<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 SEPTEMBER 30, 1999
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 November 5, 1999, there were 22,584,202 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> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (unaudited)
Condensed Consolidated Balance Sheets as of
September 30, 1999 and December 31, 1998 3
Condensed Consolidated Statements of Operations for the Three and
Nine Months Ended September 30, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements 6 - 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9 - 14
Item 3. Quantitative and Qualitative Disclosures about Market
Risk 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities and Use of Proceeds 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
EXHIBIT INDEX 17
</TABLE>
2
<PAGE>
Part 1- Item 1- Condensed Consolidated Financial Statements
Transkaryotic Therapies, Inc.
Condensed Consolidated Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
(in thousands, except par values) September 30, December 31,
1999 1998
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 21,851 $ 31,760
Marketable securities 59,012 78,395
Prepaid expenses and other current assets 1,609 2,334
------------- -------------
Total current assets 82,472 112,489
Property and equipment, net 18,886 5,140
Other assets 371 333
------------- -------------
$101,729 $117,962
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,244 $ 1,456
Accrued expenses 6,022 2,860
Current maturities of long-term debt 1,761 -
------------- -------------
Total current liabilities 11,027 4,316
Long-term debt, less current maturities 10,570 -
------------- -------------
Total liabilities 21,597 4,316
------------- -------------
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;
19,280 and 19,126 shares issued and outstanding at
September 30, 1999 and December 31, 1998, respectively 193 191
Additional paid-in capital 187,072 186,067
Accumulated deficit (104,797) (69,952)
Deferred compensation (1,957) (2,632)
Accumulated other comprehensive loss (379) (28)
------------- -------------
Total stockholders' equity 80,132 113,646
------------- -------------
$101,729 $117,962
============= =============
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
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 Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
License and research revenues $ 649 $ 4,750 $ 1,370 $ 5,325
Operating expenses:
Research and development 11,753 6,394 32,787 17,422
General and administrative 2,836 1,801 7,034 4,987
------------ ------------ ------------ ------------
14,589 8,195 39,821 22,409
------------ ------------ ------------ ------------
Loss from operations (13,940) (3,445) (38,451) (17,084)
Interest income 1,070 1,663 3,606 5,199
------------ ------------ ------------ ------------
Net loss $(12,870) $(1,782) $(34,845) $(11,885)
============ ============ ============ ============
Basic and diluted net loss per share $(0.67) $(0.09) $(1.82) $(0.62)
============ ============ ============ ============
Shares used to compute basic and diluted
net loss per share 19,241 19,074 19,198 19,032
============ ============ ============ ============
</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) Nine Months Ended
September 30,
1999 1998
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(34,845) $(11,885)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 1,468 1,629
Compensation expense related to
equity issuances 747 847
Changes in operating assets and liabilities 5,675 (959)
----------- -----------
Net cash used for operating activities (26,955) (10,368)
----------- -----------
INVESTING ACTIVITIES:
Proceeds from sales of marketable securities 82,383 91,080
Purchases of marketable securities (63,351) (70,911)
Purchases of property and equipment (15,214) (1,849)
Changes in other assets and liabilities (38) (34)
----------- -----------
Net cash provided by investing activities 3,780 18,286
----------- -----------
FINANCING ACTIVITIES:
Proceeds from long-term debt financing 12,331 -
Proceeds from exercise of options and
warrants 935 623
----------- -----------
Net cash provided by financing activities 13,266 623
Net increase (decrease) in cash and cash (9,909) 8,541
equivalents
Cash and cash equivalents at January 1 31,760 23,922
----------- -----------
Cash and cash equivalents at September 30 $ 21,851 $ 32,463
=========== ===========
</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)
September 30, 1999 and 1998
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
Transkaryotic Therapies, Inc. ("TKT" or the "Company") is a
biopharmaceutical company building a broad and renewable product pipeline
based on three proprietary development platforms: Gene Activated-TM- proteins,
Niche Protein-TM- products, and Gene Therapy.
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 only of normal recurring adjustments, necessary for a
fair presentation of the financial condition, results of operations, and cash
flows for the periods presented. The results of operations for the interim
period ended September 30, 1999 are not necessarily indicative of the results
to be expected for the year ending December 31, 1999.
These financial statements should be read in conjunction with the
audited financial statements and notes thereto for the year ended December
31, 1998 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 calculated under Statement
of Financial Accounting Standard ("SFAS") No. 128, "Earnings per Share".
Basic earnings per share is calculated by dividing income available to common
stockholders by the weighted average common shares outstanding. Diluted
earnings per share is calculated by dividing net income by the sum of
weighted average common shares outstanding during the period plus common
stock equivalents. Common stock equivalents are shares assumed to be issued
if outstanding stock options and warrants were exercised. Basic net loss per
share was the same as diluted net loss per share during each of the three and
nine months ended September 30, 1999 and 1998 since common equivalent shares
from stock options and warrants have been excluded as their effect is
antidilutive.
6
<PAGE>
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.
The Company had total comprehensive loss of $12,968,000 and
$1,606,000 for the three months ended September 30, 1999 and 1998,
respectively. For the nine months ended September 30, 1999 and 1998, total
comprehensive loss was $35,196,000 and $11,713,000, respectively.
4. LEGAL PROCEEDINGS
In April 1997, Amgen Inc. filed a civil action in the U.S. District
Court for the District of Massachusetts against the Company and Hoechst
Marion Roussel, Inc. ("HMRI"), the Company's collaborative partner. The
complaint in the action alleged that Gene Activated erythropoietin
("GA-EPO-TM-") and processes for producing GA-EPO infringe certain of Amgen's
U.S. patents and requests that TKT and HMRI be enjoined from making, using,
or selling GA-EPO and that the Court award Amgen monetary damages.
In April 1998, the District Court granted TKT and HMRI's Motion for
Summary Judgment of Non-Infringement and denied Amgen's Motion for Summary
Judgment of Infringement on the ground that all of TKT and HMRI's GA-EPO
related activities through that date had been conducted solely for uses
reasonably related to the production of information for submission to the
U.S. Food and Drug Administration (the "FDA") as part of seeking regulatory
approval to market GA-EPO. According to the District Court, under the
Waxman-Hatch Act, such activities are not acts of patent infringement. The
Court did not address the issue of whether TKT and HMRI's activities that
were challenged by Amgen would infringe Amgen's patents in the future. The
District 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 constitute good cause to reopen the
claim.
