United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 0-21994
GLYKO BIOMEDICAL LTD.
(Exact name of small business issuer as specified in its charter)
Canada 98-0195569
(State of other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
371 Bel Marin Keys Blvd., Suite 210, Novato, California 94949
(address of principal executive offices)
(415) 884-6700
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court. Yes ____ No_____
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 34,352,823 common shares
outstanding as of October 27, 2000.
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GLYKO BIOMEDICAL LTD.
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheets........................................................2
Statements of Operations..............................................3
Statements of Cash Flows..............................................4
Notes to Financial Statements.........................................5
Item 2. Management's Discussion and Analysis.......................10
Item 3. Quantitative and Qualitative Disclosure about Market Risk...14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...........................................15
Item 2. Changes in Securities.......................................15
Item 3. Defaults upon Senior Securities.............................15
Item 4. Submission of Matters to a Vote of Security Holders.........15
Item 5. Other Information...........................................15
Item 6. Exhibits and Reports on Form 8-K............................15
SIGNATURE.....................................................................16
<PAGE>
PART I. - FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
GLYKO BIOMEDICAL LTD.
BALANCE SHEETS
(In U.S. dollars)
<TABLE>
September 30, December 31,
2000 1999
------------------------ -----------------------
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 722,160 $ 574,648
Short-term investments 1,397,217 -
Interest receivable 7,407 -
------------------------ -----------------------
Total current assets 2,126,784 574,648
Investment in BioMarin Pharmaceutical Inc. 21,990,557 28,908,447
------------------------ -----------------------
Total assets $ 24,117,341 $ 29,483,095
======================== =======================
Liabilities and Shareholders' Equity
Current liabilities:
Accrued liabilities $ 526,803 $ 365,569
------------------------ -----------------------
Total current liabilities 526,803 365,569
Shareholders' equity:
Common shares, no par value, unlimited shares
authorized, 34,352,823 and 31,835,322 shares
issued and outstanding at September 30, 2000
and December 31, 1999, respectively 22,535,096 20,772,469
Additional paid in capital 39,402,590 38,064,481
Common share warrants and options - 146,472
Note receivable from shareholder (746,637) (746,637)
Accumulated deficit (37,600,511) (29,119,259)
------------------------ -----------------------
Total shareholders' equity 23,590,538 29,117,526
------------------------ -----------------------
Total liabilities and shareholders' equity $ 24,117,341 $ 29,483,095
======================== =======================
The accompanying notes are an integral part of these statements.
2
</TABLE>
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GLYKO BIOMEDICAL LTD.
STATEMENTS OF OPERATIONS
(Unaudited, in U.S. dollars)
<TABLE>
Three months ended September 30, Nine months ended September 30,
------------------------------------- -------------------------------------
2000 1999 2000 1999
---------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Expenses:
General and administrative $ 150,500 $ 62,481 $ 283,371 $ 195,483
---------------- ---------------- ---------------- ---------------
Total expenses: 150,500 62,481 283,371 195,483
---------------- ---------------- ---------------- ---------------
Loss from operations (150,500) (62,481) (283,371) (195,483)
Equity in loss of BioMarin Pharmaceutical Inc. (2,366,036) (2,617,831) (8,238,389) (7,141,765)
Interest income 17,934 30,303 40,508 183,511
---------------- ---------------- ---------------- ---------------
Net loss $ (2,498,602) $ (2,650,009) $ (8,481,252) $ (7,153,737)
================ ================ ================ ===============
Net loss per common share, basic and diluted $ (0.07) $ (0.08) $ (0.25) $ (0.23)
================ ================ ================ ===============
Weighted average number of shares
used in computing per share amounts 34,231,311 31,521,713 33,767,513 30,830,156
================ ================ ================ ===============
</TABLE>
The accompanying notes are an integral part of these statements.
3
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GLYKO BIOMEDICAL LTD.
