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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
Annual report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2000 Commission File No. 0-21794
GENZYME TRANSGENICS CORPORATION
(Exact name of Registrant as specified in its charter)
MASSACHUSETTS 04-3186494
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
175 CROSSING BOULEVARD 01702
FRAMINGHAM, MASSACHUSETTS (Zip Code)
(Address of principal executive offices)
(508) 620-9700
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of Each Class on which registered
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None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or15(d) of the Securities Exchange Act of
1934 during the preceding twelve months and (2) has been subject to such filing
requirements for the past 90 days. YES |X| NO |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|
Aggregate market value of voting stock held by non-affiliates of the
Registrant as of March 19, 2001: $111,579,029
Number of shares of the Registrant's Common Stock outstanding as of March
19, 2001: 29,487,880
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held May 23, 2001 are incorporated by reference into Part III
of this Form 10-K.
ITEM 1.
BUSINESS
Overview
Genzyme Transgenics Corporation ("GTC" or the "Company") is a leader in the
application of transgenic technology to the development and production of
recombinant proteins for therapeutic and other biomedical uses. To date, GTC has
produced more than 65 such proteins, 45 through collaborations with various
commercial and academic organizations and 20 independently. More than half of
the transgenic proteins actively under development by the Company are monoclonal
antibodies ("MAB") or immunoglobulin ("Ig") fusion proteins.
GTC produces recombinant proteins by inserting into the genetic material of an
animal embryo a specific DNA sequence that directs the production of a desired
protein in the milk of transgenic offspring. The Company believes that
transgenic production offers substantial economic and technological advantages
in comparison to traditional protein production systems, such as cell culture
and microbial systems. These advantages include reduced capital expenditures,
greater flexibility in timing capital investment and lower direct production
cost per unit. In the case of certain complex proteins, including some Ig fusion
proteins, transgenic production may represent the only technologically and
economically feasible method of commercial production. For proteins currently
derived from pooled human plasma, transgenic production provides an alternative
source with reduced risk of transmission of human viruses and other known
adventitious agents. Of the 65 transgenic proteins produced to date, GTC has
expressed 45 proteins at levels of one gram per liter or higher in mice, 13 of
which have also been expressed in goats at levels greater than one gram per
liter. These expression levels are substantially higher than those typically
achieved for comparable proteins in traditional protein production systems.
The Company's primary focus is on using transgenic technology to produce
monoclonal antibodies. These therapeutics are likely to be required in
relatively large and repeated doses for chronic diseases such as rheumatoid
arthritis, other autoimmune diseases and cancer. The economic and technological
advantages of transgenic technology make it well suited to produce the large
amount of proteins anticipated for therapeutic use of monoclonal antibodies. By
early 2001, 15 monoclonal antibodies had been approved for use in the United
States, ten (nine that are marketed and one with an approvable letter from the
Food and Drug Administration) for use as human therapeutics and five for
diagnostic uses. The total 1999 revenues for the nine marketed therapeutic
antibodies, including ReoPro(R), Rituxan(R), Synagis(R), Herceptin(R),
Remicade(R) and Zenapax(R), was approximately $1.4 billion. More than 90
monoclonal antibody candidates are now in clinical trials and over 200 are
reported to be in preclinical development. The Company believes that in many
cases the yearly requirement for production of these potential therapeutics will
exceed 100 kilograms and may approach 300 to 1,000 kilograms. Transgenic
production may provide the only commercially viable means to meet the large
projected volume requirements of these therapeutics.
The Company has several partnerships with pharmaceutical and other biotechnology
companies to develop monoclonal antibodies/Ig fusion proteins transgenically.
GTC's corporate partners include Bristol-Myers Squibb, Elan, Centocor, Abgenix
and Alexion. To date, the Company has formed more than a dozen collaboration
agreements which generally provide for transgenic production of limited
quantities of targeted proteins in exchange for development fees and milestone
payments and, in some cases, anticipate the payment of royalties on product
sales upon commercialization. Following characterization of the transgenic
product in preclinical testing and pharmacokinetic studies, the Company intends
to negotiate commercialization agreements that are designed to allow the Company
to participate in the success of the product through equity, royalties and
supply commitments. The Company has been granted several patents covering the
production of monoclonal and assembled antibodies in the milk of transgenic
mammals, which it believes establishes a strong proprietary position in the
field.
A plasma protein under development by GTC is Human Serum Albumin ("HSA"), which
is being developed with Fresenius AG. The therapeutic use of HSA is indicated in
situations of blood loss and/or decreased blood albumin levels which can occur
during shock, serious burns, pre- and post-operative conditions, congestive
heart failure and gastric, liver and intestinal malfunctions. HSA is currently
produced by human plasma fractionation, with worldwide sales of approximately $1
billion to $1.5 billion. During 2000, the Company worked on refining its
separation and purification processes to obtain highly purified HSA.
The Company is also developing transgenic production processes for other
proteins, including a malaria merozoite surface protein ("MSP-1") for use in a
malaria vaccine. The MSP-1 protein successfully protected Aotus nancymai monkeys
in a preclinical vaccine study conducted by the National Institute of Allergy
and Infectious Diseases ("NIAID"). Although MSP-1 can be produced in other
recombinant systems, it is in very limited quantities or in forms that may not
induce the
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necessary immune response. The NIAID and GTC established a CRADA (Cooperative
Research and Development Agreement) to evaluate the feasibility of developing
animals capable of producing recombinant versions of MSP-1 in their milk. To
express the MSP-1 protein at high quantities, GTC's scientists modified its gene
sequence while conserving the overall amino acid sequence of the protein. The
MSP-1 protein has been expressed at 2-4mg/ml in the milk of mice that have
incorporated this gene sequence.
Transgenic Technology
Overview
Transgenic technology uses in vitro microinjection or other techniques to
introduce a genetically engineered segment of exogenous DNA (an "expression
vector") into the genetic material of a fertilized egg or early stage animal
embryo. Two types of genetic instructions are incorporated into the expression
vector: the coding sequence and the promoter sequence. Coding sequences instruct
the cells of the animal to express a specified protein. Promoter sequences
direct the expression of proteins at appropriate times and by specific tissues
or cell types. GTC utilizes promoter sequences that direct the expression of
specific proteins in the mammary gland during lactation. After microinjection of
the exogenous DNA, the modified embryo is then transferred to a recipient
female. Transgenes are successfully integrated into the genetic makeup of only a
small percentage of the embryos that are microinjected; therefore multiple
microinjection candidates are required. If successful, the resulting animal,
when mature and lactating, will express the desired protein. Once established in
the first generation of transgenic animals, the transgene is transmitted like
other genetic traits to future generations through traditional breeding with
either non-transgenic or other transgenic animals. To date, the Company has
produced such proteins principally using goats, which offer an attractive
combination of large milk volumes, relatively short generational time periods
and ease of handling and milking.
GTC believes that for certain proteins required in extremely large amounts, such
as HSA, transgenic cows might be required. Due to the long gestation and
maturation periods of large dairy animals, microinjection is an inefficient
method to produce transgenic cows. Therefore, the Company believes that cloning
may accelerate transgenic biopharmaceutical development because cloning offers a
method of producing a large number of transgenic animals in one generation. GTC
has signed an exclusive, worldwide licensing agreement with Advanced Cell
Technologies, Inc. ("ACT") allowing GTC to utilize ACT's patented technology for
the development of biopharmaceuticals in the milk of all cloned transgenic
mammals. The Company believes ACT's proprietary technology, when coupled with
GTC's transgenic technology, will provide additional patentable approaches to
efficiently create cloned transgenic animals. To date, the Companyhas cloned
more than 15 cows and continues to produce cloned transgenic cattle.
Advantages of Transgenic Technology
The Company believes that its current and future partners will elect to employ
transgenic technology for the production of recombinant proteins in cases where
transgenic technology offers economic and technological advantages over other
production systems. These advantages, any one of which may be critical to the
decision to proceed with a particular development project, include:
o Lower Capital Investment. Creating a herd and providing appropriate
dairy facilities can be accomplished with substantially less cost
than building a cell culture bioreactor facility.
o Improved Risk Management of Capital Investment. Transgenic herd
production offers capacity flexibility and relatively short lead
times for scale up. As a result, in contrast to the need for early
commitment to bioreactor production capacity, the Company's partners
can delay those commitments (and the corresponding capital
investment) to later stages of the development project when they may
have more definitive product and market information.
o Predictability of Increasing Production. In contrast to cell culture
production systems, transgenic production systems are expected to
exhibit greater predictability of yield at large volume production
once the DNA for a therapeutic protein has been successfully
integrated into transgenic founder animals. This offers GTC's
partners greater assurance of the ability to produce product
quantities sufficient for advanced clinical trials and product
launch.
o Lower Cost of Goods. Economic factors unique to transgenic
production lower the ultimate cost of goods in most cases. High
protein expression levels in transgenic animals and efficiency in
purification result in the cost
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of transgenically produced products, in most cases, being
substantially lower than that of a cell culture derived product. As
further improvements are made in the downstream purification
process, GTC anticipates that the cost of the transgenically
produced product will decline even further.
o Technological Enablement. Transgenic technology offers the ability
to produce certain biotherapeutics which cannot be made in a
commercially feasible manner in any other system. The suitability of
transgenic production for high-volume proteins requiring more than
100 kilograms per year is widely acknowledged. In addition, GTC has
achieved the same consistent expression rates with complex
molecules, which may not be producible in cell cultures at all. This
accomplishment, in conjunction with the favorable economics of herd
development, means that for some complex proteins with low-volume
demand, transgenics may be as viable a production system as it is
for other proteins that require 1,000 kilograms or more annually.