In June 1999, the Company and HMRI filed a motion to reopen the
case, which the Court granted. The District Court scheduled the trial to
commence in April 2000. In addition, in July 1999, the Company commenced
legal proceedings against Kirin-Amgen, Inc., a joint venture of Amgen and
Kirin Brewery Co., Ltd., in the U.K. seeking a declaration that a U.K. patent
held by Kirin-Amgen will not be infringed by the sale of GA-EPO and that
numerous
7
<PAGE>
claims of Kirin-Amgen's U.K. patent are invalid. The trial is scheduled to
commence in November 2000.
In September 1999, the Court in the Massachusetts proceeding granted
Amgen's motion to amend its complaint to include two additional patents that
issued in May 1998 and September 1999, respectively.
In November 1999, Amgen filed a motion for Summary Judgement of
Infringement in the District Court. The motion asserts that GA-EPO and the
process for producing GA-EPO infringe a total of six claims in Amgen's U.S.
patents. It requests that the District Court grant a summary judgement of
infringement with respect to those claims.
The Company can provide no assurance as to the outcome of either the
U.S. or U.K. proceedings. A decision by a court in Amgen's or Kirin-Amgen's
favor, including the issuance of an injunction against the making, using or
selling of GA-EPO by the Company and HMRI in the U.S. or U.K., or any other
conclusion of either 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.
Pursuant to the Amended and Restated License Agreement, dated March
1995, by and between HMRI and the Company, HMRI assumed the cost of defense
of the Amgen and Kirin-Amgen litigations. The Company is required to
reimburse HMRI for its share of litigation expenses, as defined, from future
royalties, if any, otherwise payable by HMRI as to the sale of GA-EPO and in
certain other circumstances.
4. SUBSEQUENT EVENT
On November 2, 1999 the Company issued 3,300,000 shares of its
common stock to qualified institutional buyers and other accredited investors
for $40.00 per share, representing aggregate proceed to the Company of
$132,000,000 before deducting offering expenses. Net proceeds amounted to
approximately $125,000,000. The Company intends to use the net proceeds of
this offering for the establishment of sales and marketing capabilities for
its Niche Protein products, the funding of preclinical testing, clinical
trials and other research and development programs, and for working capital
and other general corporate purposes.
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 of products
based on the Company's three proprietary development platforms:
Gene-Activated-TM- proteins, Niche Protein-TM- products, and Gene Therapy.
The Company has not derived revenues from the sale of products, and the
Company does not expect to receive revenues from product sales until 2000, at
the earliest. The Company expects that its research and development
expenditures will increase substantially in future years as product
development efforts accelerate. The Company also expects that its sales and
marketing expenditures will increase substantially in connection with the
establishment of sales and marketing capabilities related to the Company's
Niche Protein products. Finally, the Company's facility costs will increase
as its scale of operations increases.
With the exception of 1995, the Company has incurred substantial
annual operating losses since inception and expects to incur substantial
operating losses in the future. At September 30, 1999, the Company's
accumulated deficit was $104,797,000. As a result, the Company is dependent
upon existing cash resources, interest income, and external financing from
equity offerings, debt financings, and 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 outcome of patent litigation and other patent
proceedings, the receipt, if any, of additional license fees and milestone
payments, the timing of certain expenses, and the establishment of additional
collaborative 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 SEPTEMBER 30, 1999 AND 1998
License and research revenues totaled $649,000 and $4,750,000 for the
three months ended September 30, 1999 and 1998, respectively. Revenues in the
third quarter of 1999 were earned from collaborative agreements with Sumitomo
Pharmaceuticals Co., Ltd. ("Sumitomo") and HMRI. Revenues in the same period in
1998 included a $2,500,000 milestone payment
9
<PAGE>
relating to the initiation of the Phase III clinical program for GA-EPO and a
$2,000,000 non-refundable up front payment from Sumitomo relating to the
development and commercialization of the Company's alpha-galactosidase A
(alpha-gal) product for Fabry disease in Japan and other Asian countries.
Research and development expenses totaled $11,753,000 in the third
quarter of 1999, as compared to $6,394,000 during the same period in 1998.
The increase in 1999 of $5,359,000, or 84%, was principally due to an
increase in research and development staff, clinical trial expenses, and
external development costs for the Company's programs. The Company expects
research and development expenses to continue to increase during the
remainder of 1999.
General and administrative expenses were $2,836,000 in the quarter
ended September 30, 1999, compared with $1,801,000 during the same period in
1998. The increase in 1999 of $1,035,000, or 57%, represents principally
personnel and costs expended in connection with the establishment of sales
and marketing capabilities related to the Company's Niche Protein products.
During the remainder of 1999, the Company expects that its general and
administrative costs will continue to increase over the prior year as it
continues to build such capabilities.
Interest income was $1,070,000 and $1,663,000 for the three months
ended September 30, 1999 and 1998, respectively. The average cash and
marketable securities balances were $84,966,000 and $119,135,000 in the three
months ended September 30, 1999 and 1998, respectively. The decrease in
interest income of $593,000 was primarily attributable to lower average cash
and marketable securities balances, as well as lower interest rates in 1999.
The Company had a net loss of $12,870,000 and $1,782,000 for the
three months ended September 30, 1999 and 1998, respectively. Basic and
diluted net loss per share was $0.67 for the three months ended September 30,
1999, as compared to a basic and diluted net loss per share of $0.09 for the
corresponding period in 1998.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
License and research revenues totaled $1,370,000 and $5,325,000 for
the nine months ended September 30, 1999 and 1998, respectively. Revenues in
the first nine months of 1999 were earned from collaborative agreements with
Sumitomo and HMRI. Revenues in the first nine months of 1998 included a
$2,500,000 milestone payment relating to the initiation of the Phase III
clinical program for GA-EPO and a $2,000,000 non-refundable up front payment
from Sumitomo relating to the development and commercialization of the
Company's alpha-gal product for Fabry disease in Japan and other Asian
countries.
Research and development expenses totaled $32,787,000 in the first
nine months of 1999, as compared $17,422,000 during the same period in 1998.
