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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)

For the fiscal year ended December 31, 2004

Or

For the transition period from                      to                     .

Commission File Number: 000-26727

BioMarin Pharmaceutical Inc.

(Exact name of registrant as specified in its charter)

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

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

None

Securities registered under Section 12(g) of the Act:

Common Stock, $.001 par value

Preferred Share Purchase Rights

(Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

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

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

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

The documents incorporated by reference are as follows:

Portions of the Registrant’s Proxy Statement for the Annual Meeting of Stockholders to be held May 24, 2005, are incorporated by reference into Part III.

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BIOMARIN PHARMACEUTICAL INC.

Part I

FORWARD LOOKING STATEMENTS

This Form 10-K contains “forward-looking statements” as defined under securities laws. Many of these statements can be identified by the use of terminology such as “believes,” “expects,” “anticipates,” “plans,” “may,” “will,” “projects,” “continues,” “estimates,” “potential,” “opportunity” and similar expressions. These forward-looking statements may be found in “Factors That May Affect Future Results,” “Description of Business,” and other sections of this Form 10-K. Our actual results or experience could differ significantly from the forward-looking statements. Factors that could cause or contribute to these differences include those discussed in “Factors That May Affect Future Results,” as well as those discussed elsewhere in this Form 10-K. You should carefully consider that information before you make an investment decision.

You should not place undue reliance on these statements, which speak only as of the date that they were made. These cautionary statements should be considered in connection with any written or oral forward-looking statements that we may issue in the future. We do not undertake any obligation to release publicly any revisions to these forward-looking statements after completion of the filing of this Form 10-K to reflect later events or circumstances or to reflect the occurrence of unanticipated events.

Item 1. Description of Business

Overview

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

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

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

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

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

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

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

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

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

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

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

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

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

Recent Developments

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

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

Settlement with Medicis

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

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

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

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

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

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

Commercial Products

Aldurazyme

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

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

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

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

Orapred

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

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

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

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

Lead Product Candidates

rhASB

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

Phenoptin

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

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

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Other Product Development Programs

Vibrilase

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

Phenylase^™

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

NeuroTrans

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

Immune Tolerance Technology

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

Manufacturing

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

In general, we expect to contract with outside service providers for certain manufacturing services, including final product vialing and packaging operations for our recombinant enzymes and bulk production for

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

Our Galli Drive and our cGMP warehouse facilities have been licensed by the FDA, EMEA, Health Canada and health agencies in other countries for the commercial production of Aldurazyme. Our facilities and those of any third-party manufacturers will be subject to periodic inspections confirming compliance with applicable law. Our facilities must be cGMP certified before we can manufacture our drugs for commercial sales. Failure to comply with these requirements could result in the shutdown of our facilities or the assessment of fines or other penalties.

Raw Materials

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

Sales and Marketing

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

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

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

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

Patents and Proprietary Rights

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

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

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

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

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

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

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

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

Customers

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

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

Government Regulation

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

The Modernization Act was enacted, in part, to ensure the availability of safe and effective drugs and medical devices by expediting the FDA review process for new products. The Modernization Act establishes a statutory program for the approval of fast track products. The fast track provisions essentially codify the FDA’s accelerated approval regulations for drugs. A fast track product is defined as a new drug intended for the treatment of a serious or life-threatening condition that demonstrates the potential to address unmet medical needs for that condition. Under the fast track program, the sponsor of a new drug may request that the FDA designate the drug as a fast track product at any time during the clinical development of the product. The Modernization Act specifies that the FDA must determine if the product qualifies for fast track designation within 60 days of receipt of the sponsor’s request.

Approval of a license application for a fast track product can be based on a clinical endpoint or on a surrogate endpoint that is reasonably likely to predict clinical benefit. Approval of a license application for a fast track product may be subject to post-approval studies to validate or confirm the effect on the clinical endpoint, or, if based on a surrogate endpoint, to validate or confirm the surrogate endpoint, plus the FDA must review all promotional materials prior to drug approval. If a preliminary review of the clinical data suggests that the product is effective, the FDA may initiate review of sections of a license application for a fast track product before the application is complete. This rolling review is available if the applicant provides a schedule for submission of remaining information and pays applicable user fees. However, the time period specified in the Prescription Drug User Fees Act (PDUFA), which governs the time period goals the FDA has committed to reviewing a license application, does not begin until the complete application is submitted.

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

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

Orphan Drug Designation

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

Orphan drug designation does not shorten the regulatory review and approval process for an orphan drug, nor does it give that drug any advantage in the regulatory review and approval process. However, if an orphan

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drug later receives approval for the indication for which it has designation, the relevant regulatory authority may not approve any other applications to market the same drug for the same indication, except in very limited circumstances, for seven years in the U.S. and 10 years in Europe. Although obtaining approval to market a product with orphan drug exclusivity may be advantageous, we cannot be certain:

Competition

The biopharmaceutical industry is rapidly evolving and highly competitive. The following is a summary competitive analysis for known competitive threats for each of our major product programs:

Aldurazyme

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

Orapred

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

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rhASB

We know of no active competitive program for enzyme replacement therapy for MPS VI that has entered clinical trials.

Gene therapy is a potential competitive threat to enzyme replacement therapies for both MPS I and MPS VI. We know of no competitive program using gene therapy for the treatment of either MPS I or MPS VI that has entered clinical trials.

Phenoptin and Phenylase

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

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

Vibrilase

Other enzymatic products exist besides Vibrilase that may be used for the debridement of serious second or third degree burns. Those products in their current form have not captured any meaningful share of the debridement function in the treatment of burn patients. However, we are aware of another company that is developing an enzymatic product for the debridement of serious burns. The primary competition for Vibrilase continues to be surgical debridement.

Employees

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

We consider our employee relations to be good. Our employees are not covered by a collective bargaining agreement. We have not experienced employment related work stoppages.

FACTORS THAT MAY AFFECT FUTURE RESULTS

An investment in our securities involves a high degree of risk. We operate in a dynamic and rapidly changing industry that involves numerous risks and uncertainties. The risks and uncertainties described below are not the only ones we face. Other risks and uncertainties, including those that we do not currently consider material, may impair our business. If any of the risks discussed below actually occur, our business, financial condition, operating results or cash flows could be materially adversely affected. This could cause the trading price of our securities to decline, and you may lose all or part of your investment.

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If we continue to incur operating losses for a period longer than anticipated, we may be unable to continue our operations at planned levels and be forced to reduce or discontinue operations.

Since we began operations in March 1997, we have been engaged primarily in research and development and have operated at a net loss for the entire time. Our first product, Aldurazyme, was approved for commercial sale in the U.S. and the E.U. and has generated approximately $54.1 million in net sales revenue to our joint venture from the product’s launch (May 2003) through December 31, 2004. We acquired exclusive rights to Orapred in May 2004 and reported $18.6 million in Orapred net product sales following the acquisition through December 31, 2004. We have no revenues from sales of our product candidates. As of December 31, 2004, we had an accumulated deficit of $488.8 million. We expect to continue to operate at a net loss for the foreseeable future. Our future profitability depends on our marketing and selling of Orapred, the successful commercialization of Aldurazyme by our joint venture partner, Genzyme, our receiving regulatory approval of our product candidates and our ability to successfully manufacture and market any approved drugs, either by ourselves or jointly with others. The extent of our future losses and the timing of profitability are highly uncertain. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or discontinue operations.

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

We anticipate a need for additional financing to fund our future operations, including the commercialization of our drug product candidates currently under development. We may be unable to raise additional financing when needed due to a variety of factors, including our financial condition, the status of our product programs, and the general condition of the financial markets. If we fail to raise additional financing as we need such funds, we will have to delay or terminate some or all of our product development programs.

We expect to continue to spend substantial amounts of capital for our operations for the foreseeable future. The amount of capital we will need depends on many factors, including:

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

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

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

We must obtain regulatory approval before marketing or selling our drug products in the U.S. and in foreign jurisdictions. In the U.S., we must obtain FDA approval for each drug that we intend to commercialize. The FDA approval process is typically lengthy and expensive, and approval is never certain. Products distributed abroad are also subject to foreign government regulation. Both Aldurazyme and Orapred have received regulatory approval to be commercially marketed and sold in the U.S., and Aldurazyme has received regulatory approval to be commercially marketed and sold in the E.U. and several other countries. If we fail to obtain regulatory approval for our other product candidates, we will be unable to market and sell those drug products. Because of the risks and uncertainties in pharmaceutical development, our product candidates could take a significantly longer time to gain regulatory approval than we expect or may never gain approval.

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

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

To obtain regulatory approval to market our products, preclinical studies and costly and lengthy clinical trials are required and the results of the studies and trials are highly uncertain.

As part of the regulatory approval process, we must conduct, at our own expense, preclinical studies in the laboratory on animals and clinical trials on humans for each product candidate. We expect the number of preclinical studies and clinical trials that the regulatory authorities will require will vary depending on the product candidate, the disease or condition the drug is being developed to address and regulations applicable to the particular drug. We may need to perform multiple preclinical studies using various doses and formulations before we can begin clinical trials, which could result in delays in our ability to market any of our product candidates. Furthermore, even if we obtain favorable results in preclinical studies on animals, the results in humans may be significantly different.

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After we have conducted preclinical studies in animals, we must demonstrate that our drug products are safe and efficacious for use on the targeted human patients in order to receive regulatory approval for commercial sale.

Adverse or inconclusive clinical results would stop us from filing for regulatory approval of our product candidates. Additional factors that can cause delay or termination of our clinical trials include:

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

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

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

We will not be able to sell our products if we fail to comply with manufacturing regulations.

Before we can begin commercial manufacture of our products, we must obtain regulatory approval of our manufacturing facilities, processes and quality systems; and the manufacture of our drugs must comply with cGMP regulations. The cGMP regulations govern facility compliance, quality control and documentation policies and procedures. In addition, our manufacturing facilities are continuously subject to inspection by the FDA, the State of California and foreign regulatory authorities, before and after product approval. Our Galli Drive and cGMP warehouse facilities have been inspected and licensed by the State of California for clinical pharmaceutical manufacture and have been approved by the FDA, the EMEA and Health Canada for the commercial manufacture of Aldurazyme. We have entered into contracts with third-party manufacturers to produce Orapred and Phenoptin.

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

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

As part of our business strategy, we intend to develop some drugs that may be eligible for FDA and European Community orphan drug designation. Under the Orphan Drug Act, the FDA may designate a product as an orphan drug if it is a drug intended to treat a rare disease or condition, defined as a patient population of less than 200,000 in the U.S. The company that first obtains FDA approval for a designated orphan drug for a given rare disease receives marketing exclusivity for use of that drug for the stated condition for a period of seven years. Orphan drug exclusive marketing rights may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the drug. Similar regulations are available in the E.U. with a 10-year period of market exclusivity.

Because the extent and scope of patent protection for some of our drug products is particularly limited, orphan drug designation is especially important for our products that are eligible for orphan drug designation. For eligible drugs, we plan to rely on the exclusivity period under the orphan drug designation to maintain a competitive position. If we do not obtain orphan drug exclusivity for our drug products that do not have patent protection, our competitors may then sell the same drug to treat the same condition and our revenues will be reduced.

