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United States
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,
2000
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 68-0397820
(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) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 of this 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 March 9, 2001 was $181,664,320. The number of shares of common
stock, $0.001 par value, outstanding on March 9, 2001 was 37,115,610.
The documents incorporated by reference are as follows:
Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held May 17, 2001 are incorporated by reference into Part
III.
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 " Factors
That May Affect Future Results," "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 "Factors That May 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. (BioMarin) is a developer of enzyme therapies for
debilitating, life-threatening, chronic genetic diseases and other diseases and
conditions. We are currently focusing our research and development efforts on
three potential products, AldurazymeTM , rhASB and Vibriolysin.
Aldurazyme for MPS-I
In April 1999, we completed a twelve-month patient evaluation for the initial
clinical trial of our lead drug product, Aldurazyme, for the treatment of
mucopolysaccharidosis-I or MPS-I, a life threatening genetic disease.
Aldurazyme is a specific form of recombinant human (alpha)-L-iduronidase that
replaces a genetic deficiency of (alpha)-L-iduronidase in MPS-I patients. The
26-week clinical results were presented at the American Society for Human
Genetics in October 1999. The initial clinical trial treated ten patients with
MPS-I at six medical centers in the United States. Based on data collected
during the initial twelve-month evaluation period, Aldurazyme met the primary
endpoints set forth in the investigational new drug application. In addition,
Aldurazyme demonstrated efficacy according to various secondary endpoints in
each of the patients. We continue to collect data from the ongoing treatment of
these original patients. In January of 2001, 52-week study results were reported
in the New England Journal of Medicine.
The New England Journal of Medicine article, titled "Enzyme Replacement Therapy
in Mucopolysaccharidosis I," describes the results of the open label trial in
ten MPS-I patients conducted at Harbor-UCLA Medical Center and five other sites
in the U.S. The study subjects ranged in age from 5 to 22 years and included a
wide spectrum of clinical severity. All patients received 52 weeks of weekly
intravenous infusions of Aldurazyme and an intensive series of assessments at 0,
6, 12, 26 and 52 weeks.
Key clinical outcomes reported in the publication include:
1. Significantly decreased liver or spleen size in all subjects, with 8 of 10
subjects showing a normal liver size at 26 weeks and 52 weeks.
2. Reduced excretion of complex carbohydrates in the urine within 3-4 weeks,
reaching near normal excretions in 9 of 10 subjects.
3. Improved range of motion in the shoulder, as patients were able to raise
their right and left arms an average of 28 and 26 degrees higher than
before.
4. Clinically significant improvements in sleep apnea, with a 61 percent
reduction in night-time episodes of interrupted breathing (apnea or
hypopnea).
5. In the 6 prepubertal patients, height growth rate increased 85% and the
weight growth rate increased by 131%.
6. Improvements in physical function reported by all subjects by one class or
more using the four classes of the New York Heart Association functional
scoring system.
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In addition, study findings showed Aldurazyme therapy to be well tolerated in
all study subjects. Adverse events consisted primarily of allergic reactions
including rash in 5 subjects and facial and throat swelling in 3 subjects. These
allergic reactions were manageable with pre-medications and slower rates of
infusion. No neutralizing antibodies were reported.
In September 1998, we established a joint venture with Genzyme for the worldwide
development and commercialization of Aldurazyme. In collaboration with Genzyme,
we are conducting a randomized double-blind, placebo-controlled Phase III
clinical trial of Aldurazyme at five sites in the United States, Canada and
Europe. This pivotal trial began in December 2000 and is evaluating up to 45
MPS-I patients, for a period of six months; patient enrollment was completed in
March 2001. All patients will be dosed weekly, and will be evaluated using both
clinical and biochemical measures of efficacy. Primary clinical endpoints
include measures of pulmonary function and exercise tolerance. Secondary and
tertiary endpoints include both surrogate markers of efficacy as well as
additional measures of clinical benefit. We intend to file a Biologics License
Application (BLA) with the U.S. Food and Drug Administration (FDA) late in 2001,
pending the successful outcome of the Phase III Trial.
Aldurazyme has received fast track designation for the treatment of the more
severe forms of MPS-I. The FDA has granted Aldurazyme an orphan drug designation
giving us exclusive rights to market Aldurazyme to treat MPS-I for seven years
from the date of FDA approval if Aldurazyme is the first product to be approved
by the FDA for the treatment of MPS-I. In addition, the European Commission has
designated Aldurazyme for the treatment of MPS-I as an orphan medicinal product
in the European Community, giving us similar market exclusivity in Europe for 10
years.
MPS-I is a life-threatening genetic disease 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.
In August 2000, our Galli Drive manufacturing facility and a smaller clinical
manufacturing laboratory in our Bel Marin Keys Boulevard facility were both
subjected to an extensive inspection by the State of California Food and Drug
Branch and were granted licenses to produce clinical product. We are
manufacturing bulk Aldurazyme in our Galli Drive manufacturing facility in
compliance with current Good Manufacturing Practices (cGMP) regulations.
RhASB for MPS-VI
In October 2000, we initiated a clinical trial of recombinant human
N-acetylgalactosamine-4-sulfatase also known as arylsulfatase B or rhASB in
enzyme replacement therapy for MPS-VI; patient enrollment was completed in
February 2001. MPS-VI, also known as Maroteaux-Lamy syndrome, is similar in its
clinical symptoms to MPS-I. However, MPS-VI does not appear to have the central
nervous system involvement and mental retardation characteristics of the most
severe form of MPS-I. We are manufacturing clinical bulk rhASB in the Bel Marin
Keys Boulevard facility in compliance with cGMP regulations. RhASB has received
fast track and orphan drug designations by the FDA. In addition, the European
Commission has designated rhASB for the treatment of MPS-VI as an orphan
medicinal product in the European Community.
Vibriolysin for the debridement of serious burns
We have successfully conducted preclinical studies in two animal models of our
burn enzyme, Vibriolysin, for use in burn debridement (cleaning) in wound
preparation for skin grafting. We expect to submit an application to the FDA or
a foreign equivalent to begin a clinical trial for Vibriolysin by 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 specific tools that allow
cells to build up and break down many vital components. Carbohydrate-active
enzymes construct cleave, 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.
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Role of Carbohydrate-active Enzymes in Genetic Diseases
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 dozen to a few thousand people
in the United States. Examples of genetic diseases include Gaucher disease,
hemophilia and MPS diseases. Since there is not extensive literature regarding
these rare genetic diseases, we hired a market research 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 host 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 $537 million in 2000.
