-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HMaARDnpkuqOKbkF/25MguW2HUvvWJ6fF0eolnRNd/U5jF78V0AmfLlEqXr7O9z3 uVEPgXAXCmg9thShdJPYEg== 0001012870-99-002419.txt : 19990722 0001012870-99-002419.hdr.sgml : 19990722 ACCESSION NUMBER: 0001012870-99-002419 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 19990721 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BIOMARIN PHARMACEUTICAL INC CENTRAL INDEX KEY: 0001048477 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 680397820 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-77701 FILM NUMBER: 99667489 BUSINESS ADDRESS: STREET 1: 11 PIMENTEL COURT CITY: NOVATO STATE: CA ZIP: 94949 MAIL ADDRESS: STREET 1: 11 PIMENTEL COURT STREET 2: 11 PIMENTEL COURT CITY: NOVATO STATE: CA ZIP: 94949 S-1/A 1 AMENDMENT #3 TO FORM S-1 As filed with the Securities and Exchange Commission on July 21, 1999 Registration No. 333-77701 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 --------------- AMENDMENT NO. 3 TO FORM S-1 REGISTRATION STATEMENT Under The Securities Act of 1933 --------------- BIOMARIN PHARMACEUTICAL INC. (Exact name of Registrant as specified in its charter) Delaware 2834 68-0397820 (State or other (Primary Standard (I.R.S. Employer jurisdiction of Industrial Identification Number) incorporation or Classification Code organization) Number) 371 Bel Marin Keys Boulevard, Suite 210 Novato, CA 94949 (415) 884-6700 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) --------------- Raymond W. Anderson Chief Financial Officer BioMarin Pharmaceutical Inc. 371 Bel Marin Keys Boulevard, Suite 210 Novato, CA 94949 (415) 884-6700 (Name, address, including zip code, and telephone number, including area code, of agent for service) --------------- Copies to: Francis S. Currie, Esq. Patrick A. Pohlen, Esq. William Hinman, Esq. Donna M. Petkanics, Esq. Cooley Godward LLP Shearman & Sterling Wilson Sonsini Goodrich Five Palo Alto Square 1550 El Camino Real & Rosati 3000 El Camino Real Menlo Park, CA 94025 Professional Corporation Palo Alto, CA 94306 (650) 330-2200 650 Page Mill Road (650) 843-5000 Palo Alto, CA 94304 (650) 493-9300 --------------- Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] --------------- The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +The information in this prospectus is not complete and may be changed. We may + +not sell these securities until the Securities and Exchange Commission + +declares our registration statement effective. This prospectus is not an + +offer to sell these securities and is not soliciting an offer to buy these + +securities in any state where the offer or sale is not permitted. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subject to completion, dated July 21, 1999 4,500,000 Shares BIOMARIN PHARMACEUTICAL INC. Common Stock $ per share [LOGO OF BIOMARIN PHARMACEUTICALS INC.] - -------------------------------------------------------------------------------- . BioMarin . This is a firm Pharmaceutical Inc. is commitment initial offering 4,500,000 public offering and no shares. public market currently exists for . We anticipate that the our shares. initial public offering price will be between $11.00 and . Proposed trading $13.00 per share. symbol: Nasdaq National Market and SWX New Market, a segment of the Swiss Exchange--BMRN. --------------------- This investment involves risk. See "Risk Factors" beginning on page 7. - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Per Share Total --------- ------------ Public offering price................................... $x.xx $xxx,xxx,xxx Underwriting discounts.................................. $x.xx $ x,xxx,xxx Proceeds to BioMarin Pharmaceutical Inc................. $x.xx $xxx,xxx,xxx
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The underwriters have a 30-day option to purchase up to 675,000 additional shares of common stock from us to cover over-allotments, if any. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. U.S. Bancorp Piper Jaffray Bank J. Vontobel & Co AG Schroders & Co. Inc. Leerink Swann & Company The date of this prospectus is , 1999. INSIDE FRONT COVER Picture of face of 12 year-old MPS-I child LEGEND: A-L-Idvronidase MPS-I is caused by a deficiency of this enzyme. Computer-generated image of enzyme LEGEND: Children with MPS-I suffer from chronic, progressive, and debilitating symptoms and a majority die before adulthood. Picture of face of 1 year-old child TABLE OF CONTENTS
Page ---- Summary............................................................... 4 Risk Factors.......................................................... 7 History of Our Company................................................ 19 Use of Proceeds....................................................... 20 Dividend Policy....................................................... 20 Forward-Looking Statements............................................ 21 Capitalization........................................................ 22 Dilution.............................................................. 23 Selected Consolidated Financial Data.................................. 24 Management's Discussion and Analysis of Financial Condition and Results of Operations................................................ 26 Business.............................................................. 35 Management............................................................ 57 Certain Transactions.................................................. 68 Principal Stockholders................................................ 71 Description of Capital Stock.......................................... 73 Shares Eligible for Future Sale....................................... 75 Underwriting.......................................................... 77 Legal Matters......................................................... 80 Experts............................................................... 80 Where You Can Find More Information................................... 80 Index to Financial Statements ........................................ F-1
------------------------------- You should rely only on the information contained in this prospectus. We have not, and the underwriters have not, authorized any other person to provide you with different information. The prospectus is not an offer to sell, nor is it seeking an offer to buy, these securities in any state where the offer or sale is not permitted. The information in this prospectus is complete and accurate as of the date of the front cover, but the information may have changed since that date. 3 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SUMMARY The items in the following summary are described in more detail later in this prospectus. This summary provides an overview of selected information and does not contain all the information you should consider. Therefore, you should also read the more detailed information set out in this prospectus, including the financial statements. Except as set forth in the consolidated financial statements or as otherwise specified in this prospectus, all information in this prospectus: (1) assumes no exercise of the underwriters' over-allotment option and (2) reflects the issuance of 2,600,000 shares of common stock, excluding shares issuable upon conversion of accrued interest, upon the automatic conversion of the convertible promissory notes upon the completion of this offering. Business of BioMarin BioMarin Pharmaceutical Inc. is a developer of carbohydrate enzyme therapies for debilitating, life-threatening, chronic genetic disorders and other diseases and conditions. In October 1998, we completed a six-month evaluation of patients being treated with BioMarin's lead product, BM101, for the treatment of mucopolysaccharidosis-I, or MPS-I. Patients were treated with BM101 as part of a pivotal clinical trial completed to determine the safety and efficacy of the drug in humans. A pivotal clinical trial produces data from human patients sufficient to enable the FDA to determine whether to approve a product for sale. We are currently analyzing data from an additional six-month follow-up period. Based on the 12-month data from this clinical trial, we intend to complete the filing of a biologics license application with the Food and Drug Administration, or FDA, in the second half of 1999. We established a joint venture with Genzyme Corporation for the worldwide development and commercialization of BM101. MPS-I is a life-threatening genetic disorder caused by a deficiency of the enzyme A-L-iduronidase. MPS-I affects about 3,400 patients in developed countries, including approximately 1,000 in the United States and Canada. Patients with MPS-I have multiple debilitating symptoms resulting from the buildup of carbohydrates in all tissues in the body. These symptoms include delayed physical and mental growth, enlarged livers and spleens, skeletal and joint deformities, airway obstruction, heart disease and impaired hearing and vision. Most children with MPS-I will die from complications associated with the disease before adulthood. BM101 is a specific form of A-L-iduronidase that is intended to replace a deficiency of A-L-iduronidase in MPS-I patients. In the clinical trial for BM101, ten patients with MPS-I were treated at five medical centers in the United States and evaluated as to the achievement of two primary endpoints. Primary endpoints are the specific clinical or surrogate effects on patients which are meant to demonstrate whether a drug effectively treats the disease for which it is being tested. Based on data collected during the initial six-month evaluation period, all ten patients met one of the primary endpoints set forth in the investigational new drug application for BM101. Eight of the ten patients met the other primary endpoint. In addition to these primary endpoints, the FDA has requested that we evaluate this data using other criteria. We believe this clinical trial for BM101 constitutes a pivotal clinical trial. We received notice from the FDA that our biologics license application for BM101 has been designated for accelerated review for the treatment of the more severe forms of MPS-I, which account for approximately 60% of all cases. The FDA refers to the accelerated review designation as fast track designation. The FDA has granted us exclusive rights to market BM101 to treat MPS-I for seven years from the date of FDA approval if BM101 is the first A-L-iduronidase drug to be approved by the FDA for the treatment of MPS-I. Drug products which have been granted these exclusivity rights are said to have received orphan drug designation. Under the terms of our BM101 joint venture with Genzyme, we will share equally with Genzyme the expenses and profits from the joint venture. In addition, Genzyme invested $8.0 million to purchase our common stock upon signing the joint venture agreement and has agreed to purchase $10.0 million 4 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- of common stock at the initial public offering price in a private placement concurrent with this offering. Genzyme has committed to pay us an additional $12.1 million upon approval of the biologics license application for BM101. We are also developing enzyme replacement therapies for other life-threatening genetic diseases. We are developing BM102 for the treatment of MPS-VI, another mucopolysaccharide disease. We received an orphan drug designation for BM102 to treat MPS-VI and intend to file an investigational new drug application for BM102 in the fourth quarter of 1999. We are also developing carbohydrate enzymes intended to improve the burn healing process and to act as anti-fungals. Through a wholly-owned subsidiary, Glyko, Inc., we provide products and services for carbohydrate analysis and medical diagnosis to research institutions and commercial laboratories. Office Location Our principal executive offices are located at 371 Bel Marin Keys Boulevard, Suite 210, Novato, CA 94949 and our telephone number is (415) 884-6700. The Offering Common stock offered by us.................. 4,500,000 shares. Of these shares are being offered in the United States and Canada and shares are being offered outside the United States and Canada. The final allocation may vary. Common stock issued to Genzyme in the concurrent private placement............... 833,333 shares, assuming a $12.00 per share offering price. Common stock outstanding after this 34,109,513 shares. This number offering................................... excludes 3,773,226 shares of common stock issuable upon exercise of options outstanding at May 31, 1999, with a weighted average exercise price of $4.68 per share and warrants to purchase 801,500 shares of common stock with an exercise price of $1.00 per share. Offering price.............................. $ per share Use of proceeds............................. To fund our 50% share of the expenses of the joint venture with Genzyme for the worldwide development and commercialization for BM101, to fund additional product programs, including BM102 and other enzyme therapies, to fund process development, clinical and commercial manufacturing facilities and general corporate purposes. See "Use of Proceeds." Proposed Nasdaq National Market and SWX New Market symbol.............................. BMRN
Corporate Information We were incorporated in Delaware in October 1996 and began operations on March 21, 1997. We acquired Glyko, Inc. in October 1998. Unless otherwise specified, the terms "us" and "we" refer to both BioMarin and Glyko, Inc. This prospectus contains our trademarks. Each trademark, trade name or service mark of any other company appearing in this prospectus belongs to its holder. 5 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Summary Consolidated Financial Data (in thousands, except per share data)
Period from March 21, 1997 Three Months Period from (Inception) to Year Ended Ended March 31, March 21, 1997 December 31, December 31, ---------------- (Inception) to Consolidated Statements of 1997 1998 1998 1999 March 31, 1999 Operations Data (1): -------------- ------------ ------- ------- -------------- Revenues.................. $ -- $ 1,190 $ -- $ 1,104 $ 2,295 Operating costs and expenses: Cost of products and services............... -- 108 -- 103 211 Research and development............ 1,914 10,502 1,108 3,892 16,308 General and administrative......... 914 3,531 303 1,693 6,138 ------- -------- ------- ------- -------- Loss from operations...... (2,828) (12,951) (1,411) (4,584) (20,362) Interest income........... 65 684 92 154 904 Equity in loss of joint venture.................. -- (47) -- (180) (227) ------- -------- ------- ------- -------- Net loss.................. $(2,763) $(12,314) $(1,319) $(4,610) $(19,685) ======= ======== ======= ======= ======== Net loss per common share, basic and diluted........ $ (0.34) $ (0.55) $ (0.06) $ (0.18) $ (1.13) ======= ======== ======= ======= ======== Weighted average common shares outstanding....... 8,136 22,488 20,567 26,176 (/2/) 17,441
As of March 31, As of December 31, As of March 31, 1999 1999 1998 ---------------------- Pro Forma Consolidated Balance Actual Actual Pro Forma (/3/) As Adjusted (/4/) Sheet Data: ------------------ ------ --------------- ----------------- Cash, cash equivalents and short-term investments............ $11,389 $3,829 $28,724 $87,444 Total current assets.... 12,819 5,526 30,421 89,141 Total assets............ 31,509 26,778 52,778 110,393 Long-term liabilities... 110 103 26,103 103 Total stockholders' equity................. 29,395 25,045 25,045 108,660
- ------------------------------ (/1/) BioMarin's acquisition of Glyko, Inc. was accounted for as a purchase. As a result, the consolidated statements of operations data of BioMarin include the operations of Glyko, Inc. from October 7, 1998, the date of its acquisition by BioMarin, through March 31, 1999. Financial information for Glyko, Inc. for the years ended December 31, 1994, 1995, 1996, 1997 and the period ended October 7, 1998 is included in the Selected Consolidated Financial Data and financial statements for Glyko, Inc. for the year ended December 31, 1997 and the period ended October 7, 1998 are included in the Financial Statements elsewhere in the prospectus. (/2/) Weighted average common shares outstanding as of March 31, 1999 excludes 3,553,526 shares of common stock issuable upon exercise of outstanding options at March 31, 1999 with a weighted average exercise price of $4.51 per share and warrants to purchase 801,500 shares of common stock with an exercise price of $1.00 per share. See "Capitalization," "Management--Stock Plans," "Underwriting" and Notes 3, 5, 9 and 11 of Notes to Consolidated Financial Statements of BioMarin. (/3/) Reflects the sale on April 13, 1999 of $26.0 million of convertible promissory notes, net of issuance costs of $1.1 million. (/4/) As adjusted for (1) the sale of 4,500,000 shares of common stock by BioMarin at an assumed initial public offering price of $12.00 per share net of estimated underwriters' discounts and commissions and offering expenses of $5.3 million; (2) the sale of $10.0 million of common stock to Genzyme at the initial public offering price in a private placement concurrent with this offering; and (3) the issuance of 2,600,000 shares of common stock, excluding shares issuable upon conversion of accrued interest, upon the automatic conversion of the convertible promissory notes on the date of the final prospectus for this offering, after deducting underwriting discounts and commissions and estimated offering expenses. See "Use of Proceeds," "Capitalization" and "Underwriting." 6 RISK FACTORS You should carefully consider the following risk factors before you decide to buy our common stock. You should also consider the other information in this prospectus. In addition, the risks and uncertainties described below are not the only ones facing BioMarin because we are also subject to additional risks and uncertainties not presently known to us. If any of these risks actually occur, our business, financial condition, operating results or cash flows, could be materially adversely affected. This could cause the trading price of our common stock to decline, and you may lose part or all of your investment. Risks Related To The Company If we continue to incur operating losses for a period longer than anticipated, we may be unable to continue our operations. We are in an early stage of development and have operated at a net loss since we were formed. Since we began operations in March 1997, we have been engaged primarily in research and development. We have no sales revenues from any of our drug products. As of March 31, 1999, we had an accumulated deficit of approximately $19.7 million. Our future profitability depends on our receiving regulatory approval of our drug 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 quarterly or annual basis, then we may be unable to continue our operations. Because of the relative small size and scale of our wholly-owned subsidiary, Glyko, Inc., profits from products and services offered by it are expected to be insufficient to offset the expenses associated with our pharmaceutical business. As a result, we expect that operating losses will continue and increase for the foreseeable future. We expect that our net loss and the size of our capital investments will increase significantly in the second quarter of 1999 in comparison to the first quarter of 1999. If we fail to obtain the capital necessary to fund our operations we will be unable to complete our product development programs. In the future, we may need to raise substantial additional capital to fund operations. We cannot be certain that any financing will be available when needed. If we fail to raise additional financing as we need it, we will have to delay or terminate our product development programs. We expect to continue to spend substantial amounts of capital for our operations for the foreseeable future. Activities which will require additional expenditures include: . research and development programs . preclinical studies and clinical trials . regulatory processes . establishment of commercial scale manufacturing capabilities and . expansion of sales and marketing activities. The amount of capital we may need depends on many factors, including: . The progress, timing and scope of our research and development programs . The progress, timing and scope of our preclinical studies and clinical trials . The time and cost necessary to obtain regulatory approvals 7 . The time and cost necessary to build our manufacturing facilities and obtain the necessary regulatory approvals for those facilities . The time and cost necessary to respond to technological and market developments . Any changes made or new developments in our existing collaborative, licensing and other commercial relationships . Any new collaborative, licensing and other commercial relationships that we may establish Moreover, our fixed expenses such as rent, license payments and other contractual commitments are substantial and will increase in the future. These fixed expenses will increase because we may enter into: . additional leases for new facilities and capital equipment . additional licenses and collaborative agreements . additional contracts for consulting, maintenance and administrative services . additional expenses associated with being a public company. We believe that the net proceeds of this offering, together with our available cash, cash equivalents, short-term investment securities and investment income, will be sufficient to meet our operating and capital requirements through at least the next 12 months. This estimate is based on assumptions which may prove to be wrong. As a result, we may need additional financing prior to that time. If we fail to obtain regulatory approval to commercially manufacture or sell any of our future drug products, or if approval is delayed, we will be unable to generate revenue from the sale of our products. We must obtain regulatory approval to market our products in the U.S. and foreign jurisdictions. We must obtain regulatory approval before marketing or selling our future drug products. In the United States, 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. None of our drug products has received regulatory approval to be commercially marketed and sold. If we fail to obtain regulatory approval we will be unable to market and sell our future drug products. We have several drug products in various stages of preclinical and clinical development. BM101, our first drug product, is not expected to be commercially available until at least 2000. Our other drug product will not be commercially available for at least several more years. Because of the risks and uncertainties in biopharmaceutical development, our drug candidates could take a significantly longer time to gain regulatory approval than we expect or may never gain approval. If regulatory approval is delayed our management's credibility, the value of our company and our operating results may be adversely affected. To obtain regulatory approval to market our products, preclinical studies and costly and lengthy clinical trials may be required and the results of the studies and trials are highly uncertain. As part of the FDA approval process, we must conduct, at our own expense, preclinical studies on animals and clinical trials on humans on each drug candidate. We expect the number of preclinical studies and clinical trials that the FDA will require will vary depending on the drug product, 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 drug products. Furthermore, even if we obtain favorable results in preclinical studies on animals, the results in humans may be different. After we have conducted preclinical studies in animals we must demonstrate that our drug products are safe and effective for use on the target human patients in order to receive regulatory approval for 8 commercial sale. Adverse or inconclusive clinical results would stop us from filing for regulatory approval of our products. Additional factors that can cause delay or termination of our clinical trials include: . Slow patient enrollment . Longer treatment time required to demonstrate efficacy . Lack of sufficient supplies of the drug candidate . Adverse medical events or side effects in treated patients . Lack of effectiveness of the drug candidate being tested Typically, if a drug product is intended to treat a chronic disease safety and efficacy data must be gathered over an extended period of time which ranges from six months to three years. In addition, clinical trials on humans are typically conducted in three phases. The FDA generally requires two pivotal clinical trials that demonstrate substantial evidence of safety and efficacy and appropriate dosing in a broad patient population at multiple sites to support an application for regulatory approval. If a drug is intended for the treatment of a serious or life-threatening condition and the drug demonstrates the potential to address unmet medical needs for this condition, a single trial may be sufficient to prove safety and efficacy under the FDA's Modernization Act of 1997. Our strategy to conduct only one clinical trial on a small number of patients for products developed to treat genetic disorders may not be sufficient to obtain regulatory approval. We believe that our enzyme drug products will be regulated by the FDA as biologics rather than drugs because they are manufactured by biological processes. Our strategy for the development of therapeutics for genetic disorders is to conduct only one clinical trial on a small number of patients, which would then be the basis for our submission of a biologics license application to the FDA. For example, at the end of October 1998, we completed a six-month evaluation of ten patients on our first drug candidate BM101. Because 12-month data will be available, the FDA has requested that we evaluate data for these patients for the 12-month period rather than the six-month period which formed the basis of our initial evaluation. In addition the FDA has also requested that we evaluate this data using other criteria that may demonstrate that the surrogate endpoints are a predictor of clinical benefit. We are currently performing this evaluation. We cannot assure you that this evaluation will support our findings with regard to the primary endpoints in the clinical trial. If this analysis does not support our findings with regard to the primary endpoints, or if the primary endpoints do not predict a clinical benefit, it could delay the filing of the biologics license application and could jeopardize FDA approval of BM101. The FDA may request additional trials to be conducted. If we have to conduct further clinical trials, whether for BM101 or other products we develop in the future, it would significantly increase our expenses and delay marketing of our product. Also, the results of initial smaller clinical trials could differ from the results obtained from subsequent more extensive long-term trials. A significant difference in the results of multiple clinical trials could cause the FDA to require still more clinical trials which would significantly delay the approval process. The fast track designation for BM101 may not actually lead to a faster review process. Although BM101 has obtained a fast track designation, we cannot guarantee a faster review process or faster approval compared to the normal FDA procedures. If BM101 is approved, we will be required to conduct a study after we obtain approval of BM101 to demonstrate that the primary endpoints used in our single study are reasonably likely to predict clinical benefits to the patients. If this post-approval study fails to verify the clinical benefit of BM101 or demonstrates that BM101 is not safe or effective, our FDA approval can be withdrawn on an expedited basis. Furthermore, if adverse effects are identified after marketing, FDA approval may be rapidly revoked and we could not market the drug. We will not be able to sell our products if we fail to comply with manufacturing regulations. Before we can begin commercially manufacturing our products we must obtain regulatory approval of our manufacturing facility and process. In addition, manufacture of our drug products must comply 9 with the FDA's current Good Manufacturing Practices regulations, commonly known as cGMP. The cGMP regulations govern quality control and documentation policies and procedures. Our manufacturing facilities are continuously subject to inspection by the FDA, the State of California and foreign regulatory authorities, before and after product approval. Because we are currently in the process of developing the manufacturing site and process for commercial manufacture of BM101, our facility has not yet been inspected by any governmental entity. We cannot guarantee that BioMarin, or any potential third- party manufacturer of our drug products, will be able to comply with cGMP regulations. Material changes to the manufacturing processes after approvals have been granted are also subject to review and approval by the FDA or other regulatory agencies. We currently have a contract with Harbor-UCLA Research and Education Institute to manufacture BM101 in limited quantities for use in preclinical studies and clinical trials. In order to produce initial commercial requirements for BM101 in our facility we will have to prove that the product manufactured at our facility is comparable to the clinical trial product produced in the Harbor- UCLA facility. This will require laboratory testing and may require clinical trials. We must pass FDA and state inspections and manufacture three process qualification batches to final specifications under cGMP controls before the BM101 BLA can be approved. We cannot assure you that we will pass the inspections in a timely manner, if at all. If we fail to obtain orphan drug exclusivity for our products, our competitors may sell products to treat the same conditions and our revenues may be reduced. As part of our business strategy, we intend to develop drugs that may be eligible for FDA 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. The company that obtains the first 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. However, different drugs can be approved for the same condition. Because the extent and scope of patent protection for our drug candidates is limited, orphan drug designation is particularly important for our products that are eligible for orphan drug designation. 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 any one of our drug products, our competitors may then sell the same drug to treat the same condition. We received orphan drug designation from the FDA for BM101 in September 1997. In February 1999, we received orphan drug designation from the FDA for BM102. Even if we obtain orphan drug designation, we cannot guarantee that we will be the first to obtain marketing approval for any orphan indication or that exclusivity would effectively protect the product from competition. Orphan drug designation does not shorten the development or FDA review time of a drug so designated nor give the drug any advantage in the FDA review or approval process. Because the target patient populations for our products are small we must achieve significant market share and obtain high per patient prices for our products to achieve profitability. Our initial drug candidates target disorders with small patient populations. As a result, our prices must be high enough to recover our development costs and achieve profitability. For example, two of our initial drug products in genetic disorders, BM101 and BM102, target patients with MPS-I and MPS-VI, respectively. We estimate that there are approximately 3,400 patients with MPS- I and 1,100 patients with MPS-VI in the developed world. We believe that we will need to market worldwide to achieve significant market share. In addition, we are developing other drug candidates to treat conditions, such as other genetic diseases and serious burns, with small patient populations. We cannot be certain that we will be able to obtain sufficient market share for our drug products at a price high enough to justify our product development efforts. 10 If we fail to obtain an adequate level of reimbursement for our drug products by third-party payors there would be no commercially viable markets for our products. The course of treatment for patients with MPS-I using BM101 is expected to be expensive. We expect patients to need treatment throughout their lifetimes. We expect that families of patients will not be capable of paying for this treatment themselves. There will be no commercially viable market for BM101 without reimbursement from third-party payors. Third-party payors, such as government or private health care insurers, carefully review and increasingly challenge the price charged for drugs. Reimbursement rates from private companies vary depending on the third-party payor, 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 cannot be certain that third-party payors will pay for the costs of our drugs and the courses of treatment. Even if we are able to obtain reimbursement from third-party payors, we cannot be certain that reimbursement rates will be enough to allow us to profit from sales of our drugs. We currently have no expertise obtaining reimbursement. We expect to rely on the expertise of our partner Genzyme to obtain reimbursement for BM101. We cannot predict what the reimbursement rates will be. In addition, we will need to develop our own reimbursement expertise for future drug candidates unless we enter into collaborations with other companies with the necessary expertise. We expect that in the future reimbursement will be increasingly restricted both in the United States 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 payors 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 United States. 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 our future revenues from sales of our drugs and may adversely affect our business and prospects. 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. Meaningful patent protection may not be available for some of the enzymes we are developing, including BM101 and BM102. If we must spend significant time and money protecting our patents, designing around patents held by others or licensing, for excessively large fees, patents or other proprietary rights held by others, our business and prospects may be harmed. The patent positions of biotechnology companies are extremely complex and uncertain. The scope and extent of patent protection for some of our products are particularly uncertain because key information on some of the enzymes we are developing has existed in the public domain for many years. Other parties have published the structure of the enzymes, the methods for purifying or producing the enzymes or the methods of treatment. The composition and genetic sequences of animal and/or human versions of many of our enzymes, including those for BM101 and BM102, have been published and are in the public domain. The composition and genetic sequences of other MPS enzymes which we intend to develop as products have also been published. 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 with no prospect of composition of matter patents, we will depend on orphan drug status. 11 In addition, our owned and licensed patents and patent applications do not ensure the protection of our intellectual property for a number of other reasons: . We do not know whether our patent applications will result in actual patents. For example, we may not have developed a method for treating a disease before others developed similar methods. . Competitors may interfere with our patent process in a variety of ways. Competitors may claim that they invented the claimed invention prior to us. Competitors may also claim that we are infringing on their patents and therefore cannot practice our technology as claimed under our patent. Competitors may also contest our patents by showing the patent examiner that the invention was not original, novel or was obvious. As a Company, we have no meaningful experience with competitors interfering with our patents or patent applications. . Even if we receive a patent, it may not provide much practical protection. If we receive a patent with a narrow scope, then it will be easier for competitors to design products that do not infringe on our patent. . Enforcing patents is expensive and may absorb significant time by our management. In litigation, a competitor could claim that our issued patents are not valid for a number of reasons. If the court agrees, we would lose that patent. In addition, competitors also seek patent protection for their technology. There are many patents in our field of technology, and we cannot guarantee 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: . Defending a lawsuit takes significant time and can be very expensive. . If the court decides that our product infringes on the competitor's patent, we may have to pay substantial damages for past infringement. . The court may prohibit us from selling or licensing the product unless the patent holder licenses the patent to us. The patent holder is not required to grant us a license. If a license is available, we may have to pay substantial royalties or grant cross-licenses to our patents. . Redesigning our product so it does not infringe may not be possible and could require substantial funds and time. It is also unclear whether our trade secrets will provide useful protection. 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 United States 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 or by universities. We cannot guarantee that we will be able to acquire any exclusive rights to technology or products derived from these collaborations. If we do not obtain required licenses or rights, we could encounter delays in product development 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. 12 If our joint venture with Genzyme were terminated, our ability to commercialize BM101 would be delayed. We are relying on Genzyme to apply the expertise it has developed through the launch and sale of Ceredase(R) and Cerezyme(R) enzymes for Gaucher disease, a rare genetic disorder, to the marketing of our initial drug product, BM101. We have no experience selling, marketing or obtaining reimbursement for pharmaceutical products. In addition, without Genzyme we would be required to pursue foreign regulatory approvals. We have no experience in seeking foreign regulatory approvals. Termination of our joint venture with Genzyme would seriously hamper our ability to commercialize BM101. We cannot guarantee that Genzyme will devote the resources necessary to successfully market BM101. In addition, either party may terminate the joint venture for any reason. If Genzyme were to terminate the joint venture, we would be required to undertake Genzyme's responsibilities ourselves. Termination of the joint venture could cause significant delays in product launch in the United States, difficulties in obtaining third-party reimbursement and delays or failure to obtain foreign regulatory approval, any of which could hurt our business and results of operations. Since Genzyme funds 50% of the joint venture's 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 we are unable to manufacture our drug products in sufficient quantities and at acceptable cost, we may be unable to meet demand for our products and lose potential revenues. We have no experience manufacturing drug products in volumes that will be necessary to support commercial sales. Our unproven manufacturing process may not meet initial expectations as to schedule, reproducibility, yields, purity, costs, quality, and other measurements of performance. Improvements in manufacturing processes typically are very difficult to achieve and are often very expensive. We cannot know with any certainty how long it might take to make improvements if it became necessary to do so. If we contract for manufacturing services with an unproven process, our contractor is subject to the same uncertainties, high standards and regulatory controls. If we are unable to establish and maintain commercial scale manufacturing within our planned time and cost parameters, sales of our products and our financial performance will be adversely affected. We may encounter problems with any of the following if we attempt to increase the scale or size of manufacturing: . Design, construction and qualification of manufacturing facilities that meet regulatory requirements . Production yields . Purity . Quality control and assurance . Shortages of qualified personnel . Compliance with FDA regulations We are developing a total of 31,000 square feet of space at two facilities, one in Novato and one in Torrance, for the manufacture of BM101. The construction and qualification of these facilities may take longer than planned and the actual construction costs of these facilities may be higher than those which we have budgeted. We expect that the manufacturing process of all of our new products, including BM102, will also require lengthy development time before we can begin manufacturing them in commercial quantity. Even if we can establish this capacity, we cannot be certain that manufacturing costs will be commercially reasonable, especially if reimbursement is substantially lower than expected. 13 In order to achieve our product cost targets we must develop efficient manufacturing processes either by . improving the colonies of cells which have a common genetic make-up, or cell lines, . improving the processes licensed from others, or . developing a recombinant cell line and production processes. A recombinant cell line is a cell line with foreign DNA inserted which is used to produce a protein that it would not have otherwise produced and related purification. The development of a stable, high production cell line for any given enzyme is risky, expensive and unpredictable and may not yield adequate results. In addition, the development of protein purification processes is difficult and may not produce the high purity required with acceptable yield and costs. 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 will have lower margins and reduced profitability in commercial production and greater losses in manufacturing start-up phases. If we are unable to increase our marketing and distribution capabilities or to enter into agreements with third parties to do so, our ability to generate revenues will be diminished. If we cannot increase our marketing capabilities either by developing our sales and marketing organization or by entering into agreements with others, we may be unable to successfully sell our products. If we are unable to effectively sell our drug products, our ability to generate revenues will be diminished. To increase our distribution and marketing for both our drug candidates and our Glyko, Inc. products, we will have to increase our current sales force and/or enter into third-party marketing and distribution agreements. We cannot guarantee that we will be able to hire in a timely manner, the qualified sales and marketing personnel we need if at all. Nor can we guarantee that we will be able to enter into any marketing or distribution agreements on acceptable terms, if at all. If we cannot increase our marketing capabilities as we intend, either by increasing our sales force or entering into agreements with third parties, sales of our products may be adversely affected. We have recently entered into a joint venture with Genzyme where Genzyme will be responsible for marketing and distributing BM101. We cannot guarantee that we will be able to establish sales and distribution capabilities or that BioMarin, the joint venture or any future collaborators will successfully sell any of our drug candidates. If we fail to compete successfully, our revenues and operating results will 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 orphan drug designation, or commercialize their products before we do. If our competitors successfully commercialize a product which treats a given rare genetic disease before we do, we will effectively be precluded from developing a product to treat that disease because the patient populations of the rare genetic diseases are so small. These companies also compete with us to attract qualified personnel and parties for acquisitions, joint ventures or other collaborations. They also compete with us to attract academic research institutions as partners and to license these institution's proprietary technology. 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. 14 Universities and public and private research institutions are also competitors. While these organizations primarily have educational objectives, they may develop proprietary technology and acquire patents that we may need for the development of our drug products. We will attempt to license this proprietary technology, if available. These licenses may not be available to us on acceptable terms, if at all. We also directly compete with a number of these organizations to recruit personnel, especially scientists and technicians. We believe that established technologies provided by other companies, such as laboratory and testing services firms compete with Glyko Inc.'s products and services. For example, Glyko, Inc.'s FACE Imaging System competes with alternative carbohydrate analytical technologies, including capillary electrophoresis, high-pressure liquid chromatography, mass spectrometry and nuclear magnetic resonance spectrometry. These competitive technologies have established customer bases and are more widely used and accepted by scientific and technical personnel because they can be used for non-carbohydrate applications. Companies competing with Glyko, Inc. may have greater financial, manufacturing and marketing resources and experience. If we fail to manage our growth or fail to recruit and retain personnel, our product development programs may be delayed. Our rapid growth has strained our managerial, operational, financial and other resources. We expect this growth to continue. We recently entered into a joint venture with Genzyme. If we receive FDA approval to market BM101, the joint venture will be required to devote additional resources to support the commercialization of BM101. To manage expansion effectively, we need to continue to develop and improve our operating and financial systems, sales and marketing capabilities. We cannot guarantee that our systems, procedures or controls will be adequate to support our operations or that our management will be able to manage successfully future market opportunities or our relationships with customers and other third parties. Our future growth and success depend on our ability to recruit, retain, manage and motivate our employees. The loss of key scientific, technical and managerial personnel may delay our product development programs. Any harm to our research and development programs would harm our business and prospects. Because of the specialized scientific 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 Grant W. Denison, Jr., Chairman and Chief Executive Officer, John C. Klock, M.D., President and Secretary or Christopher M. Starr, Ph.D., Vice President for Research and Development would be detrimental to us. While each of these individuals is party to an employment agreement with us, which includes financial incentives for each of them to remain employed with us, these agreements each terminate in June 2000 and we cannot guarantee that any of them will remain employed with us beyond that time. 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 biopharmaceutical field is intense. We cannot be certain that we will continue to attract and retain qualified personnel necessary for the development of our business. 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 drug treatments. We currently do not maintain insurance against product liability lawsuits. Although we intend to obtain product liability insurance within the next three months for our clinical trials of BM102 and shortly before initiating clinical trials for our other products, we cannot be certain that we will be able to obtain adequate insurance coverage. In addition, we may be subject to claims in connection with our current clinical trials for BM101 for which we have no insurance coverage. We cannot be certain that if BM101 receives FDA approval, the product liability insurance we will need to 15 obtain in connection with the commercial sales of BM101 will be available at a reasonable cost. In addition, we cannot be certain that we can successfully defend any product liability lawsuit brought against us. If we are the subject of a successful product liability claim which exceeds the limits of any insurance coverage we may obtain, we may incur substantial liabilities which would adversely affect our earnings and financial condition. If we experience any problems with Year 2000 compliance our operations may be disrupted. The following is intended to constitute "Year 2000 Readiness Disclosure" under the Year 2000 Information and Readiness Disclosure Act of 1998. Beginning in the year 2000, the date fields coded in certain software products and computer systems will need to accept four digit entries in order to distinguish 21st century dates from 20th century dates (commonly known as the year 2000 problem). It is not clear what potential problems may arise as the biopharmaceutical industry, and other industries, try to resolve this year 2000 problem. It is possible that our currently installed computer systems, software products or other business systems, or those of our suppliers or service providers, working either alone or in conjunction with other software or systems, will not accept input of, store, manipulate and output dates for the years 1999, 2000 or subsequent years without error or interruption. We have formed a team to review and resolve those aspects of the year 2000 problem that are within our direct control and adjust to or influence those aspects that are not within our direct control. The team has reviewed our software products, including those under development, and determined that our software products do not use date data and are year 2000 compliant. Our biopharmaceutical products do not have any year 2000 exposure. Based on representations from our vendors, the team has reviewed the year 2000 compliance status of our major internal information technology programs and systems used for administrative requirements and determined that they are year 2000 compliant. Some risks associated with the year 2000 problem are beyond our ability to control, including the extent to which our suppliers and service providers can address the year 2000 problem. The failure by a third party to adequately address the year 2000 issue could have an adverse effect on their operations, which could have an adverse effect on us. We are assessing the possible effects on our operations of the possible failure of our key suppliers and providers, contractors and collaborators to identify and remedy potential year 2000 problems. Our stock price may be volatile and your investment in our stock could suffer a decline in value. Prior to this offering there has been no public market for our common stock. The initial public offering price will be negotiated among the underwriters and us and may not be indicative of prices that will prevail in the trading markets after the offering. Accordingly, the initial public offering price will be determined through negotiations between BioMarin and the underwriters. Our valuation and the initial public offering stock price have no meaningful relationship to current or historical earnings, asset values, book value or any other criteria of value. The market price of the common stock after this offering will fluctuate and may be higher or lower than the initial public offering price due to factors including: . Progress of BM101 and our other lead drug candidates through the regulatory process, especially BM101 regulatory actions in the United States . Results of clinical trials, announcements of technological innovations or new products by us or our competitors . Government regulatory action affecting our drug candidates or our competitors' drug candidates in both the United States and foreign countries . Developments or disputes concerning patent or proprietary rights . General market conditions for emerging growth and biopharmaceutical companies . Economic conditions in the United States or abroad 16 . Actual or anticipated fluctuations in our operating results . Broad market fluctuations may cause the market price of our common stock to fluctuate . Changes in financial estimates by securities analysts In addition, the value of our common stock may fluctuate because it is listed on both the Nasdaq National Market and the Swiss Exchange. We cannot be certain what effect, if any, the dual listing will have on the price of our stock in either market. Listing on both exchanges may increase stock price volatility due to: . trading in different time zones . different ability to buy or sell our stock . different trading volume 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. If our officers, directors and largest stockholder elect to act together they may be able to control our management and operations, acting in their best interests and not necessarily those of other stockholders. After this offering, our directors and officers will control approximately 11.0% of the outstanding shares of our common stock. If the underwriters exercise their over-allotment option in its entirety then the officers and directors will own approximately 10.8%. Glyko Biomedical will own 33.3% of the outstanding shares of capital stock after this offering. Three of six Glyko Biomedical directors are officers or directors of BioMarin. As a result, after this offering, due to their concentration of stock ownership, directors and officers, together with Glyko Biomedical if they act together, may be able to otherwise control our management and operations, and may be able to prevail on all matters requiring a stockholder vote including: . The election of all directors . The amendment of charter documents or the approval of a merger, sale of assets or other major corporate transactions . The defeat of any non-negotiated takeover attempt that might otherwise benefit the public stockholders Anti-takeover provisions in our charter documents and under Delaware law may make an acquisition of us, which may be beneficial to our stockholders, more difficult. BioMarin is incorporated in Delaware. Certain anti-takeover provisions of Delaware law and our charter documents as in effect at the time of the closing may make a change in control of BioMarin 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 a provision in the bylaws providing that the stockholders may not take action by written consent. Additionally, our board of directors will have after the closing of this offering the authority to issue 1,000,000 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 the outstanding voting stock of BioMarin. 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. The 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. 17 Risks Related To This Offering Shares eligible for future sale: the sale of a substantial number of shares of common stock could cause the market price of our common stock to decline. After this offering, we will have a total of 34,109,513 shares of common stock outstanding. If the underwriters exercise their entire over-allotment option we will have 34,784,513 shares outstanding. The sale by our company or the resale by stockholders of shares of our common stock in the public market after the offering could cause the market price of the common stock to decline. The federal securities laws impose restrictions on the ability of stockholders to resell their shares of common stock. In addition, all of our stockholders prior to this offering have agreed not to sell their shares for 180 days following the offering. The 34,109,513 shares of common stock outstanding after this offering will be available for resale on The Nasdaq National Market as follows:
Number of Shares Date Available for Resale ---------------- ------------------------- 4,500,000 Immediately 1,973 181 days following the offering without volume limitations 23,674,207 181 days following the offering with volume and other limitations 5,933,333 Various dates beginning 181 days following the offering with volume limitations
Beginning 181 days after the date of this prospectus all 29,609,513 shares of common stock held by existing stockholders shall be eligible for sale on the SWX New Market. Sales of these shares on the SWX New Market, however, will still be subject to U.S. securities laws including Regulation S or Rule 144 which may, as applicable to each stockholder, restrict these sales. Under Rule 144, a stockholder who is not an "affiliate," as defined in Rule 144, will be able to sell restricted securities held for at least a year, subject to volume limits, manner of sale and other restrictions. Shares held for two years by a non-"affiliate" stockholder would be saleable on the SWX New Market without these restrictions. Under Regulation S, a stockholder who is not an affiliate and is not a distributor will be able to sell on the SWX New Market without restriction. After this offering, holders of 29,607,540 shares of the common stock may require us to register their shares for resale under federal securities laws. Registration of these shares would allow these stockholders to immediately resell their shares on The Nasdaq National Market or the SWX New Market. The market price of the common stock could decline if any of these sales were made or even anticipated. We also intend to file a registration statement following the offering to permit the sale of approximately 5,450,000 shares of common stock under our stock plans beginning 181 days after the offering. As of May 31, 1999, options to purchase 3,773,226, shares of BioMarin common stock upon exercise of options with a weighted average exercise price per share of $4.68 were outstanding. Many of these shares are subject to vesting that generally occurs over a period of four years following the date of grant however. All vested options are subject to agreements with the underwriters not to sell the shares issuable upon their exercise for 180 days after the offering. 18 HISTORY OF OUR COMPANY We were incorporated as a wholly-owned subsidiary of Glyko Biomedical in October 1996. We began operations in March 1997 and were initially funded by Glyko Biomedical. In June 1997, Glyko Biomedical licensed to BioMarin important intellectual property for use in therapeutic applications. Glyko Biomedical's original 100% ownership position in our company has been reduced to 41.7% of the total shares of common stock outstanding before this offering due to the following transactions: . In October 1997, we sold 2,500,000 shares of our common stock to three founders. . In December 1997 and June and August 1998, we completed two private placements of our common stock to independent investors and Glyko Biomedical. . In September 1998, we entered into a joint venture with Genzyme to develop and commercialize BM101. As part of that transaction, Genzyme purchased 1,333,333 shares of our common stock and committed to purchase an additional $10.0 million of our common stock concurrent with this offering. . In October 1998, we purchased Glyko Biomedical's analytical and diagnostic subsidiary, Glyko, Inc., by issuing 2,259,039 shares of our common stock and assuming responsibility for employee stock options. . In April 1999, we raised $26.0 million from the sale of convertible notes in a private placement. Glyko Biomedical purchased $4.3 million in principal amount of these convertible notes. Upon the automatic conversion of the convertible notes at the completion of this offering, the issuance of common stock to Genzyme concurrent with this offering and the issuance of shares in this offering, Glyko Biomedical's ownership interest will be reduced to 33.3%. Glyko Biomedical is currently, and after completion of these transactions, will remain our largest stockholder. 19 USE OF PROCEEDS The net proceeds to us from the sale of 4,500,000 shares of common stock in this offering at an assumed public offering price of $12.00 per share and the sale of $10.0 million of common stock to Genzyme at the initial public offering price in a private placement concurrent with this offering, are estimated to be $58.7 million after deducting underwriting discounts and commissions and estimated offering expenses payable by us. The net proceeds to us are estimated to be $66.3 million if the underwriters' over-allotment option is exercised in full. We intend to use the net proceeds of this offering over the 12 months following this offering for the following purposes: . To fund our share of costs associated with the development and commercialization of BM101. We estimate that this use will require approximately $10.0 million. . To fund research and development including clinical trials, regulatory processes and process development, scale-up and start-up of manufacturing activities for our other pharmaceutical product programs. We estimate that this use will require approximately $22.0 million. . For research, development, clinical and commercial manufacturing facilities, including related equipment. We estimate that this use will require $26.0 million. . General corporate purposes, including working capital. We estimate that this use will consume the remaining proceeds. A portion of the proceeds may also be used to acquire or invest in complementary businesses or products or to obtain rights to use complementary technologies. We may require additional funds in the 12-month period following this offering to accelerate product programs or to undertake new initiatives or enter into collaborative arrangements. The amounts and timing of our actual expenditures for each of these purposes may vary significantly depending upon numerous factors, including the status of our product development efforts, regulatory approvals, competition, sales and marketing activities and market acceptance of our products. Pending use for these or other purposes, we intend to invest the net proceeds of this offering in short-term, investment-grade, interest-bearing securities. See "Risk Factors--If we fail to obtain the capital necessary to fund our operations we will be unable to complete our product development programs." DIVIDEND POLICY We have never paid cash dividends on our common stock. We currently intend to retain all of our future earnings to finance the growth and development of our business. We do not intend to pay cash dividends on our common stock in the foreseeable future. 20 FORWARD-LOOKING STATEMENTS This prospectus contains "forward-looking statements" as defined under securities laws. These statements can be identified by the use of terminology such as "believes," "expects," "anticipates," "plans," "may," "will," "projects," "continues," "estimates," "potential," "opportunity" and so on. These forward-looking statements may be found in the "Summary," "Risk Factors," "Business," and other sections of this prospectus. 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 "Risk Factors," as well as those discussed elsewhere in this prospectus. 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 offering to reflect later events or circumstances or to reflect the occurrence of unanticipated events. 21 CAPITALIZATION The following table sets forth our actual capitalization at March 31, 1999. The pro forma capitalization gives effect to the sale of $26.0 million of convertible promissory notes, net of issuance costs of $1.1 million. The as adjusted data reflects (1) the sale of 4,500,000 shares of common stock by BioMarin at an assumed initial public offering price of $12.00 per share; (2) the sale of $10.0 million of common stock to Genzyme at the initial public offering price in a private placement concurrent with the offering; and (3) the issuance of 2,600,000 shares of common stock, excluding shares issuable upon conversion of accrued interest, upon the automatic conversion of the convertible promissory notes on the date of the final prospectus for this offering, after deducting underwriting discounts and commissions and estimated offering expenses:
As of March 31, 1999, ---------------------------- Pro As Actual Forma Adjusted -------- -------- -------- (in thousands) Cash, cash equivalents and investments........... $ 3,829 $ 28,724 $ 87,444 ======== ======== ======== Long-term liabilities (/1/)...................... $ 103 $ 26,103 $ 103 Stockholders' equity: Common stock, $0.001 par value; 50,000,000 shares authorized, actual; 50,000,000 shares authorized, pro forma; 75,000,000 shares authorized, as adjusted; 26,176,180 shares issued and outstanding, actual and pro forma; 34,109,513 shares issued and outstanding, as adjusted (/2/)................................ 26 26 34 Preferred stock, $0.001 par value; no shares authorized, actual and pro forma; 1,000,000 shares authorized, as adjusted; no shares issued and outstanding actual, pro forma and as adjusted................................... -- -- -- Additional paid-in capital..................... 50,692 50,692 134,299 Warrants....................................... 128 128 128 Notes receivable from stockholders............. (2,525) (2,525) (2,525) Deferred compensation.......................... (3,590) (3,590) (3,590) Accumulated deficit............................ (19,686) (19,686) (19,686) -------- -------- -------- Total stockholders' equity................... 25,045 25,045 108,660 -------- -------- -------- Total capitalization....................... $ 25,148 $ 51,148 $108,763 ======== ======== ========
- ------------------------------- (/1/) See Notes 3 and 12 of Notes to BioMarin's Financial Statements. (/2/) Excludes (1) 3,553,526 shares of common stock issuable upon exercise of outstanding options at March 31, 1999 with a weighted average exercise price of $4.51 per share, and (2) 801,500 shares of common stock issuable upon exercise of outstanding warrants at an exercise price of $1.00 per share. 22 DILUTION Our net tangible book value as of March 31, 1999, was $13,612,968 or $0.52 per share of common stock. Pro forma net tangible book value per share represents the amount of BioMarin's pro forma stockholders' equity, less intangible assets, divided by the pro forma number of shares of common stock outstanding as of March 31, 1999 after giving effect to: . The application of the net proceeds from the sale on April 13, 1999 of $26.0 million of convertible promissory notes and the issuance of 2,600,000 shares of common stock, excluding shares issuable upon conversion of accrued interest, upon the automatic conversion of the convertible promissory notes on the date of the final prospectus for this offering . The application of the net proceeds from the sale of 4,500,000 shares of common stock by BioMarin at an assumed initial public offering price of $12.00 per share . The sale of $10.0 million of common stock to Genzyme at the initial public offering price in a private placement concurrent with this offering As of March 31, 1999, after giving effect to the items above, the pro forma net tangible book value of BioMarin would have been $97,227,968 or $2.85 per share. This represents an immediate increase in net tangible book value to existing stockholders of $2.33 per share and an immediate dilution to new investors of $9.15 per share. The following table illustrates the per share dilution: Assumed initial public offering price per share.................... $12.00 Net tangible book value per share as of March 31, 1999........... 0.52 Increase in net tangible book value per share attributable to new investors....................................................... 2.33 ---- Pro forma net tangible book value per share after the offering..... 2.85 ------ Dilution per share to new investors................................ $ 9.15 ======
The following table enumerates the number of shares of common stock purchased, the total consideration paid and the average price per share paid by our existing stockholders. The following table also enumerates the number of shares of common stock purchased and the total consideration paid, calculated before deduction of underwriting discounts and commissions and estimated offering expenses, and the average price per share paid by the new investors in this offering.
