercially.
The FDA testing and approval process requires substantial time, effort and
money. We cannot assure you that any approval will ever be granted.
Preclinical studies include laboratory evaluation of the product, as well as
animal studies to assess the potential safety and effectiveness of the product.
These studies must be performed according to good laboratory practices. The
results of the preclinical studies, together with manufacturing information and
analytical data, are submitted to the FDA as part of the investigational new
drug application. Clinical trials may begin 30 days after the investigational
new drug application is received, unless the FDA raises concerns or questions
about the conduct of the clinical trials. If concerns or questions are raised,
the investigational new drug application sponsor and the FDA must resolve any
outstanding concerns before clinical trials can proceed. We cannot assure you
that submission of an investigational new drug application will result in
authorization to commence clinical trials. Nor can we assure you that if
clinical trials are approved, that data will result in marketing approval.
<PAGE>
Clinical trials involve the administration of the product that is the subject of
the trial to volunteers or patients under the supervision of a qualified
principal investigator. Furthermore, each clinical trial must be reviewed and
approved by an independent institutional review board at each institution at
which the study will be conducted. The institutional review board will consider,
among other things, ethical factors, the safety of human subjects and the
possible liability of the institution. Also, clinical trials must be performed
according to good clinical practices. Good clinical practices are enumerated in
FDA regulations and guidance documents.
Clinical trials typically are conducted in three sequential phases, Phases I, II
and III, with Phase IV studies conducted after approval and generally required
for fast track designated drugs. These phases may overlap. In Phase I clinical
trials, the drug is usually tested on healthy volunteers to determine:
o Safety
o Any adverse effects
o Dosage tolerance
o Absorption
o Metabolism
o Distribution
o Excretion
o Other drug effects
In Phase II clinical trials, the drug is usually tested on a limited number of
afflicted patients to:
o Evaluate the efficacy of the drug for specific, targeted
indications
o Determine dosage tolerance and optimal dosage
o Identify possible adverse effects and safety risks
In Phase III clinical trials, the drug is usually tested on a larger number of
afflicted patients, an expanded patient population and at multiple clinical
sites. The FDA may require that we suspend clinical trials at any time on
various grounds, including a finding that the subjects are being exposed to an
unacceptable health risk. In addition, FDA approval may be conditioned and limit
the indicated uses for our products.
Phase IV clinical trials are defined as studies performed after a drug has
received FDA approval. These additional studies are conducted to gain experience
from the treatment of afflicted patients in the intended therapeutic indication
and are required if a drug is approved based on surrogate endpoints. In clinical
trials, surrogate endpoints are alternative measurements of the symptoms of a
disease or condition, often by biochemical or other tests, that are substituted
for measurements of observable clinical symptoms. Failure to promptly conduct
Phase IV clinical trials could result in expedited withdrawal of approval for
products approved under fast track designation.
We will also be subject to a variety of foreign regulations governing clinical
trials, manufacture and sales of our products. Whether or not FDA approval has
been obtained, approval of a product by the comparable regulatory authorities of
foreign countries must still be obtained prior to marketing in those countries.
The approval process varies from country to country and the time needed to
secure approval may be longer or shorter than that required for FDA approval.
Food and Drug Administration Modernization Act of 1997. The Food and Drug
Administration Modernization Act of 1997 was enacted, in part, to ensure the
availability of safe and effective drugs, biologics and medical devices by
expediting the FDA review process for new products. The Modernization Act
establishes a statutory program for the approval of fast track products,
including biologics. The fast track provisions essentially codify the FDA's
accelerated approval regulations for drugs and biologics. A fast track product
is defined as a new drug or biologic intended for the treatment of a serious or
life-threatening condition that demonstrates the potential to address unmet
medical needs for this condition. Under the new fast track program, the sponsor
of a new drug or biologic may request the FDA designate the drug or biologic as
a fast track product at any time during the clinical development of the product.
The Modernization Act specifies that the FDA must determine if the product
qualifies for fast track designation within 60 days of receipt of the sponsor's
request.
<PAGE>
Approval of a license application for a fast track product can be based on an
effect on a clinical endpoint or on a surrogate endpoint that is reasonably
likely to predict clinical benefit. Approval of a license application for a fast
track product based on a surrogate endpoint may be subject to:
o Post-approval studies to validate the surrogate endpoint or
confirm the effect on the clinical endpoint
o Prior review of all promotional materials
If a preliminary review of the clinical data suggests that the product is
effective, the FDA may initiate review of sections of a license application for
a fast track product before the application is complete. This rolling review is
available if the applicant provides a schedule for submission of remaining
information and pays applicable user fees. However, the time period specified in
the Prescription Drug User Fees Act, which governs the time period goals the FDA
has committed to reviewing a license application, does not begin until the
complete application is submitted.
In September 1998, the FDA designated AldurazymeTM a fast track product for the
more severe forms of MPS-I. We cannot predict the ultimate impact, if any, of
the fast track process on the timing or likelihood of FDA approval of
AldurazymeTM or any of our other potential products.
Orphan Drug Designation. In September 1997, AldurazymeTM received orphan drug
designation from the FDA. In February 1999, BM102 received orphan drug
designation from the FDA. Orphan drug designation is granted by the FDA to drugs
intended to treat a rare disease or condition. A rare disease or condition is
one which generally affects fewer than 200,000 individuals in the United States.
Orphan drug designation must be requested before submitting a biologics license
application. After the FDA grants orphan drug designation, the generic identity
of the therapeutic agent and its potential orphan use are disclosed publicly by
the FDA.
Orphan drug designation does not shorten the FDA regulatory review and approval
process for an orphan drug, nor does it give that drug any advantage in the FDA
regulatory review and approval process. If an orphan drug later receives FDA
approval for the indication for which it has designation, the FDA may not
approve any other applications to market the same drug for the same indication,
except in very limited circumstances, for seven years. Although obtaining FDA
approval to market a product with orphan drug exclusivity may be advantageous,
we cannot be certain that we will be the first to obtain FDA approval for any
drug for which we obtain orphan drug designation. Nor can we be certain that
orphan drug designation will result in any commercial advantage or reduce
competition. Nor can we be certain that the limited exceptions to this
exclusivity will not be invoked by the FDA.
Regulation of Glyko, Inc.'s Diagnostic Tests as Medical Devices. Our subsidiary,
Glyko, Inc., develops diagnostic tests that screen for diseases such as
lysosomal storage diseases. The FDA regulates these tests as medical devices.
The FDA requires companies that desire to market new medical devices to obtain
either 510(k) clearance or approval of a Pre-market Approval Application, or
PMA, before they are sold. Regulation under a PMA can be significantly more
costly and time consuming than clearance under a 510(k) notification. Glyko,
Inc. has received 510(k) clearance from the FDA for a urinary carbohydrate
analysis test and is developing other diagnostic tests, which we believe qualify
for 510(k) clearance.
Glyko, Inc.'s diagnostic tests may be regulated as medical devices by the FDA as
Class I, Class II or Class III devices. The degree of regulation, as well as the
cost and time required to obtain regulatory approvals or clearances, generally
increases from Class I to Class III. Most diagnostic tests are regulated as
Class I or Class II devices. Glyko, Inc.'s diagnostic test for urinary
carbohydrate analysis has been classified as a Class I device. Under the Food
and Drug Administration Modernization Act of 1997, most Class I devices are
exempt from the 510(k) clearance requirement. Based on the advice of our
regulatory consultants and the experience with our first test, we expect that
all of our currently planned diagnostic tests will require a 510(k) notification
and clearance process.
<PAGE>
A 510(k) notification is sufficient for a device that is "substantially
equivalent" to a legally marketed Class I or Class II device, or a Class III
"predicate" device for which the FDA has not yet required submission of PMAs.
Following submission of a 510(k) notification, a company may not market the
device for clinical use until the FDA finds that product is substantially
equivalent to a legally marketed predicate device. It generally takes four to 12
months from the date of submission of a 510(k) to obtain the FDA's
determination, but it may take longer. The FDA may determine that the device is
not substantially equivalent and require submission and approval of a PMA.
Alternatively, the FDA may require further information before making a
determination regarding substantial equivalence. The FDA requires a new 510(k)
submission and a separate FDA determination of substantial equivalence for any
devices cleared through the 510(k) process that have had modifications or
enhancements that could significantly affect their safety or effectiveness, or
that change their intended use.
If a device does not qualify for the 510(k) premarket notification procedure, a
company must file a PMA application. The PMA review and approval process can be
expensive, uncertain and lengthy. A PMA application must be supported by
extensive data, including laboratory and clinical trial data establishing the
safety and effectiveness of the device, as well as extensive manufacturing
information. After a preliminary review, the FDA makes an initial determination
about whether a PMA application is sufficiently complete to permit a substantive
review. If the FDA finds the PMA application sufficiently complete, the FDA
accepts the application for filing. Once the PMA application is accepted for
filing, the FDA begins a more in-depth review, which likely includes review by a
scientific advisory panel. During the PMA review process, the FDA will conduct
an inspection of the manufacturer's facilities to ensure compliance with the
applicable Quality System Regulation or QSR requirements. The FDA may determine
that additional clinical data is necessary or request other information, which
may delay the regulatory review process.
Modifications to a device that is the subject of an approved PMA, its labeling,
manufacturing or clinical use may require approval by the FDA of PMA supplements
or new PMAs. PMA supplements often require submission of the same type of
information required for the initial PMA except that the supplement generally is
limited to that data needed to support the proposed changes. Regulatory
approval, if granted, may limit the uses for which the device may be marketed.
Approvals, once granted, may be withdrawn if problems occur after initial
marketing.
Sales of medical devices outside of the United States are subject to regulatory
requirements that vary from country to country. The time required to obtain
international regulatory clearance or approval for international sales may be
longer or shorter than that required for FDA clearance approval. The
requirements may differ as well. We cannot assure you that we will be able to
obtain the required regulatory approval in a timely manner, if at all.
Regulation of Glyko, Inc.'s Manufacturing. Glyko, Inc. is required to comply
with the FDA's quality system regulation requirements when manufacturing its
diagnostic tests. The quality system regulation requirements incorporate the
FDA's former current Good Manufacturing Processes into medical devices
regulations. Quality system regulation requirements address the design,
controls, methods, facilities and quality assurance controls used in
manufacturing, packing, storing and installing medical devices. In addition,
certain international markets have quality assurance and manufacturing
requirements that may be more or less rigorous than those in the United States.
A failure by us to comply with quality system regulation requirements or other
requirements could have a serious impact on our business and services.
Regulation of Clinical Laboratories. Laboratories using Glyko, Inc.'s diagnostic
tests for clinical use in the United States are regulated under Clinical
Laboratory Improvement Amendments of 1998, or CLIA. CLIA establishes
requirements for laboratories and laboratory personnel governing:
o Administration of laboratories
o Participation and proficiency testing
o Patient test management
o Quality control
o Personnel
o Quality assurance
o Inspection
<PAGE>
The complexity of the tests being performed by the laboratory will determine
which CLIA requirements apply. Under CLIA regulations, all laboratories
performing moderately complex or highly complex tests will be required to obtain
either a registration certificate or certificate of accreditation from the
Health Care Financing Administration. A laboratory using our diagnostic tests is
required to be qualified to perform moderately or highly complex tests. All of
the laboratories known to us that are performing the diagnostic procedures which
might use our test are qualified at the appropriate levels. If, in the future, a
competitor develops a simpler diagnostic test that can be performed in less
qualified laboratories and if medical institutions begin to use these less
qualified laboratories to perform the competitive test, then CLIA requirements
will prevent the less qualified laboratories from performing the current Glyko,
Inc. test. The development of a simpler competitive diagnostic test by a
competitor may have a negative financial impact on our revenues and results of
operations. Glyko, Inc. has CLIA certification and a California state laboratory
license to perform urinary carbohydrate analysis tests. The California
laboratory license only allows testing for patients in California. We may be
required to obtain other licenses to perform our laboratory services in other
states or to provide services to patients or health care professionals who
reside or practice medicine in other states.
See "Risk Factors--If we fail to obtain regulatory approval to commercially
manufacture or sell any of our future drug products, or if approval is delayed,
we will be unable to generate revenue from the sale of our products."
Competition
Pharmaceutical Products. The biopharmaceutical industry is rapidly evolving and
highly competitive. We face significant competition from biotechnology and
pharmaceutical companies. Many of these companies have significantly greater
financial, manufacturing, marketing and product research and development
resources and experience than we have. Large pharmaceutical companies in
particular have extensive experience in clinical testing and in obtaining
regulatory approvals, including orphan drug designations. Accordingly,
competitors may obtain regulatory approvals for and commercialize their products
faster than we will. In addition, these companies will compete with us to
attract qualified personnel, and to attract parties for acquisitions, joint
ventures or other collaborations. Several pharmaceutical and biotechnology
companies have established themselves in the field of enzyme therapeutics,
including Genzyme, our joint venture partner.
Universities and public and private research institutions are also competitors.
While these organizations primarily have educational objectives, they may
develop proprietary technology and acquire patents that we may need for the
commercial development of our drug products. We will attempt to license this
proprietary technology, if available. These licenses may not be available to us
on acceptable terms, if at all. We also directly compete with a number of these
organizations to recruit personnel, especially scientists and technicians.
We believe that the primary competitive factors in the market for biological
drug products are:
o Product safety
o Effectiveness of these products
o Ability to obtain orphan drug exclusivity
o Distribution channels
o Price
o Patents and proprietary know-how
o Time required to develop new products
o Time required to obtain regulatory and reimbursement approval
o Ability to respond quickly to medical and technological changes
o Ability to develop new products
<PAGE>
We believe, based on our progress developing AldurazymeTM, that we can compete
successfully with regard to those competitive factors requiring timely
execution. With regard to other competitive factors including those regarding
distribution channels and low prices, we are at a competitive disadvantage. We
do not yet have established distribution channels and because our target patient
populations are small we expect that our drug products will be relatively
expensive. We do not intend to compete with others who have already established
successful treatments for specific genetic disorders, which should ameliorate
some of our competitive disadvantages.
Carbohydrate Analysis Products and Services. The FACE(R)Imaging System's
primary competitors are alternative carbohydrate analytical technologies
including:
o Capillary electrophoresis
o High-pressure liquid chromatography
o Mass spectrometry
o Nuclear magnetic resonance spectrometry
The major advantages of FACE(R) are:
o Low cost
o Quantification of carbohydrates present
o Easy application to samples of unknown composition
o User friendly procedures and software
o Provides versatility for other non-carbohydrate applications
The major disadvantages of FACE(R) are:
o FACE(R) requires single-use specialized gels which give FACE(R)
systems a higher disposable cost than some competitive products
which have reusable components.
o Some competitive products may provide a more precise measurement
ofthe molecular weight of a sample.
o One competitive technology can provide more complete structural
information about the sample.
The competition in the carbohydrate-active enzymes business is comprised
primarily of distributors of broad lines of research products and supplies,
particularly fine chemicals and reagents. Glyko, Inc. competes on the basis of
the catalog of products it offers and the number of carbohydrate-active enzymes
it offers and their proprietary nature. Glyko, Inc. believes that it also
provides superior service because it provides customers with sales information
and assistance based on scientific understanding of carbohydrate chemistry and
function. However, it does not offer as many products as some of its
competitors. Glyko, Inc. plans to expand its enzyme product offerings over the
next several years to compete with the broadest product lines offered today by
competitors. However, neither we nor Glyko, Inc. can assure you that Glyko, Inc.
will successfully broaden its product offerings or will otherwise compete
successfully.
Glyko, Inc.'s diagnostic product line competes primarily with alternative
technologies and laboratory services. Glyko, Inc. believes that its diagnostic
approaches are novel. Glyko, Inc. has the only urinary screening test cleared by
the FDA for certain lysosomal storage diseases. Glyko, Inc. believes that the
test may be used as a screening tool for early detection of a number of
lysosomal storage diseases and that success of the product will depend on
whether it becomes widely adopted. See "Risk Factors--If we fail to compete
successfully, our revenues and operating results will be adversely affected."
