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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF SECURITIES EXCHANGE
---- ACT OF 1934
For the quarterly period ended March 30, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
---- EXCHANGE ACT OF 1934
For the transition period from to
----- -----
Commission file number 0-21794
GENZYME TRANSGENICS CORPORATION
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(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-3186494
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Five Mountain Road, Framingham, Massachusetts 01701
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(Address of principal executive offices) (Zip Code)
(508) 620-9700
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Registrant's telephone number, including area code
Indicate by check 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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT MAY 5, 1997
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Common Stock, $0.01 par value 17,205,532
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GENZYME TRANSGENICS CORPORATION
TABLE OF CONTENTS
PAGE #
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PART 1. FINANCIAL INFORMATION
ITEM 1--Unaudited Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of March 30, 1997 and
December 29, 1996................................................. 3
Condensed Consolidated Statements of Operations for the
Three Months Ended March 30, 1997 and March 31, 1996.............. 4
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 30, 1997 and March 31, 1996.............. 5
Notes to Unaudited Condensed Consolidated Financial
Statements........................................................ 6
ITEM 2
Management's Discussion and Analysis of Financial
Condition and Results of Operations............................... 8
PART II. OTHER INFORMATION
ITEM 1
Legal Proceedings................................................. 10
ITEM 6
Exhibits and Reports on Form 8-K.................................. 10
SIGNATURES........................................................... 11
Exhibit Index........................................................ 12
<PAGE>
PART I. Item 1--Unaudited Condensed Consolidated Financial Statements
GENZYME TRANSGENICS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, dollars in thousands except per share amounts)
MARCH 30, DECEMBER 29,
1997 1996
----------- ------------
ASSETS
Current assets:
Cash and cash equivalents...................... $ 7,494 $ 8,894
Accounts receivable, net....................... 8,505 7,499
Unbilled contract revenue...................... 5,370 6,740
Other current assets........................... 964 1,509
-------- --------
Total current assets......................... 22,333 24,642
Net property, plant and equipment................ 22,577 20,566
Costs in excess of net assets acquired, net...... 20,404 20,695
Investment in Joint Venture...................... (28) 283
Other assets..................................... 529 518
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$65,815 $66,704
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-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................... $ 2,038 $ 2,992
Accounts payable--Genzyme Corporation.......... 1,904 1,339
Revolving line of credit....................... 6,000 6,000
Accrued expenses............................... 6,376 5,911
Advance payments............................... 7,164 6,649
Current portion of long-term debt.............. 2,565 1,867
-------- --------
Total current liabilities.................... 26,047 24,758
Long-term debt, net of current portion......... 4,803 5,708
Deferred lease obligation...................... 534 508
Other liabilities.............................. 370 526
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Total liabilities............................ 31,754 31,500
Stockholders' equity:
Preferred stock, $.01 par value, authorized
5,000,000 shares, none outstanding;.......... -- --
Common stock, $.01 par value; 24,000,000 shares
authorized; 17,198,532 and 17,130,901 shares
issued and outstanding at March 30, 1997 and
December 29, 1996, respectively.............. 172 171
Capital in excess of par value................. 53,208 52,974
Accumulated deficit............................ (19,309) (17,931)
Accumulated translation adjustments............ (10) (10)
-------- --------
Total stockholders' equity................... 34,061 35,204
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$ 65,815 $ 66,704
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-------- --------
The accompanying notes are an integral part of these financial statements.
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GENZYME TRANSGENICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands except per share amounts)
THREE MONTHS ENDED
------------------------
MARCH 30, MARCH 31,
1997 1996
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Revenues
Services........................................ $11,141 $ 8,795
Research and development........................ 3,793 1,558
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14,934 10,353
Costs and operating expenses:
Services........................................ 9,387 7,621
Research and development........................ 2,847 1,987
Selling, general and administrative............. 3,593 2,583
Equity in loss of Joint Venture................. 311 40
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16,138 12,231
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Loss from operations.............................. (1,204) (1,878)
Other income (expense):
Interest income................................. 30 8
Interest expense................................ (184) (310)
Other income.................................... -- 318
-------- -------
Loss before provision for income taxes............ (1,358) (1,862)
Provision for income taxes........................ 20 92
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Net loss.......................................... $(1,378) $(1,954)
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-------- -------
Net loss per common share......................... $ (0.08) $ (0.15)
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Number of common shares outstanding for purposes
of computing net loss per share................. 17,141 13,171
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The accompanying notes are an integral part of these financial statements.