The increase in 1999 of $15,365,000, or 88%, was principally due to an
increase in research and development staff, clinical trial expenses and
external development costs. The Company expects research and development
expenses will continue to increase for the remainder of 1999.
10
<PAGE>
General and administrative expenses were $7,034,000 in the nine
months ended September 30, 1999, compared with $4,987,000 during the same
period in 1998. The increase in 1999 of $2,047,000, or 41%, principally
represents costs expended in connection with the establishment of sales and
marketing capabilities related to the Company's Niche Protein products.
During the remainder of 1999, the Company expects that its general and
administrative costs will continue to increase over the prior year as it
continues to build such sales and marketing capabilities.
Interest income was $3,606,000 and $5,199,000 for the nine months
ended September 30, 1999 and 1998, respectively. The average cash and
marketable securities balances were $95,404,000 and $122,844,000 in the nine
months ended September 30, 1999 and 1998, respectively. The decrease in
interest income of $1,593,000 was primarily attributable to lower average
balances and lower interest rates in the respective nine month periods.
The Company had a net loss of $34,845,000 and $11,885,000 for the
nine months ended September 30, 1999 and 1998, respectively. Basic and
diluted net loss per share was $1.82 for the nine months ended September 30,
1999, as compared to a basic and diluted net loss per share of $0.62 for the
corresponding period in 1998.
LIQUIDITY AND SOURCES OF CAPITAL
Since its inception, the Company has financed its operations
primarily 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 $80,863,000 at September 30, 1999. Cash equivalents and
marketable securities are invested in U.S. Treasury notes, agencies of the
U.S. government, and money market funds.
On November 2, 1999 the Company issued 3,300,000 shares of its
common stock to qualified institutional buyers and other accredited investors
resulting in aggregate proceeds to the Company of $132,000,000. Net proceeds
amounted to approximately $125,000,000.
The Company leased additional facilities in 1998. Equipment and
improvements to the space are estimated to cost approximately $14,000,000. In
December 1998, the Company obtained an unsecured term loan facility for up to
$14,000,000 to finance the capital costs related to the leased space. The
loan is payable beginning in December 1999 on the basis of a seven year
amortization schedule over a five year period, with a final payment for any
remaining amount in September 2004. The loan bears interest at either the
prime rate or LIBOR plus 1.50% at the Company's election. An election is made
at the time of each drawdown. The weighted average interest rate of the loan
was 7.4% as of September 30, 1999. The note contains certain restrictive
covenants, including, among other things, minimum cash and tangible net asset
requirements and a prohibition on the payment of dividends. At September 30,
1999, $12,331,000 was outstanding under the term loan.
11
<PAGE>
The Company may require space in addition to that referenced in the
prior paragraph to meet its needs beginning in 2001. The Company currently
expects to meet any additional facilities requirements through development of
a new facility or conversion of an existing building. The Company intends to
seek financing for all or a significant portion of the cost of any additional
facilities. There can be no guarantee that financing will be available on
favorable terms, if at all.
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 manufacturing capabilities, establishment
of sales and marketing capabilities, and for general and administrative
expenses. The Company has no material committed external sources of capital
and, as discussed above, does not anticipate product revenues until 2000, at
the earliest. As a result, the Company will need to fund its operations with
its existing cash resources, interest income, and proceeds from equity
offerings, debt financings, and funding from collaborative arrangements.
The Company expects to pursue opportunities to obtain additional
financing in the future through equity offerings, 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 and debt market conditions,
interest rates, and, more specifically, on the Company's continued progress
in its exploratory, preclinical, and clinical development programs. There can
be no assurance that such funds will be available on favorable terms, if at
all.
The Company expects that its existing capital resources, together
with revenues from collaborative agreements and interest income, will be
sufficient to fund its operations into 2002. 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 Consolidated
Financial Statements. Pursuant to TKT's agreements with HMRI, HMRI has
assumed the cost of the litigation. The Company is required to reimburse HMRI
for the Company's share of litigation expenses from future royalties, if any,
otherwise payable by HMRI as to the sale of GA-EPO and in certain other
circumstances.
At December 31, 1998, the Company had net operating loss carryforwards
of approximately $62,700,000, which expire at various times through 2013. Due to
the degree of uncertainty related to the ultimate use of loss carryforwards and
tax credits, the Company has fully reserved against any potential tax benefit.
The future utilization of net operating loss
12
<PAGE>
carryforwards and tax credits may be subject to limitation under the changes
in stock ownership rules of the Internal Revenue Code. Because of this
limitation, it is possible that taxable income in future years, which would
otherwise be offset by net operating losses, will not be offset and,
therefore, will be subject to tax.
YEAR 2000
The Year 2000 issue results from computer programs and systems that
were created to accept only two digit dates. As a result, computer programs
are unable to differentiate between the year 1900 and the year 2000. This
could result in miscalculations and system failures.
The Company has established a multidisciplinary Year 2000 project
committee. The committee has assessed the Company's software, hardware,
communications systems, applications, and networks, as well as other date
sensitive equipment. Mission critical systems such as the accounting system
have been found compliant or have been upgraded. The remaining systems are
currently being tested to identify those systems which would be affected by
Year 2000 non-compliance. In most cases, vendors have offered free upgrades
or the systems were already scheduled for upgrade. Therefore, the cost for
obtaining Year 2000 compliance is expected to be minimal for internal
systems. The Company believes its internal systems will not pose significant
operating issues for the Company as a result of the Year 2000.
In addition to the Company's internal risks, the Company is
dependent upon a number of third parties that provide information, goods and
services to the Company. These include financial institutions, suppliers,
service providers, and research partners. If these third parties experience
failures in their computer systems or equipment due to Year 2000
non-compliance, it could seriously affect the Company's business operations.
The Company has contacted its significant external business partners to
determine the extent to which the Company is vulnerable to their failure. The
Company is reviewing the responses and expects that all necessary contingency
plans will be completed in the fourth quarter.
If third party providers are not able to supply the Company, the
Company could experience delays in its research and development including
delays in clinical trial development or the submission of products for
regulatory approval. As a contingency plan, the Company expects to identify,
if available, a secondary source for critical third party providers. The
Company has not yet incurred significant cost to address the Year 2000 issue.
While the total cost of obtaining Year 2000 compliance is not known at this
time, the Company believes the cost will not be material.
