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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

Commission File No. 0-21794

GTC BIOTHERAPEUTICS, INC.
(Exact name of Registrant as specified in its charter)

Securities registered pursuant to Section 12(b) of the Act:
None

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01
(Title of each class)

        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 ý    No o

        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.    ý

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

        Aggregate market value of voting stock held by non-affiliates of the Registrant as of June 27, 2003, the last business day of the Registrant's most recently completed second fiscal quarter, was approximately $89,828,281, based on the closing sale price of the Company's Common Stock as reported on the NASDAQ National Market.

        Number of shares of the Registrant's Common Stock outstanding as of March 1, 2004: 32,241,425

DOCUMENTS INCORPORATED BY REFERENCE

        Portions of the Registrant's Proxy Statement for the Annual Meeting of Stockholders to be held May 26, 2004 are incorporated by reference into Part III of this Form 10-K.

PART I

ITEM 1. BUSINESS

Overview

        GTC Biotherapeutics, Inc., referred to as GTC or the Company, is a leader in the development, production, and commercialization of human therapeutic proteins in the milk of animals. Using a process known as transgenics, GTC inserts protein-specific DNA into an animal to enable it to produce that specific protein in its milk. The protein is then purified from the milk to obtain the therapeutic product, which is typically administered by injection.

        GTC is developing its own proprietary proteins and providing leadership in obtaining regulatory and market approval for products produced transgenically. GTC uses transgenic technology to establish commercial production systems for products that are anticipated to require large production volume or are difficult to express in traditional recombinant protein production systems. The Company's technology platform is being used to create a pipeline of internal product programs and a portfolio of external clinical and commercial production opportunities.

        The Company has three internal programs in active development. These programs are the recombinant human antithrombin program, which will be sold under the brand name ATryn® once regulatory approval is obtained, the recombinant human serum albumin program, known as rhSA, and a malaria vaccine program using one of the malaria parasite's surface proteins known as MSP-1 as an antigen. All of these programs involve products that are difficult-to-express proteins. The ATryn® and rhSA proteins are also required in large volumes. The ATryn® program has the potential to generate commercial product revenues in the next two to three years. The Company seeks partners for its internal programs to provide a source of funding for these programs as well as to augment its clinical or marketing expertise.

        GTC's external programs use the Company's intellectual property and technology platform to develop transgenic production of a partner's proprietary protein. External programs generate current revenue through research funding and achievement of milestones. These programs provide GTC the opportunity for long-term product revenues as a result of GTC serving as the clinical and commercial manufacturing partner for the program product. This business has the potential to generate positive cash flow and eventually profits, helping support the continued development of the Company's internal programs and technology platform.

        In GTC's portfolio of external programs, the most advanced is the program with Merrimack Pharmaceuticals, Inc. for production and purification of Merrimack's MM-093 (formerly named ABI.001), a recombinant human alpha-fetoprotein, or rhAFP. GTC has been producing MM-093 transgenically for use in Merrimack's ongoing human clinical studies. The rhAFP protein has been difficult to express in traditional recombinant protein production systems. GTC is also working with Centocor to develop transgenic protein production for an undisclosed protein. This program is moving forward to supply product for preclinical evaluation. Four of the other programs in the external portfolio, two with Abbott and two with Bristol-Myers Squibb, have concluded with the successful completion of founder status namely development of a transgenic animal capable of starting a production herd for a therapeutic protein. No further work will be undertaken in these programs unless the respective partner chooses to pursue transgenic production for preclinical or clinical testing.

Internal Programs

Recombinant Human Antithrombin (ATryn®)

        Antithrombin is a blood plasma protein that has anticoagulant and anti-inflammatory properties. Antithrombin, as is typical of many blood plasma proteins, is difficult to express in traditional

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recombinant production systems. In late 2001, GTC was granted permission by the European Medicines Evaluation Agency, known as EMEA, to conduct clinical studies of ATryn® in individuals who express a low level of antithrombin in their blood as a result of an hereditary deficiency of antithrombin, referred to as HD. ATryn® is a recombinant form of human antithrombin. There are approximately 1 in 5,000 people with an HD. In December 2001, GTC began dosing HD patients in a study to establish an appropriate dosing regimen for an efficacy study. GTC successfully completed this 15 patient study and began an efficacy study in HD patients in 2002, primarily based in Europe and including patients in the United States. The efficacy study was designed to assess the prevention of certain blood clots, known as deep vein thromboses, referred to as DVT, among HD patients that undergo surgery or childbirth. Based on EMEA guidance, GTC determined that at least 12 evaluable patients must be included in the efficacy study. A total of 14 patients were enrolled in the efficacy study. In the opinion of clinical experts who have reviewed these data, ATryn® offers safe and efficacious thromboprophylaxis for this difficult-to-manage group of patients. GTC submitted a Market Authorization Application, or MAA, to the EMEA in January 2004. The MAA submission includes data from this trial, as well as data from high-risk situations treated under the compassionate use program. The EMEA has accepted the MAA for review which will make a determination of the safety and efficacy of ATryn® in addition to assessing whether the product is approvable for commercial sale. GTC believes that ATryn® is the first transgenically produced therapeutic protein to be considered for approval by a regulatory agency in the U.S. or Europe. GTC is in discussions with the U.S. Food and Drug Administration, or FDA, regarding its clinical and regulatory strategy and the FDA's requirement that there be a controlled study of ATryn® for approval in the U.S.

        Commercially available antithrombin protein is currently produced by human plasma fractionation for therapeutic use in hereditary and acquired antithrombin deficiencies, with worldwide annual sales of approximately $250 million. GTC believes that the U.S. market is underserved by a single producer with only limited supplies being available.

        GTC is in discussions with potential partners for the ATryn® program to provide marketing and financial support. The Company is also considering the strategic option of adding a small sales force in Europe to support commercial sales of ATryn® for the hereditary antithrombin deficiency indication. GTC plans to expand the market opportunity for this product through one or more clinical studies in order to develop additional potential acquired deficiency indications in collaboration with potential partners. Acquired antithrombin deficiency occurs in a number of conditions, and may result from a decrease in the amount of antithrombin produced, an increase in the rate of antithrombin consumption or an abnormal loss of antithrombin in the circulatory system. Examples of conditions in which acquired antithrombin deficiency may occur are burns, heparin resistance, bowel perforation, acute liver failure, disseminated intravascular coagulation, sepsis and septic shock, multiple organ failure, pre-eclampsia, bone marrow or organ transplantation, and prevention of neurocognitive deficiency in patients undergoing cardio pulmonary bypass. GTC is focusing on the larger market potential indications for further clinical studies, such as developing the use of ATryn® to treat burns. Since antithrombin levels may be dramatically reduced in patients with severe thermal injury due to increased consumption and loss, GTC believes that antithrombin's anticoagulant and anti-inflammatory properties may be beneficial in reducing the intensive care hospitalization time for burns patients as well as helping to reduce the scarring that often results.

Recombinant Human Serum Albumin (rhSA)

        Albumin is a plasma protein that is principally responsible for maintaining the osmotic pressure in the vascular system, as well as maintaining plasma volume and the balance of fluids in blood. It is critical to the transport of amino acids, fatty acids and hormones in the blood stream. Albumin is used as an excipient, which is a non-active component used to stabilize the active ingredient in biologic drug formulations. Human serum albumin produced from blood plasma has been used as an excipient to

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maintain structural stability and activity in many biological drug formulations for long periods of time under a wide range of storage conditions. Albumin is also used therapeutically in situations of blood loss and/or decreased blood albumin levels which can result from shock, serious burns, pre- and post-operative conditions, congestive heart failure and gastric, liver and intestinal malfunctions (the blood expander indication).