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

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

Aldurazyme and rhASB both target diseases with small patient populations. As a result, our per-patient prices must be relatively high in order to recover our development costs and achieve profitability. Aldurazyme targets patients with MPS I and rhASB targets patients with MPS VI. We believe that we will need to market worldwide to achieve significant market penetration of each product. In addition, we are developing other drug candidates to treat conditions, such as other genetic diseases, with small patient populations. Due to the expected costs of treatment for Aldurazyme and rhASB, we may be unable to maintain or obtain sufficient market share for Aldurazyme or rhASB at a price high enough to justify our product development efforts.

If we fail to obtain an adequate level of reimbursement for our drug products by third-party payers, the sales of our drugs would be adversely affected or there may be no commercially viable markets for our products.

The course of treatment for patients using Aldurazyme and rhASB is expensive. We expect patients to need treatment throughout their lifetimes. We expect that most families of patients will not be capable of paying for this treatment themselves. There will be no commercially viable market for Aldurazyme or rhASB without reimbursement from third-party payers. Additionally, even if there is a commercially viable market, if the level of reimbursement is below our expectations, our revenue and gross margins will be adversely affected.

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

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

Third-party payers, such as government or private health care insurers, carefully review and increasingly challenge the prices charged for drugs. Reimbursement rates from private companies vary depending on the third-party payer, the insurance plan and other factors. Reimbursement systems in international markets vary significantly by country and by region, and reimbursement approvals must be obtained on a country-by-country basis.

We currently have limited expertise in obtaining reimbursement. We rely on the expertise of our joint venture partner, Genzyme, to obtain reimbursement for the costs of Aldurazyme. In addition, we will need to develop our own reimbursement expertise for future drug candidates and as necessary to support Orapred. For our future products, we will not know what the reimbursement rates will be until we are ready to market the product and we actually negotiate the rates. If we are unable to obtain sufficiently high reimbursement rates, our products may not be commercially viable or our future revenues and gross margins may be adversely affected.

We expect that, in the future, reimbursement will be increasingly restricted both in the U.S. and internationally. The escalating cost of health care has led to increased pressure on the health care industry to reduce costs. Governmental and private third-party payers have proposed health care reforms and cost reductions. A number of federal and state proposals to control the cost of health care, including the cost of drug treatments, have been made in the U.S. In some foreign markets, the government controls the pricing, which would affect the profitability of drugs. Current government regulations and possible future legislation regarding health care may affect reimbursement for medical treatment by third-party payers, which may render our products not commercially viable or may adversely affect our future revenues and gross margins.

If we are unable to protect our proprietary technology, we may not be able to compete as effectively.

Where appropriate, we seek patent protection for certain aspects of our technology. Patent protection may not be available for some of the products we are developing. If we must spend significant time and money protecting our patents, designing around patents held by others or licensing, for large fees, patents or other proprietary rights held by others, our business and financial prospects may be harmed.

The patent positions of biopharmaceutical products are complex and uncertain. The scope and extent of patent protection for some of our products and product candidates are particularly uncertain because key information on some of our product candidates has existed in the public domain for many years. Other parties have published the structure of the enzymes and compounds, the methods for purifying or producing the enzymes and compounds or the methods of treatment. The composition and genetic sequences of animal and/or human versions of Aldurazyme and many of our product candidates have been published and are believed to be in the public domain. Publication of this information may prevent us from obtaining composition-of-matter patents, which are generally believed to offer the strongest patent protection.

For enzymes or compounds with no prospect of broad composition-of-matter patents, other forms of patent protection or orphan drug status may provide us with a competitive advantage. As a result of these uncertainties, investors should not rely on patents as a means of protecting our products or product candidates, including Aldurazyme or Orapred.

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

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In addition, competitors also seek patent protection for their technology. Due to the number of patents in our field of technology, we cannot be certain that we do not infringe on those patents or that we will not infringe on patents granted in the future. If a patent holder believes our product infringes on their patent, the patent holder may sue us even if we have received patent protection for our technology. If someone else claims we infringe on their technology, we would face a number of issues, including the following:

It is also unclear whether our trade secrets are adequately protected. While we use reasonable efforts to protect our trade secrets, our employees or consultants may unintentionally or willfully disclose our information to competitors. Enforcing a claim that someone else illegally obtained and is using our trade secrets, like patent litigation, is expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the U.S. are sometimes less willing to protect trade secrets. Our competitors may independently develop equivalent knowledge, methods and know-how.

We may also support and collaborate in research conducted by government organizations, hospitals, universities or other educational institutions. These research partners may be unwilling to grant us any exclusive rights to technology or products derived from these collaborations prior to entering into the relationship.

If we do not obtain required licenses or rights, we could encounter delays in our product development efforts while we attempt to design around other patents or even be prohibited from developing, manufacturing or selling products requiring these licenses. There is also a risk that disputes may arise as to the rights to technology or products developed in collaboration with other parties.

The United States Patent and Trademark Office (USPTO) has issued three patents to a third-party that relate to alpha-L-iduronidase. If we are not able to successfully challenge these patents, we may be prevented from producing Aldurazyme in the U.S. unless and until we obtain a license.

The USPTO has issued three patents to a third-party that include composition-of-matter, isolated genomic nucleotide sequences, vectors including the sequences, host cells containing the vectors, and method of use

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claims for human, recombinant alpha-L-iduronidase. Our lead drug product, Aldurazyme, is based on human, recombinant alpha-L-iduronidase. We believe that these patents are invalid or not infringed on a number of grounds. A corresponding patent application was filed in the European Patent Office claiming composition-of-matter for human, recombinant alpha-L-iduronidase, and it was rejected over prior art and withdrawn and cannot be re-filed. However, corresponding applications are still pending in Canada and Japan, and these applications are being prosecuted by the applicants. We do not know whether any of these applications will issue as patents or the scope of the claims that would issue from these applications. In addition, under U.S. law, issued patents are entitled to a presumption of validity, and our challenges to the U.S. patents may be unsuccessful. Even if we are successful, challenging the U.S. patents may be expensive, require our management to devote significant time to this effort and may adversely impact commercialization of Aldurazyme in the U.S.

The holder of the patents described above has granted an exclusive license for products relating to these patents to one of our competitors, Transkaryotic Therapies Inc (TKT). If we are unable to successfully challenge the patents, we may be unable to produce Aldurazyme in the U.S. (or in Canada or Japan, should patents issue in these countries) unless we can reach an accommodation with the patent holder and licensee. Neither the current licensee nor the patent holder is required to grant us a license or other accommodation and even if a license or other accommodation is available, we may have to pay substantial license fees, which could adversely affect our business and operating results.

On October 8, 2003, Genzyme and TKT announced their collaboration to develop and commercialize an unrelated drug product. In connection with the collaboration agreement, Genzyme and TKT signed a global legal settlement involving an exchange of non-suits between the companies. As part of this exchange, TKT has agreed not to initiate any patent litigation against Genzyme or our joint venture relating to Aldurazyme. If any or all of the TKT-licensed patents are deemed (or ruled) to cover Aldurazyme, our joint venture may be required to reach additional accommodations with the holder of the patents, who is not party to the TKT-Genzyme settlement discussed above.

If our joint venture with Genzyme were terminated, we could be barred from commercializing Aldurazyme or our ability to successfully commercialize Aldurazyme would be delayed or diminished.

We are relying on Genzyme to apply the expertise it has developed through the launch and sale of other enzyme-based products to the marketing of Aldurazyme. We have no experience selling, marketing or obtaining reimbursement for orphan pharmaceutical products. In addition, without Genzyme we would be required to pursue foreign regulatory approvals. We have limited experience in seeking foreign regulatory approvals.

Either Genzyme or we may terminate the joint venture for specified reasons, including if the other party is in material breach of the agreement, has experienced a change of control, has declared bankruptcy and also is in breach of the agreement. Although we are not currently in breach of the joint venture agreement and we believe that Genzyme is not currently in breach of the joint venture agreement, there is a risk that either party could breach the agreement in the future. Either party may also terminate the agreement upon one year prior written notice for any reason.

If the joint venture is terminated for breach, the non-breaching party would be granted, exclusively, all of the rights to Aldurazyme and any related intellectual property and regulatory approvals and would be obligated to buy out the breaching party’s interest in the joint venture. If we are the breaching party, we would lose our rights to Aldurazyme and the related intellectual property and regulatory approvals. If the joint venture is terminated without cause, the non-terminating party would have the option, exercisable for one year, to buy out the terminating party’s interest in the joint venture and obtain all rights to Aldurazyme exclusively. In the event of termination of the buy out option without exercise by the non-terminating party as described above, all right and title to Aldurazyme is to be sold to the highest bidder, with the proceeds to be split equally between Genzyme and us.

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If the joint venture is terminated by either party because the other declared bankruptcy and is also in breach of the agreement, the terminating party would be obligated to buy out the other and would obtain all rights to Aldurazyme exclusively. If the joint venture is terminated by a party because the other party experienced a change of control, the terminating party shall notify the other party, the offeree, of its intent to buy out the offeree’s interest in the joint venture for a stated amount set by the terminating party at its discretion. The offeree must then either accept this offer or agree to buy the terminating party’s interest in the joint venture on those same terms. The party who buys out the other would then have exclusive rights to Aldurazyme.

If we were obligated, or given the option, to buy out Genzyme’s interest in the joint venture, and gain exclusive rights to Aldurazyme, we may not have sufficient funds to do so and we may not be able to obtain the financing to do so. If we fail to buy out Genzyme’s interest we may be held in breach of the agreement and may lose any claim to the rights to Aldurazyme and the related intellectual property and regulatory approvals. We would then effectively be prohibited from developing and commercializing Aldurazyme.

If the joint venture is terminated and we retain the rights to Aldurazyme, we could experience significant difficulties and delays in obtaining third-party reimbursement or we could fail to obtain foreign regulatory approvals, any of which could hurt our business and results of operations. Since Genzyme funds 50% of the joint venture’s product inventory and operating expenses, the termination of the joint venture would double our financial burden and reduce the funds available to us for other product programs.

If our license agreement with Ascent Pediatrics is terminated or becomes non-exclusive we could be barred from commercializing Orapred or our ability to successfully commercialize Orapred could be diminished and our revenue could decrease significantly.

The license agreement with Ascent Pediatrics is terminable upon specified material breaches by Ascent Pediatrics or us. If the license agreement were terminated, we would no longer have the ability to manufacture, market, sell, or distribute Orapred and our revenue could decrease significantly.

Ascent Pediatrics has the right under the license agreement to cause the license to become non-exclusive in the event of certain specified breaches by us. If the license becomes non-exclusive, Ascent Pediatrics would be able to commercialize Orapred itself or license it to others, which could reduce our competitive advantage and which could reduce our revenue significantly.

If the option under the securities purchase agreement with Medicis to purchase all of the issued and outstanding capital stock of Ascent Pediatrics is accelerated by Medicis, we may not have sufficient funds to exercise the option, which could result in a termination of the license agreement and our revenue could decrease significantly.

