U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 0-21994
GLYKO BIOMEDICAL LTD.
(Exact name of small business issuer as specified in its charter)
Canada 98-0195569
(State of other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
371 Bel Marin Keys Blvd., Suite 210, Novato, California 94949
(address of principal executive offices)
(415) 884-6700
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes ____ No_____
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 31,780,969 common shares
outstanding as of October 31, 1999.
Transitional Small Business Disclosure Format (check one): Yes___ No X
<PAGE>
GLYKO BIOMEDICAL LTD.
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheets as of September 30, 1999
and December 31, 1998 2
Consolidated Statements of Operations for the three and
nine months ended September 30, 1999 and 1998 3
Consolidated Statements of Cash Flows for the nine months
ended September 30, 1999 and 1998 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis 10
Item 3. Quantitative and Qualitative Disclosure about Market Risk 25
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 26
Item 2. Changes in Securities 26
Item 3. Defaults upon Senior Securities 26
Item 4. Submission of Matters to a Vote of Security Holders 26
Item 5. Other Information 26
Item 6. Exhibits and Reports on Form 8-K 26
SIGNATURE 27
<PAGE>
PART I. - FINANCIAL INFORMATION
ITEM 1. Financial Statements
GLYKO BIOMEDICAL LTD.
BALANCE SHEETS
(In U.S. dollars)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
--------------------- ---------------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 447,010 $ 2,567,824
Note receivable - 100,000
--------------------- ---------------------
Total current assets 447,010 2,667,824
Investment in BioMarin Pharmaceutical Inc. 36,084,131 7,674,729
--------------------- ---------------------
Total assets $ 36,531,141 $ 10,342,553
===================== =====================
Liabilities and Stockholders' Equity
Current liabilities:
Accrued liabilities $ 395,337 $ 411,109
--------------------- ---------------------
Total current liabilities 395,337 411,109
Stockholders' equity:
Common stock, no par value, unlimited shares
authorized, 31,565,992 and 28,020,234 shares
issued and outstanding at September 30, 1999
and December 31, 1998, respectively 22,161,336 17,963,167
Additional paid in capital 40,794,987 11,222,691
Common stock warrants and options 159,708 547,285
Note receivable from stockholder (746,761) (721,971)
Accumulated deficit (26,233,466) (19,079,728)
--------------------- ---------------------
Total stockholders' equity 36,135,804 9,931,444
--------------------- ---------------------
Total liabilities and stockholders' equity $ 36,531,141 $ 10,342,553
===================== =====================
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE>
GLYKO BIOMEDICAL LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in U.S. dollars)
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
1999 1998 1999 1998
-------------- --------------- --------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Sales of products $ - $ 232,453 $ - $ 738,235
Sales of services - 69,982 - 105,352
Other revenues - 83,898 - 288,243
-------------- --------------- --------------- -------------
Total revenues: - 386,333 - 1,131,830
Expenses:
Cost of products - 67,079 - 227,178
Cost of services - 28,586 - 48,377
Research and development - 281,296 - 627,673
Selling, general and administrative 62,481 152,225 195,484 511,663
Other - - - (165,880)
-------------- --------------- --------------- -------------
Total expenses: 62,481 529,186 195,484 1,249,011
-------------- --------------- --------------- -------------
Loss from operations (62,481) (142,853) (195,484) (117,181)
Equity in loss of BioMarin
Pharmaceutical Inc. (2,617,831) (1,063,723) (7,141,765) (2,405,161)
Interest income 30,303 10,950 183,511 27,959
-------------- --------------- --------------- -------------
Net loss $(2,650,009) $ (1,195,626) $ (7,153,738) $ (2,494,383)
============== =============== =============== =============
Net loss per common share,
basic and diluted $ (0.08) $ (0.05) $ (0.23) $ (0.11)
============== =============== =============== =============
Weighted average number of shares
used in computing per share amounts 31,521,713 24,726,345 30,830,156 23,151,544
============== =============== =============== =============
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
GLYKO BIOMEDICAL LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, U.S. dollars)
<TABLE>
<CAPTION>
Nine months ended September 30,
1999 1998
-------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (7,153,737) $ (2,494,383)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization - 67,740
Equity in the loss of BioMarin Pharmaceutical Inc. 7,141,765 2,405,161
Interest on note from stockholder (24,790) -
Gain on settlement of claim - (165,880)
Change in assets and liabilities:
Trade receivables - (44,597)
Inventories - 18,615
Note receivable - (100,000)
Other assets - (22,688)
Accounts payable - 49,574
Accrued liabilities 42,294 (73,876)
Deferred rent and related costs - (200,000)
-------------- ---------------
Total adjustments 7,159,269 1,934,049
-------------- ---------------
Net cash provided by (used in) operating activities 5,532 (560,334)
Cash flows from investing activities:
Investment in BioMarin Pharmaceutical Inc. (4,419,110) (1,000,002)
Purchases of property and equipment - (8,834)
-------------- ---------------
Net cash used in investing activities (4,419,110) (1,008,836)
Cash flows from financing activities:
Net proceeds from the issuance of common stock
pursuant to a technology and license agreement - 70,740
Proceeds from the exercise of stock options and
common stock warrants 2,192,764 2,206,438
Repayment of note receivable 100,000 -
-------------- ---------------
Net cash provided by financing activities 2,292,764 2,277,178
-------------- ---------------
Net increase (decrease) in cash (2,120,814) 708,008
Cash and cash equivalents, beginning of period 2,567,824 528,280
-------------- ---------------
Cash and cash equivalents, end of period $ 447,010 $ 1,236,288
============== ===============
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
GLYKO BIOMEDICAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The Company and Description of the Business
Glyko Biomedical Ltd. (the Company or GBL), a Canadian company, was
incorporated in 1992 to acquire all of the outstanding capital stock of
Glyko, Inc., a Delaware corporation. Both entities were under common
control and the share exchange was accounted for in a manner similar to
a pooling. Since its inception in October 1990, Glyko, Inc. has been
engaged in research, development, manufacturing and marketing of new
techniques to analyze and manipulate carbohydrates for research,
diagnostic and pharmaceutical purposes. Glyko, Inc. has developed a line
of analytic instrumentation laboratory products that include an imaging
system, analysis software and chemical analysis kits.
In October 1996, GBL incorporated BioMarin Pharmaceutical Inc.
(BioMarin), a Delaware corporation in the development stage, to develop
the Company's pharmaceutical products. BioMarin began business on March
21, 1997 and issued 1,500,000 shares of common stock to GBL for $1.5
million. As consideration for a certain license agreement dated June
1997, BioMarin issued GBL 7,000,000 shares of BioMarin common stock.
Beginning in October 1997, BioMarin raised capital from third parties
with the result that at December 31, 1997, GBL's ownership interest in
BioMarin had been reduced to 41.3% of BioMarin's outstanding capital
stock. As of December 31, 1997, the Company began recording its share of
BioMarin's net loss utilizing the equity method of accounting.
On June 30, 1998, BioMarin raised net proceeds of $3.3 million (598,535
shares) from a private placement including a $1.0 million investment
from GBL. In another private placement, on August 3, 1998, BioMarin
raised an additional $8.1 million (1,416,800 shares) from third parties.
On September 4, 1998, BioMarin received $8 million from Genzyme Corp.
(Genzyme) upon execution of a joint venture agreement in which BioMarin
issued 1,333,333 shares of common stock to Genzyme. BioMarin has a 50%
interest in the income or loss of this joint venture, BioMarin/Genzyme
LLC.
On October 7, 1998, GBL sold to BioMarin 100% of the outstanding capital
stock of Glyko, Inc. in exchange for 2,259,039 shares of BioMarin's
common stock, the assumptions of options, previously issued to employees
of Glyko, Inc., to purchase up to 585,969 shares of GBL's common stock
(exercisable into 255,540 shares of BioMarin common stock) and $500 in
cash.
As of December 31, 1998, GBL owned 41.7% of BioMarin's outstanding
capital stock.
On April 13, 1999, GBL purchased BioMarin convertible notes in the amount
of $4,300,000, as part of BioMarin's $26,000,000 convertible note
financing.
In May 1999, BioMarin's wholly-owned subsidiary, Glyko, Inc., acquired
key assets of the Biochemical Research Reagent Division of Oxford
GlycoSciences Plc. The acquisition was made to increase Glyko, Inc.'s
product offerings and was valued from $1.5 million to $2.1 million,
depending on the future sales of the acquired products, and was accounted
for as a purchase.
On July 23, 1999, BioMarin closed its initial public offering (IPO) of
4,500,000 shares at $13.00 per share concurrent with a $10 million
private placement from Genzyme, at the IPO price, raising net proceeds of
approximately $61.9 million. Additionally, BioMarin's convertible notes
payable (including interest accrued) were converted into 2,672,020 shares
of BioMarin's common stock at $10.00 per share. GBL's $4,300,000
convertible note plus interest of $119,110 was converted to 441,911
shares of BioMarin's common stock.