        GTC has a strategic interest in developing recombinant human serum albumin, or rhSA, in the excipient market where there is the potential for commercial sales within the next two to three years, sooner than is practical in the blood expander indication and with significantly lower capital investment. GTC believes that the recombinant nature of this product can lead to a well characterized protein and a stable single source of supply. This will provide drug manufacturers the opportunity to avoid plasma-derived human serum albumin as an excipient for their recombinant products and establish a universally acceptable supply. GTC believes this will allow rhSA to make substantial penetration into the existing excipient market. During 2004, GTC intends to initiate the production of qualification batches for evaluation as an excipient by its clients and for the development of a Drug Master File, which is a documentation system required by the health authorities to reduce redundancy in the filing of information related to ingredients or materials that may be used in multiple therapeutic products. The Company believes that under this timetable for development GTC has the opportunity to achieve commercial sales of rhSA within two to three years, depending primarily on the level of development funding devoted to this program. The Company expects that the timetable of development will be based on the financial resources available to the Company, as well as its ability to attract additional marketing or strategic partners to provide additional funding.

        rhSA is another example of a difficult-to-express plasma protein under development by GTC, which is also required in large volumes. Albumin is currently produced by human plasma fractionation, with worldwide sales of approximately $1 billion. About $150 million to $200 million of this total is sold for excipient use. Since the total market is very large, requiring about 400 metric tons of production a year, GTC is developing this program in transgenic cattle to take advantage of the higher milk production of cattle compared to goats. The cattle in this program are maintained by Trans Ova Genetics in Iowa. GTC has developed and continues to add to the number of cattle that express rhSA in their milk. Bench scale purification of clinical grade quality has been achieved and the purification process is being scaled up for clinical production quantities. GTC estimates the total production volume to meet the needs of the excipient market is in the range of one to two metric tons per year.

        In late 2002, Fresenius AG and GTC restructured their relationship for the therapeutic blood expander market into a joint venture, called Taurus hSA LLC or the Taurus Joint Venture, to include the development of rhSA as an excipient. The Taurus Joint Venture will manage development of GTC's rhSA program for both the excipient and blood expander markets. GTC currently has a 55% interest in the joint venture. Each party has the right, but not the obligation, to make future contributions to the Taurus Joint Venture. The joint venture structure allows the development of the excipient market with the potential to attract additional marketing or strategic partners that may also assist with the financing of the joint venture. Ownership interests will be adjusted based on future levels of financial participation from existing and new partners. The Company is engaged in ongoing discussions with third parties to obtain further financing for the Taurus Joint Venture and the Company has also developed alternative plans to advance the joint venture using its existing resources with limited external financing. GTC and Fresenius made available all relevant commercial licenses, manufacturing and marketing rights, and intellectual property to enable the joint venture to operate worldwide in both the excipient and blood expander markets. The existence of the Taurus Joint Venture is perpetual unless terminated or dissolved earlier in accordance with the terms of the agreement. Upon any liquidation, sale or other disposition of all, or substantially all of the assets of the Taurus Joint Venture, and after the payment of debts and liabilities, expenses of liquidation and any reserves for unforeseen liabilities or in-kind distributions, the net proceeds would be applied and distributed first to Fresenius

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and then to the Company, each according to its percentage interest. Each member would also have reversion rights to any intellectual property it contributes to the Taurus Joint Venture. The Company consolidates the Taurus Joint Venture on GTC's financial statements for financial reporting purposes.

Malaria Vaccine

        GTC is developing the merozoite surface protein 1, or MSP-1, for use as an antigen in a malaria vaccine. This protein is normally expressed by the malaria parasite. Malaria is a disease that has an annual incidence of more than 300 million people worldwide and results in several million deaths annually, primarily among children. GTC has been working with the National Institutes of Health, or NIH, and the Federal Malaria Vaccine Coordinating Committee to develop transgenic production of the MSP-1 protein as an antigen for a vaccine and to examine the options for commercializing the vaccine. During 1998, GTC achieved high level expression of the MSP-1 antigen in the milk of transgenic mice. To express the MSP-1 protein at high quantities, GTC's scientists modified the protein's gene sequence while conserving the overall amino acid sequence of the protein. A U.S. patent has been issued to GTC for this modification. The MSP-1 protein has been expressed at 2-4 mg/ml in the milk of mice that have incorporated this gene sequence. The MSP-1 protein produced by the mice successfully protected Aotus nancymai monkeys in a preclinical vaccine study conducted by and co-authored with the National Institute of Allergy and Infectious Diseases, or NIAID. This study, titled "A recombinant vaccine expressed in the milk of transgenic mice protects Aotus monkeys from a lethal challenge with Plasmodium falciparum", was published in the December 18, 2001 Proceedings of the National Academy of Sciences. MSP-1 is difficult to express in other recombinant systems, with those other systems producing it in very limited quantities or in forms that may not induce the necessary immune response. GTC has developed goats at its research facilities that express the MSP-1 protein. The NIAID has funded a contract for the development and production of clinical grade production of MSP-1, as a malaria vaccine. The development work is being performed under the existing NIAID Contract No. NO1-A1-05421 managed by Science Applications International Corporation. The scope of work includes developing founder goats that express the MSP-1 antigen in their milk as well as the downstream purification process and final product formulation. The approved scope of work also includes the submittal of an Investigational New Drug, or IND, application to the FDA. GTC's portion of this project will be supported completely with Federal funds amounting to at least $4.9 million.

External Program Portfolio

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

        The most advanced program in the external portfolio is with Merrimack Pharmaceuticals, formerly known as Atlantic BioPharmaceuticals. The Merrimack program is for MM-093 (formerly ABI.001), a recombinant human alpha-fetoprotein, or rhAFP. The rhAFP protein has been difficult to express in traditional recombinant systems. GTC has developed goats that express this protein in their milk. In 2002, GTC and Merrimack agreed to expand their relationship to include production and purification

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of MM-093. Merrimack completed a phase I study of MM-093 in 2003. GTC expects to deliver purified MM-093 during 2004 for use in further human clinical studies by Merrimack. Potential indications for MM-093 include autoimmune diseases such as rheumatoid arthritis, multiple sclerosis and myasthenia gravis. Assuming that MM-093 is found to be safe and efficacious as the clinical program develops, GTC expects to earn revenue totaling several million dollars for production of rhAFP to supply the clinical trials, as well as additional revenues for eventual commercial production. In December 2003, GTC exercised its option to convert $1.25 million of the receivable owed by Merrimack into Merrimack preferred stock at the same valuation as the other investors in Merrimack's recent financing. In addition, GTC agreed to defer the payment of up to $650,000 of receivables owed by Merrimack until June, 2004.

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

        GTC's believes that its technology platform is well suited to producing difficult-to-express proteins and to establish large volume production with low capital investment and an assured low cost of goods. Monoclonal antibodies, or MABs, are proteins generated by an immune system that bind to a specific target. MABs typically express at reasonable levels in traditional recombinant production systems, but are often required in large quantities due to their applications to chronic disease indications. Immunoglobulin, or Ig fusion proteins, which consists of a MAB fragment linked to a second protein fragment, may be difficult to express due to their complexity. For these reasons, GTC has attracted multiple MAB and Ig fusion protein production opportunities to its external program portfolio.

        GTC is actively participating in the field of MABs and Ig fusion proteins. The Company has been granted several patents covering the production of MABs in the milk of transgenic mammals, along with other transgenic process patents, which it believes establish a strong proprietary position in the field.

        GTC has two programs with Centocor. The second program with Centocor for its undisclosed MAB has begun expansion of production capacity to provide a supply of product for preclinical evaluation.

        The two programs with Bristol-Myers Squibb and the two programs with Abbott have been successfully completed with the achievement of founder status. No further development work is expected in these four programs with Abbott and Bristol-Myers Squibb unless the respective partner chooses to pursue transgenic production for preclinical or clinical testing. Abgenix has discontinued clinical studies at this time for its ABX-IL8 MAB program.

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Summary Chart of External Programs

        The following chart contains a summary of the Company's portfolio of external programs: (Note that a founder is a transgenic animal capable of starting a production herd for a therapeutic protein.)

