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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
Annual report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2000 Commission File No. 0-21794
GENZYME TRANSGENICS CORPORATION
(Exact name of Registrant as specified in its charter)
MASSACHUSETTS 04-3186494
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
175 CROSSING BOULEVARD 01702
FRAMINGHAM, MASSACHUSETTS (Zip Code)
(Address of principal executive offices)
(508) 620-9700
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of Each Class on which registered
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None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or15(d) of the Securities Exchange Act of
1934 during the preceding twelve months and (2) has been subject to such filing
requirements for the past 90 days. YES |X| NO |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|
Aggregate market value of voting stock held by non-affiliates of the
Registrant as of March 19, 2001: $111,579,029
Number of shares of the Registrant's Common Stock outstanding as of March
19, 2001: 29,487,880
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held May 23, 2001 are incorporated by reference into Part III
of this Form 10-K.
ITEM 1.
BUSINESS
Overview
Genzyme Transgenics Corporation ("GTC" or the "Company") is a leader in the
application of transgenic technology to the development and production of
recombinant proteins for therapeutic and other biomedical uses. To date, GTC has
produced more than 65 such proteins, 45 through collaborations with various
commercial and academic organizations and 20 independently. More than half of
the transgenic proteins actively under development by the Company are monoclonal
antibodies ("MAB") or immunoglobulin ("Ig") fusion proteins.
GTC produces recombinant proteins by inserting into the genetic material of an
animal embryo a specific DNA sequence that directs the production of a desired
protein in the milk of transgenic offspring. The Company believes that
transgenic production offers substantial economic and technological advantages
in comparison to traditional protein production systems, such as cell culture
and microbial systems. These advantages include reduced capital expenditures,
greater flexibility in timing capital investment and lower direct production
cost per unit. In the case of certain complex proteins, including some Ig fusion
proteins, transgenic production may represent the only technologically and
economically feasible method of commercial production. For proteins currently
derived from pooled human plasma, transgenic production provides an alternative
source with reduced risk of transmission of human viruses and other known
adventitious agents. Of the 65 transgenic proteins produced to date, GTC has
expressed 45 proteins at levels of one gram per liter or higher in mice, 13 of
which have also been expressed in goats at levels greater than one gram per
liter. These expression levels are substantially higher than those typically
achieved for comparable proteins in traditional protein production systems.
The Company's primary focus is on using transgenic technology to produce
monoclonal antibodies. These therapeutics are likely to be required in
relatively large and repeated doses for chronic diseases such as rheumatoid
arthritis, other autoimmune diseases and cancer. The economic and technological
advantages of transgenic technology make it well suited to produce the large
amount of proteins anticipated for therapeutic use of monoclonal antibodies. By
early 2001, 15 monoclonal antibodies had been approved for use in the United
States, ten (nine that are marketed and one with an approvable letter from the
Food and Drug Administration) for use as human therapeutics and five for
diagnostic uses. The total 1999 revenues for the nine marketed therapeutic
antibodies, including ReoPro(R), Rituxan(R), Synagis(R), Herceptin(R),
Remicade(R) and Zenapax(R), was approximately $1.4 billion. More than 90
monoclonal antibody candidates are now in clinical trials and over 200 are
reported to be in preclinical development. The Company believes that in many
cases the yearly requirement for production of these potential therapeutics will
exceed 100 kilograms and may approach 300 to 1,000 kilograms. Transgenic
production may provide the only commercially viable means to meet the large
projected volume requirements of these therapeutics.
The Company has several partnerships with pharmaceutical and other biotechnology
companies to develop monoclonal antibodies/Ig fusion proteins transgenically.
GTC's corporate partners include Bristol-Myers Squibb, Elan, Centocor, Abgenix
and Alexion. To date, the Company has formed more than a dozen collaboration
agreements which generally provide for transgenic production of limited
quantities of targeted proteins in exchange for development fees and milestone
payments and, in some cases, anticipate the payment of royalties on product
sales upon commercialization. Following characterization of the transgenic
product in preclinical testing and pharmacokinetic studies, the Company intends
to negotiate commercialization agreements that are designed to allow the Company
to participate in the success of the product through equity, royalties and
supply commitments. The Company has been granted several patents covering the
production of monoclonal and assembled antibodies in the milk of transgenic
mammals, which it believes establishes a strong proprietary position in the
field.
A plasma protein under development by GTC is Human Serum Albumin ("HSA"), which
is being developed with Fresenius AG. The therapeutic use of HSA is indicated in
situations of blood loss and/or decreased blood albumin levels which can occur
during shock, serious burns, pre- and post-operative conditions, congestive
heart failure and gastric, liver and intestinal malfunctions. HSA is currently
produced by human plasma fractionation, with worldwide sales of approximately $1
billion to $1.5 billion. During 2000, the Company worked on refining its
separation and purification processes to obtain highly purified HSA.
The Company is also developing transgenic production processes for other
proteins, including a malaria merozoite surface protein ("MSP-1") for use in a
malaria vaccine. The MSP-1 protein successfully protected Aotus nancymai monkeys
in a preclinical vaccine study conducted by the National Institute of Allergy
and Infectious Diseases ("NIAID"). Although MSP-1 can be produced in other
recombinant systems, it is in very limited quantities or in forms that may not
induce the
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necessary immune response. The NIAID and GTC established a CRADA (Cooperative
Research and Development Agreement) to evaluate the feasibility of developing
animals capable of producing recombinant versions of MSP-1 in their milk. To
express the MSP-1 protein at high quantities, GTC's scientists modified its gene
sequence while conserving the overall amino acid sequence of the protein. The
MSP-1 protein has been expressed at 2-4mg/ml in the milk of mice that have
incorporated this gene sequence.
Transgenic Technology
Overview
Transgenic technology uses in vitro microinjection or other techniques to
introduce a genetically engineered segment of exogenous DNA (an "expression
vector") into the genetic material of a fertilized egg or early stage animal
embryo. Two types of genetic instructions are incorporated into the expression
vector: the coding sequence and the promoter sequence. Coding sequences instruct
the cells of the animal to express a specified protein. Promoter sequences
direct the expression of proteins at appropriate times and by specific tissues
or cell types. GTC utilizes promoter sequences that direct the expression of
specific proteins in the mammary gland during lactation. After microinjection of
the exogenous DNA, the modified embryo is then transferred to a recipient
female. Transgenes are successfully integrated into the genetic makeup of only a
small percentage of the embryos that are microinjected; therefore multiple
microinjection candidates are required. If successful, the resulting animal,
when mature and lactating, will express the desired protein. Once established in
the first generation of transgenic animals, the transgene is transmitted like
other genetic traits to future generations through traditional breeding with
either non-transgenic or other transgenic animals. To date, the Company has
produced such proteins principally using goats, which offer an attractive
combination of large milk volumes, relatively short generational time periods
and ease of handling and milking.
GTC believes that for certain proteins required in extremely large amounts, such
as HSA, transgenic cows might be required. Due to the long gestation and
maturation periods of large dairy animals, microinjection is an inefficient
method to produce transgenic cows. Therefore, the Company believes that cloning
may accelerate transgenic biopharmaceutical development because cloning offers a
method of producing a large number of transgenic animals in one generation. GTC
has signed an exclusive, worldwide licensing agreement with Advanced Cell
Technologies, Inc. ("ACT") allowing GTC to utilize ACT's patented technology for
the development of biopharmaceuticals in the milk of all cloned transgenic
mammals. The Company believes ACT's proprietary technology, when coupled with
GTC's transgenic technology, will provide additional patentable approaches to
efficiently create cloned transgenic animals. To date, the Companyhas cloned
more than 15 cows and continues to produce cloned transgenic cattle.
Advantages of Transgenic Technology
The Company believes that its current and future partners will elect to employ
transgenic technology for the production of recombinant proteins in cases where
transgenic technology offers economic and technological advantages over other
production systems. These advantages, any one of which may be critical to the
decision to proceed with a particular development project, include:
o Lower Capital Investment. Creating a herd and providing appropriate
dairy facilities can be accomplished with substantially less cost
than building a cell culture bioreactor facility.
o Improved Risk Management of Capital Investment. Transgenic herd
production offers capacity flexibility and relatively short lead
times for scale up. As a result, in contrast to the need for early
commitment to bioreactor production capacity, the Company's partners
can delay those commitments (and the corresponding capital
investment) to later stages of the development project when they may
have more definitive product and market information.
o Predictability of Increasing Production. In contrast to cell culture
production systems, transgenic production systems are expected to
exhibit greater predictability of yield at large volume production
once the DNA for a therapeutic protein has been successfully
integrated into transgenic founder animals. This offers GTC's
partners greater assurance of the ability to produce product
quantities sufficient for advanced clinical trials and product
launch.
o Lower Cost of Goods. Economic factors unique to transgenic
production lower the ultimate cost of goods in most cases. High
protein expression levels in transgenic animals and efficiency in
purification result in the cost
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of transgenically produced products, in most cases, being
substantially lower than that of a cell culture derived product. As
further improvements are made in the downstream purification
process, GTC anticipates that the cost of the transgenically
produced product will decline even further.
o Technological Enablement. Transgenic technology offers the ability
to produce certain biotherapeutics which cannot be made in a
commercially feasible manner in any other system. The suitability of
transgenic production for high-volume proteins requiring more than
100 kilograms per year is widely acknowledged. In addition, GTC has
achieved the same consistent expression rates with complex
molecules, which may not be producible in cell cultures at all. This
accomplishment, in conjunction with the favorable economics of herd
development, means that for some complex proteins with low-volume
demand, transgenics may be as viable a production system as it is
for other proteins that require 1,000 kilograms or more annually.
Transgenic Development Process
GTC's development of a typical transgenic protein is designed to proceed in a
logical sequence of three major steps:
o First Step. Using the DNA provided by the partner, GTC develops
founder goats transgenic for a particular protein. The Company
employs a standard DNA microinjection process to produce a
transgenic goat. The first animals are born five months after
microinjection.
o Second Step. GTC and the partner collaborate on the development of a
pilot downstream process to purify the protein, after which GTC
provides preclinical and clinical samples. After GTC provides
protein samples from transgenic milk to the partner for initial
purification and characterization, GTC and the partner begin a
collaborative effort to establish a commercially robust purification
process for the protein. This enables substantial amounts of
material to be delivered for preclinical studies and initial human
clinical studies. Next, GTC initiates an initial scale up of the
transgenic herd making 6 to 10 animals that are capable of producing
sufficient product for use in expanded clinical studies.
o Third Step. GTC provides initial quantities of product while working
with the partner to develop cost and timing estimates for
commercialization. Based on these estimates, the partner will make
capital commitments to enable GTC to provide sufficient facility
capacities specifically for the partner's product including one or
several barns for housing and scaling up the herd and facilities for
collection of milk and initial processing. Simultaneously, GTC will
begin scaling up the production herd to breed a sufficient number of
animals to meet forecasted production requirements. GTC anticipates
that its future commercial supply agreements will provide for the
transfer of intermediate bulk to the customer or designated
processor for further processing to finished product.
Development Programs
GTC's strategy is to commercially produce proteins using transgenic technology
primarily by entering into collaboration agreements with biotechnology and
pharmaceutical companies. To date, the Company has formed more than a dozen
collaboration agreements which generally provide for transgenic production of
limited quantities of targeted proteins in exchange for development fees and
milestone payments and, in some cases, anticipate the payment of royalties on
product sales upon commercialization. Following characterization of the
transgenic product in preclinical testing and pharmaco- kinetic studies, the
Company intends to negotiate commercialization agreements that are designed to
allow the Company to participate in the success of the product through milestone
payments, royalties and supply commitments.
The products covered by these partnerships encompass a broad range of
indications and are currently in various stages of development. Many of GTC's
collaborators are marketing or engaging in clinical trials with product sourced
through traditional protein production systems and are considering transitioning
to a transgenically produced product. In most of these collaborations, GTC
benefits from the partner's preclinical development experience in working with a
particular protein, and in cases where a recombinant or plasma-derived product
is in clinical trials or on the market, the Company believes the regulatory
approval process for the transgenic product will be facilitated by the partner's
experience with the initial product.
Monoclonal Antibodies
Monoclonal antibodies represent one of the biotechnology industry's greatest
successes. Medical researchers have now developed a better understanding of the
critical variables for specificity and binding of the antibody, and have
identified
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targets likely to affect disease progression and clinical conditions amenable to
treatment with systemic biologic intervention. As a result, the last several
years have witnessed the clinical success, regulatory approval and commercial
launch of several breakthrough monoclonal antibody therapies, including
ReoPro(R) for use in various acute cardiac conditions, Rituxan(R) for B-cell
non-Hodgkin's lymphoma, Synagis(R) for treatment of viral respiratory disease in
premature babies, Herceptin(R) for breast cancer, Remicade(R) for use in Crohn's
disease and rheumatoid arthritis and Zenapax(R) for acute transplant rejection.
These clinical successes, the availability of technologies for making fully
human molecules and drug discovery technologies that identify potential antibody
targets, will continue to drive the development of new antibody-based
therapeutics.
Therapeutic antibodies are typically administered in larger doses than other
protein therapeutics and in repeated doses to treat chronic illnesses. Their
continued success is driving the need for commercially feasible production
methods yielding significantly higher quantities than currently available using
traditional protein production methods. While the annual worldwide requirement
of a typical recombinant protein may approach 10 kilograms, the Company believes
that many antibodies will require supplies in excess of 100 kilograms annually.
Current cell culture methods (the only traditional method available for
producing monoclonal antibodies) generally cannot produce the requisite high
volumes needed for antibody therapeutics, are not economically feasible and
require significant capital investment. The Company believes that the high
expression levels which can be achieved using transgenic technology will enable
the pharmaceutical industry to meet these market demands.
GTC is actively participating in the field of monoclonal antibodies through a
number of collaborations. The Company is developing a transgenic version of
Remicade(R) in a collaboration with Centocor. Also, GTC is developing transgenic
versions of nine additional monoclonal antibodies/Ig fusion molecules, the cell
culture versions of which are currently in clinical trials, including ABX-IL8
for Abgenix, CTLA4Ig and an unnamed Ig fusion molecule for Bristol-Myers Squibb,
Antegren(R) for Elan, PRO542 for Progenics and a therapeutic recombinant protein
for Alexion. The indications for these products include arthritis, HIV/AIDS,
cancer and autoimmune diseases. The status of the cell culture and transgenic
versions of these products is shown in the chart below. In these partnerships,
the Company provides material for the partners' clinical trials, while the
partners retain the risk and expense of conducting the trials.
The following chart contains a summary of the Company's most active monoclonal
antibody/Ig fusion protein development programs:
Development Stage
Product of Cell Culture Development Stage of
Name Product Type Indication Product Transgenic Product Partner
- ---- ------------ ---------- ------- ------------------ -------
Remicade(R) Monoclonal antibody Crohn's Disease; Marketed Preclinical; Transgenic Centocor
Rheumatoid Arthritis goats in development
Undisclosed Monoclonal antibody Undisclosed Undisclosed Undisclosed; Transgenic Centocor
goats in development
D2E7 Fully human monoclonal Rheumatoid Arthritis Phase III clinicals Preclinical; Transgenic BASF/Knoll
antibody goats in development
Antegren(R) Humanized monoclonal Neurological Disorders Phase II clinicals Preclinical; Transgenic Elan
antibody goats in development Pharmaceuticals
CTLA4Ig Immunoglobulin Rheumatoid Arthritis Phase II clinicals Preclinical; Transgenic Bristol-Myers
fusion/soluble receptor goats in development Squibb
Undisclosed Immunoglobulin Organ Transplant Phase II clinicals Preclinical; Transgenic Bristol-Myers
fusion protein Rejection; Autoimmune goats in development Squibb
Disorders
Undisclosed Monoclonal antibody Undisclosed Undisclosed Preclinical; Transgenic Alexion
goats in development
PRO542 CD4/Immunoglobulin HIV/AIDS Phase II clinicals Preclinical; Transgenic Progenics
fusion antibody goats in development
ABX-IL8 Monoclonal antibody Psoriasis; Rheumatoid Phase II clinicals Preclinical; Transgenic Abgenix
Arthritis goats in development
HuN901 Monoclonal antibody Small Cell Lung Cancer Preclinical with IND Preclinical; Transgenic ImmunoGen
filed goats in development
Other Therapeutic Proteins
Antithrombin III. ATIII is a protein normally found in human serum, that when
bound to heparin, acts as an anticoagulant. Decreased levels of ATIII are found
in individuals who have either a hereditary or an acquired deficiency of ATIII.
The hereditary deficiency has an incidence rate of 1 in 2,000 to 1 in 5,000.
Individuals with hereditary ATIII deficiency have an increased tendency toward
blood clots (thromboses) and are treated with ATIII replacement therapy during
periods when
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they are at high risk for clots, such as during surgery. Acquired ATIII
deficiency may occur if there is a decrease in the amount of ATIII produced, an
increase in the rate of ATIII consumption or an abnormal loss of ATIII from the
circulation. Examples of conditions in which acquired ATIII deficiency may occur
are acute liver failure, disseminated intravascular coagulation, sepsis and
septic shock, burns, multiple organ failure, bone marrow or organ
transplantation and hemodialysis.
The Company filed an Investigational New Drug application ("IND") with the FDA
in 1996 to evaluate use of recombinant human ATIII ("rhATIII") as a potential
treatment for ATIII deficiency that occurs in certain patients with heart
disease. Patients undergoing cardiopulmonary bypass ("CPB") surgery require
anticoagulation with heparin to prevent clotting, which can occur when blood
comes into contact with the tubing of the heart-lung machine performing the
heart's function during surgery. Patients with heparin resistance generally do
not respond adequately to these heparin treatments.
In 1997, GTC and Genzyme established the ATIII LLC joint venture for the
marketing and distribution of rhATIII in all territories other than Asia. Under
the terms of the joint venture agreement, Genzyme funded 70% of the development
costs of rhATIII up to a maximum of $33 million. The Company funded the
remaining 30% of these costs. Development costs in excess of these amounts were
to be funded equally by the partners. The $33 million funding level was achieved
by Genzyme in 2000. Each of the Company and Genzyme were also to make capital
contributions to the ATIII LLC sufficient to pay 50% each of all new facility
costs to be incurred. In addition to the funding, both partners were to
contribute manufacturing, marketing and other resources to the ATIII LLC at
cost. Genzyme and GTC each own 50% of the venture, although Genzyme is obligated
to make certain milestone payments to GTC if and when transgenic ATIII has been
approved by the FDA and certain sales levels have been reached. Profits and
losses are shared according to ownership percentages. The agreement covers all
territories other than Asia.
Two identical, double blinded, randomized placebo-controlled Phase III clinical
trials began in the second quarter of 1998. These studies, which included 52
patients each, were designed to assess the activity of rhATIII in restoring
heparin sensitivity among heparin-resistant patients undergoing cardiac surgery
requiring CPB. The two studies, conducted at medical centers in Europe and the
United States, have been completed, and the primary clinical endpoint was met in
both studies with a high degree of statistical significance. Moreover, the drug
was well tolerated by patients. There was no detectable antibody formation to
rhATIII. There was no statistically significant difference in adverse events
reported among the groups of both studies. The most commonly observed adverse
events were platelet, bleeding and clotting disorders. In the placebo control
and rhATIII groups, respectively, these events occurred in 42% and 50% of the
patients in the first study, and in 22% and 41% of the patients in the second
study.
In late 2000, the Company announced that it expected to re-acquire from Genzyme
the rights to rhATIII that it did not already own. In early 2001, the ATIII LLC
met with the U.S. Food and Drug Administration to discuss the status of the
clinical development program for the rhATIII molecule in the treatment of
heparin resistance in patients about to undergo cardiopulmonary bypass surgery.