Transgenic Development Process
GTC's development of a typical transgenic protein is designed to proceed in a
logical sequence of three major steps:
o First Step. Using the DNA provided by the partner, GTC develops
founder goats transgenic for a particular protein. The Company
employs a standard DNA microinjection process to produce a
transgenic goat. The first animals are born five months after
microinjection.
o Second Step. GTC and the partner collaborate on the development of a
pilot downstream process to purify the protein, after which GTC
provides preclinical and clinical samples. After GTC provides
protein samples from transgenic milk to the partner for initial
purification and characterization, GTC and the partner begin a
collaborative effort to establish a commercially robust purification
process for the protein. This enables substantial amounts of
material to be delivered for preclinical studies and initial human
clinical studies. Next, GTC initiates an initial scale up of the
transgenic herd making 6 to 10 animals that are capable of producing
sufficient product for use in expanded clinical studies.
o Third Step. GTC provides initial quantities of product while working
with the partner to develop cost and timing estimates for
commercialization. Based on these estimates, the partner will make
capital commitments to enable GTC to provide sufficient facility
capacities specifically for the partner's product including one or
several barns for housing and scaling up the herd and facilities for
collection of milk and initial processing. Simultaneously, GTC will
begin scaling up the production herd to breed a sufficient number of
animals to meet forecasted production requirements. GTC anticipates
that its future commercial supply agreements will provide for the
transfer of intermediate bulk to the customer or designated
processor for further processing to finished product.
Development Programs
GTC's strategy is to commercially produce proteins using transgenic technology
primarily by entering into collaboration agreements with biotechnology and
pharmaceutical companies. To date, the Company has formed more than a dozen
collaboration agreements which generally provide for transgenic production of
limited quantities of targeted proteins in exchange for development fees and
milestone payments and, in some cases, anticipate the payment of royalties on
product sales upon commercialization. Following characterization of the
transgenic product in preclinical testing and pharmaco- kinetic studies, the
Company intends to negotiate commercialization agreements that are designed to
allow the Company to participate in the success of the product through milestone
payments, royalties and supply commitments.
The products covered by these partnerships encompass a broad range of
indications and are currently in various stages of development. Many of GTC's
collaborators are marketing or engaging in clinical trials with product sourced
through traditional protein production systems and are considering transitioning
to a transgenically produced product. In most of these collaborations, GTC
benefits from the partner's preclinical development experience in working with a
particular protein, and in cases where a recombinant or plasma-derived product
is in clinical trials or on the market, the Company believes the regulatory
approval process for the transgenic product will be facilitated by the partner's
experience with the initial product.
Monoclonal Antibodies
Monoclonal antibodies represent one of the biotechnology industry's greatest
successes. Medical researchers have now developed a better understanding of the
critical variables for specificity and binding of the antibody, and have
identified
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targets likely to affect disease progression and clinical conditions amenable to
treatment with systemic biologic intervention. As a result, the last several
years have witnessed the clinical success, regulatory approval and commercial
launch of several breakthrough monoclonal antibody therapies, including
ReoPro(R) for use in various acute cardiac conditions, Rituxan(R) for B-cell
non-Hodgkin's lymphoma, Synagis(R) for treatment of viral respiratory disease in
premature babies, Herceptin(R) for breast cancer, Remicade(R) for use in Crohn's
disease and rheumatoid arthritis and Zenapax(R) for acute transplant rejection.
These clinical successes, the availability of technologies for making fully
human molecules and drug discovery technologies that identify potential antibody
targets, will continue to drive the development of new antibody-based
therapeutics.
Therapeutic antibodies are typically administered in larger doses than other
protein therapeutics and in repeated doses to treat chronic illnesses. Their
continued success is driving the need for commercially feasible production
methods yielding significantly higher quantities than currently available using
traditional protein production methods. While the annual worldwide requirement
of a typical recombinant protein may approach 10 kilograms, the Company believes
that many antibodies will require supplies in excess of 100 kilograms annually.
Current cell culture methods (the only traditional method available for
producing monoclonal antibodies) generally cannot produce the requisite high
volumes needed for antibody therapeutics, are not economically feasible and
require significant capital investment. The Company believes that the high
expression levels which can be achieved using transgenic technology will enable
the pharmaceutical industry to meet these market demands.
GTC is actively participating in the field of monoclonal antibodies through a
number of collaborations. The Company is developing a transgenic version of
Remicade(R) in a collaboration with Centocor. Also, GTC is developing transgenic
versions of nine additional monoclonal antibodies/Ig fusion molecules, the cell
culture versions of which are currently in clinical trials, including ABX-IL8
for Abgenix, CTLA4Ig and an unnamed Ig fusion molecule for Bristol-Myers Squibb,
Antegren(R) for Elan, PRO542 for Progenics and a therapeutic recombinant protein
for Alexion. The indications for these products include arthritis, HIV/AIDS,
cancer and autoimmune diseases. The status of the cell culture and transgenic
versions of these products is shown in the chart below. In these partnerships,
the Company provides material for the partners' clinical trials, while the
partners retain the risk and expense of conducting the trials.
The following chart contains a summary of the Company's most active monoclonal
antibody/Ig fusion protein development programs:
Development Stage
Product of Cell Culture Development Stage of
Name Product Type Indication Product Transgenic Product Partner
- ---- ------------ ---------- ------- ------------------ -------
Remicade(R) Monoclonal antibody Crohn's Disease; Marketed Preclinical; Transgenic Centocor
Rheumatoid Arthritis goats in development
Undisclosed Monoclonal antibody Undisclosed Undisclosed Undisclosed; Transgenic Centocor
goats in development
D2E7 Fully human monoclonal Rheumatoid Arthritis Phase III clinicals Preclinical; Transgenic BASF/Knoll
antibody goats in development
Antegren(R) Humanized monoclonal Neurological Disorders Phase II clinicals Preclinical; Transgenic Elan
antibody goats in development Pharmaceuticals
CTLA4Ig Immunoglobulin Rheumatoid Arthritis Phase II clinicals Preclinical; Transgenic Bristol-Myers
fusion/soluble receptor goats in development Squibb
Undisclosed Immunoglobulin Organ Transplant Phase II clinicals Preclinical; Transgenic Bristol-Myers
fusion protein Rejection; Autoimmune goats in development Squibb
Disorders
Undisclosed Monoclonal antibody Undisclosed Undisclosed Preclinical; Transgenic Alexion
goats in development
PRO542 CD4/Immunoglobulin HIV/AIDS Phase II clinicals Preclinical; Transgenic Progenics
fusion antibody goats in development
ABX-IL8 Monoclonal antibody Psoriasis; Rheumatoid Phase II clinicals Preclinical; Transgenic Abgenix
Arthritis goats in development
HuN901 Monoclonal antibody Small Cell Lung Cancer Preclinical with IND Preclinical; Transgenic ImmunoGen
filed goats in development
Other Therapeutic Proteins
Antithrombin III. ATIII is a protein normally found in human serum, that when
bound to heparin, acts as an anticoagulant. Decreased levels of ATIII are found
in individuals who have either a hereditary or an acquired deficiency of ATIII.
The hereditary deficiency has an incidence rate of 1 in 2,000 to 1 in 5,000.
Individuals with hereditary ATIII deficiency have an increased tendency toward
blood clots (thromboses) and are treated with ATIII replacement therapy during
periods when
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they are at high risk for clots, such as during surgery. Acquired ATIII
deficiency may occur if there is a decrease in the amount of ATIII produced, an
increase in the rate of ATIII consumption or an abnormal loss of ATIII from the
circulation. Examples of conditions in which acquired ATIII deficiency may occur
are acute liver failure, disseminated intravascular coagulation, sepsis and
septic shock, burns, multiple organ failure, bone marrow or organ
transplantation and hemodialysis.
The Company filed an Investigational New Drug application ("IND") with the FDA
in 1996 to evaluate use of recombinant human ATIII ("rhATIII") as a potential
treatment for ATIII deficiency that occurs in certain patients with heart
disease. Patients undergoing cardiopulmonary bypass ("CPB") surgery require
anticoagulation with heparin to prevent clotting, which can occur when blood
comes into contact with the tubing of the heart-lung machine performing the
heart's function during surgery. Patients with heparin resistance generally do
not respond adequately to these heparin treatments.
In 1997, GTC and Genzyme established the ATIII LLC joint venture for the
marketing and distribution of rhATIII in all territories other than Asia. Under
the terms of the joint venture agreement, Genzyme funded 70% of the development
costs of rhATIII up to a maximum of $33 million. The Company funded the
remaining 30% of these costs. Development costs in excess of these amounts were
to be funded equally by the partners. The $33 million funding level was achieved
by Genzyme in 2000. Each of the Company and Genzyme were also to make capital
contributions to the ATIII LLC sufficient to pay 50% each of all new facility
costs to be incurred. In addition to the funding, both partners were to
contribute manufacturing, marketing and other resources to the ATIII LLC at
cost. Genzyme and GTC each own 50% of the venture, although Genzyme is obligated
to make certain milestone payments to GTC if and when transgenic ATIII has been
approved by the FDA and certain sales levels have been reached. Profits and
losses are shared according to ownership percentages. The agreement covers all
territories other than Asia.
