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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)

For the fiscal year ended December 31, 2004

Or

For the transition period from                      to                     .

Commission File Number: 000-26727

BioMarin Pharmaceutical Inc.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number: (415) 506-6700

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

Preferred Share Purchase Rights

(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 preceding 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.    ¨

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

The aggregate market value of the voting stock held by non-affiliates of the Registrant as of June 30, 2004 was $350.6 million. The number of shares of common stock, $0.001 par value, outstanding on February 22, 2005 was 64,511,159.

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 24, 2005, are incorporated by reference into Part III.

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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 similar expressions. These forward-looking statements may be found in “Factors That May Affect Future Results,” “Description of Business,” and other sections of this 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

We develop and commercialize innovative biopharmaceuticals for serious diseases and medical conditions. We select product candidates for diseases and conditions that represent a significant medical need, have well-understood biology and provide an opportunity to be first-to-market.

Our product portfolio is comprised of two approved products and multiple investigational product candidates. Aldurazyme^® (laronidase), has been approved for marketing in the United States by the U.S. Food and Drug Administration (FDA), in the European Union (E.U.) by the European Medicines Evaluation Agency (EMEA) and other countries for the treatment of mucopolysaccharidosis I (MPS I). MPS I is a progressive and debilitating life-threatening genetic disease that frequently results in death during childhood or early adulthood. It is caused by the deficiency of alpha-L-iduronidase, an enzyme normally required for the breakdown of certain complex carbohydrates known as glycosaminoglycans (GAGs). As the first drug approved for MPS I, Aldurazyme has been granted orphan drug status in the U.S. and the E.U., which gives Aldurazyme seven years of market exclusivity in the U.S. and 10 years of market exclusivity in the E.U. for the treatment of MPS I. We have developed Aldurazyme through a joint venture with Genzyme Corporation (Genzyme).

In May 2004, we completed the transaction to acquire the business of Ascent Pediatrics from Medicis Pharmaceutical Corporation (Medicis). The Ascent Pediatrics business includes Orapred^® (prednisolone sodium phosphate oral solution), a drug primarily used to treat asthma exacerbations in children and other inflammatory conditions, two additional proprietary formulations of Orapred in development, and a U.S.-based sales force.

Aldurazyme net revenue recorded by our joint venture during 2004 totaled $42.6 million compared to $11.5 million in 2003. Orapred net product sales from the acquisition in May 2004 to the end of 2004 totaled $18.6 million. Our cash, cash equivalents, short-term investments, restricted cash and cash balances related to long-term debt totaled $90.5 million as of December 31, 2004.

We are developing several other product candidates for the treatment of genetic diseases including: rhASB (galsulfase) for the treatment of mucopolysaccharidosis VI (MPS VI); Phenoptin^™ (6R-BH₄), a proprietary oral form of tetrahydrobiopterin, for the treatment of moderate to mild forms of phenylketonuria (PKU); and

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Phenylase^™ (recombinant phenylalanine ammonia lyase), a preclinical candidate for the treatment of the more severe form of PKU.

In June 2004, we announced the positive results of our Phase 3 trial of rhASB, which we formerly referred to as Aryplase, for the treatment of MPS VI, a progressive and debilitating life-threatening genetic disease for which no drug treatment currently exists. MPS VI is caused by the deficiency of N-acetylgalactosamine 4-sulfatase (arylsulfatase B), an enzyme normally required for the breakdown of GAGs. The clinical trial demonstrated a statistically significant improvement in endurance in patients receiving rhASB compared to patients receiving placebo, as measured by the distance walked in 12 minutes, the primary end point of the trial. Additionally, the data demonstrated a statistically significant improvement in reduction of GAGs and a positive trend in a 3-minute stair climb, the secondary end points of the trial. In the fourth quarter of 2004, we announced that we filed for marketing authorization of rhASB in both the U.S. and E.U., where rhASB has received orphan drug designations for the treatment of MPS VI. The FDA has accepted our application and assigned a six-month review to our Biologics License Application (BLA).

In December 2004, we announced that we initiated our Phase 2 clinical trial of Phenoptin. Patients identified in the Phase 2 clinical trial that meet certain criteria will be eligible to enroll in the Phase 3 trial that is expected to begin in the first half of 2005. The Phase 3 clinical trial of Phenoptin is expected to be a six-week, multi-center, international, double-blind, placebo-controlled study. We anticipate the trial will enroll patients on an ongoing basis until it is fully enrolled. As a primary efficacy endpoint, the trial will measure the changes in blood Phenylalanine (Phe) level in patients receiving Phenoptin compared to patients receiving placebo. In July 2004, we announced positive results from an investigator sponsored pilot clinical study of 6R-BH₄, the active agent in Phenoptin, in 20 patients with PKU. We also announced that we have received orphan drug designation for Phenoptin for the treatment of PKU in both the U.S. and E.U.

PKU is an inherited metabolic disease that affects at least 50,000 diagnosed patients under the age of 40 in the developed world, an estimated half of whom have a moderate to mild form of the disease. PKU is caused by a deficiency of an enzyme, phenylalanine hydroxylase (PAH), which is required for the metabolism of Phe. Phe is an amino acid found in most protein-containing foods. Without sufficient quantity or activity of PAH, Phe accumulates to abnormally high levels in the blood resulting in a variety of serious neurological complications. Phenoptin, our lead product candidate for the treatment of PKU, is a proprietary oral form of 6R-BH₄, a small-molecule therapeutic that is a co-factor for PAH. If approved, Phenoptin could become the first drug for the treatment of PKU.

