Back to GetFilings.com
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-K
(Mark One)
[X] Annual Report Under Section 13 or 15(d) of the Securities Exchange Act of
1934 For the fiscal year ended December 31, 1999 Or
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 For the transition
period from ______________ to _____________.
Commission File Number: 000-26727
BioMarin Pharmaceutical Inc.
(Exact name of small business issuer as specified in its charter)
Delaware 68-039782
(State of other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
371 Bel Marin Keys Blvd., #210, Novato, California 94949
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (415) 884-6700
Securities registered pursuant to Section
12(b) of the Act: None Securities
registered under Section 12(g) of the
Act:
Common Stock, $.001 par value
(Title of Class)
Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act during the past
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers in response to Item
405 of Regulation S-K is not contained in this form, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III to the Form 10-K or any
amendment to this Form 10-K. __
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of February 16, 2000 was $225,377,169. The number of shares of
common stock, $0.001 par value, outstanding on February 16, 2000 was 34,951,086.
Transitional small business disclosure format (check one)
Yes__ ; No X
The documents incorporated by reference are as follows:
(1) Proxy Statement of the Annual Meeting of Stockholders to be held on
June 16, 2000 incorporated into Part III, Items 10 - 13.
(2) Registration Statements on Form S-1 (Registration No. 333-77701) filed
on May 4, June 14, July 6 and July 21, 1999 incorporated into
Part V, Item 1.
BIOMARIN PHARMACEUTICAL INC.
Part I
FORWARD LOOKING STATEMENTS
This Form 10-K contains "forward-looking statements" as defined under securities
laws. Many of these statements can be identified by the use of terminology such
as "believes," "expects," "anticipates," "plans," "may," "will," "projects,"
"continues," "estimates," "potential," "opportunity" and so on. These
forward-looking statements may be found in the "Risk Factors," "Description of
Business," and other sections of this Annual Report on Form 10-K. Our actual
results or experience could differ significantly from the forward-looking
statements. Factors that could cause or contribute to these differences include
those discussed in "Additional Factors That Might Affect Future Results," as
well as those discussed elsewhere in this Form 10-K. You should carefully
consider that information before you make an investment decision.
You should not place undue reliance on these statements, which speak only as of
the date that they were made. These cautionary statements should be considered
in connection with any written or oral forward-looking statements that we may
issue in the future. We do not undertake any obligation to release publicly any
revisions to these forward-looking statements after completion of the filing of
this Form 10-K to reflect later events or circumstances or to reflect the
occurrence of unanticipated events.
Item 1. Description of Business
Overview
BioMarin Pharmaceutical Inc. or BioMarin or the Company is a developer of
carbohydrate enzyme therapies for debilitating, life-threatening, chronic
genetic disorders and other diseases and conditions. In April 1999, we completed
a twelve-month patient evaluation for the initial clinical trial of our lead
drug product, AldurazymeTM, for the treatment of mucopolysaccharidosis-I or
MPS-I, a serious genetic disorder and presented the results at the American
Society for Human Genetics in October 1999. We are currently collecting data
during an additional twelve-month follow-up period for the initial clinical
trial. In September 1998, we established a joint venture with Genzyme for the
worldwide development and commercialization of AldurazymeTM. AldurazymeTM has
received fast track designation for the treatment of the more severe forms of
MPS-I. The U.S. Food and Drug Administration or FDA has granted AldurazymeTM an
orphan drug designation giving us exclusive rights to market AldurazymeTM to
treat MPS-I for seven years from the date of FDA approval if AldurazymeTM is the
first enzyme ((alpha)-L-iduronidase) to be approved by the FDA for the treatment
of MPS-I.
MPS-I is a life-threatening genetic disorder caused by the lack of a sufficient
quantity of the enzyme (alpha)-L-iduronidase, which affects about 3,400 patients
in developed countries, including approximately 1,000 in the United States and
Canada. Patients with MPS-I have multiple debilitating symptoms resulting from
the buildup of carbohydrate residues in all tissues in the body. These symptoms
include delayed physical and mental growth, enlarged livers and spleens,
skeletal and joint deformities, airway obstruction, heart disease, reduced
endurance and pulmonary function, and impaired hearing and vision. Most children
with MPS-I will die from complications associated with the disease before
adulthood.
AldurazymeTM is a specific form of recombinant human (alpha)-L-iduronidase that
replaces a genetic deficiency of (alpha)-L-iduronidase in MPS-I patients. The
initial clinical trial treated ten patients with MPS-I at five medical centers
in the United States. Based on data collected during the initial twelve-month
evaluation period, AldurazymeTM met the primary endpoints set forth in the
investigational new drug application. In addition, AldurazymeTM demonstrated
efficacy according to various secondary endpoints in each of the patients. In
collaboration with Genzyme, we intend to initiate a Phase III Confirmatory
Clinical Trial of AldurazymeTM in mid-year 2000 and to complete the filing of a
biologics license application or BLA with the FDA in mid-year 2001.
Carbohydrate-active Enzyme Therapeutics
Carbohydrates are a fundamental class of biological molecules that play diverse
and critical roles in maintaining the health and functional integrity of all
cells and tissues. Enzymes are proteins that act as catalysts for many vital
biological reactions. Enzymes that act on carbohydrates, called
carbohydrate-active enzymes, cleave, construct or otherwise modify carbohydrates
to regulate their production, maintenance and degradation. These
carbohydrate-active enzymes are critical to a wide range of functions within the
body, including cell proliferation, digestion, blood clotting, immune response,
wound healing, conception and control of infection and inflammation. The body,
when functioning normally, produces appropriate quantities of
carbohydrate-active enzymes to perform these functions. Carbohydrate-active
enzymes have the potential to play an important therapeutic role in certain
diseases or disorders by either replacing deficient enzymes or supplementing the
enzymes that are naturally present in the body.
Role of Carbohydrate-active Enzymes in Genetic Diseases
We believe that there are more than 70 genetic diseases that are known to be
caused by the deficiency of a single enzyme. In these genetic diseases the body
fails to produce sufficient or functional quantities of certain enzymes. Most of
these genetic diseases are rare, affecting only a few hundred to a few thousand
people in the United States. Examples of genetic diseases include Gaucher
disease, hemophilia and MPS disorders. Since there is not extensive literature
regarding these rare genetic diseases we hired a consultant, the Frankel Group,
to conduct research regarding this potential market. The figures cited in the
following paragraph were developed by the Frankel Group.
Currently, only eight genetic diseases have effective treatments, and five of
these eight are treated through enzyme replacement. Historically, enzyme
replacement therapy has been limited by the inability of manufacturers to
produce the correct form of enzymes in sufficient quantities. Manufacture of
sufficient quantities to support a therapeutic program has now become possible
with advancements in recombinant DNA production methods. In these cases,
recombinant production methods apply human DNA to host mammalian cells to
produce human enzymes the cells would not naturally produce. In 1998, the
worldwide sales of pharmaceuticals used to treat genetic diseases by enzyme
replacement were approximately $2.7 billion.
Genzyme's treatment for Gaucher disease is an example of a treatment using
enzyme replacement therapy. Gaucher disease, which afflicts approximately 5,000
people in the developed world, is caused by a deficiency in the enzyme
glucocerebrosidase. In April 1991, following a single clinical trial involving
13 patients, Genzyme's treatment for Gaucher disease was approved for marketing
by the FDA. Approximately 2,500 patients worldwide are using Genzyme's treatment
for Gaucher disease. Sales of Genzyme's treatments for Gaucher disease,
Cerezyme(R) enzyme and Ceredase(R) enzyme, generated total revenue of
approximately $479 million in 1999.
Other Therapeutic Roles for Carbohydrate-active Enzymes
Carbohydrate-active enzymes can also treat conditions other than those caused by
genetic diseases, such as burn debridement and systemic fungal infections.
Supplementing the amount of enzymes naturally present in a patient's body or
adding a new enzyme can enable or enhance the body's ability to respond to
certain conditions and accelerate the healing process. For example, using a
topical enzymatic formulation to supplement naturally occurring enzymes may
speed skin grafting for severe burns by removing dead or damaged tissue. Adding
or increasing the concentration of an enzyme that selectively targets and kills
microbes may help the body fight infection.
Business Strategy
Our business strategy is to develop therapeutic products to treat a variety of
diseases and conditions involving carbohydrates. We use our proprietary
carbohydrate-active enzyme technology to develop these products. The principal
elements of this strategy are:
o Focus on Drug Candidates with Known Biology and Low Technical
Risk. We identify potential products that treat serious diseases
or conditions where the biological role of carbohydrate-active
enzymes is well understood and the method of treatment is
straightforward. As part of this strategy, we are initially
focusing on treating genetic diseases such as MPS-I and MPS-VI,
which are caused by the deficiency of a single enzyme.
o Select Products that We Believe May Be Developed Relatively
Quickly. We are initially developing therapeutic products for
serious diseases or conditions that we believe will require
relatively limited time and capital to conduct preclinical studies
and small numbers of patients for clinical trials. Because many of
our potential drug products are intended for serious or
life-threatening conditions and may address unmet medical needs
for these conditions, we believe that they will qualify for fast
track designation by the FDA. In September 1998, we received from
the FDA fast track designation for AldurazymeTM for the treatment
of Hurler and Hurler-Scheie syndromes, which are the more severe
syndromes within MPS-I.
o Pursue Well-defined, Niche Markets. We develop potential drug
products to treat small patient populations for diseases for which
there are currently no effective therapies. Often these markets
are for life threatening diseases which offer the potential for a
clear reimbursement rationale and life extension. We believe that
such products will be reimbursed at favorable rates. We believe we
will receive orphan drug designation from the FDA for many of our
products, providing us with market exclusivity for our drug
formulation for seven years if we are first to gain product
approval to treat the specific disease.
o Develop Direct Sales and Marketing Organization for Select
Markets. We will be able to directly market some of our potential
drug products because the conditions they treat have small patient
populations, for which the treatments are often concentrated in
specialized institutions, and because of the existence of patient
support groups for many of our initial disease targets. We may
develop a small sales and marketing organization to target markets
where we believe we can effectively reach the targeted patient and
physician groups. Alternatively, we may pursue strategic
collaborations with biopharmaceutical or other companies to
develop products targeted at markets with larger patient
populations.
o Enhance Enzymatic Expertise through Glyko, Inc. Our
wholly-owned subsidiary, Glyko, Inc. contributes its technical
knowledge and expertise in cloning enzymes to our technology base.
Glyko, Inc. provides access to cloning assets, including cell
lines, which are colonies of cells with a common genetic make-up.
In addition, Glyko, Inc.'s research and development in
glycobiology, the study of carbohydrates in living organisms,
provides us with a strategic opportunity to keep current with new
developments and opportunities in that field.
