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 March 31, 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: 31,463,374 common shares
outstanding as of May 1, 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 March 31, 1999
and December 31, 1998..........................................2
Consolidated Statements of Operations for the three months
ended March 31, 1999 and 1998..................................3
Consolidated Statements of Cash Flows for the three months
ended March 31, 1999 and 1998..................................4
Notes to Consolidated Financial Statements........................5
Item 2. Management's Discussion and Analysis.....................10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.......................................23
Item 2. Changes in Securities...................................23
Item 3. Defaults upon Senior Securities.........................23
Item 4. Submission of Matters to a Vote of Security Holders.....23
Item 5. Other Information.......................................23
Item 6. Exhibits and Reports on Form 8-K........................23
SIGNATURE.................................................................24
<PAGE>
PART I. - FINANCIAL INFORMATION
ITEM 1. Financial Statements
GLYKO BIOMEDICAL LTD.
BALANCE SHEETS
(In U.S. dollars)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------------------ -----------------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 4,773,081 $ 2,567,824
Note receivable - 100,000
Other current assets 20,700 9,710
------------------------ -----------------------
Total current assets 4,793,781 2,677,534
Investment in BioMarin Pharmaceutical Inc. 5,955,696 7,674,729
------------------------ -----------------------
Total assets $ 10,749,477 $ 10,352,263
======================== =======================
Liabilities and Stockholders' Equity
Current liabilities:
Accrued liabilities $ 370,704 $ 411,109
------------------------ -----------------------
Total current liabilities 370,704 411,109
Stockholders' equity:
Common stock, no par value, unlimited shares
authorized, 31,453,374 and 28,020,234 shares
issued and outstanding at March 31, 1999
and December 31, 1998, respectively 20,527,515 17,963,167
Additional paid in capital 11,222,691 11,222,691
Common stock warrants and options 165,261 547,285
Note receivable from stockholder (712,261) (712,261)
Accumulated deficit (20,824,433) (19,079,728)
------------------------ -----------------------
Total stockholders' equity 10,378,773 9,941,154
------------------------ -----------------------
Total liabilities and stockholders' equity $ 10,749,477 $ 10,352,263
======================== =======================
</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 March 31,
-----------------------------------------
1999 1998
------------------- -------------------
<S> <C> <C>
Revenues:
Sales of products and services $ - $ 306,559
Other revenues - 99,135
------------------- -------------------
Total revenues: - 405,694
Expenses:
Cost of products and services - 88,513
Research and development - 163,685
Selling, general and administrative 66,914 184,074
------------------- -------------------
Total expenses: 66,914 436,272
------------------- -------------------
Loss from operations (66,914) (30,578)
Equity in loss of BioMarin Pharmaceutical Inc. (1,719,032) (544,538)
Interest income 41,241 5,800
------------------- -------------------
Net loss $ (1,744,705) $ (569,316)
=================== ===================
Net loss per common share, basic and diluted $ (0.06) $ (0.03)
=================== ===================
Weighted average number of shares
used in computing per share amounts 29,460,589 21,880,055
=================== ===================
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
GLYKO BIOMEDICAL LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in U.S. dollars)
<TABLE>
<CAPTION>
Three months ended March 31,
--------------------------------------
1999 1998
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,744,705) $ (569,316)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization - 12,072
Equity in the loss of BioMarin Pharmaceutical, Inc. 1,719,032 544,538
Change in assets and liabilities:
Trade receivables - (41,907)
Inventories - (776)
Other assets (10,990) (18,562)
Accounts payable - 36,501
Accrued liabilities 17,662 (39,163)
---------------- ----------------
Total adjustments 1,725,704 492,703
---------------- ----------------
Net cash used in operating activities (19,001) (76,613)
Cash flows from investing activities:
Purchases of property and equipment - (3,659)
---------------- ----------------
Net cash used in investing activities - (3,659)
Cash flows from financing activities:
Net proceeds from the issuance of common stock and
warrants in a private placement financing - 70,740
Proceeds from the exercise of stock options and
common stock warrants 2,124,258 240,378
Repayment of note receivable 100,000 -
---------------- ----------------
Net cash provided by financing activities 2,224,258 311,118
---------------- ----------------
Net increase in cash 2,205,257 230,846
Cash and cash equivalents, beginning of period 2,567,824 528,280
---------------- ----------------
Cash and cash equivalents, end of period $ 4,773,081 $ 759,126
================ ================
</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)
including a $1.0 million investment from GBL. On August 3, 1998 BioMarin
raised an additional $8.1 million 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 the 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 and other consideration. As part of the sale, BioMarin
agreed to assume 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 agreed to pay GBL $500 in
cash. As of December 31, 1998, GBL owned 41.7% of BioMarin's outstanding
capital stock.
Since its inception, GBL has incurred a cumulative deficit of $20,824,433
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. BioMarin will
require additional capital. While GBL was not obligated to provide this
capital, in April, 1999, the Company purchased BioMarin notes in the
amount of $4,300,000, as part of BioMarin's $26,000,000 convertible note
financing which was closed on April 13, 1999. BioMarin had an accumulated
deficit of $19,470,072 at March 31, 1999 and is expected to incur
significant losses throughout 1999 and beyond. Management of BioMarin
believes that the convertible note financing will be sufficient to meet
its minimum obligations through December 31, 1999. However, BioMarin will
seek additional financing in the near term to fully execute its business
strategies and meet its longer term obligations. Management of GBL
believes that at March 31, 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.
5
<PAGE>
GLYKO BIOMEDICAL, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 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 March 31, 1998. For the three
months ended March 31, 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 months ended March 31, 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 months ended March 31, 1999, BioMarin recorded a charge
to operations of $271,274 in connection with 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 March 31, 1999, GBL's share of BioMarin's outstanding capital stock
was 41.7%. 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 balance sheets.