Two identical, double blinded, randomized placebo-controlled Phase III clinical
trials began in the second quarter of 1998. These studies, which included 52
patients each, were designed to assess the activity of rhATIII in restoring
heparin sensitivity among heparin-resistant patients undergoing cardiac surgery
requiring CPB. The two studies, conducted at medical centers in Europe and the
United States, have been completed, and the primary clinical endpoint was met in
both studies with a high degree of statistical significance. Moreover, the drug
was well tolerated by patients. There was no detectable antibody formation to
rhATIII. There was no statistically significant difference in adverse events
reported among the groups of both studies. The most commonly observed adverse
events were platelet, bleeding and clotting disorders. In the placebo control
and rhATIII groups, respectively, these events occurred in 42% and 50% of the
patients in the first study, and in 22% and 41% of the patients in the second
study.
In late 2000, the Company announced that it expected to re-acquire from Genzyme
the rights to rhATIII that it did not already own. In early 2001, the ATIII LLC
met with the U.S. Food and Drug Administration to discuss the status of the
clinical development program for the rhATIII molecule in the treatment of
heparin resistance in patients about to undergo cardiopulmonary bypass surgery.
While no outstanding concerns have been raised about GTC's technology or its
application, the level of expense and time involved in developing the additional
data required by the FDA is not justified by the potential market size of the
heparin resistance indication therefore, the ATIII LLC agreed to discontinue
development in this indication.
The ATIII LLC is performing business and scientific evaluations of the rhATIII
molecule in other indications. Should these evaluations support commitment to
developing rhATIII for another indication(s), the work done for the heparin
resistance indication may be used in whole or in part to pursue this
opportunity. Based on the outcome of the evaluations as well as any discussions
with Genzyme, the Company may proceed with a transaction to re-acquire the
rights to rhATIII rights that it does not already own.
The ATIII LLC formed a collaboration with Genzyme Molecular Oncology, a division
of Genzyme, to jointly develop a form of transgenic ATIII for potential
application as an angiogenesis inhibitor in the field of oncology. This research
stage collaboration is based on a discovery by Dr. Judah Folkman from Children's
Hospital, Boston, Massachusetts that certain conformations of ATIII, referred to
as anti-angiogenic ATIII, inhibit angiogenesis in vitro and inhibit tumor growth
in mice. Potential anti-angiogenic applications of rhATIII, outside the field of
oncology, may be developed by the ATIII LLC.
RhATIII is being developed under a royalty-bearing license from Centeon, a
wholly owned subsidiary of Aventis SA and the successor to Behringwerke AG.
Human Serum Albumin. HSA is the protein principally responsible for maintaining
oncotic pressure, plasma volume and the balance of fluids in blood. It is
critical to the transport of amino acids, fatty acids and hormones in the blood
stream. The therapeutic use of HSA is indicated in situations of blood loss
and/or decreased blood albumin levels which can occur during shock, serious
burns, pre- and post-operative conditions, congestive heart failure and gastric,
liver and intestinal
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malfunctions. HSA is currently produced by human plasma fractionation, with
worldwide sales of approximately $1 billion to $1.5 billion.
GTC has expressed transgenic HSA in mice at levels equivalent to or greater than
35 grams per liter and, in 1999, successfully produced transgenic cattle
expressing this protein in their milk at commercially feasible levels. An
individual cow is expected to produce 80 kilograms of albumin annually. GTC
believes that this level of production should provide the Company with the
ability to produce HSA at costs competitive with albumin sourced from human
blood, and in the amounts required to meet market demand. GTC has refined its
purification process for transgenic HSA and developed a detailed economic model
for its commercial production. The Company has entered into an agreement with
Fresenius AG of Bad Homburg, Germany, to develop and commercialize transgenic
HSA.
Malaria Vaccine. GTC's transgenic expression system has the potential to express
the correct, immunogenic protein for use as a malaria vaccine both economically
and on a large scale. Malaria is a disease that has an annual incidence of more
than 300 million people worldwide and results in several million deaths
annually. GTC is working with the National Institutes of Health (the "NIH") and
the Federal Malaria Vaccine Coordinating Committee to express a malaria protein,
which is considered a promising vaccine candidate and to examine the options for
commercializing the vaccine. The Company has entered into a CRADA with the NIH
and during 1998 achieved high level expression of the candidate vaccine malaria
antigen, MSP-1, in the milk of transgenic mice. The MSP-1 protein successfully
protected Aotus nancymai monkeys in a preclinical vaccine study conducted by the
NIAID. The Company is currently evaluating strategies for further development of
this promising vaccine candidate.
Sale of Primedica Corporation CRO Services
GTC acquired its contract research organization ("CRO") capabilities through the
acquisitions of TSI Corporation in October 1994 and BioDevelopment Laboratories,
Inc. in June 1995. In February 1998, GTC reorganized its CRO businesses under a
wholly owned subsidiary, Primedica Corporation ("Primedica"), to provide a
unified identity and a dedicated structure for further growth of its CRO
business. Primedica conducted its CRO services through four laboratories:
Primedica Worcester (Massachusetts), Primedica Redfield (Arkansas), Primedica
Rockville (Maryland), as well as Primedica Argus (Pennsylvania).
Primedica had $72 million in revenue in 2000 and generated net income of
$224,000. In February 2001, the Company sold Primedica to Charles River
Laboratories, Inc. (NYSE: CRL). GTC received $26 million in cash, 658,945 shares
of CRL common stock valued at $15.9 million and Charles River Laboratories
assumed all of Primedica's approximately $9 million of capital leases and
long-term debt.
Relationship With Genzyme
Equity Position. Genzyme is the largest single stockholder of the Company,
holding 7,744,919 shares of common stock as of December 31, 2000, which
represents approximately 26% of the outstanding GTC common stock, Genzyme
also holds four common stock purchase warrants exercisable for 145,000,
288,000, 55,833 and 29,491 shares of GTC common stock at prices of $2.84,
$4.88, $6.30 and $6.30 per share, respectively, the market price of the
common stock at the time the respective Genzyme warrants were issued. All of
the shares held by Genzyme (including shares issuable on exercise of Genzyme
warrants) are entitled to registration rights.
Technology Transfer Agreement. Under the Technology Transfer Agreement dated May
1, 1993, Genzyme transferred substantially all of its transgenic assets and
liabilities to GTC, assigned its relevant contracts and licensed to the Company
technology owned or controlled by it and relating to the production of
recombinant proteins in the milk of transgenic animals (the "Field") and the
purification of proteins produced in that manner. The license is worldwide and
royalty free as to Genzyme, although GTC is obligated to Genzyme's licensors for
any royalties due them. As long as Genzyme owns less than 50% of GTC, Genzyme
may use the transferred technology, or any other technology it subsequently
acquires relating to the Field, for internal purposes only without any royalty
obligation to the Company.
R&D Agreement. Pursuant to a Research and Development Agreement dated May 1,
1993, Genzyme and GTC agreed to provide research and development services to the
other relating, in the case of GTC, to transgenic production of recombinant
proteins and, in the case of Genzyme, to the purification of such proteins. Each
company receives payments from the other equal to the performing party's fully
allocated cost of such services, which can be no less than 80% of the annual
budgets established by the parties under the agreement on a month to month
basis, plus, in most cases, a fee equal to 10% of such costs. The agreement
expired on December 31, 1998 and the parties are continuing under this agreement
on a month-to-month basis.
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ATIII LLC. In January 1998, the Company entered into a collaboration agreement
for the development of rhATIII with Genzyme forming the ATIII LLC joint venture.
Under the terms of the agreement, Genzyme funded 70% of the development costs of
rhATIII up to a maximum of $33 million. The Company funded the remaining 30% of
these costs. Development costs in excess of these amounts were to be funded
equally by the partners. The $33 million funding level was achieved by Genzyme
in 2000. The Company and Genzyme were also to make capital contributions to the
ATIII LLC sufficient to pay 50% each of all new facility costs to be incurred.
In addition to the funding, both partners were to contribute manufacturing,
marketing and other resources to the ATIII LLC at cost. Genzyme and GTC each own
50% of the venture, although Genzyme is obligated to make certain milestone
payments to GTC if and when rhATIII has been approved by the FDA and certain
sales levels have been reached. Profits and losses are shared according to
ownership percentages. The agreement covers all territories other than Asia.
In late 2000, the Company announced that it expected to re-acquire from Genzyme
the rights to rhATIII that it did not already own. In early 2001, the ATIII LLC
met with the U.S. Food and Drug Administration to discuss the status of the
clinical development program for the rhATIII molecule in the treatment of
heparin resistance in patients about to undergo cardiopulmonary bypass surgery.
While no outstanding concerns have been raised about GTC's technology or its
application, the level of expense and time involved in developing the additional
data required by the FDA is not justified by the potential market size of the
heparin resistance indication therefore, the ATIII LLC agreed to discontinue
development in this indication.
The ATIII LLC is performing business and scientific evaluations of the rhATIII
molecule in other indications. Should these evaluations support commitment to
developing rhATIII for another indication(s), the work done for the heparin
resistance indication may be used in whole or in part to pursue this
opportunity. Based on the outcome of the evaluations as well as any discussions
with Genzyme, the Company may proceed with a transaction to re-acquire the
rights to rhATIII rights that it does not already own.
Services Agreement. Under a services agreement between GTC and Genzyme, GTC pays
Genzyme a fixed monthly fee for basic laboratory and administrative support
services. The monthly fee is adjusted annually, based on the services to be
provided and changes in Genzyme's cost of providing the services. The services
agreement is self-renewing annually and may be terminated upon 90 days notice by
either party.
Credit Line Guaranty, Term Loan Guaranty and Lien. Genzyme guarantees a credit
line and term loan with a commercial bank up to $24.6 million, expiring in
December 2001. The Company has agreed to reimburse Genzyme for any liability
Genzyme may incur under such guaranty and has granted Genzyme a first lien on
all of the Company's assets to secure such obligation.