STATEMENTS OF CASH FLOWS
(Unaudited, in U.S. dollars)
<TABLE>
Nine months ended September 30,
-----------------------------------
2000 1999
----------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (8,481,252) $ (7,153,737)
Adjustments to reconcile net loss to net cash
used in operating activities:
Equity in the loss of BioMarin Pharmaceutical Inc. 8,238,389 7,141,765
Interest on note from shareholder - (24,790)
Change in assets and liabilities:
Interest receivable (7,407)
Accrued liabilities 161,234 42,294
----------------- ----------------
Total adjustments 8,392,216 7,159,269
----------------- ----------------
Net cash used in operating activities (89,036) 5,532
Cash flows from investing activities:
Investment in BioMarin Pharmaceutical Inc. - (4,419,110)
----------------- ----------------
Net cash used in investing activities - (4,419,110)
Cash flows from financing activities:
Proceeds from the exercise of stock options and
common stock warrants 1,633,765 2,192,764
Repayment of note receivable - 100,000
----------------- ----------------
Net cash provided by financing activities 1,633,765 2,292,764
----------------- ----------------
Net increase (decrease) in cash 1,544,729 (2,120,814)
Cash and cash equivalents, beginning of period 574,648 2,567,824
----------------- ----------------
Cash and cash equivalents, end of period $ 2,119,377 $ 447,010
================= ================
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
GLYKO BIOMEDICAL LTD.
NOTES TO FINANCIAL STATEMENTS
1. The Company and Description of the Business
Glyko Biomedical Ltd. (the Company or GBL), a Canadian company, was incorporated
in 1992 to acquire all of the outstanding capital stock of Glyko, Inc., a
Delaware corporation. Both entities were under common control and the share
exchange was accounted for in a manner similar to a pooling. Since its inception
in October 1990, Glyko, Inc. has been engaged in research, development,
manufacturing and marketing of new techniques to analyze and manipulate
carbohydrates for research, diagnostic and pharmaceutical purposes. Glyko, Inc.
has developed a line of analytic instrumentation laboratory products that
include an imaging system, analysis software and chemical analysis kits.
In October 1996, GBL incorporated BioMarin Pharmaceutical Inc. (BioMarin), a
Delaware corporation in the development stage, to develop the Company's
pharmaceutical products. BioMarin began business on March 21, 1997 and issued
1.5 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 with the result that at December 31, 1997, GBL's
ownership interest in BioMarin had been reduced to 41.3% of BioMarin's
outstanding capital stock. As of December 31, 1997, the Company began recording
its share of BioMarin's net loss utilizing the equity method of accounting.
On June 30, 1998, BioMarin raised net proceeds of $3.3 million (598,535 shares)
from a private placement including a $1.0 million investment from GBL. In
another private placement, on August 3, 1998, BioMarin raised an additional $8.1
million (1,416,800 shares) from third parties.
On September 4, 1998, BioMarin received $8 million from Genzyme Corp. (Genzyme)
upon execution of a joint venture agreement in which BioMarin issued 1,333,333
shares of common stock to Genzyme. BioMarin has a 50% interest in the income or
loss of this joint venture, BioMarin/Genzyme LLC.
On October 7, 1998, GBL sold to BioMarin 100% of the outstanding capital stock
of Glyko, Inc. in exchange for 2,259,039 shares of BioMarin's common stock, the
assumptions of options, previously issued to employees of Glyko, Inc., to
purchase up to 585,969 shares of GBL's common stock (exercisable into 255,540
shares of BioMarin common stock) and $500 in cash.
On April 13, 1999, GBL purchased BioMarin convertible notes in the amount of
$4.3 million, as part of BioMarin's $26 million convertible note financing.
In May 1999, BioMarin's wholly-owned subsidiary, Glyko, Inc., acquired key
assets of the Biochemical Research Reagent Division of Oxford GlycoSciences Plc.
