U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-KSB
(Mark One)
[X] Annual Report Under Section 13 or 15(d) of the Securities Exchange Act of
1934 For the fiscal year ended December 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., #210, Novato, California 94949
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (415) 382-3500
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, no par value
(Title of Class)
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
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III to the Form 10-KSB or any amendment to
this Form 10-KSB. __X____
State issuer's revenues for its most recent fiscal year: $0.00.
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the stock was
sold, or the average bid and asked prices of such equity: $158,475,655 as of
February 29, 2000.
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 33,999,341common shares outstanding
as of February 29, 2000.
Transitional small business disclosure format (check one)
Yes_______ ; No__X____
The document incorporated by reference is as follows:
(1) BioMarin Pharmaceutical Inc. Proxy Statement of the Annual Meeting of
Stockholders to be held on June 16, 2000 incorporated into Part III,
Item 10. 5
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GLYKO BIOMEDICAL LTD.
Part I
This Form 10-KSB contains ''forward-looking statements'' as defined under
securities laws. Many of these statements can be identified by the use of
terminology such as ''believes,'' ''expects,'' ''anticipates,'' ''plans,''
''may,'' ''will,'' ''projects,'' ''continues,'' ''estimates,'' ''potential,''
''opportunity'' and so on. These forward-looking statements may be found in the
''Risk Factors,'' ''Description of Business,'' and other sections of this Annual
Report on Form 10-KSB. Our actual results or experience could differ
significantly from the forward-looking statements. Factors that could cause or
contribute to these differences include those discussed in ''Additional Factors
That Might Affect Future Results,'' as well as those discussed elsewhere in this
Form 10-KSB. You should carefully consider that information before you make an
investment decision.
You should not place undue reliance on these statements, which speak only as of
the date that they were made. These cautionary statements should be considered
in connection with any written or oral forward-looking statements that we may
issue in the future. We do not undertake any obligation to release publicly any
revisions to these forward-looking statements after completion of the filing of
this Form 10-KSB to reflect later events or circumstances or to reflect the
occurrence of unanticipated events.
Item 1. Description of Business
Glyko Biomedical Ltd. ("GBL" or the "Company") was incorporated by Certificate
and Articles of Incorporation under the laws of Canada on June 26, 1992. On
December 21, 1992, simultaneously with an initial public offering of the
Company's Common Shares on The Toronto Stock Exchange, the Company acquired, in
a stock for stock exchange, 100 percent of the outstanding shares of Glyko, Inc.
incorporated on October 15, 1990, under the laws of Delaware, upon an exchange
of shares with the stockholders of Glyko, Inc. GBL was incorporated for the sole
purpose of acquiring Glyko, Inc. Both entities were under common control and the
share exchange was accounted for in a manner similar to a pooling. The
registered office of the Company is Scotia Plaza, Suite 2100, 40 King Street
West, Toronto, Canada M5H 3C2. The principal office of Glyko, Inc. is 371 Bel
Marin Keys Blvd., #210, Novato, CA 94949. Glyko, Inc. was established in 1990
under a joint venture agreement, ("the Joint Venture Agreement"), dated
December 18, 1990 among Millipore Corporation ("Millipore"), Glycomed
Incorporated ("Glycomed"), Gwynn R. Williams ("Williams"), and John C. Klock,
M.D. (collectively, the "Founders"), Astroscan, Ltd. and Astromed, Ltd.,
corporations controlled by Williams, and Glyko, Inc. to conduct original
scientific research aimed at developing novel analytic and research
instrumentation for carbohydrate research and for human medical diagnosis.
On October 25, 1996, the Company formed BioMarin Pharmaceutical Inc.
("BioMarin"), a corporation incorporated under the laws of Delaware, to develop
the Company's pharmaceutical products. The registered and principal office of
BioMarin is 371 Bel Marin Keys Blvd., #210, Novato, California 94949.
BioMarin first began business on March 21, 1997 and issued 1.5 million shares of
common stock to GBL for $1.5 million. As consideration for the grant of a
license to certain of Glyko, Inc.'s intellectual property pursuant to a license
agreement dated June 26, 1997, BioMarin issued GBL an additional 7 million
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 percent 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 net proceeds of $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 pursuant to which
BioMarin issued 1,333,333 shares of common stock to Genzyme. As a result of this
joint venture agreement, BioMarin has a 50 percent interest in the income or
loss of the joint venture, BioMarin/Genzyme LLC.
On October 7, 1998, BioMarin acquired Glyko, Inc., in a transaction valued at
$14.5 million. As consideration for the acquisition of all of the outstanding
shares of Glyko, Inc., BioMarin issued 2,259,039 shares of common stock to GBL,
assumed Glyko, Inc.'s employee stock options exercisable for 255,540 shares of
BioMarin common stock, and paid $500 in cash.
While GBL was not obligated to provide this capital, on April 13, 1999, the
Company entered into a convertible note arrangement with BioMarin in the amount
of $4.3 million as part of a $26 million convertible note.
BioMarin completed its initial public offering ("IPO") of 4.5 million shares of
common stock at $13 per share on July 23, 1999, raising net proceeds of
approximately $51.8 million. In a private placement concurrent with the IPO,
Genzyme invested in BioMarin $10 million (769,230 shares of common stock). In
addition, the $26 million of convertible notes sold by BioMarin on April 13,
1999, plus accrued interest, were converted into 2,672,020 shares of common
stock at $10 per share. GBL's $4.3 million convertible note from BioMarin, plus
accrued interest were converted into 441,911 shares of BioMarin common stock.
The exercise of the underwriters' over-allotment option in August 1999 raised
additional net proceeds of $8.1 million at the IPO price (675,000 shares of
common stock). As a result of the IPO, concurrent with the conversion of the
note from GBL and the investment by Genzyme , GBL's ownership of BioMarin's
outstanding common stock on December 31, 1999, was 32.6 percent.
While BioMarin has an accumulated deficit of $43.1 million at December 31, 1999
and is expected to incur significant losses during 2000 and into 2001 at a
minimum, management of GBL does not believe that there has been any impairment
of its investment in BioMarin.
Since its inception, the Company has incurred a cumulative deficit of $29.1
million and GBL expects to continue to incur losses during 2000 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 or paid
employees and its principal asset is its investment in BioMarin. Since October
8, 1998, GBL has agreed to pay BioMarin a monthly management fee for its
services to GBL primarily relating to management, accounting, finance and
government reporting. BioMarin had accrued receivables relating to these
services for GBL of $27,152 and $37,500 for the years ended December 31, 1998
and 1999, respectively. Accordingly, without further investment in other
companies or technologies, management believes that GBL has sufficient cash to
sustain planned operations for the foreseeable future.
BioMarin's business comprises two segments. BioMarin's Analytic and Diagnostic
Products segment represents the business conducted on a stand-alone basis by
Glyko, Inc. while the Pharmaceutical Products segment represents BioMarin's
pharmaceutical development activities.
Pharmaceutical Products
BioMarin is currently developing pharmaceutical products through its own
internal operations and through research grants with various universities.
BioMarin has completed its initial clinical trial of its lead enzyme replacement
product (Aldurazyme(TM)) for Mucopolysaccharidosis (MPS-I), a crippling and
fatal disease that afflicts young children. The initial clinical trial was
conducted under a Company Investigational New Drug (IND) application that
encompassed ten patients with all levels of severity of MPS-I. In April 1999,
BioMarin completed a twelve-month evaluation period for their initial clinical
trial of AldurazymeTM. Initiated in December 1997, this clinical trial treated
ten patients with MPS-I at five medical centers in the United States. BioMarin
is treating and monitoring these patients for an additional 12-month follow-up
period and, in collaboration with BioMarin's joint venture partner, Genzyme,
plans to initiate a Phase III Confirmatory Clinical Trial in mid-year 2000.
BioMarin intends to complete the filing of the biologics license application
("BLA") with the FDA in mid-year 2001. BioMarin received orphan drug designation
for Aldurazyme(TM) in September 1997, allowing BioMarin to market the product
exclusively for seven years following U.S. Food and Drug Administration ("FDA")
approval if it is the first to gain such approval. BioMarin focuses on the
development of products in four therapeutic areas: genetic diseases, burn and
wound care, fungal infections and inflammation (initially psoriasis). This
development process will require funding and BioMarin plans to raise additional
cash to fund these projects. BioMarin cannot assure you that such funds will be
available or that this development process will be successful.
Analytic and Diagnostic Products
Analytic
BioMarin manufactures and sells the following products:
o A series of kits with chemicals, enzymes, pre-cast gels, and
standards for performing analyses of carbohydrates.
o A carbohydrate analytical system based on electrophoresis including
computer controlled imaging system for sample analysis and report
preparation.
o Research products including carbohydrate
enzymes, standards and related materials.
o Copyrighted, proprietary software for image analysis and data
manipulation.
Products are marketed directly and through authorized distributors. Customers
include distributors of research products, university research laboratories,
biotechnology companies and pharmaceutical companies.
Diagnostic
BioMarin's FACE(R) diagnostic technology gives clinicians the capability to
detect the presence of specific carbohydrate markers indicating certain disease
states.
In November 1995, Glyko, Inc., currently BioMarin's wholly-owned subsidiary,
received approval from the FDA to market its diagnostic test for Lysosomal
Storage Diseases, the Urinary Carbohydrate Analysis Test Kit.
A second-year SBIR II Grant in the amount of $290,234 was awarded for the period
from June 1, 1998, to May 31, 1999 to develop a second-generation confirmatory
test of Lysosomal Storage diseases.
<PAGE>
Patents and Trade Secrets
BioMarin and GBL entered into a License Agreement dated June 26, 1997, pursuant
to which GBL granted BioMarin an exclusive, worldwide, perpetual, irrevocable,
royalty-free right and license to certain of Glyko, Inc.'s worldwide patents,
trade secrets, copyrights, and other proprietary rights to all know-how,
processes, formulae, concepts, data, and other such intellectual property,
whether patented or not, owned or licensed by Glyko, Inc. as of the date of the
license agreement for application in therapeutic uses, including without
limitation, drug discovery and genomics. As consideration for the grant of this
license, BioMarin issued to GBL 7 million shares of BioMarin common stock. Under
the same License Agreement, BioMarin granted Glyko, Inc. an exclusive,
worldwide, perpetual, irrevocable, royalty-free cross-license to all
improvements BioMarin may make upon the licensed intellectual property.
Competition
Pharmaceutical Products. The biopharmaceutical industry is rapidly evolving and
highly competitive. We face significant competition from biotechnology and
pharmaceutical companies. Many of these companies have significantly greater
financial, manufacturing, marketing and product research and development
resources and experience than we have. Large pharmaceutical companies in
particular have extensive experience in clinical testing and in obtaining
regulatory approvals, including orphan drug designations. Accordingly,
competitors may obtain regulatory approvals for and commercialize their products
faster than we will. In addition, these companies will compete with us to
attract qualified personnel, and to attract parties for acquisitions, joint
ventures or other collaborations. Several pharmaceutical and biotechnology
companies have established themselves in the field of enzyme therapeutics,
including Genzyme, our joint venture partner.
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
commercial 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 the primary competitive factors in the market for biological
drug products are:
o Product safety
o Effectiveness of these products
o Ability to obtain orphan drug exclusivity
o Distribution channels
o Price
o Patents and proprietary know-how
o Time required to develop new products
o Time required to obtain regulatory and reimbursement approval
o Ability to respond quickly to medical and technological changes
o Ability to develop new products
<PAGE>
We believe, based on our progress developing AldurazymeTM, that we can compete
successfully with regard to those competitive factors requiring timely
execution. With regard to other competitive factors including those regarding
distribution channels and low prices, we are at a competitive disadvantage. We
do not yet have established distribution channels and because our target patient
populations are small we expect that our drug products will be relatively
expensive. We do not intend to compete with others who have already established
successful treatments for specific genetic disorders, which should ameliorate
some of our competitive disadvantages.
Carbohydrate Analysis Products and Services. The FACE(R)Imaging System's
primary competitors are alternative carbohydrate analytical technologies
including:
o Capillary electrophoresis
o High-pressure liquid chromatography
o Mass spectrometry
o Nuclear magnetic resonance spectrometry
The major advantages of FACE(R) are:
o Low cost
o Quantification of carbohydrates present
o Easy application to samples of unknown composition
o User friendly procedures and software
o Provides versatility for other non-carbohydrate applications
The major disadvantages of FACE(R) are:
o FACE(R) requires single-use specialized gels which give FACE(R)
systems a higher disposable cost than some competitive products
which have reusable components.
o Some competitive products may provide a more precise measurement
ofthe molecular weight of a sample.
o One competitive technology can provide more complete structural
information about the sample.
The competition in the carbohydrate-active enzymes business is comprised
primarily of distributors of broad lines of research products and supplies,
particularly fine chemicals and reagents. Glyko, Inc. competes on the basis of
the catalog of products it offers and the number of carbohydrate-active enzymes
it offers and their proprietary nature. Glyko, Inc. believes that it also
provides superior service because it provides customers with sales information
and assistance based on scientific understanding of carbohydrate chemistry and
function. However, it does not offer as many products as some of its
competitors. Glyko, Inc. plans to expand its enzyme product offerings over the
next several years to compete with the broadest product lines offered today by
competitors. However, neither we nor Glyko, Inc. can assure you that Glyko, Inc.
will successfully broaden its product offerings or will otherwise compete
successfully.
Glyko, Inc.'s diagnostic product line competes primarily with alternative
technologies and laboratory services. Glyko, Inc. believes that its diagnostic
approaches are novel. Glyko, Inc. has the only urinary screening test cleared by
the FDA for certain lysosomal storage diseases. Glyko, Inc. believes that the
test may be used as a screening tool for early detection of a number of
lysosomal storage diseases and that success of the product will depend on
whether it becomes widely adopted. See "Risk Factors--If we fail to compete
successfully, our revenues and operating results will be adversely affected."
<PAGE>
Government Regulation
The following government regulations pertain to BioMarin and its wholly-owned
subsidiaries, Glyko, Inc. and BioMarin Genetics, Inc. Reference to "we", "our"
and "the Company" in the following government regulations represent BioMarin and
its wholly-owned subsidiaries.
Our pharmaceutical products are subject to extensive government regulation in
the United States. If we distribute our products abroad, these products will
also be subject to extensive foreign government regulation. In the United
States, pharmaceutical and biological products are regulated by the FDA. FDA
regulations govern the testing, manufacturing, advertising, promotion, labeling,
sale and distribution of our products. Currently, we believe that AldurazymeTM
and other enzyme drug products that we may develop will be regulated by the FDA
as biologics rather than as drugs because they are manufactured by biological
processes.
The FDA approval process for a biologic includes:
o Preclinical studies
o Submission of an investigational new drug application for clinical
trials
o Adequate and well-controlled human clinical trials to establish
the safety and effectiveness of the product
o Submission of a biologics license application
o Review of the biologics license application
o Inspection of the facilities used in the manufacturing of the
biologic to assess compliance with the Current Good Manufacturing
Processes, or cGMP regulations
The biologics license application includes comprehensive, complete descriptions
of the pre-clinical testing, clinical trials, and the chemical, manufacturing
and control requirements of a drug which enable the FDA to determine the drug's
safety and efficacy. A biologics license application must be filed and then
approved by the FDA before a biologic can be marketed commercially.
The FDA testing and approval process requires substantial time, effort and
money. We cannot assure you that any approval will ever be granted.
Preclinical studies include laboratory evaluation of the product, as well as
animal studies to assess the potential safety and effectiveness of the product.
These studies must be performed according to good laboratory practices. The
results of the preclinical studies, together with manufacturing information and
analytical data, are submitted to the FDA as part of the investigational new
drug application. Clinical trials may begin 30 days after the investigational
new drug application is received, unless the FDA raises concerns or questions
about the conduct of the clinical trials. If concerns or questions are raised,
the investigational new drug application sponsor and the FDA must resolve any
outstanding concerns before clinical trials can proceed. We cannot assure you
that submission of an investigational new drug application will result in
authorization to commence clinical trials. Nor can we assure you that if
clinical trials are approved, that data will result in marketing approval.
<PAGE>
Clinical trials involve the administration of the product that is the subject of
the trial to volunteers or patients under the supervision of a qualified
principal investigator. Furthermore, each clinical trial must be reviewed and
approved by an independent institutional review board at each institution at
which the study will be conducted. The institutional review board will consider,
among other things, ethical factors, the safety of human subjects and the
possible liability of the institution. Also, clinical trials must be performed
according to good clinical practices. Good clinical practices are enumerated in
FDA regulations and guidance documents.
Clinical trials typically are conducted in three sequential phases, Phases I, II
and III, with Phase IV studies conducted after approval and generally required
for fast track designated drugs. These phases may overlap. In Phase I clinical
trials, the drug is usually tested on healthy volunteers to determine:
o Safety
o Any adverse effects
o Dosage tolerance
o Absorption
o Metabolism
o Distribution
o Excretion
o Other drug effects
In Phase II clinical trials, the drug is usually tested on a limited number of
afflicted patients to:
o Evaluate the efficacy of the drug for specific, targeted
indications
o Determine dosage tolerance and optimal dosage
o Identify possible adverse effects and safety risks
In Phase III clinical trials, the drug is usually tested on a larger number of
afflicted patients, an expanded patient population and at multiple clinical
sites. The FDA may require that we suspend clinical trials at any time on
various grounds, including a finding that the subjects are being exposed to an
unacceptable health risk. In addition, FDA approval may be conditioned and limit
the indicated uses for our products.