Other Strategic Collaborations
Tufts University School of Veterinary Medicine
Pursuant to a cooperation and licensing agreement, Tufts University School of
Veterinary Medicine ("Tufts") has agreed to work exclusively with GTC until
September 2001 in developing commercial applications of transgenic protein
production in milk. Tufts has also granted GTC a perpetual, non-exclusive
license to use certain proprietary microinjection technology and animal
husbandry techniques. Sales of products derived from transgenic goats produced
by Tufts, or from their offspring, are subject to royalties payable to Tufts.
The Company maintains a herd of approximately 136 goats at Tufts' facility in
Massachusetts.
SMIG JV
GTC held a 22% interest in a joint venture with Sumitomo Metal Industries Ltd.
(the "SMIG JV"). Under this joint venture, GTC granted to the SMIG JV an
exclusive license in Asia to use GTC's transgenic technology to make, use and
sell transgenic products, including ATIII, until the later of 2008 or the
expiration of any applicable Japanese patent, subject to various reciprocal
royalty obligations.
The Company re-acquired from the SMIG JV the rights to its technology in the 18
Asian countries included in the joint venture. The 10 year-old joint venture has
been dissolved. GTC can now directly develop its technology and the associated
products in all 18 Asian countries or enter into separate agreements on a
country-by-country or product-by-product basis. The Asian rights were
re-acquired by issuing an aggregate of 333,334 shares of GTC common stock valued
at approximately $11.1 million plus transaction costs of $143,000.
8
Patents and Proprietary Rights
GTC has filed 26 patent applications which cover relevant portions of its
transgenic technology, several of which are covered by cross-licensing
agreements. In addition, GTC has 8 issued and 52 pending foreign patents for the
same technology. GTC holds exclusive and nonexclusive licenses from Genzyme to
rights under a number of patent applications on file in the United States and
corresponding foreign patent applications relating to certain aspects of its
technology. GTC has a broad patent issued by the European Patent Office which
covers a DNA construct and its use in the production of proteins in the milk of
non-human, transgenic mammals. Other GTC applications as to specific proteins,
classes of proteins, techniques to enhance expression and purification
technologies remain pending. From 1998 through early 2001, the U.S. Patent and
Trademark Office awarded GTC six patents, two covering the purification of
proteins from the milk of transgenic animals, two more relating to the
production of monoclonal and assembled antibodies at commercial levels in the
milk of transgenic mammals, one covering the production of ATIII in the milk of
transgenic goats, and one covering the production of Prolactin in the milk of
transgenic animals.
GTC has exclusive and nonexclusive licenses to technologies owned by other
parties, including DNX, Inc. as to microinjection, Stanford University as to
gene transfer, Centeon L.L.C. as the successor to Behringwerke AG as to ATIII,
as well as promoter cross-licenses in place with PPL Therapeutics PLC ("PPL"),
Pharming B.V. ("Pharming") and Advanced Cell Technology, Inc. as to cloning.
Certain of the licenses require GTC to pay royalties on sales of products which
may be derived from or produced using the licensed technology. The licenses
generally extend for the life of any applicable patent.
The Company also relies upon trade secrets, know how and continuing
technological advances to develop and maintain its competitive position. In an
effort to maintain the confidentiality and ownership of trade secrets and
proprietary information, the Company requires employees, consultants and certain
collaborators to execute confidentiality and invention assignment agreements
upon commencement of a relationship with the Company.
Competition
Many companies, including biotechnology and pharmaceutical companies, are
actively engaged in seeking efficient methods of producing proteins for
therapeutic or diagnostic applications. Two other companies known to GTC are
extensively engaged in the application of transgenic technology to mammals or
the production of proteins for therapeutic use in humans: Pharming and PPL.
Pharming, based in the Netherlands, is primarily engaged in the development of
recombinant proteins in the milk of transgenic cows, which are most suitable for
extremely high volume protein production. PPL, based in Scotland, utilizes
primarily sheep for transgenic protein production. There are also other
companies seeking to develop transgenic technology in other non-mammal animals
and in plants.
Government Regulation
The manufacturing and marketing of GTC's potential products and certain areas of
research related to them are subject to regulation by governmental authorities
in the United States, including the FDA, the U.S. Department of Agriculture (the
"USDA") and the Environmental Protection Agency (the "EPA"). Comparable
authorities are involved in other countries.
To GTC's knowledge, no protein produced in the milk of a transgenic animal has
been submitted for final regulatory approval. However, the FDA issued its Points
to Consider in August 1995. Points to Consider, which are not regulations or
guidelines, are nonbinding published documents that represent the current
thinking of the FDA on a particular topic. Earlier in 1995, comparable
guidelines were issued by European regulatory authorities. GTC believes that its
programs satisfactorily address the issues raised by these documents and
generally views them as a very positive milestone in the acceptance of the
transgenic form of production. Based on discussions with the FDA and others, GTC
expects that the basic United States regulatory framework for the transgenic
production of recombinant proteins in animals will be similar to that described
in the Points to Consider.
The FDA licenses biological products under the authority of the Public Health
Service ("PHS") Act. With respect to therapeutic biological products, generally,
the standard FDA approval process includes preclinical laboratory and animal
testing, submission of an IND to the FDA and completion of appropriate human
clinical trials to establish safety and effectiveness. Prior to passage of the
FDA Modernization Act of 1997 ("FDAMA"), applicants for a license to market a
biological product filed both an establishment license application (an "ELA")
and a product license application (a "PLA"). Since the passage of FDAMA, the FDA
has taken actions to make the licensing process for biological products more
consistent with the process for the approval of new drugs. Accordingly, since
October 20, 2000, all manufacturers seeking a license to market a biological
product in interstate commerce must file a single Biological License Application
(a "BLA").
9
PLAs and ELAs filed in the interim will be administratively handled by the FDA
as a BLA. If a manufacturer successfully demonstrates that the biological
product meets PHS standards, that is, that the product is safe, pure and potent
and that the facility in which it is manufactured meets standards designed to
ensure that the product continues to be safe, pure and potent, the manufacturer
will receive a biological license to market the product in interstate commerce.
The approval process for the Company's protein production programs may be
undertaken either by the Company, by a collaborator for which the Company is
producing proteins, or jointly, depending upon the nature of the relationship
involved.
Research and Development Costs
During its fiscal years ended December 31, 2000, January 2, 2000 and January 3,
1999, GTC spent $18,976,000, $15,092,000 and $16,641,000, respectively, on
research and development. These costs include labor, materials and supplies and
overhead, the cost of operating the transgenics production facility, as well as
certain subcontracted research projects.
Employees
As of March 1, 2001, GTC employed 143 people. Of GTC's total employees, 79 were
engaged in operations, 25 were engaged in research and development and 39 were
engaged in marketing and general administration. Of GTC's employees,
approximately 14 have Ph.D. degrees, 1 has an M.D. degree and 14 have D.V.M.
degrees. None of GTC's employees are covered by collective bargaining
agreements. GTC believes its employee relations are satisfactory.
ITEM 1A.
EXECUTIVE OFFICERS OF THE REGISTRANT
The current executive officers of the Company and their respective ages
and positions are as follows:
Name Age Position
- ---- --- --------
James A. Geraghty............................... 46 Chairman of the Board
Sandra Nusinoff Lehrman, M.D.................... 53 President and Chief Executive Officer
Vice President, Chief Financial Officer and
John B. Green................................... 47 Treasurer
Harry M. Meade, Ph.D............................ 54 Vice President, Transgenics Research
Michael W. Young................................ 49 Vice President, Commercial Development
Mr. Geraghty has been Chairman of the board of directors of GTC since January
1998 and has been a director since February 1993. Mr. Geraghty was the President
and Chief Executive Officer of GTC from its incorporation in February 1993 until
July 1998. From July 1998 until December 2000 Mr. Geraghty served as President
of Genzyme Europe and since January 2001, as Senior Vice President,
International Development of Genzyme.
Dr. Lehrman has been the President, Chief Executive Officer and a director of
GTC since July 1998. Before joining GTC, Dr. Lehrman was President and Chief
Operating Officer of CytoTherapeutics, Inc., a biotechnology company focused on
the development of cell therapy systems, and Vice President, Drug Development of
Triangle Pharmaceuticals, Inc., an antiviral drug development company from July
1995 to July 1996. She also held several positions from 1983 to 1994 at Wellcome
PLC, the last being International Director, Biotechnology and Vice President,
General Manager of Burroughs Wellcome Mfg., Inc., a biopharmaceutical production
subsidiary. Mr. Green has been the Vice President and Chief Financial Officer of
GTC since December 1994 and Treasurer since August 1997. He has also served as
Vice President and Treasurer of TSI, a wholly owned subsidiary of GTC, since
March 1993 and as its Chief Financial Officer since December 1994. Prior to
that, he was Vice President and Assistant Treasurer of TSI from December 1989.
Dr. Meade has been Vice President, Transgenics Research for GTC since August
1994 and has served as Research Director of GTC since May 1993. Prior to joining
GTC, Dr. Meade was a Scientific Fellow at Genzyme, where he was responsible for
directing the transgenic molecular biology program. From 1981 to March 1990,
when he joined Genzyme, Dr. Meade was a Senior Scientist at Biogen, Inc., a
biotechnology company, where he worked on the technology relating to the
production of proteins in milk and was an inventor on the first issued patent
covering this process.
10
Mr. Young has served as Vice President, Commercial Development since October
1995 when he joined GTC. Prior to joining GTC, Mr. Young was Vice President of
Business Development for PerSeptive Biosystems from 1993 and Vice President of
Marketing of Verax Corporation from 1986 to 1993.