Business Strategy
Our business strategy is to develop therapeutic products to treat a variety of
diseases and conditions involving enzymes and/or carbohydrates. 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 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 May Be Developed Relatively Quickly. We are 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. If a
preliminary review of the clinical data suggests that the producte is
effective, the FDA may initiate review of sections of a license application
for a fast track product before teh application is complete. This rolling
review is available if the applicant provides a schedule for submission of
remaining information and pays applicable user fees. In September 1998, we
received from the FDA fast track designation for Aldurazyme for the
treatment of severe MPS-I. Similarly, in July 2000, we received fast track
designation for rhASB for the treatment of MPS-VI.
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 and European Commission for many of our products, providing us with
market exclusivity for our drug formulation for seven years in the United
States and ten years in Europe 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.
Products Under Development
Mucopolysaccharidosis Diseases
MPS diseases are seriously debilitating genetic diseases characterized by the
systemic accumulation of mucopolysaccharides, which are now better known as
glycosaminoglycans or GAGs. GAGs are complex carbohydrates synthesized by all
cells in the body and are needed to form the structure of tissues and to give
3
them special properties, like the resilience of cartilage. At least ten enzymes
are required for the complete breakdown in the cell of GAGs. The normal
breakdown of GAGs is incomplete or blocked if any one of these enzymes is not
present in sufficient quantity. The cell is then unable to excrete the
carbohydrate residues and they accumulate in the lysosomes of the cell.
Patients with MPS diseases are usually diagnosed by one to five years of age.
MPS diseases are progressive diseases that afflict patients from birth and that
frequently lead to severe disability and early death. During the course of the
disease, the build-up of GAGs results in one or more of the following symptoms:
o Inhibited growth
o Delay and regression of mental development
o Impaired vision and hearing
o Impaired cardiovascular and heart function especially heart valve
dysfunction
o Coarse facial features
o Upper airway obstruction and reduced pulmonary function
o Enlarged liver and spleen
o Joint deformities and reduced range of motion
o Sleep disorders
o Malaise and reduced endurance
MPS-I. MPS-I is a genetic disease 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 and require extensive medical care. Currently, the only
available treatment for MPS-I is a bone marrow transplant that is primarily
performed in youngm, more severely affected patients. However, many patients
cannot find an appropriate bone marrow donor. Of the patients that do find
appropriate donors, many choose not to receive a bone marrow transplant because
of its risks and serious side effects.
Aldurazyme. We are developing a specific form of recombinant, human
(alpha)-L-iduronidase, designated Aldurazyme, for the treatment of MPS-I.
Aldurazyme treats MPS-I by replacing a deficiency in (alpha)-L-iduronidase
caused by genetic defects. 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 of mannose-6-phosphate structures on the enzyme is essential to ensure
efficient uptake of the enzyme by the cells and enable 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
Aldurazyme with the proper structure and purity.
In April 1999, we completed a twelve-month evaluation period for our initial
clinical trial of Aldurazyme. Initiated in December 1997, this clinical trial
treated ten patients with MPS-I at six medical centers in the United States. We
continue to treat and monitor eight of these ten patients according to an
extension protocol. Patients are treated with a slow intravenous infusion of
Aldurazyme once a week at a dose of 100 units per kilogram of patient weight.
(The activity of the product used in the pre-clinical and early clinical studies
was defined at 125,000 units/ml. Due to a subsequent optimization and validation
of the product activity assay, the same product activity is now defined at 100
units/ml. This change does not represent a change in either the actual dose or
the formulation of the product, merely a change in assay conditions and activity
definition.)
The primary endpoints set forth in the investigational new drug application for
Aldurazyme 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 exhibits 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, in which
no improvement was expected due to the short duration of the trial, most
4
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
Aldurazyme. 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
Aldurazyme, 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 as can be determined at this time. Neither
clinical nor laboratory evaluations showed any harmful effect of Aldurazyme
therapy.
At 103 weeks of therapy, a seven year old patient in the initial trial died
suddenly of a respiratory arrest due to a systemic viral illness associated with
significant pulmonary and cardiac infection. The death took place during an
airplane flight. The contribution of altitude and altered oxygenation to her
demise is unclear. The principal investigator believes the event was unrelated
to treatment with Aldurazyme and at this time we concur. A second patient in the
study died after 2 1/2 years of therapy due to a complication following surgery
for a pre-existing MPS-I related skeletal problem.
In collaboration with Genzyme, we initiated a Phase III clinical trial of
Aldurazyme in December 2000 with the intention to file a BLA with the FDA late
in 2001, pending the successful outcome of the Phase III Trial.
The joint venture plans to continue assessment of the efficacy of treatment with
Aldurazyme in this Phase III trial. The parameters for this clinical study are
expected to include:
o Pulmonary function (Forced Vital Capacity (FVC-1), a measure of lung
capacity)
o A 6-minute walk test (a test of overall physical function)
Secondary parameters will include:
o Functional ability assessment questionnaire
o Hepatomegaly (enlargement of the liver)
o Sleep apnea
o Urinary GAGs
Tertiary parameters will include:
o Joint range of motion
o Patient's quality of life
o Growth velocity
o Visual acuity
o Electrocardiogram and echocardiogram (cardiac function)
o Other pulmonary function testing
o Investigator global assessment
o Parents' quality of life
The FDA designated Aldurazyme a fast track product for the treatment of severe
MPS-I. 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 Aldurazyme, which may
delay approval and subsequent commercial sales. See "Factors That May Affect
Future Results--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
Aldurazyme would be delayed."
The joint venture intends to investigate the safety of Aldurazyme in patients
with severe MPS-I. An initial trial to confirm safety in this patient population
is expected to begin in 2001. This information is intended to be available
during the BLA review with the FDA.
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MPS-VI. MPS-VI, also known as Maroteaux-Lamy syndrome, is a genetic disease
caused by a deficiency of the enzyme N-acetylgalactosamine 4-sulfatase (also
known as arylsulfatase B). Estimates from disease frequency studies indicate
that there are approximately 1,100 patients suffering with MPS-VI in the
developed world of which approximately 340 are 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 the teenage years in the
severe form to over 30 years in the mild form. MPS-VI has been treated by bone
marrow transplants. However, many patients do not 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 risks and side effects.
rhASB. We are developing recombinant, human N-acetylgalactosamine 4-sulfatase or
rhASB, for the treatment of MPS-VI. We believe that rhASB will treat MPS-VI by
replacing a deficiency in the enzyme N-acetylgalactosamine 4-sulfatase.
