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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 DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NO. 0-21481
TRANSKARYOTIC THERAPIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 04-3027191
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
195 ALBANY STREET
CAMBRIDGE, MASSACHUSETTS 02139
(ADDRESS OF PRINCIPAL (ZIP CODE)
EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (617) 349-0200
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
(TITLE OF CLASS)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the 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 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. [ ]
As of March 1, 2000, the approximate aggregate market value of the voting
stock held by non-affiliates of the registrant was $631,000,000, based on the
last reported sale price of the registrant's Common Stock on The Nasdaq Stock
Market as of the close of business on March 1, 2000. There were 22,635,847
shares of Common Stock outstanding as of March 1, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
Document 10-K Part
- -------- ---------
Specifically Identified Portions of the Registrant's Proxy Statement
for the Annual Meeting of Stockholders to be held on June 15, 2000 III
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PART I
ITEM 1. BUSINESS
SUMMARY
Transkaryotic Therapies, Inc. ("TKT" or "the Company") is a
biopharmaceutical company building a broad and renewable product pipeline
based on three proprietary development platforms: Gene-Activated-TM-
proteins, Niche Protein-TM- products, and Gene Therapy. The Company currently
has four products in clinical development: Gene-Activated-TM- erythropoietin
("GA-EPO-TM-") in Phase III trials for the treatment of anemia, a second
Gene-Activated protein ("GA-II") in a Phase I trial, Replagal-TM-
("alpha-galactosidase A" or "alpha-gal") completed Phase II trials for the
treatment of Fabry disease, and Factor VIII gene therapy in a Phase I trial
for the treatment of hemophilia A. TKT intends to expand its clinical
pipeline by initiating clinical trials of one additional Gene-Activated
protein and two additional Niche Protein products over the next 12 months.
The Company has a balanced commercialization strategy, which is designed to
leverage the size and experience of corporate partners for certain products
while building a small and efficient commercial infrastructure for others.
Accordingly, the Company has entered into collaborations with Aventis Pharma
("Aventis"), formerly Hoechst Marion Roussel, Inc., with respect to its first
two Gene-Activated proteins, with Sumitomo Pharmaceuticals Co., Ltd.
("Sumitomo") for Replagal in Japan, and with Genetics Institute, Inc. ("GI")
for Factor VIII gene therapy in Europe. TKT intends to independently market
its Niche Protein products and gene therapy products, as well as a number of
its Gene-Activated proteins.
GENE ACTIVATION TECHNOLOGY BACKGROUND
PROTEIN PRODUCTION: THREE TECHNOLOGICAL WAVES
The therapeutic value of certain proteins produced by the human body
has been known for decades. One of the major advances in 20th-century medicine
was the development of systems for the large-scale production of therapeutic
proteins outside the body. For example, prior to the development of a
manufacturing process for insulin more than seventy years ago, patients with
Type I (juvenile onset) diabetes were offered no effective treatment and
generally died of starvation at an early age. Following the development of
pharmaceutical insulin preparations for injection, Type I diabetics could live
long and relatively normal lives. During this first wave of protein production
technology, proteins generally were purified from human or animal tissue.
Insulin, for example, was isolated from the pancreas of pigs and cattle, and
growth hormone, for the treatment of short stature, was isolated from the
pituitaries of cadavers.
During the second wave of protein production technology, based on the
cloning of human genes, proteins were manufactured using conventional genetic
engineering techniques. As a result, by the mid-1980's, it became routine to
engineer cells to produce therapeutic proteins at levels that were substantially
in excess of what could be obtained by purification from tissue. However, since
many of the proteins produced by
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conventional genetic engineering techniques had previously been purified, the
patent protection afforded by this second wave of protein production technology
tended to focus on the genes encoding therapeutic proteins. Accordingly, many
patents have been issued covering isolated and purified DNA sequences encoding
such proteins, various vectors used to insert such DNA sequences into production
cell lines, and cell lines modified by the insertion of such DNA sequences. TKT
believes its proprietary gene activation technology represents the third wave in
the evolution of protein production technology in that it is based on the
activation of genes encoding therapeutic proteins in human cells rather than the
cloning and transfer of these genes. TKT's gene activation technology avoids
using the approach to protein production associated with the second wave. The
Company believes this will allow it to develop and commercialize a large number
of therapeutic proteins, including potentially improved versions of many that
are currently marketed.
GENE STRUCTURE AND REGULATION OF GENE EXPRESSION
Recent advances in molecular biology, cell biology, and genomics have
led to a much better understanding of the structure and function of human genes
than was possible only a few years ago. It is now generally accepted that
virtually all genes contain certain DNA sequences that provide information
necessary for the cell to assemble a specific sequence of amino acids that make
up a protein ("coding DNA sequences"). Thus, each gene can be viewed as the
blueprint for a particular protein, and "gene expression" is the process that
leads to the synthesis of the protein it encodes. Gene expression is controlled
by certain DNA sequences which function as switches that "turn on" the gene and
trigger the synthesis of the protein ("regulatory DNA sequences"). Despite the
staggering variety of proteins synthesized by the cells of the body, this
process is universal.
Essentially every human cell contains the same set of approximately
100,000 genes, but each cell type actually produces only a subset of the 100,000
proteins possible. For example, although essentially all human cells contain the
insulin gene, only certain cells of the pancreas actually produce insulin. The
regulatory switches that turn on gene expression in the appropriate cell type
also turn off gene expression in all other cell types. For this reason, only
pancreatic cells express insulin--the regulatory DNA sequences normally
associated with the insulin gene prevent expression elsewhere in the body. TKT's
gene activation technology is based on activating previously silent genes by
bypassing regulatory DNA sequences set in the "off position" with regulatory DNA
sequences set in the "on position."
CONVENTIONAL RECOMBINANT PROTEIN PRODUCTION
By the 1970's, the clinical benefits of several proteins were
well-known and the potential benefit of many others was envisioned. Based on a
series of basic discoveries in the 1960's and 1970's, scientists learned to
clone and manipulate genes of therapeutic interest, leading directly to the
birth of the biotechnology industry and the large scale production of
therapeutic proteins. To produce large quantities of a therapeutic protein
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using conventional genetic engineering techniques, scientists first clone the
relevant human gene by isolating the coding DNA sequences for the gene from the
human cell and transferring them to bacteria, where large quantities of the gene
are copied. The cloned gene is then isolated from the bacteria and placed in a
test tube. In this test tube, the cloned gene is then fused to appropriate
regulatory DNA sequences, and the resulting DNA fragment containing both the
regulatory DNA sequences and the coding DNA sequences is inserted into a
non-human (mammalian, yeast, or bacterial) cell. This genetically modified cell
is then propagated in large bioreactors for commercial-scale production of the
protein.
TKT'S PROPRIETARY GENE ACTIVATION TECHNOLOGY
Although the conventional approach to recombinant protein production is
quite powerful, its use today faces certain commercial barriers and technical
limitations. The primary barrier is that biotechnology companies have sought and
obtained patent protection covering many of the techniques used to produce
commercially-marketed proteins using conventional genetic engineering
techniques. These patent rights have served as effective barriers to entry,
minimizing competition in the therapeutic proteins market. In addition,
conventional genetic engineering techniques for protein production may face
technical limitations arising from the need to first clone the gene of interest.
For certain proteins, this step adds to development times, increases costs, and
is technologically challenging. Technological difficulties may also arise from
the use of non-human production cell lines, which may result in the production
of proteins that have therapeutically significant differences from those
naturally produced by the cells of the human body. Furthermore, production
processes based on conventional genetic engineering may not have incorporated
recent advances in cell culture systems with significant efficiency and cost
advantages as compared to processes originally developed over a decade ago.
To overcome these commercial barriers and technical limitations, TKT
has developed gene activation technology for the production of therapeutic
proteins. This proprietary technology does not rely on the manipulation of
cloned genes. Using this proprietary technology, TKT has succeeded in producing
therapeutic proteins in human cells by bypassing regulatory DNA sequences set in
the "off position" with regulatory DNA sequences set in the "on position" in
order to activate the gene of interest. The Company's gene activation technology
does not require the manipulation of the protein coding DNA sequences of the
gene. The bypass of an "off switch" with an "on switch" is accomplished by "gene
targeting."
Gene targeting is a technology by which DNA fragments can be "cut and
pasted" precisely at pre-selected, desirable locations within the cell's genome.
Gene targeting can be thought of as molecular surgery, with the surgical tools
literally functioning at the molecular level. The technical term for gene
targeting, homologous recombination, reflects its underlying mechanism: cells
have the capacity to align two homologous DNA sequences (two sequences that are
quite similar) and exchange one with the other. In gene activation, the new
regulatory sequences are flanked with "homing" sequences and
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structural sequences which allow the cell to exchange the new active regulatory
sequences in place of the old inactive ones. The new sequences must be
introduced precisely in order to allow the proper initiation of gene expression.
In order to manufacture a protein of therapeutic interest using gene
activation technology, a human cell line producing the protein must be
generated. This cell line will ultimately become the master cell bank for large
scale manufacturing and is generated as follows:
1. Determine the sequence of a portion of the regulatory DNA
sequences that control the gene of interest;
2. Build a "targeting fragment" by fusing homing sequences to a
new regulatory region known to be active in the human cell
line chosen for manufacturing;
3. Introduce the targeting fragment into the cell line;
4. Identify and propagate an activated cell line producing the
protein of interest; and
5. Optimize protein productivity and prepare the cell line for
commercial scale manufacturing.
The Company has successfully accomplished all of the steps described
above for GA-EPO, GA-II, and a third Gene-Activated protein ("GA-III"). The
results of TKT's work in this area have led to proof-of-concept that (i) gene
targeting can be used to direct the integration of regulatory and structural
sequences to a specific, pre-selected position in the genome, (ii) the product
of the targeting event is a cell containing an activated gene, and (iii) the
protein production properties of cells created by gene activation are
predictable and suitable for, and have been successfully used in, large-scale
manufacturing. Accordingly, the Company believes that these methods may be used
to express a wide variety of therapeutically valuable proteins at levels
suitable for large-scale manufacturing purposes. Because the gene activation
technology avoids many of the technical limitations of conventional recombinant
protein production technology, the Company also believes that the gene
activation technology is at least as efficient as, and may be more
cost-effective than, conventional genetic engineering techniques for protein
production.
TKT'S GENE-ACTIVATED-TM- PROTEIN PROGRAMS
The Company's initial strategy in exploiting its proprietary gene
activation technology is to commercialize Gene-Activated versions of protein
products that have proven medical utility, have received marketing approval from
regulatory authorities and have achieved significant revenues in major markets.
These protein products have experienced high rates of acceptance among
physicians and health care providers. The
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Company estimates that 1999 total worldwide sales for the ten largest marketed
therapeutic proteins were approximately $17.4 billion (see Table I). As the
number of new approved protein products increases and as the number of approved
indications for such products increases, the Company believes that the market
for these protein products will continue to experience substantial growth. The
Company also believes that the broad applicability of its gene activation
technology for protein production and the fact that many additional proteins are
currently in clinical development will provide a large number of candidates for
commercialization using TKT's gene activation technology.
TABLE I. COMPANY ESTIMATE OF 1999 WORLDWIDE PROTEIN PRODUCT REVENUES (IN MILLIONS)
PROTEIN PRIMARY INDICATION REVENUES
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Erythropoietin Anemia $4,800
Insulin Diabetes 2,800
G-CSF Neutropenia 1,900
Growth Hormone Short stature 1,700
alpha-interferon Hepatitis/Cancer 1,500
Factor VIII Hemophilia A 1,500
beta-interferon Multiple sclerosis 1,300
FSH Infertility 900
tPA Myocardial infarction 500
Glucocerebrosidase Gaucher disease 500
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$17,400
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TKT has focused its initial gene activation efforts on the development
of its GA-EPO product in collaboration with Aventis. Erythropoiesis is the
process by which red blood cells (erythrocytes) are produced. When the body
requires additional red blood cells, the kidney normally produces
erythropoietin, a circulating protein hormone that stimulates the
differentiation of certain progenitor cells in the bone marrow. The kidney's
critical role in red blood cell production was determined in the 1950's, and
erythropoietin was first isolated and purified from the urine of patients with
anemia in the 1970's (the first wave). The gene encoding erythropoietin was
cloned in the 1980's and used for production of the protein using conventional
genetic engineering techniques (the second wave). Erythropoietins have been
successfully used to treat anemia associated with a variety of conditions,
including the anemia of kidney failure (which causes a reduction in the body's
ability to produce the protein) and the anemia of chemotherapy (which causes the
destruction of a large number of bone marrow progenitor cells).
GA-EPO-TM- DEVELOPMENT STATUS
TKT has successfully applied its gene activation technology to produce
GA-EPO in human cells (the third wave). To illustrate the underlying concept of
TKT's gene activation process, consider that essentially all human cells contain
the erythropoietin gene, yet only certain cells of the kidney actually produce
erythropoietin. In all other cells in the human body, the erythropoietin gene is
inactive. The erythropoietin gene is not expressed in most human cells because
regulatory sequences in those cells prevent the
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protein from being made; the gene is controlled by a switch ("regulatory DNA
sequences") that is permanently in the "off" position. The goal of TKT's GA-EPO
program was to by-pass this "off switch" in a human cell in which the
erythropoietin gene is inactive with regulatory sequences inserted into the cell
which comprise an "on switch" to activate erythropoietin expression.
TKT has generated a GA-EPO producing cell line that has been scaled up
to commercial production levels. To accomplish this, TKT first studied the
regulatory region that prevents expression of the erythropoietin gene in most
human cells and developed an activation strategy. Next, a targeting fragment was
constructed by fusing certain homing sequences to a new regulatory region known
to be active in the human cell line chosen for manufacturing. The targeting
fragment was then introduced into the cell line under conditions appropriate for
homologous recombination to occur, and a resulting cell line that produced
GA-EPO was identified. The GA-EPO productivity of the cell line was optimized,
and the cells were prepared for commercial-scale manufacturing. The production
process is at commercial scale and has been successfully used to produce GA-EPO
for clinical trials.
The purified protein has been subjected to an extensive series of
analyses and has the properties expected of a human erythropoietin preparation.
In particular, the protein has an appropriate molecular weight, amino acid
composition, amino acid sequence, secondary structure, and glycosylation
profile. GA-EPO has been shown to function IN VITRO and IN VIVO in a
dose-dependent manner. Finally, preclinical safety tests performed to date have
yielded satisfactory results.
Aventis has completed both Phase I and Phase II studies of GA-EPO. In
these studies, the safety of GA-EPO was comparable to marketed erythropoietins,
and GA-EPO demonstrated a dose-dependent increase in red blood cell production.
In December 1999, Aventis completed the dosing for pivotal Phase III
clinical trials of GA-EPO in both the U.S. and U.K. Longer term maintenance
studies are ongoing. The studies were designed to assess the safety and efficacy
of GA-EPO as a treatment for anemia of renal failure in patients who are on
dialysis and patients who are not yet undergoing dialysis, and are intended to
support filing for market approval. The data are being collected and, if
positive, TKT expects Aventis will file for marketing approval in the U.S. and
the U.K. in 2000.
Approximately 1,400 patients with renal failure participated in GA-EPO
Phase III clinical trials. The clinical program was designed to deliver GA-EPO
by both intravenous and subcutaneous routes of administration.
Also in December 1999, Aventis filed an Investigational New Drug
Application ("IND") to commence a Phase III study of GA-EPO as a treatment for
anemia associated with cancer chemotherapy.
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DEVELOPMENT STATUS OF OTHER GENE-ACTIVATED-TM- PROTEIN PRODUCTS
In collaboration with Aventis, TKT is developing GA-II. Aventis
accepted for development the Gene-Activated cell line for GA-II in June 1997 and
manufacturing is at commercial scale. In December 1999, Aventis filed an IND to
commence clinical testing of this product.
GA-III is in preclinical testing. Manufacturing scale-up is in process,
and the Company expects to file an IND for this product in 2000. TKT is
currently developing GA-III independently.
TKT believes that numerous development opportunities exist for
Gene-Activated proteins. In addition to the proteins discussed above, the
Company is currently developing four other Gene-Activated proteins. These
programs are in the research or preclinical stage.
GENE-ACTIVATED-TM- PROTEIN PRODUCT COLLABORATIONS AND COMMERCIALIZATION STRATEGY
In order to rapidly develop and exploit its gene activation technology,
TKT has entered into two strategic alliances with Aventis, the first in May 1994
and the second in March 1995. The alliances are focused on the development of
GA-EPO and GA-II.
Under two license agreements, Aventis was granted worldwide exclusive
rights to make, use, and sell the two products. Aventis is responsible, at its
own expense, for all worldwide development, manufacturing, and marketing
activities for both products. Pursuant to the agreement pertaining to GA-II, TKT
also granted Aventis an option to commercialize certain aspects of TKT's gene
therapy technologies. As to both products, TKT has successfully generated cell
lines sufficient for scale-up to commercial production levels that have been
accepted and scaled up by Aventis.
Each of the license agreements expires, on a country by country basis,
on the later of (i) 10 years after the first commercial sale of the covered
product in such country or (ii) the last to expire of the patents licensed under
such agreement with respect to such country, subject to earlier termination by
either party under specified circumstances, including a material breach of the
agreement by the other party.
TKT has the potential to receive up to $125.0 million ($58.0 million
for GA-EPO and $67.0 million for GA-II) from Aventis from the two alliances,
consisting of license fees, equity investments, milestone payments, and research
funding. As of December 31, 1999, TKT had received $60.5 million of such amount
($26.5 million for GA-EPO and $34.0 million for GA-II). The remaining payments
are contingent upon the achievement of milestones in connection with the
continued development of these products by Aventis. The amounts received to date
include all of the scheduled equity payments. TKT also is entitled to a low
double-digit royalty on net sales of these two products worldwide.