Shares Purchased Total Consideration Average ------------------ -------------------- Price Number Percent Amount Percent Per Share ---------- ------- ------------ ------- --------- Existing stockholders....... 29,609,513 86.8% $ 68,270,981 55.8% $2.31 New investors in this offering................... 4,500,000 13.2 54,000,000 44.2 12.00 ---------- ---- ------------ ---- ----- Total................... 34,109,513 100% $122,270,981 100% $3.58 ========== ==== ============ ==== =====
The table above is calculated on a pro forma basis as of March 31, 1999, assuming the issuance of 2,600,000 shares of common stock upon conversion of outstanding convertible promissory notes, excluding shares issuable upon conversion of interest accrued on the notes. The table above assumes no exercise of the underwriters over-allotment option and no exercise of stock options outstanding at March 31, 1999. As of March 31, 1999, there were options outstanding to purchase a total of 3,553,526 shares, at a weighted average exercise price of $4.51 per share. As of March 31, 1999, there were warrants outstanding to purchase 801,500 shares of common stock at an exercise price of $1.00 per share. See "Capitalization," "Management-- Compensation of Directors," "--Executive Compensation" and Notes 3 and 12 of Notes to BioMarin's Consolidated Financial Statements. 23 SELECTED CONSOLIDATED FINANCIAL DATA (in thousands, except per share data) The selected consolidated balance sheet data of BioMarin Pharmaceutical Inc. as of December 31, 1997 and 1998 and the statements of operations data for the period from March 21, 1997 (inception) and the year ended December 31, 1998 presented below are derived from the consolidated financial statements of BioMarin Pharmaceutical Inc. and subsidiaries, including Glyko, Inc. from October 7, 1998, the date on which it was acquired by BioMarin. These consolidated financial statements of BioMarin and subsidiaries have been audited by Arthur Andersen LLP, independent public accountants. The consolidated balance sheets as of December 31, 1997 and 1998, and the related consolidated statements of operations for the period from March 21, 1997 (inception) to December 31, 1997, and the year ended December 31, 1998, and the related report, are included elsewhere in this prospectus. The selected financial data of Glyko, Inc. presented below are derived from the financial statements of Glyko, Inc. These financial statements have been audited by Arthur Andersen LLP, independent public accountants. The balance sheets as of December 31, 1997 and October 7, 1998 and the statements of operations for the years ended December 31, 1996 and 1997 and for the period ended October 7, 1998, and the related report, are included elsewhere in this prospectus. The balance sheets as of December 31, 1994, 1995 and 1996 and the statements of operations for the years ended December 31, 1994 and 1995, are not included in this prospectus. The selected financial data set forth below as of March 31, 1999 and for the three months ended March 31, 1998 and 1999 and the period from March 21, 1997 (inception) to March 31, 1999 are derived from the Company's unaudited financial statements which are included elsewhere in this prospectus and which include, in the opinion of the Company, all adjustments, consisting of normal recurring adjustments, that are necessary for a fair presentation of its financial position and the results of operations for those periods. Operating results for the three months ended March 31, 1999 are not necessarily indicative of the results that may be expected for the year ending December 31, 1999. The selected consolidated financial data set forth below contain only a portion of BioMarin's and Glyko, Inc.'s financial statement information and should be read in conjunction with the Consolidated Financial Statements of BioMarin Pharmaceutical Inc. and the Financial Statements of Glyko, Inc. and related Notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus.
Period from Period from March 21, 1997 Three Months Ended March 21, 1997 (Inception) to Year ended March 31, (Inception) to December 31, December 31, ----------------------- March 31, 1997 1998 1998 1999 1999 -------------- ------------ ----------- ----------- -------------- (unaudited) (unaudited) (unaudited) BioMarin's Consolidated Statements of Operations Data: Revenues................ $ -- $ 1,190 $ -- $ 1,104 $ 2,295 Operating costs and expenses: Cost of products and services -- 108 -- 103 211 Research and development.......... 1,914 10,502 1,108 3,892 16,308 General and administrative....... 914 3,531 303 1,693 6,138 ------- -------- ------- -------- -------- Loss from operations.... (2,828) (12,951) (1,411) (4,584) (20,362) Interest income......... 65 684 92 154 904 Equity in loss of joint venture................ -- (47) -- (180) (227) ------- -------- ------- -------- -------- Net loss................ $(2,763) $(12,314) $(1,319) $ (4,610) $(19,685) ======= ======== ======= ======== ======== Net loss per common share, basic and diluted................ $ (0.34) $ (0.55) $ (0.06) $ (0.18) $ (1.13) ======= ======== ======= ======== ======== Weighted average common shares outstanding.......... 8,136 22,488 20,567 26,176 17,441 ======= ======== ======= ======== ========
24
As of December 31, As of -------------- March 31, BioMarin's Consolidated 1997 1998 1999 Balance Sheet Data: ------ ------- ---------- Cash, cash equivalents and short-term investments............ $6,888 $11,389 $3,829 Total current assets.... 7,507 12,819 5,526 Total assets............ 7,653 31,509 26,778 Long-term liabilities... -- 110 103 Total stockholders' equity................. 7,380 29,395 25,045
Years Ended December 31, --------------------------------- Period From January 1 Glyko, Inc.'s Statements 1994 1995 1996 1997 to October 7, 1998 of Operations Data: ------- ------- ------- ------ --------------------- Revenues................ $ 883 $ 1,569 $ 1,331 $2,064 $1,160 Operating costs and expenses: Cost of products and services............. 320 512 509 483 285 Research and development.......... 1,141 1,096 1,015 633 613 Selling, general and administrative....... 1,695 1,640 1,490 563 521 Other................. -- -- -- -- (166) ------- ------- ------- ------ ------ Income (loss) from operations............. (2,273) (1,679) (1,683) 385 (93) Other income (loss)..... (1) -- 87 (2) (1) Interest income......... 18 30 18 12 28 ------- ------- ------- ------ ------ Income (loss) before income taxes........... (2,256) (1,649) (1,578) 395 (66) Provision for income taxes.................. -- -- -- -- -- ------- ------- ------- ------ ------ Net income (loss)....... $(2,256) $(1,649) $(1,578) $ 395 $ (66) ======= ======= ======= ====== ======
As of December 31, As of ------------------------------ October 7, 1994 1995 1996 1997 1998 Glyko, Inc.'s Balance Sheet Data: ----- ------ ------- ------- ---------- Cash, cash equivalents and short- term investments.................. $ 79 $ 621 $ 211 $ 528 $ 24 Total current assets............... 438 1,098 478 867 407 Total assets....................... 619 1,212 588 988 503 Long-term liabilities.............. 93 77 3,652 3,804 -- Total stockholders' equity (deficit)......................... (485) 449 (3,712) (3,316) 298
25 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of the financial condition and results of operations should be read in conjunction with our consolidated financial statements and the financial statements of Glyko, Inc. and their notes appearing elsewhere in this prospectus. Overview We are a developer of carbohydrate enzyme therapies for debilitating, life- threatening, chronic genetic disorders and other diseases or conditions. Since our inception on March 21, 1997, we have been engaged in research and development activities, including preclinical studies, clinical trials and clinical manufacturing, the establishment of laboratory and manufacturing facilities, and administrative activities. BioMarin was incorporated in October 1996 as a wholly-owned subsidiary of Glyko Biomedical. BioMarin was funded by Glyko Biomedical and began operations on March 21, 1997, the date of inception. We have incurred net losses since inception and had an accumulated deficit through March 31, 1999 of $19.7 million. Our losses have resulted primarily from research and development activities and related administrative expenses. We expect to continue to incur operating losses through at least the year 2000. To date, we have not generated revenues from the sale of our drug candidates. Our financial results may vary depending on many factors, including: . The progress of BM101 in the regulatory processes and initial sales activities . The investment in manufacturing process development and in manufacturing capacity for BM101 and other product candidates . The acceleration of our other pharmaceutical candidates into preclinical studies and clinical trials . The progress of our additional research and development efforts In September 1998, we established a joint venture with Genzyme for the worldwide development and commercialization of BM101 for the treatment of MPS- I. Under the agreement, our company and Genzyme are each required to make capital contributions to the joint venture equal to 50% of the expenses associated with the development and commercialization of BM101. We will share equally in any profits generated from the sales of BM101. On April 13, 1999, we issued $26.0 million of convertible promissory notes. The notes will convert into 2,600,000 shares of our common stock, excluding shares issuable upon conversion of interest, on the date of the final prospectus for this offering at an initial conversion price, subject to adjustment, of $10.00 per share. Acquisition of Glyko, Inc. In October 1998, we acquired Glyko, Inc., a wholly-owned subsidiary of Glyko Biomedical in a transaction valued at $14.5 million. Glyko, Inc. provides products and services that perform carbohydrate analysis and medical diagnosis to research institutions and commercial laboratories. As consideration for the acquisition of all of the outstanding shares of Glyko, Inc., we: (1) issued 2,259,039 shares of common stock to Glyko Biomedical, (2) assumed the stock options of Glyko, Inc. employees exercisable for 255,540 shares of our common stock and (3) paid $500 in cash. 26 Historical Results of Operations--BioMarin Quarters ended March 31, 1998 and 1999 Revenue. BioMarin generated revenues of $1.1 million for the quarter ended March 31, 1999 consisting primarily of $746,000 of revenues from the BioMarin/Genzyme LLC joint venture. These revenues were derived from services performed by BioMarin for the joint venture, $202,000 from the sale of Glyko, Inc. products, $47,000 from the sale of Glyko, Inc. services and $109,000 of other revenues. The $109,000 of other revenues were derived from grants received from the federal government to fund various research projects. Glyko, Inc. sells products and services to BioMarin at a 27% distributor discount. BioMarin had no revenues in the quarter ended March 31, 1998. For further explanation of the expenses incurred by BioMarin in connection with the joint venture see note 1 to the consolidated financial statements. Cost of Sales. In the quarter ended March 31, 1999, BioMarin recorded cost of sales of $103,000 from the sale of Glyko, Inc. products and services. In the comparable 1998 period, BioMarin had no sales and, consequently, no cost of sales. Research and Development. Research and development expenses were $3.9 million in the quarter ended March 31, 1999, compared to $1.1 million in the comparable 1998 period. The increase was due primarily to the significant expansion of our product programs, staff and facilities in the second half of 1998 and the first quarter of 1999 in contrast to limited start-up research and development activities in the first quarter of 1998. The increase includes a significant increase in research and development salaries and benefits, a significant increase in leased laboratory space and related facilities expenses and a significant increase in technical materials and technical consulting expenses related to our research programs. We expect to substantially increase our research and development expenditures in future quarters to support the continued development of BM101 and our other drug products. General and Administrative. General and administrative expenses were $1.7 million in the quarter ended March 31, 1999 compared to $303,000 in the comparable 1998 period. General and administrative expenses increased in the first quarter of 1999 to support the significantly expanded scale of operations in the second half of 1998 and the first quarter of 1999 compared to the smaller administrative requirements in the comparable 1998 period. The increase included a significant increase in salaries and benefits for administrative staff, a significant increase in the facilities costs and an increase in professional service fees. We expect to substantially increase our general and administrative expenses, primarily administrative staffing and related expenses, to support our increased scale of operations. Interest Income. Interest income in the quarter ended March 31, 1999 was $154,000 while interest income totaled $92,000 in the comparable 1998 period. The higher interest income in the first quarter ended March 31, 1999 resulted from higher cash balances available for investment in 1999 as a result of the second private placement in mid 1998 and the Genzyme investment in the third quarter of 1998. Equity in Loss of Joint Venture. Equity in loss of joint venture was $180,000 in the quarter ended March 31, 1999. Because the joint venture did not begin operations until September 4, 1998, there was no equity in loss of joint venture for the comparable 1998 period. See note 1 to the consolidated financial statements of BioMarin for details of accounting for the joint venture. Deferred Compensation. We record deferred compensation representing the difference between the exercise price of options granted and the deemed fair market value of the common stock at the time of grant. We recorded deferred compensation of approximately $600,000 for the quarter ended March 31, 1999, related to the grant of options. We will recognize deferred compensation as an expense over the related four-year vesting period of the options. No deferred compensation was recorded for the quarter ended March 31, 1998. Net Losses. We expect that our net losses and the size of our capital investments will increase significantly in the second quarter of 1999 in comparison to the first quarter of 1999. 27 The Period From March 21, 1997 (Inception) to December 31, 1997 and the Year Ended December 31, 1998 In October 1998, we acquired Glyko, Inc. from Glyko Biomedical. The acquisition was accounted for as a purchase. As a result, our consolidated statements of operations data include the operations of Glyko, Inc. from October 7, 1998, the date of the acquisition, through December 31, 1998. Revenue. BioMarin generated revenues of $1.2 million in 1998 consisting primarily of $837,000 of revenues from the BioMarin/Genzyme LLC joint venture representing services performed by BioMarin for the joint venture, $138,000 from the sale of Glyko, Inc. products since its acquisition on October 8, 1998, $112,000 from the sale of Glyko, Inc. services since its acquisition on October 8, 1998 and $103,000 of other revenues representing grants received from the federal government to fund various research projects. Glyko, Inc. sells products and services to BioMarin at a 27% distributor discount.There were no revenues in the 1997 period. For further explanation of BioMarin's revenues see note 1 to the consolidated financial statements. Cost of Goods Sold. In 1998, BioMarin had cost of goods sold of $108,000 as a result of the sale of Glyko, Inc. products. In the 1997 period, BioMarin had no sales and, consequently, no cost of goods sold. Research and Development. Research and development expenses were $10.5 million in 1998, compared to $1.9 million in the 1997 period. The increase was due primarily to a full year of BM101 expenses including 12 months of clinical trials in 1998, compared to only one month of clinical trials in the 1997 period. In addition, we expanded significantly our product programs, staff and facilities in 1998 in contrast to limited start-up research and development activities in the 1997 period. General and Administrative. General and administrative expenses were $3.5 million in 1998 compared to $914,000 in the 1997 period. General and administrative expenses increased in 1998 to support the significantly expanded scale of operations in 1998 compared to the smaller administrative requirements in the shorter, start-up 1997 period. These increased administrative expenses included significant increases in salaries and benefits for administrative staff, an increase in facilities costs and an increase in professional service fees. Interest Income. Interest income in 1998 was $685,000 while interest income totaled $65,000 in the 1997 period. The higher interest income in 1998 resulted from higher cash balances available for investment in 1998 as a result of the first private placement late in 1997, a second private placement in mid-year 1998 and the Genzyme investment in the third quarter of 1998. Equity in Loss of Joint Venture. BioMarin entered the BM101 joint venture in September 1998 and recorded a net loss of $47,000 for 1998. See note 1 to the consolidated financial statements of BioMarin for details of accounting for the joint venture. Deferred Compensation. We recorded deferred compensation representing the difference between the exercise price of options granted and the deemed fair market value of the common stock at the time of grant. We recorded deferred compensation of approximately $3.2 million for the year ended December 31, 1998 related to the grant of options. We will recognize deferred compensation as an expense over the related four-year vesting period of the options. In 1997 we recorded deferred compensation of $200,000. This $200,000 represented interest imputed at 9% on notes receivable of $2.5 million from three executive officers, Grant W. Denison Jr., Dr. John Klock and Dr. Christopher Starr. The executive officers used the principal of the notes to purchase 2.5 million shares of BioMarin's common stock. The notes bear an interest rate of 6% per year, expire on July 31, 2000, and are secured by the underlying stock. Deferred compensation is amortized over the life of the notes. 28 Historical Results of Operations--Glyko, Inc. Period from January 1, 1998 to the Date of Acquisition by BioMarin, October 7, 1998, and Year Ended December 31, 1997 During most of 1997, Glyko, Inc. and BioMarin were commonly owned by Glyko Biomedical. During this period, Glyko, Inc. and BioMarin shared facilities and personnel for which expenses were accounted for separately by each company. The year ended December 31, 1998, only includes Glyko, Inc.'s operations for the nine month and seven day period from January 1, 1998 through October 7, 1998, the date of Glyko, Inc.'s acquisition by BioMarin. The comparisons below, as they relate to Glyko, Inc., are for twelve months of 1997 versus nine months seven days of 1998. Revenue. Revenues in the 1998 period were $1.2 million and consisted of sales of products of $750,000, sales of services of $115,000 and other revenues representing development fees of $25,000 and grant revenues of $270,000. Sales of products include sales of chemical analysis kits and imaging systems and sales of services include custom analytic services. The decline in product revenues in 1998 was due to a decrease in sales volume and due to the sale of Glyko, Inc. to BioMarin in October 1998. The decrease in other revenues was due to development, technology and licensing fees received in 1997 that did not recur in 1998. Revenues in 1997 were $2.1 million and consisted of sales of products of $1.0 million, and sales of services of $186,000, other revenues of $704,000 and grant revenues of $157,000. Other revenues include $25,000 in development fees for the development of a heparin analyzer prototype, $429,000 in licensing fees from a domestic distributor and $250,000 in diagnostic product distribution fees from a foreign distributor. Product revenues are recognized upon shipment of products. Service revenues are recognized upon completion of services as evidenced by the transmission of reports to customers. Other revenues, principally licensing, distribution and development fees are recognized upon completion of contractual obligations, such as, signing of contract, milestone payments and anniversaries from the effective date. Cost of Products and Services. Glyko, Inc.'s cost of products and services was $285,000 in the 1998 period compared to $483,000 in 1997. The decrease in cost of products and services was primarily due to lower sales resulting from the shorter sales period of nine months in 1998 compared to 12 months in 1997. In addition, in 1998 Glyko, Inc.'s product cost was reduced due to increased efficiency in manufacturing products. Research and Development. Glyko, Inc.'s research and development expenses in the 1998 period were $613,000 compared to $633,000 in 1997. Even though the absolute expenses decreased, the rate of spending was higher in the 1998 period due to increased laboratory expenses related to new diagnostic products. Selling, General and Administrative. Glyko, Inc.'s selling, general and administrative expenses were $521,000 in the 1998 period compared to $563,000 in 1997. The decrease was due to the shorter period in 1998. Selling, general and administrative expenses increased on an annualized basis due to a reversal in 1997 of prior years' expenses accrued in Glyko Biomedical's statements of operations which reduced these expenses in 1997 by $20,000 and a small increase in advertising and sales travel in 1998. Other Operating Expenses. At December 31, 1997, we had recorded an amount payable to stockholder of $366,000 representing the amount claimed by the stockholder relating to a facilities dispute with us. We had a cross-claim for royalty income which would reduce the stockholder's claim. Glyko, Inc.'s other operating expenses in the 1998 period represents the settlement of the claim at a gain of $166,000. As of April 1998, the claimant no longer was a stockholder of Glyko Biomedical. Interest Income. Glyko, Inc.'s interest income in 1998 and 1997 of $28,000 and $13,000, respectively, reflected earnings on cash invested in short term interest bearing accounts. The increase in interest income in the 1998 period resulted from higher cash balances available for investment compared to 1997. Interest expense in 1998 and 1997 was immaterial. 29 Years Ended December 31, 1997 and 1996 Revenue. Revenues in 1997 were $2.1 million and consisted of sales of products of $1.0 million, and sales of services of $186,000, other revenues of $704,000 and grant revenues of $157,000. Sales of products include sales of chemical analysis kits and imaging systems and sales of services include custom analytic services. Other revenues include $25,000 in development fees for the development of a heparin analyzer prototype, $429,000 in licensing fees from a domestic distributor and $250,000 in diagnostic product distribution fees from a foreign distributor. Revenues in 1996 were $1.3 million and consisted of sales of products of $1.1 million, and sales of services of $211,000 and other revenues representing grant revenues of $34,000. The decline in product revenues in 1997 was due principally to the relocation of Glyko, Inc.'s California facilities in February 1997 which caused delays in fulfilling orders. Glyko, Inc.'s inability to fulfill orders immediately before, during and immediately after the move prompted customers to place orders with competing companies. Glyko, Inc. was unable to re-establish relations with some of these former customers. The increase in other revenues was due to new or revised development, technology and licensing agreements negotiated in 1997. Cost of Products and Services. Glyko, Inc.'s cost of products and services was approximately $483,000 in 1997 compared to $509,000 in 1996. The decrease in 1997 was primarily due to reduced sales of products and services in 1997. Cost of products and services as a percent of sales of 40% in 1997 was slightly higher than the same percentage in 1996, which was 39%. This increase was due to changes in the nature of the products Glyko, Inc. sold. In 1996 more FACE imagers and systems were sold which yield a significantly higher profit margin than chemical kits and services. Research and Development. Glyko, Inc.'s research and development expenses in 1997 were $633,000 compared to approximately $1.0 million in 1996. The decrease was due, in part, to the transfer of lab personnel in 1997 to BioMarin programs. The decrease was also due, in part, to the reduction of salary and benefits allocated to Glyko, Inc. for Dr. Christopher Starr, Vice President of Research and Development, whose time allocated to Glyko, Inc. went from 100% in 1996 to 30% in 1997. One other full-time Ph.D. was shifted 100% to BioMarin in 1997. The reallocation of human resources during this period from Glyko, Inc. to BioMarin was in response to changing staffing needs in both companies. Also, in October 1996, Glyko, Inc. reduced its workforce, which included one full- time lab technician, in an effort to reduce expenditures to offset declining revenues. Selling, General and Administrative. Glyko, Inc.'s selling, general and administrative expenses were $563,000 in 1997, compared to $1.5 million in 1996. Marketing and promotional expenses were lower in 1997 due to the cut-back of two full-time marketing positions in October 1996 in an effort to reduce expenditures. General and administrative expenses were reduced due to the reduction of rent expense resulting from Glyko, Inc.'s relocation to a smaller facility in 1997 and due to the sublease rental income from BioMarin in 1997. Rent expense in 1996 was offset by a write-off of the deferred rent balance of $62,538 at December 31, 1996 related to a lease abandonment. For more detail regarding this lease abandonment, see note 5 of the financial statements of Glyko, Inc. General and administrative expenses were also reduced due to the cut-back of administrative staff in October 1996 in an effort to reduce expenditures plus the reduction of salary and benefits allocated to Glyko, Inc. for Dr. John Klock, President, whose time allocated to Glyko, Inc. went from 100% in 1996 to 30% in 1997. Interest Income. Glyko, Inc.'s interest income in 1997 and 1996 was $13,000 and $18,000, respectively, as a result of interest earned on cash balances available for short-term investment. Interest expense in 1997 and 1996 was immaterial. Liquidity and Capital Resources We have financed our operations since our inception by the issuance of common stock and convertible notes and the related interest income earned on cash balances available for short-term investment. Since 30 inception, we have raised aggregate net proceeds of $54.7 million. We were initially funded by Glyko Biomedical with a $1.5 million investment. We have since raised additional capital from the sale of common stock in private placements, the sale of promissory notes convertible, according to their terms, into common stock and an investment of $8.0 million by Genzyme as part of our joint venture with them. Our combined cash, cash equivalents and short-term investments totaled $3.8 million at March 31, 1999, a decrease of $7.6 million from December 31, 1998. The primary use of cash during the quarter ended March 31, 1999 was to finance operations and to purchase property and equipment. For the quarter ended March 31, 1999, operations used $4.1 million, we purchased $2.8 million of property, equipment and leasehold improvements and invested $641,000 in the joint venture. From our inception through March 31, 1999, we have purchased approximately $9.3 million of property, equipment and leasehold improvements. We expect that our investment in property, equipment and leasehold improvements will increase significantly during the next two years because we will provide facilities and equipment for an increased number of staff and increase manufacturing capacity. As part of the acquisition of Glyko, Inc., we acquired in-process research and development projects, the value of which was expensed as a portion of the purchase price at the time of the acquisition. The 11 projects acquired are each relatively small and can be grouped into two categories, analytic projects and diagnostic projects. The analytic projects are intended to expand the analytic product line by adding new enzymes for reagent sales, new kits for agricultural applications, new instrument capabilities for protein analysis and a major upgrade of software capabilities. At the time of the acquisition of Glyko, Inc., all of the analytic projects had completed feasibility work and the software projects were 75% complete and have since been completed. The development of specialized materials supporting instrument capabilities is deemed to be the most difficult technical hurdle for the completion and commercialization of the analytic projects. The fair value of the analytic projects was $1.7 million at the time of the acquisition. The diagnostic projects are intended to expand a product line based on very precise measurements of the level of complex carbohydrates in blood and urine as indicators of serious disease conditions including heart disease, kidney disease and mucopolysaccharidoses or carbohydrate storage diseases. At the time of the Glyko, Inc. acquisition, preliminary feasibility work had been done for all of the projects and a software project was well advanced as to programming, which has since been completed. The development of new more sensitive carbohydrate chemistry techniques is deemed to be the most difficult technical hurdle for the completion and commercialization of the diagnostic products. The fair value of the diagnostic projects was $924,000 at the time of the acquisition. As of March 31, 1999, we had expended to date approximately $600,000 on the in- process research and development projects and $600,000 on the diagnostic projects. If all acquired in-process research and development projects proceed to completion, we expect to spend approximately $500,000 in incremental direct expense to complete the analytic projects in phases over approximately 24 months. We expect to spend approximately $1.1 million to complete the diagnostic projects in phases completed from 12 to 24 months in the future. None of these projects have been terminated to date. Since the acquisition of these in-process research and development projects six months ago, there have been no subsequent developments which indicate that the completion and commercialization of either of the projects are less likely to be completed on the original planned schedule or less likely to be a commercial success. We have made and plan to make substantial commitments to capital projects, including the BM101 manufacturing facility in Torrance, California, a manufacturing facility in Novato, and new research and development facilities in Novato. If all product programs proceed on schedule, these current capital commitments and plans for future capital requirements combined will require approximately $32.0 million in the 18-month period beginning in January 1999. 31 In September 1998, we established a joint venture with Genzyme for the worldwide development and commercialization of BM101 for the treatment of MPS- I. We will share expenses and profits from the joint venture equally with Genzyme. Genzyme invested $8.0 million upon signing the agreement and has agreed to purchase $10.0 million of common stock at the initial public offering price in a private placement concurrent with this offering. Genzyme has committed to pay us an additional $12.1 million upon approval of the biologics license application for BM101. On October 7, 1998, we purchased Glyko, Inc. from Glyko Biomedical for an aggregate purchase price of $14.5 million. The purchase price was paid for with 2,259,039 shares of our common stock, our assumption of certain stock options held by Glyko, Inc. employees which were exercisable into a maximum of 255,540 shares of our common stock and $500 in cash. On April 13, 1999, we sold a total of $26.0 million of convertible promissory notes. The notes are convertible into our common stock at an initial conversion price of $10.00 per share, subject to proportional adjustment in the event of stock splits or adjustments, reverse stock splits or redemption of any shares of our common stock. These notes bear an interest rate of 10% annually. These notes also have weighted average anti-dilution protection for subsequent private placements of equity securities of BioMarin made after the date of issuance of the notes but before their conversion, subject to limited exemptions. In May 1999, Glyko, Inc. acquired key assets of the Biochemical Research Reagent Division of Oxford GlycoSciences Plc. The acquisition was made to increase Glyko, Inc.'s product offerings and was valued from $1.5 million to $2.1 million, depending on the future sales of the acquired products. We expect our current funds including the proceeds of this offering to last for a period of approximately 12 months following this offering. Until we can generate sufficient levels of cash from our operations, we expect to continue to finance future cash needs through: . The sale of equity securities . Equipment-based financing . Collaborative agreements with corporate partners We do not expect to generate positive internal cash flow for at least the next two years because we expect to increase operational expenses and manufacturing investment for the joint venture and to increase research and development activities, including: . Preclinical studies, clinical trials and regulatory review . Commercialization of our drug candidates . Development of manufacturing operations . Process development . Scale-up of manufacturing facilities . Sales and marketing activities We anticipate a need for additional financing to fund the future operations of its business, including the commercialization of our drug candidates currently under development. We cannot assure you that additional financing will be obtained or, if obtained, will be available on reasonable terms. Our future capital requirements will depend on many factors, including, but not limited to: . The progress of its research and development programs . The progress of preclinical studies and clinical trials . The time and cost involved obtaining regulatory approvals 32 . Scaling up, installing and validating manufacturing capacity . Competing technological and market developments . Changes and developments in collaborative, licensing and other relationships . The development of commercialization activities and arrangements . The leasing and build-out of additional facilities . The purchase of additional capital equipment We plan to continue our policy of investing available funds in government securities and investment grade, interest-bearing securities, primarily with maturities of one year or less. We do not invest in derivative financial instruments, as defined by Statement of Financial Accounting Standards No. 119. At December 31, 1998, we had tax net operating loss carryforwards of approximately $24.1 million for federal income tax purposes and $12.4 million for California income tax purposes. At December 31, 1998, we had research tax credits of approximately $1.8 million for federal purposes and $580,000 for California, which will begin to expire in the year 2012. The Tax Reform Act of 1986 contains provisions that may limit the net operating loss carryforwards and research and development credit available in any given year should certain events occur, including sale of equity securities and other changes in ownership. Based on the $14.5 million purchase price of Glyko, Inc., the amounts available may be limited to approximately $730,000 per year. The acquisition of Glyko, Inc. and the related issuance of stock represented a change of ownership under these provisions. In addition, the net operating loss carryforwards and research tax credits related to Glyko, Inc. can only be used to offset future taxable income and tax, respectively, if any, of Glyko, Inc. The net operating losses and research tax credits related to Glyko, Inc. at December 31, 1998 were approximately $4.6 million and $701,000 respectively. We cannot assure you that we will be able to use our net operating loss carryforwards and credits before expiration. Impact of Year 2000 The following constitutes "Year 2000 Readiness Disclosure" under the Year 2000 Information and Readiness Disclosure Act of 1998. We are aware of the potential problems associated with computer programs and systems that use only two digits to identify the year in the date field. Application and system programs may be unable correctly to process date information for dates after December 31, 1999. This year 2000 defect could cause the disruption or failure of computer systems. The year 2000 defect could affect both our internal information technology systems and other functional systems that use embedded computer programs for control or other purposes. The defect could also affect the information technology and other functional systems of suppliers of products and services to us. The defect could affect the overall economy and have a significant impact on us. We have formed a team to review and resolve those aspects of the year 2000 problem which are within our direct control and adjust to or influence those aspects which are not within our direct control. The team has reviewed our software products (including those under development) and determined that our software products do not use date data and are year 2000 compliant. Our biopharmaceutical products do not have any year 2000 exposure. The team has reviewed the year 2000 compliance status of our major internal information technology programs and systems used for administrative requirements and determined that these systems are year 2000 compliant. We have reviewed the computer systems used to control our analytical instruments and production equipment. Due to the recent design of our equipment, the embedded computers are year 2000 compliant. We believe that the expense of repairing or replacing any undetected year 2000 defects will not be material. We believe that we can resolve our significant internal year 2000 compliance issues before the year 2000 with expenditures that are currently estimated not to be material. If we do not achieve on a timely basis year 2000 compliance for our internal systems, our operations and business could be adversely affected. 33 With respect to our suppliers, we do not currently process orders, payments and other business communications electronically from computer to computer. However, if our suppliers' and ultimate customers' own systems are not yet year 2000 compliant, their disruptions could have a significant direct or indirect impact on our operations and business. The following consequences of the year 2000 problem could disrupt our business: . Financial institutions may not be able to process checks, accept deposits, provide records, process wire transfers, provide stock ownership and transfer records or facilitate many other financial transactions and services. . Suppliers may not be able to process orders, manufacture products, deliver in accordance with production schedules, or in general provide the current level of timely products and services. . Voice and data communication systems used by us and our customers and suppliers might be disrupted. . Health care suppliers and third-party payors may be unable to process patient records, add to or modify the content of their pharmacy authorizations, accept or make payments, and handle the many other data requirements of the modern health care system. The added costs for back-up systems, for temporary or emergency fixes and the ongoing requirements to handle critical functions on a timely basis combined with the resultant managerial distractions may delay the review and delay our introduction of new drugs and therapeutic practices. 34 BUSINESS Overview BioMarin is a developer of carbohydrate enzyme therapies for debilitating, life-threatening, chronic genetic disorders and other diseases and conditions. In October 1998, we completed a six-month evaluation for the pivotal clinical trial of our lead drug product, BM101, for the treatment of mucopolysaccharidosis-I or MPS-I. We are currently collecting data for an additional six-month follow-up period. Based on the 12-month data from that trial, we intend to complete the filing of a biologics license application with the FDA in the second half of 1999. We established a joint venture with Genzyme for the worldwide development and commercialization of BM101. MPS-I is a life-threatening genetic disorder caused by the lack of a sufficient quantity of the enzyme A- L-iduronidase, which affects about 3,400 patients in developed countries, including approximately 1,000 in the United States and Canada. Patients with MPS-I have multiple debilitating symptoms resulting from the buildup of carbohydrates in all tissues in the body. These symptoms include delayed physical and mental growth, enlarged livers and spleens, skeletal and joint deformities, airway obstruction, heart disease and impaired hearing and vision. Most children with MPS-I will die from complications associated with the disease before adulthood. BM101 is a specific form of A-L-iduronidase that is intended to replace a deficiency of A-L-iduronidase in MPS-I patients. In October 1998, we completed a six-month evaluation for the pivotal clinical trial for BM101. This clinical trial treated ten patients with MPS-I at five medical centers in the United States. Based on data collected during the initial six-month evaluation period, BM101 met the primary endpoints set forth in the investigational new drug application. In addition, BM101 met various secondary endpoints in each of the patients. Secondary endpoints are measurements intended to determine whether primary endpoints are reasonably likely to predict clinical benefit. In addition to these primary endpoints, the FDA has requested that we evaluate this data using other criteria that may demonstrate that the surrogate endpoints are a predictor of clinical benefit. We are currently performing this analysis. We received notice from the FDA that our BM101 will receive fast track designation for the treatment of the more severe forms of MPS-I, which account for approximately 60% of all cases. The FDA has granted BM101 an orphan drug designation giving us exclusive rights to market BM101 to treat MPS-I for seven years from the date of FDA approval if BM101 is the first drug to be approved by the FDA for the treatment of MPS-I. Carbohydrate-active Enzyme Therapeutics Carbohydrates are a fundamental class of biological molecules that play diverse and critical roles in maintaining the health and functional integrity of all cells and tissues. Enzymes are proteins that act as catalysts for many vital biological reactions. Enzymes that act on carbohydrates, called carbohydrate- active enzymes, cleave, construct or otherwise modify carbohydrates to regulate their production, maintenance and degradation. These carbohydrate-active enzymes are critical to a wide range of functions within the body, including cell proliferation, digestion, blood clotting, immune response, wound healing, conception and control of infection and inflammation. The body, when functioning normally, produces appropriate quantities of carbohydrate-active enzymes to perform these functions. Carbohydrate-active enzymes have the potential to play an important therapeutic role in certain diseases or disorders by either replacing deficient enzymes or supplementing the enzymes that are naturally present in the body. Role of Carbohydrate-active Enzymes in Genetic Diseases We believe that there are more than 70 genetic diseases that are known to be caused by the deficiency of a single enzyme. In these genetic diseases the body fails to produce sufficient or functional quantities 35 of certain enzymes. Most of these genetic diseases are rare, affecting only a few hundred to a few thousand people in the United States. Examples of genetic diseases include Gaucher disease, hemophilia and MPS disorders. Since there is not extensive literature regarding these rare genetic diseases we hired a consultant, the Frankel Group, to conduct research regarding this potential market. The figures cited in the following paragraph were developed by the Frankel Group. Currently, only eight genetic diseases have effective treatments, and five of these eight are treated through enzyme replacement. Historically, enzyme replacement therapy has been limited by the inability of manufacturers to produce the correct form of enzymes with sufficient quantities. Production of sufficient quantities to support a therapeutic program has now become possible with advancements in recombinant production methods. Recombinant production methods apply foreign DNA to cells to produce enzymes the cells would not naturally produce. In 1998, the worldwide sales of pharmaceuticals used to treat genetic diseases by enzyme replacement were approximately $2.7 billion. Genzyme's treatment for Gaucher disease is an example of a treatment using enzyme replacement therapy. Gaucher disease, which afflicts approximately 5,000 people in the developed world, is caused by a deficiency in the enzyme glucocerebrosidase. In April 1991, following a single clinical trial involving 13 patients, Genzyme's treatment for Gaucher disease was approved for marketing by the FDA. Approximately 2,400 patients worldwide are using Genzyme's treatment for Gaucher disease. Sales of Genzyme's treatments for Gaucher disease, Cerezyme(R) enzyme and Ceredase(R) enzyme, generated total revenue of $411.1 million in 1998. Other Therapeutic Roles for Carbohydrate-active Enzymes Carbohydrate-active enzymes can also treat conditions other than those caused by genetic diseases, such as burns and infections. Supplementing the amount of enzymes naturally present in a patient's body or adding a new enzyme can enable or enhance the body's ability to respond to certain conditions and accelerate the healing process. For example, using a topical enzymatic formulation to supplement naturally occurring enzymes may speed the healing process of burns by removing dead tissue. Adding or increasing the concentration of an enzyme that selectively targets and kills microbes may help the body fight infection. Business Strategy Our business strategy is to develop therapeutic products to treat a variety of diseases and conditions involving carbohydrates. We use our proprietary carbohydrate-active enzyme technology to develop these products. The principal elements of this strategy are: . Focus on Drug Candidates with Known Biology and Low Technical Risk. We identify potential products that treat serious diseases or conditions where the biological role of carbohydrate-active enzymes is well understood and the method of treatment is straightforward. As part of this strategy, we are initially focusing on treating genetic diseases which are caused by the deficiency of a single enzyme such as MPS-I and MPS-VI. We believe that the clinical trial we must perform in order to obtain approval for our products from the FDA will be of short duration. The clinical trial patient evaluation period for MPS-I was six months, although the patients will continue to be monitored for an additional 18 months. . Select Products that We Believe May Be Developed and Approved Quickly. We are initially developing therapeutic products for serious diseases or conditions that we believe will require limited time and capital to conduct preclinical studies and small numbers of patients for clinical trials. Because many of our potential drug products are intended for serious or life-threatening conditions and may address unmet medical needs for these conditions, we believe that they will qualify for fast track designation by the FDA. In September 1998, we received from the FDA fast track designation for BM101 for the 36 treatment of Hurler and Hurler-Scheie syndromes, which are the more severe syndromes within MPS-I. . Pursue Well-defined, Niche Markets. We develop potential drug products to treat small patient populations for diseases for which there are currently no effective therapies. Additionally, we focus on niche markets in which we believe we will be reimbursed for our products at favorable rates. We believe we will receive orphan drug designation from the FDA for many of our products, providing us with market exclusivity for our drug formulation for seven years if we are first to gain product approval to treat the specific disease. . Develop Direct Sales and Marketing Organization for Select Markets. We will be able to directly market some of our potential drug products because the conditions they treat have small patient populations, for which the treatments are often concentrated in specialized institutions, and because of the existence of patient support groups for many of our initial disease targets. We may develop a small sales and marketing organization to target markets where we believe we can effectively reach the targeted patient and physician groups. Alternatively, we may pursue strategic collaborations with biopharmaceutical or other companies to develop products targeted at markets with larger patient populations. . Enhance Enzymatic Expertise through Glyko, Inc. Glyko, Inc. contributes its technical knowledge and expertise in cloning enzymes to our technology base. Glyko, Inc. provides access to cloning assets, including cell lines, which are colonies of cells with a common genetic make-up. In addition, Glyko, Inc.'s research and development in glycobiology, the study of carbohydrates in living organisms, provides us with a strategic opportunity to keep current with new developments and opportunities in that field. Products Under Development Mucopolysaccharidosis Disorders MPS disorders are a group of seriously debilitating genetic disorders characterized by the accumulation in the body of mucopolysaccharides, which are also known as glycosaminoglycans or GAGs. GAGs are complex carbohydrates synthesized by all cells in the body. At least ten enzymes are required for the complete breakdown of GAGs. The normal breakdown of GAGs is blocked if any one of these enzymes is not present in sufficient quantity. Ten possible enzyme deficiencies cause ten distinct disorders. Patients with MPS are usually diagnosed by six to 24 months of age. MPS disorders are progressive diseases that frequently lead to early death. During the course of the disease, the build-up of GAGs in all cells of the body results in one or more of the following symptoms: . Inhibited growth . Delayed mental or physical development . Enlarged liver and spleen . Skeletal deformities . Coarse facial features . Upper airway obstruction . Joint deformities and reduced range of motion . Heart disease . Impaired vision and hearing . Sleep disorders . Malaise and reduced endurance 37 MPS-I. MPS-I is a genetic disorder caused by the deficiency of the enzyme A-L- iduronidase. About 3,400 patients in developed countries have MPS-I, including about 1,000 in the United States and Canada. If untreated, almost all children diagnosed with the more severe forms of MPS-I will die before reaching adulthood. Patients with milder forms of MPS-I still exhibit many of the symptoms described above. Currently, the only available treatment for MPS-I is a bone marrow transplant. However, few patients find an appropriate bone marrow donor. Of the patients that find appropriate donors, many choose not to receive the therapy because of its serious side effects. BM101. We are developing a specific form of A-L-iduronidase, designated BM101, for the treatment of MPS-I. BM101 treats MPS-I by replacing a deficiency in A- L-iduronidase. In September 1998, we established a joint venture with Genzyme for the worldwide development and commercialization of BM101. Until now, enzyme replacement therapy for MPS-I has been impractical because no one has been able to manufacture adequate supplies of A-L-iduronidase with the proper structure. The proper structure is essential to ensure a therapeutic effect at relatively low doses. Using production and purification processes licensed by us, we are able to produce sufficient quantities of BM101 with the proper structure. In 1994, preclinical studies of BM101 were conducted using dogs with canine MPS-I. Dogs with canine MPS-I have symptoms similar to those exhibited by humans with MPS-I. BM101 diminished canine MPS-I symptoms in the dogs. Stored carbohydrate material was cleared from the dogs' major organs, including their brains. This scientific research, which we have licensed, was performed at Harbor-UCLA Research and Education Institute. In October 1998, we completed a six-month evaluation period for what we believe is our pivotal clinical trial for BM101. Initiated in December 1997, this clinical trial treated ten patients with MPS-I at five medical centers in the United States. We are treating and monitoring these patients for an additional 18-month follow-up period. Patients were treated with a slow intravenous infusion of BM101 once a week at a dose of 125,000 units per kilogram of patient weight. The primary endpoints set forth in the investigational new drug application for BM101 were a reduction in liver or spleen size and a reduction in urinary GAG levels. Eight of the ten patients achieved the primary endpoint goal of a 20% reduction of liver size within the six-month evaluation period. Of the two patients who did not achieve the targeted liver reduction, one patient achieved a liver size in the normal range and the second patient, who had hepatitis at the end of the six-month period, achieved the 20% reduction after the six-month period. Five of the ten patients achieved a 20% reduction in spleen size. All of the ten patients achieved the primary endpoint goal of at least a 50% reduction in urinary GAG levels. Each patient with MPS-I presents us with a different mix of clinical symptoms. We tested each patient at intervals throughout the six-month evaluation period measuring a variety of secondary endpoints to determine whether the primary endpoints are reasonably likely to predict clinical benefit. The secondary endpoints we used included joint disease, eye disease and cardiac function. Additional measures of efficacy included sleep apnea and airway evaluations, central nervous system abnormalities, endurance and fatigue, and evaluations of bone. Except for the evaluations of the patient's bones, where no improvement was expected due to the short duration of the trial, most patients who exhibited physical symptoms of the disease achieved improvement in those symptoms during the course of the evaluation period for each of the secondary endpoints and additional clinical measures of efficacy. We believe that the clinical results on secondary endpoints and additional measures of efficacy demonstrate adequately that the primary endpoints were valid measures of the clinical benefit of BM101. However, we cannot assure you that the FDA will not require us to provide additional data to demonstate that the primary endpoints are reasonably likely to predict clinical benefit. 