From 1994 through 2000, preclinical studies of rhASB were conducted on cats with
naturally occurring feline MPS-VI. Cats with feline MPS-VI have physiological
characteristics and clinical symptoms similar to those exhibited by humans with
MPS-VI. RhASB was shown to be well tolerated for at least six months in three
cat studies of rhASB in feline MPS-VI. Additionally, biochemical activity was
confirmed as a significant reduction in stored carbohydrate material (GAG's) was
observed in the cats' major organ systems and peripheral circulation. Clinical
benefit was also shown in the cats' skeletal and neurological systems. These
studies were summarized in the rhASB investigational new drug application.
We are continuing to develop improved production and purification processes for
rhASB for the clinical and commercial manufacturing processes. RhASB has
received fast track and orphan drug designations from the FDA. In addition, the
European Commission has designated rhASB for the treatment of MPS-VI as an
orphan medicinal product in the European Community. An investigational new drug
application was filed with the FDA and a Phase I clinical trial for the use of
rhASB at two dose levels to treat MPS-VI in six patients began in October 2000.
Patient enrollment in this trial was completed in February 2001, and initial
clinical results from this trial should be available in September 2001.
Other Diseases And Conditions
Burn Debridement
In 1997, approximately 65,000 patients in the United States were admitted to
hospitals with serious 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 treating burn patients because the products either act too slowly
and are ineffective, or act indiscriminately on both dead and living skin
causing the patient intolerable pain.
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.
Based on discussions with general wound specialists, we believe that if the
products successfully debride full-thickness burns, they have the potential to
effectively debride partial thickness burns and other types of wounds as well.
Vibriolysin.
Vibriolysin is an enzyme from a marine bacterium that acts preferentially on
denatured (unfolded) proteins and was discovered by scientists at W.R. Grace &
Co. Upon review of the data from preclinical studies that were conducted by W.R.
Grace, in May 1998 we obtained a three-year option to obtain an exclusive
license to Vibriolysin. In January 2001, we notified W.R. Grace that we were
exercising that option and we are currently in negotiations to finalize this
agreement. In preclinical studies supported by W.R. Grace, Vibriolysin was shown
to safely debride full-thickness burns in pigs, and accelerate wound healing in
less severe burn lesions. In studies sponsored by us and conducted at UCSD and
Vanderbilt, the ability of Vibriolysin to debride full-thickness burns was
confirmed in mice, rats and pigs. Tests to apply skin grafts to burns debrided
by Vibriolysin were successful in mice and pigs (tests in rats were not
attempted). Based on the successful completion of appropriate toxicology and
pharmacokinetic studies, the Company expects to initiate a clinical trial in
2001 pending regulatory submission and approval in the US or Europe.
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Other Research and Development
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. Due to the known biologic
mechanism of proposed enzyme replacement therapies, we believe that the human
clinical trials for future genetic diseases may be similar to those for MPS-I.
We are applying a portion of our research and development efforts on enzymes for
the treatment of other non-genetic disease conditions where the biology of the
disease is well understood and therefore the potential therapeutic value of
these types of enzymes can be assessed. This would include diseases currently
without effective therapies where we can leverage our core competence and
technology to move quickly through preclinical development and into clinical
trials.
Carbohydrate Analysis, Products and Services
Glyko, Inc., our wholly-owned subsidiary, sells carbohydrate analytical 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.
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 diseases. 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 and in urine. 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 in May of
1999. This business adds a product line of chromatography columns and
disposables as well as additional reagents and enzymes to the current technology
offered by Glyko, Inc. As of March 2001, Glyko, Inc. markets 17 kits, 63
enzymes, 110 carbohydrate standards, as well as HPLC columns, miscellaneous
reagents, analytical and diagnostic services.
7
Manufacturing
The drug candidates we are currently developing require the manufacture of
recombinant enzymes. For our genetic disease programs, we expect to manufacture
the bulk 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 Aldurazyme for clinical
requirements including the Phase III clinical trial and other clinical studies.
The bulk production is being done in our Galli Drive (Novato, California)
manufacturing facility. Galli is a 32,800 square foot cGMP production facility
including support areas housing utilities, laboratories and administrative
functions. We expect to support the commercial launch of Aldurazyme from this
facility. Vialing and packaging will be performed using contract manufacturing.
We are developing additional manufacturing capacity to support commercial sales
of Aldurazyme, rhASB or other genetic diseases enzymes. We intend to complete
this phase of development in 2001 by selective additions to certain support
activities in our Galli Drive manufacturing facility.
In 2000, the manufacturing facilities in Novato were inspected and subsequently
licensed by the State of California Food and Drug Branch for the production of
clinical trial material. These facilities will be inspected by the FDA or other
regulatory agencies after the filing of a BLA or other marketing application.
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.
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 Aldurazyme for the treatment of MPS-I. Under the joint
venture, Genzyme will be responsible for marketing, distribution, sales and
obtaining reimbursement of Aldurazyme 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. In many
cases, 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 or for countries where the development of an
infrastructure is not economically attractive.
Sales and Marketing of Carbohydrate Analytical 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 70% of Glyko, Inc.'s revenues
in 2000. Glyko, Inc. has established a network of distributors to expand its
coverage in the analytical products market. Glyko, Inc. has relationships 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 (OEM). 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 2000. The remaining 19% of Glyko, Inc.'s
revenues are from OEM sales. Services provided to BioMarin accounted for
approximately 20% of Glyko, Inc.'s overall revenue in 2000.
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
8
We may obtain licenses to patents and patent applications from others.
We have thirteen patent applications presently pending in the United States
Patent and Trademark Office. We have filed six 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 twelve issued U.S. patents. In addition, Glyko, Inc. has
licensed four 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.
Government Regulation
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 Aldurazyme 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 Aldurazyme
or any of our other potential products.
Orphan Drug Designation. In September 1997, Aldurazyme received orphan drug
designation from the FDA. In February 1999, rhASB 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. A similar system for orphan drug designation exists in the
European Community. Both Aldurazyme and rhASB received designation as orphan
medicinal products by the European Commission in February 2001. In Europe this
designation allows for 10 years of market exclusivity.
Orphan drug designation does not shorten the regulatory review and approval
process for an orphan drug, nor does it give that drug any advantage in the
regulatory review and approval process. If an orphan drug later receives
approval for the indication for which it has designation, the relevant
regulatory authority 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 approval to market a product with orphan drug
exclusivity may be advantageous, we cannot be certain that we will be the first
to obtain 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 relevant regulatory
authority.