FORWARD-LOOKING STATEMENTS
This document contains forward-looking statements that involve a
number of risks and uncertainties. For this purpose, any statements contained
herein that are not statements of historical fact may be deemed to be
forward-looking statements. Without limiting the foregoing, the words
"believes," "anticipates," "plans," "expects," "intends," and similar
expressions are
13
<PAGE>
intended to identify forward-looking statements. Important factors that could
cause actual results to differ materially from the expectations described in
these forward-looking statements are set forth in Exhibit 99.1 to this
Quarterly Report on Form 10-Q and incorporated herein by reference. These
important factors include risks as to whether TKT's products will advance in
the clinical trials process, the timing of such clinical trials, whether the
clinical trial results will warrant continued product development, and
whether the Company's products will receive approval from the U.S. Food and
Drug Administration or equivalent regulatory agencies, and, if such products
receive approval, whether they will be successfully marketed.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company does not believe that there is any material
market risk exposure with respect to derivative or other financial
instruments that would require disclosure under this item.
14
<PAGE>
PART II - Other Information
Item 1. Legal Proceedings
The Company is engaged in litigation with Amgen Inc. and
Kirin-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.
Item 2. Changes in Securities and Use of Proceeds
On November 2, 1999, TKT issued 3,300,000 shares of its common
stock to qualified institutional buyers and other accredited investors
for $40.00 per share, representing aggregate proceeds to the Company of
$132,000,000 before deducting offering expenses. Net proceeds amounted
to approximately $125,000,000. The shares of common stock were issued
without registration under the Securities Act of 1933, as amended (the
"Securities Act") pursuant to an exemption from registration under
Section 4 (2) of the Securities Act and Rule 506 of Regulation D
thereunder. The Company filed a registration statement with the
Securities and Exchange Commission and the shares are now available for
resale.
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
Current report on Form 8-K dated November 2, 1999.
15
<PAGE>
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: November 15, 1999 By: /s/ DANIEL E. GEFFKEN
---------------------------------
Daniel E. Geffken
Vice President, Finance and
Chief Financial Officer (Principal
Financial and Accounting Officer)
16
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Transkaryotic Therapies, Inc.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
27 Financial Data Schedule (for EDGAR filing
purposes only)
99.1 Certain Factors That May Affect Future Results
</TABLE>
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
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<PAGE>
EXHIBIT 99.1
CERTAIN CHANGES THAT MAY AFFECT FUTURE OPERATING RESULTS
WE ARE A PARTY TO LITIGATION WITH AMGEN AND KIRIN-AMGEN INVOLVING GA-EPO-TM-
We and HMRI, our collaborator, are defendants in a civil patent
infringement lawsuit brought by Amgen in the U.S. District Court for the
District of Massachusetts. Amgen's complaint, which was filed in April 1997,
alleged that GA-EPO and the processes for producing GA-EPO infringe certain
of Amgen's U.S. patents. Amgen's complaint requested that we and HMRI be
enjoined from making, using, or selling GA-EPO and that the District Court
award Amgen monetary damages.
In April 1998, the District Court granted our and HMRI's Motion for
Summary Judgment of Non-Infringement in this case. The District Court based
this decision on the fact that all of our and HMRI's GA-EPO related
activities through that date had been conducted solely for uses reasonably
related to the production of information for submission to the FDA as part of
seeking regulatory approval to market GA-EPO. According to the District
Court, these activities are not acts of patent infringement under the
Waxman-Hatch Act. The District Court did not address the issue of whether our
and HMRI's activities that were challenged by Amgen would infringe Amgen's
patents in the future. The District Court ordered Amgen's remaining claim for
declaratory judgment of future infringement administratively closed, subject
to being reopened upon motion by either party for good cause shown.
In June 1999, we and HMRI filed a motion to reopen the case with the
District Court. The District Court granted this motion. In addition, in July
1999, we commenced legal proceedings in the U.K. against Kirin-Amgen seeking
a declaration that a U.K. patent held by Kirin-Amgen will not be infringed by
the sale of GA-EPO and that numerous claims of the U.K. patent are invalid.
We can provide no assurance as to the outcome of either the U.S. or
U.K. proceedings. A court decision in Amgen's or Kirin-Amgen's favor,
including the issuance of an injunction against the making, using, or selling
of GA-EPO by us and HMRI in the U.S. or the U.K., or any other conclusion of
either litigation in a manner adverse to us and HMRI, would have a material
adverse effect on our business, financial condition, and results of
operations. Moreover, GA-EPO may be the subject of additional litigation.
Pursuant to our agreements with HMRI, HMRI has assumed the cost of
the Amgen and Kirin-Amgen litigations. We are required to reimburse HMRI for
our share of litigation expenses from future royalties, if any, payable by
HMRI from the sale of GA-EPO and in certain other circumstances.
WE MAY BE SUBJECT TO ADDITIONAL LITIGATION RELATING TO OUR INTELLECTUAL
PROPERTY RIGHTS
<PAGE>
The biotechnology industry has been characterized by significant
litigation and interference and other proceedings regarding patents, patent
applications, and other intellectual property rights. In addition to the
Amgen patent litigation described under "--We are a party to litigation with
Amgen and Kirin-Amgen involving GA-EPO-TM-" and the patent interference
described under "--We are involved and may become involved in patent
litigation or other intellectual property proceedings relating to our
Transkaryotic Therapy-TM- technology which could result in liability for
damages or stop our development and commercialization efforts," we may become
a party to additional patent litigation and other proceedings in the future.
Certain of our competitors have filed patent applications and have
been issued patents relating to certain methods of producing therapeutic
proteins. We believe that the risk of our becoming involved in patent
litigation is significant with respect to the therapeutic proteins that we
anticipate producing.
An adverse outcome in any patent litigation or other proceeding
involving patents could subject us to significant liabilities to third
parties and require us to cease using the technology that is at issue or to
license the technology from third parties. We may not be able to obtain any
required licenses on commercially acceptable terms or at all.
The cost to us of any patent litigation or other proceeding, even if
resolved in our favor, could be substantial. Some of our competitors may be
able to sustain these costs more effectively than we can because of their
substantially greater financial resources. Uncertainties resulting from the
initiation and continuation of patent litigation or other proceedings could
have a material adverse effect on our ability to compete in the marketplace.
