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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 0-21794

GTC BIOTHERAPEUTICS, INC.
(Exact name of Registrant as specified in its charter)

(508) 620-9700
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(b) of the Act:
None

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01
(Title of each class)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding twelve months and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

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. o

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes o    No ý

Aggregate market value of voting stock held by non-affiliates of the Registrant as of June 28, 2002, the last business day of the Registrant's most recently completed second fiscal quarter, was approximately $34,548,868, based on the closing sale price of the Company's Common Stock as reported on the NASDAQ National Market.

Number of shares of the Registrant's Common Stock outstanding as of March 13, 2003: 27,758,709.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's Proxy Statement for the Annual Meeting of Stockholders to be held May 21, 2003 are incorporated by reference into Part III of this Form 10-K.

PART I

ITEM 1.    BUSINESS

Overview

GTC Biotherapeutics, Inc. ("GTC" or the "Company") is the leader in the development, production, and commercialization of therapeutic proteins in the milk of transgenic animals. The genetic material expressing the therapeutic protein is introduced into the genome of an embryo to produce the desired transgenic animal. GTC focuses on using transgenic technology to establish commercial production systems for products that are anticipated to require large production volume or are difficult to express in traditional bioreactor based recombinant production systems. The Company's technology platform is being used to create internal and external product programs. Internal programs exploit GTC's own proprietary proteins and provide leadership in obtaining regulatory and market approval for products produced transgenically as well as providing future opportunities for high margin commercial sales. GTC's external program business area uses the Company's intellectual property and technology platform to develop transgenic production of a partner's proprietary protein. External programs generate current revenue through research funding and achievement of milestones and provide GTC the opportunity for long-term product revenues as the commercial manufacturing partner. This operating business has the potential to generate positive cash flow and eventually profits, helping support the continued development of the Company's internal programs and technology platform. The Company also seeks partners for its internal programs to provide a source of funding for these programs as well as to augment its clinical and marketing expertise. GTC has the opportunity to participate in many more potential therapeutic development programs than would be practical independently.

GTC's technology platform includes the molecular biology expertise and intellectual property to generate appropriate transgenic animals, primarily goats and in some cases cattle, that express a specific recombinant protein in their milk. The Company also has the capacity to perform downstream purification for these products for use in clinical trials. This technology platform is supported by the quality systems, regulatory, clinical development, and information technology infrastructure necessary to bring therapeutic protein products to commercial scale.

The economic and technical advantages of GTC's technology make it well suited to large volume applications, particularly 100 kilograms or more per year, in comparison to traditional recombinant protein production systems. These advantages include significantly reduced capital expenditures, greater flexibility in capacity expansion and lower unit production costs. In the case of certain complex proteins that do not express well in traditional systems, transgenic production may represent the only technologically and economically feasible method of commercial production. Some immunoglobulin (Ig) fusion proteins as well as some proteins found in human plasma are examples of recombinant proteins that may not express at practical levels in traditional systems. An Ig fusion protein consists of a monoclonal antibody (MAB) fragment linked to a second protein fragment. A MAB is a protein that binds specifically to a target molecule.

The Company has three internal programs in active development. These are the recombinant human antithrombin III (rhATIII) program, the recombinant human serum albumin (rhSA) program, and a malaria vaccine program using merozoite surface protein 1 (MSP-1) as an antigen. All of these programs involve products that are difficult-to-express proteins. The rhATIII and rhSA proteins are also required in large volumes. The rhATIII and rhSA programs have the potential to generate commercial product revenues in the next two to three years.

There are currently 12 potential products in GTC's external programs business. The most advanced of these is the program with Merrimack Pharmaceuticals, Inc. ("Merrimack") for production and purification of Merrimack's MM-093 (formerly named ABI.001), a recombinant human alpha-fetoprotein (rhAFP), for use in human clinical studies. This protein has been difficult-to-express in traditional recombinant

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production systems. GTC's other corporate partners in the external programs include Abbott, Alexion, Bristol-Myers Squibb, Centocor, Elan, ImmunoGen, and Progenics. These agreements generally provide for transgenic production of targeted proteins in exchange for development fees and milestone payments, transfer payments for manufacturing and, in some cases, the payment of royalties on product sales upon commercialization. Following characterization of the transgenic product in preclinical testing and clinical studies, GTC expects to negotiate commercial partnership agreements for supply of product, which may include royalty arrangements.