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Transgenic Technology Platform

Overview

        GTC's technology platform includes the molecular biology expertise and intellectual property to generate appropriate transgenic animals, primarily goats and in some cases cattle, that express a specific recombinant protein in their milk. The Company also has the capacity to perform downstream purification. This technology platform is supported by the quality systems and regulatory, clinical development, and information technology infrastructure necessary to bring therapeutic protein products through clinical trials to commercial scale.

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

        GTC's technology platform has been established as an operating infrastructure in goat husbandry, breeding, milking and downstream purification. These operations occur at the Company's biopharmaceutical production facilities in central Massachusetts, where it has approximately 1,600 goats, and at its facilities in Framingham, Massachusetts. Goat husbandry includes veterinary care with a clinic and medicinal supplies, all established within the farm's biosecurity program. The biosecurity program includes barriers to provide separation of the animals from contact with wildlife, separation from people, and specified and quality control monitored feed. Milking is typically performed using modern milking and processing equipment. Clarification to the intermediate bulk material is typically performed using tangential flow filtration equipment that removes much of the fats and casein from the milk. Manufacturing to clinical grade purity under standards of good manufacturing practice occurs either in GTC's facilities, the facilities of GTC's partners, or in contracted facilities. During 2002, GTC established capacity in its Framingham facilities for the purification of recombinant proteins suitable for clinical studies.

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

        GTC is now using nuclear transfer technology in the development of transgenic animals. The first step in this technology involves the generation of a characterized cell line which has incorporated the specific DNA for expression of the target protein in milk. Individual cells from the cell line(s) are then fused to an animal's ovum after removal of the ovum's own DNA. Thus, the transgenic nucleus of the cell becomes the driver for further development of the embryo, which is then placed in a surrogate female animal. All animals that are born through this process are transgenic. Nuclear transfer may mitigate the impact of long gestation and maturation periods in cattle, by producing a larger number of transgenic animals in one generation. The U.S. Patent and Trademark Office, or PTO, has declared an interference proceeding between Advanced Cell Technologies, Inc., or ACT, and Geron Corporation for

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one of the patents GTC licenses from ACT. The Company does not know at this time what impact, if any, this interference proceeding may have on its ability to practice nuclear transfer.

Advantages of Transgenic Technology

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

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Technological Enablement.  Transgenic technology offers the ability to produce certain biotherapeutics that cannot be made in a commercially feasible manner in any other system. The potential of transgenic production for high-volume proteins requiring more than 100 kilograms per year is widely acknowledged. In addition, GTC has achieved consistent expression rates with complex molecules, which may not be producible at commercial scale in cell culture systems. This accomplishment, in conjunction with the favorable economics of herd development, means that transgenics may be a viable production system for some complex proteins, regardless of the volume required.



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Lower Capital Investment.  Developing a herd and providing appropriate production facilities can be accomplished with substantially lower investment than building a cell culture bioreactor facility.



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Lower Cost of Goods.  Economic factors unique to transgenic production may lower the ultimate cost of goods in most cases. The lower amortization of the initial capital investment, the lower cost of consumable materials and the high productivity of operations result in the cost of transgenically produced products, in most cases, being substantially lower than that of a cell culture derived product.



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Flexible Production.  Transgenic production offers the ability to rapidly match production capacity to the market demand, once the first appropriate animal is identified. If the product's market is larger than originally planned, the incremental investment to breed additional animals and expand capacity is relatively small. In contrast, traditional bioreactor methods are hard assets with a generally fixed capacity. If a bioreactor product's market will support sales significantly higher than the installed capacity can achieve, more bioreactor space needs to be built or acquired at unit costs similar to the original capital investment with construction times of generally three to five years.

Transgenic Development Process

        GTC's development of a typical transgenic protein is designed to proceed in a logical sequence of three principal steps:

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Development of Transgenic Animals.  In this first step, GTC takes the genetic material for a desired protein and establishes an appropriate expression vector by combining the genetic material with the appropriate coding and promoter sequences to ensure expression in the mammary gland. The Company then employs nuclear transfer techniques to initiate pregnancies to produce a transgenic animal. The first animals are then born after the appropriate gestation period.



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Transgenic Evaluation.  GTC and its partner evaluate the genetic profile of the animal. The animal's production levels under induced or natural lactation are evaluated and the recombinant protein produced by the animal in its milk is characterized. Some initial process development work takes place in which pilot clarification and purification methods are examined.

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Founder.  GTC and the partner select one or more appropriate transgenic animals as founders. A founder animal has the appropriate genetic profile and is the potential start of a herd of transgenic animals capable of producing a desired therapeutic protein. GTC and the partner may then 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. Thereafter, scale up of the herd to reach needed commercial production capacity is then planned.

Patents and Proprietary Rights

        Currently, GTC holds 17 issued or allowed U.S. patents and 111 corresponding foreign patents. GTC's patents generally expire between 2013 and 2019, with the most significant patents expiring in 2015. Of the GTC patents expiring in 2015, two relate to transgenically produced antithrombin, its lead product. In accordance with ongoing research and development efforts, GTC has 40 pending U.S. patent applications and 174 corresponding foreign applications covering relevant and newly developed portions of its transgenic technology. Several of these pending applications are included in various cross-licensing or out-licensing arrangements with other companies that in turn provide access to their proprietary technologies. Specifically GTC has cross-licensed its proprietary technology for the production of proteins in milk to Pharming B.V. and PPL Therapeutics, while limited access has been granted to its technology related to the production of antibodies in milk to Pharming B.V. and the French company Bioprotein. Recently issued GTC U.S. patents provide claim coverage for protein purification from the milk of transgenic animals, the production of monoclonal and assembled antibodies at commercial levels in the milk of transgenic mammals, the production of recombinant antithrombin in the milk of transgenic goats and one covering the production of Prolactin in the milk of transgenic animals.

        In addition, GTC holds exclusive and non-exclusive licenses from Genzyme Corporation, Biogen, and other individuals and corporations to rights under a number of issued patents and patent applications in the U.S. and the corresponding cases abroad for a variety of technologies enabling the transgenic production of proteins in the milk of non-human animals. GTC holds licenses to 35 issued U.S. patents and 19 pending U.S. applications. On an international basis, GTC holds licenses to 61 issued patents, and 99 pending applications. The in-licensed patents that are related to the transgenic platform begin to expire in 2009.

        GTC also has exclusive and nonexclusive licenses to specific technologies owned by other parties. GTC has also concluded an extensive cross-licensing arrangement with Pharming providing broad access to the transgenic cattle platform as well as some additional nuclear transfer technology. GTC's relationship with ACT also focuses on intellectual property concerning cloning and nuclear transfer. 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. GTC has signed an exclusive, worldwide licensing agreement with ACT that allows GTC to utilize ACT's patented nuclear transfer technology for the development of therapeutic proteins in the milk of transgenic mammals. The majority of GTC's current programs have used, and most of its future programs are expected to use, this technology. The PTO has declared an interference proceeding between ACT and Geron Corporation for one of the patents GTC licenses from ACT. The Company does not know at this time what impact, if any, this interference proceeding may have on its ability to practice nuclear transfer. GTC has broadened its rights to practice nuclear transfer as part of its licensing agreement with Pharming, which was executed in 2002.

        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

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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. This includes companies that are developing transgenic technology using various plant and avian systems, as well as many companies that are building their own cell-culture-based production systems or other traditional protein production methods, and contract manufacturers who are using those systems to produce proteins for others.

        The other companies known to GTC to be engaged in the application of transgenic technology in mammals for the production of proteins for therapeutic use in humans are Pharming Group N.V. and PPL. Based in the Netherlands, Pharming is primarily engaged in the development of recombinant proteins in the milk of transgenic cows and rabbits. Pharming has one product in clinical development that is in phase II studies. PPL, now in liquidation, is based in Scotland and utilizes primarily sheep for transgenic protein production. PPL has developed recombinant alpha-1 antitrypsyn into Phase II stage of clinical testing. There are also other companies seeking to develop transgenic technology in animals and in plants, which may be competitive with GTC's technology with respect to its patents and proprietary rights.