In August 1999, the underwriters exercised their over-allotment option
for 675,000 shares at the IPO price of $13 per share, raising additional
net proceeds of $8.1 million. GBL's percentage ownership of BioMarin's
outstanding common stock was 32.7% on September 30, 1999.
5
<PAGE>
GLYKO BIOMEDICAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Since its inception, GBL has incurred a cumulative deficit of $26.2
million and the Company expects to continue to incur losses during 1999
due to its share of BioMarin's net loss resulting from the ongoing
research and development of BioMarin's pharmaceutical product candidates.
As a result of GBL's sale of Glyko, Inc. on October 7, 1998, GBL has no
operating activities and its principal asset is its investment in
BioMarin. Accordingly, without further investment in other companies or
technologies, management believes that GBL has sufficient cash to sustain
planned operations which are of limited scope and cost for at least two
years. BioMarin had an accumulated deficit of $34.1 million at September
30, 1999 and is expected to incur significant losses throughout 1999 and
beyond. Management of BioMarin believes that the proceeds from the
convertible notes and the net proceeds of approximately $70.0 million
from the initial public offering (including underwriters' exercise of
over-allotment) and the concurrent Genzyme closing will be sufficient to
meet its obligations at least through June 30, 2000. Management of GBL
believes that at September 30, 1999 there has not been any impairment
of its investment in BioMarin.
The accompanying financial statements should be read in conjunction with
the Company's annual report on form 10-KSB for the fiscal year ended
December 31, 1998.
2. Summary of Significant Accounting Policies
The accompanying consolidated financial statements and related footnotes
have been prepared in conformity with U.S. generally accepted accounting
principles using U.S. dollars as essentially all of the Company's
operations were located in the United States. The consolidated financial
statements include the accounts and operations of the Company and Glyko,
Inc for the period from January 1, 1998 through September 30, 1998. For
the three and nine months ended September 30, 1999, the operations of
Glyko, Inc. have been consolidated into the operations of BioMarin. The
results of operations of BioMarin have been reported in the Company's
financial statements for the three and nine months ended September 30,
1999 and 1998, based on the equity method of accounting. All significant
intercompany accounts and transactions have been eliminated.
Use of Estimates:
The preparation of the Company's consolidated financial statements in
conformity with generally accepted accounting principles requires
management to make certain estimates and assumptions that effect the
reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the dates of the consolidated
financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those
estimates.
Cash and Cash Equivalents:
Cash and cash equivalents consist of amounts held with banks and
short-term investments with original maturities of 90 days or less.
Sale of Glyko, Inc. and Investment in BioMarin Pharmaceutical Inc.:
BioMarin acquired Glyko, Inc. from GBL through the exchange of BioMarin
stock for Glyko, Inc. stock and accounted for the acquisition based upon
the fair market value of the BioMarin stock issued (using the same per
share price as used in a recent arms-length transaction), the assumption
of responsibility for certain stock options previously issued to Glyko,
Inc. employees (see Note 1), and $500 in cash. In consolidating Glyko,
Inc., BioMarin recorded intangible assets, including goodwill, to the
extent that the fair market value of the stock issued exceeded the fair
market value of the tangible assets of Glyko, Inc. GBL recorded the stock
of BioMarin received at the historical cost basis of its investment in
Glyko, Inc. GBL accounts for its investment in BioMarin using the equity
method of accounting. However, as it has not recorded its investment in
BioMarin at fair market value, it does not record its share of the losses
recorded by BioMarin related to the write-off or amortization of
intangible assets recorded on the acquisition of Glyko, Inc.
6
<PAGE>
GLYKO BIOMEDICAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During the three and nine months ended September 30, 1999, BioMarin
recorded a charge to operations of $271,274 and $813,822, respectively in
connection with its purchase of Glyko, Inc. for the amortization of
goodwill and other intangible assets, which are being amortized over ten
years. In recording its share of BioMarin's loss for this period, GBL
reduced this loss for its share of the amortization of goodwill and other
intangible assets.
As of September 30, 1999, GBL's percentage share of BioMarin's
outstanding capital stock was 32.7%. The exercise of BioMarin options or
warrants will result in a reduction of GBL's ownership percentage
and future fundraising efforts of BioMarin may result in a similar
reduction of GBL's ownership percentage. To the extent that the issuance
of common stock by BioMarin to third parties at a per share price
greater than or less than the per share carrying value of GBL's
investment in BioMarin, the resulting gain or loss is reflected as an
increase or decrease, respectively, in additional paid in capital in
the accompanying balance sheets. Due to BioMarin's IPO, concurrent
Genzyme investment and conversion of convertible notes, GBL recorded an
increase to its Investment in BioMarin and Additional Paid-in-Capital
accounts of $31,132,058 during the nine months ended September 30, 1999.
Product Sales:
During the period in which the Company consolidated the operations of
Glyko, Inc., the Company recognized product revenues and related cost of
sales upon shipment of products. Service revenues were recognized upon
completion of services as evidenced by the transmission of reports to
customers. Other revenues, principally licensing and distribution fees,
were recognized upon completion of applicable contractual obligations.
During 1994, the Company recorded a charge to operations of $219,811
related to the termination of an agreement with one of its stockholders.
This charge was the estimated fair value of 500,000 shares of common
stock to be received by the stockholder in settlement of the agreement.
The Toronto Stock Exchange has not permitted the issuance of the 500,000
shares because the transaction is not considered arms length. The
stockholder was a stockholder in the Company from 1990 until April 1998.
At September 30, 1999 the liability of $219,811 is included in accrued
liabilities in the accompanying balance sheets.
Net Loss per Share:
Potentially dilutive securities outstanding at September 30, 1999 and
1998, respectively, include options for the purchase of 332,520 and
2,004,692 shares of common stock and warrants for the purchase of 2.4
million and 7.7 million shares of common stock, respectively. These
securities were not considered in the computation of dilutive loss per
share because their effect would be anti-dilutive for the three and nine
months ended September 30, 1999 and 1998.
New Accounting Standards:
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133, which is effective for
fiscal years beginning after June 15, 2000 is not expected to have a
material impact on the Company's financial position or results of
operations.
Reclassifications:
Certain balances in prior periods have been reclassified to conform with
the current period presentation.
7
<PAGE>
GLYKO BIOMEDICAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Investment in BioMarin Pharmaceutical Inc.
Results of the Company's unconsolidated affiliate, BioMarin, a
development stage company, are summarized as follows for the nine months
ended September 30, 1999 and 1998 and for the period from March 21, 1997
(inception) to September 30, 1999 ($ Thousands):
<TABLE>
<CAPTION>
Period from
March 21, 1997
Nine months ended September 30, (inception), to
September 30,
1999 1998 1999
------------------ ------------------ ------------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
REVENUES:
Revenues - products $1,018 $ - $ 1,156
Revenues - services 81 - 193
Revenues from joint venture 3,411 141 4,248
Revenues - other 151 - 254
------------------ ------------------ ------------------
Total revenues 4,661 141 5,851
OPERATING COSTS AND EXPENSES:
Cost of goods sold - products 234 - 283
Cost of goods sold - services 99 - 158
Research and development 18,029 3,904 30,446
General and administrative 4,759 2,772 9,203
------------------ ------------------ ------------------
Loss from operations (18,460) (6,535) (34,239)
EQUITY IN LOSS OF BIOMARIN/
GENZYME LLC (1,023) - (1,070)
INTEREST INCOME 1,177 469 1,926
INTEREST EXPENSE (728) - (728)
------------------ ------------------ ------------------
Net loss $ (19,034) $ (6,066) $ (34,111)
================== ================== ==================
For the periods presented above, GBL's equity in loss of BioMarin was as
follows:
$ (7,141,765) $ (2,405,161) $ (13,397,245)
================== ================== ==================
</TABLE>
4. Note Receivable
As part of its compensation for certain services, GBL issued stock
options to a consulting group. In September 1998, GBL loaned $100,000 to
the consulting group in anticipation that the Toronto Stock Exchange
would approve the stock options. In the first quarter of 1999, the
options were approved by the Toronto Stock Exchange and this note was
repaid in full.
In November 1998, per the terms of the BioMarin acquisition of Glyko,
Inc., GBL loaned $712,261 to an officer of the Company to exercise
expiring stock options. The loan is secured by the stock and is a full
recourse note.
8
<PAGE>
GLYKO BIOMEDICAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Related Party Transactions
Prior to the sale of Glyko, Inc. to BioMarin, the Company subleased
office and lab space to, and performed certain administrative and
research and development functions for BioMarin. BioMarin reimbursed the
Company for rent, salaries and related benefits and other administrative
costs and the Company reimbursed BioMarin for salaries and related
benefits. BioMarin reimbursed the Company a net $0 for the three and nine
months ended September 30, 1999 and a net $59,262 and $101,888 for the
three and nine months ended September 30, 1998, respectively. The Company
also provided analytical services and products to BioMarin at a 27%
discount in 1998. Total receipts to the Company from sales to BioMarin
totaled $43,761 and $60,252 during the three and nine months ended
September 30, 1998.