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 March 31, 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 March 31, 1999 and 1998,
respectively, include options for the purchase of 349,560 and 2,158,111
shares of common stock and warrants for the purchase of 2.5 million and
10.8 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 months ended March 31,
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, 1999 is not expected to have a
material impact on the Company's financial position or results of
operations.
Reclassifications:
Certain balances in the 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 three months
ended March 31, 1999 and 1998 and for the period from March 21, 1997
(inception) to March 31, 1999:
<TABLE>
<CAPTION>
Three months Three months Period from
ended ended March 21, 1997
March 31, March 31, (inception), to
1999 1998 March 31, 1999
(unaudited) (unaudited) (unaudited)
------------------ ------------------ ------------------
REVENUES:
<S> <C> <C> <C>
Revenues - products and services $ 325,877 $ - $ 576,174
Revenues from joint venture 746,272 - 1,583,729
Revenues - other 32,169 - 134,824
------------------ ------------------ ------------------
Total revenues 1,104,318 - 2,294,727
OPERATING COSTS AND EXPENSES:
Cost of goods sold 102,701 - 210,643
Research and development 3,820,087 1,108,233 16,236,518
General and administrative 1,548,928 348,550 5,994,113
------------------ ------------------ ------------------
Loss from operations (4,367,398) (1,456,783) (20,146,547)
EQUITY IN LOSS OF BIOMARIN/
GENZYME, LLC (179,866) - (227,037)
INTEREST INCOME 153,611 138,288 903,512
------------------ ------------------ ------------------
Net loss $ (4,393,653) $ (1,318,495) $ (19,470,072)
================== ================== ==================
THE COMPANY'S EQUITY IN
LOSS OF BIOMARIN $ (1,719,032) $ (544,538) $ (7,974,512)
================== ================== ==================
</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 months
ended March 31, 1999 and a net $10,817 for the three months ended March
31, 1998. 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 $16,272 during the three months ended March 31,
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 $23,312 for the
quarter ended March 31, 1999.
6. Subsequent Events
In April, 1999, the Company purchase BioMarin notes in the amount of
$4,300,000, as part of BioMarin's $26,000,000 convertible note financing
which was closed on April 13, 1999. These notes bear interest at 10% per
annum. All unpaid principal, together with all unpaid interest, shall be
due and payable in common stock of BioMarin upon the earlier of (a) April
2002 (the "Maturity Date"), (b) immediately prior to a sale of all of the
assets of BioMarin or a merger or acquisition of BioMarin with another
entity, or (c) an initial public offering with net proceeds to BioMarin
of at least $20,000,000. The price at which the notes will convert into
shares of BioMarin common stock is initially set at $10.00 per share and
is subject to certain adjustments for possible future events. The
convertible note agreement also contains certain anti-dilutive
provisions.
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.
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. is a Canadian holding company that at March 31, 1999 owned
41.7% 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 addition
to the activities of Glyko, Inc., BioMarin is engaged in the discovery,
development and commercialization of carbohydrate enzyme therapeutics.
The Company's net loss for the three months ended March 31, 1999 and 1998 was
$1,745,000 and $569,000, 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 months ended March
31, 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 will require additional capital. While GBL was
not obligated to provide this capital (or any other capital), in April 1999, the
Company purchased BioMarin notes in the amount of $4,300,000, as part of
BioMarin's $26,000,000 convertible note financing which was closed on April 13,
1999. BioMarin has an accumulated deficit of $19,470,000 at March 31, 1999 and
is expected to incur significant losses throughout 1999 and beyond. Management
of BioMarin believes that the convertible note financing will be sufficient to
meet its minimum obligations through December 31, 1999. However, BioMarin will
seek additional financing in the near term to fully execute its business
strategies and meet its longer term obligations. Management of GBL believes that
at March 31, 1999, there has not been any impairment of its investment in
BioMarin.
Results of Operations
The principal operations of GBL related to the operations of Glyko, Inc. through
October 7, 1998. The quarter ended March 31, 1998 include the operations of
Glyko, Inc. For the quarter ended March 31, 1999, the operations of Glyko, Inc.
are reflected in the accompanying financials statements through the Company's
equity in the loss of BioMarin.
10
<PAGE>
There were no revenues for the quarter ended March 31, 1999 due to the sale of
the Company's operating entity, Glyko, Inc. Revenues for the three months ended
March 31, 1998 were $406,000 and consisted of sales of products and services of
$307,000 and other revenues representing development fees of $25,000 and grant
revenues of $74,000, 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 cost of sales of products and services for the quarter ended March
31, 1999 due to Company's sale of Glyko, Inc. Cost of sales of products and
services was 29 percent for the quarter ended March 31, 1998.
There were no research and development expenses for the quarter ended March 31,
1999 due the Company's sale of Glyko, Inc. Research and development expenses for
the quarter ended March 31, 1998 were $164,000 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 $67,000 for the quarter ended
March 31, 1999, a decrease of $117,000 from the selling, general and
administrative expenses of $184,000 incurred for the quarter ended March 31,
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 March 31, 1999 represented
management fees accrued to BioMarin for management, accounting, finance and
government reporting and expenses related to the Company's special meeting on
March 10, 1999.
Equity in loss of BioMarin for the quarter ended March 31, 1999 was $1,719,000
compared to $545,000 for the quarter ended March 31, 1998, an increase of
$1,174,000. The increase was due to the increased net loss of BioMarin.
Interest income earned for the quarter ended March 31, 1999 and 1998 of $41,000
and $6,000, respectively, resulted from earnings on cash invested in short term
interest bearing accounts. The increase in interest income in the first 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 quarter of 1999. Interest expense for the quarters ended March 31,
1999 and 1998 was immaterial.
Liquidity and Capital Resources
The Company's cash position increased by $2,568,000 in the first quarter of 1999
to $4,773,000. Net cash proceeds of $2,224,000 relating to the issuance of
common stock from the exercise of stock options and warrants and proceeds from a
loan repayment advanced for a stock option exercise was partially offset by net
cash used in operating activities of $19,000.
