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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, 1995 COMMISSION FILE NO. 0-14680
GENZYME CORPORATION
(Exact name of Registrant as specified in its charter)
MASSACHUSETTS 06-1047163
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
ONE KENDALL SQUARE 02139
CAMBRIDGE, MASSACHUSETTS (Zip Code)
(Address of principal executive offices)
(617) 252-7500
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
GENERAL DIVISION COMMON STOCK, $0.01 PAR VALUE ("GENERAL DIVISION STOCK")
TISSUE REPAIR DIVISION COMMON STOCK, $0.01 PAR VALUE ("TR STOCK")
GENERAL DIVISION STOCK PURCHASE RIGHTS
TR STOCK PURCHASE RIGHTS
WARRANTS (DATED NOVEMBER 3 AND 10, 1989) TO PURCHASE GENERAL
DIVISION STOCK AND TR STOCK SERIES N WARRANTS (DATED MAY 5, 1992)
TO PURCHASE GENERAL DIVISION STOCK AND TR STOCK
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Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
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 1, 1996: $2,349,667,466
Number of shares of the Registrant's General Division Stock outstanding as
of March 1, 1996: 31,844,070
Number of shares of the Registrant's TR Stock outstanding as of March 1,
1996: 12,110,503
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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 16, 1996 are incorporated by reference into Part III
of this Form 10-K.
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NOTE REGARDING FORWARD-LOOKING STATEMENTS:
This Annual Report on Form 10-K for Genzyme Corporation (the "Company") contains
forward-looking statements concerning, among other things, the Company's
expected future revenues, operations and expenditures, estimates of the
potential markets for the Company's products and services, assessments of
competitors and potential competitors, projected timetables for the preclinical
and clinical development, regulatory approval and market introduction of the
Company's products and services and estimates of the capacity of manufacturing
and other facilities to support such products and services. All such
forward-looking statements are necessarily only estimates of future results and
the actual results achieved by the Company may differ materially from these
projections due to a number of factors, including (i) the Company's ability to
successfully complete preclinical and clinical development and obtain timely
regulatory approval and patent and other proprietary rights protection of its
products and services, (ii) decisions, and the timing of decisions, made by the
U.S. Food and Drug Administration and other agencies regarding the indications
for which the Company's products may be approved, (iii) the accuracy of the
Company's estimates of the size and characteristics of markets to be addressed
by the Company's products and services, (iv) market acceptance of the Company's
products and services, (v) the Company's ability to obtain reimbursement for its
products from third-party payers, where appropriate, and (vi) the accuracy of
the Company's information concerning the products and resources of competitors
and potential competitors. See also "Factors Affecting Future Operating Results"
under Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
PART I
ITEM 1. BUSINESS
Genzyme Corporation ("Genzyme" or the "Company") is a diversified,
integrated human health care company which operates in five major business
areas. The Company's business activities in the areas of therapeutics,
diagnostic services, diagnostic products, and pharmaceuticals are organized as
the Genzyme General Division (the "General Division"). Genzyme's activities to
develop, manufacture and market technologically advanced products for the
treatment and prevention of serious tissue damage are conducted through the
Genzyme Tissue Repair Division ("GTR"). Genzyme was incorporated in 1981.
Prior to December 16, 1994, Genzyme had one class of common stock. On
December 16, 1994, the authorized shares of common stock were redesignated as
General Division Common Stock ("General Division Stock") and a second class of
common stock, Tissue Repair Division Common Stock ("TR Stock") was authorized in
connection with the creation of GTR. The General Division Stock and the TR Stock
are intended to reflect the value and track the performance of the General
Division and GTR, respectively. Genzyme, however, continues to hold title to all
of its assets and be responsible for all of its liabilities and the holders of
the General Division Stock and the TR Stock have no specific claim against the
assets allocated to the division whose performance is associated with the class
of stock they hold. In addition, liabilities or contingencies of either division
that affect Genzyme's resources or financial condition could affect the
financial condition or results of operations of both divisions.
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Ceredase(R), Cerezyme(R), Thyrogen(R), InSight(R) and Vianain(R) are
registered trademarks of the Company. Epicel(SM) and CARTICEL(SM) are service
marks of Genzyme. Seprafilm(TM), Sepracoat(TM), Sepragel(TM) and HAL-S(TM) are
trademarks of the Company. HyperGAM(TM)+CF is a trademark of North American
Biologicals, Inc. ("NABI"). Tretinoin(LF) is a trademark of Aronex
Pharmaceuticals, Inc. ("Aronex"). Provisc(R) is a registered trademark of Alcon
Laboratories, Inc. ("Alcon"). Pulmozyme(TM) is a trademark of Genentech, Inc.
GENERAL DIVISION
SUMMARY DESCRIPTION OF MAJOR BUSINESS AREAS
The General Division's therapeutics business markets Ceredase(R) enzyme
and Cerezyme(R) enzyme, products for the treatment of Gaucher disease. The
Division's results of operations are highly dependent on sales of these products
which, for 1995, totaled $215 million. Other specialty therapeutic products
under development include Thyrogen(R) hormone for use in the diagnosis and
treatment of thyroid cancer, a line of biomaterial products based on hyaluronic
acid ("HA") principally for use to limit the formation of postoperative
adhesions (the "HA Products") and products for the treatment of cystic fibrosis
("CF"). Applications for Premarket Approval (each a "PMA") have been submitted
and are pending before the U.S. Food and Drug Administration ("FDA") for two of
the HA Products, Seprafilm(TM) bioresorbable membrane and Sepracoat(TM) coating
solution. The HA Products are being developed on behalf of a research and
development limited partnership. See "Related Entities -- Surgical Aids
Partnership." The CF products are being developed on behalf of a special purpose
accelerated research corporation. See "Related Entities -- Neozyme II
Corporation."
The General Division's diagnostic services business applies advanced
biotechnology to develop and provide high quality, sophisticated genetic
diagnostic services to physicians, hospitals, universities, medical centers,
clinical laboratories, genetic centers and managed care organizations throughout
the United States and internationally. The General Division also provides
identity testing services to state and local government agencies, attorneys and
various courts in the United States, as well as donor typing services to bone
marrow registries. The diagnostic services business was previously conducted
through IG Laboratories, Inc. ("IG"), a majority-owned (69%) subsidiary of
Genzyme, and Vivigen, Inc. ("Vivigen"), a wholly-owned subsidiary of Genzyme
that was managed by IG. In October 1995, Genzyme acquired all of the
publicly-owned shares of IG for shares of General Division Stock and IG was
merged into Genzyme. In February 1996, Genzyme announced an agreement to merge
Genetrix, Inc., a Phoenix-based operator of prenatal and cancer genetic testing
laboratories, with Genzyme in a transaction to be accounted for as a pooling of
interests. Subject to the approval of the Genetrix shareholders and the
satisfaction or waiver of certain other conditions, the merger will be
consummated, with holders of Genetrix stock receiving shares of General Division
Stock, and the operations of Genetrix will be included within the diagnostic
services business of the Genzyme General Division.
The General Division's diagnostic products business is a leading
independent supplier of diagnostic components (enzymes, substrates, antibodies
and antigens), bulk reagents and devices (including the Company's Direct LDL(TM)
test kit) to manufacturers of clinical diagnostic reagents and kits as well as
directly to clinical reference laboratories. The division also manufacturers and
sells a
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broad line of antibody and antigen based ELISA test kits. In addition, the
division distributes a broad product line of research products to academic,
industrial and governmental laboratories for use in immunology and cell biology.
The General Division's pharmaceuticals business develops, manufactures
and sells a range of active drug substances, pharmaceutical intermediates,
synthetic phospholipids, peptides, biomolecules and chemicals to the
pharmaceutical and health care industries. In 1995, the division introduced
MelaPure(TM) brand melatonin, a dietary supplement.
RELATED ENTITIES
SURGICAL AIDS PARTNERSHIP. In 1989, Genzyme sponsored the Surgical Aids
Partnership (the "Partnership"), a research and development limited partnership
that raised $36.75 million through the private placement of limited partnership
interests and warrants to purchase shares of the Company's common stock. A
wholly-owned subsidiary of Genzyme is the general partner of the Partnership and
holds a 1% partnership interest therein. The General Division entered into a
contract with the Partnership to perform research and development of products
based on HA, a naturally-occurring biopolymer, for use as surgical aids to
reduce the incidence and severity of postoperative adhesions and, in
arthroscopic procedures, as a synovial fluid replacement for which the General
Division was reimbursed its costs plus a 10% fee.
Under the terms of the various agreements between the Partnership and
Genzyme, the Partnership has the exclusive right to sell Seprafilm(TM) (formerly
called HAL-F(TM)), Sepracoat(TM) (formerly called HAL-C(TM)), Sepragel(TM)
(formerly called HAL-G(TM)), HAL-S(TM) and other HA-based surgical products in
the United States and Canada through a joint venture with the General Division
(the "Joint Venture"). The General Division was granted back an exclusive
license to sell these products outside the United States and Canada subject to a
royalty on European sales of these products under certain circumstances.
The Joint Venture was formed in 1989 for the purpose of manufacturing
and marketing the Partnership's products, but is not expected to engage in
active business until receipt of marketing approval for a product from the FDA.
The General Division will be reimbursed for its costs of manufacturing the
products and will be compensated for its general and administrative services in
an amount to be determined by the venturers. The parties will share in the
profits and losses of the Joint Venture.
The Joint Venture will be dissolved (a) upon purchase by the General
Division of all of the limited partnership interests, (b) if the General
Division does not exercise its option to purchase the limited partnership
interests (i) upon the sale, license or other disposition of all or a
substantial part of its technology by the Partnership or (ii) upon 90 days'
notice by either venturer at any time after the expiration of a one-year period
commencing after the option to purchase the limited partnership interests
expires, whichever shall first occur, (c) by operation of law, (d) upon the
bankruptcy, retirement, withdrawal or dissolution of Genzyme, (e) upon mutual
consent of the General Division and the Partnership or (f) upon the election by
the Partnership if the General Division shall fail to establish to the
satisfaction of the Partnership that it is capable of and has undertaken to
manufacture the Joint Venture's requirements for the products for a specified
period.
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All of the funds of the Partnership available to fund development of
the HA Products were spent by the end of the first quarter of 1994. Genzyme
believes that additional funds will be required to complete the development,
clinical testing and commercialization of the HA Products. While Genzyme is not
obligated to provide such funding, the option to purchase all of the limited
partnership interests terminates unless Genzyme commits, on an annual basis, to
provide funding for continuation of the research and development programs for
the next twelve month period or until receipt of FDA marketing approval for one
of the HA Products is obtained, whichever is shortest. The General Division
funded these activities in 1994 and 1995 and has committed to fund them for the
twelve-month period commencing on March 1, 1996.
In addition, the General Division has the option to buy all of the
limited partnership interests in the Partnership for an initial payment of
either cash or General Division Stock or a combination thereof, at its option,
equal to 70% of the amount initially invested by the limited partners (which
amount will be recovered by the General Division as a credit against subsequent
royalty payments) and quarterly royalty payments for a period of ten years after
the buy-out date equal to 10% of product sales in the United States and Canada
(and 6% of such sales in Europe, but only to the extent necessary to meet
certain projections made in connection with the funding of the Partnership) and
5% of any revenues derived by the General Division from sales in the United
States and Canada (and 3% in Europe, but only in the instances cited above) of
non-HA-based products that are competitive with the Partnership's products. The
option to purchase all of the limited partnership interests is exercisable
during a 90-day period commencing on the last day of the forty-eighth month
after the first commercial sale of a product by the Joint Venture, but such
commencement date will be accelerated under certain circumstances.