Since October 8, 1998, the Company has agreed to pay BioMarin a monthly
management fee for its services to the Company primarily relating to
management, accounting, finance and government reporting. The Company has
accrued management fee expenses due to BioMarin of $14,448 for the
quarter ended September 30, 1999.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion and analysis of financial condition and results
of operations contains certain forward looking statements within the
meaning of Section 27A of the U.S. Securities Act of 1933, as amended,
and Section 21E of the U.S. Securities Exchange Act of 1934, as amended,
that involve risks and uncertainties, such as statements regarding the
Company's ongoing liquidity as discussed in "Liquidity and Capital
Resources." The Company's actual results could differ materially from the
results anticipated in these forward-looking statements. Risks are
identified in "Overview, " "Results of Operations," and "Liquidity and
Capital Resources."
Overview
Glyko Biomedical Ltd. (GBL or the Company) is a Canadian company that at
September 30, 1999 owned 32.7% of the outstanding capital stock of BioMarin
Pharmaceutical Inc. (BioMarin). As of October 7, 1998, BioMarin owned 100% of
the capital stock of Glyko, Inc. Glyko, Inc. and BioMarin are operating
companies based in California. On October 7, 1998, BioMarin acquired Glyko,
Inc., in a transaction valued at $14,500,500. As consideration for the
acquisition of all of the outstanding shares of Glyko, Inc., BioMarin issued
2,259,039 shares of common stock to the Company, assumed Glyko, Inc.'s employee
stock options exercisable for 255,540 shares of BioMarin common stock, and paid
$500 in cash. Glyko Biomedical Ltd. consolidated the operations of Glyko, Inc.
through October 7, 1998. Subsequent to October 7, 1998, the accounts of Glyko
Biomedical Ltd. are presented on a stand-alone basis. In this period the results
of operations of Glyko, Inc. have been consolidated into the results of
operations of BioMarin. BioMarin's results of operations are recorded by Glyko
Biomedical Ltd. using the equity method of accounting. Numerical references in
the following discussion are rounded to the nearest thousand.
Since its inception in October 1990, Glyko, Inc. has been engaged in the
research, development, manufacturing and marketing of new techniques to analyze
and manipulate carbohydrates for research, diagnostic and pharmaceutical
purposes. Glyko, Inc. has developed a line of analytic instrumentation
laboratory products that include an imaging system, analysis software and
chemical analysis kits. Glyko, Inc., as a wholly owned subsidiary of BioMarin,
continues to develop additional chemical kits for use with the imaging system,
and is also developing a line of carbohydrate diagnostic products. In May 1999,
Glyko, Inc., acquired key assets of the Biochemical Research Reagent Division of
Oxford GlycoSciences Plc. The acquisition was made to increase Glyko, Inc.'s
product offerings and was valued from $1.5 million to $2.1 million, depending on
the future sales of the acquired products and was accounted for as a purchase.
In addition to the activities of Glyko, Inc., BioMarin is engaged in the
discovery, development and commercialization of carbohydrate enzyme
therapeutics.
On April 13, 1999, GBL purchased BioMarin notes in the amount of $4,300,000, as
part of BioMarin's $26,000,000 convertible note financing.
On July 23,1999, BioMarin closed its initial public offering ("IPO") of
4,500,000 shares at $13.00 per share concurrent with a $10 million private
placement (769,230 shares) from Genzyme, raising approximately $61.9 million.
Additionally, BioMarin's convertible notes payable were converted into 2,672,020
shares of BioMarin's common stock. GBL's $4,300,000 convertible note plus
interest of $119,110 was converted to 441,911 shares of BioMarin's common stock.
In August 1999, the underwriters exercised their over-allotment option for
675,000 shares at the IPO price of $13 per share, raising additional net
proceeds of $8.1 million. . GBL's ownership of BioMarin's outstanding common
stock was 32.7% on September 30, 1999.
The Company's net loss for the nine months ended September 30, 1999 and 1998 was
$7,154,000 and $2,494,000, respectively. The primary component of this loss was
the Company's share of the net loss of BioMarin accounted for under the equity
method of accounting. The losses of Glyko, Inc. for the three and nine months
ended September 30, 1999 have been consolidated into BioMarin's loss for that
period. GBL expects to continue to incur losses during 1999 due to its share of
BioMarin's net loss resulting from BioMarin's ongoing research and development
of pharmaceutical product candidates. The BioMarin losses do not have an impact
on the cash position of GBL. As a result of GBL's sale of Glyko, Inc., as of
October 7, 1998, GBL has no operating activities and its principal asset is its
investment in BioMarin. BioMarin has an accumulated deficit of $34,110,000 at
September 30, 1999 and is expected to incur significant losses throughout 1999
and beyond. Management of BioMarin believes that the
10
<PAGE>
convertible note financing and the net proceeds of approximately $70.0 million
from the initial public offering(including underwriters' over-allotment
exercise) and the concurrent Genzyme closing will be sufficient to meet its
obligations through June 30, 2000. Management of GBL believes that at September
30, 1999 there has not been any impairment of its investment in BioMarin.
Results of Operations
The principal operations of GBL were the operations of Glyko, Inc. through
October 7, 1998. The three and nine months ended September 30, 1998 include the
operations of Glyko, Inc. For the three and nine ended September 30, 1999, the
operations of Glyko, Inc. are reflected in the accompanying financials
statements through the Company's equity in the loss of BioMarin.
The Quarters Ended September 30, 1999 and 1998
There were no revenues for the quarter ended September 30, 1999 due to the sale
of the Company's operating entity, Glyko, Inc. Revenues for the three months
ended September 30, 1998 were $386,000 and consisted of sales of products of
$232,000, sales of services of $70,000 and other revenues representing grant
revenues of $84,000, all by Glyko, Inc. Sales of products and services consisted
of sales of chemical analysis kits and imaging systems, and fees for custom
analytic services.
There were no costs of sales of products and of services for the quarter ended
September 30, 1999 due to the Company's sale of Glyko, Inc. Costs of sales of
products and of services was 32 percent of revenues from the sales of products
and services for the quarter ended September 30, 1998.
There were no research and development expenses for the quarter ended September
30, 1999 due to the Company's sale of Glyko, Inc. Research and development
expenses for the quarter ended September 30, 1998 were $281,000 representing
internal research expenses for the development of future products, including
diagnostic software, new enzymes and improvements on the imaging system.
Selling, general and administrative expense was $62,000 for the quarter ended
September 30, 1999, a decrease of $90,000 from selling, general and
administrative expenses of $152,000 incurred for the quarter ended September 30,
1998. The decrease is due to the sale of Glyko, Inc. by the Company and the
subsequent reduction in administrative requirements. Selling, general and
administrative expense for the quarter ended September 30, 1999 represented
management fees billed to BioMarin for management, accounting, finance and
government reporting, and legal and other outside administrative support
expenses.
Equity in loss of BioMarin for the quarter ended September 30, 1999 was
$2,618,000 compared to $1,064,000 for the quarter ended September 30, 1998, an
increase of $1,554,000. The increase was due to the increased net loss of
BioMarin.
Interest income earned for the quarter ended September 30, 1999 and 1998 of
$30,000 and $11,000, respectively, resulted from earnings on cash invested in
short term interest bearing accounts and, in 1999, includes interest accrued on
the Company's convertible note from BioMarin until its conversion on July 23,
1999. The increase in interest income in the third quarter of 1999 resulted from
higher cash balances available for investment due to the exercise of stock
options and warrants in the last three quarters of 1998 and the first three
quarters of 1999 and the investment in a convertible note from BioMarin.
Interest expense for the quarters ended September 30, 1999 and 1998 was
immaterial.
The Nine Months Ended September 30, 1999 and 1998
There were no revenues for the nine months ended September 30, 1999 due to the
sale of the Company's operating entity, Glyko, Inc. in October 1998. Revenues
for the nine months ended September 30, 1998 were $1,132,000 and consisted of
sales of products of $738,000, sales of services of $105,000 and other revenues
representing development fees of $25,000 and grant revenues of $263,000, all by
Glyko, Inc. Sales of products and services consisted of sales of chemical
analysis kits and imaging systems, and fees for custom analytic services.
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There were no costs of sales of products and of services for the nine months
ended September 30, 1999 due to the Company's sale of Glyko, Inc. Costs of sales
of products and of services was 33 percent of revenues from sales of products
and services for the nine months ended September 30, 1998.
There were no research and development expenses for the nine months ended
September 30, 1999 due to the Company's sale of Glyko, Inc. Research and
development expenses for the nine months ended September 30, 1998 were $628,000
representing research expenses for the development of future products, including
diagnostic software, new enzymes and improvements on the imaging system.