<PAGE>
Employees
As of February 16, 2000, we had 149 full-time employees, 78 of whom are in
manufacturing, 48 of whom are in research and development, 5 of whom are in
sales and marketing and 18 of whom are in administration.
We consider our employee relations to be good. Our employees are not covered by
a collective bargaining agreement. We have not experienced employment related
work stoppages. We cannot assure you that we will be able to continue attracting
qualified personnel in sufficient numbers to meet our needs.
<PAGE>
RISK FACTORS
If we continue to incur operating losses for a period longer than anticipated,
we may be unable to continue our operations.
We are in an early stage of development and have operated at a net loss since we
were formed. Since we began operations in March 1997, we have been engaged
primarily in research and development. We have no sales revenues from any of our
drug products. As of December 31, 1999, we had an accumulated deficit of
approximately $43.1 million. We expect to continue to operate at a net loss at
least through 2002. Our future profitability depends on our receiving regulatory
approval of our drug candidates and our ability to successfully manufacture and
market any approved drugs, either by ourselves or jointly with others. The
extent of our future losses and the timing of profitability are highly
uncertain. If we fail to become profitable or are unable to sustain
profitability on a quarterly or annual basis, then we may be unable to continue
our operations.
Because of the relative small size and scale of our wholly-owned subsidiary,
Glyko, Inc., profits from products and services offered by it will be
insufficient to offset the expenses associated with our pharmaceutical business.
As a result, we expect that operating losses will continue and increase for the
foreseeable future.
If we fail to obtain the capital necessary to fund our operations we will be
unable to complete our product development programs.
In the future, we may need to raise substantial additional capital to fund
operations. We cannot be certain that any financing will be available when
needed. If we fail to raise additional financing as we need it, we will have to
delay or terminate our product development programs.
We expect to continue to spend substantial amounts of capital for our operations
for the foreseeable future. Activities which will require additional
expenditures include:
o Research and development programs
o Preclinical studies and clinical trials
o Regulatory processes
o Establishment of commercial scale manufacturing capabilities and
o Expansion of sales and marketing activities.
The amount of capital we may need depends on many factors, including:
o The progress, timing and scope of our research and development
programs
o The progress, timing and scope of our preclinical studies and
clinical trials
o The time and cost necessary to obtain regulatory approvals
o The time and cost necessary to build our manufacturing facilities
and obtain the necessary regulatory approvals for those facilities
o The time and cost necessary to respond to technological and market
developments
o Any changes made or new developments in our existing collaborative
licensing and other commercial relationships
o Any new collaborative, licensing and other commercial
relationships that we may establish
<PAGE>
Moreover, our fixed expenses such as rent, license payments and other
contractual commitments are substantial and will increase in the future. These
fixed expenses will increase because we may enter into:
o Additional leases for new facilities and capital equipment
o Additional licenses and collaborative agreements
o Additional contracts for consulting, maintenance and
administrative services
o Additional expenses associated with being a public company.
We believe that the cash, cash equivalents, short-term investment securities
balances at December 31, 1999 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 may need
or choose to obtain additional financing during that time.
If we fail to obtain regulatory approval to commercially manufacture or sell any
of our future drug products, or if approval is delayed, we will be unable to
generate revenue from the sale of our products.
We must obtain regulatory approval to market our products in the U.S. and
foreign jurisdictions.
We must obtain regulatory approval before marketing or selling our future drug
products. In the United States, we must obtain FDA approval for each drug that
we intend to commercialize. The FDA approval process is typically lengthy and
expensive, and approval is never certain. Products distributed abroad are also
subject to foreign government regulation. None of our drug products has received
regulatory approval to be commercially marketed and sold. If we fail to obtain
regulatory approval we will be unable to market and sell our future drug
products. Because of the risks and uncertainties in biopharmaceutical
development, our drug candidates could take a significantly longer time to gain
regulatory approval than we expect or may never gain approval. If regulatory
approval is delayed our management's credibility, the value of our company and
our operating results may be adversely affected.
To obtain regulatory approval to market our products, preclinical studies and
costly and lengthy clinical trials may be required and the results of the
studies and trials are highly uncertain.
As part of the FDA approval process, we must conduct, at our own expense,
preclinical studies on animals and clinical trials on humans on each drug
candidate. We expect the number of preclinical studies and clinical trials that
the FDA will require will vary depending on the drug product, the disease or
condition the drug is being developed to address and regulations applicable to
the particular drug. We may need to perform multiple preclinical studies using
various doses and formulations before we can begin clinical trials, which could
result in delays in our ability to market any of our drug products. Furthermore,
even if we obtain favorable results in preclinical studies on animals, the
results in humans may be different.
After we have conducted preclinical studies in animals we must demonstrate that
our drug products are safe and effective for use on the target human patients in
order to receive regulatory approval for commercial sale. Adverse or
inconclusive clinical results would stop us from filing for regulatory approval
of our products. Additional factors that can cause delay or termination of our
clinical trials include:
o Slow patient enrollment
o Longer treatment time required to demonstrate efficacy
o Lack of sufficient supplies of the drug candidate
o Adverse medical events or side effects in treated patients
o Lack of effectiveness of the drug candidate being tested
Typically, if a drug product is intended to treat a chronic disease safety and
efficacy data must be gathered over an extended period of time which ranges from
six months to three years. In addition, clinical trials on humans are typically
conducted in three phases. The FDA generally requires two pivotal clinical
trials that demonstrate substantial evidence of safety and efficacy and
appropriate dosing in a broad patient population at multiple sites to support an
application for regulatory approval. If a drug is intended for the treatment of
a serious or life-threatening condition and the drug demonstrates the potential
to address unmet medical needs for this condition, a single trial may be
sufficient to prove safety and efficacy under the FDA's Modernization Act of
1997.
<PAGE>
The fast track designation for AldurazymeTM may not actually lead to a faster
review process.
Although AldurazymeTM has obtained a fast track designation, we cannot guarantee
a faster review process or faster approval compared to the normal FDA
procedures.
We will not be able to sell our products if we fail to comply with manufacturing
regulations.
Before we can begin commercially manufacturing our products we must obtain
regulatory approval of our manufacturing facility and process. In addition,
manufacture of our drug products must comply with the FDA's current Good
Manufacturing Practices regulations, commonly known as cGMP. The cGMP
regulations govern quality control and documentation policies and procedures.
Our manufacturing facilities are continuously subject to inspection by the FDA,
the State of California and foreign regulatory authorities, before and after
product approval. Because we are currently in the process of developing the
manufacturing site and process for commercial manufacture of AldurazymeTM, our
facility has not yet been inspected by any governmental entity. We cannot
guarantee that BioMarin, or any potential third-party manufacturer of our drug
products, will be able to comply with cGMP regulations. Material changes to the
manufacturing processes after approvals have been granted are also subject to
review and approval by the FDA or other regulatory agencies.
We must pass FDA and state inspections and manufacture three process
qualification batches to final specifications under cGMP controls before the
AldurazymeTM BLA can be approved. We cannot assure you that we will pass the
inspections in a timely manner, if at all.
If we fail to obtain orphan drug exclusivity for our products, our competitors
may sell products to treat the same conditions and our revenues may be reduced.
As part of our business strategy, we intend to develop drugs that may be
eligible for FDA orphan drug designation. Under the Orphan Drug Act, the FDA may
designate a product as an orphan drug if it is a drug intended to treat a rare
disease or condition, defined as a patient population of less than 200,000. The
company that obtains the first FDA approval for a designated orphan drug for a
given rare disease receives marketing exclusivity for use of that drug for the
stated condition for a period of seven years. However, different drugs can be
approved for the same condition.
Because the extent and scope of patent protection for our drug 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, our
competitors may then sell the same drug to treat the same condition.
We received orphan drug designation from the FDA for AldurazymeTM in September
1997. In February 1999, we received orphan drug designation from the FDA for
BM102. 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.
Because the target patient populations for our products are small we must
achieve significant market share and obtain high per patient prices for our
products to achieve profitability.
Our initial drug candidates target disorders with small patient populations. As
a result, our prices must be high enough to recover our development costs and
achieve profitability. For example, two of our initial drug products in genetic
disorders, AldurazymeTM and BM102, target patients with MPS-I and MPS-VI,
respectively. We estimate that there are approximately 3,400 patients with MPS-I
and 1,100 patients with MPS-VI in the developed world. We believe that we will
need to market worldwide to achieve significant market share. In addition, we
are developing other drug candidates to treat conditions, such as other genetic
diseases and serious burns, with small patient populations. We cannot be certain
that we will be able to obtain sufficient market share for our drug products at
a price high enough to justify our product development efforts.
<PAGE>
If we fail to obtain an adequate level of reimbursement for our drug products by
third-party payors there would be no commercially viable markets for our
products.
The course of treatment for patients with MPS-I using AldurazymeTM 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
AldurazymeTM without reimbursement from third-party payors.
Third-party payors, such as government or private health care insurers,
carefully review and increasingly challenge the price charged for drugs.
Reimbursement rates from private companies vary depending on the third-party
payor, the insurance plan and other factors. Reimbursement systems in
international markets vary significantly by country and by region, and
reimbursement approvals must be obtained on a country-by-country basis. We
cannot be certain that third-party payors will pay for the costs of our drugs
and the courses of treatment. Even if we are able to obtain reimbursement from
third-party payors, we cannot be certain that reimbursement rates will be enough
to allow us to profit from sales of our drugs.
We currently have no expertise obtaining reimbursement. We expect to rely on the
expertise of our partner Genzyme to obtain reimbursement for AldurazymeTM. We
cannot predict what the reimbursement rates will be. In addition, we will need
to develop our own reimbursement expertise for future drug candidates unless we
enter into collaborations with other companies with the necessary expertise.
We expect that in the future reimbursement will be increasingly restricted both
in the United States and internationally. The escalating cost of health care has
led to increased pressure on the health care industry to reduce costs.
Governmental and private third-party payors have proposed health care reforms
and cost reductions. A number of federal and state proposals to control the cost
of health care, including the cost of drug treatments have been made in the
United States. In some foreign markets, the government controls the pricing
which would affect the profitability of drugs. Current government regulations
and possible future legislation regarding health care may affect our future
revenues from sales of our drugs and may adversely affect our business and
prospects.
If we are unable to protect our proprietary technology we may not be able to
compete as effectively.
Where appropriate, we seek patent protection for certain aspects of our
technology. Meaningful patent protection may not be available for some of the
enzymes we are developing, including AldurazymeTM and BM102. If we must spend
significant time and money protecting our patents, designing around patents held
by others or licensing, for excessively large fees, patents or other proprietary
rights held by others, our business and prospects may be harmed.
The patent positions of biotechnology companies are extremely complex and
uncertain. The scope and extent of patent protection for some of our products
are particularly uncertain because key information on some of the enzymes we are
developing has existed in the public domain for many years. Other parties have
published the structure of the enzymes, the methods for purifying or producing
the enzymes or the methods of treatment. The composition and genetic sequences
of animal and/or human versions of many of our enzymes, including those for
AldurazymeTM and BM102, have been published and are in the public domain. The
composition and genetic sequences of other MPS enzymes which we intend to
develop as products have also been published. Publication of this information
may prevent us from obtaining composition of matter patents, which are generally
believed to offer the strongest patent protection. For enzymes with no prospect
of composition of matter patents, we will depend on orphan drug status.
In addition, our owned and licensed patents and patent applications do not
ensure the protection of our intellectual property for a number of other
reasons:
o We do not know whether our patent applications will result in
actual patents. For example, we may not have developed a method
for treating a disease before others developed similar methods.
<PAGE>
o Competitors may interfere with our patent process in a variety of
ways. Competitors may claim that they invented the claimed
invention prior to us. Competitors may also claim that we are
infringing on their patents and therefore cannot practice our
technology as claimed under our patent. Competitors may also
contest our patents by showing the patent examiner that the
invention was not original, novel or was obvious. As a Company, we
have no meaningful experience with competitors interfering with
our patents or patent applications.
o 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.
o Enforcing patents is expensive and may absorb significant time by
our management. In litigation, a competitor could claim that our
issued patents are not valid for a number of reasons. If the court
agrees, we would lose that patent.
In addition, competitors also seek patent protection for their technology. There
are many patents in our field of technology, and we cannot guarantee that we do
not infringe on those patents or that we will not infringe on patents granted in
the future. If a patent holder believes our product infringes on their patent,
the patent holder may sue us even if we have received patent protection for our
technology. If someone else claims we infringe on their technology, we would
face a number of issues, including:
o Defending a lawsuit takes significant time and can be very
expensive.
o If the court decides that our product infringes on the
competitor's patent, we may have to pay substantial damages for
past infringement.
o The court may prohibit us from selling or licensing the product
unless the patent holder licenses the patent to us. The patent
holder is not required to grant us a license. If a license is
available, we may have to pay substantial royalties or grant
cross-licenses to our patents.
o Redesigning our product so it does not infringe may not be
possible and could require substantial funds and time.
It is also unclear whether our trade secrets will provide useful protection.
While we use reasonable efforts to protect our trade secrets, our employees or
consultants may unintentionally or willfully disclose our information to
competitors. Enforcing a claim that someone else illegally obtained and is using
our trade secrets, like patent litigation, is expensive and time consuming, and
the outcome is unpredictable. In addition, courts outside the United States are
sometimes less willing to protect trade secrets. Our competitors may
independently develop equivalent knowledge, methods and know-how.
We may also support and collaborate in research conducted by government
organizations or by universities. We cannot guarantee that we will be able to
acquire any exclusive rights to technology or products derived from these
collaborations. If we do not obtain required licenses or rights, we could
encounter delays in product development while we attempt to design around other
patents or even be prohibited from developing, manufacturing or selling products
requiring these licenses. There is also a risk that disputes may arise as to the
rights to technology or products developed in collaboration with other parties.
If our joint venture with Genzyme were terminated, we could be barred from
commercializing AldurazymeTM or our ability to commercialize AldurazymeTM would
be delayed.
We are relying on Genzyme to apply the expertise it has developed through the
launch and sale of Ceredase(R) and Cerezyme(R) enzymes for Gaucher disease, a
rare genetic disorder, to the marketing of our initial drug product,
AldurazymeTM. Because it is our initial product, our operations are
substantially dependent upon the development of AldurazymeTM. We have no
experience selling, marketing or obtaining reimbursement for pharmaceutical
products. In addition, without Genzyme we would be required to pursue foreign
regulatory approvals. We have no experience in seeking foreign regulatory
approvals.
<PAGE>
We cannot guarantee that Genzyme will devote the resources necessary to
successfully market AldurazymeTM. In addition, either party may terminate the
joint venture for specified reasons, including if the other party is in material
breach of the agreement or has experienced a change of control or has declared
bankruptcy and also is in breach of the agreement. Either party may also
terminate the agreement upon one year prior written notice for any reason after
the earlier of December 31, 2000 or after the joint venture has received the
FDA's approval of the biologics license application for AldurazymeTM.
Furthermore, we may terminate the joint venture if Genzyme fails to fulfill its
contractual obligation to pay us $12.1million in cash upon the approval of the
biologics license application for AldurazymeTM.
Upon termination of the joint venture one party must buy out the other party's
interest in the joint venture. The party who buys out the other will then also
obtain, exclusively, all rights to AldurazymeTM and any related intellectual
property and regulatory approvals. For a more detailed analysis of the economics
of this buy out obligation see "Business--Corporate Collaborations--Joint
Venture with Genzyme Corporation."
If the joint venture is terminated by Genzyme for a breach on our part, Genzyme
would be granted, exclusively, all of the rights to AldurazymeTM and any related
intellectual property and regulatory approvals and would be obligated to buy out
our interest in the joint venture. We would then effectively be unable to
develop and commercialize AldurazymeTM. If we terminated the joint venture for a
breach by Genzyme, we would be obligated to buy out Genzyme's interest in the
joint venture and, we would then be granted all of these rights to AldurazymeTM
exclusively. While we could then continue to develop AldurazymeTM, 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 then have to search
for a new partner to commercialize the product and to obtain foreign regulatory
approvals or to develop these capabilities ourselves.