Since its inception, the Company has incurred a cumulative deficit of
$20,824,000 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. BioMarin will require additional capital. While GBL was not obligated to
provide this capital (or any other capital), in April 1999, the Company
purchased BioMarin notes in the amount of $4,300,000, as part of BioMarin's
$26,000,000 convertible note financing which was closed on April 13, 1999.
BioMarin had an accumulated deficit of $19,470,000 at March 31, 1999 and is
expected to incur significant losses throughout 1999 and beyond. Management of
BioMarin believes that the convertible note financing will be sufficient to meet
its minimum obligations through December 31, 1999. However, BioMarin will seek
additional financing in the near term to fully execute its business strategies
and meet its longer term obligations. Management of GBL believes that at March
31, 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."
11
<PAGE>
RISK FACTORS
Dependence on Investment in BioMarin
As of March 31, 1999, GBL's principal asset was its 41.7% 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.
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 three months ended March 31, 1999 of $1,745,000. 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 will require additional capital. While GBL was not
obligated to provide this capital, in April 1999, the Company purchased BioMarin
notes in the amount of $4,300,000, as part of BioMarin's $26,000,000 convertible
note financing which was closed on April 13, 1999. BioMarin had an accumulated
deficit of $19,470,000 at March 31, 1999 and is expected to incur significant
losses throughout 1999 and beyond. Management of BioMarin believes that the
convertible note financing will be sufficient to meet its minimum obligations
through December 31, 1999. However, BioMarin will seek additional financing in
the near term to fully execute its business strategies and meet its longer term
obligations. Management of GBL believes that at March 31, 1999, there not has
been any impairment of its investment in BioMarin.
Early Stage Company: BioMarin Has Only A Limited Operating History And Is In An
Early Stage Of Development
BioMarin is in an early stage of development. Since BioMarin began operations in
March 1997, BioMarin has been engaged primarily in research and development.
BioMarin has a limited operating history on which to base an evaluation of its
business and prospects, and BioMarin has no sales revenues from any of its drug
candidates.
Capital Requirements: BioMarin Must Generate Substantial Capital To Fund Its
Operations
BioMarin expect to continue to spend substantial amounts of capital for its
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 BioMarin may need depends on many factors, including:
. The progress, timing and scope of its research and development programs
. The progress, timing and scope of its preclinical studies and clinical
trials
. The time and cost involved in obtaining regulatory approvals
. Installing, validating and completing process qualification of
manufacturing capacity
. Competing technological and market developments
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. Changes and developments in its existing collaborative, licensing and
other commercial relationships
. Any new collaborative, licensing and other commercial relationships that
BioMarin may establish
Moreover, BioMarin's fixed expenses such as rent, license payments and other
contractual commitments are substantial and are likely to increase in the
future. BioMarin believe that the net proceeds of this offering, together with
its available cash, cash equivalents, short-term investment securities and
investment income, will be sufficient to meet its operating and capital
requirements through at least the next 12 months. This estimate is based on
certain assumptions which may prove to be wrong. As a result, BioMarin may need
additional financing prior to that time.
In the future, BioMarin may need to raise substantial additional capital to fund
operations. BioMarin cannot be certain that any financing will be available when
needed. Even if financing is available, the terms may not be attractive. In
addition, BioMarin may be required to grant superior rights to future
stockholders. If BioMarin fails to raise additional financing as BioMarin needs
it, BioMarin may have to slow or adversely change its plans for growth and its
business and prospects may suffer.
Accumulated Deficit: BioMarin Has An Accumulated Deficit Of $15.1 Million And
Expect To Incur Operating Losses For The Foreseeable Future
BioMarin has operated with a net loss since it was formed. As of December 31,
1998, BioMarin had an accumulated deficit of approximately $15.1 million. To
date, BioMarin has not generated any sales revenues from its drug candidates,
and BioMarin expect its operating losses to increase as it conducts more
research and development. BioMarin's losses mainly arise from expenses related
to research and development, including clinical trials for drug candidates and
related administrative activities. BioMarin expects to spend substantial amounts
in the future for additional research, development and manufacturing activities.
Examples of these activities include the following:
. Preclinical studies
. Clinical trials
. Regulatory submission and review
. Manufacturing process development, scale-up and start-up activities
. Construction of research, process development, clinical manufacturing and
commercial manufacturing facilities
Because of the relative small size and scale of BioMarin's wholly-owned
subsidiary, Glyko, Inc., profits from products and services offered by it are
expected to be insufficient to offset the expenses associated with BioMarin's
pharmaceutical business. As a result, BioMarin expect that operating losses will
continue and increase for the foreseeable future.
BioMarin's future profitability depends on it receiving regulatory approval of
its drug candidates and BioMarin's ability to successfully manufacture and
market any approved drugs, either by itself or jointly with others. The extent
of BioMarin's future losses and the timing of profitability are highly uncertain
and cannot be accurately predicted.
Product Marketability: None Of BioMarin's Drug Products Are Currently Marketed
And BioMarin Is Not Certain That Any Of Them Will Ever Be Marketed
None of BioMarin's drug candidates has received regulatory approval to be
commercially marketed and sold. BioMarin has several drug candidates in various
stages of preclinical and clinical development. For example,
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BioMarin's first drug candidate, an enzyme replacement therapy for MPS-I, is not
expected to be commercially available until at least 2000. BioMarin's other drug
candidates will not be commercially available for at least several more years.
Because of the risks and uncertainties in biopharmaceutical development,
BioMarin's drug candidates could take a significantly longer time to gain
regulatory approval than it expects or may never gain approval. Prior to being
commercially sold, all of BioMarin's drug candidates must evolve through the
following stages:
. Laboratory testing and preclinical studies
. Clinical trials
. Manufacturing process development, scale-up and start-up activities
. Regulatory approval
Even if BioMarin's drug candidates receive regulatory approval, BioMarin must be
able to manufacture approved products at acceptable cost and successfully market
the approved products before BioMarin can become profitable.