        For ATryn®, a number of companies internationally produce and market antithrombin from the fractionation of human plasma. Aventis has approximately a 40% share of this market worldwide. Bayer is the only company that has commercially available fractionated antithrombin material that is approved for sale in the U.S., which sales represent only about 1% of the worldwide market.

        There are a number of companies worldwide that produce and market human serum albumin from the fractionation of human plasma. We estimate that Bayer and Aventis sales represent approximately 30% and 10% market shares, respectively, of the worldwide market for human serum albumin. We are aware of two companies internationally that are developing recombinant forms of human serum albumin derived from yeast cultures. One company, Aventis, is developing its recombinant albumin product for the excipient market.

Government Regulation

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

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

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

        GTC is in discussions with the FDA regarding its clinical and regulatory strategy for approval of ATryn® in the United States. In response to an IND filed with the FDA in 2003 for clinical development of ATryn® in the hereditary deficiency indication, the FDA has provided the Company guidance that it wishes to see a controlled study as a basis for approval, which may not be feasible for this indication. Such a study has not been required under the advice GTC has received from the EMEA for approval of ATryn® in the hereditary deficiency indication in Europe. The Company is in a continuing dialogue with the FDA to define an appropriate clinical and regulatory strategy for ATryn® approval in hereditary deficiency or another indication that meets the agency's requirements. The Company intends to move forward with its clinical development program for ATryn® in the United States in 2004 under an appropriate IND once agreement has been reached with the FDA. Until the Company knows the nature of any clinical program that may be agreed with the FDA, GTC is unable to estimate a timetable for filing a Biologics License Application on ATryn® in the United States. If the Company does not reach agreement with the FDA on an appropriate IND for ATryn®, the Company will not be able to proceed with its clinical development in the United States.

        As a potential manufacturer of biological products, GTC will also be subject to regulation requiring it to successfully demonstrate that a given biological product meets PHSA 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. If it does so, then as the manufacturer GTC would receive a biological license to market the product in interstate commerce. It is possible, however, that the FDA may not act expeditiously or favorably on requests for approval of a biological license or will require additional data before granting approval. GTC is required to comply with these regulations to support development and commercialization of products produced in its internal programs and under its contracts with external partners.

Research and Development Costs

        During its fiscal years ended December 28, 2003, December 29, 2002 and December 30, 2001, GTC spent in total, $29.2 million, $25 million and $22.4 million, respectively, on cost of revenue and research and development expense of which $11.1 million, $13.1 million and $15.1 million, respectively, was related to external programs. Of the total spent on research and development, $8.7 million, $5.1 million and $2.3 million, was spent on the ATryn® program in fiscal years 2003, 2002 and 2001, respectively. These costs include labor, materials, supplies and overhead, as well as certain subcontracted research projects. Also included are the costs of operating the transgenic production facility such as feed and bedding, veterinary costs and utilities.

Employees

        As of December 28, 2003, GTC employed 159 people, including 6 part time and temporary employees. Of GTC's total employees, 102 were engaged in farm operations, clarification processes, quality assurance and control, 21 were engaged in research and development and 36 were engaged in administration, business development and marketing. Of GTC's employees, approximately 16 have Ph.D. degrees and 6 have D.V.M. degrees. None of GTC's employees are covered by collective bargaining agreements. GTC believes its employee relations are satisfactory. During the third quarter of

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2003, the Company implemented a restructuring plan including a headcount reduction of 13%. Additionally in February 2004, the Company announced a further restructuring of its organization to control costs and to support its focus on clinical development and commercialization of its internal pipeline of proprietary products and its portfolio of external programs. This restructuring included a headcount reduction of approximately 20% from 159 to 127 full time equivalent employees.

Available Information

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

ITEM 1A.    EXECUTIVE OFFICERS OF THE REGISTRANT

        The executive officers of the Company and their respective ages and positions as of March 1, 2004 are as follows:

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

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

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

        Dr. Meade has been Senior Vice President of Research and Development since 2002. Prior to that time, he was Vice President of Transgenics Research for GTC since August 1994 after serving as Research Director 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, Dr. Meade was a Senior Scientist at Biogen, Inc., a biotechnology company, where he

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worked on the technology relating to the production of proteins in milk and was an inventor on the first issued patent covering this process.

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

ITEM 2.    PROPERTIES

        GTC's corporate headquarters is located in 12,468 square feet of office space in Framingham, Massachusetts under a lease which expires in March 2006. In 2002, the Company entered into a Sublease Agreement to use additional office and laboratory space at their existing location in Framingham. The sublease consists of approximately 19,888 square feet. GTC's research facility is located in approximately 3,900 square feet of laboratory, research and office space leased from Genzyme in Framingham, Massachusetts which automatically renews annually, on a year-to-year basis.

        GTC owns a 383-acre facility in central Massachusetts. This facility contains 106,793 square feet of production, laboratory and administrative space and currently houses more than 1,600 goats. GTC believes its owned and leased facilities are adequate for significant further development of commercial transgenic products. GTC leased animal housing, care, treatment and research facilities operated by Tufts University School of Veterinary Medicine in Massachusetts until December 1, 2003, at which time GTC no longer needed such services. In January 2002, the Company completed the purchase of approximately 135 acres of farm land in eastern New York State for potential development as a second animal facility.

ITEM 3.    LEGAL PROCEEDINGS

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

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        During the fourth quarter of fiscal year 2003, no matter was submitted to a vote of the security holders of the Company.

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PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

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

        The records held by the transfer agent indicate that on March 1, 2004 there were approximately 914 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.

ITEM 6.    SELECTED FINANCIAL DATA

        The selected financial data set forth below as of December 28, 2003 and December 29, 2002 and for each of the three fiscal years in the period ended December 28, 2003 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 December 30, 2001, December 31, 2000 and January 2, 2000, and for the years ended December 31, 2000 and January 2, 2000 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.

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SELECTED FINANCIAL DATA

(Dollars in thousands except per share data)

There

were no cash dividends paid to common shareholders for any period presented.

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ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Business Overview

        GTC Biotherapeutics, Inc., referred to as GTC or the Company, is a leader in the development, production, and commercialization of human therapeutic proteins in the milk of animals, principally goats and cattle. Using a technology known as transgenics, GTC inserts protein-specific DNA into the animal to enable it to produce that specific protein in its milk. The protein is then purified from the milk under pharmaceutical manufacturing conditions to obtain the therapeutic product, which is typically administered by injection or infusion.

        GTC is dependent upon funding from partnering programs, equity financings and proceeds from short and long term debt to finance operations. The Company enters into licensing and development agreements with collaborative partners for the development, production and purification of therapeutic recombinant proteins produced transgenically. The terms of the agreements typically include non-refundable license fees, funding of research and development, payments based upon the achievement of certain milestones and royalties on future product sales, if any.

        The key value drivers for the Company include the following:

ATryn®

        The Company completed clinical trials for its lead product, ATryn®, a recombinant form of human antithrombin, in the fourth quarter of 2003 for patients with a hereditary antithrombin deficiency that are undergoing high-risk procedures, such as surgery or childbirth. In January 2004, GTC submitted a Market Authorization Application, or MAA, to the European Medicines Evaluation Agency, or EMEA, for approval to market ATryn® in Europe for the hereditary deficiency indication. The application has been accepted for review by the EMEA and the approval process is expected to take approximately twelve months. The Company is also developing plans for expanded clinical trials for use of ATryn® in the treatment of severe burns. The Company believes that this presents a significant opportunity for this product, with a worldwide market that the Company estimates to be between $300 million and $500 million. The Company hopes to commence this development program in 2004, but the timing and execution of these trials is dependent upon the financial resources available to the Company. GTC is also in discussions with the FDA regarding the clinical and regulatory strategy for approval of ATryn® in the U.S. and the FDA's requirement that there be a controlled study of ATryn® for U.S. approval. In 2004, the Company hopes to reach agreement with the FDA and define this strategy for U.S. approval.

rhSA

        The Company is developing rhSA, a recombinant form of human serum albumin, for use as an excipient (a non-active component used as a stabilizer in biological formulations). This is being developed in conjunction with its partner, Fresenius AG, under the Taurus Joint Venture. During 2004, GTC intends to initiate the production of qualification batches for evaluation as an excipient by its clients and for development of a Drug Master File. The Company believes that under this timetable for development, GTC has the opportunity to achieve commercial sales of rhSA within two to three years depending primarily on the level of development funding devoted to this program. The Company expects that the timetable of development will be based on the financial resources available to the Company, as well as its ability to attract additional marketing or strategic partners to provide additional funding.