On January 30, 1996, Genzyme made a proposal to a special committee of
the Board of Directors of the general partner of the Partnership (the "Special
Committee"), offering to purchase substantially all of the assets of the
Partnership for approximately $93 million payable in shares of General Division
Stock. Genzyme's offer is subject to several conditions, including that the
offer receive the affirmative vote of two-thirds in interest of the limited
partners of the Partnership and that Genzyme receive satisfactory assurance from
its independent accountants that the purchase may be accounted for as a
purchase of in-process research and development. The Special Committee has
consulted with its financial and legal advisors in respect of Genzyme's offer
and negotiations between the parties are ongoing. There can be no assurance that
any agreement between the parties will be reached and, if an agreement is
reached, there can be no assurance as to its terms. Failure to reach an
agreement regarding the acquisition of the Partnership's assets by Genzyme will
not affect the respective rights and obligations of the parties under any of the
existing agreements between the parties.
GENZYME TRANSGENICS CORPORATION. In February 1993, Genzyme formed
Genzyme Transgenics Corporation ("GTC") and transferred to it all assets and
liabilities of its business in the field of transgenic technology as applied to
the development and production of recombinant proteins for therapeutic and
diagnostic uses in exchange for shares of GTC's stock. In addition, it
exclusively licensed to GTC all patents, licenses and other intellectual
property in the field (excluding that related to CFTR). In July 1993, GTC
completed an initial public offering of its common stock, which resulted in net
proceeds to GTC of approximately $11 million, after which Genzyme's ownership
interest was
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reduced to approximately 73%. In 1994, GTC acquired TSI Corporation ("TSI")
issuing common stock for the TSI common stock. As a result of that transaction,
Genzyme's percentage ownership of GTC common stock declined to approximately
40%. In February 1995, GTC exercised its put option with Genzyme, originally
entered into at the time of GTC's initial public offering, and the General
Division thereby purchased an additional 500,000 shares of GTC common stock. In
June 1995, Genzyme purchased an additional 1,333,333 shares of GTC common stock
in exchange for a $4 million reduction in the amount due from GTC under the
Genzyme - GTC Credit Agreement. In July 1995, Genzyme exchanged 33,945 shares of
General Division Common stock for 475,467 shares of GTC common stock in
connection with GTC's acquisition of Biodevelopment Laboratories, Inc.
Subsequent to these transactions, Genzyme owns approximately 48% of GTC.
In March 1996, Genzyme and GTC entered into a Convertible Debt and
Development Funding Agreement under which (i) Genzyme has made available to GTC
a $10 million credit line of 7% debt payable on March 31, 1998 and convertible
by either party into shares of GTC common stock, (ii) Genzyme has agreed to fund
the development costs associated with transgenic recombinant antithrombin III
("ATIII"), and (iii) in exchange for funding such development costs and for
making available the credit line, Genzyme has received the right to co-market
ATIII with GTC throughout the world, other than Asia.
Under contractual arrangements between Genzyme and GTC, the General
Division has, in the past, engaged GTC to perform transgenic research and
development on CFTR and may engage GTC to perform transgenic research and
development on other proteins of interest to Genzyme. GTC has contracted with
the General Division for purification and protein chemistry research and
development services. Genzyme leases laboratory and office space to GTC and
provides it with certain administrative and support services for which GTC pays
fees based on Genzyme's costs.
NEOZYME II CORPORATION. In 1992, Genzyme sponsored an initial public
offering by Neozyme II Corporation ("Neozyme II") which resulted in gross
proceeds to Neozyme II of approximately $84.5 million from the sale of units
(the "Neozyme II Units"). The Neozyme II Units consisted of one share of the
callable common stock of Neozyme II, one warrant, which expires on December 31,
1996, to purchase one share of General Division Stock and .135 share of TR
Stock at a combined exercise price of $38.25 per warrant (the "Series N
Warrants") and one warrant to purchase one share of General Division Stock and
.135 share of TR Stock, which may not be exercised unless and until Genzyme's
option to purchase all of the shares of the callable common stock of Neozyme II
terminates unexercised (the "Callable Warrants"), in which case the Callable
Warrants will be exercisable for two years. Genzyme has an option ("the
"Neozyme II Purchase Option") to purchase all of the shares of the callable
common stock of Neozyme II at any time on or before December 31, 1996. If the
Neozyme II Purchase Option is exercised, the Callable Warrants will terminate.
The exercise price of the Neozyme II Purchase Option was $83.00 per share on
December 31, 1995 and increases monthly thereafter to a final exercise price of
$117.00 per share in December 1996. The exercise price may be paid in cash,
shares of General Division Stock or any combination thereof, at the discretion
of Genzyme. If the Neozyme II Purchase Option is not exercised, the exercise
price of each Callable Warrant will be equal to the sum of the average of the
closing sale prices of one share of General Division Stock and .135 share of TR
Stock for the 20 trading days immediately preceding the exercisability
thereof.
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Genzyme has licensed to Neozyme II all technology owned or controlled
and sublicensable by it for use in developing therapeutic products for the
treatment of cystic fibrosis (the "Neozyme II Products") which products may be
commercialized on a worldwide basis exclusively and royalty-free. The Neozyme II
Products, which currently include gene therapy and protein replacement products
for the treatment of CF and a product primarily intended to treat specific
infections common in CF patients, may be expanded to include other products if
agreed upon by Genzyme and Neozyme II. Neozyme II has engaged the General
Division to conduct research, development and clinical testing of the Neozyme II
Products under a research and development agreement and will utilize
substantially all of the net proceeds from the offering, including interest
earned thereon, to fund the General Division's activities under the agreement.
Genzyme believes that additional funding will be necessary in order to complete
clinical testing and commercialization of the Neozyme II Products.
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THE BUSINESS OF THE GENERAL DIVISION
THERAPEUTICS
The General Division's strategy is to use its technological strengths,
particularly its ability to modify and produce DNA and proteins and its
expertise in fermentation, carbohydrate engineering and gene therapy, to develop
safe and effective therapeutic products for selected markets. The General
Division is currently selling Ceredase(R) enzyme and Cerezyme(R) enzyme and has
several therapeutic products in various stages of the research, development,
clinical testing and regulatory review processes. Certain of these products are
being developed on behalf of the Partnership and Neozyme II. There can be no
assurance that development of any product will be successfully completed or that
FDA approval of any product will be obtained.
GENERAL DIVISION THERAPEUTICS PRODUCT PORTFOLIO
PRODUCT INDICATION/APPLICATION SPONSOR STATUS (1)
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Ceredase(R) enzyme Treatment of Gaucher GGD Commercial sales
disease
Cerezyme(R) enzyme Treatment of Gaucher GGD Commercial sales
disease
Seprafilm(TM) bio- Surgical aid for reducing Surgical Aids Marketed in Europe,
resorbable incidence and severity of Partnership approved in Canada,
membrane postoperative adhesions PMA filed in U.S.
Sepracoat(TM) coating Surgical aid for reducing Surgical Aids PMA filed
solution incidence and severity of Partnership
postoperative adhesions
Sepragel(TM) Surgical aid for reducing Surgical Aids Preclinical
bioresorbable gel incidence and severity of Partnership development
postoperative adhesions
HAL-S(TM) synovial Orthopedic surgical aid Surgical Aids Pivotal clinical
fluid replacement Partnership trials
Thyrogen(R) hormone Adjunct for diagnosis and GGD Confirmatory
therapy of thyroid cancer pivotal study
Tretinoin(LF) Treatment of cancers GGD (conducted Phase II clinical
by Aronex) trials
Antithrombin III Treatment of ATIII GTC Preclinical
deficiencies development
CFTR Treatment of cystic Neozyme II Research
fibrosis
HyperGAM(TM)+CF Treatment and prevention of Neozyme II Phase II clinical
Pseudomonas infections in (Conducted by trials
cystic fibrosis patients NABI)
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(1) RESEARCH status indicates work up to and including small scale
production of the targeted product. PRECLINICAL DEVELOPMENT status
includes work done to increase yields and standardize manufacturing
processes and studies in animals to support an application to the FDA
to commence clinical testing in humans. Human clinical trials for
products classified by the FDA as "drugs" or "biologics" are generally
conducted in three phases: PHASE I, to determine safety and
pharmacokinetics; PHASE II, to provide preliminary evidence of
efficacy; and PHASE III, sometimes referred to as PIVOTAL TRIALS, to
provide data for proof of safety and effectiveness. Following
completion of the clinical studies, an application for marketing
approval of a new drug (an "NDA") or licensure of a biological product
(a "PLA") is submitted to the FDA. Clinical trials for products
classified by the FDA as "devices" are generally conducted in two
phases: INITIAL STUDIES to evaluate safety and feasibility, followed by
EXPANDED TRIALS to prove safety and effectiveness. An application for
marketing approval (a "PMA") is then submitted to the FDA.
CEREDASE(R) ENZYME (ALGLUCERASE INJECTION) AND CEREZYME(R) ENZYME
(IMIGLUCERASE FOR INJECTION). Treatment with Ceredase(R) or Cerezyme(R) enzyme
replacement therapy currently represents the only safe and effective treatment
for Gaucher disease, a seriously debilitating, sometimes fatal genetic disorder
caused by a deficiency in an important enzyme in the body called
glucocerebrosidase ("GCR"). This deficiency results in the accumulation of the
lipid glucocerebroside in the body. The disease is characterized by an enlarged
liver or spleen, anemia, bleeding problems, bone and joint pain, fatigue and
orthopedic complications such as repeated fractures and bone erosion.
Ceredase(R) is a modified form of human GCR in which glycoprotein remodeling
technology has been used to target GCR to the cells where the lipid accumulation
occurs. Cerezyme(R) is a recombinant form of GCR which has been remodeled in a
similar manner.
The General Division is marketing these products directly to
physicians, hospitals and treatment centers worldwide through a highly trained
sales force. The worldwide marketing effort is directed at identifying and
initiating treatment for the 5,000 Gaucher patients the General Division
believes exist worldwide. Currently, approximately one-third of these patients
are receiving treatment. Ceredase(R) is available in approximately 43 countries
worldwide. The product has received marketing approval in 11 countries with
applications pending in 4 countries.
The General Division produces Ceredase(R) enzyme from raw material
extracted from human placental tissue. Pasteur Merieux, located in France, is
the only significant commercial source of this material. The supply of starting
material available for the production of Ceredase(R) enzyme effectively limits
the amount of product that can be produced. The current available supply is not
sufficient to produce enough Ceredase(R) enzyme to supply all present patients.
Any disruption in the manufacturing process for Ceredase(R) enzyme may have a
material adverse effect on the division's revenues in any period.
To address supply constraints for Ceredase(R) enzyme, which is limited
by the amount of new material available from human placental tissue, the General
Division has developed Cerezyme(R) enzyme. Cerezyme(R) is a recombinant form of
modified GCR which has been shown in human clinical trials to be equivalent to
Ceredase(R) in its safety and effectiveness in the treatment of Gaucher disease.