Phase IV clinical trials are defined as studies performed after a drug has
received FDA approval. These additional studies are conducted to gain experience
from the treatment of afflicted patients in the intended therapeutic indication
and are required if a drug is approved based on surrogate endpoints. In clinical
trials, surrogate endpoints are alternative measurements of the symptoms of a
disease or condition, often by biochemical or other tests, that are substituted
for measurements of observable clinical symptoms. Failure to promptly conduct
Phase IV clinical trials could result in expedited withdrawal of approval for
products approved under fast track designation.
We will also be subject to a variety of foreign regulations governing clinical
trials, manufacture and sales of our products. Whether or not FDA approval has
been obtained, approval of a product by the comparable regulatory authorities of
foreign countries must still be obtained prior to marketing in those countries.
The approval process varies from country to country and the time needed to
secure approval may be longer or shorter than that required for FDA approval.
Food and Drug Administration Modernization Act of 1997. The Food and Drug
Administration Modernization Act of 1997 was enacted, in part, to ensure the
availability of safe and effective drugs, biologics and medical devices by
expediting the FDA review process for new products. The Modernization Act
establishes a statutory program for the approval of fast track products,
including biologics. The fast track provisions essentially codify the FDA's
accelerated approval regulations for drugs and biologics. A fast track product
is defined as a new drug or biologic intended for the treatment of a serious or
life-threatening condition that demonstrates the potential to address unmet
medical needs for this condition. Under the new fast track program, the sponsor
of a new drug or biologic may request the FDA designate the drug or biologic as
a fast track product at any time during the clinical development of the product.
The Modernization Act specifies that the FDA must determine if the product
qualifies for fast track designation within 60 days of receipt of the sponsor's
request.
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Approval of a license application for a fast track product can be based on an
effect on a clinical endpoint or on a surrogate endpoint that is reasonably
likely to predict clinical benefit. Approval of a license application for a fast
track product based on a surrogate endpoint may be subject to:
o Post-approval studies to validate the surrogate endpoint or
confirm the effect on the clinical endpoint
o Prior review of all promotional materials
If a preliminary review of the clinical data suggests that the product is
effective, the FDA may initiate review of sections of a license application for
a fast track product before the application is complete. This rolling review is
available if the applicant provides a schedule for submission of remaining
information and pays applicable user fees. However, the time period specified in
the Prescription Drug User Fees Act, which governs the time period goals the FDA
has committed to reviewing a license application, does not begin until the
complete application is submitted.
In September 1998, the FDA designated AldurazymeTM a fast track product for the
more severe forms of MPS-I. We cannot predict the ultimate impact, if any, of
the fast track process on the timing or likelihood of FDA approval of
AldurazymeTM or any of our other potential products.
Orphan Drug Designation. In September 1997, AldurazymeTM received orphan drug
designation from the FDA. In February 1999, BM102 received orphan drug
designation from the FDA. Orphan drug designation is granted by the FDA to drugs
intended to treat a rare disease or condition. A rare disease or condition is
one which generally affects fewer than 200,000 individuals in the United States.
Orphan drug designation must be requested before submitting a biologics license
application. After the FDA grants orphan drug designation, the generic identity
of the therapeutic agent and its potential orphan use are disclosed publicly by
the FDA.
Orphan drug designation does not shorten the FDA regulatory review and approval
process for an orphan drug, nor does it give that drug any advantage in the FDA
regulatory review and approval process. If an orphan drug later receives FDA
approval for the indication for which it has designation, the FDA may not
approve any other applications to market the same drug for the same indication,
except in very limited circumstances, for seven years. Although obtaining FDA
approval to market a product with orphan drug exclusivity may be advantageous,
we cannot be certain that we will be the first to obtain FDA approval for any
drug for which we obtain orphan drug designation. Nor can we be certain that
orphan drug designation will result in any commercial advantage or reduce
competition. Nor can we be certain that the limited exceptions to this
exclusivity will not be invoked by the FDA.
Regulation of Glyko, Inc.'s Diagnostic Tests as Medical Devices. Our subsidiary,
Glyko, Inc., develops diagnostic tests that screen for diseases such as
lysosomal storage diseases. The FDA regulates these tests as medical devices.
The FDA requires companies that desire to market new medical devices to obtain
either 510(k) clearance or approval of a Pre-market Approval Application, or
PMA, before they are sold. Regulation under a PMA can be significantly more
costly and time consuming than clearance under a 510(k) notification. Glyko,
Inc. has received 510(k) clearance from the FDA for a urinary carbohydrate
analysis test and is developing other diagnostic tests, which we believe qualify
for 510(k) clearance.
Glyko, Inc.'s diagnostic tests may be regulated as medical devices by the FDA as
Class I, Class II or Class III devices. The degree of regulation, as well as the
cost and time required to obtain regulatory approvals or clearances, generally
increases from Class I to Class III. Most diagnostic tests are regulated as
Class I or Class II devices. Glyko, Inc.'s diagnostic test for urinary
carbohydrate analysis has been classified as a Class I device. Under the Food
and Drug Administration Modernization Act of 1997, most Class I devices are
exempt from the 510(k) clearance requirement. Based on the advice of our
regulatory consultants and the experience with our first test, we expect that
all of our currently planned diagnostic tests will require a 510(k) notification
and clearance process.
<PAGE>
A 510(k) notification is sufficient for a device that is "substantially
equivalent" to a legally marketed Class I or Class II device, or a Class III
"predicate" device for which the FDA has not yet required submission of PMAs.
Following submission of a 510(k) notification, a company may not market the
device for clinical use until the FDA finds that product is substantially
equivalent to a legally marketed predicate device. It generally takes four to 12
months from the date of submission of a 510(k) to obtain the FDA's
determination, but it may take longer. The FDA may determine that the device is
not substantially equivalent and require submission and approval of a PMA.
Alternatively, the FDA may require further information before making a
determination regarding substantial equivalence. The FDA requires a new 510(k)
submission and a separate FDA determination of substantial equivalence for any
devices cleared through the 510(k) process that have had modifications or
enhancements that could significantly affect their safety or effectiveness, or
that change their intended use.
If a device does not qualify for the 510(k) premarket notification procedure, a
company must file a PMA application. The PMA review and approval process can be
expensive, uncertain and lengthy. A PMA application must be supported by
extensive data, including laboratory and clinical trial data establishing the
safety and effectiveness of the device, as well as extensive manufacturing
information. After a preliminary review, the FDA makes an initial determination
about whether a PMA application is sufficiently complete to permit a substantive
review. If the FDA finds the PMA application sufficiently complete, the FDA
accepts the application for filing. Once the PMA application is accepted for
filing, the FDA begins a more in-depth review, which likely includes review by a
scientific advisory panel. During the PMA review process, the FDA will conduct
an inspection of the manufacturer's facilities to ensure compliance with the
applicable Quality System Regulation or QSR requirements. The FDA may determine
that additional clinical data is necessary or request other information, which
may delay the regulatory review process.
Modifications to a device that is the subject of an approved PMA, its labeling,
manufacturing or clinical use may require approval by the FDA of PMA supplements
or new PMAs. PMA supplements often require submission of the same type of
information required for the initial PMA except that the supplement generally is
limited to that data needed to support the proposed changes. Regulatory
approval, if granted, may limit the uses for which the device may be marketed.
Approvals, once granted, may be withdrawn if problems occur after initial
marketing.
Sales of medical devices outside of the United States are subject to regulatory
requirements that vary from country to country. The time required to obtain
international regulatory clearance or approval for international sales may be
longer or shorter than that required for FDA clearance approval. The
requirements may differ as well. We cannot assure you that we will be able to
obtain the required regulatory approval in a timely manner, if at all.
Regulation of Glyko, Inc.'s Manufacturing. Glyko, Inc. is required to comply
with the FDA's quality system regulation requirements when manufacturing its
diagnostic tests. The quality system regulation requirements incorporate the
FDA's former current Good Manufacturing Processes into medical devices
regulations. Quality system regulation requirements address the design,
controls, methods, facilities and quality assurance controls used in
manufacturing, packing, storing and installing medical devices. In addition,
certain international markets have quality assurance and manufacturing
requirements that may be more or less rigorous than those in the United States.
A failure by us to comply with quality system regulation requirements or other
requirements could have a serious impact on our business and services.
Regulation of Clinical Laboratories. Laboratories using Glyko, Inc.'s diagnostic
tests for clinical use in the United States are regulated under Clinical
Laboratory Improvement Amendments of 1998, or CLIA. CLIA establishes
requirements for laboratories and laboratory personnel governing:
o Administration of laboratories
o Participation and proficiency testing
o Patient test management
o Quality control
o Personnel
o Quality assurance
o Inspection
<PAGE>
The complexity of the tests being performed by the laboratory will determine
which CLIA requirements apply. Under CLIA regulations, all laboratories
performing moderately complex or highly complex tests will be required to obtain
either a registration certificate or certificate of accreditation from the
Health Care Financing Administration. A laboratory using our diagnostic tests is
required to be qualified to perform moderately or highly complex tests. All of
the laboratories known to us that are performing the diagnostic procedures which
might use our test are qualified at the appropriate levels. If, in the future, a
competitor develops a simpler diagnostic test that can be performed in less
qualified laboratories and if medical institutions begin to use these less
qualified laboratories to perform the competitive test, then CLIA requirements
will prevent the less qualified laboratories from performing the current Glyko,
Inc. test. The development of a simpler competitive diagnostic test by a
competitor may have a negative financial impact on our revenues and results of
operations. Glyko, Inc. has CLIA certification and a California state laboratory
license to perform urinary carbohydrate analysis tests. The California
laboratory license only allows testing for patients in California. We may be
required to obtain other licenses to perform our laboratory services in other
states or to provide services to patients or health care professionals who
reside or practice medicine in other states.
See "Risk Factors--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."
<PAGE>
RISK FACTORS
RISKS RELATED TO GLYKO BIOMEDICAL LTD.
Dependence on Investment in BioMarin
As of December 31, 1999, GBL's principal asset was its 32.6 percent 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 year ended December 31, 1999 of $10.0 million. GBL expects to
continue to incur losses during 2000 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 $43.1 million at
December 31, 1999 and is expected to incur significant losses throughout 2000
and beyond. Management of BioMarin believes that the proceeds from the
convertible note financing and the net proceeds of approximately $70 million
from the IPO (including underwriters' exercise of over-allotment) and the
concurrent Genzyme closing will be sufficient to meet its obligations through
2000. Management of GBL believes that at December 31, 1999 there has not been
any impairment of its investment in BioMarin.
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 factors 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 December 31, 1999, we had an accumulated deficit of
approximately $43.1 million. We expect to continue to operate at a net loss at
least through 2002. 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.
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:
o Research and development programs
o Preclinical studies and clinical trials
o Regulatory processes
o Establishment of commercial scale manufacturing capabilities and
o Expansion of sales and marketing activities.
The amount of capital we may need depends on many factors, including:
o The progress, timing and scope of our research and development
programs
o The progress, timing and scope of our preclinical studies and
clinical trials
o The time and cost necessary to obtain regulatory approvals
o The time and cost necessary to build our manufacturing facilities
and obtain the necessary regulatory approvals for those facilities
o The time and cost necessary to respond to technological and market
developments
o Any changes made or new developments in our existing collaborative
licensing and other commercial relationships
o Any new collaborative, licensing and other commercial
relationships that we may establish
<PAGE>
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:
o Additional leases for new facilities and capital equipment
o Additional licenses and collaborative agreements
o Additional contracts for consulting, maintenance and
administrative services
o Additional expenses associated with being a public company.
We believe that the cash, cash equivalents, short-term investment securities
balances at December 31, 1999 will be sufficient to meet our operating and
capital requirements through mid-year 2001. This estimate is based on
assumptions and estimates, which may prove to be wrong. As a result, we may need
or choose to obtain additional financing during 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 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. 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:
o Slow patient enrollment
o Longer treatment time required to demonstrate efficacy
o Lack of sufficient supplies of the drug candidate
o Adverse medical events or side effects in treated patients
o 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.
<PAGE>
The fast track designation for AldurazymeTM may not actually lead to a faster
review process.
Although AldurazymeTM has obtained a fast track designation, we cannot guarantee
a faster review process or faster approval compared to the normal FDA
procedures.
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 AldurazymeTM, our
facility has not yet been inspected by any 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 must pass FDA and state inspections and manufacture three process
qualification batches to final specifications under cGMP controls before the
AldurazymeTM BLA can be approved. We cannot assure you that we will pass the
inspections in a timely manner, if at all.
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 products 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 AldurazymeTM in September
1997. In February 1999, we received orphan drug designation from the FDA for
BM102. Even though we have obtained orphan drug designation for these drugs and
even if we obtain orphan drug designation for other products we develop, 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, AldurazymeTM 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.
<PAGE>
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 AldurazymeTM 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
AldurazymeTM 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.
We currently have no expertise obtaining reimbursement. We expect to rely on the
expertise of our partner Genzyme to obtain reimbursement for AldurazymeTM. 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 AldurazymeTM 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
AldurazymeTM 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:
o 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.
<PAGE>
o 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.
o 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.
o 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.
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:
o Defending a lawsuit takes significant time and can be very
expensive.
o If the court decides that our product infringes on the
competitor's patent, we may have to pay substantial damages for
past infringement.
o 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.
o 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 AldurazymeTM or our ability to commercialize AldurazymeTM 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,
AldurazymeTM. Because it is our initial product, our operations are
substantially dependent upon the development of AldurazymeTM. 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.
<PAGE>
We cannot guarantee that Genzyme will devote the resources necessary to
successfully market AldurazymeTM. 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 AldurazymeTM.
Furthermore, we may terminate the joint venture if Genzyme fails to fulfill its
contractual obligation to pay us $12.1million in cash upon the approval of the
biologics license application for AldurazymeTM.
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 AldurazymeTM and any related intellectual
property and regulatory approvals. For a more detailed analysis of the economics
of this buy out obligation see "Business--Corporate Collaborations--Joint
Venture with Genzyme Corporation."
If the joint venture is terminated by Genzyme for a breach on our part, Genzyme
would be granted, exclusively, all of the rights to AldurazymeTM 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 AldurazymeTM. 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 AldurazymeTM
exclusively. While we could then continue to develop AldurazymeTM, 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 AldurazymeTM 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 AldurazymeTM 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
AldurazymeTM, we would be obligated to buy Genzyme's interest in the joint
venture and would obtain all rights to AldurazymeTM 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 AldurazymeTM 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 AldurazymeTM.
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 AldurazymeTM, 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 AldurazymeTM 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 AldurazymeTM
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.
<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:
o Design, construction and qualification of manufacturing facilities
that meet regulatory requirements
o Production yields
o Purity
o Quality control and assurance
o Shortages of qualified personnel
o Compliance with FDA regulations
We are developing a total of 31,000 square feet at our Novato facility for the
manufacture of AldurazymeTM. The construction and qualification of this facility
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
o Improving the colonies of cells which have a common genetic
make-up, or cell lines,
o Improving the processes licensed from others, or
o 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 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.
<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(R) 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 have entered into a joint
venture with Genzyme. If we receive FDA approval to market AldurazymeTM, the
joint venture will be required to devote additional resources to support the
commercialization of AldurazymeTM.
To manage expansion effectively, we need to continue to develop and improve our
research and development capabilities, manufacturing and quality capacities,
sales and marketing capabilities and financial and administrative systems. 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 or otherwise harm our product development programs. Any harm
to our research and development programs would harm our business and prospects.
<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 pharmaceuticals. The BioMarin/Genzyme LLC
maintains product liability insurance for our clinical trials of AldurazymeTM.
Although we intend to obtain insurance against product liability lawsuits
shortly before initiating clinical trials for BM102 and for our other products,
we cannot be certain that we will be able to obtain adequate insurance coverage
at reasonable cost. In addition, we may be subject to claims in connection with
our current clinical trials for AldurazymeTM for which the joint venture's
insurance coverage is not adequate. We cannot be certain that if AldurazymeTM
receives FDA approval, the product liability insurance the joint venture will
need to obtain in connection with the commercial sales of AldurazymeTM will be
available in meaningful amounts or 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.
Our stock price may be volatile and an investment in our stock could suffer a
decline in value.
Our valuation and stock price since the IPO have had no meaningful relationship
to current or historical earnings, asset values, book value or many other
criteria based on historical value. The market price of the common stock will
fluctuate due to factors including:
o Progress of AldurazymeTM and our other lead drug products through
the regulatory process, especially AldurazymeTM regulatory actions
in the United States
o Results of clinical trials, announcements of technological
innovations or new products by us or our competitors
o Government regulatory action affecting our drug candidates or our
competitors' drug candidates in both the United States and foreign
countries
o Developments or disputes concerning patent or proprietary rights
o General market conditions for emerging growth and
biopharmaceutical companies
o Economic conditions in the United States or abroad
o Actual or anticipated fluctuations in our operating results
o Broad market fluctuations may cause the market price of our common
stock to fluctuate
o Changes in financial 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's SWX New Market. Because
we have accumulated relatively limited experience since July 23, 1999, in
observing the trading of our stock on the 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. Listing on both exchanges may increase stock price volatility due
to:
o Trading in different time zones
o Different ability to buy or sell our stock
o Different trading volume
<PAGE>
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 13.4% of the outstanding shares
of our common stock. Glyko Biomedical Ltd. or GBL owns 32.6% 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, may be able to otherwise
control our management and operations, and may be able to prevail on all matters
requiring a stockholder vote including:
o The election of all directors
o The amendment of charter documents or the approval of a merger,
sale of assets or other major corporate transactions
o 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 as currently in effect 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.