In addition, hearings have recently been held by Congress with
respect to the Waxmam-Hatch Act. Under the safe harbor provisions of the
Waxman-Hatch Act, activities conducted solely for uses reasonably related to
the production of information for submission to the FDA as part of seeking
regulatory approval to market a product are not acts of patent infringement.
If legislation changing the safe harbor provisions of the Waxman-Hatch Act
were introduced in Congress and enacted, competitors of ours that desire to
bring U.S. patent infringement actions against us might be able to do so at
an earlier time than under the existing law.
WE HAVE NOT GENERATED REVENUES FOR THE SALE OF PRODUCTS
We are at an early stage of development. We have not generated
revenues from the sale of products. We do not expect to derive any revenues
from product sales until 2000, at the earliest. Each of our three product
platforms involves new and rapidly evolving technologies. All of our
potential products are in research, preclinical testing, or clinical
development. We will need to conduct additional development efforts for all
of these products prior to seeking regulatory approval. Preclinical and
clinical data on the safety and efficacy of our potential products are
limited. Our potential products may not be efficacious or may prove to have
undesirable or unintended side effects, toxicities, or other characteristics
that may prevent or limit commercial use.
<PAGE>
IF OUR CLINICAL TRIALS ARE NOT SUCCESSFUL, WE WILL NOT BE ABLE TO DEVELOP AND
COMMERCIALIZE ANY RELATED PRODUCTS
In order to obtain regulatory approvals for the commercial sale of
our potential products, we and our collaborators will be required to complete
extensive clinical trials in humans to demonstrate the safety and efficacy of
the products. We may not be able to obtain authority from the FDA or other
regulatory agencies to commence or complete these clinical trials.
The results from preclinical testing of a product that is under
development may not be predictive of results that will be obtained in human
clinical trials. In addition, the results of early human clinical trials may
not be predictive of results that will be obtained in larger scale, advanced
stage clinical trials. Furthermore, we, one of our collaborators, 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,
or for other reasons.
The rate of completion of clinical trials is dependent in part upon
the rate of 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. In particular, the patient
population for some of our Niche Protein products is small. Delays in planned
patient enrollment may result in increased costs and program delays.
We and our collaborators may not be able successfully to complete
any clinical trial of a potential product within any specified time period.
In some cases, we may not be able to complete the trial at all. Moreover,
clinical trials may not show any potential product to be safe or efficacious.
Thus, the FDA and other regulatory authorities may not approve any of our
potential products for any indication.
Our business, financial condition, or results of operations could be
materially adversely affected if:
- we or our collaborators are unable to complete a clinical
trial of one of our potential products;
- the results of any clinical trial are unfavorable; or
- the time or cost of completing the trial exceeds our
expectations.
WE MAY NOT OBTAIN GOVERNMENT APPROVALS; THE APPROVAL PROCESS IS COSTLY AND
LENGTHY
The testing, manufacturing, labeling, advertising, promotion,
export, and marketing, among other things, of our products are subject to
extensive regulation by governmental authorities in the U.S. and other
countries. The regulatory approval process to obtain market approval for a
new biologic takes many years and requires the expenditure of substantial
resources. We have had only limited experience in preparing applications and
obtaining regulatory approvals.
There can be no assurance that submission of an Investigational New
Drug Application will result in FDA authorization to commence clinical
trials, or that once clinical trials have begun, testing will be completed
successfully within any specific time period, if at all, with respect to any
of our products. Furthermore, we or the FDA may suspend clinical trials at
any time on various grounds, including a finding that the subjects or
patients are being exposed to unacceptable health risks. Once trials are
complete and an application has been submitted, the FDA may deny a Biologics
License Application if applicable regulatory criteria are not satisfied, may
require additional testing or information, and/or may require postmarketing
testing and surveillance to monitor the safety or efficacy of a product. The
testing and approval process requires substantial time, effort, and financial
resources. We can provide no assurance that any approval will be granted on a
timely basis, if at all.
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 more uncertain than for
other types of products. This uncertainty may cause delays in the regulatory
process relating to our gene therapy products, including delays in our
initiating clinical trials of these products. This uncertainty may also
increase the cost of obtaining regulatory approvals of our gene therapy
products.
Both before and after approval is obtained, violations of regulatory
requirements may result in various adverse consequences, including the FDA's
delay in approving or refusal to approve a product, withdrawal of an approved
product from the market, and/or the imposition of criminal penalties against
the manufacturer and/or the Biologics License Application holder.
We will also be subject to a variety of foreign regulations
governing clinical trials and the sale of its products. Whether or not we
have obtained FDA approval, the comparable regulatory authorities of foreign
countries must also approve a product prior to the commencement of marketing
of the product in those countries. The approval process varies from country
to country and the time may be longer or shorter than that required for FDA
approval.
WE FACE SIGNIFICANT COMPETITION, WHICH MAY RESULT IN OTHERS DISCOVERING,
DEVELOPING OR COMMERCIALIZING PRODUCTS BEFORE OR MORE SUCCESSFULLY THAN WE DO
The biotechnology industry is highly competitive and characterized
by rapid and significant technological change. Our competitors include
pharmaceutical companies, biotechnology firms, universities, and other
research institutions. Many of these competitors have substantially greater
financial and other resources than we do and are conducting extensive
research and development activities on technologies and products similar to
or competitive with ours.
We may be unable to develop technologies and products that are more
clinically efficacious or cost-effective than products developed by our
competitors. Even if we obtain marketing approval for our product candidates,
many of our competitors have more extensive and established sales, marketing,
and distribution capabilities than we do. Litigation with third parties,
including our present litigation with Amgen, could
<PAGE>
delay our time to market for certain products and enable our competitors to
more quickly and effectively penetrate certain markets.
Under our gene activation program, we are developing fully human
versions of proteins that are currently marketed. For instance, in the case
of GA-EPO, erythropoietin is marketed by Amgen and Johnson & Johnson in the
U.S.; F. Hoffmann-La Roche Ltd. (Boehringer Mannheim GmbH) and Johnson and
Johnson (Janssen-Cilag) in Europe; and Sankyo Company Ltd., Chugai
Pharmaceutical Co., Ltd., and Kirin Brewery Co. in Japan.
