<PAGE>
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 March 31, 1998
Commission File Number 0-21481
TRANSKARYOTIC THERAPIES, INC.
(Exact name of registrant as specified in its charter)
----------------------
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)
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 April 30, 1998, there were 19,058,674 shares of Common
Stock, $.01 par value, issued and outstanding. There were no issued and
outstanding shares of Preferred Stock.
<PAGE>
Transkaryotic Therapies, Inc.
INDEX
<TABLE>
<CAPTION>
Page Number
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
(unaudited)
Condensed Consolidated Balance Sheets as of
March 31, 1998 and December 31, 1997 3
Condensed Consolidated Statements of Operations
for the Three Months Ended March 31, 1998 and
1997 4
Condensed Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 1998 and 1997 5
Notes to Condensed Consolidated Financial
Statements 6 - 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 - 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
EXHIBIT INDEX 16
</TABLE>
<PAGE>
Part 1- Item 1- Condensed Consolidated Financial Statements
Transkaryotic Therapies, Inc.
Condensed Consolidated Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
(in thousands, except par values) March 31, December 31,
1998 1997
--------- ---------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 25,114 $ 23,922
Marketable securities 99,801 105,632
Prepaid expenses and other current assets 987 551
--------- ---------
Total current assets 125,902 130,105
Property and equipment, net 4,193 4,505
Other assets 355 338
--------- ---------
$ 130,450 $ 134,948
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 513 $ 1,656
Accrued expenses 1,794 1,543
--------- ---------
Total current liabilities 2,307 3,199
Stockholders' equity:
Preferred stock, $1.00 par value, 10,000 shares authorized:
no shares issued and outstanding
Common stock, $.01 par value; 30,000 shares authorized;
19,026 and 18,929 shares issued and outstanding at
March 31, 1998 and December 31, 1997, respectively 190 189
Additional paid-in capital 185,968 185,451
Accumulated deficit (54,490) (49,987)
Deferred compensation (3,613) (3,940)
Accumulated other comprehensive income 88 36
--------- ---------
Total stockholders' equity 128,143 131,749
--------- ---------
$ 130,450 $ 134,948
========= =========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
3
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Part 1- Item 1- Condensed Consolidated Financial Statements
Transkaryotic Therapies, Inc.
Condensed Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
(in thousands, except per share amounts) Three Months Ended
March 31, March 31,
1998 1997
-------- --------
<S> <C> <C>
License and research revenues $ 575 $ 300
Operating expenses:
Research and development 5,393 3,832
General and administrative 1,502 1,402
-------- --------
6,895 5,234
-------- --------
Loss from operations (6,320) (4,934)
Interest income 1,817 1,141
-------- --------
Net loss ($ 4,503) ($ 3,793)
======== ========
Basic and diluted net loss per share ($ 0.24) ($ 0.23)
======== ========
Shares used to compute basic and diluted
net loss per share 18,962 16,641
======== ========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
Part 1- Item 1- Condensed Consolidated Financial Statements
Transkaryotic Therapies, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
(in thousands) Three Months Ended
March 31, March 31,
1998 1997
--------- ---------
<S> <C> <C>
Operating activities:
Net loss $ (4,503) $ (3,793)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 557 398
Compensation expense relating to
equity issuances 291 280
Changes in operating assets and liabilities (1,328) 301
-------- --------
Net cash used for operating activities (4,983) (2,814)
-------- --------
Investing activities:
Proceeds from sales of marketable securities 37,683 11,985
Purchases of marketable securities (31,800) (13,039)
Purchase of property and equipment (209) (331)
Changes in other assets and liabilities (53) (48)
-------- --------
Net cash provided by (used for) investing activities 5,621 (1,433)
-------- --------
Financing Activities:
Proceeds from exercise of options and warrants 554 --
-------- --------
Net increase (decrease) in cash and cash equivalents 1,192 (4,247)
Cash and cash equivalents at January 1 23,922 10,414
-------- --------
Cash and cash equivalents at March 31 $ 25,114 $ 6,167
======== ========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
5
<PAGE>
PART I - Item 1 - Condensed Consolidated Financial Statements
Transkaryotic Therapies, Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)
March 31, 1998 and 1997
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
products based on its three proprietary product development platforms: Gene
activation, gene therapy and Niche Proteins-TM-.
The accompanying unaudited condensed consolidated 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 March 31, 1998 are not
necessarily indicative of the results to be expected for the year ending
December 31, 1998.
These financial statements should be read in conjunction with the audited
financial statements and notes thereto for the year ended December 31, 1997
included in the Company's Annual Report on Form 10-K filed with the Securities
and Exchange Commission.
2. BASIC AND DILUTED NET LOSS PER SHARE
Basic and diluted net loss per share is computed using the weighted
average number of shares of common stock outstanding. Common equivalent shares
from stock options and warrants are excluded as their effect is antidilutive.
In December 1997, the Company adopted Statement of Financial
Accounting Standard ("SFAS") No. 128, "Earnings per Share". Under SFAS No.
128, primary earnings per share computed in accordance with Opinion 15 has
been replaced with a simpler calculation called basic earnings per share.
Basic earnings per share is calculated by dividing income available to common
stockholders by the weighted average common shares outstanding. Fully
dilutive earnings per share did not change significantly but has been renamed
diluted earnings per share. The adoption of SFAS No. 128 had no effect on the
financial statements presented for the three months ended March 31, 1998 and
1997 since common equivalent shares from stock options and warrants have been
excluded as their effect is antidilutive.
6
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3. COMPREHENSIVE INCOME
As of January 1, 1998 the Company adopted SFAS No. 130, "Reporting
Comprehensive Income". SFAS No. 130 establishes new rules for the reporting
and display of comprehensive income and its components, including the
requirement that unrealized gains or losses on the Company's
available-for-sale securities, which prior to adoption were reported
separately in stockholders' equity, be included in other comprehensive
income. The adoption of SFAS No. 130 had no impact on the Company's net loss
or stockholders' equity.
During the first quarter of 1998 and 1997, total comprehensive loss
amounted to $4,451,000 and 3,936,000.
4. 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.
("Hoechst Marion Roussel"), its collaborative partner. The complaint in the
action alleged that Gene Activated-TM- erythropoietin ("GA-EPO-TM-"), and
processes for producing GA-EPO infringe Amgen's U.S. Patent Numbers
5,547,933, 5,618,698, and 5,621,080 and requested that TKT and Hoechst Marion
Roussel be enjoined from making, using, or selling GA-EPO and that the court
award Amgen monetary damages. In November 1997, TKT and Hoechst Marion
Roussel filed a Motion for Summary Judgment. On the same date, Amgen filed a
Motion for Summary Judgment of Infringement. TKT and Hoechst Marion Roussel
opposed that motion, stating that there had been no infringement.
In April 1998, the U.S. District Court granted TKT and Hoechst Marion
Roussel's Motion for Summary Judgment and denied Amgen's Motion for Summary
Judgment on the ground that all of TKT and Hoechst Marion Roussel's GA-EPO
related activities to date had been solely for uses reasonably related to the
production of information for submission to the U.S. Food and Drug
Administration (the " FDA") for regulatory approval and, under the
Waxman-Hatch Act, do not constitute acts of patent infringement. The Court
ordered Amgen's remaining claim for declaratory judgment of future
infringement administratively closed, to be reopened upon motion of either
party for good cause shown. The Court also stated that issuance by the FDA of
a product license presumably would show good cause to reopen that claim.
Finally, the Court stated that, should the case be reopened and should Amgen
seek preliminary equitable relief, the Court will combine the hearing on a
preliminary injunction with trial on the merits. The Company expects that the
case will be reopened.
Should the case be reopened, the Company can provide no assurance as to
the outcome of the 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
7
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Hoechst Marion Roussel in the United States, or any other conclusion of such
litigation in a manner adverse to the Company and Hoechst Marion Roussel,
would have a material adverse effect on the Company's business, financial
condition, and results of operations.