In addition, Aventis has assumed the cost of defense of the Amgen
and Kirin-Amgen litigations. The Company is required to reimburse Aventis for
its share of litigation
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expenses, as defined, from future royalties, if any, otherwise payable by
Aventis as to the sale of GA-EPO and in certain other circumstances. See
Note 11 to Notes to Consolidated Financial Statements.
Future Gene-Activated proteins may include currently-marketed proteins,
proteins currently in late stage clinical development, or proteins that are in
much earlier stages of development. At present, TKT intends to focus on the
currently-marketed products until products from these latter two categories
demonstrate clinical and commercial viability. TKT believes that its focus on
currently-marketed proteins for near-term commercialization and on
development-stage proteins for the long-term appropriately utilizes Company
resources, maximizes near-term commercial potential, and will allow the Company
to build a strong Gene-Activated protein pipeline for the future.
NICHE PROTEIN-TM- PRODUCT DEVELOPMENT PLATFORM
Certain genetic diseases are known to be caused by the deficiency of a
single, well-defined protein. The patient's inability to produce sufficient
amounts of the specified protein results in symptoms which can be debilitating
and, ultimately, life threatening. These diseases include Fabry disease, Gaucher
disease, Hunter syndrome, Hurler syndrome, Pompe disease, and Tay-Sachs disease.
The most direct approach to treat these diseases is to manufacture the missing
or deficient protein and deliver it to the patient. No effective treatment
currently exists for most of these rare diseases. TKT's Niche Protein product
platform is focused on developing protein replacement products to treat patients
suffering from certain of these diseases. The Company plans to develop and
commercialize products for a number of these diseases, with the goal of reducing
symptoms and potentially reversing progression of the disease.
TKT'S NICHE PROTEIN-TM- PRODUCT DEVELOPMENT STRATEGY
The Company's product development strategy for its Niche Protein
product platform is to leverage the Company's core competencies in gene
expression, cell culture, and protein characterization to create protein
replacement products to treat rare genetic diseases which are characterized by
the absence of certain metabolic enzymes. Since the defects in many of the
diseases which the Company intends to address with its Niche Protein product
platform are understood in depth, product development pathways have the
potential to be straightforward. The Company is currently developing seven Niche
Protein products, including treatments for Fabry disease, Hunter syndrome, and
Gaucher disease. TKT views its Niche Protein product platform as a near-term
opportunity to develop and commercialize products on a relatively
cost-effective, lower risk basis. TKT expects to develop and commercialize these
products in the U.S. and Europe and to seek corporate collaborators for Japan.
The Company believes that it will be able to arrange for manufacturing
of its Niche Protein products under the terms of contract manufacturing
agreements with third parties. In addition, the Company believes that it will be
able to effectively serve Niche Protein product markets with a small, focused
sales force, thereby limiting the Company's investment in sales and marketing
infrastructure. The Company hired a Senior Vice
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President, Commercial Operations in April 1999 to direct its commercialization
efforts and is developing a commercial infrastructure for the sale of its Niche
Protein products.
FABRY DISEASE
TKT's first target in the Niche Protein product program is Fabry
disease. Fabry disease is an inherited lysosomal storage disorder caused by
the deficiency of the enzyme alpha-gal. The disorder is characterized by the
accumulation of lipids in lysosomes of vascular endothelial and smooth muscle
cells and in a variety of other tissues. Patients with Fabry disease show
diverse clinical manifestations beginning as early as adolescence. These
manifestations include severe pain and cardiovascular and renal
complications. The Company believes that there are 5,000 Fabry disease
patients worldwide. Current treatment of the disease is limited to the
reduction of symptoms. The Company believes that alpha-gal enzyme replacement
therapy could result in a decrease or an improvement in the clinical
manifestations of the disease.
In 1997, the Company, in collaboration with the National Institutes
of Health ("NIH") under a Cooperative Research and Development Agreement
("CRADA"), conducted a Phase I clinical trial designed to characterize the
safety and pharmacokinetic profile of Replagal, the Company's alpha-gal
product for the treatment of Fabry disease. Ten patients with Fabry disease
were treated with a single dose of highly purified alpha-gal manufactured at
TKT, with two patients treated at each of five escalating dose levels. Plasma
half-life and alpha-gal enzyme activity were examined before and after
treatment, along with a series of clinical and laboratory safety assessments.
All ten patients showed a reduction of the toxic lipid that causes the
symptoms of Fabry disease, with the reduction observed in either or both the
liver and the kidney. The treatment was well-tolerated, and no clinically
significant side-effects were observed. The half-life of the enzyme appears
to support dosing at intervals of one week or longer.
During 1999, the Company completed a Phase II clinical trial of
Replagal for the treatment of Fabry disease. Twenty-six patients with Fabry
disease participated in the six month placebo-controlled trial at the NIH. The
goal of the study was to assess safety and efficacy of Replagal as a treatment
for the disorder. All patients who completed the trial elected to participate in
a maintenance study to provide longer-term safety and efficacy data.
The Company has received Fast Track designation for Replagal from
the U.S. Food and Drug Administration ("FDA") and is therefore eligible for
the FDA to review the Company's Biologics License Application ("BLA") within
six months of submission, although it may take longer to obtain approval. TKT
has also received orphan drug designation for Replagal. As a result, if
Replagal is the first product to receive FDA marketing approval for the
indication for which it has designation as an orphan drug, the FDA may not
approve any other applications to market the same product for the same
indication, except in limited circumstances, for a period of seven years.
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The Company has entered into a contract manufacturing agreement with a
third party to produce Replagal for the Company. The Company has developed a
cell line for commercial manufacturing and, in conjunction with its contract
manufacturer, has developed a commercial scale manufacturing process.
In July 1998, the Company entered into a distribution agreement with
Sumitomo to commercialize Replagal in Japan and other Asian countries. Under
the terms of the agreement, Sumitomo paid TKT an up front fee of $2.0 million
and is obligated to make additional payments to TKT as the product moves
through development and commercialization. Sumitomo is responsible for
development and commercialization of Replagal in its territories. The
distribution agreement expires on a country-by-country basis under specified
circumstances, including a material breach of the agreement by the other
party.
HUNTER SYNDROME
TKT's second target in the Niche Protein product platform is Hunter
syndrome. Hunter syndrome is an inherited lysosomal storage disorder caused by a
deficiency of the enzyme iduronate-2-sulfatase ("I2S"). As a result of this
deficiency, complex carbohydrates accumulate in cells of the body, causing
debilitating symptoms in the patient. Physical manifestations include skeletal
deformities, obstructive airway disease, cardiac failure and, in severe cases,
central nervous system involvement. Cardiac and respiratory illness are often
the cause of death at an early age in patients with the disorder. The Company
believes that there are approximately 5,000 Hunter syndrome patients worldwide.
The Company believes that I2S enzyme replacement therapy could result
in an elimination of many of the clinical manifestations associated with Hunter
syndrome and an increased life expectancy and quality of life. The Company plans
to file an IND covering its I2S product in 2000. The Company has developed a
commercial quality cell line and is developing a commercial scale manufacturing
process.
GENE THERAPY TECHNOLOGY
TKT'S GENE THERAPY APPROACH
The first three waves of protein production have a critical feature in
common: regardless of methodology, the proteins are manufactured outside the
human body. The Company believes that its approach to gene therapy,
Transkaryotic Therapy-TM-, represents the fourth wave of protein production--a
system that would restore the patient's natural ability to produce a required
therapeutic protein.
TKT's approach to gene therapy is based on genetically modifying
patients' cells to produce and deliver therapeutic proteins for extended
periods. The Company believes the approach will be safe, cost-effective, and
clinically superior to the conventional delivery of proteins by injection. In
preclinical animal studies, a single administration of
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one of the Company's gene therapy products resulted in the lifetime production
and delivery of therapeutic proteins.
TKT believes its gene therapy system is broadly enabling and,
accordingly, may be applicable to the treatment of a wide range of human
diseases. Because TKT's gene therapy has demonstrated long-term delivery of
therapeutic proteins in animal model systems, the Company believes its approach
may be well-suited to the treatment of chronic protein deficiency states,
including hemophilia, diabetes, and hypercholesterolemia. The diseases targeted
by TKT are characterized by a significant unmet medical need, and the clinical
goals that must be achieved by TKT's gene therapy products are well-defined. The
potential benefits of TKT's gene therapy products include improved therapeutic
outcome, elimination of frequent painful injections and the problem of patient
compliance, a minimization of side effects due to over- or under-dosing of
conventional proteins, and a reduction in costs.
There are a large number of technical approaches to gene therapy, but
two basic distinctions can be used to characterize the field. The first
distinction is viral versus non-viral. Viral gene therapy approaches use
genetically modified viruses to introduce genes into human cells by infection.
Non-viral approaches use noninfectious (chemical or physical) means to introduce
the genes. The second distinction is IN VIVO versus EX VIVO. IN VIVO gene
therapies are based on the administration of DNA-based drugs directly to the
patient. EX VIVO gene therapies are based on removing a small number of cells
from a patient, introducing a gene into the cells and implanting the engineered
cells into the patient.
TKT's enabling gene therapy technology platform is a non-viral, EX VIVO
system, which the Company believes is significantly different from other
approaches to gene therapy. The Company believes that these differences will
allow for physiologic levels of protein expression in patients for extended
periods, a goal that historically has represented a major obstacle in
alternative gene therapy systems. The major alternative to TKT's system is based
on the use of genetically-modified viruses to infect patients' cells. The
Company believes that such viral approaches present a significant safety risk
due to the possibility of causing new viral infections in patients. In addition,
such approaches have not allowed long-term production of the therapeutic protein
in animal models or patients.
To the best of the Company's knowledge, neither viral nor non-viral IN
VIVO gene therapy technologies have allowed long-term or high level protein
expression in the patient. Accordingly, these technologies may be best-suited
for non-chronic applications, such as immunotherapy. TKT believes Transkaryotic
Therapy is well-suited to allow safe and long-term delivery of therapeutic
proteins for the treatment of chronic protein deficiency states as demonstrated
by the long-term delivery of therapeutic proteins in animal models.
In order to develop a safe, effective, non-viral, EX VIVO gene therapy
system, the Company believes that it was necessary for several major tasks to
have been
13
accomplished in basic research and preclinical testing. Each of the
steps must be carried out to allow the ultimate product to be manufactured
efficiently, reproducibly, and cost-effectively, to be subjected to rigorous
quality control to ensure safety and to direct the long-term production and
delivery of the therapeutic protein in the patient. The first step involves the
development of techniques for obtaining and propagating the cell types of
interest. Next, non-viral methodologies must be developed that allow DNA
fragments to be stably introduced into these cells. DNA fragments containing the
appropriate DNA regulatory sequences fused to the desired protein encoding
sequences, for example, must be constructed and introduced into cells to
generate genetically-engineered cells which express the therapeutic protein at
clinically relevant levels. After the DNA fragments have been successfully
introduced into human cells, methodologies must then be developed that allow the
engineered cells to properly process the therapeutic protein. The final step
involves the development of methods and formulations for the implantation of the
engineered cells.
Table II. TKT's Gene Therapy System: Summary of Selected Technical
Accomplishments
TASKS ACHIEVEMENT COMMENTS
----- ----------- --------
Cell types propagated Fibroblasts, myoblasts, mammary Cells retain normal properties
epithelial cells
Proteins expressed Factor VIII, Factor IX, Growth Hormone, All expressed at levels of at
Insulin, Interleukin-2, LDL receptor, least 1 microgram/million cells/day
alpha-gal
Transfection methodologies applied Electroporation, microinjection, All with efficiencies greater
polybrene and calcium phosphate than 1 stably transfected
precipitation cell per thousand treated
cells
Proteins characterized Factor VIII, Factor IX, Growth Hormone, All with natural
alpha-gal post-translational
modifications
IN VIVO expression observed Factor VIII, Factor IX, Growth Hormone, All at physiologic levels in
Insulin animal models
TKT scientists have successfully accomplished all of the tasks set
forth in Table II and, in model systems, have successfully delivered therapeutic
proteins for the lifetime of the experimental animals. Much of TKT's work has
focused on gene therapy using fibroblasts, a cell type present in the skin (and
throughout the body) that is readily obtained from patients and propagated in
culture. The Company has developed a variety of methodologies for the stable
transfection of normal human cells. "Stable transfection" means that the
introduced DNA fragment becomes part of a chromosome in the treated cell. One
such methodology is electroporation, a technique based on subjecting cells to a
brief electrical pulse. The pulse transiently opens small pores in the cell
membrane that allow the DNA fragments of interest to enter the cell. The
technique is simple, reproducible (it works for a variety of cell types and for
cells derived from newborns to the elderly), efficient (one electroporation
provides many more transfected cells than required for treatment), and
cost-effective (less than one dollar per reaction).
The Company believes it has developed the basic technologies required
for a safe and effective gene therapy approach which can be refined and
optimized for patient use. In patients, TKT envisions that, in general, the
system would function as follows:
14
1. The clinician would identify the patient to be treated and
perform a small skin biopsy;
2. In TKT's manufacturing facility, patient cells would be
harvested from the biopsy specimen;
3. The DNA fragment containing DNA regulatory sequences and
protein coding sequences would be introduced into the
harvested cells by electroporation. The DNA fragment and the
electroporation methodology would be the same for all patients
with a given disease;
4. A genetically engineered cell expressing the therapeutic
protein would be identified, propagated, subjected to
appropriate characterization and quality control tests, and
formulated in a syringe. The syringe would then be returned to
the physician; and
5. The physician would then inject the engineered cells under the
patient's skin as an outpatient procedure.
These techniques (described above) have been successfully carried out
in a Phase I clinical trial of growth hormone gene therapy as a treatment for
the cachexia (body wasting) of cancer and a Phase I clinical trial of Factor
VIII gene therapy for hemophilia A. The specific procedures vary based on the
disease to be treated. For example, different cell types, sites of implantation,
and genes of interest could be advantageous for a given disease.
The Company believes that Transkaryotic Therapy offers several clinical
and commercial advantages over conventional treatments and other gene therapies
for targeted diseases, including:
- - SAFETY. Transkaryotic Therapy does not use infectious agents such as
retroviruses, adenoviruses, or adeno-associated viruses to genetically
engineer the patient's cells. TKT's non-viral method of producing
genetically engineered cells allows for extensive safety testing prior to
implantation of such cells in the patient. In studies of TKT's gene therapy
system involving over 5,000 animals, no side effects have been observed;
- - LONG-TERM EXPRESSION. Transkaryotic Therapy is designed to produce
long-term results with a single treatment. In preclinical studies, the
Company has produced target proteins at therapeutic levels for the lifetime
of the animals, suggesting the possibility of long-term effectiveness in
humans;
- - CONTROLLABILITY. Transkaryotic Therapy is designed to deliver therapeutic
proteins at levels that meet a patient's specific needs. The Company
believes that its gene therapy system will allow the physiologic and
pharmacologic regulation of expression.
15
Further, the Company believes that the treatment afforded by Transkaryotic
Therapy will be readily reversible so that therapy can be discontinued if
no longer required;
- - FLEXIBILITY. The Company has focused on genetically engineering a wide
variety of human cell types because, although certain cell types are useful
in the gene therapy of particular diseases, no single cell type is
appropriate for the gene therapy of all diseases;
- - EASE OF ADMINISTRATION. Transkaryotic Therapy will allow for the
administration of its products by a single injection under the patient's
skin on an out-patient basis. Furthermore, the potential long-term
effectiveness of the treatment could eliminate problems of patient
compliance; and
- - COST-EFFECTIVENESS. Transkaryotic Therapy takes advantage of the patient's
natural ability to synthesize therapeutic proteins for extended periods.
The potential benefits of Transkaryotic Therapy include improved
therapeutic outcome, the elimination of frequent painful injections and
patient compliance problems, a reduction of side effects due to overdosing
and underdosing of conventional proteins, and significant reductions in
cost. Accordingly, the Company believes that its therapy may be less costly
than therapy using conventional protein pharmaceuticals which require
frequent administration.
TKT'S GENE THERAPY DEVELOPMENT PROGRAMS AND COMMERCIALIZATION STRATEGY
The Company is focusing its development efforts on gene therapy
products for the treatment of chronic diseases with straightforward and
well-characterized etiologies. For certain of these diseases, such as hemophilia
A, effectiveness, dose ranges, and safety have been clearly established in the
context of currently approved and marketed products. For other diseases,
preliminary IN VITRO and animal model data strongly suggest that the long-term
delivery of appropriate therapeutic proteins will effectively treat the disease.
The Company believes that this initial focus will provide strategic advantages
by allowing evaluation of Transkaryotic Therapy based on well understood
clinical parameters, thereby facilitating the regulatory approval process.
Furthermore, the Company believes that when administered as part of its
proprietary gene therapy system, these proteins may provide therapeutic benefits
not achievable using conventional methods of delivery.
The Company has completed a clinical trial to assess the safety of its
gene therapy technology in humans. This Phase I clinical trial was based on the
implantation of genetically modified skin fibroblasts to express growth hormone
in cancer patients at risk for cachexia. The principal purpose of this study was
to determine the safety of the Company's gene therapy in humans. A total of 21
patients were enrolled in the study. Community physicians injected the modified
cells under the skin of subjects; all patient procedures were performed on an
out-patient basis. Preliminary data from this study suggest that the
administration of the genetically-engineered cells appears to be well-
16
tolerated. Prior to proceeding with additional clinical trials (beyond Phase I)
for this product, the Company intends to seek a collaborative partner.
HEMOPHILIA A
TKT's principal gene therapy program is for the treatment of hemophilia
A. When a blood vessel ruptures, an intricate series of events allows the rapid
formation of a clot in normal individuals. One of the best-studied coagulation
disorders is hemophilia A, caused by a deficiency or defect in protein
coagulation Factor VIII. Patients with the disease experience acute,
debilitating, and often life-threatening bleeding episodes. Depending on the
severity of the disease, bleeding may occur spontaneously or after minor trauma.