While no outstanding concerns have been raised about GTC's technology or its
application, the level of expense and time involved in developing the additional
data required by the FDA is not justified by the potential market size of the
heparin resistance indication therefore, the ATIII LLC agreed to discontinue
development in this indication.
The ATIII LLC is performing business and scientific evaluations of the rhATIII
molecule in other indications. Should these evaluations support commitment to
developing rhATIII for another indication(s), the work done for the heparin
resistance indication may be used in whole or in part to pursue this
opportunity. Based on the outcome of the evaluations as well as any discussions
with Genzyme, the Company may proceed with a transaction to re-acquire the
rights to rhATIII rights that it does not already own.
The ATIII LLC formed a collaboration with Genzyme Molecular Oncology, a division
of Genzyme, to jointly develop a form of transgenic ATIII for potential
application as an angiogenesis inhibitor in the field of oncology. This research
stage collaboration is based on a discovery by Dr. Judah Folkman from Children's
Hospital, Boston, Massachusetts that certain conformations of ATIII, referred to
as anti-angiogenic ATIII, inhibit angiogenesis in vitro and inhibit tumor growth
in mice. Potential anti-angiogenic applications of rhATIII, outside the field of
oncology, may be developed by the ATIII LLC.
RhATIII is being developed under a royalty-bearing license from Centeon, a
wholly owned subsidiary of Aventis SA and the successor to Behringwerke AG.
Human Serum Albumin. HSA is the protein principally responsible for maintaining
oncotic pressure, plasma volume and the balance of fluids in blood. It is
critical to the transport of amino acids, fatty acids and hormones in the blood
stream. The therapeutic use of HSA is indicated in situations of blood loss
and/or decreased blood albumin levels which can occur during shock, serious
burns, pre- and post-operative conditions, congestive heart failure and gastric,
liver and intestinal
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malfunctions. HSA is currently produced by human plasma fractionation, with
worldwide sales of approximately $1 billion to $1.5 billion.
GTC has expressed transgenic HSA in mice at levels equivalent to or greater than
35 grams per liter and, in 1999, successfully produced transgenic cattle
expressing this protein in their milk at commercially feasible levels. An
individual cow is expected to produce 80 kilograms of albumin annually. GTC
believes that this level of production should provide the Company with the
ability to produce HSA at costs competitive with albumin sourced from human
blood, and in the amounts required to meet market demand. GTC has refined its
purification process for transgenic HSA and developed a detailed economic model
for its commercial production. The Company has entered into an agreement with
Fresenius AG of Bad Homburg, Germany, to develop and commercialize transgenic
HSA.
Malaria Vaccine. GTC's transgenic expression system has the potential to express
the correct, immunogenic protein for use as a malaria vaccine both economically
and on a large scale. Malaria is a disease that has an annual incidence of more
than 300 million people worldwide and results in several million deaths
annually. GTC is working with the National Institutes of Health (the "NIH") and
the Federal Malaria Vaccine Coordinating Committee to express a malaria protein,
which is considered a promising vaccine candidate and to examine the options for
commercializing the vaccine. The Company has entered into a CRADA with the NIH
and during 1998 achieved high level expression of the candidate vaccine malaria
antigen, MSP-1, in the milk of transgenic mice. The MSP-1 protein successfully
protected Aotus nancymai monkeys in a preclinical vaccine study conducted by the
NIAID. The Company is currently evaluating strategies for further development of
this promising vaccine candidate.
Sale of Primedica Corporation CRO Services
GTC acquired its contract research organization ("CRO") capabilities through the
acquisitions of TSI Corporation in October 1994 and BioDevelopment Laboratories,
Inc. in June 1995. In February 1998, GTC reorganized its CRO businesses under a
wholly owned subsidiary, Primedica Corporation ("Primedica"), to provide a
unified identity and a dedicated structure for further growth of its CRO
business. Primedica conducted its CRO services through four laboratories:
Primedica Worcester (Massachusetts), Primedica Redfield (Arkansas), Primedica
Rockville (Maryland), as well as Primedica Argus (Pennsylvania).
Primedica had $72 million in revenue in 2000 and generated net income of
$224,000. In February 2001, the Company sold Primedica to Charles River
Laboratories, Inc. (NYSE: CRL). GTC received $26 million in cash, 658,945 shares
of CRL common stock valued at $15.9 million and Charles River Laboratories
assumed all of Primedica's approximately $9 million of capital leases and
long-term debt.
Relationship With Genzyme
Equity Position. Genzyme is the largest single stockholder of the Company,
holding 7,744,919 shares of common stock as of December 31, 2000, which
represents approximately 26% of the outstanding GTC common stock, Genzyme
also holds four common stock purchase warrants exercisable for 145,000,
288,000, 55,833 and 29,491 shares of GTC common stock at prices of $2.84,
$4.88, $6.30 and $6.30 per share, respectively, the market price of the
common stock at the time the respective Genzyme warrants were issued. All of
the shares held by Genzyme (including shares issuable on exercise of Genzyme
warrants) are entitled to registration rights.
Technology Transfer Agreement. Under the Technology Transfer Agreement dated May
1, 1993, Genzyme transferred substantially all of its transgenic assets and
liabilities to GTC, assigned its relevant contracts and licensed to the Company
technology owned or controlled by it and relating to the production of
recombinant proteins in the milk of transgenic animals (the "Field") and the
purification of proteins produced in that manner. The license is worldwide and
royalty free as to Genzyme, although GTC is obligated to Genzyme's licensors for
any royalties due them. As long as Genzyme owns less than 50% of GTC, Genzyme
may use the transferred technology, or any other technology it subsequently
acquires relating to the Field, for internal purposes only without any royalty
obligation to the Company.
R&D Agreement. Pursuant to a Research and Development Agreement dated May 1,
1993, Genzyme and GTC agreed to provide research and development services to the
other relating, in the case of GTC, to transgenic production of recombinant
proteins and, in the case of Genzyme, to the purification of such proteins. Each
company receives payments from the other equal to the performing party's fully
allocated cost of such services, which can be no less than 80% of the annual
budgets established by the parties under the agreement on a month to month
basis, plus, in most cases, a fee equal to 10% of such costs. The agreement
expired on December 31, 1998 and the parties are continuing under this agreement
on a month-to-month basis.
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ATIII LLC. In January 1998, the Company entered into a collaboration agreement
for the development of rhATIII with Genzyme forming the ATIII LLC joint venture.
Under the terms of the agreement, Genzyme funded 70% of the development costs of
rhATIII up to a maximum of $33 million. The Company funded the remaining 30% of
these costs. Development costs in excess of these amounts were to be funded
equally by the partners. The $33 million funding level was achieved by Genzyme
in 2000. The Company and Genzyme were also to make capital contributions to the
ATIII LLC sufficient to pay 50% each of all new facility costs to be incurred.
In addition to the funding, both partners were to contribute manufacturing,
marketing and other resources to the ATIII LLC at cost. Genzyme and GTC each own
50% of the venture, although Genzyme is obligated to make certain milestone
payments to GTC if and when rhATIII has been approved by the FDA and certain
sales levels have been reached. Profits and losses are shared according to
ownership percentages. The agreement covers all territories other than Asia.
In late 2000, the Company announced that it expected to re-acquire from Genzyme
the rights to rhATIII that it did not already own. In early 2001, the ATIII LLC
met with the U.S. Food and Drug Administration to discuss the status of the
clinical development program for the rhATIII molecule in the treatment of
heparin resistance in patients about to undergo cardiopulmonary bypass surgery.
While no outstanding concerns have been raised about GTC's technology or its
application, the level of expense and time involved in developing the additional
data required by the FDA is not justified by the potential market size of the
heparin resistance indication therefore, the ATIII LLC agreed to discontinue
development in this indication.
The ATIII LLC is performing business and scientific evaluations of the rhATIII
molecule in other indications. Should these evaluations support commitment to
developing rhATIII for another indication(s), the work done for the heparin
resistance indication may be used in whole or in part to pursue this
opportunity. Based on the outcome of the evaluations as well as any discussions
with Genzyme, the Company may proceed with a transaction to re-acquire the
rights to rhATIII rights that it does not already own.
Services Agreement. Under a services agreement between GTC and Genzyme, GTC pays
Genzyme a fixed monthly fee for basic laboratory and administrative support
services. The monthly fee is adjusted annually, based on the services to be
provided and changes in Genzyme's cost of providing the services. The services
agreement is self-renewing annually and may be terminated upon 90 days notice by
either party.
Credit Line Guaranty, Term Loan Guaranty and Lien. Genzyme guarantees a credit
line and term loan with a commercial bank up to $24.6 million, expiring in
December 2001. The Company has agreed to reimburse Genzyme for any liability
Genzyme may incur under such guaranty and has granted Genzyme a first lien on
all of the Company's assets to secure such obligation.
Other Strategic Collaborations
Tufts University School of Veterinary Medicine
Pursuant to a cooperation and licensing agreement, Tufts University School of
Veterinary Medicine ("Tufts") has agreed to work exclusively with GTC until
September 2001 in developing commercial applications of transgenic protein
production in milk. Tufts has also granted GTC a perpetual, non-exclusive
license to use certain proprietary microinjection technology and animal
husbandry techniques. Sales of products derived from transgenic goats produced
by Tufts, or from their offspring, are subject to royalties payable to Tufts.
The Company maintains a herd of approximately 136 goats at Tufts' facility in
Massachusetts.
SMIG JV
GTC held a 22% interest in a joint venture with Sumitomo Metal Industries Ltd.
(the "SMIG JV"). Under this joint venture, GTC granted to the SMIG JV an
exclusive license in Asia to use GTC's transgenic technology to make, use and
sell transgenic products, including ATIII, until the later of 2008 or the
expiration of any applicable Japanese patent, subject to various reciprocal
royalty obligations.
The Company re-acquired from the SMIG JV the rights to its technology in the 18
Asian countries included in the joint venture. The 10 year-old joint venture has
been dissolved. GTC can now directly develop its technology and the associated
products in all 18 Asian countries or enter into separate agreements on a
country-by-country or product-by-product basis. The Asian rights were
re-acquired by issuing an aggregate of 333,334 shares of GTC common stock valued
at approximately $11.1 million plus transaction costs of $143,000.
8
Patents and Proprietary Rights
GTC has filed 26 patent applications which cover relevant portions of its
transgenic technology, several of which are covered by cross-licensing
agreements. In addition, GTC has 8 issued and 52 pending foreign patents for the
same technology. GTC holds exclusive and nonexclusive licenses from Genzyme to
rights under a number of patent applications on file in the United States and
corresponding foreign patent applications relating to certain aspects of its
technology. GTC has a broad patent issued by the European Patent Office which
covers a DNA construct and its use in the production of proteins in the milk of
non-human, transgenic mammals. Other GTC applications as to specific proteins,
classes of proteins, techniques to enhance expression and purification
technologies remain pending. From 1998 through early 2001, the U.S. Patent and
Trademark Office awarded GTC six patents, two covering the purification of
proteins from the milk of transgenic animals, two more relating to the
production of monoclonal and assembled antibodies at commercial levels in the
milk of transgenic mammals, one covering the production of ATIII in the milk of
transgenic goats, and one covering the production of Prolactin in the milk of
transgenic animals.
GTC has exclusive and nonexclusive licenses to technologies owned by other
parties, including DNX, Inc. as to microinjection, Stanford University as to
gene transfer, Centeon L.L.C. as the successor to Behringwerke AG as to ATIII,
as well as promoter cross-licenses in place with PPL Therapeutics PLC ("PPL"),
Pharming B.V. ("Pharming") and Advanced Cell Technology, Inc. as to cloning.
Certain of the licenses require GTC to pay royalties on sales of products which
may be derived from or produced using the licensed technology. The licenses
generally extend for the life of any applicable patent.
The Company also relies upon trade secrets, know how and continuing
technological advances to develop and maintain its competitive position. In an
effort to maintain the confidentiality and ownership of trade secrets and
proprietary information, the Company requires employees, consultants and certain
collaborators to execute confidentiality and invention assignment agreements
upon commencement of a relationship with the Company.
Competition
Many companies, including biotechnology and pharmaceutical companies, are
actively engaged in seeking efficient methods of producing proteins for
therapeutic or diagnostic applications. Two other companies known to GTC are
extensively engaged in the application of transgenic technology to mammals or
the production of proteins for therapeutic use in humans: Pharming and PPL.
Pharming, based in the Netherlands, is primarily engaged in the development of
recombinant proteins in the milk of transgenic cows, which are most suitable for
extremely high volume protein production. PPL, based in Scotland, utilizes
primarily sheep for transgenic protein production. There are also other
companies seeking to develop transgenic technology in other non-mammal animals
and in plants.
Government Regulation
The manufacturing and marketing of GTC's potential products and certain areas of
research related to them are subject to regulation by governmental authorities
in the United States, including the FDA, the U.S. Department of Agriculture (the
"USDA") and the Environmental Protection Agency (the "EPA"). Comparable
authorities are involved in other countries.
To GTC's knowledge, no protein produced in the milk of a transgenic animal has
been submitted for final regulatory approval. However, the FDA issued its Points
to Consider in August 1995. Points to Consider, which are not regulations or
guidelines, are nonbinding published documents that represent the current
thinking of the FDA on a particular topic. Earlier in 1995, comparable
guidelines were issued by European regulatory authorities. GTC believes that its
programs satisfactorily address the issues raised by these documents and
generally views them as a very positive milestone in the acceptance of the
transgenic form of production. Based on discussions with the FDA and others, GTC
expects that the basic United States regulatory framework for the transgenic
production of recombinant proteins in animals will be similar to that described
in the Points to Consider.
The FDA licenses biological products under the authority of the Public Health
Service ("PHS") Act. With respect to therapeutic biological products, generally,
the standard FDA approval process includes preclinical laboratory and animal
testing, submission of an IND to the FDA and completion of appropriate human
clinical trials to establish safety and effectiveness. Prior to passage of the
FDA Modernization Act of 1997 ("FDAMA"), applicants for a license to market a
biological product filed both an establishment license application (an "ELA")
and a product license application (a "PLA"). Since the passage of FDAMA, the FDA
has taken actions to make the licensing process for biological products more
consistent with the process for the approval of new drugs. Accordingly, since
October 20, 2000, all manufacturers seeking a license to market a biological
product in interstate commerce must file a single Biological License Application
(a "BLA").
9
PLAs and ELAs filed in the interim will be administratively handled by the FDA
as a BLA. If a manufacturer successfully demonstrates that the biological
product meets PHS standards, that is, that the product is safe, pure and potent
and that the facility in which it is manufactured meets standards designed to
ensure that the product continues to be safe, pure and potent, the manufacturer
will receive a biological license to market the product in interstate commerce.
The approval process for the Company's protein production programs may be
undertaken either by the Company, by a collaborator for which the Company is
producing proteins, or jointly, depending upon the nature of the relationship
involved.
Research and Development Costs
During its fiscal years ended December 31, 2000, January 2, 2000 and January 3,
1999, GTC spent $18,976,000, $15,092,000 and $16,641,000, respectively, on
research and development. These costs include labor, materials and supplies and
overhead, the cost of operating the transgenics production facility, as well as
certain subcontracted research projects.
Employees
As of March 1, 2001, GTC employed 143 people. Of GTC's total employees, 79 were
engaged in operations, 25 were engaged in research and development and 39 were
engaged in marketing and general administration. Of GTC's employees,
approximately 14 have Ph.D. degrees, 1 has an M.D. degree and 14 have D.V.M.
degrees. None of GTC's employees are covered by collective bargaining
agreements. GTC believes its employee relations are satisfactory.
ITEM 1A.
EXECUTIVE OFFICERS OF THE REGISTRANT
The current executive officers of the Company and their respective ages
and positions are as follows:
Name Age Position
- ---- --- --------
James A. Geraghty............................... 46 Chairman of the Board
Sandra Nusinoff Lehrman, M.D.................... 53 President and Chief Executive Officer
Vice President, Chief Financial Officer and
John B. Green................................... 47 Treasurer
Harry M. Meade, Ph.D............................ 54 Vice President, Transgenics Research
Michael W. Young................................ 49 Vice President, Commercial Development
Mr. Geraghty has been Chairman of the board of directors of GTC since January
1998 and has been a director since February 1993. Mr. Geraghty was the President
and Chief Executive Officer of GTC from its incorporation in February 1993 until
July 1998. From July 1998 until December 2000 Mr. Geraghty served as President
of Genzyme Europe and since January 2001, as Senior Vice President,
International Development of Genzyme.
Dr. Lehrman has been the President, Chief Executive Officer and a director of
GTC since July 1998. Before joining GTC, Dr. Lehrman was President and Chief
Operating Officer of CytoTherapeutics, Inc., a biotechnology company focused on
the development of cell therapy systems, and Vice President, Drug Development of
Triangle Pharmaceuticals, Inc., an antiviral drug development company from July
1995 to July 1996. She also held several positions from 1983 to 1994 at Wellcome
PLC, the last being International Director, Biotechnology and Vice President,
General Manager of Burroughs Wellcome Mfg., Inc., a biopharmaceutical production
subsidiary. Mr. Green has been the Vice President and Chief Financial Officer of
GTC since December 1994 and Treasurer since August 1997. He has also served as
Vice President and Treasurer of TSI, a wholly owned subsidiary of GTC, since
March 1993 and as its Chief Financial Officer since December 1994. Prior to
that, he was Vice President and Assistant Treasurer of TSI from December 1989.
Dr. Meade has been Vice President, Transgenics Research for GTC since August
1994 and has served as Research Director of GTC since May 1993. Prior to joining
GTC, Dr. Meade was a Scientific Fellow at Genzyme, where he was responsible for
directing the transgenic molecular biology program. From 1981 to March 1990,
when he joined Genzyme, Dr. Meade was a Senior Scientist at Biogen, Inc., a
biotechnology company, where he worked on the technology relating to the
production of proteins in milk and was an inventor on the first issued patent
covering this process.
10
Mr. Young has served as Vice President, Commercial Development since October
1995 when he joined GTC. Prior to joining GTC, Mr. Young was Vice President of
Business Development for PerSeptive Biosystems from 1993 and Vice President of
Marketing of Verax Corporation from 1986 to 1993.
ITEM 2. PROPERTIES
GTC's headquarters for the transgenics business is located in 12,468 square feet
of office space in Framingham, Massachusetts under a lease which expires in
March 2006. GTC's research facility for the transgenics business is located in
approximately 6,900 square feet of laboratory and office space leased from
Genzyme in Framingham, Massachusetts. This lease expired in May 1998, at which
time the lease automatically renewed, and continues to renew annually, on a
year-to-year basis until terminated by either party on 90 days' notice. (See
"Item 1 - Business--Relationship with Genzyme.")
GTC owns a 383-acre facility in central Massachusetts. This facility contains
106,793 square feet of production, laboratory and administrative space dedicated
to its transgenic segment. The facility also currently houses more than 1,500
goats. GTC believes its current owned and leased facilities are adequate for
significant further development of commercial transgenic products. GTC also
currently utilizes animal housing, care and treatment facilities operated by
Tufts in Massachusetts.
ITEM 3. LEGAL PROCEEDINGS
GTC is not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of fiscal year 2000, no matter was submitted to a vote
of the security holders of the Company.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
GTC's common stock commenced trading on July 9, 1993 on the Nasdaq National
Market System under the symbol GZTC. Quarterly high and low sales prices for the
stock as reported by the Nasdaq National Market System are shown below.
HIGH LOW
---- ---
1999:
1st Quarter 6 3/8 3 3/4
2nd Quarter 5 5/8 3 1/8
3rd Quarter 8 1/2 4 1/2
4th Quarter 13 1/8 5 5/8
2000:
1st Quarter 50 10
2nd Quarter 31 1/2 12 3/8
3rd Quarter 40 3/16 25 1/2
4th Quarter 36 1/8 14
On March 19, 2001 there were approximately 792 shareholders of GTC of record.