38 During the six-month evaluation period, four of the ten patients experienced immune responses to the enzyme, with one patient exhibiting symptoms of the immune response. No long term effects of these immune responses have been observed at this time. A few patients experienced side effects, primarily hives in five patients, which may have been related to BM101. No patients had life- threatening allergic reactions. Of the events that probably were related to BM101, the symptoms occurred during the infusions only, were manageable with medications, and did not impact the health or well-being of the patient outside the administration setting. Neither clinical nor laboratory evaluations showed any harmful effect of BM101 therapy. On behalf of the joint venture, we intend to complete the filing of our biologics license application with the FDA in the second half of 1999. Because 12-month data will be available, the FDA has requested that we evaluate these patients for the 12-month period rather than the six-month period which formed the basis of our initial evaluation. We have completed twelve months of patient evaluation and are currently analyzing the data for our biologics license application. In addition to the primary endpoints set forth in our investigational new drug application, the FDA has requested that we evaluate the data using other criteria that may demonstrate that the surrogate endponits are a predictor of clinical benefit. These criteria are an assessment of normalization of the patients' liver and spleen sizes and their urinary GAG levels. We are currently compiling information to establish guidelines for normal urinary GAG levels because that standard is not readily available. We are also analyzing the data using the normalization criteria. If this analysis does not support our findings with regard to the primary endpoints or if the primary endpoints do not predict a clinical benefit, it could delay the filing of the biologics license application and could jeopardize FDA approval of BM101. We do not know if this data will form the basis of our biologics license application. In addition, we cannot be certain that the results of the analysis over the 12- month period or using the normalization criteria will be sufficiently strong to support a claim of safety and efficacy. If the results of this analysis are materially and adversely different from our analysis of the six-month data using the primary endpoints set forth in our investigational new drug application, the FDA may require us to conduct additional clinical trials, include additional patients or otherwise require us to take steps that could delay or prevent the filing or approval of our biologics license application. The joint venture plans to complete the validation of the primary endpoints from the pivotal clinical trial by the long-term monitoring of the original trial patients and the continuing assessment of the efficacy of treatment with BM101. The parameters for this follow-on clinical study are expected to include: . Patient growth in height and weight . Cardiac function . Pulmonary hypertension . Corneal clouding . Visual acuity . Joint range of motion . Airway function . Endurance and fatigue In addition, the FDA has requested that the joint venture conduct another clinical trial to support the primary endpoints from the pivotal clinical trial. The filing and approval of our biologics license application for BM101 is not contingent on the completion of this additional clinical trial. 39 We received orphan drug designation for BM101 from the FDA. This orphan drug designation gives us exclusive rights to market a product using A-L-iduronidase to treat MPS-I in the United States for seven years if we receive FDA approval of BM101 before any other company receives approval of A-L-iduronidase to treat MPS-I. In addition, we received notice from the FDA that our BLA for BM101 for the treatment of Hurler and Hurler-Scheie syndromes, which are the two more severe MPS-I disorders and account for approximately 60% of MPS-I patients, will receive fast track designation. Drugs that show a potential to address an unmet medical need for a serious or life threatening disease may be eligible to receive fast track designation. Fast track designation does not guarantee a faster approval. The FDA may still require additional studies or data regarding BM101 which may delay approval and subsequent commercial sales. See "Risk Factors--If we fail to obtain regulatory approval to commercially manufacture or sell any of our future drug products, or if approval is delayed, we will be unable to generate revenue from the sale of our products--If our joint venture with Genzyme were terminated, our ability to commercialize BM101 would be delayed." At the request of the FDA, the joint venture will conduct a clinical trial to investigate the effect of BM101 on the prevention or stabilization of the progressive mental dysfunction experienced by patients with Hurler Syndrome, the most severe form of MPS-I. The trial, which will enroll six patients and will last two years, is expected to begin in the fourth quarter of 1999. This Hurler trial for mental dysfunction is independent of the pivotal trial that is intended to support the biologics license application submission for BM101. MPS-VI. MPS-VI, also known as Maroteaux-Lamy syndrome, is a genetic disorder caused by a deficiency of the enzyme N-acetylgalactosamine 4-sulfatase, which is designated BM102. Of approximately 1,100 patients suffering with MPS-VI in the developed world, about 340 are in the United States and Canada. Patients with MPS-VI have symptoms similar to those for MPS-I. However, MPS-VI patients do not suffer mental retardation. If untreated, the average life span of MPS-VI patients is estimated to be between ten years in the severe form to 30 years in the mild form. MPS-VI has been treated by bone marrow transplants. However, few patients find an appropriate bone marrow donor. Of the patients who find an appropriate donor, many choose not to receive a bone marrow transplant because of its serious side effects. BM102. We are developing BM102 for the treatment of MPS-VI. BM102 may treat MPS-VI by replacing a deficiency in the enzyme N-acetylgalactosamine 4- sulfatase. During 1994 through 1996, preclinical studies of BM102 were conducted on cats with feline MPS-VI. Cats with MPS-VI have physiological characteristics and clinical symptoms similar to those exhibited by humans with MPS-VI. We are conducting additional studies in cats using alternative dosing regimens to better match the likely dosing regimen in humans. We believe that preclinical studies conducted on over 50 afflicted cats treated with BM102 will provide a sufficient basis to support an investigational new drug application for BM102. We must receive approval of our investigational new drug application before beginning clinical trials. In August 1998, we licensed rights to use data on feline MPS-VI and a cell line for BM102 from Women's and Children's Hospital in Adelaide, Australia. We are developing improved production and purification processes for BM102, first in clinical and then in commercial processes. We received an orphan drug designation for BM102 in February 1999 to treat MPS-VI and intend to file an investigational new drug application for the use of BM102 to treat MPS-VI in the fourth quarter of 1999. We cannot assure you that the FDA will allow clinical trials based on the limited testing on cats conducted to date. We will make a request to the FDA that a single clinical trial with a small number of MPS-VI patients is sufficient to support a biologics license application. However, the FDA may require additional preclinical testing, clinical trials or additional patients or trial duration before approving BM102 if it is ever approved. 40 Enzyme Replacement Therapy in Other Genetic Diseases We intend to develop additional enzyme replacement therapies for other genetic diseases. We have identified genetic diseases that we believe will respond well to enzyme replacement therapy. We are only developing enzyme replacement therapies that we believe qualify for orphan drug designation. We are in the process of cloning and producing enzymes for additional potential genetic diseases. Due to the small patient populations for these other genetic diseases and the known biologic mechanism of proposed enzyme replacement therapies, we believe that the size and scope of our human clinical trials for future genetic diseases may be similar in size and scope to those for MPS-I. Other Diseases And Conditions Burns In 1997, approximately 65,000 patients in the United States were admitted to hospitals with burns. Approximately 20% of these patients had very severe burns that destroyed all layers of the skin, referred to as full-thickness or third- degree burns. Full-thickness burns require major skin grafts. This typically requires admission to one of approximately 150 major burn centers in the United States. Full-thickness burns are treated by removing unhealthy and dead tissue, a process called debridement, to prevent infection and to prepare the burned site for skin grafting or other therapy. Currently, full-thickness burns are debrided by multiple surgical procedures that are complicated by loss of blood, loss of healthy tissue, continued trauma and pain and scarring. In many instances, surgery must be delayed in severely compromised patients. Additionally, certain parts of the body, such as the hands and face, are difficult to treat by this method. A limited number of topical debridement products are available as an alternative to surgery. Topical enzymatic products, however, have not been widely accepted by physicians because they are ineffective and often cause the patient pain and cause the patient to bleed. A significant part of human skin is made up of carbohydrates and proteins. We believe that there is an opportunity for more selective enzyme debridement products that have greater specificity at digesting carbohydrates or proteins in dead tissue. We currently have two products under preclinical development for the treatment of full-thickness burns. We intend to file an investigational new drug application for one of these products in the second half of 1999. We will determine which of the products we will file the investigational new drug application for based on the activity and safety profiles obtained in preclinical studies that are in progress. Based on discussions with general wound specialists, we believe that if the products successfully debride full-thickness burns, they will effectively debride other types of wounds as well. BM201. BM201 is a carbohydrate-specific enzyme therapeutic which we developed in mice in a model developed at the University of California at San Diego, or UCSD. BM201 accelerated the rate of debridement of burn wounds without signs of topical or systemic toxicity. In addition, BM201 significantly reduced the total time in which grafts were successfully made and wounds closed when compared to phosphate buffered saline, which was used as a control, and to selected topical enzymatic products. The total time required for the debridement using BM102 and graft take was significantly less than the total time for debridement using standard surgical debridement techniques. The enzyme is now being evaluated for its ability to debride wounds and influence graft acceptance in a more stringent model of full-thickness burn treatment in pigs at Vanderbilt Medical Center. BM202. BM202 is an enzyme that acts on proteins discovered by W.R. Grace & Co. Upon review of the data from preclinical studies that were conducted by W.R. Grace, we obtained a three-year option in May of 1998 to obtain an exclusive license to BM202. In preclinical studies supported by W.R. Grace, BM202 was shown to safely debride full-thickness burns in pigs, and accelerate wound 41 healing in less severe lesions. In studies sponsored by us and conducted at UCSD, BM202 debrided wounds and allowed graft acceptance in mice with full- thickness burns. BM202 is now being assessed for its compatibility to allow for graft acceptance in a pig burn model at Vanderbilt Medical Center. Anti-fungal Enzymes We are developing two naturally occurring enzymes to combat infection by Aspergillus spp. Aspergillus is one of the most common fungi in the environment. Although aspergillus is not usually harmful to people with healthy immune systems, it can pose a life-threatening risk to those with compromised immune systems, such as cancer patients undergoing chemotherapy, organ and bone marrow transplant recipients and people with late-stage AIDS. Aspergillosis, a fungal infection caused by aspergillus, begins as an upper airway infection and can become a systemic fungal infection in immuno-compromised patients. It is difficult to diagnose, currently has no adequate treatment and often proves fatal. We believe that an effective drug for systemic aspergillosis may be used as a preventative measure for immuno-compromised patients. By the year 2000 experts estimate that over 85,000 patients in the United States may be at risk for contracting systemic aspergillosis. We believe that a carbohydrate-active enzyme that breaks down the carbohydrates in the cell walls of aspergillus will kill the fungi and treat the infection. BM301 and BM302. We are conducting preclinical research on the use of BM301 and BM302, recombinant forms of two naturally occurring enzymes, to treat aspergillosis. In BioMarin-sponsored preclinical studies on mice conducted at Boston University Medical Center demonstrated that BM301 and BM302 effectively treated aspergillosis. Approximately 20% of the mice treated with BM301 or BM302 died. For comparison, all of the untreated, infected mice died. No toxicity or other adverse side effects were observed in these animal studies. We intend to apply for FDA orphan drug designation for these anti-fungal enzymes. Clinical trials may not show that our products are safe or effective. We may fail to develop products that can be marketed. See "Risk Factors--If we continue to incur operating losses for a period longer than anticipated, we may be unable to continue our operations--If we fail to obtain regulatory approval to commercially manufacture or sell any of our future drug products, or if approval is delayed, we will be unable to generate revenue from the sale of our products--If we fail to obtain orphan drug exclusivity for our products, our competitors may sell products to treat the same conditions and our revenues may be reduced." Other Research and Development We are also focusing a portion of our research and development on carbohydrate- active enzymes that we believe can treat certain inflammatory conditions. We have initiated a research program to develop a carbohydrate-active enzyme to treat psoriasis, an inflammatory skin condition. We have identified and produced sufficient amounts of product to conduct preclinical studies. We initiated these studies in the third quarter of 1998 at Brigham and Women's Hospital in Boston. We have also initiated a research program to develop a carbohydrate-based product to increase movement and vitality of sperm. Carbohydrate-active enzymes can break down mucosal carbohydrates in cervical and seminal fluids. This break down allows sperm to move more easily through these fluids. Carbohydrate Analysis, Products and Services Glyko, Inc., our wholly-owned subsidiary, sells carbohydrate analysis products and services. These products and services provide sophisticated carbohydrate analysis to research institutions and commercial laboratories. Commercial laboratories use carbohydrate analysis to determine carbohydrate structure, sequence and quantity. Glyko, Inc.'s key technology, Fluorphore Assisted Carbohydrate 42 Electrophoresis, also known as FACE(R), is a rapid and relatively inexpensive method of analyzing complex carbohydrates. In a typical application, FACE will rapidly processes a sample of unknown composition. It will then identify the carbohydrate structures present, quantify their abundance and prepare a detailed report. Glyko, Inc.'s primary product is the FACE Imaging System, an electrophoretic system that includes an imager and software designed to separate, identify and quantify carbohydrates. Glyko, Inc. also sells the consumable products required for the system's operation, including four specialized gels, 13 types of kits and the consumable reagents necessary for carbohydrate analysis. In addition, Glyko, Inc. provides: . Reagents used in carbohydrate chemistry, including carbohydrate- active enzymes . Custom analytical services for profiling and sequencing complex carbohydrates . Research services on carbohydrate related problems . Diagnostic methods and services for lysosomal storage diseases, diseases in which residues build up in lysosomes because of deficiencies in enzymes. Glyko, Inc. also markets the only urinary screening test cleared by the FDA for lysosomal storage diseases. Glyko, Inc. also provides a lysosomal storage diseases screening service using its test and related diagnostic technology. Glyko, Inc.'s diagnostics line includes software for the automated diagnosis of oligosaccharidoses, a subclass of lysosomal storage diseases. Glyko, Inc. is developing similar software for MPS disorders. Glyko, Inc. is expanding its ability to measure GAGs in urine. In addition to MPS-I, elevated or reduced levels of GAGs in urine may serve as early, non-invasive indicators for a number of diseases, including osteoporosis, degenerative joint diseases, kidney diseases as well as lysosomal storage diseases. In addition, Glyko, Inc. provides analysis of plasma heparin, a type of GAG, and is developing an automated analyzer for heparin in whole blood. The direct analysis of heparin concentration in blood or plasma allows for close monitoring of patients on heparin-based anti-coagulation therapy. Over-or under-dosing of heparin can result in serious adverse side effects. Corporate Collaborations Joint Venture with Genzyme Corporation In September 1998, we established a joint venture with Genzyme for the worldwide development and commercialization of BM101 for the treatment of MPS- I. Our responsibilities within the joint venture include: . Obtaining the necessary U.S. regulatory approvals . Manufacturing BM101 for clinical and commercial purposes Genzyme is responsible for: . Obtaining the necessary international regulatory approvals . Providing pricing and reimbursement requirements . Providing overall sales and marketing Under the agreement, BioMarin and Genzyme are each required to make capital contributions to the joint venture equal to 50% of the costs and expenses associated with the development and commercialization of BM101. BioMarin and Genzyme will share equally in any profits generated from sales of BM101. Genzyme purchased $8.0 million of our common stock in a private placement in September 1998. Genzyme has agreed to purchase an additional $10.0 million of our common stock at 43 the initial public offering price in a private placement concurrent with this offering. Genzyme has also committed to pay us $12.1 million in cash upon approval of the BLA for BM101. We have licensed to the joint venture certain of our intellectual property rights related to BM101. If either party fails to fund its 50% share of costs and expenses, then the other party may buy out the party that breaches, otherwise, the profit sharing interests and the future funding obligations of the parties will be adjusted to correspond to the cumulative amount of capital contributions made by each party. The joint venture may be terminated in the event one party declares bankruptcy, experiences a change of control or commits a material breach of the agreement. Without a breach, the joint venture may be terminated by either party only after the terminating party has given the other party one year prior written notice. Notice of termination may be given at any time after the earlier of approval of the biologics license application for BM101 or December 31, 2000. Upon termination of the collaboration agreement, the terminating party's share of the joint venture may be bought out by the other party. The non-terminating party or the party not in material breach, as applicable, has the right to obtain a license to all intellectual property assigned to or subsequently developed by the joint venture. See "Risk Factors--If our joint venture with Genzyme were terminated, our ability to commercialize BM101 would be delayed." Grant Agreements and Licenses We have entered into research and development collaboration agreements with various academic and research institutions. Under these agreements, we fund research and development by these institutions. Some of the agreements also provide for the grant to us of exclusive, royalty-bearing licenses or rights of first negotiation regarding licenses to intellectual property and other subject matter developed by these institutions in the course of this research. Typically, these agreements are terminable for cause by either party upon 90- days written notice. In April 1997, we entered into the Grant Terms and Conditions Agreement with Harbor-UCLA. Under this agreement, we funded a two-year research program related to A-L-iduronidase and obtained an exclusive, worldwide license to certain cell lines and methods related to the production and purification of the enzyme and intellectual property and materials developed by Harbor-UCLA. This license is perpetual, subject to our obligation to pay ongoing license fees. In exchange for the license, we pay Harbor-UCLA an annual licensing fee and, separately, royalties for 10 years or for the duration of any patents based on the licensed technology, if longer. This agreement may be terminated by either party for breach upon 90 days prior written notice. In connection with Dr. Kakkis' prior employment with Harbor-UCLA, he will receive a portion of the royalties paid to Harbor-UCLA by BioMarin. Under this agreement we are required to pursue the development of enzyme therapy with due diligence acceptable to Harbor-UCLA in order to maintain the license. Our joint venture with Genzyme, which has been sublicensed the technology originally licensed to us by Harbor-UCLA, is currently using this technology in part to develop our initial enzyme replacement therapy product, BM101. We are required to fund 50% of the costs and expenses associated with the development of BM101. We currently estimate that over the next 12 months our portion of these costs and expenses will be approximately $9.4 million. In May 1998, we entered into an agreement with W.R. Grace regarding BM202, an enzyme that breaks down proteins, which may be used for the debridement of burns. Under this agreement, we have obtained an option to acquire from W.R. Grace an exclusive license, with the right to grant and authorize sublicenses for certain patents related to BM202. We may exercise our option at any time until May 2001 so long as we have made certain payments to W.R. Grace. Under the terms of the agreement, we would pay W.R. Grace certain milestone payments and annual licensing fees. We must 44 pay W.R. Grace the greater of (1) annual royalties based on net annual sales of BM202, or (2) a minimum annual royalty stipulated in the agreement. If we cannot reach agreement with W.R. Grace on the additional terms and conditions of the license within six months of the exercise of our option, then we may initiate binding arbitration proceedings to establish the other terms of the license. The agreement also requires us to use our best efforts to produce material toxicology studies on BM202 between May 1, 1999, and May 1, 2000, and to begin clinical testing of products based on BM202. We will bear the cost of both toxicology studies and the clinical testing. In August 1998, we entered into a license agreement with Women's and Children's Hospital of Adelaide, Australia under which Women's and Children's Hospital of Adelaide granted us a worldwide, exclusive, perpetual license to certain technology and products for use in enzyme replacement therapy for MPS-VI. The licensed technology includes the feline MPS-VI preclinical data and a host cell line that expresses this enzyme. We paid Women's and Children's Hospital of Adelaide an initial license fee and will continue to pay royalties based on net sales with a minimum annual royalty. The royalty rate is reduced if a product competitive with MPS-VI enters the market. The terms of the license agreement require that both parties reach agreement on the design of the MPS-VI clinical trials within a specified period. The license agreement further requires us to file an investigational new drug application with the FDA or equivalent regulatory authority in another country and to begin clinical trials within specified time periods. The term of the agreement is ten years and we have an option to renew the agreement for two one-year periods. Manufacturing Pharmaceutical Manufacturing. The drug candidates we are currently developing require the manufacture of recombinant enzymes. For our genetic disease programs, we expect to manufacture the carbohydrate-active enzymes. We believe that we will be able to manufacture sufficient quantities of our genetic disease drug products for clinical trials and commercial sale in part because relatively low doses are required for treatment and because the targeted patient populations are small. Under the agreement with Harbor-UCLA, Harbor-UCLA produces BM101 for MPS-I clinical trials and will continue to do so into the second quarter of 1999. We are developing an 8,000 square foot facility in Torrance, California, dedicated to the production of BM101. We are required by the FDA to demonstrate compliance with cGMP in our new facility. Because clinical supplies of BM101 were produced in a different facility and at a smaller scale, we will be required to demonstrate comparability between batches of BM101 produced at the two sites. The FDA may also require that we conduct additional studies or clinical trials in order to demonstrate equivalence with the drugs used in the clinical trial. Genzyme will package the bulk BM101 in its final dosage form at its Massachusetts facilities. We are currently developing a 23,000 square foot cGMP production facility in Novato, California. This facility has utility systems and support laboratories and offices sufficient to support an additional manufacturing suite of approximately 10,000 square feet in a second phase of development. Following the first phase we will have the capacity to conduct process development and commercial production of BM101. We have a 1,200 square foot cGMP laboratory designed for clinical production of enzymes for our genetic disease programs. This laboratory has the capability for cell culture production, purification and filling of small-scale production lots. Initially, this facility will be used to produce BM102 in sufficient quantity to support a clinical trial of MPS-VI. We have also developed a 1,000 square foot bacterial fermentation facility for preclinical studies and clinical trial requirements for burn and anti-fungal drug candidates. We use third-party contract manufacturers to produce clinical trial material made in bacterial or fungal cells. 45 Additionally, we have leased a 36,000 square foot shell that is expected to be completed in the third quarter of 1999. This facility may be used for additional manufacturing capacity if needed. We are developing the manufacturing capacity to support commercial sales of BM101 and eventually BM102. We cannot assure you that we will be able to do so in a timely manner or that this capacity will be sufficient to supply the market demand if sales exceed projections. As a company, we have no experience manufacturing BM101 or other enzymes in commercial quantity, although we have hired and are in the process of hiring additional experienced personnel who do have experience manufacturing commercial quantities of drug products. Because our manufacturing facilities are in the process of construction, validation, and process qualification, we have yet to be subject to governmental inspection for compliance with cGMP. We will have to register our manufacturing facilities with the FDA, the State of California and other foreign regulatory agencies. These 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, fines or other penalties. A shutdown or fine could have a serious effect on our business financial condition and results of operations. See "Risk Factors--If we are unable to manufacture our drug products in sufficient quantities and at acceptable cost, we may be unable to meet demand for our products and lose potential revenues--If we fail to obtain regulatory approval to commercially manufacture or sell any of our future drug products, or if approval is delayed, we will be unable to generate revenue from the sale of our products." Carbohydrate Analysis Products Manufacturing. Glyko, Inc. assembles its FACE Imaging System and kits from standard components readily available from multiple commercial sources. A key component of the FACE Imaging System is the operating and interpretative software, which Glyko, Inc. writes and tests itself. Glyko, Inc. mixes and casts its gels using proprietary and patented formulations best suited for carbohydrate applications. Glyko, Inc. also manufactures its carbohydrate-active enzymes. Glyko, Inc. believes that it has adequate manufacturing capacity to produce much larger quantities of its products than are currently required. Sales and Marketing Pharmaceutical Sales and Marketing. We have no experience marketing or selling pharmaceutical products. To commercially market our products once the necessary regulatory approvals are obtained, we must either develop our own sales and marketing force or enter into arrangements with third parties. We established a joint venture with Genzyme for the worldwide development and commercialization of BM101 for the treatment of MPS-I. Under the joint venture, Genzyme will be responsible for marketing, distribution, sales and reimbursement of BM101 worldwide. In the future, we may develop the capability to market and sell our drug products that are targeted at small or concentrated patient populations. We believe that these patient populations are typically well-informed and well- connected to the medical community. We believe that direct marketing to these patients would be effective. We may also market our products through distributors or other collaborators, particularly those products targeted at larger patient populations. We cannot guarantee that Genzyme will devote the resources necessary to successfully market BM101. In addition, either party may terminate the joint venture for any reason. If Genzyme were to terminate the joint venture, we would be required to undertake Genzyme's responsibilities ourselves. We have no experience in marketing, selling or obtaining reimbursement for pharmaceutical products. In addition, we would be required to pursue foreign regulatory approvals. As a result, termination of the joint venture by Genzyme may delay the launch of BM101. 46 Sales and Marketing of Carbohydrate Analysis Products and Services. Glyko, Inc. sells its products and services primarily to distributors of research products, quality control laboratories and research laboratories. Glyko, Inc. has a sales staff of two, who cover the United States and Canada. Direct sales efforts accounted for approximately 40% of Glyko, Inc.'s revenues in 1998. Glyko, Inc. has established a network of distributors to expand its reach in the analytical products market. Glyko, Inc. has relationships with three major research products distributors worldwide and with one distributor for North America. These distribution agreements allow these companies to sell Glyko, Inc. manufactured products under the distributor's own name. Glyko, Inc. also has distribution agreements with third parties covering Asia, Australia, Europe and Mexico. Sales by distributors accounted for approximately 22% of Glyko, Inc.'s revenues in 1998. The remaining 38% of Glyko, Inc.'s revenues are from sales of contract services, including services sold to us, and government grants. Services provided to us accounted for approximately 5% of Glyko, Inc.'s overall revenue in 1998. See "Risk Factors--If our joint venture with Genzyme were terminated, our ability to commercialize BM101 would be delayed--If we are unable to effectively sell and market our products, our ability to generate revenues will be diminished--If we fail to compete successfully, our revenues and operating results will be adversely affected." Patents and Proprietary Rights Our success depends in part on our ability to: . Obtain patents . Protect trade secrets . Operate without infringing the proprietary rights of others . Prevent others from infringing on our proprietary rights We may obtain licenses to patents and patent applications from others. We have five patent applications presently pending in the United States Patent and Trademark Office. We have filed three foreign counterpart applications and expect to file a foreign counterpart to one of the other pending U.S. patent applications at the proper times. Glyko, Inc. owns seven issued U.S. patents and two pending applications, one of which has been allowed. In addition, Glyko, Inc. has licensed four U.S. patents and their foreign counterparts from AstroMed Ltd. and its successor Astroscan Ltd. on an exclusive, worldwide, perpetual and royalty-free basis. Glyko, Inc. has also licensed seven U.S. patents from Glycomed Incorporated on an exclusive, worldwide, perpetual and royalty-free basis. These patents are all related to Glyko, Inc.'s products and services. We primarily protect our proprietary information by filing U.S. and foreign patent applications related to our proprietary technology, inventions and improvements. Proprietary rights relating to our technologies will be protected from unauthorized use by third parties only to the extent that they are covered by valid and enforceable patents or are effectively maintained as trade secrets. The patent positions of biotechnology companies are extremely complex and uncertain. The scope and extent of our patent protections for some of our products, including BM101 and BM102, are particularly uncertain because some of the enzymes we are developing have existed in the public domain for many years. Other parties have published the structure of the enzyme, the methods for purifying or producing the enzyme and the methods of treatment or use. The publication of this information limits the scope of our patents and may prevent us from obtaining any meaningful patent protection. We cannot assure you that any patents owned by, or licensed to, us will afford protection against competitors. Nor can we assure you that any patent applications will result in patents being issued. 47 In addition, the laws of certain foreign countries do not protect our intellectual property rights to the same extent as do the laws of the United States. The patent position of biopharmaceutical companies involves complex legal and factual questions. We cannot predict whether the intellectual property laws of foreign countries will be enforceable. We cannot assure you that any of our patents or patent applications, if issued, will not be challenged, invalidated or designed around. Nor can we assure you that the patents will provide proprietary protection or competitive advantages to us. Furthermore, we cannot assure you that others will not independently develop similar technologies or duplicate any technology developed by us. Our commercial success depends significantly on our ability to operate without infringing the patents and other proprietary rights of third parties. We cannot assure you that our technologies do not and will not infringe the patents or violate other proprietary rights of third parties. In the event any of our technologies are found to infringe or violate the intellectual property rights of others, we and our corporate partners may be prevented from pursuing research, development or commercialization of our products. There has been extensive litigation regarding patents and other intellectual property rights in the biotechnology and pharmaceutical industries. The defense and prosecution of intellectual property suits and related legal and administrative proceedings in the United States and abroad involve complex legal and factual questions. These proceedings are costly and time-consuming to pursue and their outcome is uncertain. Litigation may be necessary to enforce patents issued to or licensed by us, to protect trade secrets or know-how owned or licensed by us and to determine the enforceability, scope and validity of the proprietary rights of others. We will incur substantial expense and be forced to divert significant effort and resources of our technical and management personnel in the event we must prosecute or defend any litigation or other administrative proceeding. If an adverse determination were made, we could incur significant liabilities to third parties or be required to seek licenses which may not be available from third parties or may be prevented from selling our products in certain markets, if at all. Although patent and intellectual property disputes are often settled through licensing or similar arrangements, costs associated with these arrangements may be substantial and could include ongoing royalties. Furthermore, we cannot assure you that the necessary licenses would be available to us on satisfactory terms, if at all. In addition to patents, we rely on trade secrets and proprietary know-how, which we seek to protect, in part, through confidentiality agreements with our employees. We cannot assure you that these confidentiality or proprietary information agreements will meaningfully protect our technology or provide us with adequate remedies in the event of unauthorized use or disclosure of this information. Nor can we assure you that the parties to these agreements will not breach these agreements or that our trade secrets will not otherwise become known to or be independently developed by competitors. See "Risk Factors--If we are unable to protect our proprietary technology we may not be able to compete as effectively--If we fail to compete successfully, our revenues and operating results will be adversely affected." Government Regulation Our pharmaceutical products are subject to extensive government regulation in the United States. If we distribute our products abroad, these products will also be subject to extensive foreign government regulation. In the United States, pharmaceutical and biological products are regulated by the FDA. FDA regulations govern the testing, manufacturing, advertising, promotion, labeling, sale and distribution of our products. Currently, we believe that BM101 and other enzyme drug products that we may develop will be regulated by the FDA as biologics rather than as drugs because they are manufactured by biological processes. 48 The FDA approval process for a biologic includes: . Preclinical studies . Submission of an investigational new drug application for clinical trials . Adequate and well-controlled human clinical trials to establish the safety and effectiveness of the product . Submission of a biologics license application . Review of the biologics license application . Inspection of the facilities used in the manufacturing of the biologic to assess compliance with the Current Good Manufacturing Processes, or cGMP regulations The biologics license application includes comprehensive, complete descriptions of the pre-clinical testing, clinical trials, and the chemical, manufacturing and control requirements of a drug which enable the FDA to determine the drug's safety and efficacy. A biologics license application must be filed and then approved by the FDA before a biologic can be marketed commercially. The FDA testing and approval process requires substantial time, effort and money. We cannot assure you that any approval will ever be granted. Preclinical studies include laboratory evaluation of the product, as well as animal studies to assess the potential safety and effectiveness of the product. These studies must be performed according to good laboratory practices. The results of the preclinical studies, together with manufacturing information and analytical data, are submitted to the FDA as part of the investigational new drug application. Clinical trials may begin 30 days after the investigational new drug application is received, unless the FDA raises concerns or questions about the conduct of the clinical trials. If concerns or questions are raised, the investigational new drug application sponsor and the FDA must resolve any outstanding concerns before clinical trials can proceed. We cannot assure you that submission of an investigational new drug application will result in authorization to commence clinical trials. Nor can we assure you that if clinical trials are approved, that data will result in marketing approval. Clinical trials involve the administration of the product that is the subject of the trial to volunteers or patients under the supervision of a qualified principal investigator. Furthermore, each clinical trial must be reviewed and approved by an independent institutional review board at each institution at which the study will be conducted. The institutional review board will consider, among other things, ethical factors, the safety of human subjects and the possible liability of the institution. Also, clinical trials must be performed according to good clinical practices. Good clinical practices are enumerated in FDA regulations and guidance documents. Clinical trials typically are conducted in three sequential phases, Phases I, II and III, with Phase IV studies conducted after approval and generally required for fast track designated drugs. These phases may overlap. In Phase I clinical trials, the drug is usually tested on healthy volunteers to determine: . Safety . Any adverse effects . Dosage tolerance . Absorption . Metabolism . Distribution . Excretion . Other drug effects 49 In Phase II clinical trials, the drug is usually tested on a limited number of afflicted patients to: . Evaluate the efficacy of the drug for specific, targeted indications . Determine dosage tolerance and optimal dosage . Identify possible adverse effects and safety risks In Phase III clinical trials, the drug is usually tested on a larger number of afflicted patients, an expanded patient population and at multiple clinical sites. The FDA may require that we suspend clinical trials at any time on various grounds, including a finding that the subjects are being exposed to an unacceptable health risk. In addition, FDA approval may be conditioned and limit the indicated uses for our products. In Phase IV clinical trials, after a drug has received FDA approval, additional studies are conducted to gain experience from the treatment of afflicted patients in the intended therapeutic indication. Additional studies are also conducted to document a clinical benefit where drugs are approved under fast track designation and based on surrogate endpoints. In clinical trials, surrogate endpoints are alternative measurements of the symptoms of a disease or condition, often by biochemical or other tests, that are substituted for measurements of observable clinical symptoms. Failure to promptly conduct Phase IV clinical trials could result in expedited withdrawal of approval for products approved under fast track designation. Our regulatory strategy is to conduct only one clinical trial to support a biologics license application for each drug product treating genetic diseases. This sole clinical trial would be, in each instance, intended to satisfy the requirements of Phase I, Phase II and Phase III clinical trials. We believe that we can obtain regulatory approval with one clinical trial despite the fact that multiple clinical trials are normally required because our target patient populations are so small. In addition, Genzyme obtained FDA approval of Ceredase(R)/Cerezyme(R) after one clinical trial. The FDA may require us to conduct additional clinical trials or expand the scope of our existing trial for BM101. Regulatory approval would be delayed if we were required to undertake additional clinical trials or expand the existing trial to include more patients. We expect that for each product for which a single clinical trial is authorized, that we will be required to conduct extended Phase IV clinical trials to monitor the long-term effects of the therapy and assure the FDA that the primary endpoints were reasonable predictors of the drug product's clinical benefits. For example, we are conducting an additional 18 month trial of patients from the original BM101 pivotal clinical trial to monitor their health and the effects of the therapy. We will also be subject to a variety of foreign regulations governing clinical trials, manufacture and sales of our products. Whether or not FDA approval has been obtained, approval of a product by the comparable regulatory authorities of foreign countries must still be obtained prior to marketing in those countries. The approval process varies from country to country and the time needed to secure approval may be longer or shorter than that required for FDA approval. Food and Drug Administration Modernization Act of 1997. The Food and Drug Administration Modernization Act of 1997 was enacted, in part, to ensure the availability of safe and effective drugs, biologics 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, including biologics. The fast track provisions essentially codify the FDA's accelerated approval regulations for drugs and biologics. A fast track product is defined as a new drug or biologic intended for the treatment of a serious or life-threatening condition that demonstrates the potential to address unmet medical needs for this condition. Under the new fast track program, the sponsor of a new drug or biologic may request the FDA to designate the drug or biologic as a fast track product at any time during the clinical development of the product. 