Internal Programs

Recombinant Human Antithrombin III (rhATIII)

Antithrombin is a blood plasma protein that has anticoagulant and anti-inflammatory properties. Antithrombin, as is typical of many blood plasma proteins, is difficult to express in traditional recombinant production systems. In late 2001, GTC was granted permission by the European Medicinal Evaluation Agency (EMEA) to conduct clinical studies of rhATIII in those people that express a low level of antithrombin in their blood as a result of an hereditary antithrombin deficiency (HD). There are approximately 1 in 5,000 people with an antithrombin HD. In December 2001, GTC began dosing HD patients in a pharmacokinetic study to establish an appropriate dosing regimen for an efficacy study. GTC successfully completed this 15 patient pharmacokinetic study and began an efficacy study in HD patients in 2002, primarily based in Europe. The efficacy study is assessing the prevention of deep vein thromboses among HD patients that undergo surgery or childbirth. At least 12 patients must be included in the efficacy study. Assuming that the efficacy study progresses as planned, a regulatory filing for approval in Europe is possible in the first half of 2004. GTC believes that this would make rhATIII the first transgenically produced therapeutic protein to be considered for approval by a regulatory agency in the U.S. or Europe. GTC is in discussions with the U.S. Food and Drug Administration (FDA) regarding its clinical and regulatory strategy and expects to file an Investigational New Drug (IND) application in 2003 for rhATIII in HD. The objective of this strategy is to be able to file a Biologics License Application (BLA) with the FDA on rhATIII for HD in 2004.

Commercially available antithrombin protein is currently produced by human plasma fractionation for therapeutic use in hereditary and acquired antithrombin deficiencies, with worldwide annual sales of approximately $250 million. Only about $10 million of these sales were in the US where the plasma based antithrombin product is available intermittently.

GTC is in discussions with potential partners for the rhATIII program to provide marketing and financial support for the rhATIII program. In collaboration with these partners, the Company's plan is to expand the market opportunity for this product through further clinical studies to develop additional potential indications. Acquired ATIII deficiency occurs in a number of conditions, and may result from a decrease in the amount of ATIII produced, an increase in the rate of ATIII consumption, or an abnormal loss of ATIII from the circulation. Examples of conditions in which acquired ATIII deficiency may occur are burns, prevention of neurocognitive deficiency in patients undergoing cardio pulmonary bypass, heparin resistance, bowel perforation, acute liver failure, disseminated intravascular coagulation, sepsis and septic shock, multiple organ failure, pre-eclampsia, and bone marrow or organ transplantation. GTC is currently focusing on the larger market potential indications in discussions with potential collaborators, such as developing the use of rhATIII to treat burns. For example, ATIII levels may be dramatically reduced in patients with severe thermal injury due to increased consumption and loss. GTC believes that antithrombin's anticoagulant and anti-inflammatory properties may be beneficial in reducing the intensive care hospitalization time for burns patients as well as helping to reduce the scarring that often results.

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Recombinant Human Serum Albumin (rhSA)

Albumin is a plasma protein that is principally responsible for maintaining the osmotic pressure in the vascular system, as well as plasma volume and the balance of fluids in blood. It is critical to the transport of amino acids, fatty acids and hormones in the blood stream. Albumin is used both therapeutically and as a non-active component of a finished biopharmaceutical product (excipient). The therapeutic use of albumin is indicated in situations of blood loss and/or decreased blood albumin levels which can result from shock, serious burns, pre- and post-operative conditions, congestive heart failure and gastric, liver and intestinal malfunctions (the blood expander indication). Human serum albumin produced from blood plasma has been used as an excipient to maintain structural stability and activity in many biological drug formulations for long periods of time under a wide range of storage conditions.

GTC has a strategic interest in developing recombinant human serum albumin, or rhSA, in the excipient market with the potential for commercial sales within the next two to three years, sooner than is practical in the blood expander indication and with significantly lower capital investment. The recombinant nature of this product is expected to lead to a well characterized protein and a stable single source of supply. This will provide drug manufacturers the opportunity to avoid plasma derived hSA as an excipient for their recombinant products and establish a universally acceptable supply. GTC believes this will allow rhSA to make substantial penetration into the existing excipient market.

In 2002, Fresenius AG and GTC restructured their relationship for the therapeutic blood expander market into a joint venture, called Taurus rhSA LLC (the "Taurus Joint Venture"), to include the development of rhSA as an excipient under an agreement that became effective January 1, 2003. The Taurus Joint Venture will manage development of rhSA for both the excipient and blood expander markets. GTC has a majority interest in the joint venture. GTC and Fresenius are making available all relevant commercial licenses, manufacturing rights, and intellectual property to enable the joint venture to operate worldwide in both the excipient and blood expander markets. During 2001 and 2002, Fresenius had added to its marketing rights for rhSA in Europe by exercising its option to the marketing rights in North America and Asia, including Japan. These marketing rights are now part of the joint venture. The excipient market is part of an integrated development plan that can also provide entry to the blood expander market. The joint venture structure allows the development of the excipient market with the potential to attract additional marketing or strategic partners that may also assist with the financing of the joint venture. GTC is seeking additional outside funding for the Taurus Joint Venture in order to advance the rhSA development program. Ownership interests will be adjusted based on future levels of financial participation from existing and new partners.

rhSA is another example of a difficult-to-express plasma protein under development by GTC, which is also required in large volumes. Albumin is currently produced by human plasma fractionation, with worldwide sales of approximately $1 billion to $1.5 billion. Since this market is very large, requiring about 400 metric tons of production a year, GTC is developing this program in transgenic cattle to take advantage of the higher milk production of cattle compared to goats. The cattle in this program are maintained with Trans Ova Genetics in Iowa. GTC has developed and continues to add to the number of cattle that express rhSA in their milk. Bench scale purification of clinical grade quality has been achieved and the purification process is being scaled up for clinical production quantities. GTC estimates the total production volume to meet the needs of the excipient market is in the range of one to two metric tons per year.

