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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO

SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the fiscal year ended January 2, 2005

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 No. 0-21794

GTC BIOTHERAPEUTICS, INC.

(Exact name of Registrant as specified in its charter)

(508) 620-9700

(Registrant’s telephone number, including area code)

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

None

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

Common Stock, par value $0.01

Rights to Purchase Series C Junior Participating Cumulative

Preferred Stock, par value $0.01 per share

(Title of each 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 preceding twelve months and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No   ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    ¨

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

Aggregate market value of voting stock held by non-affiliates of the Registrant as of July 4, 2004, the last business day of the Registrant’s most recently completed second fiscal quarter, was approximately $61,920,405, based on the closing sale price of the Company’s Common Stock as reported on the NASDAQ National Market.

Number of shares of the Registrant’s Common Stock outstanding as of March 1, 2005: 46,658,728

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s Proxy Statement for the Annual Meeting of Stockholders to be held May 25, 2005 are incorporated by reference into Part III of this Form 10-K.

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PART I

In this Annual Report on Form 10-K, the words “we”, “our”, “ours” and “us” refer only to GTC Biotherapeuticcs, Inc. and not to any other person or entity.

Notes Regarding Forward-Looking Statements

This Annual Report on Form 10-K contains forward-looking statements, including statements regarding future revenues, research and development programs, clinical trials and collaborations and our future cash requirements. The words or phrases “will”, “will likely result”, “are expected to”, “will continue”, “is anticipated”, “estimate”, “project”, “potential”, “believe”, “plan”, “anticipate”, “expect”, “intend”, or similar expressions and variations of such words are intended to identify “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), as enacted by the Private Securities Litigation Reform Act of 1995. Statements that are not historical facts are based on our current expectations, beliefs, assumptions, estimates, forecasts and projections for our business and the industry and markets related to our business. The statements contained in this report are not guarantees of future performance and involve certain risks, uncertainties and assumptions which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed in such forward-looking statements. Important factors which may affect future revenues, research and development programs, clinical trials and collaborations and our future cash requirements include, without limitation, regulatory review of our ATryn^® product, our ability to enter into transgenic research and development collaborations in the future and the terms of such collaborations, the results of research and development and preclinical and clinical testing of our internal products, competitive and technological advances and regulatory requirements, and those set forth in Exhibit 99 “Important Factors Regarding Forward-Looking Statements” to this Form 10-K, which is incorporated into this item by this reference.

Overview

We are a leader in the development and production of human therapeutic proteins through transgenic technology. We are focusing our pipeline of internal product programs on recombinant forms of proteins that are currently derived from human blood plasma, for therapeutic uses. Our lead product candidate, a recombinant form of human antithrombin known as ATryn^®, is undergoing review for market authorization in Europe. We believe ATryn^® is the first protein produced by transgenic technology to undergo review for market authorization in the U.S. or Europe.

Using our transgenic technology we insert protein-specific DNA into an animal to enable it to produce that specific protein in its milk. We then purify the protein from the milk to obtain the therapeutic product, which is typically administered by injection. We use this technology to focus on those potential therapeutic proteins that are either difficult to express in traditional bioreactor-based technologies, or for those product candidates where the commercial volumes require significant capital investment for production capacity using conventional methods. Human blood proteins that are used for therapeutics may have either or both of these characteristics.

We have three recombinant blood proteins in active development in our internal pipeline:

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We believe that the commercial marketplace will value recombinant forms of therapeutic human blood proteins that are currently derived from the liquid portion of the blood, or plasma, and that our transgenic approach is uniquely able to offer unlimited and well characterized sources of supply. Our belief in the market value of plasma proteins is based, in part, on the sales experience of recombinant forms of the blood clotting plasma proteins known as factors VII, VIII, and IX. Unlike other plasma proteins, these recombinant clotting factors can be produced commercially in traditional technologies and have generated $3 billion of sales worldwide compared to the $1 billion of sales worldwide for plasma-sourced clotting factor products. Our platform technology may be able to replicate this experience in a broad array of other blood proteins. The therapeutic blood protein market, excluding the products focused on the treatment of hepatitis, currently generates approximately $7 billion of sales.