Competition
Pharmaceutical Products. The biopharmaceutical industry is rapidly evolving and
highly competitive. The following is a summary competitive analysis for known
competitive threats for each of our major biopharmaceutical product programs:
9
Aldurazyme for MPS-I. On November 21, 2000, Transkaryotic Therapies, Inc. (TKTX)
announced that a US patent on (alpha)-L-iduronidase had been issued and that
this patent had been exclusively licensed to TKTX. We have examined the patent,
the patent file, the prior art and other factors. Our assessment is that there
is reason to believe that the patent may not survive a challenge. However, the
processes of patent law are uncertain and any patent proceeding is subject to
multiple unanticipated outcomes. We believe that it is in the best interests of
our joint venture with Genzyme to pursue the development of Aldurazyme with
commercial diligence, concurrent with our challenge of the patent, in order to
gain marketing approvals as rapidly as possible and to provide MPS-I patients
with the benefits of Aldurazyme. If the patent is valid, the joint venture will
need to reach an accommodation with the holder of the license to the patent.
This patent does not affect our ability to market Aldurazyme in Europe or Japan,
both major pharmaceutical markets. A patent making the same claims was rejected
by the European Community and cannot be refiled.
A small private company has announced that it has novel enzymatic technology to
make enzymes with proper glycosylation and phosphorylation. The proper
carbohydrate and phosphate structural elements of the enzyme are essential to
facilitate uptake of the enzyme by the patient's cells to have efficient enzyme
replacement therapy. This company has stated an intention to begin clinical
trials of its enzyme for MPS-I in 2001. BioMarin's preclinical analysis
indicates that Aldurazyme is highly efficient in being taken up by cells during
enzyme replacement therapy as a result of the proper mannose-6-phosphate ligands
(glycosylation and phosphorylation) on the enzyme. We do not have any
comparative data to assess directly the relative potential therapeutic qualities
of Aldurazyme and the other enzyme.
RhASB for MPS-VI. We know of no active competitive program for enzyme
replacement therapy for MPS-VI that has entered clinical trials.
Gene therapy is a potential competitive threat to enzyme replacement therapies
for both MPS-I and MPS-VI. We know of no competitive program using gene therapy
for the treatment of either MPS-I or MPS-VI that has entered clinical trials.
Vibriolysin for debridement of serious burns. Other enzymatic products exist
which might be possibly used for the debridement of serious second or third
degree burns. Those products in their current form have not captured any
meaningful share of the debridement function in the treatment of burn patients.
We know of no clinical program of a new enzymatic product for the debridement of
serious burns. The primary competition for Vibriolysin continues to be surgical
debridement.
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 of the
molecular weight of a sample.
o One competitive technology can provide more complete structural information
about the sample.
The acquisition of the Oxford GlycoSciences reagents business has given Glyko,
Inc. the ability to compete directly with companies with expertise in HPLC
technologies. 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
10
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 "Factors that May Affect Future
Results--If we fail to compete successfully, our revenues and operating results
will be adversely affected."
Employees
As of March 9, 2001, we had 174 full-time employees, 100 of whom are in
manufacturing, 51 of whom are in research and development, 5 of whom are in
sales and marketing of the Glyko, Inc. products 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.
11
FACTORS THAT MAY AFFECT FUTURE RESULTS
An investment in our common stock involves a high degree of risk. We
operate in a dynamic and rapidly changing industry that involves numerous risks
and uncertainties. The risks and uncertainties described below are not the only
ones we face. Other risks and uncertainties, including those that we do not
currently consider material, may impair our business. If any of the risks
discussed below actually occur, our business, financial condition, operating
results or cash flows could be materially adversely affected. This could cause
the trading price of our common stock to decline, and you may lose all or part
of your investment.
If we continue to incur operating losses for a period longer than anticipated,
we may be unable to continue our operations at planned levels and be forced to
reduce or discontinue 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, 2000, we had an accumulated deficit of
approximately $80.5 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 continuing 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 its products and services 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 some or all of 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:
Research and development programs
Preclinical studies and clinical trials
Process development, including quality systems for product manufacture
Regulatory processes in the United States and international jurisdictions
Commercial scale manufacturing capabilities
Expansion of sales and marketing activities
The amount of capital we will need depends on many factors, including:
The progress, timing and scope of our research and development programs
The progress, timing and scope of our preclinical studies and clinical
trials
The time and cost necessary to obtain regulatory approvals
The time and cost necessary to develop commercial processes, including
quality systems
The time and cost necessary to build our manufacturing facilities and
obtain the necessary regulatory approvals for those facilities
The time and cost necessary to respond to technological and market
developments
Any changes made or new developments in our existing collaborative,
licensing and other commercial relationships
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:
12
Additional leases for new facilities and capital equipment
Additional licenses and collaborative agreements
Additional contracts for consulting, maintenance and administrative
services
Additional contracts for product manufacturing
We believe that the cash, cash equivalents and short-term investment securities
balances at December 31, 2000 will be sufficient to meet our operating and
capital requirements through 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 before marketing or selling our drug products
in the U.S. and in foreign jurisdictions. 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 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 will 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 regulatory approval process, we must conduct, at our own expense,
preclinical studies in the laboratory on animals, and clinical trials on humans
for each drug candidate. We expect the number of preclinical studies and
clinical trials that the regulatory authorities 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
significantly different.
After we have conducted preclinical studies in animals, we must demonstrate that
our drug products are safe and efficacious 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:
Slow patient enrollment
Longer treatment time required to demonstrate efficacy
Lack of sufficient supplies of the drug candidate
Adverse medical events or side effects in treated patients
Lack of effectiveness of the drug candidate being tested
Regulatory requests for additional clinical trials
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 can range
from six months to three years or more. 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, fewer clinical trials may be
sufficient to prove safety and efficacy under the FDA's Modernization Act of
1997.
13
In April 1999, we completed a twelve-month patient evaluation for the initial
clinical trial of our lead drug product, Aldurazyme, for the treatment of MPS-I.
The results were presented at the American Society for Human Genetics in October
1999. We continue to collect data from the ongoing treatment of these original
patients. The initial clinical trial treated ten patients with MPS-I at six
medical centers in the United States. Two of the original ten patients enrolled
in the first clinical trial of Aldurazyme died in 2000. Based on medical data
collected from clinical investigative sites, neither case directly implicated
treatment with Aldurazyme as the cause of death. The data suggest that one
patient died due to a combination of systemic viral illness, residual MPS I
coronary disease, and external factors. This patient had received 103 weeks of
Aldurazyme administration. For the other patient, the data suggest that the
patient died due to complications following posterior spinal fusion for
scoliosis. This patient had received 127 weeks of Aldurazyme administration.
The fast track designation for our product candidates may not actually lead to a
faster review process.
Although Aldurazyme and rhASB have 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 commercial manufacture of 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. Our Galli Drive and our Bel Marin Keys Boulevard manufacturing
facilities have been inspected and licensed by the State of California for
clinical pharmaceutical manufacture. We cannot guarantee that these facilities
will pass federal or international regulatory inspection. We cannot guarantee
that we, or any potential third-party manufacturer of our drug products, will be
able to comply with cGMP regulations.