Phenylase is currently in preclinical development. It is being developed as a subcutaneous injection and is intended for those who suffer from classic PKU, the more severe form of the disease.

We are evaluating other enzyme-based therapies for serious medical conditions including Vibrilase^™, a topical investigational enzyme therapy for use in the debridement of serious burns. In August 2004, we announced positive data from a Phase 1b clinical trial of Vibrilase. Data from the trial suggest that treatment with Vibrilase is generally safe and well tolerated. Additionally, we are evaluating preclinical development of several other enzyme product candidates for genetic and other diseases as well as immune tolerance and NeuroTrans, platform technologies to overcome limitations associated with the delivery of existing pharmaceuticals. We have retained worldwide commercial rights to all of our product candidates.

In August 2004, we announced that our former Chairman and Chief Executive Officer had resigned. Pierre Lapalme, a member of our Board of Directors who has held numerous senior management positions in the pharmaceutical industry, has assumed the position of our Chairman of the Board. Louis Drapeau, our Chief Financial Officer since August 2002, has been appointed as our acting Chief Executive Officer until a new Chief Executive Officer is named, and Jeffrey H. Cooper, Vice President, Controller, has been appointed as our acting Chief Financial Officer. Our Board of Directors is actively searching for a new Chief Executive Officer.

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Our principal executive offices are located at 105 Digital Drive, Novato, California 94949 and our telephone number is (415) 506-6700. “BioMarin,” “Phenoptin,” “Neutralase,” “Vibrilase,” “Phenylase,” and “NeuroTrans” are our trademarks. “Aldurazyme” is a registered trademark of BioMarin/Genzyme LLC. “Orapred” is a registered trademark of Medicis Pediatrics, Inc., and is used under license. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act are available free of charge on our website at www.BMRN.com as soon as reasonably practicable after electronically filing such reports with the Securities and Exchange Commission. Information contained in our website is not part of this report.

Recent Developments

FDA Acceptance and Grant of Six-Month Review for rhASB Marketing Application

On February 1, 2005, we announced that the FDA accepted for filing and assigned six-month review to our BLA for rhASB. The FDA has advised us that it will take action on the application, under the Prescription Drug User Fee Act, by May 31, 2005.

Settlement with Medicis

On January 12, 2005, Medicis and we announced a settlement to our claims against Medicis related to the acquisition of Orapred by us. Medicis and we executed amendments to our Securities Purchase Agreement and License Agreement entered into on May 18, 2004, a Convertible Promissory Note and a Settlement and Mutual Release Agreement. Under the terms of these agreements, remaining payments to Medicis from us totaling $150 million as of December 31, 2004 will be reduced by $21 million to $129 million. Medicis will also pay us up to $6 million for certain Orapred returns received by us between October 1, 2004 and June 30, 2005. Additionally, Medicis will make available to us a convertible note of up to $25 million beginning July 1, 2005, based on certain terms and conditions, including a change of control provision. Money advanced under the convertible note is convertible, at Medicis’ discretion, into shares of our common stock at a strike price equal to our average closing price of our common stock for the 20 trading days prior to such advance. In conjunction with the agreements, Medicis and we have executed a Settlement and Mutual Release Agreement to forever discharge each other from any and all claims, demands, damages, debts, liabilities, actions and causes of action relating to the transaction consummated by Medicis and us, other than certain continuing obligations, in accordance with the terms of our agreements.

Enrollment of First Patient into Phase 2 Clinical Trial of Phenoptin for PKU, Phase 3 Clinical Trial Anticipated to Follow

On December 23, 2004, we announced the initiation of our Phase 2 clinical trial of Phenoptin. The Phase 2 trial will enroll qualified patients 8 years of age or older. Enrolled patients will receive 10mg/kg of Phenoptin daily for eight days. Qualified patients will be eligible to enroll in the Phase 3 clinical trial that is expected to begin in the first half of 2005. We anticipate the Phase 3 clinical trial will be a six-week, multi-center, international, double-blind, placebo-controlled trial with a primary efficacy endpoint of the reduction in blood Phe levels in patients receiving Phenoptin compared to patients receiving placebo. We anticipate the trial will enroll patients on an ongoing basis until it is fully enrolled.

Formation of Strategic Partnership With Daiichi Suntory Pharma Co., Ltd. for Phenoptin

On November 23, 2004, we announced our strategic business partnership with Daiichi Suntory Pharma Co., Ltd. (Daiichi Suntory) for Phenoptin. This partnership provides us with extensive preclinical and clinical data on 6R-BH₄ and access to commercial grade 6R-BH₄. These assets enabled us to commence our Phase 2 clinical trial of Phenoptin in PKU in December 2004. According to the terms of our agreement, in exchange for the exclusive rights to preclinical and clinical data on 6R-BH₄ and exclusive access to commercial grade 6R-BH₄, we will pay Daiichi Suntory approval milestones and a royalty on sales of Phenoptin outside of Japan, and Daiichi Suntory

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will retain rights to market the product for PKU in Japan. We expect that the manufacturing process used by Daiichi Suntory will allow us to purchase Phenoptin at substantially lower cost compared to other sources of 6R-BH₄.