We are obligated to exercise the option under our securities purchase agreement with Medicis to purchase all issued and outstanding capital stock of Ascent Pediatrics in approximately four years unless our product sales from the Ascent Pediatrics business for the 12 months ending March 31, 2009 exceed 150% of the Ascent Pediatrics business product sales in the 12 months ended March 31, 2004, in which event we would have the right not to exercise the option. The exercise of the option is subject to acceleration on specified material breaches of our license agreement with Ascent Pediatrics or a bankruptcy or insolvency proceeding involving Medicis or Ascent Pediatrics, and if such acceleration is due to a specified breach of the license by us, then the option exercise price together with an amount equal to all license payments remaining under our license agreement with Ascent Pediatrics will become due on the accelerated closing date for the purchase of shares under the option.

If the option were accelerated, we may not have sufficient funds at that time to exercise the option and/or to make the license payments, and may not be able to obtain the financing to do so, in which case we would not be able to consummate the transaction to acquire such shares and would be in breach of the license agreement and

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the securities purchase agreement. If we are in breach of the license agreement, Ascent Pediatrics may terminate the license and we would no longer have the ability to manufacture, market, sell, or distribute Orapred and our revenue could decrease significantly.

If we are unable to successfully develop manufacturing processes for our drug products to produce sufficient quantities and at acceptable costs, we may be unable to meet demand for our products and lose potential revenue, have reduced margins or be forced to terminate a program.

Although we manufacture Aldurazyme at commercial scale and within our cost parameters, due to the complexity of manufacturing our products we may not be able to manufacture any other drug product successfully with a commercially viable process or at a scale large enough to support their respective commercial markets or at acceptable margins.

Our manufacturing processes may not meet initial expectations and we may encounter problems with any of the following if we attempt to increase the scale or size, or improve the commercial viability of our manufacturing processes:

Improvements in manufacturing processes typically are very difficult to achieve and are often very expensive and may require extended periods of time to develop. If we contract for manufacturing services with an unproven process, our contractor is subject to the same uncertainties, high standards and regulatory controls, and may therefore experience difficulty if further process development is necessary.

The availability of suitable contract manufacturing capacity at scheduled or optimum times is not certain. The cost of contract manufacturing is generally greater than internal manufacturing and therefore our manufacturing processes must be of higher productivity to result in equivalent margins.

Although we have entered into contractual relationships with third-party manufacturers to produce Orapred, if those manufacturers are unwilling or unable to fulfill their contractual obligations, we may be unable to meet demand for that product or sell that product at all, and we may lose potential revenue.

We have built-out approximately 54,000 square feet at our Galli Drive facility for manufacturing capability for Aldurazyme and rhASB, including related quality control laboratories, materials capabilities, and support areas. We expect to add additional capabilities in stages over time, which could create additional operational complexity and challenges. We expect that developing manufacturing processes for all of our product candidates, including rhASB, will require significant time and resources before we can begin to manufacture them (or have them manufactured by third parties) in commercial quantity at an acceptable cost.

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In order to achieve our product cost targets, we must develop efficient manufacturing processes either by:

A recombinant cell line is a cell line with foreign DNA inserted that is used to produce an enzyme or other protein that it would not otherwise produce. The development of a stable, high production cell line for any given enzyme or other protein is difficult, expensive and unpredictable and may not result in adequate yields. In addition, the development of protein purification processes is difficult and may not produce the high purity required with acceptable yield and costs or may not result in adequate shelf-lives of the final products. If we are not able to develop efficient manufacturing processes, the investment in manufacturing capacity sufficient to satisfy market demand will be much greater and will place heavy financial demands upon us. If we do not achieve our manufacturing cost targets we may be unable to meet demand for our products and lose potential revenue, have reduced margins or be forced to terminate a program.

In addition, our manufacturing processes subject us to a variety of federal, state and local laws and regulations governing the use, generation, manufacture, storage, handling and disposal of hazardous materials and wastes resulting from their use. We may incur significant costs in complying with these laws and regulations.

If our manufacturing processes have a higher than expected failure rate, we may be unable to meet demand for our products and lose potential revenue, have reduced margins, or be forced to terminate a program.

The processes we use to manufacture our product and product candidates are extremely complex. Many of the processes include biological systems, which add significant complexity, as compared to chemical synthesis. We expect that, from time to time, consistent with biotechnology industry expectations, certain production lots will fail to produce product that meets our quality control release acceptance criteria. To date, our historical failure rates for all of our product programs, including Aldurazyme, have been within our expectations, which are based on industry norms.

In order to produce product within our time and cost parameters, we must continue to produce product within expected failure parameters. Because of the complexity of our manufacturing processes, it may be difficult or impossible for us to determine the cause of any particular lot failure and we must effectively and timely take corrective action in response to any failure.

If we are unable to effectively address manufacturing issues, we may be unable to meet demand for our products and lose potential revenue, have reduced margins, or be forced to terminate a program.

Our sole manufacturing facility for Aldurazyme and rhASB is located near known earthquake fault zones, and the occurrence of an earthquake or other catastrophic disaster could cause damage to our facility and equipment, or that of our third-party manufacturers, which could materially impair our ability to manufacture Aldurazyme and rhASB or our third-party manufacturer’s ability to manufacture Orapred.

Our Galli Drive facility is our only manufacturing facility for Aldurazyme and rhASB. It is located in the San Francisco Bay Area near known earthquake fault zones and is vulnerable to significant damage from earthquakes. We, and the third-party manufacturers with whom we contract, are also vulnerable to damage from other types of disasters, including fires, floods, power loss and similar events. If any disaster were to occur, our ability to manufacture Aldurazyme and rhASB, or to have Orapred manufactured for us, could be seriously, or

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potentially completely impaired, we could incur delays in our development of rhASB, and our Aldurazyme and Orapred commercialization efforts and revenue from the sale of Aldurazyme and Orapred could be seriously impaired. The insurance we maintain may not be adequate to cover our losses resulting from disasters or other business interruptions.

A majority of our revenue comes from sales of Orapred and decreased sales or increased operational costs related to Orapred could have an adverse affect on our revenues and operating expenses.

A majority of our revenue comes from sales of Orapred, and we anticipate that this will continue in the near term. As such, our operating results are and will be dependent on the sales and performance of Orapred. Decreased sales or increased operational costs related to Orapred, whether due to increased competition, pricing pressure from managed care organizations, increased costs of raw materials or otherwise, could have an adverse affect on our revenues and operating expenses.

In the third quarter of 2004, the FDA approved a generic product that has the same strength and active ingredient as Orapred. Although there are several other products on the market that have the same or similar ingredients, this is the first product that has the exact same drug substance and concentration as Orapred. Furthermore, the generic product has an AA equivalence rating to Orapred and therefore may be substituted at pharmacies without consulting the prescribing physician. This product has caused Orapred to lose significant market share and we expect that our revenue will continue to decrease. While we are implementing strategies to mitigate the loss of market share, at this time we cannot estimate the magnitude of this impact or if the impact will be short-term or permanent. However, we expect that the impact will continue to be significant and that our revenues and operating expenses will be adversely affected.

We depend on a limited number of customers, and if we lose any of them, our business could be harmed.

Our Orapred customers include some of the nation’s leading wholesale pharmaceutical distributors, such as AmerisourceBergen, Cardinal and McKesson. For the year ended December 31, 2004, product sales to these three customers accounted for 84% of our net product sales. The loss of any of these customers’ accounts or a material reduction in their purchases could harm our business, financial condition or results of operations. In addition, we may face pricing pressure from our customers.

The distribution network for pharmaceutical products has, in recent years, been subject to increasing consolidation. As a result, a few large wholesale distributors control a significant share of the market. In addition, the number of independent drug stores and small chains has decreased as retail consolidation has occurred. Further consolidation among, or any financial difficulties of, distributors or retailers could result in the combination or elimination of warehouses which may result in product returns to our company, cause a reduction in the inventory levels of distributors and retailers, or otherwise result in reductions in purchases of our products, any of which could harm our business, financial condition and results of operations.

Supply interruptions may disrupt our inventory levels and the availability of our products and cause a loss of our market share and reduce our revenues.

Numerous factors could cause interruptions in the supply of our finished products, including:

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We try to maintain inventory levels that are no greater than necessary to meet our current projections. Any interruption in the supply of finished products could hinder our ability to timely distribute finished products. If we are unable to obtain adequate product supplies to satisfy our customers’ orders, we may lose those orders and our customers may cancel other orders and stock and sell competing products. This, in turn, could cause a loss of our market share and reduce our revenues.

Fluctuations in demand for our products create inventory maintenance uncertainties.

We sell our products primarily to major wholesalers and retail pharmacy chains. Consistent with pharmaceutical industry patterns, approximately 84% of our revenues are derived from three major drug wholesale concerns. While we attempt to estimate inventory levels of our products at our major wholesale customers, using historical prescription information and purchase patterns, this process is inherently imprecise. We rely wholly upon our wholesale and drug chain customers to effect the distribution allocation of our products. There can be no assurance that these customers will adequately manage their local and regional inventories to avoid spot outages.

We cannot control or influence greatly the purchasing patterns of wholesale and retail drug chain customers. These are highly sophisticated customers that purchase our products in a manner consistent with their industry practices and, presumably based upon their projected demand levels. Purchases by any given customer, during any given period, may be above or below actual prescription volumes of any of our products during the same period, resulting in fluctuations in product inventory in the distribution channel.

If we fail to compete successfully with respect to product sales, we may be unable to generate sufficient sales to recover our expenses related to the development of a product program or to justify continued marketing of a product and our revenue could be adversely affected.

Our competitors may develop, manufacture and market products that are more effective or less expensive than ours. They may also obtain regulatory approvals for their products faster than we can obtain them (including those products with orphan drug designation) or commercialize their products before we do. With respect to rhASB, if our competitors successfully commercialize a product that treats MPS VI before we do, we may effectively be precluded from developing a product to treat that disease because the patient population of the disease is so small. If one of our competitors gets orphan drug exclusivity, we could be precluded from marketing our version for seven years in the U.S. and 10 years in the E.U. However, different drugs can be approved for the same condition. If we do not compete successfully, we may be unable to generate sufficient sales to recover our expenses related to the development of a product program or to justify continued marketing of a product.

There are a number of competitive products with Orapred that have the same active ingredient. Some of these products are less expensive than Orapred. Additionally, in the third quarter of 2004, the FDA approved a generic product that has the same strength and route of administration as Orapred. Because of the AA equivalence rating to Orapred, when this product was introduced to the market in the fourth quarter of 2004, many pharmacies and managed care organizations, particularly certain government organizations began to substitute the new generic product for Orapred. Our revenue from Orapred has been adversely affected by this generic and will be further adversely affected if we are not able to implement effective defensive strategies.

If we fail to compete successfully with respect to acquisitions, joint venture and other collaboration opportunities, we may be limited in our ability to develop new products and to continue to expand our product pipeline.

Our competitors compete with us to attract organizations for acquisitions, joint ventures, licensing arrangements or other collaborations. To date, several of our product programs have been acquired through

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acquisitions, such as NeuroTrans, and several of our product programs have been developed through licensing or collaborative arrangements, such as Aldurazyme, rhASB, Orapred, Phenoptin and Vibrilase. These collaborations include licensing proprietary technology from, and other relationships with, academic research institutions. If our competitors successfully enter into partnering arrangements or license agreements with academic research institutions, we will then be precluded from pursuing those specific opportunities. Since each of these opportunities is unique, we may not be able to find a substitute. Several pharmaceutical and biotechnology companies have already established themselves in the field of enzyme therapeutics, including Genzyme, our joint venture partner. These companies have already begun many drug development programs, some of which may target diseases that we are also targeting, and have already entered into partnering and licensing arrangements with academic research institutions, reducing the pool of available opportunities.