Products Under Development
Mucopolysaccharidosis Disorders
MPS disorders are a group of seriously debilitating genetic disorders
characterized by the accumulation in the body of mucopolysaccharides, which are
also known as glycosaminoglycans or GAGs. GAGs are complex carbohydrates
synthesized by all cells in the body. At least ten enzymes are required for the
complete breakdown of GAGs. The normal breakdown of GAGs is incomplete or
blocked if any one of these enzymes is not present in sufficient quantity.
Ten possible single enzyme deficiencies cause ten distinct disorders. Patients
with MPS are usually diagnosed by six to 24 months of age. MPS disorders are
progressive diseases that frequently lead to early death. During the course of
the disease, the build-up of GAGs in all cells of the body results in one or
more of the following symptoms:
o Inhibited growth
o Delayed mental or physical development
o Enlarged liver and spleen
o Skeletal deformities
o Coarse facial features
o Upper airway obstruction and reduced pulmonary function
o Joint deformities and reduced range of motion
o Heart disease
o Impaired vision and hearing
o Sleep disorders
o Malaise and reduced endurance
MPS-I. MPS-I is a genetic disorder caused by the deficiency of the enzyme
(alpha)-L-iduronidase. About 3,400 patients in developed countries have MPS-I,
including about 1,000 in the United States and Canada. If untreated, almost all
children diagnosed with the more severe forms of MPS-I will die before reaching
adulthood. Patients with milder forms of MPS-I still exhibit many of the
symptoms described above. Currently, the only available treatment for MPS-I is a
bone marrow transplant. However, few patients find an appropriate bone marrow
donor. Of the patients that find appropriate donors, many choose not to receive
the therapy because of its serious side effects.
AldurazymeTM. We are developing a specific form of recombinant, human
(alpha)-L-iduronidase, designated AldurazymeTM, for the treatment of MPS-I.
AldurazymeTM treats MPS-I by replacing a deficiency in (alpha)-L-iduronidase. In
September 1998, we established a joint venture with Genzyme for the worldwide
development and commercialization of AldurazymeTM. Until now, enzyme replacement
therapy for MPS-I has been impractical because no one has been able to
manufacture adequate supplies of (alpha) -L-iduronidase with the proper
structure and purity. The proper structure is essential to ensure a therapeutic
effect at relatively low doses. Using production and purification processes
licensed by us and subsequently improved, we are able to produce sufficient
quantities of AldurazymeTM with the proper structure and purity.
In 1994, preclinical studies of AldurazymeTM were conducted using dogs with
canine MPS-I. Dogs with canine MPS-I have symptoms similar to those exhibited by
humans with MPS-I. AldurazymeTM diminished canine MPS-I symptoms in the dogs.
Stored carbohydrate material was cleared from the dogs' major organs. This
scientific research, which we have licensed, was performed at Harbor-UCLA
Research and Education Institute.
In April 1999, we completed a twelve-month evaluation period for our initial
clinical trial of AldurazymeTM. Initiated in December 1997, this clinical trial
treated ten patients with MPS-I at five medical centers in the United States. We
are treating and monitoring these patients for an additional 12-month follow-up
period. Patients were treated with a slow intravenous infusion of AldurazymeTM
once a week at a dose of 125,000 units per kilogram of patient weight.
The primary endpoints set forth in the investigational new drug application for
AldurazymeTM were a reduction in liver or spleen size and a reduction in urinary
GAG levels. Eight of the ten patients achieved the primary endpoint goal of a
20% reduction of liver size within the six-month evaluation period. Of the two
patients who did not achieve the targeted liver reduction, one patient achieved
a liver size in the normal range and the second patient, who had hepatitis at
the end of the six-month period, achieved the 20% reduction after the six-month
period. Five of the ten patients achieved a 20% reduction in spleen size. All of
the ten patients achieved the primary endpoint goal of at least a 50% reduction
in urinary GAG levels.
Each patient with MPS-I presents us with a different mix of clinical symptoms.
We tested each patient at intervals throughout the six-month evaluation period
measuring a variety of secondary endpoints to determine whether the primary
endpoints are reasonably likely to predict clinical benefit. The secondary
endpoints we used included joint disease, eye disease and cardiac function.
Additional measures of efficacy included sleep apnea and airway evaluations,
endurance and fatigue, and evaluations of bone. Except for the evaluations of
the patient's bones, where no improvement was expected due to the short duration
of the trial, most patients who exhibited physical symptoms of the disease
achieved improvement in those symptoms during the course of the evaluation
period for the secondary endpoints and additional clinical measures of efficacy.
During the twelve-month evaluation period, four of the ten patients experienced
immune responses specific to the enzyme. No long term effects of these immune
responses have been observed at this time. A few patients experienced side
effects, primarily hives in five patients, which probably were related to
AldurazymeTM. The hives became recurrent with each infusion in four patients but
eventually decreased and resolved with increased pre-medication. No patients had
life-threatening allergic reactions. Of the events that probably were related to
AldurazymeTM, the symptoms occurred during the infusions only, were manageable
with medications, and did not impact the health or well-being of the patient
outside the administration setting. Neither clinical nor laboratory evaluations
showed any harmful effect of AldurazymeTM therapy.
In collaboration with our joint venture partner, Genzyme, we plan to initiate a
Phase III confirmatory clinical trial in mid-year 2000 and we intend to complete
the filing of our biologics license application by mid-year 2001.
The joint venture plans to continue assessment of the efficacy of treatment with
AldurazymeTM in its confirmatory trial. The parameters for this clinical study
are expected to include:
o A 6-minute walk test (a test of endurance)
o Pulmonary function (Force Vital Capacity (FVC-1), a measure of
lung capacity)
Secondary parameters will include:
o Joint range of motion
o Functional ability assessment questionnaire
o Hepatomegaly (enlargement of the liver)
Tertiary parameters will include:
o Urinary GAGs
o Patient's quality of life
o Growth velocity
o Visual acuity
o Electrocardiogram and echocardiogram (cardiac function)
o Sleep study
o Pulmonary function testing
o Investigator global assessment
o Parents' quality of life
We received orphan drug designation for AldurazymeTM from the FDA. This orphan
drug designation gives us exclusive rights to market a product using
(alpha)-L-iduronidase to treat MPS-I in the United States for seven years if we
receive FDA approval of AldurazymeTM before any other company receives approval
of (alpha)-L-iduronidase to treat MPS-I. In addition, we received notice from
the FDA that AldurazymeTM for the treatment of Hurler and Hurler-Scheie
syndromes, which are the two more severe MPS-I disorders, received fast track
designation. Drugs that show a potential to address an unmet medical need for a
serious or life threatening disease may be eligible to receive fast track
designation. Fast track designation does not guarantee a faster approval. The
FDA may still require additional studies or data regarding AldurazymeTM which
may delay approval and subsequent commercial sales. See "Risk Factors--If we
fail to obtain regulatory approval to commercially manufacture or sell any of
our future drug products, or if approval is delayed, we will be unable to
generate revenue from the sale of our products--If our joint venture with
Genzyme were terminated, our ability to commercialize AldurazymeTM would be
delayed."
At the request of the FDA, the joint venture intends to conduct a clinical trial
to investigate the effect of AldurazymeTM on the prevention or stabilization of
the progressive mental dysfunction experienced by patients with Hurler Syndrome,
the most severe form of MPS-I. The trial, which will enroll up to 20 patients
and will last two years, is expected to begin in mid-year 2001. This Hurler
trial for mental dysfunction is independent of the two clinical trials intended
to support the biologics license application submission for AldurazymeTM.
MPS-VI. MPS-VI, also known as Maroteaux-Lamy syndrome, is a genetic disorder
caused by a deficiency of the enzyme N-acetylgalactosamine 4-sulfatase (also
known as arylsulfatase B), which is designated BM102. Estimates from frequency
studies estimate that there are approximately 1,100 patients suffering with
MPS-VI in the developed world and 340 in the United States and Canada. Patients
with MPS-VI have symptoms similar to those for MPS-I. However, MPS-VI patients
do not have impairment of mental function. If untreated, the average life span
of MPS-VI patients is estimated to be between ten years in the severe form to
over 30 years in the mild form. MPS-VI has been treated by bone marrow
transplants. However, few patients find an appropriate bone marrow donor. Of the
patients who find an appropriate donor, many choose not to receive a bone marrow
transplant because of its serious side effects.
BM102. We are developing BM102, recombinant, human N-acetylgalactosamine
4-sulfatase, for the treatment of MPS-VI. We believe that BM102 may treat MPS-VI
by replacing a deficiency in the enzyme N-acetylgalactosamine 4-sulfatase.
During 1994 through 1999, preclinical studies of BM102 were conducted on cats
with naturally occurring feline MPS-VI. Cats with MPS-VI have physiological
characteristics and clinical symptoms similar to those exhibited by humans with
MPS-VI. We are conducting additional studies in cats using alternative dosing
regimens to better determine the likely dosing regimen in humans. We believe
that preclinical studies conducted on over 40 afflicted cats treated with
recombinant enzyme will provide a sufficient basis to support an investigational
new drug application for BM102. We must receive approval of our investigational
new drug application before beginning clinical trials.
In August 1998, we licensed rights to use data on feline MPS-VI and a cell line
for BM102 from Women's and Children's Hospital in Adelaide, Australia. We are
developing improved production and purification processes for BM102, first in
clinical and then in commercial processes. We received in February 1999 an
orphan drug designation for BM102 to treat MPS-VI. We intend to file an
investigational new drug application and initiate a clinical trial for the use
of BM102 to treat MPS-VI in mid-year 2000. . The FDA may require additional
preclinical testing, clinical trials or additional patients or trial duration
before approving BM102 if it is ever approved.
Enzyme Replacement Therapy in Other Genetic Diseases
We intend to develop additional enzyme replacement therapies for other genetic
diseases. We have identified genetic diseases that we believe will respond well
to enzyme replacement therapy. We are developing enzyme replacement therapies
that we believe qualify for orphan drug designation. We are in the process of
cloning and producing enzymes for additional potential genetic diseases. Due to
the small patient populations for these other genetic diseases and the known
biologic mechanism of proposed enzyme replacement therapies, we believe that the
size and scope of our human clinical trials for future genetic diseases may be
similar in size and scope to those for MPS-I.
Other Diseases And Conditions
Burns
In 1997, approximately 65,000 patients in the United States were admitted to
hospitals with burns. Approximately 20% of these patients had very severe burns
that destroyed all layers of the skin, referred to as full-thickness or
third-degree burns. Full-thickness burns require major skin grafts. This
typically requires admission to one of approximately 150 major burn centers in
the United States. Full-thickness burns are treated by removing unhealthy and
dead tissue, a process called debridement, to prevent infection and to prepare
the burned site for skin grafting or other therapy. Currently, full-thickness
burns are debrided by multiple surgical procedures that are complicated by loss
of blood, loss of healthy tissue, continued trauma and pain and scarring. In
many instances, surgery must be delayed in severely compromised patients.
Additionally, certain parts of the body, such as the hands and face, are
difficult to treat by this method.