Selling, general and administrative expense was $196,000 for the nine months
ended September 30, 1999, a decrease of $316,000 from selling, general and
administrative expenses of $512,000 incurred for the nine months ended September
30, 1998. The decrease is due to the sale of Glyko, Inc. by the Company and the
subsequent reduction in administrative requirements. Selling, general and
administrative expense for the nine months ended September 30, 1999 represented
management fees billed to BioMarin for management, accounting, finance and
government reporting, expenses related to the Company's special meeting and
annual meeting on March 10, 1999 and June 24, 1999, respectively, and legal and
other outside administrative support expenses.
Other operating expenses for the nine months ended September 30, 1998, of
$(165,880) represents the gain on the settlement of a claim at an amount less
than was provided for by the Company, which occurred in the second quarter of
1998.
Equity in loss of BioMarin for the nine months ended September 30, 1999 was
$7,142,000 compared to $2,405,000 for the nine months ended September 30, 1998,
an increase of $4,737,000. The increase was due to the increased net loss of
BioMarin.
Interest income earned for the nine months ended September 30, 1999 and 1998 of
$184,000 and $28,000, respectively, resulted from earnings on cash invested in
short term interest bearing accounts and, in 1999, includes interest earned on
the Company's convertible note from BioMarin until its conversion on July 23,
1999, and a note from stockholder. The increase in interest income in the first
nine months of 1999 resulted from higher cash balances available for investment
due to the exercise of stock options and warrants in the last three quarters of
1998 and the first three quarters of 1999 and due to the loan by the Company to
a shareholder and the investment in a convertible note from BioMarin. Interest
expense for the nine months ended September 30, 1999 and 1998 was immaterial.
Liquidity and Capital Resources
The Company's cash position decreased by $2,121,000 in the first nine months of
1999 to $447,000. Net cash proceeds of $2,292,000 relating to, primarily, the
issuance of common stock from the exercise of stock options and warrants,
proceeds from a loan repayment advanced for a stock option exercise and net cash
provided by operating activities of $6,000 was offset by the convertible note
purchased from BioMarin of $4,300,000 and interest income reinvested totaling
$119,000 in BioMarin as a result of the conversion of the convertible notes.
Since its inception, the Company has incurred a cumulative deficit of $26.2
million and GBL expects to continue to incur losses during 1999 due to its share
of BioMarin's net loss resulting from BioMarin's ongoing research and
development of pharmaceutical product candidates. As a result of GBL's sale of
Glyko, Inc., as of October 7, 1998, GBL has no operating activities and its
principal asset is its investment in BioMarin. Accordingly, without further
investments in other companies or technologies, management believes that GBL has
sufficient cash to sustain planned operations which are of limited scope and
cost for at least two years. BioMarin has an accumulated deficit of $34.1
million at September 30, 1999 and is expected to incur significant losses
throughout 1999 and beyond. Management of BioMarin believes that the proceeds
from the convertible note financing, the net proceeds of approximately $70.0
million from the initial public offering (including underwriters' exercise of
over-allotment) and the concurrent Genzyme closing will be sufficient to meet
its obligations through June 30, 2000. Management of GBL believes that at
September 30, 1999 there has not been any impairment of its investment in
BioMarin. See "Risk Factors - Dependence on Investment in BioMarin," "-History
of Operating Losses - Uncertainty of Future Profitability."
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RISK FACTORS
RISKS RELATED TO GLYKO BIOMEDICAL LTD.
Dependence on Investment in BioMarin
As of September 30, 1999, GBL's principal asset was its 32.7% ownership of
BioMarin's outstanding capital stock. GBL's success is dependent on the
successful operations of BioMarin including, but not limited to, BioMarin's
ability to receive FDA approval of existing and future pharmaceutical product
candidates, BioMarin's ability to retain key personnel, BioMarin's ability to
manufacture and market products effectively and successfully and BioMarin's
ability to raise additional cash to fund future operations. BioMarin is a
development stage company, with its only revenues currently being earned from
the sale of its analytic and diagnostic products resulting from the acquisition
of Glyko, Inc. and cost reimbursement revenues for services performed from its
joint venture with Genzyme for development and commercialization of
Aldurazyme(TM).
History of Operating Losses - Uncertainty of Future Profitability
The Company's share of BioMarin's net loss resulted in the Company reporting a
net loss for the nine months ended September 30, 1999 of $7.2 million. GBL
expects to continue to incur losses during 1999 due to its share of BioMarin's
net loss resulting from BioMarin's ongoing research and development of
pharmaceutical product candidates. As a result of GBL's sale of Glyko, Inc., as
of October 7, 1998, GBL has no operating activities and its principal asset is
its investment in BioMarin. Accordingly, without further investments in other
companies or technologies, management believes that GBL has sufficient cash to
sustain planned operations. BioMarin has an accumulated deficit of $34.1 million
at September 30, 1999 and is expected to incur significant losses throughout
1999 and beyond. Management of BioMarin believes that the proceeds from the
convertible note financing and the net proceeds of approximately $70.0 million
from the IPO (including underwriters' exercise of over-allotment) and the
concurrent Genzyme closing will be sufficient to meet its obligations through
June 30, 2000. Management of GBL believes that at September 30, 1999 there has
not been any impairment of its investment in BioMarin.
If we experience any problems with Year 2000 compliance our operations may be
disrupted.
The following is intended to constitute "Year 2000 Readiness Disclosure" under
the Year 2000 Information and Readiness Disclosure Act of 1998.
GBL has conducted a review of potential year-2000 compliance issues. Since GBL
no longer offers products and services for sale, GBL is focusing its inquiry on
the impact of these issues on its internal administrative activities and on its
professional service providers and other third parties. GBL does not currently
anticipate that it will incur material expenditures in connection with any
products or services it previously offered. GBL may incur some expense in
connection with this review, thought it does not currently anticipate that these
expenses will be material.
RISKS RELATED TO BIOMARIN PHARMACEUTICAL INC.
The following risk factors pertain to BioMarin and its wholly-owned
subsidiaries, Glyko, Inc. and BioMarin Genetics, Inc. References to "we",
"our" and "the Company" in the following risk factor represent BioMarin
and its wholly-owned subsidiaries.
If we continue to incur operating losses for a period longer than anticipated,
we may be unable to continue our operations.
We are in an early stage of development and have operated at a net loss since we
were formed. Since we began operations in March 1997, we have been engaged
primarily in research and development. We have no sales revenues from any of our
drug products. As of September 30, 1999, we had an accumulated deficit of
approximately $34.1 million. We expect to continue to operate at a net loss at
least six months into 2001. Our future profitability depends on our receiving
regulatory approval of our drug candidates and our ability to successfully
manufacture and market any approved drugs, either by ourselves or jointly with
others. The extent of our future losses and the timing of profitability are
highly uncertain. If we fail to become profitable or are unable to sustain
profitability on a quarterly or annual basis, then we may be unable to continue
our operations.
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Because of the relative small size and scale of our wholly-owned subsidiary,
Glyko, Inc., profits from products and services offered by it will be
insufficient to offset the expenses associated with our pharmaceutical business.
As a result, we expect that operating losses will continue and increase for the
foreseeable future.
If we fail to obtain the capital necessary to fund our operations we will be
unable to complete our product development programs.
In the future, we may need to raise substantial additional capital to fund
operations. We cannot be certain that any financing will be available when
needed. If we fail to raise additional financing as we need it, we will have to
delay or terminate our product development programs.
We expect to continue to spend substantial amounts of capital for our operations
for the foreseeable future. Activities which will require additional
expenditures include:
. research and development programs
. preclinical studies and clinical trials
. regulatory processes
. establishment of commercial scale manufacturing capabilities and
. expansion of sales and marketing activities.
The amount of capital we may need depends on many factors, including:
. The progress, timing and scope of our research and development programs
. The progress, timing and scope of our preclinical studies and
clinical trials
. The time and cost necessary to obtain regulatory approvals
. The time and cost necessary to build our manufacturing facilities
and obtain the necessary regulatory approvals for those facilities
. The time and cost necessary to respond to technological and market
developments
. Any changes made or new developments in our existing collaborative,
licensing and other commercial relationships
. Any new collaborative, licensing and other commercial relationships
that we may establish
Moreover, our fixed expenses such as rent, license payments and other
contractual commitments are substantial and will increase in the future. These
fixed expenses will increase because we may enter into:
. additional leases for new facilities and capital equipment
. additional licenses and collaborative agreements
. additional contracts for consulting, maintenance and administrative
services
. additional expenses associated with being a public company.
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We believe that the net proceeds of our initial public offering, together with
our available cash, cash equivalents, short-term investment securities and
investment income, will be sufficient to meet our operating and capital
requirements through at least the next 12 months. This estimate is based on
assumptions which may prove to be wrong. As a result, we may need additional
financing prior to that time.
If we fail to obtain regulatory approval to commercially manufacture or sell any
of our future drug products, or if approval is delayed, we will be unable to
generate revenue from the sale of our products.
We must obtain regulatory approval to market our products in the U.S. and
foreign jurisdictions.