We are also developing two additional internal programs, a malaria vaccine in a program fully funded by the National Institute of Allergy and Infections Diseases, or NIAID, and an agonistic antibody to CD-137 licensed from the Mayo Clinic under a Flexible System to Advance Innovative Research grant, or FLAIR grant, funded by the National Cancer Institute, or NCI.

In addition to our internal programs, we are using our transgenic technology platform in a portfolio of external programs for the development of transgenic production to supply clinical and eventually commercial material for our partners. The most advanced external program is with Merrimack Pharmaceuticals, Inc. for transgenic production and purification of Merrimack’s recombinant human alpha-fetoprotein, known as MM-093, which is also a human blood protein. Our transgenically produced version of MM-093 is one that Merrimack has used in its Phase I and Phase II human clinical studies as it evaluates the compound and its requirements for further trials. MM-093 has been difficult to express in traditional recombinant protein production systems. We are also working with Centocor Inc. to develop transgenic protein production for an undisclosed protein. We have supplied product to Centocor for preclinical evaluation.

We are dependent upon funding from equity financings, partnering programs and proceeds from short and long-term debt to finance operations until such time product sales and royalties occur and we achieve positive cash flow from operations. Our partnering initiatives include licensing and development agreements with collaborative partners for the development, production and purification of transgenically produced forms of therapeutic recombinant proteins. The terms of the agreements typically include non-refundable license fees, funding of research and development, payments based upon the achievement of certain milestones, revenue from sales of product to partners, and royalties on future product sales, if any.

Internal Programs

Recombinant Human Antithrombin (ATryn^®)

Antithrombin is a protein found in the plasma of human blood that has anticoagulant and anti-inflammatory properties. Antithrombin, as is typical of many plasma proteins, is difficult to express economically viable levels in traditional recombinant production systems. In late 2001, we were granted permission by the EMEA to conduct clinical studies of ATryn^®, our recombinant form of human antithrombin, in individuals who express a low level of antithrombin in their blood as a result of a hereditary deficiency of antithrombin, referred to as HD. There are approximately 1 in 5,000 people with HD representing approximately 60,000 people in the U.S. and approximately 80,000 in Europe. In December 2001, we began dosing HD patients in a pharmacokinetic study to establish an appropriate dosing regimen for a subsequent efficacy study. A pharmacokinetic study is the study of the bodily absorption, distribution, metabolism, and excretion of drugs. We successfully completed this 15 patient study and began an efficacy study in HD patients in 2002, primarily based in Europe but also including patients in the United States. The efficacy study was designed to assess the prevention of deep vein thromboses, or DVT, among HD patients that are undergoing surgery or childbirth. Based on

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EMEA guidance, at least 12 evaluable patients were required to be included in the efficacy study. We enrolled a total of 14 patients. Our Market Authorization Application, or MAA, which was submitted to the EMEA in January 2004, includes data from this trial, as well as data from patients treated under a compassionate use program. The EMEA has accepted the MAA for review and will make a determination of the safety and efficacy of ATryn^® and assess whether the product is approvable for commercial sale. We believe that ATryn^® is the first transgenically produced therapeutic protein to be considered for approval by a regulatory agency in the U.S. or Europe. We have also filed an amended Investigational New Drug, or IND, application with the U.S. Food and Drug Administration, or FDA, to authorize a further clinical study in the HD indication that, together with the data package used in the European submittal, is intended to form the basis for approval of ATryn^® in the U.S. We anticipate starting this U.S. trial in the first half of 2005 and completing it in 2006.

We are in discussions with prospective partners with the potential of providing financial, sales and marketing support for the ATryn^® program in Europe in addition to support for clinical development. We are also considering the option of establishing a limited sales force to support commercial sales of ATryn^® for the HD indication, following approval for sale in Europe. This sales force could be developed internally or may be initiated through a contract sales organization. We plan to expand ATryn^®’s market opportunity through one or more clinical studies in order to develop additional potential acquired deficiency indications. We plan to produce more ATryn^® in 2005 for commercial supply and to prepare for the initiation of clinical studies in a larger acquired deficiency indication in 2006. Acquired antithrombin deficiency occurs in a number of conditions, and may result from a decrease in the amount of antithrombin produced, an increase in the rate of antithrombin consumed or an abnormal loss of antithrombin in the circulatory system. Examples of these conditions are burns, heparin resistance, patients undergoing surgery which requires cardiopulmonary bypass, trauma, acute liver failure, disseminated intravascular coagulation, sepsis and septic shock, multiple organ failure, pre-eclampsia and bone marrow or organ transplantation.