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External Portfolio

        GTC follows a partnership strategy with its portfolio of external programs, whereby both the Company's unique intellectual property position and molecular biology expertise are used in the transgenic production of an external partner's protein. The advantages of using GTC's production platform include enabling production of proteins that are difficult to express in traditional recombinant production systems, a significantly lower cost of capital investment as compared with conventional production systems, an assured lower cost of goods, and flexibility in capacity expansion. The dynamics surrounding the amount of available production capacity in traditional recombinant manufacturing systems continues to evolve within the industry. However, the production of difficult-to-express products, as well as the reduced cost of capital for production of high volume products, continues to be areas in which the Company enjoys a competitive advantage. In many cases, the Company's technology provides an alternative means of production that the partner may or may not choose to use, even if the Company can produce the partner's protein successfully. The Company's external programs provide GTC with a portfolio of opportunities for a revenue stream through milestone payments and through sales of pre-clinical and clinical product during the development phase. Assuming clinical success, the Company may also achieve revenues from production of product for the partner, and, in some cases, royalties on commercial sales. GTC views this area as an operating business which currently contributes to the support of the production and regulatory infrastructure of the Company and which has the potential to provide positive cash flow for investment in GTC's proprietary programs. The approval of ATryn® may encourage one or more of the Company's external partners to move forward in the clinical development of their external programs with GTC. The Merrimack program represented 54% and 20% of the 2003 and 2002 revenues, respectively, NIH funding for the Company's internal malaria program represented 29% of the 2003 revenue, the program with Elan for an undisclosed protein represented 10% and 22% of the 2003 and 2002 revenues, respectively, and the Bristol Myers Squibb program represented 10% of the revenue in 2003.

Critical Accounting Policies and Estimates

        The preparation of consolidated financial statements requires that the Company make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. The Company's critical accounting policies are summarized in Note 2 in the Notes to Consolidated Financial Statements included in Item 8 of this report. On an on-going basis, the Company evaluates its estimates, including those related to revenue recognition, investments, intangible and long-lived assets, income taxes, accrued expenses, financing operations, and contingencies and litigation. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

        The Company believes that its application of the following accounting policies involve the most significant judgments and estimates used in the preparation of its consolidated financial statements.

Revenue Recognition

        The Company enters into licensing and development agreements with collaborative partners for the development, production and purification of therapeutic recombinant proteins produced in the milk of transgenic animals. The terms of the agreements typically include non-refundable license fees, funding of research and development, payments based upon the achievement of certain milestones, revenues from sales of product to partners and royalties on future product sales, if any. When there are two or more distinct phases or services embedded into one contract, such as development and commercialization or manufacturing services, the contract is considered a multiple element

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arrangement. For revenue arrangements entered into in fiscal periods beginning after July 1, 2003, the Company accounts for multiple-element arrangements in accordance with Emerging Issues Task Force (EITF) No. 00-21.

        Management has to evaluate whether it can determine the fair value of the different elements if when the delivered services have value to the customer on a stand-alone basis. If so, then the different elements are accounted for separately. For example, if the Company enters into an arrangement to perform development services, but the Company is obligated to perform follow-on manufacturing services, then the Company must determine the fair value of both the development services and the manufacturing services. If the terms of both the development and manufacturing services are at fair value, then the Company will account for the development services separately. If the terms of the development and manufacturing services are not at fair value, but the Company can determine the fair value of each element, then the total amount of the contract is allocated to each element based on their relative fair values. If the Company cannot determine the fair value of the development services, but can determine the fair value of the manufacturing services, then revenue will be allocated to the development phase using the residual method.

        Non-refundable license fees, milestones and collaborative research and development revenues under collaborative arrangements, where the Company is also obligated to provide development services and the Company can reasonably estimate the effort required to complete its contractual obligations, are recognized as revenue over the period of continuing involvement, using a model similar to the one prescribed by EITF No. 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 and milestones met or the result achieved using level-of-efforts accounting. Under the level-of-efforts 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. For development contracts which the Company can not reasonably estimate the effort to complete its contractual obligations, revenue is limited to the lesser of costs incurred or non-refundable cash received provided the Company can reasonably conclude that the costs of completing the contract will not exceed the revenues under the contract. The Company has a contract under which the revenues are less than the estimated costs to complete, including the full allocation of internal overhead costs. Therefore, the Company delayed the recognition of revenue on this contract until the estimated costs to complete were equal to the contract revenue and, from that point, began recognizing revenue equal to costs incurred under the contract. 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. Estimates of total contract costs are reviewed and revised throughout the lives of the contracts, with adjustments to profits resulting from such revisions being recorded on a cumulative basis in the period in which the revisions are made. All revenue recognition estimates are made based upon the current facts and circumstances and are reassessed on at least a quarterly basis. If changes in these estimates or other immaterial adjustments to revenue are identified, the adjustments will be recorded as they become known.

        Unbilled contract revenue represents efforts incurred or milestones achieved which had not been billed at the balance sheet date. Deferred contract revenue represents amounts received from customers that exceeded the amount of revenue recognized to date on the balance sheet date.

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Inventory

        The Company capitalizes inventory produced for commercial sale. All of the inventory on hand at December 28, 2003 is related to ATryn®, which has not yet been approved for commercial sale. The Company expects that all of the capitalized inventory will be sold commercially in Europe, provided the Company receives marketing approval. If, at any time, the Company believes that marketing approval of ATryn® is no longer probable, the Company will charge the inventory to expense. Such a determination is highly judgmental. Although no specific clinical plans require it to date, it is possible that the Company could use some of the capitalized inventory for additional clinical trials and, if so, the Company would expense the inventory when it was designated for use in the clinical trial.

        In addition, the Company analyzes its inventory levels quarterly and will write down inventory in certain circumstances including where it has a cost basis in excess of its expected net realizable value. If actual market conditions are less favorable than those projected by management, additional inventory write downs may be required. During the fourth quarter of 2003, the Company recorded a net realizable value write down of approximately $269,000 for its ATryn® inventory based upon an analysis of the current selling price of plasma-based antithrombin in principal European markets.

Validation Costs

        The Company capitalizes those incremental costs that are incurred in obtaining approval from the FDA or EMEA for manufacturing assets and the related processes for bulk drug production. Under Statement of Financial Accounting Standards ("SFAS") No. 34, "Capitalization of Interest Costs," the historical cost of acquiring an asset includes the costs necessarily incurred to bring it to the condition and location necessary for its intended use. The capitalization period shall begin when expenditures for the asset have been made and activities that are necessary to get the asset ready for its intended use are in progress. Pursuant to regulations of the FDA or the EMEA, a facility and its related manufacturing assets must achieve "process qualification" in order for it to be approved, or "validated," for commercial production. Without approval from the FDA or the EMEA, the facility cannot be placed into service for commercial production; accordingly, the incremental validation costs incurred by the Company are an essential part of preparing the related assets for their intended use. Validation by the EMEA will allow the Company to manufacture products for sale in Europe, which the Company expects to be the initial market for ATryn®.

