<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 1997
COMMISSION FILE NUMBER 0-21481
TRANSKARYOTIC THERAPIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C>
DELAWARE 04-3027191
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
195 ALBANY STREET
CAMBRIDGE, MASSACHUSETTS 02139
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
Registrant's telephone number, including area code: (617) 349-0200
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
At October 31, 1997, there were 18,413,086 shares of Common Stock, $.01 par
value, issued and outstanding.
================================================================================
<PAGE> 2
TRANSKARYOTIC THERAPIES, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements (unaudited).............................. 3-7
Condensed Balance Sheets as of September 30, 1997 and December 31,
1996.................................................................. 3
Condensed Statements of Operations for the Three and Nine Months Ended
September 30, 1997 and 1996........................................... 4
Condensed Statements of Cash Flows for the Nine Months Ended September
30, 1997 and 1996..................................................... 5
Notes to Condensed Financial Statements................................. 6-7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations......................................................... 8-10
PART II. OTHER INFORMATION
Item 3. Changes in Securities and Use of Proceeds............................... 11-12
Item 6. Exhibits and Reports on Form 8-K........................................ 12
SIGNATURES......................................................................... 13
EXHIBIT INDEX...................................................................... 14
</TABLE>
2
<PAGE> 3
PART I -- FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
TRANSKARYOTIC THERAPIES, INC.
CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................ $ 10,209 $ 10,414
Marketable securities............................................ 123,227 75,841
Prepaid expenses and other current assets........................ 417 818
-------- -------
Total current assets..................................... 133,853 87,073
Property and equipment, net........................................ 3,662 3,237
Other assets....................................................... 735 688
-------- -------
$ 138,250 $ 90,998
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................. $ 757 $ 612
Accrued expenses................................................. 1,324 652
-------- -------
Total current liabilities................................ 2,081 1,264
Other long-term liabilities........................................ 23 90
Stockholders' equity:
Preferred stock, $1.00 par value, 10,000,000 shares authorized;
no shares issued and outstanding.............................. -- --
Common stock, $.01 par value; 30,000,000 shares authorized;
18,411,489 shares issued and outstanding at September 30, 1997
(16,614,273 at December 31, 1996)............................. 184 166
Additional paid-in capital....................................... 184,594 131,796
Accumulated deficit.............................................. (44,604) (37,116)
Deferred compensation............................................ (4,060) (5,218)
Unrealized gain on marketable securities......................... 32 16
-------- -------
Total stockholders' equity............................... 136,146 89,644
-------- -------
$ 138,250 $ 90,998
======== =======
</TABLE>
See accompanying Notes to Condensed Financial Statements.
3
<PAGE> 4
TRANSKARYOTIC THERAPIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- --------------------
1997 1996 1997 1996
------- ------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
License and research revenues...................... $ 300 $ 1,975 $ 5,513 $ 3,950
Operating expenses:
Research and development......................... 4,498 3,811 12,523 10,791
General and administrative....................... 1,480 1,227 4,388 2,997
------- ------- -------- -------
5,978 5,038 16,911 13,788
------- ------- -------- -------
Loss from operations............................... (5,678) (3,063) (11,398) (9,838)
Interest income.................................... 1,657 646 3,910 1,434
------- ------- -------- -------
Net loss........................................... $(4,021) $(2,417) $ (7,488) $(8,404)
======= ======= ======== =======
Net loss per share (pro forma in 1996)............. $ (0.23) $ (0.17) $ (0.44) $ (0.59)
======= ======= ======== =======
Shares used to compute net loss per share (pro
forma in 1996)................................... 17,838 14,255 17,050 14,255
======= ======= ======== =======
</TABLE>
See accompanying Notes to Condensed Financial Statements.
4
<PAGE> 5
TRANSKARYOTIC THERAPIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1997 1996
--------- --------
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss.............................................................. $ (7,488) $ (8,404)
Adjustments to reconcile net loss to net cash used for operating
activities:
Depreciation and amortization....................................... 1,321 1,183
Compensation expense related to equity issuances.................... 868 803
Changes in operating assets and liabilities........................... 1,151 258
--------- --------
Net cash used for operating activities................................ (4,148) (6,160)
--------- --------
INVESTING ACTIVITIES:
Proceeds from sales of marketable securities.......................... 61,264 42,745
Purchases of marketable securities.................................... (108,634) (59,002)
Purchases of property and equipment................................... (1,609) (676)
Changes in other assets............................................... (184) (567)
--------- --------
Net cash used for investing activities................................ (49,163) (17,500)
--------- --------
FINANCING ACTIVITIES:
Proceeds from sale of common stock and exercise
of stock options and warrants, net of expenses...................... 53,106 --
Proceeds from sale of convertible preferred stock..................... -- 23,522
--------- --------
Net cash provided by financing activities............................. 53,106 23,522
--------- --------
Net decrease in cash and cash equivalents............................. (205) (138)
Cash and cash equivalents at January 1................................ 10,414 11,539
--------- --------
Cash and cash equivalents at September 30............................. $ 10,209 $ 11,401
========= ========
</TABLE>
See accompanying Notes to Condensed Financial Statements.
5
<PAGE> 6
TRANSKARYOTIC THERAPIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
Transkaryotic Therapies, Inc. ("TKT" or the "Company" ) is a
biopharmaceutical company engaged in the development and commercialization of
therapeutic proteins and gene therapy products for the long-term treatment and
cure of a broad range of human diseases.
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, the accompanying financial
statements include all adjustments, consisting of normal recurring accruals,
necessary for a fair presentation of the financial condition, results of
operations and cash flows for the periods presented. The results of operations
for the interim period ended September 30, 1997 are not necessarily indicative
of the results to be expected for the year ended December 31, 1997.