Pursuant to the Amended and Restated License Agreement, dated March
1995, by and between Hoechst Marion Roussel and the Company, Hoechst Marion
Roussel assumed the cost of defense of the suit by Amgen. The Company will
reimburse Hoechst Marion Roussel for its share of litigation expenses, as
defined, from future royalties, if any, received from the sale of GA-EPO.
8
<PAGE>
PART I - Financial Information
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
OVERVIEW
Since its inception in 1988, Transkaryotic Therapies, Inc. ( "TKT" or
the "Company") has been primarily engaged in the development and
commercialization of products based on the Company's three product
development platforms: Gene Activation, gene therapy and Niche Proteins. No
revenues have been derived from the sale of any products, and the Company
does not expect to receive revenues from product sales until at least 1999.
The Company expects that its research and development expenditures will
increase substantially in future years as product development efforts
accelerate. 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 March 31, 1998, the Company's accumulated
deficit was $54,490,000. As a result, the Company is dependent upon existing
cash resources, interest income, external financing from equity and debt
offerings and/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
operation of the Company should be read in conjunction with the accompanying
condensed consolidated financial statements and the related footnotes thereto.
RESULTS OF OPERATIONS
For the Three Months Ended March 31, 1998 and 1997
License and research revenues totaled $575,000 and $300,000 for the
three months ended March 31, 1998 and 1997, respectively. All revenues were
earned from collaborative agreements with Hoechst Marion Roussel, Inc.
Research and development expenses totaled $5,393,000 in the first
quarter of 1998, as compared to $3,832,000 during the same period in 1997.
The increase in 1998 of $1,561,000, or 41%, was principally due to an
increase in research and development staff, manufacturing costs, clinical
trial expenses and outside services, as well as an increase in facilities
costs for additional leased space.
9
<PAGE>
General and administrative expenses were $1,502,000 in the quarter
ended March 31, 1998, compared with $1,402,000 during the same period in
1997. The increase in 1998 of $100,000, or 7%, is principally due to
increases in administrative employee costs.
Interest income was $1,817,000 and $1,141,000 for the three months
ended March 31, 1998 and 1997, respectively. The average cash and marketable
securities balances were $126,965,000 and $84,654,000 in 1998 and 1997,
respectively. The increase in interest income of $676,000 is primarily
attributable to higher average balances in 1998 as a result of the Company's
follow-on offering in July 1997.
The Company had a net loss of $4,503,000 and $3,793,000 in the quarter
ended March 31, 1998 and 1997, respectively. Net loss per share was $0.24 for
the three months ended March 31, 1998 compared to a net loss per share of
$0.23 for the same period in 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.
The Company had unrestricted cash, cash equivalents and marketable
securities totaling $124,915,000 at March 31, 1998. Cash equivalents and
marketable securities are invested in U.S. Treasury notes, agencies of the
U.S. government and money market funds.
The Company's current facilities may not be adequate to accommodate the
Company's needs beyond 2000. The Company currently expects to meet its
facilities requirements through development of a new facility or conversion
of an existing building. The Company expects to seek financing for all or a
significant portion of the cost of any new facility.
Substantial additional funds will be required to support the Company's
research and development programs, for acquisition of technologies, 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 such time, if any, as the Company's
operations generate significant revenues from product sales, cash resources
and 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 facilities and capital equipment and collaborative
research agreements. The source, timing and availability of any future
financing will depend principally upon equity 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.
10
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The Company expects that its existing capital resources, together with
revenues from collaborative agreements and interest income, will be
sufficient to fund its operations into 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
Statements that are not historical facts, including statements about
the Company's confidence and strategies and its expectations about future
products, technologies and opportunities, market demand or acceptance of
future products are 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, including, without limitation, whether any of the Company's Gene
Activation, gene therapy, or Niche Protein product candidates will advance in
the clinical trial process, the timing of such clinical trials, whether the
clinical trial results will warrant continued product development, the timing
of making required regulatory filings such as Investigational New Drug
applications, and other risks set forth in the Company's Annual Report on
Form 10-K under the caption "Certain Factors That May Affect Future Results"
which are incorporated herein by reference and filed herewith as Exhibit 99,
with the exception of the factor titled "Patent Litigation" which is
superseded by the following:
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.
In April 1997, Amgen, Inc. "Amgen" filed a civil action in the U.S.
District Court in Massachusetts against the Company and Hoechst Marion
Roussel, Inc. ("Hoechst Marion Roussel"), the Company's collaborative
partner. The complaint in the action alleged that the Company's Gene
Activation development program for the production of 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 requested that TKT and Hoechst Marion Roussel be
enjoined from making, using, or selling GA-EPO and that the court award Amgen
monetary damages.
11
<PAGE>
In November 1997, TKT and Hoechst Marion Roussel filed a Motion for
Summary Judgment. On the same date, Amgen filed a Motion for Summary Judgment
of Infringement. TKT and Hoechst Marion Roussel opposed that motion, stating
that there had been no infringement.
In April 1998, the U.S. District Court granted TKT and Hoechst Marion
Roussel's Motion for Summary Judgment and denied Amgen's Motion for Summary
Judgment on the ground that all of TKT and Hoechst Marion Roussel's GA-EPO
related activities to date had been solely for uses reasonably related to the
production of information for submission to the FDA for regulatory approval
and, under the Waxman-Hatch Act, do not constitute acts of patent
infringement. The Court ordered Amgen's remaining claim for declaratory
judgment of future infringement administratively closed, to be reopened upon
motion of either party for good cause shown. The Court also stated that the
issuance by the FDA of a product license presumably would show good cause to
reopen that claim. Finally, the Court stated that, should the case be
reopened and should Amgen seek preliminary equitable relief, the Court will
combine the hearing on a preliminary injunction with trial on the merits. The
Company expects that the case will be reopened.
Should the case be reopened, the Company can provide no assurance as
to the outcome of the 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 Hoechst Marion Roussel in the United States, or any
other conclusion of such litigation in a manner adverse to the Company and
Hoechst Marion Roussel, 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.
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
12
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have a material adverse effect on the Company's business, financial condition
and results of operations.
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 a third party's 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), Syntex (U.S.A.) (a
wholly-owned subsidiary of Roche Holdings, Inc.), and Somatix. Somatix
subsequently merged into Cell Genesys, Inc. With the possible exception of
the patent 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 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 four
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 (the "FTC") decision may then be relevant. The
FTC entered 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.
13
<PAGE>
PART II - Other Information
Item 1. Legal Proceedings
The Company is engaged in litigation with Amgen, Inc. with respect to
the development of GA-EPO. See Note 4 to Notes to Condensed Consolidated
Financial Statements, which is incorporated by reference herein.
Since 1996, the Company has been involved in a patent interference
proceeding before the United States Patent and Trademark Office involving a
patent and several patent applications in the gene therapy field.
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 quarter ended March 31,
1998.
14
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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.
Date: May 13, 1998 By: /s/ Daniel E. Geffken
-----------------------------------
Daniel E. Geffken
Vice President, Finance and
Chief Financial Officer (Principal
Financial and Accounting Officer)
15
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Transkaryotic Therapies, Inc.
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
10.1 1993 Long-Term Incentive Plan as amended to date
27 Financial Data Schedule (for EDGAR filing purposes only)
99 Certain Factors That May Affect Future Results (as filed with
the Company's Annual Report on Form 10-K, except for the
factor titled "Patent Litigation" which is superseded by the
section of the same title, appearing under the caption
"Forward Looking Statements" in this Quarterly Report on Form
10-Q).
16
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EXHIBIT 10.1
TRANSKARYOTIC THERAPIES, INC.