The Company has never paid a cash dividend on its common stock and currently
expects that future earnings will be retained for use in its business.
In November 1999, the Company completed a $6.6 million private placement of
Series B Convertible Preferred Stock (the "Series B Preferred Stock") to
Genzyme. The proceeds from this placement were used to redeem $6.6 million of
the Company's Series A Convertible Preferred Stock (the "Series A Preferred
Stock"). In connection with the issuance of Series B Preferred Stock, the
Company issued warrants to purchase 85,324 shares of the Company's common stock
at $6.30 per share to Genzyme. In February 2000, the Company issued a Notice of
Redemption to Genzyme for all outstanding shares of the Company's Series B
Preferred Stock. Prior to redemption, Genzyme converted the Series B Preferred
Stock into 1,048,021 shares of common stock on February 8, 2000. The Company
believes that the issuance of the Series B Preferred Stock, the related warrant
and the shares of common stock issued upon conversion of the Series B
11
Preferred Stock qualified as transactions by an issuer not involving a public
offering within the meaning of Section 4(2) of the Securities Act of 1933, as
amended (the "Securities Act"), based on the fact there was one holder.
In March 2000, the Company issued a warrant call notice for outstanding warrants
to purchase 450,000 shares of common stock that had been issued in connection
with the Series A Preferred Stock. Each warrant had an exercise price of
$15.1563 per share. As of March 31, 2000, all the warrants were exercised with
proceeds to the Company of $6.8 million. The Company believes that the issuance
of the common stock upon exercise of the warrants qualified as a transaction by
an issuer not involving a public offering within the meaning of Section 4(2) of
the Securities Act.
In September 2000, in order to terminate the SMIG JV, the Company issued an
aggregate of 333,334 shares of its common stock to Sumitomo Metal Industries,
Ltd. and an affiliate ("Sumitomo"). In exchange, Sumitomo transferred to a
wholly owned subsidiary of the Company all of the outstanding shares of SMI
Genzyme Ltd., a Japanese corporation, held by Sumitomo. As a result, the Company
directly and indirectly holds all of the outstanding equity in SMI Genzyme Ltd.
The Company believes that the issuance to Sumitomo qualified as a transaction by
an issuer not involving a public offering within the meaning of Section 4(2) of
the Securities Act.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data set forth below as of December 31, 2000 and January
2, 2000 and for each of the three fiscal years in the period ended December 31,
2000 are derived from the Company's consolidated financial statements included
elsewhere in this Report, which have been audited by PricewaterhouseCoopers LLP,
independent accountants. The selected financial data set forth below as of
January 3, 1999, December 28, 1997 and December 29, 1996, and for the years
ended December 28, 1997 and December 29, 1996 are derived from audited
consolidated financial statements not included in this Report.
This data should be read in conjunction with the Company's consolidated
financial statements and related notes thereto under Item 8 of this Report and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" under Item 7 of this Report.
12
SELECTED FINANCIAL DATA
(Dollars in thousands except per share data)
For the Fiscal Years Ended
----------------------------------------------------------------------------
December 31, January 2, January 3, December 28, December 31,
2000 2000 1999 1997 1996
------------ ------------ ------------ ------------ ------------
Statement of Operations Data:
Sponsored research and development revenue $ 16,163 $ 13,825 $ 11,596 $ 19,521 $ 8,338
Costs and expenses:
Research and development 18,976 15,092 16,641 17,840 8,684
Selling, general and administrative
9,148 7,875 6,042 7,381 5,170
Equity in loss of joint ventures
4,625 3,797 4,285 811 356
------------ ------------ ------------ ------------ ------------
32,749 26,764 26,968 26,032 14,210
------------ ------------ ------------ ------------ ------------
Loss from continuing operations (16,586) (12,939) (15,372) (6,511) (5,872)
Other income and (expenses):
Interest income 3,770 65 280 116 84
Interest expense (1,001) (1,232) (251) (465) (651)
Other income -- 484 100 50 587
------------ ------------ ------------ ------------ ------------
Loss from continuing operations $ (13,817) $ (13,622) $ (15,243) $ (6,810) $ (5,852)
Discontinued operations
Loss from discontinued contract research
operations (less applicable taxes of
$248, $320, $264, $0 and $0) (324) (5,139) (4,347) (2,533) (1,894)
------------ ------------ ------------ ------------ ------------
Net loss $ (14,141) $ (18,761) $ (19,590) $ (9,343) $ (7,746)
Dividends to preferred shareholders (74) (1,497) (1,156)
------------ ------------ ------------ ------------ ------------
Net loss available to common shareholders $ (14,215) $ (20,258) $ (20,746) $ (9,343) $ (7,746)
============ ============ ============ ============ ============
Netloss available to common shareholders per weighted
average number of common
shares (basic and diluted):
From continuing operations $ (0.49) $ (0.76) $ (0.91) $ (0.39) $ (0.39)
============ ============ ============ ============ ============
From discontinued contract research operations $ (0.01) $ (0.26) $ (0.24) $ (0.15) $ (0.13)
============ ============ ============ ============ ============
Net loss $ (0.50) $ (1.02) $ (1.15) $ (0.54) $ (0.52)
============ ============ ============ ============ ============
Weighted average number of shares
outstanding (basic and diluted) 28,373,283 19,876,904 17,978,677 17,253,292 14,801,725
Pro Forma (1)
December 31, December 31, January 2, January 3, December 28, December 31,
2000 2000 2000 1999 1997 1996
------- -------- -------- -------- -------- ---------
Balance Sheet Data:
Cash and cash equivalents 64,836 $ 41,024 $ 7,813 $ 12,097 $ 6,777 $ 9,132
Marketable securities 41,375 25,508 -- -- -- --
Working capital 90,796 88,389 16,715 26,903 22,567 32,550
Net assets of
discontinued research
operations held for sale -- 37,272 33,155 32,039 31,670 33,405
Total assets 136,810 134,403 58,518 60,052 50,187 49,568
Long-term liabilities 294 294 6,256 3 063 2,162 3,222
Shareholders' equity 117,250 114,843 26,206 36,220 27,378 35,204
There were no cash dividends paid for any period presented.
(1) Pro Forma adjustment reflects the sale of Primedica for net proceeds of
$39.7 million in cash and stock
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
In February 2001, Genzyme Transgenics Corporation ("GTC" or the "Company")
completed the sale of Primedica Corporation ("Primedica") to Charles River
Laboratories, Inc. ("CRL"). GTC received $26 million in cash, 658,945 shares of
CRL common stock valued at $15.9 million and CRL assumed all of Primedica's
approximately $9 million of capital leases and long-term debt (see Note 2).
Primedica is reported as a discontinued operation in these financial statements.
Accordingly, the results of operations and the balance sheet data exclude the
results of operations and assets and liabilities of Primedica and its
subsidiaries.
Year Ended December 31, 2000 as Compared to Year Ended January 2, 2000
Total revenues for 2000 were $16.2 million, compared with $13.8 million in 1999,
an increase of $2.4 million or 17%. The increase in revenues is due to a greater
number of transgenic programs in 2000 as well as milestone based revenues earned
during 2000 in association with the progress on previously existing transgenic
programs.
Sponsored research and development expenses increased to $15.6 million in 2000
from $11.4 million in 1999, an increase of $4.2 million or 37%. The increase in
sponsored research and development expenses was due to an increase in the number
of transgenic programs. Internal research and development expenses decreased to
$3.3 million in 2000 from $3.7 million in 1999, a decrease of $400,000 or 11%,
reflecting a reallocation of resources to sponsored research and development
programs.
Gross profit on sponsored research and development for 2000 was $544,000, a
gross margin of 3%, versus $2.4 million, a gross margin of 18% in 1999. The
decrease in sponsored research and development gross margin is due to increased
milestones earned in 1999 which carry a higher gross profit.
Selling, general and administrative ("S,G&A") expenses increased to $9.1 million
in 2000 from $7.9 million in 1999, an increase of $1.2 million or 15%. The
increase is primarily due to a one-time charge associated with the acceleration
of vesting of non-employee stock options.
Interest income increased to $3.8 million in 2000, from $65,000 in 1999, due to
the investment of proceeds generated by the public offering in February 2000.
Interest expense decreased to $1 million in 2000, from $1.2 million in 1999. Of
the 2000 interest expense total, approximately $468,000 represents interest for
the financing of the transgenic production facility, $98,000 represents interest
incurred under the Company's bank line of credit and $358,000 represents
amortization of deferred financing costs.
The Company did not recognize any non-operating income in 2000. In 1999 the
Company recognized $484,000 of non-operating income from the receipt of an
insurance settlement.
The Company recognized $4.6 million of losses incurred in connection with the
joint venture ("ATIII LLC") between the Company and Genzyme Corporation
("Genzyme") in 2000 as compared to $3.8 million in 1999, an increase of 21%. The
increase is due to a higher spending rate in 2000.
The Company recognized a loss of $324,000 from discontinued contract research
operations in 2000 versus a loss of $5.1 million in 1999. The decrease in the
loss is due to an increase in Primedica's revenues in 2000 as a result of an
intentional shift in the mix of Primedica services to faster growing service
areas such as metabolism and pharmacokinetics, formulation chemistry, analytical
chemistry and bioproduction.
Year Ended January 2, 2000 as Compared to Year Ended January 3, 1999
Total revenues for 1999 were $13.8 million, compared with $11.6 million in 1998,
an increase of $2.2 million or 19%. The increase in revenues is due to new
transgenic programs in fiscal 1999 as well as milestones earned during 1999 in
association with the progress on previously existing transgenic programs.
Sponsored research and development expenses increased to $11.4 million in 1999
from $10.5 million in 1998, an increase of $900,000 or 9%. The increase in
sponsored research and development expenses was due to an increase in activity
in sponsored research and development programs. Internal research and
development expenses decreased to $3.7
14
million in 1999 from $6.2 million in 1998, a decrease of $2.5 million or 40%.
The decrease was due primarily to a reallocation of resources to sponsored
research and development programs.
Gross profit on sponsored research and development for 1999 was $2.4 million, a
gross margin of 18%, versus $1.1 million, a gross margin of 10% in 1998. The
increase in sponsored research and development gross margin is due to increased
milestones earned in 1999 which carry a higher gross profit.
Selling, general and administrative ("S,G&A") expenses increased to $7.9 million
in 1999 from $6.1 million in 1998, an increase of $1.8 million or 29%. The
increase was due to the addition of administrative personnel required to support
the growth in transgenic business as well as approximately $500,000 of
transaction costs for uncompleted merger and acquisition activities and $450,000
of additional patent and legal expense.
Interest income decreased to $65,000 in 1999, from $280,000 in 1998, due to
lower funds available for investment. Interest expense increased to $1.2 million
in 1999, from $251,000 in 1998. Of the 1999 interest expense total,
approximately $300,000 represents interest for the financing of the transgenic
production facility, $600,000 represents interest incurred under the Company's
bank line of credit and $400,000 represents amortization of deferred financing
costs.
The Company recognized $484,000 of non-operating income in 1999 compared to
$100,000 in 1998. The 1999 amount represents the receipt of an insurance
settlement. The 1998 amount represents an earnout payment in connection with the
sale in 1995 of the TSI Center for Diagnostic Products Inc. ("CDP").
The Company recognized $3.8 million of joint venture losses incurred on the
joint venture ("ATIII LLC") between the Company and Genzyme Corporation
("Genzyme") in 1999 as compared to $4.3 million of joint venture losses incurred
on ATIII LLC in 1998. The decrease is due to a reduction in the percentage share
of the losses in 1999.
The Company recognized a loss of $5.1 million from discontinued contract
research operations in 1999 versus a loss of $4.3 million in 1998. The increase
in the loss is due to a charge in the amount of $1.2 million in 1999 which
represents costs associated with the consolidation of Primedica's Massachusetts
operations into a single facility.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2000 and 1999, the Financial Accounting Standard Board issued Statement
of Financial Accounting Standards Nos. 138 and 137 ("SFAS 138" and "SFAS 137"),
"Accounting for Certain Derivative Instruments and Certain Hedging Activities -
an Amendment of FASB Statement No. 133." SFAS 138 clarifies certain provisions
of SFAS 133, and SFAS 137 defers the implementation of SFAS 133 by one year.
SFAS 133, as amended by SFAS 137 and SFAS 138, is effective for fiscal quarters
beginning after January 1, 2001 for the Company, and its adoption is not
expected to have a material impact on the Company's financial position or
results of operations.
LIQUIDITY AND CAPITAL RESOURCES
In February 2001, the Company completed the sale of its preclinical research
organization, Primedica, to CRL. Net proceeds to the Company were $39.7 million
in cash and CRL stock (see Note 12).
On a pro forma basis at December 31, 2000, adjusted for the impact of the
Primedica sale in February 2001, the Company had cash and cash equivalents of
$64.8 million, working capital of $90.8 million and tangible net worth of $117.3
million.
In February 2000, the Company completed a secondary public offering of
approximately 4 million shares of common stock, including the exercise of an
overallotment. Net proceeds to the Company, after expenses, were $75 million.
Subsequent to the completion of the secondary public offering, the Company paid
down its revolving credit lines in the amount of $15.8 million. Following this
pay down, the full $15.8 million under these credit lines (see Item 8 appearing
in this report) remains available for borrowing. In conjunction with the
offering, the Company issued a Notice of Redemption to Genzyme for all
outstanding shares of the Company's Series B Convertible Preferred Stock (the
"Series B Preferred Stock"). Prior to effecting this redemption, Genzyme
converted the Series B Preferred Stock into 1,048,021 shares of common stock.
The Company paid a cash dividend of $157,000 in conjunction with the conversion.
As a result of the offering, the $6.3 million Genzyme Credit Line was
eliminated.
15
The Company had cash, cash equivalents and marketable securities of $66.5
million at December 31, 2000. During 2000, the Company had a $33.2 million net
increase in cash. Sources of funds during the period include $89.3 million of
net proceeds from the issuance of common stock, comprised of $75 million from
the public offering, $6.8 million from the exercise of warrants and $7.5 million
from the issuance of common stock under various employee stock plans. Uses of
funds during 2000 included $3.5 million used in operations, $46.6 million used
to purchase marketable securities, $15.8 million used to pay down the bank
revolving credit line, which remains fully available for future borrowing, $2
million invested in capital equipment, further expansion of the transgenic
production facility and $5.7 million invested in the ATIII LLC.
The Company had working capital of $88.4 million at December 31, 2000 compared
to $16.7 million at January 2, 2000. As of December 31, 2000, the Company had
$15.8 million available under a line of credit with a commercial bank. The
Company is preparing plans for expansion of its transgenic production facilities
in Central Massachusetts as well as establishment of a second production site in
order to facilitate growth in the number of development programs and
commercialization of ongoing transgenic programs. Although no significant
contractual commitments have been made to date, the Company anticipates
investing between $4.1 million and $6 million on these efforts over the next
18-24 months.
Under the Company's current operating plan, existing cash balances along with
funds available under the bank line are expected to be sufficient to fund the
Company through the next few years.
Management's current expectations regarding the sufficiency of the Company's
cash resources are forward-looking statements, and the Company's cash
requirements may vary materially from such expectations. Such forward-looking
statements are dependent on several factors, including the ability of the
Company to enter into any transgenic research and development collaborations in
the future and the terms of such collaborations, the results of research and
development and preclinical and clinical testing, competitive and technological
advances and regulatory requirements. If the Company experiences increased
losses, the Company may have to seek additional financing through collaborative
arrangements or from public or private sales of its securities, including equity
securities. There can be no assurance that additional funding will be available
on terms acceptable to the Company, if at all. If additional financing cannot be
obtained on acceptable terms, to continue its operations the Company could be
forced to delay, scale back or eliminate certain of its research and development
programs or to enter into license agreements with third parties for the
commercialization of technologies or products that the Company would otherwise
undertake itself.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has certain financial instruments at December 31, 2000, including a
guaranty, a revolving line of credit, a letter of credit and a loan outstanding
which are sensitive to changes in interest rates. The Company has a guaranty by
Genzyme Corporation, obtained in December 1998, of the Company's credit facility
with a commercial bank, whose carrying value of $969,000 approximates fair
value. Also, the Company has a revolving line of credit and two letters of
credit with a commercial bank for $17.5 million, the line of credit accrues
interest at a variable rate. The weighted average interest rate on the amounts
outstanding during 2000 was 0.7%. At December 31, 2000, nothing is outstanding
under the line. As part of the revolving credit facility at a commercial bank,
the Company has been issued a $1.5 million standby letter of credit in support
of a major facility lease, of which none has been drawn down at December 31,
2000. As part of the sale of Primedica, in February 2001, the standby letter of
credit was cancelled and was no longer outstanding. Additionally, the Company
has one loan outstanding. These instruments are not leveraged and are held for
purposes other than trading.
For the loan outstanding, the table below presents the principal cash flows that
exist by maturity date and the related average interest rate.
2001 2002 2003 2004 2005 Thereafter Total
---- ---- ---- ---- ---- ---------- -----
Variable rate debt ($ in 000's) $6,430 -- -- -- -- -- $ 6,430
The interest rate of the variable debt was 7% at December 31, 2000. At December
31, 2000, the fair value of this loan approximates carrying value.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULES
Financial Statements
Response to this item is submitted as a separate section of this report
immediately following Item 14.
16
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
This information is set forth in part under the captions "ELECTION OF DIRECTORS"
and "SECTION 16 (a) BENEFICIAL REPORTING COMPLIANCE" in the Company's Proxy
Statement for the 2001 Annual Meeting of Stockholders to be held on May 23, 2001
(the "Proxy Statement") which are incorporated herein by reference, and the
remainder of such information is set forth under the caption "EXECUTIVE OFFICERS
OF THE REGISTRANT" in Part I, Item 1A hereof.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the caption "EXECUTIVE COMPENSATION" in the
Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the caption "SHARE OWNERSHIP" in the Proxy
Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the captions "EXECUTIVE EMPLOYMENT AGREEMENTS"
and "COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION" in the Proxy
Statement is incorporated herein by reference. See also, Notes 2, 6 and 11 to
the Consolidated Financial Statements included herewith.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The Company's Financial Statements and the ATIII LLC Financial Statements
appear as a separate section of this report immediately following Item 14.
All other schedules have been omitted because the required information is
not applicable or not present in amounts sufficient to required submission
of the schedule, or because the information required is in the
consolidated financial statements or the notes thereto. The Exhibits to
this report are listed below under Part IV, Item 14(c) hereof.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter ended
December 31, 2000.
(c) Exhibits
The exhibits filed as part of this Form 10-K are listed on the Exhibit
Index immediately preceding such Exhibits, which Exhibit Index is
incorporated herein by reference.