Our plan is to develop an expanded market for ATryn^® through additional product indication approvals and by removing limitations of supply. If we develop ATryn^® for expanded clinical indications we believe the product will have a worldwide market potential of $500 - $700 million. The existing worldwide sales for plasma-derived antithrombin is estimated to be approximately $250 million, of which less than $10 million is sold in the U.S. due to the limited availability from a single supplier.

Recombinant Human Albumin (rhA)

Albumin is a plasma protein that is principally responsible for maintaining the osmotic pressure in the vascular system, as well as maintaining plasma volume and the balance of fluids in blood. It is critical to the transport of amino acids, fatty acids and hormones in the blood stream. Albumin is principally used therapeutically as a blood volume expander in situations of blood loss and/or decreased blood albumin levels which can result from shock, serious burns, pre- and post-operative conditions, congestive heart failure and gastric, liver and intestinal malfunctions. Albumin is also used as a non-active stabilizer, or excipient, for the active ingredient in biologic drug formulations. Human serum albumin and bovine serum albumin may also be used in the media for cell cultures, both as part of in vitro fertilization as well as in bioreactor production systems.

Our strategy is to first develop our recombinant form of human albumin, or rhA, in the excipient or cell culture applications where there is the potential for commercial sales sooner than is practical in the blood expander indication and with significantly lower capital investment. We believe that the recombinant nature of this product can lead to a well characterized protein and a stable single source of supply. This will provide drug manufacturers the opportunity to avoid human plasma-derived albumin as an excipient for their recombinant products and establish a universally acceptable supply. We believe this will allow rhA to make substantial penetration into the existing excipient market. During 2004, we initiated the production of qualification batches for evaluation by potential customers. These customer evaluations are for the excipient, cell culture and in vitro fertilization markets. We anticipate that commercial sales of rhA in the excipient market will require some clinical evaluation, primarily to assess safety, and the development of a Drug Master File to support end user regulatory filings. We believe that under this timetable for development we have the opportunity to achieve commercial sales of rhA within two to three years, depending primarily on the level of development funding devoted to this program. The timetable of development will be dependent upon our financial resources, as well as our ability to attract marketing or strategic partners to provide additional funding.

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rhA is another example of a difficult-to-express plasma protein which is also required in large volumes. We estimate that about $150 million to $200 million of the market total is sold for excipient and cell culture use. We estimate the total production volume to meet the needs of the excipient market is in the range of one to two metric tons per year. We are developing this program in transgenic cattle that are maintained by TransOva Genetics in Iowa.

In late 2002, we restructured our relationship with Fresenius AG into a joint venture referred to as the Taurus Joint Venture, which is managing the development of the rhA program. We currently have approximately a 57% interest in the joint venture. The joint venture structure provides the flexibility to attract additional marketing or strategic partners that may also assist with the financing of the program. We are engaged in ongoing discussions with potential partners. Ownership interests will be adjusted based on future levels of financial support provided by existing and new partners. Fresenius has not contributed new financing since the formation of the Taurus Joint Venture. Currently, we are developing the rhA program using our existing resources under an extended timetable, until there is additional financing.

The existence of the Taurus Joint Venture is perpetual unless terminated or dissolved earlier in accordance with the terms of the agreement. Upon any liquidation, sale or other disposition of all or substantially all of the assets of the Taurus Joint Venture, and after the payment of debts and liabilities, expenses of liquidation and any reserves for unforeseen liabilities or in-kind distributions, the net proceeds would be applied and distributed first to Fresenius and then to us, according to our respective percentage interests. Each member would also have reversion rights to any intellectual property it contributed to the Taurus Joint Venture. We consolidate the Taurus Joint Venture on our financial statements for financial reporting purposes.