Commercial Products

Aldurazyme

Our first commercial product, Aldurazyme, an enzyme replacement therapy, is approved in the U.S. by the FDA, in the E.U. by the EMEA and in other countries for the treatment of MPS I. MPS I is a genetic disease caused by the deficiency of alpha-L-iduronidase, a lysosomal enzyme. Patients with MPS I typically become progressively worse and experience multiple severe and debilitating symptoms resulting from the build-up of carbohydrate residues in all tissues in the body. These symptoms include: inhibited growth, delayed and regressed mental development (in the severe form), enlarged liver and spleen, joint deformities and reduced range of motion, impaired cardiovascular and heart function, upper airway obstruction, reduced pulmonary function, frequent ear and lung infections, impaired hearing and vision, sleep apnea, malaise and reduced endurance. Most patients with MPS I die from complications associated with the disease during childhood or early adulthood. Aldurazyme net revenue, which is recorded by our joint venture, not us, during 2004 totaled $42.6 million compared to $11.5 million in 2003 and there were 273 commercial patients as of December 31, 2004, compared to 146 as of December 31, 2003.

Aldurazyme is a specific form of recombinant, human alpha-L-iduronidase that replaces the deficiency of alpha-L-iduronidase in MPS I patients, thus reducing or eliminating the build-up of certain complex carbohydrates in the lysosomes of cells. Our clinical studies demonstrated that by significantly reducing this carbohydrate build-up, Aldurazyme is able to improve pulmonary capacity and endurance. Based upon our clinical studies, Aldurazyme may reduce other symptoms experienced by these patients, including joint stiffness, fatigue, poor visual acuity, airway obstruction and poor weight and height gain.

Aldurazyme is produced, marketed and sold through a 50/50 joint venture with Genzyme. We are responsible for product development, manufacturing and U.S. regulatory submissions. Genzyme is responsible for sales, marketing, distribution, obtaining reimbursement for Aldurazyme worldwide and international regulatory submissions. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—BioMarin/Genzyme LLC” for discussion of the financial results of Aldurazyme.

The FDA has granted Aldurazyme orphan drug designation, which provides our joint venture with exclusive rights to market Aldurazyme for the treatment of MPS I in the U.S. until 2010. In addition, the EMEA has granted Aldurazyme orphan drug designation, giving it market exclusivity in the E.U until 2013. However, different drugs can be approved for the same condition if they are determined to have a better safety and efficacy profile than Aldurazyme.

Orapred

In May 2004, we obtained rights to market and sell Orapred (prednisolone sodium phosphate oral solution), a drug primarily used to treat asthma exacerbations in children as well as the exclusive rights to the Orapred intellectual property. Orapred was approved by the FDA in December 2000. Orapred prescription and sales volumes are subject to seasonal fluctuations, specifically the winter season when the number of asthma incidents is significantly higher than other seasons of the year.

Orapred net product sales during 2004 totaled $18.6 million following the acquisition in May 2004. In the third quarter of 2004, the FDA approved a generic product that has the same strength and route of administration as Orapred. Because of the AA equivalence rating to Orapred, when this product was introduced to the market in the fourth quarter of 2004, many pharmacies and managed care organizations, particularly certain governmental organizations began to substitute the new generic product for Orapred. Since the introduction of this new generic

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product, we have noted a 37% decrease in the Orapred share of the oral liquid prednisolone market from 59% in October 2004 to 22% in December 2004. We have and will continue to implement strategies designed to compete with our generic competition, including pricing and rebate tactics.

We also obtained the exclusive rights to two additional proprietary formulations of Orapred that are currently under development: a room temperature version (Orapred RT) of the oral solution and an oral disintegrating tablet (Orapred ODT). We are currently in discussions with third parties to out-license the Orapred products for marketing outside of the U.S.

Lead Product Candidates

rhASB

We are developing rhASB as an enzyme replacement therapy for the treatment of MPS VI, a debilitating genetic disease similar to MPS I. rhASB is a specific form of recombinant, human N-acetylgalactosamine 4-sulfatase. rhASB has received fast track designation from the FDA as well as orphan drug designation for the treatment of MPS VI in the U.S. and in the E.U. In June 2004, we announced positive results from our Phase 3 clinical trial of rhASB. The clinical trial demonstrated a statistically significant improvement in endurance (p=0.025) in patients receiving rhASB compared to patients receiving placebo as measured by the distance walked in 12 minutes, the primary endpoint in the trial. The data from the trial demonstrated a statistically significant reduction in urinary GAGs (p<0.001) in patients receiving rhASB compared to patients receiving placebo. GAG reduction was one of two secondary endpoints measured in the clinical trial. The 3-minute stair climb, another measure of endurance and also a secondary endpoint, demonstrated a positive trend (p=0.053) in patients receiving rhASB compared to patients receiving placebo. The results of the clinical trial indicate that treatment with rhASB was generally well-tolerated. In the fourth quarter of 2004, we announced that we filed for marketing authorization in both the U.S. and E.U.