1993 LONG-TERM INCENTIVE PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
1. PURPOSE 1
2. DEFINITIONS 1
2.1. Affiliate 1
2.2. Award 1
2.3. Board 1
2.4. Code 1
2.5. Committee 1
2.6. Company 1
2.7. Employment Agreement 1
2.8. Fair Market Value 2
2.9. Incentive Option 2
2.10. Long-Term Performance Award or Long-Term Award 2
2.11. Nonstatutory Option 2
2.12. Participant 2
2.13. Plan 2
2.14. Restricted Stock 2
2.15. Stock 2
2.16. Shareholders Agreement 2
2.17. Stock Appreciation Right 2
2.18. Stock Grant 2
2.19. Stock Option or Option 2
2.20. Ten Percent Owner 3
3. TERM OF THE PLAN 3
4. STOCK SUBJECT TO THE PLAN 3
5. ADMINISTRATION 4
6. ELIGIBILITY 5
7. STOCK OPTIONS 5
7.1. Provision for Grant 5
7.2. Terms and Conditions 5
8. STOCK APPRECIATION RIGHTS 8
8.1. Provision for Grant 8
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
8.2. Termination 8
8.3. Manner and Effect of Exercise 8
8.4. Other Terms and Conditions 9
9. RESTRICTED STOCK 9
9.1. Provision for Grant 9
9.2. Awards and Certificates 9
9.3 Additional Terms and Conditions 9
10. LONG-TERM PERFORMANCE AWARDS 11
10.1. Provision for Grant 11
10.2. Periodic Determination of Performance 11
10.3. Adjustment of Awards 11
10.4. Effect of Termination of Employment or Association 12
10.5. Form of Payment 12
11. STOCK GRANTS 12
12. RESTRICTIONS ON ISSUANCE OF SHARES 12
12.1. Securities Laws 12
12.2. Investment Representation 13
12.3. Placement of Legends; Stop Orders; etc 13
12.4. Registration 13
12.5. Applicability of Shareholders Agreement 14
13. EFFECT OF CERTAIN TRANSACTIONS 14
13.1. Liquidation or Dissolution of the Company 14
13.2. Sale of Assets, Merger or Consolidation 14
14. TERMINATION AND AMENDMENT OF THE PLAN AND AWARDS 14
15. MISCELLANEOUS PROVISIONS 15
15.1 Unfunded Status of Plan 15
15.2. Adoption of Other Plans 15
15.3. Payments on Death 15
15.4. Tax Withholding 15
15.5. Limitation of Rights in Stock 16
15.6. No Special Employment or Other Rights 16
15.7. Notices and Other Communications 16
15.8. Governing Law. 16
</TABLE>
<PAGE>
TRANSKARYOTIC THERAPIES, INC.
1993 LONG-TERM INCENTIVE PLAN
1. PURPOSE
The purpose of this Plan is to enable key employees of and consultants to
Transkaryotic Therapies, Inc. (the "Company") to (i) own shares of stock in the
Company, (ii) participate in the shareholder value which has been created, (iii)
have a mutuality of interest with other shareholders and (iv) enable the Company
to attract, retain and motivate key employees and consultants of particular
merit.
2. DEFINITIONS
For the purposes of the Plan, the following terms shall have the meanings
set forth below:
2.1. Affiliate means a parent or subsidiary corporation of the Company, as
defined in Sections 424(e) and (f), respectively, of the Code.
2.2. Award means the grant or sale pursuant to the Plan of any of Stock
Options, Restricted Stock, Stock Appreciation Rights, Stock Grants, and Long
Term Awards.
2.3. Board means the Board of Directors of the Company.
2.4. Code means the federal Internal Revenue Code of 1986, as amended from
time to time, or any statute successor thereto, and any regulations issued from
time to time thereunder.
2.5. Committee means a committee appointed by the Board, responsible for
the administration of the Plan, as provided in Section 5 of the Plan. No member
of the Committee shall be eligible to receive an Award under the Plan, and no
individual shall be eligible for membership on the Committee within one year of
having received an Award under the Plan. For any period during which no such
committee is in existence all authority and responsibility assigned the
Committee under the Plan shall be exercised, if at all, by the Board.
2.6. Company means Transkaryotic Therapies, Inc., a corporation organized
under the laws of the State of Delaware.
2.7. Employment Agreement means an agreement, if any, between the Company
and a Participant, setting forth, inter alia, conditions and restrictions upon
the transfer of shares of Stock.
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2.8. Fair Market Value means, as of any given date, the last reported
sales price of the Stock as reported in The Wall Street Journal for such date
or, if either no such sale is reported or the Stock is not publicly traded on or
as of such date, the fair market value of the Stock as determined by the
Committee in good faith based on the available facts and circumstances at the
time.
2.9. Incentive Option means an Option which by its terms is to be treated
as an "incentive stock option" within the meaning of Section 422 of the Code.
2.10. Long-Term Performance Award or Long-Term Award means an award made
pursuant to Section 10 below that is payable in cash and/or Stock (including
Restricted Stock) in accordance with the terms of the grant, based on Company,
business unit and/or individual performance.
2.11. Nonstatutory Option means any Option that is not an Incentive
Option.
2.12. Participant means an employee or consultant to whom an Award, as
provided in Section 6, shall have been granted under the Plan.
2.13. Plan means this 1993 Long-Term Incentive Plan of the Company, as
amended from time to time.
2.14. Restricted Stock means an Award pursuant to Section 9 below of
shares of Stock subject to restrictions or other forfeiture conditions.
2.15. Stock means Common Stock, par value $.01 per share of the Company.
2.16. Shareholders Agreement means the agreement, if any, between the
Company and certain shareholders, setting forth, inter alia, certain
restrictions upon the transfer of shares of Stock.
2.17. Stock Appreciation Right means the right, pursuant to an Award
granted under Section 8 below, to surrender to the Company all (or a portion) of
a Stock Option in exchange for an amount equal to the difference between (i) the
Fair Market Value, as of the date such Stock Option (or such portion thereof) is
surrendered, of the shares of Stock covered by such Stock Option (or such
portion thereof), and (ii) the aggregate exercise price of such Stock Option (or
such portion thereof).
2.18. Stock Grant means an Award pursuant to Section 11 below of shares of
Stock not subject to restrictions or other forfeiture conditions.
2.19. Stock Option or Option means any option to purchase shares of Stock
(including Restricted Stock) granted pursuant to Section 7 below.
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2.20. Ten Percent Owner means a person who owns, or is deemed within the
meaning of Section 422(b)(6) of the Code to own, stock possessing more than 10%
of the total combined voting power of all classes of stock of the Company (or
any Affiliate). Whether a person is a Ten Percent Owner shall be determined with
respect to an Incentive Option based on the facts existing immediately prior to
the grant date of such Option.
3. TERM OF THE PLAN
Unless the Plan shall have been earlier terminated by the Board, Awards
may be granted hereunder at any time in the period commencing on the approval of
the Plan by the Board and ending on the tenth anniversary of the earlier of the
adoption of the Plan by the Board or approval of the Plan by the Company's
shareholders. Awards granted pursuant to the Plan within such period shall not
expire solely by reason of the termination of the Plan.
4. STOCK SUBJECT TO THE PLAN
(a) Aggregate Limit On Awards. At no time shall the number of shares of
Stock issued pursuant to Awards granted under the Plan exceed 1,250,000 shares,
subject, however, to the provisions of subsection (c) below. Such shares may be
either authorized but unissued shares or shares held by the Company in its
treasury. The Company shall at all times reserve and make available in
sufficient number of shares to meet the requirements of the Plan, provided that
following termination of the Plan the number of shares reserved need not exceed
the number of Shares issuable under Awards outstanding from time to time
thereafter.
(b) Computation of Available Shares. For the purpose of computing the
total number of shares of Stock available for Plan purposes at any time during
which the Plan is in effect, there shall be debited against the total number of
shares determined to be available pursuant to paragraphs (a) and (c) of this
Section 4(i) any outstanding Restricted Stock and Stock Grants, (ii) the maximum
number of shares of Stock subject to issuance upon exercise of Options or upon
settlement of other Awards theretofore made under the Plan, (iii) the shares
related to the unexercised or undistributed portion of any terminated, expired
or forfeited Award for which a material benefit was received by a Participant
(e.g. dividends, but not including voting rights), and the equivalent number of
shares (determined as of the date of settlement) of any portion of any Award
settled in cash.