The acquisition was made to increase Glyko, Inc.'s product offerings and was
valued from $1.5 million to $2.1 million, depending on the future sales of the
acquired products, and was accounted for as a purchase.
On July 23, 1999, BioMarin closed its initial public offering (IPO) of 4.5
million shares at $13.00 per share concurrent with a $10 million private
placement from Genzyme, at the IPO price, raising net proceeds of approximately
$61.9 million. Additionally, BioMarin's convertible notes payable (including
interest accrued) were converted into 2,672,020 shares of BioMarin's common
stock at $10.00 per share. GBL's $4.3 million convertible note plus interest of
$119,110 was converted to 441,911 shares of BioMarin's common stock.
In August 1999, the BioMarin underwriters exercised their over-allotment option
for 675,000 shares at BioMarin's IPO price of $13 per share, raising additional
net proceeds of $8.1 million.
GBL's percentage ownership of BioMarin's outstanding common stock was 31.0% on
September 30, 2000.
5
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GLYKO BIOMEDICAL LTD.
NOTES TO FINANCIAL STATEMENTS
Since its inception, GBL has incurred a cumulative deficit of $37.6 million and
the Company expects to continue to incur losses through 2002 due to its share of
BioMarin's net loss resulting from the ongoing research and development of
BioMarin's pharmaceutical product candidates. As a result of GBL's sale of
Glyko, Inc. on October 7, 1998, GBL has no operating activities and its
principal asset is its investment in BioMarin. Accordingly, without further
investment in other companies or technologies, management believes that GBL has
sufficient cash to sustain planned operations, which are of limited scope and
cost, for at least two years. BioMarin had an accumulated deficit of $70.1
million at September 30, 2000 and is expected to incur significant losses at
least through 2002. Management of BioMarin believes that the proceeds from the
convertible notes and the net proceeds of approximately $70.0 million from the
initial public offering (including underwriters' exercise of over-allotment) and
the concurrent Genzyme closing will be sufficient to meet its obligations at
least through 2001. Management of GBL believes that at September 30, 2000 there
has not been any impairment of its investment in BioMarin.
The accompanying financial statements should be read in conjunction with the
Company's annual report on form 10-KSB for the fiscal year ended December 31,
1999.
2. Summary of Significant Accounting Policies
The accompanying financial statements and related footnotes have been prepared
in conformity with U.S. generally accepted accounting principles using U.S.
dollars as essentially all of the Company's operations were located in the
United States. For the three and nine month periods ended September 30, 2000 and
1999, the operations of Glyko, Inc. have been consolidated into the operations
of BioMarin. The results of operations of BioMarin have been reported in the
Company's financial statements for the three and nine month periods ended
September 30, 2000 and 1999, based on the equity method of accounting. All
significant intercompany accounts and transactions have been eliminated.
Use of Estimates:
The preparation of the Company's 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 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.
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, which approximates fair market value. These securities are
comprised of A1/P1 rated commercial paper.
Sale of Glyko, Inc. and Investment in BioMarin Pharmaceutical Inc.:
BioMarin acquired Glyko, Inc. from GBL through the exchange of BioMarin stock
for Glyko, Inc. stock and accounted for the acquisition based upon the fair
market value of the BioMarin stock issued (using the same per share price as
used in a recent arms-length transaction), the assumption of responsibility for
certain stock options previously issued to Glyko, Inc. employees (see Note 1),
and $500 in cash. In consolidating Glyko, Inc., BioMarin recorded intangible
assets, including goodwill, to the extent that the fair market value of the
stock issued exceeded the fair market value of the tangible assets of Glyko,
Inc. GBL recorded the stock of BioMarin received at the historical cost basis of
its investment in Glyko, Inc. GBL accounts for its investment in BioMarin using
the equity method of accounting. However, as it has not recorded its investment
in BioMarin at fair market value, it does not record its share of the losses
recorded by BioMarin related to the amortization of intangible assets recorded
on the acquisition of Glyko, Inc.