Phenoptin

We are developing Phenoptin (tetrahydrobiopterin) as a potential treatment for patients with PKU, a genetic disease in which the body cannot properly metabolize Phe, an essential amino acid found in most protein-containing foods. If left untreated, elevated blood Phe levels can lead to a variety of complications, including severe mental retardation and brain damage, mental illness, seizures and tremors and other cognitive problems. Phenoptin is intended to treat patients with the mild to moderate forms of PKU, which represents approximately 30-50% of the PKU cases. 6R-BH₄ is an essential cofactor for the metabolism of Phe. In December 2004, we announced that we initiated our Phase 2 clinical trial of Phenoptin. Patients from the Phase 2 clinical trial, that meet certain criteria, will be eligible to enroll in the Phase 3 trial that is expected to begin in the first half of 2005. The Phase 3 clinical trial of Phenoptin is expected to be a six-week, multi-center, international, double-blind, placebo-controlled study. We anticipate the trial will enroll patients on an ongoing basis until it is fully enrolled. As a primary efficacy endpoint, the trial will measure the changes in blood Phe levels in patients receiving Phenoptin compared to patients receiving placebo. In July 2004, we announced positive results from an investigator-sponsored pilot clinical study of 6R-BH₄, the active agent in Phenoptin, in 20 patients with PKU. We also announced that we have received orphan drug designation for Phenoptin for the treatment of PKU in both the U.S. and the E.U.

Currently there are no approved drug therapies for the treatment of PKU. In the U.S. and many developed countries, PKU is diagnosed at birth through a blood test. To control blood Phe levels, people with PKU must adhere to a highly-restrictive and unpalatable medical food diet. Compliance with this diet is difficult and usually only occurs through middle childhood, a critical period to ensure normal brain development. Recent data demonstrates that adolescent and adult PKU patients who no longer follow restricted diets suffer from a number of psychological and neurological symptoms. In October 2000, a Consensus Panel convened by the National Institutes of Health recommended that all people with PKU should adhere to this special diet throughout their lives. Phenoptin is intended to provide PKU patients with a more convenient way to manage their disease and potentially enable them to eat a more normal diet.

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Other Product Development Programs

Vibrilase

We are developing Vibrilase as a topically applied enzyme for the debridement of serious burns. In August 2004, we announced positive data from our European Phase 1b clinical trial of Vibrilase. Data from the trial suggest that treatment with Vibrilase is generally safe and well tolerated. Although the trial was designed to primarily measure safety and tolerability, the preliminary efficacy data that were collected in that trial suggest that the treatment is effective in debriding partial-thickness burns. We are currently evaluating the options for advancing this program.

Phenylase^™

We are developing Phenylase as an injectable enzyme therapy for PKU. Phenylase is currently in preclinical development and is intended for those who suffer from classic PKU, the more severe form of the disease and those who suffer from the mild to moderate form of the disease but do not respond to Phenoptin. In preclinical models, Phenylase produced a rapid, dose-dependent reduction in blood Phe levels. We plan to conduct additional preclinical studies of Phenylase in 2005.

NeuroTrans

NeuroTrans is a novel technology that may allow large molecules such as proteins, to be transported efficiently across the blood-brain barrier by means of traditional intravenous delivery. We continue to conduct preclinical studies that explore the delivery of enzymes to the brain for the treatment of lysosomal storage disorders, as well as other neurological disorders.

Immune Tolerance Technology

We are evaluating the potential applicability of our proprietary immune tolerance technology, a platform technology that may address the immune response induced by protein-based therapies, including those used for the treatment of lysosomal storage disorders, hemophilia A, and other medical conditions. The immune response induced by certain protein-based drugs can reduce the efficacy and safety of treatment and is an increasingly common medical problem caused by the emergence of protein-based drugs used to treat chronic diseases. In December 2003, we announced the results of preclinical studies demonstrating the induction of immune tolerance to enzyme therapy that were published in the Proceedings of the National Academy of Sciences, U.S.A. The studies demonstrated a substantial prevention of immune responses to enzyme therapy in an animal model of MPS I, without the continuous use of immunosuppressive drugs. We have conducted additional preclinical studies of our immune tolerance technology in 2004 and expect to conduct additional preclinical studies in 2005.

Manufacturing

We are manufacturing Aldurazyme and rhASB, which are both recombinant enzymes, in our current Good Manufacturing Practices (cGMP) production facility located in Novato, California (Galli Drive). Our Galli Drive facility is approximately 70,000 square feet and includes clean rooms for bulk drug production, utilities, laboratories and other support areas. Vialing and packaging of Aldurazyme are performed by either our joint venture partner or contract manufacturers and vialing and packaging of rhASB are performed by contract manufacturers. We also have approximately 16,000 square feet of cGMP warehouse space and quality control laboratories located near Galli Drive. We believe that Galli Drive and our cGMP warehouse have ample operating capacity to support the commercial demand of both Aldurazyme and rhASB through at least the remainder of this decade 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 vialing and packaging operations for our recombinant enzymes and bulk production for

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clinical and early commercial production of our other product candidates. Orapred is manufactured by Lyne Laboratories through an agreement with Medicis. Phenoptin is manufactured by third-party contract manufacturing organizations.

Our Galli Drive and our cGMP warehouse facilities have been licensed by the FDA, EMEA, Health Canada and health agencies in other countries for the commercial production of Aldurazyme. Our 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 or the assessment of fines or other penalties.