If the joint venture is terminated by us without cause, Genzyme would have the
option, exercisable for one year, to immediately buy out our interest in the
joint venture and obtain all rights to AldurazymeTM exclusively. If the
agreement is terminated by Genzyme without cause, we would have the option,
exercisable for one year, to immediately buy out Genzyme's interest in the joint
venture and obtain these exclusive rights. In event of termination of the buy
out option without exercise by the non-terminating party as described above, all
right and title to AldurazymeTM is to be sold to the highest bidder, with the
proceeds to be split equally between Genzyme and us.
If the joint venture is terminated by us because Genzyme fails to make the $12.1
million payment to us upon FDA approval of the biologics license application for
AldurazymeTM, we would be obligated to buy Genzyme's interest in the joint
venture and would obtain all rights to AldurazymeTM exclusively. If the joint
venture is terminated by either party because the other declared bankruptcy and
is also in breach of the agreement, the terminating party would be obligated to
buy out the other and would obtain all rights to AldurazymeTM exclusively. If
the joint venture is terminated by a party because the other party experienced a
change of control, the terminating party shall notify the other party, the
offeree, of its intent to buy out the offeree's interest in the joint venture
for a stated amount set by the terminating party at its discretion. The offeree
must then either accept this offer or agree to buy the terminating party's
interest in the joint venture on those same terms. The party who buys out the
other would then have exclusive rights to AldurazymeTM.
We cannot assure you that if the joint venture were terminated and if we were
obligated, or given the option, to buy out Genzyme's interest in the joint
venture, and gain exclusive rights to AldurazymeTM, that we will have sufficient
funds to do so or that we will be able to obtain the financing to do so. If we
fail to buy out Genzyme's interest we may be held in breach of the agreement and
may lose any claim to the rights to AldurazymeTM and the related intellectual
property and regulatory approvals. We would then effectively be prohibited from
developing and commercializing the product.
Termination of the joint venture where we retain the rights to AldurazymeTM
could cause us significant delays in product launch in the United States,
difficulties in obtaining third-party reimbursement and delays or failure to
obtain foreign regulatory approval, any of which could hurt our business and
results of operations. Since Genzyme funds 50% of the joint venture's operating
expenses, the termination of the joint venture would double our financial burden
and reduce the funds available to us for other product programs.
If we are unable to manufacture our drug products in sufficient quantities and
at acceptable cost, we may be unable to meet demand for our products and lose
potential revenues.
We have no experience manufacturing drug products in volumes that will be
necessary to support commercial sales. Our unproven manufacturing process may
not meet initial expectations as to schedule, reproducibility, yields, purity,
costs, quality, and other measurements of performance. Improvements in
manufacturing processes typically are very difficult to achieve and are often
very expensive. We cannot know with any certainty how long it might take to make
improvements if it became necessary to do so. If we contract for manufacturing
services with an unproven process, our contractor is subject to the same
uncertainties, high standards and regulatory controls.
<PAGE>
If we are unable to establish and maintain commercial scale manufacturing within
our planned time and cost parameters, sales of our products and our financial
performance will be adversely affected.
We may encounter problems with any of the following if we attempt to increase
the scale or size of manufacturing:
o Design, construction and qualification of manufacturing facilities
that meet regulatory requirements
o Production yields
o Purity
o Quality control and assurance
o Shortages of qualified personnel
o Compliance with FDA regulations
We are developing a total of 31,000 square feet at our Novato facility for the
manufacture of AldurazymeTM. The construction and qualification of this facility
may take longer than planned and the actual construction costs of these
facilities may be higher than those which we have budgeted. We expect that the
manufacturing process of all of our new products, including BM102, will also
require lengthy development time before we can begin manufacturing them in
commercial quantity. Even if we can establish this capacity, we cannot be
certain that manufacturing costs will be commercially reasonable, especially if
reimbursement is substantially lower than expected.
In order to achieve our product cost targets we must develop efficient
manufacturing processes either by
o Improving the colonies of cells which have a common genetic
make-up, or cell lines,
o Improving the processes licensed from others, or
o Developing a recombinant cell line and production processes.
A recombinant cell line is a cell line with foreign DNA inserted which is used
to produce a protein that it would not have otherwise produced. The development
of a stable, high production cell line for any given enzyme is risky, expensive
and unpredictable and may not yield adequate results. In addition, the
development of protein purification processes is difficult and may not produce
the high purity required with acceptable yield and costs. If we are not able to
develop efficient manufacturing processes, the investment in manufacturing
capacity sufficient to satisfy market demand will be much greater and will place
heavy financial demands upon us. If we do not achieve our manufacturing cost
targets, we will have lower margins and reduced profitability in commercial
production and greater losses in manufacturing start-up phases.
If we are unable to increase our marketing and distribution capabilities or to
enter into agreements with third parties to do so, our ability to generate
revenues will be diminished.
If we cannot increase our marketing capabilities either by developing our sales
and marketing organization or by entering into agreements with others, we may be
unable to successfully sell our products. If we are unable to effectively sell
our drug products, our ability to generate revenues will be diminished.
To increase our distribution and marketing for both our drug candidates and our
Glyko, Inc. products, we will have to increase our current sales force and/or
enter into third-party marketing and distribution agreements. We cannot
guarantee that we will be able to hire in a timely manner, the qualified sales
and marketing personnel we need if at all. Nor can we guarantee that we will be
able to enter into any marketing or distribution agreements on acceptable terms,
if at all. If we cannot increase our marketing capabilities as we intend, either
by increasing our sales force or entering into agreements with third parties,
sales of our products may be adversely affected.
<PAGE>
We have entered into a joint venture with Genzyme where Genzyme will be
responsible for marketing and distributing Aldurazyme(TM). We cannot guarantee
that we will be able to establish sales and distribution capabilities or that
BioMarin, the joint venture or any future collaborators will successfully sell
any of our drug candidates.
If we fail to compete successfully, our revenues and operating results will be
adversely affected.
Our competitors may develop, manufacture and market products that are more
effective or less expensive than ours. They may also obtain regulatory approvals
for their products faster than we can obtain them, including orphan drug
designation, or commercialize their products before we do. If our competitors
successfully commercialize a product which treats a given rare genetic disease
before we do, we will effectively be precluded from developing a product to
treat that disease because the patient populations of the rare genetic diseases
are so small. These companies also compete with us to attract qualified
personnel and parties for acquisitions, joint ventures or other collaborations.
They also compete with us to attract academic research institutions as partners
and to license these institution's proprietary technology. If our competitors
successfully enter into partnering arrangements or license agreements with
academic research institutions, we will then be precluded from pursuing those
specific opportunities. Since each of these opportunities is unique, we may not
be able to find a substitute. Several pharmaceutical and biotechnology companies
have already established themselves in the field of enzyme therapeutics,
including Genzyme, our joint venture partner. These companies have already begun
many drug development programs, some of which may target diseases that we are
also targeting, and have already entered into partnering and licensing
arrangements with academic research institutions, reducing the pool of available
opportunities.
Universities and public and private research institutions are also competitors.
While these organizations primarily have educational objectives, they may
develop proprietary technology and acquire patents that we may need for the
development of our drug products. We will attempt to license this proprietary
technology, if available. These licenses may not be available to us on
acceptable terms, if at all. We also directly compete with a number of these
organizations to recruit personnel, especially scientists and technicians.
We believe that established technologies provided by other companies, such as
laboratory and testing services firms compete with Glyko Inc.'s products and
services. For example, Glyko, Inc.'s FACE(R) Imaging System competes with
alternative carbohydrate analytical technologies, including capillary
electrophoresis, high-pressure liquid chromatography, mass spectrometry and
nuclear magnetic resonance spectrometry. These competitive technologies have
established customer bases and are more widely used and accepted by scientific
and technical personnel because they can be used for non-carbohydrate
applications. Companies competing with Glyko, Inc. may have greater financial,
manufacturing and marketing resources and experience.
If we fail to manage our growth or fail to recruit and retain personnel, our
product development programs may be delayed.
Our rapid growth has strained our managerial, operational, financial and other
resources. We expect this growth to continue. We have entered into a joint
venture with Genzyme. If we receive FDA approval to market AldurazymeTM, the
joint venture will be required to devote additional resources to support the
commercialization of AldurazymeTM.
To manage expansion effectively, we need to continue to develop and improve our
research and development capabilities, manufacturing and quality capacities,
sales and marketing capabilities and financial and administrative systems. We
cannot guarantee that our systems, procedures or controls will be adequate to
support our operations or that our management will be able to manage
successfully future market opportunities or our relationships with customers and
other third parties.
Our future growth and success depend on our ability to recruit, retain, manage
and motivate our employees. The loss of key scientific, technical and managerial
personnel may delay or otherwise harm our product development programs. Any harm
to our research and development programs would harm our business and prospects.
<PAGE>
Because of the specialized scientific nature of our business, we rely heavily on
our ability to attract and retain qualified scientific, technical and managerial
personnel. In particular, the loss of Grant W. Denison, Jr., Chairman and Chief
Executive Officer, John C. Klock, M.D., President and Secretary or Christopher
M. Starr, Ph.D., Vice President for Research and Development would be
detrimental to us. While each of these individuals is party to an employment
agreement with us, which includes financial incentives for each of them to
remain employed with us, these agreements each terminate in June 2000 and we
cannot guarantee that any of them will remain employed with us beyond that time.
In addition, these agreements do not restrict their ability to compete with us
after their employment is terminated. The competition for qualified personnel in
the biopharmaceutical field is intense. We cannot be certain that we will
continue to attract and retain qualified personnel necessary for the development
of our business.
If product liability lawsuits are successfully brought against us, we may incur
substantial liabilities.
We are exposed to the potential product liability risks inherent in the testing,
manufacturing and marketing of human pharmaceuticals. The BioMarin/Genzyme LLC
maintains product liability insurance for our clinical trials of AldurazymeTM.
Although we intend to obtain insurance against product liability lawsuits
shortly before initiating clinical trials for BM102 and for our other products,
we cannot be certain that we will be able to obtain adequate insurance coverage
at reasonable cost. In addition, we may be subject to claims in connection with
our current clinical trials for AldurazymeTM for which the joint venture's
insurance coverage is not adequate. We cannot be certain that if AldurazymeTM
receives FDA approval, the product liability insurance the joint venture will
need to obtain in connection with the commercial sales of AldurazymeTM will be
available in meaningful amounts or at a reasonable cost. In addition, we cannot
be certain that we can successfully defend any product liability lawsuit brought
against us. If we are the subject of a successful product liability claim which
exceeds the limits of any insurance coverage we may obtain, we may incur
substantial liabilities which would adversely affect our earnings and financial
condition.
Our stock price may be volatile and an investment in our stock could suffer a
decline in value.
Our valuation and stock price since the IPO have had no meaningful relationship
to current or historical earnings, asset values, book value or many other
criteria based on historical value. The market price of the common stock will
fluctuate due to factors including:
o Progress of AldurazymeTM and our other lead drug products through
the regulatory process, especially AldurazymeTM regulatory actions
in the United States
o Results of clinical trials, announcements of technological
innovations or new products by us or our competitors
o Government regulatory action affecting our drug candidates or our
competitors' drug candidates in both the United States and foreign
countries
o Developments or disputes concerning patent or proprietary rights
o General market conditions for emerging growth and
biopharmaceutical companies
o Economic conditions in the United States or abroad
o Actual or anticipated fluctuations in our operating results
o Broad market fluctuations may cause the market price of our common
stock to fluctuate
o Changes in financial estimates by securities analysts
In addition, the value of our common stock may fluctuate because it is listed on
both the Nasdaq National Market and the Swiss Exchange's SWX New Market. Because
we have accumulated relatively limited experience since July 23, 1999, in
observing the trading of our stock on the two markets, we cannot be certain what
effect, if any, the dual listing will have on the future price of our stock in
either market. Listing on both exchanges may increase stock price volatility due
to:
o Trading in different time zones
o Different ability to buy or sell our stock
o Different trading volume
<PAGE>
In the past, following periods of large price declines in the public market
price of a company's securities, securities class action litigation has often
been initiated against that company. Litigation of this type could result in
substantial costs and diversion of management's attention and resources, which
would hurt our business. Any adverse determination in litigation could also
subject us to significant liabilities.
If our officers, directors and largest stockholder elect to act together they
may be able to control our management and operations, acting in their best
interests and not necessarily those of other stockholders.
Our directors and officers control approximately 13.4% of the outstanding shares
of our common stock. Glyko Biomedical Ltd. or GBL owns 32.6% of the outstanding
shares of capital stock. Three of six GBL directors are officers or directors of
BioMarin. As a result, due to their concentration of stock ownership, directors
and officers, together with GBL if they act together, may be able to otherwise
control our management and operations, and may be able to prevail on all matters
requiring a stockholder vote including:
o The election of all directors
o The amendment of charter documents or the approval of a merger,
sale of assets or other major corporate transactions
o The defeat of any non-negotiated takeover attempt that
might otherwise benefit the public stockholders
Anti-takeover provisions in our charter documents and under Delaware law may
make an acquisition of us, which may be beneficial to our stockholders, more
difficult.
BioMarin is incorporated in Delaware. Certain anti-takeover provisions of
Delaware law and our charter documents as currently in effect may make a change
in control of BioMarin more difficult, even if a change in control would be
beneficial to the stockholders. Our anti-takeover provisions include provisions
in the certificate of incorporation providing that stockholders' meetings may
only be called by the board of directors and a provision in the bylaws providing
that the stockholders may not take action by written consent. Additionally, our
board of directors have the authority to issue 1,000,000 shares of preferred
stock and to determine the terms of those shares of stock without any further
action by the stockholders. The rights of holders of our common stock are
subject to the rights of the holders of any preferred stock that may be issued.
The issuance of preferred stock, could make it more difficult for a third party
to acquire a majority of the outstanding voting stock of BioMarin. Delaware law
also prohibits corporations from engaging in a business combination with any
holders of 15% or more of their capital stock until the holder has held the
stock for three years unless, among other possibilities, the board of directors
approves the transaction. The board of directors may use these provisions to
prevent changes in the management and control of our company. Also, under
applicable Delaware law, our board of directors may adopt additional
anti-takeover measures in the future.
Item 2. Properties
We are currently leasing a total of seven buildings. Five of our buildings are
located in Novato, California, each within a half-mile radius. The five
buildings, each named for the streets on which they are located, are:
o Bel Marin Keys facility
o Galli Drive facility
o Pimentel Court facility
o Digital Drive facility
o Digital Drive sublease facility
<PAGE>
The sixth and seventh buildings, collectively the Carson Street facility, are
located in Torrance, California.
The Bel Marin Keys facility houses administrative staff and a clinical
production laboratory. It consists of approximately 15,100 square feet. The
lease expires in May 2001. We have an option to extend the lease for up to two
additional three-year periods.
The Galli Drive facility consists of a total of approximately 31,000 rentable
square feet and currently houses 6,700 square feet of modular laboratory space
used for research and development. We have developed 32,800 square feet for a
manufacturing facility, including support functions and core utility and
mechanical systems. Our development expanded the useable space by adding a
second floor and an external utility yard. The lease expires in August 2003. We
have an option to extend the lease for one additional five-year period. BioMarin
is currently in negotiations to lease the remaining north portion of the Galli
Drive building which is approximately 38,800 square feet in size. If
successfully leased, the additional space will be used for manufacturing support
functions, future manufacturing capacity development, additional office space
and storage/warehouse functions. The proposed lease (including the entire
building) will expire in July, 2010. As part of this negotiation, we are seeking
an option to extend the lease for two additional five-year periods.