6
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GLYKO BIOMEDICAL LTD.
NOTES TO FINANCIAL STATEMENTS
During the three and nine month periods ended September 30, 2000, BioMarin
recorded a charge to operations of $504,000 and $1,046,548, respectively, in
connection with its purchase of Glyko, Inc. for the amortization of goodwill and
other intangible assets, which are being amortized over seven years. In
recording its share of BioMarin's loss for this period, GBL excluded its share
of the amortization of goodwill and other intangible assets.
As of September 30, 2000, GBL's percentage share of BioMarin's outstanding
capital stock was 31.0%. The exercise of BioMarin options or warrants by parties
other than GBL will result in a reduction of GBL's ownership percentage and
future fundraising efforts of BioMarin, if any, will result in a similar
reduction of GBL's ownership percentage. To the extent that the issuance of
common stock by BioMarin to third parties at a per share price greater than or
less than the per share carrying value of GBL's investment in BioMarin, the
resulting gain or loss is reflected as an increase or decrease, respectively, in
additional paid in capital in the accompanying balance sheets. Due to the
issuance by BioMarin of its common stock upon the exercise of common stock
options, GBL recorded an increase to its Investment in BioMarin and Additional
Paid-in-Capital accounts of $1,320,500 during the nine month period ended
September 30, 2000.
Accrued Liabilities:
During 1994, the Company recorded a charge to operations of $219,811 related to
the termination of an agreement with one of its shareholders. This charge was
the estimated fair value of 500,000 shares of common stock to be received by the
shareholder in settlement of the agreement. The Toronto Stock Exchange has not
permitted the issuance of the 500,000 shares because the transaction is not
considered arms length. The shareholder was a shareholder in the Company from
1990 until April 1998. At September 30, 2000 the liability of $219,811 is
included in accrued liabilities in the accompanying balance sheets.
Net Loss per Share:
Potentially dilutive securities outstanding at September 30, 2000 and 1999,
respectively, include options for the purchase of 9,000 and 332,520 shares of
common stock and warrants for the purchase of zero and 2.4 million shares of
common stock, respectively. These securities were not considered in the
computation of dilutive loss per share because their effect would be
anti-dilutive for the nine-month periods ended September 30, 2000 and 1999.
Reclassifications:
Certain balances in prior periods have been reclassified to conform with
the current period presentation.
7
<PAGE>
GLYKO BIOMEDICAL LTD.
NOTES TO FINANCIAL STATEMENTS
3. Investment in BioMarin Pharmaceutical Inc.
Results of the Company's unconsolidated affiliate, BioMarin, a development
stage company, are summarized as follows for the nine-month periods ended
September, 2000 and 1999 and for the period from March 21, 1997 (inception) to
September 30, 2000 (unaudited, in $ thousands): Period from
<TABLE>
March 21, 1997
Nine Months Ended (Inception), to
September 30, September 30,
-------------------------------------
1999 2000 2000
----------------- ------------------ --------------------
<S> <C> <C> <C>
Revenues:
Revenues - products $ 1,018 $ 1,749 $ 3,288
Revenues - services 81 177 374
Revenues from BioMarin/Genzyme LLC 3,411 7,262 13,399
Revenues - other 151 - 293
----------------- ------------------ --------------------
Total revenues 4,661 9,188 17,354
Operating Costs and Expenses:
Cost of products 234 480 891
Cost of services 99 59 220
Research and development 18,029 25,109 64,731
Selling, general and administrative 4,759 6,517 17,768
Carson Street closure - 4,423 4,423
----------------- ------------------ --------------------
Total operating costs and expenses 23,121 36,588 88,033
Loss from operations (18,460) (27,400) (70,679)
Interest income 1,177 2,281 4,863
Interest expense (728) (6) (738)
Loss from BioMarin/Genzyme LLC (1,023) (1,845) (3,565)
----------------- ------------------ --------------------
$ (19,034) $ (26,970) $ (70,119)
Net loss ================= ================== ====================
For the periods presented above, GBL's equity in loss of BioMarin was as follows (in $ thousands):
$ (7,142) $ (8,238) $ (24,538)
================= ================== ====================
</TABLE>
In the first quarter of 2000, BioMarin recorded a provision of $4.4 million for
the closure of its Carson Street clinical manufacturing facility. The facility
was no longer 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 bulk Aldurazyme both
for the confirmatory Phase III trial and for the commercial launch of
Aldurazyme(TM). This decision was based in part on U.S. Food and Drug
Administration guidance to use an improved production process, which was
installed in the Galli facility, for the clinical trial and biologics license
application submission and for commercial production. The majority of the
technical staff at the Carson Street facility in Torrance, California
transferred to the Galli Drive facility in Novato, California. The provision
primarily consisted of write-downs of leasehold improvements and equipment
located in the Carson Street facility.