These financial statements should be read in conjunction with the audited
financial statements and notes thereto for the year ended December 31, 1996
included in the Company's Annual Report on Form 10-K filed with the Securities
and Exchange Commission.
Certain reclassifications have been made to the 1996 financial statements
to conform to the 1997 presentation.
2. NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of shares
of common stock, and common equivalent shares are excluded as their effect is
antidilutive. For the three and nine months ended September 30, 1996, the
weighted average number of shares also includes the common stock equivalents for
convertible preferred shares, assuming conversion at date of issuance, which
occurred upon the completion of the Company's initial public offering of common
stock in October 1996. Pursuant to the requirements of the Securities and
Exchange Commission, shares and equivalent shares issued by the Company during
the twelve-month period prior to the public offering have been included in the
calculations as if they were outstanding for all periods prior to the initial
public offering whether or not they are anti-dilutive, using the treasury stock
method.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 128, "Earnings Per Share" ("Statement
128"), which is required to be adopted on December 31, 1997. At that time, the
Company will be required to change the method currently used to compute earnings
(loss) per share and to restate all prior periods. Under the new requirements
for calculating basic earnings (loss) per share, the dilutive effect of stock
options will be excluded. The impact is not expected to result in a change in
basic loss per share for the three and nine months ended September 30, 1997 or
in the pro forma basic loss per share for the three and nine months ended
September 30, 1996.
3. STOCKHOLDERS' EQUITY
On August 4, 1997, the Company completed a directed public offering of
1,700,000 shares of common stock to a small number of accredited institutional
investors, resulting in net proceeds to the Company of approximately
$52,893,000.
6
<PAGE> 7
TRANSKARYOTIC THERAPIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
4. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement No.
130, "Reporting Comprehensive Income", which is required to be adopted for
fiscal years beginning after December 15, 1997. The Statement establishes
standards for the reporting and display of comprehensive income and its
components in a full set of general purpose financial statements.
Also, in June 1997, the Financial Accounting Standards Board issued
Statement No. 131, "Disclosures about Segments of an Enterprise and Related
Information", which is required to be adopted for fiscal years beginning after
December 15, 1997. The Statement changes the way in which public companies
report segment information in annual financial statements and also requires
those companies to report selected segment information in interim financial
reports to shareholders.
Adoption of these standards is not expected to have a material impact on
the Company's financial statements or results of operations.
5. LEGAL PROCEEDINGS
In April 1997, Amgen Inc. filed a civil action in the U.S. District Court
in Massachusetts against the Company and Hoechst Marion Roussel, Inc. ("HMRI"),
its collaborative partner. The complaint in the action alleges that the
Company's product, Gene Activated erythropoetin ("GA-EPO"), and processes for
producing GA-EPO infringe three Amgen patents and requests that TKT and HMRI be
enjoined from making, using or selling GA-EPO and that the court award Amgen
monetary damages. In May 1997, TKT and HMRI filed a "Motion To Dismiss, Or, In
The Alternative, For Summary Judgment" stating that under 35 U.S.C. sec.
271(e)(1), TKT's and HMRI's activities do not constitute infringement and
further stating that "neither the product created by TKT nor the process used by
TKT and HMR infringes any valid claim of any of the Amgen patents in suit." In
July 1997, the court denied TKT's and HMRI's motion and stated that the motion
should instead be filed as a Motion for Summary Judgment.
Pursuant to the Amended and Restated License Agreement, dated March 1,
1995, by and between HMRI and TKT, HMRI has assumed the cost of defense of the
suit by Amgen. TKT will reimburse HMRI for its share of litigation expenses, as
defined, from future royalties received from the sale of GA-EPO. The Company and
HMRI believe that they have substantial defenses to the allegations in the
complaint and expect that their position will be thoroughly vindicated in court.
Nonetheless, the Company can provide no assurance as to the outcome of this
litigation. A decision by the court in Amgen's favor, including the issuance of
an injunction against the manufacture and sale of GA-EPO by the Company and HMRI
in the United States, or any other conclusion of this litigation in a manner
adverse to the Company and HMRI, could have a material adverse effect on the
Company's business, financial condition and results of operations.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Since its inception in 1988, Transkaryotic Therapies, Inc. (the "Company")
has been primarily engaged in the development and commercialization of products
based on the Company's proprietary Gene Activation and gene therapy
technologies. No revenues have been derived from the sale of any products, and
the Company does not expect to receive revenues from product sales for a number
of years. The Company expects that its research and development expenditures
will increase substantially in future years as research and product development
efforts accelerate and clinical trials are broadened or initiated. With the
exception of 1995, the Company has incurred substantial annual operating losses
since inception and expects to incur substantial operating losses in the future.
At September 30, 1997, the Company's accumulated deficit was $44,604,000. As a
result, the Company is dependent upon existing cash resources, external
financing from equity and debt offerings or collaborative research and
development arrangements with corporate sponsors to finance its operations.
Results of operations may vary significantly from period to period
depending on, among other factors, the progress of the Company's research and
development efforts, the receipt, if any, of additional license fees and
milestone payments, the timing of certain expenses, and the establishment of
additional collaborative research agreements.
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the accompanying
financial statements and the related footnotes thereto.
RESULTS OF OPERATIONS
For the Three Months Ended September 30, 1997 and 1996
License and research revenues totaled $300,000 and $1,975,000 for the three
months ended September 30, 1997 and 1996, respectively. All revenues were earned
from two collaborative agreements with Hoechst Marion Roussel, Inc. ("HMRI").
The decrease of $1,675,000 in 1997 is principally due to $1,500,000 received by
the Company pursuant to the final of four scheduled research and development
funding payments in September 1996 relating to the Company's second Gene
Activation collaboration with HMRI.
Research and development expenses totaled $4,498,000 for the three months
ended September 30, 1997, as compared to $3,811,000 during the same period in
1996. The increase in 1997 of $687,000, or 18%, is principally due to increases
in research and development staff, an increase in facilities costs for
additional leased space, and an increase in external research costs. During
1997, the Company expanded primarily its Gene Activation programs.