50 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 an application for fast track designation for a product can be based on an effect on a clinical endpoint or on a surrogate endpoint that is reasonably likely to predict clinical benefit. Approval of an application for fast track designation will be subject to: . Post-approval studies to validate the surrogate endpoint or confirm the effect on the clinical endpoint . Prior review of all promotional materials If a preliminary review of the clinical data suggests that the product is effective, the FDA may initiate review of sections of an application for fast track designation for a 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, which governs the time period goals the FDA has committed to reviewing an application, does not begin until the complete application is submitted. In September 1998, the FDA granted our application for fast track designation for BM101 for the more severe forms of MPS-I. We cannot predict the ultimate impact, if any, of the fast track process on the timing or likelihood of FDA approval of BM101 or any of our other potential products. Orphan Drug Designation. In September 1997, BM101 received orphan drug designation from the FDA. In February 1999, BM102 received orphan drug designation from the FDA. Orphan drug designation is granted by the FDA to drugs intended to treat a rare disease or condition. A rare disease or condition is one which generally affects fewer than 200,000 individuals in the United States. Orphan drug designation must be requested before submitting a biologics 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 designation does not shorten the FDA regulatory review and approval process for an orphan drug, nor does it give that drug any advantage in the FDA regulatory review and approval process. If an orphan drug later receives FDA approval for the indication for which it has designation, the FDA may not approve any other applications to market the same drug for the same indication, except in very limited circumstances, for seven years. Although obtaining FDA approval to market a product with orphan drug exclusivity may be advantageous, we cannot be certain that we will be the first to obtain FDA approval for any drug for which we obtain orphan drug designation. Nor can we be certain that orphan drug designation will result in any commercial advantage or reduce competition. Nor can we be certain that the limited exceptions to this exclusivity will not be invoked by the FDA. Regulation of Glyko, Inc.'s Diagnostic Tests as Medical Devices. Our subsidiary, Glyko, Inc., develops diagnostic tests that screen for diseases such as lysosomal storage diseases. The FDA regulates these tests as medical devices. The FDA requires companies that desire to market new medical devices to obtain either 510(k) clearance or approval of a Pre-market Approval Application, or PMA, before they are sold. Regulation under a PMA can be significantly more costly and time consuming than clearance under a 510(k) notification. Glyko, Inc. has received 510(k) clearance from the FDA for a urinary carbohydrate analysis test and is developing other diagnostic tests, which we believe qualify for 510(k) clearance. Glyko, Inc.'s diagnostic tests may be regulated as medical devices by the FDA as Class I, Class II or Class III devices. The degree of regulation, as well as the cost and time required to obtain regulatory approvals or clearances, generally increases from Class I to Class III. Most diagnostic tests are regulated as Class I or Class II devices. Glyko, Inc.'s diagnostic test for urinary carbohydrate analysis has been classified as a Class I device. Under the Food and Drug Administration Modernization Act of 51 1997, most Class I devices are exempt from the 510(k) clearance requirement. Based on the advice of our regulatory consultants and the experience with our first test, we expect that all of our currently planned diagnostic tests will require a 510(k) notification and clearance process. A 510(k) notification is sufficient for a device that is "substantially equivalent" to a legally marketed Class I or Class II device, or a Class III "predicate" device for which the FDA has not yet required submission of PMAs. Following submission of a 510(k) notification, a company may not market the device for clinical use until the FDA finds that product is substantially equivalent to a legally marketed predicate device. It generally takes four to 12 months from the date of submission of a 510(k) to obtain the FDA's determination, but it may take longer. The FDA may determine that the device is not substantially equivalent and require submission and approval of a PMA. Alternatively, the FDA may require further information before making a determination regarding substantial equivalence. The FDA requires a new 510(k) submission and a separate FDA determination of substantial equivalence for any devices cleared through the 510(k) process that have had modifications or enhancements that could significantly affect their safety or effectiveness, or that change their intended use. If a device does not qualify for the 510(k) premarket notification procedure, a company must file a PMA application. The PMA review and approval process can be expensive, uncertain and lengthy. A PMA application must be supported by extensive data, including laboratory and clinical trial data establishing the safety and effectiveness of the device, as well as extensive manufacturing information. After a preliminary review, the FDA makes an initial determination about whether a PMA application is sufficiently complete to permit a substantive review. If the FDA finds the PMA application sufficiently complete, the FDA accepts the application for filing. Once the PMA application is accepted for filing, the FDA begins a more in-depth review, which likely includes review by a scientific advisory panel. During the PMA review process, the FDA will conduct an inspection of the manufacturer's facilities to ensure compliance with the applicable Quality System Regulation or QSR requirements. The FDA may determine that additional clinical data is necessary or request other information, which may delay the regulatory review process. Modifications to a device that is the subject of an approved PMA, its labeling, manufacturing or clinical use may require approval by the FDA of PMA supplements or new PMAs. PMA supplements often require submission of the same type of information required for the initial PMA except that the supplement generally is limited to that data needed to support the proposed changes. Regulatory approval, if granted, may limit the uses for which the device may be marketed. Approvals, once granted, may be withdrawn if problems occur after initial marketing. Sales of medical devices outside of the United States are subject to regulatory requirements that vary from country to country. The time required to obtain international regulatory clearance or approval for international sales may be longer or shorter than that required for FDA clearance approval. The requirements may differ as well. We cannot assure you that we will be able to obtain the required regulatory approval in a timely manner, if at all. Regulation of Glyko, Inc.'s Manufacturing. Glyko, Inc. is required to comply with the FDA's quality system regulation requirements when manufacturing its diagnostic tests. The quality system regulation requirements incorporate the FDA's former current Good Manufacturing Processes into medical devices regulations. Quality system regulation requirements address the design, controls, methods, facilities and quality assurance controls used in manufacturing, packing, storing and installing medical devices. In addition, certain international markets have quality assurance and manufacturing requirements that may be more or less rigorous than those in the United States. A failure by us to comply with quality system regulation requirements or other requirements could have a serious impact on our business and services. 52 Regulation of Clinical Laboratories. Laboratories using Glyko, Inc.'s diagnostic tests for clinical use in the United States are regulated under Clinical Laboratory Improvement Amendments of 1998, or CLIA. CLIA establishes requirements for laboratories and laboratory personnel governing: . Administration of laboratories . Participation and proficiency testing . Patient test management . Quality control . Personnel . Quality assurance . Inspection The complexity of the tests being performed by the laboratory will determine which CLIA requirements apply. Under CLIA regulations, all laboratories performing moderately complex or highly complex tests will be required to obtain either a registration certificate or certificate of accreditation from the Health Care Financing Administration. A laboratory using our diagnostic tests is required to be qualified to perform moderately or highly complex tests. All of the laboratories known to us that are performing the diagnostic procedures which might use our test are qualified at the appropriate levels. If, in the future, a competitor develops a simpler diagnostic test that can be performed in less qualified laboratories and if medical institutions begin to use these less qualified laboratories to perform the competitive test, then CLIA requirements will prevent the less qualified laboratories from performing the current Glyko, Inc. test. The development of a simpler competitive diagnostic test by a competitor may have a negative financial impact on our revenues and results of operations. Glyko, Inc. has CLIA certification and a California state laboratory license to perform urinary carbohydrate analysis tests. The California laboratory license only allows testing for patients in California. We may be required to obtain other licenses to perform our laboratory services in other states or to provide services to patients or health care professionals who reside or practice medicine in other states. See "Risk Factors--If we fail to obtain regulatory approval to commercially manufacture or sell any of our future drug products, or if approval is delayed, we will be unable to generate revenue from the sale of our products." Competition Pharmaceutical Products. The biopharmaceutical industry is rapidly evolving and highly competitive. We face significant competition from biotechnology and pharmaceutical companies. Many of these companies have significantly greater financial, manufacturing, marketing and product research resources and experience than we have. Large pharmaceutical companies in particular have extensive experience in clinical testing and in obtaining regulatory approvals, including orphan drug designations. Accordingly, competitors may obtain regulatory approvals for and commercialize their products faster than we will. In addition, these companies will compete with us to attract qualified personnel, and to attract parties for acquisitions, joint ventures or other collaborations. Several pharmaceutical and biotechnology companies have established themselves in the field of enzyme therapeutics, including Genzyme, our joint venture partner. Many colleges, universities and public and private research organizations are also active in the human health care field. While these entities focus on education, they may develop proprietary technology and acquire patents that we may require for the development of our products. We may attempt to obtain licenses to this proprietary technology. We cannot assure you, though, that we will be able to obtain these licenses. We also compete with a number of these organizations to recruit scientists and technicians. 53 We believe that the primary competitive factors in the market for biological drug products are: . Product safety . Effectiveness of these products . Ability to obtain orphan drug exclusivity . Distribution channels . Price . Time required to develop new products . Time required to obtain regulatory and reimbursement approval . Ability to respond quickly to medical and technological changes . Ability to develop new products We believe, based on our progress developing BM101, that we can compete successfully with regard to those competitive factors requiring timely execution. With regard to other competitive factors including those regarding distribution channels and low prices, we are at a competitive disadvantage. We do not yet have established distribution channels and because our target patient populations are small we expect that our drug products will be relatively expensive. We do not intend to compete with others who have already established successful treatments for specific genetic disorders, which should ameliorate some of our competitive disadvantages. Carbohydrate Analysis Products and Services. The FACE Imaging System's primary competitors are alternative carbohydrate analytical technologies including: . Capillary electrophoresis . High pressure liquid chromatography . Mass spectrometry . Nuclear magnetic resonance spectrometry The major advantages of FACE are: . Low cost . Quantification of carbohydrates present . Easy application to samples of unknown composition . User friendly procedures and software . Provides versatility for other non-carbohydrate applications The major disadvantages of FACE are: . FACE requires single-use specialized gels which give FACE systems a higher disposable cost than some competitive products which have reusable components. . Some competitive products may provide a more precise measurement of the molecular weight of a sample. . One competitive technology can provide more complete structural information about the sample. 54 The competition in the carbohydrate-active enzymes business is comprised primarily of distributors of broad lines of research products and supplies, particularly fine chemicals and reagents. Glyko, Inc. competes on the basis of the catalog of products it offers and the number of carbohydrate-active enzymes it offers and their proprietary nature. Glyko, Inc. believes that it also provides superior service because it provides customers with sales information and assistance based on scientific understanding of carbohydrate chemistry and function. However, it does not offer as many products as some of its competitors. Glyko, Inc. plans to expand its enzyme product offerings over the next several years to compete with the broadest product lines offered today by competitors. However, neither we nor Glyko, Inc. can assure you that Glyko, Inc. will successfully broaden its product offerings or will otherwise compete successfully. Glyko, Inc.'s diagnostic product line competes primarily with alternative technologies and laboratory services. Glyko, Inc. believes that its diagnostic approaches are novel. Glyko, Inc. has the only urinary screening test cleared by the FDA for certain lysosomal storage diseases. Glyko, Inc. believes that the test may be used as a screening tool for early detection of a number of lysosomal storage diseases and that success of the product will depend on whether it becomes widely adopted. See "Risk Factors--If we fail to compete successfully, our revenues and operating results will be adversely affected." Facilities We currently have operations in a total of six buildings. Five of our buildings are located in Novato, California, each within a half-mile radius. The five buildings, each named for the streets on which they are located, are: . Bel Marin Keys facility . Galli Drive facility . Pimentel Court facility . Digital Drive facility . Digital Drive sublease facility The sixth building, the Carson Street facility, is located in Torrance, California. The Bel Marin Keys facility houses administrative staff and a clinical production laboratory. It consists of approximately 13,400 square feet. The lease expires in May 2001. We have an option to extend the lease for up to two additional three-year periods. The Galli Drive facility consists of a total of approximately 31,000 square feet and currently houses 6,700 square feet of modular laboratory space used for research and development. We are currently developing an additional 23,400 square feet for a manufacturing facility, including core utility and support functions sufficient for the entire building once fully developed. This development will also create approximately 3,000 square feet of additional mezzanine office space. This development is scheduled to be completed in the third quarter of 1999. The lease expires in August 2003. We have an option to extend the lease for one additional five-year period. The Pimentel Court facility houses the administrative staff and research and manufacturing operations of Glyko, Inc. It consists of approximately 11,000 square feet. The lease expires in March 2000. We have subleased a portion of this facility to a third party. The Digital Drive facility, when completed, is intended to house either a research or a manufacturing facility. It is currently under construction. When completed, it will consist of approximately 35,000 square feet. Construction of the shell of the building is scheduled to be completed in the third quarter of 1999. The lease expires ten years and sixty days after the shell of the building is completed. 55 The Digital Drive sublease facility houses a chemistry laboratory. It consists of approximately 1,200 square feet. The facility has been subleased from a third party. The sublease expires in January 2000. The Carson Street facility houses our initial commercial manufacturing facility for BM101 and consists of approximately 8,000 square feet. The lease expires in June 2001. We have an option to extend the lease until April 2003. In general, we believe that our facilities are well-suited for the specific functions and objectives for which they were leased, designed and developed. Our administrative office space is expected to be adequate for approximately the next 18 months. We should have adequate space for research and development activities in our Digital Drive facility into 2001. Our BM101 production facilities' capacity may have to be supplemented beginning in 2001 if the MPS-I market penetration rates are higher than currently expected. Based on the timelines for other genetic disorders such as MPS-VI, productive capacity for these products will have to be developed for larger scale commercial production which may begin as early as 2001. Employees As of May 31, 1999, we had 80 full-time employees, 37 of whom are in research and development, 30 of whom are in manufacturing, two of whom are in sales and marketing and 11 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. We cannot assure you that we will be able to continue attracting qualified personnel in sufficient numbers to meet our needs. Legal Proceedings We have no material legal proceedings pending. 56 MANAGEMENT Executive Officers, Directors and Key Employees Set forth below is certain information regarding our executive officers, directors and key employees:
Name Age Position with BioMarin ---- --- ---------------------- Grant W. Denison, Jr................ 49 Chief Executive Officer and Chairman of the Board John C. Klock, M.D.................. 54 President, Secretary and Director Raymond W. Anderson................. 57 Chief Financial Officer, and Vice President, Finance and Administration Christopher M. Starr, Ph.D.......... 46 Vice President, Research and Development John L. Jost, Ph.D.................. 55 Vice President, Manufacturing Emil D. Kakkis, M.D., Ph.D.......... 38 Vice President of BioMarin and President, BioMarin Genetics, a division of BioMarin Stuart J. Swiedler, M.D., Ph.D...... 43 Vice President, Scientific and Clinical Affairs Brian K. Brandley, Ph.D............. 42 Vice President of BioMarin and Managing Director, Glyko, Inc., a wholly-owned subsidiary of BioMarin Ansbert S. Gadicke, M.D.(/1/)(/2/).. 41 Director Erich Sager(/1/).................... 41 Director Gwynn R. Williams(/1/)(/2/)......... 65 Director
------------------------------- (/1/) Member of the Compensation Committee. (/2/) Member of the Audit Committee. Each director will hold office until the next annual meeting of stockholders and until his successor is elected and qualified or until his earlier resignation or removal. Each officer serves at the discretion of the Board of Directors. Grant W. Denison, Jr. has served as a director and Chief Executive Officer of BioMarin since its inception and as Chairman of the Board since April 1997. From July 1993 to April 1997, Mr. Denison served as President, Consumer Products and Corporate Senior Vice President, Business Development at Searle, a pharmaceutical company. From April 1986 to June 1993, Mr. Denison served as Vice President Corporate Planning and President, U.S. Operations at Monsanto Company, a diversified life sciences company. From 1985 to 1986, Mr. Denison served as Vice President, International Operations at Squibb Medical Systems, a medical devices company. From 1980 to 1985, Mr. Denison served as Vice President, Planning and Business Development at Pfizer, Inc., a pharmaceutical company. Mr. Denison serves as a director of Nastech Pharmaceutical Company Inc., Dentalview, Inc. and Clubb BioCapital. Mr. Denison received an A.B. in Mathematical Economics from Colgate University and an M.B.A. from Harvard Graduate School of Business Administration. John C. Klock, M.D. has served as the President and Secretary of BioMarin and served as a director since its inception. Dr. Klock has served as the President of Glyko, Inc. since October 1989. Dr. Klock was a founder of Glyko Biomedical Ltd. and has served as a director since December 1992. Dr. Klock was a founder of Glycomed Incorporated, a biotechnology company, at which he served as Vice President, Medical Affairs from July 1987 to July 1990. Dr. Klock was a scientific director at the Institute of Cancer Research at California Pacific Medical Center from July 1981 to July 1987. Dr. Klock was an academic physician and carbohydrate researcher at the University of California at San Francisco from 1982 to 1986. Dr. Klock received a B.S. in Zoology from Louisiana State University and received an M.D. from Tulane University. Raymond W. Anderson has served as Chief Financial Officer and Vice President, Finance and Administration since June 1998. Mr. Anderson served as the Vice President, Finance and 57 Chief Financial Officer at Fusion Medical Technologies, Inc., a medical technology company developing drug delivery systems, from July 1997 to June 1998. Mr. Anderson served as the Vice President, Finance and Chief Financial Officer at Fidus Medical Technology, Inc., a medical technology company specializing in cardiac arrhythmias, from October 1996 to July 1997. Mr. Anderson served as a director of Recombinant Capital, a consulting firm, from July 1994 to October 1996. Mr. Anderson served as the Vice President, Finance and Chief Financial Officer of Glycomed Incorporated, a biotechnology company, from April 1989 to July 1994. Mr. Anderson was the Chief Financial Officer at Chiron Corporation, a biotechnology company, from 1985 to 1989. Mr. Anderson was a Controller and Director of Financial Planning and Analysis at Syntex Laboratories, a pharmaceutical company, from 1981 to 1985. Mr. Anderson has served as a director of Glyko Biomedical, Ltd. and its predecessor, Glyko, Inc., since October 1989. Mr. Anderson received a B.S. in Engineering from the United States Military Academy, an M.S. in Administration from George Washington University and an M.B.A. from the Harvard Graduate School of Business Administration. Christopher M. Starr, Ph.D. has served as the Vice President, Research and Development of BioMarin since its inception. From July 1991 to April 1998, Dr. Starr has served as the Vice President, Research and Development for Glyko, Inc., a carbohydrate analytical and diagnostic company. Dr. Starr held the position as National Research Associate at the National Institutes of Health in Bethesda, Maryland from August 1986 to June 1991. Dr. Starr received a B.S. in Biology from Syracuse University and a Ph.D. in Biochemistry and Molecular Biology from the State University of New York, Health Science Center, Syracuse, NY. John L. Jost, Ph.D. has served as the Vice President, Manufacturing of BioMarin since June 1999. Dr. Jost devoted his time from November 1997 to June 1999 to personal affairs. Dr. Jost served in several positions at Genentech, Inc., a biotechnology company, from February 1983 to November 1997. From June 1992 to November 1997, he was Director of Manufacturing Sciences at Genentech. From 1971 to 1983, he served in various scientific positions in process development at The Upjohn Company, a pharmaceutical company, ending as a Senior Research Scientist. Dr. Jost received a B.S. and a Ph.D. in Chemical Engineering from the University of Minnesota. Emil D. Kakkis, M.D., Ph.D. has served as Vice President of BioMarin and President of BioMarin Genetics, a division of BioMarin, since September 1998. From July 1994 to August 1998, Dr. Kakkis was a Physician Specialist at the Department of Pediatrics at Harbor-UCLA Medical Center. From July 1991 to June 1994, Dr. Kakkis completed a Fellowship in Genetics at the UCLA Intercampus Medical Genetics Training Program. Dr. Kakkis received a B.A. in Biology from Pomona College and received a Ph.D. in Biological Chemistry from UCLA. Dr. Kakkis received an M.D. from UCLA. Stuart J. Swiedler, M.D., Ph.D. has served as Vice President of Scientific and Clinical Affairs of BioMarin since June 1998. From November 1997 to June 1998, Dr. Swiedler was as an independent biotechnology consultant. From February 1993 to November 1997, Dr. Swiedler has served, in chronological order, with Glycomed Incorporated, a biotechnology company, as Assistant Vice President, Biology from February 1993 to July 1994, as Assistant Vice President, Research from July 1994 to May 1995, and as Vice President, Research from May 1995 to November 1997. Dr. Swiedler received a B.S. in Biology from the State University of New York at Albany. Dr. Swiedler received an M.D. and a Ph.D. in Biochemistry from the Johns Hopkins University School of Medicine. Brian K. Brandley, Ph.D. has served as Vice President of BioMarin since October 1998. Dr. Brandley has served as the Managing Director of Glyko, Inc., a carbohydrate analytical and diagnostic company, since April 1998. He was an Assistant Professor at Rush University from July 1995 to April 1998, and was the Senior Scientist, Head of Cell Biology at Glycomed Incorporated, a biotechnology company, from July 1988 to July 1995. Dr. Brandley received a B.S. and an M.S. in Biology from the University of Miami. Dr. Brandley received a Ph.D. in Biology from the University of Sydney, Australia. 58 Ansbert S. Gadicke, M.D. has served as a director of BioMarin since December 1997. Since July 1992, Dr. Gadicke has served as the Chairman of the Board and Managing Director of MPM Capital, L.P., an investment company specializing in the healthcare industry. From 1989 to 1992, Dr. Gadicke was a consultant with Boston Consulting Group. Dr. Gadicke currently serves on the boards of MediGene AG, Genome Pharmaceuticals Corporation AG, t.Breeders Inc., Idea and Novirio Pharmaceuticals, Ltd. Dr. Gadicke received a Ph.D. and an M.D. from J.W. Goethe Universitat, Frankfurt, Germany. Erich Sager has served as a director of BioMarin since November 1997. Since September 1996, Mr. Sager has served as the Chairman of LaMont Asset Management S.A., a private investment management firm. From April 1994 to August 1996, Mr. Sager served as Senior Vice President, Head of Private Banking for Dresdner Bank (Switzerland) Ltd. From September 1991 to March 1994, Mr. Sager served as Vice President, Private Banking-Head German Desk for Deutsche Bank (Switzerland) Ltd. From 1981 to 1989, Mr. Sager held various positions at a number of banks in Switzerland. Mr. Sager serves as a director of BioNebraska, Inc., Comptec Industries Ltd., Dentalview, Inc., LaMont Asset Management, S.A., and Sermont Asset Management. Mr. Sager received a Business Degree from the School of Economics and Business Administration in Zurich, Switzerland. Gwynn R. Williams has served as a director of BioMarin since its inception. Mr. Williams founded AstroMed Limited and Astroscan Limited, UK manufacturers of scientific equipment, in March 1984, which entities, in December 1997, merged into Life Science Resources Ltd. Previously, Mr. Williams was a partner in Arthur Andersen & Co., a mathematician with General Motors Research, and a mathematician with British Steel. Mr. Williams was a founder of Glyko Biomedical Ltd. and its predecessor Glyko, Inc. Mr. Williams received a B.S. in Theoretical Physics from the University of Wales. Board Committees The board has established an Audit Committee and a Compensation Committee. The Audit Committee, which consists of Dr. Gadicke and Mr. Williams, reviews BioMarin's financial statements and accounting practices, makes recommendations to the board regarding the selection of independent auditors and reviews the results and scope of the audit and other services provided by BioMarin's independent auditors. The Compensation Committee, which consists of Dr. Gadicke, Mr. Sager and Mr. Williams, sets general compensation policy for BioMarin and has final approval power over compensation to executive officers. The Compensation Committee also has final approval power over guidelines and criteria for employees' bonuses and administers the 1997 Stock Plan and 1998 Director Option Plan. Director Compensation Directors do not receive cash compensation for their services as directors of BioMarin but are reimbursed for their reasonable expenses in attending meetings of the board and while performing services for BioMarin. Prior to the effectiveness of the 1998 Director Option Plan, BioMarin had granted each non- employee director an option to purchase 20,000 shares of BioMarin common stock with an exercise price set at the fair market value on the dates of grant, $1.00, upon their election to the board as consideration for their willingness to sit on the board. In March 1999, BioMarin also issued to each non-employee director, for services performed as a director, an additional option to purchase 15,000 shares of common stock with an exercise price set at the fair market value on the date of grant, $7.00, as consideration for their ongoing services to BioMarin as directors. In March 1999, Mr. Sager and Mr. Gadicke were each also issued an option to purchase an additional 20,000 shares of common stock of BioMarin at an exercise price set at the fair market value on the date of grant, $7.00, as consideration for services rendered by them to BioMarin in connection with this offering. 59 1998 Director Option Plan The 1998 Director Option Plan was adopted by the board in December 1998. It was approved by the stockholders as of January 15, 1999. The plan provides for the grant of nonstatutory stock options to non-employee directors. A total of 200,000 shares of BioMarin common stock has been reserved for issuance under the plan. The plan also provides for an annual increase in this number of shares equal to the lesser of: (1) 0.5% of BioMarin's outstanding capital stock, (2) 200,000 shares, or (3) a lesser amount determined by the board. As of December 1998, no options had been granted under the 1998 Director Option Plan. In March 1999, options to purchase 45,000 shares of common stock had been granted under the 1998 Director Plan. The 1998 Director Option Plan provides that each non-employee director shall automatically be granted an option to purchase 20,000 shares of BioMarin common stock on the date which that person first becomes a non-employee director. This option shall have a term of ten years. The shares subject to this initial option shall vest over one year. Each non-employee director shall thereafter also be automatically granted an option to purchase 15,000 shares of BioMarin common stock on the anniversary of the date of their respective initial appointments to the board and each anniversary thereafter, provided that he or she retains the board seat on his or her anniversary date. The shares subject to this annual option shall vest in full one year from the date of grant and shall have a term of ten years. These options shall continue to vest only while the director serves. The exercise price of each of these options shall be 100% of the fair market value of a share of BioMarin common stock at the date of the option. In the event of a merger or the sale of substantially all of the assets of BioMarin, each option may be assumed or substituted by the successor corporation. If an option is assumed or substituted, it shall continue to vest as provided in the plan. However, if a non-employee director's status as a director of BioMarin or the successor corporation, as applicable, is terminated, other than upon a voluntary resignation by the non-employee director, the option shall immediately become fully vested and exercisable. If the successor corporation does not agree to assume or substitute for the option, each option shall become fully vested and exercisable for a period of 30 days from the date the board notifies the optionee of the option's full exercisability, after which period the option shall terminate. Options granted under the plan must be exercised within three months of the end of the optionee's tenure as a director, or within 12 months after termination by death or disability, but in no event later than the expiration of the option's ten-year term. No option granted under the plan is transferable by the optionee other than by will or the laws of descent or distribution. Each option is exercisable, during the lifetime of the optionee, only by the optionee. Unless sooner terminated by the board, the plan will terminate automatically ten years from the effective date of the plan. 60 Executive Compensation Summary Compensation Table. The following table sets forth all compensation awarded to, earned by, or paid for services rendered to BioMarin in all capacities during the year ended December 31, 1998, by (1) BioMarin's chief executive officer and (2) the other four most highly compensated executive officers other than the chief executive officer who were serving as executive officers as of December 31, 1998, collectively, the "Named Executive Officers". Fiscal 1998 Summary Compensation Table
1998 Annual Compensation Long-Term Compensation ---------------------------------- ------------------------ Number of Name and Principal All Other Shares Underlying Position Salary($) Bonus($) Compensation($) Options Granted(#) (/1/) - ------------------ --------- -------- --------------- ------------------------ Grant W. Denison, Jr.... 202,500 87,550 -- 400,000 Chief Executive Officer John C. Klock, M.D...... 222,450 87,550 2,142 300,000 President Christopher M. Starr, Ph.D................... 139,560 87,550 876 200,000 Vice President, Research and Development Emil D. Kakkis, M.D., Ph.D................... 75,000 50,000 18 200,000 Vice President of BioMarin, President of BioMarin Genetics, a division of the Company Brian K. Brandley, Ph.D................... 101,620 -- 348 -- Vice President of BioMarin, Managing Director of Glyko, Inc., a wholly-owned subsidiary of BioMarin
- ------------------------------- (/1/) In connection with BioMarin's acquisition of Glyko, Inc. on October 7, 1998, the following individuals executed Share Exchange Agreements under which they agreed that, upon exercise of certain of their options to purchase common shares of Glyko Biomedical granted in connection with services previously rendered by each of them to Glyko, Inc., they would receive the following number of shares of BioMarin common stock in lieu of common shares of Glyko Biomedical, to John C. Klock: 66,246 shares; to Christopher M. Starr: 40,275 shares; and to Brian K. Brandley: 65,415 shares. These shares are not reflected in this column because they are not issuable upon the exercise of options to purchase BioMarin common stock granted for services rendered to BioMarin. For the year ended December 31, 1997, Dr. Klock was paid $146,914 in salary as compensation for services rendered by him in his capacity as President of BioMarin. Until October 1998, Mr. Denison devoted 70% of his time to BioMarin. Subsequently, Mr. Denison has devoted 100% of his time to BioMarin. Since October 1998 Mr. Denison's annual salary has been $257,000. Until April 1998, Dr. Klock and Dr. Starr devoted, respectively, 70% of their time to BioMarin and 30% to Glyko, Inc. Since April 1998, Dr. Klock and Dr. Starr have devoted 100% of their time to BioMarin. In 1998, Dr. Klock's annual salary was $250,000 and Dr. Starr's annual salary was $150,000. Dr. Kakkis' employment began in September 1998 as Vice President of BioMarin and as President of BioMarin Genetics, a division of BioMarin. His starting annual salary was $225,000. Dr. Brandley began employment with Glyko, Inc. in April 1998. His starting annual salary was $135,000. As of April 20, 1999, the board has granted options to purchase the following number of shares of BioMarin common stock: 100,000 shares to Grant W. Denison, Jr., 75,000 shares to John C. Klock, 50,000 shares to Christopher M. Starr, 20,375 shares to Emil D. Kakkis and 17,270 shares to Brian K. Brandley. 61 Stock Option Grants Table. The following table sets forth further information regarding options granted to each of the Named Executive Officers during 1998. Fiscal 1998 Stock Option Grants
Option Term ------------------------- Potential Realizable Value at Assumed Number of Percent of Annual Rates of Stock Securities Total Options Price Appreciation Underlying Granted to Exercise Price for Option Term (/4/) Options Employees Per Expiration --------------------- Name Granted (/1/) in 1998 (/2/) Share($) (/3/) Date 5% 10% ---- ------------- ------------- -------------- ---------- ---------- ---------- Grant W. Denison, Jr.... 400,000 18% $4.00 6/08 $5,846,375 $9,718,149 John C. Klock, M.D...... 300,000 13% $4.00 6/08 $4,384,782 $7,288,612 Christopher M. Starr, Ph.D................... 200,000 9% $4.00 6/08 $2,923,188 $4,859,074 Emil D. Kakkis, M.D., Ph.D................... 200,000 9% $4.00 6/08 $2,923,188 $4,859,074 Brian K. Brandley, Ph.D................... -- -- -- -- -- --
- ------------------------------- (/1/) These options are incentive stock options that vest over four years as follows: (1) for Mr. Denison, Dr. Klock and Dr. Starr, 2/3 of the total shares subject to their options shall vest at a rate of 1/48 of this subtotal per month, with the remaining 1/3 of such total to vest upon the completion of this offering or upon completion of four years of continued employment, and (2) for Dr. Kakkis, 12.5% of the total shares subject to his options vest six months after the vesting commencement date and 1/48 of his total shall vest monthly thereafter. In connection with BioMarin's acquisition of Glyko, Inc. on October 7, 1998, the following individuals executed Share Exchange Agreements under which they agreed that, upon exercise of certain of their options to purchase common shares of Glyko Biomedical granted in connection with services previously rendered by each of them to Glyko, Inc., they would receive the following number of shares of BioMarin common stock in lieu of common shares of Glyko Biomedical: to John C. Klock: 66,246 shares; to Christopher M. Starr: 40,275 shares; and to Brian K. Brandley: 65,415 shares. These shares are not reflected in this column because they are not issuable upon the exercise of options to purchase BioMarin common stock granted for services rendered to BioMarin. (/2/) Based on an aggregate of 2,252,120 shares subject to options granted by BioMarin during 1998 to employees, consultants and the Named Executive Officers. (/3/) Options were granted at an exercise price equal to the fair market value of the common stock, as determined by the Board of Directors, on the date of grant. (/4/) The 5% and 10% assumed annual rates of compounded stock price appreciation are mandated by rules of the Securities and Exchange Commission. BioMarin cannot assure any executive officer or any other holder of its securities that the actual stock price appreciation over the option term will be at the assumed 5% and 10% levels or at any other defined level. Unless the market price of its common stock appreciates over the option term, no value will be realized from the option grants made to the executive officers. The potential realizable value is calculated by assuming that the initial public offering price of $12.00 per share appreciates at the indicated rate for the entire term of the option and that the option is exercised at the exercise price and sold on the last day of its term at the appreciated price. The potential realizable value computation is net of the applicable exercise price, but does not take into account applicable federal or state income tax consequences and other expenses of option exercises or sales of appreciated stock. The values shown do not consider non-transferability or termination of the options upon termination of such employee's employment with BioMarin. 62 Fiscal Year-End Option Value Table. The following table sets forth the number of shares covered by both exercisable and unexercisable stock options held by each of the Named Executive Officers at December 31, 1998. No shares were acquired upon the exercise of stock options during 1998. Aggregate 1998 Fiscal Year-End Option Value Table
Number of Securities Value of Unexercised Underlying Unexercised In-the-Money Options Options at Year-End (/1/) at Year-End (/2/) ------------------------- ------------------------- Name Exercisable Unexercisable Exercisable Unexercisable ---- ----------- ------------- ----------- ------------- Grant W. Denison, Jr...... 50,000 350,000 $400,000 $2,800,000 John C. Klock, M.D........ 37,500 262,500 $300,000 $2,100,000 Christopher M. Starr, Ph.D..................... 25,000 175,000 $200,000 $1,400,000 Emil D. Kakkis, M.D., Ph.D..................... 25,000 175,000 $200,000 $1,400,000 Brian K. Brandley, Ph.D... -- -- $ -- $ --
- ------------------------------- (/1/)These options are incentive stock options that vest over four years as follows: (1) for Mr. Denison Dr. Klock and Dr. Starr, 2/3 of the total shares subject to their options shall vest at a rate of 1/48 of this subtotal per month, with the remaining 1/3 of such total to vest upon the completion of this offering or upon four years of service, and (2) for Dr. Kakkis, at a rate of 12.5% of the total shares subject to his options vest six months from vesting commencement date and 1/48 of his total shall vest monthly thereafter. In connection with BioMarin's acquisition of Glyko, Inc. on October 7, 1998, the following individuals executed Share Exchange Agreements under which they agreed that, upon exercise of certain of their options to purchase common shares of Glyko Biomedical granted in connection with services previously rendered by each of them to Glyko, Inc., they would receive the following number of shares of BioMarin common stock in lieu of common shares of Glyko Biomedical: to John C. Klock: 66,246 shares; to Christopher M. Starr: 40,275 shares; and to Brian K. Brandley: 65,415 shares. These shares are not reflected in this column because they are not issuable upon the exercise of options to purchase BioMarin common stock granted for services rendered to BioMarin. See "Employee Benefits Plans" for a description of the material terms of these options. (/2/)Based on the assumed public offering price of $12.00 per share, less the exercise price. 63 Employment Agreements We are party to employment agreements with the executive officers and on the terms enumerated on the chart below. Each of these employment agreements is terminable without cause by BioMarin upon six months prior written notice, or by the officer upon three months prior written notice to BioMarin. BioMarin is obligated to pay the officer's salary and benefits until this termination. In the event that the officer is involuntarily terminated within one year of a change of control of BioMarin he will receive: . a severance payment equal to six months of his annual salary, . a bonus equal to 50% of the annual bonus that he would otherwise be entitled to, and . immediate vesting of 50% of the unvested portion of his outstanding options to purchase BioMarin capital stock.
1998 Initial Grant of Right Agreement Name of Executive Annual to Purchase Termination Officer Salary Rate Annual Bonus Equity Securities Date - ----------------- ----------- ------------ ---------------------- ----------- Grant W. Denison, Jr. $257,000 Based upon 1,300,000 shares of June 26, BioMarin's market BioMarin's stock at 2000 capitalization purchase price of $1.00 per share. John C. Klock, M.D. $250,000 Based upon 800,000 shares of June 26, Biomarin's market BioMarin's stock at 2000 capitalization purchase price of $1.00 per share. Christopher M. Starr, $150,000 Based upon 400,000 shares of June 26, Ph.D. BioMarin's market BioMarin's stock at 2000 capitalization purchase price of $1.00 per share. Brian K. Brandley, Ph.D. $135,000 Annual bonus, Option to purchase None payable in cash or up to 150,000 stock, customarily shares of Glyko between 10-15% of Biomedical's common his annual salary. stock. Now exercisable for 65,415 shares of our common stock. Raymond W. Anderson $185,000 Eligible to receive Option to purchase None a cash bonus. 200,000 shares of common stock. John L. Jost, Ph.D. $200,000 Eligible to receive Option to purchase None a cash bonus. 200,000 shares of common stock. Emil Kakkis, M.D., Ph.D. $225,000 Contingent upon Option to purchase None regulatory filings 200,000 shares of and approvals. common stock. Stuart Swiedler, M.D., $150,000 Annual bonus, Option to purchase None Ph.D. payable in cash or 150,000 shares of stock, customarily common stock. between 10-15% of his annual salary.