A limited number of topical debridement products are available as an alternative
to surgery. Topical enzymatic products, however, have not been widely accepted
by physicians because they are ineffective and often cause the patient pain and
cause the patient to bleed.
A significant part of human skin is made up of carbohydrates and proteins. We
believe that there is an opportunity for more selective enzyme debridement
products that have greater specificity at digesting carbohydrates or proteins in
dead tissue. We currently have one product under preclinical development for the
treatment of full-thickness burns. We intend to file an investigational new drug
application and initiate a clinical trial for this product in mid-year 2000.
Based on discussions with general wound specialists, we believe that if the
products successfully debride full-thickness burns, they will effectively
debride other types of wounds as well.
BM201. BM201 is a carbohydrate-specific enzyme therapeutic which we developed in
mice in a model developed at the University of California at San Diego, or UCSD.
BM201 accelerated the rate of debridement of burn wounds without signs of
topical or systemic toxicity. In addition, BM201 significantly reduced the total
time in which grafts were successfully made and wounds closed when compared to
phosphate buffered saline, which was used as a control, and to selected topical
enzymatic products. The total time required for the debridement using BM 201 and
graft take was significantly less than the total time for debridement using
standard surgical debridement techniques. This product failed to debride pig
burns at Vanderbilt. We are not currently planning any more burn injury-related
studies with this product.
BM202. BM202 is an enzyme that acts on proteins discovered by W.R. Grace & Co.
Upon review of the data from preclinical studies that were conducted by W.R.
Grace, we obtained a three-year option in May of 1998 to obtain an exclusive
license to BM202. In preclinical studies supported by W.R. Grace, BM202 was
shown to safely debride full-thickness burns in pigs, and accelerate wound
healing in less severe lesions. In studies sponsored by us and conducted at
UCSD, BM202 debrided wounds and allowed graft acceptance in mice with
full-thickness burns. BM202 is now being assessed for its compatibility to allow
for graft acceptance in a pig burn model.
Anti-fungal Enzymes
We are developing two naturally occurring enzymes to combat infection by
Aspergillus spp. Aspergillus is one of the most common fungi in the environment.
Although aspergillus is not usually harmful to people with healthy immune
systems, it can pose a life-threatening risk to those with compromised immune
systems, such as cancer patients undergoing chemotherapy, organ and bone marrow
transplant recipients and people with late-stage AIDS. Aspergillosis, a fungal
infection caused by aspergillus, begins as an upper airway infection and can
become a systemic fungal infection in immuno-compromised patients. It is
difficult to diagnose, currently has no adequate treatment and often proves
fatal.
We believe that an effective drug for systemic aspergillosis may be used as a
preventative measure for immuno-compromised patients. In the year 2000 experts
estimate that over 85,000 patients in the United States may be at risk for
contracting systemic aspergillosis. We believe that a carbohydrate-active enzyme
that breaks down the carbohydrates in the cell walls of aspergillus will kill
the fungi and treat the infection.
BM301 and BM302. We have conducted preclinical research on the use of BM301 and
BM302, recombinant forms of two naturally occurring enzymes, to treat
aspergillosis. BioMarin-sponsored preclinical studies on mice conducted at
Boston University Medical Center or BU demonstrated that BM301 and BM302
effectively treated aspergillosis. Approximately 20% of the mice treated with
BM301 or BM302 died. For comparison, all of the untreated, infected mice died.
Additional studies at BU suggested that there was toxicity associated with the
most highly purified forms of both enzymes, but we don't know the basis for
this. Our studies are now focused on establishing that the products are safe and
defining the upper limit of dosing in animals that provides therapeutic benefit.
We intend to apply for FDA orphan drug designation for these anti-fungal
enzymes.
Other Research and Development
We are also focusing a portion of our research and development on
carbohydrate-active enzymes that we believe can treat certain inflammatory
conditions. We have initiated a research program to develop a
carbohydrate-active enzyme to treat psoriasis, an inflammatory skin condition
and have identified and produced sufficient amounts of a candidate enzyme to
conduct preclinical studies. We initiated these studies in the third quarter of
1998 at Brigham and Women's Hospital in Boston. We have since expanded our
preclinical studies to include other inflammatory conditions.
Carbohydrate Analysis, Products and Services
Glyko, Inc., our wholly-owned subsidiary, sells carbohydrate analysis products
and services. These products and services provide sophisticated carbohydrate
analysis to research institutions and commercial laboratories. Commercial
laboratories use carbohydrate analysis to determine carbohydrate structure,
sequence and quantity. Glyko, Inc.'s key technology, Fluorphore Assisted
Carbohydrate Electrophoresis, also known as FACE(R), is a rapid and relatively
inexpensive method of analyzing complex carbohydrates. In a typical application,
FACE(R) will rapidly process a sample of unknown composition. It will then
identify the carbohydrate structures present, quantify their abundance and
prepare a detailed report.
Glyko, Inc.'s primary product is the FACE(R) Imaging System, an electrophoretic
system that includes an imager and software designed to separate, identify and
quantify carbohydrates. Glyko, Inc. also sells the consumable products required
for the system's operation, including four specialized gels, 13 types of kits
and the consumable reagents necessary for carbohydrate analysis.
In addition, Glyko, Inc. provides:
o Reagents used in carbohydrate chemistry, including
carbohydrate-active enzymes
o Custom analytical services for profiling and sequencing complex
carbohydrates
o Research services on carbohydrate related problems
o Diagnostic methods and services for lysosomal storage diseases,
diseases in which residues build up in lysosomes because of
deficiencies in enzymes.
Glyko, Inc. also markets the only urinary screening test cleared by the FDA
for lysosomal storage diseases. Glyko, Inc. also provides a lysosomal storage
diseases screening service using its test and related diagnostic technology.
Glyko, Inc.'s diagnostics line includes software for the automated diagnosis of
oligosaccharidoses, a subclass of lysosomal storage diseases. Glyko, Inc. is
developing similar software for MPS disorders. Glyko, Inc. is expanding its
ability to measure GAGs in urine. In addition to MPS-I, elevated or reduced
levels of GAGs in urine may serve as early, non-invasive indicators for a number
of diseases, including osteoporosis, degenerative joint diseases, kidney
diseases as well as lysosomal storage diseases. In addition, Glyko, Inc.
provides analysis of plasma heparin, a type of GAG, and is developing an
automated analyzer for heparin in whole blood. The direct analysis of heparin
concentration in blood or plasma allows for close monitoring of patients on
heparin-based anti-coagulation therapy. Over-or under-dosing of heparin can
result in serious adverse side effects.
Glyko, Inc. purchased the reagent business of Oxford GlycoSciences May of
1999. This business adds a product line of chromatography equipment and
disposables as well as additional reagents and enzymes to the current technology
offered by Glyko, Inc.
Corporate Collaborations
Joint Venture with Genzyme Corporation
In September 1998, we established a joint venture with Genzyme for the worldwide
development and commercialization of AldurazymeTM for the treatment of MPS-I.
Our lead responsibilities within the joint venture include:
o Conducting certain clinical trials including the initial clinical
trial, a Hurler syndrome trial and potentially a compassionate use
trial intended to provide enzyme replacement therapy for those in
dire need
o Obtaining the necessary U.S. regulatory approvals
o Manufacturing bulk AldurazymeTM for clinical and commercial
purposes
Genzyme has lead responsibility for:
o Conducting the Phase III confirmatory clinical trial
o Obtaining the necessary international regulatory approvals
o Providing pricing and reimbursement requirements
o Providing overall sales and marketing
o Providing fill and finish manufacturing services and physical
distribution of the final product
Under the agreement, BioMarin and Genzyme are each required to make capital
contributions to the joint venture equal to 50% of the direct costs and expenses
associated with the development and commercialization of Aldurazyme TM. BioMarin
and Genzyme will share equally in any profits generated from sales of Aldurazyme
TM. Genzyme purchased $8.0 million of our common stock in a private placement in
September 1998 and purchased an additional $10.0 million of our common stock at
the initial public offering (IPO) price in a private placement concurrent with
the IPO. Genzyme has also committed to pay us $12.1 million in cash upon
approval of the BLA for Aldurazyme TM. We have sub-licensed to the joint venture
certain of our intellectual property rights related to Aldurazyme TM.
If either party fails to fund its 50% share of costs and expenses, then the
other party may buy out the party that breaches on the terms described below,
otherwise, the profit sharing interests and the future funding obligations of
the parties will be adjusted to correspond to the cumulative amount of capital
contributions made by each party. From the start of the joint venture through
December 31, 1999, Genzyme and BioMarin have each contributed approximately $8.3
million to the joint venture.
The collaboration agreement is the document, which contains the rights and
responsibilities of each of Genzyme and us in the joint venture. Upon
termination of the collaboration agreement, one party must buy out the other
party's interest in the joint venture, as described below. The acquiring party
will then obtain all rights to AldurazymeTM and any related intellectual
property and regulatory approvals, and the other party would be barred from
developing and commercializing AldurazymeTM.
Upon a breach of the collaboration agreement, the non-breaching party may
terminate the agreement. In this event, the terminating party will be obligated
to buy out the breaching party's interest in the joint venture for 90% of its
"fair value." The purchase price would be payable over four years. Under the
agreement, the "fair value" of a party's interest in the joint venture is
defined as the price a willing and well informed buyer, under no compulsion,
would be willing to pay and that a willing and well informed seller, under no
compulsion, would be willing to accept, as determined by mutual agreement
between Genzyme and us. Should Genzyme and we be unable to agree, the fair value
is to be determined by an investment banking firm selected by Genzyme and us.
Our management currently believes that the value of the joint venture represents
a majority of our value as a public company.
The collaboration agreement may be terminated without cause by either Genzyme or
us upon one year's prior written notice at any time after the earlier of the
approval of the biologics license application for AldurazymeTM by the FDA or
December 31, 2000. If the agreement is terminated by us without a breach by
Genzyme, Genzyme would have the option, exercisable for one year, to buy out our
interest in the joint venture for 100% of its "fair value," as defined in the
preceding paragraph. If the agreement is terminated by Genzyme without a breach
by us, we would immediately have the option to buy out Genzyme's interest in the
joint venture. Under the collaboration agreement, the amount we would pay to buy
out Genzyme is calculated differently depending upon whether Genzyme terminated
the agreement prior to or after December 31, 2000. If Genzyme terminated the
agreement without a breach by us prior to December 31, 2000, we would have the
right to purchase Genzyme's interest for an amount equal to the aggregate amount
of Genzyme's capital contributions to the joint venture to the date of
termination minus two million dollars. Since as of December 31, 1999, Genzyme
had contributed approximately $8.3 million to the joint venture, this buy out
amount as of December 31, 1999 would be approximately $6.3 million. If Genzyme
terminated the agreement without a breach by us after December 31, 2000, we
would have the right to purchase Genzyme's interest for 100% of its "fair
value." In the event of termination of the buy out option without exercise by
the non-terminating party as described above, all right and title to
AldurazymeTM is to be sold to the highest bidder, with the proceeds to be split
equally between Genzyme and us.