<PAGE>
Item 2. Description of Property None.
Item 3. Legal Proceedings None.
Item 4. Submission of Matters to a Vote of Security-Holders None.
PART II
Item 5. Market For Common Equity and Related Stockholder Matters
As of November 1993, the Company's stock has been listed on the OTC Bulletin
Board under the symbol "GLYK". The Company's Common Shares have been listed and
traded on The Toronto Stock Exchange (TSE) since December, 1992 under the symbol
"GBL." The following table sets forth the sales prices for the Common Shares for
the periods noted, as reported by TSE. Prices are the closing price on the TSE
during the periods indicated.
Prices
(In Canadian Dollars)*
Year Period High Low
1998 First Quarter $3.40 $1.20
1998 Second Quarter $4.30 $2.60
1998 Third Quarter $4.55 $3.05
1998 Fourth Quarter $6.75 $3.35
1999 First Quarter $7.05 $5.90
1999 Second Quarter $6.35 $5.60
1999 Third Quarter $7.95 $5.65
1999 Fourth Quarter $7.80 $4.40
*As of December 31, 1999, the Canadian dollar to U.S. dollar exchange rate was
$0.689026.
Holders
As of February 29, 2000, there were 141 holders of record of 33,999,341
outstanding Common Shares of the Company.
Certain Canadian Federal Income Tax Considerations
The following is a summary of the principal Canadian federal income tax
considerations generally applicable to a person (a "United States holder") who,
for the purposes of the Income Tax Act (Canada) (the "Canadian Tax Act") and the
Convention between Canada and the United States with respect to Taxes on Income
and Capital (the "Convention") and at all relevant times, is resident in the
United States and not resident in Canada, deals at arm's length with the
Company, holds Common Shares as capital property and does not use or hold and is
not deemed to use or hold the Common Shares in carrying on business in Canada.
Special rules, which are not discussed in this summary, may apply to a United
States holder that is an insurer that carries on an insurance business in Canada
and elsewhere.
This summary is based on the current provisions of the Convention and of the
Canadian Tax Act and the regulations thereunder, all specific proposals to amend
the Canadian Tax Act and the regulations announced by the Minister of Finance
(Canada) prior to the date hereof (the "Proposed Amendments") and the published
administrative practices of Revenue Canada, Taxation. This summary assumes the
Proposed Amendments will be enacted in the form currently proposed. This summary
does not take into account or anticipate any changes in the governing law, other
than the Proposed Amendments, whether by federal, governmental or legislative
decision or action, nor does it take into account the tax legislation or
considerations of any province, territory or foreign jurisdiction.
This summary is of a general nature only and is not, and should not be
interpreted as, legal or tax advice to any particular United States holder and
no representation is made with respect to the Canadian income tax consequences
to any particular person. Accordingly, United States holders are advised to
consult their own tax advisors with respect to their particular circumstances.
Under the Canadian Tax Act and pursuant to the Convention, Canadian withholding
tax will apply to dividends on Common Shares paid or deemed to be paid to a
United States holder at the rate of 15 percent of the gross amount of such
dividends, or, in the case of a United States holder that is a corporation which
owns at least 10 percent of the voting stock of the company, six percent of the
gross amount of such dividends paid in 1996 and five percent of the gross
dividends paid thereafter.
In general, a United States holder will not be subject to Canadian income tax on
capital gains arising on the disposition of Common Shares unless (i) at any time
in the five-year period immediately preceding the disposition, 25 percent or
more of the issued shares of any class or series of the Company belonged to the
United States holder, to persons with whom the United States holder did not deal
at arm's length, or to the United States holder and persons with whom he did not
deal at arm's length, and (ii) the value of the Common Shares at the time of the
disposition is derived principally from real property (as defined in the
Convention) situated in Canada.
A disposition of Common Shares to the Company (unless the Company acquires the
shares in the open market in the manner in which shares would normally be
purchased by any member of the public) will result in a deemed dividend to the
United States holder equal to the amount by which the consideration paid by the
Company to acquire the Common Shares exceeds the paid-up capital of such shares
for purposes of the Canadian Tax Act. The amount of such deemed dividend will be
subject to the withholding tax described above.
Dividend Policy
No cash dividends were paid on any class of GBL securities in the last two
years. The Company does not anticipate the payment of dividends in the
foreseeable future. At present, the Company's policy is to retain earnings, if
any, to finance the development of its business. The payment of dividends in the
future will depend upon, among other factors, the Company's earnings, capital
requirements and operating and financial condition.
Item 6. 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, ongoing liquidity of GBL 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 holding company that at
December 31, 1999 owned 32.6 percent of the capital stock of BioMarin
Pharmaceutical Inc. (BioMarin). BioMarin owns 100 percent 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 $14.5 million. 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. GBL
consolidated the operations of Glyko, Inc. through October 7, 1998. Subsequent
to October 7, 1998, the accounts of GBL are presented on a stand-alone basis. In
this year, 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 the Company using the equity method of accounting. Numerical
references in the following discussion are rounded to the nearest thousand.
While GBL was not obligated to provide this capital, on April 13, 1999, the
Company entered into a convertible note arrangement with BioMarin in the amount
of $4.3 million as part of a $26 million convertible note financing.
On July 23, 1999, BioMarin completed its initial public offering (IPO) of 4.5
million shares of common stock at $13 per share concurrent with a $10 million
private placement from Genzyme (769,230 shares of common stock). In addition,
the $26 million of convertible notes sold by BioMarin on April 13, 1999, plus
accrued interest, were converted into 2,672,020 shares of common stock at $10
per share. GBL's $4.3 million convertible note from BioMarin plus accrued
interest were converted into 441,911 shares of BioMarin common stock. The
exercise of the underwriters' over-allotment option in August 1999 raised
additional net proceeds of $8.1 million (675,000 shares of common stock).
The Company's net loss for the years ended 1999 and 1998 was $10 million and
$4.1 million, 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 1999 have been consolidated into
BioMarin's loss for that year. GBL expects to continue to incur losses during
2000 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. While BioMarin has an
accumulated deficit of $43.1 million at December 31, 1999 and is expected to
incur significant losses during 2000 and into 2001 at a minimum, management of
GBL does not believe that there has been any impairment of its investment in
BioMarin.
Results of Operations
Years Ended December 31, 1998 and 1999
The principal operations of GBL were the operations of Glyko, Inc. through
October 7, 1998. For the year ended December 31, 1998, the operations of Glyko
are only included for the nine month and seven day period from January 1, 1998
through October 7, 1998. For the period October 8, 1998 through December 31,
1998 and for the year ended December 31, 1999, the operations of Glyko, Inc. are
reflected in the accompanying financials statements through the Company's equity
in the loss of BioMarin.
There were no revenues for 1999 due to the sale of the Company's operating
entity, Glyko, Inc. Revenues for 1998 were $1.2 million and consisted of sales
of products of $750,000, sales of services of $115,000 and other revenues of
$295,000. 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 for 1999 due to the Company's sale of Glyko, Inc.
Costs of sales of products and services was 33 percent of revenues from sales of
products and services for 1998.
There were no research and development expenses for 1999 due to the Company's
sale of Glyko, Inc. Research and development expenses for 1998 were $680,000
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 $199,000 for 1999, a decrease of
$492,000 from the selling, general and administrative expense of $691,000
incurred in 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 1999 represented management fees billed by
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 1998 of $(165,880) represent 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 1999 was $10 million compared to $3.8 million for
1998, an increase of $6.2 million. The increase was due to the increased net
loss of BioMarin.
Interest income earned in 1999 and 1998 of $159,000 and $43,000, 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 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 1999 and 1998 was immaterial.
Liquidity and Capital Resources
The Company's cash position decreased by $2 million in 1999 to $575,000. Net
cash proceeds of $2.5 million relating to, primarily, the issuance of common
stock from the exercise of stock options and warrants, proceeds from a loan
repayment advanced from a stock option exercise and net cash used in operating
activities of $24,000 was offset by the convertible note purchased from BioMarin
of $4.3 million 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 $29.1
million and GBL expects to continue to incur losses during 2000 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 limited 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 for the foreseeable future. While
BioMarin has an accumulated deficit of $43.2 million at December 31, 1999 and is
expected to incur significant losses during 2000 and into 2001 at a minimum,
management of GBL does not believe that there has been any impairment of its
investment in BioMarin. See "Risk Factors - Dependence on Investment in
BioMarin," "-History of Operating Losses - Uncertainty of Future Profitability."
Item 7. Financial Statements
The information required to be filed in this item appears on pages ___ to ____
and is incorporated herein by reference.
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
Not applicable.
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons
Directors and Executive Officers
The directors and executive officers of the company are as follows:
Year
Joined
Name Age Position Company
R. William Anderson(1)(2) 58 Director 1990
John H. Craig 52 Secretary and Director 1992
John S. Glass 63 Director 1994
John C. Klock, M.D. (1) 55 President, Chief Executive Officer, 1990
Gwynn R. Williams(1)(2) 66 Director 1990
Mark I. Young 44 Assistant Secretary and Director 1997
(1) Member of Audit Committee
(2) Member of Compensation Committee
All directors hold office until the next annual meeting of stockholders or until
their successors are elected and qualified. Officers are appointed by the Board
of Directors and serve at the discretion of the Board. There are no family
relationships among the officers and directors of the Company.
Mr. R. William Anderson has served as a Director since 1992. Mr. Anderson has
served as Chief Financial Officer and Vice President, Finance and Administration
of BioMarin since June 1998. Mr. Anderson served as the Vice President, Finance
and Chief Financial Officer at Fusion Medical Technologies, Inc., a
biotechnology company in drug delivery systems, from 1997 to 1998, as the Vice
President, Finance and Chief Financial Officer at Fidus Medical Technology,
Inc., a medical technology company in cardiac arrhythmias, from 1996 to 1997, as
a Director of Recombinant Capital, a consulting firm, from 1994 to 1996, and as
the Vice President, Finance and Chief Financial Officer of Glycomed
Incorporated, a biotechnology company, from 1989 to 1994. Previously, Mr.
Anderson was the Chief Financial Officer at Chiron Corporation, a biotechnology
company and a Controller and Director of Financial Planning and Analysis at
Syntex Laboratories, a pharmaceutical company. Mr. Anderson received a B.S. in
Engineering from the United States Military Academy, an M.S. in Administration
from George Washington University and an M.B.A. from the Harvard Graduate School
of Business Administration.
Mr. John H. Craig has served as a Director and Secretary of the Corporation
since 1992 and has been a solicitor and partner with Cassels Brock and Blackwell
LLP and previously with Holden Day Wilson, Toronto law firms, since 1973. Mr.
Craig is a director of a number of public companies listed on the Toronto Stock
Exchange.
Mr. John S. Glass has served as a Director since August 1994 and is Vice
President and Chief Financial Officer of Milkhaus Laboratory, Inc., a clinical
stage biopharmaceutical company. In 1995 he was an independent consultant. From
1968 to 1994 he served in various capacities at Millipore Corporation, most
recently as Director of Investor Relations and Vice President of Millicorp, a
venture capital subsidiary. Previously Mr. Glass was a research and development
manager at Polaroid Corporation. Mr. Glass holds a Masters degree in management
from the Massachusetts Institute of Technology.
Dr. John C. Klock has served as a director, President and Chief Executive
Officer of the Company since December 1992 and has served as Chief Accounting
Officer since October 1996. Dr. Klock is a founder and has served as the
President of Glyko, Inc. from 1989 to present. Dr. Klock was a founder of
Glycomed Incorporated at which he served as Vice President, Medical Affairs from
1987 to 1990. Dr. Klock was a scientific director at the Institute of Cancer
Research at California Pacific Medical Center from 1981 to 1987. Dr. Klock was
formerly an academic physician and carbohydrate researcher at the University of
California at San Francisco from 1982 to 1986, a researcher at Murex Corporation
from 1984 to 1985. Dr. Klock received a B.S. in Zoology from Louisiana State
University, Baton Rouge and received an M.D. from Tulane University.
Mr. Gwynn R. Williams has served as a director since December 1992 and is a
founder of Glyko, Inc. (established in 1990). In 1984, Mr. Williams founded
AstroMed Limited and Astroscan Limited, UK manufacturers of scientific
equipment, which entities have since merged into Life Science Resources Ltd. Mr.
Williams was a partner in Arthur Andersen & Co. from 1971 to 1982. Previously,
Mr. Williams was a mathematician with General Motors Research from 1961 to 1970,
and with British Steel from 1958 to 1960. Mr. Williams also served as a director
of Life Science Resources, Ltd. from June 1986 to August 1998. Mr. Williams
received a B.S. in Theoretical Physics from the University of Wales in 1955.
Mr. Mark I. Young has served a Director of the Corporation since March 1997 and
has been the Assistant Secretary of the Corporation since 1992. Mr. Young is a
solicitor and partner with Cassels Brock and Blackwell LLP practicing in the
areas of corporate commercial and securities law. Mr. Young is an officer or
director of a number of public companies listed on The Toronto Stock Exchange.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company's officers and directors,
as well as persons who own ten percent or more of a registered class of the
Company's equity securities, to file with the SEC initial reports of ownership
and reports of changes in ownership of Common Stock and other equity securities
of the Company Officers, directors and ten percent or more stockholders are
required by SEC regulations to furnish the Company with copies of all Section
16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of such reports
furnished to the Company or written representations that no other reports were
required, during the fiscal year ended December 31, 1998, all officers,
directors, and ten percent stockholders complied with all Section 16(a) filing
requirements.
Item 10. Executive Compensation
Executive Compensation
The information required by this item is incorporated by reference from the
discussion in BioMarin's Proxy Statement captioned "Executive Compensation".
Option Grants in 1999
Pursuant to the Company's stock option plan (the Expiration Date "Plan"),
options under the Plan may be granted for any term up to ten years, are
non-assignable, and are subject to earlier termination upon the termination of
an optionee's employment for any cause including retirement, permanent
disability but not death. In the event of death of an optionee, his estate may
be entitled for a period of six months thereafter to exercise any option which a
deceased optionee would have been entitled to exercise if then alive but in any
event not after the date of expiration of the option. No individual may hold
options to purchase more than 5 percent of the number of Common Shares
outstanding from time to time.
Number of % of Total
Securities Options Exercise
Underlying Granted to Price
Options Employees in (Cdn.$/ Expiration
Name Granted (1) Fiancial Year Security) Date
- - ------------------------- ----------- ---------------- ------------ ------------
R. William Anderson 4,000 N/A 6.00 12/31/03
- - ------------------------- ----------- ---------------- ----------- -------------
John H. Craig 4,000 N/A 6.00 12/31/03
- - ------------------------- ---------------------------- ----------- -------------
John S. Glass 4,000 N/A 6.00 12/31/03
- - ------------------------- ----------- ---------------- ----------- -------------
John C. Klock 4,000 N/A 6.00 12/31/03
- - ------------------------- ----------- ---------------- ----------- -------------
Gwynn R. Williams 4,000 N/A 6.00 12/31/03
- - ------------------------- ----------- ---------------- ----------- -------------
Mark I. Young 4,000 N/A 6.00 12/31/03
========================= =========== ================ =========== =============
(1) Securities Under Options Granted refers to Common Shares.
Aggregate Option Exercises and Fiscal Year End Option Value Table
<PAGE>
<TABLE>
Number of Securities
Underlying Value of Unexercised
Unexercised Options at in-the-money Options at
December 31, 1999 December 31, 1999(1)
------------------------------------ ---------------------------------
Shares
Acquired Value
on Realized Exercisable Unexercisable
Name Exercise (Cdn.$) Exercisable Unexercisable (Cdn.$) (Cdn.$)
- - ---------------------------- ------------- -------------- --------------- ------------------- ------------------ -----------------
<S> <C> <C> <C> <C> <C> <C>
R. William Anderson 27,520 $26,320 67,000 -- $328,650 --
- - ---------------------------- ------------- -------------- --------------- ------------------- ------------------ -----------------
John H. Craig 27,520 $26,320 67,000 -- $328,650 --
- - ---------------------------- ------------- -------------- --------------- ------------------- ------------------ -----------------
John S. Glass 48,000 $37,200 43,000 -- $199,050 --
- - ---------------------------- ------------- -------------- --------------- ------------------- ------------------ -----------------
John C. Klock -- -- 4,000 -- -- --
- - ---------------------------- ------------- -------------- --------------- ------------------- ------------------ -----------------
Gwynn R. Williams 27,520 $26,320 67,000 -- $328,650 --
- - ---------------------------- ------------- -------------- --------------- ------------------- ------------------ -----------------
Mark I. Young -- -- 43,000 -- $199,050 --
- - ---------------------------- ------------- -------------- --------------- ------------------- ------------------ -----------------
============================ ============= ============== =============== =================== ================== =================
(1) Based on the closing price of Common Shares on the Toronto Stock Exchange on December 31, 1999 of Cdn.$6.00.
</TABLE>
Compensation Of Directors
On January 28, 1999, each director of the Company was granted an option to
purchase 4,000 common shares at an exercise price of Cdn.$6.00 (which options
expire on December 31, 2003) in lieu of monetary compensation for services
rendered in their capacity as directors.