We must pass Federal, state and European regulatory inspections, and we must
manufacture three process qualification batches (five process qualification
batches for Europe) to final specifications under cGMP controls before the
Aldurazyme marketing applications can be approved. We cannot ensure that we will
manufacture the process qualification batches or 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 and European Community 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 in the United States. 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. Similar regulations are available in the European Community with a
ten-year period of market exclusivity.
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 our drug products, which do not
have patent protection, our competitors may then sell the same drug to treat the
same condition.
We received orphan drug designation from the FDA for Aldurazyme in September
1997. In February 1999, we received orphan drug designation from the FDA for
rhASB for the treatment of MPS-VI. In February 2001 we received orphan drug
designation from the European Community for both products. 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 neither shortens the development time or regulatory review time of a
drug so designated nor gives the drug any advantage in the regulatory 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.
14
Our initial drug candidates target diseases with small patient populations. As
a result, our per patient prices must be high enough to recover our development
costs and achieve profitability. For example, two of our initial drug products
in genetic diseases, Aldurazyme and rhASB, 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 burn wounds, 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 Aldurazyme is expected to
be expensive. We expect patients to need treatment throughout their lifetimes.
We expect that most families of patients will not be capable of paying for this
treatment themselves. There will be no commercially viable market for Aldurazyme
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 or to justify our product
development expenses.
We currently have no expertise obtaining reimbursement. We expect to rely on the
expertise of our joint venture partner Genzyme to obtain reimbursement for the
costs of Aldurazyme. 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 Aldurazyme and rhASB. If we must spend
significant time and money protecting our patents, designing around patents held
by others or licensing, for large fees, patents or other proprietary rights held
by others, our business and financial prospects may be harmed.
The patent positions of biotechnology products are 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 Aldurazyme and rhASB,
have been published and are believed to be 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 to provide
us a competitive advantage.
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:
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.
15
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, was not novel or was obvious. As a Company, we have no meaningful
experience with competitors interfering with our patents or patent applications.
Enforcing patents is expensive and may absorb significant time of 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.
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.
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:
Defending a lawsuit takes significant time and can be very expensive.
If the court decides that our product infringes on the competitor's patent, we
may have to pay substantial damages for past infringement.
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.
Redesigning our product so it does not infringe may not be possible or 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.
The United States Patent and Trademark Office recently issued a patent that
related to (alpha)-L-iduronidase. If Aldurazyme infringes on this patent and we
are not able to successfully challenge it, we may be prevented from producing
Aldurazyme unless and until we obtain a license.
The United States Patent and Trademark Office recently issued a patent that
includes claims related to (alpha)-L-iduronidase. Our lead drug product,
Aldurazyme, may infringe on this patent. We believe that this patent is invalid
on a number of grounds. A patent making the same claims was filed in Europe and
has been rejected and cannot be refiled. Our challenges to the U.S. patent may
be unsuccessful, but the rejection of the European application supports our
strategy to challenge the validity of the U.S. patent. Even if we are
successful, challenging the patent may be expensive, require our management to
devote significant time to this effort and may delay commercialization of our
product in the United States.
The patent holder has granted an exclusive license for products relating to this
patent to one of our competitors. If we are unable to successfully challenge the
patent, we may be unable to produce Aldurazyme in the United States unless we
can obtain a sub-license from the current licensee. The current licensee is not
required to grant us a license and even if a license is available, we may have
to pay substantial license fees, which could adversely affect our business and
operating results.
16
If our joint venture with Genzyme were terminated, we could be barred from
commercializing Aldurazyme or our ability to commercialize Aldurazyme would be
delayed or diminished.
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 disease, to the marketing of our initial drug product, Aldurazyme.
Because it is our initial product, our operations are substantially dependent
upon the development of Aldurazyme. 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 Aldurazyme. 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.
Furthermore, we may terminate the joint venture if Genzyme fails to fulfill its
contractual obligation to pay us $12.1 million in cash upon the approval of the
BLA for Aldurazyme.
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 Aldurazyme and any related intellectual
property and regulatory approvals.
If the joint venture is terminated by Genzyme for a breach on our part, Genzyme
would be granted, exclusively, all of the rights to Aldurazyme 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 Aldurazyme. 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 Aldurazyme
exclusively. While we could then continue to develop Aldurazyme, that
development would be slowed because we would have to divert substantial capital
to buy out Genzyme's interest in the joint venture. We would then either have to
search for a new partner to commercialize the product and to obtain foreign
regulatory approvals or have 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 Aldurazyme 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 Aldurazyme 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 BLA for Aldurazyme, we would be
obligated to buy Genzyme's interest in the joint venture and would obtain all
rights to Aldurazyme 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 Aldurazyme 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 Aldurazyme.
If we were obligated, or given the option, to buy out Genzyme's interest in the
joint venture, and gain exclusive rights to Aldurazyme, we may not have
sufficient funds to do so and we may not 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 Aldurazyme 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 in which we retain the rights to Aldurazyme
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 or have reduced margins.
17
With the exception of Aldurazyme, we have no experience manufacturing drug
products in volumes that will be necessary to support commercial sales. Our
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 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.
Although we have successfully manufactured Aldurazyme at commercial scale within
our cost parameters, we cannot guarantee that we will be able to manufacture
rhASB, Vibriolysin or any future product candidates successfully in a scale
large enough to support their respective commercial markets.
We may encounter problems with any of the following if we attempt to increase
the scale or size of manufacturing:
Design, construction and qualification of manufacturing facilities that
meet regulatory requirements
Production yields
Purity
Quality control and assurance systems
Shortages of qualified personnel
Compliance with regulatory requirements
We have constructed and built-out a total of 41,200 square feet at our Novato
facilities for manufacturing capability for Aldurazyme and rhASB. We expect to
expand the Galli Drive facility in stages over time, which creates additional
operational complexity and challenges. We expect that the manufacturing process
of all of our new products, including rhASB, will require lengthy significant
time and resources before we can begin to manufacture them (or have them
manufactured by third parties) in commercial quantity. Even if we can establish
the necessary capacity, we cannot be certain that manufacturing costs will be
commercially reasonable, especially if third-party reimbursement is
substantially lower than expected.
In order to achieve our product cost targets we must develop efficient
manufacturing processes either by:
Improving the product yield from our current cell lines, colonies of cells
which have a common genetic make-up,
Improving the processes licensed from others, or
Developing more efficient, lower cost recombinant cell lines and production
processes.