(c) Other Adjustment. In the event of any merger, reorganization,
consolidation, recapitalization, Stock dividend, or other change in corporate
structure affecting the Stock, such substitution or adjustment shall be made in
the character and aggregate number of shares reserved for issuance under the
Plan, and in the number and option price of shares subject to outstanding
Options and other stock based Awards granted under the Plan, as may be
determined to be appropriate by the Committee, provided that the number of
shares subject to any Award shall
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always be a whole number. Any such adjusted option price shall also be used to
determine the amount payable by the Company upon the exercise of any Stock
Appreciation Right associated with any Stock Option.
5. ADMINISTRATION
The Plan shall be administered by the Committee. Subject to the provisions
of the Plan, the Committee shall have complete authority, in its sole
discretion, to make or to select the manner of making any and all determinations
required for the operation of the Plan, and without limiting the generality of
the foregoing, shall have the authority to
(a) grant to eligible individuals, pursuant to the terms of the Plan: (i)
Stock Options, (ii) Stock Appreciation Rights, (iii) Restricted Stock, (iv)
Long-Term Performance Awards, and (v) Stock Grants;
(b) select from time to time the officers, other employees and consultants
of the Company and its Affiliates to whom Awards shall be granted hereunder;
(c) determine whether and to what extent Incentive Options, Nonstatutory
Options, Stock Appreciation rights, Restricted Stock, Long-Term Performance
Awards and Stock Grants or any combination thereof, are to be granted hereunder;
(d) determine the number of shares of Stock to be covered by each Award
granted hereunder;
(e) determine the terms and conditions, not inconsistent with the terms
of the Plan, of any Award (which need not be identical in every case),
including, but not limited to, the share price and any restriction or
limitation, or any vesting acceleration or forfeiture waiver regarding any Stock
Option or other Award and the shares of Stock relating thereto, based on such
factors as the Committee shall determine;
(f) determine whether and under what circumstances a Stock Option may be
settled in cash or Stock, including Restricted Stock, as provided in Section
7.2;
(g) determine whether and under what circumstances a Stock Option may be
exercised without a payment of cash as provided in Section 7.2; and
(h) determine whether, to what extent and under what circumstances Stock
and other amounts payable with respect to an Award under this Plan shall be
deferred either automatically or at the election of the Participant.
In making such determinations, the Committee may take into account the
nature of the services rendered by the respective employees and consultants,
their
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present and potential contributions to the success of the Company and its
Affiliates, and such other factors as the Committee in its discretion shall deem
relevant. Subject to the provisions of the Plan, the Committee shall also have
complete authority, in its sole discretion, to interpret the Plan, to prescribe,
amend and rescind rules and regulations relating to it, to determine the terms
and provisions of any Award issued under the Plan (and any agreements relating
thereto), to resolve all disputes arising under the Plan, and to make all other
determinations necessary or advisable for the administration of the Plan. The
Committee's determinations shall be conclusive, final and binding upon all
persons having or claiming any interest in the Plan or in any Award pursuant to
the Plan.
6. ELIGIBILITY
Awards shall be granted under the Plan only to employees of or consultants
to one or more of the Company or an Affiliate (but excluding members of the
Committee) who are responsible for or contribute to, as determined by the
Committee, the management, growth and profitability of the business of the
Company and its Affiliates. A director of one or more of the Company or any
Affiliate who is not also an employee or consultant of one or more of the
Company or an Affiliate shall not be eligible to receive an Award under the
Plan.
7. STOCK OPTIONS
7.1. Provision for Grant. Stock Options may be granted alone, in addition
to or in tandem with other Awards under the Plan. Any Stock Option granted under
the Plan shall be in such form as the Committee may from time to time approve.
The Committee shall have the authority to grant any optionee who is an employee
of the Company, or an Affiliate, Incentive Options, Nonstatutory Options, or
both types of Stock Options (in each case with or without Stock Appreciation
Rights). To the extent that any Stock Option does not qualify as an Incentive
Option, it shall constitute a separate Nonstatutory Option. In the case of any
other person eligible for an Award under the Plan, any Stock Option granted
under the Plan shall be a Nonstatutory Option (with or without Stock
Appreciation Rights).
Anything in the Plan to the contrary notwithstanding, no term of this Plan
relating to Incentive Options shall be interpreted, amended or altered, nor
shall any discretion or authority granted under the Plan be so exercised, so as
to disqualify the Plan under Section 422 of the code, or, without the consent of
the optionee(s) affected, to disqualify any Incentive Option under such Section
422.
7.2. Terms and Conditions. Options granted under the Plan shall be subject
to the following terms and conditions and shall contain such additional terms
and conditions, not inconsistent with the terms of the Plan, as the Committee
shall deem appropriate:
(a) Option Price. The option price per share of Stock purchasable
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under a Stock Option shall be determined by the Committee at the time of grant
but in the case of any Incentive Option shall be not less than 100% of the Fair
Market Value of the Stock at the time of grant (110% of Fair Market Value, in
the case of any grant of an Incentive Option to a Ten Percent Owner).
(b) Option Term. The term of each Stock Option shall be fixed by the
Committee, but not Incentive Option shall be exercisable more than ten years
after the date the Option is granted (or, more than five years after the date
the Option is granted, in the case of any grant of an Incentive Option to a Ten
Percent Owner). No Stock Option may be exercised by any person after expiration
of the term of the Option.
(c) Exercisability. Stock Options shall be exercisable at such time
or times and subject to such terms and conditions as shall be determined by the
Committee at or after grant, provided, however, that, except as provided in this
Section 7 and Section 13, at or after grant no Stock Option shall be exercisable
during the six months following the date of the granting of the Option. If the
Committee provides, in its discretion, that any Stock Option is exercisable only
in installments, the Committee may waive such installment exercise provisions at
any time at or after grant in whole or in part, based on such factors as the
Committee shall determine.
(d) Method of Exercise. Subject to whatever installment exercise
provisions may apply, Stock Options may be exercised in whole or in part at any
time and from time to time during the option period, by giving written notice of
exercise to the Company, in the manner set out in Section 15.7, specifying the
number of shares to be purchased. Such notice shall be accompanied by payment in
full of the purchase price, either by certified or bank check, or such other
instrument as the Committee may accept. As determined by the Committee, at or
after grant, payment in full or in part may also be made in the form of
unrestricted Stock already owned by the optionee or, in the case of the exercise
of a Nonstatutory Option, Restricted Stock subject to an Award hereunder (based,
in each case, on the Fair Market Value of the Stock on the date the option is
exercised, as determined by the Committee); provided, however, that, in the case
of an Incentive Option, the right to make a payment in the form of already owned
shares may be authorized only at the time the option is granted.
If payment of the option exercise price of a Nonstatutory Option is made
in whole or in part in the form of Restricted Stock, such Restricted Stock (and
any replacement shares relating thereto) shall remain (or be) restricted in
accordance with the original terms of the Restricted Stock Award in question,
and any additional Stock received upon the exercise shall be subject to the same
forfeiture restrictions, unless otherwise determined by the Committee, at or
after grant.
If payment of the Option exercise price of a Stock Option is made in whole
or in part in the form of unrestricted Stock already owned by the Participant,
the
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Company may require that the Stock has been owned by the Participant for a
specified minimum period of time, for the purpose of avoiding any charge to the
Company's earnings, limiting the pyramiding of Stock Option exercises, or such
other purposes as the Company deems appropriate.
(e) Replacement Options. If a Nonstatutory Option granted pursuant
to the Plan may be exercised by an optionee by means of the delivery of
previously acquired Stock, then the Committee may, at the time of the original
option grant, authorize the Participant to automatically receive a replacement
Nonstatutory Option to the extent shares are available under Section 4 at the
time such replacement Option would be issued. Any such replacement Option shall
cover such number of shares as may be determined by the Committee, but in no
event more than the number of shares equal to the difference, if any, between
the number of shares for which the original Option is exercised and the net
shares received by the Participant from such exercise. Any such replacement
Option shall have an exercise price equal to the then Fair Market Value of
Stock, and a term extending to the expiration date of the original Option. The
Committee shall have the right at any time to discontinue the automatic grant of
replacement Options.