Stock Option Plan
The Company has a stock option plan (the "Plan") under which options to purchase
Common Shares may be granted by the board of directors of GBL to directors,
officers, consultants and key employees of GBL. Options granted under the Plan
may either be "incentive stock options" under Section 422 of the United States
Internal Revenue Code, or non-statutory options. The Plan is administered by the
board of directors of GBL. Options granted under the Plan will have an exercise
price which will not be less than the market price, less any permissible
discounts, of the Common Shares on the date prior to the date of grant, which
market price is deemed to be the closing sales price, or the closing bid price
if no sales were reported, of the Common Shares on any established stock
exchange or national market system upon which the Common Shares are listed,
including The Toronto Stock Exchange, or, if listed upon more than one exchange
or system, the exchange or system with the greatest volume of trading in Common
Shares on the date prior to the date of grant, or, if there is no established
market for the Common Shares, the fair market value of the Common Shares as
determined by the board of directors. Options will be exercisable over a number
of years specified at the time of the grant which cannot exceed ten years. The
aggregate number of Common Shares subject to options granted under the Plan
cannot exceed three million Common Shares and no one optionee is entitled to
hold options exceeding five percent of the Common Shares outstanding at the time
of the grant. Also, the maximum number of shares which may be reserved for
issuance to insiders under the Plan shall not exceed 10 percent of common shares
outstanding at the time of the grant.
Incentive stock options granted under the Plan terminate within 90 days of the
termination of an optionee's employment. Non-statutory options granted under the
Plan terminate within a period of time following the termination of the
optionee's employment, consulting or officer or director relationship which is
determined by the board of directors. Options also terminate within 12 months of
the death or total and permanent disability of the optionee. Options granted
under the Plan are not transferable. As of February 29, 2000 320,000 options
(net of exercised options) had been approved by the board of directors.
Options will only be granted in compliance with applicable securities
legislation, and the Plan will be operated in conformity with the requirements
of any stock exchange upon which the Common Shares of the Company may become
listed.
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table lists certain information regarding beneficial ownership of
the GBL's Common Shares as of February 29, 2000, by (i) those persons who own
more than 5 percent of the Company's common stock, (ii) the Company's Chief
Executive Officer, (iii) each of the Company's directors, and (iv) the total
amount of Common Shares held by the Company's officers and directors as a group.
<TABLE>
Name and Address of Number of Shares Held Percent of Class
Title of Class Beneficial Owner
- - ------------------------------ ---------------------------------- ---------------------- -----------------------
<S> <C> <C> <C>
Common Shares LaMont Asset Management 3,739,069 11.0%
Baarerstrasse 10
P.O. box 4639
6304 Zug, Switzerland
- - ------------------------------ ---------------------------------- ---------------------- -----------------------
Common Shares New York Life Insurance 3,686,900 10.8%
- - ------------------------------ ---------------------------------- ---------------------- -----------------------
Common Shares Gwynn R. Williams 2,981,488 (1) 8.7%
- - ------------------------------ ---------------------------------- ---------------------- -----------------------
Common Shares John C. Klock 632,317 (2) 1.9%
- - ------------------------------ ---------------------------------- ---------------------- -----------------------
Common Shares John H. Craig 45,501 (3) *
- - ------------------------------ ---------------------------------- ---------------------- -----------------------
Common Shares R. William Anderson 69,500 (4) *
c/o BioMarin Pharmaceutical
371 Bel Marin Keys Blvd. #210
Novato, CA 94949
- - ------------------------------ ---------------------------------- ---------------------- -----------------------
Common Shares John S. Glass 152,500 (5) *
Milkhaus Laboratory, Inc.
48 Main Street
Boxford, MA 01921
- - ------------------------------ ---------------------------------- ---------------------- -----------------------
Common Shares Mark I. Young 8,500 (6) *
- - ------------------------------ ---------------------------------- ---------------------- -----------------------
Common Shares All Officers and Directors 3,889,806 (7) 11.3%
============================== ================================== ====================== =======================
* Less than 1%
(1) Includes 69,500 Common Shares issuable upon exercise of options within 60 days of February 29, 2000.
(2) Includes 6,500 Common Shares issuable upon exercise of options within 60 days of February 29, 2000.
(3) Includes 45,500 Common Shares issuable upon exercise of options within 60 days of February 29, 2000.
(4) Includes 69,500 Common Shares issuable upon exercise of options within 60 days of February 29, 2000.
(5) Includes 45,500 Common Shares issuable upon exercise of options within 60 days of February 29, 2000.
(6) Includes 8,500 Common Shares issuable upon exercise of options within 60 days of February 29, 2000.
(7) Includes 245,000 Common Shares issuable upon exercise of options within 60 days of February 29, 2000.
</TABLE>
Item 12. Certain Relationships and Related Transactions
On March 21, 1997, the Company closed a Cdn.$2.0 million financing (the Q197
Financing) to fund the start-up of BioMarin Pharmaceutical Inc. which was formed
to develop the Company's pharmaceutical products. As a result of this financing,
the Company issued 4.0 million units at Cdn.$0.50 per unit, each unit consisting
of one common share and one common share purchase warrant. Each warrant can be
exercised for one share of common stock at Cdn.$1.00 per share, expiring on
March 21, 1999. An additional 280,000 units and 280,000 warrants together valued
at approximately $161,000 were distributed to the brokers in exchange for
services rendered in connection with the Q197 Financing. The Company utilized
the Black-Scholes model to value all the warrants issued in the Q197 Financing
at approximately $496,000.
BioMarin and the Company entered into a License Agreement dated June 26, 1997,
pursuant to which the Company granted BioMarin an exclusive, worldwide,
perpetual, irrevocable, royalty-free right and license to all current and future
worldwide patents, trade secrets, copyrights and other proprietary rights to all
know-how, processes, formulae, concepts, data and other such intellectual
property, whether patented or not, owned or licensed by the Company and its
subsidiaries as of the date of the License Agreement. Under the same License
Agreement, BioMarin granted the Company a cross-license, similar in scope, to
all improvements BioMarin may make upon the licensed intellectual property. As
consideration for this license, BioMarin issued the Company 7 million shares of
BioMarin common stock.
In June 1997, the Company granted options to purchase 23,000 shares of the
Company's common stock to Mr. Anderson, Mr. Craig, Mr. Glass, Mr. Williams and
Mr. Young for their services as directors, granted options to purchase 64,740
shares of the Company's common stock to Dr. John Klock as an incentive bonus and
granted options to purchase 40,350 shares of the Company's common stock to Dr.
Starr as an incentive bonus. Each option was exercisable at Cdn.$0.65 per share.
In January 1998, the Company granted options to purchase 16,000 shares of the
Company's common stock to Mr. Anderson, Mr. Craig, Mr. Glass, Mr. Williams and
Mr. Young for their services as directors, granted options to purchase 11,290
shares of the Company's common stock to Dr. John Klock as an incentive bonus and
granted options to purchase 6,920 shares of the Company's common stock to Dr.
Chris Starr as an incentive bonus. Each option was exercisable at Cdn.$1.25 per
share.
In May 1998, the Company granted options to purchase 150,000 shares of the
Company's common stock at an exercise price of Cdn.$3.45 per share to Dr. Brian
Brandley as consideration for his acceptance of his employment with Glyko, Inc.
As previously discussed, BioMarin assumed Glyko, Inc.'s employee stock options
(previously exercisable for shares of GBL stock) exercisable for 255,540 shares
of BioMarin common stock as part of the sale of Glyko, Inc. to BioMarin.
Prior to the sale of Glyko, Inc. to BioMarin, the Company subleased office and
lab space, certain administrative and research and development functions to
BioMarin. BioMarin reimbursed the Company for rent, salaries and related
benefits and other administrative costs and the Company reimburses BioMarin for
salaries and related benefits. BioMarin reimbursed the Company a net $183,000 in
1998 and a net $241,000 in 1997. Subsequent to the sale of Glyko, Inc., BioMarin
moved its corporate headquarters and laboratory to other buildings in Novato and
no longer subleases from the Company. The Company also provided analytical
services and products to BioMarin at a 27 percent discount in 1998 and 1997.
Total receipts to the Company from sales to BioMarin totaled $113,000 in 1998
and $39,000 in 1997. Glyko, Inc. continues to reimburse BioMarin for salaries
and other shared expenses and continues to provide analytical services and
products to BioMarin.
On October 7, 1998, GBL sold 100 percent of the outstanding capital stock of
Glyko, Inc. to BioMarin. As consideration for such sale, BioMarin issued
2,259,039 shares of common stock of BioMarin to GBL, agreed to assume options to
purchase up to 585,969 shares of the GBL's common stock which options were
previously issued to employees of Glyko, Inc. (such "assumption" meaning the
transfer of the security underlying such options to be BioMarin common stock)
and paid GBL $500 in cash. The shares of BioMarin common stock were valued at
$6.00 per share, yielding a total value of $13,554,234, and the options assumed
were valued using the Black-Scholes pricing model at $945,766, which, when
combined with the $500 in cash, resulted in total consideration of $14,500,500.
Dr. John Klock, the President and a director of the Company, is also the
President and a director of BioMarin. In June 1997, Dr. Klock was sold 800,000
shares of BioMarin's common stock for a purchase price of $800,000, paid for
with a full recourse note, secured by the underlying stock, due on September 30,
2000. Mr. Gwynn Williams, who is a director of the Company and also a major
stockholder of GBL, is also a director of BioMarin, and in such capacity was
previously granted an option to purchase 20,000 shares of BioMarin's common
stock at an exercise price of $1.00 per share. Mr. Raymond W. Anderson, a
director of the Company, is also an officer of BioMarin and on June 22, 1998,
was granted an option to purchase 200,000 shares of BioMarin's common stock at
an exercise price of $4.00 per share.
In November 1998, GBL loaned $712,261 to Dr. John Klock to exercise expiring
stock options. The loan is secured by the underlying stock and is with full
recourse.
In January 1999, the Company granted options to purchase 4,000 shares of the
Company's common stock to Mr. Anderson, Mr. Craig, Mr. Glass, Dr. Klock, Mr.
Williams and Mr. Young for their services as directors at an exercise price
Cdn.$6.00 per share.
While GBL was not obligated to provide this capital, on April 13, 1999, the
Company entered into a convertible note arrangement with BioMarin in the amount
of $4.3 million, as part of a $26 million convertible note financing.
BioMarin completed its initial public offering (IPO) of 4.5 million shares of
common stock at $13 per share on July 23, 1999, raising net proceeds of
approximately $51.8 million. In a private placement concurrent with the IPO,
Genzyme invested in BioMarin $10 million at the IPO price (769,230 shares of
common stock). In addition, the $26 million of convertible notes sold by
BioMarin on April 13, 1999, plus accrued interest, were converted into 2,672,020
shares of common stock at $10 per share. GBL's $4.3 million convertible note
from BioMarin plus accrued interest were converted into 441,911 share of
BioMarin common stock. The exercise of the underwriters' over-allotment option
in August 1999 raised additional net proceeds of $8.1 million at the IPO price
(675,000 shares of common stock). As a result of the IPO, concurrent with the
conversion of the note from GBL , GBL's ownership of BioMarin's outstanding
common stock on December 31, 1999, was 32.6 percent.
<PAGE>
Item 13. Exhibits, List and Reports on Form 8-K
(a) Documents are filed as exhibits to this report as enumerated in the
Index to Exhibits hereto, Part III Item I.
(b) Reports on Form 8-K
No reports were filed on Form 8-K during the quarter ended December 31, 1999.
<PAGE>
Part III
Item 1. Index to Exhibits
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-QSB dated March 31, 1999).
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-QSB dated June 30, 1994 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 dated 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
separtately 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 refernce).
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
page34).
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: March 30, 2000 By: \s\ John C. Klock, M.D.
- - --------------------------------- -----------------------------------
John C. Klock, M.D.
President , Chief Accounting Officer,
Director and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints John C. Klock, his attorney-in-fact, with the power of
substitution, for him in any and all capacities, to sign any amendments to the
Report on Form 10-KSB and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
Signature Title Date
\s\ John C. Klock, M.D. March 30, 2000
- - ------------------------- -------------------
John C. Klock, M.D. President, Chief Executive Officer, Director
and Chief Accounting Officer
\s\ R. William Anderson March 30, 2000
- - -------------------------- -------------------
R. William Anderson Director
\s\ John S. Craig March 30, 2000
- - -------------------------- -------------------
John H. Craig Secretary and Director
\s\ John S. Glass March 30, 2000
- - --------------------------- -------------------
John S. Glass Director
\s\ Gwynn R. Williams March 30, 2000
- - --------------------------- -------------------
Gwynn R. Williams Director
\s\ Mark I. Young March 30, 2000
- - --------------------------- -------------------
Mark I Young Assistant Secretary and Director
<PAGE>
Index to Financial Statements
Glyko Biomedical Ltd.'s Consolidated Financial Statements
Report of Independent Public Accountants 33
Consolidated Balance Sheets 34
Consolidated Statements of Operations 35
Consolidated Statements of Stockholders' Equity 36
Consolidated Statements of Cash 37
Notes to Consolidated Financial Statements 38
BioMarin Pharmaceutical, Inc.'s Consolidated Financial Statements
Report of Independent Public Accountants 43
Consolidated Balance Sheets 44
Consolidated Statements of Operations 45
Consolidated Statements of Stockholders' Equity 46-48
Consolidated Statements of Cash 49
Notes to Consolidated Financial Statements 50
<PAGE>
Report of Independent Public Accountants
To the Stockholders of Glyko Biomedical Ltd.:
We have audited the accompanying consolidated balance sheets of Glyko Biomedical
Ltd. and subsidiaries (the Company) as of December 31, 1999 and 1998 and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Glyko Biomedical Ltd. and
subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States.
/s/ ARTHUR ANDERSEN LLP
San Francisco, California,
February 18, 2000
<PAGE>
Glyko Biomedical Ltd.
Consolidated Balance Sheets as of December 31, 1999 and 1998
(In U.S. dollars)
December 31,
--------------------------------
1999 1998
--------------------------------
Assets
Current assets:
Cash and cash equivalents $ 574,648 $ 2,567,824
Note receivable -- 100,000
----------- -------------
Total current assets 574,648 2,667,824
Investment in BioMarin Pharmaceutical Inc. 28,908,447 7,674,729
------------ -------------
Total assets $ 29,483,095 $ 10,342,553
============= =============
Liabilities and Stockholders' Equity
Current liabilities:
Accrued liabilities $ 365,569 $ 411,109
------------- -------------
Total current liabilities 365,569 411,109
Stockholders' equity:
Common stock, no par value, unlimited
sharesauthorized, 31,835,322 and
28,020,234 shares issued and outstanding
at December 31, 1999 and December 31,
1998, respectively 20,772,469 17,963,167
Additional paid in capital 38,064,481 11,222,691
Common stock warrants and options 146,472 547,285
Note receivable from stockholder (746,637) (721,971)
Accumulated deficit (29,119,259) (19,079,728)
-------------- -------------
Total stockholders' equity 29,117,526 9,931,444
-------------- -------------
Total liabilities and stockholders' equity $ 29,483,095 $ 10,342,553
============== =============
The accompanying financial statements are an integral part of these statements.
<PAGE>
Glyko Biomedical Ltd.
Consolidated Statements of Operations for the Years Ended
December 31, 1999 and 1998
(In U.S. dollars)
December 31,
-----------------------------
1999 1998
-----------------------------
Revenues:
Sales of products $ - $ 750,145
Sales of services - 115,019
Other revenues - 294,752
-----------------------------
Total revenues:
- 1,159,916
Expenses:
Cost of products - 231,423
Cost of services - 53,437
Research and development - 679,783
Selling, general and administrative 199,302 690,650
Other - (165,880)
-----------------------------
Total expenses: 199,302 1,489,713
-----------------------------
Loss from operations (199,302) (329,797)
Equity in loss of BioMarin Pharmaceutical Inc. (9,999,581) (3,803,058)
Interest income 159,352 42,822
-----------------------------
Net loss $(10,039,531) $(4,090,033)
=============================
Net loss per common share, basic and diluted $ (0.32) $ (0.17)
=============================
Weighted average number of shares
used in computing per share amounts 31,065,575 23,873,798
=============================
The accompanying financial statements are an integral part of these statements.
<PAGE>
<TABLE>
Glyko Biomedical Ltd.
Consolidated Statement of Stockholders' Equity for the Year Ended December 31, 1999
(In U.S. dollars)
Note
Common Stock Common Receivable Total
--------------------------- Additional Stock From Accumulated Stockholders'
Shares Amount Paid In Capital Warrants Stockholder Deficit Equity
--------------------------- ---------------- -------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 28,020,234 $17,963,167 $11,222,691 $547,285 $(721,971) $(19,079,728) $ 9,931,444
Net loss for the year - - - - - (10,039,531) (10,039,531)
Exercise of stock options 280,560 161,633 - - - - 161,633
Exercise of stock warrants 3,534,528 2,647,669 - (397,879) - - 2,249,790
Reclassification of interest on note - - 27,600 (27,600) -
receivable from stockholder
Additional paid in capital from
the sale of common stock by
BioMarin Pharmaceutical, Inc. - - 26,814,190 26,814,190
------------- ----------- ----------- -------- ---------- ------------ -----------
Balance at December 31, 1999 31,835,322 $20,772,469 $38,064,481 $149,406 $(749,571) $(29,119,259) $29,117,526
============= =========== =========== ======== ========== ============= ===========
The accompanying financial statements are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
Glyko Biomedical Ltd.