General and administrative expenses were $1,480,000 in the three months
ended September 30, 1997, compared with $1,227,000 during the same period in
1996. The increase in 1997 of $253,000, or 21%, is principally due to increases
in outside professional service fees associated with being a public company, and
increases in insurance costs.
Interest income was $1,657,000 and $646,000 for the three months ended
September 30, 1997 and 1996, respectively. The average cash and marketable
securities balances were $108,875,000 and $43,828,000 in the 1997 and 1996
periods, respectively. The increase in interest income of $1,011,000, or 157%,
is primarily attributable to higher average balances in the respective three
months ended September 30, 1997.
The Company had a net loss of $4,021,000 and $2,417,000 for the three
months ended September 30, 1997 and 1996, respectively. Net loss per share was
$0.23 for the three months ended September 30, 1997, as compared to a pro forma
net loss per share of $0.17 in 1996. Weighted average common and common
equivalent shares outstanding were 17,838,000 for the three months ended
September 30, 1997, as compared to 14,255,000 for the comparable period in 1996.
The increase in 1997 is due principally to the issuance of 2,500,000 shares of
common stock in the Company's initial public offering in October 1996, as well
as the
8
<PAGE> 9
weighted average effect of the issuance of 1,700,000 shares of common stock
related to the Company's directed public offering in August 1997.
For the Nine Months Ended September 30, 1997 and 1996
License and research revenues totaled $5,513,000 and $3,950,000 for the
nine months ended September 30, 1997 and 1996, respectively. All revenues were
earned from two collaborative agreements with HMRI. The increase of $1,563,000
in 1997 is principally due to $4,500,000 received in milestone payments from
HMRI in excess of milestone payments and research and development funding
received in the comparable period in 1996.
Research and development expenses totaled $12,523,000 in the first nine
months of 1997, as compared to $10,791,000 during the same period in 1996. The
increase in 1997 of $1,732,000, or 16%, is principally due to an increase in
research and development staff, an increase in facilities costs for additional
leased space, increases in consulting services, and increases in external
research costs. During 1997, the Company expanded primarily its Gene Activation
programs.
General and administrative expenses were $4,388,000 in the nine months
ended September 30, 1997, compared with $2,997,000 during the same period in
1996. The increase in 1997 of $1,391,000, or 46%, is principally due to
increases in outside professional service fees associated with being a public
company, as well as increases in administrative employee costs, including
several additions in administrative personnel, and increases in insurance costs.
Interest income was $3,910,000 and $1,434,000 for the nine months ended
September 30, 1997 and 1996, respectively. The average cash and marketable
securities balances were $96,762,000 and $36,700,000 in 1997 and 1996,
respectively. The increase in interest income of $2,476,000, or 173%, is
primarily attributable to higher average balances in the respective nine month
periods.
The Company had a net loss of $7,488,000 and $8,404,000 for the nine months
ended September 30, 1997 and 1996, respectively. Net loss per share was $0.44
for the nine months ended September 30, 1997, as compared to a pro forma net
loss per share of $0.59 for the corresponding period in 1996. Weighted average
common shares and pro forma common shares outstanding were 17,050,000 and
14,255,000, respectively, for the nine months ended September 30, 1997 and 1996.
The increase in 1997 is related principally to the Company's initial public
offering of 2,500,000 shares of common stock in October 1996 as well as the
weighted average effect of 1,700,000 shares of common stock issued in connection
with the Company's directed public offering in August 1997.
LIQUIDITY AND SOURCES OF CAPITAL
Since its inception, the Company has financed its operations through the
sale of common and preferred stock, revenues from collaborative agreements and
interest income.
During the nine months ended September 30, 1997, the Company received
proceeds of approximately $53,106,000 from the sale of common stock in a
directed public offering in August 1997 and the exercise of stock options and
warrants. The Company expended $4,148,000 in operating activities and $1,609,000
for capital expenditures.
At September 30, 1997, the Company had unrestricted cash, cash equivalents
and marketable securities totaling $133,436,000. Cash equivalents and marketable
securities are invested in U.S. Treasury notes, agencies of the U.S. government
and money market funds.
Substantial additional funds will be required to support the Company's
research and development programs, for acquisition of technologies and
intellectual property rights, for preclinical and clinical testing of its
products, pursuit of regulatory approvals, acquisition of capital equipment,
expansion of laboratory and office facilities, establishment of production
capabilities and for general and administrative expenses. Until the Company's
operations generate significant revenues from product sales, cash reserves and
interest thereon and
9
<PAGE> 10
proceeds from equity and debt offerings and funding from collaborative
arrangements will be used to fund operations.
The Company expects to pursue opportunities to obtain additional financing
in the future through equity and debt financings, lease arrangements related to
capital equipment and collaborative research agreements. The source, timing and
availability of any future financing will depend principally upon financial
market conditions, interest rates and, more specifically, on the Company's
continued progress in its exploratory, preclinical and clinical development
programs. There can be no assurance that such funds will be available on
favorable terms, if at all.
The Company expects that its existing capital resources, together with
revenues from collaborative agreements and interest income, will be sufficient
to fund its operations through 2001. The Company's cash requirements may vary,
however, depending on numerous factors. Lack of necessary funds may require the
Company to delay, scale back or eliminate some or all of its research and
product development programs or to license its potential products or
technologies to third parties.
The Company is engaged in litigation with Amgen Inc. with respect to the
development of GA-EPO. See Note 4 to Notes to Condensed Financial Statements,
which is incorporated by reference herein.
FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements. For
this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "believes," "anticipates," "plans," "expects,"
"intends," and similar expressions are intended to identify forward-looking
statements. There are a number of important factors that could cause the
Company's actual results to differ materially from those indicated by such
forward-looking statements. These factors include, without limitation, those set
forth in Exhibit 99 to this Quarterly Report on Form 10-Q.
10
<PAGE> 11
PART II -- OTHER INFORMATION
ITEM 3. CHANGES IN SECURITIES AND USE OF PROCEEDS
(d) The following information is provided pursuant to Rule 463 under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Company's first registration statement filed pursuant to the Securities Act:
<TABLE>
<S> <C>
Effective date of the
Registration Statement: October 16, 1996
Securities and Exchange
Commission file number: 333-10845
Date offering commenced: October 16, 1996
Has offering terminated: Yes
Managing underwriters: Morgan Stanley & Co. Incorporated,
UBS Securities LLC and
Pacific Growth Equities, Inc.
Title of securities
registered: Common Stock, $.01 par value per share
</TABLE>
All shares of Common Stock were sold on behalf of the Company.
<TABLE>
<S> <C>
Amount of shares registered: 2,500,000
Aggregate offering price of
amount sold to date: $37,500,000
</TABLE>
11
<PAGE> 12
Amount of expenses incurred for the Company's account in connection with
the issuance and distribution of the securities registered for each of the
following:
<TABLE>
<S> <C>
Underwriting discounts and
commissions: $2,625,000
Finders fees: --
Expenses paid to or for
Underwriters: $53,000
Other expenses: $711,419
Total expenses: $3,389,419
</TABLE>
All such payments were direct or indirect payments to individuals or
entities other than directors, officers, general partners of the Company or
their associates; persons owning 10 per cent or more of any class of equity
securities of the issuer; or affiliates of the Company.
<TABLE>
<S> <C>
Net offering proceeds to the Company after deducting total
expenses: $34,110,581
</TABLE>
Set forth below is the amount of net offering proceeds to the Company used
for each of the following:
<TABLE>
<S> <C>
Construction of plant,
building and facilities: --
Purchase and installation of
machinery and equipment:
Purchases of real estate: --
Acquisition of other
businesses: --
Repayment of indebtedness: --
Working capital: --
Temporary investments: $34,110,581
</TABLE>
Any other purposes for which at least the lessor of 5% of the issuer's
total offering proceeds or $100,000 has been used:
All such payments were direct or indirect payments to individuals or
entities other than directors, officers, general partners of the Company or
their associates; persons owning 10 per cent or more of any class of equity
securities of the issuer; or affiliates of the Company. Such payments did not
represent a material change in the use of proceeds described in the prospectus
contained in the Registration Statement.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The Exhibits filed as part of this Form 10-Q are listed on the Exhibit
Index immediately preceding such Exhibits, which Exhibit Index is
incorporated herein by reference.
(b) Reports on Form 8-K
No reports were filed on Form 8-K during the three months ended
September 30, 1997.
12
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRANSKARYOTIC THERAPIES, INC.
By: /s/ DANIEL E. GEFFKEN
------------------------------------
Daniel E. Geffken
Vice President, Finance and
Chief Financial Officer (Principal
Financial and Accounting Officer)
Date: November 12, 1997
13
<PAGE> 14
TRANSKARYOTIC THERAPIES, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -------------------------------------------------------------------------------------
<C> <S>
11 Statement Re: Computation of Loss Per Share
27 Financial Data Schedule
99 Important Factors Regarding Forward-looking Statements
</TABLE>
14
<PAGE> 1
EXHIBIT 11
TRANSKARYOTIC THERAPIES, INC.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
1997 1996 1997 1996
------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Weighted average common shares outstanding.......... 17,838 5,197 17,050 5,197
Effect of preferred stock -- assumed converted at
date of issuance.................................. -- 5,777 -- 5,777
Effect of common and common stock equivalent shares
issued by the Company during the twelve month
period immediately preceding the Company's initial
public offering in October 1996 (using the
treasury stock method)............................ -- 3,281 -- 3,281
------- ------- ------- -------
Shares used to compute net loss per share........... 17,838 14,255 17,050 14,255
======= ======= ======= =======
Net loss............................................ $(4,021) $(2,417) $(7,488) $(8,404)
======= ======= ======= =======
Net loss per share (pro forma in 1996).............. $ (0.23) $ (0.17) $ (0.44) $ (0.59)
======= ======= ======= =======
</TABLE>
<PAGE> 1
EXHIBIT 99
IMPORTANT FACTORS REGARDING FORWARD LOOKING STATEMENTS
The following important factors, among others, could cause actual results
to differ materially from those indicated by forward-looking statements made in
the Company's Quarterly Report on Form 10-Q for the three months ended September
30, 1997 and presented elsewhere by management from time to time.
PATENT LITIGATION
The biotechnology industry has been characterized by significant litigation
and interference proceedings regarding patents, patent applications and other
intellectual property rights, and many companies in the biotechnology industry
have attempted to employ intellectual property litigation to gain or preserve a
competitive advantage. For example, there has been substantial intellectual
property litigation between suppliers of erythropoietin throughout the world.
The defense and prosecution of intellectual property suits and related
legal and administrative proceedings can be both costly and time consuming.
Litigation and interference proceedings could result in substantial expense to
the Company or its corporate partner and significant diversion of effort by the
Company's technical and management personnel. An adverse determination in
litigation to which the Company may become a party could subject the Company to
significant liabilities to third parties or require the Company to seek licenses
from third parties. Although a number of patent and intellectual property
disputes in the biotechnology area have been settled through licensing or
similar arrangements, costs associated with any such arrangement may be
substantial and could include ongoing royalties. Furthermore, there can be no
assurance that necessary licenses would be available to the Company or its
corporate partner or would be available on acceptable terms. Adverse
determinations in a judicial or administrative proceeding or failure to obtain
necessary licenses could prevent the Company or its corporate partner from
manufacturing and selling some or all of its products, which would have a
material adverse effect on the Company's business, financial condition and
results of operations.