8
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GLYKO BIOMEDICAL LTD.
NOTES TO FINANCIAL STATEMENTS
4. Note Receivable
As part of its compensation for certain services, GBL issued stock options to a
consulting group. In September 1998, GBL loaned $100,000 to the consulting group
in anticipation that the Toronto Stock Exchange would approve the stock options.
In the first quarter of 1999, the options were approved by the Toronto Stock
Exchange and this note was repaid in full. In November 1998, per the terms of
the BioMarin acquisition of Glyko, Inc., GBL loaned $712,261 to an officer of
the Company to exercise expiring stock options. The loan is secured by the stock
and is a full recourse note. In May 2000, the Board approved an extension of the
shareholder note to mature in May 2001.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion and analysis of financial condition and results of
operations contains certain forward looking statements within the meaning of
Section 27A of the U.S. Securities Act of 1933, as amended, and Section 21E of
the U.S. Securities Exchange Act of 1934, as amended, that involve risks and
uncertainties, such as statements regarding the Company's ongoing liquidity as
discussed in "Liquidity and Capital Resources." The Company's actual results
could differ materially from the results anticipated in these forward-looking
statements. Risks are identified in "Overview, " "Results of Operations,"
"Liquidity and Capital Resources," and "Risk Factors."
Overview
Glyko Biomedical Ltd. (GBL or the Company) is a Canadian company that at
September 30, 2000 owned 31.0% of the outstanding capital stock of BioMarin
Pharmaceutical Inc. (BioMarin). As of October 7, 1998, BioMarin owned 100% of
the capital stock of Glyko, Inc. Glyko, Inc. and BioMarin are operating
companies based in California. On October 7, 1998, BioMarin acquired Glyko,
Inc., in a transaction valued at $14.5 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. Glyko Biomedical Ltd. consolidated the operations of Glyko, Inc.
through October 7, 1998. Subsequent to October 7, 1998, the accounts of Glyko
Biomedical Ltd. are presented on a stand-alone basis. In this period the results
of operations of Glyko, Inc. have been consolidated into the results of
operations of BioMarin. BioMarin's results of operations are recorded by Glyko
Biomedical Ltd. using the equity method of accounting. Numerical references in
the following discussion are rounded to the nearest thousand.
Since its inception in October 1990, Glyko, Inc. has been engaged in the
research, development, manufacturing and marketing of new techniques to analyze
and manipulate carbohydrates for research, diagnostic and pharmaceutical
purposes. Glyko, Inc. has developed a line of analytic instrumentation
laboratory products that include an imaging system, analysis software and
chemical analysis kits. Glyko, Inc., as a wholly-owned subsidiary of BioMarin,
continues to develop additional chemical kits for use with the imaging system,
and is also developing a line of carbohydrate diagnostic products. In May 1999,
Glyko, Inc., acquired key assets of the Biochemical Research Reagent Division of
Oxford GlycoSciences Plc. The acquisition was made to increase Glyko, Inc.'s
product offerings and was valued from $1.5 million to $2.1 million, depending on
the future sales of the acquired products and was accounted for as a purchase.