Clinical Trials: BioMarin Must Successfully Complete Clinical Trials Before
Its Drug Products Can Be Submitted for Regulatory Approval
BioMarin must demonstrate that its drug candidates are safe and effective for
use on the target patients in order to receive regulatory approval for
commercial sale. Typically, if a drug candidate is intended to treat a chronic
disease, such as MPS-I, safety and efficacy data must be gathered over an
extended period of time. In addition, clinical trials 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. Clinical trials of drugs are time consuming and costly. In
certain circumstances, a single trial may be sufficient to prove safety and
efficacy under the FDA's Modernization Act of 1997.
BioMarin's strategy for the development of therapeutics for certain genetic
disorders is to conduct only one clinical trial on a small number of patients,
which would then be the basis for BioMarin's submission of a Biological License
Application, or BLA, to the FDA. For example, at the end of October 1998,
BioMarin completed one clinical trial with 10 patients on its first drug
candidate BM101 to support BioMarin's BLA submission. The FDA may request
additional trials to be conducted. If BioMarin has to conduct further clinical
trials, whether for BM101 or other products developed in the future, it would
significantly increase BioMarin's expenses and delay regulatory approval and
product launch.
If BM101 is approved based on BioMarin's Phase III study, BioMarin will be
required to conduct a Phase IV study of BM101 to validate the Phase III
endpoints. If the Phase IV study fails to verify the clinical benefit of BM101
or demonstrates that BM101 is not safe or effective, BioMarin's FDA approval can
be withdrawn on an expedited basis. Furthermore, if adverse effects are
identified after marketing, FDA approval may be rapidly revoked and the drug no
longer marketed.
Preclinical Studies And Clinical Trial Results: The Results Of Preclinical
Studies And Clinical Trials Are Not Necessarily Indicative Of The Success Of A
Drug Candidate
BioMarin must conduct preclinical studies in animals and clinical trials in
humans for each of its drug candidates before BioMarin can seek FDA approval to
commercially sell the drug candidate. BioMarin expects the number of preclinical
studies and clinical trials that the FDA will require will vary depending on the
drug candidates, the indications and the regulatory pathway for the particular
drug candidate. BioMarin may need to perform preclinical studies on multiple
animal models using various doses and formulations before it can begin clinical
trials, which could result in delays of commercialization of any drug
candidates. Furthermore, even if BioMarin obtain favorable results in
preclinical studies on animals, the results in humans may be different.
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An additional risk inherent in clinical trials is that the results of initial
smaller clinical trials differ from the results obtained from subsequent more
extensive testing and long-term trials. Adverse or inconclusive final clinical
results would stop us from filing for regulatory approval. Such results may also
cause us to abandon further work on a drug candidate. As a result, BioMarin
cannot be certain that BioMarin's research and development, including
preclinical studies and clinical trials, will be successfully completed.
BioMarin cannot guarantee that its drug candidates will obtain the necessary
regulatory approvals. Finally, additional factors that can cause delay or
termination of BioMarin's clinical trials include:
. Slow patient enrollment
. Longer treatment time required to demonstrate efficacy with respect
to primary and secondary clinical endpoints
. 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
Small Patient Populations: Small Patient Populations Heighten BioMarin's
Need For Attractive Pricing And High Penetration Into The Market
BioMarin's strategy with respect to BioMarin's initial drug candidates is to
target disorders where the patient populations are small and seek orphan drug
designation. For example, two of BioMarin's initial drug candidates in genetic
disorders, BM101 and BM102, target patients with MPS-I and MPS-VI, respectively.
BioMarin estimates that in the United States and Canada, there are approximately
1,000 patients with MPS-I and 340 patients with MPS-VI. In addition, other drug
candidates BioMarin is developing are to treat conditions, such as other genetic
diseases and serious burns, with small patient populations. Due to the small
patient populations in these markets, obtaining attractive pricing and patient
reimbursement for BioMarin's drug candidates is critical to its success.
BioMarin cannot be certain that it will be able to obtain sufficient pricing to
justify BioMarin's product development efforts. BioMarin also cannot be certain
that it will be able to achieve sufficient penetration of these small markets to
achieve any commercial success.
Government Regulation: BioMarin Must Receive Regulatory Approval Before Selling
and Marketing BioMarin's Drugs
BioMarin's drug candidates are subject to extensive regulation by the federal
government, principally the FDA and by state and local governments. FDA
regulations govern the development, testing, manufacturing, advertising and
selling of drug products. If BioMarin's products are distributed abroad, they
are also subject to foreign government regulation.
Before BioMarin can commercially sell its products in the United States,
BioMarin must obtain FDA approval for each drug for a particular indication that
it intends to commercialize. The FDA approval process is typically lengthy and
expensive, and approval is never certain. As part of the FDA approval process,
BioMarin must conduct, at its own expense, preclinical studies and clinical
trials on each drug candidate. Even if the FDA grants approval, it may later
withdraw its approval if BioMarin fails to comply with their regulations or if
subsequent problems with its drug candidates occur. FDA approval may also limit
the uses or indications for which BioMarin's drug candidates may be promoted and
sold.
In addition, manufacture of BioMarin's drug products must comply with the FDA's
cGMP regulations. The cGMP regulations govern quality control and documentation
policies and procedures. BioMarin's manufacturing facilities are continuously
subject to inspection by the FDA, the State of California and foreign regulatory
authorities, before and after product approval. Because BioMarin is currently in
the process of developing the manufacturing site and process for commercial
manufacture of BM101, BioMarin's facility has not yet been inspected by any
governmental entity. Before commercial manufacturing can commence, BioMarin must
obtain regulatory approval of its manufacturing facility and process. BioMarin
cannot guarantee that it, or any potential third-party manufacturer of
BioMarin's drug products, will be able to comply with cGMP regulations. Certain
material
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changes to the manufacturing processes after approvals are also subject to
review and approval by the FDA or other regulatory agencies.