Conventional treatment consists of temporarily increasing the patient's Factor
VIII levels through infusions of plasma-derived or recombinantly-produced Factor
VIII. Factor VIII levels typically rise to therapeutic levels for only two to
three days following intravenous administration, then return to the baseline
subtherapeutic level, once again placing the patient at risk for a serious
bleeding episode. It is estimated that there are approximately 50,000 hemophilia
A patients worldwide. In the U.S., an adult suffering from the disease receives
Factor VIII protein treatment only during bleeding crises at an average annual
cost of approximately $65,000.
TKT's approach to the treatment of hemophilia A is based on the
production and delivery of Factor VIII using Transkaryotic Therapy. The Company
believes that its Factor VIII gene therapy product has the potential to provide
a constant supply of therapeutic levels of the missing protein, effectively
eliminating the problem of rapid disappearance of the therapeutic protein. The
Company has produced clonal populations of human fibroblasts which have been
transfected to express Factor VIII IN VITRO, demonstrated that the protein is
properly processed, and achieved protein expression in animals.
In November 1998, the Company began the first ever clinical trial
evaluating a gene therapy treatment for hemophilia A. This Phase I safety study
will include 12 patients and is being conducted at the Beth Israel Deaconess
Medical Center in Boston, Massachusetts. The trial is expected to take up to
three years to complete, including a two year follow up period following the
treatment phase.
Preliminary results for the first six patients revealed that no adverse
events have been associated with the treatment. In addition, all six patients
have shown some level of Factor VIII in their blood following implantation of
genetically-engineered cells.
In February 2000, Beth Israel Deaconess Medical Center ("Beth
Israel") placed a temporary moratorium on all gene therapy clinical trials
being conducted at its facility, including the Company's clinical trial for
hemophilia A, due to national public policy concerns relating to gene therapy
trials. These national public policy concerns have arisen due to recent
adverse events that have occurred during gene therapy clinical trials,
conducted by other biotechnology and pharmaceutical companies and
institutions. As a result, the federal government, the FDA, industry
organizations, and institutions conducting gene therapy clinical trials have
grown increasingly cautious about the safety of gene therapy clinical trials.
Due to such increasing concern, a number of gene therapy clinical trials at
certain institutions have been terminated or suspended. In early
February 2000, Beth Israel voluntarily suspended a human gene therapy trial
the Company sponsored for the treatment of hemophilia A pending a review of
the safety procedures followed in the trial, even though there had been no
adverse event associated with the trial. Upon review of the Company's
hemophilia A clinical trial safety data, Beth Israel resumed the trial two
weeks after its initial suspension. During 2000, it is expected that six
additional patients will be enrolled in the study.
A Senate subcommittee hearing was held in late January 2000 on the
potential need for increased regulation of gene therapy clinical trials.
Moreover, the National Institutes of Health established the Recombinant DNA
Advisory Committee (RAC) Working Group on Adenoviral Safety and Toxicity to
assess the overall safety of gene therapy clinical trials. In March 2000, the
RAC working group recommended that gene therapy research and clinical trials
continue generally but that institutions, doctors, and others involved in
clinical trials generally adhere to additional safety precautions to, among
other things, better measure patient response to therapy and better ensure
patients' informed consent as to procedures and treatments.
17
In July 1993, the Company entered into a Collaboration and License
Agreement with GI relating to a joint development and marketing program for a
hemophilia A gene therapy product based on the Company's non-viral technology.
The agreement provides that the parties will collaborate to develop and
commercialize a non-viral gene therapy product for the treatment of hemophilia A
using TKT's proprietary technology and GI's patented Factor VIII genes. Under
the agreement, GI has granted TKT a non-exclusive worldwide license under GI's
patents covering truncated versions of the gene encoding Factor VIII for use in
certain non-viral gene therapy applications. GI has agreed to pay a portion of
the clinical development costs of the product in the U.S., Canada, and the
European Community. TKT retained exclusive manufacturing rights throughout the
world and exclusive marketing rights to all countries of the world except those
in Europe. Subject to certain conditions, GI received exclusive rights to market
the product in Europe.
LONG-TERM GENE THERAPY TARGETS
The Company's long-term gene therapy product development strategy is
focused on products for the treatment of commonly occurring diseases, including
both juvenile- and adult-onset diabetes, hypercholesterolemia, and osteoporosis.
These are diseases for which either (i) a proven therapeutic protein exists but
effective treatment of the disease requires complex patterns of regulation in
the patient (for example, insulin is widely used in the treatment of diabetes,
but delivery of insulin by conventional methods is imprecise and does not
prevent the serious complications of the disease) or (ii) no protein has yet
been proven effective in treating the disease (for example, many proteins are
thought to have potential in the treatment of hypercholesterolemia, but that has
yet to be proven conclusively in patients).
MANUFACTURING
One of the critical aspects of any cell-based therapy is the approach
to manufacturing. The manufacturing process takes up to six weeks. It is
essential to optimize the process to allow for a commercially-viable product,
and the Company believes it has accomplished such optimization. To produce early
clinical materials, TKT has constructed a pilot manufacturing facility designed
to conform to FDA guidelines for Current Good Manufacturing Practice ("cGMP").
For Phase III clinical trials and commercialization, TKT intends to construct a
cGMP-certified facility.
The Company intends to manufacture its gene therapy products in central
manufacturing facilities. Initially, the Company plans to construct a central
facility to serve the U.S. As the Company's product pipeline matures, the
Company believes that demand will increase, possibly requiring the Company to
construct an additional manufacturing facility in the U.S. Other gene therapy
companies have adopted a strategy based on locating a cell processing facility
in every large city or major medical center. TKT believes that the requirements
for strict quality control and the benefits of economy of scale are better
achieved using the central manufacturing strategy.
18
PATENTS, PROPRIETARY RIGHTS, AND LICENSES
PATENTS AND PROPRIETARY ISSUES
The Company believes that protection of the proprietary nature of its
products and technology is important to its business. Accordingly, it has
adopted and plans to maintain a vigorous program to secure and maintain such
protection. The Company's practice is to file patent applications with respect
to technology, inventions, and improvements that are important to its business.
The Company also relies upon trade secrets, unpatented know-how, continuing
technological innovation, and the pursuit of licensing opportunities to develop
and maintain its competitive position. There can be no assurance that others
will not independently develop substantially equivalent proprietary technology
or that the Company can meaningfully protect its proprietary position.
At December 31, 1999, the Company owned or licensed 15 issued U.S.
patents and had 33 pending patent applications in the U.S. to protect its
proprietary methods and processes. It also has filed corresponding foreign
patent applications for certain of these U.S. patent applications. The issued
U.S. patents and patent applications relate to the gene activation platform in
general, DNA sequences required for gene activation, cells modified by gene
activation to produce Gene-Activated proteins, corresponding gene activation
methods, the Transkaryotic Therapy platform in general, the Niche Protein
product platform in general, methods of propagating and transfecting cells,
methods for obtaining expression of therapeutic proteins and homologous
recombination in cells, and cells modified by the preceding methods. The U.S.
patents owned or licensed by TKT expire at various dates ranging from 2011 to
2016.
As a general matter, patent positions in the fields of biotechnology
and biopharmacology are highly uncertain and involve complex legal, scientific,
and factual matters. To date, there has emerged no consistent policy regarding
the breadth of claims allowed in biotechnology patents. Consequently, although
TKT plans to prosecute aggressively its applications and defend its patents
against third parties, there can be no assurance that any of the Company's
patent applications relating to the technology used by the Company will result
in the issuance of patents or that, if issued, such patents or the Company's
existing patents will not be challenged, invalidated, or circumvented or will
afford the Company protection against competitors with similar technology. Any
litigation or interference proceedings regarding patent or other proprietary
rights may result in substantial cost to the Company, regardless of outcome,
and, further, may adversely affect TKT's ability to develop, manufacture, and
market its products and to form strategic alliances.
The Company's technologies and potential products may conflict with
patents that have been or may be granted to competitors, universities, or
others. As the biotechnology industry expands and more patents are issued, the
risk increases that the Company's technologies and potential products may give
rise to claims that they infringe the patents of others. Such other persons
could bring legal actions against the Company claiming damages and seeking to
enjoin commercialization of a product or use of a technology. If
19
any such actions are successful, in addition to any potential liability for
damages, the Company could be required to obtain a license in order to continue
to use such technology or to manufacture or market such product, or could be
required to cease using such product or technology. There can be no assurance
that the Company would prevail in any such action or that any license required
under any such patent would be made available or would be made available on
acceptable terms. The Company believes that there may be significant litigation
regarding patent and other intellectual property rights in the fields of all
three of its product platforms.
GENE ACTIVATION TECHNOLOGY PATENTS AND GA-EPO LITIGATION
For many currently marketed proteins, the product manufactured using
conventional genetic engineering techniques does not represent the first time
the protein was isolated and purified. As such, it was generally not possible to
obtain a broad composition of matter patent for many of the currently marketed
proteins. In contrast, the isolated and purified DNA sequences encoding these
proteins, various vectors used to insert such DNA sequences into production cell
lines, cell lines modified by the insertion of such DNA sequences, and
corresponding methods (including methods of producing proteins using this
approach) led to issued patents in many cases. TKT believes that, by completely
avoiding the use of isolated and purified DNA sequences encoding proteins of
commercial interest, the Company's technology does not infringe claims based on
isolated and purified DNA sequences encoding such proteins. Furthermore, the
Company intends to avoid the use of technologies (such as specific protein
purification procedures) that are the subject of patents that are not limited to
protein products manufactured using conventional genetic engineering techniques.
In April 1997, Amgen Inc. ("Amgen") filed a civil action in the U.S.
District Court of Massachusetts against the Company and Aventis relating to
GA-EPO and the processes for producing GA-EPO. In the litigation, Amgen is
asserting, among other things, that GA-EPO and the processes for producing
GA-EPO infringe certain of Amgen's U.S. patents. In addition, TKT and Aventis
have launched judicial proceedings against Kirin-Amgen Inc. ("Kirin-Amgen"), a
joint venture of Amgen and Kirin Brewery Co., Ltd. ("Kirin"), in the U.K.
GENE THERAPY PATENT INTERFERENCE
Over the past decade, there has been a dramatic increase in the number
of approaches to gene therapy under development in both academic and industrial
laboratories. A large number of patent applications have been filed in the U.S.
and worldwide relating to this work, and a number of gene therapy patents have
issued to date. The Company requested, and the U.S. Patent and Trademark Office
("PTO") declared in January 1996, an interference regarding an issued patent
with broad claims to EX VIVO gene therapy. The participants in the interference
are TKT, Genetic Therapy, Inc., which is a wholly-owned subsidiary of Novartis
AG, Syntex (U.S.A.), which is a wholly-owned subsidiary of Roche Holdings, Inc.,
and Somatix Therapy Corporation, which has been merged into Cell Genesys, Inc.
With the possible exception of the patent involved in
20
the interference, the Company believes its Transkaryotic Therapy technology does
not infringe on patents issued to date.
The PTO proceeding will determine the patentability of the subject
matter of the interference and which of the parties first developed this subject
matter. The process to resolve the interference can take many years. The outcome
of interferences can be quite variable: for example, none of the four parties
may receive the desired claims, one party may prevail, or a settlement involving
two or more of the parties may be reached. There can be no assurance that TKT
will prevail in this interference or that, even if it does prevail, the Company
can meaningfully protect its proprietary position.
If TKT does not prevail, a March 1997 Federal Trade Commission (the
"FTC") consent order may be relevant to TKT. The FTC entered this consent order
to resolve anti-competitive concerns raised by the merger of Ciba-Geigy Limited
and Sandoz Limited into Novartis AG. As part of the consent order, the
constituent entities of Novartis are required to provide all gene therapy
researchers and developers with nonexclusive, royalty-bearing licenses to the
Novartis patent that is involved in the interference. In addition, the Company
has entered into an agreement with Cell Genesys under which the Company would be
permitted to market its non-viral gene therapy products pursuant to a
royalty-free license agreement if Cell Genesys wins the interference. Thus, the
Company believes that it will only be materially adversely affected if Syntex
prevails in this proceeding.
TRADE SECRETS
To further protect its trade secrets and other proprietary property,
the Company requires all employees, Scientific Advisory Board members,
consultants, and collaborators having access to such proprietary property to
execute confidentiality and invention rights agreements in favor of the Company
before beginning their relationship with the Company. While such arrangements
are intended to enable the Company to better control the use and disclosure of
its proprietary property and provide for the Company's ownership of proprietary
technology developed on its behalf, they may not provide meaningful protection
for such property and technology in the event of unauthorized use or disclosure.
LICENSING
The Company has entered into several licensing agreements under which
it has acquired certain worldwide rights to use proprietary genes and related
technology in its non-viral gene therapy products. In particular, the Company
has a non-exclusive license for certain non-viral gene therapy applications from
GI with respect to GI's patented Factor VIII genes and a non-exclusive
sublicense for non-viral gene therapy applications from British Technology Group
plc ("BTG") with respect to BTG's patented Factor IX gene. In addition, the
Company has an exclusive license to certain pending and issued patents from
Women's and Children's Hospital, North Adelaide, Australia related to certain
mucopolysaccharidoses (MPS), including Hurler and Scheie syndrome (MPS I),
21
Hunter syndrome (MPS II), and Sanfilippo syndrome (MPS III), TKT's rights under
these gene licenses and sublicenses are for the term of the last to expire
patent included in the licensed patent rights.
COMPETITION
The Company believes that the primary competitive factors relating to
the products that it is developing include safety, efficacy, reliability,
distribution channels, price, and disease management services. In addition, the
length of time required for products to be developed and to obtain regulatory
and, in some cases, reimbursement approval are important competitive factors.
The biotechnology industry is characterized by rapid and significant
technological change. Accordingly, the Company's success will depend in part on
its ability to respond quickly to medical and technological changes through the
development and introduction of new products. The Company believes it competes
favorably with respect to the competitive factors affecting its business,
although there can be no assurance that it will be able to continue to do so.
Many of the Company's competitors have substantially greater financial
and other resources than the Company, including larger research and development
staffs and more experience and capabilities in conducting research and
development activities, testing products in clinical trials, obtaining
regulatory approvals, and manufacturing, marketing, and distributing products.
Smaller companies may obtain access to such skills and resources through
collaborative arrangements with pharmaceutical companies or academic
institutions.
There can be no assurance that TKT will succeed in developing and
marketing technologies and products that are more clinically efficacious and
cost-effective than existing established treatments or new approaches and
products developed and marketed by competitors. The development by others of
alternative or superior treatment methods could render the Company's products
obsolete or noncompetitive with respect to some or all of the competitive
factors described above. In addition, treatment methods not clearly superior to
the Company's could achieve greater market penetration through competitors'
superior sales, marketing, or distribution capabilities.
The Company's competitive position also depends upon its ability to
attract and retain qualified personnel, obtain patent protection, secure
licenses of necessary genes and technology from third parties, or otherwise
develop proprietary products, or processes, and secure sufficient capital
resources for the typically substantial expenditures and period of time prior to
commercial sales of each product.
GENE-ACTIVATED-TM- PROTEINS
In its Gene-Activated protein program, TKT is developing versions of
proteins that are currently-marketed. For instance, in the case of GA-EPO,
erythropoietin is marketed by Amgen and J&J in the U.S.; F. Hoffmann-La Roche
Ltd. (Boehringer
22
Mannheim GmbH) and J&J (Janssen-Cilag) in Europe; and by Sankyo Company Ltd.,
Chugai Pharmaceutical Co., Ltd., and Kirin in Japan.
Many of the protein products against which the Company's Gene-Activated
proteins would compete have well-known brand names, have been promoted
extensively and have achieved market acceptance by third party payors,
hospitals, physicians, and patients. In addition, many of the companies that
produce these protein products have patents covering techniques used to produce
these products, which have served as effective barriers to entry in the
therapeutic proteins market. As with Amgen and its erythropoietin product, these
companies may seek to block TKT's entry into the market by asserting that the
Company's Gene-Activated proteins infringe their patents. Many of these
companies are also seeking to develop and commercialize new or potentially
improved versions of their proteins.
NICHE PROTEIN-TM- PRODUCTS
For many of the disease targets of the Company's Niche Protein product
program, there is currently no cure or effective treatment. Treatments generally
are focused on the management of the disease's clinical symptoms, particularly
pain. In general, the Company believes that these diseases may represent markets
too small to attract the resources of larger pharmaceutical companies, but
provide attractive commercial opportunities to smaller companies, such as TKT.
The Company believes its major competition with respect to Fabry disease and
Gaucher disease is Genzyme. Genzyme is conducting late stage clinical trials of
a protein product for the treatment of Fabry disease and has marketed a product
for the treatment of Gaucher disease since 1991. Genzyme owns or controls issued
patents related to the production of protein products to treat Fabry disease and
Gaucher disease.
The Orphan Drug Act generally provides incentives to manufacturers to
undertake development and marketing of products to treat relatively rare
diseases or diseases that affect fewer than 200,000 individuals in the U.S. The
Company believes that many of the potential products in its Niche Protein
product platform will qualify as orphan drugs and intends to pursue orphan drug
designations, where appropriate. If a product that has an orphan drug
designation from the FDA subsequently receives the first marketing approval for
the indication for which it has such designation, the FDA may not approve any
other applications to market the same product for the same indication, except in
limited circumstances, for a period of seven years.
There can be no assurance that other companies will not seek an orphan
drug designation and obtain FDA marketing approval for a product competitive
with a Niche Protein product before the Company obtains such approval. If
another company obtains orphan drug marketing approval and receives seven year
marketing exclusivity, the Company would not be permitted by the FDA to market
the same product for the same indication in the U.S. during the exclusivity
period, except in limited circumstances.