(f) Transferability. No Stock Option shall be transferable by the
optionee other than by will or by the laws of descent and distribution, and all
Stock Options shall be exercisable, during the optionee's lifetime, only by the
optionee.
(g) Effect of Termination of Employment Or Association. If an
optionee's employment by or association with the Company and its Affiliates
terminates for any reason whatsoever, unless the Committee shall have provided
otherwise, any Stock Option held by such optionee shall thereupon terminate;
provided, however, that military or sick leave shall not be deemed a termination
of employment or other association, if it does not exceed the longer of 90 days
or the period during which the absent optionee's reemployment rights, if any,
are guaranteed by statute or by contract.
(h) Incentive Option Limitations. To the extent required for
"Incentive Option" status under Section 422 of the Code, the aggregate Fair
Market Value (determined as of the date of grant) of the Stock with respect to
which Incentive Options become exercisable for the first time by the optionee
during any calendar year under the Plan and any other stock option plan of the
Company and any Affiliate shall not exceed $100,000. In the event shares of
Stock in excess of the preceding limitation become exercisable for the first
time in a calendar year under any such Options or options, such shares shall be
considered to have become exercisable under separate Nonstatutory Options (with
the Options or options granted earliest in time considered to constitute to the
maximum extent possible the Incentive Options).
(i) Cash-out of Option; Settlement of Spread Value in Restricted
Stock. On receipt of written notice to exercise, the Committee may elect to cash
out
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all or part of the portion of the Option(s) to be exercised by paying the
optionee an amount, in cash or Stock, equal to the excess of the Fair Market
Value of the Stock over the option price (the "Spread Value") on the effective
date of such exercise. In addition, if the Option agreement so provides at grant
or is amended after grant and prior to exercise to so provide (with the
optionee's consent), the Committee may require that all or part of the shares to
be issued with respect to the Spread Value of an exercised Option take the form
of Restricted Stock, which shall be valued on the date of exercise on the basis
of the Fair Market Value of such Restricted Stock determined without regard to
the forfeiture restrictions involved.
(j) Cashless Exercise. To the extent permitted under the applicable
laws and regulations and the terms of a Participant's Option agreement, at the
request of the Participant and with the consent of the Committee, the Company
agrees to cooperate in a "cashless exercise" of an Option. The cashless exercise
shall be effected by the Participant delivering to a registered securities
broker acceptable to the Company instructions to sell a sufficient number of
shares of Stock from which such Option is then exercisable to cover the costs
and expenses associated with such exercise and sale.
(k) Grant Date. The granting of an Option shall take place at the
time specified in the agreement set forth the terms of such Option. Only if
expressly so provided in the Option agreement, shall the grant date be the date
on which an Option agreement shall have been duly executed and delivered by the
Company and the Participant.
8. STOCK APPRECIATION RIGHTS
8.1. Provision for Grant. Stock Appreciation Rights may be granted in
conjunction with all or part of any Stock Option granted under the Plan. In the
case of a Nonstatutory Option, such rights may be granted either at or after the
time of the grant of such Stock Option. In the case of an Incentive Option, such
rights may be granted only at the time of the grant of such Stock Option.
8.2. Termination. A Stock Appreciation Right or applicable portion thereof
granted with respect to a given Stock Option shall terminate and no longer be
exercisable upon the termination or exercise of the related Stock Option, except
that, unless otherwise determined by the Committee at the time of grant, a Stock
Appreciation Right granted with respect to less than the full number of shares
covered by a related Stock Option shall not be reduced until the number of
shares covered by an exercise or termination of the related Stock Option exceeds
the number of shares not covered by the Stock Appreciation Right.
8.3. Manner and Effect of Exercise. A Stock Appreciation Right may be
exercised by an optionee, in accordance with Section 8.4, by surrendering the
applicable portion of the related Stock Option. Upon such exercise and
surrender, the optionee shall be entitled to receive an amount determined in the
manner
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prescribed in Section 8.4. Stock Options which have been so surrendered, in
whole or in part, shall no longer be exercisable to the extent the related Stock
Appreciation Right has been exercised.
8.4. Other Terms and Conditions. Stock Appreciation Rights granted under
the Plan shall be subject to the following terms and conditions, and shall
contain such additional terms and conditions, not inconsistent with the
provisions of the Plan, as the Committee shall deem appropriate:
(a) Exercisability. Stock Appreciation Rights shall be exercisable
only at such time or times and to the extent that the Stock Options to which
they relate, if any, shall be exercisable in accordance with the provisions of
Section 7 and this Section 8.4 of the Plan; provided, however, that any Stock
Appreciation Right granted subsequent to the grant of the related Stock Option
shall not be exercisable during the first six months of its term; and provided,
further, however, that a Stock Appreciation Right granted in connection with an
Incentive Option may be exercised only if and when the market price of the Stock
subject to the Incentive Option exceeds the exercise price of such Stock Option.
(b) Amount Payable. Upon the exercise of a Stock Appreciation Right,
an optionee shall be entitled to receive up to, but not more than, an amount in
cash or shares of Stock equal in value to the excess of the Fair Market Value of
one share of Stock over the option price per share specified in the related
Stock Option, multiplied by the number of shares in respect of which the Stock
Appreciation Right shall have been exercised. The Committee shall determine the
form of payment.
(c) Transferability. Stock Appreciation Rights shall be transferable
only when and to the extent that the underlying Stock Option would be
transferable under Section 7.2 of the Plan.
9. RESTRICTED STOCK
9.1. Provision for Grant. Shares of Stock may be issued either alone or in
addition to other Awards granted under the Plan at such price, if any, as the
Committee may determine. The Committee may condition the grant of Restricted
Stock upon the completion of additional service, attainment of specified
performance goals or such other factors as the Committee may determine.
9.2. Awards and Certificates. The prospective recipient of a Restricted
Stock Award shall not have any rights with respect to such Award, unless and
until such recipient has executed an agreement evidencing the Award and has
delivered a fully executed copy thereof to the Company, and has otherwise
complied with the applicable terms and conditions of such Award.
9.3. Additional Terms and Conditions. Grants of Restricted Stock may be
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made under the following additional terms and conditions:
(a) Purchase Price. The purchase price for shares of Restricted
Stock shall be equal to or less than their Fair Market Value and may be zero, as
determined by the Committee.
(b) Acceptance of Awards. Awards of Restricted Stock must be
accepted within a period of 60 days (or such shorter period as the Committee may
specify at grant) after the Award date, by executing a Restricted Stock Award
agreement and paying whatever price (if any) is required pursuant to the terms
of the Award.
(c) Issuance of Certificates. Each Participant receiving a
Restricted Stock Award shall be issued a stock certificate in respect of such
shares of Restricted Stock. Such certificate shall be registered in the name of
such Participant and, if applicable, shall bear an appropriate legend referring
to the terms, conditions, and restrictions applicable to such Award, in addition
to legends authorized pursuant to Section 12, substantially in the following
form:
"The transferability of this certificate and the shares
of stock represented hereby are subject to the terms and conditions
(including forfeiture) of the Transkaryotic Therapies, Inc. 1993
Long-Term Incentive Plan and an Agreement entered into between the
registered owner and Transkaryotic Therapies, Inc. Copies of such
Plan and Agreement are on file in the offices of Transkaryotic
Therapies, Inc. at 195 Albany Street, Cambridge, MA 02139."
(d) Escrow of Shares. The Committee may require that the stock
certificates evidencing shares of Restricted Stock be held in custody by the
Company until the restrictions thereon shall have lapsed, and that the
Participant deliver a stock power, endorsed in blank, relating to the Stock
covered by such Award.
(e) Transferability. Subject to the provisions of this Plan and the
Award agreement, during the period set by the Committee commencing with the date
of such Award (the "Restriction Period"), the Participant shall not be permitted
to sell, transfer, pledge, assign or otherwise encumber shares of Restricted
Stock awarded under the Plan. Within these limits, the Committee may provide for
the lapse of such restrictions in installments and may accelerate or waive such
restrictions in whole or in part, based on service, performance and/or such
other factors or criteria as the Committee may determine.