If the agreement were terminated by us because Genzyme failed to pay us the
agreed upon $12.1 million in cash upon the approval by the FDA of the biologics
license application for AldurazymeTM, we would be obligated to buy out Genzyme's
interest in the joint venture for an amount equal to the aggregate amount of
Genzyme's capital contributions to the joint venture to that date minus two
million dollars. We estimate that as of February 29, 2000, that amount would be
approximately $8.7 million.
If the agreement is terminated by either party because the other declares
bankruptcy and is in breach of the agreement, the terminating party would be
obligated to immediately buy out the other party's interest in the joint venture
for 100% of its "fair value." If the agreement is terminated by a party because
the other party experienced a change of control, the terminating party shall
notify the other party, the offeree, of its intent to buy out the offeree's
interest in the joint venture for a stated amount, set by the terminating party
at its discretion. The offeree must then either accept this offer or agree to
buy the terminating party's interest in the joint venture on those same terms.
If we were required to buy out Genzyme's interest in the joint venture other
than for their failure to make the $12.1 million payment, we may be required to
seek additional financing to pay Genzyme. If we obtain this financing by selling
our stock, existing investors would suffer a dilution of their investment. We
cannot assure you that this financing, if necessary, will be available at all or
at a commercially reasonable cost. We would then be unable to buy out Genzyme's
interest in the joint venture and would be in breach of the agreement.
See "Additional Factors That Might Affect Future Results--If our joint venture
with Genzyme were terminated, our ability to commercialize AldurazymeTM would be
delayed."
Grant Agreements and Licenses
We have entered into research and development collaboration agreements with
various academic and research institutions. Under these agreements, we fund
research and development by these institutions. Some of the agreements also
provide for the grant to us of exclusive, royalty-bearing licenses or rights of
first negotiation regarding licenses to intellectual property and other subject
matter developed by these institutions in the course of this research.
Typically, these agreements are terminable for cause by either party upon
90-days written notice.
In April 1997, we entered into the Grant Terms and Conditions Agreement with
Harbor-UCLA. Under this agreement, we funded a two-year research program related
to (alpha)-L-iduronidase and obtained an exclusive, worldwide license to certain
cell lines and methods related to the production and purification of the enzyme
and intellectual property and materials developed by Harbor-UCLA. This license
is perpetual, subject to our obligation to pay ongoing license fees. In exchange
for the license, we pay Harbor-UCLA an annual licensing fee and, separately,
royalties for 10 years or for the duration of any patents based on the licensed
technology, if longer. This agreement may be terminated by either party for
breach upon 90 days prior written notice. In connection with Dr. Kakkis' prior
employment with Harbor-UCLA, he will receive a portion of the royalties paid to
Harbor-UCLA by BioMarin. Under this agreement we are required to pursue the
development of enzyme therapy with due diligence acceptable to Harbor-UCLA in
order to maintain the license. Our joint venture with Genzyme, which has been
sublicensed the technology originally licensed to us by Harbor-UCLA, is
currently using this technology in part to develop our initial enzyme
replacement therapy product, AldurazymeTM. We are required to fund 50% of the
costs and expenses associated with the development of AldurazymeTM.
In May 1998, we entered into an agreement with W.R. Grace regarding BM202, an
enzyme that breaks down proteins, which may be used for the debridement of
burns. Under this agreement, we have obtained an option to acquire from W.R.
Grace an exclusive license, with the right to grant and authorize sublicenses
for certain patents related to BM202. We may exercise our option at any time
until May 2001 so long as we have made certain payments to W.R. Grace. Under the
terms of the agreement, we would pay W.R. Grace certain milestone payments and
annual licensing fees. We must pay W.R. Grace the greater of (1) annual
royalties based on net annual sales of BM202, or (2) a minimum annual royalty
stipulated in the agreement. If we cannot reach agreement with W.R. Grace on the
additional terms and conditions of the license within six months of the exercise
of our option, then we may initiate binding arbitration proceedings to establish
the other terms of the license. The agreement also requires us to use our best
efforts to produce material toxicology studies on BM202 between May 1, 1999, and
May 1, 2000, and to begin clinical testing of products based on BM202. We will
bear the cost of both toxicology studies and the clinical testing.
In August 1998, we entered into a license agreement with Women's and Children's
Hospital of Adelaide, Australia under which Women's and Children's Hospital of
Adelaide granted us a worldwide, exclusive, perpetual license to certain
technology and products for use in enzyme replacement therapy for MPS-VI. The
licensed technology includes the feline MPS-VI preclinical data and a host cell
line that expresses this enzyme. We paid Women's and Children's Hospital of
Adelaide an initial license fee and will continue to pay royalties based on net
sales with a minimum annual royalty. The royalty rate is reduced if a product
competitive with MPS-VI enters the market. The terms of the license agreement
require that both parties reach agreement on the design of the MPS-VI clinical
trials within a specified period. The license agreement further requires us to
file an investigational new drug application with the FDA or equivalent
regulatory authority in another country and to begin clinical trials within
specified time periods. The term of the agreement is ten years and we have an
option to renew the agreement for two one-year periods.
Manufacturing
Pharmaceutical Manufacturing. The drug candidates we are currently developing
require the manufacture of recombinant enzymes. For our genetic disease
programs, we eventually expect to manufacture the bulk carbohydrate-active
enzymes. We believe that we will be able to manufacture sufficient quantities of
our genetic disease drug products for clinical trials and commercial sales in
part because relatively low doses are required for treatment and because the
targeted patient populations are small. In general, we expect to contract with
outside service providers for certain manufacturing services, including final
product fill and finish operations and bulk enzyme production for clinical and
early commercial production where the production requirements exceed our
manufacturing capacity.
In the first quarter of 2000, we began production of bulk AldurazymeTM for
clinical requirements including the Confirmatory Phase III clinical trial and
eventually the other clinical requirements. This production is being done in the
first phase of our Galli Drive (Novato California) manufacturing facility. Galli
phase I is a 32,800 square foot Current Good Manufacturing Processes or cGMP
production facility including support areas housing utilities, laboratories and
administrative functions. We expect to support the United States commercial
launch of Aldurazyme(TM) from the facility's first phase. Genzyme will package
the bulk AldurazymeTM into its final dosage form at its Massachusetts
facilities.
We developed an 11,000 square foot facility on Carson Street in Torrance,
California, originally designed and dedicated to the production of AldurazymeTM.
As a result of changes in the production process for improved purity and of FDA
guidance on production process, we will not use the facility for its original
purpose. We plan to suspend production operations at Carson Street for
AldurazymeTM production in May 2000 after manufacture of clinical product for
the continuation of our initial trial of AldurazymeTM. At the time of this
report, we do not have a future use planned for this facility. We have offered
transfers to the Novato facility to fill open positions to a majority of the
Carson Street staff.
We have a 1,400 square foot cGMP complex of laboratory and support areas
designed for clinical production of enzymes for our other genetic disease
programs. This laboratory has the capability for cell culture production,
purification and filling of small-scale production lots. Initially, this
facility will be used to produce BM102 in sufficient quantity to support an
initial clinical trial of MPS-VI.
We have also developed a 1,000 square foot bacterial fermentation and
purification facility for preclinical studies for burn and anti-fungal drug
candidates. We use third-party contract manufacturers to produce clinical trial
material made in bacterial or fungal cells.
We are developing the manufacturing capacity to support commercial sales of
AldurazymeTM and eventually BM102 and other genetic diseases enzymes. We cannot
assure you that we will be able to do so in a timely manner or that this
capacity will be sufficient to supply the market demand if sales exceed
projections. As a company, we have no experience manufacturing AldurazymeTM or
other enzymes in commercial quantity, although we have hired and are in the
process of hiring additional personnel who do have experience manufacturing
commercial quantities of drug products including therapeutic proteins.
Because our initial manufacturing facilities are in the process of validation,
and process qualification before filing of a BLA, we have yet to be subject to
governmental inspection for compliance with cGMP. We will have to register our
manufacturing facilities with the FDA, the State of California and other foreign
regulatory agencies. These facilities, and those of any third-party
manufacturers, will be subject to periodic inspections confirming compliance
with applicable law. Our facilities must be cGMP certified before we can
manufacture our drugs for commercial sales. Failure to comply with these
requirements could result in the shutdown of our facilities, fines or other
penalties. A shutdown or fine could have a serious effect on our business
financial condition and results of operations. See "Risk Factors--If we are
unable to manufacture our drug products in sufficient quantities and at
acceptable cost, we may be unable to meet demand for our products and lose
potential revenues--If we fail to obtain regulatory approval to commercially
manufacture or sell any of our future drug products, or if approval is delayed,
we will be unable to generate revenue from the sale of our products."
Carbohydrate Analysis Products Manufacturing. Glyko, Inc. assembles its FACE(R)
Imaging System and kits from standard components readily available from multiple
commercial sources. A key component of the FACE(R)Imaging System is the
operating and interpretative software, which Glyko, Inc. writes and tests
itself. Glyko, Inc. mixes and casts its gels using proprietary and patented
formulations best suited for carbohydrate applications. Glyko, Inc. also
manufactures its carbohydrate-active enzymes. Glyko, Inc. believes that it has
adequate manufacturing capacity to produce much larger quantities of its
products than are currently required.
Sales and Marketing
Pharmaceutical Sales and Marketing. We have no experience marketing or selling
pharmaceutical products. To commercially market our products once the necessary
regulatory approvals are obtained, we must either develop our own sales and
marketing force or enter into arrangements with third parties. We established a
joint venture with Genzyme for the worldwide development and commercialization
of AldurazymeTM for the treatment of MPS-I. Under the joint venture, Genzyme
will be responsible for marketing, distribution, sales and insurance
reimbursement of AldurazymeTM worldwide.
In the future, we may develop the capability to market and sell our drug
products that are targeted at small or concentrated patient populations. We
believe that these patient populations are typically well-informed and
well-connected to the medical community. Often family/patient groups suffering
from niche diseases are capable users of the internet to share experiences and
gather information. We believe that direct marketing to these families or
patients would be effective. We may also market our products through
distributors or other collaborators, particularly for those products targeted at
larger patient populations.
We cannot guarantee that Genzyme will devote the resources necessary to
successfully market AldurazymeTM or that the methods that provided success in
Gaucher disease will provide equal success in MPS-I. In addition, either party
may terminate the joint venture for any reason. If Genzyme were to terminate the
joint venture, we would be required to undertake Genzyme's responsibilities
ourselves. We have no experience in marketing, selling or obtaining
reimbursement for pharmaceutical products. In addition, we would be required to
pursue foreign regulatory approvals. As a result, termination of the joint
venture by Genzyme may delay the launch of AldurazymeTM.
Sales and Marketing of Carbohydrate Analysis Products and Services. Glyko, Inc
sells its products and services primarily to distributors of research products,
quality control laboratories and research laboratories. Glyko, Inc. has a sales
staff of three, who cover the United States, Canada and Europe. Direct sales
efforts accounted for approximately 59% of Glyko, Inc.'s revenues in 1999.