We must obtain regulatory approval before marketing or selling our future drug
products. In the United States, we must obtain U.S. Food and Drug Administration
(FDA) approval for each drug that we intend to commercialize. The FDA approval
process is typically lengthy and expensive, and approval is never certain.
Products distributed abroad are also subject to foreign government regulation.
None of our drug products has received regulatory approval to be commercially
marketed and sold. If we fail to obtain regulatory approval we will be unable to
market and sell our future drug products. We have several drug products in
various stages of preclinical and clinical development. Aldurazyme(TM), our
first drug product, is not expected to be commercially available until at least
2000. Our other drug product will not be commercially available for at least
several more years. Because of the risks and uncertainties in biopharmaceutical
development, our drug candidates could take a significantly longer time to gain
regulatory approval than we expect or may never gain approval. If regulatory
approval is delayed our management's credibility, the value of our company and
our operating results may be adversely affected.
To obtain regulatory approval to market our products, preclinical studies and
costly and lengthy clinical trials may be required and the results of the
studies and trials are highly uncertain.
As part of the FDA approval process, we must conduct, at our own expense,
preclinical studies on animals and clinical trials on humans on each drug
candidate. We expect the number of preclinical studies and clinical trials that
the FDA will require will vary depending on the drug product, the disease or
condition the drug is being developed to address and regulations applicable to
the particular drug. We may need to perform multiple preclinical studies using
various doses and formulations before we can begin clinical trials, which could
result in delays in our ability to market any of our drug products.
Furthermore, even if we obtain favorable results in preclinical studies on
animals, the results in humans may be different. After we have conducted
preclinical studies in animals we must demonstrate that our drug products are
safe and effective for use on the target human patients in order to receive
regulatory approval for commercial sale. Adverse or inconclusive clinical
results would stop us from filing for regulatory approval of our products.
Additional factors that can cause delay or termination of our clinical trials
include:
. Slow patient enrollment
. Longer treatment time required to demonstrate efficacy
. Lack of sufficient supplies of the drug candidate
. Adverse medical events or side effects in treated patients
. Lack of effectiveness of the drug candidate being tested
Typically, if a drug product is intended to treat a chronic disease safety and
efficacy data must be gathered over an extended period of time which ranges from
six months to three years. In addition, clinical trials on humans are typically
conducted in three phases. The FDA generally requires two pivotal clinical
trials that demonstrate substantial evidence of safety and efficacy and
appropriate dosing in a broad patient population at multiple sites to support an
application for regulatory approval. If a drug is intended for the treatment of
a serious or life-threatening condition and the drug demonstrates the potential
to address unmet medical needs for this condition, a single trial may be
sufficient to prove safety and efficacy under the FDA's Modernization Act of
1997.
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Our strategy to conduct only one clinical trial on a small number of patients
for products developed to treat genetic disorders may not be sufficient to
obtain regulatory approval.
We believe that our enzyme drug products will be regulated by the FDA as
biologics rather than drugs because they are manufactured by biological
processes. Our strategy for the development of therapeutics for genetic
disorders is to conduct only one clinical trial on a small number of patients,
which would then be the basis for our submission of a biologics license
application (BLA) to the FDA. For example, at the end of October 1998, we
completed a six-month evaluation of ten patients on our first drug candidate
Aldurazyme(TM). Because 12-month data will be available, the FDA has requested
that we evaluate data for these patients for the 12-month period rather than the
six-month period which formed the basis of our initial evaluation. In addition
the FDA has also requested that we evaluate this data using other criteria that
may demonstrate that the surrogate endpoints are a predictor of clinical
benefit. We are currently performing this evaluation. We cannot assure you that
this evaluation will support our findings with regard to the primary endpoints
in the clinical trial. If this analysis does not support our findings with
regard to the primary endpoints, or if the surrogate endpoints do not predict a
clinical benefit, it could delay the filing of the biologics license application
and could jeopardize FDA approval of Aldurazyme(TM). The FDA may request
additional trials to be conducted. If we have to conduct further clinical
trials, whether for Aldurazyme(TM) or other products we develop in the future,
it would significantly increase our expenses and delay marketing of our product.
Also, the results of initial smaller clinical trials could differ from the
results obtained from subsequent more extensive long-term trials. A significant
difference in the results of multiple clinical trials could cause the FDA to
require still more clinical trials which would significantly delay the approval
process.
The fast track designation for Aldurazyme(TM) may not actually lead to a faster
review process.
Although Aldurazyme(TM) has obtained a fast track designation, we cannot
guarantee a faster review process or faster approval compared to the normal FDA
procedures. If Aldurazyme(TM) is approved, we will be required to conduct a
study after we obtain approval of Aldurazyme(TM) to demonstrate that the primary
endpoints used in our single study are reasonably likely to predict clinical
benefits to the patients. If this post-approval study fails to verify the
clinical benefit of Aldurazyme(TM) or demonstrates that Aldurazyme(TM) is not
safe or effective, our FDA approval can be withdrawn on an expedited basis.
Furthermore, if adverse effects are identified after marketing, FDA approval may
be rapidly revoked and we could not market the drug.
We will not be able to sell our products if we fail to comply with
manufacturing regulations.
Before we can begin commercially manufacturing our products we must obtain
regulatory approval of our manufacturing facility and process. In addition,
manufacture of our drug products must comply with the FDA's current Good
Manufacturing Practices regulations, commonly known as cGMP. The cGMP
regulations govern quality control and documentation policies and procedures.
Our manufacturing facilities are continuously subject to inspection by the FDA,
the State of California and foreign regulatory authorities, before and after
product approval. Because we are currently in the process of developing the
manufacturing site and process for commercial manufacture of Aldurazyme(TM), our
facility has not yet been inspected by any state or federal governmental entity.
We cannot guarantee that BioMarin, or any potential third- party manufacturer of
our drug products, will be able to comply with cGMP regulations. Material
changes to the manufacturing processes after approvals have been granted are
also subject to review and approval by the FDA or other regulatory agencies.
We currently have a contract with Harbor-UCLA Research and Education Institute
to manufacture Aldurazyme(TM) in limited quantities for use in preclinical
studies and clinical trials. In order to produce initial commercial requirements
for Aldurazyme(TM) in our facility we will have to prove that the product
manufactured at our facility is comparable to the clinical trial product
produced in the Harbor- UCLA facility. This will require laboratory testing and
may require clinical trials. We must pass FDA and state inspections and
manufacture three process qualification batches to final specifications under
cGMP controls before the Aldurazyme(TM) BLA can be approved. We cannot assure
you that we will pass the inspections in a timely manner, if at all.
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If we fail to obtain orphan drug exclusivity for our products, our competitors
may sell products to treat the same conditions and our revenues may be reduced.
As part of our business strategy, we intend to develop drugs that may be
eligible for FDA orphan drug designation. Under the Orphan Drug Act, the FDA may
designate a product as an orphan drug if it is a drug intended to treat a rare
disease or condition, defined as a patient population of less than 200,000. The
company that obtains the first FDA approval for a designated orphan drug for a
given rare disease receives marketing exclusivity for use of that drug for the
stated condition for a period of seven years. However, different drugs can be
approved for the same condition.
Because the extent and scope of patent protection for our drug candidates is
limited, orphan drug designation is particularly important for our products that
are eligible for orphan drug designation. We plan to rely on the exclusivity
period under the orphan drug designation to maintain a competitive position. If
we do not obtain orphan drug exclusivity for any one of our drug products, our
competitors may then sell the same drug to treat the same condition.
We received orphan drug designation from the FDA for Aldurazyme(TM) in September
1997. In February 1999, we received orphan drug designation from the FDA for
BM102. Even if we obtain orphan drug designation, we cannot guarantee that we
will be the first to obtain marketing approval for any orphan indication or that
exclusivity would effectively protect the product from competition. Orphan drug
designation does not shorten the development or FDA review time of a drug so
designated nor give the drug any advantage in the FDA review or approval
process.
Because the target patient populations for our products are small we must
achieve significant market share and obtain high per patient prices for our
products to achieve profitability.
Our initial drug candidates target disorders with small patient populations. As
a result, our prices must be high enough to recover our development costs and
achieve profitability. For example, two of our initial drug products in genetic
disorders, Aldurazyme(TM) and BM102, target patients with MPS-I and MPS-VI,
respectively. We estimate that there are approximately 3,400 patients with MPS-I
and 1,100 patients with MPS-VI in the developed world. We believe that we will
need to market worldwide to achieve significant market share. In addition, we
are developing other drug candidates to treat conditions, such as other genetic
diseases and serious burns, with small patient populations. We cannot be certain
that we will be able to obtain sufficient market share for our drug products at
a price high enough to justify our product development efforts.
If we fail to obtain an adequate level of reimbursement for our drug products by
third-party payors there would be no commercially viable markets for our
products.