Raw Materials

Raw materials and supplies required for the production of our products and product candidates are available, in some instances from one supplier, and in other instances, from multiple suppliers. In those cases where raw materials are only available through one supplier, such supplier may be either a sole source (the only recognized supply source available to us) or a single source (the only approved supply source for us among other sources). We have adopted policies to attempt, to the extent feasible, to minimize our raw material supply risks, including maintenance of greater levels of raw materials inventory and implementation of multiple raw materials sourcing strategies, especially for critical raw materials. Although to date we have not experienced any significant delays in obtaining any raw materials from our suppliers, we cannot provide assurance that we will not face shortages from one or more of them in the future.

Sales and Marketing

Our dedicated sales force consists of 70 employees as of December 31, 2004, who support Orapred and regularly call on approximately 17,000 pediatricians, pulmonologists, allergists and family physicians throughout the U.S. We believe that the size of our sales force is appropriate to effectively reach our target audience. We also have developed a corporate level sales and marketing infrastructure that manages the activities related to national accounts, third-party sales and marketing vendors, managed care organizations, and other third-party payers, such as state Medicaid agencies.

We use a variety of marketing techniques to promote Orapred including sampling, advertising and promotional materials, specialty publications, coupons, and website information. We have and will continue to implement strategies designed to compete with our generic competition, including pricing and rebate tactics.

We have created an incentive compensation program for our sales force that is based upon Orapred prescription volume and market share achievement. We expect to utilize our existing sales force to support pre-commercial activities and the commercial launch of our future products in the U.S., including rhASB and Phenoptin. We anticipate out-licensing rhASB and Phenoptin to companies that can market these products outside the U.S. Since the integration of the Ascent Pediatrics sales force during 2004, the sales force is also assisting with patient identification efforts for Aldurazyme and rhASB. We utilize a third-party logistics company to store and distribute Orapred from its warehouse in Tennessee.

Pursuant to our joint venture agreement, Genzyme is responsible for sales, marketing, distribution, obtaining reimbursement worldwide and international regulatory submissions of Aldurazyme.

Patents and Proprietary Rights

Our success depends on an intellectual property portfolio that supports our future revenue streams and also erects barriers to our competitors. We are maintaining and building our patent portfolio through: filing new patent applications; prosecuting existing applications; licensing and acquiring new patents and patent

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applications; and enforcing our issued patents. Furthermore, we seek to protect our ownership of know-how, trade secrets and trademarks through an active program of legal mechanisms including assignments, confidentiality agreements, material transfer agreements, research collaborations and licenses.

Our number of issued patents now stands at 166 patents including 25 patents issued by the U.S. Patent and Trademark Office (USPTO). Furthermore, our portfolio of pending patent applications totals 122 applications, including 31 pending U.S. applications.

The issuance of four core patents has strengthened our patent position for Aldurazyme. U.S. Patent No: 6,426,208 covers our ultra-pure alpha-L-iduronidase composition of Aldurazyme and U.S. Patent No. 6,585,971 describes methods of treating deficiencies of alpha-L-iduronidase by administering pharmaceutical compositions comprising such ultra-pure alpha-L-iduronidase. The third U.S. patent, 6,569,661, details a method of purifying such ultra-pure alpha-L-iduronidase. A fourth patent, U.S. Patent No. 6,858,206 B1 issued on February 22, 2005 broadens the scope of patent protection for methods of treatment to include biologically active fragments of the ultra-pure alpha-L-iduronidase composition of Aldurazyme. In addition, our Australian Patent No. 84635/01 granted on September 16, 2004 covers composition, methods of production, purification and treatment.

Transkaryotic Therapies Inc. (TKT) has announced that three U.S. patents on alpha-L-iduronidase had been issued and that these patents had been exclusively licensed to TKT. We have examined such issued U.S. patents, the related U.S. and foreign applications and their file histories, the prior art and other information available as of the date of this report. Corresponding foreign applications were filed in Canada, Europe and Japan. The European application was rejected and abandoned and cannot be re-filed, but the Canadian and Japanese applications are still pending and are being prosecuted by the applicants. We believe that such patents and patent applications may not survive a challenge to patent validity. 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 interest of our joint venture with Genzyme to market Aldurazyme with commercial diligence, in order to provide MPS I patients with the benefits of Aldurazyme.

In October 2003, Genzyme and TKT announced their collaboration to develop and commercialize an unrelated drug product. In connection with the collaboration agreement, Genzyme and TKT signed a global legal settlement involving an exchange of non-suits between the companies. As part of this exchange, TKT has agreed not to initiate any patent litigation against Genzyme or our joint venture relating to Aldurazyme.

We believe that these patents, and patent applications, do not affect our ability to market Aldurazyme in Europe. As described above, a European patent application with similar claims was rejected by the European Patent Office, abandoned by the applicants, and cannot be refiled.

With respect to Orapred, we obtained the exclusive rights to the Orapred intellectual property from Medicis.

Customers

Our Orapred customers include certain of the nation’s leading wholesale pharmaceutical distributors, such as Cardinal Health, Inc. (Cardinal), McKesson Corporation (McKesson) and AmerisourceBergen Corporation (AmerisourceBergen). During 2004, these customers accounted for the following portions of our Orapred net product sales:

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Despite the significant concentration of customers, the demand for Orapred is driven by prescriptions and we are not dependent on any individual distributor or any specific combination of distributors with respect to Orapred sales.