Glyko, Inc. has established a network of distributors to expand its coverage in
the analytical products market. Glyko, Inc. hasrelationships with three major
research products distributors worldwide and with one distributor for North
America. These distribution agreements allow these companies to sell Glyko, Inc.
manufactured products under the distributor's own name. Glyko, Inc. also has
distribution agreements with third parties covering Asia, Australia, Europe and
Mexico. Sales by distributors accounted for approximately 24% of Glyko, Inc.'s
revenues in 1999. The remaining 17% of Glyko, Inc.'s revenues are from sales of
contract services, including services sold to us, and government grants.
Services provided to us accounted for approximately 5% of Glyko, Inc.'s overall
revenue in 1999.
See "Risk Factors--If our joint venture with Genzyme were terminated, our
ability to commercialize AldurazymeTM would be delayed--If we are unable to
effectively sell and market our products, our ability to generate revenues will
be diminished--If we fail to compete successfully, our revenues and operating
results will be adversely affected."
Patents and Proprietary Rights
Our success depends in part on our ability to:
o Obtain patents
o Protect trade secrets
o Operate without infringing the proprietary rights of others
o Prevent others from infringing on our proprietary rights
We may obtain licenses to patents and patent applications from others.
We have eight patent applications presently pending in the United States Patent
and Trademark Office. We have filed four foreign counterpart applications and
expect to file a foreign counterpart to one of the other pending U.S. patent
applications at the proper time.
Glyko, Inc. owns eleven issued U.S. patents. In addition, Glyko, Inc. has
licensed eight U.S. patents and their foreign counterparts from AstroMed Ltd.
and its successor Astroscan Ltd. on an exclusive, worldwide, perpetual and
royalty-free basis. Glyko, Inc. has also licensed six U.S. patents from Glycomed
Incorporated on an exclusive, worldwide, perpetual and royalty-free basis. These
patents are all related to Glyko, Inc.'s products and services.
We primarily protect our proprietary information by filing U.S. and foreign
patent applications related to our proprietary technology, inventions and
improvements. Proprietary rights relating to our technologies will be protected
from unauthorized use by third parties only to the extent that they are covered
by valid and enforceable patents or are effectively maintained as trade secrets.
The patent positions of biotechnology companies are extremely complex and
uncertain. The scope and extent of our patent protections for some of our
products, including AldurazymeTM and BM102, are particularly uncertain because
some of the enzymes we are developing have existed in the public domain for many
years. Other parties have published the structure of the enzyme, the methods for
purifying or producing the enzyme and the methods of treatment or use. The
publication of this information limits the scope of our patents and may prevent
us from obtaining any meaningful patent protection. We cannot assure you that
any patents owned by, or licensed to, us will afford protection against
competitors. Nor can we assure you that any patent applications will result in
patents being issued.
In addition, the laws of certain foreign countries do not protect our
intellectual property rights to the same extent as do the laws of the United
States. The patent position of biopharmaceutical companies involves complex
legal and factual questions. We cannot predict whether the intellectual property
laws of foreign countries will be enforceable. We cannot assure you that any of
our patents or patent applications, if issued, will not be challenged,
invalidated or designed around. Nor can we assure you that the patents will
provide proprietary protection or competitive advantages to us. Furthermore, we
cannot assure you that others will not independently develop similar
technologies or duplicate any technology developed by us.
Our commercial success depends significantly on our ability to operate without
infringing the patents and other proprietary rights of third parties. We cannot
assure you that our technologies do not and will not infringe the patents or
violate other proprietary rights of third parties. In the event any of our
technologies are found to infringe or violate the intellectual property rights
of others, we and our corporate partners may be prevented from pursuing
research, development or commercialization of our products.
There has been extensive litigation regarding patents and other intellectual
property rights in the biotechnology and pharmaceutical industries. The defense
and prosecution of intellectual property suits and related legal and
administrative proceedings in the United States and abroad involve complex legal
and factual questions. These proceedings are costly and time-consuming to pursue
and their outcome is uncertain. Litigation may be necessary to enforce patents
issued to or licensed by us, to protect trade secrets or know-how owned or
licensed by us and to determine the enforceability, scope and validity of the
proprietary rights of others.
We will incur substantial expense and be forced to divert significant effort and
resources of our technical and management personnel in the event we must
prosecute or defend any litigation or other administrative proceeding. If an
adverse determination were made, we could incur significant liabilities to third
parties or be required to seek licenses which may not be available from third
parties or may be prevented from selling our products in certain markets, if at
all. Although patent and intellectual property disputes are often settled
through licensing or similar arrangements, costs associated with these
arrangements may be substantial and could include ongoing royalties.
Furthermore, we cannot assure you that the necessary licenses would be available
to us on satisfactory terms, if at all.
In addition to patents, we rely on trade secrets and proprietary know-how, which
we seek to protect, in part, through confidentiality agreements with our
employees. We cannot assure you that these confidentiality or proprietary
information agreements will meaningfully protect our technology or provide us
with adequate remedies in the event of unauthorized use or disclosure of this
information. Nor can we assure you that the parties to these agreements will not
breach these agreements or that our trade secrets will not otherwise become
known to or be independently developed by competitors. See "Risk Factors--If we
are unable to protect our proprietary technology we may not be able to compete
as effectively--If we fail to compete successfully, our revenues and operating
results will be adversely affected."
Government Regulation
Our pharmaceutical products are subject to extensive government regulation in
the United States. If we distribute our products abroad, these products will
also be subject to extensive foreign government regulation. In the United
States, pharmaceutical and biological products are regulated by the FDA. FDA
regulations govern the testing, manufacturing, advertising, promotion, labeling,
sale and distribution of our products. Currently, we believe that AldurazymeTM
and other enzyme drug products that we may develop will be regulated by the FDA
as biologics rather than as drugs because they are manufactured by biological
processes.
The FDA approval process for a biologic includes:
o Preclinical studies
o Submission of an investigational new drug application for clinical
trials
o Adequate and well-controlled human clinical trials to establish
the safety and effectiveness of the product
o Submission of a biologics license application
o Review of the biologics license application
o Inspection of the facilities used in the manufacturing of the
biologic to assess compliance with the Current Good Manufacturing
Processes, or cGMP regulations
The biologics license application includes comprehensive, complete descriptions
of the pre-clinical testing, clinical trials, and the chemical, manufacturing
and control requirements of a drug which enable the FDA to determine the drug's
safety and efficacy. A biologics license application must be filed and then
approved by the FDA before a biologic can be marketed commercially.
The FDA testing and approval process requires substantial time, effort and
money. We cannot assure you that any approval will ever be granted.
Preclinical studies include laboratory evaluation of the product, as well as
animal studies to assess the potential safety and effectiveness of the product.
These studies must be performed according to good laboratory practices. The
results of the preclinical studies, together with manufacturing information and
analytical data, are submitted to the FDA as part of the investigational new
drug application. Clinical trials may begin 30 days after the investigational
new drug application is received, unless the FDA raises concerns or questions
about the conduct of the clinical trials. If concerns or questions are raised,
the investigational new drug application sponsor and the FDA must resolve any
outstanding concerns before clinical trials can proceed. We cannot assure you
that submission of an investigational new drug application will result in
authorization to commence clinical trials. Nor can we assure you that if
clinical trials are approved, that data will result in marketing approval.
Clinical trials involve the administration of the product that is the subject of
the trial to volunteers or patients under the supervision of a qualified
principal investigator. Furthermore, each clinical trial must be reviewed and
approved by an independent institutional review board at each institution at
which the study will be conducted. The institutional review board will consider,
among other things, ethical factors, the safety of human subjects and the
possible liability of the institution. Also, clinical trials must be performed
according to good clinical practices. Good clinical practices are enumerated in
FDA regulations and guidance documents.
Clinical trials typically are conducted in three sequential phases, Phases I, II
and III, with Phase IV studies conducted after approval and generally required
for fast track designated drugs. These phases may overlap. In Phase I clinical
trials, the drug is usually tested on healthy volunteers to determine:
o Safety
o Any adverse effects
o Dosage tolerance
o Absorption
o Metabolism
o Distribution
o Excretion
o Other drug effects
In Phase II clinical trials, the drug is usually tested on a limited number of
afflicted patients to:
o Evaluate the efficacy of the drug for specific, targeted
indications
o Determine dosage tolerance and optimal dosage
o Identify possible adverse effects and safety risks
In Phase III clinical trials, the drug is usually tested on a larger number of
afflicted patients, an expanded patient population and at multiple clinical
sites. The FDA may require that we suspend clinical trials at any time on
various grounds, including a finding that the subjects are being exposed to an
unacceptable health risk. In addition, FDA approval may be conditioned and limit
the indicated uses for our products.
Phase IV clinical trials are defined as studies performed after a drug has
received FDA approval. These additional studies are conducted to gain experience
from the treatment of afflicted patients in the intended therapeutic indication
and are required if a drug is approved based on surrogate endpoints. In clinical
trials, surrogate endpoints are alternative measurements of the symptoms of a
disease or condition, often by biochemical or other tests, that are substituted
for measurements of observable clinical symptoms. Failure to promptly conduct
Phase IV clinical trials could result in expedited withdrawal of approval for
products approved under fast track designation.
We will also be subject to a variety of foreign regulations governing clinical
trials, manufacture and sales of our products. Whether or not FDA approval has
been obtained, approval of a product by the comparable regulatory authorities of
foreign countries must still be obtained prior to marketing in those countries.
The approval process varies from country to country and the time needed to
secure approval may be longer or shorter than that required for FDA approval.
Food and Drug Administration Modernization Act of 1997. The Food and Drug
Administration Modernization Act of 1997 was enacted, in part, to ensure the
availability of safe and effective drugs, biologics and medical devices by
expediting the FDA review process for new products. The Modernization Act
establishes a statutory program for the approval of fast track products,
including biologics. The fast track provisions essentially codify the FDA's
accelerated approval regulations for drugs and biologics. A fast track product
is defined as a new drug or biologic intended for the treatment of a serious or
life-threatening condition that demonstrates the potential to address unmet
medical needs for this condition. Under the new fast track program, the sponsor
of a new drug or biologic may request the FDA designate the drug or biologic as
a fast track product at any time during the clinical development of the product.
The Modernization Act specifies that the FDA must determine if the product
qualifies for fast track designation within 60 days of receipt of the sponsor's
request.
Approval of a license application for a fast track product can be based on an
effect on a clinical endpoint or on a surrogate endpoint that is reasonably
likely to predict clinical benefit. Approval of a license application for a fast
track product based on a surrogate endpoint may be subject to:
o Post-approval studies to validate the surrogate endpoint or
confirm the effect on the clinical endpoint
o Prior review of all promotional materials
If a preliminary review of the clinical data suggests that the product is
effective, the FDA may initiate review of sections of a license application for
a fast track product before the application is complete. This rolling review is
available if the applicant provides a schedule for submission of remaining
information and pays applicable user fees. However, the time period specified in
the Prescription Drug User Fees Act, which governs the time period goals the FDA
has committed to reviewing a license application, does not begin until the
complete application is submitted.