In May 1994, Genzyme received U.S. marketing approval for Cerezyme(R) from the
FDA. Cerezyme(R) has also received marketing approval in Israel and Sweden and
is available on a named-patient basis in Canada, Germany and Brazil. The General
Division is presently producing Cerezyme(R) enzyme in its small-scale
manufacturing plant in Framingham, Massachusetts. A large scale mammalian cell
manufacturing facility located in Boston, Massachusetts is undergoing validation
and review prior to application for FDA approval to use it for full-scale
manufacturing of Cerezyme(R) enzyme, which application is expected to be
submitted in 1996. See Item 2. "Properties." The General Division believes that
sales of Cerezyme(R) enzyme will gradually supplant sales of Ceredase(R) enzyme.
Although protein replacement is currently the only existing therapy for
Gaucher disease, the General Division is collaborating with a university and a
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gene therapy company to develop a gene therapy for Gaucher disease. These
efforts are in the research stage.
HA PRODUCTS. The General Division is developing the HA Products to be
used during surgical procedures to limit the formation of postoperative
adhesions and, in arthroscopic procedures of the joints, as a synovial fluid
replacement.
Adhesions are fibrous structures that connect tissues or organ surfaces
that are not normally joined. They are an undesirable side effect of the body's
normal healing process following damage to tissue. Adhesions can cause
significant complications such as bowel obstruction following abdominal surgery,
infertility and pain following gynecological surgery and restricted limb motion
following musculoskeletal surgery. Moreover, adhesions that form as a result of
cardiac surgery can increase the complexity, duration and risk of subsequent
cardiac surgery. The General Division believes that approximately 6.6 million of
the 36 million abdominal, gynecologic, musculoskeletal and cardiac surgical
procedures performed each year in the U.S. could benefit from the use of the HA
Products, as could the comparable number of these procedures that are performed
each year outside the U.S.
The division currently is developing the following HA-based products:
- SEPRAFILM(TM) BIORESORBABLE MEMBRANE is a solid formulation of modified
HA and is used to separate and protect tissues and organs that have been
damaged by surgery. The membrane is designed to last several days in the
body.
- SEPRACOAT(TM) COATING SOLUTION is a liquid formulation of HA that, when
used to coat tissues and organ surfaces at the start of and throughout
surgical procedures, forms a temporary physical barrier that may protect
tissues during surgery.
- SEPRAGEL(TM) BIORESORBABLE GEL is a highly viscous gel form of modified
HA and is intended to be used to separate and protect tissues and organs
that have been damaged by surgery. Sepragel(TM) is intended to be used in
laporoscopic procedures and on tissue surfaces that are inaccessible to
Seprafilm(TM). Similar to Seprafilm(TM), the gel is designed to last
several days in the body.
- HAL-S(TM) SYNOVIAL FLUID REPLACEMENT is a liquid formulation of HA
intended to be used during arthroscopic surgery to maintain normal joint
function and to reduce pain and inflammation following surgery.
The programs to develop the four HA Products achieved a number of
significant milestones in 1995. Two pivotal clinical trials for Seprafilm(TM)
bioresorbable membrane were completed during 1995, one in abdominal surgery and
the other in gynecological surgery. The results of each of these studies
indicated that use of Seprafilm(TM) significantly reduced the incidence, extent
and severity of adhesions following surgery. Based on these results, a PMA was
filed with the FDA in October 1995 for approval to market Seprafilm(TM) in the
U.S. for abdominal and gynecological applications.
On March 25, 1996, an advisory panel of the FDA recommended that
approval be granted to market Seprafilm(TM) to reduce postoperative adhesion
formation in both types of surgery studied in the two pivotal clinical trials
conducted for
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Seprafilm(TM). The panel's recommendation for approval was conditioned on a
requirement that post-marketing surveillance be conducted to monitor possible
adverse events. The panel's recommendation will be considered in the FDA's
final review of the PMA for Seprafilm(TM), but is not binding upon the FDA.
Clinical trials for Sepracoat(TM) coating were completed in 1995. In
October 1995, Genzyme announced that the results of this study indicated that
use of Sepracoat(TM) significantly reduced the incidence of postoperative
adhesions. In January 1996, Genzyme filed a PMA to market Sepracoat(TM) for use
in abdominal, pelvic and cardio-thoracic surgical procedures. The FDA has
notified Genzyme that the Sepracoat(TM) PMA will receive expedited review.
A clinical trial for HAL-S(TM) synovial fluid replacement was completed
in November 1995. The results of this study have been collected and currently
are being reviewed and analyzed and are expected to be made available during the
first half of 1996. If the results of the study show HAL-S(TM) to be safe and
effective, a PMA to market HAL-S(TM) for such procedures will be filed with the
FDA.
Genzyme is currently developing a clinical strategy and conducting
stability studies in anticipation of filing an investigational device exemption
(an "IDE") with the FDA for Sepragel(TM) bioresorbable gel during 1996. Clinical
trials of Sepragel(TM) will commence soon after receipt of the IDE.
Genzyme, on behalf of the Joint Venture, is in the process of preparing
for marketing of Seprafilm(TM) in the U.S. and Canada. Genzyme has received
approval in Canada to market Seprafilm(TM) bioresorbable membrane on behalf of
the Joint Venture and has received authorization from the FDA to export the
product to Canada. Test marketing in Canada is expected to begin during 1996.
Genzyme has, for its own account, initiated marketing efforts for
Seprafilm(TM) in Europe. Genzyme has been notified by regulatory agencies in the
Netherlands, Sweden, Denmark and Ireland that such agencies have no objection to
Genzyme marketing Seprafilm(TM) in those countries at this time. Authorization
from the FDA for export of the product to these four countries has been
obtained, and Genzyme began test marketing Seprafilm(TM) in the Netherlands late
in 1995. In February 1996, Genzyme obtained notification that Seprafilm(TM) had
been granted the Approval of Conformity Certificate (a "CE Mark") in accordance
with the European Community ("EC") Medical Devices Directive. The CE Mark
signifies that a product meets quality standards necessary for marketing in the
EC and will allow introduction of Seprafilm(TM) more rapidly into Europe.
Genzyme believes that successful initial market penetration and
subsequent maintenance of market share for Seprafilm(TM) and Sepracoat(TM) may
require a specialized hospital-based sales force. A substantial effort to
educate surgeons and hospital administrators as to the benefits of these
products will be required in order for the products to gain broad market
acceptance. The efforts to develop marketing and sales capabilities are at an
early stage. Significant additional resources will be required to penetrate
target markets.
Funding for the development of all four of these products has been
provided by the Partnership, which has the exclusive right to commercialize
these products
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in the United States and Canada through the Joint Venture The Partnership also
has the right to a royalty on the General Division's European sales of these
products under certain circumstances. Early in 1994, the General Division began
funding development of these products on behalf of the Partnership and has
committed to continue such funding for the 12 months commencing March 1, 1996.
See "Related Entities -- Surgical Aids Partnership."
THYROGEN(R) HORMONE. The General Division is developing Thyrogen(R)
hormone, a recombinant form of human thyroid stimulating hormone ("TSH"), which
is intended for use as an adjunct to the approximately 100,000 to 200,000
diagnostic and therapeutic procedures undertaken each year to detect and treat
metastases of thyroid cancer. The General Division believes that the
administration of Thyrogen(R) hormone may be more effective and result in fewer
adverse side effects for patients undergoing current standard medical procedures
for thyroid cancer.
Thyrogen(R) hormone was demonstrated to be safe and effective in
stimulating the uptake of radioiodine for whole body scanning in a 1992 Phase
I/II clinical study. A Phase III multi-center clinical study completed late in
1993 provided evidence that the use of Thyrogen(R) hormone prior to diagnostic
scanning greatly improved the quality of life in 94% of thyroid cancer patients
tested and was effective in producing scans that were as good as or better than
conventional scans in 86%. To confirm the results of this study, the General
Division is conducting a second Phase III study. During 1996 it is anticipated
that Thyrogen(R) hormone will be made available to patients who meet certain
criteria under a treatment IND which will allow Genzyme to gather additional
information regarding use of the product while recovering appropriate costs of
the product and the treatment.
TRETINOIN(LF). The General Division is collaborating with Aronex to
develop and commercialize a proprietary liposomal formulation of the retinoid
known as all-trans retinoic acid ("Tretinoin(LF)") for the treatment of cancer.
The initial indications chosen for clinical development of Tretinoin(LF) are
acute promyelocytic leukemia and Kaposi's sarcoma. The General Division and
Aronex believe that Tretinoin(LF) will also have application in the treatment of
other cancers. Although numerous clinical studies have demonstrated the efficacy
of oral retinoids against certain cancers, the use of these drugs has been
limited because patients often develop intolerance to the drug followed by
relapse of their cancers. The General Division and Aronex believe that
Tretinoin(LF) will overcome these limitations. Separate Phase II clinical trials
of Tretinoin(LF) for treatment of acute promyelocytic leukemia and of Kaposi's
sarcoma are currently ongoing.
Pursuant to the agreements with Aronex, the General Division made a $5
million equity investment in Aronex and is required to make milestone payments
totaling $1.5 million and share in the development funding for the project. The
General Division also has an obligation to make an additional equity investment
of $5 million in Aronex following the occurrence of a clinical milestone.
ANTITHROMBIN III (ATIII). ATIII is a human blood protein which acts as
an anticoagulant. Depressed levels of ATIII can lead to increased risk of
thrombosis (clotting) in patients with either hereditary ATIII deficiency or an
acquired ATIII deficiency often associated with multiple disease states, such as
sepsis, various surgeries, multiple trauma and liver disease.
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Natural ATIII derived from donated human plasma currently is sold
worldwide for multiple indications. The General Division is funding efforts at
GTC to develop a transgenic source for ATIII to address anticipated growth in
volume requirements in the market to treat ATIII deficiency by protein
replacement therapy. The General Division believes that current sources of
plasma derived ATIII will be inadequate to address this growth. In combination
with Tufts and SMIG, GTC has developed a herd of transgenic goats at its
production facility in central Massachusetts. These goats have produced active
recombinant ATIII. GTC is preparing to file an IND to initiate a Phase I
clinical trial of ATIII and anticipates conducting this trial during 1996. The
General Division is funding this development work through a recently concluded
development funding and co-marketing agreement under which the General Division
has obtained co-marketing rights for the product outside of Asia.
CYSTIC FIBROSIS. On behalf of Neozyme II, the General Division is
engaged in research, development and clinical testing of biotherapeutic products
for the treatment of cystic fibrosis by gene therapy or protein replacement
therapy and for the treatment and prevention of Pseudomonas bacteria infections
in CF patients (the "CF Products").
CF is the most common fatal genetic disease affecting the Caucasian
population. Approximately one in every 2,500 infants in the United States is
born with the disease and there currently are approximately 30,000 cystic
fibrosis patients in North America. CF is caused by a mutation in the gene
responsible for determining the molecular structure of a protein called cystic
fibrosis transmembrane conductance regulator ("CFTR"). Although improvements
have been made over the last 20 years in alleviating certain symptoms of the
disease and delaying its progress, the underlying disease remains untreated and
patients have an average life expectancy of only 29 years.
The General Division's work has initially concentrated on two promising
approaches to correct the basic defect in CF cells: gene therapy, to augment the
mutant genes with genes that would enable the patient's cells to produce normal
CFTR protein and protein replacement therapy to replace the missing or defective
CFTR protein with properly functioning CFTR protein. For technical and
competitive reasons, the gene therapy approach has been emphasized during the
last two years, and currently the protein replacement program is largely
inactive.