The Pimentel Court facility, with approximately 11,000 square feet, houses the
manufacturing, research and administrative operations of Glyko, Inc. The lease
expires in April 2003 and has options for two 2-year extensions. We have
subleased part of this facility to a third party.
The Digital Drive facility, 34,000 rentable square feet, is planned to house
research and process development functions. The building shell has been
completed. Development of internal laboratory space is on hold until at least
the second half of 2000. When fully developed, it will consist of approximately
42,000 square feet. The lease expires in November, 2009.
The Digital Drive sublease facility houses a chemistry laboratory. It consists
of approximately 1,200 square feet. The facility has been subleased from a third
party and is now on a month-to-month basis.
The Carson Street facility housed our initial commercial manufacturing operation
for AldurazymeTM. The manufacturing building consists of approximately 8,000
square feet. The nearby administrative and materials control facility consists
of approximately 3,000 square feet. The lease for the manufacturing facility
expires in June 2001. The leases for the smaller support facilities expire in
August and November 2002. We have an option to extend the manufacturing facility
lease until April 2003. As a result of a decision made by the BioMarin/Genzyme
LLC based on guidance from the FDA, we are suspending operations in the Carson
Street complex in May 2000. Aldurazyme(TM) production for clinical and
commercial requirements using an improved process will be done in our Galli
Drive facility in Novato, California. We are seeking sub-lease tenants for the
facility.
Our administrative office space is expected to be adequate until mid-2001. When
developed, we should have adequate space for research and development activities
in our Digital Drive facility into at least 2002. Our AldurazymeTM production
facilities' capacity may have to be supplemented beginning in 2003 if the MPS-I
market penetration rates are as currently expected. Based on the timelines for
other genetic disorders such as MPS-VI, manufacturing capacity for these
products will have to be developed for larger scale commercial production which
may begin as early as 2003. We plan to use contract manufacturing when
appropriate to provide product for both clinical and commercial requirements
until such time as we believe it prudent to develop in-house manufacturing
capability.
Item 3. Legal Proceedings
We have no material legal proceedings pending.
Item 4. Submission of Matters to a Vote of Security-Holders
None.
<PAGE>
Part II
Item 5. Market For Common Equity and Related Stockholder Matters
As of July 1999, the Company's stock has been listed on the Nasdaq National
Market and the Swiss New Market SWX under the symbol "BMRN". The following table
sets forth the closing sales prices for the Common Shares for the periods noted,
as reported by Nasdaq National Market.
Prices
Year Period High Low
1999 Third Quarter (beginning July 22) $18.75 $11.625
1999 Fourth Quarter $17.00 $11.625
On March 22, 2000, the last reported sale price on the Nasdaq National Market
for the common stock was $32.00.
Holders
As of February 16, 2000, there were 70 holders of record of 34,951,086
outstanding Common Shares of the Company. Additionally, on such date options to
acquire 5,734,372 of Common Shares and warrants to acquire 801,500 Common Shares
were outstanding.
Unregistered Securities
Since March 21, 1997 (inception), we have issued the following unregistered
securities:
On April 19, 1997, we sold to Glyko Biomedical Ltd. or GBL 1.5 million shares of
BioMarin's common stock for aggregate consideration of $1.5 million. On
September 24, 1997, the Company issued 7 million shares of our common stock to
GBL as consideration for the license granted to it under the GBL license
agreement.
On October 1, 1997, the Company sold 1.3 million, 800,000 and 400,000 shares of
common stock to Mr. Denison, Dr. Klock and Dr. Starr, respectively, in exchange
for a full recourse, three-year promissory note secured by such shares in the
principal amounts of $1.3 million, $800,000 and $400,000, respectively.
Between October 1, 1997 and December 30, 1997, as part of an approximately $8.8
million private placement financing, the Company issued 9,566,500 shares of
common stock plus warrants to purchase 801,500 shares of the Company's common
stock at an exercise price of $1.00 and a three-year term.
Between June 30, 1998 and August 3, 1998, the Company raised net proceeds of
$11.4 million from private placements of 2,015,335 shares of common stock.
On September 4, 1998, the Company received $8 million from Genzyme upon
execution of a joint venture agreement in which we issued 1,333,333 shares of
common stock to Genzyme.
On October 7, 1998, the Company purchased Glyko, Inc., a wholly-owned subsidiary
of GBL, from GBL, for an aggregate purchase price of $14.5 million. Such
purchase price was paid for with 2,259,039 shares of common stock of BioMarin,
valued at $6.00 per share, that assumption by BioMarin of certain stock options
held by Glyko, Inc. employees which were exercisable into a maximum of 255,540
shares of common stock of BioMarin at an average exercise price of $2.30 per
share, and $500 cash.
On July 22, 1999, Genzyme invested in the Company $10 million at $13 per share
(769,230 shares of common stock) in reliance on the exemption from registration
requirements provided by Regulation D promulgated under the Securities Act. 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.
22
<PAGE>
Item 6. Selected consolidated financial data (in thousands, except per
share data)
The selected consolidated balance sheet data of BioMarin Pharmaceutical Inc. (a
development-stage company) as of December 31, 1997, 1998 and 1999 and the
statements of operations data for the periods from March 21, 1997 (inception) to
December 31, 1997 and to December 31, 1999 and the years ended December 31, 1998
and 1999 presented below are derived from the consolidated financial statements
of BioMarin Pharmaceutical Inc. and subsidiaries, including Glyko, Inc. from
October 7, 1998, the date on which it was acquired by BioMarin. These
consolidated financial statements of BioMarin and subsidiaries have been audited
by Arthur Andersen LLP, independent public accountants. The consolidated balance
sheets as of December 31, 1998, and 1999 and the related consolidated statements
of operations for the periods from March 21, 1997 (inception) to December 31,
1997 and to December 31, 1999, and the years ended December 31, 1998 and 1999,
and the related reports, are included elsewhere herein.
The selected consolidated financial data set forth below contain only a portion
of BioMarin's financial statement information and should be read in conjunction
with the Consolidated Financial Statements of BioMarin Pharmaceutical Inc. and
related Notes and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere herein.
<TABLE>
Period from Period from
March 21, 1997 March 21, 1997
(inception) to (inception) to
December 31, Year Ended December 31, December 31,
-----------------------------------------------------------------------------
1997 1998 1999 1999
----------------- ------------------ ----------------- -----------------
BioMarin's Consolidated (in thousands, except per share data)
Statements of Operations
<S> <C> <C> <C> <C>
Revenues................................. $ - $ 1,190 $ 6,976 $ 8,166
Operating costs and expenses:
Cost of products and services...... - 108 464 572
Research and development......... 1,914 10,502 27,206 39,622
Selling, general and administrative 914 3,532 6,805 11,251
----------------- ---------------- ---------------- -----------------
Total costs and expenses............ 2,828 14,142 34,475 51,445
Loss from operations...................... (2,828) (12,952) (27,499) (43,279)
Interest income........................... 65 685 1,832 2,582
Interest expense.......................... - - (732) (732)
Equity in loss of joint venture........... - (47) (1,673) (1,720)
----------------- ---------------- ---------------- -----------------
Net loss................................. $ (2,763) $ (12,314) $ (28,072) $ (43,149)
================= ================ ================ =================
Net loss per common share, basic
and diluted.............. $ (0.34) $ (0.55) $ (0.94) $ (2.04)
================= ================ ================ =================
Weighted average common
shares outstanding............. 8,136 22,488 29,944 21,163
================= ================ ================ =================
</TABLE>
<TABLE>
As of December 31,
<S> --------------------------------------
BioMarin's Consolidated Balance Sheet Data: 1997 1998 1999
--------------------------------------
Cash, cash equivalents and <C> <C> <C>
short-term investments ........................... $ 6,888 $ 11,389 $ 62,986
Total current assets................................ 7,507 12,819 66,422
Total assets........................................ 7,653 31,510 103,549
Long-term liabilities............................... - 110 84
Total stockholders' equity.......................... 7,380 29,394 98,377
</TABLE>
<PAGE>
Item 7. 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 "Risk
Factors," 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 "Risk Factors," 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 December 31, 1999 of $43.1 million. Our losses have resulted primarily
from research and development activities and related administrative expenses.
Based on current plans, we expect to continue to incur operating losses at least
through 2002.
To date, we have not generated revenues from the sale of our drug candidates.
Our lead product is AldurazymeTM, alronidase for injection, (recombinant human
(alpha)-L-iduronidase), which is under clinical trials for use in enzyme
replacement therapy for Mucopolysaccharidosis-I or MPS-I. In previous documents,
AldurazymeTM was identified as BM101. Our financial results may vary depending
on many factors, including:
. The progress of AldurazymeTM in the regulatory processes
and initial sales activities
. The investment in manufacturing process development and in
manufacturing capacity for AldurazymeTM 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 AldurazymeTM 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 AldurazymeTM. We will share equally in
any profits generated from the sales of AldurazymeTM.
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 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.
<PAGE>
Results of Operations
Years Ended December 31, 1998 and 1999
For the years ended December 31, 1998 and 1999, revenues were $1.2 million and
$7 million, respectively. Included in 1999 revenues is $5.3 million for services
provided to the joint venture for Aldurazyme(TM) compared to $837,000 for 1998
as a consequence of Aldurazyme(TM) being in more complex, later stages of
development and the effect of a full year of operation in 1999 compared to
approximately three months of operation in 1998. The joint venture with Genzyme
General (Nasdaq: GENZ) for the development and commercialization of
Aldurazyme(TM), alronidase for injection, (recombinant human
(alpha)-L-iduronidase) for the treatment of Mucopolysaccharidosis-I (MPS-I) was
formed on September 4, 1998. MPS-I is a chronic, debilitating genetic disease
which afflicts children and leads to death before adulthood in a majority of
patients. Revenues also included $1.5 million generated by Glyko, Inc. compared
to $250,000 for 1998. Glyko, Inc., a BioMarin subsidiary engaged in the sale of
analytical and diagnostic products and services, was acquired by BioMarin on
October 7, 1998. External revenues for products and services for 1999 were up in
comparison to 1998 as a result of revenues from the biochemical reagents
business of Oxford GlycoSciences Plc. (LSE: OGS), which was acquired in May
1999.
Cost of products and cost of services related to Glyko, Inc. operations were
$464,000 for 1999 compared to $108,000 for 1998. Glyko's external products and
services costs as a percent of the sales of products and services were 32% for
1999 and 44% for 1998. The improvement was due to a favorable revenue mix, with
a greater percentage of higher margin product sales.
Research and development expenses increased from $10.5 million for 1998 to $27.2
million for 1999. Increased expenses in support of the Aldurazyme(TM) joint
venture with Genzyme and the MPS-VI and burn debridement programs were the major
factors in the growth of research and development expenses.
Selling, general and administrative expenses increased from $3.5 million for
1998 to $6.8 million for 1999. This increase resulted from the consolidation of
Glyko, Inc. selling and administrative expenses in 1999 expenses, an increase in
staffing in BioMarin administration in 1999 compared to 1998, and a related
increase in facilities expense charged to administration in 1999. The increase
in administrative staff and related expense was necessary to support expanded
operations.
BioMarin's equity in the loss of its joint venture with Genzyme increased from
$47,000 for 1998 to $1.7 million for 1999 primarily as a result of increased
process development and clinical manufacturing expenses. The joint venture began
in September 1998 and operated for only approximately one quarter of that year
as compared to a full year of operation in 1999.
Interest income increased by $1.1 million from $685,000 for 1998 to $1.8 million
for 1999 primarily due to increased cash reserves resulting from a convertible
note financing in April 1999, the initial public offering in July and August
1999, and the private placement with Genzyme in July 1999.
Interest expense related primarily to interest on the convertible notes accrued
prior to their conversion in the initial public offering.
The net loss was $12.3 million ($0.55 per share) and $28 million ($0.94 per
share) for 1998 and 1999, respectively.
The Period From March 21, 1997 (Inception) to December 31, 1997 and the Year
Ended December 31, 1998
In October 1998, we acquired Glyko, Inc. from GBL. The acquisition was accounted
for as a purchase. As a result, our consolidated statements of operations data
include the operations of Glyko, Inc. from October 7, 1998, the date of the
acquisition, through December 31, 1998.
<PAGE>
BioMarin generated revenues of $1.2 million in 1998 consisting primarily of
$837,000 of revenue from the BioMarin/Genzyme LLC joint venture representing
services performed by BioMarin for the joint venture, $250,000 from the sale of
Glyko, Inc. products and services since its acquisition on October 8, 1998, and
$103,000 of other revenues representing grants received from the federal
government to fund various research projects. Glyko, Inc. sold products and
services to BioMarin at a 27% distributor discount. There were no revenues in
the 1997 period.
In 1998, BioMarin had cost of goods sold of $108,000 as a result of the sale of
Glyko, Inc products. In the 1997 period, BioMarin had no sales and,
consequently, no cost of goods.
Research and development expenses were $10.5 million in 1998, compared to $1.9
million in the 1997 period. The increase was due primarily to a full year of
Aldurazyme(TM) expenses including 12 months of clinical trials in 1998, compared
with only one month of clinical trials in the 1997 period. In addition, we
expanded significantly our product programs, staff and facilities in 1998 in
contrast to limited start-up research and development activities in the 1997
period.
General and administrative expenses were $3.5 million in 1998 compared to
$914,000 in the 1997 period. General and administrative expenses increased in
1998 to support the significantly expanded scale of operations in 1998 compared
to the smaller administrative requirements in the shorter, start-up 1997 period.
These increased administrative expenses included significant increases in
salaries and benefits for administrative staff, an increase in facilities costs
and an increase in professional service fees.
Interest income in 1998 was $685,000 while interest income totaled $65,000 in
the 1997 period. The higher interest income in 1998 resulted from higher cash
balances available for investment in 1998 as a result of the first private
placement late in 1997, a second private placement in mid-year 1998 and the
Genzyme investment in the third quarter of 1998.
The net loss was $2.8 million ($0.34 per share) and $12.3 million ($0.55 per
share) for 1997 and 1998, 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. 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 and the concurrent $10 million Genzyme
investment in our Company. Since inception, we have raised aggregate net
proceeds of $124.9 million.
Our combined cash, cash equivalents and short-term investments totaled $63.0
million on December 31, 1999, an increase of $51.6 million from December 31,
1998. The primary source of increased cash balances was the issuance of common
stock at our IPO, generating $60.0 million of net proceeds including the
underwriters over-allotment. The primary use of cash during the year ended
December 31, 1999 was to finance operations and to purchase leasehold
improvements and equipment. Operations used $13.1 million, we purchased $22.9
million of leasehold improvements and equipment, invested $6.7 million in the
joint venture (which was consumed in joint venture operations) and purchased
$1.5 million of assets from Oxford GlycoSciences.
From our inception through December 31, 1999, we have purchased approximately
$29.5 million of leasehold improvements and equipment. We expect that our
investment in leasehold improvements and equipment will increase significantly
during the next two years because we will provide facilities and equipment for a
larger staff and increase manufacturing capacity.
We have made and plan to make substantial commitments to capital projects,
including AldurazymeTM and other enzyme manufacturing capacity and new research
and development facilities in Novato.
On October 7, 1998, we purchased Glyko, Inc. from GBL for an aggregate purchase
price of $14.5 million. The purchase price was paid by 2,259,039 shares of our
common stock, our assumption of certain stock options held by Glyko, Inc.
employees, which were exercisable into a maximum of 255,540 shares of our common
stock and $500 in cash.
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.
<PAGE>
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 December 31, 1999, we had expended to date approximately $720,000 on the
in-process research and development projects and $775,000 on the diagnostic
projects. If all acquired in-process research and development projects proceed
to completion, we expect to spend approximately $390,000 in incremental direct
expense to complete the analytic projects in phases over approximately 15
months. We expect to spend approximately $950,000 to complete the diagnostic
projects in phases completed from 3 to 15 months in the future. None of these
projects have been terminated to date.