Recombinant Alpha-1 Antitrypsin (rhAAT)

We have begun development of recombinant human alpha-1 antitrypsin, or rhAAT, which, like antithrombin and albumin, is a product that is currently available from fractionated human plasma. Plasma-derived AAT products generate worldwide sales of about $250 million. We believe that our recombinant form of alpha-1 antitrypsin, or AAT, can provide a highly pure and unconstrained supply to the market. AAT is currently used to treat the congenital deficiency of this protein which can lead to emphysema. AAT supplementation using pulmonary delivery has also been considered as a therapeutic approach in the treatment of cystic fibrosis and we believe that rhAAT may also have the potential as a treatment for acute respiratory distress syndrome, chronic obstructive pulmonary disease, and severe asthma. Similar to many other plasma proteins, AAT is difficult to express in traditional recombinant production systems in economically viable quantities.

We have developed goats that produce rhAAT. We have also developed a bench scale purification process and are in the process of defining the clinical and regulatory program for this product. The level and speed of development of this product will be dependent upon our financial resources.

We recently entered into a licensing agreement for rights to the limited topical use of rhAAT in cosmetic applications.

Malaria Vaccine

We are developing a recombinant form of a malaria surface protein known as MSP-1, which is normally expressed by the malaria parasite, for use as an antigen in a malaria vaccine. Malaria is a disease that has an annual incidence in more than 300 million people worldwide and results in several million deaths annually, primarily among children. We have been working with the National Institutes of Health, or NIH, and the Federal Malaria Vaccine Coordinating Committee to develop transgenic production of the MSP-1 protein as an antigen for a vaccine and to examine the options for commercializing the vaccine. During 1998, we achieved a high level of expression of the MSP-1 protein in the milk of transgenic mice. To express the MSP-1 protein at high quantities, our scientists modified the protein’s gene sequence while conserving the overall amino acid sequence of the protein. A U.S. patent has been issued to us for this modification. The MSP-1 protein has been expressed at 2-4 mg/ml in the milk of mice that have incorporated this gene sequence. The MSP-1 protein produced by the mice successfully protected Aotus nancymai monkeys in a preclinical vaccine study conducted by and co-authored with the NIAID. This study, titled “A recombinant vaccine expressed in the milk of transgenic mice protects Aotus monkeys from a lethal challenge with Plasmodium falciparum”, was published in the

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December 18, 2001 Proceedings of the National Academy of Sciences. MSP-1 is difficult to express in other recombinant systems, with those other systems producing it in very limited quantities or in forms that may not induce the necessary immune response. The NIAID has funded a contract, managed by Science Applications International Corporation, for the development and production of clinical grade MSP-1 as a malaria vaccine. The scope of work includes developing founder goats that express the MSP-1 antigen in their milk as well as the downstream purification process and final product formulation. A founder animal has the appropriate genetic profile and is the potential start of a herd of transgenic animals capable of producing a desired therapeutic protein. We have developed potential founder animals and we are in the process of evaluating the milking characteristics of these animals. The approved scope of work also includes the submittal of an IND application to the FDA. Our portion of this project has been supported to date with federal funds amounting to at least $6.2 million.

CD137 Antibody

During 2004, we gained access from the Mayo Clinic to the commercial rights for an agonistic antibody to the CD137 receptor in the human immune system, also known as 4-1BB. Agonistic antibodies combine with a receptor or a cell to produce a physiological reaction. In this case, preclinical studies indicate that this antibody stimulates the immune system to recognize and mount a response to solid tumors. If the safety and efficacy of the CD137 antibody is validated in subsequent clinical studies, we anticipate that the required production quantities will be very large. Our transgenic technology platform would be better positioned to economically develop this production capacity than what would be required in a traditional bioreactor based method. We are developing founder animals for this program.

Our collaboration with the Mayo Clinic will provide us with rights to any patents that may be issued under the patent applications that cover the CD137 antibody. Pursuant to the collaboration agreement, we have until April 2006 to exercise an option for an exclusive license to these patents. The Mayo Clinic will provide oversight of the preclinical evaluations. We will produce material that will be tested for bioactivity in human tumor models, and will seek additional grants to develop clinical production and testing, if appropriate, based on the results of the preclinical evaluations. This program is funded under a FLAIR grant awarded by the NCI.