        The costs that the Company has capitalized to date are those costs that are related to FDA or EMEA approval of the manufacturing equipment to be used for the bulk production of ATryn®, which are being depreciated over the expected useful life of the facility. They include the costs of employees and third parties directly involved in the process, direct material consumed in the validation process and incremental fixed overhead. Costs that are excluded from capitalization include maintenance costs, process development/improvement and fixed overhead. As of December 28, 2003 and December 29, 2002, the Company had approximately $4.1 million and $2.5 million of capitalized validation costs included in property, plant and equipment, respectively.

Valuation of Intangible and Long Lived Assets

        The Company assesses the impairment of identifiable intangibles and long lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If certain facts and circumstances were to suggest that the carrying value of intangibles and long lived assets may not be recoverable, it would measure any impairment based on a projected discounted cash flow method using a discount rate determined by the Company's management to be commensurate with the risk inherent in its current business model.

        During 2002, upon adopting FAS 142, "Intangible Assets," the Company performed a cash flow analysis on the Company's intangible marketing rights (see Note 7), which resulted in the gross future

19

cash flows being greater than the carrying value of the marketing rights. Judgments used during this analysis included the estimation of the value of revenues to be achieved in the Asian markets which were covered by the marketing rights for both ATryn® and other products produced transgenically.

        There were no events in 2003 that triggered an impairment review.

Results of Operations

        As the Company generates net losses, the key drivers for the losses are costs of revenue, research and development, and selling, general and administrative. Revenue from licensing and development agreements with collaborative partners is more than offset by the related costs which has further contributed to the Company's net loss in 2003 and 2002.

Years Ended December 28, 2003 as Compared to Year Ended December 29, 2002

        Revenue.    All of the revenues in 2002, and $6.9 million of the revenues in 2003, were derived from external programs, while $2.9 million of the revenues in 2003 were derived from the malaria program. The reduction in revenue year to year was primarily due to the inclusion in 2002 of revenue from Fresenius AG in funding the rhSA development program prior to the formation of the Taurus Joint Venture with GTC. Exclusive of the rhSA revenue, for comparison purposes, operating revenues would have increased approximately 14% in 2003. Due to the nature and timing of the Company's milestone-based research and development revenues, the Company expects to see variation in reported revenues on a year-to-year basis.

        Cost of revenues and research and development expense.    Of the 2003 expenses, approximately $8.7 million was incurred to support the completion of the efficacy study and preparation for regulatory filing for approval to market ATryn® in Europe to treat hereditary antithrombin deficiency. This compares with approximately $5.1 million expended in the ATryn® development program in 2002. Additionally, the Company incurred expenses of $2.1 million in the development of the rhSA program and $1.9 million in the development of the Malaria program in 2003. The Company also incurred costs in 2003 on technology improvements and internal product development. Research and development expenses going forward are expected to fluctuate based on a number of factors including the timing and status of clinical development activities for ATryn® and other programs. Research and development expenses are expected to decline in 2004 as compared with 2003, primarily as result of the completion of the ATryn® clinical trial as well as the overall implementation of cost reduction measures. If the FDA approves a trial protocol for ATryn®, the Company's research and development spending may increase versus the current planned expenditures. The decrease in cost of revenue is due to the nature and timing of development activities for the Company's external programs. The level of expenses on the Company's external programs will continue to fluctuate depending upon the stage of development of these individual contracts.

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        During the third quarter of 2003, the Company implemented a restructuring plan including a headcount reduction of 13%. The Company also renegotiated some research agreements with outside contractors. On an annualized basis, these changes are expected to reduce the Company's expense base by approximately $4 million. The Company believes it is on track to achieve these savings in the first year. Through the end of the fourth quarter of 2003, the Company had reduced the run rate of expenses by approximately 71% of these expected reductions on an annual basis.

        Additionally, in February 2004, the Company implemented a further restructuring including a headcount reduction of approximately 20%. This will result in a restructuring charge of approximately $950,000 in the first quarter of 2004, and it is anticipated that on an annual basis these changes will result in further savings of approximately $4 million.

        Selling, General and Administrative Expense.    The decrease of approximately $390,000 in selling, general and administrative expenses is primarily a result of a reduction of approximately $700,000 in legal expenses in 2003 due to lower external patent costs compared to 2002, which were partially offset by increased expenses related to the acquisition of office and laboratory space of approximately $300,000 for the Company's downstream production capabilities.

Years Ended December 29, 2002 as Compared to Year Ended December 30, 2001

        Revenue.    Included in revenues for 2002 and 2001 were $1.8 million and $4.6 million, respectively, from the rhSA program with Fresenius AG, a $2.8 million decrease year over year. Approximately $4.2 million of the revenue recognized from the Fresenius AG program in 2001 related to payments for marketing rights. Approximately $1.6 million of revenue in 2001 related to the ATIII LLC joint venture. The Company reacquired full ownership of the ATIII LLC from Genzyme in July 2001, and subsequent to this point the Company funded all costs associated with developing ATryn®.

        Exclusive of the rhSA and ATIII LLC revenues, for comparison purposes, operating revenues were $8.6 million in 2002 compared with $7.5 million in 2001, an increase of 15%. Due to the nature and timing of the Company's milestone-based research and development revenues, the Company expects to see variation in reported revenues on a year-to-year basis. Under a contract signed in the fourth quarter of 2002 with Merrimack Pharmaceuticals, Inc., the Company deferred the recognition of revenue of approximately $1.6 million in 2002 which was recognized as revenue in 2003.

        Cost of Revenue.    The decrease in cost of revenue is related to $1.8 million of costs associated with the rhSA program with Fresenius AG in the second half of 2002 being classified as research and development expenses. The costs of the rhSA program were classified as cost of revenue in 2001 when they were funded by Fresenius AG. Also included in the cost of research and development revenue during the first seven months of 2001 were expenses related to ATryn®.

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        Equity in Loss of Joint Venture.    In 2001, the Company recognized $4.1 million of equity in net loss of joint venture incurred on ATIII LLC under the 1997 joint venture between the Company and Genzyme. The Company entered into an Interim Funding agreement with Genzyme in January 2001, under which the Company funded all the losses incurred by the joint venture from February 2001 onwards. Prior to this, the Company only funded 50% of the losses. The Interim agreement ceased in July 2001 when the Company reacquired Genzyme's ownership interest in the ATIII LLC in exchange for a royalty payable to Genzyme based on the Company's future sales, if any, of ATryn®, commencing three years after the first commercial sale up to a cumulative maximum royalty of $30 million. Following the reacquisition, the results of ATIII LLC are consolidated with the Company's results as part of research and development expenses.

        Research and Development Expenses.    Internal research and development expenditures for the ATryn® program decreased approximately $100,000 while the internal research and development expenditures related to other internal development programs increased by approximately $500,000. Overall, the Company spent $5.1 million in 2002 on the ATryn® program, which was $1.4 million less than the amount that was spent on ATryn® development in 2001 when it was partially funded by Genzyme. Of the $6.4 million of expenses for the ATryn® program in 2001, $4.1 million is included in equity in loss of joint venture and approximately $2.3 million is included in cost of revenue, subsequent to the reacquisition of the ATIII LLC by the Company. The ATryn® program expenses were higher in 2001 due to higher regulatory and manufacturing costs incurred with Genzyme while the ATIII LLC joint venture was in place. The reduction in ATryn® expense in 2002 reflects the revised clinical and regulatory strategy for this product in the hereditary deficiency indication, which the Company is pursuing as the lead indication for this protein.

        Selling, General and Administrative Expenses.    The increase in selling, general and administrative expenses is primarily due to the acquisition of office and laboratory space to consolidate several functions into a single location, additional development of information technology systems and increased expenses in regulatory affairs and corporate development which was partially offset by a decrease of approximately $400,000 resulting from bad debt recoveries. The 2001 results included a charge of approximately $975,000 related to contractual obligations in connection with the resignation of the Company's former President and Chief Executive Officer.