Universities and public and private research institutions also compete with us. While these organizations primarily have educational or basic research objectives, they may develop proprietary technology and acquire patents that we may need for the development of our product candidates. We will attempt to license this proprietary technology, if available. These licenses may not be available to us on acceptable terms, if at all. If we are unable to compete successfully with respect to acquisitions, joint venture and other collaboration opportunities, we may be limited in our ability to develop new products and to continue to expand our product pipeline.

If we do not achieve our projected development goals in the time frames we announce and expect, the commercialization of our products may be delayed and the credibility of our management may be adversely affected and, as a result, our stock price may decline.

For planning purposes, we estimate the timing of the accomplishment of various scientific, clinical, regulatory and other product development goals, which we sometimes refer to as milestones. These milestones may include the commencement or completion of scientific studies and clinical trials and the submission of regulatory filings. From time to time, we publicly announce the expected timing of some of these milestones. All of these milestones are based on a variety of assumptions. The actual timing of these milestones can vary dramatically compared to our estimates, in many cases for reasons beyond our control. If we do not meet these milestones as publicly announced, the commercialization of our products may be delayed and the credibility of our management may be adversely affected and, as a result, our stock price may decline.

We depend upon our key personnel and our ability to attract, train and retain employees.

In August 2004, our former Chairman and Chief Executive Officer resigned. We are actively searching for a candidate to assume the role of Chief Executive Officer. Until we are able to successfully fill this position, we expect that third parties may perceive that the vacancy creates some uncertainty about our company.

Our future growth and success depend on our ability to recruit, retain, manage and motivate our employees. The loss of the services of any member of our senior management or the inability to hire or retain experienced management personnel could adversely effect our ability to execute our business plan and harm our operating results.

Because of the specialized scientific and managerial nature of our business, we rely heavily on our ability to attract and retain qualified scientific, technical and managerial personnel. In particular, the loss of one or more of our senior executive officers could be detrimental to us if we cannot recruit suitable replacements in a timely manner. While certain of our senior executive officers are parties to employment agreements with us, these agreements do not guarantee that they will remain employed with us in the future. In addition, these agreements do not restrict their ability to compete with us after their employment is terminated. The competition for qualified personnel in the pharmaceutical field is intense. Due to this intense competition, we may be unable to continue to attract and retain qualified personnel necessary for the development of our business or to recruit suitable replacement personnel.

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Our success depends on our ability to manage our growth.

Our rapid growth has strained our managerial, operational, financial and other resources. We expect this growth to continue. Based on the approval of Aldurazyme in the U.S. and E.U., and other countries, we expect that our joint venture with Genzyme will be required to devote additional resources in the immediate future to support the commercialization of Aldurazyme. Additionally, we acquired approximately 70 new employees through the acquisition of the Ascent Pediatrics field sales force. This has required that we expand our managerial organization to cover several new functional areas, such as sales and marketing.

To manage expansion effectively, we need to continue to develop and improve our research and development capabilities, manufacturing and quality capacities, sales and marketing capabilities and financial and administrative systems. Our staff, financial resources, systems, procedures or controls may be inadequate to support our operations and our management may be unable to manage successfully future market opportunities or our relationships with customers and other third parties.

Growth in our business may also contribute to fluctuations in our operating results, which may cause the price of our securities to decline. Our revenue may fluctuate due to many factors, including changes in:

We may also experience fluctuations in our quarterly results due to price changes and sales incentives. For example, purchasers of our products, particularly wholesalers, may increase purchase orders in anticipation of a price increase and reduce order levels following a price increase. We occasionally offer sales incentives, such as price discounts and extended payment terms, in the ordinary course of business, that could have a similar impact. In addition, some of our products are subject to seasonal fluctuation in demand.

Changes in methods of treatment of disease could reduce demand for our products and adversely affect revenues.

Even if our drug products are approved, doctors must use treatments that require using those products. If doctors elect a different course of treatment from that which includes our drug products, this decision would reduce demand for our drug products and adversely affect revenues. For example, if in the future gene therapy becomes widely used as a treatment of genetic diseases, the use of enzyme replacement therapy, like Aldurazyme, in MPS diseases could be greatly reduced. Changes in treatment method can be caused by the introduction of other companies’ products or the development of new technologies or surgical procedures which may not directly compete with ours, but which have the effect of changing how doctors decide to treat a disease.

If product liability lawsuits are successfully brought against us, we may incur substantial liabilities.

We are exposed to the potential product liability risks inherent in the testing, manufacturing and marketing of human pharmaceuticals. BioMarin/Genzyme LLC maintains product liability insurance for Aldurazyme with aggregate loss limits of $5.0 million. We have also obtained insurance against product liability lawsuits for commercial sale of our products and for the clinical trials of our product candidates with aggregate loss limits in the U.S. of $15.0 million plus additional clinical liability coverage with lower loss limits in other countries where clinical studies are conducted. Pharmaceutical companies must balance the cost of insurance with the level of coverage based on estimates of potential liability. Historically, the potential liability associated with product liability lawsuits for pharmaceutical products has been unpredictable. Although we believe that our current insurance is a reasonable estimate of our potential liability and represents a commercially reasonable balancing

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of the level of coverage as compared to the cost of the insurance, we may be subject to claims in connection with the commercial use of Orapred, our clinical trials and commercial use of Aldurazyme, our clinical trials for rhASB, Phenoptin and Vibrilase, or our clinical trials for our terminated program for Neutralase, for which our insurance coverage may not be adequate.

The product liability insurance we will need to obtain in connection with the commercial sales of our product candidates if and when they receive regulatory approval may be unavailable in meaningful amounts or at a reasonable cost. In addition, while we take, and continue to take what we believe are appropriate precautions, we may be unable to avoid significant liability if any product liability lawsuit is brought against us. If we are the subject of a successful product liability claim that exceeds the limits of any insurance coverage we obtain, we may incur substantial liabilities that would adversely affect our earnings and require the commitment of capital resources that might otherwise be available for the development and commercialization of our product programs.

We will incur increased costs as a result of recently enacted and proposed changes in laws and regulations.

We face burdens relating to the recent trend toward stricter corporate governance and financial reporting standards. New legislation or regulations that follow the trend of imposing stricter corporate governance and financial reporting standards, including compliance with Section 404 of the Sarbanes-Oxley Act of 2002, have led to an increase in our costs of compliance. The new rules could make it more difficult or more costly for us to obtain certain types of insurance, including directors’ and officers’ liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers. A failure to comply with these new laws and regulations may impact market perception of our financial condition and could materially harm our business. Additionally, it is unclear what additional laws or regulations may develop, and we cannot predict the ultimate impact of any future changes.

Our stock price may be volatile, and an investment in our stock could suffer a decline in value.

Our valuation and stock price since the beginning of trading after our initial public offering have had no meaningful relationship to current or historical earnings, asset values, book value or many other criteria based on conventional measures of stock value. The market price of our common stock will fluctuate due to factors including:

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In addition, the value of our common stock may fluctuate because it is listed on both the Nasdaq National Market and the Swiss SWX Exchange. Listing on both exchanges may increase stock price volatility due to:

In the past, following periods of large price declines in the public market price of a company’s securities, securities class action litigation has often been initiated against that company. Litigation of this type could result in substantial costs and diversion of management’s attention and resources, which would hurt our business. Any adverse determination in litigation could also subject us to significant liabilities.

Anti-takeover provisions in our charter documents, our stockholders’ rights plan and under Delaware law may make an acquisition of us, which may be beneficial to our stockholders, more difficult.

We are incorporated in Delaware. Certain anti-takeover provisions of Delaware law and our charter documents as currently in effect may make a change in control of our company more difficult, even if a change in control would be beneficial to the stockholders. Our anti-takeover provisions include provisions in the certificate of incorporation providing that stockholders’ meetings may only be called by the board of directors and provisions in the bylaws providing that the stockholders may not take action by written consent and requiring that stockholders that desire to nominate any person for election to the board of directors or to make any proposal with respect to business to be conducted at a meeting of the stockholders of the company be submitted in appropriate form to the Secretary of the company within a specified period of time in advance of any such meeting. Additionally, our board of directors has the authority to issue an additional 249,886 shares of preferred stock and to determine the terms of those shares of stock without any further action by the stockholders. The rights of holders of our common stock are subject to the rights of the holders of any preferred stock that may be issued. The issuance of preferred stock could make it more difficult for a third-party to acquire a majority of our outstanding voting stock. Delaware law also prohibits corporations from engaging in a business combination with any holders of 15% or more of their capital stock until the holder has held the stock for three years unless, among other possibilities, the board of directors approves the transaction. Our board of directors may use these provisions to prevent changes in the management and control of our company. Also, under applicable Delaware law, our board of directors may adopt additional anti-takeover measures in the future.

In 2002, our board of directors authorized a stockholder rights plan and related dividend of one preferred share purchase right for each share of our common stock outstanding at that time. In connection with an increase in our authorized common stock, our board approved an amendment to this plan in June 2003. As long as these rights are attached to our common stock, we will issue one right with each new share of common stock so that all shares of our common stock will have attached rights. When exercisable, each right will entitle the registered holder to purchase from us one two-hundredth of a share of our Series B Junior Participating Preferred Stock at a price of $35.00 per 1/200 of a Preferred Share, subject to adjustment.

The rights are designed to assure that all of our stockholders receive fair and equal treatment in the event of any proposed takeover of us and to guard against partial tender offers, open market accumulations and other abusive tactics to gain control of us without paying all stockholders a control premium. The rights will cause substantial dilution to a person or group that acquires 15% or more of our stock on terms not approved by our board of directors. However, the rights may have the effect of making an acquisition of us, which may be beneficial to our stockholders, more difficult, and the existence of such rights may prevent or reduce the likelihood of a third-party making an offer for an acquisition of us.

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Item 2. Properties

Our real estate strategy is to lease and develop property that will allow us to maintain our research and development, clinical and commercial manufacturing, sales and marketing, and administrative activities in line with our current organizational strategies and anticipated needs in the future. We are currently occupying a total of five buildings, all of which are located in Novato, California, each within a half-mile radius. In November 2004, we relocated our corporate headquarters to the Digital Drive buildings discussed below, and we concurrently vacated two of our previously leased buildings. The five buildings, each named for the streets on which they are located, are:

The Galli Drive facility consists of approximately 70,000 square feet. It houses our Aldurazyme and rhASB manufacturing facility, including storage and warehouse functions and certain of our research and development laboratories. . The lease expires in August 2010 and we have the option to extend for two additional five-year periods.

The 79 Digital Drive facility, with approximately 25,700 square feet, provides warehousing support for our entire organization. Its primary focus is to provide controlled access warehousing and the required segregation and testing of all cGMP raw materials used in our manufacturing operations. In addition, 79 Digital serves as the primary shipping, receiving and storage point for all other materials used throughout our entire organization. The lease expires in July 2006.

The 95 Digital Drive facility serves as our primary research and development facility with the recent construction of approximately 20,000 square feet of laboratory space and support areas. An additional 16,000 square feet of undeveloped space within the building remains available for future development. The lease on this building expires in January 2014.