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GENZYME TRANSGENICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, dollars in thousands)
THREE MONTHS ENDED
------------------------
MARCH 30, MARCH 31,
1997 1996
-------- ---------
Cash flows for operating activities:
Net loss........................................ $(1,378) $(1,954)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization............... 981 824
Adjustment to goodwill...................... -- (168)
Equity in loss of Joint Venture............. 311 40
Changes in assets and liabilities, net of
effects from purchase of subsidiaries:
Accounts receivable and unbilled contract
revenue................................... 364 (2,308)
Other current assets........................ 545 (403)
Accounts payable............................ (954) (1,351)
Accounts payable--Genzyme Corporation....... 565 454
Other accrued expenses...................... 465 191
Advance payments............................ 515 117
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Net cash provided by (used in) operating
activities................................ 1,414 (4,558)
Cash flows for investing activities:
Purchase of property, plant and equipment....... (2,486) (351)
Restricted cash................................. -- 475
Other assets.................................... (25) (39)
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Net cash provided by (used in) investing
activities................................ (2,511) 85
Cash flows from financing activities:
Net proceeds from the issuance of common stock.. 235 133
Repayment of long-term debt..................... (408) (505)
Net borrowings under revolving line of credit... -- (300)
Investment and advances by Genzyme Corporation.. -- 2,800
Other long-term liabilities..................... (130) (60)
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Net cash provided by (used in) financing
activities................................ (303) 2,068
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Net decrease in cash and cash equivalents......... (1,400) (2,405)
Cash and cash equivalents at beginning
of the period................................... 8,894 4,400
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Cash and cash equivalents at end of period........ $ 7,494 $ 1,995
------- -------
------- -------
Noncash Investing and Financing Activities:
Property acquired under capital leases.......... $ 201 $ 352
The accompanying notes are an integral part of these financial statements.
<PAGE>
GENZYME TRANSGENICS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
1. Basis of Presentation:
These unaudited condensed consolidated financial statements should be read in
conjunction with the Company's Annual Report on Form 10-K for the fiscal year
ended December 29, 1996 and the financial statements and footnotes included
therein. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to Securities and Exchange
Commission rules and regulations.
Per share information is based upon the weighted average number of shares of
Common Stock outstanding during the period.
The financial statements for the three months ended March 30, 1997 and March 31,
1996 are unaudited but include, in the Company's opinion, all adjustments
(consisting only of normally recurring accruals) necessary for a fair
presentation of the results for the periods presented.
2. Accounting Policies:
The accounting policies underlying the quarterly financial statements are those
set forth in Note 2 of the financial statements included in the Company's Annual
Report on Form 10-K for the year ended December 29, 1996.
3. Joint Venture:
In February 1997, the Company reached an agreement with the joint venture formed
by the Company and Sumitomo Metal Industries, Ltd. (the "Joint Venture") under
which the Company may receive up to $4.4 million in future milestone payments
for the development of AT-III. The Company earned $1.4 million in milestones
under the agreement in the first quarter of 1997. In March 1997, the Joint
Venture Partners agreed to raise $2.4 million in additional equity, of which
the Company contributed $527,000 in April 1997 to maintain its 22% ownership.
4. Extension of the Convertible Debt and Development Funding Agreement:
On March 30, 1997, the Company amended its Convertible Debt and Development
Funding Agreement (the "Agreement") dated March 28, 1996 with Genzyme to provide
for continued funding by Genzyme of the development costs of the Antithrombin
III ("AT-III") program through June 30, 1997. During the extension period, the
Company will continue to negotiate the other terms of the business relationship
with Genzyme concerning AT-III.