The course of treatment for patients with MPS-I using Aldurazyme(TM) is expected
to be expensive. We expect patients to need treatment throughout their
lifetimes. We expect that families of patients will not be capable of paying for
this treatment themselves. There will be no commercially viable market for
Aldurazyme(TM) without reimbursement from third-party payors.
Third-party payors, such as government or private health care insurers,
carefully review and increasingly challenge the price charged for drugs.
Reimbursement rates from private companies vary depending on the third-party
payor, the insurance plan and other factors. Reimbursement systems in
international markets vary significantly by country and by region, and
reimbursement approvals must be obtained on a country-by-country basis. We
cannot be certain that third-party payors will pay for the costs of our drugs
and the courses of treatment. Even if we are able to obtain reimbursement from
third-party payors, we cannot be certain that reimbursement rates will be enough
to allow us to profit from sales of our drugs.
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We currently have no expertise obtaining reimbursement. We expect to rely on the
expertise of our partner Genzyme to obtain reimbursement for Aldurazyme(TM). We
cannot predict what the reimbursement rates will be. In addition, we will need
to develop our own reimbursement expertise for future drug candidates unless we
enter into collaborations with other companies with the necessary expertise.
We expect that in the future reimbursement will be increasingly restricted both
in the United States and internationally. The escalating cost of health care has
led to increased pressure on the health care industry to reduce costs.
Governmental and private third-party payors have proposed health care reforms
and cost reductions. A number of federal and state proposals to control the cost
of health care, including the cost of drug treatments have been made in the
United States. In some foreign markets, the government controls the pricing
which would affect the profitability of drugs. Current government regulations
and possible future legislation regarding health care may affect our future
revenues from sales of our drugs and may adversely affect our business and
prospects.
If we are unable to protect our proprietary technology we may not be able to
compete as effectively.
Where appropriate, we seek patent protection for certain aspects of our
technology. Meaningful patent protection may not be available for some of the
enzymes we are developing, including Aldurazyme(TM) and BM102. If we must spend
significant time and money protecting our patents, designing around patents held
by others or licensing, for excessively large fees, patents or other proprietary
rights held by others, our business and prospects may be harmed.
The patent positions of biotechnology companies are extremely complex and
uncertain. The scope and extent of patent protection for some of our products
are particularly uncertain because key information on some of the enzymes we are
developing has existed in the public domain for many years. Other parties have
published the structure of the enzymes, the methods for purifying or producing
the enzymes or the methods of treatment. The composition and genetic sequences
of animal and/or human versions of many of our enzymes, including those for
Aldurazyme(TM) and BM102, have been published and are in the public domain. The
composition and genetic sequences of other MPS enzymes which we intend to
develop as products have also been published. Publication of this information
may prevent us from obtaining composition of matter patents, which are generally
believed to offer the strongest patent protection. For enzymes with no prospect
of composition of matter patents, we will depend on orphan drug status.
In addition, our owned and licensed patents and patent applications do not
ensure the protection of our intellectual property for a number of other
reasons:
. We do not know whether our patent applications will result in actual
patents. For example, we may not have developed a method for treating a
disease before others developed similar methods.
. Competitors may interfere with our patent process in a variety of
ways. Competitors may claim that they invented the claimed invention
prior to us. Competitors may also claim that we are infringing on
their patents and therefore cannot practice our technology as claimed
under our patent. Competitors may also contest our patents by showing
the patent examiner that the invention was not original, novel or was
obvious. As a Company, we have no meaningful experience with
competitors interfering with our patents or patent applications.
. Even if we receive a patent, it may not provide much practical
protection. If we receive a patent with a narrow scope, then it will be
easier for competitors to design products that do not infringe on our
patent.
. Enforcing patents is expensive and may absorb significant time by our
management. In litigation, a competitor could claim that our issued
patents are not valid for a number of reasons. If the court agrees, we
would lose that patent.
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In addition, competitors also seek patent protection for their technology. There
are many patents in our field of technology, and we cannot guarantee that we do
not infringe on those patents or that we will not infringe on patents granted in
the future. If a patent holder believes our product infringes on their patent,
the patent holder may sue us even if we have received patent protection for our
technology. If someone else claims we infringe on their technology, we would
face a number of issues, including:
. Defending a lawsuit takes significant time and can be very expensive.
. If the court decides that our product infringes on the competitor's
patent, we may have to pay substantial damages for past infringement.
. The court may prohibit us from selling or licensing the product unless
the patent holder licenses the patent to us. The patent holder is not
required to grant us a license. If a license is available, we may have to
pay substantial royalties or grant cross-licenses to our patents.
. Redesigning our product so it does not infringe may not be possible
and could require substantial funds and time.
It is also unclear whether our trade secrets will provide useful protection.
While we use reasonable efforts to protect our trade secrets, our employees or
consultants may unintentionally or willfully disclose our information to
competitors. Enforcing a claim that someone else illegally obtained and is using
our trade secrets, like patent litigation, is expensive and time consuming, and
the outcome is unpredictable. In addition, courts outside the United States are
sometimes less willing to protect trade secrets. Our competitors may
independently develop equivalent knowledge, methods and know-how.
We may also support and collaborate in research conducted by government
organizations or by universities. We cannot guarantee that we will be able to
acquire any exclusive rights to technology or products derived from these
collaborations. If we do not obtain required licenses or rights, we could
encounter delays in product development while we attempt to design around other
patents or even be prohibited from developing, manufacturing or selling products
requiring these licenses. There is also a risk that disputes may arise as to the
rights to technology or products developed in collaboration with other parties.
If our joint venture with Genzyme were terminated, we could be barred from
commercializing Aldurazyme(TM) or our ability to commercialize Aldurazyme(TM)
would be delayed.
We are relying on Genzyme to apply the expertise it has developed through the
launch and sale of Ceredase(R) and Cerezyme(R) enzymes for Gaucher disease, a
rare genetic disorder, to the marketing of our initial drug product,
Aldurazyme(TM). Because it is our initial product, our operations are
substantially dependent upon the development of Aldurazyme(TM). We have no
experience selling, marketing or obtaining reimbursement for pharmaceutical
products. In addition, without Genzyme we would be required to pursue foreign
regulatory approvals. We have no experience in seeking foreign regulatory
approvals.
We cannot guarantee that Genzyme will devote the resources necessary to
successfully market Aldurazyme(TM). In addition, either party may terminate the
joint venture for specified reasons, including if the other party is in material
breach of the agreement or has experienced a change of control or has declared
bankruptcy and also is in breach of the agreement. Either party may also
terminate the agreement upon one year prior written notice for any reason after
the earlier of December 31, 2000 or after the joint venture has received the
FDA's approval of the biologics license application for Aldurazyme(TM).
Furthermore, we may terminate the joint venture if Genzyme fails to fulfill its
contractual obligation to pay us $12.1 in cash upon the approval of the
biologics license application for Aldurazyme(TM).
Upon termination of the joint venture one party must buy out the other party's
interest in the joint venture. The party who buys out the other will then also
obtain, exclusively, all rights to Aldurazyme(TM) and any related intellectual
property and regulatory approvals.
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If the joint venture is terminated by Genzyme for a breach on our part, Genzyme
would be granted, exclusively, all of the rights to Aldurazyme(TM) and any
related intellectual property and regulatory approvals and would be obligated to
buy out our interest in the joint venture. We would then effectively be unable
to develop and commercialize Aldurazyme(TM). If we terminated the joint venture
for a breach by Genzyme, we would be obligated to buy out Genzyme's interest in
the joint venture and, we would then be granted all of these rights to
Aldurazyme(TM) exclusively. While we could then continue to develop
Aldurazyme(TM), that development would be slowed because we would have to divert
substantial capital to buy out Genzyme's interest in the joint venture and would
then have to search for a new partner to commercialize the product and to obtain
foreign regulatory approvals or to develop these capabilities ourselves.
If the joint venture is terminated by us without cause, Genzyme would have the
option, exercisable for one year, to immediately buy out our interest in the
joint venture and obtain all rights to Aldurazyme(TM) exclusively. If the
agreement is terminated by Genzyme without cause, we would have the option,
exercisable for one year, to immediately buy out Genzyme's interest in the joint
venture and obtain these exclusive rights. In event of termination of the buy
out option without exercise by the non-terminating party as described above, all
right and title to Aldurazyme(TM) is to be sold to the highest bidder, with the
proceeds to be split equally between Genzyme and us.
If the joint venture is terminated by us because Genzyme fails to make the $12.1
million payment to us upon FDA approval of the biologics license application for
Aldurazyme(TM), we would be obligated to buy Genzyme's interest in the joint
venture and would obtain all rights to Aldurazyme(TM) exclusively. If the joint
venture is terminated by either party because the other declared bankruptcy and
is also in breach of the agreement, the terminating party would be obligated to
buy out the other and would obtain all rights to Aldurazyme(TM) exclusively. If
the joint venture is terminated by a party because the other party experienced a
change of control, the terminating party shall notify the other party, the
offeree, of its intent to buy out the offeree's interest in the joint venture
for a stated amount set by the terminating party at its discretion. The offeree
must then either accept this offer or agree to buy the terminating party's
interest in the joint venture on those same terms. The party who buys out the
other would then have exclusive rights to Aldurazyme(TM).