External Program Portfolio

We follow a partnership strategy in our portfolio of external programs, where both our unique intellectual property position and molecular biology expertise are used in the development of a transgenically produced version of the external partner’s protein. The advantages to external partners of using our production platform include enabling the development of proteins that are difficult to produce in traditional recombinant production systems, requiring significantly lower capital investment, assuring lower cost of goods, and providing for flexibility in capacity expansion. The external portfolio business area also provides us the opportunity for a revenue stream through milestone payments during the development phase and, assuming continuing clinical and development success, subsequent opportunities for long-term product revenues as the external partner’s clinical and commercial manufacturing partner. We view this activity as an operating business which currently contributes to the support of our production and regulatory infrastructure and has the potential to provide positive cash flow for investment in our proprietary programs.

The most advanced program in our external portfolio is with Merrimack. The Merrimack program is for MM-093, a recombinant form of human alpha-fetoprotein, or rhAFP. Alpha-fetoprotein is a human blood protein normally produced during pregnancy and, therefore, is not commercially available from fractionation of the human blood supply. MM-093 has been difficult to express in traditional recombinant systems. We have developed goats for Merrimack that express this protein in their milk. In 2002, we agreed to expand this relationship to include production and purification of MM-093. Merrimack completed a Phase I study of MM-093 in 2003 and began Phase II evaluations in 2004, and we continue to deliver purified MM-093 for use in further human clinical studies by Merrimack. Potential indications for MM-093 include autoimmune diseases such as rheumatoid arthritis, multiple sclerosis and myasthenia gravis (a chronic autoimmune neuromuscular disease). Assuming that MM-093 is found to be safe and efficacious in the clinical program, we expect to earn additional revenue totaling several million dollars for production of MM-093 to supply the clinical trials, as well as additional revenues for further production if Merrimack commercializes our transgenically produced version of MM-093. In December 2003, we exercised our option to convert $1.25 million of the receivable owed by Merrimack into Merrimack preferred stock at the same valuation as the other investors in Merrimack’s December 2003 financing.

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

We believe that our technology platform is well suited to producing difficult-to-express proteins and to establishing large volume production with low capital investment and an assured low cost of goods. Monoclonal antibodies, or MAbs, are proteins generated by an immune system that bind to a specific target. MAbs typically express at reasonable levels in traditional recombinant production systems, but are often required in large quantities due to their applications to chronic disease indications. Immunoglobulin, or Ig fusion proteins, which consist of a MAb fragment linked to a second protein fragment, may be difficult to express due to their complexity.

We are actively participating in the field of MAbs and Ig fusion proteins. We have been granted several patents covering the production of MAbs in the milk of transgenic mammals, along with other transgenic process patents, which we believe establish a strong proprietary position in the field. This intellectual property position enables development and commercial production of MAbs without relying on patents normally associated with bioreactor based technologies.

We have two MAb programs with Centocor. In the first, for a transgenically produced form of Remicade^®, we have developed founder animals which are being maintained. In the second, for an undisclosed MAb, we have supplied product for preclinical evaluation by Centocor.

We have two MAb programs with Elan Pharmaceuticals, one for Tysabri^® (formerly known as Antegren^®), which as approved for sale had been manufactured using cell culture produced material before it was withdrawn from the market in March 2005, and another program for an undisclosed antibody. In both programs we have developed founder animals, however both programs were discontinued by Elan in December 2004, and these animals are now being maintained.

Transgenic Technology Platform

Overview

Our technology platform includes the molecular biology expertise and intellectual property to generate transgenic animals, primarily goats and, in some cases, cattle, that express a specific recombinant protein in their milk. We can also perform downstream purification for use in clinical studies. This technology platform is supported by the quality systems and regulatory, clinical development, and information technology infrastructure necessary to bring therapeutic protein products through clinical trials to commercial scale.

The economic and technical advantages of our technology make it well suited to large volume applications, particularly 100 kilograms or more per year, in comparison to traditional recombinant protein production systems. These advantages include significantly reduced capital expenditures, greater flexibility in capacity expansion and lower unit production costs. In the case of certain complex proteins that do not express well in traditional systems, transgenic production may represent the only technologically and economically feasible method of commercial production. Many human plasma proteins, as well as some Ig fusion proteins, are examples of recombinant proteins that may not express at economically viable levels in traditional systems.