Gene Therapy. In October 1993, results of a study approved by the
Recombinant DNA Advisory Committee (the "RAC") of the National Institutes of
Health (the "NIH") showed that it is possible to correct the biochemical defect
in cystic fibrosis cells in vivo. The study results were the first published
report of a successful gene transfer in cystic fibrosis patients and the first
successful application of an adenovirus vector in gene therapy. In December
1993, one of the General Division's collaborators received RAC approval for a
study involving repeat administration of the General Division's second
generation adenovirus vector to the nasal epithelium and sinus passages of CF
patients. The nasal part of the study was completed in the second quarter of
1995. Aggregated data from this study showed limited evidence of gene expression
at the intermediate doses but not at the highest dose. The virus appeared safe,
but a complex immune response to the adenovirus was measured in almost all
patients. This and other data obtained in animal studies suggests that immune
response may limit the efficacy of repeat dose therapy with adenovirus.
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A two part safety study of Genzyme's second generation adenovirus
vector administered via bronchoscope and aerosol involving 40 CF patients
commenced during 1995 and is currently on-going. In September, Genzyme switched
to the use of a third-generation adenovirus vector with an improved safety
profile as part of this same study.
In parallel with the early phase clinical studies, the General Division
is conducting extensive research into improving the safety and efficacy of
adenovirus. Particular emphasis is being placed on immunology, since it is
highly likely that new vectors or methods need to be developed so as to reduce
the patient's immune response and to increase the efficacy of adenovirus
vectors. Such improvements may be necessary in order for adenovirus vectors to
be clinically useful in chronic therapy.
In addition to its work with viral vectors, the General Division is
developing, both internally and in collaboration with others, alternative
technologies for the delivery of CFTR to CF patients. To date, the most
significant collaborative arrangement is an exclusive research agreement with
Vical, Inc. to evaluate that company's cytofectins as non-viral delivery vectors
for treating cystic fibrosis. Although substantial progress has been made in
this work, currently the optimal formulation of the best of these alternatives
is still less efficient that adenovirus.
During 1994, the General Division initiated a collaboration with a
British academic group in gene therapy utilizing lipids. Another of the General
Division's collaborators commenced a study in 1995 of a CF nasal protocol
utilizing a lipid-DNA complex containing one of Vical's proprietary cytofectins
which is currently on-going. A nasal study involving a proprietary lipid-DNA
complex developed by Genzyme commenced in January 1996.
Because of the innovative nature of gene therapy and public policy
issues surrounding the insertion of new genetic information into cells, the
General Division expects that early clinical evaluation will continue to entail
especially careful testing in a limited number of patients. The General Division
expects to continue preliminary clinical testing of its gene therapy products in
1996. The timing and results of these initial studies will determine whether and
when pivotal trials to determine safety and effectiveness will be undertaken.
These pivotal trials may involve large groups of patients for lengthy periods of
time in order to address the uncertainties surrounding insertion of new genetic
information into humans and to show clinical effectiveness in the treatment of a
progressive disease.
Protein Replacement Therapy. CFTR is a membrane protein, a class of
molecules which historically has been difficult to produce in conventional cell
culture in active form and in quantities. Genzyme, however, has developed
recombinant cell lines that synthesize the protein and, in collaboration with
researchers at GTC and elsewhere, has used transgenic expression techniques to
breed mice and rabbits which secrete human CFTR protein in their milk. Based on
these results, Genzyme engaged GTC to develop transgenic goats that express
CFTR protein in their milk. Although one transgenic goat was born, it did not
synthesize measurable CFTR in its milk and no further work is currently
underway.
HYPERGAM(TM)+CF. The General Division is developing vaccine and passive
immunization antibody-based products to treat and prevent Pseudomonas
infections. The majority of cystic fibrosis patients suffer from lung infections
caused by
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this bacteria, a major medical problem and a frequent cause of hospitalization.
In many cases, the immediate cause of death in CF patients is pulmonary failure
associated with these infections.
The General Division is collaborating on this project with NABI. NABI
is employing an exclusively licensed proprietary technology to develop
HyperGAM(TM)+CF for use in passively immunizing CF patients infected with the
bacteria. A Phase I clinical trial involving single dose administration of
HyperGAM(TM)+CF was completed in 1994 and showed that HyperGAM(TM)+CF appears to
be safe. A multi-center, dose ranging Phase II trial to assess safety and
efficacy of the product in chronic administration commenced in the first quarter
of 1995 and enrollment was completed in the first quarter of 1996.
The General Division believes that HyperGAM(TM)+CF may be complementary
to its gene therapy and protein replacement therapy products in treating or
preventing Pseudomonas infections in conjunction with correcting the basic
defect in airway cells. However, it is possible that the gene therapy and
protein replacement products may result in an effective therapy for CF which,
over time, would reduce or obviate the need for a Pseudomonas treatment.
Pursuant to the agreement with NABI, the General Division made a $5
million equity investment in NABI and is required to fund two-thirds of the
development program costs and make certain milestone payments associated with
the progress of clinical trials. NABI will manufacture the product and the
General Division will market it on a worldwide basis. Neozyme II funds the
General Division's obligations to provide development funding and make milestone
payments to NABI in exchange for the exclusive rights that the General Division
acquired to market HyperGAM(TM)+CF on a worldwide basis and the right to its
share of the profits resulting from commercialization of the product.
TRANSGENICS. GTC, Genzyme's 48%-owned affiliate, has developed methods
of protein production in transgenic animals and has produced significant
quantities of several human proteins, including CFTR, ATIII, alpha one
anti-trypsin and longer acting tissue plasminogen activator, in the milk of
animals, including mice and goats. Transgenic production of a human protein is
achieved by inserting a gene that directs the production of a desired protein
into the genetic material of an animal such that the target protein is secreted
in the milk of female offspring. GTC believes that transgenic production offers
significant economic and technological advantages over traditional protein
production systems. GTC's strategy is focused on utilizing this technology to
develop and produce a broad range of proteins, both in collaboration with
pharmaceutical and biotechnology companies and independently. GTC's work in
developing transgenic recombinant ATIII is funded by the General Division under
a funding and co-marketing agreement entered into in March 1996. See "Related
Entities -- Genzyme Transgenics Corporation."
GTC is working with the General Division and with a number of
biopharmaceutical companies on feasibility studies regarding the transgenic
production of specific proteins. During 1995, GTC completed and opened a
transgenic production facility in central Massachusetts that utilizes transgenic
goats. A specially selected goat herd was imported from New Zealand from which
transgenic animals will be bred to produce pharmaceutical proteins.
In October 1994, GTC acquired TSI, a leading provider of preclinical
testing and manufacturing support services primarily to pharmaceutical,
biotechnology and
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chemical companies. This acquisition was undertaken in order to expand GTC's
business operations and provide a more comprehensive offering of support
services to its customers. GTC's testing businesses offer broad scientific
capabilities in such fields as preclinical efficacy models, teratology,
photobiology, surgery and continuous infusion. For the year ended December 31,
1995, the testing businesses had revenues of approximately $26 million.
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DIAGNOSTIC SERVICES
The General Division's diagnostic services business unit, which
operates under the trade-name of Integrated Genetics, applies advanced
biotechnology to develop and provide high quality, sophisticated genetic
diagnostic services to physicians, hospitals, universities, medical centers,
clinical laboratories, genetic centers and managed care organizations throughout
the United States and internationally. The General Division also provides
identity testing services to state and local government agencies, attorneys and
various courts in the U.S., as well as donor typing to bone marrow registries.
On October 2, 1995, Genzyme acquired all of the publicly-owned shares
of IG and IG was merged into the General Division. See "Related Parties." In
February 1996, Genzyme announced an agreement to merge Genetrix, Inc., a
Phoenix-based operator of prenatal and cancer genetic testing laboratories, with
Genzyme in a transaction to be accounted for as a pooling of interests. Subject
to the approval of the Genetrix shareholders and the satisfaction or waiver of
certain other conditions, the merger will be consummated, with holders of
Genetrix stock receiving shares of General Division Stock, and the operations of
Genetrix will be included within the diagnostic services business of the General
Division.
GENERAL DIVISION DIAGNOSTIC SERVICES PORTFOLIO
PRODUCT INDICATION/APPLICATION STATUS
------- ---------------------- ------
Biochemical testing Screening for certain fetal Commercial
chromosomal abnormalities service
Prenatal cytogenetics Detection of fetal chromosomal Commercial
abnormalities service
InSight(R) molecular genetic Rapid detection of selected fetal Commercial
testing chromosomal abnormalities service
DNA testing Detection of single gene disorders Commercial
(CF, Fragile X, Huntington Disease, service
Gaucher Disease, etc.)
Cancer Testing -- cancer Applications used singly or in tandem Commercial
cytogenetics, flow cyto- for detection and prognosis of service
metry, fluorescent in-situ various forms of cancer
hybridization "FISH", DNA
Fetal cell separation Detection of fetal chromosomal Preclinical
abnormalities development
Identity testing Establishing paternity and identifying Commercial
potential bone marrow transplant service
donors
PRENATAL AND POSTNATAL GENETIC DIAGNOSTIC SERVICES. The General
Division offers three types of genetic diagnostic services: biochemical testing,
classical and molecular cytogenetic testing, and DNA testing. Biochemical
testing services consist primarily of a widely used screening test (AFP(3)) used
to determine if further prenatal genetic testing is appropriate. Classical and
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molecular cytogenetic testing involves the analysis of fetal cells obtained
through amniocentesis or chorionic villi sampling ("CVS") to evaluate
chromosomal abnormalities. DNA analysis is performed to determine the likelihood
that the subject has, or is a carrier for, a specific genetic disorder.
The market for these services has experienced significant growth in
recent years. The General Division's strategy is to expand its genetic
diagnostics business by providing a comprehensive range of high quality testing
services in a timely, accurate and convenient manner; by aggressively marketing
its services through a direct sales force; and by maintaining an active research
and development program that enables it to introduce additional testing services
based on new technologies. The Division also has an active program to expand its
laboratory operations through acquisition.
The InSight(R) test, a faster cytogenetic test based on in situ
hybridization of chromosome-specific DNA probes, was introduced by Integrated
Genetics in 1991. This technology permits identification of the most frequently
occurring chromosomal abnormalities within 48 hours, as compared to the one to
three weeks required to perform classical cytogenetic testing (karyotyping). The
InSight(R) analysis is offered in conjunction with a complete karyotype. Cancer
diagnostic services based on cytogenetics and a series of supporting tests
currently focus primarily on various forms of leukemias and lymphomas.
The General Division also provides testing for numerous genetic
diseases including, fragile X syndrome, spinal muscular atrophy, Huntington
disease, polycystic kidney disease, sickle cell anemia, and hemophilia. Its
current cystic fibrosis test, launched in 1994, uses samples of cells collected
by using a simple cheek brush and is capable of detecting more possible genetic
mutations (32), more rapidly and at lower cost than methods previously
available.
GENETIC IDENTITY TESTING SERVICES. The General Division also provides
identity testing services principally to state and local government agencies and
courts throughout the United States from its high volume testing laboratory in
North Carolina. Both classical blood tests and DNA tests are used to provide
customers with reports as to the likelihood of paternity. Testing services are
also performed to provide forensic medical evidence which is used to identify
suspects involved in violent crimes and DNA testing is offered to bone marrow
registries attempting to match potential donors with transplant patients.