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5. Subsequent Event:
On April 23, 1997, the Company and Pharming B.V. ("Pharming") entered into a
Settlement Agreement, thereby ending arbitration proceedings which were
initiated by Pharming on December 21, 1995. The arbitration was filed under a
September 21, 1994 license agreement between the companies (the "License
Agreement"), in which the Company and Pharming cross-licensed various
intellectual property rights under certain patents relating to the transgenic
production of proteins. Pharming claimed breach of the License Agreement by the
Company on various grounds; and the Company denied Pharming's allegations and
filed a counterclaim alleging that Pharming's request for arbitration was filed
for improper purposes. The Settlement Agreement calls for submission of a
stipulation to the arbitration tribunal dismissing all claims. In connection
with the settlement, the companies also amended the License Agreement to clarify
the terms under which the Company and its affiliates may work in transgenic
cattle under the existing license to Pharming's promoter patent; and under which
Pharming and its affiliates may work in transgenic goats under the existing
license to the Company's promoter patent. The amended License Agreement further
specifies that the Company and Pharming each have a right of first refusal to
perform the work in goats and cattle, respectively, which the other party would
seek to contract to a third party. Finally, the amended License Agreement
clarifies that the agreement's conditions and restrictions apply only to the
cross-licensed patents, and that no rights other than the cross-licensed patents
are conferred on the parties. All other material terms of the original License
Agreement remain in force.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three months ended March 30, 1997 and March 31, 1996
Total revenues for the three-month period ending March 30, 1997 were $14.9
million, compared with $10.4 million in the comparable period of 1996, an
increase of $4.6 million or 44%. Service revenues increased to $11.1 million in
the first quarter of 1997 from $8.8 million in the first quarter of 1996, an
increase of $2.3 million or 27%. Research and development revenue increased to
$3.8 million in the first quarter of 1997 from $1.6 million in the first quarter
of 1996, an increase of $2.2 million or 143%, due primarily to an increase in
activity and revenues related to the funding received from Genzyme Corporation
("Genzyme") in the development of the lead compound, transgenic antithrombin III
("AT-III"), the achievement of a $1.4 million milestone from the joint venture
formed by the Company and Sumitomo Metal Industries, Ltd. (the "Joint Venture")
and increased commercial activity.
Cost of services for the first quarter of 1997 were $9.4 million compared to
$7.6 million in the comparable period of 1996, an increase of $1.8 million or
23% due to the increased volume in the services sector. Research and
development expenses increased to $2.8 million in the first quarter of 1997 from
$2.0 million in the first quarter of 1996, an increase of $860,000 or 43%. The
increase is due to increased activity in research programs.
Gross profit for the first quarter of 1997 amounted to $2.7 million versus
$745,000 in the first quarter of 1996. Gross profit on services for the first
quarter of 1997 was $1.8 million, a gross margin of 16%, versus $1.2 million, a
gross margin of 13%, in the first quarter of 1996. The improvement in services
margins was primarily due to increased services revenues and a shift to higher
margin services.
Selling, general and administrative ("SG&A") expenses increased to $3.6 million
in the first quarter of 1997 from $2.6 million in the first quarter of 1996, an
increase of $1.0 million or 39%. The increase was due to the increased
marketing efforts and administrative personnel required to generate the increase
in revenue.
Interest income increased to $30,000 in the first quarter of 1997, from $8,000
in the first quarter of 1996, due to the investment of funds from the Company's
secondary public offering. Interest expense decreased to $184,000 in the first
quarter of 1997 from $310,000 in the first quarter of 1996 due to lower
borrowings in 1997.
The Company recognized $311,000 of Joint Venture losses during the first quarter
of 1997 compared to $40,000 in the comparable period of 1996. The increase was
due to additional research by the Joint Venture including increased research
funding to the Company (see Note 3 to the Financial Statements appearing in this
Report).
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LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of $7.5 million at March 30, 1997.
During the first three months of 1997, the Company had a $1.4 million net
decrease in cash, $2.5 million was invested in capital equipment, further
expansion of the transgenic production facility and the expansion of the Mason
Laboratories facility and $408,000 was used to pay down long-term debt. Sources
of funds during the period included $1.4 million of cash provided by operations
(due primarily to a decrease in non-cash working capital of $1.5 million and
$1.3 million of non-cash charges offset by the net loss of $1.4 million) and
$235,000 of proceeds received from the issuance of common stock under the
Company's stock plans.
In October 1996, the Company began a $3 million expansion of its Mason
Laboratory facility scheduled to be completed in April 1997. The Company is in
the process of obtaining long-term financing of this project through a
consortium consisting of state and local government agencies in conjunction with
a commercial bank. Upon completion of this financing, $2.4 million of
construction costs which were internally financed from working capital through
March 30, 1997 will be reimbursed to the Company.
The Company had a working capital deficit of $3.7 million at March 30, 1997
compared to a deficit of $116,000 at December 29, 1996. The Company expects to
continue to operate with negative working capital for the foreseeable future.