        Realized Gain on Sale of CRL Stock.    The realized gain on the sale of securities is a result of the sale, in July 2001, of all of the shares of the Charles River common stock the Company had acquired as part of the consideration received when the Company sold Primedica Corporation, its wholly-owned pre-clinical contract research testing subsidiary, in February 2001.

        Gain From Sale of Discontinued Contract Research Organization.    The gain from the sale of discontinued contract research operations is a result of the sale, in February 2001, of Primedica to Charles River.

Cost of Revenue and Research and Development Expense

        Research and development costs are expensed as incurred. During its fiscal years ended December 28, 2003, December 29, 2002 and December 30, 2001, the Company spent in total, $29.2 million, $25 million and $22.4 million, respectively, on cost of revenue and research and development expense of which $11.1 million, $13.1 million and $15.1 million, respectively, was related to external programs. Of the total spent on research and development, $8.7 million, $5.1 million and $2.3 million, was spent on the ATIII LLC in fiscal years 2003, 2002 and 2001, respectively. These costs include labor, materials, supplies and overhead, as well as certain subcontracted research projects. Also included are the costs of operating the transgenic production facility such as feed and bedding, veterinary costs and utilities (see Table in Item 1).

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        In aggregate, the total cost incurred since inception on external programs was $53.7 million at December 28, 2003. The aggregate estimated costs to complete the external programs through the development, herd scale up and purification phases is expected to be approximately $2.6 million, with anticipated minimum revenues of $5.1 million excluding success-based milestones. Subsequent to the development phase of the programs, the activities to be performed by the Company, if any, are to be determined by its partners, who are outside of the Company's control and, therefore, the related costs are unknown.

        In aggregate, the total cost incurred since inception on internal programs was $83.2 million at December 28, 2003, excluding funding from development partners. The Company cannot estimate the costs to complete these programs due to significant variability in clinical trial costs and regulatory approval processes.

Liquidity and Capital Resources

Overview

        The Company's objective is to appropriately finance its business through a mix of equity financings, collaboration and grant revenue, debt financings and interest income earned on its cash and cash equivalents. The Company's ability to raise future funds during the year will be affected by the progress of the regulatory review of ATryn®, the ability of the Company to enter into new transgenic research and development collaborations and the terms of such collaborations, the results of research and development and preclinical and clinical testing of the Company's internal products, competitive and technological advances, and regulatory requirements.

        Historically, the Company has used its cash for a mix of activities focused on enhancing product development and program execution, and development and expansion of operational capabilities. In 2003, the Company used its cash primarily for the general operation of GTC's business.

        The Company had cash, cash equivalents and marketable securities of $31.1 million at December 28, 2003. This amount includes cash and cash equivalents of $6.7 million. The Company had working capital of $24.2 million at December 28, 2003 compared to $47.7 million at December 29, 2002.

2003 Financing Activities

        On August 1, 2003, the Company issued and sold 3,626,465 shares of common stock at $2.55 per share in a private placement to institutional investors. The Company also issued to the investors warrants to purchase an aggregate of 906,613 shares of the Company's common stock at an exercise price of $3.30 per share. Proceeds to the Company, net of offering costs of $700,000, were approximately $8.5 million.

        In December 2003, the Company filed a shelf registration statement with the Securities and Exchange Commission which became effective on January 9, 2004. The shelf registration statement allows the Company to offer and sell from time to time, up to an aggregate of $40 million of the Company's common stock. The shelf registration is intended to provide flexibility in financing the Company's business needs including funding for its product development and clinical programs as well as for general corporate purposes. The terms and price of any future offerings would be established at the time of any offering.

Credit Facility

        Of the Company's $14.8 million of outstanding long-term debt at December 28, 2003, approximately $2.2 million is classified as current. Approximately $9.4 million was related to a term loan and an equipment line of credit with Silicon Valley Bank, or SVB, with monthly payments through 2008, approximately $600,000 was related to capital leases with monthly payments through 2006 and approximately $4.8 million was related to a promissory note payable to Genzyme with two equal payments of $2.4 million each due April 3, 2005 and April 3, 2006. The Company had approximately $745,000 available at December 28, 2003 under a Committed Equipment Line with SVB and $1 million was currently available under a revolving line of credit with SVB (see Note 8).

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Other Sources of Funds

        Other sources of funds during 2003 included $2.1 million in proceeds from long-term debt, $6 million in net redemptions of marketable securities in the Company's portfolio and $485,000 from the issuance of common stock under various employee stock plans.

Other Uses of Funds

        Uses of funds during the period included $31.8 million used in operations, of which $29.5 million was due to the Company's net loss.

        Other uses of funds during the period included:

•

$1.4 million for the manufacture of ATryn® inventory for commercial sale upon approval. At this time the Company does not have plans to increase inventory levels during 2004.



•

$1.1 million increase in other assets and liabilities as a result of the conversion of $1.25 million of accounts receivable from Merrimack on the MM-093 program into Merrimack preferred stock as part of Merrimack's December 2003 equity financing.



•

$2.1 million decrease in accounts payable resulting from the deferral of payments per contractual terms for two vendors in 2002 not repeated in 2003.



•

$3.5 million for capital equipment and further expansion of the transgenic production facility, of which $1.5 million was for manufacturing qualification runs for ATryn®, which were required as part of the MAA submission in Europe. The qualification runs are complete and the Company does not expect to manufacture additional ATryn® in 2004. GTC anticipates a significantly lower level of capital expenditures Company wide in 2004 as compared to 2003.



•

$2 million was used for the repayment of long-term debt and capital leases.

        Management believes that existing cash resources and potential future cash compensation from new partnering and licensing programs will be sufficient to fund operations into 2005. If the Company does not substantially achieve its partnering revenues or out-licensing arrangements, the Company could be forced to delay, scale back or eliminate one or more of its research and development programs. In addition, from time to time, the Company may seek to raise additional funds from public or private sales of its securities, including equity securities. Should the Company seek to raise additional financing in this manner, there can be no assurance that additional funding will be available on terms acceptable to the Company, if at all. The Company cannot use all of its cash to fund operations as a result of a condition in the Additional Modification Agreement with SVB (see Note 8 of the "Notes to the Consolidated Financial Statements"). Under this Agreement, if the Company's cash and marketable securities drop below $18.2 million, the Company is required to provide cash collateral for the outstanding obligation to SVB, which was approximately $9.6 million at December 28, 2003. If the Company is unable to raise additional funds through debt or equity, the Company believes it can reduce spending to allow existing available cash to last through the first quarter of 2005.

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Contractual Obligations

        The following summarizes the Company's contractual obligations at December 28, 2003, and the effect such obligations are expected to have on its liquidity and cash flow in future periods.

        The Company is party to license agreements for certain technologies (see Note 14 of the "Notes to the Consolidated Financial Statements"). In July 2001, the Company reacquired Genzyme's ownership interest in the ATIII LLC joint venture in exchange for a royalty to Genzyme based on the Company's sales of ATryn®, if any, commencing three years after the first commercial sale, up to a cumulative maximum of $30 million. Certain of these other agreements contain provisions for future royalties to be paid on commercial sales of products developed from the licensed technologies. Currently, the amounts payable under these other agreements and any resulting commitments on the Company's behalf are unknown and are not able to be estimated since the level of future sales, if any, is uncertain. Accordingly, they are not included in the preceding table.

        In January 2004, the Company entered into a Loan Modification Agreement with SVB. This Modification Agreement reduced from $25 million to $18.2 million the amount the Company must maintain as unrestricted cash and marketable securities before the Company is required to provide cash collateral for the outstanding obligation to SVB, which was approximately $9.6 million at December 28, 2003. 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.

        The Company has entered into transactions with related parties (see Note 16 of the "Notes to Consolidated Financial Statements") in the normal course of business. The terms of these transactions are considered to be at arms-length.