Consolidated Statements of Cash Flows for the Years Ended December 31, 1999 and 1998
(In U.S. dollars)
December 31,
-------------------------------------
1999 1998
-------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (10,039,531) $(4,090,033)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization - -
Equity in the loss of BioMarin Pharmaceutical Inc. 9,999,581 3,803,058
Amortization of deferred compensation - 33,364
Change in assets and liabilities:
Other assets - (9,710)
Accrued liabilities 15,461 27,556
-------------------------------------
Total adjustments 10,015,042 3,854,268
-------------------------------------
Net cash used in operating activities (24,489) (235,765)
Cash flows from investing activities:
Investment in BioMarin Pharmaceutical Inc. (4,419,110) (1,000,002)
Deconsolidation of Glyko, Inc. assets - (267,347)
Settlements of amounts due from Glyko, Inc. - 1,212,278
-------------------------------------
Net cash used in investing activities (4,419,110) (55,071)
Cash flows from financing activities:
Notes receivable issued for the exercise of stock options - (100,000)
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 2,350,423 2,359,640
Repayment of note receivable 100,000 -
-------------------------------------
Net cash provided by financing activities 2,450,423 2,330,380
-------------------------------------
Net increase (decrease) in cash (1,993,176) 2,039,544
Cash and cash equivalents, beginning of period 2,567,824 528,280
-------------------------------------
$ 574,648 $2,567,824
Cash and cash equivalents, end of period
=====================================
Supplemental disclosure of non-cash financing activities:
Note receivable issued for the exercise of stock options $ - $ 712,261
The accompanying financial statements are an integral part of these statements.
</TABLE>
<PAGE>
GLYKO BIOMEDICAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The Company and Description of the Business
Glyko Biomedical Ltd. (the Company or GBL) is a Canadian company which was
established in 1992 to acquire all of the outstanding capital stock of Glyko,
Inc., a Delaware corporation. The Company was incorporated for the sole purpose
of acquiring Glyko, Inc. 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 engaged in research and development 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 formed 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 (inception) and subsequently
issued 1.5 million shares of common stock to GBL for $1.5 million. As
consideration for a certain license agreement dated June 1997, BioMarin issued
GBL 7 million shares of BioMarin common stock. Beginning in October 1997,
BioMarin raised capital from third parties. 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 percent interest in the income or loss of
the joint venture, BioMarin/Genzyme, LLC.
On October 7, 1998, GBL sold to BioMarin 100 percent of the outstanding capital
stock of Glyko, Inc. in exchange for 2,259,039 shares of BioMarin's common
stock. In addition, 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 BioMarin paid
$500 in cash.
While GBL was not obligated to provide this capital, on April 13, 1999, the
Company entered into a convertible note arrangement with BioMarin in the amount
of $4.3 million, as part of a $26 million convertible note financing.
BioMarin completed its initial public offering (IPO) of 4.5 million shares of
common stock at $13 per share on July 23, 1999, raising net proceeds of
approximately $51.8 million. In a private placement concurrent with the IPO,
Genzyme invested in BioMarin $10 million at the IPO price (769,230 shares of
common stock). In addition, the $26 million of convertible notes sold by
BioMarin on April 13, 1999, plus accrued interest, were converted into 2,672,020
shares of common stock at $10 per share. GBL's $4.3 million convertible note
from BioMarin plus accrued interest were converted into 441,911 share of
BioMarin common stock. The exercise of the underwriters' over-allotment option
in August 1999 raised additional net proceeds of $8.1 million at the IPO price
(675,000 shares of common stock). As a result of the IPO, concurrent with the
conversion of the note from GBL, GBL's ownership of BioMarin's outstanding
common stock on December 31, 1999, was 32.6 percent.
Since its inception, GBL has incurred a cumulative deficit of $29.1 million and
the Company expects to continue to incur losses during 2000 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 limited 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 for the foreseeable future. While
BioMarin has an accumulated deficit of $43.2 million at December 31, 1999 and is
expected to incur significant losses during 2000 and into 2001 at a minimum,
management of GBL does not believe that there has been any impairment of its
investment in BioMarin.
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. The consolidated financial statements include the accounts
and operations of the Company and Glyko, Inc for the period from January 1, 1998
through October 7, 1998, the date of the sale of Glyko, Inc. The results of
operations of BioMarin have been reported in the Company's financial statements
for the years ended December 31, 1999 and 1998, based on the equity method of
accounting. Subsequent to October 7, 1998, the results of operations of Glyko,
Inc. have been consolidated into the results of operations of BioMarin.
All significant intercompany accounts and transactions have been eliminated.
Certain balances in the prior years have been reclassified to conform with the
current year presentation.
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. 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. acquired. However, as GBL exchanged one
investment for another, it 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 acquisition of Glyko, Inc.
During the period from October 7, 1998, the date of acquisition of Glyko, Inc.,
to December 31, 1998, BioMarin recorded a charge to operations of $2.6 million
in connection with the write-off of in-process technology acquired in the
purchase of Glyko, Inc. For the period October 7, 1998 to December 31, 1998 and
for the year ended December 31, 1999, BioMarin recoded a charge to operations
for the amortization of goodwill and other intangible assets of $271,274 and
$1.1 million, respectively. In recording its share of BioMarin's loss for this
period, GBL reduced this loss for its share of the write-off of in-process
technology and the amortization of goodwill and other intangible assets.
In addition, to the extent that the issuance of stock by BioMarin to third
parties results in an increase in or decrease in the Company's ownership of the
net assets of BioMarin, the Company reflects this increase or decrease as
paid-in capital as reflected in the consolidated statements of stockholders'
equity and an increase or decrease in its investment in BioMarin.
Foreign Exchange:
As all of the Company's operations were located in the United States, the
Company has adopted the U.S. dollar as its functional currency. In
accordance with Statement of Financial Accounting Standard No. 52, "Foreign
Currency Translation", assets and liabilities denominated in foreign currency,
except for intercompany accounts that are considered permanent in nature, are
translated into U.S. dollars at the current rate of exchange existing at year
end and revenues and expenses are translated at the average monthly exchange
rates. Transaction gains and losses included in the consolidated statements of
operations are not material.
Net Loss per Share:
Potentially dilutive securities outstanding at December 31, 1999 and 1998,
respectively, include options for the purchase of 291,000 and 548,290 shares
of common stock and warrants for the purchase of 2.2 million and 5.8 million
shares of common stock. These securities were not considered in the computation
of dilutive loss per share because their effect would be anti-dilutive for the
years ended December 31, 1999 and 1998.
New Accounting Standards
During the year ended December 31, 1999, the Company adopted SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information". The
Company concluded that it has only one operating segment. 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.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements." SAB
101 provides guidance on applying generally accepted accounting principles to
revenue recognition issues in financial statements. The Company will adopt SAB
101 as required in the first quarter of 2000 and such adoption is not expected
to have a material effect on the Company's results of operations and financial
position
4. Income Taxes
In connection with the sale of Glyko, Inc., the U.S. federal and
state net tax operating loss carryforwards and the related valuation allowances
were consolidated into the financial statements of BioMarin. At December 31,
1999, the Company has net operating loss carryforwards for Canadian income tax
purposes of approximately $1.5 million, which expire beginning in 2000.
5. Note Receivable
As part of its compensation for certain services, GBL issued stock options to a
consulting group. GBL loaned $100,000 to the consulting group in anticipation
that the Toronto Stock Exchange would approve the stock options. The excess of
the fair market value of the GBL stock at December 31, 1998 over the exercise
price of the options significantly exceeded the amount of the loan. The options
were held as security for the loan. This note was repaid in full in 1999. In
November 1998, 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 6. Stockholders' Equity On March 21, 1997, the Company closed a Cdn.$2.0
million (USD$1.4 million) financing (the Q197 Financing) to fund the start-up of
BioMarin Pharmaceutical Inc. which was formed to develop the Company's
pharmaceutical products. As a result of this financing, the Company issued 4.0
million units at Cdn.$0.50 per unit, each unit consisting of one common share
and one common share purchase warrant. Each warrant can be exercised for one
share of common stock at Cdn.$1.00 per share, expiring on March 21, 1999. An
additional 280,000 units and 280,000 warrants valued at approximately $161,000
were distributed to the brokers in exchange for services rendered in connection
with the Q197 Financing. The Company utilized the Black-Scholes model to value
all the warrants issued in the Q197 Financing at approximately $496,000. The
Company used the proceeds of the offering and additional cash to purchase 1.5
million common shares of BioMarin for $1.5 million.
BioMarin and the Company have entered into a License Agreement dated June 26,
1997, pursuant to which the Company granted BioMarin an exclusive, worldwide,
perpetual, irrevocable, royalty-free right and license to all current and future
worldwide patents, trade secrets, copyrights and other proprietary rights to all
know-how, processes, formulae, concepts, data and other such intellectual
property, whether patented or not, owned or licensed by the Company and its
subsidiaries as of the date of the License Agreement. As consideration for this
license, BioMarin issued the Company 7 million shares of BioMarin common stock.
Under the same License Agreement, BioMarin granted the Company a cross-license,
similar in scope, to all improvements BioMarin may make upon the licensed
intellectual property.
On October 7, 1998, GBL sold to BioMarin 100 percent of the outstanding capital
stock of Glyko, Inc. in exchange for 2,259,039 shares of BioMarin's common stock
plus 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 BioMarin paid $500 in cash. While
GBL is not obligated to provide this capital, on April 13, 1999, the Company
entered into a convertible note arrangement with BioMarin in the amount of $4.3
million, as part of a $26 million convertible note financing. BioMarin completed
its initial public offering (IPO) of 4.5 million shares of common stock at $13
per share on July 23, 1999, raising net proceeds of approximately $51.8 million.
In a private placement concurrent with the IPO, Genzyme invested in BioMarin $10
million at the IPO price (769,230 shares of common stock). In addition, the $26
million of convertible notes sold by BioMarin on April 13, 1999, plus accrued
interest, were converted into 2,672,020 shares of common stock at $10 per share.
GBL's $4.3 million convertible note from BioMarin plus accrued interest were
converted into 441,911 shares of BioMarin common stock. The exercise of the
underwriters' over-allotment option in August 1999 raised additional net
proceeds of $8.1 million at the IPO price (675,000 shares of common stock). As a
result of the IPO, concurrent with the conversion of the note from GBL , GBL's
ownership of BioMarin's outstanding common stock on December 31, 1999, was 32.6
percent.
The exercise of BioMarin options or warrants will result in a further 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 consolidated balance sheet.
At December 31, 1999 and 1998, the Company recorded an increase to its
additional paid in capital by $26.8 million and $7.2 million, respectively, as a
result of the sale of common stock by BioMarin.
7. Stock Option Plan
The Company has a stock option plan (the Plan) under which options to purchase
common stock may be granted by the Board of Directors to directors, officers,
consultants and key employees at not less than fair market value, less any
permissible discounts, on the date of grant. Options granted under the Plan may
be incentive stock options (as defined under Section 422 of the U.S. Internal
Revenue Code) or non-statutory stock options. Options are exercisable over a
number of years specified 1999 1998 at the time of the grant which cannot exceed
ten years. The maximum aggregate number of shares which may be granted and sold
under the Plan is 3 million shares.
The Company accounts for the Plan under APB Opinion No. 25, under which no
compensation cost has been recognized, except for options granted to
consultants, because, under the Option Plan, the option exercise price equals
the market value of stock on the date of grant. In general, the Plan options
vest over 48 months and all options expire after 5 years or 90 days after
employee termination.
Had compensation cost for the Plan been determined consistent with FASB
Statement No. 123, the Company's net loss would have been increased to the
following pro forma amounts:
1999 1998
------------ ------------
Net loss As reported $(10,039,531) $(4,090,033)
Pro forma $(10,324,435) $(4,283,405)
Net loss per As reported $ (0.32) $ (0.17)
Pro forma $ (0.33) $ (0.18)
Because the Statement 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years.
A summary of the status of the Company stock option plan at December 31, 1999
and 1998 and changes during the years then ended is presented in the table and
narrative below:
<TABLE>
1999 1998
Shares Wtd avg ex Shares Wtd avg ex
price (1) price (1)
---------------- ---------------- ---------------- --------------
<S> <C> <C> <C> <C>
Outstanding beginning
of year 548,290 Cdn.$0.85 2,424,402 Cdn. $1.22
Granted 24,000 Cdn.$6.00 314,550 Cdn. $2.40
Exercised (280,560) Cdn.$1.14 (1,467,516) Cdn. $1.52
Assumed (2) -- -- (585,969) Cdn. $1.51
Canceled (730) Cdn.$1.14 (137,177) Cdn. $1.38
---------------- ----------------
Outstanding at end of
year 291,000 Cdn.$1.24 548,290 Cdn. $0.85
---------------- ----------------
Exercisable at end of year 291,000 548,290
Weighted average fair
value of options granted Cdn.$2.24 Cdn $1.29
(1) The US$ equivalent of Canadian $1.00 at December 31, 1999 was approximately $0.689026.
(2) In connection with the sale of Glyko, Inc. to BioMarin, effective October 7, 1998, BioMarin agreed to assume 585,969
options to purchase common stock of GBL (exercisable into 255,540 shares of common stock of BioMarin.
</TABLE>
<PAGE>
There are 2,089,126 options available for grant under the plan at December 31,
1999. The average remaining contractual life of the options outstanding at
December 31, 1999 is 1 year.
The fair value of each option granted is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1999 and 1998, respectively: risk-free weighted
average interest rates of 4.6 and 5.4 percent; expected dividend yield of zero
percent; expected life of 4 years for the Plans' options; expected volatility of
26 and 65 percent.
8. 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 in 1999 and a net $183,000 in 1998. The Company also provided analytical
services and products to BioMarin at changing discounts, which approximated
market conditions. Total receipts to the Company from sales to BioMarin totaled
$0 in 1999 and $113,000 in 1998.
Since October 8, 1998, GBL has agreed to pay BioMarin a monthly management fee
for its services to GBL primarily relating to management, accounting, finance
and government reporting. GBL had accrued payables to BioMarin relating to these
services of $27,152 and $37,500 for the years ended December 31, 1998 and 1999,
respectively.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
BioMarin Pharmaceutical Inc.:
We have audited the accompanying consolidated balance sheets of BioMarin
Pharmaceutical Inc. (a Delaware corporation in the development stage) and
subsidiaries as of December 31, 1997, 1998, and 1999 and the related
consolidated statements of operations, changes in stockholders' equity, and cash
flows for the period from March 21, 1997 (inception) to December 31, 1997, the
years ended December 31, 1998 and 1999 and the period from March 21, 1997
(inception) to December 31, 1999. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
BioMarin Pharmaceutical Inc. and subsidiaries as of December 31, 1997, 1998, and
1999 and the results of its operations and its cash flows for the period from
March 21, 1997 (inception) to December 31, 1997, the years ended December 31,
1998 and 1999 and the period from March 21, 1997 (inception) to December 31,
1999, in conformity with accounting principles generally accepted in the United
States.
/s/ ARTHUR ANDERSEN LLP
San Francisco, California,
February 18, 2000
<PAGE>
<TABLE>
BioMarin Pharmaceutical Inc. and Subsidiaries
(a development-stage company)
Consolidated Balance Sheets as of December 31, 1998 and 1999
(In thousands, except for share and per share data)
-----------------------------------
-----------------------------------
1998 1999
---------------- ---------------
<S> ---------------- ---------------
Assets <C> <C>
Curret assets:
Cash and cash equivalents $ 9,413 $ 23,413
Short-term investments 1,976 39,573
Accounts receivable, net 148 1,047
Due from Glyko Biomedical Ltd. 114 139
Due from BioMarin/Genzyme LLC 419 1,280
Inventories 72 676
Prepaid expenses 677 294
---------------- ---------------
Total current assets 12,819 66,422
Property and equipment, net 6,223 25,093
Goodwill and other intangible assets 11,704 11,462
Investment inBioMarin/Genzyme LLC 685 421
Deposits 79 151
---------------- ---------------
Total assets $ 31,510 $ 103,549
================ ===============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 1,341 $ 3,095
Accrued liabilities 640 1,966
Notes payable short-term 24 26
---------------- ---------------
Total current liabilities 2,005 5,087
Long-term liabilities:
Long term portion of notes 111 85
---------------- ---------------
Total liabilities 2,116 5,172
---------------- ---------------
Stockholders' equity:
Common stock, $0.001 par value: 75,000,000 shares
authorized, 26,176,180 and 34,832,578
shares issued and outstanding at December 31,
1998 and 1999, respectively 26 35
Additional paid-in capital 50,058 146,592
Warrants 128 128
Deferred compensation (3,253) (2,591)
Notes receivable from stockholders (2,488) (2,638)
Deficit accumulated during the development stage (15,077) (43,149)
---------------- ---------------
Total stockholders' equity 29,394 98,377
---------------- ---------------
Total liabilities and stockholders' equity $ 31,510 $ 103,549
================ ===============
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
BioMarin Pharmaceutical Inc. and Subsidiaries
(a development-stage company)
Consolidated Statements of Operations for
the Period from March 21, 1997 (inception) to December 31,
1997, the Years Ended December 31, 1998 and 1999
and for the Period from March 21, 1997 (inception) to December 31, 1999
(In thousands, except for per share data)
Period from Period from
March 21, 1997 March 21, 1997
(inception) to (inception) to
December 31, Year Ended December 31, December 31,
1997 1998 1999 1999
<S> ------------- ------------- ------------- -------------
Revenues <C> <C> <C> <C>
Product sales $ - $ 138 $ 1,401 $ 1,539
Service revenue - 112 85 197
BioMarin/Genzyme LLC - 837 5,300 6,137
Other revenues - 103 190 293
------------- ------------- ------------- -------------
Total revenues - 1,190 6,976 8,166
Operating costs and expenses:
Cost of products - 49 362 411
Cost of services - 59 102 161
Research and development 1,914 10,502 27,206 39,622
Selling, general and administrative 914 3,532 6,805 11,251
------------- ------------- ------------- -------------
Total operating costs and expenses 2,828 14,142 34,475 51,445
------------- ------------- ------------- -------------
Loss from operations (2,828) (12,952) (27,499) (43,279)
Interest income 65 685 1,832 2,582
Interest expense - - (732) (732)
Equity in loss of BioMarin/Genzyme LLC - (47) (1,673) (1,720)
------------- ------------- ------------- -------------
Net loss $ (2,763) $ (12,314) $ (28,072) $ (43,149)
============= ============= ============= =============
Net loss per share, basic and diluted $ (0.34) $ (0.55) $ (0.94) $ (2.04)
============= ============= ============= =============
Weighted average common shares
outstanding 8,136 22,488 29,944 21,163
============= ============= ============= =============
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
BioMarin Pharmaceutical Inc. and Subsidiaries
(a development stage company)
Consolidated Statements of Changes in Stockholders'
Equity for the Period from March 21, 1997 (inception) to
December 31, 1997, and for the Years ended December 31, 1998 and 1999
(In thousands, except per share data)
Deficit
Additional Notes Accumulated
Common Stock Paid-in Warrants Receivable During Total
-------------- Capital --------------- Deferred from Development Stockholders'
Shares Amount Shares Shares Amount Compensation Stockholders Stage Equity
------- ------- -------- ------- ------- ----------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, March 21, 1997.... -- $ -- $ -- -- $ -- $ -- $ -- $ -- $ --
Issuance of common stock to
Glyko Biomedical, Ltd.