17
FORM 10-K-ITEMS 8, 14 (a) (1), (a) (2), and (d)
GENZYME TRANSGENICS CORPORATION AND SUBSIDIARIES
List Of Financial Statements And Financial Statement Schedules
The following consolidated financial statements of Genzyme Transgenics
Corporation and subsidiaries are included in Item 8:
Page #
------
Report of PricewaterhouseCoopers LLP - Independent Accountants ...................................................... 19
Consolidated Balance Sheets - December 31, 2000 and January 2, 2000 ................................................. 20
Consolidated Statements of Operations - For the fiscal years ended December 31, 2000,
January 2, 2000 and January 3, 1999 ................................................................................. 21
Consolidated Statements of Shareholders Equity - For the fiscal years
ended December 31, 2000, January 2, 2000 and January 3, 1999 ....................................................... 22
Consolidated Statements of Cash Flows - For the fiscal years ended
December 31, 2000, January 2, 2000 and January 3, 1999 .............................................................. 23
Notes to Consolidated Financial Statements .......................................................................... 24
Report of PricewaterhouseCoopers LLP on Financial Statement Schedules - Independent Accountants ..................... 41
Schedule II - Supplemental Valuation and Qualifying Accounts ........................................................ 42
The following financial statements of ATIII LLC are included in Item 4 (d):
Report of PricewaterhouseCoopers LLP - Independent Accountants ...................................................... 43
Balance Sheets - December 31, 2000 and December 31, 1999 ..................................................... 44
Statements of Operations - For the fiscal years ended December 31,
2000, December 31, 1999, December 31, 1998 and for the cumulative
period from inception (January 1, 1998) to December 31, 2000 ................................................. 45
Statements of Cash Flows - For the fiscal years ended December 31,
2000, December 31, 1999, December 31, 1998 and for the cumulative
period from inception (January 1, 1998) to December 31, 2000 ................................................. 46
Statements of Changes in Venturer's Capital - For the cumulative period from inception
(January 1, 1998) to December 31, 2000 ....................................................................... 47
Notes to Financial Statements .............................................................................................. 48
SIGNATURES ................................................................................................................. 51
EXHIBIT INDEX .............................................................................................................. 52
All other schedules for which provision is made in the applicable regulation of
the Securities and Exchange Commission are not required under the related
instructions or are inapplicable, and therefore have been omitted.
18
Report of Independent Accountants
To the Board of Directors and Shareholders of
Genzyme Transgenics Corporation:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and comprehensive income, of shareholders'
equity and of cash flows present fairly, in all material respects, the financial
position of Genzyme Transgenics Corporation and its subsidiaries at December 31,
2000 and January 2, 2000 and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2000 in
conformity with accounting principles generally accepted in the United States of
America. 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 of these statements in
accordance with auditing standards generally accepted in the United States of
America, which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 27, 2001
19
GENZYME TRANSGENICS CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except share amounts)
Unaudited
Pro Forma
(Note 13)
December 31, December 31, January 3,
2000 2000 2000
--------- --------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 64,836 $ 41,024 $ 7,813
Marketable securities 41,375 25,508 --
Accounts receivable 1,765 1,765 463
Unbilled contract revenue, net of allowance of $361
and $75 at December 31, 2000 and January 2, 2000,
respectively (including $388 and $412 from related
parties at December 31, 2000 and January 2, 2000,
respectively) 988 988 462
Other current assets 1,098 1,098 878
Net assets of discontinued contract research operations held
for sale (Note 2 and Note 13) -- 37,272 33,155
--------- --------- ---------
Total current assets 110,062 107,655 42,771
Net property, plant, and equipment 13,841 13,841 13,154
Intangible assets 12,907 12,907 2,593
--------- --------- ---------
$ 136,810 $ 134,403 $ 58,518
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,073 $ 1,073 $ 634
Accounts payable - Genzyme Corporation 1,344 1,344 559
Payable to ATIII LLC 1,096 1,096 2,151
Revolving line of credit -- -- 15,750
Accrued expenses 4,514 4,514 3,689
Deferred contract revenue 4,522 4,522 2,383
Current portion of long-term debt and capital leases 6,717 6,717 890
--------- --------- ---------
Total current liabilities 19,266 19,266 26,056
Long-term debt and capital leases, net of current portion 223 223 6,168
Deferred lease obligation 71 71 88
--------- --------- ---------
Total liabilities 19,560 19,560 32,312
Commitments and Contingencies (Note 3)
Shareholders' equity:
Preferred stock, 5,000,000 shares authorized of which 20,000
have been designated Series A convertible and 12,500 have
been designated as Series B convertible -- -- --
Series B convertible preferred stock; $.01 par value;
no shares and 6,602 shares were issued and outstanding at
December 31, 2000 and January 2, 2000, respectively - -- -- --
Common stock, $.01 par value; 100,000,000 shares authorized;
29,697,151 and 22,601,296 shares issued and outstanding
at December 31, 2000 and January 2, 2000, respectively 297 297 226
Dividend on preferred stock -- -- (2,653)
Capital in excess of par value - preferred stock -- -- 6,647
Capital in excess of par value - common stock 194,255 194,255 87,895
Unearned compensation -- -- (284)
Accumulated deficit (77,359) (79,766) (65,625)
Accumulated other comprehensive income 57 57 --
--------- --------- ---------
Total shareholders' equity 117,250 114,843 26,206
--------- --------- ---------
$ 136,810 $ 134,403 $ 58,518
========= ========= =========
The accompanying notes are an integral part of the
consolidated financial statements.
20
GENZYME TRANSGENICS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Dollars in thousands except share and per share amounts)
For the Fiscal Years Ended
--------------------------
December 31, January 2, January 3,
2000 2000 1999
------------ ------------ ------------
Revenues:
Sponsored research and development $ 16,163 13,825 11,596
------------ ------------ ------------
16,163 13,825 11,596
Costs and operating expenses:
Research and development:
Sponsored 15,619 11,402 10,486
Internal 3,357 3,690 6,155
Selling, general and administrative 9,148 7,875 6,042
Equity in loss of joint ventures 4,625 3,797 4,285
------------ ------------ ------------
32,749 26,764 26,968
------------ ------------ ------------
Loss from continuing operations (16,586) (12,939) (15,372)
Other income (expense):
Interest income 3,770 65 280
Interest expense (1,001) (1,232) (251)
Other income -- 484 100
------------ ------------ ------------
Loss from continuing operations (13,817) (13,622) (15,243)
Discontinued operations
Loss from discontinued contract research
operations (less applicable taxes of
$248, $320 and $264) (324) (5,139) (4,347)
------------ ------------ ------------
Net loss $ (14,141) $ (18,761) $ (19,590)
Dividend to preferred shareholders (74) (1,497) (1,156)
------------ ------------ ------------
Net loss available to common shareholders $ (14,215) $ (20,258) $ (20,746)
============ ============ ============
Net loss available per common share (basic and diluted):
From continuing operations $ (0.49) $ (0.76) $ (0.91)
============ ============ ============
From discontinued contract research operations $ (0.01) $ (0.26) $ (0.24)
============ ============ ============
Net loss $ (0.50) $ (1.02) $ (1.15)
============ ============ ============
Weighted average number of common shares
outstanding (basic and diluted) 28,373,283 19,876,904 17,978,677
============ ============ ============
Comprehensive loss:
Net loss $ (14,141) $ (18,761) $ (19,590)
Other comprehensive income:
Unrealized holding gains on available for sale securities 57 -- --
------------ ------------ ------------
Total other comprehensive income 57 -- --
------------ ------------ ------------
Comprehensive loss $ (14,084) $ (18,761) $ (19,590)
============ ============ ============
The accompanying notes are an integral part of the
consolidated financial statements.
21
Series A
Convertible Capital in Capital in
Preferred Stock Common Stock Excess of Excess of
--------------- ------------ Par Value Par Value
Shares Amount Shares Amount Dividend Common Stock Preferred Stock
- --------------------------------------------------------------------------------------------------------------------------------
Balance, December 28, 1997 -- $ -- 17,403 $174 $ -- $54,478 $ --
Net loss
Sale of preferred stock to institutional
investors, net of expenses 20 18,922
Issuance of warrants in connection with the
preferred stock offering (1,156) 1,301 (145)
Sale of common stock in a private placement, net
of expenses 603 6 6,440
Common stock issuance under Employee Stock
Purchase Plan 229 2 1,149
Common stock issuance in connection with the GTC
Savings and Retirement Plan 43 1 398
Issuance of warrants in connection with a debt
financing 969
Issuance of stock options to non-employees 519
Proceeds from the exercise of stock options 106 1 462
- --------------------------------------------------------------------------------------------------------------------------------
Balance, January 3, 1999 20 -- 18,384 184 (1,156) 65,716 18,777
Net loss
Sale of common stock in a private placement, net
of expenses 686 7 5,421
Common stock issuance under Employee Stock
Purchase Plan 239 4 992
Common stock issuance in connection with the GTC
Savings and Retirement Plan 95 1 510
Conversion of Series A Preferred Stock (14) 2,830 27 13,008 (13,035)
Common stock issuance for ACT License Agreement 217 2 998
Redemption of Series A Preferred Stock (6) (861) (5,741)
Issuance of Series B Preferred Stock and related
warrants, net of issuance costs 7 (343) 343 6,563
Dividend attributed to beneficial conversion (210) 210
Dividend accrued on Series B Preferred Stock (83) 83
Unearned compensation (37)
Proceeds from the exercise of stock options 150 1 734
- --------------------------------------------------------------------------------------------------------------------------------
Balance, January 2, 2000 7 -- 22,601 226 (2,653) 87,895 6,647
Net loss
Conversion of Series B Preferred Stock, including
expenses (7) (6,564)
Payment of dividend (157)
Conversion of Series A Preferred Stock 1,048 10 2,727 3,818
Common stock issuance under Employee Stock
Purchase Plan 237 2 1,209
Common stock issuance in connection with the GTC
Savings and Retirement Plan 45 1 566
Dividend on Preferred Stock (74) 74
Proceeds from the exercise of stock options 958 10 6,291
Unearned compensation 1,531
Unrealized gain on investment
Conversion of warrants 450 5 6,815
Common stock issuance in connection with the
acquisition of SMIG 333 3 11,040
Common stock issuance in connection with the
public offering, net of expenses 4,025 40 75,090
- --------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2001 -- $ -- 29,697 $297 $ -- $194,255 $ --
================================================================================================================================
Accumulated
Other Total
Unearned Accumulated Comprehensive Stockholders'
Compensation Deficit Income Equity
- ------------------------------------------------------------------------------------------------------------
Balance, December 28, 1997 $ -- $(27,274) $ -- $27,378
Net loss (19,590) (19,590)
Sale of preferred stock to institutional
investors, net of expenses 18,922
Issuance of warrants in connection with the
preferred stock offering -
Sale of common stock in a private placement, net
of expenses 6,446
Common stock issuance under Employee Stock
Purchase Plan 1,151
Common stock issuance in connection with the GTC
Savings and Retirement Plan 399
Issuance of warrants in connection with a debt
financing 969
Issuance of stock options to non-employees (437) 82
Proceeds from the exercise of stock options 463
- ------------------------------------------------------------------------------------------------------------
Balance, January 3, 1999 (437) (46,864) -- 36,220
Net loss (18,761) (18,761)
Sale of common stock in a private placement, net
of expenses 5,428
Common stock issuance under Employee Stock
Purchase Plan 996
Common stock issuance in connection with the GTC
Savings and Retirement Plan 511
Conversion of Series A Preferred Stock -
Common stock issuance for ACT License Agreement 1,000
Redemption of Series A Preferred Stock (6,602)
Issuance of Series B Preferred Stock and related
warrants, net of issuance costs 6,563
Dividend attributed to beneficial conversion -
Dividend accrued on Series B Preferred Stock -
Unearned compensation 153 116
Proceeds from the exercise of stock options 735
- ------------------------------------------------------------------------------------------------------------
Balance, January 2, 2000 (284) (65,625) -- 26,206
Net loss (14,141) (14,141)
Conversion of Series B Preferred Stock, including
expenses (6,564)
Payment of dividend (157)
Conversion of Series A Preferred Stock 6,555
Common stock issuance under Employee Stock
Purchase Plan 1,211
Common stock issuance in connection with the GTC
Savings and Retirement Plan 567
Dividend on Preferred Stock -
Proceeds from the exercise of stock options 6,301
Unearned compensation 284 1,815
Unrealized loss on investment 57 57
Conversion of warrants 6,820
Common stock issuance in connection with the
acquisition of SMIG 11,043
Common stock issuance in connection with the
public offering, net of expenses 75,130
- ------------------------------------------------------------------------------------------------------------
Balance, December 31, 2001 $ -- $(79,766) $57 $114,843
============================================================================================================
The accompanying notes are an integral part of the
consolidated financial statements
22
GENZYME TRANSGENICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
FOR THE FISCAL YEARS ENDED
----------------------------------------------
December 31, January 2, January 3,
2000 2000 1999
------------ ---------- ----------
Cash flows for operating activities:
Net loss from continuing operations $(13,817) $(13,622) $(15,243)
Adjustments to reconcile net loss from continuing operations
to net cash used in operating activities:
Depreciation and amortization 2,070 1,862 984
Charge for non-cash option 1,815 116 82
Amortization/accretion marketable securities (815) -- --
Shares to be issued for 401-K employer match 567 511 399
Loss on disposal of fixed assets 24 -- --
Equity in loss of joint ventures 4,625 3,674 4,285
Changes in assets and liabilities:
Accounts receivable and unbilled contract revenue (1,828) 2,437 1,171
Other current assets (220) (704) 60
Accounts payable 439 (618) 430
Accounts payable - Genzyme Corporation 785 (928) (1,877)
Other accrued expenses 708 165 (356)
Deferred contract revenue 2,139 1,365 680
-------- -------- --------
Net cash used in operating activities (3,508) (5,742) (9,385)
Cash flows for investing activities:
Purchase of property, plant and equipment (1,988) (3,276) (5,213)
Investment in joint ventures (5,680) (3,941) (1,867)
Purchase of marketable securities (46,636) -- --
Redemption of marketable securities 22,000 -- --
Cash paid for acquisition of SMIG (26) -- --
Other assets 90 (842) (209)
-------- -------- --------
Net cash used in investing activities (32,240) (8,059) (7,289)
Cash flows from financing activities:
Net proceeds from the issuance of common stock 75,130 5,428 6,446
Dividends paid (157) -- --
Redemption of Series A convertible preferred stock -- (6,602) --
Net proceeds from the exercise of warrants 6,820 -- --
Net proceeds from employee stock purchase plan 1,211 996 1,151
Net proceeds from the exercise of stock options 6,301 735 463
Net proceeds from the issuance of Series B convertible
preferred stock and related warrants -- 6,563 18,922
Proceeds from long-term debt 609 4,544 2,146
Repayment of long-term debt (727) (434) (1,410)
Net (payments) borrowings under revolving line of credit (15,750) 4,654 5,096
Investments and advances by Genzyme Corporation -- -- (6,000)
Other long-term liabilities (37) (112) (104)
-------- -------- --------
Net cash provided by financing activities 73,400 15,772 26,710
Net cash used in discontinued operations (4,441) (6,255) (4,716)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 33,211 (4,284) 5,320
Cash and cash equivalents at beginning of the period 7,813 12,097 6,777
-------- -------- --------
Cash and cash equivalents at end of period $ 41,024 $ 7,813 $ 12,097
======== ======== ========
The accompanying notes are an integral part of the
consolidated financial statements.
23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal years ended December 31, 2000 and January 3, 1999 (all tabular $ in
thousands, except per share data)
NOTE 1. NATURE OF BUSINESS
In February 2001, Genzyme Transgenics Corporation ("GTC" or the "Company")
completed the divestiture of its wholly-owned contract research organization
("CRO") subsidiary, Primedica Corporation ("Primedica") (see Note 13).
Accordingly, Primedica is reported as a discontinued operation in these
financial statements.
The Company is engaged in the application of transgenic technology to the
development and production of recombinant proteins for therapeutic and
diagnostic uses.
The accompanying financial statements have been presented on the assumption that
the Company is a going concern. The Company has incurred losses and negative
operating cash flow in each of the fiscal years ended December 31, 2000, January
2, 2000 and January 3, 1999. The Company had working capital of $88.4 million at
December 31, 2000.
The Company is subject to risks common to companies in the biotechnology
industry, including, but not limited to, development by the Company or its
competitors of new technological innovations, raising additional capital,
dependence on key personnel, protection of proprietary technology and compliance
with government regulations.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company was incorporated in February 1993. On October 1, 1994, the Company
acquired its preclinical research organization, TSI Corporation ("TSI"), and its
respective subsidiaries, Argus Research Laboratories, Inc. ("Argus"), The TSI
Center for Diagnostic Products, Inc. ("CDP"), Health and Sciences Research
Incorporated ("HSRI"), TSI Mason Laboratories, Inc. ("Mason"), TSI Redfield
Laboratories, Inc. ("Redfield"), TSI Washington Laboratories, Inc.
("Washington") and G.D.R.U. Limited ("GDRU"). In July 1995, the Company acquired
BioDevelopment Laboratories, Inc. ("BDL"). In 1995, the Company closed its HSRI
facility and completed the sale of GDRU. HSRI and GDRU were the only facilities
performing human clinical trials within the Company's operations.
In February 1998, the Company reorganized its CRO businesses under a
wholly-owned subsidiary, Primedica (see Note 12).
In February 2001, the Company sold Primedica to Charles River Laboratories
International, Inc. ("CRL") (see Note 13).
Genzyme is the Company's largest single stockholder. As a result of various
equity transactions, Genzyme owned 26% of the Company's outstanding common stock
at December 31, 2000, and 27% on a fully diluted basis.
Basis of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. The Company accounted for its 22% investment in
the joint venture between SMI Genzyme Ltd. and Sumitomo Metals Industries Ltd.
("SMIG JV") using the equity method. In September 2000, the Company acquired
full ownership of the SMIG JV by issuing an aggregate of 333,334 shares of its
common stock valued at approximately $11.1 million, plus transaction costs of
$143,000. As a result, the Company directly and indirectly holds all of the
outstanding equity in SMI Genzyme Ltd. and is now a wholly-owned subsidiary of
the Company (see Note 12). The Company accounts for its 50% investment in the
joint venture between the Company and Genzyme ("ATIII LLC") under the equity
method. All significant intercompany transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. The significant estimates and assumptions in these financial
statements include revenue
24
recognition, net realizable value of costs in excess of net assets acquired,
account receivable and unbilled reserves and tax valuation reserves. Actual
results could differ materially from those estimates.
Cash and Cash Equivalents
Cash equivalents, consisting principally of money market funds with initial
maturities of three months or less, are valued at market value.
Marketable Securities
Marketable securities, which include the Company's investment in equity
securities, have been classified as available for sale and are stated at market
value based on quoted market prices. Gains and losses on sales of securities are
calculated using the specific identification method.
Marketable securities can be summarized as follows:
Amortized Estimated Fair
At December 31, 2000 Cost Value
------- -------
Government backed obligations $ 4,998 $ 5,002
Corporate obligations 20,388 20,506
------- -------
Total marketable securities $25,386 $25,508
======= =======
At December 31, 2000, the marketable securities have an associated $57,000 of
unrealized gain included in other comprehensive income and equity. No marketable
securities were held at January 2, 2000. The Company has no realized gains on
available for sale securities in any of the three years ended December 31, 2000.
At December 31, 2000, the contractual maturities of the Company's short-term
investments available for sale range from 4 months to 36 months. All of the
Company's investments are classified as short-term, which is consistent with
their intended use.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of
credit risk consist primarily of cash, cash equivalents and trade accounts
receivable. The Company is subject to the concentration of credit risk of its
commercial bank that holds the revolving line of credit and term loan. At
December 31, 2000 and January 2, 2000, approximately 99% and 92%, respectively,
of cash and cash equivalents were held by one financial institution. Total
credit facilities at one commercial bank are $24.6 million at December 31, 2000
and January 2, 2000.
The Company performs ongoing credit evaluations of its customers' financial
conditions and maintains reserves for potential credit losses. Activity for
fiscal 2000 included a write-off of $175,000. There was no activity for fiscal
1999. Three customers account for 100% of accounts receivable at December 31,
2000. Three customers account for 59% of revenue for the year ended December 31,
2000.
Property, Plant and Equipment
Property, plant and equipment are stated at cost and depreciated using the
straight-line method over estimated useful lives of three to thirty years.
Leasehold improvements are amortized using the straight-line method over the
life of the improvement or the remaining term of the lease, whichever is
shorter. The direct costs of the New Zealand goats ("Livestock") and related
costs to bring them to the United States are capitalized and amortized using the
straight-line method over three years.