(f) Rights Pending Lapse of Restrictions or Forfeiture of Award.
Except as provided in this subsection (f) and subsection (e) above, the
Participant shall have, with respect to the shares of Restricted Stock, all of
the rights of a shareholder of the Company, including the right to vote the
shares, and the right to receive any cash dividends. The Committee, as
determined at the time of Award,
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may permit or require the payment of cash dividends to be deferred and, if the
Committee so determines, reinvested in additional Restricted Stock to the extent
shares are available under Section 4.
(g) Effect of Termination of Employment or Association. Unless
otherwise determined by the Committee and subject to the applicable provisions
of the Award agreement and this Section 9, upon termination of a Participant's
employment or other association with the Company and its Affiliates for any
reason during the Restriction Period, all shares still subject to restriction
shall be forfeited by the Participant; provided, however, that military or sick
leave shall not be deemed a termination of employment or other association, if
it does not exceed the longer of 90 days or the period during which the absent
optionee's reemployment rights, if any, are guaranteed by statute or by
contract.
(h) Lapse of Restrictions. If and when the Restriction Period
expires without a prior forfeiture of the Restricted Stock subject to such
Restriction Period, the certificates for such shares shall be delivered to the
Participant promptly if not theretofore so delivered.
10. LONG-TERM PERFORMANCE AWARDS
10.1. Provision for Grant. Long-Term Performance Awards may be awarded
either alone or in addition to other Awards granted under the Plan. The
Committee shall determine the nature, length and starting date of the
performance period (the "Performance Period") for each Long-Term Performance
Award, which subject to Section 13 below shall be a period of at least two
years, and shall determine the performance objectives to be used in valuing
Long-Term Performance Awards and determining the extent to which such Long-Term
Performance Awards have been earned. Performance objectives may vary from
Participant to Participant and between groups of Participants and shall be based
upon such Company, business unit and/or individual performance factors and
criteria as the Committee may deem appropriate, including, but not limited to,
earnings per share or return on equity. Performance Periods may overlap and
Participants may participate simultaneously with respect to Long-Term
Performance Awards that are subject to different Performance Periods and/or
different performance factors and criteria.
10.2. Periodic Determination of Performance. At the beginning of each
Performance Period, the Committee shall determine for each Long-Term Performance
Award subject to such Performance period the range of dollar values or number of
shares of Stock to be awarded to the Participant at the end of the Performance
period if and to the extent that the relevant measure(s) of performance for such
Long Term Performance is (are) met. Such dollar values or number of shares of
Stock may be fixed or may vary in accordance with such performance or other
criteria as may be specified by the Committee.
10.3. Adjustment of Awards. In the event of special or unusual events or
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circumstances affecting the application of one or more performance objectives to
a Long-Term Performance Award, the Committee may revise the performance
objectives or underlying factors and criteria applicable to the Long-Term
Performance Awards affected, to the extent deemed appropriate by the Committee,
to avoid unintended windfalls or hardship.
10.4. Effect of Termination of Employment or Association. Unless otherwise
determined by the Committee, upon termination of a Participant's employment or
other association with the Company and its Affiliates for any reason during a
Performance period, the Participant shall not be entitled to any payment with
respect to the Long-Term Performance Awards subject to such Performance period;
provided, however, that military or sick leave shall not be deemed a termination
of employment or other association, if it does not exceed the longer of 90 days
or the period during which the absent Participant's reemployment rights, if any,
are guaranteed by statute or by contract.
10.5. Form of Payment. The earned portion of a Long-Term Performance Award
may be paid currently or on a deferred basis with such interest or earnings
equivalent as may be determined by the Committee. Payment shall be made in the
form of cash or whole shares of Stock, including Restricted Stock, either in a
lump sum payment or in annual installments commencing as soon as practicable
after the end of the relevant Performance Period, all as the Committee shall
determine at or after grant.
11. STOCK GRANTS
In recognition of significant contributions to the success of the Company
or its Affiliates, and in such other circumstances as the Committee deems
appropriate shares of Stock may be issued either alone or in addition to other
stock or cash-based Awards granted under the Plan at such price, if any, as the
Committee may determine. Subject to adjustment pursuant to Section 4(c) above,
the number of shares awarded as Stock Grants shall not exceed 125,000 of the
1,250,000 shares of Stock subject to this Plan. Stock Grant Awards shall be made
without forfeiture conditions of any kind and otherwise pursuant to such terms
and conditions as the Committee may determine.
12. RESTRICTIONS ON ISSUANCE OF SHARES
12.1. Securities Laws. Notwithstanding any other provision of the Plan,
if, at any time, in the reasonable opinion of the Company the issuance of shares
of Stock covered by any Award granted under the Plan may constitute a violation
of law, then the Company may delay such issuance and the delivery of a
certificate for such shares until (i) approval shall have been obtained from
such governmental agencies, other than the Securities and Exchange Commission,
as may be required under any applicable law, rule, or regulation; and (ii) in
the case where such issuance would constitute a violation of a law administered
by or a regulation of the
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Securities and Exchange Commission, one of the following conditions shall have
been satisfied:
(a) the shares with respect to which such Option has been exercised
are at the time of the issue of such shares effectively registered under the
Securities Act of 1933, as amended (the "Securities Act"); or
(b) a no-action letter in form and substance reasonably satisfactory
to the Company with respect to the issuance of such shares shall have been
obtained by the Company from the Securities and Exchange Commission. The Company
shall make all reasonable efforts to bring about the occurrence of said events.
12.2. Investment Representation. Unless the shares to be issued in
connection with any Award granted under the Plan have been effectively
registered under the Securities Act, the Company shall be under no obligation to
issue any shares covered by such Award unless the person to acquire such shares
shall give a written representation to the Company which is satisfactory in form
and substance to its counsel and upon which the Company may reasonably rely,
that he or she is acquiring the shares issued pursuant to such Award as an
investment and not with a view to, or for sale in connection with, the
distribution of any such shares.
12.3. Placement of Legends; Stop Orders; etc. Each share of Stock issued
pursuant to an Award granted under this Plan may bear a reference to the
investment representation made in accordance with Section 12.2 in addition to
any other applicable restriction under the Plan, the terms of the Award, and any
applicable Shareholders Agreement and Employment Agreement, and to the fact that
no registration statement has been filed with the Securities and Exchange
Commission in respect to said Stock. All certificates for shares of Stock or
other securities delivered under the Plan shall be subject to such
stock-transfer orders and other restrictions as the Committee may deem advisable
under the rules, regulations, and other requirements of any stock exchange upon
which the Stock is then listed, and any applicable Federal or state securities
law, and the Committee may cause a legend or legends to be put on any such
certificates to make appropriate reference to such restrictions.
12.4. Registration. If the Company shall deem it necessary or desirable to
register under the Securities Act or other applicable statutes any shares with
respect to which an Option shall have been granted or to qualify any such shares
for exemption from the Securities Act or other applicable statutes, then the
Company shall take such action at its own expense. The Company may require from
each Participant, and each holder of shares of Stock acquired pursuant to an
Award granted under the Plan such information in writing for use in any
registration statement, prospectus, preliminary prospectus or offering circular
as is reasonably necessary for such purpose and may require reasonable indemnity
to the Company and its officers and directors from such holder against all
losses, claims, damage and liabilities arising from such use of the information
so furnished and caused by any
<PAGE>
-14-
untrue statement of any material fact therein or caused by the omission to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances under which
they were made.
12.5. Applicability of Shareholders Agreement. Whenever shares are to be
issued pursuant to an Award granted hereunder, the Company shall have the right
to require the Participant to execute and deliver and otherwise become a party
to the Shareholders Agreement in respect of such shares.