On April 13, 1999, GBL purchased BioMarin notes in the amount of $4.3 million,
as part of BioMarin's $26 million convertible note financing.
On July 23,1999, BioMarin closed its initial public offering (IPO) of 4.5
million shares at $13.00 per share concurrent with a $10 million private
placement (769,230 shares) from Genzyme, raising approximately $61.9 million.
Additionally, BioMarin's convertible notes payable were converted into 2,672,020
shares of BioMarin's common stock. GBL's $4.3 million convertible note plus
interest of $119,110 was converted to 441,911 shares of BioMarin's common stock.
In August 1999, the underwriters exercised their over-allotment option for
675,000 shares at the IPO price of $13 per share, raising additional net
proceeds of $8.1 million. . GBL's ownership of BioMarin's outstanding common
stock was 32.0% on June 30, 2000.
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 an Investigational New Drug application (IND) 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
Aldurazyme. 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.
BioMarin received orphan drug designation for Aldurazyme in September 1997,
allowing BioMarin to market the product exclusively for seven years following
FDA approval if it is the first to gain such approval. In collaboration with
Genzyme, BioMarin's joint venture partner for the commericalization and
marketing of Aldurazyme, BioMarin plans to initiate a Phase III confirmatory
clinical trial of Aldurazyme in the fourth quarter of 2000 with the intention to
file a Biologics License Application (BLA) with the FDA late in 2001, pending
the successful outcome of the Phase III Confirmatory Trial.
10
<PAGE>
In August 2000, BioMarin's Galli Drive manufacturing facility and a smaller
clinical manufacturing laboratory in BioMarin's Bel Marin Keys Boulevard
facility were both subjected to an extensive inspection by the State of
California Food and Drug Branch and were granted licenses to produce clinical
product.
BioMarin has submitted an IND for recombinant human
N-acetylgalactosamine-4-sulfatase also known as arylsulfatase B or rhASB
(formerly referred to as BM102) and received FDA acceptance to begin a Phase
I/II clinical trial in enzyme replacement therapy for MPS-VI, which was
initiated on October 11, 2000. MPS-VI, also known as Maroteaux-Lamy syndrome, is
similar in its clinical symptoms to MPS-I. However, MPS-VI does not appear to
have the central nervous system involvement and mental retardation
characteristics of the most severe form of MPS-I. BioMarin is manufacturing
clinical bulk rhASB in the Bel Marin Keys Boulevard facility. RhASB has received
fast track and orphan drug designations by the FDA.
BioMarin has successfully conducted preclinical studies of its burn enzyme,
BM202, for use in burn debridement and grafting in pigs and mice. BioMarin
expects to conduct additional preclinical studies in pigs to establish a
starting dose for treatment in human burn patients. If these additional
preclinical studies are successful, BioMarin plans to submit an IND for BM202 in
the first quarter of 2001. BioMarin focuses on the development of products in
four therapeutic areas: genetic diseases, burn and wound care, fungal infections
and inflammation (initially psoriasis).
The Company's net loss for the nine-month periods ended September 30, 2000 and
1999 was $8,481,000 and $7,154,000, respectively. The primary component of this
loss was the Company's share of the net loss of BioMarin accounted for under the
equity method of accounting. GBL expects to continue to incur losses through
2002 due to its share of BioMarin's net loss resulting from BioMarin's ongoing
research and development of pharmaceutical product candidates including
Aldurazyme, rhASB and a burn wound enzyme. The BioMarin losses do not have an
impact on the cash position of GBL. As a result of GBL's sale of Glyko, Inc., as
of October 7, 1998, GBL has no operating activities and its principal asset is
its investment in BioMarin. BioMarin has an accumulated deficit of $70.1 million
at September 30, 2000 and is expected to incur significant losses at least
through 2002. Management of BioMarin believes that the convertible note
financing and the net proceeds of approximately $70.0 million from the IPO
(including underwriters' over-allotment exercise) and the concurrent Genzyme
closing will be sufficient to meet its obligations through 2001. Management of
GBL believes that at September 30, 2000 there has not been any impairment of its
investment in BioMarin.