Since the acquisition of these in-process research and development projects
fifteen months ago, there have been no subsequent developments which indicate
that the completion and commercialization of either of the projects are less
likely to be completed on the original planned schedule or less likely to be a
commercial success.
In September 1998, we established a joint venture with Genzyme for the worldwide
development and commercialization of AldurazymeTM for the treatment of MPS-I. We
will 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
AldurazymeTM.
In July 1999, we completed our initial public offering of 4.5 million shares of
our common stock at $13 per share raising net proceeds of $51.2 million. In a
private placement concurrent with the IPO, Genzyme purchased $10 million of our
common stock (769,230 shares) at the IPO price of $13.
In August 1999, the underwriters exercised their over-allotment option for
675,000 shares at the IPO price of $13 raising additional net proceeds of $8.1
million.
We believe that the cash, cash equivalents, short-term investment securities
balances at December 31, 1999 will be sufficient to meet our operating and
capital requirements through at least 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
<PAGE>
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
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.
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.
Item 8. Financial Statements and Supplementary Data
The information required to be filed in this item appears on pages 44 to 66 and
is incorporated herein by reference.
Item 9. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure.
Not applicable.
<PAGE>
Part III
Item 10. Directors, Executive Officers, Promoters and Control Persons
The information required by this item is incorporated by reference from the
discussion in the Proxy Statement captioned "Election of Directors"
and "Executive Officers."
Item 11. Executive Compensation
The information required by this item is incorporated by reference from the
discussion in the Proxy Statement captioned "Executive Compensation."
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated by reference from the
discussion in the Proxy Statement captioned "Security Ownership of Certain
Beneficial Owners."
Item 13. Certain Relationships and Related Transactions
The information required by this item is incorporated by reference from the
discussion in the Proxy Statement captioned "Interest of Insiders in Material
Transactions."
<PAGE>
Part IV
Item 14. Exhibits, List and Reports on Form 8-K
(a) Documents are filed as exhibits to this report as enumerated in the
Index to Exhibits hereto, Part V Item I.
(b) Reports on Form 8-K
No reports were filed on Form 8-K during the quarter ended
December 31, 1999.
<PAGE>
Part V
Item 1. Index to Exhibits
Exhibit Description of
Number Document
- - ---------- --------------------------------
2.1 Share Exchange Agreement with Glyko Biomedical, Ltd. (1)
3.1A Amended and Restated Certificate of Incorporation of BioMarin
Pharmaceutical Inc., a Delaware Corporation, as filed on March 22,
1999. (1)
3.1B Form of Amended and Restated Certificate of Incorporation of
BioMarin Pharmaceutical Inc., a Delaware Corporation. (2)
3.2 Amended and Restated Bylaws of BioMarin Pharmaceutical Inc., a
Delaware Corporation. (2)
4.1 Form of Amended and Restated Registration Rights Agreement, by and
among the Company and the investors named therein. (1)
10.1 Form of Indemnification Agreement for directors and officers 1997
Stock Plan, as amended on December 22, 1998, and forms of agreements.(1)
10.3 1998 Director Option Plan and forms of agreements thereunder.(1)
10.4 1998 Employee Stock Purchase Plan and forms of agreements thereunder.(1)
10.5 Amended and Restated Founder's Stock Purchase Agreement with Dr.
John C. Klock dated as of October 1, 1997 with exhibits. (1)
10.6 Amended and Restated Founder's Stock Purchase Agreement with
Grant W. Denison, Jr. dated as of October 1, 1997 with exhibits. (1)
10.7 Amended and Restated Founder's Stock Purchase Agreement with
Dr. Christopher M. Starr dated as of October 1, 1997 with exhibits. (1)
10.8 Employment Agreement with Dr. John C. Klock dated June 26, 1997, as
amended. (3)
10.9 Employment Agreement with Grant W. Denison, Jr. dated June 26, 1997,
as amended. (1)
10.10 Employment Agreement with Dr. Christopher M. Starr dated June 26, 1997,
as amended. (1)
10.11 Employment Agreement with Raymond W. Anderson dated June 22, 1998, as
amended. (1)
10.12 Employment Agreement with Stuart J. Swiedler, M.D., Ph.D., dated May 29,
1998, as amended. (1)
10.13 Employment Agreement with Emil Kakkis, M.D., Ph.D., dated June 30, 1998,
as amended. (1)
10.14 Employment Agreement between Brian K. Brandley, Ph.D and Glyko, Inc.
dated February 22, 1998, as amended. (1)
10.15 License Agreement with Glyko Biomedical, Ltd. dated June 26, 1997 with
exhibits attached. (1)
10.16 Option Agreement with W.R. Grace & Co. dated as of May 1, 1998. (3) (*)
10.17 Grant Terms and Conditions Agreement with Harbor-UCLA Research and
Education Institute dated April 1, 1997, as amended. (3) (*)
10.18 License Agreement with Women's and Children's Hospital, Adelaide,
Australia dated August 14, 1998. (4) (*)
10.19 Lease Agreement dated May 18, 1998 for 371 Bel Marin Keys Boulevard,
as amended. (1)
10.20 Standard NNN Lease dated June 25, 1998 for 46 Galli Drive. (1)
10.21 Standard Industrial Commercial Single-Tenant Lease dated May 29, 1998
for 110 Digital Drive, as amended. (1)
10.22 Sublease dated June 24, 1998 for 1123 West Carson Street. (1)
10.23 Commercial Lease and Deposit Receipt with Glyko, Inc. for 11 Pimentel
Court and 13 Pimentel Court, dated December 23, 1996. (1)
10.24 Collaboration Agreement with Genzyme Corporation dated September 4,
1998. (4)
10.25 Purchase Agreement with Genzyme Corporation dated September 4, 1998. (1)
10.26 Subscription Agreement with Genzyme dated September 4, 1998. (1)
10.27 Form of Convertible Note Purchase Agreement dated as of April 12, 1999
with form of convertible promissory note. (1)
10.28 Astro License Agreement dated December 18, 1990 among Glyko, Inc.,
Astromed, Ltd., and Astroscan, Ltd. (3)
10.29 Glycomed License Agreement dated December 18, 1990 between Glyko, Inc.,
and Glycomed, Inc. (3)
<PAGE>
Exhibit Description of
Number Document
- - ---------- --------------------------------
10.30 Operating Agreement with Genzyme Corporation. (2)
21.1 List of Subsidiaries. (1)
23.1 Consent of Independent Public Accountants.
27.1 Financial Data Schedule (available in EDGAR format only).
(1) Incorporated by reference to the Company's Registration Statement on
Form S-1 (Registration No. 333-77701) filed on May 4, 1999.
(2) Incorporated by reference to the Company's Registration Statement on
Form S-1 (Registration No. 333-77701) filed on July 6, 1999.
(3) Incorporated by reference to the Company's Registration Statement on
Form S-1 (Registration No. 333-77701) filed on June 14, 1999.
(4) Incorporated by reference to the Company's Registration Statement on
Form S-1 (Registration No. 333-77701) filed on July 21, 1999.
(*) This exhibit has been granted confidential treatment.
<PAGE>
BioMarin Pharmaceutical Inc.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the
registrant caused this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: March 29, 2000 By: \s\ Raymond W. Anderson
- - ------------------------ -------------------------------------------
Raymond W. Anderson.
Chief Financial Officer
and Vice President, Finance and Admin.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Raymond W. Anderson, his attorney-in-fact, with the
power of substitution, for him in any and all capacities, to sign any amendments
to the Report on Form 10-K and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
Signature Title Date
\s\ Grant W. Denison, Jr. March 29, 2000
- - --------------------------- -------------------
Grant W. Denison, Jr. Chief Executive Officer, Director
\s\ John C. Klock, M.D. March 29, 2000
- - --------------------------- -------------------
John C. Klock, M.D. President, Secretary and Director
\s\ Ansbert S. Gadicke, M.D. March 29, 2000
- - --------------------------- -------------------
Ansbert S. Gadicke Director
\s\ Erich Sager March 29, 2000
- - ---------------------------- -------------------
Erich Sager Director
\s\ Gwynn R. Williams March 29, 2000
- - ---------------------------- -------------------
Gwynn R. Williams Director
<PAGE>
INDEX TO FINANCIAL STATEMENTS
BioMarin Pharmaceutical Inc. Financial Statements
Report of Independent Public Accountants.................... 45
Consolidated Balance Sheets................................. 46
Consolidated Statements of Operations....................... 47
Consolidated Statements of Changes in Stockholders' Equity. 48-50
Consolidated Statements of Cash Flows....................... 51
Notes to Consolidated Financial Statements.................. 52-66
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
BioMarin Pharmaceutical Inc.:
We have audited the accompanying consolidated balance sheets of BioMarin
Pharmaceutical Inc. (a Delaware corporation in the development stage) and
subsidiaries as of December 31, 1997, 1998, and 1999 and the related
consolidated statements of operations, changes in stockholders' equity, and cash
flows for the period from March 21, 1997 (inception) to December 31, 1997, the
years ended December 31, 1998 and 1999 and the period from March 21, 1997
(inception) to December 31, 1999. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
BioMarin Pharmaceutical Inc. and subsidiaries as of December 31, 1997, 1998, and
1999 and the results of its operations and its cash flows for the period from
March 21, 1997 (inception) to December 31, 1997, the years ended December 31,
1998 and 1999 and the period from March 21, 1997 (inception) to December 31,
1999, in conformity with accounting principles generally accepted in the United
States.
/s/ ARTHUR ANDERSEN LLP
San Francisco, California,
February 18, 2000
<PAGE>
<TABLE>
BioMarin Pharmaceutical Inc. and Subsidiaries
(a development-stage company)
Consolidated Balance Sheets as of December 31, 1998 and 1999
(In thousands, except for share and per share data)
-----------------------------------
-----------------------------------
1998 1999
---------------- ---------------
<S> ---------------- ---------------
Assets <C> <C>
Curret assets:
Cash and cash equivalents $ 9,413 $ 23,413
Short-term investments 1,976 39,573
Accounts receivable, net 148 1,047
Due from Glyko Biomedical Ltd. 114 139
Due from BioMarin/Genzyme LLC 419 1,280
Inventories 72 676
Prepaid expenses 677 294
---------------- ---------------
Total current assets 12,819 66,422
Property and equipment, net 6,223 25,093
Goodwill and other intangible assets 11,704 11,462
Investment inBioMarin/Genzyme LLC 685 421
Deposits 79 151
---------------- ---------------
Total assets $ 31,510 $ 103,549
================ ===============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 1,341 $ 3,095
Accrued liabilities 640 1,966
Notes payable short-term 24 26
---------------- ---------------
Total current liabilities 2,005 5,087
Long-term liabilities:
Long term portion of notes 111 85
---------------- ---------------
Total liabilities 2,116 5,172
---------------- ---------------
Stockholders' equity:
Common stock, $0.001 par value: 75,000,000 shares
authorized, 26,176,180 and 34,832,578
shares issued and outstanding at December 31,
1998 and 1999, respectively 26 35
Additional paid-in capital 50,058 146,592
Warrants 128 128
Deferred compensation (3,253) (2,591)
Notes receivable from stockholders (2,488) (2,638)
Deficit accumulated during the development stage (15,077) (43,149)
---------------- ---------------
Total stockholders' equity 29,394 98,377
---------------- ---------------
Total liabilities and stockholders' equity $ 31,510 $ 103,549
================ ===============
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
BioMarin Pharmaceutical Inc. and Subsidiaries
(a development-stage company)
Consolidated Statements of Operations for
the Period from March 21, 1997 (inception) to December 31,
1997, the Years Ended December 31, 1998 and 1999
and for the Period from March 21, 1997 (inception) to December 31, 1999
(In thousands, except for per share data)
Period from Period from
March 21, 1997 March 21, 1997
(inception) to (inception) to
December 31, Year Ended December 31, December 31,
1997 1998 1999 1999
<S> ------------- ------------- ------------- -------------
Revenues <C> <C> <C> <C>
Product sales $ - $ 138 $ 1,401 $ 1,539
Service revenue - 112 85 197
BioMarin/Genzyme LLC - 837 5,300 6,137
Other revenues - 103 190 293
------------- ------------- ------------- -------------
Total revenues - 1,190 6,976 8,166
Operating costs and expenses:
Cost of products - 49 362 411
Cost of services - 59 102 161
Research and development 1,914 10,502 27,206 39,622
Selling, general and administrative 914 3,532 6,805 11,251
------------- ------------- ------------- -------------
Total operating costs and expenses 2,828 14,142 34,475 51,445
------------- ------------- ------------- -------------
Loss from operations (2,828) (12,952) (27,499) (43,279)
Interest income 65 685 1,832 2,582
Interest expense - - (732) (732)
Equity in loss of BioMarin/Genzyme LLC - (47) (1,673) (1,720)
------------- ------------- ------------- -------------
Net loss $ (2,763) $ (12,314) $ (28,072) $ (43,149)
============= ============= ============= =============
Net loss per share, basic and diluted $ (0.34) $ (0.55) $ (0.94) $ (2.04)
============= ============= ============= =============
Weighted average common shares
outstanding 8,136 22,488 29,944 21,163
============= ============= ============= =============
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
BioMarin Pharmaceutical Inc. and Subsidiaries
(a development stage company)
Consolidated Statements of Changes in Stockholders'
Equity for the Period from March 21, 1997 (inception) to
December 31, 1997, and for the Years ended December 31, 1998 and 1999
(In thousands, except per share data)
Deficit
Additional Notes Accumulated
Common Stock Paid-in Warrants Receivable During Total
-------------- Capital --------------- Deferred from Development Stockholders'
Shares Amount Shares Shares Amount Compensation Stockholders Stage Equity
------- ------- -------- ------- ------- ----------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, March 21, 1997.... -- $ -- $ -- -- $ -- $ -- $ -- $ -- $ --
Issuance of common stock to
Glyko Biomedical, Ltd.