We provided a three-year loan to each of Mr. Denison, Dr. Klock and Dr. Starr for the purchase of their shares referenced in column four of the table above. Each loan bears interest at a rate of 6%. For each of them, respectively, if his employment is terminated by us for any reason, he has the right to sell 64 any or all of these shares of common stock to us at a price per share equal to the lesser of the then-current per share market price of the shares or the original per share purchase price, $1.00. In the event he ceases employment with us for any reason, we also have the right, but not the obligation, to repurchase the unvested portion of the shares at their original per share purchase price, $1.00. Fifty percent of the shares vested after one year from the date of his employment, with the remainder vesting at a rate of 1/24 per month thereafter. Dr. Brandley's employment agreement was with Glyko, Inc. but was assigned to us in connection with our acquisition of Glyko, Inc. The founder's annual cash bonus for each of Mr. Denison, Dr. Klock and Dr. Starr is based on the difference between a minimum market capitalization and BioMarin's quarterly market capitalization. The annual cash bonus is calculated as follows: The board of directors established a minimum market capitalization of $20.0 million for the first quarter of 1998. The minimum market capitalization increases by $1.0 million per quarter until the end of the agreement in the second quarter of 2000. Our quarterly market capitalization is calculated at the end of each calendar quarter by multiplying the number of our common shares outstanding times the average closing price of our common stock for the last ten trading days of the quarter. If our common stock is not publicly traded the quarterly market capitalization is determined by multiplying the shares of our common stock outstanding by the price at which of our common stock was sold in the latest significant investment by an independent third-party investor. For each full $5.0 million that the quarterly market capitalization exceeds the minimum market capitalization, the founders each receive a cash bonus of $1,200 in the first calendar quarter, $1,250 in the second and third calendar quarters, and $1,300 in the fourth calendar quarter. Each founder's annual cash bonus is the sum of all the four quarterly bonuses. Each founder's total annual cash bonus may not exceed 100% of base salary in any year. Additional amounts beyond the cash limit that may be earned in the year will be paid in stock options using the Black-Scholes option pricing model to calculate the value of the stock option based on year-end parameters. This offering will increase the bonuses paid to the founders because it will increase our market capitalization. Assuming that the offering is for the base number of shares, the underwriters do not exercise the over allotment option, and the per share price in this offering is in the midpoint of the pricing range, this bonus increase would be $130,000 per founder for the second half of 1999. There are no adjustments in the founders' annual salaries that result from increases in market capitalization. In December 1998, the board approved a form of indemnification agreement to be entered into between us and each of our officers and directors. This indemnification agreement requires us, among other things, to indemnify officers and directors against liabilities that may arise by reasons of their status or performance of their duties as officers or directors and to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified. For a description of other transactions between BioMarin and affiliates of BioMarin, see "--Management; and --Compensation Committee Interlocks and Insider Participation." Compensation Committee Interlocks and Insider Participation No member of the Compensation Committee of the board has at any time since our formation been an officer or employee of BioMarin. Other than Dr. Klock and Mr. Anderson, who are each directors of Glyko Biomedical, no executive officer of BioMarin serves as a member of the board of directors or 65 compensation committee of any entity that has one or more executive officers serving on the Board or the Compensation Committee of the Board. Mr. Anderson also serves on the Compensation Committee of Glyko Biomedical. Employee Benefit Plans 1997 Stock Plan. On November 14, 1997, the board adopted the 1997 Stock Plan and approved the reservation of a total of 3,000,000 shares of common stock for issuance under the 1997 Stock Plan. The stockholders approved the 1997 Stock Plan in April 1998. In December 1998, the board approved an amendment to the 1997 Stock Plan. The stockholders approved the amendment as of January 15, 1999. The amendment increases the number of shares reserved for issuance under the 1997 Stock Plan to an aggregate of 5,000,000. The amendment also added an "evergreen provision" providing for an annual increase in the number of shares that may be optioned or sold under the 1997 Stock Plan without need for additional board or stockholder actions, which increase shall be the lesser of: (1) 4% of the then-outstanding capital stock of BioMarin, (2) 2,000,000 shares, or (3) a lower amount set by the board. The 1997 Stock Plan provides for the grant of stock options and the issuance of restricted stock by BioMarin to its employees, officers, directors and consultants. The 1997 Stock Plan permits the grant of options that are either incentive stock options, or ISOs, as defined in Section 422 of the Internal Revenue Code of 1986, as amended, or nonqualified stock options, or NSOs, on terms, including the exercise price, which may not be less than 85% of the fair market value of our common stock for NSOs, and the vesting schedule, determined by the board, subject to certain statutory limitations and other limitations in the 1997 Stock Plan. Options granted under the 1997 Stock Plan are generally not transferable by the optionee. Options granted under the 1997 Stock Plan must generally be exercised within three months after the end of the optionee's status as an employee, director or consultant of BioMarin, or within twelve months after the optionee's termination by death or disability, but in no event later than the expiration of the option's term. The exercise price of all incentive stock options granted under the 1997 Stock Plan must be at least equal to the fair market value of BioMarin common stock on the date of grant. The exercise price of NSOs granted under the 1997 Stock Plan is determined by the board at an exercise price not less than 85% of fair market value. With respect to nonstatutory stock options intended to qualify as "performance-based compensation" within the meaning of Section 162(m) of the Internal Revenue Code, the exercise price must be at least equal to the fair market value of BioMarin common stock on the date of grant. With respect to any participant who owns stock possessing more than 10% of voting power of all classes of BioMarin's outstanding capital stock, the exercise price of any incentive stock option granted must be at least equal to 110% of the fair market value on the grant date and the term of the incentive stock option must not exceed five years. The term of all other options granted under the 1997 Stock Plan may not exceed ten years. The 1997 Stock Plan provides that in the event of a merger of BioMarin with or into another corporation, or a sale of substantially all of BioMarin's assets, each option may be assumed or an equivalent option substituted for by the successor corporation. If the outstanding options are not assumed or substituted, the administrator shall provide for the optionee to have the right to exercise the option as to all of the optioned stock, including shares as to which it would not otherwise be exercisable. 1998 Employee Stock Purchase Plan. In December 1998, the board adopted, and as of January 15, 1999, the stockholders approved, the 1998 Employee Stock Purchase Plan. A total of 250,000 shares of BioMarin common stock has been reserved for issuance under the 1998 Employee Stock Purchase Plan. The plan also contains an "evergreen provision" providing for an annual increase in the number of shares which may be sold under the plan equal to the lesser of (1) 0.5% of the then-outstanding BioMarin capital stock, (2) 200,000 shares, or (3) a lesser amount set by the board. 66 As of December 31, 1998, no shares have been issued under the 1998 Employee Stock Purchase Plan. This plan will become effective upon the completion of this offering. The 1998 Employee Stock Purchase Plan is intended to qualify under Section 423 of the Internal Revenue Code and contains consecutive, overlapping, 24 month offering periods. Each offering period includes four six-month purchase periods. The offering periods generally start on the first trading day on or after May 1 and November 1 of each year, except for the first offering period that commences on the first trading day on or after the effective date of this offering and ends on the last trading day on or before October 31, 2000. Employees are eligible to participate if they are customarily employed by BioMarin or a participating subsidiary for at least 20 hours per week and more than five months in any calendar year. However, any employee who either: (1) immediately after grant owns stock possessing 5% or more of the total combined voting power or value of all classes of BioMarin capital stock, or (2) whose rights to purchase stock under all of BioMarin's employee stock purchase plans accrue at a rate which exceeds $25,000 worth of stock for each calendar year, may not be granted an option to purchase stock under the 1998 Employee Stock Purchase Plan. The 1998 Employee Stock Purchase Plan permits employees to purchase common stock through payroll deduction of up to 10% of the employee's compensation that is base earnings and commissions, excluding overtime, shift premium, incentive payments and bonuses. The maximum number of shares an employee may purchase during a single purchase period is 5,000 shares. The price of stock purchased under the 1998 Employee Stock Purchase Plan is generally 85% of the lower of the fair market value of the common stock: (1) at the beginning of the offering period or (2) at the end of the purchase period. In the event the fair market value at the end of a purchase period is less than the fair market value at the beginning of the offering period, the employees will be withdrawn from the current offering period following exercise and automatically re-enrolled in a new offering period. The new offering period will use the lower fair market value as of the first date of the new offering period to determine the purchase price for future purchase periods. Employees may end their participation at any time during an offering period, and they will be paid their payroll deductions to date. Participation ends automatically upon termination of employment with BioMarin. Rights granted under the 1998 Employee Stock Purchase Plan are generally not transferable by an employee other than by will or the laws of descent and distribution. In the event of a merger of BioMarin with or into another corporation or a sale of substantially all of BioMarin's assets, each outstanding option under the 1998 Employee Stock Purchase Plan may be assumed or substituted for by the successor corporation. If the successor corporation refuses to assume or substitute for the outstanding options, the offering period then in progress will be shortened and a new exercise date will be set. The board of directors has the authority to terminate or amend the 1998 Employee Stock Purchase Plan to the extent necessary to avoid unfavorable financial accounting consequences by altering the purchase price for any offering period, shortening any offering period or allocating remaining shares among the participants. The 1998 Employee Stock Purchase plan will terminate automatically ten years from the effective date of this offering unless it is terminated sooner by the board. 401(k) Plan. BioMarin sponsors the Glyko Retirement Savings Plan or the 401(k) Plan. Employees are eligible to participate immediately following the start of their employment, on the earlier of the next occurring January 1 or July 1. Participants may contribute up to approximately 15% of their current compensation, up to a statutorily prescribed annual limit, to the 401(k) Plan. Each participant is fully vested in his or her salary reduction contributions. Participant contributions are held in trust as required by law. Individual participants may direct the trustee to invest their accounts in authorized investment alternatives. BioMarin pays the direct expenses of the 401(k) Plan but does not currently match or make contributions to employee accounts. The 401(k) Plan is intended to qualify under Section 401(a) of the Internal Revenue Code so that contributions to the 401(k) Plan, and income earned on the contributions, are not taxable to participants until withdrawn or distributed from the 401(k) Plan. 67 CERTAIN TRANSACTIONS On April 19, 1997, BioMarin sold to Glyko Biomedical, 1,500,000 shares of BioMarin's common stock for aggregate consideration of $1.5 million. Dr. John Klock, who is the President and Secretary of BioMarin, as well as a director, is also the President, Chief Executive Officer and Chief Financial Officer of Glyko Biomedical, as well as a director thereof. On June 26, 1997, BioMarin entered into a license agreement with Glyko Biomedical pursuant to which BioMarin was granted an exclusive, worldwide, perpetual royalty-free license to certain technology for therapeutic uses. On September 24, 1997, BioMarin issued 7,000,000 shares of our common stock to Glyko Biomedical as consideration for the license granted to it under the Glyko Biomedical license agreement. BioMarin entered into a pre-emptive rights agreement, dated June 26, 1997, with Glyko Biomedical, pursuant to which Glyko Biomedical was granted the right to purchase a pro rata share of new issuances of securities by BioMarin, subject to limited exemptions. This agreement terminates immediately prior to the initial public offering. On April 18, 1997, Gwynn Williams was appointed one of the three initial directors of BioMarin. Mr. Williams is a holder of 11% of the outstanding capital stock of Glyko Biomedical. On October 1, 1997, BioMarin sold 800,000 shares of common stock to Dr. Klock in exchange for a full recourse, three-year promissory note secured by the shares in the principal amount of $800,000. On October 1, 1997, BioMarin sold 1,300,000 shares of common stock to Mr. Denison in exchange for a full recourse, three-year promissory note secured by the shares in the principal amount of $1.3 million. On October 1, 1997, BioMarin sold 400,000 shares of common stock to Dr. Starr in exchange for a full recourse, three-year promissory note secured by the shares in the principal amount of $400,000. These loans bear interest at a rate of 6%. If their respective employments are terminated by BioMarin for any reason, each of Mr. Denison, Dr. Klock and Dr. Starr has the right to sell any or all of these shares to BioMarin at a per share price equal to the lesser of the then-current per share market price of the shares or the original per share purchase price of $1.00. In the event any of these officers ceases to be an employee for any reason, BioMarin has the right, but not the obligation, to repurchase the unvested portion of the shares at their original purchase price. Fifty percent of the shares vested after one year from their date of employment with the remainder vesting at a rate of 1/24 per month thereafter. On November 14, 1997, Erich Sager, Chairman of LaMont Asset Management S.A., a holder of 13% of the outstanding capital stock of Glyko Biomedical, was appointed to the board of BioMarin. Since November 14, 1997, BioMarin has sold 675,000 common shares at $1.00 per share, 260,000 common shares at $6.00 per share and $9.7 million of convertible notes to LaMont Asset Management S.A. BioMarin entered into an Agency Agreement dated August 5, 1997 with Clubb Capital Ltd., or Clubb, an entity with which Mr. Denison is affiliated through his directorship of Clubb Biocapital, an entity affiliated with Clubb, pursuant to which BioMarin was to pay Clubb a placement agent's commission in connection with a proposed $8.5 million private placement financing. Between October 1, 1997 and December 30, 1997, as part of an approximately $8.8 million private placement financing, BioMarin issued as a commission 801,500 shares of common stock and warrants to purchase an aggregate of 801,500 shares of Common Stock to Clubb under the terms of the Agency Agreement dated August 5, 1997. These warrants have an exercise price of $1.00 per share and a three year term. These warrants contain a net exercise provision which allows Clubb, at its discretion, to exercise the warrant without paying the exercise price in cash by exercising it for less than the full number of shares subject to the warrant. On December 30, 1997, BioMarin entered into a preemptive rights agreement with BB BioVentures L.P., or BBB, in connection with its purchase of 5,000,000 shares of common stock of BioMarin, pursuant to which BBB was granted the right to purchase a pro rata share of new issuances of securities by BioMarin, subject to limited exemptions. This agreement terminates immediately prior to the initial public offering. Also in connection with this investment by BBB, Dr. Gadicke, an affiliate 68 of BBB, was appointed to the board of BioMarin. Also in connection with this investment, BioMarin, Dr. Klock, Mr. Denison, Dr. Starr and Glyko Biomedical entered into a voting agreement pursuant to which each party agreed to vote all shares of BioMarin's outstanding capital stock held by them in favor of a BBB nominee to BioMarin's board, so long as BBB held at least 5% of the outstanding capital stock of BioMarin, which agreement shall terminate upon the initial public offering of BioMarin's capital stock, in a firm commitment underwriting with aggregate gross proceeds to BioMarin of at least $5.0 million. As long as BBB holds a board position in BioMarin, BBB has a right to participate in the management of BioMarin. In the event that BBB does not retain a board position in BioMarin, BBB is entitled to certain board observation rights which terminate upon the offering. On November 14, 1997, for their services as directors, the board approved the grant to each of Mr. Sager and Mr. Williams of an option to purchase 20,000 shares of common stock at an exercise price of $1.00 per share. On January 22, 1998, for his services as a director, the board approved a grant to Dr. Gadicke of an option to purchase 20,000 shares of common stock at an exercise price of $1.00 per share. On June 15, 1998, the board approved the following option grants, each at an exercise price of $4.00 per share, to officers of BioMarin: . to Mr. Denison of an option to purchase 400,000 shares . to Dr. Klock of an option to purchase 300,000 shares . to Dr. Starr of an option to purchase 200,000 shares . to Mr. Anderson of an option to purchase 200,000 shares . to Dr. Kakkis of an option to purchase 200,000 shares . to Dr. Swiedler to purchase 150,000 shares BioMarin entered into a second Agency Agreement with Clubb, dated June 26, 1998, pursuant to which BioMarin was to pay Clubb placement agent's commission in connection with an $11.5 million private placement financing. Between June 30, 1998 and August 3, 1998, BioMarin issued, as a commission, 98,000 shares of BioMarin's common stock to Clubb or its affiliates. Under the pre-emptive rights agreement, on June 30, 1998, BioMarin sold an additional 166,667 shares of BioMarin's common stock to Glyko Biomedical for aggregate consideration of $1.0 million. On July 14, 1998, BioMarin sold to BBB, a holder of greater than 10% of BioMarin's outstanding Capital Stock, MPM BioVentures Parallel Fund L.P. and MPM Asset Management Investors 1998 L.L.C., the latter two entities being affiliated with BBB, a total of 416,667 shares of common stock for an aggregate consideration of $2.5 million. MPM BioVentures Parallel Fund L.P. and MPM Asset Management Investors 1998 L.L.C. are each managed by MPM Capital, L.P. of which Dr. Gadicke is the Chairman of the Board and Managing Director. On September 4, 1998, BioMarin received $8.0 million from Genzyme upon execution of a joint venture agreement in which we issued 1,333,333 shares of common stock to Genzyme. As a result of this joint venture agreement, BioMarin has a 50% interest in the income or loss of the joint venture, BioMarin/Genzyme LLC. On October 7, 1998, BioMarin purchased Glyko, Inc., a wholly-owned subsidiary of Glyko Biomedical, from Glyko Biomedical, for an aggregate purchase price of $14.5 million. This purchase price was paid for with 2,259,039 shares of common stock of BioMarin, valued at $6.00 per share, the assumption by BioMarin of certain stock options held by Glyko, Inc. employees which were exercisable into a maximum of 255,540 shares of common stock of BioMarin at an average exercise price of $2.30 per share, and $500 in cash. Included in the assumed stock options was an option granted to Dr. Brandley, 69 which is exercisable for 65,415 shares of BioMarin's common stock at an exercise price of $5.27 per share, when fully vested, and options granted to Dr. Klock exercisable for a total of 66,246 shares of BioMarin's common stock at a weighted average exercise price of $1.02 per share when fully vested and options to Dr. Starr exercisable for a total of 40,275 shares of our common stock at a weighted average exercise price of $1.02 per share when fully vested. BioMarin had contractual agreements for office space and administrative, research, and development functions with Glyko, Inc. prior to the acquisition date of October 7, 1998. BioMarin reimbursed Glyko, Inc. for rent, salaries and related benefits, and other administrative costs. Glyko, Inc. also reimbursed BioMarin for salaries and related benefits. BioMarin reimbursed Glyko, Inc. for a net $240,848, $223,418, and $342,736 for the period from March 21, 1997 (inception) to December 31, 1997, the year ended December 31, 1998, and the period from March 21, 1997 (inception) to October 7, 1998. On December 22, 1998, the board approved indemnification agreements with each officer and each director of BioMarin. On January 15, 1999, the board approved the following option grants, each at an exercise price of $7.00 per share, to officers of BioMarin: . to Mr. Denison an option to purchase 100,000 shares . to Dr. Klock an option to purchase 75,000 shares . to Dr. Starr an option to purchase 50,000 shares . to Mr. Anderson an option to purchase 25,000 shares . to Dr. Kakkis an option to purchase 16,667 shares . to Dr. Swiedler an option to purchase 23,438 shares . to Dr. Brandley an option to purchase 12,265 shares On March 22, 1999, options were granted to Dr. Gadicke, Mr. Sager and Mr. Williams to purchase 15,000 shares each at an exercise price of $7.00 per share as compensation for their services as directors under the 1998 Director Option Plan. On March 22, 1999, the board approved option grants to Dr. Gadicke and Mr. Sager to purchase 20,000 shares each at an exercise price of $7.00 per share as compensation for services provided to the management of BioMarin in regards to the offering. Also on March 22, 1999, the board approved the following option grants, each at an exercise price of $7.00 per share, to officers of BioMarin: . to Mr. Anderson an option to purchase 4,573 shares . to Dr. Kakkis an option to purchase 3,708 shares . to Dr. Swiedler an option to purchase 4,634 shares . to Dr. Brandley an option to purchase 5,005 shares. On April 12, 1999, BioMarin sold a total of $26.0 million worth of three-year promissory notes convertible, according to their terms, into BioMarin common stock, at an initial conversion price, subject to adjustment, of $10.00 per share. Glyko Biomedical purchased $4.3 million worth of these notes and LaMont Asset Management S.A. purchased $9.7 million worth of these notes. In connection with this transaction, BioMarin also entered into an agency agreement with LaMont Asset Management S.A., pursuant to which BioMarin agreed to pay LaMont Asset Management S.A. a cash commission of $1.1 million on sales of notes to certain European purchasers introduced to BioMarin by LaMont Asset Management S.A. On June 15, 1999, the Compensation Committee approved the grant to Dr. Jost of an option to purchase 200,000 shares of BioMarin common stock at an exercise price equal to the offering price. 70 PRINCIPAL STOCKHOLDERS The following table sets forth certain information with respect to the beneficial ownership of our common stock as of May 31, 1999, and as adjusted to reflect the sale of 4,500,000 shares of common stock in this offering, by: . each person, or group of affiliated persons, who is known by us to own beneficially more than 5% of the common stock . each of our directors . each of our Named Executive Officers . all of our directors and current executive officers as a group Except as otherwise noted, the persons or entities in this table have sole voting and investing power with respect to all the shares of common stock beneficially owned by them subject to community property laws, where applicable. The "Number of Shares Beneficially Owned" column below is based on 26,176,180 shares of common stock outstanding at May 31, 1999, and 34,109,513 shares of common stock outstanding after the offering. Shares of common stock subject to options or warrants that are currently exercisable or exercisable within 60 days of May 31, 1999 are deemed to be outstanding and to be beneficially owned by the person holding the options or warrants for the purpose of computing the percentage ownership of the person but are not treated as outstanding for the purpose of computing the percentage ownership of any other person. The "Number of Shares Subject to Options" enumerates for each principal stockholder, director and Named Executive Officer and for all officers and directors in aggregate, the shares of common stock subject to options exercisable within 60 days of May 31, 1999 and options exercisable upon completion of the offering. These shares are included in the calculation of the "Number of Shares Beneficially Owned." The "Percentage of Shares Beneficially Owned After Offering" column below is calculated after giving effect to the sale to Genzyme of $10.0 million worth of common stock at an assumed purchase price of $12.00 per share, the conversion of outstanding convertible promissory notes into 2,600,000 shares of common stock, assuming no interest on these notes is converted into shares of common stock, and the sale and issuance of 4,500,000 shares of common stock in this offering. 71
Percentage of Shares Beneficially Number of Number of Owned Shares Shares ----------------- Beneficially Subject Before After Name of Beneficial Owner Owned to Options Offering Offering - ------------------------ ------------ ---------- -------- -------- Glyko Biomedical Ltd................ 10,925,706 0 41.7% 33.3% 371 Bel Marin Keys Blvd., Suite 210 Novato, CA 94949 BB BioVentures, L.P.(/1/)........... 5,416,667 0 20.7% 15.9% One Cambridge Center, 9th Floor Cambridge, MA 02142 Genzyme Corporation................. 1,333,333 0 5.1% 6.4% One Kendall Square Cambridge, MA 02139 LaMont Asset Management S.A......... 935,000 0 3.6% 5.6% Baarerstrasse 10 P.O. Box 4639 6304 Zug, Switzerland Grant W. Denison, Jr................ 1,536,806 236,805 5.8% 4.5% John C. Klock, M.D.(/2/)............ 11,969,556 243,850 45.3% 35.1% Christopher M. Starr, Ph.D.......... 558,679 158,679 2.1% 1.6% Emil D. Kakkis, M.D., Ph.D.......... 60,305 60,305 * * Brian K. Brandley, Ph.D............. 28,599 28,599 * * Ansbert S. Gadicke(/3/)............. 5,464,167 47,500 20.8% 16.0% Erich Sager(/4/).................... 814,100 47,500 3.1% 2.4% Gwynn R. Williams(/5/).............. 10,953,206 27,500 41.8% 32.1% All current executive officers and directors as a group (10 persons)(/6/).................. 20,619,385 1,010,412 75.8% 60.5%
- ------------------------------- * Represents less than 1% of the Company's outstanding common stock. (/1/) Includes shares held by MPM Asset Management 1998 Investors L.L.C. and MPM BioVentures Parallel Fund L.P., both of which are affiliated with BB BioVentures L.P. (/2/) Includes 10,925,706 shares held by Glyko Biomedical Ltd. of which Dr. Klock is an officer, director and stockholder. Dr. Klock disclaims beneficial ownership of these shares, except to the extent of his pecuniary interest. (/3/) Includes 5,416,667 shares currently held by BB BioVentures, L.P., MPM Asset Management 1998 Investors L.L.C. and MPM BioVenture Parallel Fund L.P., of which Dr. Gadicke is an affiliate. Dr. Gadicke disclaims beneficial ownership in these shares except to the extent of his pecuniary interest. (/4/) Includes 265,000 shares of common stock currently held by LaMont Asset Management, and 236,600 shares held by Belmont Capital Ltd. S.A. Mr. Sager is an affiliate of each entity. Mr. Sager disclaims beneficial ownership of the shares of Belmont Capital Ltd., except to the extent of his pecuniary interest. (/5/) Includes 10,925,706 shares of common stock currently held by Glyko Biomedical Ltd., of which Mr. Williams is a stockholder and a director. Mr. Williams disclaims beneficial ownership of these shares except to the extent of his pecuniary interest. (/6/) See footnotes 2 through 5. 72 DESCRIPTION OF CAPITAL STOCK Immediately following the closing of this offering, the authorized capital stock of BioMarin will consist of 75,000,000 shares of common stock, $0.001 par value per share, and 1,000,000 shares of preferred stock, $0.001 par value per share. As of May 31, 1999, there were outstanding 26,176,180 shares of common stock held of record by 48 stockholders, warrants to purchase 801,500 shares of common stock and options to purchase 3,773,226 shares of common stock. Common Stock Subject to preferences that may apply to shares of preferred stock outstanding at the time, the holders of outstanding shares of common stock are entitled to receive dividends out of assets legally available therefore as the board may from time to time determine. Each stockholder is entitled to one vote for each share of common stock held on all matters submitted to a vote of stockholders. Cumulative voting for the election of directors is not provided for in BioMarin's certificate of incorporation, which means that the holders of a majority of the shares voted can elect all of the directors then standing for election. The common stock is not entitled to preemptive rights and is not subject to conversion or redemption. Each outstanding share of common stock is, and all shares of common stock to be outstanding upon completion of this offering will be, fully paid and nonassessable. Preferred Stock Immediately following the closing of this offering, pursuant to BioMarin's amended and restated certificate of incorporation, the board of directors will have the authority, without further action by the stockholders, to issue up to 1,000,000 shares of preferred stock in one or more series and to fix the designations, powers, preferences, privileges, and relative participating, optional or special rights as well as the qualifications, limitations or restrictions of those shares, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greater than the rights of the common stock. The board of directors, without stockholder approval, will be able to issue preferred stock with voting, conversion or other rights that could adversely affect the voting power and other rights of the holders of common stock. Preferred stock could thus be issued quickly with terms calculated to delay or prevent a change in control of BioMarin or make removal of management more difficult. Additionally, the issuance of preferred stock may have the effect of decreasing the market price of the common stock, and may adversely affect the voting and other rights of the holders of common stock. At present, there are no shares of preferred stock outstanding. Anti-Takeover Provisions Delaware Law Section 203 of the Delaware General Corporation Law is applicable to corporate takeovers of Delaware corporations. Subject to certain exceptions enumerated in Section 203, Section 203 provides that a corporation shall not engage in any business combination with any "interested stockholder" for a three-year period following the date that the stockholder becomes an interested stockholder unless: . prior to that date, the board of directors of the corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder, . upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, though some shares may be excluded from the calculation, . on or subsequent to that date, the business combination is approved by the board of directors of the corporation and by the affirmative votes of holders of at least two-thirds of the outstanding voting stock that is not owned by the interested stockholder. Except as 73 specified in Section 203, an interested stockholder is generally defined to include any person who, together with any affiliates or associates of that person, beneficially owns, directly or indirectly, 15% or more of the outstanding voting stock of the corporation, or is an affiliate or associate of the corporation and was the owner of 15% or more of the outstanding voting stock of the corporation, any time within three years immediately prior to the relevant date. Under certain circumstances, Section 203 makes it more difficult for an interested stockholder to effect various business combinations with a corporation for a three-year period, although the stockholders may elect not to be governed by this section, by adopting an amendment to our certificate of incorporation or bylaws, effective 12 months after adoption. BioMarin's certificate of incorporation and its bylaws do not exclude BioMarin from the restrictions imposed under Section 203. It is anticipated that the provisions of Section 203 may encourage companies interested in acquiring BioMarin to negotiate in advance with the board since the stockholder approval requirement would be avoided if a majority of the directors then in office excluding an interested stockholder approve either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder. These provisions may have the effect of deterring hostile takeovers or delaying changes in control of BioMarin, which could depress the market price of the common stock and which could deprive stockholders of opportunities to realize a premium on shares of the common stock held by them. Charter and Bylaw Provisions Immediately following the closing of this offering, BioMarin's amended and restated certificate of incorporation and Bylaws will contain provisions that could discourage potential takeover attempts and make more difficult attempts by stockholders to change management. BioMarin's amended and restated certificate of incorporation will provide that stockholders may not take action by written consent but may only act at a stockholders' meeting, and that special meetings of the stockholders of BioMarin may only be called by the Chairman of the Board or a majority of the board. Registration Rights Beginning six months after the effective date of the registration statement, the holders of 29,607,540 shares of common stock, the registrable securities, will have rights with respect to the registration of those shares under the Act. If holders of at least 30% of the registrable securities request that BioMarin register at least 30% of the registrable securities, BioMarin must file a registration statement to register those securities. In addition, if BioMarin proposes to register any of its shares of common stock under the Securities Act other than in connection with a BioMarin employee benefit plan or certain corporate acquisitions, mergers or reorganizations, the holders of the registrable securities may require BioMarin to include all or a portion of their shares in such registration, subject to certain rights of the managing underwriter of a public offering of the shares to limit the number of shares in any offering. Further, the holders of registrable securities may require BioMarin to register all or any portion of their registrable securities on Form S-3 when that form becomes available to BioMarin, as long as the aggregate offering price of would exceed $2.5 million, subject to other conditions and limitations. All expenses incurred in connection with such registrations (other than underwriters' discounts and commissions) will be borne by BioMarin. No holder of registrable securities will be entitled to registration rights when they can sell registrable securities in compliance with Rule 144 of the Securities Act during any two successive three-month periods. Transfer Agent and Registrar The transfer agent and registrar for our common stock is ChaseMellon Shareholder Services LLC, 85 Challenger Road, Ridgefield Park, NJ 07660. 74 SHARES ELIGIBLE FOR FUTURE SALE Prior to this offering, there has been no market for the common stock and we cannot assure you that a liquid trading market for the common stock will develop or be sustained after this offering. Future sales of substantial amounts of common stock, including shares issued upon exercise of outstanding options and warrants, in the public market after this offering or the anticipation thereof could adversely affect market prices prevailing from time to time and could impair BioMarin's ability to raise capital through sales of its equity securities. As described below, no shares currently outstanding will be available for sale immediately after this offering due to contractual restrictions on their resale. Sales of substantial amounts of common stock of BioMarin in the public market after these restrictions lapse or the anticipation thereof could adversely affect the prevailing market price of the common stock and the ability of BioMarin to raise equity capital in the future. Upon completion of this offering, BioMarin will have outstanding 34,109,513 shares of common stock, assuming no exercise of the Underwriters' over- allotment option and no exercise of outstanding options or warrants. Of these shares, the shares sold in this offering will be freely tradable without restriction under the Securities Act unless purchased by "affiliates" of BioMarin as that term is defined in Rule 144 under the Securities Act. The remaining 29,609,513 restricted shares held by existing stockholders, are subject to various lock-up agreements providing that, with limited exceptions, the stockholder will not offer, sell, contract to sell, grant an option to purchase, effect a short sale or otherwise dispose of or engage in any hedging or other transaction that is designed or reasonably expected to lead to a disposition of any shares of common stock or any option to purchase common stock or any securities exchangeable for or convertible into common stock for a period of 180 days after the date of this prospectus. Though these shares may be eligible for earlier sale under the provisions of Rules 144, 144(k) and 701 under the Securities Act, none of these shares will be saleable until 181 days after the date of this prospectus as a result of these lock-up agreements. Beginning 181 days after the date of this prospectus, 23,676,180 restricted shares will be eligible for sale in the U.S. public market, although all but 1,973 shares will be subject to volume limitations. Thereafter, 5,933,333 shares will become eligible for sale in the U.S. public market after the end of the lock-up period. Beginning 181 days after the date of this prospectus all 29,607,540 restricted shares held by existing stockholders shall be eligible for sale on the SWX New Market. Sales of restricted securities on the SWX New Market, however, will still be subject to U.S. securities laws including Regulation S or Rule 144 which may, as applicable to each stockholder, restrict such sales. Under Rule 144, a stockholder who is not an "affiliate" of the BioMarin, as defined in Rule 144, will be able to sell restricted securities held for at least a year, subject to volume limits, manner of sale and other restrictions. Shares held for two years by a non-"affiliate" stockholder would be saleable on the SWX New Market without these limits. Under Regulation S, a stockholder who is not an affiliate of us and is not a distributor will be able to sell shares on the SWX New Market without restriction. In addition, as of April 20, 1999, there were outstanding options to purchase 3,706,476 shares of common stock, none of which options are expected to be exercised prior to the closing of the offering. All of the shares issued upon such exercises will be subject to lock-up agreements. In general, under Rule 144 as currently in effect, beginning 90 days after the date of this prospectus, a person, or persons whose shares are aggregated, who has beneficially owned restricted shares for at least one year is entitled to sell within any three-month period up to that number of shares that does not exceed the greater of: (1) 1% of the number of shares of common stock then outstanding, which is approximately 341,095 shares, or (2) the average weekly trading volume of the common stock during the four calendar weeks preceding the filing of a Form 144 with respect to the sale. Sales under Rule 144 are also subject to certain "manner of sale" provisions and notice requirements and to the requirement that current public information about BioMarin be available. Under Rule 144(k), a person who is not deemed to have been an affiliate of BioMarin at any time during the three months preceding 75 a sale, and who has beneficially owned the shares proposed to be sold for at least two years, including the holding period of any prior owner except an affiliate, is entitled to sell those shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144. Rule 701 permits resales of qualified shares held by some affiliates in reliance upon Rule 144 but without compliance with some restrictions, including the holding period requirement, of Rule 144. Any employee, officer or director of or consultant to BioMarin who purchased his or her shares pursuant to a written compensatory plan or contract may be entitled to rely on the resale provisions of Rule 701. Rule 701 further provides that non-affiliates may sell shares in reliance on Rule 144 without having to comply with the holding period, public information, volume limitation or notice provisions of Rule 144. All holders of Rule 701 shares of common stock are required to wait until 90 days after the date of this prospectus before selling shares. However, all shares issued pursuant to Rule 701 are subject to lock-up agreements and will only become eligible for sale at the earlier of the expiration of the 180-day lock-up. 76 UNDERWRITING The U.S. underwriters named below, acting through their global coordinators, U.S. Bancorp Piper Jaffray Inc. and Bank J. Vontobel & Co AG, have severally agreed to purchase from us the number of shares of BioMarin common stock set forth opposite their respective names below.