As of March 30, 1997 the Company had approximately $8.3 million available under
the Genzyme Convertible Debt and Development Agreement and $2.8 million was
available under various capital lease lines. Under the Company's 1997 operating
plan, existing cash balances along with funds available under the bank line and
the Convertible Debt and Development Agreement are expected to be sufficient to
fund the Company through March 31, 1998.
Management's current expectations regarding the sufficiency of the Company's
cash resources are forward-looking statements and the Company's cash
requirements may vary materially from such expectations. Such forward-looking
statements are dependent on several factors, including the results of the
Company's testing services business, the ability of the Company to enter into
any transgenic research and development collaborations in the future and the
terms of such collaborations, the results of research and development and
preclinical and clinical testing, competitive and technological advances,
regulatory requirements and the Company's ability to complete the financing for
the Mason Laboratory expansion. If the Company experiences increased losses,
the Company may have to seek additional financing through collaborative
arrangements or from public or private sales of its securities, including equity
securities. There can be no assurance that additional funding will be available
on terms acceptable to the Company, if at all. If additional financing cannot
be obtained on acceptable terms, to continue its operations the Company could be
forced to delay, scale back or eliminate certain of its research and development
programs or to enter into license agreements with third parties for the
commercialization of technologies or products that the Company would otherwise
undertake itself.
<PAGE>
Part II. Item 1 - Legal Proceedings.
On April 23, 1997, the Company and Pharming B.V. ("Pharming") entered
into a Settlement Agreement, thereby ending arbitration proceedings which were
initiated by Pharming on December 21, 1995. The arbitration was filed under a
September 21, 1994 license agreement between the companies (the "License
Agreement"), in which the Company and Pharming cross-licensed various
intellectual property rights under certain patents relating to the transgenic
production of proteins. Pharming claimed breach of the License Agreement by the
Company on various grounds; and the Company denied Pharming's allegations and
filed a counterclaim alleging that Pharming's request for arbitration was filed
for improper purposes. The Settlement Agreement calls for submission of a
stipulation to the arbitration tribunal dismissing all claims. In connection
with the settlement, the companies also amended the License Agreement to clarify
the terms under which the Company and its affiliates may work in transgenic
cattle under the existing license to Pharming's promoter patent; and under which
Pharming and its affiliates may work in transgenic goats under the existing
license to the Company's promoter patent. The amended License Agreement further
specifies that the Company and Pharming each have a right of first refusal to
perform the work in goats and cattle, respectively, which the other party would
seek to contract to a third party. Finally, the amended License Agreement
clarifies that the agreement's conditions and restrictions apply only to the
cross-licensed patents, and that no rights other than the cross-licensed patents
are conferred on the parties. All other material terms of the original License
Agreement remain in force.
Item 6. Exhibits and Current Reports on Form 8-K.
(a) Exhibits.
10.1 Amendment Agreement, dated April 23, 1997, between GTC and
Pharming B.V. Filed herewith.
10.2 Amendment No. 2 to Convertible Debt and Development Funding
Agreement, dated March 29, 1997, between GTC and Genzyme
Corporation. Filed as Exhibit 99.1 to the Company's Current
Report on Form 8-K dated March 31, 1997 and incorporated herein by
reference.
27 Financial Data Schedule. Filed herewith.
(b) Reports on Form 8-K.
On April 3, 1997, the Company filed a Current Report on Form 8-K,
disclosing the execution of Amendment No. 2 to the Convertible Debt
and Development Funding Agreement dated as of March 29, 1996,
between the Company and Genzyme Corporation.
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GENZYME TRANSGENICS CORPORATION AND SUBSIDIARY
FORM 10-Q
MARCH 30, 1997
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 hereunto duly authorized.
Date: May 12, 1997 GENZYME TRANSGENICS CORPORATION
BY: /s/ John B. Green
----------------------------
John B. Green
Duly Authorized Officer,
Vice President and
Chief Financial Officer
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EXHIBIT INDEX
Exhibit Description
10.1 Amendment Agreement, dated April 23, 1997, between GTC and Pharming
B.V. Filed herewith.
10.2 Amendment No. 2 to Convertible Debt and Development Funding
Agreement, dated March 29, 1997, between GTC and Genzyme
Corporation. Filed as Exhibit 99.1 to the Company's Current Report
on Form 8-K dated March 31, 1997 and incorported herein by reference.