The 90 and 105 Digital Drive facilities provide approximately 74,800 square feet dedicated to housing administrative and research offices, common areas and additional warehouse space. These two facilities serve as the corporate headquarters and are part of a four-building complex, comprised of the 79, 90, 95 and 105 Digital Drive facilities. We began occupying the space in November 2004. The lease for both the 90 and 105 Digital Drive facilities expires in October 2013 and we have the option to extend for two additional five-year periods.

Our administrative office space is expected to be adequate for the foreseeable future. We may need to supplement the capacity of our production facilities in order to meet future market demands. We believe that, to the extent required, we will be able to lease additional facilities at commercially reasonable rates. We plan to use contract manufacturing when appropriate to provide product for both clinical and commercial requirements until such time as we believe it prudent to develop additional in-house clinical and/or commercial manufacturing capacity.

Item 3. Legal Proceedings

We have no material legal proceedings pending.

Item 4. Submission of Matters to a Vote of Security-Holders

No matters were submitted to a vote of our security holders during the quarter ended December 31, 2004.

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Part II

Item 5. Market for Common Equity and Related Stockholder Matters

Our common stock is listed on the Nasdaq National Market and the Swiss SWX Main Board under the symbol “BMRN”. The following table sets forth the high and low sales prices for our common stock for the periods noted, as reported by Nasdaq National Market.

On February 22, 2005, the last reported sale price on the Nasdaq National Market for our common stock was $5.06. We have never paid any cash dividends on our common stock and we do not anticipate paying cash dividends in the foreseeable future.

Holders

As of February 22, 2005, there were 100 holders of record of 64,511,159 outstanding shares of our common stock. Additionally, on such date, options to acquire 9,990,841 shares of our common stock were outstanding.

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Item 6. Selected consolidated financial data

The selected consolidated financial data set forth below contains only a portion of our financial statement information and should be read in conjunction with the consolidated financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this annual report.

We derived the statement of operations data for the years ended December 31, 2000, 2001, 2002, 2003 and 2004 and balance sheet data as of December 31, 2000, 2001, 2002, 2003 and 2004 from audited financial statements. Historical results are not necessarily indicative of results that we may experience in the future.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the notes thereto appearing elsewhere in this annual report. In addition to the other information in this Form 10-K, investors should carefully consider the following discussion and the information under “Factors That May Affect Future Results” when evaluating us and our business.

Overview

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

Our product portfolio is comprised of two approved products and multiple investigational product candidates. Aldurazyme^® (laronidase), has been approved for marketing in the U.S. by the F.D.A., in the E.U. by the EMEA and other countries for the treatment of MPS I. We have developed Aldurazyme through a joint venture with Genzyme. Aldurazyme net revenue recorded by our joint venture during 2004 totaled $42.6 million compared to $11.5 million in 2003. There were 273 commercial Aldurazyme patients as of December 31, 2004, compared to 146 as of December 31, 2003.

In May 2004, we completed the transaction to acquire the business of Ascent Pediatrics from Medicis. The Ascent Pediatrics business includes Orapred^® (prednisolone sodium phosphate oral solution), a patent-protected drug to treat asthma in children and other inflammatory conditions, two additional proprietary formulations of Orapred in development, and a U.S.-based sales force. Orapred net product sales during 2004 totaled $18.6 million following the acquisition in May 2004.

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

Our research and development expense during 2004, primarily related to the development of rhASB and Phenoptin, totaled $49.8 million compared to $53.9 million in 2003. Our net loss totaled $187.4 million for 2004 compared to $75.8 million in 2003. Our 2004 net loss includes $109.6 million of Orapred acquisition-related and impairment expenses. Our cash burn, a non-generally accepted accounting principles (GAAP) financial measure, in 2004 was $115.8 million as compared to $77.0 million in 2003, and our cash, cash equivalents, short-term investments, currently restricted cash and cash balances related to long-term debt totaled $90.5 million as of December 31, 2004 compared to $206.4 million as of December 31, 2003.

Non-GAAP Financial Measures

The discussion above includes “cash burn” (a non-GAAP financial measure). We define cash burn as the net increase (or decrease) in cash and cash equivalents (as determined in accordance with GAAP) excluding the effect of capital markets financing activities, the purchase and sale of short-term investments (as determined in accordance with GAAP), the net increase (or decrease) in restricted cash (as determined in accordance with GAAP) and the net increase (or decrease) in cash balances related to long-term debt (as determined in accordance with GAAP). Cash burn for the periods presented was determined as follows:

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We use short-term investments as an investment vehicle for our cash and cash equivalents, and the distinction between cash and cash equivalents is determined based on the duration of the investment. We manage our cash, cash equivalents and short-term investments as a common pool. The effect on net increase (or decrease) in cash because of the purchase and sale of short-term investments is impossible to predict and does not have a material effect on our liquidity or total current assets since short-term investments are usually bonds and notes held to maturity. Therefore, for purposes of determining cash burn, we do not give effect to the purchase and sale of short-term investments and assume that the net effect of the purchase and sale of short-term investments will be zero. The net increase (or decrease) in restricted cash and cash balances related to long-term debt represent changes in our cash balances but not use of cash in our operations.

We believe that cash burn, although a non-GAAP financial measure, provides useful information to investors by showing the net cash expended in most aspects of our activities. We also believe that the presentation of this non-GAAP financial measure is consistent with our past practice, as well as industry practice in general, and will enable investors, analysts and readers of our financial statements to compare current non-GAAP measures with non-GAAP measures presented in prior periods. Any non-GAAP financial measure used by us should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP.

Critical Accounting Policies and Estimates

In preparing our consolidated financial statements, we make assumptions, judgments and estimates that can have a significant impact on our net losses, as well as on the value of certain assets and liabilities on our consolidated balance sheets. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. On a regular basis, we evaluate our assumptions, judgments and estimates and make changes accordingly. Unless otherwise noted below, there have not been any recent changes to our assumptions, judgments or estimates included in our critical accounting policies. We believe that the assumptions, judgments and estimates involved in the accounting for our equity in the loss of BioMarin/Genzyme LLC, impairment of long-lived assets, revenue recognition, income taxes, inventory, research and development, and stock option plans have the greatest potential impact on our consolidated financial statements, so we consider these to be our critical accounting policies. Historically, our assumptions, judgments and estimates relative to our critical accounting policies have not differed materially from actual results. For further information on our critical and other accounting policies, see Note 2 to the accompanying consolidated financial statements.

Investment in and Advances to BioMarin/Genzyme LLC and Equity in the loss of BioMarin/Genzyme LLC

We account for our joint venture investment using the equity method. Accordingly, we record an increase in our investment for contributions to the joint venture and a reduction in our investment for our 50% share of the loss of the joint venture.

Equity in the loss of BioMarin/Genzyme LLC includes our 50% share of the joint venture’s loss for the period. Advances to BioMarin/Genzyme LLC include the current receivable from the joint venture for the reimbursement related to our services provided to the joint venture and the investment in BioMarin/Genzyme LLC includes our share of the joint venture’s cash, accounts receivable and inventory.

A critical accounting estimate by management associated with our accounting for the joint venture is the realizability of our investment in the joint venture. The joint venture has incurred significant losses to date. We believe that our investment in the joint venture will be recovered because we project that the joint venture will achieve positive earnings and cash flows. We and our joint venture partner maintain the ability and intent to fund the joint venture’s operations.

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Impairment of Long-Lived Assets

We regularly review long-lived assets for impairment. The recoverability of long-lived assets is measured by comparing the asset’s carrying amount to the expected undiscounted future cash flows that the asset is expected to generate. If the carrying amount of the asset is not recoverable, an impairment loss is recorded for the amount that the carrying value of the asset exceeds its fair value.

We currently operate in one business segment, the biopharmaceutical development and commercialization segment. When reviewing goodwill for impairment, SFAS No. 142 requires that we assess whether goodwill should be allocated to operating levels lower than our single operating segment for which discrete financial information is available and reviewed for decision-making purposes. These lower levels are referred to as reporting units. Currently, we have identified two reporting units, the Orapred business and our other development and commercialization activities, which are components of our single operating segment. We perform an annual impairment test in the fourth quarter of each fiscal year by assessing the fair value and recoverability of our goodwill, unless facts and circumstances warrant a review of goodwill for impairment before that time.

Determining whether an impairment has occurred typically requires various estimates and assumptions, including determining which cash flows are directly related to the potentially impaired asset, the useful life over which cash flows will occur, their amount, and the asset’s residual value, if any. In turn, measurement of an impairment loss requires a determination of fair value, which is based on the best information available. We use internal discounted cash flow estimates, quoted market prices when available and independent appraisals as appropriate to determine fair value. We derive the required cash flow estimates from our historical experience and our internal business plans and apply an appropriate discount rate.

The recoverability of the carrying value of leasehold improvements for our administrative facilities will depend on the successful execution of our business initiatives and our ability to earn sufficient returns on our approved products and product candidates. Based on management’s current estimates, we expect to recover the carrying value of such assets.

Revenue Recognition

We recognize revenue from product sales when persuasive evidence of an arrangement exists, the product has been shipped, title and risk of loss have passed to the customer, the price to the buyer is fixed or determinable and collection from the customer is reasonably assured. Product sales transactions are evidenced by customer purchase orders, invoices and the related shipping documents.

The timing of customer purchases and the resulting product shipments has a significant impact on the amount of revenue from product sales that we recognize in a particular period. Also, the majority of Orapred sales are made to wholesalers, which, in turn resell the product to retail outlets. Inventory in the distribution channel consists of inventory held by wholesalers, who are our principal customers, and inventory held by retailers. Our revenue from product sales in a particular period is impacted by increases or decreases in wholesalers’ inventory levels. From time to time, we offer sales incentives, such as price discounts and extended payment terms, in the ordinary course of business. These incentives may impact the level of inventory held by wholesalers. If wholesaler inventories substantially exceed retail demand, we could experience reduced revenue from sales in subsequent periods, or product returns from the distribution channel due to overstocking, low end-user demand or product expiration.

We establish and maintain reserves for amounts payable to managed care organizations and state Medicaid programs for the reimbursement of a portion of the retail price of prescriptions filled that are covered by the respective plans. The amounts estimated to be paid relating to products sold are recognized as revenue reductions and as additions to accrued expenses at the time of the original sale. The rebate reserves are based on our best

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estimate of the expected prescription fill rate to these managed care organizations and state Medicaid patients, as well as the rebate rates associated with eligible prescriptions. The estimates are developed using the product’s rebate history adjusted to reflect known changes in the factors that impact such reserves. These factors include changes in the mix of prescriptions that are eligible for rebates, changes in the contract rebate rates and the lag time related to the processing of rebate claims by our customers. The length of time between the period of original sale and the processing of the related rebates has been consistent historically at between three and six months, depending on the nature of the rebate and distribution channel inventory levels. Neither the rebate rates nor the time to process rebates are extremely sensitive to changes because both the rebate rate structures and the related rebate-processing practices of our customers are well established. To the extent actual rebates differ from management’s estimates, additional reserves may be required.