23
GENE THERAPY
The Company's gene therapy system will have to compete with other gene
therapy systems, as well as with conventional methods of treating the diseases
and conditions targeted. In addition, new non-viral gene therapy treatments may
be developed in the future. A number of companies, including major biotechnology
and pharmaceutical companies, as well as development stage companies, are
actively involved in this field.
MANUFACTURING
TKT is currently using, and plans in the future to use, a combination
of internal manufacturing and contract manufacturing by third parties to meet
its requirements for preclinical testing, clinical trials, and commercialization
of its products.
Under TKT's collaboration with Aventis, Aventis is required to
manufacture GA-EPO and GA-II required for clinical trials and commercial sale.
TKT is manufacturing the Gene-Activated proteins required for its other
development programs. TKT expects that in the future it may employ third party
contract manufacturers for the production of Gene-Activated proteins for
clinical development and commercial sale.
TKT has entered into a contract manufacturing arrangement with a third
party for the production of the Niche Protein product that TKT is developing for
the treatment of Fabry disease. TKT expects that it will also rely on third
party contract manufacturers for the production of this product for commercial
sale.
TKT is manufacturing its gene therapy products that are undergoing
clinical trials. TKT expects to manufacture its gene therapy products for
commercial sale. See "--TKT's Gene Therapy Development Programs and
Commercialization Strategy."
GOVERNMENT REGULATION
The testing, manufacturing, labeling, advertising, promotion,
export, and marketing, among other things, of the Company's products are
subject to extensive regulation by governmental authorities in the U.S. and
other countries. In the U.S., pharmaceutical products are regulated by the
FDA under the Federal Food, Drug, and Cosmetic Act and other laws, including,
in the case of biologics, the Public Health Service Act. The Company believes
that most of its products will be regulated by the FDA as biologics.
Biologics require the submission of a BLA and approval by the FDA prior to
being marketed in the U.S. Manufacturers of biologics may also be subject to
state regulation.
The steps required before a product may be approved for marketing in
the U.S. generally include (i) preclinical laboratory tests and animal tests,
(ii) the submission to the FDA of an IND for human clinical testing, which must
become effective before human clinical trials may commence, (iii) adequate and
well-controlled human clinical trials to establish the efficacy of the product,
and appropriate testing to establish the
24
safety of the product, (iv) the submission to the FDA of a BLA, (v) FDA review
of the BLA, and (vi) satisfactory completion of an FDA inspection of the
manufacturing facility or facilities at which the product is made to assess
compliance with cGMP.
Preclinical tests include laboratory evaluation of the product, as well
as animal studies to assess the potential safety and efficacy of the product.
The results of the preclinical tests, together with manufacturing information
and analytical data, are submitted to the FDA as part of an IND, which must
become effective before human clinical trials may be commenced. The IND will
automatically become effective 30 days after receipt by the FDA, unless the FDA
before that time raises concerns or questions about the conduct of the trials as
outlined in the IND. In such a case, the IND sponsor and the FDA must resolve
any outstanding concerns before clinical trials can proceed. There can be no
assurance that submission of an IND will result in FDA authorization to commence
clinical trials.
Clinical trials typically are conducted in three sequential phases, but
the phases may overlap, and certain phases may be eliminated. In Phase I, the
initial introduction of the drug into human subjects, the drug is usually tested
for safety (adverse effects), dosage tolerance, and pharmacodynamics. Phase II
usually involves studies in a limited patient population to (i) evaluate
preliminarily the efficacy of the drug for specific, targeted indications, (ii)
determine dosage tolerance and optimal dosage, and (iii) identify possible
adverse effects and safety risks. Phase III trials generally further evaluate
clinical efficacy and test further for safety within an expanded patient
population.
In the case of products for severe or life-threatening diseases, the
initial human testing is sometimes done in patients rather than in healthy
volunteers. Since these patients are already afflicted with the target disease,
it is possible that such studies may provide preliminary evidence of efficacy
traditionally obtained in Phase II trials. These trials are frequently referred
to as "Phase I/II" trials. There can be no assurance that Phase I, Phase II, or
Phase III testing will be completed successfully within any specific time
period, if at all, with respect to any of the Company's product candidates.
Furthermore, the Company or FDA may suspend clinical trials at any time on
various grounds, including a finding that the subjects or patients are being
exposed to an unacceptable health risk.
The results of the preclinical studies and clinical studies, together
with other detailed information, including information on the manufacture and
composition of the product, are submitted to the FDA in the form of a BLA
requesting approval to market the product. Before approving a BLA, the FDA will
inspect the facilities at which the product is manufactured, and will not
approve the product unless cGMP compliance is satisfactory. The FDA may deny a
BLA if applicable regulatory criteria are not satisfied, require additional
testing or information, and/or require postmarketing testing and surveillance to
monitor the safety or efficacy of a product. The testing and approval process
require substantial time, effort, and financial resources and there can be no
assurance that any approval will be granted on a timely basis, if at all.
25
Both before and after approval is obtained, violations of regulatory
requirements may result in various adverse consequences, including the FDA's
delay in approving or refusal to approve a product, withdrawal of an approved
product from the market, and/or the imposition of criminal penalties against the
manufacturer and/or BLA holder. For example, BLA holders are required to report
certain adverse reactions to the FDA, and to comply with certain requirements
concerning advertising and promotional labeling for their products. Also,
quality control and manufacturing procedures must continue to conform to cGMP
regulations after approval, and the FDA periodically inspects manufacturing
facilities to assess compliance with cGMP. Accordingly, manufacturers must
continue to expend time, monies, and effort in the area of production and
quality control to maintain cGMP compliance. In addition, discovery of problems
may result in restrictions on a product, manufacturer, or BLA holder, including
withdrawal of the product from the market. Also, new government requirements may
be established that could delay or prevent regulatory approval of the Company's
products under development.
The Company also will be subject to a variety of foreign regulations
governing clinical trials and sales of its products. Whether or not FDA
approval has been obtained, approval of a product by the comparable
regulatory authorities of foreign countries must be obtained prior to the
commencement of marketing of the product in those countries. The approval
process varies from country to country and the time may be longer or shorter
than that required for FDA approval.
In addition to regulations enforced by the FDA, the Company also is
subject to regulation under the Occupational Safety and Health Act, the Toxic
Substances Control Act, the Resource Conservation and Recovery Act, and other
present and potential future federal, state, or local regulations. The Company's
research and development activities involve the controlled use of hazardous
materials, chemicals, biological materials, and various radioactive compounds.
Although the Company believes that its safety procedures for handling and
disposing of such materials comply with the standards prescribed by state and
federal regulations, the risk of accidental contamination or injury from these
materials cannot be completely eliminated. In the event of such an accident, the
Company could be held liable for any damages that result and any such liability
could exceed the resources of the Company.
For marketing outside the U.S., the Company also is subject to foreign
regulatory requirements governing human clinical trials and marketing approval
for products. The requirements governing the conduct of clinical trials, product
licensing, pricing, and reimbursement vary greatly from country to country.
EMPLOYEES
As of December 31, 1999, the Company had 248 full-time employees,
including 205 in research and development. The Company's employees are not
covered by any collective bargaining agreement. TKT considers relations with its
employees to be good.
26
TRADEMARKS
GA-EPO-TM-, Gene-Activated-TM-, Niche Protein-TM-, Replagal-TM-,
TKT-TM-, and Transkaryotic Therapy-TM-, are trademarks of the Company.
ITEM 2. PROPERTIES
The Company leases a total of approximately 112,000 square feet of
laboratory and office space in buildings located in Cambridge, Massachusetts.
These facilities include pilot facilities for gene therapy and protein product
manufacturing.
The Company believes that its current facilities will be adequate to
accommodate its needs through 2000. The Company currently expects to meet any
additional facilities requirements through development of a new facility or
conversion of an existing building. The Company expects to seek financing for
all or a significant portion of the cost of any additional facilities. There can
be no assurance that financing will be available on favorable terms, if at all.
ITEM 3. LEGAL PROCEEDINGS
In April 1997, Amgen filed a civil action in the U.S. District Court
for the District of Massachusetts against the Company and Aventis, the Company's
collaborative partner. The complaint in the action alleges that GA-EPO and the
processes for producing GA-EPO infringe certain of Amgen's U.S. patents and
requests that TKT and Aventis be enjoined from making, using, or selling GA-EPO
and that the District Court award Amgen monetary damages. In November 1997, TKT
and Aventis filed a Motion for Summary Judgment of Non-Infringement. On the same
date, Amgen filed a Motion for Summary Judgment of Infringement. TKT and Aventis
opposed that motion, stating that there had been no infringement.
In April 1998, the District Court granted TKT and Aventis' Motion for
Summary Judgment of Non-Infringement and denied Amgen's Motion for Summary
Judgment of Infringement on the ground that all of TKT and Aventis' GA-EPO
related activities through that date had been conducted solely for uses
reasonably related to the production of information for submission to the FDA as
part of seeking regulatory approval to market GA-EPO. The District Court stated
that, under the Waxman-Hatch Act, such activities are not acts of patent
infringement. The District Court did not otherwise address the issue of whether
TKT and Aventis' activities that were challenged by Amgen, infringed Amgen's
patents. The District Court ordered Amgen's remaining claim for Declaratory
Judgment of Future Infringement administratively closed, to be reopened upon
motion of either party for good cause shown. The District Court also stated that
issuance by the FDA of a product license presumably would constitute good cause
to reopen that claim.
In June 1999, TKT and Aventis filed a motion to reopen the case in the
District Court, which was granted. The District Court scheduled the trial to
commence in April 2000. The District Court also scheduled a Markman hearing for
March 27-28, 2000. The
27
purpose of the Markman hearing is for the District Court to construe the claims
of the patents in suit.
In addition, in July 1999, the Company commenced legal proceedings in
the U.K. against Kirin-Amgen seeking a declaration that a U.K. patent held by
Kirin-Amgen will not be infringed by the sale of GA-EPO and that numerous claims
of Kirin-Amgen's U.K. patent are invalid. The trial is scheduled to commence in
2001.
In September 1999, the District Court granted Amgen's motion to amend
its complaint to include two additional patents that issued in May 1998 and
September 1999.
The Company can provide no assurance as to the outcome of either the
U.S. or U.K. proceedings. A decision by a court in Amgen's or Kirin-Amgen's
favor, including the issuance of an injunction against the making, using, or
selling of GA-EPO by the Company and Aventis in the U.S. or the U.K., or any
other conclusion of either litigation in a manner adverse to the Company and
Aventis, would have a material adverse effect on the Company's business,
financial condition, and results of operations.
Pursuant to the Amended and Restated License Agreement, dated March
1995, by and between Aventis and the Company, Aventis has assumed the cost of
the Amgen and Kirin-Amgen litigations. The Company is required to reimburse
Aventis for the Company's share of litigation expenses, as defined, from future
royalties, if any, payable by Aventis as to the sale of GA-EPO and in certain
other circumstances.
There can be no assurance that the Company will not in the future
become subject, in the U.S. or any other country, to additional patent
infringement claims, interferences, and other litigation involving patents, or
any patents that may issue on any pending patent applications, including Amgen
patent applications.
The Company is currently involved in a patent interference proceeding
before the PTO involving a patent and several patent applications in the gene
therapy field.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.
28
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company are as follows:
Name Age Position Held With the Company
- ---- --- ------------------------------
Richard F Selden, M.D., Ph.D. 41 President and Chief Executive Officer
William H. Pursley 46 Senior Vice President, Commercial Operations
Douglas A. Treco, Ph.D. 42 Senior Vice President, Research and Development
Christoph M. Adams, Ph.D. 43 Vice President, Business Development
Daniel E. Geffken 43 Vice President, Finance, Chief Financial Officer and
Secretary
Kurt C. Gunter, M.D. 45 Vice President, Clinical and Regulatory Affairs
Joseph G. Habarta, Ph.D. 53 Vice President, Quality
Each officer's term of office extends until the first meeting of the
Board of Directors following the next annual meeting of stockholders and until a
successor is elected and qualified.
RICHARD F SELDEN, M.D., Ph.D. is the founder of TKT. He has served as
Chief Scientific Officer, Chairman of the Scientific Advisory Board and a
Director since the Company's inception in 1988 and as President and Chief
Executive Officer since June 1994. Prior to founding TKT, Dr. Selden was an
Instructor in pediatrics at Harvard Medical School. He received an A.B. in
Biology from Harvard College, an A.M. in Biology from the Harvard University
Graduate School of Arts and Sciences, a Ph.D. in genetics from the Division of
Medical Sciences at Harvard Medical School and an M.D. from Harvard Medical
School.
WILLIAM H. PURSLEY has served as Senior Vice President, Commercial
Operations since April 1999. From April 1995 to April 1999, Mr. Pursley was
Senior Vice President, Commercial Development at Biotechnology General
Corporation, a biotechnology company. From 1993 to 1995, Mr. Pursley served as
Chairman and Chief Executive Officer at Trigenix, Inc., a company that provided
sales, marketing and reimbursement outsourcing capabilities to the biotechnology
industry. He received a B.A. in Biology from the University of Louisville.
DOUGLAS A. TRECO, Ph.D. has directed research at the Company since its
inception in 1988. Since February 1997, he has served as the Senior Vice
President, Research and Development and from June 1993 to February 1997, he
served as Vice President, Director of Research and Development. Prior to joining
the Company, Dr. Treco was a Research Fellow in Genetics, Department of
Molecular Biology, Massachusetts General Hospital and Department of Genetics,
Harvard Medical School. He received a B.S. in Biology and Chemistry from the
University of Delaware and a Ph.D. in Biochemistry and Molecular Biology from
the State University of New York, Stony Brook.
CHRISTOPH M. ADAMS, Ph.D. has served as Vice President, Business
Development of the Company since March 1994. From May 1991 to February 1994, Dr.
Adams was
29
Business Development Manager at the Pharmaceuticals Division of Ciba-Geigy AG in
Basel, Switzerland. Dr. Adams received a Ph.D. in Organic Chemistry from the
University of Zurich and a M.B.A. from INSEAD, Fontainebleau, France.
DANIEL E. GEFFKEN has served as Vice President, Finance and Chief
Financial Officer of the Company since February 1997. From June 1993 to February
1997, Mr. Geffken was Chief Financial Officer of CytoTherapeutics, Inc., a
biotechnology company. He received a B.S. in Economics from The Wharton School,
University of Pennsylvania and a M.B.A. from the Harvard Business School.
KURT C. GUNTER, M.D. has served as a consultant to the Company since
September 1993 and as Vice President, Clinical and Regulatory Affairs since July
1996. From September 1993 to June 1996, Dr. Gunter worked in the Department of
Laboratory Medicine at Children's National Medical Center, most recently as
Director of Stem Cell Processing, Hematology and Blood Donor Center. He received
a B.S. in Biological Sciences from Stanford University and an M.D. from the
University of Kansas School of Medicine.
JOSEPH G. HABARTA, Ph.D. has served as Vice President, Quality since
November 1999. From 1993 to 1999, he held a variety of positions at Ares-Serono,
a pharmaceutical company, where he was most recently Vice President, Quality
Assurance and Quality Systems, Corporate Manufacturing Operations. Dr. Habarta
received a B.A. in Chemistry from Queens College and a M.S. in Analytical
Chemistry and a Ph.D. in Chemistry from Seton Hall University.
30
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock commenced trading on October 17, 1996 on The
Nasdaq Stock Market under the symbol "TKTX." As of March 1, 2000, there were 167
holders of record of the Company's Common Stock.
The following table sets forth for the fiscal periods indicated the
range of high and low closing prices for the Company's Common Stock on The
Nasdaq Stock Market.
HIGH LOW
1999
QUARTER ENDED:
December 31................... $ 53 3/8 $ 34 1/4
September 30.................. 51 3/8 31 3/8
June 30....................... 34 3/8 25 15/16
March 31...................... 37 7/8 23 3/8
1998
QUARTER ENDED:
December 31................... $ 25 15/16 $ 15 1/8
September 30.................. 30 19 1/8
June 30....................... 36 25 3/4
March 31...................... 39 1/8 29
The Company has never declared or paid any cash dividends on its
capital stock. The Company currently anticipates that it will retain all future
earnings, if any, to fund the development and growth of its business and does
not anticipated paying any cash dividends on its Common Stock in the foreseeable
future.
31
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data of the Company for
the five years ended December 31, 1999 are derived from the consolidated
financial statements of the Company. The information set forth below should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included as Item 7 and the consolidated
financial statements and related footnotes included as Item 8 in this Form 10-K.
- -------------------------------------------------- ----------------------------------------------------------------
STATEMENT OF OPERATIONS DATA Year ended December 31,
- -------------------------------------------------- ----------------------------------------------------------------
(in thousands, except per share amounts) 1999 1998 1997 1996 1995
License and research revenues $3,870 $ 5,325 $ 5,788 $ 4,225 $ 15,400
Research and development expenses 43,946 25,617 18,111 14,019 10,529
Net income (loss) (44,456) (19,965) (12,871) (11,972) 2,074
Basic net income (loss) per share (pro forma in
1996 and 1995) $(2.25) $(1.05) $(0.74) $(0.98) $0.19
Shares used to compute basic net income (loss)
per share (pro forma in 1996 and 1995) 19,763 19,052 17,394 12,262 10,862
- -------------------------------------------------- ------------ ------------ ------------ ------------ ------------
- ----------------------------------------------------- -------------------------------------------------------------
BALANCE SHEET DATA December 31,
- ----------------------------------------------------- -------------------------------------------------------------
(in thousands) 1999 1998 1997 1996 1995
Cash and marketable securities $192,495 $110,155 $129,554 $86,255 $34,485
Total assets 215,291 117,962 134,948 90,998 39,218
Redeemable preferred stock - - - - 4,440
Total stockholders' equity 195,782 113,646 131,749 89,644 33,541
- ----------------------------------------------------- ---------- ----------- ----------- ------------ ------------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Since its inception in 1988, the Company has been primarily engaged
in the development and commercialization of products based on the Company's
three proprietary development platforms: Gene-Activated-TM- proteins, Niche
Protein-TM- products and Gene Therapy. No revenues have been derived from the
sale of any products, and the Company does not expect to receive revenues
from product sales until late 2000, at the earliest. The Company expects that
its research and development expenditures will increase substantially in
future years as product development efforts accelerate. With the exception of
1995, the Company has incurred substantial annual operating losses since
inception and expects to incur substantial operating losses in the future. At
December 31, 1999, the Company's accumulated deficit was $114,408,000. As a
result, the Company is dependent upon existing cash resources, interest
income, external financing from equity offerings, debt financings or
collaborative research and development arrangements with corporate sponsors
to finance its operations.