In September 1998, the FDA designated AldurazymeTM a fast track product for the
more severe forms of MPS-I. We cannot predict the ultimate impact, if any, of
the fast track process on the timing or likelihood of FDA approval of
AldurazymeTM or any of our other potential products.
Orphan Drug Designation. In September 1997, AldurazymeTM received orphan drug
designation from the FDA. In February 1999, BM102 received orphan drug
designation from the FDA. Orphan drug designation is granted by the FDA to drugs
intended to treat a rare disease or condition. A rare disease or condition is
one which generally affects fewer than 200,000 individuals in the United States.
Orphan drug designation must be requested before submitting a biologics license
application. After the FDA grants orphan drug designation, the generic identity
of the therapeutic agent and its potential orphan use are disclosed publicly by
the FDA.
Orphan drug designation does not shorten the FDA regulatory review and approval
process for an orphan drug, nor does it give that drug any advantage in the FDA
regulatory review and approval process. If an orphan drug later receives FDA
approval for the indication for which it has designation, the FDA may not
approve any other applications to market the same drug for the same indication,
except in very limited circumstances, for seven years. Although obtaining FDA
approval to market a product with orphan drug exclusivity may be advantageous,
we cannot be certain that we will be the first to obtain FDA approval for any
drug for which we obtain orphan drug designation. Nor can we be certain that
orphan drug designation will result in any commercial advantage or reduce
competition. Nor can we be certain that the limited exceptions to this
exclusivity will not be invoked by the FDA.
Regulation of Glyko, Inc.'s Diagnostic Tests as Medical Devices. Our subsidiary,
Glyko, Inc., develops diagnostic tests that screen for diseases such as
lysosomal storage diseases. The FDA regulates these tests as medical devices.
The FDA requires companies that desire to market new medical devices to obtain
either 510(k) clearance or approval of a Pre-market Approval Application, or
PMA, before they are sold. Regulation under a PMA can be significantly more
costly and time consuming than clearance under a 510(k) notification. Glyko,
Inc. has received 510(k) clearance from the FDA for a urinary carbohydrate
analysis test and is developing other diagnostic tests, which we believe qualify
for 510(k) clearance.
Glyko, Inc.'s diagnostic tests may be regulated as medical devices by the FDA as
Class I, Class II or Class III devices. The degree of regulation, as well as the
cost and time required to obtain regulatory approvals or clearances, generally
increases from Class I to Class III. Most diagnostic tests are regulated as
Class I or Class II devices. Glyko, Inc.'s diagnostic test for urinary
carbohydrate analysis has been classified as a Class I device. Under the Food
and Drug Administration Modernization Act of 1997, most Class I devices are
exempt from the 510(k) clearance requirement. Based on the advice of our
regulatory consultants and the experience with our first test, we expect that
all of our currently planned diagnostic tests will require a 510(k) notification
and clearance process.
A 510(k) notification is sufficient for a device that is "substantially
equivalent" to a legally marketed Class I or Class II device, or a Class III
"predicate" device for which the FDA has not yet required submission of PMAs.
Following submission of a 510(k) notification, a company may not market the
device for clinical use until the FDA finds that product is substantially
equivalent to a legally marketed predicate device. It generally takes four to 12
months from the date of submission of a 510(k) to obtain the FDA's
determination, but it may take longer. The FDA may determine that the device is
not substantially equivalent and require submission and approval of a PMA.
Alternatively, the FDA may require further information before making a
determination regarding substantial equivalence. The FDA requires a new 510(k)
submission and a separate FDA determination of substantial equivalence for any
devices cleared through the 510(k) process that have had modifications or
enhancements that could significantly affect their safety or effectiveness, or
that change their intended use.
If a device does not qualify for the 510(k) premarket notification procedure, a
company must file a PMA application. The PMA review and approval process can be
expensive, uncertain and lengthy. A PMA application must be supported by
extensive data, including laboratory and clinical trial data establishing the
safety and effectiveness of the device, as well as extensive manufacturing
information. After a preliminary review, the FDA makes an initial determination
about whether a PMA application is sufficiently complete to permit a substantive
review. If the FDA finds the PMA application sufficiently complete, the FDA
accepts the application for filing. Once the PMA application is accepted for
filing, the FDA begins a more in-depth review, which likely includes review by a
scientific advisory panel. During the PMA review process, the FDA will conduct
an inspection of the manufacturer's facilities to ensure compliance with the
applicable Quality System Regulation or QSR requirements. The FDA may determine
that additional clinical data is necessary or request other information, which
may delay the regulatory review process.
Modifications to a device that is the subject of an approved PMA, its labeling,
manufacturing or clinical use may require approval by the FDA of PMA supplements
or new PMAs. PMA supplements often require submission of the same type of
information required for the initial PMA except that the supplement generally is
limited to that data needed to support the proposed changes. Regulatory
approval, if granted, may limit the uses for which the device may be marketed.
Approvals, once granted, may be withdrawn if problems occur after initial
marketing.
Sales of medical devices outside of the United States are subject to regulatory
requirements that vary from country to country. The time required to obtain
international regulatory clearance or approval for international sales may be
longer or shorter than that required for FDA clearance approval. The
requirements may differ as well. We cannot assure you that we will be able to
obtain the required regulatory approval in a timely manner, if at all.
Regulation of Glyko, Inc.'s Manufacturing. Glyko, Inc. is required to comply
with the FDA's quality system regulation requirements when manufacturing its
diagnostic tests. The quality system regulation requirements incorporate the
FDA's former current Good Manufacturing Processes into medical devices
regulations. Quality system regulation requirements address the design,
controls, methods, facilities and quality assurance controls used in
manufacturing, packing, storing and installing medical devices. In addition,
certain international markets have quality assurance and manufacturing
requirements that may be more or less rigorous than those in the United States.
A failure by us to comply with quality system regulation requirements or other
requirements could have a serious impact on our business and services.
Regulation of Clinical Laboratories. Laboratories using Glyko, Inc.'s diagnostic
tests for clinical use in the United States are regulated under Clinical
Laboratory Improvement Amendments of 1998, or CLIA. CLIA establishes
requirements for laboratories and laboratory personnel governing:
o Administration of laboratories
o Participation and proficiency testing
o Patient test management
o Quality control
o Personnel
o Quality assurance
o Inspection
The complexity of the tests being performed by the laboratory will determine
which CLIA requirements apply. Under CLIA regulations, all laboratories
performing moderately complex or highly complex tests will be required to obtain
either a registration certificate or certificate of accreditation from the
Health Care Financing Administration. A laboratory using our diagnostic tests is
required to be qualified to perform moderately or highly complex tests. All of
the laboratories known to us that are performing the diagnostic procedures which
might use our test are qualified at the appropriate levels. If, in the future, a
competitor develops a simpler diagnostic test that can be performed in less
qualified laboratories and if medical institutions begin to use these less
qualified laboratories to perform the competitive test, then CLIA requirements
will prevent the less qualified laboratories from performing the current Glyko,
Inc. test. The development of a simpler competitive diagnostic test by a
competitor may have a negative financial impact on our revenues and results of
operations. Glyko, Inc. has CLIA certification and a California state laboratory
license to perform urinary carbohydrate analysis tests. The California
laboratory license only allows testing for patients in California. We may be
required to obtain other licenses to perform our laboratory services in other
states or to provide services to patients or health care professionals who
reside or practice medicine in other states.
See "Risk Factors--If we fail to obtain regulatory approval to commercially
manufacture or sell any of our future drug products, or if approval is delayed,
we will be unable to generate revenue from the sale of our products."
Competition
Pharmaceutical Products. The biopharmaceutical industry is rapidly evolving and
highly competitive. We face significant competition from biotechnology and
pharmaceutical companies. Many of these companies have significantly greater
financial, manufacturing, marketing and product research and development
resources and experience than we have. Large pharmaceutical companies in
particular have extensive experience in clinical testing and in obtaining
regulatory approvals, including orphan drug designations. Accordingly,
competitors may obtain regulatory approvals for and commercialize their products
faster than we will. In addition, these companies will compete with us to
attract qualified personnel, and to attract parties for acquisitions, joint
ventures or other collaborations. Several pharmaceutical and biotechnology
companies have established themselves in the field of enzyme therapeutics,
including Genzyme, our joint venture partner.
Universities and public and private research institutions are also competitors.
While these organizations primarily have educational objectives, they may
develop proprietary technology and acquire patents that we may need for the
commercial development of our drug products. We will attempt to license this
proprietary technology, if available. These licenses may not be available to us
on acceptable terms, if at all. We also directly compete with a number of these
organizations to recruit personnel, especially scientists and technicians.
We believe that the primary competitive factors in the market for biological
drug products are:
o Product safety
o Effectiveness of these products
o Ability to obtain orphan drug exclusivity
o Distribution channels
o Price
o Patents and proprietary know-how
o Time required to develop new products
o Time required to obtain regulatory and reimbursement approval
o Ability to respond quickly to medical and technological changes
o Ability to develop new products
We believe, based on our progress developing AldurazymeTM, that we can compete
successfully with regard to those competitive factors requiring timely
execution. With regard to other competitive factors including those regarding
distribution channels and low prices, we are at a competitive disadvantage. We
do not yet have established distribution channels and because our target patient
populations are small we expect that our drug products will be relatively
expensive. We do not intend to compete with others who have already established
successful treatments for specific genetic disorders, which should ameliorate
some of our competitive disadvantages.
Carbohydrate Analysis Products and Services. The FACE(R)Imaging System's
primary competitors are alternative carbohydrate analytical technologies
including:
o Capillary electrophoresis
o High-pressure liquid chromatography
o Mass spectrometry
o Nuclear magnetic resonance spectrometry
The major advantages of FACE(R) are:
o Low cost
o Quantification of carbohydrates present
o Easy application to samples of unknown composition
o User friendly procedures and software
o Provides versatility for other non-carbohydrate applications
The major disadvantages of FACE(R) are:
o FACE(R) requires single-use specialized gels which give FACE(R)
systems a higher disposable cost than some competitive products
which have reusable components.
o Some competitive products may provide a more precise measurement
ofthe molecular weight of a sample.
o One competitive technology can provide more complete structural
information about the sample.
The competition in the carbohydrate-active enzymes business is comprised
primarily of distributors of broad lines of research products and supplies,
particularly fine chemicals and reagents. Glyko, Inc. competes on the basis of
the catalog of products it offers and the number of carbohydrate-active enzymes
it offers and their proprietary nature. Glyko, Inc. believes that it also
provides superior service because it provides customers with sales information
and assistance based on scientific understanding of carbohydrate chemistry and
function. However, it does not offer as many products as some of its
competitors. Glyko, Inc. plans to expand its enzyme product offerings over the
next several years to compete with the broadest product lines offered today by
competitors. However, neither we nor Glyko, Inc. can assure you that Glyko, Inc.
will successfully broaden its product offerings or will otherwise compete
successfully.