27 Financial Data Schedule. Filed herewith.
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Exhibit 10.1
AMENDMENT AGREEMENT
THIS AMENDMENT AGREEMENT (together with the attached Schedules, the
"Amendment") is dated as of 23rd day of April, 1997 by and between Genzyme
Transgenics Corporation, a Massachusetts corporation with a business address
at Five Mountain Framingham, Massachusetts 01701-9322 ("GTC") and Pharming
B.V., a Netherlands corporation with a business address at Niels Bohrweg
11-13, 2333 CA Leiden, The Netherlands ("Pharming").
1. Background. GTC and Pharming (previously named Gene Pharming Europe B.V.)
are parties to a September 21, 1994 agreement, a copy of which is attached
to this Amendment as Schedule A (the "Agreement"). GTC and Pharming (which
is referred to in the Agreement as "GPE") desire to amend the Agreement, on
the terms and conditions set forth herein.
2. Section 2.4. Section 2.4 of the Agreement, including Subsections 2.4.1 and
2.4.2, are deleted in their entirety, and in place thereof the following
new Sections are added:
2.4. GTC Limited Rights to Work in Cattle.
2.4.1 No license rights are granted under any circumstances to GTC
or its Affiliates in the Field with respect to the
manufacture, use and sale of transgenic cattle to product
human lactoferrin, human lysozyme and/or human collagen.
2.4.2 GTC shall have the right under the GPE Patent Rights to
develop, manufacture, use, keep and/or import (but not sell)
transgenic cattle (including their progeny), and to develop
manufacture, use, import and/or sell the proteins produced
in transgenic cattle, and the license to the GPE Patent
Rights granted to GTC under Section 2.2 shall be extended to
include cattle and proteins produced in cattle, provided
that GTC complies with the following provisions:
a. If GTC wishes to perform all work related to the
development of transgenic cattle for a particular protein
itself or through an Affiliate, GTC shall pay to Pharming a
royalty equal to the royalty rate consistent with the formula
set forth in the last paragraph of Section 2.4.2(b), below,
plus two percent (2%), consistent with the revenue, payment,
reporting and audit terms set forth in the Biogen License
(defined in Section 4.1 as modified by Section 4.2) mutatis
mutandis.
b. GTC may contract any aspect of the development of
transgenic cattle, or the particular protein produced in such
<PAGE>
transgenic cattle, to a third party which as not an
Affiliate, provided that GTC shall not enter a definitive
agreement with a third party to perform such development
work unless it first offers to contract such work to
Pharming in accordance with the procedures set forth in this
Section 2.4.2(b).
Any offer (the "Offer") must be in writing and shall include
the following commercial terms (the "Basic Terms") upon
which GTC proposes to contract the development work which is
the subject of the Offer:
i. a detailed description of the development work to be
performed, including a work plan and timeline;
ii. the amount of initial payment, if any;
iii. the amount of subsequent payments, if any, and any
benchmarks therefor;
iv. the royalty rates and fees applicable to sales of such
transgenic cattle and/or such transgenic protein, and
any minimum royalties and fees; and
v. the term of the proposed contract.
Within thirty (30) days after its receipt of the Offer, Pharming
shall either accept or reject the Offer. During such thirty day
period, Pharming may propose to GTC terms for the offered
cattle/protein which are different from those set forth in the
Offer. However, if, during such thirty day period, Pharming does
not accept, by written notice to GTC, the Offer (upon its
original terms or as it may be modified solely by written
agreement of Pharming and GTC), and does not represent and
warrant to GTC that Pharming has the technical capabilities to
perform the work specified in the applicable workplan on the
timeline also specified therein, Pharming shall be deemed to have
rejected the Offer.
If Pharming duly accepts the Offer, GTC shall be obligated to
contract to Pharming such development work (including any herd
development and herd expansion work related to such development
work) upon the Basic Terms set forth in the Offer, and Pharming
shall be obligated to accept such contract upon such Basic Terms.
If and to the extent that Pharming rejects or is deemed to reject
an Offer, GTC shall be free to contract to a third party such
development work, subject to the conditions set forth below.