32
Results of operations may vary significantly from period to period
depending on, among other factors, the progress of the Company's research and
development efforts, the receipt, if any, of additional license fees and
milestone payments, the timing of certain expenses, and the establishment of
additional collaborative research agreements.
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the accompanying
consolidated financial statements and the related footnotes thereto.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
License and research revenues totaled $3,870,000, $5,325,000 and
$5,788,000 for the years ended December 31, 1999, 1998 and 1997, respectively.
All revenues in each fiscal year were earned from collaborative agreements with
Aventis and Sumitomo.
Research and development expenses totaled $43,946,000 in 1999, as
compared to $25,617,000 in 1998 and $18,111,000 in 1997. The increase in 1999 of
$18,329,000, or 72%, and in 1998 of $7,506,000, or 41%, was principally due to
increases in external development services, research and development staffing
and laboratory supplies in each of the Company's product development platforms.
In particular, preclinical and clinical costs for the Company's Fabry disease
and hemophilia A programs, as well as manufacturing costs associated with the
Fabry disease program, were significant components of the increase. During 2000,
the costs related to both preclinical and clinical programs are expected to
increase significantly as product development activities are initiated or
expanded.
General and administrative expenses were $10,035,000 for the year ended
December 31, 1999, compared with $6,409,000 and $6,279,000 in 1998 and 1997,
respectively. The increase in 1999 of $3,626,000, or 57%, was principally due to
costs in building a business development commercialization infrastructure,
particularly sales and marketing capabilities related to the commercialization
of products in the Company's Niche Protein product platform. During 2000, these
costs are expected to increase significantly as pre-launch activities related to
its Niche Protein product platform accelerate. The increase in 1998 of $130,000,
or 2%, was principally due to increases in administrative staff.
Interest income was $5,655,000, $6,736,000 and $5,731,000 for the years
ended December 31, 1999, 1998 and 1997, respectively. The average cash and
marketable securities balances were $108,673,000, $120,779,000 and $102,161,000
in 1999, 1998 and 1997, respectively. The decrease in interest income in 1999 is
due to both lower average investment balances for 1999 as compared to 1998 and
generally lower rates of return earned in 1999. The increases in interest income
in 1998 resulted generally from higher average balances. In 1998, the effect of
the increase in average balances on interest income was offset by a decline in
yield.
33
The Company had a net loss of $44,456,000, $19,965,000 and $12,871,000
in 1999, 1998 and 1997, respectively.
LIQUIDITY AND SOURCES OF CAPITAL
Since its inception, the Company has financed its operations through
the sale of Common and Preferred Stock, borrowings under debt agreements,
revenues from collaborative agreements and interest income.
The Company had unrestricted cash, cash equivalents and marketable
securities totaling $192,495,000 at December 31, 1999. Cash equivalents and
marketable securities are invested in U.S. Treasury notes, agencies of the U.S.
government and money market funds.
In November 1999, the Company completed a private placement of
3,300,000 shares of Common Stock, resulting in net proceeds to the Company of
approximately $124,576,000.
The Company leased additional facilities in the fourth quarter of 1998,
which will be used for research and development. In December 1998, the Company
obtained an unsecured term loan facility for up to $14,000,000 to finance the
capital costs related to the leased space. The loan is payable beginning in
December 1999 on the basis of a seven year amortization schedule over a five
year period, with a final payment for any remaining amount in September 2004.
The loan bears interest at either the prime rate or LIBOR plus 1.5%, at the
Company's election. The weighted average interest rate of the loan at December
31, 1999 was 7.8%. The note contains certain restrictive covenants, including,
among other things, minimum cash and tangible net asset requirements and
limitations on the payment of dividends. At December 31, 1999, $13,500,000 was
outstanding under this facility.
Even after lease of the new space referred to in the prior paragraph,
the Company's facilities may not be adequate to accommodate the Company's needs
beyond 2000. The Company currently expects to meet any additional facilities
requirements through development of a new facility or conversion of an existing
building. The Company intends to seek financing for all or a significant portion
of the cost of any additional facilities. There can be no guarantee that
financing will be available on favorable terms, if at all.
At December 31 1999, the Company had commitments totaling $5,738,000
for certain product development activities with third parties for 2000.
In May 1994, the Company and Aventis entered into an agreement to
commercialize the Company's GA-EPO product. Under the terms of the agreement,
Aventis is obligated to pay the Company a total of $58,000,000 upon completion
of all milestones and objectives set forth in the agreement. As of December 31,
1999, the
34
Company had received $26,500,000. The remaining $31,500,000 in payments are
contingent upon Aventis' achievement of certain GA-EPO clinical development
milestones.
In March 1995, the Company entered into a second agreement with Aventis
to commercialize GA-II. Pursuant to the agreement, the Company also granted
Aventis an option to commercialize certain aspects of the Company's gene therapy
technologies. Under the terms of the agreement, Aventis is obligated to pay the
Company a total of $67,000,000 upon completion of all milestones and objectives
set forth in the agreement. At December 31, 1999, the Company had received
$34,000,000. The remaining $33,000,000 to be paid to the Company by Aventis
consists primarily of milestone payments contingent upon the development of the
product by Aventis resulting from the licensed technology.
Aventis is responsible for the worldwide development, manufacturing and
marketing of GA-EPO and GA-II, and the Company is entitled to receive a royalty
based on net sales.
At December 31, 1999, the Company had net operating loss carryforwards
of approximately $100,287,000, which expire at various times through 2019. Due
to the degree of uncertainty related to the ultimate use of loss carryforwards
and tax credits, the Company has fully reserved against any potential tax
benefit. The future utilization of net operating loss carryforwards and tax
credits may be subject to limitation under the changes in stock ownership rules
of the Internal Revenue Code. Because of this limitation, it is possible that
taxable income in future years, which would otherwise be offset by net operating
losses, will not be offset and, therefore, will be subject to tax.
Substantial additional funds will be required to support the Company's
research and development programs, for acquisition of technologies, for
preclinical and clinical testing of its products, pursuit of regulatory
approvals, acquisition of capital equipment, expansion of laboratory and office
facilities, establishment of production capabilities, establishment of sales and
marketing capabilities and for general and administrative expenses. Until such
time, if any, as the Company's operations generate significant revenues from
product sales, cash resources, interest income and proceeds from equity
offerings, debt financings and funding from collaborative arrangements will be
required to fund operations.
The Company expects to pursue opportunities to obtain additional
financing in the future through equity financings, debt financings, lease
arrangements related to facilities and capital equipment and collaborative
research agreements. The source, timing and availability of any future financing
will depend principally upon equity and debt market conditions, interest rates
and, more specifically, on the Company's continued progress in its exploratory,
preclinical and clinical development programs. There can be no assurance that
such funds will be available on favorable terms, if at all.
35
The Company expects that its existing capital resources, together with
revenues from collaborative agreements and interest income, will be sufficient
to fund its operations into 2002. The Company's cash requirements may vary,
however, depending on numerous factors. Lack of necessary funds may require the
Company to delay, scale back, or eliminate some or all of its research and
product development programs or to license its potential products or
technologies to third parties.
The Company has been engaged in litigation with Amgen Inc. with respect
to the development of GA-EPO. See Note 11 to Notes to Consolidated Financial
Statements.
YEAR 2000
In prior years, the Company discussed the nature and progress of its
plans to become Year 2000 ready. In late 1999, the Company completed its
remediation and testing of systems. As a result of those planning and
implementation efforts, the Company experienced no disruptions in mission
critical information technology and non-information technology systems and
believes those systems successfully responded to the Year 2000 date change. In
most cases, vendors offered free upgrades or the systems were already scheduled
for upgrade. Therefore, the cost for obtaining Year 2000 compliance was minimal.
The Company is not aware of any material problems resulting from the Year 2000
issues, either with its internal systems or the products and services of third
parties, although there can be no assurance that latent Year 2000 problems will
not arise in the future. The Company will continue to monitor its mission
critical computer applications and those of its suppliers and vendors throughout
the Year 2000 to ensure that any latent Year 2000 matters that may arise are
promptly addressed.
FORWARD-LOOKING STATEMENTS
Statements that are not historical facts, including statements about
the Company's confidence and strategies and its expectations about future
products, technologies and opportunities, market demand or acceptance of
future products are forward-looking statements. Without limiting the
foregoing, the words "believes," "anticipates," "plans," "expects," "intends"
and similar expressions are intended to identify forward-looking statements.
There are a number of important factors that could cause the Company's actual
results to differ materially from those indicated by such forward-looking
statements, including, without limitation, whether any of the Company's
Gene-Activated protein, Niche Protein product, or Gene Therapy product
candidates will advance in the clinical trial process, the timing of such
clinical trials, whether the clinical trial results will warrant continued
product development, the timing of making required regulatory filings such as
Investigational New Drug applications and Biologics License Applications,
whether the Company's products will receive approval from the U.S. Food and
Drug Administration or equivalent foreign regulatory agencies, and, if such
products receive approval, whether they will be successfully marketed; the
results of patent litigation in which the Company is involved or may become
involved; competition; the Company's dependence on collaborators; and other
risks set forth below the caption, "Certain Factors That May Affect Future
Results."
36
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
The following important factors, among others, could cause actual
results to differ from those indicated by forward-looking statements made in
this Annual Report on Form 10-K for the year ended December 31, 1999 and
presented elsewhere by management from time to time.
WE ARE A PARTY TO LITIGATION WITH AMGEN AND KIRIN-AMGEN INVOLVING
GA-EPO-TM-
We and Aventis, our collaborator, are defendants in a civil patent
infringement lawsuit brought by Amgen Inc. in the U.S. District Court for the
District of Massachusetts. Amgen's complaint, which was filed in April 1997,
alleged that GA-EPO and the processes for producing GA-EPO infringe certain of
Amgen's U.S. patents. Amgen's complaint requested that we and Aventis be
enjoined from making, using, or selling GA-EPO and that the District Court award
Amgen monetary damages.
In April 1998, the District Court granted our and Aventis' Motion for
Summary Judgment of Non-Infringement in this case. The District Court based this
decision on the fact that all of our and Aventis' GA-EPO related activities
through that date had been conducted solely for uses reasonably related to the
production of information for submission to the FDA as part of seeking
regulatory approval to market GA-EPO. The District Court stated that, under the
Waxman-Hatch Act, these activities are not acts of patent infringement. The
District Court did not otherwise address the issue of whether our and Aventis'
activities that were challenged by Amgen would infringe Amgen's patents in the
future. The District Court ordered Amgen's remaining claim for Declaratory
Judgment of Future Infringement administratively closed, subject to being
reopened upon motion by either party for good cause shown.
In June 1999, we and Aventis filed a motion to reopen the case in the
District Court. The District Court granted this motion and scheduled the trial
for April 2000.
In addition, in July 1999, we commenced legal proceedings in the U.K.
against Kirin-Amgen Inc. seeking a declaration that a U.K. patent held by
Kirin-Amgen will not be infringed by the sale of GA-EPO and that numerous claims
of the U.K. patent are invalid. The trial is expected to be held in 2001.
We can provide no assurance as to the outcome of either the U.S. or
U.K. proceedings. A court decision in Amgen's or Kirin-Amgen's favor, including
the issuance of an injunction against the making, using, or selling of GA-EPO by
us and Aventis in the U.S. or the U.K., or any other conclusion of either
litigation in a manner adverse to us and Aventis, would have a material adverse
effect on our business, financial condition, and results of operations.
Moreover, GA-EPO may be the subject of additional litigation.
Pursuant to our agreements with Aventis, Aventis has assumed the cost
of the Amgen and Kirin-Amgen litigations. We are required to reimburse Aventis
for our share of litigation expenses from future royalties, if any, payable by
Aventis from the sale of GA-EPO and in certain other circumstances.
37
WE MAY BE SUBJECT TO ADDITIONAL LITIGATION RELATING TO OUR INTELLECTUAL
PROPERTY RIGHTS
The biotechnology industry has been characterized by significant
litigation and interference and other proceedings regarding patents, patent
applications, and other intellectual property rights. In addition to the Amgen
patent litigation described under "--We are a party to litigation with Amgen and
Kirin-Amgen involving GA-EPO-TM-" and the patent interference described under
"--We are involved and may become involved in patent litigation or other
intellectual property proceedings relating to our Transkaryotic Therapy-TM-
technology which could result in liability for damages or stop our development
and commercialization efforts," we may become a party to additional patent
litigation and other proceedings in the future.
Certain of our competitors have filed patent applications and have been
issued patents relating to certain methods of producing therapeutic proteins. We
believe that the risk of our becoming involved in patent litigation is
significant with respect to the therapeutic proteins that we anticipate
producing.
An adverse outcome in any patent litigation or other proceeding
involving patents could subject us to significant liabilities to third parties
and require us to cease using the technology that is at issue or to license the
technology from third parties. We may not be able to obtain any required
licenses on commercially acceptable terms or at all.
The cost to us of any patent litigation or other proceeding, even if
resolved in our favor, could be substantial. Some of our competitors may be able
to sustain these costs more effectively than we can because of their
substantially greater financial resources. Uncertainties resulting from the
initiation and continuation of patent litigation or other proceedings could have
a material adverse effect on our ability to compete in the marketplace.
In addition, hearings have been held by Congress with respect to the
Waxman-Hatch Act. Under the safe harbor provisions of the Waxman-Hatch Act,
activities conducted solely for uses reasonably related to the production of
information for submission to the FDA as part of seeking regulatory approval to
market a product are not acts of patent infringement. If legislation changing
the safe harbor provisions of the Waxman-Hatch Act were introduced in Congress
and enacted, competitors of ours that desire to bring U.S. patent infringement
actions against us might be able to do so at an earlier time than under the
existing law.
WE HAVE NOT GENERATED REVENUES FROM THE SALE OF PRODUCTS
We are at an early stage of development. We have not generated revenues
from the sale of products. We do not expect to derive any revenues from product
sales until late 2000, at the earliest. Each of our three product platforms
involves new and rapidly evolving technologies. All of our potential products
are in research, preclinical testing, or
38
clinical development. We will need to conduct additional development efforts for
all of these products prior to seeking regulatory approval. Preclinical and
clinical data on the safety and efficacy of our potential products are limited.
Our potential products may not be efficacious or may prove to have undesirable
or unintended side effects, toxicities, or other characteristics that may
prevent or limit commercial use.
IF OUR CLINICAL TRIALS ARE NOT SUCCESSFUL, WE WILL NOT BE ABLE TO
DEVELOP AND COMMERCIALIZE ANY RELATED PRODUCTS
In order to obtain regulatory approvals for the commercial sale of our
potential products, we and our collaborators will be required to complete
extensive clinical trials in humans to demonstrate the safety and efficacy of
the products. We may not be able to obtain authority from the FDA or other
regulatory agencies to commence or complete these clinical trials.
The results from preclinical testing of a product that is under
development may not be predictive of results that will be obtained in human
clinical trials. In addition, the results of early human clinical trials may not
be predictive of results that will be obtained in larger scale, advanced stage
clinical trials. Furthermore, we, one of our collaborators, or the FDA may
suspend clinical trials at any time if the subjects or patients participating in
such trials are being exposed to unacceptable health risks, or for other
reasons.
The rate of completion of clinical trials is dependent in part upon the
rate of enrollment of patients. Patient accrual is a function of many factors,
including the size of the patient population, the proximity of patients to
clinical sites, the eligibility criteria for the study, and the existence of
competitive clinical trials. In particular, the patient population for some of
our Niche Protein products is small. Delays in planned patient enrollment may
result in increased costs and program delays.
We and our collaborators may not be able successfully to complete any
clinical trial of a potential product within any specified time period. In some
cases, we may not be able to complete the trial at all. Moreover, clinical
trials may not show any potential product to be safe or efficacious. Thus, the
FDA and other regulatory authorities may not approve any of our potential
products for any indication.
Our business, financial condition, or results of operations could be
materially adversely affected if:
- we or our collaborators are unable to complete a clinical trial of one
of our potential products;
- the results of any clinical trial are unfavorable; or
- the time or cost of completing the trial exceeds our expectations.
GENE THERAPY CLINICAL TRIALS HAVE BEEN SUSPENDED AND REGULATORY
AUTHORITIES ARE REVIEWING THE NEED FOR INCREASED REGULATION OF GENE
THERAPY CLINICAL TRIALS
Due to recent adverse events that have occurred during gene therapy
clinical trials, conducted by other biotechnology and pharmaceutical
companies and institutions, the federal government, the FDA, industry
organizations, and institutions conducting gene therapy clinical trials have
grown increasingly concerned about the safety of gene therapy clinical
trials. As a result, a number of gene therapy clinical trials have been
terminated or suspended. In February 2000, Beth Israel placed a temporary
moratorium on all gene therapy clinical trials being conducted at its
facility, including our clinical trial for hemophilia A, due to national
public policy concerns relating to gene therapy trials. There had been no
adverse events associated with our trial. Upon review of our hemophilia A
clinical trial safety data, Beth Israel resumed our gene therapy clinical
trial to treat hemophilia A two weeks after its initial suspension. There can
be no assurance that increased concern over gene therapy trials generally
will not lead the FDA or other regulatory agencies to impose further
regulation on gene therapy clinical trials. If greater regulations are
imposed on gene therapy research generally, the delays and costs involved in
complying with such greater regulation may impair our ability to complete
clinical trials already in progress and to conduct gene therapy clinical
trials in the future.