13. EFFECT OF CERTAIN TRANSACTIONS
13.1. Liquidation or Dissolution of the Company. In the event of a
proposed dissolution or liquidation of the Company, each outstanding Award
granted hereunder shall terminate (i.e., Options and Stock Appreciation Rights
shall lapse, Restricted Stock shall be forfeited and any Performance Awards
cancelled) immediately prior to the consummation of such action, without any
payment therefore, unless otherwise provided by the Committee. As to outstanding
Options, the Committee may, in the exercise of its sole discretion in such
instances, declare that any such Option shall terminate as of a date fixed by
the Committee and give each Optionee the right to exercise his option as to all
or any part of the shares of Stock covered by an Option for a period of twenty
(20) days following such date, including shares of Stock as to which the Option
would not otherwise be exercisable.
13.2. Sale of Assets, Merger or Consolidation. In the event of a proposed
sale of all or substantially all of the assets of the Company, or the merger or
consolidation of the Company with or into another corporation in a transaction
in which the Company does not survive, the Committee may, in the exercise of its
sole discretion in such instances, give each Participant the right to exercise
his Option as to all or any part of the shares of Stock covered by an Option,
including shares of Stock as to which the Option would not otherwise be
exercisable, waive any remaining restrictions applicable to Restricted Stock and
provide for the pro rata payment of Performance Awards based on performance
through the date of such transaction. In the event the Committee elects to
authorize the exercise of outstanding and otherwise unexercisable Options, the
Committee shall notify the Participant that the Option shall be fully
exercisable for a period of not less than twenty (20) nor more than sixty (60)
days from the date of such notice, and if such Option shall not be exercised,
the Committee may, in the exercise of its sole discretion in such instances,
determine that the Option shall terminate upon the expiration of such period and
be of no further force or effect.
14. TERMINATION AND AMENDMENT OF THE PLAN AND AWARDS
The Board may at any time terminate the Plan or make such modifications of
the Plan as it shall deem advisable. No termination or amendment of the Plan
may, without the consent of the Participant to whom any Award shall theretofore
have
<PAGE>
-15-
been granted, adversely affect the rights of such Participant under such Award.
The Committee may amend the terms of any Award theretofore granted,
prospectively or retroactively, but no such amendment shall impair the rights of
any Participant without the Participant's consent.
15. MISCELLANEOUS PROVISIONS
15.1. Unfunded Status of Plan. The Plan is intended to constitute an
"unfunded" plan for incentive and deferred compensation. With respect to any
payments not yet made to a Participant by the Company, nothing contained herein
shall give any such Participant any rights that are greater than those of any
other general creditor of the Company. The Committee may authorize the creation
of trusts or other arrangements to meet the obligations created under the Plan
to deliver Stock or payments in lieu of or with respect to Awards hereunder,
provided, however, unless the Committee otherwise determines with the consent of
the affected participant, the existence of such trusts or other arrangements is
consistent with the "unfunded" status of the Plan.
15.2. Adoption of Other Plans. Nothing contained in this Plan shall
prevent the Board of Directors from adopting other or additional compensation
arrangements, subject to stockholder approval if such approval is required; and
such arrangements may be either generally applicable or applicable only in
specific cases.
15.3. Payments on Death. The Committee shall establish such procedures as
it deems appropriate for a Participant to designate a beneficiary to whom any
amounts payable in the event of the Participant's death are to be paid.
15.4. Tax Withholding.
(a) In General. No later than the date as of which an amount first
becomes includable in the gross income of the Participant for federal income tax
purposes with respect to any Award, the Participant shall pay to the Company, or
make arrangements satisfactory to the Company regarding the payment of, any
federal, state, or local taxes of any kind required by law to be withheld
(whether so required to secure an otherwise available tax deduction or
otherwise) with respect to such amount. If authorized by the Committee at the
grant of an Award (or, other than in the case of Incentive Option, at any time
thereafter) and so elected by the Participant, the minimum required withholding
obligations may be settled with Stock, including Stock that is part of the Award
that gives rise to the withholding requirement. The obligations of the Company
under the Plan shall be conditional on such payment or arrangements and the
Company shall, to the extent permitted by law, have the right to deduct any such
taxes from any payment of any kind otherwise due to the Participant.
(b) Disqualifying Dispositions. The Company may require as a
<PAGE>
-16-
condition to the issuance of shares covered by any Incentive Option that the
party exercising such Option give a written representation to the Company which
is satisfactory in form and substance to its counsel and upon which the Company
may reasonably rely, that he or she will report to the Company any disposition
of such shares prior to the expiration of the holding periods specified by
Section 422(a)(1) of the Code. If and to the extent that the realization of
income in such a disposition imposes upon the Company federal, state, local or
other withholding tax requirements, or any such withholding is required to
secure for the Company an otherwise available tax deduction, the Company shall
have the right to require that the recipient remit to the Company an amount
sufficient to satisfy those requirements.
15.5. Limitation of Rights in Stock. No Participant shall not be deemed
for any purpose to be a stockholder of the Company with respect to any of the
shares of Stock covered by an Award, except to the extent any payment required
therefor shall have been received by the Company and a certificate shall have
been issued therefor and delivered to the Participant or his or her agent (or,
in the case of Restricted Stock, the Company as escrow agent). Any Stock issued
pursuant to an Award shall be subject to all restrictions upon the transfer
thereof which may be now or hereafter imposed by the Certificate of
Incorporation, the By-laws of the Company, the Shareholders Agreement and the
Employment Agreement.
15.6. No Special Employment or Other Rights. Nothing contained in the Plan
or in any Award shall confer upon any Participant any right with respect to the
continuation of his or her employment or other association with the Company (or
any Affiliate), or interfere in any way with the right of the Company (or any
Affiliate), subject to the terms of any separate employment or consulting
agreement or provision of law or corporate articles or by-laws to the contrary,
at any time to terminate such employment or consulting agreement or to increase
or decrease the compensation of the Participant from the rate in existence at
the time of the grant of an Award under the Plan.
15.7. Notices and Other Communications. All notices and other
communications required or permitted under the Plan shall be effective if in
writing and if delivered or sent by certified or registered mail, return receipt
requested (a) if to the Participant, at his or her residence address last filed
with the Company, and (b) if to the Company, at 195 Albany Street, Cambridge, MA
02139 Attention: Treasurer or to such other persons or addresses as the
Participant or the Company may specify by a written notice to the other from
time to time.
15.8. Governing Law. The Plan and all Awards and actions taken thereunder
shall be governed by and construed in accordance with the laws of the
Commonwealth of Massachusetts, without regard to the conflict of laws principles
thereof.
<PAGE>
-17-
Date of Board Approval: June 16, 1993
Date of Shareholder Approval: June 24, 1993
<PAGE>
TRANSKARYOTIC THERAPIES, INC.
Amendment No. 1 to 1993 Long Term Incentive Plan
Section 7.2(c) of the Plan is amended and restated in its entirety
to read as follows:
"(c) Exercisability. Stock Options shall be exercisable at such time
or times and subject to such terms and conditions as shall be
determined by the Committee at or after grant. If the Committee
provides, in its discretion, that any Stock Option is exercisable
only in installments, the Committee may waive such installment
exercise provisions at any time at or after grant in whole or in
part, based on such factors as the Committee may determine."
Adopted by the Board of Directors on
January 22, 1998
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<PAGE>
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 25,114
<SECURITIES> 99,801
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 125,902
<PP&E> 12,226
<DEPRECIATION> 8,033
<TOTAL-ASSETS> 130,450
<CURRENT-LIABILITIES> 2,307
<BONDS> 0
0
0
<COMMON> 190
<OTHER-SE> 127,953
<TOTAL-LIABILITY-AND-EQUITY> 130,450
<SALES> 0
<TOTAL-REVENUES> 575
<CGS> 0
<TOTAL-COSTS> 6,895
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (6,320)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,320)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,320)
<EPS-PRIMARY> (0.24)
<EPS-DILUTED> (0.24)
</TABLE>
<PAGE>
Exhibit 99
Certain Factors That May Affect Future Results
The following important factors, among others, could cause actual results
to differ from those indicated by forward-looking statements made in this Annual
Report on Form 10-K for the year ended December 31, 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.
In April 1997, Amgen filed a civil action in the U.S. District Court in
Massachusetts against the Company and HMRI, the Company's collaborative partner.