DEVELOPMENT PROGRAMS. The General Division maintains an active program
aimed at identifying and developing new technologies and methods of performing
genetic tests and applying these methods to improve and expand its menu of
testing services. In its own research laboratories and in collaboration with
others, Integrated Genetics conducts major research and development programs in
such areas as genomics, test platforms for complex mutational analysis,
predispositional testing for cancer and other late onset diseases, and rare cell
separation and analysis methods.
Since introduction of the first generation InSight(R) rapid cytogenetic
analysis test in 1991, the Company has developed numerous other FISH probes and
various DNA tests, including a sophisticated 32-mutation cystic fibrosis cheek
brush test. In 1995, proprietary new multiple allele specific diagnostic assay
("MASDA") technology was introduced. MASDA is an efficient, accurate and cost
effective DNA test method for high throughput complex mutational analysis which
can simultaneously detect more than one hundred known mutations in hundreds of
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patient samples. Also in 1995, the genomics group, together with their
collaborators, announced the full identification of the PKD1 gene, which causes
polycystic kidney disease, a common genetic disorder that leads to renal failure
by middle age in most affected individuals. This group is also involved in the
discovery of the gene for the most common cause of inherited cardiac arrhythmia,
long QT syndrome, also known as "sudden death syndrome."
The General Division is now beginning to use the MASDA technology in
its in-house predispositional assay development. This program is aimed at
identifying causative genetic mutations associated with various cancers and
certain other diseases where the ability to test a large number of genetic
mutations is critical. Work in the genomics program continues to focus on
finding and understanding important genes that have a potential diagnostic and
therapeutic use for various sectors of Genzyme's businesses.
The General Division continues its efforts to develop methods and
procedures to isolate and genetically analyze fetal cells obtained from maternal
blood samples. The program has demonstrated the feasibility of a separation
technology involving the use of combinations of antibodies that bind selectively
to specific cell types and has developed appropriate immobilization and
analytical methods. However, at this point, the process does not meet the
Division's consistency standards well enough to commercialize it as a high
quality diagnostic test.
Fetal cells obtained from maternal blood serum could potentially be
used in lieu of cells derived from amniotic fluid or chorionic villi for genetic
testing, thereby avoiding the risk associated with amniocentesis or CVS. The
General Division believes that successful development of techniques which permit
prenatal genetic testing of samples obtained from mothers on a low risk basis,
using rapid low cost detection methods such as InSight(R), can result in a
substantial expansion of the market for prenatal testing. Significant resources
continue to be focused on this research program.
DIAGNOSTIC PRODUCTS
The General Division is a leading independent supplier of diagnostic
components (enzymes, substrates, antibodies and antigens), bulk reagents and
devices to manufacturers of clinical diagnostic reagents and kits as well as
directly to clinical reference laboratories. The division also manufactures and
sells a broad line of antibody and antigen based ELISA test kits. In addition,
the division distributes a broad product line of research products to academic,
industrial and governmental laboratories for use in immunology and cell biology.
The Diagnostic Products Division has manufacturing expertise in enzyme
fermentation, purification, reagent formulation and immunoassay test
development.
GENERAL DIVISION DIAGNOSTIC PRODUCTS PORTFOLIO
PRODUCT INDICATION/APPLICATION STATUS
------- ---------------------- ------
Cardiovascular products -- Clinical diagnostic testing Product sales
Direct LDL(TM), HDL
Diagnostic intermediates, Manufacture of bulk diagnostic products Product sales
components and bulk for blood analysis and raw materials
reagents for use in clinical chemistry reagents
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ELISA test kits Immunodiagnostic kits for blood analysis Product sales
Research products Research in immunology and cell biology Product sales
CARDIOVASCULAR PRODUCTS. The General Division sells devices and
reagents for the quantification of LDL and HDL cholesterol levels. In
particular, the General Division has developed and commercialized an in vitro
diagnostic test kit (the Direct LDL(TM) test kit) for the direct measurement of
LDL cholesterol in blood samples. The correlation between elevated blood
cholesterol levels and increased risk of coronary heart disease, one of the
leading causes of death in the United States, is well established. A high level
of LDL cholesterol in the blood indicates an increased risk of coronary heart
disease. Prior to the approval of the division's kit, there was no routine
direct standardized test for measuring LDL cholesterol and LDL cholesterol
levels were derived using several indirect measurements and estimates, each
contributing a potential source of error to the calculation.
DIAGNOSTIC INTERMEDIATES. The General Division produces and sells
critical components such as diagnostic enzymes, substrates, proteins and
reagents for use in diagnostic kits used for blood analysis in clinical
chemistry laboratories. One primary diagnostic area of emphasis for the General
Division is pancreatic function, where it provides enzymes, substrates, bulk
reagents and patented methodologies for amylase and lipase determination to
diagnostic kit manufacturers. For cardiovascular health, the General Division is
a leading supplier of cholesterol enzymes used in testing for coronary heart
disease. Sales of its diagnostic intermediates are made to over 200
manufacturers and users of diagnostic kits worldwide through its own technical
sales representatives in the U.S. and Europe and through distributors in Japan.
ELISA TEST KITS. The General Division manufactures and sells a broad
range of ELISA test kits for infectious disease and endocrinology
determinations. In addition, it supplies monoclonal and polyclonal antibodies
plus other immunoassay components to immunodiagnostic kit manufacturers.
Finally, the General Division supplies patented Contrast(TM) rapid tests for
pregnancy and Strep A determination.
RESEARCH PRODUCTS. The General Division's research products consist of
a comprehensive line of cytokines, growth factors, antibodies, proteins and
ELISA systems which play an integral role in activating and modulating the
body's immune system. These research products are used primarily to conduct
research in the areas of immunology and cellular biology.
PHARMACEUTICALS DIVISION
The General Division develops, manufactures and sells a range of active
drug substances, pharmaceutical intermediates, synthetic phospholipids,
peptides, biomolecules and chemicals to the pharmaceutical and health care
industries. These products utilize the division's capabilities in multi-step
organic chemical synthesis, fermentation, enzymology and carbohydrate
technology.
GENERAL DIVISION PHARMACEUTICALS PRODUCT PORTFOLIO
PRODUCT INDICATION/APPLICATION STATUS
------- ---------------------- ------
MelaPure(TM) Melatonin Dietary Supplement Product sales
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Clindamycin phosphate Treatment of serious infections Product sales
Hyaluronic Acid Ophthalmic products & research Product sales
applications
Active drug substances and Production of oral and parenteral Product sales
pharmaceutical drugs
intermediates
Fine chemicals Production of pharmaceutical inter- Product sales
mediates, & electronic chemicals
Synthetic phospholipids Drug delivery systems and Product sales
pharmaceutical components
Synthetic peptides Production of final dosage form Product sales
therapeutics
Amino acid derivatives Production of synthetic peptides Product sales
Biomolecules Bioprocessing and reagents Product sales
MELAPURE(TM) MELATONIN. In 1995, melatonin, a synthetic human hormone
present in a variety of foods and marketed as a dietary supplement, became the
largest selling chemical product manufactured by the General Division. In 1995,
the General Division began supplying bulk quantities of melatonin in response to
demand from manufacturers of final dosage form product. In addition, Genzyme has
developed its MelaPure(TM) Melatonin trademark and marketing program to identify
MelaPure(TM) as a high quality material. Genzyme has developed and currently
is marketing outside the U.S. a tableted finished dosage form product.
CLINDAMYCIN PHOSPHATE. The General Division currently produces and
sells clindamycin phosphate, an off-patent antibiotic widely used by hospitals
for the treatment of infections. Clindamycin phosphate is sold to pharmaceutical
companies in the United States, Europe, Japan and the Middle East through the
division's worldwide sales organization.
HYALURONIC ACID. The General Division currently produces and sells bulk
hyaluronic acid (HA) for a number of applications. Under an agreement with
Alcon, the General Division supplies HA powder to Alcon for incorporation into
Provisc(R), an HA-based ophthalmic surgical aid product, which Alcon introduced
in 1994. The General Division also receives a royalty based on Alcon's product
sales. Hyaluronic acid is also sold to a number of customers for various
research and development applications.
ACTIVE DRUG SUBSTANCES AND PHARMACEUTICAL INTERMEDIATES. The General
Division produces drug substances for leading ethical pharmaceutical companies
for formulation into a variety of dosage forms. The General Division also
supplies various pharmaceutical intermediaries which are converted to active
drug substances by the customer.
FINE CHEMICALS. The General Division has developed a range of high
value fine chemicals and chiral intermediates based on the Company's proprietary
technology in complex organic chemistry. These products include various
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synthetic starting materials and liquid crystal chemicals for the electronics
industry. The General Division markets these products through its own sales
force directly to chemical and pharmaceutical companies worldwide.
SYNTHETIC PHOSPHOLIPIDS. Phospholipids are the major structural
components of cell membranes. They are useful in drug delivery systems, emulsion
formulations and as components of pharmaceutical products such as liposomes. The
General Division has developed proprietary technology for the large scale
manufacture of synthetic phospholipids with high purity and consistency.
The General Division currently produces and sells synthetic
phospholipids to pharmaceutical and biotechnology companies for use in the
formulation and delivery of certain of their products.
SYNTHETIC PEPTIDES AND AMINO ACID DERIVATIVES. Synthetic peptides are a
class of biologically active compounds comprised of chains of amino acids. Many
of these compounds have applications as active drug compounds and are used by
the pharmaceutical industry in final dosage form preparations. The General
Division is a commercial scale GMP manufacturer of synthetic peptides for many
such applications. Amino acid derivatives are the materials used in the
production of synthetic peptides. In addition to producing these materials for
use in its own peptide manufacturing processes, the General Division sells amino
acid derivatives to the pharmaceutical industry for use in the manufacture of
peptides.
BIOMOLECULES. The General Division produces and sells a variety of
biomolecules for use as bioprocessing materials in the biotechnology and
pharmaceutical industry. These include reagents such as DTT.
COMPETITION
The General Division is engaged in a segment of the human health care
products industry that is extremely competitive. Competitors in the United
States and elsewhere are numerous and include major pharmaceutical, chemical and
biotechnology companies, many of which have substantially greater resources than
Genzyme. These companies may succeed in developing products that are more
effective than any that have been or may be developed by the General Division
and may also prove to be more successful than the General Division in producing
and marketing their products.
Each of the General Division's four business areas faces different
competitive challenges:
THERAPEUTICS. Although the General Division is not aware of any current
effective alternative to its products for the treatment for Gaucher disease
(Ceredase(R) enzyme and Cerezyme(R) enzyme), competition potentially could come
from other protein replacement therapies or gene therapy. The General Division
believes that its proprietary production techniques, exclusive raw material
source for Ceredase(R) enzyme and, to a certain extent, the orphan drug status
of its products give it a number of advantages over potential competitors using
protein replacement therapy for the treatment of Gaucher disease. Gene therapy
techniques are still in experimental stages. The General Division believes that
the principal factors that will affect competition for Ceredase(R) enzyme and
Cerezyme(R) enzyme will be clinical effectiveness and absence of adverse side
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effects. One company is attempting to develop an alternative form of recombinant
GCR by producing the enzyme in insect cells and modifying it by applying a
coating of polyethylene glycol.