39
WE MAY NOT OBTAIN GOVERNMENT APPROVALS; THE APPROVALS PROCESS IS
COSTLY AND LENGTHY
The testing, manufacturing, labeling, advertising, promotion, export,
and marketing, among other things, of our products are subject to extensive
regulation by governmental authorities in the U.S. and other countries. The
regulatory approval process to obtain market approval for a new drug or biologic
takes many years and requires the expenditure of substantial resources. We have
had only limited experience in preparing applications and obtaining regulatory
approvals.
There can be no assurance that submission of an Investigational New
Drug Application will result in FDA authorization to commence clinical trials,
or that once clinical trials have begun, testing will be completed successfully
within any specific time period, if at all, with respect to any of our products.
Furthermore, we or the FDA may suspend clinical trials at any time on various
grounds, including a finding that the subjects or patients are being exposed to
unacceptable health risks. Once trials are complete and an application has been
submitted, the FDA may deny a BLA if applicable regulatory criteria are not
satisfied, may require additional testing or information, and/or may require
postmarketing testing and surveillance to monitor the safety or efficacy of a
product. The testing and approval process requires substantial time, effort, and
financial resources. We can provide no assurance that any approval will be
granted on a timely basis, if at all.
Because gene therapy is a relatively new technology and products for
gene therapy have not been extensively tested in humans, the regulatory
requirements governing gene therapy products may be more uncertain than for
other types of products. This uncertainty may cause delays in the regulatory
process relating to our gene therapy products, including delays in our
initiating clinical trials of these products. This uncertainty may also increase
the cost of obtaining regulatory approvals of our gene therapy products.
Both before and after approval is obtained, violations of regulatory
requirements may result in various adverse consequences, including the FDA's
delay in approving or refusal to approve a product, withdrawal of an approved
product from the market, and/or the imposition of criminal penalties against the
manufacturer and/or the BLA holder.
We will also be subject to a variety of foreign regulations governing
clinical trials and the sale of its products. Whether or not we have obtained
FDA approval, the comparable regulatory authorities of foreign countries must
also approve a product prior to the commencement of marketing of the product in
those countries. The approval process varies from country to country and the
time may be longer or shorter than that required for FDA approval.
40
WE FACE SIGNIFICANT COMPETITION, WHICH MAY RESULT IN OTHERS
DISCOVERING, DEVELOPING, OR COMMERCIALIZING PRODUCTS BEFORE OR MORE
SUCCESSFULLY THAN WE DO
The biotechnology industry is highly competitive and characterized by
rapid and significant technological change. Our competitors include
pharmaceutical companies, biotechnology firms, universities, and other research
institutions. Many of these competitors have substantially greater financial and
other resources than we do and are conducting extensive research and development
activities on technologies and products similar to or competitive with ours.
We may be unable to develop technologies and products that are more
clinically efficacious or cost-effective than products developed by our
competitors. Even if we obtain marketing approval for our product candidates,
many of our competitors have more extensive and established sales, marketing,
and distribution capabilities than we do. Litigation with third parties,
including our present litigation with Amgen, could delay our time to market for
certain products and enable our competitors to more quickly and effectively
penetrate certain markets.
Under our Gene-Activated protein program, we are developing fully human
versions of proteins that are currently-marketed. For instance, in the case of
GA-EPO, erythropoietin is marketed by Amgen and Johnson & Johnson in the U.S.;
F. Hoffmann-La Roche Ltd. (Boehringer Mannheim GmbH) and J&J (Janssen-Cilag) in
Europe; and Sankyo Company Ltd., Chugai Pharmaceutical Co., Ltd., and Kirin in
Japan.
Many of the protein products against which our Gene-Activated proteins
would compete have well-known brand names, have been promoted extensively, and
have achieved market acceptance by third party payors, hospitals, physicians,
and patients. Many of the companies that produce these protein products have
patents covering the techniques used to produce these products, which have
served as effective barriers to entry in the protein therapeutics market. As
with Amgen and its erythropoietin product, these companies may seek to block our
entry into the market by asserting that our Gene-Activated proteins infringe
their patents. Many of these companies are also seeking to develop and
commercialize new or potentially improved versions of their proteins.
We believe that the primary competition with respect to our Niche
Protein product program is from biotechnology and smaller pharmaceutical
companies. In particular, we believe that our major competition with respect to
Fabry disease and Gaucher disease is Genzyme Corporation. Genzyme is conducting
late stage clinical trials of a protein product for the treatment of Fabry
disease and has marketed a product for the treatment of Gaucher disease since
1991. Genzyme owns or controls issued patents related to the production of
protein products to treat Fabry disease and Gaucher disease. The markets for
some of our potential Niche Protein products are quite small. As a result, if
competitive products exist, we may not be able successfully to commercialize our
products.
41
Our gene therapy system will have to compete with other gene therapy
systems, as well as with conventional methods of treating targeted diseases and
conditions. In addition, new non-gene therapy treatments may be developed in the
future. A number of companies, including major biotechnology and pharmaceutical
companies, as well as development stage companies, are actively involved in this
field.
COMPETITORS PRODUCTS MAY RECEIVE ORPHAN DRUG EXCLUSIVITY AND THEREBY
PRECLUDE US FROM MARKETING OUR NICHE PROTEIN-TM- PRODUCTS AND WE MAY
NOT BE ABLE TO OBTAIN ORPHAN DRUG EXCLUSIVITY FOR OUR NICHE PROTEIN
PRODUCTS
If a product which has an orphan drug designation from the FDA
subsequently receives the first marketing approval for the indication for which
it has such designation, the product is entitled to orphan drug exclusivity,
i.e., the FDA may not approve any other applications to market the same product
for the same indication, except in limited circumstances, for a period of seven
years. Obtaining orphan drug designations and orphan drug exclusivity for our
Niche Protein products may be critical to our success in this area. We may not
be able to obtain orphan drug designation or exclusivity for any of our
potential products or be able to maintain such designation or exclusivity for
any of these products. For example, if a competitive product is shown to be
clinically superior to our product, any orphan drug exclusivity we have obtained
will not apply to our product.
Our competitors may also seek orphan drug designations and obtain
orphan drug exclusivity for products competitive with our products before we
obtain marketing approval. We are aware that Genzyme is conducting late stage
clinical trials of a protein product for the treatment of Fabry disease for
which it has an orphan drug designation. If Genzyme's Fabry disease product
receives marketing approval before our Fabry disease product, it is likely that
we would not be permitted to market our product in the U.S. unless our product
is shown to be clinically superior to their product.
WE ARE DEPENDENT ON AVENTIS AND OTHER CORPORATE COLLABORATORS TO
DEVELOP, CONDUCT CLINICAL TRIALS, OBTAIN REGULATORY APPROVALS FOR, AND,
MANUFACTURE, MARKET, AND SELL OUR PRINCIPAL PRODUCTS
We are parties to collaborative agreements with third parties relating
to certain of our principal products. We are relying on Aventis to develop,
conduct clinical trials, obtain regulatory approvals for, and manufacture,
market, and sell GA-EPO and GA-II; Sumitomo to develop and commercialize
Replagal for Fabry disease in Japan and other Asian countries; and GI to develop
and commercialize Factor VIII gene therapy for hemophilia A in Europe. Our
collaborators may not devote the resources necessary or may otherwise be unable
to complete development and commercialization of these potential products. Our
existing collaborations are subject to termination without cause on short notice
under certain circumstances.
Our existing collaborations and any future collaborative arrangements
with third parties may not be scientifically or commercially successful. Factors
that may affect the success of our collaborations include the following:
42
- our collaborators may be pursuing alternative technologies or
developing alternative products, either on their own or in
collaboration with others, that may be competitive with the product as
to which they are collaborating with us, which could affect our
collaborative partners' commitment to the collaboration with us;
- reductions in marketing or sales efforts or a discontinuation of
marketing or sales of our products by our collaborators would reduce
our revenues, which will be based on a percentage of net sales by the
collaborator;
- our collaborators may terminate their collaborations with us, which
could make it difficult for us to attract new collaborators or
adversely affect the perception of us in the business and financial
communities; and
- our collaborators may pursue higher priority programs or change the
focus of their development programs, which could affect the
collaborator's commitment to us. Pharmaceutical companies have
historically re-evaluated their development priorities following
mergers and consolidations. This could occur following the closing of
the merger between Hoechst Marion Roussel, Inc. and Rhone-Poulenc SA
into Aventis S.A., which was completed in late 1999.
WE MAY NOT BE ABLE TO OBTAIN PATENT PROTECTION FOR OUR DISCOVERIES
Our success will depend in large part on our ability to obtain patent
protection for our processes and products in the U.S. and other countries. The
patent situation in the field of biotechnology generally is highly uncertain and
involves complex legal and scientific questions. We may not be issued patents
relating to our technology. Even if issued, patents may be challenged,
invalidated, or circumvented. Our patents also may not afford us protection
against competitors with similar technology. Because patent applications in the
U.S. are maintained in secrecy until patents issue, third parties may have filed
or maintained patent applications for technology used by us or covered by our
pending patent applications without our being aware of these applications.
We may not hold proprietary rights to certain product patents, process
patents, and use patents related to our products or their methods of
manufacture. In some cases, these patents may be owned or controlled by third
parties. As a result, we may be required to obtain licenses under third party
patents to market certain of our potential products. If licenses are not
available to us on acceptable terms, we will not be able to market these
products.
We also rely upon unpatented proprietary technology, processes, and
know-how. We seek to protect this information in part by confidentiality
agreements with our employees, consultants, and other third party contractors.
These agreements may be breached, and we may not have adequate remedies for any
such breach. In addition, our trade secrets may otherwise become known or be
independently developed by competitors.
43
WE MAY LOSE IMPORTANT LICENSE RIGHTS IN SOME CIRCUMSTANCES
We are a party to a number of patent licenses that are important to our
business and expect to enter into additional patent licenses in the future.
These licenses impose various commercialization, sublicensing, royalty,
insurance, and other obligations on us. If we fail to comply with these
obligations, the licensor will have the right to terminate the license.
WE ARE INVOLVED AND MAY BECOME INVOLVED IN PATENT LITIGATION OR OTHER
INTELLECTUAL PROPERTY PROCEEDINGS RELATED TO OUR TRANSKARYOTIC THERAPY
-TM- TECHNOLOGY WHICH COULD RESULT IN LIABILITY FOR DAMAGES OR STOP OUR
DEVELOPMENT AND COMMERCIALIZATION EFFORTS
We are a party to a proceeding before the U.S. Patent and Trademark
Office to determine the patentability of our Gene Therapy technology. The
participants in the interference are TKT, Genetic Therapy, Inc., which is a
wholly-owned subsidiary of Novartis AG, Syntex (U.S.A.), which is a wholly-owned
subsidiary of Roche Holdings, Inc., and Somatix Therapy Corporation, which has
been merged into Cell Genesys, Inc. This proceeding will also determine which of
the parties first developed this technology. If the technology is patentable,
the party that first developed the technology will be awarded the U.S. patent
rights.
The process to resolve an interference can take many years. We may not
prevail in this interference. Even if we do prevail, the decision in this
proceeding may not enable us meaningfully to protect our proprietary position in
the field of EX VIVO gene therapy.
If we do not prevail in this proceeding, a consent order issued by the
Federal Trade Commission in March 1997 may be relevant to us. The Federal Trade
Commission entered this consent order to resolve anti-competitive concerns
raised by the merger of Ciba-Geigy Limited and Sandoz Limited into Novartis AG.
As part of the consent order, the constituent entities of Novartis are required
to provide all gene therapy researchers and developers with nonexclusive,
royalty-bearing licenses to the Novartis patent which is involved in the
interference proceeding described above. In addition, we have entered into an
agreement with Cell Genesys under which we would be permitted to market our
non-viral gene therapy products pursuant to a royalty-free license agreement if
Cell Genesys wins the interference. Thus, we believe that we may only be
materially adversely affected if Syntex prevails in this proceeding.
EVEN IF WE OBTAIN MARKETING APPROVAL, OUR PRODUCTS WILL BE SUBJECT TO
ONGOING REGULATORY REVIEW
If regulatory approval of a product is granted, such approval may be
subject to limitations on the indicated uses for which the product may be
marketed or contain requirements for costly post-marketing studies. As to
products for which we obtain marketing approval, we, the manufacturer of the
product if other than us, and the
44
manufacturing facilities will be subject to continual review and periodic
inspections by the FDA and other regulatory authorities. The subsequent
discovery of previously unknown problems with the product, manufacturer, or
facility may result in restrictions on the product or manufacturer, including
withdrawal of the product from the market.
If we fail to comply with applicable regulatory requirements, we may be
subject to fines, suspension or withdrawal of regulatory approvals, product
recalls, seizure of products, operating restrictions, and criminal prosecution.
THE MARKET MAY NOT BE RECEPTIVE TO OUR PRODUCTS UPON THEIR INTRODUCTION
The commercial success of our products that are approved for marketing
by the FDA and other regulatory authorities will depend upon their acceptance by
the medical community and third party payors as clinically useful,
cost-effective, and safe. Each of our technology programs is new. As a result,
it may be difficult for us to achieve market acceptance of our products,
particularly for the first products for which we obtain marketing approval.
Other factors that we believe will materially affect market acceptance
of our products include:
- the timing of the receipt of marketing approvals and the countries in
which such approvals are obtained;
- the safety and efficacy of the product as compared to competitive
products; and
- the cost-effectiveness of the product and the ability to receive
third party reimbursement.
WE HAVE NOT BEEN PROFITABLE AND MAY REQUIRE ADDITIONAL FUNDING
We have experienced significant operating losses since our inception
in 1988. At, December 31, 1999, we had an accumulated deficit of approximately
$114.4 million. We expect that we will continue to incur substantial losses into
2001 and that our cumulative losses will increase until then as our research and
development, sales and marketing, and manufacturing efforts expand. We expect
that the losses that we incur will fluctuate from quarter to quarter and that
these fluctuations may be substantial. To date, we have not received revenues
from the sale of products.
We will require substantial funds to conduct research and development,
including preclinical testing and clinical trials of our potential products, and
to manufacture and market any products that are approved for commercial sale.
Our future capital requirements will depend on many factors, including the
following:
- continued progress in our research and development programs, as well
as the magnitude of these programs;
45
- the scope and results of our clinical trials;
- the time and costs involved in obtaining regulatory approvals;
- the cost of manufacturing activities;
- the cost of commercialization activities;
- the cost of our additional facilities requirements;
- our ability to establish and maintain collaborative arrangements;
- the timing, receipt, and amount of milestone and other payments from
collaborators;
- the timing, receipt, and amount of sales and royalties from our
potential products in the market;
- the costs involved in preparing, filing, prosecuting, maintaining,
and enforcing patent claims and other patent-related costs, including
litigation costs and the costs of obtaining any required licenses to
technologies; and
- the cost of obtaining and maintaining licenses to use patented
technologies.
We may seek additional funding through collaborative arrangements and
public or private financings. Additional financing may not be available to us on
acceptable terms or at all.
If we raise additional funds by issuing equity securities, further
dilution to our then existing stockholders will result. In addition, the terms
of the financing may adversely affect the holdings or the rights of such
stockholders. If we are unable to obtain funding on a timely basis, we may be
required to significantly curtail one or more of our research or development
programs. We also could be required to seek funds through arrangements with
collaborators or others that may require us to relinquish rights to certain of
our technologies, product candidates, or products which we would otherwise
pursue on our own.
WE HAVE LIMITED MANUFACTURING CAPABILITIES AND WILL DEPEND ON THIRD
PARTY MANUFACTURERS
We have limited manufacturing experience and no commercial scale
manufacturing capabilities. In order to continue to develop products, apply for
regulatory approvals, and, ultimately, commercialize any products, we will need
to develop, contract for, or otherwise arrange for the necessary manufacturing
capabilities.
46
We expect to manufacture certain of our products in our own
manufacturing facilities. We will require substantial additional funds and need
to recruit qualified personnel in order to build or lease and operate any
manufacturing facilities.
We currently rely upon third parties to produce material for
preclinical testing and clinical trial purposes. We expect to continue to do so
in the future. We also expect to rely upon third parties for the commercial
production of certain of our products if we succeed in obtaining necessary
regulatory approvals. There are a limited number of such third party
manufacturers capable of manufacturing for us. If we are unable to obtain or
maintain contract manufacturing of these products, or to do so on commercially
reasonable terms, we may not be able to complete development of these products
or market them. To the extent that we enter into manufacturing arrangements with
third parties, we are dependent upon these third parties to perform their
obligations in a timely manner and in accordance with applicable government
regulations.
WE HAVE LIMITED SALES AND MARKETING EXPERIENCE AND CAPABILITIES
We have limited sales and marketing experience and capabilities. In
order to market our products, we will need to develop this experience and these
capabilities or rely upon third parties, such as our corporate collaborators, to
perform these functions. If we rely on third parties to sell, market, or
distribute our products, our success will be dependent upon the efforts of these
third parties in performing these functions. In many instances, we may have
little or no control over the activities of these third parties in selling,
marketing, and distributing our products. If we choose to conduct these
activities directly, as we plan to do with respect to some of our potential
products, we may not be able to recruit and maintain an effective sales force.