Government Regulation

Food and Drug Administration Modernization Act of 1997 (Modernization Act)

The Modernization Act was enacted, in part, to ensure the availability of safe and effective drugs 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. The fast track provisions essentially codify the FDA’s accelerated approval regulations for drugs. A fast track product is defined as a new drug intended for the treatment of a serious or life-threatening condition that demonstrates the potential to address unmet medical needs for that condition. Under the fast track program, the sponsor of a new drug may request that the FDA designate the drug 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 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 may be subject to post-approval studies to validate or confirm the effect on the clinical endpoint, or, if based on a surrogate endpoint, to validate or confirm the surrogate endpoint, plus the FDA must review all promotional materials prior to drug approval. 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 (PDUFA), which governs the time period goals the FDA has committed to reviewing a license application, does not begin until the complete application is submitted.

Because fast track products are intended to treat serious or life-threatening conditions and must demonstrate the potential to address unmet medical needs for such conditions, a license application for a product in a fast track drug development program ordinarily will be eligible for priority review wherein the PDUFA timeframe for the review is 6 months instead of 10 months.

The FDA has designated rhASB a fast track product for the treatment of MPS VI. We cannot predict the ultimate impact, if any, of the fast track process on the timing or likelihood of FDA approval of rhASB or any of our other potential products.

Orphan Drug Designation

Aldurazyme, rhASB and Phenoptin have received orphan drug designations from the FDA. Orphan drug designation is granted by the FDA to drugs intended to treat a rare disease or condition, which for this program is defined as having a prevalence less than 200,000 individuals in the U.S. Orphan drug designation must be requested before submitting a license application. After the FDA grants orphan drug designation, the generic identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. Orphan drug exclusive marketing rights may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the drug. A similar system for orphan drug designation exists in the E.U. Aldurazyme, rhASB and Phenoptin received orphan medicinal product designation by the European Commission.

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. However, if an orphan

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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 in the U.S. and 10 years in Europe. Although obtaining approval to market a product with orphan drug exclusivity may be advantageous, we cannot be certain:

Competition

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 product programs:

Aldurazyme

Other than Aldurazyme, there are currently no approved drugs for the treatment of MPS I. Bone marrow transplantation has been used to treat severely affected patients, generally under the age of two, with some success. Bone marrow transplantation is associated with high morbidity and mortality rates as well as with problems inherent in the procedure itself, including graft vs. host disease, graft rejection and donor availability, which limits its utility and application.

Orapred

There are a number of products that are direct competitors with Orapred. Some of these products are less expensive than Orapred. In the third quarter of 2004, the FDA approved a generic product that has the same strength and route of administration as Orapred. Because this generic product is the same drug substance and concentration as Orapred, the generic product has an AA equivalence rating to Orapred, which allows for the generic product to be substituted at pharmacies without consulting the prescribing physician. Since the introduction of this new generic product to Orapred, we have noted a 37% decrease in the Orapred share of the oral liquid prednisolone market from 59% in October 2004 to 22% in December 2004. We have and will continue to implement strategies designed to compete with our generic competition, including pricing and rebate tactics.

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rhASB

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.

Phenoptin and Phenylase

There are currently no approved drugs for the treatment of PKU. PKU is commonly treated with a medical food diet that is highly-restrictive and unpalatable. We perceive medical foods as a complement to Phenoptin and Phenylase and not a significant competitive threat. Dietary supplements of large neutral amino acids (LNAA) have also been used in the treatment of PKU. This treatment may be a competitive threat to Phenoptin and Phenylase. However, because LNAA is a dietary supplement, the FDA has not evaluated any claims of efficacy of LNAA.

With respect to Phenoptin, we are aware of two other companies that produce forms of 6R-BH₄, and that 6R-BH₄ has been used in certain instances for the treatment of PKU. We do not believe that either of these companies are currently actively developing 6R-BH₄ as a drug product to treat PKU in the U.S. or E.U. Although a significant amount of specialized knowledge and resources would be required to develop and commercially produce 6R-BH₄ as a drug product to treat PKU in the U.S. and E.U., these companies may build or acquire the capability to do so. Additionally, we are aware that another company is developing an oral enzyme therapy to treat PKU; however the therapy is in an early stage of development.

Vibrilase

Other enzymatic products exist besides Vibrilase that may be 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. However, we are aware of another company that is developing an enzymatic product for the debridement of serious burns. The primary competition for Vibrilase continues to be surgical debridement.

Employees

As of February 22, 2005, we had 359 full-time employees, 170 of whom are in operations, 77 of whom are in research and development, 77 of whom are in sales and marketing, and 35 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.

FACTORS THAT MAY AFFECT FUTURE RESULTS

An investment in our securities 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 securities to decline, and you may lose all or part of your investment.

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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.

Since we began operations in March 1997, we have been engaged primarily in research and development and have operated at a net loss for the entire time. Our first product, Aldurazyme, was approved for commercial sale in the U.S. and the E.U. and has generated approximately $54.1 million in net sales revenue to our joint venture from the product’s launch (May 2003) through December 31, 2004. We acquired exclusive rights to Orapred in May 2004 and reported $18.6 million in Orapred net product sales following the acquisition through December 31, 2004. We have no revenues from sales of our product candidates. As of December 31, 2004, we had an accumulated deficit of $488.8 million. We expect to continue to operate at a net loss for the foreseeable future. Our future profitability depends on our marketing and selling of Orapred, the successful commercialization of Aldurazyme by our joint venture partner, Genzyme, our receiving regulatory approval of our product 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 at planned levels and be forced to reduce or discontinue operations.