on March 21, 1997, for cash,
$1.00 per share.............. 1,500 1 1,499 -- -- -- -- -- 1,500
Issuance of common stocktock
Glyko Biomedical, Ltd. in
June 1997 in exchange for
technology, $1.00 per share .. 7,000 7 (7) -- -- -- -- -- --
Issuance of common stock to
Glyko Issuance of common stock
in October 1997, $1.00 per share
(net of issuance costs of
$439,720, including the issu-
ance of 299,000 shares of common
stock, $1.00 per share and warrants
to purchase an additional 299,000
share of common stock for
brokerage services............... 4,039 4 3,595 299 48 -- -- -- 3,647
Issuance of common stock to
employees in exchange for
notes in October 1997, $1.00
per share........................ 2,500 3 2,497 -- -- (200) (2,300) -- --
Issuance of common stock and
warrants on December 31, 1997,
$1.00 per share (net of issuance
costs of $592,309, including the
issuance of 502,500 shares of common
stock, $1.00 per share, and
warrants to purchase an additional
502,500 shares of common stock
for brokerage services)........... 5,528 6 4,930 503 80 -- -- -- 5,016
Common stock options granted in
exchange for services............. -- -- 35 -- -- (17) -- -- 18
Interest on notes receivable...... -- -- -- -- -- -- (38) -- (38)
Net loss for the period from
March 21, 1997(inception), to
December 31, 1997................. -- -- -- -- -- -- -- (2,763) (2,763)
Balance, December 31, 1997....... 20,567 $ 21 $ 12,549 802 $ 128 $ (217) $(2,338) $(2,763) $(7,380)
======= ==== ======== ====== ====== ======= ======== ======== ========
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
BioMarin Pharmaceutical Inc. and Subsidiaries
(a development stage company)
Consolidated Statements of Changes in Stockholders'
Equity for the Period from March 21, 1997 (inception) to
December 31, 1997, and for the Years ended December 31, 1998 and 1999
(In thousands, except per share data)
Deficit
Additional Notes Accumulated
Common Stock Paid-in Warrants Receivable During Total
-------------- Capital --------------- Deferred from Development Stockholders'
Shares Amount Shares Shares Amount Compensation Stockholders Stage Equity
------- ------- -------- ------- ------- ----------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1998......... 20,567 $ 21 $ 12,549 802 $ 128 $ (217) $ (2,338) $ (2,763) $ 7,380
Issuance of common stock on
June 30, 1998, for cash,
$6.00 per share (net of
issuance costs of $263,208,
including the issuance of
31,368 shares of common stock,
$6.00 per share, for
brokerage services)............... 599 1 3,327 -- -- -- -- -- 3,328
Issuance of common stock
on July 14, 1998, for cash,
$6.00 per share (net of
issuance costs of $387,474,
including the issuance of
64,579 shares of common stock,
$6.00 per share, for brokerage
services)......................... 1,385 1 7,924 -- -- -- -- -- 7,925
Issuance of common stock on
August 3, 1998, for cash, $6.00
per share (net of issuance costs
of $12,318, including the issuance
of 2,053 shares of common stock,
$6.00 per share for brokerage
services)......................... 31 -- 176 -- -- -- -- -- 176
Issuance of common stock to
Genzyme Corporation on
September 4, 1998,for cash,
$6.00 per share.................... 1,333 1 7,999 -- -- -- -- -- 8,000
Issuance of common stock to Glyko
Biomedical, Ltd. for the purchase
of Glyko, Inc. on October 7, 1998,
for common shares $6.00 per share
and the assumption of options of
Glyko, Inc. employees (see Note 1)..2,259 2 14,859 -- -- -- -- -- 14,861
Exercise of common stock options... 2 -- 2 -- -- -- -- -- 2
Interest on notes receivable....... -- -- -- -- -- -- (150) -- (150)
Deferred compensation on stock
options............................ -- -- 3,222 -- -- (3,222) -- -- --
Amortization of deferred
compensation....................... -- -- -- -- -- 186 -- -- 186
Net loss........................... -- -- -- -- -- -- -- (12,314) (12,314)
------------------------------------------------------------------------------------------------
Balance, December 31, 1998......... 26,176 $ 26 $50,058 802 128 $(3,253) $(2,488) $(15,077) $ 29,394
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
BioMarin Pharmaceutical Inc. and Subsidiaries
(a development stage company)
Consolidated Statements of Changes in Stockholders'
Equity for the Period from March 21, 1997 (inception) to
December 31, 1997, and for the Years ended December 31, 1998 and 1999
(In thousands, except per share data)
Deficit
Additional Notes Accumulated
Common Stock Paid-in Warrants Receivable During Total
-------------- Capital --------------- Deferred from Development Stockholders'
Shares Amount Shares Shares Amount Compensation Stockholders Stage Equity
------- ------- -------- ------- ------- ----------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1999.. 26,176 $ 26 $ 50,058 802 $ 128 $ (3,253) $ (2,488) $ (15,077) $ 29,394
Issuance of common stock on
July 23, 1999, in an initial
public offering (IPO) for cash
at $13.00 per share (net of
issuance costs of $6,690) ..... 4,500 4 51,805 -- -- -- -- -- 51,809
Issuance of common stock on
July 23, 1999 to Genzyme
Corporation in a private
placement concurrent with
the IPO for cash at $13.00
per share ..................... 769 1 9,999 -- -- -- -- -- 10,000
Issuance of common stock
on July 23, 1999 concurrent
with the IPO upon conversion
of promissory notes plus
accrued interest of $720,200
at $10.00 per share (net
of issuance costs of $1,150). 2,672 3 25,612 -- -- -- -- -- 25,615
Issuance of common stock on
August 3, 1999 and August
25, 1999 from the over-allotment
exercise by underwriters at
$13.00 per share (net of issuance
costs of $633).................. 675 1 8,141 -- -- -- -- -- 8,142
Exercise of common stock options... 40 -- 148 -- -- -- -- -- 148
Interest on notes receivable from
stockholders -- -- 195 -- -- -- (195) -- --
Deferred compensation related to
stock option ..................... -- -- 634 -- -- (634) -- -- --
Amortization of deferred compensation -- -- -- -- -- 1,341 -- -- 1,341
Net loss........................... -- -- -- -- -- -- -- (28,072) (28,072)
---------------------------------------------------------------------------------------
Balance, December 31, 1999....... 34,832 $ 35 $146,592 802 $ 128 $(2,546) $(2,683) $(43,149) $ 98,377
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
BioMarin Pharmaceutical Inc. and Subsidiaries
(a development-stage company)
Consolidated Statement of Cash
Flows For the Period from March 21, 1997
(inception) to December 31, 1997, the Years ended December 31, 1998 and 1999
and for the Period from March 21, 1997 (inception) to December 31, 1999
(In thousands)
Period from Period from
March 21, 1997 March 21, 1997
(inception) to (inception) to
December 31, Year Ended December 31, December 31,
1997 1998 1999 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (2,763) $ (12,314) $ (28,072) $ (43,149)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 5 308 4,074 4,387
Amortization of deferred compensation - 185 1,341 1,526
Amortization of goodwill - 271 1,143 1,414
Compensation in the form of common stock
and common stock options 18 - - 18
Loss from BioMarin/Genzyme LLC - 47 6,973 7,020
Write-off of in-process technology - 2,625 - 2,625
Changes in operating assets and liabilities:
Accounts receivable - (148) (899) (1,047)
Due from Glyko Biomedical, Ltd. (79) (34) (25) (138)
Due from BioMarin/Genzyme LLC - (419) (861) (1,280)
Inventories - (72) (5) (77)
Prepaid expenses (539) (137) 383 (293)
Deposits - (79) (72) (151)
Accounts payable 168 1,172 1,754 3,094
Accrued liabilities 43 597 1,326 1,966
Due to Glyko, Inc. 61 (61) - -
------------------- ------------- ------------ ------------
Net cash used in operating activities (3,086) (8,059) (12,940) (24,085)
------------------- ------------- ------------ ------------
Cash flows from investing activities:
Purchase of property and equipment (150) (6,385) (22,944) (29,479)
Purchase of Biochemical Research Reagent
Division of Oxford Glycosciences - - (1,500) (1,500)
Investment in BioMarin/Genzyme LLC - (732) (6,709) (7,441)
Purchase of short-term investments (901) (1,075) (37,597) (39,573)
------------------- ------------- ------------ ------------
Net cash used in investing activities (1,051) (8,192) (68,750) (77,993)
------------------- ------------- ------------ ------------
Cash flows from financing activities:
Proceeds from note payable - 134 - 134
Bridge loan 880 - - 880
Proceeds from issuance of convertible notes
payable - - 25,615 25,615
Accrued interest on notes receivable from
stockholders (38) (150) - (188)
Proceeds from exercise of common
stock options - - 148 148
Repayment of equipment loan - - (24) (24)
Proceeds from sale of common stock, net of -
issuance costs 9,283 19,692 69,951 98,926
------------------- ------------- ------------ -----------
Net cash provided by financing activities 10,125 19,676 95,690 125,491
------------------- ------------- ------------ -----------
Net increase equivalents 5,988 3,425 14,000 3,413
Cash and cash equivalents:
Beginning of period - 5,988 9,413 -
------------------- ------------- ------------ ------------
End of period $ 5,988 $ 9,413 $ 23,413 $ 23,413
=================== ============= ============ ============
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
BioMarin Pharmaceutical Inc. and Subsidiaries
(a development-stage company)
Notes to Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Nature of Operations and Business Risks--BioMarin Pharmaceutical Inc. (BioMarin
or the Company) is a biopharmaceutical company specializing in the development
of carbohydrate enzyme therapies for debilitating life-threatening chronic
genetic disorders and other diseases and 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. With its acquisition of
Glyko, Inc., BioMarin added analytical and diagnostic products and services in
the area of carbohydrate biology. BioMarin was incorporated on October 25, 1996,
in the state of Delaware. BioMarin first began business on March 21, 1997
(inception), and issued 1.5 million shares of common stock to Glyko Biomedical
Ltd. (GBL) for $1.5 million. Beginning in October 1997, BioMarin issued stock to
outside investors in a series of transactions, resulting in GBL's ownership of
BioMarin's outstanding common stock being reduced to 32.6 percent at December
31, 1999.
On September 4, 1998, the Company entered into an agreement with Genzyme
Corporation (Genzyme) to establish a joint venture (BioMarin/Genzyme LLC)
dedicated to the development and commercialization of Aldurazyme(TM), alronidase
for injection (recombinant human (alpha)-L-iduronidase) to treat
mucopolysaccharidosis-I (MPS-I) (Note 8).
On October 7, 1998, the Company acquired Glyko, Inc., a wholly-owned subsidiary
of GBL, in a transaction valued at $14.5 million. The transaction was accounted
for as a purchase and resulted in Glyko, Inc. becoming a wholly owned subsidiary
of the Company. Glyko, Inc. provides products and services that perform
sophisticated carbohydrate analysis for research institutions and commercial
laboratories. As consideration for the acquisition of all of the outstanding
shares of Glyko, Inc., BioMarin issued 2,259,039 shares of common stock to GBL,
assumed Glyko, Inc.'s employee stock options exercisable for 255,540 shares of
BioMarin common stock, and paid $500 in cash (see Note 11).
On April 13, 1999, the Company entered into a convertible note financing
agreement in the amount of $26 million. Of this amount, GBL invested $4.3
million.
In May 1999, Glyko, Inc. acquired key assets of the Biochemical Research Reagent
Division of Oxford GlycoSciences Plc. (OGS). The acquisition increased Glyko,
Inc.'s product offerings and was valued from $1.5 million to $2.1 million,
depending on the future sales of the acquired products.
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 $51.8 million. In a private placement concurrent with the IPO,
Genzyme invested in the Company $10 million at the IPO price (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 exercise of the underwriters'
over-allotment option in August 1999 raised additional net proceeds of $8.1
(675,000 shares of common stock). Through December 31, 1999 the Company had
accumulated losses during its development stage of approximately $43.1 million.
Based on current plans, management expects to incur further losses at least
through mid-year 2002. Management believes that the Company's cash and cash
equivalents and short-term investment balances at December 31,1999, will be
sufficient to meet the Company's obligations through mid-year 2001.
The Company's lead product candidate, Aldurazyme(TM), has completed its initial
clinical trials. The Company expects the BioMarin/Genzyme LLC to conduct a Phase
III confirmatory clinical trial of Aldurazyme(TM) beginning approximately
mid-year 2000. There can be no assurance that the Company's research and
development efforts will be successfully completed or that its products will be
shown to be safe and effective. There can be no assurance that its products will
be approved for marketing by the
<PAGE>
BioMarin Pharmaceutical Inc. and Subsidiaries
(a development-stage company)
Notes to Consolidated Financial Statements--(Continued)
U.S. Food and Drug Administration (FDA) or any equivalent foreign government
agency or that its products will be successfully commercialized or achieve any
significant degree of market acceptance.
BioMarin's core technology is based on the biological applications of
carbohydrate-active enzymes in therapeutic indications. In June 1997, rights to
certain related technology were transferred to BioMarin by GBL in exchange for 7
million shares of BioMarin common stock (see Note 3). Certain of the Company's
products rely on proprietary technology and patents owned by certain
universities and other institutions and licensed to BioMarin. These universities
also provide research and development services. Cessation of relationships with
these universities could significantly affect the Company's future operations.
In order to grow significantly, the Company must expand its efforts to develop
new products in pharmaceutical applications. The Company will also need to
establish manufacturing capabilities and to develop marketing capabilities
and/or enter into collaborative arrangements with third parties having the
capacity for such manufacturing or marketing.
BioMarin's product candidates require regulatory approval by government
agencies. This includes preclinical and clinical testing and approval processes
in the United States and other countries. Approvals can take several years and
can require substantial expenditures. There can be no assurance that
difficulties or excessive costs will not be encountered by the Company in this
process, which could delay or preclude the Company's marketing of its products.
There can be no assurance that any of BioMarin's current or future product
candidates will be successfully developed, prove to be effective in clinical
trials, receive required regulatory approvals, be capable of being produced in
commercial quantities at reasonable costs, gain reasonable reimbursement levels,
or be successfully marketed.
In addition, the Company is subject to a number of risks, including the need for
additional financing, dependence on key personnel, small patient population,
patent protection, significant competition from larger organizations, dependence
on corporate partners and collaborators, and expected increased restrictions on
reimbursement, as well as other changes in the healthcare industry.
Basis of Presentation--These consolidated financial statements include the
accounts of BioMarin, Glyko, Inc., a wholly-owned subsidiary of BioMarin (since
October 7, 1998), and BioMarin Genetics, Inc., a wholly-owned subsidiary of
BioMarin formed for the purpose of the joint venture discussed in Note 8. All
significant intercompany transactions have been eliminated.
Concentration of Credit Risk--Financial instruments that may potentially subject
the Company to concentration of credit risk consist principally of cash, cash
equivalents, and short-term investments. All cash, cash equivalents, and
short-term investments are placed in financial institutions with strong credit
ratings, which minimizes the risk of loss due to nonpayment. The Company has not
experienced any losses due to credit impairment or other factors related to its
financial instruments.
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make certain
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the dates of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Significant estimates made by management include determination of progress to
date of research and development projects in-process and the amortization period
of goodwill and other intangibles.
Cash and Cash Equivalents--For the statements of cash flows, the Company treats
liquid investments with original maturities of less than three months as cash
and cash equivalents.
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 at December 31, 1999 which
approximates fair market value. These securities are comprised mainly of Federal
Home Loan bank discount notes and certificates of deposit.
<PAGE>
BioMarin Pharmaceutical Inc. and Subsidiaries
(a development-stage company)
Notes to Consolidated Financial Statements--(Continued)
Inventories--Inventories consist of analytic kits and instrument-based systems
held for sale. Inventories are stated at the lower of cost (first-in, first-out
method) or estimated market value. All inventories at December 31, 1998 and 1999
belonged to Glyko, Inc.
Investment in BioMarin/Genzyme LLC and Related Revenue--Under the terms of the
Company's joint venture agreement with Genzyme (Note 7 and 8), the Company and
Genzyme have each agreed to provide 50 percent of the funding for the joint
venture. All research and development, sales and marketing, and other activities
performed by Genzyme and the Company on behalf of the joint venture are billed
to the joint venture at cost. Any profits or losses of the joint venture will be
shared equally by the two parties. Losses of the joint venture ($1.8 million and
$14 million for the years ended December 31, 1998 and 1999, respectively) are
allocated in proportion to the funding provided by each joint venture partner.
Through December 31, 1999, each joint venture partner had provided $8.3 million
of funding to the joint venture.
During the years ended December 31, 1998 and 1999, the Company billed $1.7
million and $10.6 million, respectively, under the agreement, of which $837,457
and $5.3 million respectively, or 50 percent, was recognized as revenue in
accordance with the Company's policy of recognizing revenue to the extent that
research and development costs billed have been funded by Genzyme. At December
31, 1998 and 1999 the Company had receivables of $418,712 and $1.3 million,
respectively, related to these billings.
The Company accounts for its investment in the joint venture on the equity
method. Accordingly, the Company recorded a reduction in its investment in the
joint venture of $884,628 and $7 million, during the years ended December 31,
1998 and 1999, respectively, representing its 50 percent share of the loss of
the joint venture. The percentage of the research and development costs billed
to the joint venture that was funded by the Company (50 percent, or $837,457 and
$5.3 million for the years ended December 31, 1998 and 1999, respectively) was
recorded as a credit to the Company's equity in the loss of the joint venture.
At December 31, 1999 the summarized assets and liabilities of the joint venture
and its results of operations from inception to December 31, 1999 are as follows
(in thousands):
Assets $2,729
======
Liabilities 1,886
Net Equity 843
----------- ------
$2,729
Cumulative Net loss $15,714
=======
Research and Development--Research and development expenses include the expenses
associated with contract research and development provided by third parties,
research and development provided in connection with the joint venture including
clinical and regulatory costs, and internal research and development costs. All
research and development costs discussed above are expensed as incurred.