OUR SUCCESS IS DEPENDENT UPON THE RETENTION AND HIRING OF KEY PERSONNEL
Our success is highly dependent on the retention of principal members
of our scientific and administrative staff. Furthermore, our future growth will
require hiring a significant number of qualified scientific and administrative
personnel. Accordingly, recruiting and retaining such personnel in the future
will be critical to our success. There is intense competition from other
companies and research and academic institutions for qualified personnel in the
areas of our activities, and there can be no assurance that we will be able to
continue to attract and retain, on acceptable terms, the qualified personnel
necessary for the continued development of our business.
WE MAY BE EXPOSED TO PRODUCT LIABILITY CLAIMS AND MAY NOT BE ABLE TO
OBTAIN ADEQUATE PRODUCT LIABILITY INSURANCE
Our business exposes us to the risk of product liability claims that is
inherent in the testing, manufacturing, and marketing of human therapeutic
products. Although we have clinical trial liability insurance, we do not
currently have any product liability insurance. We may not be able to obtain or
maintain such insurance on acceptable terms or at all. Moreover, any insurance
that we do obtain may not provide adequate protection
47
against potential liabilities. If we are unable to obtain insurance at
acceptable cost or otherwise protect against potential product liability claims,
we will be exposed to significant liabilities, which may materially and
adversely affect our business and financial condition. These liabilities could
prevent or interfere with our product commercialization efforts.
IF WE FAIL TO OBTAIN AN ADEQUATE LEVEL OF REIMBURSEMENT BY THIRD PARTY
PAYORS FOR OUR FUTURE PRODUCTS, WE MAY NOT BE ABLE TO SUCCESSFULLY
COMMERCIALIZE OUR PRODUCTS IN CERTAIN MARKETS
The availability of reimbursement by governmental and other third party
payors affects the market for any pharmaceutical product. These third party
payors continually attempt to contain or reduce the costs of health care by
challenging the prices charged for medical products and services. In certain
foreign countries, particularly the countries of the European Union, the pricing
of prescription pharmaceuticals is subject to governmental control.
Proposals have been considered periodically by the Health Care
Financing Administration of the United States Department of Health and Human
Services to reduce the reimbursement rate with respect to erythropoietin.
Adoption by the Health Care Financing Administration of any such proposal might
have an adverse effect on the pricing of GA-EPO.
In both the U.S. and certain foreign jurisdictions, there have been a
number of legislative and regulatory proposals to change the health care system.
Further proposals are likely. The potential for adoption of these proposals may
affect our ability to raise capital, obtain additional collaborative partners,
and market our products.
If we or our collaborators obtain marketing approvals for our products,
we expect to experience pricing pressure due to the trend toward managed health
care, the increasing influence of health maintenance organizations, and
additional legislative proposals. We may not be able to sell our products
profitably if reimbursement is unavailable or limited in scope or amount.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not believe that there is any material market risk
exposure with respect to derivative or other financial instruments that would
require disclosure under this item.
48
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements and supplementary data are included
as part of this Annual Report on Form 10-K:
Report of Independent Auditors
Consolidated Balance Sheets as of December 31, 1999 and 1998
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997
Consolidated Statement of Stockholders' Equity for the years ended
December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the years ended December 31,
1999, 1998 and 1997
49
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Transkaryotic Therapies, Inc.
We have audited the accompanying consolidated balance sheets of Transkaryotic
Therapies, Inc. (the Company) as of December 31, 1999 and 1998, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Transkaryotic
Therapies, Inc. at December 31, 1999 and 1998, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States.
/s/ Ernst & Young LLP
Boston, Massachusetts
February 4, 2000
50
TRANSKARYOTIC THERAPIES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except par values) DECEMBER 31,
--------------------------
1999 1998
--------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 151,202 $ 31,760
Marketable securities 41,293 78,395
Prepaid expenses and other current assets 2,054 2,334
---------- ----------
Total current assets 194,549 112,489
Property and equipment, net 20,384 5,140
Other assets 358 333
---------- ----------
Total assets $ 215,291 $ 117,962
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,000 $ 1,456
Accrued expenses 4,009 2,860
Current maturities of long-term debt 2,000 --
---------- ----------
Total current liabilities 8,009 4,316
Long-term debt, less current maturities 11,500 --
Stockholders' equity:
Preferred stock, $1.00 par value, 10,000 shares
authorized; no shares issued and outstanding -- --
Common stock, $.01 par value; 30,000 shares
authorized, 22,592 and 19,126 shares issued
and outstanding at December 31, 1999 and 1998,
respectively 226 191
Additional paid-in capital 311,817 186,067
Accumulated deficit (114,408) (69,952)
Deferred compensation (1,645) (2,632)
Accumulated other comprehensive
loss (208) (28)
---------- ----------
Total stockholders' equity 195,782 113,646
---------- ----------
Total liabilities and stockholders' equity $ 215,291 $ 117,962
---------- ----------
---------- ----------
See accompanying Notes to Consolidated Financial Statements.
51
TRANSKARYOTIC THERAPIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
YEAR ENDED DECEMBER 31,
-------------------------------------
1999 1998 1997
--------- ---------- ---------
License and research revenues $ 3,870 $ 5,325 $ 5,788
Operating expenses:
Research and development 43,946 25,617 18,111
General and administrative 10,035 6,409 6,279
--------- ---------- ---------
53,981 32,026 24,390
--------- ---------- ---------
Loss from operations (50,111) (26,701) (18,602)
Interest income 5,655 6,736 5,731
--------- ---------- ---------
Net loss $(44,456) $(19,965) $(12,871)
--------- ---------- ---------
--------- ---------- ---------
Basic and diluted net loss per share $ (2.25) $ (1.05) $ (0.74)
--------- ---------- ---------
--------- ---------- ---------
Shares used in computing basic and
diluted net loss per share 19,763 19,052 17,394
--------- ---------- ---------
--------- ---------- ---------
See accompanying Notes to Consolidated Financial Statements.
52
TRANSKARYOTIC THERAPIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands) COMMON STOCK
--------------------------
SHARES AMOUNT
----------- ----------
BALANCE AT DECEMBER 31, 1996 16,614 $ 166
Issuance of common stock, net 2,315 23
Deferred compensation related to stock options
granted -- --
Reversal of deferred compensation related to
forfeited restricted stock and stock options
granted, net -- --
Compensation expense related to equity issuances -- --
Unrealized gain on marketable securities -- --
Net loss -- --
Comprehensive loss -- --
----------- ----------
BALANCE AT DECEMBER 31, 1997 18,929 189
Issuance of common stock, net 201 2
Compensation expense related to equity issuances -- --
Reversal of deferred compensation related to
forfeited restricted stock and stock options
granted, net (4) --
Unrealized loss on marketable securities -- --
Net loss -- --
Comprehensive loss -- --
----------- ----------
BALANCE AT DECEMBER 31, 1998 19,126 191
Issuance of common stock, net 3,466 35
Deferred compensation related to stock options
granted -- --
Compensation expense related to equity issuances -- --
Reversal of deferred compensation related to
forfeited restricted stock and stock options
granted, net -- --
Unrealized loss on marketable securities -- --
Net loss -- --
Comprehensive loss -- --
----------- ----------
BALANCE AT DECEMBER 31, 1999 22,592 $ 226
----------- ----------
----------- ----------
See accompanying Notes to Consolidated Financial Statements.
53
ADDITIONAL
(IN THOUSANDS) PAID-IN ACCUMULATED
CAPITAL DEFICIT
----------- ------------
BALANCE AT DECEMBER 31, 1996 $ 131,796 $ (37,116)
Issuance of common stock, net 53,754 --
Deferred compensation related to stock options
granted 526 --
Reversal of deferred compensation related to
forfeited restricted stock and stock options
granted, net (625) --
Compensation expense related to equity issuances -- --
Unrealized gain on marketable securities -- --
Net loss -- (12,871)
Comprehensive loss -- --
----------- ------------
BALANCE AT DECEMBER 31, 1997 185,451 (49,987)
Issuance of common stock, net 808 --
Compensation expense related to equity issuances -- --
Reversal of deferred compensation related to
forfeited restricted stock and stock options
granted, net (192) --
Unrealized loss on marketable securities -- --
Net loss -- (19,965)
Comprehensive loss -- --
----------- ------------
BALANCE AT DECEMBER 31, 1998 186,067 (69,952)
Issuance of common stock, net 125,715 --
Deferred compensation related to stock options
granted 208 --
Compensation expense related to equity issuances 67 --
Reversal of deferred compensation related to
forfeited restricted stock and stock options
granted, net (240) --
Unrealized loss on marketable securities -- --
Net loss -- (44,456)
Comprehensive loss -- --
----------- ------------
BALANCE AT DECEMBER 31, 1999 $ 311,817 $(114,408)
----------- ------------
----------- ------------
See accompanying Notes to Consolidated Financial Statements.
54
ACCUMULATED
OTHER TOTAL
(IN THOUSANDS) DEFERRED COMPREHENSIVE STOCKHOLDERS'
COMPENSATION INCOME (LOSS) EQUITY
------------ ------------- -------------
BALANCE AT DECEMBER 31, 1996 $ (5,218) $ 16 $ 89,644
Issuance of common stock, net -- -- 53,777
Deferred compensation related to stock options granted (526) -- --
Reversal of deferred compensation related to
forfeited restricted stock and stock options
granted, net 625 -- --
Compensation expense related to equity issuances 1,179 -- 1,179
Unrealized gain on marketable securities -- 20 20
Net loss -- -- (12,871)
------------ ------------- -------------
Comprehensive loss -- -- (12,851)
------------ ------------- -------------
BALANCE AT DECEMBER 31, 1997 (3,940) 36 131,749
Issuance of common stock, net -- -- 810
Compensation expense related to equity issuances 1,116 -- 1,116
Reversal of deferred compensation related to
forfeited restricted stock and stock options
granted, net 192 -- --
Unrealized loss on marketable securities -- (64) (64)
Net loss -- -- (19,965)
------------ ------------- -------------
Comprehensive loss -- -- (20,029)
------------ ------------- -------------
BALANCE AT DECEMBER 31, 1998 (2,632) (28) 113,646
Issuance of common stock, net -- -- 125,750
Deferred compensation related to stock options
granted (208) -- --
Compensation expense related to equity issuances 955 -- 1,022
Reversal of deferred compensation related to
forfeited restricted stock and stock options
granted, net 240 -- --
Unrealized loss on marketable securities -- (180) (180)
Net loss -- -- (44,456)
------------ ------------- -------------
Comprehensive loss -- -- (44,636)
------------ ------------- -------------
BALANCE AT DECEMBER 31, 1999 $(1,645) $(208) $ 195,782
------------ ------------- -------------
------------ ------------- -------------
See accompanying Notes to Consolidated Financial Statements.
55
TRANSKARYOTIC THERAPIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS) YEAR ENDED DECEMBER 31,
------------------------------------------------
1999 1998 1997
------------ ------------ -------------
OPERATING ACTIVITIES:
Net loss $ (44,456) $ (19,965) $ (12,871)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation and amortization 1,983 2,056 2,092
Compensation expense related to equity
issuances 1,022 1,116 1,179
Changes in operating assets and liabilities:
Decrease (increase) in prepaid expenses and
other current assets 280 (1,783) 267
Increase (decrease) in accounts payable 544 (200) 1,044
Increase in accrued expenses 1,149 1,317 801
------------ ------------ -------------
Net cash used for operating activities (39,478) (17,459) (7,488)
------------ ------------ -------------
INVESTING ACTIVITIES:
Proceeds from sales of marketable securities 110,640 134,491 117,669
Purchases of marketable securities (73,718) (107,318) (147,440)
Purchases of property and equipment (17,227) (2,660) (2,936)
Increase in other assets (25) (26) (74)
------------ ------------ -------------
Net cash provided by (used for) investing activities 19,670 24,487 (32,781)
------------ ------------ -------------
FINANCING ACTIVITIES:
Issuance of common stock, net 125,750 810 53,777
Proceeds from long-term debt financing 14,000 -- --
Principal payments of long-term debt (500) -- --
------------ ------------ -------------
Net cash provided by financing activities 139,250 810 53,777
------------ ------------ -------------
Net increase in cash and cash equivalents 119,442 7,838 13,508
Cash and cash equivalents at January 1 31,760 23,922 10,414
------------ ------------ -------------
Cash and cash equivalents at December 31 $ 151,202 $ 31,760 $ 23,922
------------ ------------ -------------
------------ ------------ -------------
See accompanying Notes to Consolidated Financial Statements.
56
TRANSKARYOTIC THERAPIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
Transkaryotic Therapies, Inc. ("TKT" or "the Company") is a biopharmaceutical
company engaged in the development and commercialization of products based on
its three proprietary development platforms: Gene-Activated-TM- proteins,
Niche Protein-TM- products and Gene Therapy.
2. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary. All intercompany activity has been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES
Cash equivalents include funds held in investments with original maturities of
three months or less at the time of purchase. Marketable securities consist of
U.S. government and agency obligations. The fair values for marketable
securities are based on quoted market prices.
The Company determines the appropriate classification of cash equivalents and
marketable securities at the time of purchase and re-evaluates such designation
as of each balance sheet date. The Company has classified such holdings as
available-for-sale securities, which are carried at fair value, with unrealized
gains and losses reported as a separate component of stockholders' equity.
Financial instruments that potentially subject the Company to concentrations of
credit risk consist of temporary cash investments and marketable securities. The
Company maintains cash and cash equivalents with high credit-quality financial
institutions and limits the amount of credit exposure to any one institution.
The Company's credit exposure on its marketable securities is limited by its
diversification among U.S. government and agency obligations.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated using the
straight-line method over estimated useful lives of the respective asset,
ranging from three to five years. Leasehold improvements are stated at cost and
are amortized using the straight-line method over the term of the lease, or the
estimated useful life of the asset, whichever is shorter.
57
TRANSKARYOTIC THERAPIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STOCK-BASED COMPENSATION
The Company accounts for qualified stock option grants in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"), and, accordingly, recognizes no compensation expense for
the issue thereof. For certain non-qualified stock options granted, the Company
recognizes as compensation expense the excess of the deemed fair value of the
common stock issuable upon exercise over the aggregate exercise price of such
options. The compensation is amortized over the vesting period of each option or
the recipient's term of employment, if shorter. The Company has adopted the
disclosure-only provisions of Statement of Financial Accounting Standard
("SFAS") No. 123, "Accounting for Stock-Based Compensation."
LICENSE AND RESEARCH REVENUES
Revenues from collaborative agreements are recognized as earned upon either the
execution of the underlying license agreement, the incurrence of reimbursable
expenses or the achievement of certain milestones.
The Company is located in the U.S. and derives substantially all of its license
and research revenues from services provided in the U.S. Current licensing
agreements provide for the sale of products in both the U.S. and abroad. To
date, the Company has not recorded revenues from the sale of any product.
INCOME TAXES
Deferred tax assets are determined based on differences between financial
reporting and income tax bases of assets and liabilities, as well as net
operating loss carryforwards, and are measured using the enacted tax rates and
laws that are expected to be in effect when the differences reverse. Deferred
tax assets are reduced by a valuation allowance to reflect the uncertainty
associated with their ultimate realization.
NET LOSS PER SHARE
The Company calculates net loss per share in accordance with SFAS No. 128,
"Earnings Per Share." Basic earnings per share excludes any dilutive effects of
options, warrants and convertible securities.
Basic net loss per share was equivalent to diluted net loss per share for the
years ended December 31, 1999, 1998 and 1997 since common equivalent shares from
stock options and warrants have been excluded as their effect is antidilutive.
ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (FAS 133), which provides for the
recognition and measurement of derivatives and hedging activities. In May 1999,
the FASB delayed the required implementation date by one year, making it
effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
Management of the Company does not expect the adoption of this Statement to have
a material impact on the Company's financial statements.
In December 1999, the Securities and Exchange Commission staff issued Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements (SAB
101), which identifies criteria to be met before revenue is recognized. The SAB
is effective for quarters beginning after December 15, 1999. Management of the
Company has concluded that the SAB does not have a material impact on the
Company's financial statements.
58
TRANSKARYOTIC THERAPIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. CASH EQUIVALENTS AND MARKETABLE SECURITIES
The following is a summary of available-for-sale securities:
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
(IN THOUSANDS) COST GAINS LOSSES VALUE
- ----------------- ----- -------- --------- --------
December 31, 1999 $170,456 $ 83 $ (291) $170,248
-------- -------- --------- ---------
-------- -------- --------- ---------
December 31, 1998 $100,768 $ 100 $ (128) $100,740
-------- -------- --------- ---------
-------- -------- --------- ---------
These securities are classified in the accompanying balance sheet as follows:
(IN THOUSANDS) DECEMBER 31,
-------------------------
1999 1998
--------- ----------
Cash equivalents $128,955 $ 22,345
Marketable securities 41,293 78,395
--------- --------
$170,248 $100,740
--------- --------
--------- --------
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
(IN THOUSANDS) DECEMBER 31,
--------------------
1999 1998
------- -------
Leasehold improvements $ 7,823 $ 6,935
Laboratory equipment 6,580 4,967
Office furniture and equipment 3,816 2,320
Construction in process 13,665 435
------- -------
31,884 14,657
Less accumulated depreciation and amortization 11,500 9,517
------- -------
$20,384 $ 5,140
------- -------
------- -------
Depreciation and amortization expense on property and equipment was $1,983,000
$2,025,000 and $1,668,000 in 1999, 1998 and 1997, respectively.