If GTC contracts to a third party such development work, the
Basic Terms of such contract, taken as a whole, shall not be
materially different than those set forth in the applicable
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Offer. If GTC desires to contract to a third party such
development work, but is unable to do so except on Basic Terms
which, taken as a whole, are materially different than those set
forth in the Offer, GTC shall not offer to contract such
development work to such third party unless it first offers to
contract such development work to Pharming on such materially
different terms in accordance with the provisions of this
Section, except that Pharming shall have twenty (20) days, rather
than thirty days, to accept or reject such Offer. In addition,
if GTC does not enter into a contract for such development work
with at least one third party within the twelve (12) month period
following the rejection of the applicable Offer by Pharming, GTC
shall not offer to contract such development work to any third
party unless it first offers such contract to Pharming in
accordance with the provisions of this Section; Pharming shall
have thirty (30) days to accept or reject such offer.
If GTC contracts to a third party such development work, GTC
shall pay to Pharming a royalty equal to X percent (as defined
below) of GTC's revenue on account of sales of such transgenic
cattle, and/or the protein produced in such transgenic cattle,
consistent with the revenue, payment, reporting and audit terms
as set forth in the Biogen License (defined in Section 4.1 as
modified by Section 4.2) mutatis mutandis; where "X" is three
percent (3%) if both the Biogen Patents and the GPE Patent Rights
cover the sales of such transgenic cattle, and/or the proteins
produced in such transgenic cattle, as applicable, but if only
the GPE Patent Rights cover the sales of such transgenic cattle,
and/or the proteins produced in such transgenic cattle, as
applicable, then X shall be the royalty rate scheme as set forth
in the Biogen License (i.e., 1-3%) plus 3% so that the resultant
royalty shall be 4-6% operating in similar manner as the royalty
scheme set forth in Appendix C of the Biogen License. The
Parties agree, however, that in no event will the royalty due
Pharming on the sales of such transgenic cattle, and/or the
proteins produced in such transgenic cattle, as applicable, ever
exceed six percent (6%) in total under this Agreement and the
Biogen License.
2.4.3. Notwithstanding anything contained in this Agreement to the
contrary, the limitations and restrictions on the license
and other terms set forth in this Section 2.4 shall apply
only with respect to the GPE Patent Rights licensed to GTC
under this Agreement, as amended.
If GTC desires to sell transgenic cattle covered by or made under
a claim of the GPE Patent Rights licensed to GTC under this
Agreement, it must first secure Pharming's prior written
approval.
Notwithstanding anything contained in this Agreement to the
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<PAGE>
contrary, GTC may contract non-development work (for example,
without limitation, fill, finish, labeling and distribution) but
not development work (for example, without limitation, herd
development and herd expansion work) to a third party without
offering to contract such work to Pharming under Section
2.4.2(b).
3. Section 2.5. Section 2.5 of the Agreement, including Subsections 2.5.1 and
2.5.2, are deleted in their entirety, and in place thereof the following
new Sections are added:
2.5 Pharming Limited Rights to Work in Goats.
2.5.1 No license rights are granted under any circumstances to GPE
or its Affiliates in the Field with respect to the manufacture,
use and sale of transgenic goats to produce human
antithrombin-III and/or cystic fibrosis transmembrane
conductance regulator.
2.5.2 Pharming shall have the right under the GTC Patent Rights to
develop, manufacture, use, keep and/or import (but not sell)
transgenic goats (including their progeny), and to develop,
manufacture, use, import and/or sell the proteins produced in
transgenic goats, and the license to the GTC Patent Rights
granted to Pharming under Section 2.1 shall be extended to
include goats and proteins produced in goats, provided that
Pharming complies with the following provisions:
a. If Pharming wishes to perform all work related to the
development of transgenic goats for a particular
protein itself or through an Affiliate, Pharming shall
pay to GTC a royalty equal to the royalty rate
consistent with the formula set forth in the last
paragraph of Section 2.5.2(b), below, plus two percent
(2%), consistent with the revenue, payment, reporting
and audit terms as set forth in the Biogen License
(defined in Section 4.1 as modified by Section 4.2)
mutatis mutandis.
b. Pharming may contract any aspect of the development of
transgenic goats, or the particular protein produced in
such transgenic goats, to a third party which is not an
Affiliate, provided that Pharming shall not enter a
definitive agreement with a third party to perform such
development work unless it first offers to contract
such work to GTC in accordance with the procedures set
forth in this Section 2.5.2(b).