Property and Equipment--Property and equipment are stated at cost. Depreciation
is computed using the straight-line method. Leasehold improvements are amortized
over the life of the asset or the term of the lease, whichever is shorter.
Significant additions and improvements are capitalized, while repairs and
maintenance are charged to expense as incurred.
Property and equipment consisted of the following (in thousands):
December 31,
-------------------------------
Category 1998 1999 Estimated Useful Lives
- - --------------- ------------------------------- ----------------------------
Computer hardware
and software $ 162 $ 426 3 years
Office furniture
and equipment 372 1,017 5 years
Laboratory equipment 3,469 4,083 5 years
Manufacturing
equipment -- 4,171 5 years
Leasehold improvements 2,532 19,768 Shorter of life of assets
or lease term
-------------------------------
6,535 29,465
Less:
Accumulated
depreciation (312) (4,372)
-------------------------------
Total, net $ 6,223 $25,093
===============================
26
<PAGE>
BioMarin Pharmaceutical Inc. and Subsidiaries
(a development-stage company)
Notes to Consolidated Financial Statements--(Continued)
Depreciation expense for the period March 21, 1997 (inception) to December 31,
1997, for the years ended December 31, 1998, and 1999 and for the period March
21, 1997 (inception) to December 31, 1999, was $4,790, $307,645, $4,074,000 and
$4,386,435, respectively.
Goodwill and Other Intangible Assets--In connection with the acquisition of
Glyko, Inc., the Company acquired certain intangible assets including developed
technology, customer relationships and goodwill.
The purchase price of $14.5 million was allocated to the net tangible and
intangible assets acquired, based on the relative fair value of these assets. In
connection with this allocation $2.6 million was expensed as a charge for the
purchase of in-process research and
development. Of the $11.7 million designated as intangible assets (after the
write-off of in-process research and development), $1.2 million was allocated to
developed technology and amortized over six years, $73,000 was allocated to
assembled work force and amortized over seven years, and $10.4 million was
allocated to goodwill (customer relationships, trade name, pure business
goodwill) and amortized over twelve years. In performing this allocation, the
Company considered, among other factors, Glyko, Inc.'s technology research and
development projects in-process at the date of acquisition. With regard to the
in-process research and development projects, the Company considered factors
such as the stage of development of the technology at the time of acquisition,
the importance of each project to the overall development plan, alternative
future use of the technology and the projected incremental cash flows from the
projects when completed and any associated risks.
The Income Approach was the primary technique utilized in valuing the purchased
research and development. The assumptions underlying the cash flow projections
used were derived primarily from investment banking reports, historical results,
company records and estimates of management.
Revenue estimates for each in-process project were developed by management and
based on an assessment of the industry. Cost of goods sold for each project are
expected to be in line with historical results.
The Capital Asset Pricing Model was used to determine the cost of capital
(discount rate) for Glyko, Inc.'s
in-process projects. Due to the conservative nature of the forecast and the
risks associated with the projected growth and profitability of the development
projects, a discount rate of 16 percent was used to discount cash flows from the
in-process products.
The Company believes that the foregoing assumptions used in the forecasts were
reasonable at the time of the acquisition. No assurance can be given, however,
that the underlying assumptions used to estimate sales, development costs or
profitability, or the events associated with such projects, will transpire as
estimated. For these reasons, actual results may vary from projected results.
The most significant and uncertain assumptions relating to the in-process
projects relate to the projected timing of completion and revenues attributable
to each project.
Amortization expense related to the acquisition of Glyko, Inc. was $271,274 and
$1.1 million for the period October 7, 1998 (date of acquisition) to
December 31, 1998, and the year ended December 31, 1999, respectively.
In connection with the purchase of the key assets of the biochemical research
reagent division of Oxford Glyko Sciences or OGS, the Company acquired certain
intangible assets including customer relationships and goodwill. The initial
purchase price of $1.5 million was allocated to the net tangible and intangible
assets acquired, based on the relative fair value of these assets. In connection
with this allocation, $608,549 was allocated to inventory and $891,451 was
allocated to goodwill and is being amortized over seven years.
Amortization expense related to the acquisition of OGS assets for the year ended
December 31, 1999, was $50,818.
Impairment of Long-Lived Assets--The Company regularly reviews long-lived assets
and identifiable intangibles. Whenever events or circumstances indicate that the
carrying amount of such assets may not be fully recoverable. The Company
evaluates the recoverability of long lived assets by measuring the carrying
amount of the assets against the estimated undiscounted future cash flows
associated with them. At the time such evaluations indicate that the future
undiscounted cash flows of certain long-lived assets are not sufficient to
recover its carrying value of such assets, the assets are adjusted to their fair
values (based on discounted cash s flows). No such adjustment have been made
during any period presented.
The Company's long-lived tangible assets consist primarily of property and
equipment and its enzyme investment in the BioMarin/G LLC joint venture. The
Company reviewed all of these assets together for purposes of assessing any
potential impairment due to the fact that these assets will be used together to
generate joint cash flows.
<PAGE>
BioMarin Pharmaceutical Inc. and Subsidiaries
(a development-stage company)
Notes to Consolidated Financial Statements--(Continued)
All of the Company's goodwill and other intangible assets were recorded as a
result n of the Company's acquisitio of Glyko, Inc. and Glyko, Inc.'s purchase
of the key l assets of the biochemica research reagent division of OGS. The
Company assessed any possible impairment taking into regard all future cash
flows to be generated from the intangible assets acquired, including developed
technology assembled work force, customer lists and goodwill.
Accrued Liabilities: accrued liabilities consisted of the following (in
thousands)
December 31,
-----------------------------
1998 1999
------------- -------------
Vacation $ 123 $ 386
Construction in progress -- 882
Other 517 798
------------- ------------
Total $ 640 $ 1,966
============= ============
Revenue Recognition--The Company recognizes Glyko, Inc.'s product revenues and
related cost of sales upon shipment of products. Glyko, Inc.'s service revenues
are recognized upon completion of services as evidenced by the transmission of
reports to customers. Other Glyko, Inc. revenues, principally licensing,
distribution and development fees, are recognized upon our satisfaction of our
contractual obligations such as 1) execution of contract; 2) certain milestones;
and 3) certain anniversary dates from the effective date of the contract.
Revenue from the joint venture is recognized to the extent that research and
development costs billed by the Company have been funded by Genzyme.
Net Income (Loss) per Share--Basic net income (loss) per share is calculated by
dividing net income (loss) by the weighted average common shares outstanding
during the period. Diluted net income per share is calculated by dividing net
income by the weighted average of common stock outstanding and potential common
shares during the period. Potential common shares include dilutive shares
issuable upon the exercise of outstanding common stock options, warrants, and
contingent issuances of common stock. For periods in which the Company has
losses, such potential common shares are excluded from the computation of
diluted net loss per share, as their effect is antidilutive.
Potentially dilutive securities (in thousands):
December 31,
------------------------------------
1997 1998 1999
------------ ------------ ----------
Options to purchase common stock
297 2,801 5,450
Warrants to purchase common stock 802 802 802
------------ ------------ ----------
Total 1,099 3,603 6,252
============ ============ ==========
Segment Reporting--For the year ended December 31, 1998, the Company adopted the
provisions of SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information". The Company operates two segments. The Analytic and
Diagnostic segment represents the operations of Glyko, Inc. which involve the
manufacture and sale of analytic and diagnostic products. The Pharmaceutical
segment represents the research and development activities related to the
development and commercialization of carbohydrate enzyme therapeutics.
Management of the Company has concluded that the operations of the Analytic and
Diagnostic segment are, and will continue to be, immaterial with respect to the
Company's overall activities and, thus, disclosure of segment information is not
required.
New Accounting Standards--In June 1998, the FASB issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 is
not expected to have a material impact on the Company's financial position or
results of operations.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements." SAB
101 provides guidance on applying generally accepted accounting principles to
revenue recognition issues in financial statements. The Company will adopt SAB
101 as required in the first quarter of 2000 and such adoption is not expected
to have a material effect on the Company's consolidate results of operations and
financial position.
<PAGE>
BioMarin Pharmaceutical Inc. and Subsidiaries
(a development-stage company)
Notes to Consolidated Financial Statements--(Continued)
2. BRIDGE LOANS:
In the third quarter of 1997, the Company drew upon a bridge loan from certain
stockholders in the amount of $880,000. This bridge loan was converted into
880,000 shares of common stock in the fourth quarter of 1997.
3. STOCKHOLDERS' EQUITY:
Common Stock and Warrants--On March 21, 1997, BioMarin's parent company, GBL,
provided initial equity funding by purchasing 1.5 million shares of common stock
for $1.5 million.
BioMarin and GBL have entered into a License Agreement dated June 26, 1997,
pursuant to which GBL granted BioMarin an exclusive, worldwide, perpetual,
irrevocable, royalty-free right and license to certain of its worldwide patents,
trade secrets, copyrights, and other proprietary rights to all know-how,
processes, formulae, concepts, data, and other such intellectual property,
whether patented or not, owned or licensed by GBL and its subsidiaries as of the
date of the license agreement for application in therapeutic uses, including
without limitation, drug discovery and genomics. As consideration for this
license, BioMarin issued to GBL 7.0 million shares of BioMarin common stock.
Under the same License Agreement, BioMarin granted GBL an exclusive, worldwide,
perpetual, irrevocable, royalty-free cross-license to all improvements BioMarin
may make upon the licensed intellectual property. As this transaction was
between the Company and its parent, the Company recorded the license at its
historical cost on GBL's financial statements, which was zero.
In the fourth quarter of 1997, 880,000 shares of common stock were issued to
stockholders to retire an $880,000 bridge loan.
As disclosed in the accompanying statements of stockholders' equity, the Company
closed a number of private placements in 1997 and 1998. In connection with these
placements, an entity with which the chief executive officer and chairman of the
board is affiliated (see Note 7) was issued a total of 899,500 shares (valued at
$1,389,500) and warrants (valued at $128,240) to purchase an additional 801,500
shares of common stock at an exercise price of $1 per share. These issuances
were made for brokerage services rendered in connection with these placements
and were accounted for as a cost of raising capital. The warrants expire on
various dates in 2001.
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 $51.8 million. In a private placement concurrent with the IPO,
Genzyme invested in the Company $10 million at the IPO price (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' exercise of its
over-allotment option in August 1999 raised additional net proceeds of $8.1
million (675,000 shares of common stock).
Notes Receivable from Stockholders--Notes receivable from stockholders relate to
2.5 million shares of common stock issued in October 1997 to three executive
officers under the terms of the Founder's Stock Purchase Agreement (the
Agreement). These notes bear interest at 6 percent per annum, and are due on
September 30, 2000, or on the date of the employee's termination, whichever is
earlier. The notes are secured by the underlying stock and are with full
recourse. Interest was imputed at nine percent, resulting in an interest
discount and related deferred compensation of $200,000, which is being amortized
over the life of the notes. Amortization expense for the period from March 21,
1997 (inception) to December 31, 1997, the years ended December 31, 1998 and
1999, and for the period from March 21, 1997 (inception), to December 31, 1999,
was $0, $66,667, $150,000, and $216,667, respectively. In the event that their
employment is terminated by the Company, the Company has the obligation, if
requested by the officer, to repurchase any or all of the shares issued under
the Agreement at the lower of the original purchase price or the current market
value of the shares. In the event one of these officers ceases to be an
employee, the Company has the right, but not the obligation, to repurchase the
unvested portion of the shares at their original purchase price. Pursuant to the
terms of the Agreement, 50% of the shares vest after one year from the date of
employment, with the remainder vesting at a rate of 1/24th month thereafter.
Deferred Compensation--In connection with certain stock option grants during the
years ended December 31, 1998 and 1999, the Company recognized deferred
compensation totaling $3,222,816 and $633,944, respectively, which is being
amortized over the four-year estimated service periods of the grantees.
Amortization expense recognized during the years ended December 31, 1998 and
1999, was $185,405 and $1,297,565, respectively.
<PAGE>
BioMarin Pharmaceutical Inc. and Subsidiaries
(a development-stage company)
Notes to Consolidated Financial Statements--(Continued)
4. INCOME TAXES:
The Company utilizes the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred taxes are determined based
on the difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse.
The Company's primary temporary differences relate to items expensed for
financial reporting purposes but not currently deductible for income tax
purposes consisting primarily of depreciable lives for property and equipment.
As of December 31, 1999, net operating loss carryforwards are approximately
$49.6 million and $39.3 million for federal and California income tax purposes,
respectively. These net operating loss carryforwards, including net operating
losses of $12.5 million and $5.8 million for federal and California purposes,
respectively, related to Glyko, Inc. These federal and state carryforwards
expire beginning in the year 2011 and 2004, respectively.
The Company also has research and development credits available to reduce future
federal and California income taxes, if any, of approximately $2.2 million and
$1.3 million, respectively, at December 31, 1999. These credits include credits
related to Glyko, Inc. of approximately $548,000 and $266,000 for federal and
California purposes, respectively. These federal and state carryforwards expire
beginning in 2012 and 2013, respectively.
The net operating loss carryforwards and research and development credits
related to Glyko, Inc. as of October 7, 1998, can only be utilized to offset
future taxable income and tax, respectively, if any, of Glyko, Inc. In addition,
the Tax Reform Act of 1986 contains provisions that may limit the net operating
loss carryforwards and research and development credits available to be used in
any given year should certain events occur, including sale of equity securities
and other changes in ownership. The acquisition of Glyko, Inc. and the related
issuance of stock represented a change of ownership under these provisions.
There can be no assurance that the Company will be able to utilize net operating
loss carryforwards and credits before expiration.
Deferred income taxes are recorded to reflect the tax consequences on future
years of differences between the tax basis of assets and liabilities and their
financial reporting amounts at each period-end. The Company has a cumulative net
operating loss carryforward since inception, resulting in net deferred tax
assets. A valuation allowance is placed on the net deferred tax assets to reduce
them to an assumed net realizable value of zero.
5. STOCK OPTION PLANS:
The Company's 1997 Stock Option Plan (the Plan) provides for the grant of
incentive common stock options and nonstatutory common stock options to
employees, directors, and consultants of the Company. The maximum aggregate
number of shares that may be optioned and sold under the Plan is 6,392,617
shares as of December 31, 1999. Options currently outstanding generally have
vesting schedules of up to four years and options terminate after five to ten
years or 90 days after termination of employment or contract.
Had compensation cost for the Plan been determined consistent with SFAS No. 123
for option grants to employees, the effect on the Company's net loss would have
been as follwos (in thousands, except for per share data):
<TABLE>
Period from Period from
March 21, 1997 March 21, 1997
(inception) to (inception) to
December 31, Year Ended December 31, December 31,
1997 1998 1999 1999
----------------- ------------------ ------------------ ---------------
<S> <C> <C> <C> <C>
Net loss as reported $ (2,763) $ (12,314) $ (28,072) $ (43,149)
Pro forma effect of SFAS No. 123 (1) (468) (1,734) (2,203)
----------------- ------------------- ------------------ ----------------
Pro forma net loss $ (2,764) $ (12,782) $ (29,806) $ (45,352)
================= =================== ================== ================
$ (0.34) $ (0.55) $ (0.94) $ (2.04)
Net loss per common share
as reported ================= =================== ================== ================
Pro forma loss per common share $ (0.34) $ (0.57) $ (1.00) $ (2.14)
================= =================== ================== ================
</TABLE>
<PAGE>
<TABLE>
BioMarin Pharmaceutical Inc. and Subsidiaries
(a development-stage company)
Notes to Consolidated Financial Statements--(Continued)
A summary of the status of the Company's stock option plan is as follows:
Weighted
Average Exercisable Weighted Average Fair
Exercise at End of Value of Options
Option Shares Price Year Granted
-------------------- ------------- ------------- ------------------------
<S> <C> <C> <C> <C>
Outstanding at March 21, 1997 -- $ --
Granted 297,000 1.00 $0.22
Canceled -- --
--------------------
Outstanding at December 31, 1997 297,000 1.00 232,000
=============
Granted 2,507,660 4.18 $2.40
Exercised (1,973) 1.00
Canceled (1,447) 1.00
--------------------
Outstanding at December 31, 1998 2,801,240 3.85 761,609
=============
Granted 2,877,430 11.35 $8.80
Exercised (40,148) 3.69
Canceled (188,536) 9.28
-------------------- -------------
Outstanding at December 31, 1999 5,449,986 $ 7.59 1,922,041
=============
</TABLE>
There were 2,198,760 and 900,510 options available for grant under the Plan at
December 31, 1998 and 1999, respectively.