A recombinant cell line is a cell line with foreign DNA inserted which is used
to produce a protein that it would not have otherwise produced. The development
of a stable, high production cell line for any given enzyme is risky, expensive
and unpredictable and may not result in adequate yields. In addition, the
development of protein purification processes is difficult and may not produce
the high purity required with acceptable yield and costs or may not result in
adequate shelf-lives of the final products. If we are not able to develop
efficient manufacturing processes, the investment in manufacturing capacity
sufficient to satisfy market demand will be much greater and will place heavy
financial demands upon us. If we do not achieve our manufacturing cost targets,
we will have lower margins and reduced profitability in commercial production
and larger losses in manufacturing start-up phases.
If we are unable to increase our marketing and distribution capabilities or to
enter into agreements with third parties to do so, our ability to generate
revenues will be diminished.
If we cannot increase our marketing capabilities either by developing our sales
and marketing organization or by entering into agreements with others, we may be
unable to successfully sell our products. If we are unable to effectively sell
our drug products, our ability to generate revenues will be diminished.
To increase our distribution and marketing for both our drug candidates and our
Glyko, Inc. products, we will have to increase our current sales force and/or
enter into third-party marketing and distribution agreements. We cannot
guarantee that we will be able to hire in a timely manner, the qualified sales
and marketing personnel we need, if at all. Nor can we guarantee that we will be
able to enter into any marketing or distribution agreements on acceptable terms,
if at all. If we cannot increase our marketing capabilities as we intend, either
by increasing our sales force or entering into agreements with third parties,
sales of our products may be adversely affected.
18
Under our joint venture with Genzyme, Genzyme is responsible for marketing and
distributing Aldurazyme. We cannot guarantee that we will be able to establish
sales and distribution capabilities or that the joint venture, any future
collaborators or we will successfully sell any of our drug candidates.
If we fail to compete successfully, our revenues and operating results will be
adversely affected.
Our competitors may develop, manufacture and market products that are more
effective or less expensive than ours. They may also obtain regulatory approvals
for their products faster than we can obtain them, including those products with
orphan drug designation, or commercialize their products before we do. If our
competitors successfully commercialize a product, which treats a given rare
genetic disease before we do, we will effectively be precluded from developing a
product to treat that disease because the patient populations of the rare
genetic diseases are so small. If our competitor gets orphan drug exclusivity,
we could be precluded from marketing our version for seven years. However,
different drugs can be approved for the same condition. These companies also
compete with us to attract qualified personnel and organizations for
acquisitions, joint ventures or other collaborations. They also compete with us
to attract academic research institutions as partners and to license these
institutions' proprietary technology. If our competitors successfully enter into
partnering arrangements or license agreements with academic research
institutions, we will then be precluded from pursuing those specific
opportunities. Since each of these opportunities is unique, we may not be able
to find a substitute. Several pharmaceutical and biotechnology companies have
already established themselves in the field of enzyme therapeutics, including
Genzyme, our joint venture partner. These companies have already begun many drug
development programs, some of which may target diseases that we are also
targeting, and have already entered into partnering and licensing arrangements
with academic research institutions, reducing the pool of available
opportunities.
Universities and public and private research institutions are also competitors.
While these organizations primarily have educational or basic research
objectives, they may develop proprietary technology and acquire patents that we
may need for the 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 established technologies provided by other companies, such as
laboratory and testing services firms, compete with Glyko, Inc.'s products and
services. For example, Glyko's FACE(R) Imaging System competes with alternative
carbohydrate analytical technologies, including capillary electrophoresis,
high-pressure liquid chromatography, mass spectrometry and nuclear magnetic
resonance spectrometry. These competitive technologies have established customer
bases and are more widely used and accepted by scientific and technical
personnel because they can be used for non-carbohydrate applications. Companies
competing with Glyko may have greater financial, manufacturing and marketing
resources and experience.
If we fail to manage our growth or fail to recruit and retain personnel, our
product development programs may be delayed.
Our rapid growth has strained our managerial, operational, financial and other
resources. We expect this growth to continue. We have entered into a joint
venture with Genzyme. If we receive FDA approval to market Aldurazyme, the joint
venture will be required to devote additional resources to support the
commercialization of Aldurazyme.
To manage expansion effectively, we need to continue to develop and improve our
research and development capabilities, manufacturing and quality capacities,
sales and marketing capabilities and financial and administrative systems. We
cannot guarantee that our staff, financial resources, systems, procedures or
controls will be adequate to support our operations or that our management will
be able to manage successfully future market opportunities or our relationships
with customers and other third parties.
Our future growth and success depend on our ability to recruit, retain, manage
and motivate our employees. The loss of key scientific, technical and managerial
personnel may delay or otherwise harm our product development programs. Any harm
to our research and development programs would harm our business and prospects.
Because of the specialized scientific and managerial nature of our business, we
rely heavily on our ability to attract and retain qualified scientific,
technical and managerial personnel. In particular, the loss of Fredric D. Price,
our Chairman and Chief Executive Officer, or Christopher M. Starr, Ph.D., our
Vice President for Research and Development, could be detrimental to us if we
cannot recruit suitable replacements in a timely manner. While Mr. Price and Dr.
Starr are parties to employment agreements with us, we cannot guarantee that
they will remain employed with us in the future. In addition, these agreements
do not restrict their ability to compete with us after their employment is
terminated. The competition for qualified personnel in the biopharmaceutical
field is intense. We cannot be certain that we will continue to attract and
retain qualified personnel necessary for the development of our business.
19
If product liability lawsuits are successfully brought against us, we may incur
substantial liabilities.
We are exposed to the potential product liability risks inherent in the testing,
manufacturing and marketing of human pharmaceuticals. The BioMarin/Genzyme LLC
maintains product liability insurance for our clinical trials of Aldurazyme. We
have obtained insurance against product liability lawsuits for the clinical
trials for rhASB. We may be subject to claims in connection with our current
clinical trials for Aldurazyme and rhASB for which the joint venture's or our
insurance coverages are not adequate. We cannot be certain that if Aldurazyme
receives FDA approval, the product liability insurance the joint venture will
need to obtain in connection with the commercial sales of Aldurazyme will be
available in meaningful amounts or at a reasonable cost. In addition, we cannot
be certain that we can successfully defend any product liability lawsuit brought
against us. If we are the subject of a successful product liability claim which
exceeds the limits of any insurance coverage we may obtain, we may incur
substantial liabilities which would adversely affect our earnings and financial
condition.
Our stock price may be volatile and an investment in our stock could suffer a
decline in value.