59
TRANSKARYOTIC THERAPIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. ACCRUED EXPENSES
Accrued expenses consist of the following:
(IN THOUSANDS) DECEMBER 31,
--------------------
1999 1998
------ ------
External development services $1,491 $1,245
Salaries and benefits 1,140 530
Professional fees 538 384
Other 840 701
------ ------
$4,009 $2,860
------ ------
------ ------
6. BANK LOAN
At December 31, 1999, the Company had $13,500,000 outstanding under an unsecured
term loan facility that was used to finance capital equipment and leasehold
improvements. The loan is repayable beginning in December 1999 on the basis of a
seven year amortization schedule over a five year period, with a final payment
for any remaining outstanding amount in September 2004. The loan bears interest
at either the prime rate or LIBOR plus 1.50%, at the Company's election. The
weighted average interest rate of the loan was 7.8% as of December 31, 1999. The
note contains certain restrictive covenants including, among other things,
minimum cash and tangible net asset requirements and a prohibition on the
payment of dividends.
In 1999, capitalized interest, in connection with construction in process, was
$410,000, of which $352,000 was paid during the year.
Maturities of long-term debt for the years ending December 31 are as follows:
(in thousands)
2000 $ 2,000
2001 2,000
2002 2,000
2003 2,000
2004 5,500
------
$13,500
------
------
7. STOCKHOLDERS' EQUITY
COMMON STOCK
In November 1999, the Company completed a private placement of 3,300,000 shares
of its common stock, resulting in net proceeds to the Company of approximately
$124,576,000.
STOCK COMPENSATION PLANS
The Company has adopted several stock compensation plans, which provide for the
issuance of incentive and non-qualified stock options, stock appreciation
rights, restricted stock, long-term performance awards and stock grants to
employees, Directors and consultants of the Company at prices determined by the
Board of Directors. At December 31, 1999, approximately 4,180,000 shares of
common stock have been reserved for issuance under the plans. Options generally
vest ratably over periods ranging from two to six years and are exercisable for
ten years from the date of grant.
60
TRANSKARYOTIC THERAPIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock option activity under the plans is as follows:
(IN THOUSANDS, EXCEPT SHARE PRICES) 1999 1998 1997
---------------------- ---------------------- -----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------- -------- -------- -------- -------- ---------
Outstanding at January 1 1,370 $12.99 976 $ 5.76 906 $ 0.36
Granted 1,179 33.56 507 25.91 247 21.51
Exercised (167) 7.04 (51) 1.28 (77) 2.35
Canceled (168) 23.10 (62) 11.98 (100) 0.56
------- -------- --------
Outstanding at December 31 2,214 23.57 1,370 12.99 976 5.76
------- -------- -------- -------- -------- ---------
------- -------- -------- -------- -------- ---------
Options exercisable at December 31 515 $16.96 395 $ 13.95 137 $ 0.67
------- -------- -------- -------- -------- ---------
------- -------- -------- -------- -------- ---------
Weighted average fair value per share of
options granted during the year $33.44 $ 25.91 $ 24.24
-------- -------- ---------
-------- -------- ---------
The exercise price and life information in regard to significant option groups
outstanding at December 31, 1999 is as follows:
(IN THOUSANDS, EXCEPT SHARE PRICES)
EXERCISABLE
----------------------------
WEIGHTED
AVERAGE WEIGHTED
RANGE OF NUMBER OF REMAINING AVERAGE WEIGHTED
EXERCISE OPTIONS CONTRACTUAL EXERCISE NUMBER OF AVERAGE
PRICES OUTSTANDING LIFE (YRS.) PRICE OPTIONS EXERCISE PRICE
- --------- ----------- ------------ --------- -------- --------------
$.01 521 5.94 $0.01 215 $0.01
$15.75-23.50 458 8.59 $21.34 64 $20.61
$23.63-35.00 880 8.96 $30.90 229 $31.18
$35.44-45.00 240 9.69 $40.89 6 $39.89
$45.13-53.25 115 9.83 $46.84 1 $48.47
----- ---
2,214 515
----- ---
----- ---
Pursuant to the requirements of SFAS No. 123, the following are the pro forma
net loss and net loss per share for 1999, 1998 and 1997, as if stock-based
compensation had been determined based on the fair value at the grant date for
grants in 1999, 1998 and 1997, consistent with the provisions of SFAS No. 123:
(in thousands, except per share amounts)
1999 1998 1997
-------------------------- -------------------------- --------------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA AS REPORTED PRO FORMA
----------- --------- ----------- --------- ----------- ---------
Net loss $(44,456) $(52,193) $(19,965) $(23,774) $(12,871) $(13,729)
Basic and diluted net
loss per share $ (2.25) $ (2.64) $ (1.05) $ (1.25) $ (0.74) $ (0.79)
61
TRANSKARYOTIC THERAPIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The fair value of options issued pursuant to the plans at the date of grant were
estimated using the Minimum Value method for options granted prior to the
initial public offering and the Black-Scholes model for options granted
subsequent to the initial public offering. The estimation of the fair value of
these options at the date of grant used the following assumptions:
1999 1998 1997
------- ------- --------
Expected life (years) 1.5-7.5 2.5-7.5 2.5-7.5
Interest rate 5.2%-6.7% 4.5-4.8% 6.5%
Volatility 0.70 0.70 0.65
Forfeiture rate 10.0% 10.0% 10.0%
The Company's volatility for the period prior to the initial public offering was
not used in the calculation of the fair value of the options. The Company has
never declared or paid dividends on any of its capital stock and does not expect
to do so in the foreseeable future.
The pro forma effects on 1999, 1998 and 1997 net loss and net loss per share of
expensing the estimated fair value of stock options issued are not necessarily
representative of the effects on reporting the results of operations for future
years as the periods presented include only four years, three years and two
years, respectively, of option grants.
8. LICENSE AND RESEARCH AGREEMENTS
The Company has license agreements with Aventis Pharma ("Aventis"), formerly
Hoechst Marion Roussel, Inc., whereby Aventis was granted exclusive worldwide
rights to make, use and sell two therapeutic products produced under patent
rights and technologies owned by the Company. As of December 31, 1999, the
Company has received $60,500,000 from the sale of stock, nonrefundable licensing
fees, milestone payments related to the successful completion of certain
development milestones, and contract research fundings, pursuant to the
agreements with Aventis. As part of these agreements, Aventis will make
additional payments of up to $64,500,000 upon achievement of certain development
milestones and pay royalties based on net sales of the two products.
For the years ended December 31, 1999, 1998 and 1997, license and research
revenues earned from Aventis totaled $3,531,000, $3,325,000 and $5,788,000,
respectively. At December 31, 1999, Aventis owned 2,187,000 shares of the
Company's common stock.
In July 1998, the Company entered into a distribution agreement with Sumitomo
to develop and commercialize Replagal for the treatment of Fabry disease in
Japan and other Asian countries. For the years ended December 31, 1999 and
1998, license and research revenues totaled $339,000 and $2,000,000,
respectively. Under the terms of the agreement, Sumitomo is obligated to make
additional payments as the product moves through development and
commercialization.
The Company licenses certain technology from various universities and research
organizations. Under the terms of these agreements, the Company is required to
make payments of nonrefundable license fees and royalties on future sales of
products employing the technology.
62
TRANSKARYOTIC THERAPIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. EMPLOYEE RETIREMENT PLAN
The Company maintains a qualified defined contribution plan covering
substantially all employees of the Company. The Company matches 50% of employee
contributions, up to 7% of compensation (5% prior to July 1997). Employer
contributions vest ratably over five years. The related expense was $310,000
$231,000 and $159,000 in 1999, 1998 and 1997, respectively.
10. INCOME TAXES
At December 31, 1999, the Company had unused net operating loss carryforwards of
$100,287,000 and research and development tax credits of $15,575,000, which
expire through 2019. Due to the degree of uncertainty related to the ultimate
use of the loss carryforwards and tax credits, the Company has fully reserved
this tax benefit. Additionally, the future utilization of the net operating loss
carryforwards and tax credits may be subject to limitations under the change in
stock ownership rules of the Internal Revenue Service.
Significant components of the Company's deferred tax assets are as follows:
(IN THOUSANDS) DECEMBER 31
----------------------
1999 1998
----- -----
Deferred tax assets:
Net operating loss carryforwards $ 40,115 $ 23,842
Research and development tax credits 15,575 3,816
Depreciation 1,625 1,525
Other 225 57
------ -------
Total deferred tax assets 57,540 29,240
Valuation allowance (57,540) (29,240)
------ -------
Net deferred tax assets $ -- $ --
------- -------
------- -------
The valuation allowance increased by $28,300,000 during 1999 due primarily to
the increase in net operating loss carryforwards and tax credits.
The difference between the Company's expected tax benefit, as computed by
applying the U.S. federal corporate tax rate of 34% to the loss before provision
for income taxes, and the actual tax is attributable to tax losses and credits
for which the Company has not recognized any tax benefit.
11. COMMITMENTS AND CONTINGENCIES
In April 1997, Amgen Inc. filed a civil action in the U.S. District Court of
Massachusetts against the Company and Aventis. The complaint in the action
alleged that the Company's GA-EPO product and processes for producing GA-EPO
infringe certain of Amgen's U.S. patents and requested that the Company and
Aventis be enjoined from making, using or selling GA-EPO and that the
District Court award Amgen monetary damages. The District Court has set a
trial date for April 2000.
In addition, in July 1999, the Company and Aventis commenced legal
proceedings in the U.K. against Kirin-Amgen, Inc., seeking a declaration that
a U.K. patent held by Kirin-Amgen will not be infringed by the sale of GA-EPO
and that numerous claims of the U.K. patent are invalid. The Company expects
that this trial will begin in 2001.
63
TRANSKARYOTIC THERAPIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pursuant to the Amended and Restated License Agreement, dated March 1995, by and
between Aventis and the Company, Aventis has assumed the legal cost of defense
of the suits with both Amgen and Kirin-Amgen. The Company will reimburse
Aventis for the Company's share of litigation expenses, as defined, from
future royalties, if any, received from the sale of GA-EPO and in certain
other circumstances. The Company and Aventis believe that they have
substantial defenses to the allegations in the complaint on the Massachusetts
action and substantial grounds for favorable action in the U.K. litigation,
and expect that their position will be thoroughly vindicated in court.
The Company can provide no assurance as to the outcome of these proceedings.
A decision by the Massachusetts District Court or the U.K. Court in Amgen's
favor, including the issuance of an injunction against the making, using or
selling of GA-EPO by the Company and Aventis in the United States or the
United Kingdom, or any other conclusion of the these proceedings in a manner
adverse to the Company and Aventis, would have a material adverse effect on
the Company's business, financial condition and results of operations.
The Company leases its facilities under operating leases that expire through
2008, subject to renewal provisions. In addition, the Company has commitments
for certain product development activities with third parties for 2000. Future
annual minimum payments under such commitments are as follows:
YEAR ENDED
(in thousands)
2000 $ 8,001
2001 2,273
2002 2,174
2003 2,158
2004 419
Thereafter 1,385
-------
$16,410
-------
-------
Rent expense was $1,962,000, $1,316,000 and $1,233,000, in 1999, 1998 and 1997,
respectively.
64
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
65
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is contained in part under the
caption "Executive Officers of the Company" in PART I hereof, and the remainder
is contained in the Company's Proxy Statement for the Company's Annual Meeting
of Stockholders to be held on June 15, 2000 (the "Proxy Statement") under the
caption "Proposal 1 - Election of Directors" and is incorporated herein by this
reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is contained under the caption
"Executive Compensation" in the Company's Proxy Statement and is incorporated
herein by this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is contained in the Company's
Proxy Statement under the caption "Security Ownership of Certain Beneficial
Owners and Management" and is incorporated herein by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is contained in the Company's
Proxy Statement under the caption "Certain Transactions" and is incorporated
herein by this reference.
66
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
(a) DOCUMENTS FILED AS A PART OF THIS FORM 10-K:
1. FINANCIAL STATEMENTS. The following documents are
filed as part of this Annual Report on Form 10-K:
Report of Independent Auditors
Consolidated Balance Sheets as of December 31, 1999
and 1998
Consolidated Statements of Operations for the years
ended December 31, 1999, 1998 and 1997
Consolidated Statement of Stockholders' Equity for
years ended December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the years
ended December 31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements
2. FINANCIAL STATEMENT SCHEDULES. The Company is not
filing any financial statement schedules as part of
this Annual Report on Form 10-K because they are not
applicable or the required information is included in
the financial statements or notes thereto.
3. EXHIBITS. The Exhibits listed in the Exhibit Index
immediately preceding such Exhibits are filed as part
of this Annual Report on Form 10-K, and such Exhibit
Index is incorporated herein by reference.
(b) REPORTS ON FORM 8-K:
Report on Form 8-K filed on November 8, 1999, updating the
description of the Company's business. No financial statements
were filed therewith.
67
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
TRANSKARYOTIC THERAPIES, INC.
By:/s/ Richard F Selden
---------------------------------
Richard F Selden
President and Chief Executive
Officer
Date: March 24, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant, in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Richard F Selden President, Chief Executive Officer and March 24, 2000
-------------------------- Director (Principal Executive Officer)
Richard F Selden
/s/ Daniel E. Geffken
- -------------------------- Vice President, Finance and Chief March 24, 2000
Daniel E. Geffken Financial Officer (Principal Accounting
and Financial Officer)
/s/ Rodman W. Moorhead, III
------------------------------ Chairman of the Board of Directors March 24, 2000
Rodman W. Moorhead, III
/s/ William R. Miller
---------------------------- Director March 24, 2000
William R. Miller
/s/ James E. Thomas
---------------------------- Director March 24, 2000
James E. Thomas
/s/ Wayne P. Yetter
---------------------------- Director March 24, 2000
Wayne P. Yetter
68
Exhibit Index
Exhibit No. Description
- ----------- -----------
3.1 Amended and Restated Certificate of Incorporation of the Registrant (1)
3.2 Amended and Restated By-Laws of the Registrant, as amended(2)
10.1 Stock Purchase Agreement, dated July 1988, by and between Warburg, Pincus Capital
Company, L.P. ("Warburg") and the Registrant (3)
10.2 Amended and Restated Registration Rights Agreement, dated November 3, 1993 and amended
on May 13, 1994, March 1, 1995, October 26, 1995, July 10, 1996 and August 7, 1996, by
and among the Registrant and certain holders of the Registrant's Preferred Stock named
therein (3)
10.3 Lease Agreement, dated January 1, 1994, by and between the Trust under the Will of
Harry F. Stimpson for office space at 195 Albany Street, Cambridge, Massachusetts (3)
10.4 Sublease Agreement, dated April 7, 1992, by and between the Massachusetts Institute of
Technology and the Registrant, for office space located at 185 Albany Street,
Cambridge, Massachusetts (3)
10.5 1993 Non-Employee Directors' Stock Option Plan (3) (4)
10.6 1993 Long-Term Incentive Plan (5)
10.7 Form of Letter Agreement re: Confidentiality, Inventions and
Non-Disclosure (3)
10.8 Form of Letter Agreement re: Restricted Stock (3)
10.9 Form of Scientific Advisor Agreement (3)
10.10 Amended and Restated Promissory Note, dated June 16, 1993, issued by the Registrant to
Dr. Richard F Selden, in the original principal amount of $125,000 (3)
10.11 Employment Agreement, dated June 19, 1991, by and between Dr. Richard F Selden and the
Registrant (3) (4)
10.12 Pledge Agreement, dated May 14, 1991, by and between Dr. Richard F Selden and the
Registrant (3)
10.13 Employment Agreement, dated July 26, 1991, by and between Dr. Douglas A. Treco and the
Registrant (3) (4)
10.14 Employment Agreement, dated November 20, 1993, by and between Dr. Christoph M. Adams
and the Registrant (3) (4)
10.15 Agreement, dated September 1, 1991, by and between Mr. William R. Miller and the
Registrant (3)
10.16 Agreement, dated July 30, 1993, by and between Warburg and the Registrant (3)
10.21 Collaboration and License Agreement, dated July 22, 1993 and amended on May 30, 1996
by and between Genetics Institute and the Registrant (3) (6)
10.22 Amended and Restated License Agreement, dated March 1, 1995, by and between Aventis
and the Registrant (3) (6)
10.23 License Agreement, dated March 1, 1995, by and between Aventis and the Registrant (3)(6)
10.24 Agreement to Nominate, dated September 23, 1996, by and between Warburg and the
Registrant (3)
10.25 Fifth Amendment to Registration Rights Agreement dated October 1, 1996 by and among
the Registrant and certain holders of the Registrant's Preferred Stock named therein (3)
10.26 Employment Agreement dated July 1, 1996 by and between Dr. Kurt C. Gunter and the
Registrant (4) (7)
10.28 Employment Agreement dated February 20, 1997 by and between Mr. Daniel E. Geffken and
the Registrant (8)
10.29 Form of Common Stock Purchase Agreement by and between each Purchaser of shares in the
Registrant's directed public offering in August 1997 and the Registrant (8)
10.30 Employment Agreement dated April 12, 1999 by and between Mr. William H. Pursley and the
Registrant(9)
10.31 Common Stock Purchase Agreement by and between each Purchaser of shares in the
Registrant's private placement in November 1999 and the Registrant
10.32 Agreement dated November 15, 1999 by and between Mr. Wayne P. Yetter and the Registrant
21.1 Subsidiaries of the Registrant
23.1 Consent of Ernst & Young LLP
27.1 Financial Data Schedule
- -------------------------------------
(1) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1996 and incorporated herein by
reference.
(2) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
year ended December 31, 1997 and incorporated herein by reference.
(3) Filed as an exhibit to the Company's Registration Statement on Form S-1
(File No. 333-10845) and incorporated herein by reference.
(4) Management contract or compensation plan or arrangement required to be
filed as an exhibit pursuant to Item 14(c) of Form 10-K.
(5) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1998 and incorporated herein by reference.
(6) Confidential treatment granted as to certain portions.
(7) Filed as an exhibit to the Company's Annual Report on Form 10-K for the
year ended December 31, 1996 and incorporated herein by reference.
(8) Filed as an exhibit to the Company's Registration Statement on Form S-1
(File No. 333-31957) and incorporated herein by reference.
(9) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1999 and incorporated herein by reference.