In April 1997, Amgen Inc. filed a civil action in the U.S. District Court
in Massachusetts against the Company and Hoechst Marion Roussel, Inc. ("HMRI"),
its collaborative partner. The complaint in the action alleges that GA-EPO and
processes for producing GA-EPO infringe on Amgen's U.S. Patent Numbers
5,547,933, 5,618,698, and 5,621,080 and requests that TKT and HMRI be enjoined
from making, using, or selling GA-EPO and that the court award Amgen monetary
damages. In May 1997, TKT and HMRI filed a "Motion To Dismiss, Or, In The
Alternative, For Summary Judgment" stating that under 35 U.S.C. sec. 271(e)(1),
TKT's and HMRI's activities do not constitute patent infringement and further
stating that "(n)either the product created by TKT nor the process used by TKT
and HMR infringes any valid claim of any of the Amgen patents in suit." In July
1997, the court denied TKT's and HMRI's motion and stated that the motion
instead should be refiled as a Motion for Summary Judgment. The Company can
provide no assurance as to the outcome of this litigation. A decision by the
court in Amgen's favor, including the issuance of an injunction against the
making, use or sale of GA-EPO by the Company and HMRI in the United States, or
any other conclusion of the litigation in a manner adverse to the Company and
HMRI, would have a material adverse effect on the Company's business, financial
condition, and results of operations. There can be no assurance that the Company
will not in the future become subject, in the United States or any other
country, to additional patent infringement claims, interferences and other
litigation involving patents, or any patents that may issue on any pending
patent applications, including Amgen patent applications.
With respect to gene therapy technology, the Company requested, and the
U.S. Patent and Trademark Office (the "PTO") declared in January 1996, an
interference regarding an issued patent with broad claims to ex vivo gene
therapy. The participants in the interference are TKT, Genetic Therapy, Inc. (a
wholly-owned subsidiary of Novartis AG) and Somatix Therapy Corporation
("Somatix"). Somatix subsequently merged into Cell Genesys, Inc. With the
possible exception of the patents involved in the interference, the Company
believes its Transkaryotic Therapy technology does not infringe on patents
issued to date. The PTO proceeding will determine the patentability of the
subject matter of the interference and which of the parties first
<PAGE> 2
developed this subject matter. The process to resolve the interference can take
many years. The outcome of interferences can be quite variable: for example,
none of the three parties may receive the desired claims, one party may prevail,
or a settlement involving two or more of the parties may be reached. There can
be no assurance that TKT will prevail in this interference or that, even if it
does prevail, that the Company can meaningfully protect its proprietary
position. In the event TKT does not prevail in the interference, a January 1997
Federal Trade Commission ("FTC") decision would then be relevant. The FTC
accepted a consent order to resolve anticompetitive concerns raised by the
merger of Ciba-Geigy Limited and Sandoz Limited into the newly formed Novartis
AG. As part of the consent order, the constituent entities of Novartis will be
required to provide all gene therapy researchers and developers with
non-exclusive licenses to the patent upon which Novartis is involved in the
interference. The Company has entered into an agreement with Somatix under which
the Company's ability to market its non-viral gene therapy products will not be
affected should Somatix win the interference.
Should any of its competitors have filed additional patent applications in
the U.S. that claim technology also invented by the Company, the Company may
have to participate in additional interference proceedings declared by the PTO,
all of which could result in substantial cost to the Company to determine its
rights or potential loss of rights.
PATENTS AND PROPRIETARY RIGHTS
The Company's success may depend in large part on its ability to obtain
patent protection for its Gene Activation and gene therapy processes and
potential products in the U.S. and other countries and to obtain the right to
use in its potential products genes or other technology that have been or may be
patented by others. Currently, the Company has two issued patents and 21 pending
patent applications in the U.S. to protect its proprietary methods and
processes; it has also filed foreign patent applications corresponding to
certain of these U.S. patent applications. In addition, the Company has entered
into several agreements to license proprietary rights from other parties.
However, the patent situation in the field of biotechnology generally is highly
uncertain and involves complex legal, scientific and factual questions. To date
there has emerged no consistent policy regarding the breadth of claims allowed
in biotechnology patents. Accordingly, there can be no assurance that patent
applications relating to the technology used by the Company will result in
patents being issued or that, if issued, the patents will not be challenged,
invalidated or circumvented or will afford protection against competitors with
similar technology.
Many biotechnology and pharmaceutical companies, universities and research
institutions, including competitors with substantial resources, have filed
patent applications and have been issued patents potentially relating to the
Company's Gene Activation and gene therapy technologies. In addition, certain
competitors have filed patent applications and have been issued patents relating
to certain methods of producing therapeutic proteins that the Company
anticipates producing using its Gene Activation technology. The Company's Gene
Activation and gene therapy technologies and potential products may be found to
conflict or be alleged to conflict with patents which have been or may be
granted to competitors, universities or others. There are a substantial number
of biotechnology patent applications under review at the PTO. Because patent
applications in the U.S. are maintained in secrecy until patents issue, the
Company cannot be certain that others have not filed or maintained patent
applications for technology used by the Company or covered by the Company's
pending patent applications or that the Company was the first to file patent
applications for such technology. Competitors may have filed applications for,
or may have received patents and may obtain additional patents and proprietary
rights relating to, compositions of matter or processes that block or compete
with those of the Company. Furthermore, as is the case with any pending patent
application, competitors may attempt to amend existing applications to claim
rights to compositions of matter or processes that may block the Company. No
assurance can be given that the Company's products or processes may not infringe
patents that may issue under pending patent applications.