25
The following is the summary of property, plant and equipment and related
accumulated amortization and depreciation as of December 31, 2000 and January 2,
2000.
Years December 31, January 2,
of Life 2000 2000
-------- ---------- -----------
Land - $ 909 $ 883
Buildings 20 - 30 11,120 10,541
Livestock 3 2,146 1,959
Leasehold improvements lease life 860 795
Laboratory, manufacturing and
office equipment 3 - 10 2,349 1,874
Laboratory, manufacturing and
office equipment - capital lease 3 - 10 1,143 1,143
Construction in process - 621 --
------- -------
$19,148 $17,195
Less accumulated amortization and
depreciation 5,307 4,041
------- -------
Net property, plant and equipment $13,841 $13,154
------- -------
Depreciation and amortization expense was $1,274,000, $1,013,000 and $870,000
for the fiscal years ended December 31, 2000, January 2,2000 and January 3,
1999, respectively. Accumulated amortization for equipment under capital lease
was $455,000 and $294,000 at December 31, 2000 and January 2, 2000,
respectively.
Non Cash Transactions
During fiscal 1998, the Company purchased $290,000 of fixed assets and financed
these additions with capital lease obligations. The Company issued warrants
valued at $969,000 in connection with the Genzyme guarantee of a credit line
with a commercial bank (see Note 4). The Company issued warrants valued at
$1,301,000 in connection with a Preferred Stock offering (see Note 5). The
Company issued stock options to non-employees valued at $519,000.
During fiscal 1999, the Company purchased $111,000 of fixed assets and financed
these additions with capital lease obligations. The Company issued common stock
valued at $1,000,000 in connection with a license agreement with Advanced Cell
Technology, Inc. This license has been recorded as a long term asset and is
being amortized over 10 years.
During 2000, the Company acquired full ownership of the SMIG JV by issuing an
aggregate of 333,334 shares of its common stock valued at approximately $11.1
million, plus transaction costs of $143,000 (see Note 12).
Long-Lived Assets
The Company reviews long-lived assets for impairment by comparing the cumulative
undiscounted cash flows from the assets with their carrying amount. Any
write-downs are to be treated as permanent reductions in the carrying amount of
the assets. Management's policy regarding long-lived assets is to evaluate the
recoverability of its assets when the facts and circumstances suggest that these
assets may be impaired. This analysis relies on a number of factors, including
operating results, business plans, budgets, economic projections and changes in
management's strategic direction or market emphasis. The test of such
recoverability is a comparison of the asset value to its expected cumulative net
operating cash flow over the remaining life of the asset.
Deferred Finance Charges
The Company incurs various charges relating to financings into which it has
entered. The Company includes these amounts in other assets and amortizes the
amount to interest expense over the life of the debt. The unamortized balance at
December 31, 2000 and January 2, 2000 were approximately $358,000 and $716,000,
respectively.
26
Accrued Expenses
Accrued expenses included the following:
At December 31, At January 2,
2000 2000
------ ------
Accrued payroll and benefits $1,544 $1,699
Other 2,970 1,990
------ ------
Total accrued expenses $4,514 $3,689
====== ======
There have been various employee terminations for which the Company recorded
expenses of $179,000 and $29,000 in 2000 and 1999, respectively. At December 31,
2000 and January 2, 2000, approximately $278,000 and $9,000, respectively, had
been paid out of the reserve, respectively. At January 2, 2000, $20,000 remained
in accrued expenses. At December 31, 2000, no balance remained in accrued
expenses in relation to termination costs.
Investment in Joint Ventures
In 1990, the Company entered into the SMIG JV joint venture with Sumitomo Metal
Industries as a minority owner with a 22% equity interest as of January 2, 2000
(see Note 12). The investment has been accounted for under the equity method
since March 1994. In 1997, the equity investment in the SMIG JV was reduced to
zero as a result of recognizing the Company's share of the SMIG JV's losses. In
September 2000, the Company acquired full ownership of the SMIG JV by issuing an
aggregate of 333,334 shares of its common stock valued at approximately $11.1
million, plus transaction costs of $143,000.
On January 1, 1998, a definitive collaboration agreement for the ATIII LLC joint
venture between the Company and Genzyme was executed. The Company's 50%
ownership in ATIII LLC is accounted for under the equity method.
Revenue Recognition and Contract Accounting
The Company enters into licensing and development agreements with collaborative
partners for the development of small molecule drugs that address major medical
needs. The terms of the agreements typically include nonrefundable license fees,
funding of research and development, payments based upon the achievement of
certain milestones and royalties on future product sales, if any.
Non-refundable license fees, milestones and collaborative research and
development revenues under collaborative agreements, where the Company has
continuing involvement, are recognized as revenue over the period of continuing
involvement, using the model prescribed by Emerging Issues Task Force Issue No.
91-6 (EITF 91-6). Under that model, revenue is recognized for non-refundable
license fees, milestones and collaborative research and development using the
lesser of non-refundable cash received or the result achieved using percentage
of completion accounting. Under percentage of completion accounting, revenue is
based on the cost of effort since the contract's commencement up to the
reporting date, divided by the total expected research and development costs
from the contract's commencement to the end of the research and development
period, multiplied by the total expected contractual payments under the
arrangement. Revisions in cost estimates and expected contractual payments as
contracts progress have the effect of increasing or decreasing profits in the
current period. Provisions for anticipated losses are made in the period in
which they first become determinable. Payments received in advance of being
earned are recorded as deferred revenue.
Profits expected to be realized are based on the total contract sales value and
the Company's estimates of costs at completion. The sales value is based on
achievable milestones and is revised throughout the contract as the Company
demonstrates achievement of milestones. The Company's estimates of costs include
all costs expected to be incurred to fulfill performance obligations of the
contracts. For most contracts, this policy results in a deferral of contract
profit until all performance obligations have been completed. Estimates of total
contract costs are reviewed and revised periodically, throughout the lives of
the contracts, with adjustments to profits resulting from such revisions being
recorded on a
27
cumulative basis in the period in which the revisions are made. When management
believes the costs of completing a contract will exceed its sales value, the
full amount of the anticipated contract loss is immediately recognized.
Unbilled contract revenue represents recoverable costs and accrued profit which
had not been billed at the balance sheet date. Deferred contact revenue
represents amounts received from customers that exceed the amount of revenue
recognized to date. Research and development revenues in fiscal 2000 consisted
of $3,283,000 from the ATIII LLC (see Note 12) and $12,880,000 from commercial
clients.
Net Loss per Common Share
The Company applies Statement of Financial Accounting Standards No. 128, ("SFAS
128") Earnings Per Share in calculating earnings per share ("EPS"). Common stock
equivalents of the Company consist of warrants (see Note 5), stock options (see
Note 6), stock to be issued under the 401-K retirement plan (see Note 6),
convertible debt (see Note 4) and convertible preferred stock (see Note 5). The
Company was in a net loss position in 2000, 1999 and 1998, therefore 3 million,
4.8 million and 6.9 million common stock equivalents, respectively, were not
used to compute diluted loss per share, as the effect was antidilutive.
Income Taxes
The Company accounts for income taxes under the asset and liability method,
which requires recognition of deferred tax assets and liabilities for the
expected future tax consequences of temporary differences between the financial
statement and tax bases of assets and liabilities using the expected enacted tax
rates for the year in which the differences are expected to reverse. The
measurement of deferred tax assets is reduced by a valuation allowance if, based
upon the weight of available evidence, it is more likely than not that some or
all of the deferred tax assets will not be realized.
New Accounting Pronouncement
In June 2000 and 1999, the Financial Accounting Standard Board issued Statement
of Financial Accounting Standards Nos. 138 and 137 ("SFAS 138" and "SFAS 137"),
"Accounting for Certain Derivative Instruments and Certain Hedging Activities -
an Amendment of FASB Statement No. 133." SFAS 138 clarifies certain provisions
of SFAS 133, and SFAS 137 defers the implementation of SFAS 133 by one year.
SFAS 133, as amended by SFAS 137 and SFAS 138, is effective for fiscal quarters
beginning after January 1, 2001 for the Company, and its adoption is not
expected to have a material impact on the Company's financial position or
results of operations.
Discontinued Operations
In February 2001, the Company completed the sale of Primedica to CRL (see Note
13). Accordingly, Primedica is reported herein as a discontinued operation.
December 31, 2000 January 2, 2000 January 3, 1999
----------------- --------------- ---------------
Revenues from discontinued operations before taxes $71,986 $54,959 $50,816
The assets of Primedica are as follows:
December 31, 2000 January 2, 2000
------------------ ---------------
Current assets $22,248 $19,988
Property, plant and equipment, net 24,633 21,148
Other assets 16,660 17,813
Current liabilities (19,903) (17,415)
Other liabilities (6,366) (8,379)
--------- ---------
Net assets of discontinued operations $ 37,272 $ 33,155
========= =========
28
NOTE 3. COMMITMENTS & CONTINGENCIES
The Company leases equipment and facilities under various operating and capital
leases (see Note 4). The deferred lease obligation represents the cumulative
difference between actual facility lease payments and lease expense recognized
ratably over the lease period. Rent expense for the fiscal years ended December
31, 2000, January 2, 2000 and January 3, 1999 was approximately $723,000,
$823,000 and $634,000, respectively.
At December 31, 2000, the Company's future minimum payments required under these
leases are as follows:
Operating Capital Total
2001 $ 537 $ 323 $ 860
2002 484 223 707
2003 381 28 409
2004 343 -- 343
2005 343 -- 343
Thereafter 143 -- 143
------ ------ ------
Total $2,231 574 $2,805
====== ======
Less amount representing interest 64
------
Present value of minimum lease payments $ 510
======
The Company sold a 46.3% ownership interest in ATIII LLC to Genzyme on January
1, 1998, for an aggregate amount of $12,500,010, of which the receipt for the
remaining $12,500,000 is contingent upon the achievement of certain milestones
(see Note 12).
The Company is a party to license agreements for certain technologies. Certain
of these agreements contain provisions for the future royalties to be paid on
commercial sales of products developed from the licensed technologies.
NOTE 4. BORROWINGS
In December 1998, the Company obtained new credit facilities (the "Credit Line"
and the "Term Loan") from another commercial bank. The Credit Line has a three
year term expiring in December 2001. Under the Credit Line, the Company may
borrow up to $17.5 million, a portion of which may be utilized for a standby
letter of credit. The financing also includes a $7.1 million Term Loan. As of
December 31, 2000 and January 2, 2000, $6,429,570 and $6,307,421, respectively,
was outstanding on the Term Loan and at December 31, 2000, there was no further
availability. The Term Loan is payable in quarterly payments through December
2001 with a balloon payment for the remaining balance on December 28, 2001. As
of December 31, 2000 and January 2, 2000, nothing and $15,750,000, respectively,
was outstanding under the Credit Line and, at December 31, 2000, $15,750,000 was
available. A standby letter of credit with a face amount of $1.5 million has
been issued under the Credit Line to support a major facility lease. At the
Company's option, interest on loans under the Credit Line (other than the
standby letter of credit) and the Term Loan accrues either at the Prime rate or
at an adjusted libor rate. The interest rate on the Term Loan was 7% and 6.75%
at December 31, 2000 and January 2, 2000, respectively. The weighted average
interest rate on all outstanding lines of credit was approximately 0.7%, 5.1%
and 2.0% for the fiscal years ended December 31, 2000, January 2, 2000 and
January 3, 1999, respectively. Under the terms of the new credit facilities, the
Company is not permitted to pay any dividends. No amounts were due under the
standby letter of credit as of December 31, 2000. Both loans are guaranteed by
Genzyme.
In connection with the Credit Line, Genzyme provided a guaranty to the bank
under which Genzyme would become primarily liable under the credit line in event
of a default by the Company. In consideration of Genzyme's agreement to provide
such a guaranty, the Company granted a first lien on all assets of the Company
and issued to Genzyme warrants to purchase 288,000 shares of the Company's
common stock for a period of ten years, exercisable at $4.875 per share (market
price at the effective date of the Credit Line). The warrants, valued at
$969,000, were recorded as a deferred financing charge, included in other
assets, and are being amortized to interest expense over the life of the New
Credit Line.
Under the various debt agreements, restrictive covenants include the following:
(i) for each of the fiscal quarters ending on March 31, 1999, the two fiscal
quarters ending on June 30, 1999 and the three fiscal quarters ending on
September 30, 1999, the Company will not permit its consolidated earnings before
interest, taxes, depreciation and amortization, exclusive of unfunded research
and development and losses on the ATIII LLC joint venture ("EBITDA"), for any
such
29
period as at the last day of such period to exceed a loss of $5,000,000; (ii)
for the four fiscal quarters ending on December 31, 1999, the Company will not
permit its consolidated EBITDA as at the last day of such period to exceed a
loss of $2,000,000; (iii) commencing with the fiscal quarter ending on March 31,
2000, the Company will not, as at the last day of each fiscal quarter, permit
its consolidated EBITDA for the period of four consecutive fiscal quarters
ending or most recently ended prior to such date to be less than zero.
The Company's long-term debt consisted of the following:
December 31,
2000
------
Term loan, with quarterly payments of $177,500 through
December 2001, interest varies, collateralized by real estate $6,430
Capital lease obligations, with monthly payments of $26,089 through
December 2001 and September 2003, interest varies, collateralized
by property 510
------
$6,940
Less current portion 6,717
------
$ 223
======
Based on the borrowing rates currently available to the Company for loans with
similar terms and average maturities, the value of the notes payable
approximates fair value.
Maturities of long-term debt are as follows:
2001 $6,717
2002 197
2003 26
2004 and thereafter --
------
$6,940
======
Cash paid for interest for the fiscal years ended December 31, 2000, January 2,
2000, and January 3, 1999 was $544,000, $1,245,000 and $235,000, respectively.
In 1999 $105,000 of interest expense incurred was capitalized. There was no
capitalization of interest in 2000 or 1998.
NOTE 5. STOCKHOLDERS' EQUITY
The Company's authorized capital stock consists of 100,000,000 shares of common
stock, par value $0.01 per share, and 5,000,000 shares of preferred stock, par
value $0.01 per share of which 20,000 shares have been designated as Series A
Preferred Stock a t December 31, 2000 and January 2, 2000 and 12,500 have been
designated as Series B Preferred Stock at December 31, 2000 and January 2, 2000.
A summary of the outstanding GTC warrants as of December 31, 2000, of which
542,324 are currently exercisable, is as follows:
Common Shares Exercise Warrant Expiration
Issuable for Price Per Share Date
------------ --------------- ------------------
145,000 $ 2.84375 July 3, 2005
2,000 $ 2.75000 December 31, 2001
2,000 $ 6.50000 December 31, 2001
20,000 $ 8.75000 June 26, 2007
288,000 $ 4.87500 December 28, 2008
55,833 $ 6.30000 November 12, 2009
29,491 $ 6.30000 November 22, 2009
-------
542,324
=======
In March 1998, the Company completed a private placement of $20 million face
value of Series A Preferred Stock to three institutional investors. The Series A
Preferred Stock was immediately convertible into the Company's common
30
stock at a price equal to $14.55 per share and ommencing December 1998, at any
time at a price equal to the lower of $14.55 or the average of any five closing
bid prices selected by the holder over the twenty days prior to conversion.
There was a maximum number of shares into which the Series A Preferred Stock
could be converted. In connection with the financing, warrants to purchase
400,000 shares of the Company's common stock were issued to the institutional
investors. Each warrant has a four year term and an exercise price of $15.1563
per share. Because the preferred stock could be converted into common stock
immediately, the warrants, valued at approximately $1.2 million, were recognized
as a dividend payment to preferred shareholders during the first quarter of
1998. The Company also issued warrants to purchase 50,000 shares of common stock
to the placement agency under the terms noted above. The warrants were valued at
approximately $145,000 and recognized as a reduction of preferred stock capital
in excess of par. As a result of this financing, the amount available under the
line of credit in the Convertible Debt and Development Funding Agreement with
Genzyme has decreased from approximately $8.3 million to $6.3 million.
During 1999, several institutional investors converted 9,000 shares of the
Series A Preferred Stock, $.01 par value per share, into 1,927,503 shares of the
Company's common stock at conversion prices ranging from $3.34 to $5.98 per
share. After these conversions, 11,000 shares of the Series A Preferred Stock
remained outstanding.
In November 1999, the Company issued a redemption call on the outstanding $11.0
million of Series A Preferred Stock. The holders of the Series A Preferred Stock
converted $5.3 million into 901,807 common shares at a conversion price of $5.83
per share. The remaining amount was redeemed in cash by the holders at 115% of
par value. The 15% premium was recognized as a dividend payment to preferred
shareholders in the amount of $861,000, or $0.15 per share.
In conjunction with the redemption call, the Company issued $6.6 million of
Series B Preferred Stock to Genzyme. The Series B Preferred Stock carried an
initial dividend of 11% and is convertible by the holder into common stock at a
fixed rate of $6.30 per common share. All accumulated or accrued and unpaid
dividends were required to be paid upon conversion, liquidation or redemptions
of the Series B Preferred Stock. The Company had the sole right to redeem
unconverted Series B Preferred Stock for cash at any time at its original value
plus accrued dividends. The Series B Preferred Stock were converted into common
stock in February 2000.
In connection with the issuance of the Series B Preferred Stock, the Company
also issued to Genzyme 10-year warrants to purchase 85,324 shares of the
Company's common tock at an exercise price of $6.30 per share. In connection
with the warrants issued and a beneficial conversion feature, the Company
recorded a dividend of $636,000, or $7.45 per share, to preferred shareholders
in the fourth quarter of 1999.
In December 1999, the Company completed a privately negotiated sale of 685,545
shares of common stock at $8.00 per share under a previously filed shelf
registration to two purchasers raising approximately $5.5 million in new equity.
In February 2000, the Company completed a public offering of 3.5 million shares
of common stock at $20 per share. The Company granted the underwriters an option
to purchase an additional 525,000 shares of its common stock to cover
over-allotments which was exercised. In total, the Company issued 4,025,000
shares, including underwriter's overallotment, with net proceeds to the Company
of $75 million. Subsequent to the completion of the secondary public offering,
the Company paid down its revolving credit lines in the amount of $15.8 million.
Following this pay down, the full $15.8 million was available under these credit
lines.
In conjunction with the offering, the Company issued a Notice of Redemption to
Genzyme for all outstanding shares of the Company's Series B Preferred Stock.
Prior to the effectiveness of this redemption, Genzyme converted the Series B
Preferred Stock into 1,048,021 shares of common stock. The Company paid a cash
dividend of $157,000 in conjunction with the conversion. As a result of the
offering, the $6.3 million Genzyme Credit Line was eliminated.
In March 2000, the Company issued a warrant call notice for the 450,000 warrants
issued in connection with the Series A Preferred Stock. Each warrant has an
exercise price of $15.16 per share. All of the warrants were exercised with
proceeds to the Company of $6.8 million.
In September 2000, the Company terminated the SMIG JV by issuing an aggregate of
333,334 shares of its common stock valued at approximately $11.1 million, plus
transaction costs of $143,000 (see Note 12).
As of December 31, 2000, the Company has reserved 3,659,477 shares of common
stock, subject to adjustment, for future issuance under the various classes of
warrants, Stock Option and Employee Stock Purchase Plans (see Note 6).
31
NOTE 6. EMPLOYEE BENEFIT PLANS
Stock Options and Purchase Plan
In May 1993, the Board of Directors adopted and the stockholders approved the
1993 Equity Incentive Plan (the "Equity Plan"), the 1993 Director Stock Option
Plan (the "Director Plan") and the 1993 Employee Stock Purchase Plan (the
"Purchase Plan").