Results of Operations
The Quarters Ended September 30, 2000 and 1999
There were no revenues nor cost of revenues for the quarters ended September 30,
2000 and 1999 due to the sale of the Company's operating entity, Glyko, Inc. to
BioMarin in October 1998.
There were no research and development expenses for the quarters ended September
30, 2000 and 1999 due to the Company's sale of Glyko, Inc. to BioMarin in
October 1998.
General and administrative expense was $150,000 for the quarter ended September
30, 2000, an increase of $88,000 from general and administrative expenses of
$62,000 incurred for the quarter ended September 30, 1999. The increase was
primarily due to the additional legal expenses in 2000 that did not occur in
1999. General and administrative expense for the quarters ended September 30,
2000 and 1999 represented management fees billed by BioMarin for management,
accounting, finance and government reporting, and legal and other outside
administrative support expenses.
Equity in loss of BioMarin for the quarter ended September 30, 2000 was
$2,366,000 compared to $2,618,000 for the quarter ended September 30, 1999, a
decrease of $252,000 resulting from a decrease in ownership percentage of
BioMarin by GBL partially offset by an increase in net loss of BioMarin due to
BioMarin's increased spending on its product candidates including Aldurazyme,
rhASB and BM202.
Interest income earned for the quarters ended September 30, 2000 and 1999 of
$18,000 and $30,000, respectively, resulted from earnings on cash invested in
short-term interest bearing accounts. The decrease in interest income in the
third quarter 2000 compared to the same period in 1999 resulted from lower cash
balances available for investment due to the Company's investment in the
BioMarin convertible note financing of $4.3 million in April 1999. Interest
expense for the quarters ended September 30, 2000 and 1999 was immaterial.
11
<PAGE>
The Nine Months Ended September 30, 2000 and 1999
There were no revenues nor cost of revenues for the nine months ended September
30, 2000 and 1999 due to the sale of the Company's operating entity, Glyko, Inc.
to BioMarin in October 1998.
There were no research and development expenses for the nine months ended
September 30, 2000 and 1999 due to the Company's sale of Glyko, Inc. to BioMarin
in October 1998.
General and administrative expense was $283,000 for the nine-month period ended
September 30, 2000 compared to $195,000 in the same period in 1999. The increase
was primarily due to an increase in legal fees. General and administrative
expense for the nine-month periods ended September 30, 2000 and 1999 represented
management fees billed to BioMarin for management, accounting, finance and
government reporting, and legal and other outside administrative support
expenses.
Equity in loss of BioMarin for the nine months ended September 30, 2000 was
$8,238,000 compared to $7,142,000 for the nine months ended September 30, 1999,
an increase of $1,096,000 resulting from a decrease in ownership percentage of
BioMarin by GBL offset by an increase in net loss of BioMarin due to BioMarin's
increased spending on its product candidates including Aldurazyme, rhASB and
BM202.
Interest income earned for the nine months ended September 30, 2000 and 1999 of
$41,000 and $184,000, respectively, resulted from earnings on cash invested in
short-term interest bearing accounts. The decrease in interest income in the
first nine months of 2000 compared to the same period in 1999 were the same as
described for the third quarter decrease in interest income.
Liquidity and Capital Resources
The Company's cash position increased by $1,545,000 in the first nine months of
2000 to $2,119,000. Net cash proceeds of $1,634,000 relating to, primarily, the
issuance of common stock from the exercise of stock warrants and options were
partially offset by net cash used in operating activities of $89,000.