Glyko, Inc.'s diagnostic product line competes primarily with alternative
technologies and laboratory services. Glyko, Inc. believes that its diagnostic
approaches are novel. Glyko, Inc. has the only urinary screening test cleared by
the FDA for certain lysosomal storage diseases. Glyko, Inc. believes that the
test may be used as a screening tool for early detection of a number of
lysosomal storage diseases and that success of the product will depend on
whether it becomes widely adopted. See "Risk Factors--If we fail to compete
successfully, our revenues and operating results will be adversely affected."
Employees
As of February 16, 2000, we had 149 full-time employees, 78 of whom are in
manufacturing, 48 of whom are in research and development, 5 of whom are in
sales and marketing and 18 of whom are in administration.
We consider our employee relations to be good. Our employees are not covered by
a collective bargaining agreement. We have not experienced employment related
work stoppages. We cannot assure you that we will be able to continue attracting
qualified personnel in sufficient numbers to meet our needs.
RISK FACTORS
If we continue to incur operating losses for a period longer than anticipated,
we may be unable to continue our operations.
We are in an early stage of development and have operated at a net loss since we
were formed. Since we began operations in March 1997, we have been engaged
primarily in research and development. We have no sales revenues from any of our
drug products. As of December 31, 1999, we had an accumulated deficit of
approximately $43.1 million. We expect to continue to operate at a net loss at
least through 2002. Our future profitability depends on our receiving regulatory
approval of our drug candidates and our ability to successfully manufacture and
market any approved drugs, either by ourselves or jointly with others. The
extent of our future losses and the timing of profitability are highly
uncertain. If we fail to become profitable or are unable to sustain
profitability on a quarterly or annual basis, then we may be unable to continue
our operations.
Because of the relative small size and scale of our wholly-owned subsidiary,
Glyko, Inc., profits from products and services offered by it will be
insufficient to offset the expenses associated with our pharmaceutical business.
As a result, we expect that operating losses will continue and increase for the
foreseeable future.
If we fail to obtain the capital necessary to fund our operations we will be
unable to complete our product development programs.
In the future, we may need to raise substantial additional capital to fund
operations. We cannot be certain that any financing will be available when
needed. If we fail to raise additional financing as we need it, we will have to
delay or terminate our product development programs.
We expect to continue to spend substantial amounts of capital for our operations
for the foreseeable future. Activities which will require additional
expenditures include:
o Research and development programs
o Preclinical studies and clinical trials
o Regulatory processes
o Establishment of commercial scale manufacturing capabilities and
o Expansion of sales and marketing activities.
The amount of capital we may need depends on many factors, including:
o The progress, timing and scope of our research and development
programs
o The progress, timing and scope of our preclinical studies and
clinical trials
o The time and cost necessary to obtain regulatory approvals
o The time and cost necessary to build our manufacturing facilities
and obtain the necessary regulatory approvals for those facilities
o The time and cost necessary to respond to technological and market
developments
o Any changes made or new developments in our existing collaborative
licensing and other commercial relationships
o Any new collaborative, licensing and other commercial
relationships that we may establish
Moreover, our fixed expenses such as rent, license payments and other
contractual commitments are substantial and will increase in the future. These
fixed expenses will increase because we may enter into:
o Additional leases for new facilities and capital equipment
o Additional licenses and collaborative agreements
o Additional contracts for consulting, maintenance and
administrative services
o Additional expenses associated with being a public company.
We believe that the cash, cash equivalents, short-term investment securities
balances at December 31, 1999 will be sufficient to meet our operating and
capital requirements through mid-year 2001. This estimate is based on
assumptions and estimates, which may prove to be wrong. As a result, we may need
or choose to obtain additional financing during that time.
If we fail to obtain regulatory approval to commercially manufacture or sell any
of our future drug products, or if approval is delayed, we will be unable to
generate revenue from the sale of our products.
We must obtain regulatory approval to market our products in the U.S. and
foreign jurisdictions.
We must obtain regulatory approval before marketing or selling our future drug
products. In the United States, we must obtain FDA approval for each drug that
we intend to commercialize. The FDA approval process is typically lengthy and
expensive, and approval is never certain. Products distributed abroad are also
subject to foreign government regulation. None of our drug products has received
regulatory approval to be commercially marketed and sold. If we fail to obtain
regulatory approval we will be unable to market and sell our future drug
products. Because of the risks and uncertainties in biopharmaceutical
development, our drug candidates could take a significantly longer time to gain
regulatory approval than we expect or may never gain approval. If regulatory
approval is delayed our management's credibility, the value of our company and
our operating results may be adversely affected.
To obtain regulatory approval to market our products, preclinical studies and
costly and lengthy clinical trials may be required and the results of the
studies and trials are highly uncertain.
As part of the FDA approval process, we must conduct, at our own expense,
preclinical studies on animals and clinical trials on humans on each drug
candidate. We expect the number of preclinical studies and clinical trials that
the FDA will require will vary depending on the drug product, the disease or
condition the drug is being developed to address and regulations applicable to
the particular drug. We may need to perform multiple preclinical studies using
various doses and formulations before we can begin clinical trials, which could
result in delays in our ability to market any of our drug products. Furthermore,
even if we obtain favorable results in preclinical studies on animals, the
results in humans may be different.
After we have conducted preclinical studies in animals we must demonstrate that
our drug products are safe and effective for use on the target human patients in
order to receive regulatory approval for commercial sale. Adverse or
inconclusive clinical results would stop us from filing for regulatory approval
of our products. Additional factors that can cause delay or termination of our
clinical trials include:
o Slow patient enrollment
o Longer treatment time required to demonstrate efficacy
o Lack of sufficient supplies of the drug candidate
o Adverse medical events or side effects in treated patients
o Lack of effectiveness of the drug candidate being tested
Typically, if a drug product is intended to treat a chronic disease safety and
efficacy data must be gathered over an extended period of time which ranges from
six months to three years. In addition, clinical trials on humans are typically
conducted in three phases. The FDA generally requires two pivotal clinical
trials that demonstrate substantial evidence of safety and efficacy and
appropriate dosing in a broad patient population at multiple sites to support an
application for regulatory approval. If a drug is intended for the treatment of
a serious or life-threatening condition and the drug demonstrates the potential
to address unmet medical needs for this condition, a single trial may be
sufficient to prove safety and efficacy under the FDA's Modernization Act of
1997.
The fast track designation for AldurazymeTM may not actually lead to a faster
review process.
Although AldurazymeTM has obtained a fast track designation, we cannot guarantee
a faster review process or faster approval compared to the normal FDA
procedures.
We will not be able to sell our products if we fail to comply with manufacturing
regulations.
Before we can begin commercially manufacturing our products we must obtain
regulatory approval of our manufacturing facility and process. In addition,
manufacture of our drug products must comply with the FDA's current Good
Manufacturing Practices regulations, commonly known as cGMP. The cGMP
regulations govern quality control and documentation policies and procedures.
Our manufacturing facilities are continuously subject to inspection by the FDA,
the State of California and foreign regulatory authorities, before and after
product approval. Because we are currently in the process of developing the
manufacturing site and process for commercial manufacture of AldurazymeTM, our
facility has not yet been inspected by any governmental entity. We cannot
guarantee that BioMarin, or any potential third-party manufacturer of our drug
products, will be able to comply with cGMP regulations. Material changes to the
manufacturing processes after approvals have been granted are also subject to
review and approval by the FDA or other regulatory agencies.
We must pass FDA and state inspections and manufacture three process
qualification batches to final specifications under cGMP controls before the
AldurazymeTM BLA can be approved. We cannot assure you that we will pass the
inspections in a timely manner, if at all.
If we fail to obtain orphan drug exclusivity for our products, our competitors
may sell products to treat the same conditions and our revenues may be reduced.
As part of our business strategy, we intend to develop drugs that may be
eligible for FDA orphan drug designation. Under the Orphan Drug Act, the FDA may
designate a product as an orphan drug if it is a drug intended to treat a rare
disease or condition, defined as a patient population of less than 200,000. The
company that obtains the first FDA approval for a designated orphan drug for a
given rare disease receives marketing exclusivity for use of that drug for the
stated condition for a period of seven years. However, different drugs can be
approved for the same condition.
Because the extent and scope of patent protection for our drug products is
limited, orphan drug designation is particularly important for our products that
are eligible for orphan drug designation. We plan to rely on the exclusivity
period under the orphan drug designation to maintain a competitive position. If
we do not obtain orphan drug exclusivity for any one of our drug products, our
competitors may then sell the same drug to treat the same condition.
We received orphan drug designation from the FDA for AldurazymeTM in September
1997. In February 1999, we received orphan drug designation from the FDA for
BM102. Even though we have obtained orphan drug designation for these drugs and
even if we obtain orphan drug designation for other products we develop, we
cannot guarantee that we will be the first to obtain marketing approval for any
orphan indication or that exclusivity would effectively protect the product from
competition. Orphan drug designation does not shorten the development or FDA
review time of a drug so designated nor give the drug any advantage in the FDA
review or approval process.
Because the target patient populations for our products are small we must
achieve significant market share and obtain high per patient prices for our
products to achieve profitability.
Our initial drug candidates target disorders with small patient populations. As
a result, our prices must be high enough to recover our development costs and
achieve profitability. For example, two of our initial drug products in genetic
disorders, AldurazymeTM and BM102, target patients with MPS-I and MPS-VI,
respectively. We estimate that there are approximately 3,400 patients with MPS-I
and 1,100 patients with MPS-VI in the developed world. We believe that we will
need to market worldwide to achieve significant market share. In addition, we
are developing other drug candidates to treat conditions, such as other genetic
diseases and serious burns, with small patient populations. We cannot be certain
that we will be able to obtain sufficient market share for our drug products at
a price high enough to justify our product development efforts.
If we fail to obtain an adequate level of reimbursement for our drug products by
third-party payors there would be no commercially viable markets for our
products.
The course of treatment for patients with MPS-I using AldurazymeTM is expected
to be expensive. We expect patients to need treatment throughout their
lifetimes. We expect that families of patients will not be capable of paying for
this treatment themselves. There will be no commercially viable market for
AldurazymeTM without reimbursement from third-party payors.
Third-party payors, such as government or private health care insurers,
carefully review and increasingly challenge the price charged for drugs.
Reimbursement rates from private companies vary depending on the third-party
payor, the insurance plan and other factors. Reimbursement systems in
international markets vary significantly by country and by region, and
reimbursement approvals must be obtained on a country-by-country basis. We
cannot be certain that third-party payors will pay for the costs of our drugs
and the courses of treatment. Even if we are able to obtain reimbursement from
third-party payors, we cannot be certain that reimbursement rates will be enough
to allow us to profit from sales of our drugs.