Provisions for sales discounts, and estimates for chargebacks and product returns are established as a reduction of product sales at the time such revenues are recognized. These revenue reductions are established by our management as our best estimate at the time of the original sale based on the product’s historical experience adjusted to reflect known changes in the factors that impact such reserves. These revenue reductions are generally reflected either as a direct reduction to accounts receivable through an allowance or as an addition to accrued expenses. We generally permit product returns only if the product is damaged or if it is returned near or after expiration.

Our estimates for future product returns are primarily based on the actual return history for the product. Our estimates for future product returns are also based on the amount of inventory that exists in the distribution channel. Although we are unable to quantify wholesaler inventory levels with any certainty, to the extent necessary based on the expiration date and quantity of product in the distribution channel, we adjust our estimate for future returns as appropriate. We estimate wholesaler inventory levels, to the extent possible, based on limited information obtained from certain of our wholesale customers and through other internal analysis. Our internal analysis utilizes information such as historical sales to wholesalers, product shelf life based on expiration dating, estimates of the length of time product is in the distribution channel and historical prescription data, which is provided by a third-party vendor. We also evaluate the current and future commercial market for Orapred and consider factors such as Orapred’s performance compared to its existing competitors.

The amount of Orapred returns compared to sales has been reasonably consistent historically. Our experience is that the length of time between the period of original sale and the product return is between one and two years. Because the product has been on the market for slightly more than three years and the product expiration dating is two to three years, we are continuing to obtain and analyze the returns history. Our evaluation of such factors has not resulted in material revisions to our estimates of future product returns for our current sales. However, to the extent actual chargebacks and product returns differ from management’s estimates, additional reserves may be required. Additionally, in the Ascent Pediatrics transaction we acquired liabilities for certain Orapred product returns and unclaimed rebates for the period prior to our acquisition of the product. We may need to adjust our estimates of these liabilities in the future.

As discussed above, our estimates of revenue dilution items are based primarily on the historical experience for the product, as adjusted to reflect known changes in the factors that impact the revenue dilutions. The nature and amount of our current estimates of the applicable revenue dilution item that are applied to gross sales to derive net sales are described in the table below. The rebate allowance rates disclosed below reflect an increase in late 2004 to our expected future rebates based on increased managed care organization and Medicaid rebate rates being implemented in response to the recently approved AA-rated generic. Prior to the introduction of the new generic competitor of Orapred, our estimated provision for rebates as a percentage of gross sales was 6-8%. We expect that our rebate rates will continue to increase in the future. There are no additional material revenue dilution items other than those disclosed below and there have been no material revisions to our estimates of our revenue dilution items to date, except as discussed above.

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We periodically evaluate the need to maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. When making this evaluation, we make judgments about the creditworthiness of customers based on ongoing credit evaluations and the aging profile of customer accounts receivable and assess current economic trends that might impact the level of credit losses in the future. Historically, the Orapred product has not experienced significant credit losses and an allowance for doubtful accounts has not been required because a significant portion of Orapred sales is made to a limited number of financially viable distributors, because we offer discounts that encourage the prompt payment of outstanding receivables and because we require immediate payment in certain circumstances. However, since we cannot predict changes in the financial stability of our customers, we cannot guarantee that allowances will not be required in the future. If we begin to experience credit losses, our operating expenses would increase.

Income taxes

We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. We have recorded a full valuation allowance against our net deferred tax assets, the principal amount of which is the tax effect of net operating loss carryforwards, of approximately $241.6 million at December 31, 2004. Future taxable income and ongoing prudent and feasible tax planning strategies have been considered in assessing the need for the valuation allowance. If we later determine that it is more likely than not that the net deferred tax assets would be realized, the previously provided valuation allowance would be reversed. In order to realize our deferred tax assets we must be able to generate sufficient taxable income in the tax jurisdictions in which the deferred tax assets are located. This critical accounting assumption has been historically accurate, as we have not been able to utilize our net deferred tax assets, and we do not expect changes to this assumption as we expect to incur losses for the foreseeable future.

Inventory

We value inventories at the lower of cost or fair value. We determine the cost of raw materials using the average cost method and the cost of finished goods using the specific identification cost method. We analyze our inventory levels quarterly and write down inventory that has become obsolete, inventory that has a cost basis in excess of its expected net realizable value and inventory in excess of expected requirements. Expired inventory is disposed of and the related costs are written off. The determination of whether or not inventory costs will be realizable requires estimates by management. A critical estimate in this determination is the estimate of the future expected inventory requirements, whereby we compare our internal sales forecasts to inventory on hand. Actual results may differ from those estimates and inventory write-offs may be required.

Research and Development

Research and development expenses include expenses associated with contract research and development provided by third parties, product manufacturing prior to regulatory approval, clinical and regulatory costs, and internal research and development costs. A critical accounting assumption by management is that we believe that

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regulatory approval of our product candidates is uncertain, and do not assume that product manufactured prior to regulatory approval will be sold commercially. As a result, inventory costs for product candidates are expensed as research and development expenses until regulatory approval is obtained, at which time inventory is capitalized at the lower of cost or fair value. Historically, there have been no changes to this assumption.

Stock Option Plans

We have three stock-based compensation plans. We account for those plans under APB Opinion No. 25, Accounting for Stock Issued to Employees whereby generally no stock-based compensation cost is reflected in our net loss for options issued to employees and directors with exercise prices at or above the market price on the date of issuance. We recognize as an expense the fair value of options granted to persons who are neither employees nor directors. The fair value of options granted is determined using the Black-Scholes model, which requires various estimates and assumptions by management, including the expected term of the options and the expected future volatility of the value of our stock. The expected term of stock options is determined primarily based on the historical patterns for stock option exercises and cancellations. The expected future volatility is determined based on both the historical volatility as well as current and future circumstances that will affect future volatility. These estimates are sensitive to change based on external factors such as the equity markets in general and the individual circumstances of our employees, which are considered in the determination of our estimates.

Recent Accounting Pronouncements

See Note 2(q) of our accompanying consolidated financial statements for a full description of recent accounting pronouncements and management’s expectation of their impact on our results of operations and financial condition.

Results of Operations

All of the activities related to the manufacture, distribution and sale of Aldurazyme are reported in the results of the joint venture. Because of this presentation and the significance of the joint venture’s operations compared to our total operations, we have divided our discussion of the results of operations into two sections, BioMarin in total and BioMarin/Genzyme LLC. The discussion of the joint venture’s operations includes the total amounts for the joint venture, not just our 50% interest in the operations.

BioMarin Results of Operations

Net Loss

Our net loss in 2004 as compared to 2003 increased to $187.4 million from $75.8 million. Net Loss for 2004 increased as a result of the following (in millions):

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Expenses associated with the Ascent Pediatrics acquisition include acquired in-process research and development of $31.5 million, amortization of acquired intangible assets of $4.0 million, imputed interest expense of $5.1 million and a fair value inventory adjustment of $0.8 million. The net decrease in other operating expenses is the result of decreased research and development expense, primarily attributable to the lack of Neutralase development costs, offset by increased rhASB and Phenoptin research and development expenses and corporate overhead.

Our net loss in 2003 as compared to 2002 decreased to $75.8 million from $77.5 million. The decrease was primarily the result of a one-time, $12.1 million milestone payment received from Genzyme in 2003 and the lack of an $11.2 million in-process research and development expense in 2002 related to the acquisition of Synapse Technologies Inc. Without these items, our net loss would have increased by $21.6 million in 2003 as a result of an increase in research and development expenses in 2003 of $27.1 million. The increase in research and development expense in 2003 primarily related to rhASB and Neutralase, for which research and development expense increased by $17.7 million and $11.6 million, respectively, in 2003 compared to 2002.

Revenue and Gross Profit

Commencing with our acquisition of the Ascent Pediatrics business on May 18, 2004, our revenues include sales of Orapred, a patent-protected drug primarily used to treat asthma exacerbations in children. During 2004, we recognized $18.6 million of net product sales of Orapred and approximately $14.7 million of gross profit, representing a gross margin of approximately 79%. Cost of sales of $4.0 million includes a $0.8 million charge related to an inventory fair market value adjustment associated with the acquisition and a $1.6 million charge for excess Orapred raw materials. Gross margin for 2004 excluding these items was 92%. Cost of sales excludes the amortization of the developed product technology resulting from the acquisition of the Ascent Pediatrics business.

Net sales of Orapred during 2004 were lower than expected as a result of larger than anticipated levels of Orapred inventory held by distributors prior to our acquisition of the product. During the fourth quarter of 2004, the level of inventory in the distribution channel began to normalize and we recognized $13.9 million of net product sales. Additionally, a new generic competitor to Orapred was introduced into the market in the fourth quarter of 2004, which has adversely affected the net product sales of Orapred. Although we are implementing defensive strategies, we expect the adverse impact on net product sales to continue in the future.

Milestone revenue in 2003 represents the $12.1 million milestone payment received from Genzyme related to the FDA marketing approval of Aldurazyme. Milestone revenue is typically not recurring in nature and we do not expect to earn additional milestone revenue related to Aldurazyme in the future.

Research and Development Expense

Our research and development expenses include personnel, facility and external costs associated with the development and commercialization of our product candidates and products. These development costs primarily include preclinical and clinical studies, manufacturing prior to regulatory approval, quality control and assurance and other product development expenses such as regulatory costs.

Research and development expenses decreased by $4.1 million to $49.8 million in 2004 from $53.9 million in 2003. The decrease is primarily attributable to $17.2 million of Neutralase development costs incurred during 2003 that were not incurred during 2004, because the program was discontinued, and decreased research and decreased development on other programs totaling $1.3 million. The decrease was offset by increased rhASB costs of $5.1 million, increased Phenoptin costs of $7.4 million and research and development costs associated with the new Orapred formulations of $1.9 million. The increased rhASB costs include $1.0 million of increased manufacturing and quality costs, $3.2 million of increased clinical costs primarily related to the Phase 3 clinical trial and $0.8 million of regulatory costs associated with the filings of the marketing authorization applications.

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The increased Phenoptin costs primarily include $3.6 million of manufacturing costs and $3.0 million of clinical development costs.

Research and development expenses in 2003 increased by $27.1 million to $53.9 million from $26.8 million in 2002. The major factors causing the increase include increased rhASB activities including manufacturing and quality control costs of $11.0 million and Phase 3 clinical trial costs of $4.1 million. Increased Neutralase Phase 3 clinical trial costs of $6.7 million and contract manufacturing costs of $3.9 million in 2003 also contributed to the increase.

Selling, General and Administrative Expense

Our selling, general and administrative expenses include sales and administrative personnel, facility and external costs required to support our commercialized products and product development programs. These selling, general and administrative costs include: facility operating expenses and depreciation; sales operations in support of Orapred and our product candidates; human resources; finance and support personnel expenses; and other corporate costs such as insurance, audit and legal expenses. Selling, general and administrative expenses increased by $22.3 million to $37.6 million in 2004 from $15.3 million in 2003. The components of the increase between 2003 and 2004 are as follows (in millions):

The net increase in corporate overhead and other costs includes increased rent expense, audit fees and administrative personnel. During 2004, we recorded a deferred rent liability related to our occupied facilities, of which the portions attributable to prior periods were immaterial.