If we fail to obtain the capital necessary to fund our operations, our financial results and financial condition will be adversely affected.

We anticipate a need for additional financing to fund our future operations, including the commercialization of our drug product candidates currently under development. We may be unable to raise additional financing when needed due to a variety of factors, including our financial condition, the status of our product programs, and the general condition of the financial markets. If we fail to raise additional financing as we need such funds, 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. The amount of capital we will need depends on many factors, including:

Moreover, our fixed expenses such as rent, license payments, interest expense and other contractual commitments are substantial and will increase in the future. These fixed expenses will increase because we expect to enter into:

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We believe that our cash, cash equivalents, short-term investment securities, restricted cash balances and cash balances related to long-term debt at December 31, 2004 will be sufficient to meet our operating and capital requirements into the first quarter of 2006. These estimates are based on assumptions and estimates, which may prove to be wrong. We may need to sell equity or debt securities to raise additional funds if we are unable to satisfy our liquidity requirements. The sale of additional securities may result in additional dilution to our stockholders. Furthermore, additional financing may not be available in amounts or on terms satisfactory to us or at all. This could result in the delay, reduction or termination of our research which could harm our business.

If we fail to obtain or maintain regulatory approval to commercially manufacture or sell our drugs and future drug products, or if approval is delayed, we will be unable to generate revenue from the sale of these products, our potential for generating positive cash flow will be diminished, and the capital necessary to fund our operations will be increased.

We must obtain regulatory approval before marketing or selling our drug products in the U.S. and in foreign jurisdictions. In the U.S., 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. Both Aldurazyme and Orapred have received regulatory approval to be commercially marketed and sold in the U.S., and Aldurazyme has received regulatory approval to be commercially marketed and sold in the E.U. and several other countries. If we fail to obtain regulatory approval for our other product candidates, we will be unable to market and sell those drug products. Because of the risks and uncertainties in pharmaceutical development, our product candidates could take a significantly longer time to gain regulatory approval than we expect or may never gain approval.

From time to time during the regulatory approval process for our products and our product candidates, we maintain discussions with the FDA and foreign regulatory authorities regarding the regulatory requirements of our development programs. To the extent appropriate, we accommodate the requests of the regulatory authorities and, to date, we have generally been able to reach reasonable accommodations and resolutions regarding the underlying issues. However, we are often unable to determine the outcome of such deliberations until they are final. If we are unable to effectively and efficiently resolve and comply with the inquiries and requests of the FDA and foreign regulatory authorities, the approval of our product candidates may be delayed and their value may be reduced.

After any of our products receive regulatory approval, they remain subject to ongoing FDA regulation, including, for example, changes to the product labeling, new or revised regulatory requirements for manufacturing practices, reporting adverse reactions and other information, and product recall. The FDA can withdraw a product’s approval under some circumstances, such as the failure to comply with existing or future regulatory requirements, or unexpected safety issues. If regulatory approval is delayed or withdrawn, our management’s credibility, the value of our company and our operating results will be adversely affected. Additionally, we will be unable to generate revenue from the sale of these products, our potential for generating positive cash flow will be diminished and the capital necessary to fund our operations will be increased.

To obtain regulatory approval to market our products, preclinical studies and costly and lengthy clinical trials are 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 product candidate. We expect the number of preclinical studies and clinical trials that the regulatory authorities will require will vary depending on the product candidate, 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 product candidates. Furthermore, even if we obtain favorable results in preclinical studies on animals, the results in humans may be significantly different.

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After we have conducted preclinical studies in animals, we must demonstrate that our drug products are safe and efficacious for use on the targeted 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 product candidates. Additional factors that can cause delay or termination of our clinical trials include:

Typically, if a drug product is intended to treat a chronic disease, as is the case with some of our product candidates, safety and efficacy data must be gathered over an extended period of time, which can range from six months to three years or more.

The fast track designation for our product candidates, if obtained, may not actually lead to a faster review process and a delay in the review process or in the approval of our products will delay revenue from the sale of the products and will increase the capital necessary to fund these programs.

rhASB has obtained fast track designation and has received a six-month review timeframe for the U.S. Our other product candidates may not receive fast track designation or a six-month review timeframe. Even with fast track designation, it is not guaranteed that the total review process will be faster or that approval will be obtained, if at all, earlier than would be the case if the product had not received fast track designation. If the review process or approval for rhASB is delayed, realizing revenue from the sale of rhASB will be delayed and the capital necessary to fund our development program will be increased.

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 facilities, processes and quality systems; and the manufacture of our drugs must comply with cGMP regulations. The cGMP regulations govern facility compliance, quality control and documentation policies and procedures. In addition, 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 cGMP warehouse facilities have been inspected and licensed by the State of California for clinical pharmaceutical manufacture and have been approved by the FDA, the EMEA and Health Canada for the commercial manufacture of Aldurazyme. We have entered into contracts with third-party manufacturers to produce Orapred and Phenoptin.