The General Division believes that its expertise in developing
proprietary fermentation processes and its access to proprietary strains of
micro-organisms used in its HA production process will give it a competitive
advantage in the development of HA products. The General Division's
anti-adhesion products may face significant competition from other HA-based
products, from non-HA-based products and from changes in surgical techniques
that would obviate the use of HA. The General Division believes that the
principal factor that will affect competition in this area is acceptance of the
product by surgeons, which depends, in large part, upon product performance,
safety and price.
There are a number of organizations, both academic and commercial,
which are engaged in developing therapies to treat either the symptoms of CF or
the cause of the disease. The General Division is not aware of other
non-academic organizations working on a protein replacement therapy for CF.
Several groups are developing gene therapy approaches to the disease and also
have received RAC approval to initiate limited human studies of CF gene therapy.
In addition, other organizations are investigating pharmacological and
biological agents that would treat CF. One such product, Pulmozyme(TM), which
was developed by Genentech, Inc., currently is on the market. These groups may
succeed in developing gene therapy products before the General Division, in
obtaining patent protection that may effectively block the General Division from
commercializing its gene therapy or protein replacement products or in
developing other drug therapies that relieve the symptoms of cystic fibrosis
and, thus, compete with products under development by the General Division.
DIAGNOSTIC SERVICES. The United States market for prenatal cytogenetic
and biochemical testing is divided among approximately 500 laboratories, many of
which offer both types of testing. Of this total group, less than 20
laboratories market their services nationally. The General Division believes
that the industry as a whole is still quite fragmented, with the top 20
laboratories accounting for approximately 50% of market revenues, and with no
individual company, including Integrated Genetics, accounting for more than 18%
of the total.
Competitive factors in the genetic diagnostics services business
generally include reputation of the laboratory, range of services offered,
pricing, convenience of sample collection and pick-up, quality of analysis and
reporting and timeliness of delivery of completed reports. The General Division
believes that its research and development program, which has enabled it to
develop and introduce testing services based on new technology, and its active
sales and marketing force have played significant roles in the rapid growth of
its genetic diagnostics services business. Furthermore, in addition to the
General Division, several companies and academic groups are attempting to
develop fetal cell separation techniques. The General Division believes that its
combination of separation and analytical technologies will give it a significant
competitive advantage.
DIAGNOSTIC PRODUCTS. The General Division acts as a primary supplier of
enzymes and substrates, and generally does not compete with its customers in the
sale of complete diagnostic kits. This philosophy enables the General Division
to maintain unique relationships with major diagnostic kit manufacturers and to
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engage with them in development efforts to produce new or improved kits. The
market in the diagnostic products industry is mature and competition is based on
price, reliability of supply and the purity and specific activity of products.
PHARMACEUTICALS. Competition in the pharmaceuticals business is
affected primarily by production efficiency, product quality and price. The
General Division believes that its success in this market is due to its
technical expertise and selection of high-value, small volume products which
minimizes direct competition with larger production operations in commodity
products.
PATENTS AND PROPRIETARY TECHNOLOGY
The General Division has filed or has licensed rights to many patent
applications and patents in the United States and numerous foreign countries
relating to its processes and products. In general, patents issued in the U.S.
are effective for a period of seventeen years from date of issue, although the
GATT legislation recently passed changes this to twenty years from the filing
date for applications filed after June 8, 1995. The duration of foreign patents
varies in accordance with applicable local law. The General Division also relies
on trade secrets, proprietary know-how and continuing technological innovation
to develop and maintain a competitive position in its product areas. Genzyme's
employees, consultants and corporate partners who have access to its proprietary
information have signed confidentiality agreements. There can be no assurance
that these agreements will be honored or that others may not independently
develop similar technology.
There can be no assurance that the General Division's patent claims
will offer protection against competition, or will not be designed around or
infringed upon by others. In addition, there can be no assurance that other
companies will not be awarded patents that affect the General Division's
interests. Genzyme may be required to obtain licenses under such patents in
order to manufacture and market some of its products. There can be no assurance
that it will be able to obtain such licenses or that such licenses will be
available on commercially reasonable terms. In addition, patent litigation is
widespread in the biotechnology industry and it is not possible to predict how
this will affect the division's efforts to form strategic alliances, to conduct
clinical trials or to manufacture and market its products under development.
GOVERNMENT REGULATION
Governmental regulation, in the United States and other countries, is a
significant factor in the production and marketing of many of the General
Division's products and in its ongoing research and development activities.
FDA REGULATION. In the United States, products that do not achieve
their principal intended purpose through chemical action within or on the body
and which are not dependent upon being metabolized by the patient's body in
order to be effective are classified by the FDA as "devices" while other
products are classified as "drugs" or "biologics." The General Division's
Ceredase(R) enzyme and Cerezyme(R) enzyme are regulated in the U.S. as drugs, as
are Thyrogen(R) hormone and Tretinoin(LF). HyperGAM(TM)+CF and Neozyme II's
protein replacement and gene therapy products are regulated as biologics. The
Partnership's products are regulated as devices. The Direct Test LDL(TM)
cholesterol is classified as an in vitro diagnostic device.
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The activities required before drugs or biologics may be marketed in
the United States include (i) preclinical laboratory tests, in vitro and in vivo
preclinical studies and formulation and stability studies, (ii) the submission
to the FDA and approval of an application for human clinical testing (an "IND"),
(iii) adequate and well controlled human clinical trials to prove the safety and
effectiveness of the drug or biologic, (iv) the submission of a New Drug
Application ("NDA") for a drug or a Product License Application ("PLA") for a
biologic and (v) the approval by the FDA of the NDA or PLA.
In addition to product approval, the manufacturer of the product may
have to obtain an establishment license (for a biologic that is not considered
well characterized) or a pre-approval Good Manufacturing Practices ("GMP")
inspection (for a drug or well characterized biologic) from the FDA. Since any
license granted by the FDA is both site and process specific, any material
change by a company in the manufacturing process, equipment or location
necessitates additional FDA review and approval.
Products that are classified as devices also require FDA approval prior
to marketing. Devices are classified as Class I, II or III, depending upon the
information available to assure their safety and effectiveness. In general,
Class I and Class II devices are devices whose safety and effectiveness can
reasonably be assured through general or specific controls, respectively. Class
III devices are life sustaining, life supporting or implantable devices or new
devices which have been found not to be substantially equivalent to legally
marketed devices. The steps required for approval of a Class III device include
(i) preclinical laboratory tests and in vitro and in vivo preclinical studies,
(ii) the submission to the FDA and approval of an investigational device
exemption (an "IDE") to allow initiation of clinical testing, (iii) human
clinical studies to prove safety and effectiveness of the device, (iv) the
submission of a PMA and (v) the approval by the FDA of the PMA. Typically,
clinical testing of devices involves initial testing to evaluate safety and
feasibility and expanded trials to collect sufficient data to prove safety and
effectiveness. In addition, the procedures and the facilities used to
manufacture the device are subject to review and approval by the FDA.
A device (other than a Class III device) which is proved to be
substantially equivalent to a device marketed prior to May 28, 1976, when
government regulations for devices were first introduced, can be marketed after
approval of a 510(k) application rather than the filing of an IDE and a PMA. The
510(k) application must contain a description of the device, its methods of
manufacture and quality control procedures and the results of testing to
demonstrate that the device is substantially equivalent to the device already
marketed.
The time and expense required to perform the clinical testing necessary
to obtain FDA approval can far exceed the time and expense of the research and
development initially required to create the product. Even after initial FDA
approval has been obtained, further studies may be required to provide
additional data on safety or to gain approval for the use of a product as a
treatment for clinical indications other than those initially targeted. In
addition, use of these products during testing and after marketing approval has
been obtained could reveal side effects which, if serious, could delay, impede
or prevent marketing approval, limit uses, force a recall of the product or
expose the General Division to product liability claims.
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REGULATION OUTSIDE THE UNITED STATES. For marketing outside the United
States, the General Division is subject to foreign regulatory requirements
governing human clinical testing and marketing approval for its products. These
requirements vary by jurisdiction, differ from those in the U.S. and may
necessitate additional pre-clinical or clinical testing whether or not FDA
approval has been obtained.
Generally, the division's initial focus for obtaining marketing
approval outside the U.S. is Europe. European Community ("EC") Directives
("regulations") generally classify products either as medicinal products or
devices. For medicinal products, marketing approval may be sought using either
the centralized procedure of the Committee for Proprietary Medicine or Products
(the "CPMP") or the decentralized (mutual recognition) process. The CPMP
centralized procedure results in a recommendation for approval in all member
states, while the EC multi-state process involves country by country approval.
EC regulations for products classified as devices have been implemented for some
devices. Devices such as Genzyme's HA Products must receive market approval
through a centralized procedure, where the device receives a CE mark allowing
distribution to all member states of the European Union. For those devices where
EC regulations have not been implemented, marketing approval must be obtained on
a country by country basis. The CE mark certification requires the company to
receive International Standards Organization (ISO) certification for each
facility involved in the manufacture or distribution of the device. This
certification only comes after the development of an all inclusive quality
system which is reviewed for compliance to International Quality Standards by a
licensed "Notified Body" working within the EC. After certification is received
a product dossier is reviewed which attests to the products compliance with EC
directive 93/42/EEC for medical devices. Only after this point is a CE mark
granted
Ceredase(R) enzyme has been registered for sale in the EC through a
CPMP centralized procedure. The General Division expects Cerezyme(R) enzyme,
Thyrogen(R) hormone and the products of Neozyme II also will be regulated
through centralized CPMP procedure. Seprafilm(TM) has been granted the CE Mark.
ORPHAN DRUG ACT. The Orphan Drug Act provides incentives to
manufacturers to develop and market drugs for rare diseases and conditions
affecting fewer than 200,000 persons in the United States at the time of
application for orphan drug designation. The first developer to receive FDA
marketing approval for an orphan drug is entitled to a seven-year exclusive
marketing period in the United States for that product. However, a drug that is
considered by the FDA to be clinically superior to or different from another
approved orphan drug, even though for the same indication, is not barred from
sale in the United States during the seven-year exclusive marketing period. The
General Division has been accorded orphan drug status for Ceredase(R) enzyme and
Cerezyme(R) enzyme and has received orphan drug designation for a number of
other products currently under development, including the products of Neozyme II
and Thyrogen(R) hormone. The TretinoinLF product being developed in conjunction
with Aronex has received orphan drug designation for the treatment of leukemias.
Periodically, legislation is proposed before the United States Congress
to amend the Orphan Drug Act to reduce the seven-year exclusive marketing period
under certain circumstances. Any such legislation is not likely to affect
products currently being marketed such as Ceredase(R) enzyme and Cerezyme(R)
enzyme but could reduce the market exclusivity period for future products.
Although the Company has filed for or received orphan drug designation for
various products,
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the Company believes that the commercial success of these products including
Ceredase(R) enzyme and Cerezyme(R) enzyme will depend more significantly on the
associated safety and efficacy profile and on the price relative to competitive
or alternative treatments and other marketing characteristics of each product
than on any exclusivity afforded by the Orphan Drug Act. Additionally, these
products may be protected by patents, exclusive raw material supply contracts
and other means.