Under the Equity Plan, 2,015,000 shares of common stock were issued or reserved
for issuance pursuant to incentive stock options, non-statutory stock options,
restricted stock awards, stock appreciation rights or stock units in accordance
with specific provisions to be established by a committee of the Board of
Directors at the time of grant. To date, all options have been issued at 85% or
greater of the fair value at the grant date. The Equity Plan also permits the
Company to assume outstanding options in an acquisition without using shares
reserved under the Plan. Of the foregoing total, 224,350 shares are subject to
options assumed by the Company in the acquisition of TSI. The number of shares
reserved for future issuance under this plan was increased several times over
the ensuing years to 4,140,000 at December 31, 2000.
Under the Director Plan, 50,000 shares of common stock were reserved for
issuance as non-statutory stock options at the rate of 2,000 shares for each
year of service to members of the Board of Directors who are not employees of
the Company. Such options are automatically granted at fair market value upon
the election or reelection of each director. The number of shares reserved for
issuance under this plan was increased to 100,000 and 200,000 in 1997 and 1998,
respectively. In May 1998, the plan was amended such that upon first election of
a director, such director shall receive 5,000 shares for each year of the term
of office to which he/she has been elected, and upon reelection such director
shall receive 3,000 shares for each year of the term of office to which he/she
has been reelected.
Under these plans, an option's maximum term is ten years and vest ratably 20% on
the date of issuance and 20% thereafter on the anniversary of the grant.
Under the Purchase Plan, 300,000 shares of common stock were reserved for the
grant of purchase rights to employees in one or more offerings in accordance
with provisions to be established by a committee of the Board of Directors prior
to commencement of any offering period. In May 1997and 1999, the Board of
Directors increased the number of shares reserved for issuance under this plan
to 900,000 and 1,300,000 shares, respectively. Participants may purchase shares
of common stock at not less than 85% of the lower of the market value at the
beginning of each offering or on the purchase date. Purchase dates occur every
three months for a period of two years from the offering date. Participants may
not carry over balances from one purchase date to the next. Offering dates occur
every six months. A total of 206,196 shares of common stock remained available
for issuance under the plan at December 31, 2000 . The purchases of common stock
under the plan during fiscal 2000 and fiscal 1999 were 236,530 shares at an
aggregate purchase price of approximately $1,211,000 and 239,470 shares at an
aggregate purchase price of approximately $996,000, respectively. No
compensation expense has been recorded related to the Purchase Plan.
The Company applies APB Opinion 25 and related interpretations in accounting for
its plans. Accordingly, no compensation cost has been recognized for options
granted to employees with exercise prices equal to or greater than the fair
market value at the grant date. The Company applies the disclosure only
provisions of Statement of Financial Accounting Standards No. 123 ("SFAS 123"),
Accounting for Stock Based Compensation. Had compensation cost for the Company's
stock-based compensation plans been determined based on the fair value at the
grant dates as calculated in accordance with SFAS 123, the Company's net loss
and loss per share for the years ended December 31, 2000, January 2, 2000 and
January 3, 1999 would have been increased to the pro forma amounts indicated
below:
December 31, 2000 January 2, 2000 January 3, 1999
----------------- --------------- ---------------
Net Loss Available Net Loss Available Net Loss Available
Per Common Share Per Common Share Per Common Share
Net Loss (basic and diluted) Net Loss (basic and diluted) Net Loss (basic and diluted)
-------- ------------------- -------- ------------------- -------- -------------------
As Reported $(14,141) $(0.50) $(18,761) $(1.02) $(19,590) $(1.15)
ProForma (18,442) (0.65) (21,552) (1.16) (22,355) (1.31)
The effects of applying SFAS 123 in this pro forma disclosure are not indicative
of future amounts. SFAS 123 does not apply to awards prior to 1995, and
additional awards in future years are anticipated.
32
A summary of the status of the Company's stock option plans as of December 31,
2000, January 2, 2000 and January 3, 1999 and changes during the years ending on
those dates is presented below:
Weighted Average
Shares Exercise Price
- ---------------------------------------------------------------------------------------------
Balance at December 28,1997 2,001,989 $6.4611
- ---------------------------------------------------------------------------------------------
Granted
Price = Fair value 706,532 $8.7152
Price > Fair value 18,000 $9.1875
Exercised (105,383) $4.5040
Cancelled (107,703) $7.5478
- ---------------------------------------------------------------------------------------------
Balance at January 3, 1999 2,513,435 $7.1560
- ---------------------------------------------------------------------------------------------
Granted
Price = Fair value 616,090 $4.7849
Exercised (151,626) $4.9580
Cancelled (151,702) $7.7554
- ---------------------------------------------------------------------------------------------
Balance at January 2, 2000 2,826,197 $6.7266
- ---------------------------------------------------------------------------------------------
Granted
Price = Fair value 681,487 $19.8971
Exercised (961,162) $6.5434
Cancelled (91,617) $9.7429
- ---------------------------------------------------------------------------------------------
Balance at December 31, 2000 2,454,905 $10.3534
At December 31, 2000, January 2, 2000 and January 3, 1999, there were 1,354,984,
1,678,156 and 1,335,511 shares exercisable at a weighted average exercise price
of $8.5198, $6.6906 and $6.5495, respectively. The weighted average fair value
of options granted during fiscal 2000, 1999 and 1998 was $19.8971, $4.7849 and
$8.7152, respectively.
The following table summarizes information about stock options outstanding at
December 31, 2000:
Remaining
Range of Number Contractual Weighted-Average Number Weighted-Average
Exercise Prices Outstanding Life Exercise Price Exercisable Exercise Price
--------------- ----------- ----------- ---------------- ----------- --------------
$ 2.5000 $ 5.6250 573,444 7.50 $ 4.3201 272,578 $ 4.0219
$ 5.7500 $ 7.5000 537,716 5.49 $ 7.0107 444,093 $ 6.9948
$ 7.6250 $ 9.1250 597,417 6.70 $ 8.6022 423,813 $ 8.6133
$ 9.1875 $ 17.3125 578,458 9.02 $ 16.0712 166,670 $ 14.0669
$ 17.3750 $ 55.0000 167,870 9.53 $ 28.1993 47,830 $ 28.1537
---------- ------------ --------- ---------- ----------
2.5000 $ 55.0000 2,454,905 7.36 $ 10.3534 1,354,984 $ 8.5198
========= =========
At December 31, 2000, 455,711 shares were available for grant.
The fair value of each stock option is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumption: an expected life of five years, expected volatility of 80% for each
of fiscal 2000 and 1999 and 78% for 1998. A dividend yield of 0% and a risk-free
interest rate of 6.18% for fiscal 2000, 5.82% for fiscal 1999 and 5.48% for
fiscal 1998.
The fair value of the employees' purchase rights was estimated using the
Black-Scholes model with the following weighted-average assumptions: a dividend
yield of 0%, expected volatility of 80% for each of fiscal 2000 and 1999 and 78%
for fiscal 1998, an expected life of one year for fiscal 2000, 1999 and 1998 and
a risk-free interest rate of 4.99% for
33
fiscal 2000, 4.81% for fiscal 1999 and 5.55% for fiscal 1998. The average fair
value of those purchase rights granted during fiscal 2000, fiscal 1999 and
fiscal 1998 was $3.01, $2.10 and $3.27, respectively.
Other
All employees of the Company, subject to certain eligibility requirements, can
participate in the Company's defined contribution plan. Currently, the Company
may match up to 50% of each participating employee's contributions to the plan
to a maximum of 3% of salary. The Company may also contribute an additional 2%
of each employee's salary as a retirement contribution. All contributions are at
the discretion of the Board of Directors. Expense recognized under this plan was
approximately $185,000, $125,000 and $57,000 for the fiscal years ended December
31, 2000, January 2, 2000 and January 3, 1999, respectively.
NOTE 7. INCOME TAXES
Deferred tax assets and deferred tax liabilities are recognized based on
temporary differences between the financial reporting and tax basis of assets
and liabilities using future expected enacted rates. A valuation allowance is
recorded against deferred tax assets if it is more likely than not that some or
all of the deferred tax assets will not be realized.
The income tax (benefit) provision from continuing operations consisted of the
following:
2000 1999 1998
------- ------- -------
Current:
Federal $ 0 $ 0 $ 0
State 0 0 0
------- ------- -------
Total Current $ 0 $ 0 $ 0
======= ======= =======
Deferred:
Federal (3,811) (7,213) (3,962)
State (892) (1,701) (1,305)
Change in Valuation Allowance 4,703 8,914 5,267
------- ------- -------
Total Deferred $ -- $ -- $ --
======= ======= =======
The provision for income taxes was at rates different from the U.S. Federal
statutory income tax rate for the following reasons:
Fiscal Years Ended
--------------------------------------------------------
December 31, 2000 January 2, 2000 January 3, 1999
----------------- --------------- ---------------
Federal tax - expense (benefit) (34.0)% (34.0)% (34.0)%
Goodwill 0.6 2.1 2.0
State taxes - net (6.5) (9.1) (5.8)
Joint Venture loss -- -- --
Other 1.9 (2.4) 1.8
Change in valuation allowance 38.0 43.4 36.0
---- ---- ----
Effective tax rate 0% 0% 0%
==== ==== ====
34
The components of the deferred tax assets and liabilities at December 31, 2000
and January 2, 2000 respectively, are as follows (dollars in thousands):
December 31, 2000 January 2, 2000
----------------- ---------------
Deferred Tax Assets/(Liabilities):
Advance payments $ 4,689 $ 3,718
Accrued compensation reserves 1,465 1,366
Other accruals 768 1,209
Tax credits 2,369 2,598
Net operating loss carryforwards 43,756 34,973
Depreciation (690) (269)
Other 27 20
-------- --------
Total deferred tax asset $ 52,384 $ 43,615
Valuation allowance (52,384) (43,615)
-------- --------
$ -- $ --
======== ========
Due to the uncertainty surrounding the realization of these favorable tax
attributes in future income tax returns, the Company has placed a valuation
allowance against its otherwise recognizable deferred tax assets.
As of December 31, 2000, the Company had federal net operating loss ("NOL") and
research and experimentation credit carryforwards of approximately $111 million
and $1.2 million, respectively, available to offset future federal income tax
liabilities, which expire at various dates through 2019. The federal NOL
includes approximately $12.4 million of stock option compensation expense which,
when realized, will be credited to additional paid in capital. The utilization
of a portion of the NOL and research and experimentation credit carryforwards is
subject to Section 382 of the Internal Revenue Code. This section established an
annual limitation, based on changes in the Company's ownership, on the amount of
income, which may be offset by these tax attributes.
NOTE 8. GEOGRAPHICAL INFORMATION
Net revenues to external customers are based on the location of the customer.
Geographic information for net revenues to external customers, by fiscal year,
is presented in the table below:
United States Japan Europe Total
-------------- -------- ------- -----------
2000 14,368 30 1,765 16,163
1999 10,238 62 3,525 13,825
1998 7,678 140 3,778 11,596
Of the Company's long-lived assets, $11.2 million are located in the Cayman
Islands and the remaining $1.7 million are located in the United States.
35
NOTE 9. QUARTERLY RESULTS OF OPERATIONS
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
2000
Revenue $ 3,570 $ 4,167 $ 3,169 $ 5,257
Gross loss (302) (403) (1,695) (413)
Operating profit (loss) 3,127 (3,950) (4,826) (5,005)
Discontinued contract research
operations (469) 84 557 1,102
Net loss (2,963) (3,150) (3,875) (4,451)
Net loss per share - basic (0.11) (0.11) (0.13) (0.15)
Net loss per share - diluted (0.11) (0.11) (0.13) (0.15)
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
1999
Revenue $ 1,693 $ 4,288 $ 5,219 $ 2,625
Gross profit (loss) (2,170) 1,185 1,033 (1,315)
Operating loss (4,798) (2,038) (1,730) (4,201)
Discontinued contract research
operations (1,197) (693) (1,591) (404)
Net loss (5,051) (1,816) (2,150) (6,102)
Net loss per share - basic (0.27) (0.09) (0.11) (0.28)
Net loss per share - diluted (0.27) (0.09) (0.11) (0.28)
NOTE 10. ARRANGEMENTS WITH GENZYME CORPORATION
From the Company's inception, certain facilities and support services, including
both research and administrative support, have been provided by Genzyme. For
these services, the Company was charged $826,000, $1,605,000 and $3,568,000 for
the fiscal years ended December 31, 2000, January 2, 2000 and January 3, 1999,
respectively. These charges represent an allocation of the Company's
proportionate share of Genzyme's overhead costs using formulae which management
believes are reasonable based upon the Company's use of the facilities and
services. All other costs for all periods presented, including payroll costs,
are directly attributable to the Company and have been paid by Genzyme and
charged to the Company.
In April 1993, the Company entered into several agreements under which Genzyme
has agreed to provide various services, facilities and funding to the Company as
described below:
Services Agreement
Under the Services Agreement, the Company receives certain basic support
services in exchange for a fixed monthly payment ($60,832 per month during 2000)
adjusted annually. These basic services include laboratory support, as well as
assistance with certain administrative functions including purchasing, data
processing, risk management, corporate communications and treasury activities.
If the Company requests additional services from Genzyme, the Company has agreed
to pay Genzyme fully allocated costs of those services. The Services Agreement
is automatically renewed each year thereafter unless terminated by either party
not less than 90 days prior to the end of any annual period. Under the Services
Agreement, the Company made payments of $730,000, $446,000 and $497,000 for the
fiscal years ended December 31, 2000, January 2, 2000 and January 3, 1999,
respectively, and is committed to make a minimum annual payment of $305,000 in
2001.
Sublease Agreement
Under the Sublease Agreement, the Company has leased certain laboratory,
research and office space from Genzyme through May 1998 in exchange for fixed
monthly rent payments which approximate the estimated current rental value for
such space. In addition, the Company reimburses Genzyme for its pro rata share
of appropriate facilities' operating costs such as maintenance, cleaning,
utilities and real estate taxes. The sublease is automatically renewed each year
and renewals are subject to earlier termination of the sublease by either party
after the initial five-year term. Under the Sublease Agreement, the Company made
payments for the fiscal years ended December 31, 2000, January 2, 2000 and
36
January 3, 1999, of $146,000, $137,000 and $411,000, respectively, and is
committed to make a monthly minimum rental payment of $23,765 in 2001.
Technology Transfer Agreement
Under the Technology Transfer Agreement, Genzyme has transferred substantially
all of its transgenic assets and liabilities to the Company including its
ownership in the joint venture with Sumitomo Metal Industries, assigned its
relevant contracts and licensed to the Company technology owned or controlled by
it and relating to the production of recombinant proteins in the milk of
transgenic animals (the "Field") and the purification of proteins produced in
that manner. The license is worldwide and royalty free as to Genzyme although
the Company is obligated to Genzyme's licensors for any royalties due them.
As long as Genzyme's ownership of the Company remains below 50%, Genzyme may use
the transferred technology and the new technology only on its own behalf and
without any royalty obligation to the Company.
Research and Development Agreement
The Research and Development Agreement defines the relationship among the
parties whereby each entity may perform research for the other. This agreement
was in effect through December 31, 1998 and the parties are in the process of
negotiating an extension. Genzyme has agreed to use the Company to perform all
research in the field of production of recombinant proteins in transgenic
animals. The Company has a similar obligation to use Genzyme to purify proteins
produced transgenically. Each party must request such services from the other
company before seeking them from a third party although the Company may perform
purification services on its own behalf. These obligations are qualified by the
ability of each party to perform the requested services in accordance with the
performance, scheduling, cost and other specifications reasonably established by
the requesting party. Each company will receive payments from the other equal to
the performing party's fully allocated cost of performing such services, which
shall not be less than 80% of the annual budgets established by the parties
under the agreement, plus, in most cases, a fee equal to 10% of such costs. The
Company provided development services to Genzyme for which it recognized
revenues of $11,000 for the fiscal year ended January 3, 1999. In addition, the
Company received $738,000 of services revenue, unrelated to research and
development, from Genzyme for the fiscal year ended January 2, 2000. The Company
also receives research and development services from Genzyme, for which it
incurred costs of $121,000, $423,000, and $1.9 million in 2000, 1999 and 1998,
respectively.
In March 1996, the Company entered into the Convertible Debt Agreement (see Note
4) with Genzyme under which Genzyme agreed to provide a revolving line of credit
(the "Genzyme Credit Line") in the amount of $10 million and agreed to fund
development costs of the transgenic Antithrombin III ("AT-III") program. During
1996, Genzyme converted $1,673,000 of debt to equity under this agreement,
leaving the availability under the Genzyme Credit Line at $8.3 million which was
subsequently reduced to $6.3 million in 1999 (see Note 5). As of December 31,
2000, there were no amounts outstanding under the Genzyme Credit Line. This line
was eliminated in February 2000 as a result of the offering.
In March 1997, the Company amended the Convertible Debt Agreement with Genzyme
to provide for continued funding by Genzyme of the development costs of the
AT-III program through June 30, 1997. In June 1997, the Company agreed to extend
the Convertible Debt Agreement until December 31, 1997. Under the agreements in
effect in 1997, Genzyme provided $7 million in development funding.
In July 1997, the Company and Genzyme announced an agreement to establish a
joint venture for the development, marketing and distribution of AT-III, subject
to the execution of a definitive agreement. On January 1, 1998, a definitive
collaboration agreement for the ATIII LLC joint venture between the Company and
Genzyme was executed (see Note 11).
Series B Convertible Preferred Stock
In November 1999, the Company completed a $6.6 million private placement of
Series B Preferred Stock to Genzyme. The proceeds from this placement were used
to redeem $6.6 million of the Company's Series A Preferred Stock . In connection
with the issuance of the Series B Preferred Stock, the Company issued warrants
to purchase 85,324 shares of the Company's common stock at $6.30 per share to
Genzyme. In February 2000, Genzyme converted the Series B Preferred Stock into
1,048,021 shares of the Company's common stock.
37
NOTE 11. OTHER AGREEMENTS
Tufts University School of Veterinary Medicine ("Tufts")
Since 1988, pursuant to a cooperation agreement, the Company has funded an
ongoing program to develop transgenic animals at Tufts. During the term of the
agreement, which extends through September 2001, Tufts has agreed to work
exclusively with the Company for commercial applications within the field of
transgenic protein production in milk. The Company paid Tufts $242,000, $313,000
and $402,000 for the fiscal years ended December 31, 2000, January 2, 2000 and
January 3, 1999, respectively. Sales of products derived from transgenic goats
produced by Tufts, or from their offspring, are subject to royalties payable to
Tufts.
Arthur D. Little, Inc. ("ADL")
In November 2000, the Company entered into a consulting agreement with ADL for
strategic and technical assessment and due diligence. The Company paid ADL
$150,000 for fiscal year ended December 31, 2000. The amount due to ADL as of
December 31, 2000 was approximately $450,000. A Director of the Company is also
a Senior Consultant of ADL.
NOTE 12. JOINT VENTURES
In 1990, Genzyme entered into the SMIG JV joint venture with Sumitomo Metal
Industries ("Sumitomo") to develop proteins produced transgenically. The SMIG JV
has engaged the Company, as the successor to Genzyme's Transgenics business, to
perform research and development for which the Company is reimbursed a portion
of its costs and receives additional payments based on achievement of specified
milestones. However, GTC does not have any inter-company profits or losses as a
result of its transactions with the SMIG JV. This three-year program ended
during 1993 and the parties decided to extend the contract for an additional
three years.
The Company has contributed $4 million to the SMIG JV since inception. The
Company maintained a 22% ownership since 1994 and accounted for the SMIG JV on
the equity basis since then. For the fiscal years December 31, 2000, January 2,
2000 and January 3, 1999, the Company recognized revenue of $0, $450,000 and $0,
respectively, under the SMIG JV agreement. As of January 3, 1999, the Company no
longer had any obligation nor intention to provide financial support to the SMIG
JV and since the investment balance had been written down to zero, it
discontinued recognizing its share of SMIG JV's losses.