on March 21, 1997, for cash,
$1.00 per share.............. 1,500 1 1,499 -- -- -- -- -- 1,500
Issuance of common stocktock
Glyko Biomedical, Ltd. in
June 1997 in exchange for
technology, $1.00 per share .. 7,000 7 (7) -- -- -- -- -- --
Issuance of common stock to
Glyko Issuance of common stock
in October 1997, $1.00 per share
(net of issuance costs of
$439,720, including the issu-
ance of 299,000 shares of common
stock, $1.00 per share and warrants
to purchase an additional 299,000
share of common stock for
brokerage services............... 4,039 4 3,595 299 48 -- -- -- 3,647
Issuance of common stock to
employees in exchange for
notes in October 1997, $1.00
per share........................ 2,500 3 2,497 -- -- (200) (2,300) -- --
Issuance of common stock and
warrants on December 31, 1997,
$1.00 per share (net of issuance
costs of $592,309, including the
issuance of 502,500 shares of common
stock, $1.00 per share, and
warrants to purchase an additional
502,500 shares of common stock
for brokerage services)........... 5,528 6 4,930 503 80 -- -- -- 5,016
Common stock options granted in
exchange for services............. -- -- 35 -- -- (17) -- -- 18
Interest on notes receivable...... -- -- -- -- -- -- (38) -- (38)
Net loss for the period from
March 21, 1997(inception), to
December 31, 1997................. -- -- -- -- -- -- -- (2,763) (2,763)
Balance, December 31, 1997....... 20,567 $ 21 $ 12,549 802 $ 128 $ (217) $(2,338) $(2,763) $(7,380)
======= ==== ======== ====== ====== ======= ======== ======== ========
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
BioMarin Pharmaceutical Inc. and Subsidiaries
(a development stage company)
Consolidated Statements of Changes in Stockholders'
Equity for the Period from March 21, 1997 (inception) to
December 31, 1997, and for the Years ended December 31, 1998 and 1999
(In thousands, except per share data)
Deficit
Additional Notes Accumulated
Common Stock Paid-in Warrants Receivable During Total
-------------- Capital --------------- Deferred from Development Stockholders'
Shares Amount Shares Shares Amount Compensation Stockholders Stage Equity
------- ------- -------- ------- ------- ----------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1998......... 20,567 $ 21 $ 12,549 802 $ 128 $ (217) $ (2,338) $ (2,763) $ 7,380
Issuance of common stock on
June 30, 1998, for cash,
$6.00 per share (net of
issuance costs of $263,208,
including the issuance of
31,368 shares of common stock,
$6.00 per share, for
brokerage services)............... 599 1 3,327 -- -- -- -- -- 3,328
Issuance of common stock
on July 14, 1998, for cash,
$6.00 per share (net of
issuance costs of $387,474,
including the issuance of
64,579 shares of common stock,
$6.00 per share, for brokerage
services)......................... 1,385 1 7,924 -- -- -- -- -- 7,925
Issuance of common stock on
August 3, 1998, for cash, $6.00
per share (net of issuance costs
of $12,318, including the issuance
of 2,053 shares of common stock,
$6.00 per share for brokerage
services)......................... 31 -- 176 -- -- -- -- -- 176
Issuance of common stock to
Genzyme Corporation on
September 4, 1998,for cash,
$6.00 per share.................... 1,333 1 7,999 -- -- -- -- -- 8,000
Issuance of common stock to Glyko
Biomedical, Ltd. for the purchase
of Glyko, Inc. on October 7, 1998,
for common shares $6.00 per share
and the assumption of options of
Glyko, Inc. employees (see Note 1)..2,259 2 14,859 -- -- -- -- -- 14,861
Exercise of common stock options... 2 -- 2 -- -- -- -- -- 2
Interest on notes receivable....... -- -- -- -- -- -- (150) -- (150)
Deferred compensation on stock
options............................ -- -- 3,222 -- -- (3,222) -- -- --
Amortization of deferred
compensation....................... -- -- -- -- -- 186 -- -- 186
Net loss........................... -- -- -- -- -- -- -- (12,314) (12,314)
------------------------------------------------------------------------------------------------
Balance, December 31, 1998......... 26,176 $ 26 $50,058 802 128 $(3,253) $(2,488) $(15,077) $ 29,394
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
BioMarin Pharmaceutical Inc. and Subsidiaries
(a development stage company)
Consolidated Statements of Changes in Stockholders'
Equity for the Period from March 21, 1997 (inception) to
December 31, 1997, and for the Years ended December 31, 1998 and 1999
(In thousands, except per share data)
Deficit
Additional Notes Accumulated
Common Stock Paid-in Warrants Receivable During Total
-------------- Capital --------------- Deferred from Development Stockholders'
Shares Amount Shares Shares Amount Compensation Stockholders Stage Equity
------- ------- -------- ------- ------- ----------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1999.. 26,176 $ 26 $ 50,058 802 $ 128 $ (3,253) $ (2,488) $ (15,077) $ 29,394
Issuance of common stock on
July 23, 1999, in an initial
public offering (IPO) for cash
at $13.00 per share (net of
issuance costs of $6,690) ..... 4,500 4 51,805 -- -- -- -- -- 51,809
Issuance of common stock on
July 23, 1999 to Genzyme
Corporation in a private
placement concurrent with
the IPO for cash at $13.00
per share ..................... 769 1 9,999 -- -- -- -- -- 10,000
Issuance of common stock
on July 23, 1999 concurrent
with the IPO upon conversion
of promissory notes plus
accrued interest of $720,200
at $10.00 per share (net
of issuance costs of $1,150). 2,672 3 25,612 -- -- -- -- -- 25,615
Issuance of common stock on
August 3, 1999 and August
25, 1999 from the over-allotment
exercise by underwriters at
$13.00 per share (net of issuance
costs of $633).................. 675 1 8,141 -- -- -- -- -- 8,142
Exercise of common stock options... 40 -- 148 -- -- -- -- -- 148
Interest on notes receivable from
stockholders -- -- 195 -- -- -- (195) -- --
Deferred compensation related to
stock option ..................... -- -- 634 -- -- (634) -- -- --
Amortization of deferred compensation -- -- -- -- -- 1,341 -- -- 1,341
Net loss........................... -- -- -- -- -- -- -- (28,072) (28,072)
---------------------------------------------------------------------------------------
Balance, December 31, 1999....... 34,832 $ 35 $146,592 802 $ 128 $(2,546) $(2,683) $(43,149) $ 98,377
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
BioMarin Pharmaceutical Inc. and Subsidiaries
(a development-stage company)
Consolidated Statement of Cash
Flows For the Period from March 21, 1997
(inception) to December 31, 1997, the Years ended December 31, 1998 and 1999
and for the Period from March 21, 1997 (inception) to December 31, 1999
(In thousands)
Period from Period from
March 21, 1997 March 21, 1997
(inception) to (inception) to
December 31, Year Ended December 31, December 31,
1997 1998 1999 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (2,763) $ (12,314) $ (28,072) $ (43,149)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 5 308 4,074 4,387
Amortization of deferred compensation - 185 1,341 1,526
Amortization of goodwill - 271 1,143 1,414
Compensation in the form of common stock
and common stock options 18 - - 18
Loss from BioMarin/Genzyme LLC - 47 6,973 7,020
Write-off of in-process technology - 2,625 - 2,625
Changes in operating assets and liabilities:
Accounts receivable - (148) (899) (1,047)
Due from Glyko Biomedical, Ltd. (79) (34) (25) (138)
Due from BioMarin/Genzyme LLC - (419) (861) (1,280)
Inventories - (72) (5) (77)
Prepaid expenses (539) (137) 383 (293)
Deposits - (79) (72) (151)
Accounts payable 168 1,172 1,754 3,094
Accrued liabilities 43 597 1,326 1,966
Due to Glyko, Inc. 61 (61) - -
------------------- ------------- ------------ ------------
Net cash used in operating activities (3,086) (8,059) (12,940) (24,085)
------------------- ------------- ------------ ------------
Cash flows from investing activities:
Purchase of property and equipment (150) (6,385) (22,944) (29,479)
Purchase of Biochemical Research Reagent
Division of Oxford Glycosciences - - (1,500) (1,500)
Investment in BioMarin/Genzyme LLC - (732) (6,709) (7,441)
Purchase of short-term investments (901) (1,075) (37,597) (39,573)
------------------- ------------- ------------ ------------
Net cash used in investing activities (1,051) (8,192) (68,750) (77,993)
------------------- ------------- ------------ ------------
Cash flows from financing activities:
Proceeds from note payable - 134 - 134
Bridge loan 880 - - 880
Proceeds from issuance of convertible notes
payable - - 25,615 25,615
Accrued interest on notes receivable from
stockholders (38) (150) - (188)
Proceeds from exercise of common
stock options - - 148 148
Repayment of equipment loan - - (24) (24)
Proceeds from sale of common stock, net of -
issuance costs 9,283 19,692 69,951 98,926
------------------- ------------- ------------ -----------
Net cash provided by financing activities 10,125 19,676 95,690 125,491
------------------- ------------- ------------ -----------
Net increase equivalents 5,988 3,425 14,000 3,413
Cash and cash equivalents:
Beginning of period - 5,988 9,413 -
------------------- ------------- ------------ ------------
End of period $ 5,988 $ 9,413 $ 23,413 $ 23,413
=================== ============= ============ ============
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
BioMarin Pharmaceutical Inc. and Subsidiaries
(a development-stage company)
Notes to Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Nature of Operations and Business Risks--BioMarin Pharmaceutical Inc. (BioMarin
or the Company) is a biopharmaceutical company specializing in the development
of carbohydrate enzyme therapies for debilitating life-threatening chronic
genetic disorders and other diseases and conditions. Since inception, the
Company has devoted substantially all of its efforts to research and development
activities, including preclinical studies and clinical trials, the establishment
of laboratory and clinical scale manufacturing facilities, clinical
manufacturing, and related administrative activities. With its acquisition of
Glyko, Inc., BioMarin added analytical and diagnostic products and services in
the area of carbohydrate biology. BioMarin was incorporated on October 25, 1996,
in the state of Delaware. BioMarin first began business on March 21, 1997
(inception), and issued 1.5 million shares of common stock to Glyko Biomedical
Ltd. (GBL) for $1.5 million. Beginning in October 1997, BioMarin issued stock to
outside investors in a series of transactions, resulting in GBL's ownership of
BioMarin's outstanding common stock being reduced to 32.6 percent at December
31, 1999.
On September 4, 1998, the Company entered into an agreement with Genzyme
Corporation (Genzyme) to establish a joint venture (BioMarin/Genzyme LLC)
dedicated to the development and commercialization of Aldurazyme(TM), alronidase
for injection (recombinant human (alpha)-L-iduronidase) to treat
mucopolysaccharidosis-I (MPS-I) (Note 8).
On October 7, 1998, the Company acquired Glyko, Inc., a wholly-owned subsidiary
of GBL, in a transaction valued at $14.5 million. The transaction was accounted
for as a purchase and resulted in Glyko, Inc. becoming a wholly owned subsidiary
of the Company. Glyko, Inc. provides products and services that perform
sophisticated carbohydrate analysis for research institutions and commercial
laboratories. As consideration for the acquisition of all of the outstanding
shares of Glyko, Inc., BioMarin issued 2,259,039 shares of common stock to GBL,
assumed Glyko, Inc.'s employee stock options exercisable for 255,540 shares of
BioMarin common stock, and paid $500 in cash (see Note 11).
On April 13, 1999, the Company entered into a convertible note financing
agreement in the amount of $26 million. Of this amount, GBL invested $4.3
million.
In May 1999, Glyko, Inc. acquired key assets of the Biochemical Research Reagent
Division of Oxford GlycoSciences Plc. (OGS). The acquisition increased 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.
The Company completed its initial public offering (IPO) of 4.5 million shares of
common stock at $13 per share on July 23, 1999, raising net proceeds of
approximately $51.8 million. In a private placement concurrent with the IPO,
Genzyme invested in the Company $10 million at the IPO price (769,230 shares of
common stock). In addition, the $26 million of convertible notes sold by the
Company on April 13, 1999, plus accrued interest, were converted into 2,672,020
shares of common stock at $10 per share. The exercise of the underwriters'
over-allotment option in August 1999 raised additional net proceeds of $8.1
(675,000 shares of common stock). Through December 31, 1999 the Company had
accumulated losses during its development stage of approximately $43.1 million.
Based on current plans, management expects to incur further losses at least
through mid-year 2002. Management believes that the Company's cash and cash
equivalents and short-term investment balances at December 31,1999, will be
sufficient to meet the Company's obligations through mid-year 2001.
The Company's lead product candidate, Aldurazyme(TM), has completed its initial
clinical trials. The Company expects the BioMarin/Genzyme LLC to conduct a Phase
III confirmatory clinical trial of Aldurazyme(TM) beginning approximately
mid-year 2000. There can be no assurance that the Company's research and
development efforts will be successfully completed or that its products will be
shown to be safe and effective. There can be no assurance that its products will
be approved for marketing by the
<PAGE>
BioMarin Pharmaceutical Inc. and Subsidiaries
(a development-stage company)
Notes to Consolidated Financial Statements--(Continued)
U.S. Food and Drug Administration (FDA) or any equivalent foreign government
agency or that its products will be successfully commercialized or achieve any
significant degree of market acceptance.
BioMarin's core technology is based on the biological applications of
carbohydrate-active enzymes in therapeutic indications. In June 1997, rights to
certain related technology were transferred to BioMarin by GBL in exchange for 7
million shares of BioMarin common stock (see Note 3). Certain of the Company's
products rely on proprietary technology and patents owned by certain
universities and other institutions and licensed to BioMarin. These universities
also provide research and development services. Cessation of relationships with
these universities could significantly affect the Company's future operations.
In order to grow significantly, the Company must expand its efforts to develop
new products in pharmaceutical applications. The Company will also need to
establish manufacturing capabilities and to develop marketing capabilities
and/or enter into collaborative arrangements with third parties having the
capacity for such manufacturing or marketing.
BioMarin's product candidates require regulatory approval by government
agencies. This includes preclinical and clinical testing and approval processes
in the United States and other countries. Approvals can take several years and
can require substantial expenditures. There can be no assurance that
difficulties or excessive costs will not be encountered by the Company in this
process, which could delay or preclude the Company's marketing of its products.
There can be no assurance that any of BioMarin's current or future product
candidates will be successfully developed, prove to be effective in clinical
trials, receive required regulatory approvals, be capable of being produced in
commercial quantities at reasonable costs, gain reasonable reimbursement levels,
or be successfully marketed.
In addition, the Company is subject to a number of risks, including the need for
additional financing, dependence on key personnel, small patient population,
patent protection, significant competition from larger organizations, dependence
on corporate partners and collaborators, and expected increased restrictions on
reimbursement, as well as other changes in the healthcare industry.
Basis of Presentation--These consolidated financial statements include the
accounts of BioMarin, Glyko, Inc., a wholly-owned subsidiary of BioMarin (since
October 7, 1998), and BioMarin Genetics, Inc., a wholly-owned subsidiary of
BioMarin formed for the purpose of the joint venture discussed in Note 8. All
significant intercompany transactions have been eliminated.
Concentration of Credit Risk--Financial instruments that may potentially subject
the Company to concentration of credit risk consist principally of cash, cash
equivalents, and short-term investments. All cash, cash equivalents, and
short-term investments are placed in financial institutions with strong credit
ratings, which minimizes the risk of loss due to nonpayment. The Company has not
experienced any losses due to credit impairment or other factors related to its
financial instruments.
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make certain
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the dates of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Significant estimates made by management include determination of progress to
date of research and development projects in-process and the amortization period
of goodwill and other intangibles.
Cash and Cash Equivalents--For the statements of cash flows, the Company treats
liquid investments with original maturities of less than three months as cash
and cash equivalents.