OTHER GOVERNMENT REGULATION. The General Division's operations are or
may be subject to various laws, regulations and recommendations relating to safe
working conditions, laboratory practices, the experimental use of animals and
the purchase, storage, movement, import and export and use and disposal of
hazardous or potentially hazardous substances, including radioactive compounds
and infectious disease agents used in connection with its research work. The
extent of government regulation which might result from future legislation or
administrative action cannot be predicted.
THE BUSINESS OF THE TISSUE REPAIR DIVISION
OVERVIEW
Genzyme's Tissue Repair Division ("GTR") focuses on developing,
producing and marketing technologically advanced products for the treatment and
prevention of serious tissue damage. GTR believes that strong capabilities in
three groups of core technologies -- autologous cell processing, therapeutic
protein development and biomaterials engineering -- enhance its ability to
successfully develop and market a portfolio of novel products and services to
apply to unmet medical needs in the field of tissue repair. Two services, the
Epicel(SM) Service for permanent skin replacement, and the CARTICEL(SM) Service
for repair of cartilage, currently are on the market. Several others are in
clinical evaluation. Significant additional development efforts, preclinical
testing and manufacturing scale-up activities, as appropriate, must be
completed before the products and services under development can be
commercialized. In addition, most of these products and services will require
regulatory approval. There can be no assurance that adequate resources will be
available to fund these activities or that, if funded, they will be completed
successfully, that necessary regulatory approvals will be obtained or that the
products under development will be commercialized successfully.
Genzyme created GTR in December 1994 by acquiring BioSurface
Technology, Inc. ("BioSurface") and combining it with several Genzyme programs
in the area of tissue repair. BioSurface was in the business of developing and
supplying engineered tissues grown from normal human cells using proprietary
cell culture technology.
GTR PRODUCTS AND SERVICES
GTR's activities can be divided into three main areas: cartilage
repair, consisting of the CARTICEL(SM) Service and CARTICEL II; skin repair,
including the Epicel(SM) Service and the TGF-Beta2 and Vianain(R) Debriding
Product programs; and other tissue repair opportunities in the areas of multiple
sclerosis and bone repair.
CARTILAGE REPAIR - CARTICEL(SM) SERVICE
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Cartilage tissue can be found in several parts of the body and serves
several different purposes. Articular (hyaline) cartilage is a thin layer of
tough opaque tissue that lines the opposing bone surfaces of all moving joints
in the body to provide almost frictionless movement of the joint. Another type
of cartilage (fibrocartilage) serves a shock-absorbing function in the knee and
in the spine between the vertebrae. Cartilage is also the tissue which gives
shape to the ear and the nose.
Damage to cartilage causes significant medical problems. When articular
cartilage tissue in a joint suffers more than superficial damage, it does not
regenerate and may further deteriorate over time. Even damage which creates a
small defect in articular cartilage can impair joint movement, restrict patient
mobility and cause pain and joint locking. There were an estimated 1.3 million
procedures performed in the U.S. in 1994 to treat soft tissue damage in the
knee. A substantial number of these procedures involved articular cartilage
damage.
In the most severe cases of damaged cartilage, the joint is replaced
with a metal or plastic prosthesis. In the United States, approximately 190,000
total joint replacements are performed each year at a total cost to the
healthcare system of approximately $3 billion. Total joint replacement carries a
significant risk of long term failure. Consequently, knee replacement is
considered a last resort treatment for patients under 60 years old.
Arthroscopic techniques are currently used to relieve patients' pain
and lessen the chances of further tissue damage, but they do not repair the
defect or stop the degenerative process which may lead to osteoarthritis.
Patients with osteoarthritis may require a total joint replacement, which
carries a significant risk of long-term failure. Therefore, joint replacement is
generally not recommended for patients under the age of fifty, who would likely
outlive the prosthesis.
GTR's CARTICEL(SM) Service provides autologous (or derived from a
patient's own cells) cultured articular cartilage cells for the repair of focal
cartilage defects in the knee. The service starts with a small sample of healthy
articular cartilage tissue removed from the patient's knee. After the cartilage
cells from the tissue have been grown to sufficient number in GTR's laboratory,
they are transplanted back into the cartilage defect in the patient's knee to
form new cartilage tissue. Because these laboratory-grown cells can lead to
replacement of the cartilage defect with healthy cartilage tissue, GTR believes
that the CARTICEL(SM) Service may improve joint function and significantly delay
or even eliminate the need for expensive, debilitating joint replacement
surgery. Based on market research it has conducted, GTR estimates that
CARTICEL(SM) Service is applicable in approximately 250,000 patients with
cartilage defects each year in the United States and Europe, combined.
The CARTICEL(SM) Service is an integrated program of surgeon training,
standardized cartilage cell processing, and rigorous collection and analysis of
outcomes data, which is aimed at providing broad surgeon access and achieving
and maintaining high quality patient outcomes. Although the CARTICEL(SM) Service
is not currently regulated by the FDA, GTR has developed a quality systems
approach to the delivery of this service.
GTR's CARTICEL(SM) Service has been developed based on eight years of
pioneering work by a group of Swedish physicians (the "Swedish Group"). As of
March 1, 1996, the Swedish Group, which was the first group in the world to
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report the use of cultured autologous cartilage cells to treat cartilage damage,
has treated 245 patients with knee cartilage defects. A retrospective review of
safety data on the initial 153 patients treated by the Swedish Group, which was
conducted by an independent data management organization hired by GTR and
covered eight years of data for the earliest patients, indicated no serious
adverse events directly attributable to autologous chondrocyte implantation or
post implantation joint infection. An ongoing retrospective review by GTR
presently covering approximately 80 of these patients has yielded encouraging
data on the efficacy of the treatment, as measured by joint functionality and
arthroscopic and histological evaluation, symptoms and patient assessment of
improvement. In the October 6, 1994 issue of the New England Journal of
Medicine, the Swedish Group published data on the first 23 patients to reach a
two year follow-up evaluation. As reported in this article, 19 of 23 patients
had restored or improved joint function after treatment with cultured autologous
chondrocytes.
In order to gain access to GTR's cartilage cell processing services,
surgeons must complete comprehensive training in the surgical procedure for
autologous cartilage cell implantation. As of March 1, 1996, GTR has trained
approximately 400 surgeons. In addition to GTR's three-day training program in
Sweden, GTR established a training site in Cambridge, Massachusetts in the
fourth quarter of 1995 and modified the training curriculum to concentrate the
program into one day in order to meet the increased demand for surgeon training
and to accommodate the surgeon's limited time availability. Beginning in March
1996, GTR also began offering the one day training program in the Netherlands.
With the completion of the Cambridge facility and by intensifying the training
program, GTR will have the capacity to train more than 1,200 surgeons per year.
GTR's training programs include clinical, technical and practical
orientation modules, providing a concentrated exposure to autologous
implantation technology. Physician training consists of lectures, practice of
the surgical technique and an orientation regarding reimbursement and billing
procedures. In an effort to maintain the high quality standards of the
CARTICEL(SM) Service training program, GTR utilizes videotapes of the surgical
biopsy and implantation procedures performed by the Swedish group. GTR believes
that its exclusive ability to provide surgeons with the opportunity to observe
and interact with the Swedish Group is a significant competitive advantage.
DEVELOPMENT PROGRAMS. GTR currently has a number of ongoing development
programs relating to its CARTICEL(SM) Service (collectively referred to as
CARTICEL II), including work on arthroscopic implantation procedures and
development of the CARTICEL(SM) Service for other applications. The primary
objectives of these programs are to: (i) improve GTR's general knowledge of
cartilage repair, (ii) improve the regenerative ability of the implanted,
autologous chondrocytes and (iii) expand the application of the CARTICEL(SM)
Service to the repair of large surface area defects such as those seen in
osteoarthritic joints. The CARTICEL(SM) Service is currently effective only for
the repair of small area defects (less than two centimeters in diameter).
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SKIN REPAIR
Each year approximately 2,000,000 people in the United States suffer
burn injuries. According to the National Center for Health Services,
approximately 70,000 of these patients are admitted to hospitals for serious
burn injuries. GTR estimates that approximately 25,000 of the most severely
burned patients in the United States are admitted to one of the 140 specialized
burn centers. Industry analysts estimate that approximately $1 billion is spent
in the United States annually for the treatment of burns.
Chronic skin ulcers are open, often painful wounds found predominantly
on the lower extremities of elderly patients. GTR estimates that approximately
2,600,000 cases of chronic or slow healing skin ulcers are treated in the United
States each year at a cost of more than $7 billion, with individual treatments
costing up to $40,000 per year.
GTR is developing a range of products targeted at the treatment of
burns and skin ulcers, as indicated in the following chart:
GTR SKIN REPAIR PRODUCT PORTFOLIO
PRODUCT INDICATION/APPLICATION STATUS
------- ---------------------- ------
Epicel(SM) Service Burns - Permanent skin replacement Marketed since 1988
TGF-Beta2 Tissue growth promotion Completed initial
Phase II trial;
Additional Phase II
trial began fourth
quarter, 1995
Vianain(R) Debriding Product Burns -- Wound debridement Completed two Phase
II clinical trials
Ulcers -- Wound debridement Completed pilot
trial; Phase II
trial to begin in
early 1996
EPICEL(SM) SERVICE. Skin grafts produced using the Epicel(SM) Service
are a life-saving product indicated for patients who suffer severe,
full-thickness burns and need permanent skin replacement. These epidermal grafts
are grown from a patient's own skin cells and, therefore, are not rejected by
the patient's immune system. Starting with a patient biopsy about the size of a
postage stamp, GTR can grow enough skin grafts in three to four weeks to cover a
patient's entire body surface area. Each skin graft consists of a sheet of
cultured skin cells, approximately 25 square centimeters in size and ranging
from two to eight cell layers thick, attached to a piece of surgical dressing
material. A 48 hour shelf life allows these grafts to be delivered anywhere in
the United States, Europe or Japan from GTR's production laboratories in
Cambridge, Massachusetts.
Skin grafts produced using the Epicel(SM) Service were first introduced
in 1988 and remain the only commercially available laboratory grown skin grafts
shown to provide permanent skin replacement. Most burn wounds involving less
than 60%
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body surface area are covered with conventional skin grafts within the three to
four weeks it currently takes to grow skin grafts produced using the Epicel(SM)
Service. Therefore, GTR believes that the primary candidates for the Epicel(SM)
Service are the approximately four hundred patients each year in the United
States who survive burn injuries covering more than 60% of their body surface
area. GTR markets the Epicel(SM) Service to burn centers throughout the U.S. and
in parts of Europe through its own direct sales force. GTR began marketing the
Epicel(SM) Service in Japan in 1995 through its distributor.
GTR is currently evaluating alternative approaches for use of the
Epicel(SM) Service which will represent improvements over certain limitations
that have been identified in its clinical utility and production methods.
Methods being evaluated by GTR include use of synthetic membranes and composite
skin grafts. GTR believes that advances in the field of autologous keratinocyte
grafting coupled with one or both of these technologies may allow the expanded
use of autologous keratinocyte grafting for the treatment of smaller burns as
well as for treatment of cutaneous ulcers which involve large surface areas of
the skin. In the latter case, GTR believes an improved autologous keratinocyte
graft could effectively and economically provide final wound closure following
effective debridement and induction of granulation tissue deposition at the
wound site.