Selling, general and administrative expenses decreased to $15.3 million in 2003 from $17.3 million in 2002. The components of the decrease between 2002 and 2003 are as follows (in millions):

Included in the facility abandonment costs during 2002 are the asset write-offs and lease commitment accrual related to the abandonment of a facility. The related lease liability was reversed in 2003 in conjunction with our decision to develop the previously abandoned facility.

Amortization of Acquired Intangible Assets

Amortization of acquired intangible assets includes the current amortization expense of the intangible assets acquired in the Ascent Pediatrics transaction in May 2004, including the Orapred developed and core technology.

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The acquired intangible assets are being amortized over 15 years and we expect that the recurring annual amortization expense associated with the transaction will be approximately $1.1 million.

Acquired in-Process Research and Development

Acquired in-process research and development includes the nonrecurring charge for the portion of acquisition consideration attributable to development-stage products. Acquired in-process research and development of $31.5 million during 2004 includes the fair value of the two additional development-stage formulations of Orapred that we acquired in the Ascent Pediatrics transaction. Acquired in-process research and development expense of $11.2 million in 2002 represents the purchase price of all of the outstanding stock of Synapse Technologies, Inc. in March 2002, plus related expenses.

Equity in the Loss of BioMarin/Genzyme LLC

Equity in the loss of BioMarin/Genzyme LLC includes our 50% share of the joint venture’s loss for the period. Equity in the loss of BioMarin/Genzyme LLC was $3.0 million in 2004 compared to $18.7 million in 2003. The decrease is principally due to the profits derived from $42.6 million of Aldurazyme sales in 2004 compared to $11.5 million of sales during 2003.

Equity in the loss of BioMarin/Genzyme LLC was $18.7 million in 2003 compared to $23.5 million in 2002. The decrease was principally due to Aldurazyme sales and the capitalization of inventory production costs upon the regulatory approval of Aldurazyme during the second quarter of 2003, partially offset by increased sales and marketing costs associated with the commercialization of Aldurazyme.

See the “BioMarin/Genzyme LLC” section below for further discussion of the joint venture’s results of operations.

Impairment of Acquired Intangible Assets

Impairment of acquired intangible assets during the year ended December 31, 2004 includes the impairment loss recorded on the Orapred product technology during the fourth quarter of 2004. In December 2004, the Company recognized an impairment loss totaling $68.3 million. The primary circumstance leading to the impairment was the introduction of a new generic competitor to Orapred during the fourth quarter of 2004 that resulted in a significant decrease in the Orapred market share. The impairment charge represents the amount by which the carrying value of the Orapred technology exceeded its fair value on December 31, 2004.

Interest Income

We invest our cash, short-term investments and restricted cash in government and other high credit quality securities in order to limit default and market risk. Interest income decreased to $2.5 million in 2004 from $2.6 million in 2003. Interest income increased to $2.6 million in 2003 from $2.0 million in 2002 primarily due to increased levels of cash and investments obtained through the common stock and convertible debt offerings completed during 2003.

Interest Expense

We incur interest expense on our convertible debt issued in June 2003 and on our equipment and facility loans. Interest expense also includes imputed interest expense on the discounted obligation for the Ascent Pediatrics transaction. Interest expense was $10.5 million and $3.1 million in 2004 and 2003, respectively, representing an increase of $7.4 million. The increase in 2004 primarily represents interest expense related to the convertible debt issued in June 2003 of $2.2 million and imputed interest related to the Ascent Pediatrics transaction of $5.1 million.

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Interest expense was $3.1 million and $0.5 million in 2003 and 2002, respectively. The increase in 2003 was due to six months of interest expense on the convertible debt.

Discontinued Operations

In December 2001, we decided to close the carbohydrate analytical business portion of our wholly owned subsidiary, Glyko, Inc. (Glyko). As a result, the operations of Glyko are classified as discontinued operations in our consolidated financial statements. Accordingly, we have segregated its operating results in our consolidated statements of operations and have segregated its cash flows in our consolidated statements of cash flows.

In 2003, we sold certain assets of Glyko to a third-party for a total sales price of up to $1.5 million. The sales price was comprised of cash totaling $0.2 million, a note receivable payable in quarterly installments through 2006 totaling $0.5 million and quarterly royalties based upon future sales of certain Glyko products through 2008 up to a maximum of $0.8 million. The proceeds from the sale of the Glyko assets, including the discounted note receivable of $0.4 million, was recorded as a gain from discontinued operations in 2003 totaling $0.6 million, net of transaction costs, as the net book value of the Glyko net assets was reduced to zero as of December 31, 2002. The royalties are recorded as earned.

Income from discontinued operations in 2002 represents net receipts from Glyko subsequent to our decision to discontinue this business. The loss from disposal of discontinued operations in 2002 of $0.2 million represents the Glyko closure expense subsequent to our decision to discontinue this business.

BioMarin/Genzyme LLC Results of Operations

The discussion below gives effect to the inventory capitalization policy that we use for inventory held by the joint venture, which is different from the joint venture’s inventory capitalization policy. We began capitalizing Aldurazyme inventory production costs in May 2003, after U.S. regulatory approval was obtained. The joint venture began capitalizing Aldurazyme inventory production costs in January 2002, when inventory production for commercial sale began. The difference in inventory capitalization policies results in a greater operating expense realized by us prior to regulatory approval, and lower cost of goods sold with higher gross profit realized by us as the previously expensed product is sold by the joint venture, as well as lower research and development expense when Aldurazyme is used in on-going clinical trials. These differences will be eliminated when all of the product manufactured prior to regulatory approval has been sold or has been used in clinical trials. We estimate that the majority of the differences will be eliminated by the end of 2005. See Note 5(a) to the accompanying consolidated financial statements for further discussion of the difference in inventory cost basis between the joint venture and us.

Revenue and Gross Profit

Our joint venture partner, Genzyme and we received marketing approval for Aldurazyme in the U.S. in April 2003, and in the E.U. in June 2003. We have subsequently received marketing approval in other countries. Aldurazyme was launched commercially in May 2003 in the U.S. and in June 2003 in the E.U. The joint venture recognized $42.6 million and $11.5 million of net revenue in 2004 and 2003, respectively. The increase in net revenue from 2003 to 2004 of $31.1 million is attributable to both an increase in the number of patients initiating therapy and a full year of revenue during 2004. There were 273 and 146 commercial patients on therapy at the end of 2004 and 2003, respectively.

Gross profit was $36.8 million and $8.5 million for 2004 and 2003, respectively. Gross profit for 2003 would have been higher by $2.8 million if not for production costs incurred during the third quarter of 2003 that were not allocated to Aldurazyme inventory. Without the effect of this charge in 2003, Aldurazyme gross margins were approximately 86% and 98% for 2004 and 2003, respectively. The decrease in gross margin, excluding the 2003 charge, is attributable to the recognition of higher cost of sales in 2004 compared to 2003 as the joint venture sells the inventory that was produced after obtaining regulatory approval, which has a higher cost basis because the inventory produced prior to obtaining regulatory approval was previously expensed.

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BioMarin/Genzyme LLC recognized $0.3 million of net revenue during 2002, representing pre-approval sales on a named patient basis allowable in certain countries outside of the U.S.

Operating Expenses

Operating expenses of the joint venture include the costs associated with the development and commercial support of Aldurazyme and totaled $42.9 million for 2004 as compared to $45.9 million for 2003. Operating expenses in 2004 included $26.9 million of selling, general and administrative expenses associated with the commercial support of Aldurazyme and $16.0 million of research and development costs, primarily clinical trial costs. Operating expenses in 2003 included $17.2 million of selling, general and administrative expenses associated with the commercial launch of Aldurazyme and $23.2 million of research and development expenses. Selling, general and administrative expenses increased in 2004 due to increased post-launch commercialization activities.

Research and development of the joint venture for 2003 included $8.5 million for the production of Aldurazyme prior to obtaining regulatory approval and $14.7 million of clinical trial costs and continued research and development efforts.

Operating expenses in 2002 included $4.7 million of selling, general and administrative expenses related to the commercialization of Aldurazyme and $40.4 million of research and development. Research and development decreased in 2003 compared to 2002 due to the capitalization of inventory in May 2003 after regulatory approval was obtained. Selling, general and administrative expenses increased in 2003 due to increased commercialization activities in support of the Aldurazyme commercial launch.

Liquidity and Capital Resources

Cash and Cash Flow

We have financed our operations by the issuance of common stock, convertible debt, equipment and other commercial financing and the related interest income earned on cash, cash equivalents and short-term investments. During 2004, we received $20.0 million of proceeds from our equipment and facility loan. During 2003, we raised $80.5 million from a public offering of our common stock, $8.0 million from the sale of our common stock to Acqua Wellington and $120.9 million from a convertible debt offering. We voluntarily elected to terminate our equity financing agreement with Acqua Wellington in September 2003.

As of December 31, 2004, our combined cash, cash equivalents, short-term investments, restricted cash and cash balances related to long-term debt totaled $90.5 million, a decrease of $115.9 million from $206.4 million at December 31, 2003. The restricted cash of $25.3 million at December 31, 2004, is primarily associated with the Ascent Pediatrics transaction and we expect the restrictions to be released in the second quarter of 2005. Cash balances related to long-term debt represent an amount totaling $16.4 million that we are required to keep on deposit with Comerica Bank pursuant to the terms of the equipment and facility loan that we entered into in May 2004. This amount is equal to the long-term portion of the outstanding balance under this facility. The maintenance of a deposit equal to the outstanding amount under the facility is a covenant of the facility and the failure to satisfy this covenant would constitute a breach under the facility. However, we have the ability to access the amount at our discretion and therefore it is not restricted cash.

Cash inflows during 2004 included proceeds from our equipment and facility loan from Comerica totaling $20.0 million. The primary sources of cash during 2003 were the financing activities described above, a milestone payment from Genzyme of $12.1 million and the issuance of common stock pursuant to the exercise of stock options under our stock compensation plans of approximately $5.4 million.

Pursuant to our settlement of the dispute with Medicis in January 2005, Medicis will make available to us a convertible note of up to $25.0 million beginning July 1, 2005 based on certain terms and conditions and

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provided that the Company does not experience a change of control. Money advanced under the convertible note is convertible into our common stock according to the terms of the convertible note. We anticipate drawing funds from this note when it becomes available.

The primary uses of cash during 2004 were to finance operations, which primarily included the manufacturing and clinical trials of rhASB and the related supporting functions, the Ascent Pediatrics transaction and the manufacturing and clinical development of Phenoptin. Our cash burn, a non-GAAP financial measure, in 2004 was $115.8 million as compared to $77.0 million in 2003. The $38.8 million increase in cash burn during 2004 is primarily attributable to cash payments associated with the Ascent Pediatrics transaction totaling $44.8 million, an increase in capital expenditures primarily related to the development of our facilities of $18.1 million, and the lack of the $12.1 million milestone revenue received in 2003. These increases in cash burn were partially offset by equipment and facility loan proceeds of $20.0 million and several other net reductions in cash burn, including net Orapred operating cash inflow, a decrease in the cash investment in the joint venture and other working capital changes. See “Overview—Non-GAAP Financial Measures” above for a discussion of “cash burn” as a non-GAAP financial measure and the reconciliation of cash burn to net increase (decrease) in cash.