Our technology platform has been established as an operating infrastructure in goat husbandry, breeding, milking and downstream purification. These operations occur at our biopharmaceutical production facilities in central Massachusetts, where we have approximately 1,400 goats, and at our facilities in Framingham, Massachusetts. Goat husbandry includes veterinary care with a clinic and medicinal supplies, all established within the farm’s biosecurity program. The biosecurity program includes barriers to provide separation of the animals from contact with wildlife, separation from people, and quality control monitored feed. Milking is typically performed using modern milking and processing equipment. Clarification to the intermediate bulk material is typically performed using tangential flow filtration equipment that removes much of the fats and casein from the milk. Manufacturing to clinical grade purity under standards of good manufacturing practice occur either in our facilities, the facilities of our partners, or in contracted facilities. During 2002, we established capacity in our Framingham facilities for the purification of recombinant proteins suitable for clinical studies.

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We use goats and cattle in our commercial development programs. A goat reaches sexual maturity in about twelve months and gestates in approximately five months. A typical goat will produce an average of approximately 2 liters of milk per day during most of its natural lactation cycle. A cow reaches sexual maturity in about eighteen months and gestates in about nine months. A typical cow will produce an average of approximately 20 liters of milk per day during most of its natural lactation cycle. The species selected for a particular program will depend on a variety of factors, including the expected market size, desired herd size, and anticipated productivity of the desired protein within the animal’s mammary gland. In 2002, we obtained broad freedom to operate in cattle technology through a licensing agreement with Pharming Group N.V., which is based in the Netherlands.

We are now using nuclear transfer technology in the development of transgenic animals. The first step in this technology involves the generation of a characterized cell line which has incorporated the specific DNA for expression of the target protein in milk. Individual cells from the cell line(s) are then fused to an animal’s ovum after removal of the ovum’s own DNA. Thus, the transgenic nucleus of the cell becomes the driver for further development of the embryo, which is then placed in a surrogate female animal. All animals that are born through this process are transgenic. Nuclear transfer may mitigate the impact of long gestation and maturation periods in cattle, by producing a larger number of transgenic animals in one generation. The original methodology we used to develop transgenic animals was called microinjection. In microinjection, the desired DNA was inserted into a fertilized single cell embryo using a needle. Our lead program, ATryn^®, used microinjection for generation of the founder animal.

Advantages of Transgenic Technology

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

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Patents and Proprietary Rights

We currently hold 18 issued or allowed U.S. patents and 111 corresponding foreign patents. Our patents generally expire between 2013 and 2019, with the most significant patents expiring in 2015. Of our patents expiring in 2015, two relate to ATryn^®, our lead program. In accordance with ongoing research and development efforts, we have 51 pending U.S. patent applications and 159 corresponding foreign applications covering relevant and newly developed portions of our transgenic technology. Several of these pending applications are included in various cross-licensing or out-licensing arrangements with other companies that in turn provide us access to their proprietary technologies. Limited access has been granted to our technology to Pharming, BioProtein and Nexia Biotechnologies. Recently issued U.S. patents provide us with claim coverage for protein purification from the milk of transgenic animals, the production of monoclonal and assembled antibodies at commercial levels in the milk of transgenic mammals, the production of recombinant antithrombin in the milk of transgenic goats and one covering the production of Prolactin in the milk of transgenic animals.

In addition, we hold exclusive and non-exclusive licenses from Genzyme Corporation, Biogen Idec, Inc., and other individuals and corporations to rights under a number of issued patents and patent applications in the U.S. and the corresponding cases abroad for a variety of technologies enabling the transgenic production of proteins in the milk of non-human animals. We hold licenses to 35 issued U.S. patents and 30 pending U.S. applications. On an international basis, we hold licenses to 63 issued patents and have 102 pending applications. The in-licensed patents that are related to the transgenic platform begin to expire in 2006, beginning with the microinjection patent.