Short Term Investments--The Company records its investment securities as
available-for-sale because the sale of such securities may be required prior to
maturity. These securities are recorded at cost at December 31, 1999 which
approximates fair market value. These securities are comprised mainly of Federal
Home Loan bank discount notes and certificates of deposit.
<PAGE>
BioMarin Pharmaceutical Inc. and Subsidiaries
(a development-stage company)
Notes to Consolidated Financial Statements--(Continued)
Inventories--Inventories consist of analytic kits and instrument-based systems
held for sale. Inventories are stated at the lower of cost (first-in, first-out
method) or estimated market value. All inventories at December 31, 1998 and 1999
belonged to Glyko, Inc.
Investment in BioMarin/Genzyme LLC and Related Revenue--Under the terms of the
Company's joint venture agreement with Genzyme (Note 7 and 8), the Company and
Genzyme have each agreed to provide 50 percent of the funding for the joint
venture. All research and development, sales and marketing, and other activities
performed by Genzyme and the Company on behalf of the joint venture are billed
to the joint venture at cost. Any profits or losses of the joint venture will be
shared equally by the two parties. Losses of the joint venture ($1.8 million and
$14 million for the years ended December 31, 1998 and 1999, respectively) are
allocated in proportion to the funding provided by each joint venture partner.
Through December 31, 1999, each joint venture partner had provided $8.3 million
of funding to the joint venture.
During the years ended December 31, 1998 and 1999, the Company billed $1.7
million and $10.6 million, respectively, under the agreement, of which $837,457
and $5.3 million respectively, or 50 percent, was recognized as revenue in
accordance with the Company's policy of recognizing revenue to the extent that
research and development costs billed have been funded by Genzyme. At December
31, 1998 and 1999 the Company had receivables of $418,712 and $1.3 million,
respectively, related to these billings.
The Company accounts for its investment in the joint venture on the equity
method. Accordingly, the Company recorded a reduction in its investment in the
joint venture of $884,628 and $7 million, during the years ended December 31,
1998 and 1999, respectively, representing its 50 percent share of the loss of
the joint venture. The percentage of the research and development costs billed
to the joint venture that was funded by the Company (50 percent, or $837,457 and
$5.3 million for the years ended December 31, 1998 and 1999, respectively) was
recorded as a credit to the Company's equity in the loss of the joint venture.
At December 31, 1999 the summarized assets and liabilities of the joint venture
and its results of operations from inception to December 31, 1999 are as follows
(in thousands):
Assets $2,729
======
Liabilities 1,886
Net Equity 843
----------- ------
$2,729
Cumulative Net loss $15,714
=======
Research and Development--Research and development expenses include the expenses
associated with contract research and development provided by third parties,
research and development provided in connection with the joint venture including
clinical and regulatory costs, and internal research and development costs. All
research and development costs discussed above are expensed as incurred.
Property and Equipment--Property and equipment are stated at cost. Depreciation
is computed using the straight-line method. Leasehold improvements are amortized
over the life of the asset or the term of the lease, whichever is shorter.
Significant additions and improvements are capitalized, while repairs and
maintenance are charged to expense as incurred.
Property and equipment consisted of the following (in thousands):
December 31,
-------------------------------
Category 1998 1999 Estimated Useful Lives
- - --------------- ------------------------------- ----------------------------
Computer hardware
and software $ 162 $ 426 3 years
Office furniture
and equipment 372 1,017 5 years
Laboratory equipment 3,469 4,083 5 years
Manufacturing
equipment -- 4,171 5 years
Leasehold improvements 2,532 19,768 Shorter of life of assets
or lease term
-------------------------------
6,535 29,465
Less:
Accumulated
depreciation (312) (4,372)
-------------------------------
Total, net $ 6,223 $25,093
===============================
26
<PAGE>
BioMarin Pharmaceutical Inc. and Subsidiaries
(a development-stage company)
Notes to Consolidated Financial Statements--(Continued)
Depreciation expense for the period March 21, 1997 (inception) to December 31,
1997, for the years ended December 31, 1998, and 1999 and for the period March
21, 1997 (inception) to December 31, 1999, was $4,790, $307,645, $4,074,000 and
$4,386,435, respectively.
Goodwill and Other Intangible Assets--In connection with the acquisition of
Glyko, Inc., the Company acquired certain intangible assets including developed
technology, customer relationships and goodwill.
The purchase price of $14.5 million was allocated to the net tangible and
intangible assets acquired, based on the relative fair value of these assets. In
connection with this allocation $2.6 million was expensed as a charge for the
purchase of in-process research and
development. Of the $11.7 million designated as intangible assets (after the
write-off of in-process research and development), $1.2 million was allocated to
developed technology and amortized over six years, $73,000 was allocated to
assembled work force and amortized over seven years, and $10.4 million was
allocated to goodwill (customer relationships, trade name, pure business
goodwill) and amortized over twelve years. In performing this allocation, the
Company considered, among other factors, Glyko, Inc.'s technology research and
development projects in-process at the date of acquisition. With regard to the
in-process research and development projects, the Company considered factors
such as the stage of development of the technology at the time of acquisition,
the importance of each project to the overall development plan, alternative
future use of the technology and the projected incremental cash flows from the
projects when completed and any associated risks.
The Income Approach was the primary technique utilized in valuing the purchased
research and development. The assumptions underlying the cash flow projections
used were derived primarily from investment banking reports, historical results,
company records and estimates of management.
Revenue estimates for each in-process project were developed by management and
based on an assessment of the industry. Cost of goods sold for each project are
expected to be in line with historical results.
The Capital Asset Pricing Model was used to determine the cost of capital
(discount rate) for Glyko, Inc.'s
in-process projects. Due to the conservative nature of the forecast and the
risks associated with the projected growth and profitability of the development
projects, a discount rate of 16 percent was used to discount cash flows from the
in-process products.
The Company believes that the foregoing assumptions used in the forecasts were
reasonable at the time of the acquisition. No assurance can be given, however,
that the underlying assumptions used to estimate sales, development costs or
profitability, or the events associated with such projects, will transpire as
estimated. For these reasons, actual results may vary from projected results.
The most significant and uncertain assumptions relating to the in-process
projects relate to the projected timing of completion and revenues attributable
to each project.
Amortization expense related to the acquisition of Glyko, Inc. was $271,274 and
$1.1 million for the period October 7, 1998 (date of acquisition) to
December 31, 1998, and the year ended December 31, 1999, respectively.
In connection with the purchase of the key assets of the biochemical research
reagent division of Oxford Glyko Sciences or OGS, the Company acquired certain
intangible assets including customer relationships and goodwill. The initial
purchase price of $1.5 million was allocated to the net tangible and intangible
assets acquired, based on the relative fair value of these assets. In connection
with this allocation, $608,549 was allocated to inventory and $891,451 was
allocated to goodwill and is being amortized over seven years.
Amortization expense related to the acquisition of OGS assets for the year ended
December 31, 1999, was $50,818.
Impairment of Long-Lived Assets--The Company regularly reviews long-lived assets
and identifiable intangibles. Whenever events or circumstances indicate that the
carrying amount of such assets may not be fully recoverable. The Company
evaluates the recoverability of long lived assets by measuring the carrying
amount of the assets against the estimated undiscounted future cash flows
associated with them. At the time such evaluations indicate that the future
undiscounted cash flows of certain long-lived assets are not sufficient to
recover its carrying value of such assets, the assets are adjusted to their fair
values (based on discounted cash s flows). No such adjustment have been made
during any period presented.
The Company's long-lived tangible assets consist primarily of property and
equipment and its enzyme investment in the BioMarin/G LLC joint venture. The
Company reviewed all of these assets together for purposes of assessing any
potential impairment due to the fact that these assets will be used together to
generate joint cash flows.
<PAGE>
BioMarin Pharmaceutical Inc. and Subsidiaries
(a development-stage company)
Notes to Consolidated Financial Statements--(Continued)
All of the Company's goodwill and other intangible assets were recorded as a
result n of the Company's acquisitio of Glyko, Inc. and Glyko, Inc.'s purchase
of the key l assets of the biochemica research reagent division of OGS. The
Company assessed any possible impairment taking into regard all future cash
flows to be generated from the intangible assets acquired, including developed
technology assembled work force, customer lists and goodwill.
Accrued Liabilities: accrued liabilities consisted of the following (in
thousands)
December 31,
-----------------------------
1998 1999
------------- -------------
Vacation $ 123 $ 386
Construction in progress -- 882
Other 517 798
------------- ------------
Total $ 640 $ 1,966
============= ============
Revenue Recognition--The Company recognizes Glyko, Inc.'s product revenues and
related cost of sales upon shipment of products. Glyko, Inc.'s service revenues
are recognized upon completion of services as evidenced by the transmission of
reports to customers. Other Glyko, Inc. revenues, principally licensing,
distribution and development fees, are recognized upon our satisfaction of our
contractual obligations such as 1) execution of contract; 2) certain milestones;
and 3) certain anniversary dates from the effective date of the contract.
Revenue from the joint venture is recognized to the extent that research and
development costs billed by the Company have been funded by Genzyme.
Net Income (Loss) per Share--Basic net income (loss) per share is calculated by
dividing net income (loss) by the weighted average common shares outstanding
during the period. Diluted net income per share is calculated by dividing net
income by the weighted average of common stock outstanding and potential common
shares during the period. Potential common shares include dilutive shares
issuable upon the exercise of outstanding common stock options, warrants, and
contingent issuances of common stock. For periods in which the Company has
losses, such potential common shares are excluded from the computation of
diluted net loss per share, as their effect is antidilutive.
Potentially dilutive securities (in thousands):
December 31,
------------------------------------
1997 1998 1999
------------ ------------ ----------
Options to purchase common stock
297 2,801 5,450
Warrants to purchase common stock 802 802 802
------------ ------------ ----------
Total 1,099 3,603 6,252
============ ============ ==========
Segment Reporting--For the year ended December 31, 1998, the Company adopted the
provisions of SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information". The Company operates two segments. The Analytic and
Diagnostic segment represents the operations of Glyko, Inc. which involve the
manufacture and sale of analytic and diagnostic products. The Pharmaceutical
segment represents the research and development activities related to the
development and commercialization of carbohydrate enzyme therapeutics.
Management of the Company has concluded that the operations of the Analytic and
Diagnostic segment are, and will continue to be, immaterial with respect to the
Company's overall activities and, thus, disclosure of segment information is not
required.
New Accounting Standards--In June 1998, the FASB issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 is
not expected to have a material impact on the Company's financial position or
results of operations.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements." SAB
101 provides guidance on applying generally accepted accounting principles to
revenue recognition issues in financial statements. The Company will adopt SAB
101 as required in the first quarter of 2000 and such adoption is not expected
to have a material effect on the Company's consolidate results of operations and
financial position.
<PAGE>
BioMarin Pharmaceutical Inc. and Subsidiaries
(a development-stage company)
Notes to Consolidated Financial Statements--(Continued)
2. BRIDGE LOANS:
In the third quarter of 1997, the Company drew upon a bridge loan from certain
stockholders in the amount of $880,000. This bridge loan was converted into
880,000 shares of common stock in the fourth quarter of 1997.
3. STOCKHOLDERS' EQUITY:
Common Stock and Warrants--On March 21, 1997, BioMarin's parent company, GBL,
provided initial equity funding by purchasing 1.5 million shares of common stock
for $1.5 million.
BioMarin and GBL have entered into a License Agreement dated June 26, 1997,
pursuant to which GBL granted BioMarin an exclusive, worldwide, perpetual,
irrevocable, royalty-free right and license to certain of its worldwide patents,
trade secrets, copyrights, and other proprietary rights to all know-how,
processes, formulae, concepts, data, and other such intellectual property,
whether patented or not, owned or licensed by GBL and its subsidiaries as of the
date of the license agreement for application in therapeutic uses, including
without limitation, drug discovery and genomics. As consideration for this
license, BioMarin issued to GBL 7.0 million shares of BioMarin common stock.
Under the same License Agreement, BioMarin granted GBL an exclusive, worldwide,
perpetual, irrevocable, royalty-free cross-license to all improvements BioMarin
may make upon the licensed intellectual property. As this transaction was
between the Company and its parent, the Company recorded the license at its
historical cost on GBL's financial statements, which was zero.
In the fourth quarter of 1997, 880,000 shares of common stock were issued to
stockholders to retire an $880,000 bridge loan.
As disclosed in the accompanying statements of stockholders' equity, the Company
closed a number of private placements in 1997 and 1998. In connection with these
placements, an entity with which the chief executive officer and chairman of the
board is affiliated (see Note 7) was issued a total of 899,500 shares (valued at
$1,389,500) and warrants (valued at $128,240) to purchase an additional 801,500
shares of common stock at an exercise price of $1 per share. These issuances
were made for brokerage services rendered in connection with these placements
and were accounted for as a cost of raising capital. The warrants expire on
various dates in 2001.
The Company completed its initial public offering (IPO) of 4.5 million shares of
common stock at $13 per share on July 23, 1999, raising net proceeds of
approximately $51.8 million. In a private placement concurrent with the IPO,
Genzyme invested in the Company $10 million at the IPO price (769,230 shares of
common stock). In addition, the $26 million of convertible notes sold by the
Company on April 13, 1999, plus accrued interest, were converted into 2,672,020
shares of common stock at $10 per share. The underwriters' exercise of its
over-allotment option in August 1999 raised additional net proceeds of $8.1
million (675,000 shares of common stock).
Notes Receivable from Stockholders--Notes receivable from stockholders relate to
2.5 million shares of common stock issued in October 1997 to three executive
officers under the terms of the Founder's Stock Purchase Agreement (the
Agreement). These notes bear interest at 6 percent per annum, and are due on
September 30, 2000, or on the date of the employee's termination, whichever is
earlier. The notes are secured by the underlying stock and are with full
recourse. Interest was imputed at nine percent, resulting in an interest
discount and related deferred compensation of $200,000, which is being amortized
over the life of the notes. Amortization expense for the period from March 21,
1997 (inception) to December 31, 1997, the years ended December 31, 1998 and
1999, and for the period from March 21, 1997 (inception), to December 31, 1999,
was $0, $66,667, $150,000, and $216,667, respectively. In the event that their
employment is terminated by the Company, the Company has the obligation, if
requested by the officer, to repurchase any or all of the shares issued under
the Agreement at the lower of the original purchase price or the current market
value of the shares. In the event one of these officers ceases to be an
employee, the Company has the right, but not the obligation, to repurchase the
unvested portion of the shares at their original purchase price. Pursuant to the
terms of the Agreement, 50% of the shares vest after one year from the date of
employment, with the remainder vesting at a rate of 1/24th month thereafter.
Deferred Compensation--In connection with certain stock option grants during the
years ended December 31, 1998 and 1999, the Company recognized deferred
compensation totaling $3,222,816 and $633,944, respectively, which is being
amortized over the four-year estimated service periods of the grantees.
Amortization expense recognized during the years ended December 31, 1998 and
1999, was $185,405 and $1,297,565, respectively.
<PAGE>
BioMarin Pharmaceutical Inc. and Subsidiaries
(a development-stage company)
Notes to Consolidated Financial Statements--(Continued)
4. INCOME TAXES:
The Company utilizes the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred taxes are determined based
on the difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse.
The Company's primary temporary differences relate to items expensed for
financial reporting purposes but not currently deductible for income tax
purposes consisting primarily of depreciable lives for property and equipment.
As of December 31, 1999, net operating loss carryforwards are approximately
$49.6 million and $39.3 million for federal and California income tax purposes,
respectively. These net operating loss carryforwards, including net operating
losses of $12.5 million and $5.8 million for federal and California purposes,
respectively, related to Glyko, Inc. These federal and state carryforwards
expire beginning in the year 2011 and 2004, respectively.
The Company also has research and development credits available to reduce future
federal and California income taxes, if any, of approximately $2.2 million and
$1.3 million, respectively, at December 31, 1999. These credits include credits
related to Glyko, Inc. of approximately $548,000 and $266,000 for federal and
California purposes, respectively. These federal and state carryforwards expire
beginning in 2012 and 2013, respectively.
The net operating loss carryforwards and research and development credits
related to Glyko, Inc. as of October 7, 1998, can only be utilized to offset
future taxable income and tax, respectively, if any, of Glyko, Inc. In addition,
the Tax Reform Act of 1986 contains provisions that may limit the net operating
loss carryforwards and research and development credits available to be used in
any given year should certain events occur, including sale of equity securities
and other changes in ownership. The acquisition of Glyko, Inc. and the related
issuance of stock represented a change of ownership under these provisions.
There can be no assurance that the Company will be able to utilize net operating
loss carryforwards and credits before expiration.
Deferred income taxes are recorded to reflect the tax consequences on future
years of differences between the tax basis of assets and liabilities and their
financial reporting amounts at each period-end. The Company has a cumulative net
operating loss carryforward since inception, resulting in net deferred tax
assets. A valuation allowance is placed on the net deferred tax assets to reduce
them to an assumed net realizable value of zero.
5. STOCK OPTION PLANS:
The Company's 1997 Stock Option Plan (the Plan) provides for the grant of
incentive common stock options and nonstatutory common stock options to
employees, directors, and consultants of the Company. The maximum aggregate
number of shares that may be optioned and sold under the Plan is 6,392,617
shares as of December 31, 1999. Options currently outstanding generally have
vesting schedules of up to four years and options terminate after five to ten
years or 90 days after termination of employment or contract.