Many of the protein products against which our Gene-Activated
protein products would compete have well-known brand names, have been
promoted extensively, and have achieved market acceptance by third party
payors, hospitals, physicians, and patients. Many of the companies that
produce these protein products have patents covering the techniques used to
produce these products, which have served as effective barriers to entry in
the protein therapeutics market. As with Amgen and its erythropoietin
product, these companies may seek to block our entry into the market by
asserting that our Gene-Activated protein products infringe their patents.
Many of these companies are also seeking to develop and commercialize new or
potentially improved versions of their proteins.
We believe that the primary competition with respect to our Niche
Protein product program is from biotechnology and smaller pharmaceutical
companies. In particular, we believe that our major competition with respect
to Fabry disease and Gaucher disease is Genzyme Corporation. Genzyme is
conducting late stage clinical trials of a protein product for the treatment
of Fabry disease and has marketed a product for the treatment of Gaucher
disease since 1991. Genzyme owns or controls issued patents related to the
production of protein products to treat Fabry disease and Gaucher disease.
The markets for some of our potential Niche Protein products are quite small.
As a result, if competitive products exist, we may not be able successfully
to commercialize our products.
Our gene therapy system will have to compete with other gene therapy
systems, as well as with conventional methods of treating targeted diseases
and conditions. In addition, new non-gene therapy treatments may be developed
in the future. A number of companies, including major biotechnology and
pharmaceutical companies, as well as development stage companies, are
actively involved in this field.
COMPETITORS' PRODUCTS MAY RECEIVE ORPHAN DRUG EXCLUSIVITY AND THEREBY
PRECLUDE US FROM MARKETING OUR NICHE PROTEIN-TM- PRODUCTS AND WE MAY NOT BE
ABLE TO OBTAIN U.S. ORPHAN DRUG EXCLUSIVITY FOR OUR NICHE PROTEIN-TM- PRODUCTS
If a product which has an orphan drug designation from the FDA
subsequently receives the first marketing approval for the indication for
which it has such designation, the product is entitled to orphan drug
exclusivity, i.e., the FDA may not approve any other applications to market
the same product for the same indication, except in limited circumstances,
for a period of seven years. Obtaining orphan drug designations and orphan
drug exclusivity for our Niche Protein products may be critical to our
success in this area. We may not be able to obtain orphan drug
<PAGE>
designation or exclusivity for any of our potential products or be able to
maintain such designation or exclusivity for any of these products. For
example, if a competitive product is shown to be clinically superior to our
product, any orphan drug exclusivity we have obtained will not apply to our
product.
Our competitors may also seek orphan drug designations and obtain
orphan drug exclusivity for products competitive with our products before we
obtain marketing approval. We are aware that Genzyme is conducting late stage
clinical trials of a protein product for the treatment of Fabry disease for
which it has an orphan drug designation. If Genzyme's Fabry disease product
receives marketing approval before our Fabry disease product, it is likely
that we would not be permitted to market our product in the U.S. unless our
product is shown to be clinically superior to their product.
WE ARE DEPENDENT ON HMRI AND OTHER CORPORATE COLLABORATORS TO DEVELOP,
CONDUCT CLINICAL TRIALS, OBTAIN REGULATORY APPROVALS FOR, AND MANUFACTURE,
MARKET, AND SELL OUR PRINCIPAL PRODUCTS
We are parties to collaborative agreements with third parties
relating to certain of our principal products. We are relying on HMRI to
develop, conduct clinical trials, obtain regulatory approvals for, and
manufacture, market, and sell GA-EPO and GA-II; Sumitomo to develop and
commercialize alpha-gal for Fabry disease in Japan and other Asian countries;
and Genetics Institute to develop and commercialize Factor VIII gene therapy
for hemophilia A in Europe. Our collaborators may not devote the resources
necessary or may otherwise be unable to complete development and
commercialization of these potential products. Our existing collaborations
are subject to termination without cause on short notice under certain
circumstances.
Our existing collaborations and any future collaborative
arrangements with third parties may not be scientifically or commercially
successful. Factors that may affect the success of our collaborations include
the following:
- our collaborators may be pursuing alternative technologies or
developing alternative products, either on their own or in
collaboration with others, that may be competitive with the
product as to which they are collaborating with us, which
could affect our collaborative partners' commitment to the
collaboration with us;
- reductions in marketing or sales efforts or a discontinuation
of marketing or sales of our products by our collaborators
would reduce our revenues, which will be based on a percentage
of net sales by the collaborator;
- our collaborators may terminate their collaborations with us,
which could make it difficult for us to attract new
collaborators or adversely affect the perception of us in the
business and financial communities; and
- our collaborators may pursue higher priority programs or
change the focus of their development programs, which could
affect the collaborator's commitment to us. Pharmaceutical
companies have historically
<PAGE>
re-evaluated their development priorities following mergers
and consolidations. This could occur following the closing
of the pending merger between HMRI and Rhone-Poulenc SA,
which is expected to occur by the end of 1999.
WE MAY NOT BE ABLE TO OBTAIN PATENT PROTECTION FOR OUR DISCOVERIES
Our success will depend in large part on our ability to obtain
patent protection for our processes and products in the U.S. and other
countries. The patent situation in the field of biotechnology generally is
highly uncertain and involves complex legal and scientific questions. We may
not be issued patents relating to our technology. Even if issued, patents may
be challenged, invalidated, or circumvented. Our patents also may not afford
us protection against competitors with similar technology. Because patent
applications in the U.S. are maintained in secrecy until patents issue, third
parties may have filed or maintained patent applications for technology used
by us or covered by our pending patent applications without our being aware
of these applications.
We may not hold proprietary rights to certain product patents,
process patents, and use patents related to our products or their methods of
manufacture. In some cases, these patents may be owned or controlled by third
parties. As a result, we may be required to obtain licenses under third party
patents to market certain of our potential products. If licenses are not
available to us on acceptable terms, we will not be able to market these
products.
We also rely upon unpatented proprietary technology, processes, and
know-how. We seek to protect this information in part by confidentiality
agreements with our employees, consultants, and other third party
contractors. These agreements may be breached, and we may not have adequate
remedies for any such breach. In addition, our trade secrets may otherwise
become known or be independently developed by competitors.