BioMarin cannot guarantee that it will obtain the necessary government approvals
or comply with applicable laws for manufacturing or marketing any of its drug
candidates. If BioMarin fails to comply with FDA regulations, the FDA could deny
marketing approval or withdraw approval if it has been granted. If BioMarin were
to fail to receive approval, were delayed in receiving approval, or failed to
comply with FDA regulations, BioMarin could be prevented from selling its drug
candidates. If BioMarin fails to comply with FDA regulations after a particular
drug candidate is on the market, BioMarin may receive warning letters and face
sanctions such as fines, withdrawals of previous FDA approvals and criminal
prosecutions. The FDA may also impose injunctions preventing BioMarin from
manufacturing or selling the product or it may recall or seize BioMarin's
products.
Although BM101 has obtained fast track designation, BioMarin cannot guarantee a
faster review process or faster approval compared to the normal FDA procedures.
The FDA may still require BioMarin to conduct further clinical trials to confirm
the beneficial effects, if any, of BM101, and to validate surrogate endpoints
prior to approval. Failure to verify clinical benefit of BM101 or demonstrate
that BM101 is safe and effective can subject BM101 to expedited withdrawal
procedures. BioMarin will also have to submit all promotional materials related
to BM101 for FDA review and pre-approval until such time that the FDA removes
this requirement. The commercial launch of BM101 would be delayed if the FDA
decides that more data or additional larger studies for BM101 are needed.
Orphan Drug Exclusivity: BioMarin's Success Depends On Its Ability To Obtain
Orphan Drug Exclusivity
BioMarin received orphan drug designation from the FDA for BM101 in September
1997. In February 1999, BioMarin received orphan drug designation from the FDA
for BM102. 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 sponsor 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 orphan indication
for a period of seven years. However, different drugs can be approved for the
same orphan indication. BioMarin cannot guarantee it will receive the first FDA
approval on any designated drug and, therefore, receive market exclusivity or
that orphan drug exclusivity will reduce competition.
As part of BioMarin's business strategy, it intends to develop drugs that may be
eligible for FDA orphan drug designation. Because the extent and scope of patent
protection for BioMarin's drug candidates is uncertain, orphan drug designation
is particularly important for BioMarin's products that are eligible for such
designation. BioMarin plans to rely on the exclusivity period under the orphan
drug designation to maintain a competitive position. However, BioMarin does not
know if the FDA will grant orphan drug designation or marketing exclusivity for
any of its products other than BM101 and BM102. Even if BioMarin obtains orphan
drug designation, BioMarin cannot guarantee that it 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.
Third-Party Payors: BioMarin's Success Depends On Its Ability To Be Reimbursed
By Third-Party Payors
BioMarin's ability to successfully commercialize its drug candidates depends on
the availability of reimbursement for its drugs from government health agencies,
such as Medicare and Medicaid in the United States, private health insurers and
other organizations. The course of treatment for patients with MPS-I using BM101
is expected to be expensive. BioMarin expects patients to need treatment
throughout their lifetimes. BioMarin expects that families of patients will not
be capable of paying for this treatment themselves. If medical reimbursement
were denied for this treatment, there would be no commercially viable market for
BM101.
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. BioMarin
cannot be certain that third-party payors will pay for the costs of its drugs
and the courses of treatment. Even if BioMarin is
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able to obtain reimbursement from third-party payors, it cannot be certain that
reimbursement rates will be enough to allow BioMarin to profit from sales of its
drugs.
BioMarin currently has no expertise in reimbursement and expects to rely on its
partner Genzyme and its expertise to obtain reimbursement for BM101. BioMarin
cannot predict what the reimbursement rates will be. In addition, BioMarin will
need to develop its own reimbursement expertise for future drug candidates
unless BioMarin enters into collaborations with other companies with the
necessary expertise.
BioMarin expects that reimbursement in the future will be subject to increased
restrictions 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. In the United States there have been a number
of federal and state proposals to control the cost of health care, including the
cost of drug treatments. In certain 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
BioMarin's future revenues from sales of its drugs and may adversely affect its
business and prospects.
Proprietary Technology: BioMarin's Ability To Protect Its Patents And
BioMarin's Proprietary Technology And Information Is Uncertain
Where appropriate, BioMarin seeks patent protection for certain aspects of its
technology. However, for some of the enzymes BioMarin is developing, including
BM101 and BM102, meaningful patent protection may not be available.
The patent positions of biotechnology companies are extremely complex and
uncertain. The scope and extent of patent protection for some of BioMarin's
products are particularly uncertain because key information on some of the
enzymes BioMarin is developing has existed in the public domain for many years.
This means that other parties have published the structure of the enzyme, the
methods for purifying or producing the enzyme or the methods of treatment. If
such publications exist, they can prevent BioMarin's patent applications from
issuing or can limit the scope of coverage for issued patents.
In addition, BioMarin's owned and licensed patents and patent applications do
not ensure the protection of its intellectual property for a number of other
reasons:
. BioMarin does not know whether its patent applications will result in
actual patents. For example, BioMarin may not have developed a method for
treating s disease before others developed similar methods.
. BioMarin's competitors may interfere in BioMarin's patent process, which
can delay the grant of a patent and reduce the scope of BioMarin's patent
protection.
. Even if BioMarin receives a patent, it may not provide much practical
protection. The government agencies that grant patents have not followed
a consistent policy. If BioMarin receives a patent with a narrow scope,
then it will be easier for competitors to design products that do not
infringe on BioMarin's patent.
. Enforcing patents is expensive and may absorb significant time by
BioMarin's management. In litigation, a competitor could claim that
BioMarin's issued patents are not valid for a number of reasons. If the
court agrees, BioMarin would lose that patent.