We have exclusive and nonexclusive licenses to specific technologies owned by other parties. We have also concluded an extensive cross-licensing arrangement with Pharming providing broad access to the transgenic cattle platform as well as some additional nuclear transfer technology. Our relationship with Advanced Cell Technologies, Inc., or ACT, focuses on intellectual property concerning cloning and nuclear transfer. Certain of the licenses require us to pay royalties on sales of products which may be derived from or produced using the licensed technology. The licenses generally extend for the life of any applicable patent. We have signed an exclusive, worldwide licensing agreement with ACT that allows us to utilize ACT’s patented nuclear transfer technology for the development of therapeutic proteins in the milk of transgenic mammals. ACT has announced that the Board of Patent Appeals and Interferences of the U.S. Patent Office has entered a judgment in an interference proceeding in favor of Geron Corporation on all counts as to the priority of Geron’s patents over ACT’s U.S. Patent No. 5,945,577, which we license. ACT has also announced that it intends to appeal that decision in a proceeding in U.S. District Court. While this proceeding is pending, we believe that we can continue to rely on the validity of the disputed ACT patent. While we have also licensed nuclear transfer technology from Pharming, we do not know at this time what impact, if any, this proceeding involving ACT may ultimately have on our ability to practice nuclear transfer for the production of animals expressing therapeutic proteins in their milk. Some of our current programs have used this technology. Our lead product, ATryn^®, was not developed utilizing this technology.

We rely upon trade secrets, know how and continuing technological advances to develop and maintain our competitive position. In an effort to maintain the confidentiality and ownership of trade secrets and proprietary information, we require employees, consultants and certain collaborators to execute confidentiality and invention assignment agreements upon commencement of a relationship with us.

Competition

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

Pharming is engaged in the application of transgenic technology in mammals for the production of proteins for therapeutic use in humans. Pharming is primarily engaged in the development of recombinant proteins in the milk of transgenic cows and rabbits and has one product in clinical development that is in Phase III studies. There are also other companies seeking to develop transgenic technology in animals and in plants, which may be competitive with our technology with respect to their patents and proprietary rights.

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For ATryn^®, a number of companies internationally produce and market antithrombin from the fractionation of human plasma. CSL Limited’s antithrombin has approximately a 40% share of this market worldwide, but is not approved in the U.S. Bayer is the only company that has commercially available fractionated antithrombin material that is approved for sale in the U.S., which sales represent only about 1% of the worldwide market. Bayer is in the process of selling its plasma products business to NPS BioTherapeutics, Inc. There are a number of providers of plasma-derived antithrombin in Europe, depending on the country. These providers include Octopharma, Grifols, Baxter, Pharmacia, CSL Limited, and LFB.

There are a number of companies worldwide that produce and market human serum albumin from the fractionation of human plasma. We estimate that Bayer and CSL Limited sales represent approximately 30% and 10% market shares, respectively, of the worldwide market for human serum albumin. We are aware of two companies internationally that are developing recombinant forms of human serum albumin derived from yeast cultures. One company, Aventis, is developing its recombinant albumin product for the excipient market. The other lead company is Yoshitomi (formerly Green Cross Corporation) which has been active in developing human albumin through genetic manipulation of Pichia pastorisis (better known as yeast) on a commercial scale for use in Japan and other parts of Asia.

Arriva Pharmaceuticals, Inc. has developed technology for large-scale production of stable non-animal sourced recombinant proteins in Saccharomyces cerevisiae, or baker’s yeast. Arriva is working with Baxter International to develop a recombinant form of alpha-1 antitrypsin using this technology.

Government Regulation

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

To our knowledge, no therapeutic protein produced in the milk of a transgenic animal has been submitted to the FDA for final regulatory approval or, except for our submission of ATryn^® to the EMEA in January 2004, to any other regulatory agency in Europe for final regulatory approval. However, the FDA issued its Points to Consider in August 1995, addressing the Manufacture and Testing of Therapeutic Products for Human Use Derived from Transgenic Animals. Points to Consider, which are not regulations or guidelines, are nonbinding published documents that represent the current thinking of the FDA on a particular topic. Earlier in 1995, comparable guidelines were issued by European regulatory authorities. We believe that our programs satisfactorily address the topics identified in these documents and generally view these publications as positive milestones in the acceptance of the transgenic form of production. Nonetheless, obtaining required regulatory approvals for our transgenically produced products may take several years to complete and is expensive and uncertain.

Regulations in the U.S. setting forth legal requirements for the investigation and commercialization of drug products and medical devices are implemented in accordance with the Food, Drug and Cosmetic Act. Regulations mandating requirements for the development and licensure of biological products are implemented in accordance with the Public Health Service Act, or PHSA. With respect to therapeutic biological products, generally, the standard FDA approval process includes preclinical laboratory and animal testing, submission of an IND to the FDA and completion of appropriate human clinical trials to establish safety and effectiveness. The approval process is comparable in Europe and other countries.