Although the Company has licensed proprietary rights to certain genes (for
example, for Factor VIII and Factor IX) to be used in its gene therapy products,
the Company presently has no proprietary rights to certain other genes that it
may later seek to use in its products and which may be the subject of issued
third party patents or pending patent applications. As a result, the Company may
be required to obtain licenses under
<PAGE> 3
third party patents in order to market certain of its products. If such licenses
are not made available to the Company on acceptable terms, the Company will not
be able to market such products. In addition, under the Company's license and
sublicense agreements, the licensors and sublicensors may terminate these
agreements upon the Company's failure to meet certain specified milestones. Any
such termination of an existing license or sublicense by any such licensor or
sublicensor, or any inability by the Company to obtain any required license,
could have a material adverse effect on the Company's business.
The Company also relies upon unpatented proprietary technology, processes
and know-how, which the Company protects in part by confidentiality agreements
with its employees, consultants and certain contractors. There can be no
assurance that these agreements will not be breached, that the Company will have
adequate remedies for any breach, or that the Company's trade secrets will not
otherwise become known or be independently developed by competitors.
EARLY STAGE OF DEVELOPMENT; COMMERCIAL UNCERTAINTY
TKT is at an early stage of development. All of the Company's potential
Gene Activation products are in research, preclinical development or early
clinical development. No revenues have been generated from product sales, and no
such revenues are expected for at least several years. The Gene Activation
products currently under development by the Company will require significant
additional development efforts, including extensive preclinical and clinical
testing and regulatory approval, prior to commercial use. There can be no
assurance that any Gene Activation products will ultimately be developed by the
Company and its corporate partners, or that, even if developed, these products
will receive regulatory approval. If approved, these products will compete with
established products of proven safety and efficacy, the manufacturers of which
can be expected to employ intellectual property challenges to commercialization
of these products. There can be no assurance that the Company's Gene Activation
products, if any, will be able to be commercialized or, if commercialized, that
they will be accepted by medical centers, hospitals, physicians or patients in
lieu of existing treatments. Accordingly, there can be no assurance that these
products can be successfully manufactured and marketed at prices that would
permit the Company and its corporate partners to operate profitably. The
Company's potential gene therapy products may be even further from commercial
introduction. Due to the early stage of development of the Company's potential
gene therapy products and the extensive research, development, preclinical and
clinical testing, and regulatory review process required before marketing
approval can be obtained, the Company cannot predict with certainty when it will
be able to commercialize any of its potential gene therapy products, if at all.
TECHNOLOGICAL UNCERTAINTY
Gene Activation and gene therapy are new and rapidly evolving technologies.
Existing preclinical data on the safety and efficacy of proteins produced by the
Company's Gene Activation technology are limited, and the Company's Gene
Activation products have not yet been tested in humans or are in early clinical
development. The Company's potential gene therapy products are even further from
commercial introduction. While many approaches to gene therapy are being pursued
by pharmaceutical and biotechnology companies and academic institutions, there
are currently no marketed gene therapy products, and existing clinical data on
the safety and efficacy of potential gene therapy products are limited. The
potential gene therapy products currently under development by the Company will
require substantial additional development efforts, including extensive
preclinical and clinical testing and the receipt of regulatory approvals prior
to commercial introduction. For any given disease, gene therapy generally, as
well as the Company's specific approach to gene therapy, may not be efficacious
or may prove to have undesirable and unintended side effects, toxicities or
other characteristics that may prevent or limit commercial use. There can be no
assurance that the Company's products will obtain approval from the U.S. Food
and Drug Administration (the "FDA") or equivalent foreign regulatory authorities
for any indication.
UNCERTAINTY ASSOCIATED WITH CLINICAL TRIALS
Subject to compliance with FDA regulations, TKT and its corporate partners
plan to undertake extensive clinical testing in humans to evaluate the safety
and efficacy of its Gene Activation and gene therapy products
<PAGE> 4
in development. The Company's potential Gene Activation products have not yet
been tested in humans or are in early clinical development. The rate of
completion of clinical trials is dependent upon, among other factors, the
enrollment of patients. Patient accrual is a function of many factors, including
the size of the patient population, the proximity of patients to clinical sites,
the eligibility criteria for the study and the existence of competitive clinical
trials. Delays in planned patient enrollment in the anticipated Gene Activation
clinical trials may result in program delays, which could have a material
adverse effect on TKT. Even if clinical trials are completed, there can be no
assurance that the Company or its partners will be able to submit a Product
License Application ("PLA") to the FDA or comparable regulatory agencies in
foreign countries on the schedule anticipated or that such applications will be
reviewed and approved by such regulatory agencies in a timely manner. Of the
gene therapy products under development at the Company, only one is in Phase I
human clinical trials. The Company currently intends to seek a collaborative
partner prior to proceeding with further clinical development of this product.
There can be no assurance that the Company will be able to obtain authorization
from the FDA for additional human clinical testing of any of its gene therapy
products currently in research or preclinical development. There can be no
assurance that any authorized clinical testing will be completed successfully
within any specified time period, if at all, with respect to any potential
product. There also can be no assurance that such testing will show any
potential product to be safe or efficacious or that any such product will be
approved by the FDA for any indication. Furthermore, the Company or the FDA may
suspend clinical trials at any time if the subjects or patients participating in
such trials are being exposed to unacceptable health risks. There can be no
assurance that the Company will not encounter problems in clinical trials which
will cause the Company or the FDA to delay or suspend clinical trials.
UNCERTAINTY OF GOVERNMENT REGULATORY REQUIREMENTS; LENGTHY APPROVAL PROCESS
The Company's research and development, preclinical testing, clinical
trials, facilities and manufacturing and marketing of its products will be
subject to extensive regulation by numerous governmental authorities in the U.S.
and other countries. The regulatory process for new therapeutic products, which
includes preclinical and clinical testing of each product to establish its
safety and efficacy, can take many years and require the expenditure of
substantial resources. Data obtained from preclinical and clinical activities
are susceptible to varying interpretations which could delay, limit or prevent
FDA regulatory approval. In addition, delays or rejections may be encountered
based upon changes in FDA policy during the period of product development and
FDA regulatory review of each submitted License Application. Similar delays may
also be encountered and substantial resources expended in foreign countries.