ITEM 2. PROPERTIES
GTC's headquarters for the transgenics business is located in 12,468 square feet
of office space in Framingham, Massachusetts under a lease which expires in
March 2006. GTC's research facility for the transgenics business is located in
approximately 6,900 square feet of laboratory and office space leased from
Genzyme in Framingham, Massachusetts. This lease expired in May 1998, at which
time the lease automatically renewed, and continues to renew annually, on a
year-to-year basis until terminated by either party on 90 days' notice. (See
"Item 1 - Business--Relationship with Genzyme.")
GTC owns a 383-acre facility in central Massachusetts. This facility contains
106,793 square feet of production, laboratory and administrative space dedicated
to its transgenic segment. The facility also currently houses more than 1,500
goats. GTC believes its current owned and leased facilities are adequate for
significant further development of commercial transgenic products. GTC also
currently utilizes animal housing, care and treatment facilities operated by
Tufts in Massachusetts.
ITEM 3. LEGAL PROCEEDINGS
GTC is not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of fiscal year 2000, no matter was submitted to a vote
of the security holders of the Company.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
GTC's common stock commenced trading on July 9, 1993 on the Nasdaq National
Market System under the symbol GZTC. Quarterly high and low sales prices for the
stock as reported by the Nasdaq National Market System are shown below.
HIGH LOW
---- ---
1999:
1st Quarter 6 3/8 3 3/4
2nd Quarter 5 5/8 3 1/8
3rd Quarter 8 1/2 4 1/2
4th Quarter 13 1/8 5 5/8
2000:
1st Quarter 50 10
2nd Quarter 31 1/2 12 3/8
3rd Quarter 40 3/16 25 1/2
4th Quarter 36 1/8 14
On March 19, 2001 there were approximately 792 shareholders of GTC of record.
The Company has never paid a cash dividend on its common stock and currently
expects that future earnings will be retained for use in its business.
In November 1999, the Company completed a $6.6 million private placement of
Series B Convertible Preferred Stock (the "Series B Preferred Stock") to
Genzyme. The proceeds from this placement were used to redeem $6.6 million of
the Company's Series A Convertible Preferred Stock (the "Series A Preferred
Stock"). In connection with the issuance of Series B Preferred Stock, the
Company issued warrants to purchase 85,324 shares of the Company's common stock
at $6.30 per share to Genzyme. In February 2000, the Company issued a Notice of
Redemption to Genzyme for all outstanding shares of the Company's Series B
Preferred Stock. Prior to redemption, Genzyme converted the Series B Preferred
Stock into 1,048,021 shares of common stock on February 8, 2000. The Company
believes that the issuance of the Series B Preferred Stock, the related warrant
and the shares of common stock issued upon conversion of the Series B
11
Preferred Stock qualified as transactions by an issuer not involving a public
offering within the meaning of Section 4(2) of the Securities Act of 1933, as
amended (the "Securities Act"), based on the fact there was one holder.
In March 2000, the Company issued a warrant call notice for outstanding warrants
to purchase 450,000 shares of common stock that had been issued in connection
with the Series A Preferred Stock. Each warrant had an exercise price of
$15.1563 per share. As of March 31, 2000, all the warrants were exercised with
proceeds to the Company of $6.8 million. The Company believes that the issuance
of the common stock upon exercise of the warrants qualified as a transaction by
an issuer not involving a public offering within the meaning of Section 4(2) of
the Securities Act.
In September 2000, in order to terminate the SMIG JV, the Company issued an
aggregate of 333,334 shares of its common stock to Sumitomo Metal Industries,
Ltd. and an affiliate ("Sumitomo"). In exchange, Sumitomo transferred to a
wholly owned subsidiary of the Company all of the outstanding shares of SMI
Genzyme Ltd., a Japanese corporation, held by Sumitomo. As a result, the Company
directly and indirectly holds all of the outstanding equity in SMI Genzyme Ltd.
The Company believes that the issuance to Sumitomo qualified as a transaction by
an issuer not involving a public offering within the meaning of Section 4(2) of
the Securities Act.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data set forth below as of December 31, 2000 and January
2, 2000 and for each of the three fiscal years in the period ended December 31,
2000 are derived from the Company's consolidated financial statements included
elsewhere in this Report, which have been audited by PricewaterhouseCoopers LLP,
independent accountants. The selected financial data set forth below as of
January 3, 1999, December 28, 1997 and December 29, 1996, and for the years
ended December 28, 1997 and December 29, 1996 are derived from audited
consolidated financial statements not included in this Report.
This data should be read in conjunction with the Company's consolidated
financial statements and related notes thereto under Item 8 of this Report and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" under Item 7 of this Report.
12
SELECTED FINANCIAL DATA
(Dollars in thousands except per share data)
For the Fiscal Years Ended
----------------------------------------------------------------------------
December 31, January 2, January 3, December 28, December 31,
2000 2000 1999 1997 1996
------------ ------------ ------------ ------------ ------------
Statement of Operations Data:
Sponsored research and development revenue $ 16,163 $ 13,825 $ 11,596 $ 19,521 $ 8,338
Costs and expenses:
Research and development 18,976 15,092 16,641 17,840 8,684
Selling, general and administrative
9,148 7,875 6,042 7,381 5,170
Equity in loss of joint ventures
4,625 3,797 4,285 811 356
------------ ------------ ------------ ------------ ------------
32,749 26,764 26,968 26,032 14,210
------------ ------------ ------------ ------------ ------------
Loss from continuing operations (16,586) (12,939) (15,372) (6,511) (5,872)
Other income and (expenses):
Interest income 3,770 65 280 116 84
Interest expense (1,001) (1,232) (251) (465) (651)
Other income -- 484 100 50 587
------------ ------------ ------------ ------------ ------------
Loss from continuing operations $ (13,817) $ (13,622) $ (15,243) $ (6,810) $ (5,852)
Discontinued operations
Loss from discontinued contract research
operations (less applicable taxes of
$248, $320, $264, $0 and $0) (324) (5,139) (4,347) (2,533) (1,894)
------------ ------------ ------------ ------------ ------------
Net loss $ (14,141) $ (18,761) $ (19,590) $ (9,343) $ (7,746)
Dividends to preferred shareholders (74) (1,497) (1,156)
------------ ------------ ------------ ------------ ------------
Net loss available to common shareholders $ (14,215) $ (20,258) $ (20,746) $ (9,343) $ (7,746)
============ ============ ============ ============ ============
Netloss available to common shareholders per weighted
average number of common
shares (basic and diluted):
From continuing operations $ (0.49) $ (0.76) $ (0.91) $ (0.39) $ (0.39)
============ ============ ============ ============ ============
From discontinued contract research operations $ (0.01) $ (0.26) $ (0.24) $ (0.15) $ (0.13)
============ ============ ============ ============ ============
Net loss $ (0.50) $ (1.02) $ (1.15) $ (0.54) $ (0.52)
============ ============ ============ ============ ============
Weighted average number of shares
outstanding (basic and diluted) 28,373,283 19,876,904 17,978,677 17,253,292 14,801,725
Pro Forma (1)
December 31, December 31, January 2, January 3, December 28, December 31,
2000 2000 2000 1999 1997 1996
------- -------- -------- -------- -------- ---------
Balance Sheet Data:
Cash and cash equivalents 64,836 $ 41,024 $ 7,813 $ 12,097 $ 6,777 $ 9,132
Marketable securities 41,375 25,508 -- -- -- --
Working capital 90,796 88,389 16,715 26,903 22,567 32,550
Net assets of
discontinued research
operations held for sale -- 37,272 33,155 32,039 31,670 33,405
Total assets 136,810 134,403 58,518 60,052 50,187 49,568
Long-term liabilities 294 294 6,256 3 063 2,162 3,222
Shareholders' equity 117,250 114,843 26,206 36,220 27,378 35,204
There were no cash dividends paid for any period presented.
(1) Pro Forma adjustment reflects the sale of Primedica for net proceeds of
$39.7 million in cash and stock
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
In February 2001, Genzyme Transgenics Corporation ("GTC" or the "Company")
completed the sale of Primedica Corporation ("Primedica") to Charles River
Laboratories, Inc. ("CRL"). GTC received $26 million in cash, 658,945 shares of
CRL common stock valued at $15.9 million and CRL assumed all of Primedica's
approximately $9 million of capital leases and long-term debt (see Note 2).
Primedica is reported as a discontinued operation in these financial statements.
Accordingly, the results of operations and the balance sheet data exclude the
results of operations and assets and liabilities of Primedica and its
subsidiaries.
Year Ended December 31, 2000 as Compared to Year Ended January 2, 2000
Total revenues for 2000 were $16.2 million, compared with $13.8 million in 1999,
an increase of $2.4 million or 17%. The increase in revenues is due to a greater
number of transgenic programs in 2000 as well as milestone based revenues earned
during 2000 in association with the progress on previously existing transgenic
programs.
Sponsored research and development expenses increased to $15.6 million in 2000
from $11.4 million in 1999, an increase of $4.2 million or 37%. The increase in
sponsored research and development expenses was due to an increase in the number
of transgenic programs. Internal research and development expenses decreased to
$3.3 million in 2000 from $3.7 million in 1999, a decrease of $400,000 or 11%,
reflecting a reallocation of resources to sponsored research and development
programs.
Gross profit on sponsored research and development for 2000 was $544,000, a
gross margin of 3%, versus $2.4 million, a gross margin of 18% in 1999. The
decrease in sponsored research and development gross margin is due to increased
milestones earned in 1999 which carry a higher gross profit.