We cannot assure you that if the joint venture were terminated and if we were
obligated, or given the option, to buy out Genzyme's interest in the joint
venture, and gain exclusive rights to Aldurazyme(TM), that we will have
sufficient funds to do so or that we will be able to obtain the financing to do
so. If we fail to buy out Genzyme's interest we may be held in breach of the
agreement and may lose any claim to the rights to Aldurazyme(TM) and the related
intellectual property and regulatory approvals. We would then effectively be
prohibited from developing and commercializing the product.
Termination of the joint venture where we retain the rights to Aldurazyme(TM)
could cause us significant delays in product launch in the United States,
difficulties in obtaining third-party reimbursement and delays or failure to
obtain foreign regulatory approval, any of which could hurt our business and
results of operations. Since Genzyme funds 50% of the joint venture's operating
expenses, the termination of the joint venture would double our financial burden
and reduce the funds available to us for other product programs.
If we are unable to manufacture our drug products in sufficient quantities and
at acceptable cost, we may be unable to meet demand for our products and lose
potential revenues.
We have no experience manufacturing drug products in volumes that will be
necessary to support commercial sales. Our unproven manufacturing process may
not meet initial expectations as to schedule, reproducibility, yields, purity,
costs, quality, and other measurements of performance. Improvements in
manufacturing processes typically are very difficult to achieve and are often
very expensive. We cannot know with any certainty how long it might take to make
improvements if it became necessary to do so. If we contract for manufacturing
services with an unproven process, our contractor is subject to the same
uncertainties, high standards and regulatory controls.
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<PAGE>
If we are unable to establish and maintain commercial scale manufacturing within
our planned time and cost parameters, sales of our products and our financial
performance will be adversely affected.
We may encounter problems with any of the following if we attempt to increase
the scale or size of manufacturing:
. Design, construction and qualification of manufacturing facilities
that meet regulatory requirements
. Production yields
. Purity
. Quality control and assurance
. Shortages of qualified personnel
. Compliance with FDA regulations
We are developing a total of 43,000 square feet of space at two facilities, one
in Novato and one in Torrance, for the manufacture of Aldurazyme(TM). The
construction and qualification of these facilities may take longer than planned
and the actual construction costs of these facilities may be higher than those
which we have budgeted. We expect that the manufacturing process of all of our
new products, including BM102, will also require lengthy development time before
we can begin manufacturing them in commercial quantity. Even if we can establish
this capacity, we cannot be certain that manufacturing costs will be
commercially reasonable, especially if reimbursement is substantially lower than
expected.
In order to achieve our product cost targets we must develop efficient
manufacturing processes either by
. improving the colonies of cells which have a common genetic make-up,
or cell lines,
. improving the processes licensed from others, or
. developing a recombinant cell line and production processes.
A recombinant cell line is a cell line with foreign DNA inserted which is used
to produce a foreign protein that it would not have otherwise produced. The
development of a stable, high production cell line for any given enzyme is
risky, expensive and unpredictable and may not yield adequate results. In
addition, the development of protein purification processes is difficult and may
not produce the high purity required with acceptable yield and costs. If we are
not able to develop efficient manufacturing processes, the investment in
manufacturing capacity sufficient to satisfy market demand will be much greater
and will place heavy financial demands upon us. If we do not achieve our
manufacturing cost targets, we will have lower margins and reduced profitability
in commercial production and greater losses in manufacturing start-up phases.
If we are unable to increase our marketing and distribution capabilities or to
enter into agreements with third parties to do so, our ability to generate
revenues will be diminished.
If we cannot increase our marketing capabilities either by developing our sales
and marketing organization or by entering into agreements with others, we may be
unable to successfully sell our products. If we are unable to effectively sell
our drug products, our ability to generate revenues will be diminished.
To increase our distribution and marketing for both our drug candidates and our
Glyko, Inc. products, we will have to increase our current sales force and/or
enter into third-party marketing and distribution agreements. We cannot
guarantee that we will be able to hire in a timely manner, the qualified sales
and marketing personnel we need if at all. Nor can we guarantee that we will be
able to enter into any marketing or distribution agreements on acceptable terms,
if at all. If we cannot increase our marketing capabilities as we intend, either
by increasing our sales force or entering into agreements with third parties,
sales of our products may be adversely affected.
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<PAGE>
We have entered into a joint venture with Genzyme where Genzyme will be
responsible for marketing and distributing Aldurazyme(TM). We cannot guarantee
that we will be able to establish sales and distribution capabilities or that
BioMarin, the joint venture or any future collaborators will successfully sell
any of our drug candidates.
If we fail to compete successfully, our revenues and operating results will be
adversely affected.
Our competitors may develop, manufacture and market products that are more
effective or less expensive than ours. They may also obtain regulatory approvals
for their products faster than we can obtain them, including orphan drug
designation, or commercialize their products before we do. If our competitors
successfully commercialize a product which treats a given rare genetic disease
before we do, we will effectively be precluded from developing a product to
treat that disease because the patient populations of the rare genetic diseases
are so small. These companies also compete with us to attract qualified
personnel and parties for acquisitions, joint ventures or other collaborations.
They also compete with us to attract academic research institutions as partners
and to license these institution's proprietary technology. If our competitors
successfully enter into partnering arrangements or license agreements with
academic research institutions, we will then be precluded from pursuing those
specific opportunities. Since each of these opportunities is unique, we may not
be able to find a substitute. Several pharmaceutical and biotechnology companies
have already established themselves in the field of enzyme therapeutics,
including Genzyme, our joint venture partner. These companies have already begun
many drug development programs, some of which may target diseases that we are
also targeting, and have already entered into partnering and licensing
arrangements with academic research institutions, reducing the pool of available
opportunities.
Universities and public and private research institutions are also competitors.
While these organizations primarily have educational objectives, they may
develop proprietary technology and acquire patents that we may need for the
development of our drug products. We will attempt to license this proprietary
technology, if available. These licenses may not be available to us on
acceptable terms, if at all. We also directly compete with a number of these
organizations to recruit personnel, especially scientists and technicians.
We believe that established technologies provided by other companies, such as
laboratory and testing services firms compete with Glyko Inc.'s products and
services. For example, Glyko, Inc.'s FACE Imaging System competes with
alternative carbohydrate analytical technologies, including capillary
electrophoresis, high-pressure liquid chromatography, mass spectrometry and
nuclear magnetic resonance spectrometry. These competitive technologies have
established customer bases and are more widely used and accepted by scientific
and technical personnel because they can be used for non-carbohydrate
applications. Companies competing with Glyko, Inc. may have greater financial,
manufacturing and marketing resources and experience.
If we fail to manage our growth or fail to recruit and retain personnel, our
product development programs may be delayed.
Our rapid growth has strained our managerial, operational, financial and other
resources. We expect this growth to continue. We recently entered into a joint
venture with Genzyme. If we receive FDA approval to market Aldurazyme(TM), the
joint venture will be required to devote additional resources to support the
commercialization of Aldurazyme(TM).
To manage expansion effectively, we need to continue to develop and improve our
operating and financial systems, sales and marketing capabilities. We cannot
guarantee that our systems, procedures or controls will be adequate to support
our operations or that our management will be able to manage successfully future
market opportunities or our relationships with customers and other third
parties.
Our future growth and success depend on our ability to recruit, retain, manage
and motivate our employees. The loss of key scientific, technical and managerial
personnel may delay our product development programs. Any harm to our research
and development programs would harm our business and prospects.
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<PAGE>
Because of the specialized scientific nature of our business, we rely heavily on
our ability to attract and retain qualified scientific, technical and managerial
personnel. In particular, the loss of Grant W. Denison, Jr., Chairman and Chief
Executive Officer, John C. Klock, M.D., President and Secretary or Christopher
M. Starr, Ph.D., Vice President for Research and Development would be
detrimental to us. While each of these individuals is party to an employment
agreement with us, which includes financial incentives for each of them to
remain employed with us, these agreements each terminate in June 2000 and we
cannot guarantee that any of them will remain employed with us beyond that time.
In addition, these agreements do not restrict their ability to compete with us
after their employment is terminated. The competition for qualified personnel in
the biopharmaceutical field is intense. We cannot be certain that we will
continue to attract and retain qualified personnel necessary for the development
of our business.
If product liability lawsuits are successfully brought against us, we may incur
substantial liabilities.