Any offer (the "Offer") must be in writing and shall
include the following commercial terms (the "Basic
Terms") upon which Pharming proposes to contract the
development work which is the subject of the Offer:
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<PAGE>
i. a detailed description of the development work to
be performed, including a work plan and timeline;
ii. the amount of the initial payment, if any;
iii. the amount of subsequent payments, if any, and any
benchmarks therefor;
iv. the royalty rates and fees applicable to sales of
such transgenic cattle and/or such transgenic
protein, and any minimum royalties and fees; and
v. the term of the proposed contract.
Within thirty (30) days after its receipt of the Offer,
GTC shall either accept or reject the Offer. During
such thirty day period, GTC may propose to Pharming terms
for the offered goats/protein which are different from those
set forth in the Offer. However, if, during such thirty day
period, GTC does not accept, by written notice to Pharming,
the Offer (upon its original terms or as it may be modified
solely by written agreement of GTC and Pharming), and does
not represent and warrant to Pharming that GTC has the
technical capabilities to perform the work specified in the
applicable workplan on the timeline also specified therein,
GTC shall be deemed to have rejected the Offer.
If GTC duly accepts the Offer, Pharming shall be obligated
to contract to GTC such development work (including any herd
development and herd expansion work related to such
development work) upon the Basic Terms set forth in the
Offer, and GTC shall be obligated to accept such contract
upon such Basic Terms.
If and to the extent that GTC rejects or is deemed to
reject an Offer, Pharming shall be free to contract to
a third party such development work, subject to the
conditions set forth below.
If Pharming contracts to a third party such development
work, the Basic Terms of such contract, taken as a
whole, shall not be materially different than those set
forth in the applicable Offer. If Pharming desires to
contract to a third party such development work, but is
unable to do so except on Basic Terms which, taken as a
whole, are materially different than those set forth in
the Offer, Pharming shall not offer to contract such
development work to such third party unless it first
offers to contract such development work to GTC on such
materially different terms in accordance with the
-5-
<PAGE>
provisions of this Section, except that GTC shall have
twenty (20) days, rather than thirty days, to accept or
reject such Offer. In addition, if Pharming does not
enter into a contract for such development work with at
least one third party within the twelve (12) month
period following the rejection of the applicable Offer
by GTC, Pharming shall not offer to contract such
development work to any third party unless it first
offers such contract to GTC in accordance with the
provisions of this Section; GTC shall have thirty (30)
days to accept or reject such offer.
If Pharming contracts to a third party such development
work, Pharming shall pay to GTC a royalty equal to
three percent (3%) of Pharming's revenue on account of
sales of such transgenic goats, and/or the protein
produced in such transgenic goats, consistent with the
revenue, payment, reporting and audit terms as set
forth in the Biogen License (defined in Section 4.1 as
modified by Section 4.2) mutatis mutandis.
2.5.3. Notwithstanding anything contained in this Agreement to
the contrary, the limitations and restrictions on the
license and other terms set forth in this Section 2.5
shall apply only with respect to Pharming's use of the
GTC Patent Rights licensed to Pharming under this
Agreement, as amended.
If Pharming desires to sell transgenic goats covered by
or made under a claim of the GTC Patent Rights licensed
to Pharming under this Agreement, it must first secure
GTC's prior written approval.
Notwithstanding anything contained in this Agreement to
the contrary, Pharming may contract non-development
work (for example, without limitation, fill, finish,
labeling and distribution) but not development work
(for example, without limitation, herd development and
herd expansion work) to a third party without offering
to contract such work to GTC under Section 2.5.2(b).
4. Section 5.1. At the end of Section 5.1 of the Agreement, the following new
sentence is added: "For purposes of clarification, the Parties acknowledge
that no license rights, either express or implied, are granted or deemed to
be granted under this Agreement other than those specified in Section 2 of
the Agreement, as amended."
5. No Other Changes. Other than as set forth in this Amendment, all other
terms and conditions of the Agreement remain in effect and binding on the
parties.
-6-
<PAGE>
IN WITNESS WHEREOF, duly-authorized representatives of the parties have
signed this Agreement as of the date first written above.
GENZYME TRANSGENICS CORPORATION
By /s/ James A. Geraghty
-----------------------------
Print Name James A. Geraghty
--------------------
Title President
-------------------------
duly authorized
PHARMING B.V.
By /s/ George J. M. Hersbach
--------------------------------
Print Name George J. M. Hersbach
-----------------------
Title President & CEO
---------------------------
duly authorized
-7-
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