Our valuation and stock price since the beginning of trading after our initial
public offering have had no meaningful relationship to current or historical
earnings, asset values, book value or many other criteria based on conventional
measures of stock value. The market price of our common stock will fluctuate due
to factors including:
Progress of Aldurazyme and our other lead drug products through the
regulatory process, especially Aldurazyme regulatory actions in the
United States
Results of clinical trials, announcements of technological innovations or
new products by us or our competitors
Government regulatory action affecting our drug candidates or our
competitors' drug candidates in both the United States and foreign
countries Developments or disputes concerning patent or proprietary rights
General market conditions for emerging growth and biopharmaceutical
companies
Economic conditions in the United States or abroad
Actual or anticipated fluctuations in our operating results
Broad market fluctuations in the United States or in Europe may cause the
market price of our common stock to fluctuate
Changes in company assessments or financial estimates by securities
analysts
In addition, the value of our common stock may fluctuate because it is listed on
both the Nasdaq National Market and the Swiss Exchange's SWX New Market. Listing
on both exchanges may increase stock price volatility due to:
Trading in different time zones
Different ability to buy or sell our stock
Different market conditions in different capital markets
Different trading volume
In the past, following periods of large price declines in the public market
price of a company's securities, securities class action litigation has often
been initiated against that company. Litigation of this type could result in
substantial costs and diversion of management's attention and resources, which
would hurt our business. Any adverse determination in litigation could also
subject us to significant liabilities.
If our officers, directors and largest stockholder elect to act together, they
may be able to control our management and operations, acting in their best
interests and not necessarily those of other stockholders.
Our directors and officers control approximately 46% of the outstanding shares
of our common stock. Glyko Biomedical Ltd. owns 31% of the outstanding shares of
our capital stock. The president and chief executive officer of Glyko Biomedical
and a significant shareholder of Glyko Biomedical serve as two of our directors.
As a result, due to their concentration of stock ownership, directors and
officers, if they act together, may be able to control our management and
operations, and may be able to prevail on all matters requiring a stockholder
vote including:
20
The election of all directors;
The amendment of charter documents or the approval of a merger, sale of
assets or other major corporate transactions; and
The defeat of any non-negotiated takeover attempt that might otherwise
benefit the public stockholders.
Anti-takeover provisions in our charter documents and under Delaware law may
make an acquisition of us, which may be beneficial to our stockholders, more
difficult.
We are incorporated in Delaware. Certain anti-takeover provisions of Delaware
law and our charter documents as currently in effect may make a change in
control of our company more difficult, even if a change in control would be
beneficial to the stockholders. Our anti-takeover provisions include provisions
in the certificate of incorporation providing that stockholders' meetings may
only be called by the board of directors and a provision in the bylaws providing
that the stockholders may not take action by written consent. Additionally, our
board of directors has the authority to issue 1,000,000 shares of preferred
stock and to determine the terms of those shares of stock without any further
action by the stockholders. The rights of holders of our common stock are
subject to the rights of the holders of any preferred stock that may be issued.
The issuance of preferred stock could make it more difficult for a third party
to acquire a majority of our outstanding voting stock. Delaware law also
prohibits corporations from engaging in a business combination with any holders
of 15% or more of their capital stock until the holder has held the stock for
three years unless, among other possibilities, the board of directors approves
the transaction. Our board of directors may use these provisions to prevent
changes in the management and control of our company. Also, under applicable
Delaware law, our board of directors may adopt additional anti-takeover measures
in the future.
Item 2. Properties
We are currently leasing a total of six buildings. Four of our buildings are
located in Novato, California, each within a half-mile radius. The four
buildings, each named for the streets on which they are located, are:
o Bel Marin Keys facility
o Galli Drive facility
o Pimentel Court facility
o Digital Drive facility
The fifth and sixth buildings, collectively the Carson Street facility, are
located in Torrance, California.
The Bel Marin Keys facility houses administrative staff and a clinical
production laboratory. It consists of approximately 13,400 square feet. The
lease expires in May 2001. We have an option to extend the lease for up to two
additional three-year periods.
The Galli Drive facility consists of approximately 69,800 rentable square feet.
It currently houses research and development laboratories, storage and warehouse
functions, administrative offices, and our Aldurazyme manufacturing facility.
The lease expires in August 2010 and has the option to extend for two additional
five-year periods.
The Pimentel Court facility, with approximately 11,500 square feet, houses the
manufacturing, research and administrative operations of Glyko, Inc. The lease
expires in April 2003 and has options for two 2-year extensions.
The Digital Drive facility, 34,000 rentable square feet, is planned to house
research and process development functions. The building shell has been
completed. Development of internal laboratory space is on hold until at least
2002. When fully developed, it will consist of approximately 42,000 square feet.
The lease expires in November 2009.
The Carson Street facility housed our initial commercial manufacturing operation
for Aldurazyme. During the first quarter of 2000, the Company decided to close
its Carson Street clinical manufacturing facility. The facility was no longer
21
required for the production of Aldurazyme, the initial purpose of the plant,
after a decision by the BioMarin/Genzyme LLC (joint venture) to use the
Company's Galli Drive facility for the manufacture of bulk Aldurazyme both for
the Phase III trial and for the commercial launch of Aldurazyme. This decision
was based in part on FDA guidance to use an improved production process, which
was installed in the Galli Drive facility, for the clinical trial, the BLA
submission and for commercial production. The majority of the Company's
technical staff at the Carson Street facility in Torrance, California
transferred to the Galli Drive facility in Novato, California in May. In 2000,
we were able to sub-lease the office facilities in Torrance, but have not
subleased the main manufacturing facility in which the lease expires in June
2001.
Our administrative office space is expected to be adequate until mid-2002. Our
Aldurazyme production facilities' capacity may have to be supplemented beginning
in 2004 if the MPS-I market penetration rates are such that the output from the
plant would be less than the market demand. Based on the timelines for other
genetic diseases such as MPS-VI, manufacturing capacity for these products will
have to be developed or purchased from third parties for production of clinical
materials, beginning in 2002. We plan to use contract manufacturing when
appropriate to provide product for both clinical and commercial requirements
until such time as we believe it prudent to develop in-house manufacturing
capability.
Item 3. Legal Proceedings
We have no material legal proceedings pending.
Item 4. Submission of Matters to a Vote of Security-Holders
No matters were submitted to a vote of our security holders during the quarter
ended December 31, 2000.
22
Part II
Item 5. Market For Common Equity and Related Stockholder Matters
As of July 1999, our common stock has been listed on the Nasdaq National Market
and the Swiss New Market SWX under the symbol "BMRN". The following table sets
forth the closing sales prices for the our common stock for the periods noted,
as reported by Nasdaq National Market.