Malaria Vaccine

GTC is developing a merozoite surface protein (MSP-1) for use in a malaria vaccine. This protein is normally expressed by the malaria parasite. Malaria is a disease that has an annual incidence of more than 300 million people worldwide and results in several million deaths annually, primarily among children. GTC has been working with the National Institutes of Health (NIH) and the Federal Malaria Vaccine Coordinating Committee to transgenically develop this malaria protein as a vaccine and to examine the

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options for commercializing the vaccine. During 1998, GTC achieved high level expression of the MSP-1 antigen, in the milk of transgenic mice. To express the MSP-1 protein at high quantities, GTC's scientists modified its gene sequence while conserving the overall amino acid sequence of the protein. A US patent has been issued to GTC for this modification. The MSP-1 protein has been expressed at 2-4 mg/ml in the milk of mice that have incorporated this gene sequence. The MSP-1 protein produced by the mice successfully protected Aotus nancymaimonkeys in a preclinical vaccine study conducted by and co-authored with the National Institute of Allergy and Infectious Diseases (NIAID). This study, titled "A recombinant vaccine expressed in the milk of transgenic mice protects Aotus monkeys from a lethal challenge with Plasmodium falciparum", was published in the December 18, 2001 Proceedings of the National Academy of Sciences. Although MSP-1 can be produced in other recombinant systems, those other systems produce it in very limited quantities or in forms that may not induce the necessary immune response. GTC has developed goats at its research facilities that express the MSP-1 protein. The NIAID has approved a proposal to fund development of clinical grade production of MSP-1. The development work will be performed under the existing NIAID Contract No. NO1-A1-05421 managed by Science Applications International Corporation (SAIC). The scope of work includes developing founder goats that express the MSP-1 antigen in their milk as well as the downstream purification process and final product formulation. The approved scope of work also includes the submittal of an Investigational New Drug (IND) application to the FDA. GTC's portion of this project will be supported completely with Federal funds amounting to at least $4.9 million.

External Programs

GTC follows a partnership strategy in the external programs where both the Company's unique intellectual property position and molecular biology expertise are used in the development of a transgenic version of the external partner's protein. The advantages to external partners of using GTC's production platform include enabling the development of proteins that are difficult to produce in traditional recombinant production systems, requiring significantly lower capital investment, assuring lower cost of goods, and providing for flexibility in capacity expansion. External programs also provide GTC the opportunity for a revenue stream through milestone payments during the development phase and subsequently, assuming continuing clinical and development success, the opportunity for long term product revenues as the commercial manufacturing partner. GTC views this business segment as an operating business which currently contributes to the support of the production and regulatory infrastructure of the Company and has the potential to provide positive cash flow for investment in GTC's proprietary programs.

The most advanced of the external programs is with Merrimack, formerly known as Atlantic BioPharmaceuticals. The Merrimack program is for MM-093 (formerly ABI.001), a recombinant human alpha-fetoprotein (rhAFP). The rhAFP protein has been difficult to express in traditional recombinant systems. GTC has developed goats that express this protein in their milk and is currently expanding the production herd. In 2002, GTC and Merrimack agreed to expand their relationship to include production and purification of MM-093. GTC expects to deliver purified MM-093 during 2003 for use in human clinical studies by Merrimack. Merrimack expects to initiate the first human clinical studies of MM-093 later in 2003. Merrimack intends to undertake clinical studies initially in myasthenia gravis. Potential additional indications include multiple sclerosis and rheumatoid arthritis. Myasthenia gravis, Merrimack's lead indication, is an autoimmune disease of the voluntary muscles which affects more than 84,000 patients in the United States and Europe. Merrimack has received Orphan Drug status for MM-093 in myasthenia gravis from the FDA. Assuming that MM-093 is found to be safe and efficacious as the clinical program develops, GTC expects to earn revenue totaling several million dollars for production of rhAFP to supply the clinical trials and additional revenues for eventual commercial production. Payment to GTC on this program is dependent upon Merrimack completing a further equity financing.

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Monoclonal Antibodies (MAB) and Immunoglobulin (Ig) Fusion Proteins

GTC is actively participating in the field of monoclonal antibodies through seven collaborations. The Company has been granted several patents covering the production of monoclonal antibodies in the milk of transgenic mammals, along with other transgenic process patents, which it believes establish a strong proprietary position in the field. GTC is developing transgenic versions of Remicade® and a second undisclosed MAB for Centocor, Antegren® and an undisclosed MAB for Elan, D2E7, and a second undisclosed protein for Abbott, 5G1.1 for Alexion, and huN901 for ImmunoGen. The indications for these products include arthritis, Crohn's disease, neurological disorders, nephritis, psoriasis and cancer. Abgenix discontinued clinical studies using bioreactor produced material for an eighth MAB program, ABX-IL8.