In addition, competitors also seek patent protection for their technology. There
are many patents in BioMarin's field of technology, and BioMarin cannot
guarantee that it does not infringe on those patents or that BioMarin will not
infringe on patents granted in the future. If a patent holder believes
BioMarin's product infringes on their patent, the patent holder may sue BioMarin
even if BioMarin has received patent protection for its technology. If
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someone else claims BioMarin infringes on their technology, BioMarin would face
a number of issues, including:
. Defending a lawsuit takes significant time and can be very expensive.
. If the court decides that BioMarin's product infringes on the
competitor's patent, it may have to pay substantial damages for past
infringement.
. The court may prohibit BioMarin from selling or licensing the product
unless the patent holder licenses the patent to BioMarin. The patent
holder is not required to grant BioMarin a license. If a license is
available, BioMarin may have to pay substantial royalties or grant
cross-licenses to BioMarin's patents.
. Redesigning BioMarin's product so it does not infringe may not be
possible and could require substantial funds and time.
It is also unclear whether BioMarin's trade secrets will provide useful
protection. While BioMarin uses reasonable efforts to protect its trade secrets,
BioMarin's employees or consultants may unintentionally or willfully disclose
its information to competitors. Enforcing a claim that someone else illegally
obtained and is using BioMarin's trade secrets, like patent litigation, is
expensive and time consuming. BioMarin cannot predict the outcome of such
litigation. In addition, courts outside the United States are sometimes less
willing to protect trade secrets. BioMarin's competitors may independently
develop equivalent knowledge, methods and know-how.
BioMarin may also support and collaborate in research conducted by government
organizations or by universities. BioMarin cannot guarantee that it will be able
to acquire any exclusive rights to technology or products derived from such
collaborations. If BioMarin does not obtain required licenses or rights, it
could encounter delays in product development while BioMarin attempts to design
around blocking patents or even be prohibited from developing, manufacturing or
selling products requiring such licenses. There is also a risk that disputes may
arise as to the rights to technology or products developed in collaboration with
other parties. BioMarin's BM101 product depends on BioMarin's license with
Harbor-UCLA. Harbor-UCLA can terminate the agreement if BioMarin breaches it.
Genzyme Relationship: BioMarin's Success Depends On Its Continued Relationship
With Genzyme
On September 4, 1998, BioMarin established a joint venture with Genzyme for the
worldwide development and commercialization of BM 101 for the treatment of
MPS-I. Under the agreement, the joint venture is owned half by BioMarin and half
by Genzyme. Genzyme is responsible for obtaining foreign regulatory approvals,
handling sales and marketing of BM101 and obtaining reimbursement.
Furthermore, BioMarin is relying on Genzyme to apply its expertise and know-how
that it has developed through the launch and sale of Ceredase(R) and Cerezyme(R)
enzymes for Gaucher disease, a rare genetic disorder. BioMarin cannot guarantee
that Genzyme will devote the resources necessary to successfully market BM101.
In addition, either party may terminate the joint venture for any reason. If
Genzyme were to terminate the joint venture, BioMarin would be required to
undertake Genzyme's responsibilities themselves. BioMarin has no experience in
selling, marketing or obtaining reimbursement for pharmaceutical products. In
addition, BioMarin would be required to pursue foreign regulatory approvals.
Termination of the joint venture could therefore cause 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 BioMarin's business and results of operations. Since Genzyme
funds 50% of the joint venture's operating expenses, the termination of the
joint venture would double the financial burden on BioMarin and reduce the funds
available for other product programs.
Limited Drug Manufacturing Experience: BioMarin's Lack Of Manufacturing
Experience Heightens The Risks Associated With Process Development And
Manufacturing Scale-Up
BioMarin has no experience manufacturing its drug candidates in volumes that
will be necessary to support commercial sales. In addition, the FDA and state
regulatory agencies must clear BioMarin's manufacture and any third party
manufacture of BioMarin's drug candidates and confirm that the facilities are
cGMP compliant.
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There is a high probability that an unproven manufacturing process will 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.
The time required to make such improvements is highly uncertain. If BioMarin
contracts for manufacturing services with an unproven process, BioMarin's
contractor is subject to the same uncertainties, high standards and regulatory
controls. The FDA and other international pharmaceutical regulatory agencies
must clear BioMarin's manufacturing processes, facilities, quality
assurance/controls, validation procedures and records as to processes and
facilities and essentially all aspects of the manufacturing process. BioMarin
must continually demonstrate compliance with the FDA's standards for cGMP in
BioMarin's facilities. Applicable state agencies also inspect and certify
facilities and provide an additional level of regulatory control. If BioMarin
changes facilities or processes, it must satisfy elaborate tests required by
comparability protocols to insure that the new facilities and processes are
producing product that is comparable to the product produced in the original
facility and with the original process. Failure to correctly implement or comply
with cGMPs could delay FDA approval until corrective action is satisfactorily
completed. Failure to maintain compliance with cGMPs after approval could result
in product recalls or other enforcement actions by the FDA.
BioMarin currently has a contract with Harbor-UCLA Research and Education
Institute to manufacture BM101 in limited quantities for use in preclinical
studies and clinical trials. In order to produce initial commercial requirements
for BM101 in BioMarin's facility BioMarin will have to execute a comparability
protocol to prove that the product manufactured at BioMarin's facility is
comparable to the clinical trial product produced in the Harbor-UCLA facility.
This may require clinical testing. BioMarin must pass FDA and state inspections
and manufacture three process qualification batches to final specifications
under cGMP controls before the BM101 BLA can be approved.
Increasing the scale or size of manufacturing is an uncertain process that may
result in process control problems with, among other things:
. Production yields
. Purity
. Quality control and assurance
. Shortages of qualified personnel
. Compliance with FDA regulations
If BioMarin is unable to establish and maintain commercial scale manufacturing
within its planned time and cost parameters, sales of BioMarin's products and
BioMarin's financial performance will be adversely affected. Scale-up problems
could result in significant delays and cost over-runs before completion.