WE MAY LOSE IMPORTANT LICENSE RIGHTS IN SOME CIRCUMSTANCES
We are a party to a number of patent licenses that are important to
our business and expect to enter into additional patent licenses in the
future. These licenses impose various commercialization, sublicensing,
royalty, insurance, and other obligations on us. If we fail to comply with
these obligations, the licensor will have the right to terminate the license.
WE ARE INVOLVED AND MAY BECOME INVOLVED IN PATENT LITIGATION OR OTHER
INTELLECTUAL PROPERTY PROCEEDINGS RELATING TO OUR TRANSKARYOTIC THERAPY-TM-
TECHNOLOGY WHICH COULD RESULT IN LIABILITY FOR DAMAGES OR STOP OUR
DEVELOPMENT AND COMMERCIALIZATION EFFORTS
We are a party to a proceeding before the U.S. Patent and Trademark
Office to determine the patentability of our gene therapy technology. The
participants in the interference are TKT, Genetic Therapy, Inc., which is a
wholly-owned subsidiary of Novartis AG, Syntex (U.S.A.), which is a
wholly-owned subsidiary of Roche Holdings,
<PAGE>
Inc., and Somatix Therapy Corporation, which has been merged into Cell
Genesys, Inc. This proceeding will also determine which of the parties first
developed this technology. If the technology is patentable, the party that
first developed the technology will be awarded the U.S. patent rights.
The process to resolve an interference can take many years. We may
not prevail in this interference. Even if we do prevail, the decision in this
proceeding may not enable us meaningfully to protect our proprietary position
in the field of EX VIVO gene therapy.
If we do not prevail in this proceeding, a consent order issued by
the Federal Trade Commission in March 1997 may be relevant to us. The Federal
Trade Commission entered this consent order to resolve anti-competitive
concerns raised by the merger of Ciba-Geigy Limited and Sandoz Limited into
NovartisAG. As part of the consent order, the constituent entities of
Novartis are required to provide all gene therapy researchers and developers
with nonexclusive, royalty-bearing licenses to the Novartis patent which is
involved in the interference proceeding described above. In addition, we have
entered into an agreement with Cell Genesys under which we would be permitted
to market our non-viral gene therapy products pursuant to a royalty-free
license agreement if Cell Genesys wins the interference. Thus, we believe
that we may only be materially adversely affected if Syntex prevails in this
proceeding.
EVEN IF WE OBTAIN MARKETING APPROVAL, OUR PRODUCTS WILL BE SUBJECT TO ONGOING
REGULATORY REVIEW
If regulatory approval of a product is granted, such approval may be
subject to limitations on the indicated uses for which the product may be
marketed or contain requirements for costly post-marketing follow-up studies.
As to products for which we obtain marketing approval, we, the manufacturer
of the product if other than us, and the manufacturing facilities will be
subject to continual review and periodic inspections by the FDA and other
regulatory authorities. The subsequent discovery of previously unknown
problems with the product, manufacturer, or facility may result in
restrictions on the product or manufacturer, including withdrawal of the
product from the market.
If we fail to comply with applicable regulatory requirements, we may
be subject to fines, suspension or withdrawal of regulatory approvals,
product recalls, seizure of products, operating restrictions, and criminal
prosecution.
THE MARKET MAY NOT BE RECEPTIVE TO OUR PRODUCTS UPON THEIR INTRODUCTION
The commercial success of our products that are approved for
marketing by the FDA and other regulatory authorities will depend upon their
acceptance by the medical community and third party payors as clinically
useful, cost-effective, and safe. Each of our technology programs is new. As
a result, it may be difficult for us to achieve market acceptance of our
products, particularly for the first products for which we obtain marketing
approval.
Other factors that we believe will materially affect market
acceptance of our products include:
<PAGE>
- the timing of the receipt of marketing approvals and the
countries in which such approvals are obtained;
- the safety and efficacy of the product as compared to
competitive products; and
- the cost-effectiveness of the product and the ability to
receive third party reimbursement.
WE HAVE NOT BEEN PROFITABLE AND MAY REQUIRE ADDITIONAL FUNDING
We have experienced significant operating losses since our inception
in 1988. At September 30, 1999, we had an accumulated deficit of
approximately $104.8 million. We expect that we will continue to incur
substantial losses into 2001 and that our cumulative losses will increase
until then as our research and development, sales and marketing, and
manufacturing efforts expand. We expect that the losses that we incur will
fluctuate from quarter to quarter and that these fluctuations may be
substantial. To date, we have not received revenues from the sale of products.
We will require substantial funds to conduct research and
development, including preclinical testing and clinical trials of our
potential products, and to manufacture and market any products that are
approved for commercial sale. Our future capital requirements will depend on
many factors, including the following:
- continued progress in our research and development
programs, as well as the magnitude of these programs;
- the scope and results of our clinical trials;
- the time and costs involved in obtaining regulatory
approvals;
- the cost of manufacturing activities;
- the cost of commercialization activities;
- the cost of our additional facilities requirements;
- our ability to establish and maintain collaborative
arrangements;
- the timing, receipt, and amount of milestone and other
payments from collaborators;
- the timing, receipt, and amount of sales and royalties from
our potential products in the market;
- the costs involved in preparing, filing, prosecuting,
maintaining, and enforcing patent claims and other
patent-related costs, including litigation
<PAGE>
costs and the costs of obtaining any required licenses
to technologies; and
- the cost of obtaining and maintaining licenses to use
patented technologies.
We may seek additional funding through collaborative arrangements
and public or private financings. Additional financing may not be available
to us on acceptable terms or at all.
If we raise additional funds by issuing equity securities, further
dilution to our then existing stockholders will result. In addition, the
terms of the financing may adversely affect the holdings or the rights of
such stockholders. If we are unable to obtain funding on a timely basis, we
may be required to significantly curtail one or more of our research or
development programs. We also could be required to seek funds through
arrangements with collaborators or others that may require us to relinquish
rights to certain of our technologies, product candidates, or products which
we would otherwise pursue on our own.
WE HAVE LIMITED MANUFACTURING CAPABILITIES AND WILL DEPEND ON THIRD PARTY
MANUFACTURERS
We have limited manufacturing experience and no commercial scale
manufacturing capabilities. In order to continue to develop products, apply
for regulatory approvals, and, ultimately, commercialize any products, we
will need to develop, contract for, or otherwise arrange for the necessary
manufacturing capabilities.