GTC is actively participating in the transgenic development of three immunoglobulin fusion proteins. The Company has two programs with Bristol-Myers Squibb, one for CTLA4Ig and another undisclosed Ig fusion protein, and the PRO542 program with Progenics. The indications for these products are arthritis, organ transplant rejection, autoimmune disorders and HIV/AIDS.

GTC is continuing active discussions with a number of the companies with a view to moving their programs into the clinical production phase of development.

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Summary Chart of External Programs

The following chart contains a summary of the Company's active external program partnerships:

Transgenic Technology Platform

Overview

GTC's technology platform has been established as an operating infrastructure in goat husbandry, breeding, milking and downstream purification. These operations occur at the Company's biopharmaceutical production facilities in central Massachusetts, where it has over 2,000 goats, and at its facilities in Framingham, Massachusetts. Goat husbandry includes veterinary care with a clinic and medicinal supplies, all established within the farm's biosecurity program. The biosecurity program includes barriers to provide separation of the animals from contact with wildlife, separation from people, and specified and quality controlled monitored feed. Milking is typically performed using modern milking and processing equipment. Clarification to the intermediate bulk material is typically performed using tangential flow filtration equipment that removes much of the fats and casein from the milk. Manufacturing to clinical grade purity under standard of good manufacturing practice occurs either in GTC's facilities, the facilities of GTC's partners or in contracted facilities. In January 2002, GTC

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completed the purchase of approximately 135 acres of land in eastern New York State which the Company may develop over the next several years to provide for herd duplication and additional capacity. Also during 2002, GTC established capacity for the purification of recombinant proteins suitable for clinical studies.

The Company uses goats and cattle in its commercial development programs. A goat gestates in approximately five months and reaches sexual maturity in about another seven months. A typical goat will produce about 2 liters of milk per day during most of its natural lactation cycle. A cow gestates in about nine months and reaches sexual maturity in about another nine months. A typical cow will produce about 20 liters of milk per day during most of its natural lactation cycle. The species selected for a particular program will depend on a variety of factors, including the expected market size, desired herd size, and anticipated productivity of the desired protein within the animal's mammary gland. GTC has obtained broad freedom to operate in cattle technology through a licensing agreement with Pharming Group N.V. ("Pharming"), which was negotiated in 2002.

GTC is now using nuclear transfer technology in the development of transgenic animals. The first step in this technology involves the generation of a characterized cell line which has incorporated the specific DNA for expression of the target protein in milk. Individual cells from the cell line(s) are then fused to an animal's ovum after removal of the ovum's own DNA. Thus, the transgenic nucleus of the cell becomes the driver for further development of the embryo, which is then placed in a surrogate female animal. All animals that are born through this process are transgenic. Nuclear transfer may mitigate the impact of long gestation and maturation periods in cattle, by producing a larger number of transgenic animals in one generation. The U.S. Patent and Trademark Office (PTO) has declared an interference proceeding between Advanced Cell Technologies, Inc. (ACT) and Geron Corporation for one of the patents GTC licenses from ACT. The Company does not know at this time what impact, if any, this interference proceeding may have on its ability to practice nuclear transfer.

Advantages of Transgenic Technology

GTC believes that its current and future partners will elect to employ transgenic technology for the production of recombinant proteins in cases where transgenic technology either uniquely enables development of proteins that are hard to express with traditional methods or offers economic and technological advantages over other production systems. These advantages, any one of which may be critical to the decision to proceed with a particular development project, include:

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Technological Enablement.  Transgenic technology offers the ability to produce certain biotherapeutics that cannot be made in a commercially feasible manner in any other system. The potential of transgenic production for high-volume proteins requiring more than 100 kilograms per year is widely acknowledged. In addition, GTC has achieved consistent expression rates with complex molecules, which may not be producible at commercial scale in cell culture systems. This accomplishment, in conjunction with the favorable economics of herd development, means that transgenics may be a viable production system for some complex proteins, regardless of the volume required.



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Lower Capital Investment.  Developing a herd and providing appropriate production facilities can be accomplished with substantially less cost than building a cell culture bioreactor facility.



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Lower Cost of Goods.  Economic factors unique to transgenic production lower the ultimate cost of goods in most cases. The lower amortization of the initial capital investment, the lower cost of consumable materials and the high productivity of operations result in the cost of transgenically produced products, in most cases, being substantially lower than that of a cell culture derived product.

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•

Flexible Production.  Transgenic production offers the ability to rapidly match production capacity to the market demand, once the first appropriate animal is identified. If the product's market is larger than originally planned, the incremental investment to breed additional animals and expand capacity is relatively small. In contrast, traditional bioreactor methods are hard assets with a generally fixed capacity. If a bioreactor product's market will support sales significantly higher than the installed capacity can achieve, more bioreactor space needs to be built or acquired at unit costs similar to the original capital investment with construction times of generally three to five years.