We are exposed to the potential product liability risks inherent in the testing,
manufacturing and marketing of human drug treatments. We currently do not
maintain insurance against product liability lawsuits. The joint venture with
Genzyme maintains clinical liability insurance for Aldurazyme(TM) which covers
clinical trials of that product, since their inception. Although we intend to
obtain product liability insurance before our clinical trials of BM102 and
shortly before initiating clinical trials for our other products, we cannot be
certain that we will be able to obtain adequate insurance coverage. In addition,
we may be subject to claims in connection with our current clinical trials for
Aldurazyme(TM) for which current insurance coverage is not adequate. We cannot
be certain that if Aldurazyme(TM) receives FDA approval, the product liability
insurance the joint venture will need to obtain in connection with the
commercial sales of Aldurazyme(TM) will be available at a reasonable cost. In
addition, we cannot be certain that we can successfully defend any product
liability lawsuit brought against us. If we are the subject of a successful
product liability claim which exceeds the limits of any insurance coverage we
may obtain, we may incur substantial liabilities which would adversely affect
our earnings and financial condition.
If we experience any problems with Year 2000 compliance our operations may be
disrupted.
The following is intended to constitute "Year 2000 Readiness Disclosure" under
the Year 2000 Information and Readiness Disclosure Act of 1998.
Beginning in the year 2000, the date fields coded in certain software products
and computer systems will need to accept four digit entries in order to
distinguish 21st century dates from 20th century dates (commonly known as the
year 2000 problem). It is not clear what potential problems may arise as the
biopharmaceutical industry, and other industries, try to resolve this year 2000
problem.
It is possible that our currently installed computer systems, software products
or other business systems, or those of our suppliers or service providers,
working either alone or in conjunction with other software or systems, will not
accept input of, store, manipulate and output dates for the years 1999, 2000 or
subsequent years without error or interruption. We have formed a team to review
and resolve those aspects of the year 2000 problem that are within our direct
control and adjust to or influence those aspects that are not within our direct
control. The team has reviewed our software products, including those under
development, and determined that our software products do not use date data and
are year 2000 compliant. Our biopharmaceutical products do not have any year
2000 exposure. Based on representations from our vendors, the team has reviewed
the year 2000 compliance status of our major internal information technology
programs and systems used for administrative requirements and determined that
they are year 2000 compliant.
Some risks associated with the year 2000 problem are beyond our ability to
control, including the extent to which our suppliers and service providers can
address the year 2000 problem. The failure by a third party to adequately
address the year 2000 issue could have an adverse effect on their operations,
which could have an adverse effect on us. We are assessing the possible effects
on our operations of the possible failure of our key suppliers and providers,
contractors and collaborators to identify and remedy, if practical, potential
year 2000 problems.
23
<PAGE>
Our stock price may be volatile and your investment in our stock could suffer a
decline in value.
Our valuation and the stock price in the period since the IPO have had no
meaningful relationship to current or historical earnings, asset values, book
value or any other criteria based on historical values. The market price of the
common stock will fluctuate and may be higher or lower in the future due to
factors including:
. Progress of Aldurazyme(TM) and our other lead drug candidates through
worldwide regulatory processes, especially Aldurazyme(TM) regulatory
actions in the United States
. Results of clinical trials, announcements of technological
innovations or new products by us or our competitors
. Government regulatory action affecting our drug candidates or our
competitors' drug candidates in both the United States and foreign
countries
. Developments or disputes concerning patent or proprietary rights
. General market conditions for emerging growth and biopharmaceutical
companies
. Economic conditions in the United States or abroad
. Actual or anticipated fluctuations in our operating results
. Broad market fluctuations may cause the market price of our common
stock to fluctuate
. Changes in financial or business estimates by securities analysts
In addition, the value of our common stock may fluctuate because it is listed on
both the Nasdaq National Market and the Swiss Exchange New Market. Because we
have accumulated relatively limited experience since July 23, 1999, in observing
the trading of our stock on two markets, we cannot be certain what effect, if
any, the dual listing will have on the future price of our stock in either
market. Under different conditions in the future, listing on both exchanges may
increase stock price volatility due to:
. trading in different time zones
. different ability to buy or sell our stock
. different trading volume
In the past, following periods of large price declines in the public market
price of a company's securities, securities class action litigation has often
been initiated against that company. Litigation of this type could result in
substantial costs and diversion of management's attention and resources, which
would hurt our business. Any adverse determination in litigation could also
subject us to significant liabilities.
If our officers, directors and largest stockholder elect to act together they
may be able to control our management and operations, acting in their best
interests and not necessarily those of other stockholders.
Our directors and officers control approximately 17.4% of the outstanding shares
of our common stock. GBL owns 32.7% of the outstanding shares of capital stock.
Three of six GBL directors are officers or directors of BioMarin. As a result,
due to their concentration of stock ownership, directors and officers, together
with GBL if they act together,
24
<PAGE>
may be able to otherwise control our management and operations, and may be able
to prevail on all matters requiring a stockholder vote including:
. The election of all directors
. The amendment of charter documents or the approval of a merger, sale
of assets or other major corporate transactions
. The defeat of any non-negotiated takeover attempt that might
otherwise benefit the public stockholders
Anti-takeover provisions in our charter documents and under Delaware law may
make an acquisition of us, which may be beneficial to our stockholders, more
difficult.
BioMarin is incorporated in Delaware. Certain anti-takeover provisions of
Delaware law and our charter documents may make a change in control of BioMarin
more difficult, even if a change in control would be beneficial to the
stockholders. Our anti-takeover provisions include provisions in the certificate
of incorporation providing that stockholders' meetings may only be called by the
board of directors and a provision in the bylaws providing that the stockholders
may not take action by written consent. Additionally, our board of directors
have the authority to issue 1,000,000 shares of preferred stock and to determine
the terms of those shares of stock without any further action by the
stockholders. The rights of holders of our common stock are subject to the
rights of the holders of any preferred stock that may be issued. The issuance of
preferred stock, could make it more difficult for a third party to acquire a
majority of the outstanding voting stock of BioMarin. Delaware law also
prohibits corporations from engaging in a business combination with any holders
of 15% or more of their capital stock until the holder has held the stock for
three years unless, among other possibilities, the board of directors approves
the transaction. The board of directors may use these provisions to prevent
changes in the management and control of our company. Also, under applicable
Delaware law, our board of directors may adopt additional anti-takeover measures
in the future.
Item 3: Quantitative and Qualitative Disclosure about Market Risk
GBL currently holds 11,367,617 shares of BioMarin's common stock
representing 32.7% of BioMarin's outstanding common stock. Following the
sale of Glyko, Inc. in 1998, these securities represent substantially the
only asset of GBL. These securities have been acquired for investment
purposes rather than for trading purposes. The value of GBL's common stock
may be substantially influenced by to the value of BioMarin's common stock.
Following BioMarin's IPO in July 1999, BioMarin's common stock is traded on
the NASDAQ and the Swiss Exchange (SWX New Market). There are many risks
associated with the listing of these securities on two markets and with
BioMarin's business itself. These risks are detailed in the "Risk Factors"
section above. GBL is subject to additional risks as its investment
portfolio is non-diversified. GBL does not hold substantially any other
securities other than the common stock of BioMarin.
25
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. None.
Item 2. Changes in Securities. None.
Item 3. Defaults upon Senior Securities. None.
Item 4. Submission of Matters to a Vote of Security Holders. None.
Item 5. Other Information. None.
Item 6. Exhibits and Reports on Form 8-K.
(a) The following documents are filed as part of this report
See Exhibit Index attached hereto.
(b) Reports on Form 8K
No reports were filed on Form 8-K during the three months
ended September 30, 1999.
26
<PAGE>
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant
caused this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GLYKO BIOMEDICAL LTD.
Dated: November 12, 1999 By: \s\ John C. Klock, M.D.
- ---------------------------------------- ------------------------------------
John C. Klock, M.D.
President, Chief Executive Officer
and Chief Financial Officer
27
<PAGE>
EXHIBIT INDEX
Exhibit Description
Number
2.1 Share Exchange Agreement between Glyko Biomedical Ltd. and
BioMarin Pharmaceutical Inc. dated September 15, 1998.
(Filed as Exhibit 2.1 to Form 10-KSB dated December 31, 1998 and
incorporated herein by reference).
3.1 Registrant's Articles of Incorporation and Bylaws (filed as
exhibit 3.1 to Form 10-SB Registration Statement No. 0-21994 dated
August 6, 1993 and incorporated herein by reference).
3.2 Amended Restated Certificate of Incorporation of BioMarin
Pharmaceutical, Inc.
3.3 Amended Bylaws of BioMarin Pharmaceutical, Inc.
4.1 Registrant's Articles of Incorporation and Bylaws (filed as
exhibit 3.1 to Form 10-SB Registration Statement No. 0-21994
dated August 6, 1993 and incorporated herein by reference).
10.1 Glyko Biomedical Share Option Plan - 1994 (filed as exhibit 10.1
to Form 10-QSB dated June 30, 1994 and incorporated herein by
reference).
10.2 License Agreement between Glyko Biomedical Ltd. and BioMarin
Pharmaceutical, Inc. (filed as Exhibit 10 to Form 10-QSB dated
September 30, 1997, and incorporated herein by reference.)
27.1 Financial Data Schedule (see Financial Data Schedule attached
hereto in EDGAR format only)
28
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