In September 2000, the Company acquired full ownership of the SMIG JV by issuing
an aggregate of 333,334 shares of its common stock valued at approximately $11.1
million, plus transaction costs of $143,000. In exchange, Sumitomo transferred
to a wholly-owned subsidiary of the Company all of the outstanding shares of SMI
Genzyme Ltd., a Japanese corporation, held by Sumitomo. As a result, the Company
directly and indirectly holds all of the outstanding equity in SMI Genzyme Ltd.,
and has the exclusive marketing rights to transgenic technology in 18 Asian
countries, including Japan. The value of the transaction was accounted for as a
purchase. Accordingly, the entire purchase price of $11.2 million has been
allocated to the value of the marketing rights, which are being amortized over
the estimated economic useful life of these rights estimated at 15 years.
Accumulated amortization of the marketing rights at December 31, 2000 was
$249,000.
On January 1, 1998, a definitive collaboration agreement for the ATIII LLC joint
venture between the Company and Genzyme was executed. Under the terms of the
agreement, Genzyme was required to fund 70% of the development costs, excluding
facility costs, up to $33 million including costs incurred in 1997. The Company
was required to fund the remaining 30% of these costs. Development costs in
excess of these amounts were to be funded equally by the partners. The Company
and Genzyme were also to make capital contributions to ATIII LLC sufficient to
pay 50% each of all new facility costs to be incurred. In addition to the
funding, both partners were to contribute manufacturing, marketing and other
resources to ATIII LLC at cost. Under the agreement to establish the joint
venture, Genzyme and the Company were the only members and owned 3.7% and 96.3%
interest, respectively. In accordance with the executed purchase agreement, the
Company sold and assigned a 46.3% ownership interest to Genzyme so that Genzyme
and GTC each own 50% of the venture. The purchase price was $12,500,010, payable
as follows: an initial payment of $10 upon execution of the purchase agreement,
$2.5 million after the second consecutive quarter in which net sales of
collaboration products for such quarter exceed $5 million, and $10 million on
the first full approval, if and when approved by the Food and Drug
Administration ("FDA") of a major market country or by the European Union's
European Medicines Evaluation Agency ("EMEA") of (i) a BLA filed by ATIII LLC
for the use of transgenic AT-III for the treatment of sepsis or (ii) an
amendment to the BLA previously filed by ATIII LLC and approved by the FDA of a
major market country or by the EMEA to add sepsis as an
38
indication for transgenic AT-III. The Company will record the contingent
payments if and when received. Profits and losses are shared according to
ownership percentages. These agreements cover all territories other than Asia.
The Company accounts for its 50% ownership of the ATIII LLC under the equity
method. For the fiscal years ended December 31, 2000, January 2, 2000 and
January 3, 1999, the Company recognized research and development revenue and
related expenses of $3,283,000, $4,491,000 and $3,318,000, respectively, under
ATIII LLC. At December 31, 2000, included in the Company's accounts receivable
and other asset balance is $470,789 due from ATIII LLC.
In late 2000, the Company announced that it expected to re-acquire from Genzyme
the rights to rhATIII that it did not already own. In early 2001, the ATIII LLC
met with the U.S. Food and Drug Administration to discuss the status of the
clinical development program for the rhATIII molecule in the treatment of
heparin resistance in patients about to undergo cardiopulmonary bypass surgery.
While no outstanding concerns have been raised about GTC's technology or its
application, the level of expense and time involved in developing the additional
data required by the FDA is not justified by the potential market size of the
heparin resistance indication therefore, the ATIII LLC agreed to discontinue
development in this indication.
The ATIII LLC is performing business and scientific evaluations of the rhATIII
molecule in other indications. Should these evaluations support commitment to
developing rhATIII for another indication(s), the work done for the heparin
resistance indication may be used in whole or in part to pursue this
opportunity. Based on the outcome of the evaluations as well as any discussions
with Genzyme, the Company may proceed with a transaction to re-acquire the
rights to rhATIII rights that it does not already own.
Summarized financial information for ATIII LLC is as follows:
At December 31, At December 31, At December 31,
2000 1999 1998
------ ------ ------
Balance sheet data:
Current assets $1,481 $2,646 $3,525
Noncurrent assets 182 220 200
Current liabilities 1,351 2,554 3,078
Venturers' capital 312 312 647
Fiscal Year Fiscal Year
Ended Ended
December 31, December 31, Fiscal Year Ended
2000 1999 December 31, 1998
---------- ----------- -----------------
Statement of operations data:
Research and development expenses $13,892 $12,106 $11,984
General and administrative expense 897 141 35
------- ------- -------
Net loss $14,789 12,247 12,019
======= ======= =======
NOTE 13. EVENTS SUBSEQUENT TO THE BALANCE SHEET DATE (UNAUDITED PRO FORMA
BALANCE SHEET)
On February 26, 2001, the Company completed the sale of its preclinical research
organization, Primedica, to Charles River Laboratories, Inc. ("CRL"). The total
value of the transaction was approximately $51 million. The transaction involved
the sale of all of the Company's interest in Primedica for $26 million in cash,
658,945 shares of CRL common stock valued at $15.9 million and the assumption by
CRL of all of Primedica's approximately $9 million of facility mortgages and
long-term capital leases. The pro forma adjustments to the unaudited pro forma
financial statements include an adjustment to record the cash proceeds of $26
million, net of accrued costs related to employee severance and option
acceleration charges, professional fees and other costs related to the
transaction which amounted to $2.188 million, and common stock of CRL of $15.9
million consideration received from the sale of the $37.272 million of net
assets of Primedica at December 31, 2000 resulting in a gain of $2.407 million,
which is shown as an increase to shareholders' equity.
39
In late 2000, the Company announced that it expected to re-acquire from Genzyme
the rights to rhATIII that it did not already own. In early 2001, the ATIII LLC
met with the U.S. Food and Drug Administration to discuss the status of the
clinical development program for the rhATIII molecule in the treatment of
heparin resistance in patients about to undergo cardiopulmonary bypass surgery.
While no outstanding concerns have been raised about GTC's technology or its
application, the level of expense and time involved in developing the additional
data required by the FDA is not justified by the potential market size of the
heparin resistance indication therefore, the ATIII LLC agreed to discontinue
development in this indication.
The ATIII LLC is performing business and scientific evaluations of the rhATIII
molecule in other indications. Should these evaluations support commitment to
developing rhATIII for another indication(s), the work done for the heparin
resistance indication may be used in whole or in part to pursue this
opportunity. Based on the outcome of the evaluations as well as any discussions
with Genzyme, the Company may proceed with a transaction to re-acquire the
rights to rhATIII rights that it does not already own.
40
REPORT OF INDEPENDENT ACCOUNTANTS ON fINANCIAL STATEMENT SCHEDULES
To the Board of Directors
of Genzyme Transgenics Corporation:
Our audits of the consolidated financial statements referred to in our report
dated February 27, 2001 appearing in the 2000 Annual Report to Shareholders of
Genzyme Transgenics Corporation (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the financial statement schedules listed in Item
14(a)(2) of this Form 10-K. In our opinion, these financial statement schedules
present fairly, in all material respects, the information set forth therein when
read in conjunction with the related consolidated financial statements.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 27, 2001
41
Schedule II - Supplemental Valuation and Qualifying Accounts
Years ended December 31, 2000, January 2, 2000 and January 3, 1999:
Deferred tax asset valuation allowance
Balance at Charged to Balance at
Beginning of Costs and End of
Period Expenses Period
------------ ----------- ----------
December 31, 2000 $43,615 8,771 $52,386
January 2, 2000 $32,701 10,914 $43,615
January 3, 1999 $25,093 7,608 $32,701
42
Report of Independent Accountants
To the Steering Committee and the Venturers of ATIII LLC:
In our opinion, the accompanying balance sheets and the related statements of
operations, of changes in Venturers' capital and of cash flows present
fairly, in all material respects, the financial position of ATIII LLC (A
Development Stage Enterprise) at December 31, 2000 and 1999, and the results
of its operations and its cash flows for each of the three years then ended,
in conformity with accounting principles generally accepted in the United
States of America. 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 of these
statements in accordance with auditing standards generally accepted in the
United States of America, which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 27, 2001
43
ATIII LLC
(A Development Stage Enterprise)
BALANCE SHEETS
ASSETS
December 31, December 31,
2000 1999
------------ ------------
Current assets:
Cash $ 385,412 $ 495,016
Contributions receivable - Genzyme Transgenics Corporation 1,095,861 2,150,919
------------ ------------
Total current assets 1,481,273 2,645,935
Net fixed assets 182,006 220,258
Other assets 170 --
------------ ------------
$ 1,663,449 $ 2,866,193
============ ============
LIABILITIES AND VENTURERS' CAPITAL
Current liabilities:
Accounts payable - Genzyme Corporation $ 793,791 $ 2,110,218
Accounts payable - Genzyme Transgenics Corporation 470,789 413,955
Accrued expenses 86,850 30,000
------------ ------------
Total liabilities 1,351,430 2,554,173
Venturers ' capital:
Genzyme Corporation 26,660,450 16,496,202
Genzyme Transgenics Corporation 12,706,506 8,081,261
Deficit accumulated during the development stage (39,054,937) (24,265,443)
------------ ------------
Total venturers' capital 312,019 312,020
------------ ------------
$ 1,663,449 $ 2,866,193
============ ============
The accompanying notes are an integral part of these financial statements.
44
ATIII LLC
(A Development Stage Enterprise)
STATEMENTS OF OPERATIONS
For the
Cumulative
Period
For the Years Ended from Inception
---------------------------------------------------------- (January 1, 1998)
December 31, December 31, December 31, to December 31,
2000 1999 1998 2000
------------ ------------ ------------ ------------
Operating costs and expenses:
General and administrative $ 897,597 $ 140,592 $ 34,721 $ 1,072,910
Research and development:
Genzyme Corporation 10,609,334 7,615,478 8,666,328 26,891,140
Genzyme Transgenics Corporation 3,282,563 4,490,554 3,317,770 11,090,887
------------ ------------ ------------ ------------
Total operating costs and expenses 14,789,494 12,246,624 12,018,819 39,054,937
------------ ------------ ------------ ------------
Net loss $(14,789,494) $(12,246,624) $(12,018,819) $(39,054,937)
============ ============ ============ ============
The accompanying notes are an integral part of these financial statements.
45
ATIII LLC
(A Development Stage Enterprise)
STATEMENTS OF CASH FLOWS
For the
Cumulative
Period
from Inception
For the Years Ended (January 1, 1998)
December 31, December 31, December 31, to December 31,
2000 1999 1998 2000
------------ ------------ ------------ ------------
Operating activities:
Net loss $(14,789,494) $(12,246,624) $(12,018,819) $(39,054,937)
Reconciliation of net loss to net cash
used in operating activities:
Depreciation 38,252 35,022 12,485 85,759
Accounts payable (1,259,593) (554,140) 3,078,313 1,264,580
Accrued expenses 56,850 30,000 -- 86,850
Loss on disposal of fixed assets -- 4,742 -- 4,742
Other assets (170) -- -- (170)
------------ ------------ ------------ ------------
Net cash used in operating activities (15,954,155) (12,731,000) (8,928,021) (37,613,176)
Investing activities:
Purchase of property, plant and equipment -- (59,538) (212,969) (272,507)
------------ ------------ ------------ ------------
Net cash used in investing activities -- (59,538) (212,969) (272,507)
------------ ------------ ------------ ------------
Financing activities:
Capital contributions:
Genzyme Corporation 10,164,248 8,158,690 8,337,512 26,660,450
Genzyme Transgenics Corporation 5,680,303 3,991,826 1,938,516 11,610,645
------------ ------------ ------------ ------------
Net cash provided by financing activities 15,844,551 12,150,516 10,276,028 38,271,095
------------ ------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents (109,604) (640,022) 1,135,038 385,412
Cash and cash equivalents at beginning of period 495,016 1,135,038 -- --
------------ ------------ ------------ ------------
Cash and cash equivalents at end of period $ 385,412 $ 495,016 $ 1,135,038 $ 385,412
============ ============ ============ ============
The accompanying notes are an integral part of these financial statements.
46
ATIII LLC
(A Development Stage Enterprise)
STATEMENTS OF CHANGES IN VENTURERS' CAPITAL
Genzyme Total
Genzyme Transgenics Venturers'
Corporation Corporation Capital
------------ ------------ ------------
Capital contribution $ 7,835,468 $ 1,938,516 $ 9,773,984
Contributions receivable -- 2,389,631 2,389,631
Advance contributions 502,044 -- 502,044
Net loss (7,690,672) (4,328,147) (12,018,819)
------------ ------------ ------------
Balance at December 31, 1998 646,840 -- 646,840
------------ ------------ ------------
Capital contribution 8,158,690 1,602,195 9,760,885
Contributions receivable -- 2,150,919 2,150,919
Advance contributions -- -- --
Net loss (8,493,510) (3,753,114) (12,246,624)
------------ ------------ ------------
Balance at December 31, 1999 $ 312,020 $ -- $ 312,020
------------ ------------ ------------
Capital contribution 10,164,248 3,529,384 13,693,632
Contributions receivable -- 1,095,861 1,095,861
Advance contributions -- -- --
Net loss (10,164,248) (4,625,246) (14,789,494)
------------ ------------ ------------
Balance at December 31, 2000 $ 312,020 $ (1) $ 312,019
============ ============ ============
The accompanying notes are an integral part of these financial statements.
47
ATIII LLC
(A Development State Enterprise)
Notes to Financial Statements
A. Organization and Nature of Business:
ATIII LLC ("the Company") is a limited liability company organized under
the laws of Delaware. The Company was established as a Joint Venture
between Genzyme Corporation ("Genzyme") and Genzyme Transgenics
Corporation ("GTC") under the terms of a collaboration agreement dated
January 1, 1998 which stated original ownership of the Company at 96.3%
and 3.7% by GTC and Genzyme (collectively the "Members"), respectively.
Immediately thereafter, a purchase agreement was executed so that GTC sold
to Genzyme a 46.3% ownership of the Company for an aggregate amount of
$12,500,010 payable as follows: $10 upon execution of the purchase
agreement, $2,500,000 after the second consecutive quarter in which net
sales of collaboration products for such quarter exceed $5,000,000 and
$10,000,000 upon product approval as defined in the agreement.
The Company was organized as the vehicle for a joint venture between GTC
and Genzyme to develop and commercialize products comprising of ATIII
together with processes developed and/or licensed through GTC and Genzyme
throughout the territories defined within the collaboration agreement (the
"Collaboration Products"). Immediately following the execution of the
collaboration and purchase agreements, a restated operating agreement was
executed between Genzyme, GTC and ATIII LLC. The operating agreement
establishes the allocation of profit and losses in accordance with the
ownership percentages. In no event shall the net losses of the Company be
allocated to a member if such allocation would cause or increase a
negative balance in such member's adjusted capital account. In the event
that net losses were reallocated to other members to avoid a negative
balance, subsequent profits would first be allocated to the members to
restore the capital accounts of the members to reflect the ownership
percentage.
Distributions shall be made annually to each Member under the terms set
forth in the operating agreement in amounts equal to (a) the amount of
items of gross income allocated to the Members in accordance with their
respective ownership percentages and (b) thereafter, to the Members in
proportion to their positive capital accounts reduced by their initial
capital contributions, determined to be $13,500,000 each per the operating
agreement.
Since its inception, the Company has devoted substantially all of its
efforts to establishing its business and developing its initial products.
Accordingly through the date of the financial statements, the Company is
considered to be a development stage company. The Company has incurred
losses since inception and expects to incur net operating losses and
negative cash flows from operations in the near term.
Under the terms of the collaboration agreement, Genzyme and GTC are
required to make capital contributions to the Company. Genzyme and GTC
shall make contributions sufficient to pay (a) 70% and 30%, respectively,
of all program costs, including costs incurred in 1997, other than new
facility costs until such time as the aggregate capital contributions by
Genzyme equals $33,000,000, and (b) 50% each of all program costs other
than new facility costs thereafter. The Members will also make capital
contributions to the Company sufficient to pay 50% of all new facility
costs. In the event that either GTC or Genzyme fails to make a capital
contribution pursuant to these requirements and the other Member does not
elect to terminate the agreement, then the percentage interests in the
Company and the future funding responsibilities of the Members shall be
adjusted. At December 31, 2000, December 31, 1999 and December 31, 1998,
each Member owned 50% of the Company.
In late 2000, GTC announced that it expected to re-acquire from Genzyme
the rights to rhATIII that it did not already own. In early 2001, the
ATIII LLC met with the U.S. Food and Drug Administration to discuss the
status of the clinical development program for the rhATIII molecule in the
treatment of heparin resistance in patients about to undergo
cardiopulmonary bypass surgery. While no outstanding concerns have been
raised about GTC's technology or its application, the level of expense and
time involved in developing the additional data required by the FDA is not
justified by the potential market size of the heparin resistance
indication therefore, the ATIII LLC agreed to discontinue development in
this indication.
The ATIII LLC is performing business and scientific evaluations of the
rhATIII molecule in other indications. Should these evaluations support
commitment to developing rhATIII for another indication(s), the work done
for the heparin resistance indication may be used in whole or in part to
pursue this opportunity. Based on the outcome of the evaluations as well
as any discussions with Genzyme, GTC may proceed with a transaction to
re-acquire the rights to rhATIII rights that it does not already own.
48
ATIII LLC
(A Development State Enterprise)
Notes to Financial Statements, continued
B. Accounting Policies:
Basis of Presentation
The financial statements have been prepared under the accrual method of
accounting in conformity with generally accepted accounting principles in
the United States of America. All balances are denominated in United
States dollars, unless otherwise noted. Prior year numbers have been
reclassified as appropriate to comply with current year disclosure
requirements.
Fiscal Year-End
Under the terms of the operating agreement, the fiscal year end of the
Joint Venture is December 31.
Concentration of Credit Risk
The Company maintains all of its cash at one commercial bank.
Research and Development Expenses
Research and development costs are expensed as incurred.
Fixed Assets
Fixed assets consisting of equipment are stated at cost and depreciated
using the straight-line method over an estimated useful life of seven
years.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain
estimates and assumptions that effect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reported period. Actual results could differ from
those estimates.
Income Taxes
The Company is considered a partnership for federal and state income tax
purposes. As such, items of income, loss, deductions and credits flow
through to the Members. The Members have responsibility for the payment of
any income tax and are entitled to losses for their proportionate share of
taxable income or loss of the Company.
Uncertainties
The Company is subject to risks common to companies in the biotechnology
industry, including but not limited to, development by its competitors of
new technological innovations, protection of proprietary technology,
health care cost containment initiatives, product liability and compliance
with the government regulations, including those of the U.S. Department of
Health and Human Services and the U.S. Food and Drug Administration.
C. Research and Development Costs:
The research and development efforts are currently being conducted by the
two members, GTC and Genzyme. The costs incurred by the two related
parties, which are subject to an annual budget as approved by the
Company's Steering Committee, are then charged to the Company.
D. Fixed Assets:
At December 31, 2000 and December 31, 1999, gross fixed assets of $267,766
had an associated depreciation of $85,760 and $47,508, respectively.
49
ATIII LLC
(A Development State Enterprise)
Notes to Financial Statements, continued
E. Licensed Technology:
Under the terms of the collaboration agreement, GTC and Genzyme have
granted to the Company both exclusive and non-exclusive, irrevocable
royalty-free rights and sublicenses, with the right to grant further
sublicenses, under the GTC/Genzyme licensed ATIII patent rights,
technology, know-how, and any associated technology and manufacturing
know-how owned or controlled by the Members to develop, make, have made,
use, offer for sale, sell, have sold, import and export collaboration
products in the field and territory.