Transgenic Development Process

GTC's development of a typical transgenic protein is designed to proceed in a logical sequence of three principal steps:

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Development of Transgenic Animals.  In this first step, GTC takes the genetic material for a desired protein and establishes an appropriate expression vector by combining the genetic material with the appropriate coding and promoter sequences to ensure expression in the mammary gland. The Company then employs nuclear transfer techniques to initiate pregnancies to produce a transgenic animal. The first animals are then born after the appropriate gestation period.



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Transgenic Evaluation.  GTC and its partner evaluate the genetic profile of the animal. The animal's production levels under induced or natural lactation are evaluated and the recombinant protein produced by the animal in its milk is characterized. Some initial process development work takes place in which pilot clarification and purification methods are examined.



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Founder.  GTC and the partner select one or more appropriate transgenic animals as founders. A founder animal has the appropriate genetic profile and is the potential start of a herd of transgenic animals capable of producing a desired therapeutic protein. GTC and the partner may then begin a collaborative effort to establish a commercially robust purification process for the protein. This enables substantial amounts of material to be delivered for preclinical studies and initial human clinical studies. Thereafter, scale up of the herd to reach needed commercial production capacity is then planned.

Other Corporate Information

Patents and Proprietary Rights

Currently, GTC holds 11 issued U.S. patents and 42 corresponding foreign patents. In accordance with ongoing research and development efforts, GTC has 3 pending U.S. patent applications and 205 corresponding foreign applications covering relevant and newly developed portions of its transgenic technology. Several of these pending applications are included in cross-licensing arrangements with other companies that in turn provide access to their proprietary technologies. Recently issued GTC U.S. patents provide claim coverage for protein purification from the milk of transgenic animals, the production of monoclonal and assembled antibodies at commercial levels in the milk of transgenic mammals, the production of ATIII in the milk of transgenic goats and one covering the production of Prolactin in the milk of transgenic animals.

In addition, GTC holds exclusive and non-exclusive licenses from Genzyme Corporation, Biogen, ACT and others to rights under a number of issued patents and patent applications in the U.S. and the corresponding cases abroad for a variety of technologies enabling the transgenic production of proteins in the milk of non-human animals.

GTC has exclusive and nonexclusive licenses to specific technologies owned by other parties. GTC has also concluded an extensive cross-licensing arrangement with Pharming providing broad access to the transgenic cattle platform as well as some additional nuclear transfer technology. GTC's relationship with ACT also focuses on intellectual property concerning cloning and nuclear transfer. Certain of the licenses

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require GTC to pay royalties on sales of products which may be derived from or produced using the licensed technology. The licenses generally extend for the life of any applicable patent. GTC has signed an exclusive, worldwide licensing agreement with ACT that allows GTC to utilize ACT's patented nuclear transfer technology for the development of therapeutic proteins in the milk of transgenic mammals. The PTO has declared an interference proceeding between ACT and Geron Corporation for one of the patents GTC licenses from ACT. The Company does not know at this time what impact, if any, this interference proceeding may have on its ability to practice nuclear transfer. GTC has broadened its ability to practice nuclear transfer as part of its licensing agreement with Pharming, which was executed in 2002.

The Company also relies upon trade secrets, know how and continuing technological advances to develop and maintain its competitive position. In an effort to maintain the confidentiality and ownership of trade secrets and proprietary information, the Company requires employees, consultants and certain collaborators to execute confidentiality and invention assignment agreements upon commencement of a relationship with the Company.

Competition

Many companies, including biotechnology and pharmaceutical companies, are actively engaged in seeking efficient methods of producing proteins for therapeutic or diagnostic applications. This includes companies that are developing transgenic technology using various plant and avian systems. In addition there are many companies that are building their own cell culture based production systems or other traditional protein production methods, as well as contract manufacturers who are producing proteins for others.

Two other companies known to GTC are extensively engaged in the application of transgenic technology in mammals for the production of proteins for therapeutic use in humans: Pharming and PPL Therapeutics. Pharming, based in the Netherlands, is primarily engaged in the development of recombinant proteins in the milk of transgenic cows and rabbits. PPL, based in Scotland, utilizes primarily sheep for transgenic protein production. There are also other companies seeking to develop transgenic technology in animals and in plants.

For rhATIII, Bayer in the U.S. and a number of companies internationally, produce and market antithrombin from the fractionation of human plasma. Similarly, there are a number of companies worldwide that produce and market human serum albumin from the fractionation of human plasma. There are two companies internationally that are developing recombinant forms of human serum albumin derived from yeast cultures. One company, Aventis is developing its recombinant albumin product for the excipient market.

Government Regulation

The manufacturing and marketing of GTC's potential products and certain areas of research related to them are subject to regulation by federal and state governmental authorities in the U.S., including the FDA, the U.S. Department of Agriculture and the Environmental Protection Agency. Comparable authorities are involved in other countries.

To GTC's knowledge, no therapeutic protein produced in the milk of a transgenic animal has been submitted for final regulatory approval. However, the FDA issued its Points to Consider in August 1995, addressing the Manufacture and Testing of Therapeutic Products for Human Use Derived from Transgenic Animals. Points to Consider, which are not regulations or guidelines, are nonbinding published documents that represent the current thinking of the FDA on a particular topic. Earlier in 1995, comparable guidelines were issued by European regulatory authorities. GTC believes that its programs satisfactorily address the topics identified in these documents and generally views them as a very positive milestone in the acceptance of the transgenic form of production.