There can be no assurance that even after such time and expenditures, regulatory
approval will be obtained for any Gene Activation or gene therapy products
developed by the Company. Moreover, if regulatory approval of a product is
granted, such approval may entail limitations on the indicated uses for which it
may be marketed and contain requirements for post-marketing follow-up studies.
Because gene therapy is a relatively new technology and products for gene
therapy have not been extensively tested in humans, the regulatory requirements
governing gene therapy products may be subject to substantial additional review
by various regulatory authorities in the U.S. and abroad. These requirements may
result in extensive delays in initiating clinical trials of gene therapy
products and in the regulatory approval process in general.
Any of the foregoing effects of government regulation, as well as of
comparable foreign regulation, could delay the marketing of the Company's Gene
Activation and gene therapy products for a considerable or indefinite period of
time, materially increase the cost involved in developing, manufacturing and
marketing the Company's products, diminish or eliminate any competitive
advantage the Company may enjoy, or otherwise adversely affect the Company's
ability to conduct its business. Compliance with applicable government
regulations governing each of the Company's potential Gene Activation and gene
therapy products will require a significant commitment of time, money and effort
by the Company and its corporate partners with no assurances that any approval
will ultimately be granted on a timely basis, if at all.
<PAGE> 5
HISTORY OF OPERATING LOSSES; FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL
FUNDING
The Company has experienced significant operating losses since its
inception in 1988. As of September 30, 1997, the Company had an accumulated
deficit of $44,604,000. The Company expects that it will continue to incur
substantial losses for at least several years and expects cumulative losses to
increase as the Company's research and development efforts expand. The Company
expects that such losses will fluctuate from quarter to quarter and that such
fluctuations may be substantial. There can be no assurance that the Company will
ever achieve sales or profitability.
The Company will require substantial funds to conduct research and
development (including preclinical and clinical testing) of its potential
products and to manufacture and market any products that are approved for
commercial sale. Based on its current operating plan, the Company believes that
its available cash will be adequate to satisfy its capital needs through 2001.
The Company's future capital requirements will depend on many factors, including
continued progress in its research and development programs, the magnitude of
these programs, the scope and results of clinical trials, the timing and receipt
of milestone payments, the time and costs involved in obtaining regulatory
approvals, the costs involved in preparing, filing, prosecuting, maintaining and
enforcing patent claims and other patent-related costs, competing technological
and market developments, the ability of the Company to establish and maintain
collaborative arrangements, and the cost of manufacturing and commercialization
activities. To date, the Company has not received any revenues from product
sales. The Company intends to seek additional funding through collaborative
arrangements or through public or private financings. There can be no assurance
that additional financing will be available on acceptable terms, if at all.
COMPETITION
The field of biotechnology is new and evolving, and it is expected to
continue to undergo significant and rapid technological change. Technological
developments could result in the Company's potential products becoming obsolete.
The Company's products and technologies will be subject to substantial
competition, both from other companies in the field of Gene Activation and gene
therapy and from companies which have other forms of treatment of the diseases
targeted by the Company.
The Company is initially focusing its Gene Activation efforts on
established products with proven safety and efficacy. The Company anticipates
that companies selling such products will compete vigorously. There can be no
assurance that the Company's Gene Activation products will be accepted by
medical centers, hospitals, physicians or patients in lieu of existing products,
or as to the effect of such competition on the market prices of the Company's
products.
Although the Company has a major corporate partner, many of the Company's
existing or potential competitors have substantially greater product development
capabilities and financial, scientific, marketing or human resources than the
Company. Similarly, other competitors of the Company may enter into
collaborative relationships with other companies having such greater resources.
In addition, certain of these competitors have significantly greater experience
than the Company in undertaking human clinical trials of new therapeutic
products. Accordingly, other companies may succeed in developing products
earlier than the Company, obtaining FDA approvals for such products more rapidly
than the Company, or developing products that are more effective or less costly
than those proposed to be developed by the Company. Furthermore, if the Company
is permitted to commence commercial sales of products, it may also be competing
with respect to commercial manufacturing and marketing capabilities, areas in
which it has no experience.
NO MANUFACTURING, DISTRIBUTION OR MARKETING CAPABILITY
Although the Company has a pilot gene therapy manufacturing facility and
believes it will be able to manufacture its potential products on a large scale,
the feasibility of large-scale manufacturing of such products has not been
demonstrated. If the Company is unable to develop or contract for manufacturing
capabilities on acceptable terms, the Company's ability to commercialize its
potential products would be materially adversely affected. If the Company is
delayed in establishing suitable manufacturing capabilities, the Company's
ability to conduct human clinical testing may be adversely affected, resulting
in the delay of
<PAGE> 6
submission of potential products for regulatory approval and initiation of new
development programs, which in turn could impair materially the Company's
competitive position and the possibility of the Company achieving profitability.
In addition, although the Company believes that its potential products will be
cost-effective, there can be no assurance that the Company will be able to
manufacture and distribute such products at a reasonable cost, that the Company
will be able to price such products competitively or, if priced competitively,
that the Company will be able to achieve margins sufficient to allow it to
achieve profitability.
The Company plans to provide its gene therapy products through central
manufacturing facilities. The establishment of these facilities will require
substantial additional funds and personnel and will require compliance with
extensive regulations applicable to such facilities. There can be no assurance
that such funds and personnel will be available on acceptable terms, if at all,
or that the Company will be able to comply with such regulations at acceptable
cost, if at all. In addition, in managing this expansion the Company may
encounter unforeseen regulatory, logistical or management problems or incur
unexpected operating costs. Failure or delays in establishing these facilities,
or the incurrence of unexpected operating costs, could adversely affect the
ability of the Company to manufacture and market its gene therapy products.