TRANSFORMING GROWTH FACTOR BETA2 ("TGF-BETA2"). TGF-Beta2 is one of
a family of proteins that plays an important role in the body's ability to
promote normal wound healing by stimulating the growth of connective tissue. GTR
has licensed recombinant TGF-Beta2 from Celtrix Pharmaceuticals, Inc.
("Celtrix") and is collaborating with Celtrix on the use of TGF-Beta2 to
promote the healing of chronic skin ulcers by supplementing the body's own
production of TGF-Beta2. The product will consist of an easy-to-use collagen
sponge which serves as a delivery vehicle permitting the release of a consistent
dose of TGF-Beta2 to the wound surface over time.
In January 1994, Celtrix announced that the results of the Phase II
study of the TGF-Beta2 wound healing product in the treatment of venous ulcers
were consistent with previous findings which indicated a positive trend in wound
healing. These results also allowed Celtrix to reach several important
conclusions: (i) topically applied TGF-Beta2 is safe at the doses tested; (ii)
the delivery vehicle is well tolerated and (iii) the ease of treatment enables
patients to apply TGF-Beta2 therapy themselves. However, due to variability in
patient response in placebo groups, combined with a greater-than-expected
placebo effect, statistical significance was not achieved in this study.
In the fourth quarter of 1995, GTR began a 12 center, double-blinded,
randomized Phase II clinical trial. The study groups 200 diabetic patients
suffering from neurotrophic diabetic foot ulcers into one of three TGF-Beta2
coated collagen sponge dose groups, a placebo group or a standard of care
control group.
During the first half of 1995, GTR concentrated its efforts on refining
the formulation and manufacturing process for the TGF-Beta2 collagen sponges at
Genzyme's Allston, Massachusetts facility for use in Phase II clinical trials.
Genzyme successfully produced 10,000 sponges using bulk TGF-Beta2 from Celtrix
and collagen slurry from an outside source. Genzyme plans to manufacture
TGF-Beta 2 for phase III clinical trials in its own facilities. Upon
commercialization, GTR will make royalty payments to Celtrix based on cumulative
product sales. GTR is also obligated to make milestone payments to Celtrix for
product development related achievements.
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GTR's rights with respect to TGF-Beta2 derive from a license and
development agreement which Genzyme and Celtrix entered into in June 1994. The
agreement provides for a collaboration between the parties to develop and
commercialize TGF-Beta2 for any therapeutic uses for any clinical indication
(excluding soft tissue augmentation, vascular prostheses, and all ophthalmic and
mucositis indications). Genzyme's rights and obligations under the agreement
with Celtrix have been allocated to GTR. Pursuant to the license agreement, GTR
has worldwide commercialization rights, excluding Asia, for all systemic
indications and select other indications of TGF-Beta2. Celtrix has retained the
right to acquire rights to indications not pursued by GTR.
VIANAIN(R) DEBRIDING PRODUCT. The Vianain(R) Debriding Product is a
proprietary enzyme preparation designed to remove necrotic tissue from the wound
site. Vianain(R) Debriding Product is formulated in a hydrophilic cream delivery
vehicle so that it is highly viscous and easy to apply to and cleanse from the
wound site. Since Vianain(R) Debriding Product is designed to be applied at the
bedside by a nurse or technician, GTR believes it may also be more cost
effective to use than currently available debridement methods. GTR intends to
use the same proprietary preparation of Vianain(R) Debriding Product to remove
necrotic tissue from both burn and skin ulcers.
In October, 1995, GTR completed a Phase II clinical trial of Vianain(R)
Debriding Product in burn patients. The results of this multi-center study
indicate that (i) Vianain(R) Debriding Product is a safe and effective debriding
agent; (ii) multiple applications of Vianain(R) Debriding Product are required
to effectively debride the burn wound; (iii) a significantly higher number of
patients treated with Vianain(R) Debriding Product achieved acceptable
debridement of the wound compared to patients treated with the vehicle alone;
(iv) there was insufficient information to determine if the use of Vianain(R)
Debriding Product can speed the determination of early burn depth; and (v) there
was a trend toward decreased time to wound closure in the Vianain(R) Debriding
Product treatment group as compared to the control group, but this difference
was not statistically significant.
Based on these results, GTR is evaluating the design of a pivotal study
for the treatment of burns using Vianain(R) Debriding Product.
A Phase II single-center study evaluating the ability to transplant
skin grafts to full thickness burn injuries directly following treatment with
Vianain(R) Debriding Product in ten patients was completed in May 1995. Clinical
results indicate that the use of Vianain(R) Debriding Product does not yield an
immediately graftable bed in full thickness burns. However, it appears to be an
effective debulking agent.
Phase I clinical studies for the Vianain(R) Debriding Product for the
treatment of chronic skin ulcers were completed in June 1995. A total of 15
chronic ulcer patients (8 venous, 5 diabetic, 2 pressure) were treated.
Preliminary results indicate that Vianain(R) Debriding Product is a safe and
effective debriding agent. The product appears to be most effective in venous
ulcers; six out of eight patients experienced at least 90% debridement (the
remaining 2 patients showed 50-89% debridement) and seven patients showed a
significant increase in the amount of healthy granulation tissue present. A
Phase II study is planned to begin during 1996.
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ACTICEL(SM) WOUND DRESSINGS. Acticel(SM) wound dressings are "living
bandages" composed of three-dimensional sheets of living epidermal tissue grown
in the laboratory from donor cells and attached to synthetic dressing materials.
Acticel(SM) wound dressings provide a covering to the wound and act as a barrier
to infectious agents and prevent desiccation of the tissue. In August 1995, GTR
completed an interim analysis of data obtained from the first 77 patients in its
trial of Acticel(SM) wound dressings as a treatment for partial thickness burns.
Although the results from treatment of the second half of this patient group,
which followed a clinical investigators' meeting to discuss patient selection
and use of the product, were at a level sufficient to meet the stated trial
objectives, it did not appear that data for the entire trial would be sufficient
to support a filing of an application for marketing approval.
Based on this analysis, together with GTR's concerns as to the
commercial potential of the current product concept, and in order to focus GTR's
near term efforts on the introduction of the CARTICEL(SM) Service, GTR has
elected to discontinue patient enrollment in the trial. GTR has also determined
that it will undertake a review of the product design and commercial potential
of Acticel(SM) wound dressings prior to initiation of future clinical studies.
OTHER TISSUE REPAIR OPPORTUNITIES
MULTIPLE SCLEROSIS. Multiple sclerosis ("MS") is the most common
disease of the brain and spinal cord among young adults in the United States.
The National Multiple Sclerosis Society estimates that approximately 250,000
people in the United States suffer from multiple sclerosis. GTR believes that
the annual healthcare cost associated with care and treatment of multiple
sclerosis patients exceeds $2 billion in the United States. Patients develop
debilitating symptoms including fatigue, numbness, pain, slurred speech, blurred
vision and, ultimately, muscle spasm and paralysis. MS is rarely fatal. While
most patients are ambulatory, at least between episodes, some patients may
eventually become paralyzed and confined to a wheelchair.
Current therapy for multiple sclerosis remains inadequate. Steroids can
be used for temporary, symptomatic relief in mild cases of the disease, but
toxicity and lack of effectiveness limit their usefulness. More recently, a beta
interferon-based immunomodulator has been approved by the FDA. GTR is aware of
two other products for which NDAs have been filed, one of which is beta
interferon-based. Other therapies (such as cyclosporines, antimetabolites, gold
and radiation) appear to benefit some patients but are also associated with
treatment-limiting side effects.
GTR is developing recombinant TGF-Beta2 for formulation as an
intravenous injectable product for administration to MS patients for the
prevention of autoimmune damage of nerve tissue.
GTR is continuing the work begun by Celtrix on TGF-Beta2 in people
suffering from multiple sclerosis. In April 1994, Celtrix initiated a Phase I
clinical study with recombinant TGF-Beta2 in individuals with multiple
sclerosis. The study is being conducted by the National Institute of
Neurological Disorders and Stroke. The initial clinical evaluation of TGF-Beta2
in patients with MS is an open-label, ascending-dose safety study involving 15
patients with the progressive form of the disease. It is anticipated that this
initial study, along with on-going preclinical safety and efficacy testing of
TGF-Beta2 in MS
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animal models, will provide the basis for expanded clinical studies. GTR
continues to conduct toxicity studies of TGF-Beta2 to support future phase II
clinical trials. GTR anticipates results from the on-going Phase I trial in
1996. GTR has not committed to a development and commercialization strategy for
TGF-Beta2 for MS and has begun exploratory discussions regarding the future
grant of a license to a third-party for this indication.
BONE REPAIR
Approximately two million bone fractures occur in the United States
every year, and 500,000 of these experience problems with repair. In these
cases, repair may be inhibited by disease. When there is substantial bone loss,
current methods such as autologous bone grafts, cadaver bone grafts and
electrical stimulation vary in efficacy and side-effects. In the United States,
bone augmentation is used in nearly all of the 170,000 spinal fusion procedures
and in about 15% of the 1.3 million trauma fractures. The most recent
alternatives for repair have been hydroxyapatite or collagen-based porous bone
graft substitutes. However, these grafts are osteoconductive, meaning that they
provide a matrix for bone growth but do not contain growth promoting agents.
Current research is focusing on the development of osteoinductive or bone growth
promoting agents.
TGF-Beta2 has been shown to promote wound healing in animal models of
hard tissue repair. GTR has been approached by a number of companies in the
orthopedic implant market to evaluate the use of TGF-Beta2 in conjunction with
accelerating the healing process in segmental defect repair and general use of
implants. GTR may grant a license for use of TGF-Beta2 for this indication to a
third party.
PRODUCTION
GTR has developed and validated a commercial scale, proprietary
chondrocyte processing system for the CARTICEL(SM) Service. A total of 54
validation studies were conducted as part of this process. In addition, GTR has
developed hundreds of standard operating procedures to ensure the safety and
quality of its CARTICEL(SM) Service. These procedures incorporate GTR's quality
assurance program, consisting of facility controls, process controls and final
product testing. Furthermore, each technician undergoes three months of training
prior to handling patient cells. All production and quality control procedures
are intended to ensure traceability of operations. GTR believes that this
quality systems approach will facilitate meeting the new regulatory requirements
expected to be imposed by the FDA. See "Government Regulation."
GTR's process development efforts are directed toward expanding
autologous chondrocyte culture capacity, streamlining processing, improving
quality at lower production costs and strengthening GTR's proprietary position.
This work includes improving yields, reducing labor associated with harvesting
chondrocytes from cartilage biopsies, developing methods for extending the
viability of both biopsy specimens and final product cell suspensions, and
identifying cell culture systems that will enable GTR to automate much of the
production process for the CARTICEL(SM) Service.
GTR produces materials for its Epicel(SM) Service and CARTICEL(SM)
Service in a specialized facility designed for the production of cell based
therapies. During the second half of 1995, GTR upgraded and increased the
processing capacity of that plant for the CARTICEL(SM) Service to approximately
5,000 patients per year.
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In January 1996, GTR acquired two adjacent buildings in Framingham,
Massachusetts which it is developing as a CARTICEL(SM) Service production
facility with annual capacity of approximately 13,000 patients. This project
will be completed in 1996. See "Properties -- Tissue Repair Division." GTR
believes that it manufactures its products in compliance with GMP standards
where applicable. GTR expects that Vianain(R) and TGF-Beta2 will be manufactured
for GTR