BioMarin is also developing 23,000 square feet in another facility for
additional manufacturing capacity for BM101. This facility is subject to all the
same risks as the facility mentioned above. In addition, there is additional
risk that the construction schedules will take longer than planned and the
actual construction costs will be greater than budgeted. BioMarin expects that
all of its new products, including BM102, will require similar long and
uncertain development of the manufacturing process before commercial
manufacturing can begin. Even if BioMarin can establish this capacity, it cannot
be certain that manufacturing costs will be commercially reasonable, especially
if reimbursement is substantially lower than expected.
In order to achieve BioMarin's product cost targets, BioMarin must develop
efficient manufacturing processes either by improving the cell lines and
processes licensed from others or by developing a recombinant cell line and
related purification and production processes. 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 BioMarin is 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.
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If BioMarin does not achieve its manufacturing cost targets, BioMarin will have
lower margins and reduced profitability in commercial production and greater
losses in manufacturing start-up phases.
Limited Marketing Capability: BioMarin's Success Depends On Its Ability To Sell
And Market Its Products
If BioMarin decides to sell and market the drug candidates that it is
developing, BioMarin will have to establish appropriate pharmaceutical sales and
marketing capabilities and distribution channels. BioMarin has entered into a
joint venture with Genzyme where Genzyme will be responsible for marketing and
distributing BM101. BioMarin cannot guarantee that it will be able to establish
sales and distribution capabilities or that BioMarin, the joint venture or any
future collaborators will successfully sell any of BioMarin's drug candidates.
To increase BioMarin's distribution and marketing for both its drug candidates
and its Glyko, Inc. products, BioMarin will have to increase its current sales
force and/or enter into additional third-party marketing and distribution
agreements. BioMarin cannot guarantee that it will be able to hire the qualified
sales and marketing personnel it needs in a timely manner, if at all. Nor can
BioMarin guarantee that it will be able to enter into any marketing or
distribution agreements on acceptable terms, if at all. If BioMarin cannot
increase its marketing capabilities as BioMarin intends, either through
increasing its sales force or entering into agreements with third parties, sales
of BioMarin's products may be adversely affected.
Management Of Growth: BioMarin's Success Depends On BioMarin's Ability To Manage
Its Growth
Rapid growth of BioMarin's management, administrative and operational resources
have laced a significant strain on its managerial, operational, financial and
other resources. BioMarin expects this growth to continue. BioMarin recently
acquired Glyko, Inc. and entered into a joint venture with Genzyme. BioMarin
expects to hire more personnel, expand its facilities and upgrade its
information systems. Additionally, if BioMarin receives FDA approval to market
BM101, the joint venture will be required to devote additional resources to
support the commercialization of BM101.
To manage expansion effectively, BioMarin needs to continue to develop and
improve its operating and financial systems, sales and marketing capabilities
and expand, train, retain, manage and motivate its employees. BioMarin cannot
guarantee that its systems, procedures or controls will be adequate to support
its operations or that BioMarin's management will be able to manage successfully
future market opportunities or its relationships with customers and other third
parties. BioMarin cannot guarantee that it will continue to grow or, if BioMarin
does, that BioMarin will effectively manage such growth. BioMarin's failure to
manage growth would adversely affect its business and prospects.
Competition: BioMarin Operates In A Highly Competitive Market
BioMarin has many existing and potential competitors, including large
pharmaceutical companies, biotechnology companies and laboratory and testing
services firms. Furthermore, many of BioMarin's current and potential
competitors have several advantages over us, including:
. Longer operating histories
. Greater financial resources
. More extensive or better research and development programs, including
experience in obtaining regulatory approval
. Greater manufacturing and marketing resources and experience
BioMarin's competitors may succeed in developing, manufacturing and marketing
products that are more effective or less expensive than any of BioMarin's drug
candidates. They may also succeed in obtaining regulatory approvals for their
products faster than BioMarin can obtain them, including orphan drug
designation, or commercializing their products before BioMarin does. These
companies will also compete with BioMarin in attracting qualified
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personnel and in attracting parties for acquisitions, joint ventures or other
collaborations. They will also compete with BioMarin in attracting academic
research institutions as partners and in obtaining licensing of such
institution's proprietary technology. Several pharmaceutical and biotechnology
companies have already established themselves in the field of enzyme
therapeutics, including Genzyme, BioMarin's joint venture partner.
Universities and public and private research institutions are another source of
competition for BioMarin. While these organizations primarily have educational
objectives, they may develop proprietary technology and acquire patents that
BioMarin may need for the development of its drug candidates. BioMarin will
attempt to obtain licenses for such proprietary technology, if available. Such
licenses may not be available to us on acceptable terms, if at all. BioMarin
will also directly compete with a number of these organizations in the
recruitment of personnel, especially scientists and technicians.
BioMarin believes competition for Glyko Inc.'s products and services are
established technologies provided by other companies, such as laboratory and
testing services firms. 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.
Key Personnel: BioMarin Needs To Recruit And Retain Skilled Professionals And
Technicians
BioMarin's future growth and success depend on its ability to train, retain,
manage and motivate its employees. Because of the specialized scientific nature
of BioMarin's business, BioMarin rely heavily on its 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 BioMarin.
The competition for qualified personnel in the biopharmaceutical field is
intense. BioMarin cannot be certain that it will continue to attract and retain
qualified personnel necessary for the development of its business. The loss of
the services of existing personnel as well as the failure to recruit additional
key scientific, technical and managerial personnel in a timely manner would harm
BioMarin's research and development programs and BioMarin's business and
prospects.
Product Liability: Liability Claims Could Adversely Affect BioMarin's Earnings
And Financial Condition
BioMarin develops drug treatments for use in humans. The nature of the
biopharmaceutical business exposes us to potential product liability risks
inherent in the testing, manufacturing and marketing of human drug treatments.