Number of U.S. Underwriters Shares ----------------- --------- U.S. Bancorp Piper Jaffray Inc........................................ Bank J. Vontobel & Co AG.............................................. Schroders & Co. Inc................................................... Leerink Swann & Company............................................... --------- Total............................................................... =========
Sales by Bank J. Vontobel & Co AG in the United States will be made by Vontobel Securities Ltd., a U.S. broker-dealer affiliate of Bank J. Vontobel & Co AG. No dealer will make any sales of BioMarin common stock in any jurisdiction unless it is registered to do so or it obtains an exemption from the registered dealer requirements of the jurisdiction. We have entered into an international underwriting agreement with the managers of the international offering providing for the concurrent sale of shares of BioMarin common stock in Switzerland and elsewhere outside the United States and Canada. The closing of the international offering is a condition to the closing of the U.S. offering and vice versa. We have granted the U.S. underwriters and the international managers an option to purchase up to an additional 675,000 shares of BioMarin common stock to cover over-allotments, if any. The option is exercisable by the global coordinators for 30 days after the date of this prospectus at the public offering price less the underwriting discount. To the extent that this option is exercised, each of the underwriters will have a firm commitment to purchase approximately the same percentage of the option shares as the number of shares to be purchased initially by that underwriter. The global coordinators have advised us that the U.S. underwriters propose to offer the shares of BioMarin common stock offered hereby to the public in the United States and on a private placement basis in Canada initially at the public offering price set forth on the cover page of this prospectus. The global coordinators intend to offer the shares to dealers participating in this offering at this price less a concession not in excess of $ per share. The U.S. underwriters may allow, and these dealers may reallow, a discount not in excess of $ per share on sales to other dealers. After the public offering of the BioMarin common stock, the public offering price, concession and discount may be changed. The public offering price, the underwriting discounts and concession and discount to dealers for the international offering are the same as for the U.S. offering. 77 The prospectus is intended for use only in connection with offers and sales of BioMarin common stock in the U.S. offering and any shares initially offered in the international offering that are resold in the United States by underwriters or, for a period of 25 days after the date of this prospectus, by dealers. The initial offers and sales of BioMarin common stock in the international offering are not being registered under the Securities Act and this prospectus is not to be sent or given to any person outside the United States and Canada. BioMarin has been informed that the U.S. underwriters and the international managers have entered into an intersyndicate agreement which provides for the coordination of their activities. Under the terms of the intersyndicate agreement, the U.S. underwriters and the international managers are permitted to sell shares of BioMarin common stock to each other. We are initially offering shares of BioMarin common stock in the United States and Canada and shares concurrently in the international offering in Switzerland and elsewhere outside the United States and Canada. The final allocation of BioMarin common stock between the U.S. offering and the international offering may differ from these amounts. Under the intersyndicate agreement, sales may be made between the U.S. underwriters and the international managers. To the extent sales are made, the number of shares of BioMarin common stock initially available for sale by the U.S. underwriters or by the international managers may be more or less than the above amounts. Under the intersyndicate agreement, each of the U.S. underwriters has agreed that it has not offered or sold, and will not offer or sell, directly or indirectly, any shares of BioMarin common stock or distribute any prospectus relating to the BioMarin common stock outside the United States or Canada or to any dealer who does not so agree. Each international manager has agreed that it has not offered or sold, and will not offer or sell, directly or indirectly, any shares of BioMarin common stock or distribute any prospectus relating to the BioMarin common stock in the United States or Canada or to any dealer who does not so agree. These limitations do not apply to transactions between the international managers and the U.S. underwriters under the intersyndicate agreement. As used in this prospectus, "United States" means the United States of America (including the States and the District of Columbia), its territories, possessions and other areas subject to its jurisdiction, "Canada" means Canada, its provinces, territories, possessions and other areas subject to its jurisdiction. An offer or sale will be deemed made in the United States or Canada if it is made to any individual resident in the United States or Canada or any corporation, partnership, pension, profit-sharing or other trust or other entity (including any such entity acting as an investment adviser with discretionary authority) whose office most directly involved with the purchase is located in the United States or Canada. BioMarin has applied to have its common stock approved for quotation on The Nasdaq National Market and the Swiss Exchange under the symbol BMRN. We have agreed to indemnify the underwriters against liabilities under the Securities Act and other applicable U.S. securities laws which may be incurred in connection with the offering of the BioMarin common stock and the exercise of the over-allotment options. The underwriters have informed us that they do not expect to confirm sales of BioMarin common stock offered in this offering to any accounts over which they exercise discretionary authority. Prior to this offering, there has been no public market for the BioMarin common stock. Accordingly, the initial public offering price for the shares will be determined by negotiation among us and the global coordinators. In determining the price, we and the global coordinators will consider various factors, including: . market conditions for initial public offerings, . the history of and prospects for our business, 78 . our past and present operations, . the present state of our development, . our financial information, . an assessment of our management, . the market for securities of companies in businesses similar to ours, . the general condition of the securities markets, . other factors which we and the global coordinators believe are relevant. We cannot be certain that the initial public offering price will correspond to the price at which the BioMarin common stock will trade in the public market subsequent to the offering. We also cannot be certain that an active trading market for the BioMarin common stock will develop and continue after the offering. U.S. Bancorp Piper Jaffray Inc. and Bank J. Vontobel & Co AG, on behalf of the underwriters, may engage in over-allotment, stabilizing transactions, syndicate covering transactions and penalty bids. Over-allotment involves syndicate sales in excess of the offering size, which creates a syndicate short position. Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum. Syndicate covering transactions involve purchases of BioMarin common stock in the open market after the distribution has been completed in order to cover syndicate short positions. Penalty bids permit the underwriters to reclaim a selling concession from a syndicate member when the BioMarin common stock originally sold by the syndicate member is purchased in a syndicate covering transaction to cover syndicate short positions. These stabilizing transactions, syndicate covering transactions and penalty bids may cause the price of the BioMarin common stock to be higher than it would otherwise be in the absence of these transactions. These transactions may be effected on The Nasdaq National Market and the SWX New Market or otherwise and, if commenced, may be discontinued at any time. We and our executive officers and directors and other existing stockholders have agreed that we will not, for a period of 180 days following the date of the final prospectus directly or indirectly, offer to sell, grant any option for the sale of, or otherwise dispose of, any shares of BioMarin common stock or any securities convertible into or exchangeable or exercisable for any shares of BioMarin common stock, subject to certain limited exceptions. 79 LEGAL MATTERS The validity of the common stock offered by this prospectus will be passed upon for BioMarin by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto, California. Certain legal matters in connection with this offering will be passed upon for the underwriters by Cooley Godward LLP, Palo Alto, California. EXPERTS The financial statements included in this prospectus and elsewhere in this registration statement, to the extent and for the periods indicated in their reports, have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their reports with respect thereto, and are included herein in reliance upon the authority of said firm as experts in giving said reports. WHERE YOU CAN FIND MORE INFORMATION We have filed a registration statement on Form S-1 with the SEC for the stock we are offering by this prospectus. This prospectus does not include all of the information contained in the registration statement. You should refer to the registration statement and its exhibits for additional information. While we have disclosed the material terms of any of our contracts, agreements or other documents referenced in this prospectus, you should refer to the exhibits attached to the registration statement for copies of the actual contract, agreement or other document. When we complete this offering, we will also be required to file annual, quarterly and special reports, proxy statements and other information with the SEC. You can read our SEC filings, including the registration statement, over the Internet at the SEC's web site at http://www.sec.gov. You may also read and copy any document we file with the SEC at its public reference facilities at 450 Fifth Street, NW, Washington, DC 20549, 7 World Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. You may also obtain copies of the documents at prescribed rates by writing to the Public Reference Section of the SEC at 450 Fifth Street, NW, Washington, DC 20549. Please call the SEC at 1-800-SEC- 0330 for further information on the operation of the public reference facilities. Our SEC filings are also available at the office of the Nasdaq National Market. For further information on obtaining copies of our public filings at the Nasdaq National Market you should call (212) 656-5060. 80 INDEX TO FINANCIAL STATEMENTS BioMarin Pharmaceutical Inc. Financial Statements Report of Independent Public Accountants................................... F-2 Consolidated Balance Sheets................................................ F-3 Consolidated Statements of Operations...................................... F-4 Statement of Changes in Stockholders' Equity............................... F-5 Consolidated Statements of Cash Flows...................................... F-7 Notes to Consolidated Financial Statements................................. F-8 Glyko, Inc. Financial Statements Report of Independent Public Accountants................................... F-23 Balance Sheets............................................................. F-24 Statements of Operations................................................... F-25 Statements of Changes in Stockholders' Equity (Deficit).................... F-26 Statements of Cash Flows................................................... F-27 Notes to Financial Statements.............................................. F-28
F-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders of BioMarin Pharmaceutical Inc.: We have audited the consolidated balance sheets of BioMarin Pharmaceutical Inc. (a Delaware corporation in the development stage) and subsidiaries as of December 31, 1997 and 1998, and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for the period from March 21, 1997 (inception) to December 31, 1997, the year ended December 31, 1998 and the period from March 21, 1997 (inception) to December 31, 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of BioMarin Pharmaceutical Inc. and subsidiaries as of December 31, 1997 and 1998, and the results of its operations and its cash flows for the period from March 21, 1997 (inception) to December 31, 1997, the year ended December 31, 1998 and the period from March 21, 1997 (inception) to December 31, 1998, in conformity with generally accepted accounting principles. /s/ ARTHUR ANDERSEN LLP San Francisco, California, March 17, 1999 (Except for the matter discussed in the fifth paragraph of Note 1, for which the date is April 13, 1999) F-2 BIOMARIN PHARMACEUTICAL INC. AND SUBSIDIARIES (a development-stage company) Consolidated Balance Sheets As of December 31, 1997 and 1998, and March 31, 1999
December 31, ------------------------- March 31, 1997 1998 1999 ----------- ------------ ----------- ASSETS (unaudited) CURRENT ASSETS: Cash and cash equivalents.... $ 5,987,433 $ 9,413,662 $ 3,574,697 Short-term investments....... 900,827 1,975,800 254,000 Accounts receivable, net..... -- 148,396 183,980 Due from Glyko Biomedical, Ltd......................... 79,607 114,005 119,165 Due from BioMarin/Genzyme LLC......................... -- 418,712 628,444 Inventories.................. -- 71,730 59,486 Prepaid expenses............. 539,445 676,214 706,018 ----------- ------------ ----------- Total current assets....... 7,507,312 12,818,519 5,525,790 PROPERTY AND EQUIPMENT, net.... 145,683 6,223,058 8,584,212 GOODWILL AND OTHER INTANGIBLE ASSETS........................ -- 11,703,726 11,432,452 INVESTMENT IN BIOMARIN/GENZYME LLC........................... -- 684,657 1,146,337 DEPOSITS....................... -- 79,142 88,843 ----------- ------------ ----------- Total assets............... $ 7,652,995 $ 31,509,102 $26,777,634 =========== ============ =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable............. $ 168,062 $ 1,340,355 780,300 Accrued liabilities.......... 43,395 640,016 823,663 Due to Glyko, Inc............ 61,072 -- -- Notes payable short-term..... -- 24,366 24,803 ----------- ------------ ----------- Total current liabilities.. 272,529 2,004,737 1,628,766 LONG-TERM LIABILITIES: Long- term portion of notes payable....................... -- 109,845 103,448 ----------- ------------ ----------- Total liabilities.......... 272,529 2,114,582 1,732,214 ----------- ------------ ----------- STOCKHOLDERS' EQUITY: Common stock, $0.001 par value: 50,000,000 shares authorized, 20,566,500, 26,176,180 and 26,176,180 shares issued and outstanding at December 31, 1997 and 1998, and March 31, 1999 respectively........... 20,567 26,176 26,176 Additional paid-in capital... 12,548,924 50,058,434 50,692,379 Warrants..................... 128,240 128,240 128,240 Deferred compensation........ (217,000) (3,254,411) (3,590,558) Notes receivable from stockholders................ (2,337,500) (2,487,500) (2,525,000) Deficit accumulated during the development stage....... (2,762,765) (15,076,419) (19,685,817) ----------- ------------ ----------- Total stockholders' equity.................... 7,380,466 29,394,520 25,045,420 ----------- ------------ ----------- Total liabilities and stockholders' equity...... $ 7,652,995 $ 31,509,102 $26,777,634 =========== ============ ===========
The accompanying notes are an integral part of these statements. F-3 BIOMARIN PHARMACEUTICAL INC. AND SUBSIDIARIES (a development-stage company) Consolidated Statements of Operations For the Period from March 21, 1997 (inception) to December 31, 1997, the Year ended December 31, 1998, the Three Month Periods ended March 31, 1998 and 1999 and for the Period from March 21, 1997 (inception) to March 31, 1999
Period from Period from March 21, 1997 Three months ended March 21, 1997 (inception), to Year ended March 31, (inception), to December 31, December 31, ------------------------ March 31, 1997 1998 1998 1999 1999 --------------- ------------ ----------- ----------- --------------- (unaudited) (unaudited) (unaudited) Revenues: Revenues--products..................... $ -- $ 138,162 $ -- $ 202,038 $ 340,200 Revenues--services..................... -- 112,135 -- 46,882 159,017 Revenues from BioMarin/ Genzyme LLC.... -- 837,457 -- 746,272 1,583,729 Revenues--other........................ -- 102,655 -- 109,126 211,781 ----------- ------------ ----------- ----------- ------------ Total revenues......................... -- 1,190,409 -- 1,104,318 2,294,727 Operating Costs and Expenses: Cost of products....................... -- 49,247 -- 84,040 133,287 Cost of services....................... -- 58,695 -- 18,661 77,356 Research and development............... 1,913,795 10,502,636 1,108,223 3,892,002 16,308,433 General and administrative............. 914,299 3,530,886 302,655 1,692,758 6,137,943 ----------- ------------ ----------- ----------- ------------ Loss from operations................... (2,828,094) (12,951,055) (1,410,888) (4,583,143) (20,362,292) Interest income........................ 65,329 684,572 92,393 153,611 903,512 Equity in loss of BioMarin/ Genzyme LLC................................... -- (47,171) -- (179,866) (227,037) ----------- ------------ ----------- ----------- ------------ Net loss............................... $(2,762,765) $(12,313,654) $(1,318,495) $(4,609,398) $(19,685,817) =========== ============ =========== =========== ============ Net loss per share, basic and diluted.. $ (0.34) $ (0.55) $ (0.06) $ (0.18) $ (1.13) =========== ============ =========== =========== ============ Weighted average common shares outstanding........................... 8,136,475 22,488,481 20,566,500 26,176,180 17,441,374 =========== ============ =========== =========== ============
The accompanying notes are an integral part of these statements. F-4 BIOMARIN PHARMACEUTICAL INC. AND SUBSIDIARIES (a development stage company) Consolidated Statement of Changes in Stockholders' Equity For the Period from March 21, 1997 (inception) to December 31, 1997, for the Year ended December 31, 1998, for the Three Months ended March 31, 1999 and for the Period from March 21, 1997 (inception), to March 31, 1999
Deficit Notes Accumulated Common Stock Additional Warrants Receivable During Total ------------------ Paid-in ---------------- Deferred from Development Stockholders' Shares Amount Capital Shares Amount Compensation Stockholders Stage Equity ---------- ------- ----------- ------- -------- ------------ ------------ ----------- ------------- BALANCE, MARCH 21, 1997............... -- $ -- $ -- -- $ -- $ -- $ -- $ -- $ -- Issuance of common stock to Glyko Biomedical, Ltd. on March 21, 1997, for cash, $1.00 per share......... 1,500,000 1,500 1,498,500 -- -- -- -- -- 1,500,000 Issuance of common stock to Glyko Biomedical, Ltd. in June 1997 in exchange for tech- nology, $1.00 per share............. 7,000,000 7,000 (7,000) -- -- -- -- -- -- Issuance of common stock in October 1997, $1.00 per share (net of is- suance costs of $439,720, includ- ing the issuance of 299,000 shares of common stock, $1.00 per share, and warrants to purchase an addi- tional 299,000 shares of common stock for broker- age services)..... 4,039,000 4,039 3,595,241 299,000 47,840 -- -- -- 3,647,120 Issuance of common stock to employees in exchange for notes in October 1997, $1.00 per share............. 2,500,000 2,500 2,497,500 -- -- (200,000) (2,300,000) -- -- Issuance of common stock and warrants on December 31, 1997, $1.00 per share (net of is- suance costs of $592,309, includ- ing the issuance of 502,500 shares of common stock, $1.00 per share, and warrants to purchase an addi- tional 502,500 shares of common stock for broker- age services)..... 5,527,500 5,528 4,929,663 502,500 80,400 -- -- -- 5,015,591 Common stock op- tions granted in exchange for serv- ices.............. -- -- 35,020 -- -- (17,000) -- -- 18,020 Interest on notes receivable........ -- -- -- -- -- -- (37,500) -- (37,500) Net loss for the period from March 21, 1997 (incep- tion), to December 31, 1997.......... -- -- -- -- -- -- -- (2,762,765) (2,762,765) ---------- ------- ----------- ------- -------- --------- ----------- ----------- ----------- BALANCE, DECEMBER 31, 1997........... 20,566,500 $20,567 $12,548,924 801,500 $128,240 $(217,000) $(2,337,500) $(2,762,765) $ 7,380,466 ========== ======= =========== ======= ======== ========= =========== =========== ===========
The accompanying notes are an integral part of these statements. F-5 BIOMARIN PHARMACEUTICAL INC. AND SUBSIDIARIES (a development stage company) Consolidated Statement of Changes in Stockholders' Equity For the Period from March 21, 1997 (inception) to December 31, 1997, for the Year ended December 31, 1998, for the Three Months ended March 31, 1999 and for the Period from March 21, 1997 (inception), to March 31, 1999
Deficit Notes Accumulated Common Stock Additional Warrants Receivable During Total ------------------ Paid-in ---------------- Deferred from Development Stockholders' Shares Amount Capital Shares Amount Compensation Stockholders Stage Equity ---------- ------- ----------- ------- -------- ------------ ------------ ------------ ------------- BALANCE, JANUARY 1, 1998........... 20,566,500 $20,567 $12,548,924 801,500 $128,240 $ (217,000) $(2,337,500) $ (2,762,765) $ 7,380,466 Issuance of com- mon stock on June 30, 1998, for cash, $6.00 per share (net of is- suance costs of $263,208, includ- ing the issuance of 31,368 shares of common stock, $6.00 per share, for brokerage services)........ 598,535 598 3,327,404 -- -- -- -- -- 3,328,002 Issuance of com- mon stock on July 14, 1998, for cash, $6.00 per share (net of is- suance costs of $387,474, includ- ing the issuance of 64,579 shares of common stock, $6.00 per share, for brokerage services)........ 1,385,414 1,386 7,923,624 -- -- -- -- -- 7,925,010 Issuance of com- mon stock on Au- gust 3, 1998, for cash, $6.00 per share (net of is- suance costs of $12,318, includ- ing the issuance of 2,053 shares of common stock, $6.00 per share, for brokerage services)........ 31,386 31 175,967 -- -- -- -- -- 175,998 Issuance of com- mon stock to Genzyme Corpora- tion on September 4, 1998, for cash, $6.00 per share............ 1,333,333 1,333 7,998,665 -- -- -- -- -- 7,999,998 Issuance of com- mon stock to Glyko Biomedical, Ltd. for the pur- chase of Glyko, Inc. on October 7, 1998, for com- mon shares, $6.00 per share and the assumption of op- tions of Glyko, Inc. employees (see Note 1)..... 2,259,039 2,259 14,859,063 -- -- -- -- -- 14,861,322 Exercise of com- mon stock op- tions............ 1,973 2 1,971 -- -- -- -- -- 1,973 Interest on notes receivable....... -- -- -- -- -- -- (150,000) -- (150,000) Deferred compen- sation on stock options.......... -- -- 3,222,816 -- -- (3,222,816) -- -- -- Amortization of deferred compen- sation........... -- -- -- -- -- 185,405 - -- 185,405 Net loss......... -- -- -- -- -- -- -- (12,313,654) (12,313,654) ---------- ------- ----------- ------- -------- ----------- ----------- ------------ ------------ BALANCE, DECEMBER 31, 1998.......... 26,176,180 $26,176 $50,058,434 801,500 $128,240 $(3,254,411) $(2,487,500) $(15,076,419) $ 29,394,520 Interest on notes receivable....... -- -- -- -- -- -- (37,500) -- (37,500) Deferred compen- sation on stock options.......... -- -- 633,945 -- -- (633,945) -- -- -- Amortization of deferred compen- sation........... -- -- -- -- -- 297,798 - -- 297,798 Net loss......... -- -- -- -- -- -- -- (4,609,398) (4,609,398) ---------- ------- ----------- ------- -------- ----------- ----------- ------------ ------------ BALANCE, March 31, 1999 (unaudited) 26,176,180 $26,176 $50,692,379 801,500 $128,240 $(3,590,558) $(2,525,000) $(19,685,817) $ 25,045,420 ========== ======= =========== ======= ======== =========== =========== ============ ============
The accompanying notes are an integral part of these statements. F-6 BIOMARIN PHARMACEUTICAL INC. AND SUBSIDIARIES (a development-stage company) Consolidated Statements of Cash Flows For the Period from March 21, 1997 (inception) to December 31, 1997, the Year ended December 31, 1998, the Three Month Periods ended March 31, 1998 and 1999 and for the Period from March 21, 1997 (inception) to March 31, 1999
Period from March 21, 1997 Three months ended Period from (inception), to Year ended March 31, March 21, 1997 December 31, December 31, ------------------------ (inception), to 1997 1998 1998 1999 March 31, 1999 --------------- ------------ ----------- ----------- --------------- (unaudited) (unaudited) (unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss.................................... $(2,762,765) $(12,313,654) $(1,318,495) $(4,609,398) $(19,685,817) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation................................ 4,790 307,645 14,916 420,103 732,538 Amortization of deferred compensation....... -- 185,405 -- 297,798 483,203 Amortization of goodwill.................... -- 271,274 -- 271,274 542,548 Compensation in the form of common stock and common stock options....................... 18,020 -- -- -- 18,020 Loss from BioMarin/Genzyme LLC.............. -- 47,131 -- 179,866 226,997 Write-off of in-process technology.......... -- 2,625,000 -- -- 2,625,000 Changes in operating assets and liabilities: Accounts receivable......................... -- (148,396) (105,178) (35,584) (183,980) Due from Glyko Biomedical, Ltd.............. (79,607) (34,398) -- (5,160) (119,165) Due from BioMarin/Genzyme LLC............... -- (418,712) -- (209,732) (628,444) Inventories................................. -- (71,730) -- 12,244 (59,486) Prepaid expenses............................ (539,445) (136,769) 89,194 (29,804) (706,018) Deposits.................................... -- (79,142) (10,000) (9,701) (88,843) Accounts payable............................ 168,062 1,172,293 (1,293) (560,055) 780,300 Accrued liabilities......................... 43,395 596,621 (43,395) 183,647 823,663 Due to Glyko, Inc........................... 61,072 (61,072) -- -- -- ----------- ------------ ----------- ----------- ------------ Net cash used in operating activities...... (3,086,478) (8,058,504) (1,374,251) (4,094,502) (15,239,484) ----------- ------------ ----------- ----------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment.......... (150,473) (6,385,020) (136,762) (2,781,257) (9,316,750) Investment in BioMarin/Genzyme LLC.......... -- (731,788) -- (641,546) (1,373,334) Sale (purchase) of short-term investments... (900,827) (1,074,973) (4,071,675) 1,721,800 (254,000) ----------- ------------ ----------- ----------- ------------ Net cash used in investing activities...... (1,051,300) (8,191,781) (4,208,437) (1,701,003) (10,944,084) ----------- ------------ ----------- ----------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from note payable.................. -- 134,211 -- -- 134,211 Bridge loan................................. 880,000 -- -- -- 880,000 Accrued interest on notes receivable from stockholders............................... (37,500) (150,000) (37,500) (37,500) (225,000) Repayment of equipment loan................. -- -- -- (5,960) (5,960) Proceeds from sale of common stock, net of issuance costs............................. 9,282,711 19,692,303 -- -- 28,975,014 ----------- ------------ ----------- ----------- ------------ Net cash provided by financing activities.. 10,125,211 19,676,514 (37,500) (43,460) 29,758,265 ----------- ------------ ----------- ----------- ------------ Net increase (decrease) equivalents........ 5,987,433 3,426,229 (5,620,188) (5,838,965) 3,574,697 CASH AND CASH EQUIVALENTS: Beginning of period......................... -- 5,987,433 5,987,433 9,413,662 -- ----------- ------------ ----------- ----------- ------------ End of period............................... $ 5,987,433 $ 9,413,662 $ 367,245 $ 3,574,697 $ 3,574,697 =========== ============ =========== =========== ============
The accompanying notes are an integral part of these statements. F-7 BIOMARIN PHARMACEUTICAL INC. AND SUBSIDIARIES (a development-stage company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Information with respect to the periods ended March 31, 1998 and 1999 and the period from March 21, 1997 (inception) to March 31, 1999 is unaudited) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Nature of Operations and Business Risks--BioMarin Pharmaceutical Inc. (BioMarin or the Company) is a privately held biopharmaceutical company specializing in the development of carbohydrate enzyme therapies for debilitating life- threatening chronic genetic disorders and other diseases and conditions. With its recent acquisition of Glyko, Inc., BioMarin added analytical and diagnostic products and services in the area of carbohydrate biology. BioMarin was incorporated on October 25, 1996, in the state of Delaware. BioMarin first began business on March 21, 1997 (inception), and issued 1,500,000 shares of common stock to Glyko Biomedical, Ltd. (GBL) for $1,500,000. Beginning in October 1997, BioMarin issued stock to outside investors, resulting in Glyko Biomedical's ownership of BioMarin being reduced to 41.3 percent at December 31, 1997. Since inception, the Company has devoted substantially all of its efforts to research and development activities, including preclinical studies and clinical trials, the establishment of laboratory and clinical scale manufacturing facilities, clinical manufacturing, and related administrative activities. On September 4, 1998, the Company entered into an agreement with Genzyme Corporation (Genzyme) to establish a joint venture dedicated to the development and commercialization of a-L-iduronidase (BM101) to treat mucopolysaccharidosis-I (MPS-I) (Note 8). On October 7, 1998, the Company acquired Glyko, Inc., a wholly-owned subsidiary of Glyko Biomedical, in a transaction valued at $14,500,500. The transaction was accounted for as a purchase and resulted in Glyko, Inc. becoming a wholly owned subsidiary of the Company. Glyko, Inc. provides products and services that perform sophisticated carbohydrate analysis for research institutions and commercial laboratories. As consideration for the acquisition of all of the outstanding shares of Glyko, Inc., BioMarin issued 2,259,039 shares of common stock to Glyko Biomedical, assumed Glyko, Inc.'s employee stock options exercisable for 255,540 shares of BioMarin common stock, and paid $500 in cash (see Note 11). As a result of this transaction, Glyko Biomedical's ownership of BioMarin was increased from 36.2 percent to 41.7 percent at October 7, 1998. Through March 31, 1999 the Company had accumulated losses during its development stage of $19,685,817 and has continued to incur significant losses subsequent to March 31, 1999. Management expects to incur further losses in 1999 and beyond. As further discussed in Note 12, the Company entered into a convertible note financing in the amount of $26,000,000 on April 13, 1999. Management believes that this financing will be sufficient to meet the Company's minimum obligations through at least December 31, 1999. However, the Company will seek additional financing in the near term to execute its business strategies and meet its longer term obligations. The Company's lead product candidate, BM101, has completed clinical trials. There can be no assurance that the Company's research and development efforts will be successfully completed or that its products will be shown to be safe and effective. There can be no assurance that its products will be approved for marketing by the U.S. Food and Drug Administration (FDA) or any equivalent foreign government agency or that its products will be successfully commercialized or achieve any significant degree of market acceptance. BioMarin's core technology is based on the biological applications of carbohydrate-active enzymes in therapeutic indications. In June 1997, rights to certain related technology were transferred to BioMarin F-8 BIOMARIN PHARMACEUTICAL INC. AND SUBSIDIARIES (a development-stage company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Information with respect to the periods ended March 31, 1998 and 1999 and the period from March 21, 1997 (inception) to March 31, 1999 is unaudited) by Glyko Biomedical in exchange for 7,000,000 shares of BioMarin common stock (see Note 3). Certain of the Company's products rely on proprietary technology and patents owned by certain universities and other institutions and licensed to BioMarin. These universities also provide research and development services. Cessation of relationships with these universities could significantly affect the Company's future operations. In order to grow significantly, the Company must expand its efforts to develop new products in pharmaceutical applications. The Company will also need to establish manufacturing capabilities and to develop marketing capabilities and/or enter into collaborative arrangements with third parties having the capacity for such manufacturing or marketing. BioMarin's product candidates require regulatory approval by government agencies. This includes preclinical and clinical testing and approval processes in the United States and other countries. Approvals can take several years and can require substantial expenditures. There can be no assurance that difficulties or excessive costs will not be encountered by the Company in this process, which could delay or preclude the Company's marketing of its products. There can be no assurance that any of BioMarin's current or future product candidates will be successfully developed, prove to be effective in clinical trials, receive required regulatory approvals, be capable of being produced in commercial quantities at reasonable costs, gain reasonable reimbursement levels, or be successfully marketed. In addition, the Company is subject to a number of risks, including the need for additional financing, dependence on key personnel, small patient population, patent protection, significant competition from larger organizations, dependence on corporate partners and collaborators, and expected increased restrictions on reimbursement, as well as other changes in the healthcare industry. Basis of Presentation--These consolidated financial statements include the accounts of BioMarin, Glyko, Inc., a wholly-owned subsidiary of BioMarin (since October 7, 1998), and BioMarin Genetics, Inc., a wholly-owned subsidiary of BioMarin formed for the purpose of the joint venture discussed in Note 8. All significant intercompany transactions have been eliminated. The accompanying financial statements as of March 31, 1999 and for the quarters ended March 31, 1998 and 1999 are unaudited, but in the opinion of management, include all adjustments consisting of normal recurring adjustments necessary for a fair presentation of results for the interim periods. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted, although the Company believes that the disclosures included are adequate to make the information presented not misleading. Results for the quarter ended March 31, 1999 are not necessarily indicative of the results that may be expected for the year ending December 31, 1999. Concentration of Credit Risk--Financial instruments that may potentially subject the Company to concentration of credit risk consist principally of cash, cash equivalents, and short-term investments. All cash, cash equivalents, and short-term investments are placed in financial institutions with strong credit ratings, which minimizes the risk of loss due to nonpayment. The Company has not experienced any losses due to credit impairment or other factors related to its financial instruments. Use of Estimates--The preparation of financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates F-9 BIOMARIN PHARMACEUTICAL INC. AND SUBSIDIARIES (a development-stage company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Information with respect to the periods ended March 31, 1998 and 1999 and the period from March 21, 1997 (inception) to March 31, 1999 is unaudited) of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates made by management include determination of progress to date under research and development contracts and the amortization period of goodwill and other intangibles (see Notes 6 and 8). Cash and Cash Equivalents--For the statements of cash flows, the Company treats liquid investments with original maturities of less than three months as cash and cash equivalents. Available-for-Sale Securities--The Company records its investment securities as available-for-sale because the sale of such securities may be required prior to maturity. Inventories--Inventories consist of analytic kits, and instrument-based systems held for sale. Inventories are stated at the lower of cost (first-in, first-out method) or estimated market value. All inventories at December 31, 1998 and March 31, 1999 belong to Glyko, Inc. Investment in BioMarin/Genzyme LLC and Related Revenue--Under the terms of the Company's joint venture agreement with Genzyme (Note 7 and 8), the Company and Genzyme have each agreed to provide 50 percent of the funding for the joint venture. All research and development, sales and marketing, and other activities performed by Genzyme and the Company on behalf of the joint venture are billed to the joint venture at cost. Any profits of the joint venture will be shared equally by the two parties. Losses of the joint venture ($1,769,257 for the year ended December 31, 1998 and $1,852,276 for the three months ended March 31, 1999) are allocated in proportion to the funding provided by each joint venture partner. Through March 31, 1999, each joint venture partner had provided $2,957,103 of funding to the joint venture. During the year ended December 31, 1998 and quarter ended March 31, 1999, the Company billed $1,674,915 and $1,444,953, respectively, under the agreement, of which $837,457 and $746,272, respectively, or 50 percent, was recognized as revenue in accordance with the Company's policy of recognizing revenue to the extent that research and development costs billed have been funded by Genzyme. At December 31, 1998 and March 31, 1999 the Company had receivables of $418,712 and $628,444, respectively, related to these billings. The Company accounts for its investment in the joint venture on the equity method. Accordingly, the Company recorded a reduction in its investment in the joint venture of $884,628 during the year ended December 31, 1998 and $926,138 during the quarter ended March 31, 1999 representing its 50 percent share of the loss of the joint venture. The percentage of the research and development costs billed to the joint venture that was funded by the Company (50 percent, or $837,457 for the year ended December 31, 1998 and $746,272 for the quarter ended March 31, 1999) was recorded as a credit to the Company's equity in the loss of the joint venture. At December 31, 1998 the summarized assets and liabilities of the joint venture and its results of operations from inception to December 31, 1998 are as follows: Cash 1,691,054 ========= Liabilities 444,707 Venturer's capital 1,246,346 --------- 1,691,054 ========= Net loss 1,769,257 =========
F-10 BIOMARIN PHARMACEUTICAL INC. AND SUBSIDIARIES (a development-stage company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Information with respect to the periods ended March 31, 1998 and 1999 and the period from March 21, 1997 (inception) to March 31, 1999 is unaudited) Research and Development--Research and development expenses include the expenses associated with contract research and development provided to third parties, research and development provided in connection with the joint venture including clinical and regulatory costs, and internal research and development costs. All research and development costs discussed above are expensed as incurred. Property and Equipment--Property and equipment are stated at cost. Depreciation is computed using the straight-line method. Leasehold improvements are amortized over the life of the asset or the term of the lease, whichever is shorter. Significant additions and improvements are capitalized, while repairs and maintenance are charged to expense as incurred. Property and equipment consisted of the following:
December 31 -------------------- 1997 1998 Estimated Useful Lives -------- ---------- ------------------------ Computer hardware and software................... $ 27,688 $ 161,994 3 years Office furniture and equipment.................. -- 372,037 5 years Laboratory equipment........ 119,002 3,468,978 5 years Shorter of life of asset Leasehold improvements...... 3,783 2,532,484 or lease term -------- ---------- 150,473 6,535,493 Less: Accumulated depreciation............... (4,790) (312,435) -------- ---------- Total, net.............. $145,683 $6,223,058 ======== ==========
Depreciation expense for the period from March 21, 1997 (inception) to December 31, 1997, the year ended December 31, 1998 and for the period from March 21, 1997 (inception) to December 31, 1998, was $4,790, $307,645, and $312,435, respectively. Goodwill and Other Intangible Assets--In connection with the acquisition of Glyko, Inc., the Company acquired certain intangible assets including developed technology, customer relationships and goodwill. The purchase price of $14,500,500 was allocated to the net tangible and intangible assets acquired, based on the relative fair value of these assets. In connection with this allocation $2,625,000 was expensed as a charge for the purchase of in-process research and development. Of the $11,736,000 designated as intangible assets (after the write-off of in process research and development), $1,233,000 was allocated to developed technology and amortized over six years, $73,000 was allocated to assembled work force and amortized over seven years, and $10,430,000 was allocated to goodwill (customer relationships, trade name, pure business goodwill) and amortized over twelve years. In performing this allocation, the Company considered, among other factors, Glyko, Inc.'s technology research and development projects in-process at the date of acquisition. With regard to the in-process research and development projects, the Company considered factors such as the stage of development of the technology at the time of acquisition, the importance of each project to the overall development plan, alternative future use of the technology and the projected incremental cash flows from the projects when completed and any associated risks. The Income Approach was the primary technique utilized in valuing the purchased research and development. The assumptions underlying the cash flow projections used were derived primarily from investment banking reports, historical results, company records and discussions with management. F-11 BIOMARIN PHARMACEUTICAL INC. AND SUBSIDIARIES (a development-stage company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Information with respect to the periods ended March 31, 1998 and 1999 and the period from March 21, 1997 (inception) to March 31, 1999 is unaudited) Revenue estimates for each in-process project were developed by management and based on an assessment of the industry. Cost of goods sold for each project are expected to be in line with historical results. The Capital Asset Pricing Model was used to determine the cost of capital (discount rate) for Glyko's in-process projects. Due to the conservative nature of the forecast and the risks associated with the projected growth and profitability of the development projects, a discount rate of 16 percent was used to discount cash flows from the in-process products. The Company believes that the foregoing assumptions used in the forecasts were reasonable at the time of the acquisition. No assurance can be given, however, that the underlying assumptions used to estimate sales, development costs or profitability, or the events associated with such projects, will transpire as estimated. For these reasons, actual results may vary from projected results. The most significant and uncertain assumptions relating to the in-process projects relate to the projected timing of completion and revenues attributable to each project. Total amortization expense from October 7, 1998 (date of acquisition), to December 31, 1998, was $271,274. Impairment of Long-Lived Assets--The Company regularly reviews long-lived assets and identifiable intangibles. Whenever events or circumstances indicate that the carrying amount of such assets may not be fully recoverable. The Company evaluates the recoverability of long lived assets by measuring the carrying amount of the assets against the estimated undiscounted future cash flows associated with them. At the time such evaluations indicate that the future undiscounted cash flows of certain long-lived assets are not sufficient to recover its carrying value of such assets, the assets are adjusted to their fair values (based on discounted cash flows). No such adjustments have been made during any period presented. The Company's long-lived tangible assets consist primarily of property and equipment and its investment in the BioMarin/Genzyme LLC joint venture. The Company will review all of these assets together for purposes of assessing any potential impairment due to the fact that these assets will be used together to generate joint cash flows. All of the Company's goodwill and other intangible assets were recorded as a result of the Company's acquisition of Glyko, Inc. The Company will assess any possible impairment taking into regard all future cash flows to be generated from the intangible assets acquired, including developed technology, assembled work force, customer lists and goodwill. Accrued Liabilities--Accrued liabilities consisted of the following:
December 31 ---------------- 1997 1998 ------- -------- Vacation.................................................... $25,579 $123,274 Other....................................................... 17,816 516,742 ------- -------- Total..................................................... $43,395 $640,016 ======= ========
Revenue Recognition--The Company recognizes product revenues and related cost of sales upon shipment of products. Service revenues are recognized upon completion of services as evidenced by the F-12 BIOMARIN PHARMACEUTICAL INC. AND SUBSIDIARIES (a development-stage company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Information with respect to the periods ended March 31, 1998 and 1999 and the period from March 21, 1997 (inception) to March 31, 1999 is unaudited) transmission of reports to customers. Other revenues, principally licensing, distribution and development fees, are recognized upon our satisfaction of our contractual obligations such as 1) execution of contract; 2) certain milestones; and 3) certain anniversary dates from the effective date of the contract. Revenue from the joint venture is recognized to the extent that research and development costs billed by the Company have been funded by Genzyme. Net Income (Loss) per Share--Basic net income (loss) per share is calculated by dividing net income (loss) by the weighted average common shares outstanding during the period. Diluted net income per share is calculated by dividing net income by the weighted average of common stock outstanding and potential common shares during the period. Potential common shares include dilutive shares issuable upon the exercise of outstanding common stock options, warrants, and contingent issuances of common stock. For periods in which the Company has losses, such potential common shares are excluded from the computation of diluted net loss per share, as their effect is antidilutive. Potentially dilutive securities include:
December 31 ------------------- March 31, 1997 1998 1999 --------- --------- ----------- (unaudited) Options to purchase common stock............. 297,000 2,801,240 3,553,526 Warrants to purchase common stock............ 801,500 801,500 801,500 --------- --------- --------- Total...................................... 1,098,500 3,602,740 4,355,026 ========= ========= =========
Segment Reporting--For the year ended December 31, 1998, the Company adopted the provisions of SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information". The Company operates two segments. The Analytic and Diagnostic segment represents the operations of Glyko, Inc. which involve the manufacture and sale of analytic and diagnostic products. The Pharmaceutical segment represents the research and development activities related to the development and commercialization of carbohydrate enzyme therapeutics. Management of the Company has concluded that the operations of the Analytic and Diagnostic segment are, and will continue to be, immaterial with respect to the Company's overall activities and, thus, disclosure of segment information is not required. New Accounting Standards--In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 is not expected to have a material impact on the Company's financial position or results of operations. 2. BRIDGE LOANS: In the third quarter of 1997, the Company drew upon a bridge loan from certain stockholders in the amount of $880,000. This bridge loan was converted into 880,000 shares of common stock in the fourth quarter of 1997. 3. STOCKHOLDERS' EQUITY: Common Stock and Warrants--On March 21, 1997, BioMarin's parent company, GBL, provided initial equity funding by purchasing 1,500,000 shares of common stock for $1,500,000. F-13 BIOMARIN PHARMACEUTICAL INC. AND SUBSIDIARIES (a development-stage company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Information with respect to the periods ended March 31, 1998 and 1999 and the period from March 21, 1997 (inception) to March 31, 1999 is unaudited) BioMarin and GBL have entered into a License Agreement dated June 26, 1997, pursuant to which GBL granted BioMarin an exclusive, worldwide, perpetual, irrevocable, royalty-free right and license to certain of its worldwide patents, trade secrets, copyrights, and other proprietary rights to all know- how, processes, formulae, concepts, data, and other such intellectual property, whether patented or not, owned or licensed by GBL and its subsidiaries as of the date of the license agreement for application in therapeutic uses, including without limitation, drug discovery and genomics. As consideration for this license, BioMarin issued to GBL 7,000,000 shares of BioMarin common stock. Under the same License Agreement, BioMarin granted GBL an exclusive, worldwide, perpetual, irrevocable, royalty-free cross-license to all improvements BioMarin may make upon the licensed intellectual property. As this transaction was between the Company and its parent, the Company recorded the license at its historical cost on GBL's financial statements, which was zero. As disclosed in the accompanying statements of stockholders' equity, the Company closed a number of private placements in 1997 and 1998. In connection with these placements, an entity with which the chief executive officer and chairman of the board is affiliated (see Note 7) was issued a total of 899,500 shares (valued at $1,389,500) and warrants (valued at $128,240) to purchase an additional 801,500 shares of common stock at an exercise price of $1 per share. These issuances were made for brokerage services rendered in connection with these placements and were accounted for as a cost of raising capital. The warrants expire on various dates in 2001. In addition, 880,000 shares were issued to stockholders to retire an $880,000 bridge loan. Notes Receivable from Stockholders--Notes receivable from stockholders relate to 2,500,000 shares of common stock issued in October 1997 to three executive officers under the terms of the Founder's Stock Purchase Agreement (the Agreement). These notes bear interest at 6 percent per annum, and are due on July 31, 2000, or on the date of the employee's termination, whichever is earlier. The notes are secured by the underlying stock and are with full recourse. Interest was imputed at nine percent, resulting in an interest discount and related deferred compensation of $200,000, which is being amortized over the life of the notes. Amortization expense for the period from March 21, 1997 (inception) to December 31, 1997, the year ended December 31, 1998 and for the period from March 21, 1997 (inception), to December 31, 1998, was $0, $66,667, and $66,667, respectively. In the event that their employment is terminated by the Company, the Company has the obligation, if requested by the officer, to repurchase any or all of the shares issued under the Agreement at the lower of the original purchase price or the current market value of the shares. In the event one of these officers ceases to be an employee, the Company has the right, but not the obligation, to repurchase the unvested portion of the shares at their original purchase price. Pursuant to the terms of the Agreement, 50% of the shares vest after one year from the date of employment, with the remainder vesting at a rate of 1/24 per month thereafter. Deferred Compensation--In connection with certain stock option grants during the year ended December 31, 1998 and for the quarter ended March 31, 1999 the Company recognized deferred compensation totaling $3,222,816 and $633,945, respectively, which is being amortized over the four-year estimated service periods of the grantees. Amortization expense recognized during the year ended December 31, 1998, and during the quarter ended March 31, 1999, was $185,405 and $297,798 respectively. F-14 BIOMARIN PHARMACEUTICAL INC. AND SUBSIDIARIES (a development-stage company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Information with respect to the periods ended March 31, 1998 and 1999 and the period from March 21, 1997 (inception) to March 31, 1999 is unaudited) 4. INCOME TAXES: The significant components of net deferred tax assets and liabilities are as follows:
December 31 ------------------------- 1997 1998 ----------- ------------ Net operating loss carryforwards................. $ 1,052,000 $ 9,792,000 Research and development credit carryforwards.... 210,000 1,760,000 Research and development capitalized............. 0 50,000 Other............................................ (255,000) (160,000) Valuation allowance.............................. (1,007,000) (11,442,000) ----------- ------------ Net deferred tax asset........................... $ -- $ -- =========== ============
The net operating loss carryforwards and research and development credit carryforwards at December 31, 1998 include the net operating loss carryforwards ($4,567,000) and research and development credits carryforwards ($701,000) and related valuation allowances ($5,269,000) of Glyko, Inc. The reconciliation of the effective tax rate is as follows:
Period from March 21, Period from 1997 March 21, 1997 (Inception) Year ended (Inception), to to December December 31, December 31, 31, 1997 1998 1998 -------------- ---------------- ---------------- Amount % Amount % Amount % --------- --- ----------- --- ----------- --- U.S. statutory tax rate... $(821,000) (34) $(4,164,000) (34) $(4,985,000) (33) State taxes, net of federal income tax benefit.................. (145,000) (6) (735,000) (6) (880,000) (6) Research and development tax credit............... (142,000) (5) (634,000) (5) (776,000) (5) Other..................... 149,000 5 656,000 5 805,000 5 Change in valuation allowance................ 959,000 40 4,877,000 40 5,836,000 39 --------- --- ----------- --- ----------- --- Provision for income taxes.................... $ -- -- $ -- -- $ -- -- ========= === =========== === =========== ===
As of December 31, 1998, net operating loss carryforwards are approximately $24.1 million and $12.4 million for federal and California income tax purposes, respectively. These federal and state carryforwards expire beginning in the year 2011 and 2004, respectively. The Company also has research and development credits available to reduce future federal and California income taxes, if any, of approximately $1,760,000 and $580,000, respectively, at December 31, 1998. These federal and state carryforwards expire beginning in 2012 and 2013, respectively. The net operating loss carryforwards and research and development credits related to Glyko, Inc. as of October 7, 1998, can only be utilized to offset future taxable income and tax, respectively, if any, of Glyko, Inc. In addition, the Tax Reform Act of 1986 contains provisions that may limit the net operating loss carryforwards and research and development credits available to be used in any given year should certain events occur, including sale of equity securities and other changes in ownership. The acquisition of Glyko, Inc. and the related issuance of stock represented a change of ownership F-15 BIOMARIN PHARMACEUTICAL INC. AND SUBSIDIARIES (a development-stage company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Information with respect to the periods ended March 31, 1998 and 1999 and the period from March 21, 1997 (inception) to March 31, 1999 is unaudited) under these provisions. There can be no assurance that the Company will be able to utilize net operating loss carryforwards and credits before expiration. Deferred income taxes are recorded to reflect the tax consequences on future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each period-end. The Company has a cumulative net operating loss carryforward since inception, resulting in net deferred tax assets. A valuation allowance is placed on the net deferred tax assets to reduce them to an assumed net realizable value of zero. 5. STOCK OPTION PLANS: The Company's 1997 Stock Option Plan (the Plan) provides for the grant of incentive common stock options and nonstatutory common stock options to employees, directors, and consultants of the Company. The maximum aggregate number of shares that may be optioned and sold under the Plan is 5,000,000 shares. Options currently outstanding generally have vesting schedules of up to four years and options terminate after five to ten years. Had compensation cost for the Plan been determined consistent with SFAS No. 123 for option grants to employees, the effect on the Company's net loss would have been as follows:
Period from Period from March 21, 1997 March 21, 1997 (Inception), Year ended (Inception), to December December 31, to December 31, 1997 1998 31, 1998 -------------- ------------ -------------- Net loss as reported.............. $(2,762,765) $(12,313,654) $(15,076,419) Pro forma effect of SFAS No. 123.. (1,640) (468,000) (469,640) ----------- ------------ ------------ Pro forma net loss................ $(2,764,405) $(12,781,654) $(15,546,059) =========== ============ ============ Net loss per common share as reported......................... (0.34) (0.55) (0.93) =========== ============ ============ Pro forma loss per common share... (0.34) (0.57) (0.96) =========== ============ ============
A summary of the status of the Company's stock option plan is as follows:
Weighted Weighted Average Exercisable Average Fair Option Exercise at End of Value of Options Shares Price Year Granted --------- -------- ----------- ---------------- Outstanding at March 21, 1997..................... -- $ -- Granted................. 297,000 1.00 $0.22 Exercised............... -- -- Canceled................ -- -- --------- Outstanding at December 31, 1997................. 297,000 1.00 232,000 ======= Granted................. 2,507,660 4.18 $2.40 Exercised............... (1,973) 1.00 Canceled................ (1,447) 1.00 --------- Outstanding at December 31, 1998................. 2,801,240 $3.85 761,609 --------- ======= Granted................. 789,774 6.91 $1.92 Canceled................ (37,488) 5.81 --------- Outstanding at March 31, 1999..................... 3,553,526 $4.51 815,740 ========= =======
F-16 BIOMARIN PHARMACEUTICAL INC. AND SUBSIDIARIES (a development-stage company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Information with respect to the periods ended March 31, 1998 and 1999 and the period from March 21, 1997 (inception) to March 31, 1999 is unaudited) There are 2,198,760 and 1,446,474 options available for grant under the Plan at December 31, 1998 and March 31, 1999, respectively. The average remaining contractual life of the options outstanding at December 31, 1998, is four years. As of March 31, 1999, the 3,553,526 options outstanding consist of the following:
Number of Options Exercise Weighted Average Number of Options Outstanding Price Contractual Life Exercisable ----------------- -------- ---------------- ----------------- 396,850 $1.00 3.88 347,333 255,222 2.30 3.11 180,846 1,548,000 4.00 9.03 202,875 631,680 6.00 4.69 30,555 721,774 7.00 4.96 54,131 --------- ------- 3,553,526 815,740 ========= =======
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions used for grants in 1997 and 1998: risk-free interest rates ranging from 5.2 to 6.2 percent; expected dividend yield of 0 percent; expected life of four years for the Plan's options; and expected volatility of 0 percent. 6. COMMITMENTS AND CONTINGENCIES: Lease Commitments--The Company leases office space and research and testing laboratory space in various facilities under operating agreements expiring at various dates through 2009. Future minimum lease payments for the year ended December 31 are as follows: 1999........................................................... $1,336,910 2000........................................................... 1,173,573 2001........................................................... 1,019,827 2002........................................................... 1,014,837 2003........................................................... 866,405 Thereafter..................................................... 2,820,662 ---------- Total...................................................... $8,232,214 ==========
Rent expense for the period from March 21, 1997 (inception) to December 31, 1997, the year ended December 31, 1998 and for the period from March 21, 1997 (inception), to December 31, 1998, was $34,613, $380,187, and $414,800, respectively. Research and Development Funding and Technology Licenses--The Company uses experts and laboratories at universities and other institutions to perform research and development activities. Funding commitments to these institutions for the year ended December 31 are as follows: 1999........................................................... $1,076,335 2000........................................................... 305,900 2001........................................................... 50,000 2002........................................................... 50,000 2003........................................................... 50,000 ---------- Total...................................................... $1,532,235 ==========
F-17 BIOMARIN PHARMACEUTICAL INC. AND SUBSIDIARIES (a development-stage company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Information with respect to the periods ended March 31, 1998 and 1999 and the period from March 21, 1997 (inception) to March 31, 1999 is unaudited) The Company has also licensed technology from certain institutions, for which it is required to pay a royalty upon future sales, subject to certain minimums. Consulting Agreements--BioMarin had agreements with two consultants whereby the consultants were paid cash and granted common stock options in exchange for services. Options for 206,000 shares of common stock were granted in satisfaction for these services. These options were valued at $35,020 and were expensed during the period from March 21, 1997 (inception), through December 31, 1997. Product Liability and Lack of Insurance--The Company is subject to the risk of exposure to product liability claims in the event that the use of its technology results in adverse effects during testing or commercial sale. The Company currently does not maintain product liability insurance. There can be no assurance that the Company will be able to obtain product liability insurance coverage at economically reasonable rates or that such insurance will provide adequate coverage against all possible claims. 7. RELATED-PARTY TRANSACTIONS: BioMarin had contractual agreements for office space and certain administrative, research, and development functions with Glyko, Inc. prior to the acquisition date of October 7, 1998. BioMarin reimbursed Glyko, Inc. for rent, salaries and related benefits, and other administrative costs. Glyko, Inc. also reimbursed BioMarin for salaries and related benefits. Reimbursement of expenses:
Paid from Glyko, Paid from Inc. to BioMarin to BioMarin Glyko, Inc. Net -------- ----------- -------- March 21, 1997 (inception) to December 31, 1997....................................... $133,000 $373,848 $240,848 Year ended December 31, 1998................ 75,073 298,491 223,418 Quarter ended March 31, 1999................ 46,544 158,146 111,602 -------- -------- -------- March 21, 1997 (inception) to March 31, 1999....................................... $254,617 $830,485 $575,868 ======== ======== ========
BioMarin also purchased products and services from Glyko, Inc. at a 27% discount. This is the same discount that Glyko grants to any other company that it treats as a distributor. Purchases of products and services from Glyko, Inc. from March 21, 1997 (inception) to October 8, 1998 were $160,455. In the fourth quarter of 1998 and the first quarter of 1999, BioMarin loaned to Glyko, Inc. $200,000 and $160,000, respectively, to fund its operations. As of March 31, 1999, Glyko, Inc. owes $449,116 to BioMarin and BioMarin owes $23,873 to Glyko, Inc. These amounts have been eliminated upon consolidation. As discussed in Note 3, during August 1997, the Company entered into an agency agreement with an entity with which the chief executive officer and chairman of the board is affiliated. During June 1998, the Company entered into a second agency agreement. The Company issued a total of 899,500 shares of common stock and warrants to purchase another 801,500 shares of common stock to this entity and its affiliates for brokerage services pursuant to the terms of these agreements, also discussed in Note 3. F-18 BIOMARIN PHARMACEUTICAL INC. AND SUBSIDIARIES (a development-stage company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Information with respect to the periods ended March 31, 1998 and 1999 and the period from March 21, 1997 (inception) to March 31, 1999 is unaudited) As further discussed in Note 12, on April 13, 1999, the Company entered into a convertible note financing agreement in the amount of $26,000,000. Of this amount GBL purchased $4,300,000 worth of such notes and LaMont Asset Management ("LAM") purchased $9,700,000. A director of the Company is also the chairman of LAM. The Company also entered into an agency agreement with LAM pursuant to which the Company agreed to pay LAM a 5 percent cash commission on sales to certain note purchasers. Since October 8, 1998, Glyko Biomedical Ltd. has agreed to pay BioMarin a monthly management fee for its services to Glyko Biomedical Ltd. primarily relating to management, accounting, finance and government reporting. BioMarin has accrued a receivable from Glyko Biomedical Ltd. of $27,152 and $23,312 for the year ended December 31, 1998 and the quarter ended March 31, 1999, respectively. Due to the terms of the collaborative agreement with Genzyme outlined in Note 8, Genzyme is considered a related party. See also Notes 1 and 8 for Genzyme related party transactions. At December 31, 1997 and 1998 and March 31, 1999, the Company had recorded amounts due from GBL of $79,607, $114,005 and $119,165 respectively (including the amounts discussed above.) 8. COLLABORATIVE AGREEMENTS: Genzyme--Effective September 4, 1998, the Company entered into an agreement (the Collaboration Agreement) with Genzyme to establish a joint venture dedicated to the worldwide development and commercialization of BM101 to treat MPS-I. In conjunction with the formation of the joint venture, the Company established a wholly owned subsidiary, BioMarin Genetics, Inc. The Company has a 49 percent interest in the joint venture, BioMarin Genetics, Inc. has a 1 percent interest, and Genzyme has the remaining 50 percent interest. Under the Collaboration Agreement, BioMarin and Genzyme are each required to make capital contributions to the joint venture in an amount equal to 50 percent of costs and expenses associated with the development and commercialization of BM101. The parties also agree to share the profits equally from such commercialization. In addition, Genzyme purchased 1,333,333 shares of BioMarin common stock at $6.00 per share for total proceeds of $7,999,998 in a private placement and is obligated to purchase an additional $10,000,000 of common stock at the initial public offering price in a private placement concurrent with the initial public offering of the Company's stock. Genzyme has also agreed to pay BioMarin $12,100,000 in cash upon FDA approval of the BLA for BM101. Other Agreements--The Company is engaged in research and development collaborations with various academic institutions, commercial research groups, and other entities. The agreements provide for sponsorship of research and development by the Company and may also provide for exclusive royalty-bearing intellectual property licenses or rights of first negotiation regarding licenses to intellectual property development under the collaborations. Typically, these agreements are terminable for cause by either party upon 90 days' written notice. 9. COMPENSATION PLANS: Employment Agreements--The Company has entered into employment agreements with seven officers of the Company. All of these agreements are terminable without cause by the Company upon six F-19 BIOMARIN PHARMACEUTICAL INC. AND SUBSIDIARIES (a development-stage company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Information with respect to the periods ended March 31, 1998 and 1999 and the period from March 21, 1997 (inception) to March 31, 1999 is unaudited) months' prior notice, or by the officer upon three months' prior written notice to the Company, with the Company obligated to pay salary and benefits hereunder until such termination. The annual salaries committed to under these agreements total approximately $1,000,000. In addition, three of the agreements provide for the payment of an annual cash bonus of up to 100 percent of the base annual salary of the three officers based upon the Company's market capitalization. At December 31, 1998 and for the quarter ended March 31, 1999, the Company has accrued compensation expense of $112,650 and $0, respectively, under these bonus provisions. 401(k) Plan--The Company participates in the Glyko Retirement Savings Plan (the 401(k) Plan). Most employees (the Participants) are eligible to participate following the start of their employment, on the earlier of the next occurring January 1 or July 1. Participants may contribute up to 15 percent of their current compensation to the 401(k) Plan or an amount up to a statutorily prescribed annual limit. The Company pays the direct expenses of the 401(k) Plan but does not currently match or make contributions to employee accounts. 1997 Stock Plan--In November 1997, the Board adopted, and in April 1998, the stockholders approved, the 1997 Stock Plan (the 1997 Plan), which provided for the reservation of a total of 3,000,000 shares of common stock for issuance under the 1997 Plan. In December 1998, the Board adopted, and in January 1999, the stockholders approved, an amendment to the 1997 Plan to increase the number of shares reserved for issuance under it to an aggregate of 5,000,000 and to add an "evergreen provision" providing for an annual increase in the number of shares which may be optioned or sold under the 1997 Plan without need for additional Board or stockholder action to approve such increase (which increase shall be the lesser of 4 percent of the then-outstanding capital stock, 2,000,000 shares, or a lower amount set by the Board). The 1997 Plan provides for the grant of stock options and the issuance of restricted stock by the Company to its employees, officers, directors, and consultants. 1998 Employee Stock Purchase Plan--In December 1998 the Board adopted, and in January 1999 the stockholders approved, the 1998 Employee Stock Purchase Plan (the 1998 Purchase Plan). A total of 250,000 shares of Company common stock has been reserved for issuance under the 1998 Purchase Plan, plus annual increases equal to the lesser of 0.5 percent of the outstanding capital stock, 200,000 shares, or a lesser amount set by the Board. As of December 31, 1998, no shares have been issued under the 1998 Purchase Plan. The implementation of this plan is contingent on the completion of an initial public offering. 1998 Director Option Plan--The 1998 Director Option Plan (the Director Plan) was adopted by the Board of Directors in December 1998 and approved by the stockholders in January 1999. The Director Plan provides for the grant of nonstatutory stock options to nonemployee directors. A total of 200,000 shares of Company common stock, plus an annual increase equal to the number of shares needed to restore the maximum aggregate number of shares available for sale under the Director Plan or the lesser of 0.5 percent of the outstanding capital stock, 200,000 shares, or a lesser amount set by the Board, have been reserved for issuance under the Director Plan. As of December 1998, no options were granted under the Director Plan. During the first quarter of 1999, the Board granted 789,774 stock options under the 1997 Plan to employees and directors of the Company at an average exercise price of $6.91 per share. The Company's management estimates that these stock option prices reflect current fair value. F-20 BIOMARIN PHARMACEUTICAL INC. AND SUBSIDIARIES (a development-stage company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Information with respect to the periods ended March 31, 1998 and 1999 and the period from March 21, 1997 (inception) to March 31, 1999 is unaudited) 10. SUPPLEMENTAL CASH FLOW INFORMATION: The following noncash transactions took place for the periods presented:
Period from Period from March 21, 1997 March 21, 1997 (Inception), Year ended (Inception), to December December 31, to December 31, 1997 1998 31, 1998 -------------- ------------ -------------- Common stock issued in exchange for notes....................... $2,500,000 $ -- $2,500,000 Compensation in the form of common stock and common stock options......................... 18,020 -- 18,020 Common stock and common stock warrants issued in exchange for brokerage services.............. 929,740 588,000 1,517,740 Bridge loan converted to common stock........................... 880,000 -- 880,000
11. GLYKO, INC. : On October 7, 1998, the Company entered into an agreement to acquire all of the outstanding stock of its affiliate, Glyko, Inc. The total consideration for the acquisition was $14,500,500, comprising 2,259,039 shares of common stock of the Company, valued at $6.00 per share, the assumption of options held by certain Glyko, Inc. employees to purchase shares of GBL's common stock, which would require 255,540 shares of the Company's common stock to be issued if fully exercised, and $500 in cash. The acquisition was accounted for as a purchase. The following unaudited pro forma consolidated financial information reflects the results of operations for the year ended December 31, 1998 and for the periods from March 21, 1997 (inception), to December 31, 1997 and 1998 as if the acquisition had occurred on January 1, 1998 and March 21, 1997 (inception), respectively:
Period from Period from March 21, 1997 March 21, 1997 (Inception), to Year ended (Inception), to December 31, December 31, December 31, 1997 1998 1998 --------------- ------------ --------------- Revenues..................... $ 1,995,562 $ 2,530,325 $ 4,345,887 Loss from operations......... (6,027,890) (13,044,201) (17,532,186) Net loss..................... (5,953,934) (12,379,832) (16,797,384) Net loss per share, basic and diluted..................... (0.57) (0.51) (0.93) Weighted average number of common shares outstanding... 10,464,474 24,214,135 18,133,509
12. SUBSEQUENT EVENT: On April 13, 1999, the Company entered into a convertible note financing agreement in the amount of $26,000,000. Of this amount, GBL invested $4,300,000. These notes bear interest at 10 percent per annum. F-21 BIOMARIN PHARMACEUTICAL INC. AND SUBSIDIARIES (a development-stage company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Information with respect to the periods ended March 31, 1998 and 1999 and the period from March 21, 1997 (inception) to March 31, 1999 is unaudited) All unpaid principal, together with all unpaid interest, shall be due and payable upon the earlier of (a) April 2002 (the "Maturity Date"), (b) immediately prior to a sale of all of the assets of the Company or a merger or acquisition of the Company with another entity, or (c) an initial public offering with net proceeds to the Company of at least $20,000,000. On the Maturity Date, in lieu of any repayment in cash, the Company has the right to convert the amounts owed under the notes, in whole or part, into fully paid and nonassessable shares of common stock of the Company. At any time prior to the Maturity Date, the notes automatically convert to shares of common stock of the Company immediately prior to (a) any merger or acquisition of the Company, (b) a sale of all the assets of the Company, or (c) an initial public offering with net proceeds to the Company of at least $20,000,000. The price at which the notes will convert into shares of common stock is initially set at $10.00 per share and is subject to certain adjustments for possible future events. The convertible note agreement also contains certain anti-dilutive provisions. In May 1999, BioMarin's wholly-owned subsidiary, Glyko, Inc., acquired key assets of the Biochemical Research Reagent Division of Oxford GlycoSciences Plc. The acquisition was made to increase Glyko, Inc.'s product offerings and was valued from $1.5 million to $2.1 million, depending on the future sales of the acquired products. F-22 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders of Glyko, Inc.: We have audited the balance sheets of Glyko, Inc. as of December 31, 1997, and October 7, 1998 (acquisition date), and the related statements of operations, changes in stockholders' equity (deficit), and cash flows for the years ended December 31, 1996 and 1997, and for the period from January 1, 1998 to October 7, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Glyko, Inc. as of December 31, 1997 and October 7, 1998, and the results of its operations and its cash flows for the years ended December 31, 1996 and 1997, and for the period from January 1, 1998 to October 7, 1998, in conformity with generally accepted accounting principles. /s/ ARTHUR ANDERSEN LLP San Francisco, California, March 17, 1999 F-23 GLYKO, INC. BALANCE SHEETS AS OF DECEMBER 31, 1997, AND OCTOBER 7, 1998
December 31, October 7, 1997 1998 ------------ ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents........................ $ 528,280 $ 24,010 Accounts receivable, net of allowance for doubtful accounts of $10,000, and $20,000, respectively.................................... 141,744 186,340 Due from related parties......................... 86,425 108,097 Inventories...................................... 95,210 76,595 Other assets..................................... 15,178 12,478 ------------ ------------ Total current assets........................... 866,837 407,520 PROPERTY AND EQUIPMENT, net........................ 118,910 93,368 OTHER ASSETS....................................... 2,206 2,206 ------------ ------------ Total assets................................... $ 987,953 $ 503,094 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES: Accounts payable................................. $ 20,380 $ 88,490 Accrued expenses................................. 96,116 102,805 Deferred rent.................................... 7,418 12,066 Deferred revenue................................. 10,675 1,525 Payable to former stockholder.................... 365,880 0 ------------ ------------ Total current liabilities...................... 500,469 204,886 DUE TO GLYKO BIOMEDICAL, LTD....................... 3,803,820 0 ------------ ------------ Total liabilities.............................. 4,304,289 204,886 ------------ ------------ STOCKHOLDERS' EQUITY (DEFICIT): Convertible preferred stock, $0.01 par value, 5,000 shares authorized, 2,000 shares issued and outstanding at December 31, 1997, and October 7, 1998 (acquisition date)......................... 20 20 Common stock, $0.01 par value, 15,000 shares authorized, 3,882 shares issued and outstanding at December 31, 1997, and October 7, 1998 (acquisition date).............................. 39 39 Additional paid-in capital....................... 8,999,005 12,679,727 Accumulated deficit.............................. (12,315,400) (12,381,578) ------------ ------------ Total stockholders' equity (deficit)........... (3,316,336) 298,208 ------------ ------------ Total liabilities and stockholders' equity (deficit)..................................... $ 987,953 $ 503,094 ============ ============
The accompanying notes are an integral part of these statements. F-24 GLYKO, INC. STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997, AND FOR THE PERIOD ENDED OCTOBER 7, 1998
Period from January 1, Year Ended Year Ended 1998, to December December October 7, 31, 1996 31, 1997 1998 ----------- ---------- ---------- REVENUES: Sales of products........................ $ 1,086,414 $1,016,665 $ 750,145 Sales of services........................ 210,709 186,317 115,019 Other revenues........................... 33,512 860,935 294,752 ----------- ---------- ---------- Total revenues......................... 1,330,635 2,063,917 1,159,916 OPERATING COSTS AND EXPENSES: Cost of products ........................ 391,194 400,841 231,423 Cost of services......................... 118,054 81,929 53,437 Research and development................. 1,014,966 633,086 613,055 Selling general and administrative....... 1,490,244 563,231 521,060 Other.................................... 0 0 (165,880) ----------- ---------- ---------- Income (Loss) from operations.......... (1,683,823) 384,830 (93,179) OTHER (LOSS) INCOME........................ 87,418 (2,045) (1,300) INTEREST INCOME............................ 18,367 12,610 28,301 ----------- ---------- ---------- Income (Loss) before income taxes...... (1,578,038) 395,395 (66,178) Provision for income taxes............. -- -- -- ----------- ---------- ---------- Net income (Loss)...................... $(1,578,038) $ 395,395 $ (66,178) =========== ========== ==========
The accompanying notes are an integral part of these statements. F-25 GLYKO, INC. STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997, AND FOR THE PERIOD ENDED OCTOBER 7, 1998
Preferred Total Stock Common Stock Additional Stockholders' ------------- ------------- Paid-in Accumulated Equity Shares Amount Shares Amount Capital Deficit (Deficit) ------ ------ ------ ------ ----------- ------------ ------------- BALANCE, January 1, 1996................... 2,000 $20 3,882 $39 $ 8,999,005 $(11,132,757) $(2,133,693) Net loss............... 0 0 0 0 0 (1,578,038) (1,578,038) ----- --- ----- --- ----------- ------------ ----------- BALANCE, December 31, 1996................... 2,000 20 3,882 39 8,999,005 (12,710,795) (3,711,731) Net income............. 0 0 0 0 0 395,395 395,395 ----- --- ----- --- ----------- ------------ ----------- BALANCE, December 31, 1997................... 2,000 20 3,882 39 8,999,005 (12,315,400) (3,316,336) Balance due to Glyko Biomedical, Ltd. converted to additional paid-in capital............... 0 0 0 0 3,680,722 0 3,680,722 Net loss for the period ended October 7, 1998 (acquisition date).... 0 0 0 0 0 (66,178) (66,178) ----- --- ----- --- ----------- ------------ ----------- BALANCE, October 7, 1998................... 2,000 $20 3,882 $39 $12,679,727 $(12,381,578) $ 298,208 ===== === ===== === =========== ============ ===========
The accompanying notes are an integral part of these statements. F-26 GLYKO, INC. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997, AND FOR THE PERIOD ENDED OCTOBER 7, 1998 (ACQUISITION DATE)
Period from January 1, 1998, Year Ended Year Ended to December December 31, October 31, 1996 1997 7, 1998 ----------- ------------ --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) income....................... $(1,578,038) $ 395,395 $ (66,178) Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: Depreciation.......................... 61,139 58,914 34,376 Loss on disposal of fixed assets...... 4,046 1,230 0 Gain on lease abandonment............. (62,538) 0 0 Gain on settlement of claim........... 0 0 (165,880) Changes in operating assets and liabilities: Accounts receivable................... 200,630 14,432 (44,596) Inventories........................... 40,066 (26,758) 18,615 Due from related parties.............. 0 (69,898) (21,672) Other assets.......................... (20,854) 10,841 2,701 Accounts payable...................... 52,357 (154,352) 68,110 Accrued expenses...................... (20,097) (113,195) 15,825 Deferred rent......................... 0 7,418 4,648 Deferred revenue...................... (174,386) 10,675 (9,150) Payable to former stockholder......... 0 0 (200,000) Payable to related parties............ 0 0 (132,235) ----------- --------- --------- Net cash (used in) provided by operating activities............... (1,497,675) 134,702 (495,436) ----------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment...... (61,061) (71,009) (8,834) ----------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Payment of capital lease obligations.... (14,016) 0 0 Investment from Glyko Biomedical........ 1,163,024 253,595 0 ----------- --------- --------- Net cash provided by financing activities......................... 1,149,008 253,595 0 ----------- --------- --------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS.............................. (409,728) 317,288 (504,270) CASH AND CASH EQUIVALENTS: Beginning of period..................... 620,720 210,992 528,280 ----------- --------- --------- End of period........................... $ 210,992 $ 528,280 $ 24,010 =========== ========= ========= SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS: Balance due to Glyko Biomedical converted to equity.................... 0 0 3,680,722 =========== ========= =========
The accompanying notes are an integral part of these statements. F-27 GLYKO, INC. NOTES TO FINANCIAL STATEMENTS 1. THE COMPANY AND DESCRIPTION OF THE BUSINESS: Glyko, Inc. (the Company) is a Delaware corporation that was incorporated in October 1990. Until October 7, 1998, the Company had been a wholly owned subsidiary of Glyko Biomedical, Ltd. (GBL), a Canadian company. The Company's principal activities are the sale of chemical kits and equipment incorporating its proprietary carbohydrate technology and the development of commercial applications based on complex carbohydrates. The Company has developed a line of analytic instrumentation laboratory products that include an imaging system, analysis software, and a chemical analysis kit referred to as analytic and diagnostic products, which are used in carbohydrate testing, including detection, separation, and sequencing. Shipment of these products began in December 1992. The Company's technology is called "FACE" or Fluorophore- Assisted Carbohydrate Electrophoresis. The Company is continuing to develop additional chemical kits for use with the imaging system and is also developing a line of diagnostic products based on carbohydrate technology. As further discussed in Note 10, on October 7, 1998, the Company was acquired by its affiliate, BioMarin Pharmaceutical Inc. (BioMarin). BioMarin is a biopharmaceutical company specializing in the discovery, development and commercialization of carbohydrate enzyme therapeutics. As consideration for the acquisition of all of the outstanding shares of the Company, BioMarin issued 2,259,039 shares of common stock to GBL and assumed stock options held by certain employees of the Company to purchase shares of GBL's common stock, which will require 255,540 shares of the Company's common stock to be issued, if fully exercised and paid $500 in cash. The accompanying financial statements include the balance sheet of the Company as of October 7, 1998 (acquisition date), and the statements of operations, changes in stockholders equity, and cash flows for the period from January 1, 1998, to October 7, 1998. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Use of Estimates The preparation of the Company's financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Significant estimates made by management include allowance for doubtful accounts receivable and certain other reserves. Cash and Cash Equivalents Cash and cash equivalents consist of amounts held with banks and short-term investments with original maturities of 90 days or less. Inventories Inventories consist of raw materials, analytic and diagnostic kits, and instrument-based systems held for sale. Inventories are stated at the lower of cost (first-in, first-out method) or estimated market value. The components of inventories are as follows:
December 31, 1997 October 7, 1998 ----------------- --------------- Raw materials............................ $90,647 $73,845 Finished products........................ 4,563 2,750 ------- ------- $95,210 $76,595 ======= =======
F-28 GLYKO, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) Property and Equipment Property and equipment are stated at cost. The cost and accumulated depreciation for property and equipment sold, retired, or otherwise disposed of are relieved from the accounts, and the resulting gains or losses are reflected in the statements of operations. Depreciation is computed using the straight- line method over the following estimated useful lives: Office furniture................................................ 5 years Computer equipment.............................................. 3 years Lab and production equipment.................................... 5 years
Revenue Recognition The Company recognizes product revenues and related cost of sales upon shipment of products. Service revenues are recognized upon completion of services as evidenced by the transmission of reports to customers. Other revenues, principally licensing, distribution and development fees, are recognized upon our satisfaction of our contractual obligations such as i) execution of contract; ii) certain milestones; and iii) certain anniversary dates from the effective date of the contract. There are no refund provisions related to these licensing, distribution and development fees. Payments received in advance for future product shipments or hardware maintenance and service contracts are classified as deferred revenue on the accompanying balance sheets. Upon shipment of products, revenue is recognized and the corresponding liability (deferred revenue) is reduced. Revenues from maintenance and service contracts are recognized monthly pro rata over the period of the contract, and the corresponding liability (deferred revenue) is reduced. Income Taxes The Company provides for income taxes under Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." Under SFAS No. 109, deferred income taxes are recorded to reflect the tax consequences on future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each period-end. The Company has a cumulative net operating loss carryforward since inception, resulting in net deferred tax assets. A valuation allowance is placed on the net deferred tax assets to reduce them to their net realizable values. 3. PROPERTY AND EQUIPMENT: Property and equipment at December 31, 1997, and October 7, 1998 consisted of the following:
December 31, 1997 October 7, 1998 ----------------- --------------- Lab equipment............................ $ 229,701 $ 231,586 Computer equipment....................... 94,712 101,661 Production equipment..................... 37,164 37,164 Office furniture......................... 13,510 13,510 Leasehold improvements................... 68,343 68,343 --------- --------- 443,430 452,264 Less: Accumulated depreciation........... (324,520) (358,896) --------- --------- Property and equipment, net............ $ 118,910 $ 93,368 ========= =========
Total depreciation expense for the years ended December 31, 1996 and 1997, and for the period from January 1, 1998 to October 7, 1998 was $61,139, $58,914, and $34,376, respectively. F-29 GLYKO, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) 4. INCOME TAXES: The significant components of net deferred tax assets and liabilities are as follows:
December 31, 1997 October 7, 1998 ----------------- --------------- Net operating loss carryforwards....... $ 4,573,000 $ 4,520,000 Research and development capitalized... 60,000 782,000 Research and development credit carryforwards......................... 595,000 668,000 Other.................................. (255,000) (249,000) Valuation allowance.................... (4,973,000) (5,721,000) ----------- ----------- Net deferred tax asset................. $ 0 $ 0 =========== ===========
The reconciliation of the effective tax rate is as follows:
Year Ended December 31 ------------------------------ Period Ended 1996 1997 October 7, 1998 -------------- ------------- ---------------- Amount % Amount % Amount % --------- --- -------- --- ---------- ----- U.S. statutory tax rate..... $(495,000) (34)% $ 96,000 34% $ 6,000 34% State taxes, net of federal income tax benefit......... (87,000) (6) 17,000 6 1,000 6 Research and development tax credit..................... (17,000) (1) (37,000) (13) (48,000) (259) Other....................... (155,000) (10) 4,000 2 53,000 284 Change in valuation allowance.................. 754,000 51 (80,000) (29) (12,000) (65) --------- --- -------- --- --------- ----- Provision for income taxes.................... $ 0 0% $ 0 0% $ 0 0% ========= === ======== === ========= =====
As of October 7, 1998, net operating loss carryforwards are approximately $11.9 million and $5.3 million for federal and California income tax purposes, respectively. Federal operating loss carryforwards expire from 2006 to 2012, and state operating loss carryforwards expire from 1998 to 2001. The Company also has research and development credits available to reduce future federal and California income taxes, if any, of approximately $452,000 and $216,000, respectively, at October 7, 1998 (acquisition date). These federal and state carryovers expire from 2007 to 2011. The Tax Reform Act of 1986 contains provisions that may limit, for federal and state tax purposes, the net operating loss carryforwards and research and development credits available to be used in any given year in certain situations, including sale of equity securities and other significant changes in ownership. As a result of the acquisition and the resultant change in ownership of the Company by BioMarin, the utilization of the Company's net operating losses will be limited and such net operating losses will only be available to offset the taxable income, if any, of the Company. F-30 GLYKO, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) 5. COMMITMENTS AND CONTINGENCIES: Leases The Company leases its facilities and office and other equipment under agreements that expire at various dates through 2000. Future minimum annual rental commitments under operating leases are as follows:
Years Ending October 7 ---------------------- 1999........................................................... $ 81,660 2000........................................................... 43,915 2001........................................................... -- 2002........................................................... -- 2003 and thereafter............................................ -- -------- $125,575 ========
Total rent expense for the years ended December 31, 1996 and 1997, and for the period from January 1, 1998 to October 7, 1998 was $274,284, $57,950 (net of sublease rental income) and $35,636 (net of sublease rental income), respectively. Product Liability and Lack of Insurance The Company is subject to the risk of exposure to product liability claims in the event that the use of its technology results in adverse effects during testing or commercial sale. The Company currently does not maintain product liability insurance. There can be no assurance that the Company will be able to obtain product liability insurance coverage at economically reasonable rates or that such insurance will provide adequate coverage against all possible claims. 6. CONVERTIBLE PREFERRED STOCK: The Company has authorized 5,000 shares of convertible preferred stock with a par value of $0.01 per share. The convertible preferred stock is entitled to a preference of $1,000 per share plus any declared but unpaid dividends upon voluntary or involuntary liquidation, dissolution, or winding up of the Company. The convertible preferred stock is convertible at the option of the holder into common stock of the Company. The number of shares of common stock into which shares of preferred may be converted is determined by multiplying the number of preferred shares to be converted by the conversion ratio in effect on the date of conversion. The conversion ratio is subject to adjustment in certain events. Holders of preferred stock are entitled to the number of votes as is equal to the number of shares of common stock into which such shares of preferred could be converted on the record date for the vote. 7. STOCK OPTION PLAN: GBL has a stock option plan (the Plan) under which options to purchase common stock in GBL may be granted by the Board of Directors to GBL's directors, officers, and consultants at not less than fair market value, less any permissible discounts, on the date of grant. Options granted under the Plan may be incentive stock options (as defined under Section 422 of the U.S. Internal Revenue Code) or nonstatutory stock options. Options are exercisable over a number of years specified at the time of the grant, which cannot exceed ten years. The maximum aggregate number of shares that may be granted and sold under the Plan is 3,000,000 shares. Directors, officers, consultants, and employees of the Company are also eligible under the Plan. F-31 GLYKO, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) The Company accounts for these option grants under APB Opinion No. 25, under which no compensation cost has been recognized, except for options granted to consultants, because, under the Plan, the option exercise price equals the market value of stock on the date of grant. In general, plan options vest over 48 months, and all options expire after five years or 90 days after employee termination. Had compensation cost for the Plan been determined consistently with FASB Statement No. 123, the Company's net income (loss) would have been increased to the following pro forma amounts to reflect the compensation expense associated with the grants to the Company's directors, officers, consultants, and employees:
Year Ended December 31 --------------------- Period Ended 1996 1997 October 7, 1998 ----------- -------- --------------- Net income (loss): As reported......................... $(1,578,038) $395,395 $ (66,178) Pro forma........................... (1,646,866) 312,666 (188,379)
Because the FASB Statement No. 123 method of accounting has not been applied to options granted prior to January 1, 1995, the resulting pro forma compensation cost may not be representative of that to be expected in future years. The fair value of each option granted is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants in 1996, 1997, and 1998, respectively: risk-free weighted average interest rates of 5.3 percent, 6.3 percent, and 5.4 percent; expected dividend yield of zero percent; expected life of four years for the Plan's options; expected volatility of 87 percent, 92 percent, 65 percent. 8. 401(k) PLAN: The Company participates in the Glyko Retirement Savings Plan (the 401(k) Plan). Most employees (Participants) are eligible to participate following the start of their employment on the earlier of the next occurring January 1 or July 1. Participants may contribute up to approximately 15 percent of their current compensation, up to a statutorily prescribed annual limit, to the 401(k) Plan. 9. RELATED-PARTY TRANSACTIONS: The Company subleases office and lab space, certain administrative functions, and research and development functions to BioMarin. BioMarin reimburses the Company for rent, salaries and related Company benefits, and other administrative costs, and the Company reimburses BioMarin for salaries and related benefits. Reimbursement of expenses:
Paid from Glyko, Paid from Inc. to BioMarin to BioMarin Glyko, Inc. Net -------- ----------- -------- March 21, 1997 (inception) to December 31, 1997....................................... $133,000 $373,848 $240,848 Year ended December 31, 1998................ 75,073 298,491 223,418 Quarter ended March 31, 1999................ 46,544 158,146 111,602 -------- -------- -------- March 21, 1997 (inception) to March 31, 1999....................................... $254,617 $830,485 $575,868 ======== ======== ========
F-32 GLYKO, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) BioMarin also purchased products and services from Glyko, Inc. at a 27% discount. This is the same discount that Glyko grants to any other company that it treats as a distributor. Purchases of products and services from Glyko, Inc. from BioMarin's inception (March 21, 1997) to October 8, 1998 were $160,455. At December 31, 1997, the Company had recorded an amount payable to stockholder of $365,880 representing the amount claimed by the stockholder relating to a facilities dispute with the Company. The Company had a cross-claim for royalty income which would reduce the stockholder's claim. This claim was settled during the year ended December 31, 1998, and the Company recorded a gain of $165,880, as the amount of the settlement was less than the amount provided for by the Company. 10. ACQUISITION BY BIOMARIN: On October 7, 1998, GBL entered into an agreement to sell all of the outstanding stock of the Company to its affiliate, BioMarin. The total consideration for the acquisition was $14,500,500, comprising 2,259,039 shares of common stock of BioMarin, valued at $6.00 per share, the assumption of options held by certain employees of the Company to purchase shares of GBL's common stock, which will require 255,540 shares of BioMarin common stock to be issued if fully exercised, and $500 in cash. The acquisition was accounted for as a purchase. In conjunction with the sale, GBL converted $3,680,722 of its intercompany receivable into equity in the Company. The remaining balance of $1,212,278 was repaid to GBL in cash. F-33 Liver biopsy from a dog with MPS-I LEGEND: Liver biopsy from a dog with MPS-I showing excessive carbohydrate storage Liver biopsy from a dog with MPS-I treated with BM101 LEGEND: Liver biopsy from a dog with MPS-I showing significant removal of stored carbohydrate after treatment with our enzyme Gel image of MPS material in children with various MPS diseases LEGEND: Color enhanced image of a BioMarin diagnostic gel owing a distinctive carbohydrate composition in the urine of a child with an MPS disease. LEGEND: Culture of Aspergillus, a fungus which causes life-threatening infections in patients with comprised immune systems. Aspergillus culture Aspergillus culture treated with BM 104 4,500,000 Shares BIOMARIN PHARMACEUTICAL INC. Common Stock [LOGO OF BIOMARIN PHARMACEUTICALS, INC.] --------------------- PROSPECTUS --------------------- Until , all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. U.S. Bancorp Piper Jaffray Bank J. Vontobel & Co AG Schroders & Co. Inc. Leerink Swann & Company , 1999 PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 13. Other Expenses of Issuance and Distribution The following table sets forth the costs and expenses, other than underwriting discounts and commissions, payable by the Registrant in connection with the sale of Common Stock being registered. All amounts are estimates except the registration fee and the NASD filing fee.