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Regulations in the U.S. setting forth legal requirements for the investigation and commercialization of drug products and medical devices are implemented in accordance with the Food, Drug and Cosmetic Act. Regulations mandating requirements for the development and licensure of biological products are implemented in accordance with the Public Health Service Act (PHSA). With respect to therapeutic biological products, generally, the standard FDA approval process includes preclinical laboratory and animal testing, submission of an IND to the FDA and completion of appropriate human clinical trials to establish safety and effectiveness. If a manufacturer successfully demonstrates that the biological product meets PHSA standards, that is, that the product is safe, pure and potent and that the facility in which it is manufactured meets standards designed to ensure that the product continues to be safe, pure and potent, the manufacturer will receive a biological license to market the product in interstate commerce.

GTC is also required to comply with the relevant regulations to support development and commercialization of products produced under contract with external partners.

Research and Development Costs

During its fiscal years ended December 29, 2002, December 30, 2001 and December 31, 2000, GTC spent in total, $25 million, $22.4 million and $19 million, respectively, on cost of revenue and research and development expense of which $13.1 million, $15.1 million and $15.6 million, respectively, was related to external programs. Of the total spent on research and development, $5 million, $2.3 million and $3.3 million, was spent on the ATIII program in fiscal years 2002, 2001 and 2000, respectively. These costs include labor, materials, supplies and overhead, as well as certain subcontracted research projects. Also included are the costs of operating the transgenic production facility such as feed and bedding, veterinary costs and utilities.

Employees

As of December 29, 2002, GTC employed 182 people, including 6 part time and temporary employees. Of GTC's total employees, 113 were engaged in farm operations, clarification processes, quality assurance and control, 27 were engaged in research and development and 42 were engaged in administration, business development and marketing. Of GTC's employees, approximately 20 have Ph.D. degrees and 6 have D.V.M. degrees. None of GTC's employees are covered by collective bargaining agreements. GTC believes its employee relations are satisfactory.

Available Information

Our internet website is www.gtc-bio.com and through the Investor Information portion of our website, you may access, free of charge, our annual reports on Form 10-K, annual reports on Form 10-Q and proxy statements on Schedule 14A, and amendments to such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission.

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ITEM 1A.    EXECUTIVE OFFICERS OF THE REGISTRANT

        The executive officers of the Company and their respective ages and positions as of March 1, 2003 are as follows:

Dr. Cox was appointed Chairman of the Board, President and Chief Executive Officer of GTC in July 2001. From 1997 to 2001, Dr. Cox was Chairman and Chief Executive Officer of Aronex Pharmaceuticals, Inc., a biotechnology company. In 1984, Dr. Cox joined Genzyme Corporation in the UK and, in 1988, became Senior Vice President of Operations in the United States. Subsequently, Dr. Cox was promoted to Executive Vice President for Genzyme, responsible for operations and the pharmaceutical, diagnostic and genetics business units until 1997. Prior to joining Genzyme, Dr. Cox was General Manager of the UK manufacturing operations for Gist-Brocades. Dr. Cox also serves as a director for Nabi Biopharmaceuticals.

Mr. Green was appointed Senior Vice President of GTC in May 2002, having had previously served as Vice President since 1994. Mr. Green also serves as Chief Financial Officer since December 1994 and Treasurer since August 1997. Prior to that, he was Vice President and Assistant Treasurer of TSI Corporation from December 1989 until its acquisition by GTC in 1994.

Dr. Horan was appointed Senior Vice President, Corporate Development in March 2002. Prior to joining GTC, Dr. Horan was a founding partner of QED Technologies, Inc. and served as Managing Partner from 1993 to March 2002, and held Chief Executive Officer and Board positions at ChemCore Corporation from 1994 to 1996 and held a Board position at Caliper Technologies Corp. from 1996 to 1997 as part of QED's consulting operations.

Mr. Liposky was appointed Senior Vice President, Operations in May 2002 and was previously Vice President, Operations since January 1999. Before joining GTC, Mr. Liposky served as Vice President, Contract Manufacturing for Creative Biomolecules, Inc. from 1992 through 1998 and Vice President, Bioprocessing and Operations and Projects Manager for Verax Corporation from 1987 to 1991.

Dr. Meade has been Senior Vice President of Research and Development since 2002. Prior to that time he was Vice President of Transgenics Research for GTC beginning in August 1994. Prior to that, Dr. Meade served as Research Director from May 1993. Prior to joining GTC, Dr. Meade was a Scientific Fellow at Genzyme, where he was responsible for directing the transgenic molecular biology program. From 1981 to March 1990, before he joined Genzyme, Dr. Meade was a Senior Scientist at Biogen, Inc., a biotechnology company, where he worked on the technology relating to the production of proteins in milk and was an inventor on the first issued patent covering this process.