As of December 31, 1999, the 5,449,986 options outstanding consisted of the
following:
Number of
Number of Options Exercise Weighted Average Options
Outstanding Price Contractual Life Exercisable
----------------------- ------------- -----------------------------------
415,850 1.00 2.88 368,683
237,313 2.30 2.25 188,094
1,523,000 4.00 8.10 854,167
587,555 6.00 3.75 194,115
849,780 7.00 4.34 270,211
36,750 8.50 4.16 7,500
688,242 12.75 5.00 --
30,500 12.88 4.93 --
422,500 13.00 4.52 36,979
15,000 13.06 4.92 --
15,000 13.38 4.95 --
78,000 13.50 4.94 --
18,000 13.56 5.01 --
12,500 14.06 4.86 --
22,500 14.78 4.85 --
12,500 15.19 4.84 --
474,996 15.38 4.71 2,292
10,000 16.06 4.80 --
---------- ----------
5,449,986 1,922,041
========== ==========
<PAGE>
BioMarin Pharmaceutical Inc. and Subsidiaries
(a development-stage company)
Notes to Consolidated Financial Statements--(Continued)
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions used for
grants in 1997, 1998, and through July 22, 1999: risk-free interest rates
ranging from 5.2 to 6.2 percent; expected dividend yield of 0 percent; expected
life of four years for the Plan's options; and expected volatility of 38
percent.
6. COMMITMENTS AND CONTINGENCIES:
Lease Commitments--The Company leases office space and research and testing
laboratory space in various facilities under operating agreements expiring at
various dates through 2009. Future minimum lease payments for the years ended
December 31 are as follows (in thousands):
2000................. $1,307
2001.................. 1,151
2002.................. 1,037
2003................. 857
2004.................. 485
Thereafter........... 1,853
-------
Total..... $6,690
=======
Rent expense for the period from March 21, 1997 (inception) to December 31,
1997, the years ended December 31, 1998 and 1999, and for the period from March
21, 1997 (inception), to December 31, 1999, was $34,613, $380,187, $1,069,595
and $1,484,395, respectively.
Research and Development Funding and Technology Licenses--The Company uses
experts and laboratories at universities and other institutions to perform
research and development activities. Funding commitments to these institutions
for the year ended December 31 are as follows (in thousands):
2000.................. $ 615
2001.................. 100
2002.................. 100
2003.................. 100
2004.................. 100
---------
Total..... $ 1,015
=========
The Company has also licensed technology from certain institutions, for which it
is required to pay a royalty upon future sales, subject to certain annual
minimums.
Consulting Agreements--BioMarin had agreements with two consultants whereby the
consultants were paid cash and granted common stock options in exchange for
services. Options for 206,000 shares of common stock were granted in
satisfaction for these services. These options were valued at $35,020 and were
expensed during the period from March 21, 1997 (inception), through December 31,
1997.
Product Liability and Lack of Insurance--The Company is subject to the risk of
exposure to product liability claims in the event that the use of its technology
results in adverse effects during testing or commercial sale. The
BioMarin/Genzyme LLC does carry product liability insurance to cover the
clinical trials of Aldurazyme(TM). At December 31, 1999, BioMarin had no other
product candidate in human clinical trials. There can be no assurance that the
Company will be able to obtain product liability insurance coverage at
economically reasonable rates or that such insurance will provide adequate
coverage against all possible claims.
<PAGE>
BioMarin Pharmaceutical Inc. and Subsidiaries
(a development-stage company)
Notes to Consolidated Financial Statements--(Continued)
7. RELATED-PARTY TRANSACTIONS:
BioMarin had contractual agreements for office space and certain administrative,
research, and development functions with Glyko, Inc. prior to the acquisition
date of October 7, 1998. BioMarin reimbursed Glyko, Inc. for rent, salaries and
related benefits, and other administrative costs. Glyko, Inc. also reimbursed
BioMarin for salaries and related benefits.
Reimbursement of expenses (in thousands):
<TABLE>
Paid from Paid from
Glyko, Inc. to BioMarin to
BioMarin Glyko, Inc. Net, to Glyko, Inc.
---------------- ------------- ---------------------
<S> <C> <C> <C>
March 21, 1997 (inception) to December 31, 1997 $ 133 $ 374 $ 241
Year ended December 31, 1998 75 298 223
Year ended December 31, 1999 68 335 267
---------------- ------------- -------------------
March 21, 1997 (inception) to December 31, 1999 276 1,007 731
================ ============= ===================
</TABLE>
BioMarin also purchased products and services from Glyko, Inc. at a changing
discount, which approximated market conditions. This is the same discount that
Glyko grants to any other company that it treats as a distributor. Purchases of
products and services from Glyko, Inc. from March 21, 1997 (inception) to
October 8, 1998 (Glyko, Inc. acquisition), were $160,455.
In the fourth quarter of 1998 and during 1999, BioMarin loaned to Glyko, Inc.
$200,000 and $401,493, respectively, to fund its operations. As of December 31,
1999, Glyko, Inc. owed $2,855,434 to BioMarin and BioMarin owed $52,528 to
Glyko, Inc. These amounts have been eliminated upon consolidation.
As discussed in Note 3, during August 1997, the Company entered into an agency
agreement with an entity with which the chief executive officer/chairman of the
board is affiliated. During June 1998, the Company entered into a second agency
agreement. The Company issued a total of 899,500 shares of common stock and
warrants to purchase another 801,500 shares of common stock to this entity and
its affiliates for brokerage services pursuant to the terms of these agreements,
also discussed in Note 3.
On April 13, 1999, the Company entered into a convertible note financing
agreement in the amount of $26.0 million. Of this amount GBL purchased $4.3
million worth of such notes and LaMont Asset Management SA (LAM) purchased $9.7
million. A director of the Company is also the chairman of LAM. The Company also
entered into an agency agreement with LAM pursuant to which the Company agreed
to pay LAM a five percent cash commission on sales to certain note purchasers.
On July 23, 1999, concurrent with the Company's IPO, BioMarin's convertible
notes payable (including accrued interest) were converted into 2,672,020 shares
of BioMarin's common stock at $10 per share. GBL's $4.3 million convertible note
plus interest was converted to 441,911 shares and LAM's $9.7 million convertible
note plus interest was converted to 996,869 shares.
Since October 8, 1998, GBL has agreed to pay BioMarin a monthly management fee
for its services to GBL primarily relating to management, accounting, finance
and government reporting. BioMarin had accrued receivables relating to these
services for GBL of $27,152 and $37,500 for the years ended December 31, 1998
and 1999, respectively.
At December 31, 1997, 1998 and 1999, the Company had recorded amounts due from
GBL of $79,607, $114,005 and $139,571, respectively (including the amounts
discussed above.)
Due to the terms of the collaborative agreement with Genzyme outlined in Note 8,
Genzyme is considered a related party. See also Notes 1 and 8 for Genzyme
related party transactions.
8. COLLABORATIVE AGREEMENTS:
Genzyme--Effective September 4, 1998, the Company entered into an agreement (the
Collaboration Agreement) with Genzyme to establish a joint venture
(BioMarin/Genzyme LLC) for the worldwide development and commercialization of
Aldurazyme(TM) to treat MPS-I. In conjunction with the formation of the joint
venture, the Company established a wholly owned subsidiary, BioMarin Genetics,
Inc. The Company has a 49 percent interest in the joint venture, BioMarin
Genetics, Inc. has a 1 percent interest, and Genzyme has the remaining 50
percent interest.
<PAGE>
BioMarin Pharmaceutical Inc. and Subsidiaries
(a development-stage company)
Notes to Consolidated Financial Statements--(Continued)
Under the Collaboration Agreement, BioMarin and Genzyme are each required to
make capital contributions to the joint venture in an amount equal to 50 percent
of costs and expenses associated with the development and commercialization of
Aldurazyme(TM). The parties also agree to share the profits equally from such
commercialization. In addition, Genzyme purchased 1,333,333 shares of BioMarin
common stock at $6 per share in a private placement for proceeds of $8.0 million
and, concurrent with the IPO, purchased an additional 769,230 shares of BioMarin
common stock at the IPO price for an additional $10.0 million. Genzyme has also
agreed to pay BioMarin $12.1 million in cash upon FDA approval of the biologics
license application (BLA) for Aldurazyme(TM).
Other Agreements--The Company is engaged in research and development
collaborations with various academic institutions, commercial research groups,
and other entities. The agreements provide for sponsorship of research and
development by the Company and may also provide for exclusive royalty-bearing
intellectual property licenses or rights of first negotiation regarding licenses
to intellectual property development under the collaborations. Typically, these
agreements are terminable for cause by either party upon 90 days' written
notice.
9. COMPENSATION PLANS:
Employment Agreements--The Company has entered into employment agreements with
seven officers of the Company. All of these agreements are terminable without
cause by the Company upon six months' prior notice, or by the officer upon three
months' prior written notice to the Company, with the Company obligated to pay
salary and benefits hereunder until such termination. The annual salaries
committed to under these agreements total approximately $1.6 million. In
addition, three of the agreements provide for the payment of an annual cash
bonus of up to 100 percent of the base annual salary of the three officers based
upon the Company's market capitalization.
401(k) Plan--The Company participates in the Glyko Retirement Savings Plan (the
401(k) Plan). At January 1, 2000, the plan was renamed the BioMarin Retirement
Savings Plan. Most employees (Participants) are eligible to participate
following the start of their employment, on the earlier of the next occurring
January 1, April 1, July 1 or October 1. Participants may contribute up to 15
percent of their current compensation to the 401(k) Plan or an amount up to a
statutorily prescribed annual limit. The Company pays the direct expenses of the
401(k) Plan but does not currently match or make contributions to employee
accounts.
1997 Stock Plan--In November 1997, the Board adopted, and in April 1998, the
stockholders approved, the 1997 Stock Plan (the 1997 Plan), which provided for
the reservation of a total of 3,000,000 shares of common stock for issuance
under the 1997 Plan. In December 1998, the Board adopted, and in January 1999,
the stockholders approved, an amendment to the 1997 Plan to increase the number
of shares reserved for issuance under it to an aggregate of 5,000,000 and to add
an "evergreen provision" providing for an annual increase in the number of
shares which may be optioned or sold under the 1997 Plan without need for
additional Board or stockholder action to approve such increase (which increase
shall be the lesser of 4 percent of the then-outstanding capital stock,
2,000,000 shares, or a lower amount set by the Board). As of December 31, 1999,
the number of shares reserved for issuance was an aggregate of 6,392,617 under
the 1997 Plan. The 1997 Plan provides for the grant of stock options and the
issuance of common stock by the Company to its employees, officers, directors,
and consultants.
During the year ended December 31, 1999, the Board granted 2,877,430 stock
options under the 1997 Plan to employees and directors of the Company at an
average exercise price of $11.35 per share. The Company's management estimates
that these stock option prices reflected current fair value at the time of the
grant.
1998 Employee Stock Purchase Plan--In December 1998 the Board adopted, and in
January 1999 the stockholders approved, the 1998 Employee Stock Purchase Plan
(the 1998 Purchase Plan). A total of 250,000 shares of Company common stock has
been reserved for issuance under the 1998 Purchase Plan, plus annual increases
equal to the lesser of 0.5 percent of the outstanding capital stock, 200,000
shares, or a lesser amount set by the Board. As of December 31, 1999, $87,337
has been withheld from employees' salaries and no shares have been issued under
the 1998 Purchase Plan.
<PAGE>
BioMarin Pharmaceutical Inc. and Subsidiaries
(a development-stage company)
Notes to Consolidated Financial Statements--(Continued)
1998 Director Option Plan--The 1998 Director Option Plan (the Director Plan) was
adopted by the Board of Directors in December 1998 and approved by the
stockholders in January 1999. The Director Plan provides for the grant of
nonstatutory stock options to non-employee directors. A total of 200,000 shares
of Company common stock, plus an annual increase equal to the number of shares
needed to restore the maximum aggregate number of shares available for sale
under the Director Plan or the lesser of 0.5 percent of the outstanding capital
stock, 200,000 shares, or a lesser amount set by the Board, have been reserved
for issuance under the Director Plan. As of December 1999, options to purchase
90,000 shares were granted under the Director Plan.
10. SUPPLEMENTAL CASH FLOW INFORMATION:
The following non-cash transactions took place in the periods presented (in
thousands):
<TABLE>
Period from March Period from March
21, 1997 21, 1997
(Inception) to (Inception) to
December 31, Year Ended December 31, December 31,
--------------------------------
1997 1998 1999 1999
-------------------- --------------- -------------- --------------------
<S> <C> <C> <C> <C>
Common stock issued in exchange for notes $ 20,500 $ - $ - $ 20,500
Compensation in the form of common stock
and common stock options 18 - - 18
Common stock and common stock warrants
issued in exchange for brokerage services 930 588 - 1,518
Bridge loan converted to common stock 880 - - 880
Common stock issued upon conversion of -
convertible notes plus interest - - 25,615 25,615
</TABLE>
11. GLYKO, INC.:
On October 7, 1998, the Company entered into an agreement to acquire all of the
outstanding stock of its affiliate, Glyko, Inc. from GBL. The total
consideration for the acquisition was $14.5 million , comprising of 2,259,039
shares of common stock of the Company, valued at $6.00 per share, the assumption
of options held by certain Glyko, Inc. employees to purchase shares of GBL's
common stock, which would require 255,540 shares of the Company's common stock
to be issued if fully exercised, and $500 in cash. The acquisition was accounted
for as a purchase.
The unaudited pro forma results of operation for the periods presented below are
presented as if this acquisition of Glyko, Inc. had occurred on March 21, 1997
and January 1, 1998, respectively (in thousands):
Period from
March 21, 1997
(Inception) to Year ended
December 31, 1997 December 31, 1998
------------------- -------------------
Revenues $ 1,996 $ 2,530
Loss from operations (6,028) (13,044)
Net loss (5,954) (12,380)
Net loss per share, basic and diluted (0.57) (0.51)
Weighed average number of common
shares outstandingn 10,464 24,214
In May 1999, Glyko, Inc. acquired key assets of the Biochemical Research Reagent
Division of Oxford GlycoSciences Plc. (OGS). The acquisition increased Glyko,
Inc.'s product offerings and was valued from $1.5 million to $2.1 million,
depending on the future sales of the acquired products. Had this acquisition
been made on January 1, 1999, the impact on the consolidated net loss as
reported would have been insignificant.
<PAGE>
BioMarin Pharmaceutical Inc. and Subsidiaries
(a development-stage company)
Notes to Consolidated Financial Statements--(Continued)
12. SUBSEQUENT EVENT
In the first quarter of 2000, BioMarin made a provision of approximately $4.7
million for the suspension of production operations at its Carson Street
clinical manufacturing facility. The facility was not 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 clinical material both for the confirmatory
Phase III trial and for the commercial launch of Aldurazyme(TM). This decision
was based in part on FDA guidance to use an improved production process, which
was installed in the Galli facility, for the clinical trial and BLA submission
and for commercial production. The Carson Street facility is expected to
complete its final production lots in May. No alternative requirements for
production in Carson Street have been identified for the near term. BioMarin has
made offers to a majority of the staff at the Carson Street facility, which is
in Torrance, California, to transfer to the Galli facility in Novato,
California, which has significantly greater manufacturing capacity.
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