F. Transactions and Affiliates:
The Company's operating expenses are for payments to the Members and their
affiliates for project expenses incurred, either as internal operating
costs or as third-party obligations on behalf of the Company. At December
31, 2000 and December 31, 1999, the Company owed $1,351,430 and $2,554,173
(including accrued expenses), respectively, to the Members for project
expenses and equipment purchased by Members on behalf of the Company.
The Company has an agreement effective for 1999 and 2000 with Genzyme
Corporation, acting through its Molecular Oncology Division ("GMO") and
ATIII LLC, to develop and commercialize the angiogenesis inhibitor protein
aaATIII as a potential treatment for cancer. GMO and the Company will
equally share in the development costs of aaATIII and equally share in any
profits from a successful oncology product created through the
collaboration. The Company will have the rights to develop aaATIII for
potential non-oncologic indications. The Company incurred costs of
$281,080 and $507,637 through December 31, 2000 and December 31, 1999,
respectively.
G. Venturers' Capital:
Venturers' capital is comprised of monthly capital contributions made by
the Members to fund budgeted costs and expenses of the Company in
accordance with the Collaboration Agreement, net of losses allocated to
the Members. As of December 31, 2000 and December 31, 1999, there was an
unpaid capital contribution of $1,095,861 and $2,150,919, respectively,
owed to the Company from one Member, which has been included in venturers'
capital in the accompanying financial statements. The amounts were
subsequently paid in January 2001 and January 2000, respectively.
50
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in Framingham,
Massachusetts on the 30th day of March 2001. .
GENZYME TRANSGENICS CORPORATION
By: /s/ Sandra Nusinoff Lehrman
----------------------------------
Sandra Nusinoff Lehrman
President and Chief Executive Officer
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 and
in the capacities and on the date indicated.
Signature Title Date
- --------- ----- ----
/s/ James A. Geraghty Chairman of the Board March 30, 2001
- ------------------------------------
James A. Geraghty
President, Chief Executive
Officer and Director March 30, 2001
/s/ Sandra Nusinoff Lehrman (Principal Executive Officer)
- ------------------------------------
Sandra Nusinoff Lehrman
Chief Financial and Accounting Officer
(Principal Financial and Accounting
/s/ John B. Green Officer) March 30, 2001
- ------------------------------------
John B. Green
/s/ Robert W. Baldridge Director March 30, 2001
- ------------------------------------
Robert W. Baldridge
/s/ Henri A. Termeer Director March 30, 2001
- ------------------------------------
Henri A. Termeer
/s/ Henry E. Blair Director March 30, 2001
- ------------------------------------
Henry E. Blair
/s/ Alan W. Tuck Director March 30, 2001
- ------------------------------------
Alan W. Tuck
/s/ Francis J. Bullock Director March 30, 2001
- ------------------------------------
Francis J. Bullock
51
EXHIBIT INDEX
to Form 10-K for the Year Ended December 31, 2000
Exhibit No. Description
2.1 Stock Purchase Agreement dated as of February 6, 2001, among
Charles River Laboratories, Inc., Primedica Corporation, TSI
Corporation and Genzyme Transgenics Corporation. Filed as
Exhibit 2.1 to the Company's Current Report on Form 8-K filed
on March 13, 2001 (File No. 0-21794) and incorporated herein
by reference. The last page of this exhibit is a list
identifying the contents of the schedules or exhibits referred
to in the Stock Purchase Agreement which are omitted from such
exhibit pursuant to Item 601(b)(2) of Regulation S-K. GTC
hereby undertakes to furnish supplementally a copy of any
omitted schedules or exhibit to the Commision upon request.
3.1.1 Restated Articles of Organization of GTC, filed with the
Secretary of the Commonwealth of Massachusetts on December 27,
1993. Filed as Exhibit 3.1 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1993 (File No.
0-21794) (the "GTC 1993 10-K") and incorporated herein by
reference.
3.1.2 Articles of Amendment to the Restated Articles of Organization
filed with the Secretary of the Commonwealth of Massachusetts
on October 3, 1994. Filed as Exhibit 3.1.2 to GTC's Annual
Report on Form 10-K for the year ended December 28, 1997 (File
No. 0-21794) (the "GTC 1997 10-K") and incorporated herein by
reference.
3.1.3 Articles of Amendment to the Restated Articles of Organization
filed with the Secretary of Commonwealth of Massachusetts on
June 26, 1997. Filed as Exhibit 3 to GTC's Quarterly Report on
Form 10-Q for the quarter ended June 29, 1997 (File No.
0-21794) (the "GTC June 1997 10-Q") and incorporated herein by
reference.
3.1.4 Articles of Amendment to the Restated Articles of Organization
of the Company filed with the Secretary of the Commonwealth of
Massachusetts on June 1, 2000. Filed as exhibit 4.1.5 to the
Company's Registration Statement on Form S-8 filed with the
Commission on June 2, 2000 (File No. 333-38490) and
incorporated herein by reference.
3.2 By-Laws of the Company, as amended. Filed as Exhibit 3.1 to
the Company's Form 10-Q for the quarter ended July 4, 1999
(File No. 000-21794) (the "GTC July 1999 10-Q") and
incorporated herein by reference.
4.1 Specimen Common Stock Certificate. Filed as Exhibit 4.1 to the
GTC S-1 and incorporated herein by reference.
4.2.1 TSI Specimen Warrant Certificate. Filed as Exhibit 4.8 to
TSI's Registration Statement on Form S-3 (File No. 33-48107)
and incorporated herein by reference.
4.2.2 TSI Common Stock Purchase Warrant No. G-1, dated September 27,
1994, issued to Financing for Science International, Inc.
("FSI"). Filed as Exhibit 4.4 to the original filing of the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994 (the "GTC 1994 10-K) and incorporated herein
by reference.
4.2.3 Form of Notice of Assumption by GTC of the TSI Common Stock
Purchase Warrants Nos. F-1 and G-1. Filed as Exhibit 4.5 to
the original filing of the GTC 1994 10-K and incorporated
herein by reference.
4.3 Common Stock Purchase Warrant, dated June 30, 1995, issued to
FSI. Filed as Exhibit 10.9 to the Company's Quarterly Report
on Form 10-Q for the period ended July 2, 1995 (Commission
File No. 0-21794) (the "GTC July 1995 10-Q") and incorporated
herein by reference.
52
4.4 Common Stock Purchase Warrant, dated July 3, 1995, issued to
Genzyme. Filed as Exhibit 10.5 to the GTC July 1995 10-Q and
incorporated herein by reference.
4.5 Common Stock Purchase Warrant, dated March 13, 1996, issued to
FSI. Filed as Exhibit 4.8 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995 (File No.
0-21794) (the "GTC 1995 10-K") and incorporated herein by
reference.
4.6 Common Stock Purchase Warrant, dated as of June 26, 1997,
issued to Government Land Bank d/b/a The MassDevelopment
("MassDevelopment"). Filed as Exhibit 4 to the GTC June 1997
10-Q and incorporated herein by reference.
4.7 Common Stock Purchase Warrant, dated as of December 28, 1998,
issued to Genzyme. Filed as Exhibit 4.11 to the original
filing of the Company's Annual Report on Form 10-K for the
year ended January 3, 1999 (the "GTC 1999 10-K") and
incorporated herein by reference.
4.8 Registration Rights Agreement between the Company and certain
Stockholders named therein. Filed as Exhibit 10.53 to the GTC
1997 10-K and incorporated herein by reference.
4.9 Warrant to Purchase Common Stock, dated November 22, 1999,
issued to Genzyme. Filed as Exhibit 8 to Genzyme's Amendment
No. 6 to Schedule 13D (File No. 055-48837) filed with the
Commission on November 24, 1999 and incorporated herein by
reference.
4.10 Warrant to Purchase Common Stock, dated November 22, 1999,
issued to Genzyme. Filed as Exhibit 9 to Genzyme's Amendment
No. 6 to Schedule 13D (File No. 055-48837) filed with the
Commission on November 24, 1999 and incorporated herein by
reference.
10.1 Technology Transfer Agreement between GTC and Genzyme
Corporation ("Genzyme"), dated as of May 1, 1993. Filed as
Exhibit 2.1 to the Company's Registration Statement on Form
S-1 (File No. 33-62782) (the "GTC S-1") and incorporated
herein by reference.**
10.2 Research and Development Agreement between GTC and Genzyme,
dated as of May 1, 1993. Filed as Exhibit 10.1 to the GTC S-1
and incorporated herein by reference.
10.3 Services Agreement between GTC and Genzyme, dated as of May 1,
1993. Filed as Exhibit 10.2 to the GTC S-1 and incorporated
herein by reference.
10.4 Sublease Agreement between GTC and Genzyme, dated as of May 1,
1993. Filed as Exhibit 10.3 to the GTC S-1 and incorporated
herein by reference.
10.5 License Agreement between GTC and Genzyme, as successor to IG
Laboratories, Inc., dated as of May 1, 1993. Filed as Exhibit
10.4 to the GTC S-1 and incorporated herein by reference.
10.6.1 Mortgage and Security Agreement, dated as of June 30, 1995,
between GTC and Genzyme. Filed as Exhibit 10.6 to the GTC July
1995 10-Q and incorporated herein by reference.
10.6.2 First Amendment to Mortgage and Security Agreement, dated as
of December 15, 1995, between GTC and Genzyme. Filed as
Exhibit 10.7.2 to the GTC 1996 10-K and incorporated herein by
reference.
10.6.3 Second Amended to Mortgage and Security Agreement, dated as of
December 28, 1998, between the GTC and Genzyme. Filed as
exhibit 10.7.3 to the Company's Annual Report on Form 10-K for
the year ended January 2, 2000 (File No. 0-21794) (the "GTC
1999 10-K") and incorporated herein by reference..
10.7* GTC 1993 Equity Incentive Plan, as amended through May 25,
1999. Filed as Exhibit 10.2 to GTC's July 1999 10-Q and
incorporated herein by reference.
53
10.8* GTC 1993 Employee Stock Purchase Plan, as amended through May
28, 1997. Filed as Exhibit 10.4 to the GTC June 1997 10-Q and
incorporated herein by reference.
10.9* GTC 1993 Director Stock Option Plan, as amended through May
27, 1998. Filed as Exhibit 10.3 to the GTC June 1998 10-Q and
incorporated herein by reference.
10.10 GTC Form of Confidential and Proprietary Information Agreement
signed by GTC employees. Filed as Exhibit 10.9 to the GTC S-1
and incorporated herein by reference.
10.11 GTC Form of Agreement Not to Compete. Filed as Exhibit 10.10
to the GTC S-1 and incorporated herein by reference.
10.12 Form of Indemnification Agreement between GTC and its
directors. Filed as Exhibit 10.12 to the original filing of
the GTC 1994 10-K and incorporated herein by reference. Such
agreements are materially different only as to the signing
directors and the dates of execution.
10.13 License Agreement between GTC and Biogen, Inc., dated December
26, 1990. Filed as Exhibit 10.12 to the GTC S-1 and
incorporated herein by reference.**
10.14.1 Cooperation and Licensing Agreement between GTC and Tufts
University, dated September 6, 1988, as amended through May
13, 1993 (the "Cooperation and Licensing Agreement"). Filed as
Exhibit 10.18 to the GTC 1994 10-K and incorporated herein by
reference.**
10.14.2 Amendment No. 7, dated April 1, 1993, to Cooperation and
Licensing Agreement. Filed as Exhibit 10.6 to the Company's
Quarterly Report on Form 10-Q for the period ended October 1,
1995 (File No. 0-294) (the "GTC October 1995 10-Q") and
incorporated herein by reference.
10.14.3 Amendment No. 8, dated October 21, 1993, to Cooperation and
Licensing Agreement. Filed as Exhibit 10.7 to the GTC October
1995 10-Q and incorporated herein by reference.
10.14.4 Amendment No. 9, dated December 1, 1993, to Cooperation and
Licensing Agreement. Filed as Exhibit 10.8 to the GTC October
1995 10-Q and incorporated herein by reference.**
10.14.5 Amendment No. 10, dated November 1, 1993, to Cooperation and
Licensing Agreement. Filed as Exhibit 10.9 to the GTC October
1995 10-Q and incorporated herein by reference.
10.14.6 Amendment No. 11, dated May 25, 1995, to Cooperation and
Licensing Agreement. Filed as Exhibit 10.10 to the GTC October
1995 10-Q and incorporated herein by reference.
10.15 United States Patent No. 4,873,191 Sublicense Agreement
between DNX, Inc. and Genzyme Regarding Transgenic
Experimental Animals and Transgenic Mammary Production
Systems, dated February 1, 1990; and letter of amendment,
dated April 19, 1991. Filed together as Exhibit 10.17 to the
GTC S-1 and incorporated herein by reference.**
10.16 Lease dated March 26, 1999 between Genzyme Transgenics
Corporation and NDNE 9/90 Corporate Center LLC. Filed as
Exhibit 10.1 to GTC's July 1999 10-Q and incorporated herein
by reference.
10.17.1 Second Amended and Restated Convertible Debt Agreement, dated
as of December 28, 1998, between the GTC and Genzyme. Filed as
Exhibit 10.37 to Genzyme's Annual Report on Form 10-K for the
year ended December 31, 1998 (File No. 0-14680) and
incorporated herein by reference.
10.17.2 Amended and Restated Convertible Revolving Credit Note in the
amount of $6,300,000, dated as of December 28, 1998, executed
by GTC to Genzyme. Filed as Exhibit 10.29.2 to the original
filing of the GTC 1999 10-K and incorporated herein by
reference.
54
10.17.3 Amended and Restated Reimbursement Agreement, dated as of
December 28, 1998, 1995, among GTC, certain of its
subsidiaries and Genzyme. Filed as Exhibit 10.57.4 to the
original filing of the GTC 1999 10-K and incorporated herein
by reference.
10.17.4 Amended and Restated Security Agreement, dated as of December
28, 1998, among GTC, certain of its subsidiaries and Genzyme.
Filed as exhibit 10.28.4 to the GTC 1999 10-K and incorporated
herein by reference..
10.17.5 Hazardous Materials Indemnity Agreement, December 28, 1998,
between the GTC and Genzyme. Filed as exhibit 10.28.5 to the
GTC 1999 10-K and incorporated herein by reference.
10.18* Amended and Restated Employment Agreement, dated as of August
28, 1997, between the Company and John B. Green. Filed as
Exhibit 10.2 to the GTC September 1997 10-Q and incorporated
herein by reference.
10.19* Amended and Restated Employment Agreement, dated as of
September 16, 1997, between the Company and Peter Glick. Filed
as Exhibit 10.3 to the GTC September 1997 10-Q and
incorporated herein by reference.
10.20* Employment Agreement, dated as of March 27, 1996, between GTC
and Harry Meade. Filed as Exhibit 10.44 to the Company's
Quarterly Report on Form 10-Q for the period ended March 31,
1996 and incorporated herein by reference.
10.21* Form of Employment and Consulting Agreement among GTC, TSI and
Robert W. Baldridge. Filed as Exhibit 10.56 to the GTC S-4 and
incorporated herein by reference.
10.22.1 Agreement, dated as of September 21, 1994, between GTC and
Gene Pharming Europe B.V. ("Pharming B.V."). Filed as Exhibit
10.49 to the Company's Registration Statement on Form S-1
(File No. 333-05843) and incorporated herein by reference.**
10.22.2 Amendment Agreement, dated as of April 23, 1997, between GTC
and Pharming B.V. Filed as Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 30,
1997 (File No. 0-21794) (the "GTC March 1997 10-Q") and
incorporated herein by reference.
10.23 Development and Commercialization Agreement, dated as of
September 25, 1997, between the Company and Advanced Cell
Technology, Inc. Filed as Exhibit 10.5 to the GTC September
1997 10-Q and incorporated herein by reference.**
10.24 Development and Commercialization Agreement, dated as of
September 25, 1997, between the Company and B. Braun Melsungen
AG. Filed as Exhibit 10.6 to the GTC September 1997 10-Q and
incorporated herein by reference.**
10.25 Unconditional Guaranty, dated as of May 22, 1997, executed by
the Company in connection with the Loan Agreement, dated as of
May 22, 1997, between Redfield and SFNB. Filed as Exhibit
10.49.7 to the GTC 1997 10-K in order to correct a
typographical error regarding the date of the agreement as
contained in the version previously filed as Exhibit to 10.9.7
the GTC June 1997 10-Q.
10.26 Guaranty, dated as of June 26, 1997, executed by the Company
in connection with the Loan Agreement, dated as of June 26,
1997, between Mason and MassDevelopment. Filed 10.8.4 as
Exhibit to the GTC June 1997 10-Q and incorporated herein by
reference.
10.27.1 Amended and Restated Operating Agreement of ATIII LLC dated as
of January 1, 1998. Filed as Exhibit 10.52.1 to the GTC 1997
10-K and incorporated herein by reference.**
10.27.2 Purchase Agreement between GTC and Genzyme dated as of January
1, 1998, transferring an interest in ATIII LLC from Genzyme to
GTC. Filed as Exhibit 10.52.2 to the GTC 1997 10-K and
incorporated herein by reference.**
55
10.27.3 Collaboration Agreement among Genzyme, GTC and ATIII LLC,
dated as of January 1, 1998. Filed as Exhibit 10.52.3 to the
GTC 1997 10-K and incorporated herein by reference.**
10.28* Employment Agreement dated as of July 1, 1998 between the
Company and Dr. Sandra Nusinoff Lehrman. Filed as Exhibit 10.1
to the GTC June 1998 10-Q and incorporated herein by
reference.
10.29* Amendment No. 1 to Employment Agreement between the Company
and Dr. Sandra Nusinoff Lehrman. Filed as Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the period ended
September 27, 1998 (File No. 0-21794) (the "GTC September 1998
10-Q) and incorporated herein by reference.
10.30* Amendment No. 1 to Employment Agreement between the Company
and John B. Green. Filed as Exhibit 10.3 to the GTC September
1998 10-Q and incorporated herein by reference.
10.31* Consulting Agreement between the Company and James A.
Geraghty. Filed as Exhibit 10.4 to the GTC September 1998 10-Q
and incorporated herein by reference.
10.32.1 Credit Agreement between GTC and Fleet National Bank, dated as
of December 28, 1998. Filed as Exhibit 10.57.1 to the original
filing of the GTC 1999 10-K and incorporated herein by
reference.
10.32.2 Revolving Credit Note in the amount of $17,500,000, dated as
of December 28, 1998, executed by GTC and issued to Fleet
National Bank. Filed as Exhibit 10.57.2 to the original filing
of the GTC 1999 10-K and incorporated herein by reference.
10.32.3 Term Note in the amount of $7,100,000, dated as of December
28, 1998, executed by GTC and issued to Fleet National Bank.
Filed as Exhibit 10.57.3 to the original filing of the GTC
1999 10-K and incorporated herein by reference.
10.32.4 First Amendment to Credit Agreement dated as of November 12,
1999 between Fleet National Bank and GTC. Filed as exhibit
10.51.4 to the GTC 1999 10-K and incorporated herein by
reference.
23.1 Consent of PricewaterhouseCoopers LLP. Filed herewith.
99 Important Factors Regarding Forward-Looking Statements. Filed
herewith.
- -----------------------------
* Indicates a management contract or compensatory plan.
** Certain confidential information contained in the document has been
omitted and filed separately with the Securities and Exchange Commission
pursuant to Rule 406 of the Securities Act of 1933, as amended, or Rule
24b-2 promulgated under the Securities and Exchange Act of 1934, as
amended
56