Had compensation cost for the Plan been determined consistent with SFAS No. 123
for option grants to employees, the effect on the Company's net loss would have
been as follwos (in thousands, except for per share data):
<TABLE>
Period from Period from
March 21, 1997 March 21, 1997
(inception) to (inception) to
December 31, Year Ended December 31, December 31,
1997 1998 1999 1999
----------------- ------------------ ------------------ ---------------
<S> <C> <C> <C> <C>
Net loss as reported $ (2,763) $ (12,314) $ (28,072) $ (43,149)
Pro forma effect of SFAS No. 123 (1) (468) (1,734) (2,203)
----------------- ------------------- ------------------ ----------------
Pro forma net loss $ (2,764) $ (12,782) $ (29,806) $ (45,352)
================= =================== ================== ================
$ (0.34) $ (0.55) $ (0.94) $ (2.04)
Net loss per common share
as reported ================= =================== ================== ================
Pro forma loss per common share $ (0.34) $ (0.57) $ (1.00) $ (2.14)
================= =================== ================== ================
</TABLE>
<PAGE>
<TABLE>
BioMarin Pharmaceutical Inc. and Subsidiaries
(a development-stage company)
Notes to Consolidated Financial Statements--(Continued)
A summary of the status of the Company's stock option plan is as follows:
Weighted
Average Exercisable Weighted Average Fair
Exercise at End of Value of Options
Option Shares Price Year Granted
-------------------- ------------- ------------- ------------------------
<S> <C> <C> <C> <C>
Outstanding at March 21, 1997 -- $ --
Granted 297,000 1.00 $0.22
Canceled -- --
--------------------
Outstanding at December 31, 1997 297,000 1.00 232,000
=============
Granted 2,507,660 4.18 $2.40
Exercised (1,973) 1.00
Canceled (1,447) 1.00
--------------------
Outstanding at December 31, 1998 2,801,240 3.85 761,609
=============
Granted 2,877,430 11.35 $8.80
Exercised (40,148) 3.69
Canceled (188,536) 9.28
-------------------- -------------
Outstanding at December 31, 1999 5,449,986 $ 7.59 1,922,041
=============
</TABLE>
There were 2,198,760 and 900,510 options available for grant under the Plan at
December 31, 1998 and 1999, respectively.
As of December 31, 1999, the 5,449,986 options outstanding consisted of the
following:
Number of
Number of Options Exercise Weighted Average Options
Outstanding Price Contractual Life Exercisable
----------------------- ------------- -----------------------------------
415,850 1.00 2.88 368,683
237,313 2.30 2.25 188,094
1,523,000 4.00 8.10 854,167
587,555 6.00 3.75 194,115
849,780 7.00 4.34 270,211
36,750 8.50 4.16 7,500
688,242 12.75 5.00 --
30,500 12.88 4.93 --
422,500 13.00 4.52 36,979
15,000 13.06 4.92 --
15,000 13.38 4.95 --
78,000 13.50 4.94 --
18,000 13.56 5.01 --
12,500 14.06 4.86 --
22,500 14.78 4.85 --
12,500 15.19 4.84 --
474,996 15.38 4.71 2,292
10,000 16.06 4.80 --
---------- ----------
5,449,986 1,922,041
========== ==========
<PAGE>
BioMarin Pharmaceutical Inc. and Subsidiaries
(a development-stage company)
Notes to Consolidated Financial Statements--(Continued)
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions used for
grants in 1997, 1998, and through July 22, 1999: risk-free interest rates
ranging from 5.2 to 6.2 percent; expected dividend yield of 0 percent; expected
life of four years for the Plan's options; and expected volatility of 38
percent.
6. COMMITMENTS AND CONTINGENCIES:
Lease Commitments--The Company leases office space and research and testing
laboratory space in various facilities under operating agreements expiring at
various dates through 2009. Future minimum lease payments for the years ended
December 31 are as follows (in thousands):
2000................. $1,307
2001.................. 1,151
2002.................. 1,037
2003................. 857
2004.................. 485
Thereafter........... 1,853
-------
Total..... $6,690
=======
Rent expense for the period from March 21, 1997 (inception) to December 31,
1997, the years ended December 31, 1998 and 1999, and for the period from March
21, 1997 (inception), to December 31, 1999, was $34,613, $380,187, $1,069,595
and $1,484,395, respectively.
Research and Development Funding and Technology Licenses--The Company uses
experts and laboratories at universities and other institutions to perform
research and development activities. Funding commitments to these institutions
for the year ended December 31 are as follows (in thousands):
2000.................. $ 615
2001.................. 100
2002.................. 100
2003.................. 100
2004.................. 100
---------
Total..... $ 1,015
=========
The Company has also licensed technology from certain institutions, for which it
is required to pay a royalty upon future sales, subject to certain annual
minimums.
Consulting Agreements--BioMarin had agreements with two consultants whereby the
consultants were paid cash and granted common stock options in exchange for
services. Options for 206,000 shares of common stock were granted in
satisfaction for these services. These options were valued at $35,020 and were
expensed during the period from March 21, 1997 (inception), through December 31,
1997.
Product Liability and Lack of Insurance--The Company is subject to the risk of
exposure to product liability claims in the event that the use of its technology
results in adverse effects during testing or commercial sale. The
BioMarin/Genzyme LLC does carry product liability insurance to cover the
clinical trials of Aldurazyme(TM). At December 31, 1999, BioMarin had no other
product candidate in human clinical trials. There can be no assurance that the
Company will be able to obtain product liability insurance coverage at
economically reasonable rates or that such insurance will provide adequate
coverage against all possible claims.
<PAGE>
BioMarin Pharmaceutical Inc. and Subsidiaries
(a development-stage company)
Notes to Consolidated Financial Statements--(Continued)
7. RELATED-PARTY TRANSACTIONS:
BioMarin had contractual agreements for office space and certain administrative,
research, and development functions with Glyko, Inc. prior to the acquisition
date of October 7, 1998. BioMarin reimbursed Glyko, Inc. for rent, salaries and
related benefits, and other administrative costs. Glyko, Inc. also reimbursed
BioMarin for salaries and related benefits.
Reimbursement of expenses (in thousands):
<TABLE>
Paid from Paid from
Glyko, Inc. to BioMarin to
BioMarin Glyko, Inc. Net, to Glyko, Inc.
---------------- ------------- ---------------------
<S> <C> <C> <C>
March 21, 1997 (inception) to December 31, 1997 $ 133 $ 374 $ 241
Year ended December 31, 1998 75 298 223
Year ended December 31, 1999 68 335 267
---------------- ------------- -------------------
March 21, 1997 (inception) to December 31, 1999 276 1,007 731
================ ============= ===================
</TABLE>
BioMarin also purchased products and services from Glyko, Inc. at a changing
discount, which approximated market conditions. This is the same discount that
Glyko grants to any other company that it treats as a distributor. Purchases of
products and services from Glyko, Inc. from March 21, 1997 (inception) to
October 8, 1998 (Glyko, Inc. acquisition), were $160,455.
In the fourth quarter of 1998 and during 1999, BioMarin loaned to Glyko, Inc.
$200,000 and $401,493, respectively, to fund its operations. As of December 31,
1999, Glyko, Inc. owed $2,855,434 to BioMarin and BioMarin owed $52,528 to
Glyko, Inc. These amounts have been eliminated upon consolidation.
As discussed in Note 3, during August 1997, the Company entered into an agency
agreement with an entity with which the chief executive officer/chairman of the
board is affiliated. During June 1998, the Company entered into a second agency
agreement. The Company issued a total of 899,500 shares of common stock and
warrants to purchase another 801,500 shares of common stock to this entity and
its affiliates for brokerage services pursuant to the terms of these agreements,
also discussed in Note 3.
On April 13, 1999, the Company entered into a convertible note financing
agreement in the amount of $26.0 million. Of this amount GBL purchased $4.3
million worth of such notes and LaMont Asset Management SA (LAM) purchased $9.7
million. A director of the Company is also the chairman of LAM. The Company also
entered into an agency agreement with LAM pursuant to which the Company agreed
to pay LAM a five percent cash commission on sales to certain note purchasers.
On July 23, 1999, concurrent with the Company's IPO, BioMarin's convertible
notes payable (including accrued interest) were converted into 2,672,020 shares
of BioMarin's common stock at $10 per share. GBL's $4.3 million convertible note
plus interest was converted to 441,911 shares and LAM's $9.7 million convertible
note plus interest was converted to 996,869 shares.
Since October 8, 1998, GBL has agreed to pay BioMarin a monthly management fee
for its services to GBL primarily relating to management, accounting, finance
and government reporting. BioMarin had accrued receivables relating to these
services for GBL of $27,152 and $37,500 for the years ended December 31, 1998
and 1999, respectively.
At December 31, 1997, 1998 and 1999, the Company had recorded amounts due from
GBL of $79,607, $114,005 and $139,571, respectively (including the amounts
discussed above.)
Due to the terms of the collaborative agreement with Genzyme outlined in Note 8,
Genzyme is considered a related party. See also Notes 1 and 8 for Genzyme
related party transactions.
8. COLLABORATIVE AGREEMENTS:
Genzyme--Effective September 4, 1998, the Company entered into an agreement (the
Collaboration Agreement) with Genzyme to establish a joint venture
(BioMarin/Genzyme LLC) for the worldwide development and commercialization of
Aldurazyme(TM) to treat MPS-I. In conjunction with the formation of the joint
venture, the Company established a wholly owned subsidiary, BioMarin Genetics,
Inc. The Company has a 49 percent interest in the joint venture, BioMarin
Genetics, Inc. has a 1 percent interest, and Genzyme has the remaining 50
percent interest.
<PAGE>
BioMarin Pharmaceutical Inc. and Subsidiaries
(a development-stage company)
Notes to Consolidated Financial Statements--(Continued)
Under the Collaboration Agreement, BioMarin and Genzyme are each required to
make capital contributions to the joint venture in an amount equal to 50 percent
of costs and expenses associated with the development and commercialization of
Aldurazyme(TM). The parties also agree to share the profits equally from such
commercialization. In addition, Genzyme purchased 1,333,333 shares of BioMarin
common stock at $6 per share in a private placement for proceeds of $8.0 million
and, concurrent with the IPO, purchased an additional 769,230 shares of BioMarin
common stock at the IPO price for an additional $10.0 million. Genzyme has also
agreed to pay BioMarin $12.1 million in cash upon FDA approval of the biologics
license application (BLA) for Aldurazyme(TM).
Other Agreements--The Company is engaged in research and development
collaborations with various academic institutions, commercial research groups,
and other entities. The agreements provide for sponsorship of research and
development by the Company and may also provide for exclusive royalty-bearing
intellectual property licenses or rights of first negotiation regarding licenses
to intellectual property development under the collaborations. Typically, these
agreements are terminable for cause by either party upon 90 days' written
notice.
9. COMPENSATION PLANS:
Employment Agreements--The Company has entered into employment agreements with
seven officers of the Company. All of these agreements are terminable without
cause by the Company upon six months' prior notice, or by the officer upon three
months' prior written notice to the Company, with the Company obligated to pay
salary and benefits hereunder until such termination. The annual salaries
committed to under these agreements total approximately $1.6 million. In
addition, three of the agreements provide for the payment of an annual cash
bonus of up to 100 percent of the base annual salary of the three officers based
upon the Company's market capitalization.
401(k) Plan--The Company participates in the Glyko Retirement Savings Plan (the
401(k) Plan). At January 1, 2000, the plan was renamed the BioMarin Retirement
Savings Plan. Most employees (Participants) are eligible to participate
following the start of their employment, on the earlier of the next occurring
January 1, April 1, July 1 or October 1. Participants may contribute up to 15
percent of their current compensation to the 401(k) Plan or an amount up to a
statutorily prescribed annual limit. The Company pays the direct expenses of the
401(k) Plan but does not currently match or make contributions to employee
accounts.
1997 Stock Plan--In November 1997, the Board adopted, and in April 1998, the
stockholders approved, the 1997 Stock Plan (the 1997 Plan), which provided for
the reservation of a total of 3,000,000 shares of common stock for issuance
under the 1997 Plan. In December 1998, the Board adopted, and in January 1999,
the stockholders approved, an amendment to the 1997 Plan to increase the number
of shares reserved for issuance under it to an aggregate of 5,000,000 and to add
an "evergreen provision" providing for an annual increase in the number of
shares which may be optioned or sold under the 1997 Plan without need for
additional Board or stockholder action to approve such increase (which increase
shall be the lesser of 4 percent of the then-outstanding capital stock,
2,000,000 shares, or a lower amount set by the Board). As of December 31, 1999,
the number of shares reserved for issuance was an aggregate of 6,392,617 under
the 1997 Plan. The 1997 Plan provides for the grant of stock options and the
issuance of common stock by the Company to its employees, officers, directors,
and consultants.
During the year ended December 31, 1999, the Board granted 2,877,430 stock
options under the 1997 Plan to employees and directors of the Company at an
average exercise price of $11.35 per share. The Company's management estimates
that these stock option prices reflected current fair value at the time of the
grant.
1998 Employee Stock Purchase Plan--In December 1998 the Board adopted, and in
January 1999 the stockholders approved, the 1998 Employee Stock Purchase Plan
(the 1998 Purchase Plan). A total of 250,000 shares of Company common stock has
been reserved for issuance under the 1998 Purchase Plan, plus annual increases
equal to the lesser of 0.5 percent of the outstanding capital stock, 200,000
shares, or a lesser amount set by the Board. As of December 31, 1999, $87,337
has been withheld from employees' salaries and no shares have been issued under
the 1998 Purchase Plan.
<PAGE>
BioMarin Pharmaceutical Inc. and Subsidiaries
(a development-stage company)
Notes to Consolidated Financial Statements--(Continued)
1998 Director Option Plan--The 1998 Director Option Plan (the Director Plan) was
adopted by the Board of Directors in December 1998 and approved by the
stockholders in January 1999. The Director Plan provides for the grant of
nonstatutory stock options to non-employee directors. A total of 200,000 shares
of Company common stock, plus an annual increase equal to the number of shares
needed to restore the maximum aggregate number of shares available for sale
under the Director Plan or the lesser of 0.5 percent of the outstanding capital
stock, 200,000 shares, or a lesser amount set by the Board, have been reserved
for issuance under the Director Plan. As of December 1999, options to purchase
90,000 shares were granted under the Director Plan.
10. SUPPLEMENTAL CASH FLOW INFORMATION:
The following non-cash transactions took place in the periods presented (in
thousands):
<TABLE>
Period from March Period from March
21, 1997 21, 1997
(Inception) to (Inception) to
December 31, Year Ended December 31, December 31,
--------------------------------
1997 1998 1999 1999
-------------------- --------------- -------------- --------------------
<S> <C> <C> <C> <C>
Common stock issued in exchange for notes $ 20,500 $ - $ - $ 20,500
Compensation in the form of common stock
and common stock options 18 - - 18
Common stock and common stock warrants
issued in exchange for brokerage services 930 588 - 1,518
Bridge loan converted to common stock 880 - - 880
Common stock issued upon conversion of -
convertible notes plus interest - - 25,615 25,615
</TABLE>
11. GLYKO, INC.:
On October 7, 1998, the Company entered into an agreement to acquire all of the
outstanding stock of its affiliate, Glyko, Inc. from GBL. The total
consideration for the acquisition was $14.5 million , comprising of 2,259,039
shares of common stock of the Company, valued at $6.00 per share, the assumption
of options held by certain Glyko, Inc. employees to purchase shares of GBL's
common stock, which would require 255,540 shares of the Company's common stock
to be issued if fully exercised, and $500 in cash. The acquisition was accounted
for as a purchase.
The unaudited pro forma results of operation for the periods presented below are
presented as if this acquisition of Glyko, Inc. had occurred on March 21, 1997
and January 1, 1998, respectively (in thousands):
Period from
March 21, 1997
(Inception) to Year ended
December 31, 1997 December 31, 1998
------------------- -------------------
Revenues $ 1,996 $ 2,530
Loss from operations (6,028) (13,044)
Net loss (5,954) (12,380)
Net loss per share, basic and diluted (0.57) (0.51)
Weighed average number of common
shares outstandingn 10,464 24,214
In May 1999, Glyko, Inc. acquired key assets of the Biochemical Research Reagent
Division of Oxford GlycoSciences Plc. (OGS). The acquisition increased 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. Had this acquisition
been made on January 1, 1999, the impact on the consolidated net loss as
reported would have been insignificant.
<PAGE>
BioMarin Pharmaceutical Inc. and Subsidiaries
(a development-stage company)
Notes to Consolidated Financial Statements--(Continued)
12. SUBSEQUENT EVENT
In the first quarter of 2000, BioMarin made a provision of approximately $4.7
million for the suspension of production operations at its Carson Street
clinical manufacturing facility. The facility was not required for the
production of Aldurazyme(TM), the initial purpose of the plant, after a decision
by the BioMarin/Genzyme LLC (joint venture) to use BioMarin's Galli Drive
facility for the manufacture of clinical material both for the confirmatory
Phase III trial and for the commercial launch of Aldurazyme(TM). This decision
was based in part on FDA guidance to use an improved production process, which
was installed in the Galli facility, for the clinical trial and BLA submission
and for commercial production. The Carson Street facility is expected to
complete its final production lots in May. No alternative requirements for
production in Carson Street have been identified for the near term. BioMarin has
made offers to a majority of the staff at the Carson Street facility, which is
in Torrance, California, to transfer to the Galli facility in Novato,
California, which has significantly greater manufacturing capacity.
<TABLE> <S> <C>
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