Selling, general and administrative ("S,G&A") expenses increased to $9.1 million
in 2000 from $7.9 million in 1999, an increase of $1.2 million or 15%. The
increase is primarily due to a one-time charge associated with the acceleration
of vesting of non-employee stock options.
Interest income increased to $3.8 million in 2000, from $65,000 in 1999, due to
the investment of proceeds generated by the public offering in February 2000.
Interest expense decreased to $1 million in 2000, from $1.2 million in 1999. Of
the 2000 interest expense total, approximately $468,000 represents interest for
the financing of the transgenic production facility, $98,000 represents interest
incurred under the Company's bank line of credit and $358,000 represents
amortization of deferred financing costs.
The Company did not recognize any non-operating income in 2000. In 1999 the
Company recognized $484,000 of non-operating income from the receipt of an
insurance settlement.
The Company recognized $4.6 million of losses incurred in connection with the
joint venture ("ATIII LLC") between the Company and Genzyme Corporation
("Genzyme") in 2000 as compared to $3.8 million in 1999, an increase of 21%. The
increase is due to a higher spending rate in 2000.
The Company recognized a loss of $324,000 from discontinued contract research
operations in 2000 versus a loss of $5.1 million in 1999. The decrease in the
loss is due to an increase in Primedica's revenues in 2000 as a result of an
intentional shift in the mix of Primedica services to faster growing service
areas such as metabolism and pharmacokinetics, formulation chemistry, analytical
chemistry and bioproduction.
Year Ended January 2, 2000 as Compared to Year Ended January 3, 1999
Total revenues for 1999 were $13.8 million, compared with $11.6 million in 1998,
an increase of $2.2 million or 19%. The increase in revenues is due to new
transgenic programs in fiscal 1999 as well as milestones earned during 1999 in
association with the progress on previously existing transgenic programs.
Sponsored research and development expenses increased to $11.4 million in 1999
from $10.5 million in 1998, an increase of $900,000 or 9%. The increase in
sponsored research and development expenses was due to an increase in activity
in sponsored research and development programs. Internal research and
development expenses decreased to $3.7
14
million in 1999 from $6.2 million in 1998, a decrease of $2.5 million or 40%.
The decrease was due primarily to a reallocation of resources to sponsored
research and development programs.
Gross profit on sponsored research and development for 1999 was $2.4 million, a
gross margin of 18%, versus $1.1 million, a gross margin of 10% in 1998. The
increase in sponsored research and development gross margin is due to increased
milestones earned in 1999 which carry a higher gross profit.
Selling, general and administrative ("S,G&A") expenses increased to $7.9 million
in 1999 from $6.1 million in 1998, an increase of $1.8 million or 29%. The
increase was due to the addition of administrative personnel required to support
the growth in transgenic business as well as approximately $500,000 of
transaction costs for uncompleted merger and acquisition activities and $450,000
of additional patent and legal expense.
Interest income decreased to $65,000 in 1999, from $280,000 in 1998, due to
lower funds available for investment. Interest expense increased to $1.2 million
in 1999, from $251,000 in 1998. Of the 1999 interest expense total,
approximately $300,000 represents interest for the financing of the transgenic
production facility, $600,000 represents interest incurred under the Company's
bank line of credit and $400,000 represents amortization of deferred financing
costs.
The Company recognized $484,000 of non-operating income in 1999 compared to
$100,000 in 1998. The 1999 amount represents the receipt of an insurance
settlement. The 1998 amount represents an earnout payment in connection with the
sale in 1995 of the TSI Center for Diagnostic Products Inc. ("CDP").
The Company recognized $3.8 million of joint venture losses incurred on the
joint venture ("ATIII LLC") between the Company and Genzyme Corporation
("Genzyme") in 1999 as compared to $4.3 million of joint venture losses incurred
on ATIII LLC in 1998. The decrease is due to a reduction in the percentage share
of the losses in 1999.
The Company recognized a loss of $5.1 million from discontinued contract
research operations in 1999 versus a loss of $4.3 million in 1998. The increase
in the loss is due to a charge in the amount of $1.2 million in 1999 which
represents costs associated with the consolidation of Primedica's Massachusetts
operations into a single facility.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2000 and 1999, the Financial Accounting Standard Board issued Statement
of Financial Accounting Standards Nos. 138 and 137 ("SFAS 138" and "SFAS 137"),
"Accounting for Certain Derivative Instruments and Certain Hedging Activities -
an Amendment of FASB Statement No. 133." SFAS 138 clarifies certain provisions
of SFAS 133, and SFAS 137 defers the implementation of SFAS 133 by one year.
SFAS 133, as amended by SFAS 137 and SFAS 138, is effective for fiscal quarters
beginning after January 1, 2001 for the Company, and its adoption is not
expected to have a material impact on the Company's financial position or
results of operations.
LIQUIDITY AND CAPITAL RESOURCES
In February 2001, the Company completed the sale of its preclinical research
organization, Primedica, to CRL. Net proceeds to the Company were $39.7 million
in cash and CRL stock (see Note 12).
On a pro forma basis at December 31, 2000, adjusted for the impact of the
Primedica sale in February 2001, the Company had cash and cash equivalents of
$64.8 million, working capital of $90.8 million and tangible net worth of $117.3
million.
In February 2000, the Company completed a secondary public offering of
approximately 4 million shares of common stock, including the exercise of an
overallotment. Net proceeds to the Company, after expenses, were $75 million.
Subsequent to the completion of the secondary public offering, the Company paid
down its revolving credit lines in the amount of $15.8 million. Following this
pay down, the full $15.8 million under these credit lines (see Item 8 appearing
in this report) remains available for borrowing. In conjunction with the
offering, the Company issued a Notice of Redemption to Genzyme for all
outstanding shares of the Company's Series B Convertible Preferred Stock (the
"Series B Preferred Stock"). Prior to effecting this redemption, Genzyme
converted the Series B Preferred Stock into 1,048,021 shares of common stock.
The Company paid a cash dividend of $157,000 in conjunction with the conversion.
As a result of the offering, the $6.3 million Genzyme Credit Line was
eliminated.
15
The Company had cash, cash equivalents and marketable securities of $66.5
million at December 31, 2000. During 2000, the Company had a $33.2 million net
increase in cash. Sources of funds during the period include $89.3 million of
net proceeds from the issuance of common stock, comprised of $75 million from
the public offering, $6.8 million from the exercise of warrants and $7.5 million
from the issuance of common stock under various employee stock plans. Uses of
funds during 2000 included $3.5 million used in operations, $46.6 million used
to purchase marketable securities, $15.8 million used to pay down the bank
revolving credit line, which remains fully available for future borrowing, $2
million invested in capital equipment, further expansion of the transgenic
production facility and $5.7 million invested in the ATIII LLC.
The Company had working capital of $88.4 million at December 31, 2000 compared
to $16.7 million at January 2, 2000. As of December 31, 2000, the Company had
$15.8 million available under a line of credit with a commercial bank. The
Company is preparing plans for expansion of its transgenic production facilities
in Central Massachusetts as well as establishment of a second production site in
order to facilitate growth in the number of development programs and
commercialization of ongoing transgenic programs. Although no significant
contractual commitments have been made to date, the Company anticipates
investing between $4.1 million and $6 million on these efforts over the next
18-24 months.
Under the Company's current operating plan, existing cash balances along with
funds available under the bank line are expected to be sufficient to fund the
Company through the next few years.
Management's current expectations regarding the sufficiency of the Company's
cash resources are forward-looking statements, and the Company's cash
requirements may vary materially from such expectations. Such forward-looking
statements are dependent on several factors, including the ability of the
Company to enter into any transgenic research and development collaborations in
the future and the terms of such collaborations, the results of research and
development and preclinical and clinical testing, competitive and technological
advances and regulatory requirements. If the Company experiences increased
losses, the Company may have to seek additional financing through collaborative
arrangements or from public or private sales of its securities, including equity
securities. There can be no assurance that additional funding will be available
on terms acceptable to the Company, if at all. If additional financing cannot be
obtained on acceptable terms, to continue its operations the Company could be
forced to delay, scale back or eliminate certain of its research and development
programs or to enter into license agreements with third parties for the
commercialization of technologies or products that the Company would otherwise
undertake itself.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has certain financial instruments at December 31, 2000, including a
guaranty, a revolving line of credit, a letter of credit and a loan outstanding
which are sensitive to changes in interest rates. The Company has a guaranty by
Genzyme Corporation, obtained in December 1998, of the Company's credit facility
with a commercial bank, whose carrying value of $969,000 approximates fair
value. Also, the Company has a revolving line of credit and two letters of
credit with a commercial bank for $17.5 million, the line of credit accrues
interest at a variable rate. The weighted average interest rate on the amounts
outstanding during 2000 was 0.7%. At December 31, 2000, nothing is outstanding
under the line. As part of the revolving credit facility at a commercial bank,
the Company has been issued a $1.5 million standby letter of credit in support
of a major facility lease, of which none has been drawn down at December 31,
2000. As part of the sale of Primedica, in February 2001, the standby letter of
credit was cancelled and was no longer outstanding. Additionally, the Company
has one loan outstanding. These instruments are not leveraged and are held for
purposes other than trading.
For the loan outstanding, the table below presents the principal cash flows that
exist by maturity date and the related average interest rate.
2001 2002 2003 2004 2005 Thereafter Total
---- ---- ---- ---- ---- ---------- -----
Variable rate debt ($ in 000's) $6,430 -- -- -- -- -- $ 6,430
The interest rate of the variable debt was 7% at December 31, 2000. At December
31, 2000, the fair value of this loan approximates carrying value.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULES
Financial Statements
Response to this item is submitted as a separate section of this report
immediately following Item 14.