Mr. Woloshen was appointed Senior Vice President and General Counsel in May 2002 and was previously Vice President and General Counsel since August 1999. Prior to that, Mr. Woloshen served as Vice President and General Counsel of Philips Medical Systems North America from April 1989 until July 1999.

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ITEM 2.    PROPERTIES

GTC's corporate headquarters is located in 12,468 square feet of office space in Framingham, Massachusetts under a lease which expires in March 2006. In 2002, the Company entered into a Sublease Agreement to use additional office and laboratory space at their existing location in Framingham. The sublease consists of approximately 19,888 square feet. GTC's research facility is located in approximately 3,900 square feet of laboratory, research and office space leased from Genzyme in Framingham, Massachusetts which automatically renews annually, on a year-to-year basis.

GTC owns a 383-acre facility in central Massachusetts. This facility contains 106,793 square feet of production, laboratory and administrative space and currently houses more than 2,000 goats. GTC believes its owned and leased facilities are adequate for significant further development of commercial transgenic products. GTC also currently leases animal housing, care, treatment and research facilities operated by Tufts University School of Veterinary Medicine in Massachusetts (see Item 1). In January 2002, the Company completed the purchase of approximately 135 acres of farm land in eastern New York State which the Company may choose to develop as a second production site.

ITEM 3.    LEGAL PROCEEDINGS

On November 13, 2001, two employees of one of the Company's former subsidiaries filed an action in the Court of Common Pleas for Philadelphia County in Pennsylvania against the Company seeking damages, declaratory relief and certification of a class action relating primarily to their Company stock options. The claims arise as a result of the Company's sale of Primedica Corporation to Charles River Laboratories International, Inc. in February 2001, which the Company believes resulted in the termination of Primedica employees' status as employees of the Company or its affiliates and termination of their options. The plaintiffs contend that the sale of Primedica to Charles River did not constitute a termination of their employment with the Company or its affiliates for purposes of the Company's equity incentive plan and, therefore, that the Company breached its contractual obligations to them and other Primedica employees who had not exercised their stock options. The complaint demands damages in excess of $5 million, plus interest. GTC has filed an answer denying all material allegations in the complaint, and is vigorously defending the case. The Company believes that it has meritorious defenses and that, although the ultimate outcome of the matters cannot be predicted with certainty, the disposition of the matter should not have a material adverse effect on the financial position of the Company.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

During the fourth quarter of fiscal year 2002, no matter was submitted to a vote of the security holders of the Company.

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PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's Common Stock commenced trading on the NASDAQ National Market System in 1993. The stock's ticker symbol was changed to GTCB on June 3, 2002, in conjunction with changing the name of the Company to GTC Biotherapeutics, Inc. Quarterly high and low sales prices for the Common Stock as reported by the NASDAQ National Market are shown below.

The records held by the transfer agent indicate that on March 13, 2003 there were approximately 972 shareholders of GTC of record.

The Company has never paid a cash dividend on its Common Stock and currently expects that future earnings will be retained for use in its business.

ITEM 6.    SELECTED FINANCIAL DATA

The selected financial data set forth below as of December 29, 2002 and December 30, 2001 and for each of the three fiscal years in the period ended December 29, 2002 are derived from the Company's consolidated financial statements included elsewhere in this Report, which have been audited by PricewaterhouseCoopers LLP, independent accountants. The selected financial data set forth below as of December 31, 2000, January 2, 2000 and January 3, 1999, and for the years ended January 2, 2000 and January 3, 1999 are derived from audited consolidated financial statements not included in this Report.

This data should be read in conjunction with the Company's consolidated financial statements and related notes thereto under Item 8 of this Report and "Management's Discussion and Analysis of Financial Condition and Results of Operations" under Item 7 of this Report.

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SELECTED FINANCIAL DATA
(Dollars in thousands except per share data)

There were no cash dividends paid to common shareholders for any period presented.

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ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

SUMMARY BUSINESS DESCRIPTION

Overview

GTC Biotherapeutics, Inc. ("GTC" or the "Company") is the leader in the development, production, and commercialization of therapeutic proteins in the milk of transgenic animals. The genetic material expressing the therapeutic protein is introduced into the genome of an embryo to produce the desired transgenic animal. GTC focuses on using transgenic technology to establish commercial production systems for products that are anticipated to require large production volume or are difficult to express in traditional bioreactor based recombinant production systems. The Company's technology platform is being used to create internal and external product programs. Internal programs exploit GTC's own proprietary proteins and provide leadership in obtaining regulatory and market approval for products produced transgenically as well as providing future opportunities for high margin commercial sales. GTC's external program business area uses the Company's intellectual property and technology platform to develop transgenic production of a partner's proprietary protein. External programs generate current revenue through research funding and achievement of milestones and provide GTC the opportunity for long-term product revenues as the commercial manufacturing partner. This operating business has the potential to generate positive cash flow and eventually profits, helping support the continued development of the Company's internal programs and technology platform. The Company also seeks partners for its internal programs to provide a source of funding for these programs as well as to augment its clinical and marketing expertise. GTC has the opportunity to participate in many more potential therapeutic development programs than would be practical independently.