Since its inception, the Company has incurred a cumulative deficit of $37.6
million and GBL expects to continue to incur losses through 2002 due to its
share of BioMarin's net loss resulting from BioMarin's ongoing research and
development of pharmaceutical product candidates. As a result of GBL's sale of
Glyko, Inc., as of October 7, 1998, GBL has no operating activities and its
principal asset is its investment in BioMarin. Accordingly, without further
investments in other companies or technologies, management believes that GBL has
sufficient cash to sustain planned operations, which are of limited scope and
cost for at least two years. BioMarin has an accumulated deficit of $70.1
million at September 30, 2000 and is expected to incur significant losses at
least through 2002. Management of BioMarin believes that the proceeds from the
convertible note financing, the net proceeds of approximately $70.0 million from
the IPO (including underwriters' exercise of over-allotment) and the concurrent
Genzyme closing will be sufficient to meet its obligations through 2001.
Management of GBL believes that at September 30, 2000 there has not been any
impairment of its investment in BioMarin. See "Risk Factors - Dependence on
Investment in BioMarin," "- History of Operating Losses - Uncertainty of Future
Profitability."
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RISK FACTORS
Dependence on Investment in BioMarin
As of September 30, 2000, GBL's principal asset was its 31.0% 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.
History of Operating Losses - Uncertainty of Future Profitability
The Company's share of BioMarin's net loss resulted in the Company reporting a
net loss for the nine-month period ended September 30, 2000 of $8.5 million. GBL
expects to continue to incur losses through 2002 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 $70.1 million
at September 30, 2000 and is expected to incur significant losses at least
through 2002. Management of BioMarin believes that the proceeds from the
convertible note financing and the net proceeds of approximately $70.0 million
from the IPO (including underwriters' exercise of over-allotment) and the
concurrent Genzyme closing will be sufficient to meet its obligations through
2001. Management of GBL believes that at September 30, 2000 there has not been
any impairment of its investment in BioMarin.
13
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Item 3: Quantitative and Qualitative Disclosure about Market Risk
GBL currently holds 11,367,617 shares of BioMarin's common stock representing
31.0% of BioMarin's outstanding common stock. Following the sale of Glyko, Inc.
in 1998, these securities represent substantially the only asset of GBL. These
securities have been acquired for investment purposes rather than for trading
purposes. The value of GBL's common stock may be substantially influenced by the
value of BioMarin's common stock. Following BioMarin's IPO in July 1999,
BioMarin's common stock is traded on the NASDAQ and the Swiss Exchange (SWX New
Market). There are many risks associated with the listing of these securities on
two markets and with BioMarin's business itself. These risks are detailed in the
"Risk Factors" section above. GBL is subject to additional risks as its
investment portfolio is non-diversified.
The Company placed $1,397,000 in short-term investments with high credit issuers
and by policy limits the amount of credit exposure to any one issuer. As stated
in its policy, the Company will seek to improve the safety and likelihood of
preservation of its invested fund by limiting default risk and market risk.
14
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings. None.
Item 2. Changes in Securities. None.
Item 3. Defaults upon Senior Securities. None.
Item 4. Submission of Matters to a Vote of Security Holders. None.
Item 5. Other Information. None.
Item 6. Exhibits and Reports on Form 8-K.
(a) The following documents are filed as part of this report:
See Exhibit Index attached hereto.
(b) Reports on Form 8K
No reports were filed on Form 8-K during the
three months ended September 30, 2000.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant caused theis Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GLYKO BIOMEDICAL LTD.
Dated: November 8, 2000 By: /s/ Erich Sager
----------------------------------- ---------------------------------
Erich Sager
President, Chief Executive
Officer and Chief Financial
Officer (on behalf of registrant
and as principal financial officer)
16
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EXHIBIT INDEX
Exhibit Description
Number
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27.1 Financial Data Schedule (see Financial Data Schedule attached hereto in
EDGAR format only)
<PAGE>