16
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
This information is set forth in part under the captions "ELECTION OF DIRECTORS"
and "SECTION 16 (a) BENEFICIAL REPORTING COMPLIANCE" in the Company's Proxy
Statement for the 2001 Annual Meeting of Stockholders to be held on May 23, 2001
(the "Proxy Statement") which are incorporated herein by reference, and the
remainder of such information is set forth under the caption "EXECUTIVE OFFICERS
OF THE REGISTRANT" in Part I, Item 1A hereof.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the caption "EXECUTIVE COMPENSATION" in the
Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the caption "SHARE OWNERSHIP" in the Proxy
Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the captions "EXECUTIVE EMPLOYMENT AGREEMENTS"
and "COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION" in the Proxy
Statement is incorporated herein by reference. See also, Notes 2, 6 and 11 to
the Consolidated Financial Statements included herewith.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The Company's Financial Statements and the ATIII LLC Financial Statements
appear as a separate section of this report immediately following Item 14.
All other schedules have been omitted because the required information is
not applicable or not present in amounts sufficient to required submission
of the schedule, or because the information required is in the
consolidated financial statements or the notes thereto. The Exhibits to
this report are listed below under Part IV, Item 14(c) hereof.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter ended
December 31, 2000.
(c) Exhibits
The exhibits filed as part of this Form 10-K are listed on the Exhibit
Index immediately preceding such Exhibits, which Exhibit Index is
incorporated herein by reference.
17
FORM 10-K-ITEMS 8, 14 (a) (1), (a) (2), and (d)
GENZYME TRANSGENICS CORPORATION AND SUBSIDIARIES
List Of Financial Statements And Financial Statement Schedules
The following consolidated financial statements of Genzyme Transgenics
Corporation and subsidiaries are included in Item 8:
Page #
------
Report of PricewaterhouseCoopers LLP - Independent Accountants ...................................................... 19
Consolidated Balance Sheets - December 31, 2000 and January 2, 2000 ................................................. 20
Consolidated Statements of Operations - For the fiscal years ended December 31, 2000,
January 2, 2000 and January 3, 1999 ................................................................................. 21
Consolidated Statements of Shareholders Equity - For the fiscal years
ended December 31, 2000, January 2, 2000 and January 3, 1999 ....................................................... 22
Consolidated Statements of Cash Flows - For the fiscal years ended
December 31, 2000, January 2, 2000 and January 3, 1999 .............................................................. 23
Notes to Consolidated Financial Statements .......................................................................... 24
Report of PricewaterhouseCoopers LLP on Financial Statement Schedules - Independent Accountants ..................... 41
Schedule II - Supplemental Valuation and Qualifying Accounts ........................................................ 42
The following financial statements of ATIII LLC are included in Item 4 (d):
Report of PricewaterhouseCoopers LLP - Independent Accountants ...................................................... 43
Balance Sheets - December 31, 2000 and December 31, 1999 ..................................................... 44
Statements of Operations - For the fiscal years ended December 31,
2000, December 31, 1999, December 31, 1998 and for the cumulative
period from inception (January 1, 1998) to December 31, 2000 ................................................. 45
Statements of Cash Flows - For the fiscal years ended December 31,
2000, December 31, 1999, December 31, 1998 and for the cumulative
period from inception (January 1, 1998) to December 31, 2000 ................................................. 46
Statements of Changes in Venturer's Capital - For the cumulative period from inception
(January 1, 1998) to December 31, 2000 ....................................................................... 47
Notes to Financial Statements .............................................................................................. 48
SIGNATURES ................................................................................................................. 51
EXHIBIT INDEX .............................................................................................................. 52
All other schedules for which provision is made in the applicable regulation of
the Securities and Exchange Commission are not required under the related
instructions or are inapplicable, and therefore have been omitted.
18
Report of Independent Accountants
To the Board of Directors and Shareholders of
Genzyme Transgenics Corporation:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and comprehensive income, of shareholders'
equity and of cash flows present fairly, in all material respects, the financial
position of Genzyme Transgenics Corporation and its subsidiaries at December 31,
2000 and January 2, 2000 and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2000 in
conformity with accounting principles generally accepted in the United States of
America. 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 of these statements in
accordance with auditing standards generally accepted in the United States of
America, which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 27, 2001
19
GENZYME TRANSGENICS CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except share amounts)
Unaudited
Pro Forma
(Note 13)
December 31, December 31, January 3,
2000 2000 2000
--------- --------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 64,836 $ 41,024 $ 7,813
Marketable securities 41,375 25,508 --
Accounts receivable 1,765 1,765 463
Unbilled contract revenue, net of allowance of $361
and $75 at December 31, 2000 and January 2, 2000,
respectively (including $388 and $412 from related
parties at December 31, 2000 and January 2, 2000,
respectively) 988 988 462
Other current assets 1,098 1,098 878
Net assets of discontinued contract research operations held
for sale (Note 2 and Note 13) -- 37,272 33,155
--------- --------- ---------
Total current assets 110,062 107,655 42,771
Net property, plant, and equipment 13,841 13,841 13,154
Intangible assets 12,907 12,907 2,593
--------- --------- ---------
$ 136,810 $ 134,403 $ 58,518
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,073 $ 1,073 $ 634
Accounts payable - Genzyme Corporation 1,344 1,344 559
Payable to ATIII LLC 1,096 1,096 2,151
Revolving line of credit -- -- 15,750
Accrued expenses 4,514 4,514 3,689
Deferred contract revenue 4,522 4,522 2,383
Current portion of long-term debt and capital leases 6,717 6,717 890
--------- --------- ---------
Total current liabilities 19,266 19,266 26,056
Long-term debt and capital leases, net of current portion 223 223 6,168
Deferred lease obligation 71 71 88
--------- --------- ---------
Total liabilities 19,560 19,560 32,312
Commitments and Contingencies (Note 3)
Shareholders' equity:
Preferred stock, 5,000,000 shares authorized of which 20,000
have been designated Series A convertible and 12,500 have
been designated as Series B convertible -- -- --
Series B convertible preferred stock; $.01 par value;
no shares and 6,602 shares were issued and outstanding at
December 31, 2000 and January 2, 2000, respectively - -- -- --
Common stock, $.01 par value; 100,000,000 shares authorized;
29,697,151 and 22,601,296 shares issued and outstanding
at December 31, 2000 and January 2, 2000, respectively 297 297 226
Dividend on preferred stock -- -- (2,653)
Capital in excess of par value - preferred stock -- -- 6,647
Capital in excess of par value - common stock 194,255 194,255 87,895
Unearned compensation -- -- (284)
Accumulated deficit (77,359) (79,766) (65,625)
Accumulated other comprehensive income 57 57 --
--------- --------- ---------
Total shareholders' equity 117,250 114,843 26,206
--------- --------- ---------
$ 136,810 $ 134,403 $ 58,518
========= ========= =========
The accompanying notes are an integral part of the
consolidated financial statements.
20
GENZYME TRANSGENICS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Dollars in thousands except share and per share amounts)
For the Fiscal Years Ended
--------------------------
December 31, January 2, January 3,
2000 2000 1999
------------ ------------ ------------
Revenues:
Sponsored research and development $ 16,163 13,825 11,596
------------ ------------ ------------
16,163 13,825 11,596
Costs and operating expenses:
Research and development:
Sponsored 15,619 11,402 10,486
Internal 3,357 3,690 6,155
Selling, general and administrative 9,148 7,875 6,042
Equity in loss of joint ventures 4,625 3,797 4,285
------------ ------------ ------------
32,749 26,764 26,968
------------ ------------ ------------
Loss from continuing operations (16,586) (12,939) (15,372)
Other income (expense):
Interest income 3,770 65 280
Interest expense (1,001) (1,232) (251)
Other income -- 484 100
------------ ------------ ------------
Loss from continuing operations (13,817) (13,622) (15,243)
Discontinued operations
Loss from discontinued contract research
operations (less applicable taxes of
$248, $320 and $264) (324) (5,139) (4,347)
------------ ------------ ------------
Net loss $ (14,141) $ (18,761) $ (19,590)
Dividend to preferred shareholders (74) (1,497) (1,156)
------------ ------------ ------------
Net loss available to common shareholders $ (14,215) $ (20,258) $ (20,746)
============ ============ ============
Net loss available per common share (basic and diluted):
From continuing operations $ (0.49) $ (0.76) $ (0.91)
============ ============ ============
From discontinued contract research operations $ (0.01) $ (0.26) $ (0.24)
============ ============ ============
Net loss $ (0.50) $ (1.02) $ (1.15)
============ ============ ============
Weighted average number of common shares
outstanding (basic and diluted) 28,373,283 19,876,904 17,978,677
============ ============ ============
Comprehensive loss:
Net loss $ (14,141) $ (18,761) $ (19,590)
Other comprehensive income:
Unrealized holding gains on available for sale securities 57 -- --
------------ ------------ ------------
Total other comprehensive income 57 -- --
------------ ------------ ------------
Comprehensive loss $ (14,084) $ (18,761) $ (19,590)
============ ============ ============
The accompanying notes are an integral part of the
consolidated financial statements.