GTC's technology platform includes the molecular biology expertise and intellectual property to generate appropriate transgenic animals, primarily goats and in some cases cattle, that express a specific recombinant protein in their milk. The Company also has the capacity to perform downstream purification for these products for use in clinical trials. This technology platform is supported by the quality systems, regulatory, clinical development, and information technology infrastructure necessary to bring therapeutic protein products to commercial scale.

The economic and technical advantages of GTC's technology make it well suited to large volume applications, particularly 100 kilograms or more per year, in comparison to traditional recombinant protein production systems. These advantages include significantly reduced capital expenditures, greater flexibility in capacity expansion and lower unit production costs. In the case of certain complex proteins that do not express well in traditional systems, transgenic production may represent the only technologically and economically feasible method of commercial production. Some immunoglobulin (Ig) fusion proteins as well as some proteins found in human plasma are examples of recombinant proteins that may not express at practical levels in traditional systems. An Ig fusion protein consists of a monoclonal antibody (MAB) fragment linked to a second protein fragment. A MAB is a protein that binds specifically to a target molecule.

The Company has three internal programs in active development. These are the recombinant human antithrombin III (rhATIII) program, the recombinant human serum albumin (rhSA) program, and a malaria vaccine program using merozoite surface protein 1 (MSP-1) as an antigen. All of these programs involve products that are difficult-to-express proteins. The rhATIII and rhSA proteins are also required in large volumes. The rhATIII and rhSA programs have the potential to generate commercial product revenues in the next two to three years.

There are currently 12 potential products in GTC's external programs business. The most advanced of these is the program with Merrimack Pharmaceuticals, Inc. for production and purification of Merrimack's MM-093 (formerly named ABI.001), a recombinant human alpha-fetoprotein (rhAFP), for use in human

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clinical studies. This protein has been difficult-to-express in traditional recombinant production systems. GTC's other corporate partners in the external programs include Abbott, Alexion, Bristol-Myers Squibb, Centocor, Elan, ImmunoGen, and Progenics. These agreements generally provide for transgenic production of targeted proteins in exchange for development fees and milestone payments, transfer payments for manufacturing and, in some cases, the payment of royalties on product sales upon commercialization. Following characterization of the transgenic product in preclinical testing and clinical studies, GTC expects to negotiate commercial partnership agreements for supply of product, which may include royalty arrangements.

Genzyme Stock Buyback

On April 4, 2002, the Company bought back 2.82 million shares of the Company's Common Stock from Genzyme, which was recorded as treasury stock. The Company purchased the shares for an aggregate consideration of approximately $9.6 million, consisting of approximately $4.8 million in cash and a promissory note to Genzyme for the remaining $4.8 million. The Company's Common Stock was valued at $3.385 per share in this transaction, using the simple average of the high and low transaction prices quoted on the NASDAQ National Market on the previous trading day. Genzyme has committed to a 24-month lock-up provision on their remaining 4.92 million shares of the Company's Common Stock, which represents approximately 18% of the Company's outstanding shares. The lock-up provision will be released if the simple average of the prices of the Company's daily high and low stock trades, as reported on the NASDAQ National Market, exceeds $12.00 per share for 20 consecutive trading days.

The $4.8 million promissory note bears interest at the London Interbank Offered Rate (LIBOR) plus 1% (LIBOR was at 1.40% at December 29, 2002). The principal is payable in two installments: 50% on April 3, 2005 and the remaining 50% on April 3, 2006. This note is collateralized by a subordinated lien on all the assets of the Company except intellectual property.

Taurus rhSA LLC

In 2002, Fresenius AG and GTC restructured their relationship for the therapeutic blood expander market into a joint venture, called Taurus rhSA LLC (the "Taurus Joint Venture"), to include the development of rhSA as an excipient under an agreement that became effective January 1, 2003. The Taurus Joint Venture will manage development of rhSA for both the excipient and blood expander markets. GTC has a majority interest in the joint venture. GTC and Fresenius are making available all relevant commercial licenses, manufacturing rights, and intellectual property to enable the joint venture to operate worldwide in both the excipient and blood expander markets. During 2001 and 2002, Fresenius had added to its marketing rights for rhSA in Europe by exercising its option to the marketing rights in North America and Asia, including Japan. These marketing rights are now part of the joint venture. The excipient market is part of an integrated development plan that can also provide entry to the blood expander market. The joint venture structure allows the development of the excipient market with the potential to attract additional marketing or strategic partners that may also assist with the financing of the joint venture. GTC is seeking additional outside funding for the Taurus Joint Venture in order to advance the rhSA development program. Ownership interests will be adjusted based on future levels of financial participation from existing and new partners.

Discontinued Operations

In February 2001, the Company completed the sale of Primedica Corporation to Charles River Laboratories, Inc. The Company received $26 million in cash, 658,945 shares of Charles River common stock valued at $15.9 million and Charles River assumed all of Primedica's approximately $9 million of capital leases and long-term debt (see Note 2 of the "Notes to the Consolidated Financial Statements"). Primedica is reported as a discontinued operation in these financial statements. Accordingly, the results of operations