Prices
Year Period High Low
1999 Third Quarter (beginning July 22) $18.75 $11.625
1999 Fourth Quarter $17.00 $11.625
2000 First Quarter $38.75 $12.75
2000 Second Quarter $27.75 $16.75
2000 Third Quarter $21.75 $16.375
2000 Fourth Quarter $17.62 $7.15625
On March 9, 2001, the last reported sale price on the Nasdaq National Market for
our common stock was $9.50. We have never paid any cash dividends on our common
stock and we do not anticipate paying cash dividends in the foreseeable future.
Holders
As of March 9, 2001, there were 64 holders of record of 37,115,610 outstanding
shares of our common stock. Additionally, on such date options to acquire
6,463,061 shares of our common stock were outstanding.
Unregistered Securities
In October 2000, we issued 801,500 shares of common stock to Bank Vontobel AG
pursuant to the exercise of common stock warrants issued on various dates in
1997. In connection with the exercise of the warrants, we received total
consideration of $801,500. The shares were issued pursuant to an exemption from
registration under Regulation S of the Securities Act of 1933, as amended. The
shares were appropriately legended to reflect the restrictions required by
Regulation S and we have the right to refuse to register any transfer not made
in accordance with Regulation S.
In February 2001, we issued 25,000 shares of common stock to Fredric Price, the
Company's Chief Executive Officer and Chairman of the Board, pursuant to his
employment agreement with the Company. The shares were issued pursuant to an
exemption from registration under Section 4(2) of the Securities Act of 1933, as
amended and Rule 701 under the Securities Act. The shares are appropriately
legended to indicate that the shares may not be resold unless registered under
the Securities Act or an exemption from registration is available for such sale.
Item 6. Selected consolidated financial data (in thousands, except per share
data)
The selected consolidated balance sheet data of BioMarin Pharmaceutical Inc. (a
development-stage company) as of December 31, 1997, 1998, 1999, and 2000 and the
statements of operations data for the periods from March 21, 1997 (inception) to
December 31, 2000 and the years ended December 31, 1998, 1999 and 2000 presented
below are derived from the consolidated financial statements of BioMarin
Pharmaceutical Inc. and subsidiaries, including Glyko, Inc. from October 7,
1998, the date on which it was acquired by BioMarin. These consolidated
financial statements of BioMarin and subsidiaries have been audited by Arthur
Andersen LLP, independent public accountants. The consolidated balance sheets as
of December 31, 1998, 1999 and 2000 and the related consolidated statements of
operations for the periods from March 21, 1997 (inception) to December 31, 2000,
and the years ended December 31, 1998, 1999 and 2000 and the related reports,
are included elsewhere herein.
The selected consolidated financial data set forth below contain only a portion
of BioMarin's financial statement information and should be read in conjunction
with the Consolidated Financial Statements of BioMarin Pharmaceutical Inc. and
related Notes and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere herein. All financial data
presented in thousands, except per share data.
23
Period from
March 21, 1997
(inception) to
Year Ended December 31, December 31,
----------------------------------------------------
1998 1999 2000 2000
---------------------------------------------------- ------------------
BioMarin's Consolidated
Statements of Operations
Revenues $ 1,190 $ 6,976 $ 12,326 $ 20,492
Operating costs and expenses:
Cost of products and services 108 464 719 1,291
Research and development 10,502 27,206 35,794 75,416
Selling, general and administrative 3,532 6,805 8,814 20,065
Carson Street closure - - 4,423 4,423
---------------------------------------------------- ------------------
Total costs and expenses 14,142 34,475 49,750 101,195
---------------------------------------------------- ------------------
Loss from operations (12,952) (27,499) (37,424) (80,703)
Interest income 685 1,832 2,979 5,561
Interest expense - (732) (7) (739)
Equity in loss of joint venture (47) (1,673) (2,912) (4,632)
---------------------------------------------------- ------------------
Net loss $ (12,314) $ (28,072) $ (37,364) $ (80,513)
==================================================== ==================
Net loss per common share, basic
and diluted $ (0.55) $ (0.94) $ (1.04) $ (3.21)
==================================================== ==================
Weighted average common
shares outstanding 22,488 29,944 35,859 25,057
==================================================== ==================
As of December 31,
---------------------------------------------------
BioMarin's Consolidated Balance Sheet Data: 1997 1998 1999 2000
---------------------------------------------------
Cash, cash equivalents and short-term investments $ 6,888 $ 11,389 $ 62,986 $ 40,201
Total current assets 7,507 12,819 66,422 44,541
Total assets 7,653 31,510 103,549 76,933
Long-term liabilities - 110 85 56
Total stockholders' equity 7,380 29,394 98,377 69,994
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion of the financial condition and results of operations
should be read in conjunction with our consolidated financial statements and
their notes appearing elsewhere in this document.
Overview
We are a developer of enzyme therapies for debilitating, life-threatening,
chronic genetic diseases and other diseases or conditions. Since our inception
on March 21, 1997, we have been engaged in research and development activities,
including preclinical studies, clinical trials and clinical manufacturing, the
establishment of laboratory and manufacturing facilities, and administrative
activities.
We have incurred net losses since inception and had an accumulated deficit
through December 31, 2000 of $80.5 million. Our losses have resulted primarily
from research and development activities and related administrative expenses. We
expect to continue to incur operating losses at least through 2002.
To date, we have not generated revenues from the sale of our drug candidates.
Our lead product is Aldurazyme, laronidase for injection, (recombinant human
(alpha)-L-iduronidase), which is undergoing clinical trials for use in enzyme
replacement therapy for Mucopolysaccharidosis-I or MPS-I. We have initiated a
clinical trial of rhASB, an enzyme replacement therapy for the treatment of
MPS-VI or Maroteaux-Lamy Syndrome. We have also successfully conducted
preclinical studies in pigs and mice of our burn enzyme, Vibriolysin, for use in
debridement and grafting and expect to submit an application to the FDA or
foreign equivalent to begin a clinical trial by mid-2001.
Results of Operations
Years Ended December 31, 2000 and 1999
For the years ended December 31, 2000 and 1999, revenues were $12.3 million and
$7.0 million, respectively. Revenues from our joint venture with Genzyme were
$9.7 million and $5.3 million, and Glyko, Inc. revenues were $2.6 million and
$1.5 million for the years ended December 31, 2000 and 1999, respectively. The
increase in joint venture revenues in 2000 was primarily the result of increased
manufacturing activities as we began enzyme production in our new Galli Drive
manufacturing facility in Novato, California. Glyko, Inc. revenues increase in
2000 primarily as a result of increased efforts in both the United States and
European sales offices.
Cost of products and cost of services related to Glyko, Inc. operations were
$719,000 for 2000 compared to $464,000 for 1999. Glyko's total external product
and service costs as a percent of the sales of products and services were 28%
and 31% for the years ended December 31, 2000 and 1999, respectivel