21
Series A
Convertible Capital in Capital in
Preferred Stock Common Stock Excess of Excess of
--------------- ------------ Par Value Par Value
Shares Amount Shares Amount Dividend Common Stock Preferred Stock
- --------------------------------------------------------------------------------------------------------------------------------
Balance, December 28, 1997 -- $ -- 17,403 $174 $ -- $54,478 $ --
Net loss
Sale of preferred stock to institutional
investors, net of expenses 20 18,922
Issuance of warrants in connection with the
preferred stock offering (1,156) 1,301 (145)
Sale of common stock in a private placement, net
of expenses 603 6 6,440
Common stock issuance under Employee Stock
Purchase Plan 229 2 1,149
Common stock issuance in connection with the GTC
Savings and Retirement Plan 43 1 398
Issuance of warrants in connection with a debt
financing 969
Issuance of stock options to non-employees 519
Proceeds from the exercise of stock options 106 1 462
- --------------------------------------------------------------------------------------------------------------------------------
Balance, January 3, 1999 20 -- 18,384 184 (1,156) 65,716 18,777
Net loss
Sale of common stock in a private placement, net
of expenses 686 7 5,421
Common stock issuance under Employee Stock
Purchase Plan 239 4 992
Common stock issuance in connection with the GTC
Savings and Retirement Plan 95 1 510
Conversion of Series A Preferred Stock (14) 2,830 27 13,008 (13,035)
Common stock issuance for ACT License Agreement 217 2 998
Redemption of Series A Preferred Stock (6) (861) (5,741)
Issuance of Series B Preferred Stock and related
warrants, net of issuance costs 7 (343) 343 6,563
Dividend attributed to beneficial conversion (210) 210
Dividend accrued on Series B Preferred Stock (83) 83
Unearned compensation (37)
Proceeds from the exercise of stock options 150 1 734
- --------------------------------------------------------------------------------------------------------------------------------
Balance, January 2, 2000 7 -- 22,601 226 (2,653) 87,895 6,647
Net loss
Conversion of Series B Preferred Stock, including
expenses (7) (6,564)
Payment of dividend (157)
Conversion of Series A Preferred Stock 1,048 10 2,727 3,818
Common stock issuance under Employee Stock
Purchase Plan 237 2 1,209
Common stock issuance in connection with the GTC
Savings and Retirement Plan 45 1 566
Dividend on Preferred Stock (74) 74
Proceeds from the exercise of stock options 958 10 6,291
Unearned compensation 1,531
Unrealized gain on investment
Conversion of warrants 450 5 6,815
Common stock issuance in connection with the
acquisition of SMIG 333 3 11,040
Common stock issuance in connection with the
public offering, net of expenses 4,025 40 75,090
- --------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2001 -- $ -- 29,697 $297 $ -- $194,255 $ --
================================================================================================================================
Accumulated
Other Total
Unearned Accumulated Comprehensive Stockholders'
Compensation Deficit Income Equity
- ------------------------------------------------------------------------------------------------------------
Balance, December 28, 1997 $ -- $(27,274) $ -- $27,378
Net loss (19,590) (19,590)
Sale of preferred stock to institutional
investors, net of expenses 18,922
Issuance of warrants in connection with the
preferred stock offering -
Sale of common stock in a private placement, net
of expenses 6,446
Common stock issuance under Employee Stock
Purchase Plan 1,151
Common stock issuance in connection with the GTC
Savings and Retirement Plan 399
Issuance of warrants in connection with a debt
financing 969
Issuance of stock options to non-employees (437) 82
Proceeds from the exercise of stock options 463
- ------------------------------------------------------------------------------------------------------------
Balance, January 3, 1999 (437) (46,864) -- 36,220
Net loss (18,761) (18,761)
Sale of common stock in a private placement, net
of expenses 5,428
Common stock issuance under Employee Stock
Purchase Plan 996
Common stock issuance in connection with the GTC
Savings and Retirement Plan 511
Conversion of Series A Preferred Stock -
Common stock issuance for ACT License Agreement 1,000
Redemption of Series A Preferred Stock (6,602)
Issuance of Series B Preferred Stock and related
warrants, net of issuance costs 6,563
Dividend attributed to beneficial conversion -
Dividend accrued on Series B Preferred Stock -
Unearned compensation 153 116
Proceeds from the exercise of stock options 735
- ------------------------------------------------------------------------------------------------------------
Balance, January 2, 2000 (284) (65,625) -- 26,206
Net loss (14,141) (14,141)
Conversion of Series B Preferred Stock, including
expenses (6,564)
Payment of dividend (157)
Conversion of Series A Preferred Stock 6,555
Common stock issuance under Employee Stock
Purchase Plan 1,211
Common stock issuance in connection with the GTC
Savings and Retirement Plan 567
Dividend on Preferred Stock -
Proceeds from the exercise of stock options 6,301
Unearned compensation 284 1,815
Unrealized loss on investment 57 57
Conversion of warrants 6,820
Common stock issuance in connection with the
acquisition of SMIG 11,043
Common stock issuance in connection with the
public offering, net of expenses 75,130
- ------------------------------------------------------------------------------------------------------------
Balance, December 31, 2001 $ -- $(79,766) $57 $114,843
============================================================================================================
The accompanying notes are an integral part of the
consolidated financial statements
22
GENZYME TRANSGENICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
FOR THE FISCAL YEARS ENDED
----------------------------------------------
December 31, January 2, January 3,
2000 2000 1999
------------ ---------- ----------
Cash flows for operating activities:
Net loss from continuing operations $(13,817) $(13,622) $(15,243)
Adjustments to reconcile net loss from continuing operations
to net cash used in operating activities:
Depreciation and amortization 2,070 1,862 984
Charge for non-cash option 1,815 116 82
Amortization/accretion marketable securities (815) -- --
Shares to be issued for 401-K employer match 567 511 399
Loss on disposal of fixed assets 24 -- --
Equity in loss of joint ventures 4,625 3,674 4,285
Changes in assets and liabilities:
Accounts receivable and unbilled contract revenue (1,828) 2,437 1,171
Other current assets (220) (704) 60
Accounts payable 439 (618) 430
Accounts payable - Genzyme Corporation 785 (928) (1,877)
Other accrued expenses 708 165 (356)
Deferred contract revenue 2,139 1,365 680
-------- -------- --------
Net cash used in operating activities (3,508) (5,742) (9,385)
Cash flows for investing activities:
Purchase of property, plant and equipment (1,988) (3,276) (5,213)
Investment in joint ventures (5,680) (3,941) (1,867)
Purchase of marketable securities (46,636) -- --
Redemption of marketable securities 22,000 -- --
Cash paid for acquisition of SMIG (26) -- --
Other assets 90 (842) (209)
-------- -------- --------
Net cash used in investing activities (32,240) (8,059) (7,289)
Cash flows from financing activities:
Net proceeds from the issuance of common stock 75,130 5,428 6,446
Dividends paid (157) -- --
Redemption of Series A convertible preferred stock -- (6,602) --
Net proceeds from the exercise of warrants 6,820 -- --
Net proceeds from employee stock purchase plan 1,211 996 1,151
Net proceeds from the exercise of stock options 6,301 735 463
Net proceeds from the issuance of Series B convertible
preferred stock and related warrants -- 6,563 18,922
Proceeds from long-term debt 609 4,544 2,146
Repayment of long-term debt (727) (434) (1,410)
Net (payments) borrowings under revolving line of credit (15,750) 4,654 5,096
Investments and advances by Genzyme Corporation -- -- (6,000)
Other long-term liabilities (37) (112) (104)
-------- -------- --------
Net cash provided by financing activities 73,400 15,772 26,710
Net cash used in discontinued operations (4,441) (6,255) (4,716)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 33,211 (4,284) 5,320
Cash and cash equivalents at beginning of the period 7,813 12,097 6,777
-------- -------- --------
Cash and cash equivalents at end of period $ 41,024 $ 7,813 $ 12,097
======== ======== ========
The accompanying notes are an integral part of the
consolidated financial statements.
23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal years ended December 31, 2000 and January 3, 1999 (all tabular $ in
thousands, except per share data)
NOTE 1. NATURE OF BUSINESS
In February 2001, Genzyme Transgenics Corporation ("GTC" or the "Company")
completed the divestiture of its wholly-owned contract research organization
("CRO") subsidiary, Primedica Corporation ("Primedica") (see Note 13).
Accordingly, Primedica is reported as a discontinued operation in these
financial statements.
The Company is engaged in the application of transgenic technology to the
development and production of recombinant proteins for therapeutic and
diagnostic uses.
The accompanying financial statements have been presented on the assumption that
the Company is a going concern. The Company has incurred losses and negative
operating cash flow in each of the fiscal years ended December 31, 2000, January
2, 2000 and January 3, 1999. The Company had working capital of $88.4 million at
December 31, 2000.
The Company is subject to risks common to companies in the biotechnology
industry, including, but not limited to, development by the Company or its
competitors of new technological innovations, raising additional capital,
dependence on key personnel, protection of proprietary technology and compliance
with government regulations.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company was incorporated in February 1993. On October 1, 1994, the Company
acquired its preclinical research organization, TSI Corporation ("TSI"), and its
respective subsidiaries, Argus Research Laboratories, Inc. ("Argus"), The TSI
Center for Diagnostic Products, Inc. ("CDP"), Health and Sciences Research
Incorporated ("HSRI"), TSI Mason Laboratories, Inc. ("Mason"), TSI Redfield
Laboratories, Inc. ("Redfield"), TSI Washington Laboratories, Inc.
("Washington") and G.D.R.U. Limited ("GDRU"). In July 1995, the Company acquired
BioDevelopment Laboratories, Inc. ("BDL"). In 1995, the Company closed its HSRI
facility and completed the sale of GDRU. HSRI and GDRU were the only facilities
performing human clinical trials within the Company's operations.
In February 1998, the Company reorganized its CRO businesses under a
wholly-owned subsidiary, Primedica (see Note 12).
In February 2001, the Company sold Primedica to Charles River Laboratories
Interna