We currently have no expertise obtaining reimbursement. We expect to rely on the
expertise of our partner Genzyme to obtain reimbursement for AldurazymeTM. We
cannot predict what the reimbursement rates will be. In addition, we will need
to develop our own reimbursement expertise for future drug candidates unless we
enter into collaborations with other companies with the necessary expertise.
We expect that in the future reimbursement will be increasingly restricted both
in the United States and internationally. The escalating cost of health care has
led to increased pressure on the health care industry to reduce costs.
Governmental and private third-party payors have proposed health care reforms
and cost reductions. A number of federal and state proposals to control the cost
of health care, including the cost of drug treatments have been made in the
United States. In some foreign markets, the government controls the pricing
which would affect the profitability of drugs. Current government regulations
and possible future legislation regarding health care may affect our future
revenues from sales of our drugs and may adversely affect our business and
prospects.
If we are unable to protect our proprietary technology we may not be able to
compete as effectively.
Where appropriate, we seek patent protection for certain aspects of our
technology. Meaningful patent protection may not be available for some of the
enzymes we are developing, including AldurazymeTM and BM102. If we must spend
significant time and money protecting our patents, designing around patents held
by others or licensing, for excessively large fees, patents or other proprietary
rights held by others, our business and prospects may be harmed.
The patent positions of biotechnology companies are extremely complex and
uncertain. The scope and extent of patent protection for some of our products
are particularly uncertain because key information on some of the enzymes we are
developing has existed in the public domain for many years. Other parties have
published the structure of the enzymes, the methods for purifying or producing
the enzymes or the methods of treatment. The composition and genetic sequences
of animal and/or human versions of many of our enzymes, including those for
AldurazymeTM and BM102, have been published and are in the public domain. The
composition and genetic sequences of other MPS enzymes which we intend to
develop as products have also been published. Publication of this information
may prevent us from obtaining composition of matter patents, which are generally
believed to offer the strongest patent protection. For enzymes with no prospect
of composition of matter patents, we will depend on orphan drug status.
In addition, our owned and licensed patents and patent applications do not
ensure the protection of our intellectual property for a number of other
reasons:
o We do not know whether our patent applications will result in
actual patents. For example, we may not have developed a method
for treating a disease before others developed similar methods.
o Competitors may interfere with our patent process in a variety of
ways. Competitors may claim that they invented the claimed
invention prior to us. Competitors may also claim that we are
infringing on their patents and therefore cannot practice our
technology as claimed under our patent. Competitors may also
contest our patents by showing the patent examiner that the
invention was not original, novel or was obvious. As a Company, we
have no meaningful experience with competitors interfering with
our patents or patent applications.
o Even if we receive a patent, it may not provide much practical
protection. If we receive a patent with a narrow scope, then it
will be easier for competitors to design products that do not
infringe on our patent.
o Enforcing patents is expensive and may absorb significant time by
our management. In litigation, a competitor could claim that our
issued patents are not valid for a number of reasons. If the court
agrees, we would lose that patent.
In addition, competitors also seek patent protection for their technology. There
are many patents in our field of technology, and we cannot guarantee that we do
not infringe on those patents or that we will not infringe on patents granted in
the future. If a patent holder believes our product infringes on their patent,
the patent holder may sue us even if we have received patent protection for our
technology. If someone else claims we infringe on their technology, we would
face a number of issues, including:
o Defending a lawsuit takes significant time and can be very
expensive.
o If the court decides that our product infringes on the
competitor's patent, we may have to pay substantial damages for
past infringement.
o The court may prohibit us from selling or licensing the product
unless the patent holder licenses the patent to us. The patent
holder is not required to grant us a license. If a license is
available, we may have to pay substantial royalties or grant
cross-licenses to our patents.
o Redesigning our product so it does not infringe may not be
possible and could require substantial funds and time.
It is also unclear whether our trade secrets will provide useful protection.
While we use reasonable efforts to protect our trade secrets, our employees or
consultants may unintentionally or willfully disclose our information to
competitors. Enforcing a claim that someone else illegally obtained and is using
our trade secrets, like patent litigation, is expensive and time consuming, and
the outcome is unpredictable. In addition, courts outside the United States are
sometimes less willing to protect trade secrets. Our competitors may
independently develop equivalent knowledge, methods and know-how.
We may also support and collaborate in research conducted by government
organizations or by universities. We cannot guarantee that we will be able to
acquire any exclusive rights to technology or products derived from these
collaborations. If we do not obtain required licenses or rights, we could
encounter delays in product development while we attempt to design around other
patents or even be prohibited from developing, manufacturing or selling products
requiring these licenses. There is also a risk that disputes may arise as to the
rights to technology or products developed in collaboration with other parties.
If our joint venture with Genzyme were terminated, we could be barred from
commercializing AldurazymeTM or our ability to commercialize AldurazymeTM would
be delayed.
We are relying on Genzyme to apply the expertise it has developed through the
launch and sale of Ceredase(R) and Cerezyme(R) enzymes for Gaucher disease, a
rare genetic disorder, to the marketing of our initial drug product,
AldurazymeTM. Because it is our initial product, our operations are
substantially dependent upon the development of AldurazymeTM. We have no
experience selling, marketing or obtaining reimbursement for pharmaceutical
products. In addition, without Genzyme we would be required to pursue foreign
regulatory approvals. We have no experience in seeking foreign regulatory
approvals.
We cannot guarantee that Genzyme will devote the resources necessary to
successfully market AldurazymeTM. In addition, either party may terminate the
joint venture for specified reasons, including if the other party is in material
breach of the agreement or has experienced a change of control or has declared
bankruptcy and also is in breach of the agreement. Either party may also
terminate the agreement upon one year prior written notice for any reason after
the earlier of December 31, 2000 or after the joint venture has received the
FDA's approval of the biologics license application for AldurazymeTM.
Furthermore, we may terminate the joint venture if Genzyme fails to fulfill its
contractual obligation to pay us $12.1million in cash upon the approval of the
biologics license application for AldurazymeTM.
Upon termination of the joint venture one party must buy out the other party's
interest in the joint venture. The party who buys out the other will then also
obtain, exclusively, all rights to AldurazymeTM and any related intellectual
property and regulatory approvals. For a more detailed analysis of the economics
of this buy out obligation see "Business--Corporate Collaborations--Joint
Venture with Genzyme Corporation."
If the joint venture is terminated by Genzyme for a breach on our part, Genzyme
would be granted, exclusively, all of the rights to AldurazymeTM and any related
intellectual property and regulatory approvals and would be obligated to buy out
our interest in the joint venture. We would then effectively be unable to
develop and commercialize AldurazymeTM. If we terminated the joint venture for a
breach by Genzyme, we would be obligated to buy out Genzyme's interest in the
joint venture and, we would then be granted all of these rights to AldurazymeTM
exclusively. While we could then continue to develop AldurazymeTM, that
development would be slowed because we would have to divert substantial capital
to buy out Genzyme's interest in the joint venture and would then have to search
for a new partner to commercialize the product and to obtain foreign regulatory
approvals or to develop these capabilities ourselves.
If the joint venture is terminated by us without cause, Genzyme would have the
option, exercisable for one year, to immediately buy out our interest in the
joint venture and obtain all rights to AldurazymeTM exclusively. If the
agreement is terminated by Genzyme without cause, we would have the option,
exercisable for one year, to immediately buy out Genzyme's interest in the joint
venture and obtain these exclusive rights. In event of termination of the buy
out option without exercise by the non-terminating party as described above, all
right and title to AldurazymeTM is to be sold to the highest bidder, with the
proceeds to be split equally between Genzyme and us.
If the joint venture is terminated by us because Genzyme fails to make the $12.1
million payment to us upon FDA approval of the biologics license application for
AldurazymeTM, we would be obligated to buy Genzyme's interest in the joint
venture and would obtain all rights to AldurazymeTM exclusively. If the joint
venture is terminated by either party because the other declared bankruptcy and
is also in breach of the agreement, the terminating party would be obligated to
buy out the other and would obtain all rights to AldurazymeTM exclusively. If
the joint venture is terminated by a party because the other party experienced a
change of control, the terminating party shall notify the other party, the
offeree, of its intent to buy out the offeree's interest in the joint venture
for a stated amount set by the terminating party at its discretion. The offeree
must then either accept this offer or agree to buy the terminating party's
interest in the joint venture on those same terms. The party who buys out the
other would then have exclusive rights to AldurazymeTM.
We cannot assure you that if the joint venture were terminated and if we were
obligated, or given the option, to buy out Genzyme's interest in the joint
venture, and gain exclusive rights to AldurazymeTM, that we will have sufficient
funds to do so or that we will be able to obtain the financing to do so. If we
fail to buy out Genzyme's interest we may be held in breach of the agreement and
may lose any claim to the rights to AldurazymeTM and the related intellectual
property and regulatory approvals. We would then effectively be prohibited from
developing and commercializing the product.
Termination of the joint venture where we retain the rights to AldurazymeTM
could cause us significant delays in product launch in the United States,
difficulties in obtaining third-party reimbursement and delays or failure to
obtain foreign regulatory approval, any of which could hurt our business and
results of operations. Since Genzyme funds 50% of the joint venture's operating
expenses, the termination of the joint venture would double our financial burden
and reduce the funds available to us for other product programs.
If we are unable to manufacture our drug products in sufficient quantities and
at acceptable cost, we may be unable to meet demand for our products and lose
potential revenues.
We have no experience manufacturing drug products in volumes that will be
necessary to support commercial sales. Our unproven manufacturing process may
not meet initial expectations as to schedule, reproducibility, yields, purity,
costs, quality, and other measurements of performance. Improvements in
manufacturing processes typically are very difficult to achieve and are often
very expensive. We cannot know with any certainty how long it might take to make
improvements if it became necessary to do so. If we contract for manufacturing
services with an unproven process, our contractor is subject to the same
uncertainties, high standards and regulatory controls.
If we are unable to establish and maintain commercial scale manufacturing within
our planned time and cost parameters, sales of our products and our financial
performance will be adversely affected.
We may encounter problems with any of the following if we attempt to increase
the scale or size of manufacturing:
o Design, construction and qualification of manufacturing facilities
that meet regulatory requirements
o Production yields
o Purity
o Quality control and assurance
o Shortages of qualified personnel
o Compliance with FDA regulations
We are developing a total of 31,000 square feet at our Novato facility for the
manufacture of AldurazymeTM. The construction and qualification of this facility
may take longer than planned and the actual construction costs of these
facilities may be higher than those which we have budgeted. We expect that the
manufacturing process of all of our new products, including BM102, will also
require lengthy development time before we can begin manufacturing them in
commercial quantity. Even if we can establish this capacity, we cannot be
certain that manufacturing costs will be commercially reasonable, especially if
reimbursement is substantially lower than expected.
In order to achieve our product cost targets we must develop efficient
manufacturing processes either by
o Improving the colonies of cells which have a common genetic
make-up, or cell lines,
o Improvin