Furthermore, the Company has no experience in sales, marketing or distribution.
In order to market any of its gene therapy products, the Company must develop a
marketing and sales capability, either on its own or in conjunction with others.
There can be no assurance that the Company will be able to enter into any
arrangements for the marketing of its products, that such arrangements will be
successful, or that the Company will be able to obtain additional capital and
expertise to conduct such activities independently.
The Company has no manufacturing, sales, marketing or distribution
capabilities for its Gene Activation products. The Company's collaborative
partner, HMRI, is responsible for the manufacture, sales, marketing and
distribution of GA-EPO and the undisclosed second protein. With respect to
future Gene Activation products, the Company may seek collaborative partners or
may manufacture and commercialize the products on its own. There can be no
assurance that the Company will be successful in establishing such future
collaborative relationships or that the Company will be able to conduct such
activities independently.
DEPENDENCE ON KEY PERSONNEL
The Company's success is highly dependent on the retention of principal
members of its scientific and management staff. Furthermore, the Company's
future growth will require the hiring of significant numbers of qualified
scientific and management personnel. Accordingly, recruiting and retaining such
personnel in the future will be critical to the Company's success. There is
intense competition from other companies and research and academic institutions
for qualified personnel in the areas of the Company's activities, and there can
be no assurance that the Company will be able to continue to attract and retain
on acceptable terms the qualified personnel necessary for the development of its
business.
DEPENDENCE ON HMRI AND OTHER COLLABORATIVE PARTNERS
The Company has entered into arrangements with HMRI on two of its Gene
Activation development programs and with another corporate partner on a gene
therapy development program. Each agreement with HMRI is subject to termination
without cause on short notice under certain circumstances, and there is no
assurance that in the future either partner will not exercise its termination
rights. The Company is relying on HMRI to develop, conduct clinical trials,
obtain regulatory approval for the sale of, manufacture and market GA-EPO and
the undisclosed second protein worldwide. There can be no assurance that HMRI
will devote the resources necessary to complete development of and commercialize
these two potential products. Should HMRI fail to develop and commercialize
these two potential products, the Company's business would be materially
adversely affected.
The Company's strategy for the research, development and commercialization
of certain of its potential products includes the possibility that it will enter
into various additional arrangements with corporate partners, licensors,
licensees and others. There can be no assurance that any further arrangements
will be effected in the future. Although the Company believes parties to any
existing and future arrangements, if entered into, would have economic and other
motivations to perform their contractual responsibilities in full, the amount
and
<PAGE> 7
timing of resources which they would devote to these activities would not be
within the control of the Company. There can be no assurance that such parties
would perform their obligations as expected or that any revenue would be derived
by the Company from such arrangements.
PRODUCT LIABILITY AND INSURANCE
The Company's business will in the future expose it to potential product
liability risks which are inherent in the testing, manufacturing and marketing
of human therapeutic products. Although the Company has clinical trial liability
insurance for trials conducted in the U.S., the Company does not currently have
any product liability insurance, and there can be no assurance that it will be
able to obtain or maintain such insurance on acceptable terms, if at all, or
that any insurance obtained will provide adequate protection against potential
liabilities. An inability to obtain insurance at acceptable cost or otherwise
protect against potential product liability claims, in addition to exposing the
Company to significant liabilities, could prevent or inhibit the
commercialization of products developed by the Company.
UNCERTAINTY OF PHARMACEUTICAL PRICING AND REIMBURSEMENT
The business and financial condition of pharmaceutical and biotechnology
companies will continue to be affected by the efforts of government and
third-party payors to contain or reduce the cost of health care through various
means. For example, in certain foreign markets, pricing and profitability of
prescription pharmaceuticals is subject to government control. In particular,
individual pricing negotiations are often required in each country of the
European Community, even if approval to market the drug is obtained. In the U.S.
there have been, and the Company expects that there will continue to be, a
number of federal and state proposals to implement similar government control.
In addition, an increasing emphasis on managed care in the U.S. has and will
continue to increase the pressure on pharmaceutical pricing. While the Company
cannot predict whether any such legislative or regulatory proposals will be
adopted or the effect such proposals or managed care efforts may have on its
business, the announcement of such proposals or efforts could have a material
adverse effect on the Company's ability to raise capital, and the adoption of
such proposals or efforts could have a material adverse effect on the Company's
business, financial condition and results of operations. Further, to the extent
that such proposals or efforts have a material adverse effect on other
pharmaceutical companies that are prospective corporate partners for the
Company, the Company's ability to establish corporate collaborations may be
adversely affected. In addition, in both domestic and foreign markets, sales of
the Company's products, if any, will be dependent in part on the availability of
reimbursement from third party payors, such as government and private insurance
plans. Third party payors are increasingly challenging the prices charged for
medical products and services. If the Company succeeds in commercializing
products, there can be no assurance that these products will be considered cost
effective, that reimbursement will be available, or if available, that the
payor's reimbursement policies will be adequate to permit the Company to realize
a reasonable return.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 10,209
<SECURITIES> 123,227
<RECEIVABLES> 138
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 133,853
<PP&E> 10,689
<DEPRECIATION> 7,027
<TOTAL-ASSETS> 138,250
<CURRENT-LIABILITIES> 2,081
<BONDS> 0
0
0
<COMMON> 184
<OTHER-SE> 135,962
<TOTAL-LIABILITY-AND-EQUITY> 138,250
<SALES> 0
<TOTAL-REVENUES> 5,513
<CGS> 0
<TOTAL-COSTS> 16,911
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,488)
<EPS-PRIMARY> (.44)
<EPS-DILUTED> (.44)
</TABLE>