The complaint in the action alleges that the Company's Gene Activation
development program for the production of 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 November 1997, TKT and HMRI filed a Motion for Summary Judgment on the
ground that all of TKT and HMRI's activities to date have been reasonably
related to the development and submission of data to the FDA, and, under the
Waxman-Hatch Act, cannot constitute acts of patent infringement. On the same
date, Amgen filed a Motion for Summary Judgment of Infringement. TKT and HMRI
have opposed that motion, stating that there has been no infringement.
Oral arguments were heard in January 1998.
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.
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
<PAGE>
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.
With respect to gene therapy technology, the Company requested, and the
PTO declared in January 1996, an interference regarding a third party's 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), Syntex (U.S.A.) (a wholly-owned subsidiary of Roche Holdings,
Inc.), and Somatix. Somatix subsequently merged into Cell Genesys, Inc. With the
possible exception of the patent 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 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 four
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 FTC decision may then
be relevant. The FTC entered 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 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. At December 31, 1997, the Company had two issued U.S. patents and 27
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
<PAGE>
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 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 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 do 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 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.
<PAGE>
Early Stage of Development; Commercial Uncertainty. TKT is at an early
stage of development. All of the Company's potential products are in research,
preclinical development or clinical development. No revenues have been generated
from product sales, and no such revenues are expected until 1999 at the
earliest.
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 may 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.
All of TKT's potential Niche Protein products are in research, preclinical
development or clinical development. No revenues have been generated from
product sales, and the Company believes no such revenues will be realized until
at least 1999. Extensive research, development, preclinical and clinical testing
and the regulatory review process will be required before marketing approval can
be obtained. The Company cannot predict with certainty when it will be able to
commercialize any of its potential Niche Protein products, if at all.
Technological Uncertainty. Each of the Company's three product platforms
involves new and rapidly evolving technologies. All of the Company's potential
products are in pre-clinical or clinical stages of development and will require
substantial additional development efforts and regulatory approvals prior to
market introduction.
The Company's Gene Activation and Niche Protein products are either in
clinical development or have not yet been tested in humans. While certain of the
Company's potential gene therapy products are in or about to enter clinical
development, the Company believes that its product candidates in this area are
even further from commercial introduction. Existing preclinical and clinical
data on the safety and efficacy of the Company's potential products are limited.
<PAGE>
For any given indication, the Company's potential products 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 any of the Company's products will obtain
approval from the FDA or equivalent foreign regulatory authorities for any
indication.
Uncertainty Associated with Clinical Trials. The Company's potential
products are in various stages of research or preclinical or clinical
development. 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 products in 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 license application 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, one (for
the treatment of cachexia) is in Phase I clinical trials and a second (for the
treatment of Hemophilia A) is the subject of an effective IND, but has not yet
entered a Phase I clinical trial. There can be no assurance that the Company
will be able to obtain authorization from the FDA for additional human clinical
testing for any of its other 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
<PAGE>
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
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 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.
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 December 31, 1997, the Company had an
accumulated deficit of $49,987,000. The Company expects that it will continue to
incur substantial losses until at least 1999 and expects cumulative losses to
increase until then 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. To date, the Company has not
received any revenues from product sales.
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. The
<PAGE>
Company also will require capital to fund the costs of its additional
facilities requirements. The Company intends to seek additional funding through
collaborative arrangements and/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 biotechnology industry is characterized by rapid and
significant technological change. There can be no assurance that TKT will
succeed in developing and marketing technologies and products that are more
clinically efficacious and cost-effective than existing established treatments
or new approaches and products developed and marketed by its competitors. The
development by others of alternative or superior treatment methods could render
the Company's products obsolete or noncompetitive. In addition, treatment
methods not clearly superior to the Company's could achieve greater market
penetration through competitors' superior sales, marketing or distribution
capabilities.
The Company's products and technologies will be subject to substantial
competition from companies engaged in the commercialization of therapeutic
proteins and gene therapy as well as from companies which have other forms of
treatment for the diseases targeted by the Company. Many of these competitors
have substantially greater financial and other resources than the Company,
including larger research and development staffs and more experience and
capabilities in conducting research and development activities, testing products
in clinical trials, obtaining regulatory approvals and manufacturing, marketing
and distributing products. Smaller companies may obtain access to such skills
and resources through collaborative arrangements with pharmaceutical companies
or academic institutions.
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 against any Gene
Activation products offered by the Company or its collaborators. 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.
The Company's Niche Protein products are targeted at patients suffering
from rare genetic diseases. The Company anticipates that the market for such
products in some instances may be quite small, and that competition in the form
of competitive products could place significant pressure on TKT's ability to
successfully commercialize its products.
The Company's competitive position also depends on its ability to attract
and retain qualified personnel, obtain patent protection, secure licenses of
necessary genes and technology from third parties, or otherwise develop
proprietary products or processes and secure sufficient capital resources for
the typically substantial expenditures and period of time prior to commercial
sales of each product. There can be no assurance that the Company will be
successful in achieving these goals.
No Manufacturing or Distribution or Marketing Capabilities; Dependence on
Third Party Manufacturers. Although the Company has pilot gene therapy and Gene
Activation
<PAGE>
manufacturing facilities, it has only limited manufacturing experience and no
commercial scale manufacturing capabilities. The Company will need to develop,
contract for or otherwise arrange for such capabilities, for example, through
collaborative partners, to commercialize any of its products. 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 submission of potential products for regulatory approval and
initiation of new development programs. In addition, there can be no assurance
that the Company will be able to manufacture products at a reasonable cost, that
the Company will be able to price 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.
To the extent that the Company contracts with third parties for the
manufacture of its products, the Company will be dependent on such third parties
to comply with the terms of the contracts and to manufacture for the Company on
a timely basis and in accordance with applicable regulations. Any failures by
third parties to person their contract obligations satisfactorily may delay
clinical trial development or the submission of products for regulatory
approval, impair the Company's ability to commercialize its products as planned
and deliver products on a timely basis or otherwise adversely affect the
Company's competitive position.
The Company has no product sales, marketing or distribution capabilities
or experience. In order to market any of its products, the Company must develop
sales, marketing and distribution capabilities, 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 sale, marketing and distribution 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. In addition, if the Company chooses to conduct such activities
directly, there can be no assurance that the Company will be able to recruit and
maintain a sales force or that a sales force will be able to successfully access
the markets for the Company's products.
Possibility of Orphan Drug Status. The Company believes that many of the
potential products in its Niche Protein platform may qualify as Orphan Drugs.
TKT intends to pursue this designation aggressively, where appropriate, with
respect to its Niche Protein products intended for patient populations in the
United States of less than 200,000. A drug that receives Orphan Drug designation
by the FDA and is the first product to receive FDA marketing approval for its
stated product claim is entitled to a seven-year exclusive marketing period in
the
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United States for that product claim. A drug that is considered by the FDA to be
different than a particular Orphan Drug is not barred from sale in the United
States during such seven-year exclusive marketing period. Furthermore, Orphan
Drug exclusivity can be terminated for a variety of reasons, including that the
manufacturer of an Orphan Drug cannot provide an adequate supply of the product.
There can be no assurance that Orphan Drug status will be afforded to any of the
Company's potential products, or, if afforded, that such designations will be
maintained. In addition, the Company could incur substantial costs in asserting
any rights to prevent such uses it may have under the Orphan Drug Act.
Legislation has in the past been introduced to limit the marketing
exclusivity provided for certain Orphan Drugs. Although the outcome of that
legislation, if reintroduced, is uncertain, there remains a possibility that
future legislation will limit the incentives currently afforded to the
developers of Orphan Drugs.
There can be no assurance that other companies will not seek such
designation and obtain FDA marketing approval before the Company obtains such
approval. If another company obtains Orphan Drug marketing approval and receives
seven-year marketing exclusivity, it is possible that the Company would not be
permitted by the FDA to market a similar product in the United States during the
exclusivity period.
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 an 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
<PAGE>
motivations to perform their contractual responsibilities in full, the amount
and 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.