We expect to manufacture certain of our products in our own
manufacturing facilities. We will require substantial additional funds and
need to recruit qualified personnel in order to build or lease and operate
any manufacturing facilities.
We currently rely upon third parties to produce material for
preclinical testing and clinical trial purposes. We expect to continue to do
so in the future. We also expect to rely upon third parties for the
commercial production of certain of our products if we succeed in obtaining
necessary regulatory approvals. There are a limited number of such third
party manufacturers capable of manufacturing for us. If we are unable to
obtain or maintain contract manufacturing of these products, or to do so on
commercially reasonable terms, we may not be able to complete development of
these products or market them. To the extent that we enter into manufacturing
arrangements with third parties, we are dependent upon these third parties to
perform their obligations in a timely manner and in accordance with
applicable government regulations.
WE HAVE LIMITED SALES AND MARKETING EXPERIENCE AND CAPABILITIES
We have limited sales and marketing experience and capabilities. In
order to market our products, we will need to develop this experience and
these capabilities or rely upon third parties, such as our corporate
collaborators, to perform these functions. If we rely on third parties to
sell, market, or distribute our products, our success will be dependent upon
the efforts of these third parties in performing these functions. In
<PAGE>
many instances, we may have little or no control over the activities of these
third parties in selling, marketing, and distributing our products. If we
choose to conduct these activities directly, as we plan to do with respect to
some of our potential products, we may not be able to recruit and maintain an
effective sales force.
OUR SUCCESS IS DEPENDENT UPON THE RETENTION AND HIRING OF KEY PERSONNEL
Our success is highly dependent on the retention of principal
members of our scientific and administrative staff. Furthermore, our future
growth will require hiring a significant number of qualified scientific and
administrative personnel. Accordingly, recruiting and retaining such
personnel in the future will be critical to our success. There is intense
competition from other companies and research and academic institutions for
qualified personnel in the areas of our activities, and there can be no
assurance that we will be able to continue to attract and retain, on
acceptable terms, the qualified personnel necessary for the continued
development of our business.
WE MAY BE EXPOSED TO PRODUCT LIABILITY CLAIMS AND MAY NOT BE ABLE TO OBTAIN
ADEQUATE PRODUCT LIABILITY INSURANCE
Our business exposes us to the risk of product liability claims that
is inherent in the testing, manufacturing, and marketing of human therapeutic
products. Although we have clinical trial liability insurance, we do not
currently have any product liability insurance. We may not be able to obtain
or maintain such insurance on acceptable terms or at all. Moreover, any
insurance that we do obtain may not provide adequate protection against
potential liabilities. If we are unable to obtain insurance at acceptable
cost or otherwise protect against potential product liability claims, we will
be exposed to significant liabilities, which may materially and adversely
affect our business and financial condition. These liabilities could prevent
or interfere with our product commercialization efforts.
IF WE FAIL TO OBTAIN AN ADEQUATE LEVEL OF REIMBURSEMENT BY THIRD PARTY PAYORS
FOR OUR FUTURE PRODUCTS, WE MAY NOT BE ABLE TO SUCCESSFULLY COMMERCIALIZE OUR
PRODUCTS IN CERTAIN MARKETS
The availability of reimbursement by governmental and other third
party payors affects the market for any pharmaceutical product. These third
party payors continually attempt to contain or reduce the costs of health
care by challenging the prices charged for medical products and services. In
certain foreign countries, particularly the countries of the European Union,
the pricing of prescription pharmaceuticals is subject to governmental
control.
Proposals have been considered periodically by the Health Care
Financing Administration of the United States Department of Health and Human
Services to reduce the reimbursement rate with respect to erythropoietin.
Adoption by the Health Care Financing Administration of any such proposal
might have an adverse effect on the pricing of GA-EPO.
In both the U.S. and certain foreign jurisdictions, there have been
a number of legislative and regulatory proposals to change the health care
system. Further
<PAGE>
proposals are likely. The potential for adoption of these proposals may
affect our ability to raise capital, obtain additional collaborative
partners, and market our products.
If we or our collaborators obtain marketing approvals for our
products, we expect to experience pricing pressure due to the trend toward
managed health care, the increasing influence of health maintenance
organizations, and additional legislative proposals. We may not be able to
sell our products profitably if reimbursement is unavailable or limited in
scope or amount.
OUR OFFICERS AND DIRECTORS EXERCISE SIGNIFICANT CONTROL OVER TKT
Our executive officers, directors, and entities affiliated with
them, in the aggregate, beneficially own approximately 24% of our outstanding
common stock. These stockholders may be able to exercise substantial
influence over all matters requiring approval by our stockholders, including
the election of directors and approval of significant corporate transactions.
This concentration of ownership may also have the effect of delaying or
preventing a change in control of our company.
WE HAVE ANTITAKEOVER DEFENSES THAT COULD DELAY OR PREVENT AN ACQUISITION AND
COULD ADVERSELY AFFECT THE PRICE OF OUR COMMON STOCK
Provisions of our Certificate of Incorporation, our Bylaws, and
Delaware law may have the effect of deterring hostile takeovers or delaying
or preventing changes in control or our management, including transactions in
which our stockholders might otherwise receive a premium for their shares
over then current market prices. In addition, these provisions may limit the
ability of stockholders to approve transactions that they may deem to be in
their best interest.
OUR STOCK PRICE COULD BE VOLATILE, WHICH COULD CAUSE YOU TO LOSE PART OR ALL
OF YOUR INVESTMENT
The market price of our common stock, like that of the common stock
of many other development stage biotechnology companies, may be highly
volatile. Factors such as announcements of technological innovations or new
commercial products by us or our competitors, disclosure of results of
clinical testing or regulatory proceedings, governmental regulation and
approvals, developments in patent or other proprietary rights, public concern
as to the safety of products developed by us, our financial results, and
general market conditions may have a significant effect on the market price
of our common stock. In addition, the stock market has experienced extreme
price and volume fluctuations. This volatility has significantly affected the
market prices of securities of many biotechnology and pharmaceutical
companies for reasons frequently unrelated to or disproportionate to the
operating performance of the specific companies. These broad market
fluctuations may adversely affect the market price of our common stock.