New Accounting Pronouncements

        In January 2003, the FASB issued FASB Interpretation No. 46 or FIN 46, "Consolidation of Variable Interest Entities," to expand upon and strengthen existing accounting guidance that addresses when a company should include in its financial statements the assets, liabilities and activities of another entity. Until now, one company generally has included another entity in its consolidated financial statements only if it controlled the entity through voting interests. FIN 46 changes that by requiring a variable interest entity (VIE), as defined, to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity's activities or entitled to receive a majority of the entity's residual returns or both. FIN 46 also requires disclosures about variable interest entities that the company is not required to consolidate but in which it has a significant variable interest. In December 2003, the FASB released a revised version of FIN 46 (hereafter referred to as FIN 46R) clarifying certain aspects of FIN 46 and providing certain entities with exemptions from the requirements of FIN 46. The variable interest model of FIN 46R was only slightly modified from that

25

contained in FIN 46. A VIE would be required to be consolidated if either of the following conditions are met:

1.

The total equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support provided by any parties, including equity holders.

2.

The equity investors lack any one of the following three characteristics of a controlling interest:

•

The direct or indirect ability through voting rights or similar rights to make decisions about an entity's activities that have a significant effect on the success of the entity.

•

The obligation to absorb the expected losses of the entity.

•

The right to receive the expected residual returns of the entity.

        FIN 46R requires the application of either FIN 46 or FIN 46R by public entities to all Special Purpose Entities ("SPEs") created prior to February 1, 2003 at the end of the first interim or annual reporting period ending after December 15, 2003. All entities created after January 31, 2003 by Public Entities were already required to be analyzed under FIN 46, and they must continue to do so, unless FIN 46R is adopted early. FIN 46R will be applicable to all non-SPEs created prior to February 1, 2003 by Public Entities that are not small business issuers at the end of the first interim or annual reporting period ending after March 15, 2004. The Company does not expect the provisions of FIN 46 to have a material effect on its results of operations and financial position.

        In December 2003, the SEC released Staff Accounting Bulletin No. 104 (SAB 104) entitled, "Revenue Recognition." SAB 104 updates portions of the interpretative guidance included in Topic 13 of the codification of staff accounting bulletins in order to make this interpretive guidance consistent with current authoritative accounting guidance. The principal revisions relate to the deletion of interpretive material no longer necessary because of private sector developments in U.S. generally accepted accounting principles, and the incorporation of certain sections of the staff's "Revenue Recognition in Financial Statements Frequently Asked Questions and Answers" document into Topic 13.

Factors Affecting Future Operations and Results

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

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ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        The Company has certain financial instruments at December 28, 2003, including a term loan, an equipment line of credit, a revolving line of credit to cover small needs such as letters of credit, a promissory note payable and a standby letter of credit which are sensitive to changes in interest rates. The Company's term loan with a commercial bank has a carrying value of $6.6 million which approximates its fair value. The Company's $6.3 million equipment line of credit with a commercial bank accrues interest at the prime rate. The Company's standby letter of credit of $249,360 is required under a facility lease. The Company's promissory note in the amount of $4.8 million is payable to Genzyme. At December 28, 2003, $5.5 million is outstanding under the equipment line of credit and nothing has been drawn down on the revolving line of credit or standby letter of credit. These instruments are not leveraged and are held for purposes other than trading.

        For the term loan, equipment line and promissory note outstanding, the table below presents the principal cash payments that exist by maturity date.

        The interest rates on the term loan, equipment line and promissory note payable were 4%, 4% and 2.17% respectively, at December 28, 2003.

Interest Rate Risk

        The Company does not engage in trading market risk sensitive instruments or purchasing hedging instruments or "other than trading" instruments that are likely to expose the Company to market risk, whether interest rate, foreign currency exchange, commodity price or equity price risk. The Company has not purchased options or entered into swaps, or forward or future contracts. The Company's primary market risk is interest rate risk on borrowings under its commercial bank loan, these interest rates are based on the prime rate. The aggregate hypothetical loss in earnings for one year on the borrowing held by the Company at December 28, 2003, assuming a hypothetical 6% percent interest rate is approximately $849,000 after tax. The hypothetical loss was based on financial instruments held by the Company at December 28, 2003. Fixed rate financial instruments were not evaluated.

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 15.

ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

        None.

ITEM 9A.    CONTROLS AND PROCEDURES

(a)

Evaluation of Disclosure Controls and Procedures.

27

The Company's management, with the participation of its principal executive officer and principal financial officer, has evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, the "Exchange Act") as of December 28, 2003. Based on this evaluation, the principal executive officer and the principal financial officer concluded that the Company's disclosure controls and procedures were effective and designed to ensure that the information required to be disclosed in the reports filed or submitted by it under the Exchange Act is recorded, processed, summarized and reported within the requisite time periods.

(b)

Changes in Internal Control over Financial Reporting.

There was not change in the Company's internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act of 1934, as amended) identified in connection with the evaluation of the Company's internal control that occurred during its last fiscal quarter that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.

PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

        The requisite information regarding the Company's directors, executive officers and audit committee members is contained in part under the caption "Executive Officers of the Registrant" in Part I, Item 1A hereof and the remainder is incorporated by reference from the discussion responsive thereto under the captions "Election of Directors" and "Section 16(a) Beneficial Ownership Reporting and Compliance" in the Company's Proxy Statement for the 2004 Annual Meeting of Stockholders to be held on May 26, 2004 (the "Proxy Statement"). The Company has adopted a Code of Business Conduct and Ethics that applies to its chief executive officer, chief financial officer, and controllers. A copy of this Code of Business Conduct and Ethics is available without charge upon request from the Chief Financial Officer at GTC Biotherapeutics, Inc., 175 Crossing Boulevard, Framingham, MA 01702. If the Company makes any substantive amendments to this Code of Business Conduct and Ethics or grants any waiver from a provision of it, the Company will disclose the nature of such amendment or waiver on its website at www.gtc-bio.com or in a Current Report on Form 8-K.

ITEM 11.    EXECUTIVE COMPENSATION

        The information set forth under the captions "Compensation and Other Information Concerning Directors and Officers" in the 2004 Proxy Statement is incorporated herein by reference.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

        The information set forth under the captions "Security Ownership of Certain Beneficial Owners and Management" and "Securities Authorized for Issuance Under Equity Compensation Plans" in the 2004 Proxy Statement is incorporated herein by reference.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        The information set forth under the caption "Transactions with Related Parties" in the 2004 Proxy Statement is incorporated herein by reference. See also Notes 9 and 14 to the Consolidated Financial Statements included herewith.

ITEM 14.

        This information set forth under the caption "Auditors" in the 2004 Proxy Statement is incorporated herein by reference.

28

PART IV

ITEM 15.    EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K

(a)(1)(2)  Financial Statements and Financial Statement Schedule.

        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.

(3)    Exhibits

29

30

31

32

33

*

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.

**

Indicates a management contract or compensatory plan.

(b)    Reports on Form 8-K

On November 12, 2003, the Company filed with the SEC a Current Report on Form 8-K (Items 9 and 12) reporting the Company's financial results for the third quarter of 2003.*

*

Information furnished under Item 9 or Item 12 of Form 8-K is not incorporated by reference, is not deemed filed and is not subject to liability under Section 11 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934.

34

Report of Independent Auditors

To the Board of Directors and Shareholders of GTC Biotherapeutics, Inc.:

        In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations and comprehensive loss, of shareholders' equity and of cash flows present fairly, in all material respects, the financial position of GTC Biotherapeutics, Inc. and its subsidiaries at December 28, 2003 and December 29, 2002, and the results of their operations and their cash flows for each of the three years in the period ended December 28, 2003 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
March 4, 2004

35

GTC BIOTHERAPEUTICS, INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands except share amounts)

The accompanying notes are an integral part of the consolidated financial statements.

36

GTC BIOTHERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Dollars in thousands except share and per share amounts)

The accompanying notes are an integral part of the consolidated financial statements.

37

GTC BIOTHERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(In Thousands)