BioMarin currently does not maintain insurance against product liability
lawsuits. Although BioMarin intends to obtain product liability insurance,
BioMarin cannot be certain that it will be able to obtain adequate insurance
coverage. BioMarin cannot be certain that it can successfully defend any product
liability lawsuit brought against it. Even if BioMarin is able to establish
insurance coverage, the cost may be prohibitive. If BioMarin is the subject of a
successful product liability claim which exceeds the limits of its insurance
coverage, BioMarin may incur substantial liabilities which would adversely
affect its business and prospects.
Year 2000: Any Problems With Year 2000 Compliance In GBL's or BioMarin's
Internal Systems Or Customer Solutions Could Harm GBL's Business
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.
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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.
It is possible that BioMarin's currently installed computer systems, software
products or other business systems, or those of BioMarin's 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. BioMarin has
formed a team to review and resolve those aspects of the year 2000 problem that
are within BioMarin's direct control and adjust to or influence those aspects
that are not within BioMarin's direct control. The team has reviewed Glyko,
Inc.'s software products, including those under development, and determined that
its software products do not use date data and are year 2000 compliant.
BioMarin's biopharmaceutical products do not have any year 2000 exposure. Based
on representations from BioMarin's vendors, the team has reviewed the year 2000
compliance status of BioMarin's 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 BioMarin's ability
to control, including the extent to which its 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 BioMarin. BioMarin is assessing the
possible effects on its operations of the possible failure of BioMarin's key
suppliers and providers, contractors and collaborators to identify and remedy
potential year 2000 problems.
22
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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.
At the Company's Special Meeting, held on March 10, 1999, the Company's
shareholders took the following action:
(a) Authorized the grant of options to purchase 100,000 common
shares of the Company at a price of U.S.$0.50 per share
expiring on October 25, 2001, by a vote of 10,474,255 in favor;
149,591 shares against; 23,750 shares spoiled and 29,333 shares
withheld;
(b) Authorized the re-pricing of options previously granted on
December 10, 1992 to certain insiders of the Company to
purchase 300,000 common shares of the Company from an
exercise price of Cdn.$2.75 per share to Cdn.$1.00 per share
and ratified the exercise price of such options, by a vote
of 10,368,048 in favor; 167,438 shares against; 22,600 shares
spoiled and 29,333 shares withheld.
There were 18,370,099 shares which abstained from all matters
presented to the meeting including broker non-votes.
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 March 31, 1999.
23
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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: May 17, 1999 By: \s\ John C. Klock, M.D.
- -------------------- ----------------------------
John C. Klock, M.D.
President, Chief Executive
Officer and Chief Financial
Officer
24
<PAGE>
EXHIBIT INDEX
Exhibit Description
Number
2.1 Share Exchange Agreement between Glyko Biomedical Ltd. and BioMarin
Pharmaceutical Inc.dated September 15, 1998.
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 Restated Certificate of Incorporation of BioMarin Pharmaceutical, Inc.
(filed as exhibit 3.1 to Form 10-QSB dated September 30, 1997, and
incorporated herein by reference).
3.3 Bylaws of BioMarin Pharmaceutical, inc. (filed as exhibit
3.2 to Form 10-QSB dated September 30, 1997, and
incorporated herein by reference).
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 License Agreement between Registrant, and Astroscan, Ltd. and
Astromed, Ltd. (filed as exhibit 10.4 to Form 10-SB Registration
Statement No. 0-21994 dated August 6, 1993 and incorporated herein
by reference).
10.2 License Agreement between Registrant and Glycomed
Incorporated (filed as exhibit 10.5 to Form 10-SB
Registration Statement No. 0-21994 dated August 6, 1993 and
incorporated herein by reference).
10.3 Glyko Biomedical Share Option Plan - 1994 (filed as exhibit 10.1 to
Form 10-QSB dated June 30,1994 and incorporated herein by reference).
10.4 Development and Supply Agreement between Registrant and
Bio-Rad Laboratories, Inc., dated February 16, 1995 (filed
as exhibit 10.1 to Form 10-KSB dated March 31, 1996 and
incorporated herein by reference).
10.5 International Distribution Agreement between Registrant and Toyobo
Co., Ltd. and MC Medical. Inc.dated September 12, 1995 (filed as
exhibit 10.2 to Form 10-KSB dated March 31, 1996 and incorporated
herein by reference).
10.6 Commercial Lease between Registrant and Douglas R. Kaye
dated December 23, 1996 (filed as exhibit 10.1 to Form
10-KSB/A date December 31, 1996 and incorporated herein by
reference.)
10.7 Toyobo Distribution Agreement (confidential portions of
exhibit have been omitted pursuant to a request for
confidential treatment and filed separately with the
Commission). Filed as exhibit 10.1 to Form 10-QSB dated
March 31, 1997, and incorporated herein by reference.
10.8 First Amendment to Bio-Rad Laboratories, Inc. Agreement
(confidential portions of exhibit have been omitted pursuant
to a request for confidential treatment and filed separately
with the Commission). Filed as exhibit 10.1 to Form 10-QSB
dated June 30, 1997, and incorporated herein by reference.
10.9 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.)
22.1 Notice of Annual Meeting of Shareholders, 1997 Annual
Information Circular, Form of Proxy and Policy 41 Form.
Filed as Definitive 14A documents on May 18, 1998, and
incorporated herein by reference.
22.2 Notice of Special Meeting of Shareholders, 1998 Annual
Information Circular and Form of Proxy. Filed as Definitive
14A documents on February 4, 1999, and incorporated herein
by reference.
27.1 Financial Data Schedule (see Financial Data Schedule hereto attached
at page 26)
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000908401
<NAME> Glyko Biomedical Ltd.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 4,773,081
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,793,781
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 10,749,477
<CURRENT-LIABILITIES> 370,704
<BONDS> 0
0
0
<COMMON> 20,527,515
<OTHER-SE> (10,148,742)
<TOTAL-LIABILITY-AND-EQUITY> 10,749,477
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 66,914
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,744,705)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,744,705)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,744,705)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