In developing our own transgenic products, we will be required to demonstrate successfully that a given biological product meets PHSA standards, which are, that the product is safe, pure and potent. As a potential manufacturer of biological products developed by others we will also be subject to regulation requiring us to successfully demonstrate that the facility in which a given biological product it is manufactured meets standards designed to ensure that the product continues to be safe, pure and potent. If we do so, then as the manufacturer, we would receive a biological license to

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market the product in interstate commerce. It is possible, however, that the FDA may not act expeditiously or favorably on requests for approval of a biological license or will require additional data before granting approval. We are required to comply with these regulations to support development and commercialization of products produced in our internal programs and under our contracts with external partners.

Research and Development Costs

During our fiscal years ended January 2, 2005, December 28, 2003 and December 29, 2002, we incurred, $20 million, $18.3 million and $11.9 million, respectively, of development expenses related to internal programs. We also incurred development costs related to our collaborations which are included in cost of revenue. These costs totaled $6.1 million, $11.1 million and $13.1 million in the fiscal years ended January 2, 2005, December 28, 2003 and December 29, 2002, respectively. Of the total spent on research and development, $11.4 million, $8.7 million and $5.1 million, was spent on the ATryn^® development program in fiscal years 2004, 2003 and 2002, respectively. These costs include labor, materials, supplies and overhead, as well as certain subcontracted research projects. Also included are the costs of operating the transgenic production facility such as feed and bedding, veterinary costs and utilities.

Employees

As of January 2, 2005, we employed 133 people, including 6 part-time and temporary employees. Of our total employees, 89 were engaged in farm operations, clarification processes, quality assurance and control, 13 were engaged in research and development and 31 were engaged in administration, business development and marketing. Of our employees, approximately 12 have Ph.D. degrees and 3 have D.V.M. degrees. None of our employees are covered by collective bargaining agreements. We believe our employee relations are satisfactory. During the third quarter of 2003, we implemented a restructuring plan including a headcount reduction of 13%. Additionally, in February 2004, we announced a further restructuring of our organization to control costs and to support our focus on clinical development and commercialization of our internal pipeline of proprietary products and our portfolio of external programs. In total, these restructurings reduced our headcount from 180 to 127 full time equivalent employees.

Available Information

Our internet website is www.gtc-bio.com and through the “Investor Information” portion of the website, investors may access, free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements on Schedule 14A and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission.

Our executive officers and their respective ages and positions as of March 1, 2005 are as follows:

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

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

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

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

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

Our corporate headquarters is located in 12,468 square feet of office space in Framingham, Massachusetts under a lease which expires in June 2006. In 2002, we entered into a Sublease Agreement for an additional 19,888 square feet of office and laboratory space at our existing location in Framingham, Massachusetts, which expires in December 2006. Our research facility is located in approximately 3,900 square feet of laboratory, research and office space leased from Genzyme in Framingham, Massachusetts which automatically renews annually, on a year-to-year basis.

We own a 383-acre facility in central Massachusetts. This facility contains 106,793 square feet of production, laboratory and administrative space and currently houses more than 1,400 goats. We believe that our owned and leased facilities are adequate for significant further development of commercial transgenic products. We own 135 acres of farm land in eastern New York State which is currently for sale.

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

During the fourth quarter of fiscal year 2004, no matter was submitted to a vote of our security holders.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF SECURITIES

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

The records held by the transfer agent indicate that on March 1, 2005 we had approximately 917 shareholders of record.

We have never paid a cash dividend on our Common Stock and do not expect to be in a position to do so for the foreseeable future.

ITEM 6. SELECTED FINANCIAL DATA

The selected financial data set forth below as of January 2, 2005 and December 28, 2003 and for each of the three fiscal years in the period ended January 2, 2005 are derived from our consolidated financial statements included elsewhere in this Report, which have been audited by PricewaterhouseCoopers LLP, independent registered public accounting firm. The selected financial data set forth below as of December 29, 2002, December 30, 2001 and December 31, 2000, and for the years ended December 30, 2001 and December 31, 2000 are derived from audited consolidated financial statements not included in this Report.

This data should be read in conjunction with our consolidated financial statements and related notes thereto under Item 8 of this Report and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under Item 7 of this Report.

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SELECTED FINANCIAL DATA

(Dollars in thousands except per share data)