Due to the complexity of the processes used to manufacture Aldurazyme and our product candidates, we may be unable to continue to pass or initially pass federal or international regulatory inspections in a cost effective manner. For the same reason, any potential third-party manufacturer of Aldurazyme or our product candidates may be unable to comply with cGMP regulations in a cost effective manner. If we, or our third-party manufacturers with whom we contract, are unable to comply with manufacturing regulations, we will not be able to sell our products.

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If we fail to obtain or maintain orphan drug exclusivity for some of our products, our competitors may sell products to treat the same conditions and our revenues will be reduced.

As part of our business strategy, we intend to develop some 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 U.S. The company that first obtains 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. Orphan drug exclusive marketing rights may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the drug. Similar regulations are available in the E.U. with a 10-year period of market exclusivity.

Because the extent and scope of patent protection for some of our drug products is particularly limited, orphan drug designation is especially important for our products that are eligible for orphan drug designation. For eligible drugs, 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 that do not have patent protection, our competitors may then sell the same drug to treat the same condition and our revenues will be reduced.

Even though we have obtained orphan drug designation for certain of our product candidates and even if we obtain orphan drug designation for our future product candidates, due to the uncertainties associated with developing pharmaceutical products, we may not be the first to obtain marketing approval for any orphan indication. Further, even if we obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because different drugs can be approved for the same condition. Orphan drug designation neither shortens the development time or regulatory review time of a drug, nor gives the drug any advantage in the regulatory review or approval process.

Because the target patient populations for some of our products are small, we must achieve significant market share and obtain high per-patient prices for our products to achieve profitability.

Aldurazyme and rhASB both target diseases with small patient populations. As a result, our per-patient prices must be relatively high in order to recover our development costs and achieve profitability. Aldurazyme targets patients with MPS I and rhASB targets patients with MPS VI. We believe that we will need to market worldwide to achieve significant market penetration of each product. In addition, we are developing other drug candidates to treat conditions, such as other genetic diseases, with small patient populations. Due to the expected costs of treatment for Aldurazyme and rhASB, we may be unable to maintain or obtain sufficient market share for Aldurazyme or rhASB 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 payers, the sales of our drugs would be adversely affected or there may be no commercially viable markets for our products.

The course of treatment for patients using Aldurazyme and rhASB is 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 or rhASB without reimbursement from third-party payers. Additionally, even if there is a commercially viable market, if the level of reimbursement is below our expectations, our revenue and gross margins will be adversely affected.

Ascent Pediatrics had reimbursement agreements for Orapred with many of the major U.S. third-party payers. We have agreed with these third parties to maintain the existing agreements at this time and have renegotiated certain agreements. In the future, we expect to enter into additional agreements with other third-party payers and we expect to evaluate and renegotiate additional existing agreements. Reimbursement strategy

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is a complicated process that is based on a number of factors, including competition, patient profile and the condition being treated, among others.

Third-party payers, such as government or private health care insurers, carefully review and increasingly challenge the prices charged for drugs. Reimbursement rates from private companies vary depending on the third-party payer, 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 currently have limited expertise in obtaining reimbursement. We rely on the expertise of our joint venture partner, Genzyme, to obtain reimbursement for the costs of Aldurazyme. In addition, we will need to develop our own reimbursement expertise for future drug candidates and as necessary to support Orapred. For our future products, we will not know what the reimbursement rates will be until we are ready to market the product and we actually negotiate the rates. If we are unable to obtain sufficiently high reimbursement rates, our products may not be commercially viable or our future revenues and gross margins may be adversely affected.

We expect that, in the future, reimbursement will be increasingly restricted both in the U.S. 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 payers 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 U.S. 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 reimbursement for medical treatment by third-party payers, which may render our products not commercially viable or may adversely affect our future revenues and gross margins.

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. Patent protection may not be available for some of the products we are developing. 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 biopharmaceutical products are complex and uncertain. The scope and extent of patent protection for some of our products and product candidates are particularly uncertain because key information on some of our product candidates has existed in the public domain for many years. Other parties have published the structure of the enzymes and compounds, the methods for purifying or producing the enzymes and compounds or the methods of treatment. The composition and genetic sequences of animal and/or human versions of Aldurazyme and many of our product candidates have been published and are believed to be in the public domain. 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 or compounds with no prospect of broad composition-of-matter patents, other forms of patent protection or orphan drug status may provide us with a competitive advantage. As a result of these uncertainties, investors should not rely on patents as a means of protecting our products or product candidates, including Aldurazyme or Orapred.

We own or license patents and patent applications related to Aldurazyme, Orapred, and certain of our product candidates. However, these patents and patent applications do not ensure the protection of our intellectual property for a number of other reasons, including the following:

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In addition, competitors also seek patent protection for their technology. Due to the number of patents in our field of technology, we cannot be certain 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 the following:

It is also unclear whether our trade secrets are adequately protected. 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 U.S. 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, hospitals, universities or other educational institutions. These research partners may be unwilling to grant us any exclusive rights to technology or products derived from these collaborations prior to entering into the relationship.

If we do not obtain required licenses or rights, we could encounter delays in our product development efforts while we attempt to design around other patents or even be prohibited from developing, manufacturing or selling products requiring these licenses. There is a