We do not expect to generate net positive cash flow from operations for the foreseeable future because we expect to continue to incur operational expenses and continue our research and development activities, including:

We also expect to incur costs through our joint venture related to increased marketing and manufacturing of Aldurazyme to satisfy the product demands associated with its commercialization.

As a result of the Ascent Pediatrics transaction and the January 2005 amendments to the transaction agreements, we expect to pay Medicis $109.0 million in specified cash payments through 2009, of which $34.2 million is payable in 2005.

Funding Commitments

We expect to fund our operations with our cash, cash equivalents, short-term investments and currently restricted cash, supplemented by proceeds from equity or debt financings, loans or collaborative agreements with corporate partners. We expect our current cash, short-term investments, currently restricted cash and cash balances related to long-term debt and funds contractually committed to us will meet our operating and capital requirements into the first quarter of 2006.

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Our investment in our product development programs has a major impact on our operating performance. Our research and development expenses for the years 2002, 2003 and 2004, and for the period since inception (March 1997) represent the following (in millions):

We cannot estimate the cost to complete any of our product development programs. Additionally, except as disclosed under “Overview” of Item 1, we cannot estimate the time to complete any of our product development programs or when we expect to receive net cash inflows from any of our product development programs. Please see “Factors That May Affect Future Results” for a discussion of the reasons that we are unable to estimate such information, and in particular “—If we fail to obtain or maintain regulatory approval to commercially manufacture or sell our drugs and future drug products, or if approval is delayed, we will be unable to generate revenue from the sale of these products, our potential for generating positive cash flow will be diminished, and the capital necessary to fund our operations will be increased;” “—To obtain regulatory approval to market our products, preclinical studies and costly and lengthy clinical trials are required and the results of the studies and trials are highly uncertain;” “—If we are unable to successfully develop manufacturing processes for our drug products to produce sufficient quantities and at acceptable costs, we may be unable to meet demand for our products and lose potential revenue, have reduced margins or be forced to terminate a program;” “—If we fail to compete successfully with respect to product sales, we may be unable to generate sufficient sales to recover our expenses related to the development of a product program or to justify continued marketing of a product and our revenue could be adversely affected;” and “—If we do not achieve our projected development goals in the time frames we announce and expect, the commercialization of our products may be delayed and the credibility of our management may be adversely affected and, as a result, our stock price may decline.”

We expect that the proceeds from equity or debt financing, loans or collaborative agreements will be used to fund future operating costs, capital expenditures and working capital requirements, which may include: costs associated with the commercialization of our products; additional clinical trials and the manufacturing of Orapred, rhASB and Phenoptin; preclinical studies and clinical trials for our other product candidates; potential licenses and other acquisitions of complementary technologies, products and companies; general corporate purposes; payment of the amounts due to the Ascent Pediatrics transaction; and working capital.

Our future capital requirements will depend on many factors, including, but not limited to:

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Borrowings and Contractual Obligations

Our $125 million of 3.5% convertible notes will impact our liquidity due to the semi-annual cash interest payments and the scheduled repayment of the notes in 2008. Should we redeem the notes after June 2006, at our option according to the terms of the notes, we will be subject to premiums upon redemption ranging from 0.7% to 1.4%, depending on the time the notes are redeemed. We also must repay the debt if there is a qualifying change in control or termination of trading of our common stock.

We have entered into several agreements for loans, including a $25.0 million credit facility with Comerica Bank executed in May 2004, to finance our equipment purchases and facility improvements. The aggregate outstanding balance totaled $20.1 million at December 31, 2004. The majority of the loans bears interest ranging from 3.29% to 9.33% and are secured by liens on certain assets. Payments of principal and interest are due through maturity of the credit facility in 2011. The lender under our credit facility requires that we maintain a total unrestricted cash balance of at least $45 million or a greater amount defined by a calculation provided for in the credit agreement, as amended and that we maintain a deposit with Comerica equal to the outstanding balance. As a result of the Ascent Pediatrics transaction, we expect to pay Medicis $109.0 million in specified cash payments through 2009, of which $34.2 million is payable in 2005.

We anticipate a need for additional financing to fund our future operations, including the commercialization of our drug product candidates currently under development. We cannot provide assurance that additional financing will be obtained or, if obtained, will be available on reasonable terms or in a timely manner.

We have contractual and commercial obligations under our debt, operating leases and other obligations related to research and development activities, licenses and sales royalties with annual minimums. Information about these obligations as of December 31, 2004 is presented in the table below (in thousands).

We have also licensed technology, for which we are required to pay royalties upon future sales, subject to certain annual minimums totaling $0.5 million.

We are also subject to contingent payments totaling approximately $28.2 million upon achievement of certain regulatory and licensing milestones if they occur before certain dates in the future. Included in the total amount is $8.7 million of contingent payments related to Neutralase, for which we terminated development during 2003 and, accordingly, we do not expect they will ever be payable.

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Related Party Transactions

In 2001, we loaned our former Chief Executive Officer, Fredric D. Price, $860,000 to purchase a property and received a promissory note secured by the property. The note and interest accrued thereon totaling approximately $983,000, were repaid in full in August 2004. The original maturity date of the note was October 31, 2006, and the interest rate on the note was the Federal mid-term rate.

In March 2002, we entered into an employment agreement with a former Senior Vice President, Jeffrey I. Landau, that entitled him to loans from the Company of up to $100,000 to be applied to the purchase of a home or up to $36,000 annually if a purchase of a home was not completed. In January 2005, Mr. Landau retired and the Company entered into a severance agreement with Mr. Landau, pursuant to which his employment agreement was terminated and Mr. Landau was paid the severance payments required under his employment agreement, including forgiveness of the loans discussed above. Additionally, the exercise date of Mr. Landau’s vested stock options was extended to December 31, 2005.

One of our Senior Vice Presidents, Emil D. Kakkis, M.D., Ph.D. holds an adjunct faculty position with Harbor-UCLA Research Educational Institute (“REI”) for purposes of conducting research. REI licenses certain intellectual property and provides other research services to us. We are also obligated to pay REI royalties on future sales of products covered by the license agreement. Minimum annual royalties payable to REI are $25,000. We paid REI approximately $0.8 million and $0.3 million in 2003 and 2004, respectively, primarily for research. Our joint venture with Genzyme is subject to a second agreement with REI that requires the joint venture to pay REI a royalty on sales of products covered by the license agreement through November 2019, of which Dr. Kakkis is entitled to certain portions, based on the sales level per the terms of the agreement. The license agreement was effective before Dr. Kakkis was an officer of our company. Pursuant to these agreements, Dr. Kakkis was entitled to approximately $172,000 and $498,000 during 2003 and 2004, respectively.

Item 7A. Quantitative and Qualitative Disclosure about Market Risk

Interest rate market risk

Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio. By policy, we place our investments with highly rated credit issuers and limit the amount of credit exposure to any one issuer. As stated in our policy, we seek to improve the safety and likelihood of preservation of our invested funds by limiting default risk and market risk. We have no investments denominated in foreign country currencies and, therefore, our investment portfolio is not subject to foreign exchange risk.

We mitigate default risk by investing in high credit quality securities and by positioning our portfolio to respond appropriately to a significant reduction in a credit rating of any investment issuer or guarantor. The portfolio includes only marketable securities with active secondary or resale markets to ensure portfolio liquidity.

Based on our investment portfolio and interest rates at December 31, 2004, we believe that a 100 basis point increase or decrease in interest rates would result in a decrease or increase of approximately $0.4 million, respectively, in the fair value of our investment portfolio. Changes in interest rates may affect the fair value of our investment portfolio; however, we will not recognize such gains or losses in our consolidated statement of operations unless the investments are sold.

The table below presents the carrying value of our cash and investment portfolio, which approximates fair value at December 31, 2004 (in thousands):

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Our debt obligations consist of our convertible debt and our equipment and facility loans. Our convertible debt carries a fixed interest rate and, as a result, we are not exposed to interest rate market risk on our convertible debt. The interest rates for certain of our equipment and facility loans are based on the London Inter-Bank Offer Rate (LIBOR) and we are therefore exposed to fluctuations in the LIBOR market. The outstanding principal balance on our equipment and facility loans that carry LIBOR-based rates was $19.4 million as of December 31, 2004. The carrying value of our convertible debt and equipment loans approximates their fair value at December 31, 2004.

Foreign currency exchange rate market risk

A significant portion of Aldurazyme sales by BioMarin/Genzyme LLC are earned outside of the U.S. and, therefore, our equity in the loss of BioMarin/Genzyme LLC is subject to risk of foreign currency rate fluctuations. The policies and procedures related to the management of foreign currency risk of Aldurazyme sales are maintained and performed by our joint venture partner, Genzyme. Based on our overall currency rate exposures at December 31, 2004, we do not expect that a near-term 10% appreciation or depreciation of the U.S. dollar would have a material effect on our financial position, results of operations and cash flows over the next fiscal year.

Item 8. Financial Statements and Supplementary Data

The information required to be filed in this item appears on pages F-1 to F-34 of this report.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures

Evaluation of disclosure controls and procedures

An evaluation was carried out, under the supervision of and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on the evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls are sufficiently effective to ensure that the information required to be disclosed by us in this Form 10-K was recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and instructions for Form 10-K.

Management’s annual report on internal control over financial reporting

Our management is responsible for establishing and maintaining an adequate internal control structure and procedures for financial reporting. Under the supervision of and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, our management has assessed the effectiveness of internal control over financial reporting as of December 31, 2004. Our management’s assessment was based on criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO, Internal Control-Integrated Framework.

Based on using the COSO criteria, we believe our internal control over financial reporting as of December 31, 2004 was effective.

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Our independent registered public accounting firm, KPMG LLP, has audited the financial statements included in this Form 10-K, and has issued a report on management’s assessment of our internal control over financial reporting as well as on the effectiveness of our internal control over financial reporting. The attestation reports of KPMG on management’s assessment of internal control over financial reporting and on the audit of the financial statements are incorporated by reference from Item 8 of this Form 10-K.

Changes in internal control over financial reporting

There was no change in our internal control over financial reporting that occurred during the period covered by this Form 10-K that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Scope of the effectiveness of controls

Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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Part III

Item 10. Directors, Executive Officers, Promoters and Control Persons

We incorporate information regarding our directors and executive officers into this section by reference from sections captioned “Election of Directors” and “Executive Officers” in the proxy statement for our 2005 annual meeting of stockholders.

Item 11. Executive Compensation

We incorporate information regarding our directors and executive officers into this section by reference from the section captioned “Executive Compensation” in the proxy statement for our 2005 annual meeting of stockholders.

Item 12. Security Ownership of Certain Beneficial Owners and Management

We incorporate information regarding our directors and executive officers into this section by reference from the section captioned “Security Ownership of Certain Beneficial Owners” in the proxy statement for our 2005 annual meeting of stockholders.

Item 13. Certain Relationships and Related Transactions

We incorporate information regarding our directors and executive officers into this section by reference from the section captioned “Interest of Insiders in Material Transactions” in the proxy statement for our 2005 annual meeting of stockholders.

Item 14. Principal Accountant Fees and Services

We incorporate information regarding our principal accountant fees and services into this section by reference from the section captioned “Auditors” in the proxy statement for our 2005 annual meeting of stockholders.

Part IV

Item 15. Exhibits

The following documents are filed as exhibits to this report.

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