Amount To Be Paid ---------- Registration fee............................................... $ 18,703 NASD filing fee................................................ 6,350 Nasdaq National Market listing fee............................. 90,000 SWX New Market filing fees..................................... 15,000 Printing and engraving......................................... 365,000 Legal fees and expenses........................................ 525,000 Accounting fees and expenses................................... 105,000 Blue Sky fees and expenses..................................... 20,000 Transfer Agent fees............................................ 10,000 Miscellaneous.................................................. 345,000 ---------- Total...................................................... $1,500,053 ==========
- ------------------------------- Item 14. Indemnification of Directors and Officers Reference is made to the Amended and Restated Certificate of Incorporation of the Registrant; the Bylaws of the Registrant; Section 145 of the Delaware General Corporation Law; and the form of indemnification agreement filed herewith as Exhibit 10.1 which, among other things, and subject to certain conditions, authorize the Registrant to indemnify, or indemnify by their terms, as the case may be, the directors and officers of the Registrant against certain liabilities and expenses incurred by such persons in connection with claims made by reason of their being such a director or officer. The form of the Underwriting Agreement filed as Exhibit 1.1 to this Registration Statement provides for indemnification by the Underwriters and their controlling persons, on the one hand of the Registrant and its controlling persons on the other hand, for certain liabilities arising under the Securities Act of 1933, as amended (the "Act"), the Securities Exchange Act of 1934, as amended or otherwise. The Registrant maintains director's and officer's insurance providing indemnification against certain liabilities for certain of the Registrant's directors, officers, affiliates, partners or employees. The indemnification provisions in the Registrant's Bylaws, and the indemnification agreements entered into between the Registrant and its directors and executive officers, may be sufficiently broad to permit indemnification of the Registrant's officers and directors for liabilities arising under the Act. Reference is made to the following documents filed as exhibits to this Registration Statement regarding relevant indemnification provisions described above and elsewhere herein: (1) the form of Underwriting Agreement, filed as Exhibit 1.1; (2) the Amended and Restated Certificate of Incorporation, filed as Exhibit 3.1B; (3) the Bylaws of the Registrant, filed as Exhibit 3.2; and (4) the form of Indemnification Agreement entered into by the Registrant with each of its directors and executive officers, filed as Exhibit 10.1. II-1 Item 15. Recent Sales of Unregistered Securities Since its inception, the Registrant has issued the following unregistered securities: (1) On April 19, 1997, the Registrant issued and sold 1,500,000 shares of common stock to an institutional investor for aggregate consideration of $1,500,000. (2) On September 24, 1997, the Registrant issued and sold 7,000,000 shares of common stock to an institutional investor in exchange for a license valued at $7,000,000. (3) On October 1, 1997, the Registrant issued and sold 2,500,000 shares of common stock to three founders for aggregate consideration in the form of promissory notes in the aggregate principal amount of $2,500,000. (4) On October 1, 1997, the Registrant issued and sold 3,289,000 shares of common stock and a warrant to purchase 299,000 shares of common stock to a group of institutional investors, individuals and venture capital funds for aggregate consideration of $2,911,500. (5) On October 16, 1997, the Registrant issued and sold 750,000 shares of common stock to a group of individuals for aggregate consideration of $750,000. (6) On December 30, 1997, the Registrant issued and sold 5,527,500 shares of common stock and a warrant to purchase 502,500 shares of common stock to an institutional investor and a venture capital fund for aggregate consideration of $5,016,000. (7) On June 30, 1998, the Registrant issued and sold 598,535 shares of common stock to a group of institutional investors and a venture capital fund for aggregate consideration of $3,328,000. (8) On July 14, 1998, the Registrant issued and sold a total of 1,385,414 shares of common stock to a group of institutional investors, individuals and venture capital funds for aggregate consideration of $7,915,010. (9) On August 3, 1998, the Registrant issued and sold a total of 31,386 shares of common stock to a group of institutional investors and individuals for aggregate consideration of $175,998. (10) On September 4, 1998, the Registrant issued and sold a total of 1,333,333 shares of common stock to an institutional investor for aggregate consideration of $7,999,998. (11) On October 7, 1998, the Registrant issued 2,259,039 shares of common stock to Glyko Biomedical, valued at $13,554,234, and assumed certain stock options which were converted into options to purchase 255,540 shares of common stock of the Registrant as consideration for the acquisition of 100% of the voting securities of a subsidiary of Glyko Biomedical. (12) On April 12, 1999, the Registrant issued and sold to a group of institutional investors $26.0 million convertible promissory notes convertible, according to their terms, into shares of the Registrant's common stock initially at a price of $10.00 per share, subject to subsequent adjustment. (13) From November 1997 to May 31, 1999, the Registrant issued and sold 1,973 shares of common stock to employees and directors of and consultants to the Registrant upon exercise of stock options granted pursuant to the Registrant's 1997 Stock Plan and 1998 Director Plan. (14) Since its incorporation, the Registrant has issued, and there remain outstanding, options to purchase an aggregate of 3,773,226 shares of common stock with exercise prices ranging from $1.00 per share to the per share price in this offering. There were no underwriters employed in connection with any of the transactions set forth in Item 15. For additional information concerning these equity investment transactions, reference is made to the information contained under the caption "Certain Transactions" in the form of prospectus included herein. II-2 The issuances described in Items 15(1), 15(2), and 15(4) through 15(12) were deemed to be exempt from registration under the Act in reliance on Section 4(2) of the Act as transactions by an issuer not involving a public offering. In addition, the issuances described in Items 15(3), 15(13) and 15 (14) were deemed exempt from registration under the Act in reliance on Rule 701 promulgated thereunder as transactions pursuant to compensatory benefit plans and contracts relating to compensation. The recipients of securities in each such transaction represented their intention to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the share certificates and other instruments issued in such transactions. All recipients either received adequate information about the Registrant or had access, through employment or other relationships, to such information. Item 16. Exhibits and Financial Statement Schedules (a) Exhibits
Exhibit Number Description of Document ------- ----------------------- 1.1 Form of Underwriting Agreement. 2.1** Share Exchange Agreement with Glyko Biomedical, Ltd. 3.1A** Amended and Restated Certificate of Incorporation of BioMarin Pharmaceutical Inc., a Delaware Corporation, as filed on March 22, 1999. 3.1B(1)** Form of Amended and Restated Certificate of Incorporation of BioMarin Pharmaceutical Inc., a Delaware Corporation. 3.2** Amended and Restated Bylaws of BioMarin Pharmaceutical Inc., a Delaware corporation. 4.1** Form of Amended and Restated Registration Rights Agreement, by and among the Company and the investors named therein. 5.1 Opinion of Wilson Sonsini Goodrich & Rosati. 10.1** Form of Indemnification Agreement for directors and officers. 10.2** 1997 Stock Plan, as amended on December 22, 1998, and forms of agreements thereunder. 10.3** 1998 Director Option Plan and forms of agreements thereunder 10.4** 1998 Employee Stock Purchase Plan and forms of agreements thereunder. 10.5** Amended and Restated Founder's Stock Purchase Agreement with Dr. John C. Klock dated as of October 1, 1997 with exhibits. 10.6** Amended and Restated Founder's Stock Purchase Agreement with Grant W. Denison, Jr. dated as of October 1, 1997 with exhibits. 10.7** Amended and Restated Founder's Stock Purchase Agreement with Dr. Christopher M. Starr dated as of October 1, 1997 with exhibits. 10.8** Employment Agreement with Dr. John C. Klock dated June 26, 1997, as amended. 10.9** Employment Agreement with Grant W. Denison, Jr. dated June 26, 1997, as amended. 10.10** Employment Agreement with Dr. Christopher M. Starr dated June 26, 1997, as amended. 10.11** Employment Agreement with Raymond W. Anderson dated June 22, 1998, as amended. 10.12** Employment Agreement with Stuart J. Swiedler, M.D., Ph.D., dated May 29, 1998, as amended.
II-3
Exhibit Number Description of Document ---------- ----------------------- 10.13** Employment Agreement with Emil Kakkis, M.D., Ph.D., dated June 30, 1998, as amended. 10.14** Employment Agreement between Brian K. Brandley, Ph.D and Glyko, Inc. dated February 22, 1998, as amended. 10.15** License Agreement with Glyko Biomedical, Ltd. dated June 26, 1997 with exhibits attached. 10.16(2)** Option Agreement with W.R. Grace & Co. dated as of May 1, 1998. 10.17(2) Grant Terms and Conditions Agreement with Harbor-UCLA Research and Education Institute dated April 1, 1997, as amended. 10.18(2) License Agreement with Womens and Children's Hospital, Adelaide, Australia dated August 14, 1998. 10.19** Lease Agreement dated May 18, 1998 for 371 Bel Marin Keys Boulevard, as amended. 10.20** Standard NNN Lease dated June 25, 1998 for 46 Galli Drive. 10.21** Standard Industrial Commercial Single-Tenant Lease dated May 29, 1998 for 110 Digital Drive, as amended. 10.22** Sublease dated June 24, 1998 for 1123 West Carson Street. 10.23** Commercial Lease and Deposit Receipt with Glyko, Inc. for 11 Pimintel Court and 13 Pimintel Court, dated December 23, 1996. 10.24 Collaboration Agreement with Genzyme Corporation dated September 4, 1998. 10.25** Purchase Agreement with Genzyme Corporation dated September 4, 1998. 10.26** Subscription Agreement with Genzyme dated September 4, 1998. 10.27** Form of Convertible Note Purchase Agreement dated as of April 12, 1999 with form of convertible promissory note. 10.28** Astro License Agreement dated December 18, 1990 among Glyko, Inc., Astromed, Ltd., and Astroscan, Ltd. 10.29** Glycomed License Agreement dated December 18, 1990 between Glyko, Inc., and Glycomed, Inc. 10.30** Operating Agreement with Genzyme Corporation 21.1** List of Subsidiaries 23.1 Consent of Independent Public Accountants. 23.2 Consent of Counsel (included in Exhibit 5.1). 24.1** Power of Attorney. 27.1** Financial Data Schedule (available in EDGAR format only).
------------------------------- * To be filed by Amendment. ** Previously filed (1) As proposed to be filed with the Secretary of State of the State of Delaware prior to the effectiveness of the offering. (2) This Exhibit has been filed separately with the Commission pursuant to an application for confidential treatment. The confidential portions of this Exhibit have been omitted and are marked by an asterisk. II-4 (b) Financial Statement Schedule None. Schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or notes thereto. Item 17. Undertakings Insofar as indemnification for liabilities arising under the Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions referenced in Item 14 of this Registration Statement or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer, or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered hereunder, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes that for the purpose of determining any liability under the Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. The undersigned Registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreements certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser. II-5 SIGNATURES Pursuant to the of the Securities Act of 1933, the Registrant has duly caused this amended Registration Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Novato, State of California, on this 20th day of July, 1999. Biomarin Pharmaceutical Inc. /s/ Raymond W. Anderson By: _________________________________ Raymond W. Anderson Chief Financial Officer and Vice President of Finance and Administration Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- Grant W. Denison, Jr.* Chief Executive Officer July 20, 1999 ______________________________________ and Chairman of the Board Grant W. Denison, Jr. (Principal Executive Officer) /s/ Raymond W. Anderson Chief Financial Officer July 20, 1999 ______________________________________ and Vice President of Raymond W. Anderson Finance and Administration (Principal Financial and Accounting Officer) Ansbert S. Gadicke* Director July 20, 1999 ______________________________________ Ansbert S. Gadicke, M.D., Ph.D. John C. Klock, M.D.* Director July 20, 1999 ______________________________________ John C. Klock, M.D. Erich Sager* Director July 20, 1999 ______________________________________ Erich Sager Gwynn R. Williams* Director July 20, 1999 ______________________________________ Gwynn R. Williams
/s/ Raymond W. Anderson *By: ____________________________ Raymond W. Anderson Attorney-in-fact II-6 EXHIBIT INDEX
Exhibit Number Description of Document ------- ----------------------- 1.1 Form of Underwriting Agreement. 2.1** Share Exchange Agreement with Glyko Biomedical, Ltd. 3.1A** Amended and Restated Certificate of Incorporation of BioMarin Pharmaceutical Inc., a Delaware Corporation, as filed on March 22, 1999. 3.1B(1)** Form of Amended and Restated Certificate of Incorporation of BioMarin Pharmaceutical Inc., a Delaware Corporation. 3.2** Amended and Restated Bylaws of BioMarin Pharmaceutical Inc., a Delaware corporation. 4.1** Form of Amended and Restated Registration Rights Agreement, by and among the Company and the investors named therein. 5.1 Opinion of Wilson Sonsini Goodrich & Rosati. 10.1** Form of Indemnification Agreement for directors and officers. 10.2** 1997 Stock Plan as amended on December 22, 1998 and forms of agreements thereunder. 10.3** 1998 Director Option Plan and forms of agreements thereunder. 10.4** 1998 Employee Stock Purchase Plan and forms of agreements thereunder. 10.5** Amended and Restated Founder's Stock Purchase Agreement with Dr. John C. Klock dated as of October 1, 1997, with exhibits. 10.6** Amended and Restated Founder's Stock Purchase Agreement with Grant W. Denison, Jr. dated as of October 1, 1997, with exhibits. 10.7** Amended and Restated Founder's Stock Purchase Agreement with Dr. Christopher M. Starr dated as of October 1, 1997, with exhibits. 10.8** Employment Agreement with Dr. John C. Klock dated June 26, 1997, as amended. 10.9** Employment Agreement with Grant W. Denison, Jr. dated June 26, 1997, as amended. 10.10** Employment Agreement with Dr. Christopher M. Starr dated June 26, 1997, as amended. 10.11** Employment Agreement with Raymond W. Anderson dated June 22, 1998, as amended. 10.12** Employment Agreement with Stuart J. Swiedler, M.D., Ph.D., dated May 29, 1998, as amended. 10.13** Employment Agreement with Emil Kakkis, M.D., Ph.D., dated June 30, 1998, as amended. 10.14** Employment Agreement between Brian K. Brandley PhD and Glyko Inc. dated February 22, 1998, as amended. 10.15** License Agreement with Glyko Biomedical, Ltd. dated June 26, 1997 with exhibits attached.
Exhibit Number Description of Document ---------- ----------------------- 10.16(2)** Option Agreement with W.R. Grace & Co. dated as of May 1, 1998. 10.17(2) Grant Terms and Conditions Agreement with Harbor-UCLA Research and Education Institute dated April 1, 1997, as amended. 10.18(2) License Agreement with Womens and Children's Hospital Adelaide, Australia dated August 14, 1998. 10.19** Lease Agreement dated May 18, 1998 for 371 Bel Marin Keys Boulevard, as amended. 10.20** Standard NNN Lease dated June 25, 1998 for 46 Galli Drive. 10.21** Standard Industrial Commercial Single-Tenant Lease dated May 29, 1998 for 110 Digital Drive, as amended. 10.22** Sublease dated June 24, 1998 for 1123 West Carson Street. 10.23** Commercial Lease and Deposit Receipt with Glyko, Inc. for 11 Pimintel Court and 13 Pimintel Court, dated December 23, 1996. 10.24 Collaboration Agreement with Genzyme Corporation dated September 4, 1998. 10.25** Purchase Agreement with Genzyme Corporation dated September 4, 1998. 10.26** Subscription Agreement with Genzyme dated September 4, 1998. 10.27** Form of Convertible Note Purchase Agreement dated as of April 12, 1999 with form of convertible promissory note. 10.28** Astro License Agreement dated December 18, 1990 among Glyko, Inc., Astromed, Ltd., and Astroscan, Ltd. 10.29** Glycomed License Agreement dated December 18, 1990 between Glyko, Inc., and Glycomed, Inc. 10.30** Operating Agreement with Genzyme Corporation 21.1** List of Subsidiaries 23.1 Consent of Independent Public Accountants. 23.2 Consent of Counsel (included in Exhibit 5.1). 24.1** Power of Attorney. 27.1** Financial Data Schedule (available in EDGAR format only).
-------- * To be filed by Amendment. ** Previously filed. (1) As proposed to be filed with the Secretary of State of the State of Delaware prior to the effectiveness of the offering. (2) This Exhibit has been filed separately with the Commission pursuant to an application for confidential treatment. The confidential portions of this Exhibit have been omitted and are marked by an asterisk. EX-1.1 2 FORM OF UNDERWRITING AGREEMENT EXHIBIT 1.1 BIOMARIN PHARMACEUTICAL INC. Common Stock (par value $0.001 per share) ------------ U.S. Underwriting Agreement ------------ July_______, 1999 Bank J. Vontobel & Co AG U.S. Bancorp Piper Jaffray Inc. (the "Global Coordinators") As representatives of the several U.S. Underwriters and Vontobel Securities Ltd. c/o U.S. Bancorp Piper Jaffray Inc. Piper Jaffray Tower 222 South Ninth Street Minneapolis, MN 55402 The Underwriters named in Schedule 1 hereto (the "U.S. Underwriters") and Vontobel Securities Ltd. Dear Sirs: This agreement relates to the proposed offer and sale of up to 4,500,000 shares of common stock, par value $0.001 per share (the "Common Stock") of Biomarin Pharmaceutical Inc., a Delaware corporation (the "Company") pursuant to the issuance and sale by the Company of shares of Common Stock, as follows (the "Offering"): (a) On April 22, 1999, at a meeting of the Board of Directors of the Company duly called and held at which a quorum was present throughout, the Board of Directors duly adopted resolutions authorizing the issuance and sale of an aggregate of ______________ shares of Common Stock (the "U.S. New Shares") by the Company. (b) The Company proposes, subject to the terms and conditions stated herein, to issue and sell the U.S. New Shares to the U.S. Underwriters as set out herein. (c) In addition, the Company proposes, subject to the terms and conditions stated herein, to sell to the U.S. Underwriters, at the election of the Global Coordinators, up to _____________ additional shares of Common Stock (the "U.S. Greenshoe Shares"; and together with the U.S. New Shares, the "U.S. Offered Shares"). (d) The total of the U.S. Offered Shares and the International Offered Shares shall not exceed the 4,500,000 shares of Common Stock sold pursuant to the Offering. 1. Sale, Underwriting, Purchase and Listing ---------------------------------------- Subject to the terms and conditions herein set forth: (a) The Company agrees to sell to each U.S. Underwriter named in Schedule 1 hereto the U.S. New Shares with effect from the Closing Date (as defined in Section 4 hereof) at a price to be agreed between the Company and the Global Coordinators pursuant to a separate pricing agreement (the "Offer Price"); and each such U.S. Underwriter agrees, severally and not jointly, to purchase such number of U.S. New Shares as is set forth for such U.S. Underwriter in Schedule 1 from the Company at the Offer Price. (b) The Company mandated Bank J. Vontobel & Co AG ("Bank Vontobel") to make an application on its behalf for the shares of Common Stock of the Company issued and outstanding from time to time to be listed for trading with official quotation (Hauptsegment) on the SWX New Market; and Bank Vontobel agreed to make such application and to use its best efforts to obtain such listing as promptly as possible. The Company agrees to provide Bank Vontobel in due time with all documents and information requested by Bank Vontobel to enable Bank Vontobel to make such an application with the SWX New Market. 3 (c) Greenshoe Shares (i) To the extent that in connection with the Offering any transactions are carried out for the purpose of covering over- allotments in the sale of the U.S. New Shares or in connection with bona fide stabilization activities in accordance with local laws and regulations, and the Global Coordinators determine on behalf of the U.S. Underwriters that additional shares of Common Stock are needed in connection with such transaction, the Company shall sell the U.S. Greenshoe Shares to the Global Coordinators on behalf of the U.S. Underwriters such number of U.S. Greenshoe Shares as shall be requested by the Global Coordinators at the Offer Price. (ii) The Global Coordinators shall notify the Company no later than 10.00 a.m. (Zurich time) on [____________ ___,] 1999 (the 30th day after the date of this Agreement) of the number of U.S. Greenshoe Shares which will be required and the time and date for payment for and delivery of such Greenshoe Shares (which time and date shall not be less than two (2) and not more than fifteen (15) business days after the exercise of such option, nor in any event prior to the Closing Date). (iii) Each U.S. Underwriter agrees, severally and not jointly, that such U.S. Underwriter will purchase its pro rata share (based on its aggregate obligation to purchase New Shares) of any U.S. Greenshoe Shares at the Offer Price, subject to such adjustments as the Global Coordinators in their absolute discretion shall determine. (d) In consideration of the agreement by the U.S. Underwriters to purchase the U.S. Offered Shares as set forth above, the Company shall pay to the U.S. Underwriters aggregate management, selling and underwriting commissions of ___ per cent of the Offer Price for each U.S. Offered Share purchased from it (the "Managers' Commission"). The Global Coordinators shall be entitled to deduct the Managers' Commission from the Offer Price to be paid for the U.S. Offered Shares pursuant to Section 4 of this Agreement. (e) The Company understands that the U.S. Underwriters and Vontobel Securities Ltd. propose to make a public offering of the U.S. Offered Shares in the United States as soon as the Global Coordinators deem advisable after this Agreement has been executed and delivered. Bank Vontobel will sell U.S. Offered Shares only through its affiliate, Vontobel Securities Ltd. Any U.S. Offered Shares so sold by Vontobel Securities Ltd. will be purchased by Vontobel Securities Ltd. from Bank Vontobel at 4 the Closing Date (or the Greenshoe Closing Date as the case may be) at a per share purchase price equal to the Offer Price or such Purchase Price less an amount to be mutually agreed upon by Vontobel Securities Ltd. and Bank Vontobel which amount shall not be greater than the Managers' Commission. (f) It is also understood that the Company is concurrently entering into an agreement dated the date hereof (the "International Underwriting Agreement") providing for the sale by the Company of an aggregate of ____________ shares of Common Stock (the "International Offered Shares"), including the overallotment option thereunder, through arrangements with certain managers in Switzerland and elsewhere outside the United States (the "International Managers") for whom Bank Vontobel and U.S. Bancorp Piper Jaffray Inc. are acting as lead managers and Global Coordinators. Anything herein or therein to the contrary notwithstanding, the respective closings under this Agreement and the International Underwriting Agreement are hereby expressly made conditional on one another. The U.S. Underwriters hereunder and the International Managers are simultaneously entering into an Agreement between International and U.S. Underwriting Syndicates (the "Agreement between Syndicates") which provides, among other things, for the transfer of shares of Common Stock between the two syndicates. Except as the context may otherwise require, references hereunder to the Offered Shares shall include all the shares of Common Stock which may be sold pursuant to this Agreement or the International Underwriting Agreement. (g) In connection with the offer and sale of the International Offered Shares, the Company has prepared a preliminary international prospectus dated July 6, 1999 (the "Initial International Prospectus"), and will prepare a final international prospectus, expected to be dated ____________ ___, 1999 (the "International Prospectus"), each in English, for use in connection with the offer and sale of such shares. The Company hereby confirms that it has authorized the use by the International Managers of the International Preliminary Prospectus and the International Prospectus, as the same may be amended or supplemented by the Company from time to time, in connection with the offer and sale of such shares, for the period during which a prospectus is required by applicable law to be delivered in connection with sales of such shares. (h) The Company has filed with the Securities and Exchange Commission (the "Commission") a registration statement on Form S-1 (No. 333-77701) under the Securities Act of 1933, as amended (the "1933 Act") covering the registration of the U.S. Offered Shares and any shares of Common Stock sold hereunder that are sold or resold in the United States in transactions not exempt from registration under Section 5 4(1) or 4(3) of the 1933 Act, including the related preliminary prospectus or prospectuses. Promptly after execution and delivery of this Agreement, the Company will either (i) prepare and file a prospectus in accordance with the provisions of Rule 430A ("Rule 430A") of the rules and regulations of the Commission under the 1933 Act (the "1933 Act Regulations") and paragraph (b) of Rule 424 ("Rule 424(b)") of the 1933 Act Regulations or (ii) if the Company has elected to rely upon Rule 434 ("Rule 434") of the 1933 Act Regulations, prepare and file a term sheet (a "Term Sheet") in accordance with the provisions of Rule 434 and Rule 424(b). The information included in such prospectus or in such Term Sheet, as the case may be, that was omitted from such registration statement at the time it became effective but that is deemed to be part of such registration statement at the time it became effective (a) pursuant to paragraph (b) of Rule 430A is referred to as "Rule 430A Information" or (b) pursuant to paragraph (d) of Rule 434 is referred to as "Rule 434 Information." Each prospectus used before such registration statement became effective, and any prospectus that omitted, as applicable, the Rule 430A Information or the Rule 434 Information, that was used after such effectiveness and prior to the execution and delivery of this Agreement, is herein called a "U.S. Preliminary Prospectus." Such registration statement, including the exhibits thereto and schedules thereto at the time it became effective and including the Rule 430A Information or the Rule 434 Information, as applicable, is herein called the "Registration Statement." Any registration statement filed pursuant to Rule 462(b) of the 1933 Act Regulations is herein referred to as the "Rule 462(b) Registration Statement," and after such filing the term "Registration Statement" shall include the Rule 462(b) Registration Statement. The final prospectus in the form first furnished to the U.S. Underwriters and Vontobel Securities Ltd. for use in connection with the offering of the Offered Shares is herein called the "U.S. Prospectus." If Rule 434 is relied on, the term "U.S. Prospectus" shall refer to the U.S. Preliminary Prospectus dated ____________ ___, 1999 together with the Term Sheet and all references in this Agreement to the date of the Prospectus shall mean the date of the Term Sheet. For purposes of this Agreement, all references to the Registration Statement, any U.S. Preliminary Prospectus, the U.S. Prospectus or any Term Sheet or any amendment or supplement to any of the foregoing shall be deemed to include the copy filed with the Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval system ("EDGAR"). The Company hereby confirms that it has authorized the use by the U.S. Underwriters and Vontobel Securities Ltd. of each U.S. Preliminary Prospectus and the U.S. Prospectus, as the same may be amended or supplemented by the Company from time to time, in connection with the offer and sale of the U.S. Offered Shares and by underwriters and dealers for purposes of resales of shares of Common Stock in the United States that are not exempt from Section 4(1) or 4(3) of the Securities Act. The U.S. Prospectus and the International 6 Prospectus are herein collectively called the "Prospectuses" and individually each, a "Prospectus." 2. Representations and Warranties ------------------------------ (a) The Company represents and warrants, as of the date hereof, to each U.S. Underwriter and Vontobel Securities Ltd. that: (i) Each of the Registration Statement and any Rule 462(b) Registration Statement has become effective under the 1933 Act and no stop order suspending the effectiveness of the Registration Statement or any Rule 462(b) Registration Statement has been issued under the 1933 Act and no proceedings for that purpose have been instituted or are pending or, to the knowledge of the Company, are contemplated by the Commission, and any request on the part of the Commission for additional information has been complied with. At the respective times the Registration Statement, any Rule 462(b) Registration Statement and any post-effective amendments thereto became effective, the Registration Statement, the Rule 462(b) Registration Statement and any amendments and supplements thereto complied in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations and did not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; any U.S. Prospectus, any U.S. Preliminary Prospectus and any supplement thereto or prospectus wrapper prepared in connection therewith, at their respective times of issuance and at the Closing Date (and, if any Greenshoe Shares are purchased, at the Greenshoe Closing Date), complied and will comply in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations. Neither any Prospectus nor any amendments or supplements thereto (including any prospectus wrapper), at the time such Prospectus or any such amendment or supplement was issued and at the Closing Date (and, if any Greenshoe Shares are purchased, at the Greenshoe Closing Date), included or will include an untrue statement of a material fact or omitted or will omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. If Rule 434 is used, the Company will comply with the requirements of Rule 434 and the U.S. Prospectus shall not be "materially different", as such term is used in Rule 434, from the prospectus included in the Registration Statement at the time it became 7 effective. The representations and warranties in this subsection shall not apply to statements in or omissions from the Registration Statement or any Prospectus made in reliance upon and in conformity with information furnished to the Company in writing by any U.S. Underwriter or Vontobel Securities Ltd. through the Global Coordinators expressly for use in the Registration Statement or any such Prospectus. Each U.S. Preliminary Prospectus and the prospectus filed as part of the Registration Statement as originally filed or as part of any amendment thereto, or filed pursuant to Rule 424 under the 1933 Act, complied when so filed in all material respects with the 1933 Act Regulations and each U.S. Preliminary Prospectus and the U.S. Prospectus delivered to the U.S. Underwriters and Vontobel Securities Ltd. for use in connection with this offering was identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T. (ii) The authorized, issued and outstanding capital stock of the Company is as set forth in each Prospectus in the column entitled "Actual" under the caption "Capitalization" (except for subsequent issuances, if any, pursuant to this Agreement and the International Underwriting Agreement, pursuant to employee benefit plans referred to in each Prospectus, pursuant to the conversion of the Company's preferred stock on the Closing Date as described in each Prospectus or pursuant to the exercise of options or warrants referred to in each Prospectus). The shares of issued and outstanding capital stock of the Company, have been duly authorized and validly issued, fully paid and non-assessable and have been issued in compliance with all U.S. federal and state securities laws; none of the outstanding shares of capital stock of the Company, was issued in violation of the preemptive or other similar rights of any security holder of the Company and such security holders are not subject to personal liability by reason of being such holders; (iii) Upon delivery of the Offered Shares to be delivered to the U.S. Underwriters pursuant to Section 4 of this Agreement and to the International Managers pursuant to the International Underwriting Agreement on the Closing Date or Greenshoe Closing Date, respectively, and payment therefore as provided herein and therein, it will have delivered good and valid title thereto to the U.S. Underwriters and the International Managers, free and clear of all liens, pledges, encumbrances, equities and claims; and there exists no agreement or 8 arrangement with respect to the voting, sale or disposition of the Offered Shares sold by it; (iv) The Offered Shares to be purchased by the U.S. Underwriters and the International Managers from the Company have been duly authorized for issuance and sale to the U.S. Underwriters pursuant to this Agreement and the International Underwriting Agreement and, when issued and delivered by the Company pursuant to this Agreement and the International Underwriting Agreement against payment of the consideration set forth herein and therein, will be validly issued and fully paid and non-assessable; the Common Stock conforms to all statements relating thereto contained in the Prospectuses and such description conforms to the rights set forth in the instruments defining the same; no holder of the Offered Shares will be subject to personal liability by reason of being such a holder; and the issuance of the Offered Shares is not subject to the preemptive or other similar rights of any security holder of the Company; (v) Except as described in each of the Prospectuses, (i) there are no outstanding securities of the Company convertible into or exchangeable for, or warrants, rights or options to purchase from the Company, or obligations of the Company to issue, the Common Stock or any other class of shares of the Company; (ii) all of the issued and outstanding capital stock of each subsidiary of the Company (each a "Subsidiary") has been duly authorized and validly issued, is fully paid and non-assessable and is owned by the Company, directly or indirectly, free and clear of any liens, pledges, encumbrances, equities or claims; and (iii) none of the outstanding shares of capital stock of any Subsidiary was issued in violation of the preemptive or similar rights of any security holder of such Subsidiary. The Subsidiaries of the Company other than Glyko, Inc., considered in the aggregate as a single Subsidiary do not constitute a "significant subsidiary" as defined in Rule 1-02 of Regulation S-X; (vi) The accountants who certified the financial statements and supporting schedules included in the Registration Statement are independent public accountants as required by the 1933 Act and the 1933 Act Regulations; (vii) Except as described in each of the Prospectuses, there has been no action, suit, legal or arbitration proceeding by or against the Company or any of its Subsidiaries within the last two years and there is no such proceeding pending that has had, and the Company does not believe that there are any 9 threatened legal or arbitration proceedings by or against it or any of its Subsidiaries which would be reasonably likely, singly or in the aggregate, to have a material adverse effect on the business, financial condition or business prospects of the Company and its Subsidiaries taken as a whole a ("Material Adverse Effect"); (viii) Except as set forth in the Prospectus, the Company and its Subsidiaries own or have had licensed to them or otherwise have the benefit or use under the authority of the owners thereof of all patents, patent rights, inventions, trademarks, service marks, trade names and copyrights (in each case, registered or not) which are necessary for the conduct of the business of the Company and its Subsidiaries as currently conducted as described in each Prospectus; there are no unresolved claims that the Company or any of its Subsidiaries has infringed the patents, patent rights, inventions, trademark rights, service marks, trade names or copyrights of others and, to the best knowledge of the Company, no persons are infringing the patents, patent rights, inventions, trademark rights, service marks, trade names or copyrights of the Company or any of its Subsidiaries, which would be reasonably likely to, singly or in the aggregate, have a Material Adverse Effect; (ix) Each of the Company and each of its Subsidiaries has all material concessions, licenses, franchises, permits, authorizations, approvals and orders of and from all governmental regulatory officials and bodies that are necessary to own or lease its properties and to conduct its business as currently conducted; (x) No material labor dispute with the employees of the Company or any of its Subsidiaries exists or is threatened or imminent; (xi) The Company and each of its Subsidiaries has obtained any permits, consents and authorizations required to be obtained by it under laws or regulations relating to the protection of the environment or concerning the handling, storage, disposal or discharge of toxic materials (collectively "Environmental Laws") in order to conduct their business as described in the Prospectuses, and any such permits, consents and authorizations remain in full force and effect. The Company and each of its Subsidiaries is in compliance with the Environmental Laws in all material respects, and there is no pending or, to the Company's knowledge, threatened, action or proceeding against the Company or any or its Subsidiaries alleging violations of the Environmental Laws; 10 (xii) The Company is not currently prohibited from paying any dividends or from making any other distribution on the Company's or such Subsidiary's capital stock, respectively, out of positive retained earnings or from repaying to the Company or its stockholders, respectively, any loans or advances to such Subsidiary from the Company or to the Company from such stockholders, as the case may be; (xiii) Neither the Company nor any of its Subsidiaries is (A) in violation of its charter or by-laws or (B) except as described in each of the Prospectuses, in default in the performance or observance of any material obligation, agreement, covenant or condition contained in any material contract, indenture, mortgage, deed of trust, loan or credit agreement, note, lease or other agreement or instrument to which the Company or any of its Subsidiaries is a party or by which it or any of them may be bound, or to which any of the property or assets of the Company or any Subsidiary is subject; (xiv) Since the earlier of (i) the respective dates as of which the information is given in the Registration Statement and each Prospectus or (ii) March 31, 1999, (A) neither the Company nor any of its Subsidiaries has sustained any material loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, (B) there has not been any change in the capital stock of the Company, or any increase in long-term debt of the Company and its Subsidiaries taken as a whole (except (i) as described in each Prospectus, (ii) pursuant to this Agreement and the International Underwriting Agreement, (iii) pursuant to grants under employee benefit plans referred to in each Prospectus, (iv) pursuant to the conversion of the Company's preferred stock on the Closing Date as described in each Prospectus or (v) pursuant to the exercise of options or warrants referred to in each Prospectus) and (C) there has not been any material adverse change, or any development reasonably likely to result in a material adverse change, in or affecting the condition (financial or otherwise), business, business prospects, stockholders' equity or results of operations of the Company and its Subsidiaries taken as a whole; (xv) The financial statements included in the Registration Statement and each Prospectus, together with the related schedules and notes, present fairly in all material respects the financial position of (i) the Company and its subsidiaries 11 and (ii) Glyko, Inc. at the dates indicated and the statements of operations, stockholders' equity and cash flows of (i) the Company and its subsidiaries and (ii) Glyko, Inc. for the periods specified; said financial statements have been prepared in conformity with United States generally accepted accounting principles ("GAAP") applied on a consistent basis throughout the periods involved. No other financial statements or schedules are required to be included in the Registration Statement and each Prospectus. The supporting schedules included in the Registration Statement present fairly in accordance with GAAP the information required to be stated therein. The selected financial data and the summary financial data included in each Prospectus have been compiled on a basis consistent with that of the audited financial statements included in the Registration Statement; (xvi) Each of the Company and its Subsidiaries has been duly organized and is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation. The Company has full corporate power and authority to enter into this Agreement and the International Underwriting Agreement and consummate the transactions contemplated herein and therein (in the case of the Company) and to own its properties and conduct its business as currently conducted, and has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each jurisdiction other than its jurisdiction of incorporation in which it owns or leases properties or conducts any business so as to require such qualification, except where the failure to be so qualified or to be in good standing would not, individually or in the aggregate, be reasonably likely to have a Material Adverse Effect; (xvii) Each of this Agreement and the International Underwriting Agreement has been duly authorized, executed and delivered by the Company and (other than the provisions of Section 10 hereof, as to which the Company makes no representation) constitutes the legal, valid, binding and enforceable obligation of the Company, subject to applicable bankruptcy, insolvency or similar laws affecting creditors' rights generally and subject, as to enforceability, to general principles of equity; (xviii) The execution, delivery and performance of this Agreement and the International Underwriting Agreement by the Company and the consummation of the transactions contemplated herein (including the issuance and sale of the Offered Shares and the use of the proceeds from the sale of the Offered Shares as described in each Prospectus under the heading 12 "Use of Proceeds") and compliance by the Company with its obligations hereunder and under the International Underwriting Agreement have been duly authorized by all necessary corporate action and do not, whether with or without the giving of notice or passage of time or both, conflict with or constitute a breach of, or default or Repayment Event (as defined below) under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any Subsidiary pursuant to, any contract, indenture, mortgage, deed of trust, loan or credit agreement, note, lease or other agreement or instrument to which the Company or any of its Subsidiaries is a party or by which it or any of them may be bound, or to which any of the property or assets of the Company or any Subsidiary is subject (except for such conflicts, breaches or defaults or liens, charges or encumbrances that would not, singly or in the aggregate, be reasonably likely to result in a Material Adverse Effect or impair the ability of the Company to consummate, or otherwise materially adversely affect, the transactions contemplated herein and in the International Underwriting Agreement), nor will such action result in any violation of the provisions of the charter or by-laws of the Company or any Subsidiary or any applicable law, statute, rule, regulation, judgment, order, writ or decree of any government, government instrumentality or court, domestic or foreign, having jurisdiction over the Company or any Subsidiary or any of their assets, properties or operations. As used herein, a "Repayment Event" means any event or condition which gives the holder of any note, debenture or other evidence of indebtedness (or any person acting on such holder's behalf) the right to require the repurchase, redemption or repayment of all or a portion of such indebtedness by the Company or any Subsidiary; (xix) Other than as may be required under the securities laws of jurisdictions outside the United States, no filing with, or authorization, approval, consent, license, order, registration, qualification or decree of, any court or governmental authority or agency is necessary or required for the performance by the Company of its obligations hereunder or under the International Underwriting Agreement, in connection with the offering, issuance or sale of the Offered Shares hereunder or under the International Underwriting Agreement or the consummation of the transactions contemplated by this Agreement or the International Underwriting Agreement, except (i) such as have been already obtained and are in full force and effect or as may be required under the 1933 Act or the 1933 Act Regulations or United States state securities laws, (ii) such as have been obtained from the National Association of Securities Dealers Inc., (iii) such as 13 have been obtained under the laws and regulations of jurisdictions outside the United States in which the Offered Shares are offered, (iv) the approval for listing of the Common Stock by the SWX New Market, or (v) as may be required by the U.S. Securities and Exchange Commission for the performance of the Company's obligations under Section 10 hereof; (xx) There are no contracts or documents which are required to be described in the Registration Statement or each Prospectus or to be filed as exhibits to the Registration Statement which have not been so described or filed as required; (xxi) The Company is not, and upon the issuance and sale of the Offered Shares as contemplated herein and in the International Underwriting Agreement and the application of the net proceeds therefrom as described in each Prospectus will not be, an "investment company" or an entity "controlled" by an "investment company" as such terms are defined in the Investment Company Act of 1940, as amended; (xxii) There are no persons with registration rights or other similar rights to have any securities of the Company registered pursuant to the Registration Statement or, except as described in each Prospectus, otherwise registered by the Company under the 1933 Act; (xxiii) The Company has complied with, and is and will be in compliance with, the provisions of that certain Florida act relating to disclosure of doing business with Cuba, codified as Section 517.075 of the Florida statutes, and the rules and regulations thereunder, or is exempt therefrom; (xxiv) Except as disclosed in each Prospectus and except as may be required by the laws of jurisdictions outside the United States, no issue, stamp or other transactional duty or tax is payable by or on behalf of any purchaser of Offered Shares from the Company or the U.S. Underwriters or the International Managers in connection with the sale and delivery by it of Offered Shares to or for the respective accounts of such purchaser or the U.S. Underwriters in the manner contemplated by this Agreement or the International Managers in the manner contemplated by the International Underwriting Agreement; (xxv) The Company and its Subsidiaries have good and marketable title to all real property owned by the Company and its Subsidiaries and good title to all other material properties owned by them, in each case, free and clear of all mortgages, pledges, liens, security interests, claims, restrictions or encumbrances of any 14 kind except such as (a) are described in each Prospectus or (b) do not, singly or in the aggregate, materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company or any of its Subsidiaries; and all of the leases and subleases material to the business of the Company and its Subsidiaries, considered as one enterprise, and under which the Company or any of its Subsidiaries holds properties described in each Prospectus, are in full force and effect, and neither the Company nor any Subsidiary has any notice of any material claim of any sort that has been asserted by anyone adverse to the rights of the Company or any Subsidiary under any of the leases or subleases mentioned above, or affecting or questioning the rights of the Company or such Subsidiary to the continued possession of the leased or subleased premises under any such lease or sublease; (xxvi) The Company and its subsidiaries have filed all federal, state, local and foreign income and franchise tax returns required to be filed and are not in default in the payment of any taxes which were payable pursuant to said returns or any assessments with respect thereto, other than any which the Company or any of its subsidiaries is contesting in good faith. The Company has made adequate charges, accruals and reserves in the applicable financial statements referred to in subsection (xv) above in respect of all federal, state and foreign income and franchise taxes for all periods as to which the tax liability of the Company or any of its subsidiaries has not been finally determined; (xxvii) The Company has not distributed and will not distribute any prospectus or other offering material in connection with the offering and sale of the U.S. Offered Shares other than any U.S. Preliminary Prospectus or the U.S. Prospectuses or other materials permitted by the 1933 Act to be distributed by the Company; (xxviii) The U.S. Offered Shares have been conditionally approved for inclusion on the Nasdaq National Market subject only to official notice of issuance and, on the date the Registration Statement became or becomes effective, the Company's Registration Statement on Form 8-A or other applicable form under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), became or will become effective; (xxix) The Company maintains a system of internal accounting controls sufficient to provide reasonable assurances that (i) transactions are executed in accordance 15 with management's general or specific authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences; (xxx) Other than as contemplated by this agreement, the Company has not incurred any liability for any finder's or broker's fee or agent's commission in connection with the execution and delivery of this agreement or the consummation of the transactions contemplated hereby; (xxxi) The Company has not taken and will not take, directly or indirectly, any action designed to or that might be reasonably expected to cause or result in stabilization or manipulation of the price of the Common Stock to facilitate the sale or resale of the Common Stock; (xxxii) There are no business relationships or related party transactions involving the Company or any subsidiary or any other person required to be described in the Prospectus which have not been described as required; (xxxiii) Neither the Company nor any of its subsidiaries nor, to the best of the Company's knowledge, any employee or agent of the Company or any subsidiary, has made any contribution or other payment to any official of, or candidate for, any federal, state or foreign office in violation of any law or of the character required to be disclosed in the Prospectus; (xxxiv) The Company and its subsidiaries and any "employee benefit plan" (as defined under the Employee Retirement Income Security Act of 1974, as amended, and the regulations and published interpretations thereunder (collectively, "ERISA") established or maintained by the Company, its subsidiaries or their "ERISA Affiliates" (as defined below) are in compliance in all material respects with ERISA. "ERISA Affiliate" means, with respect to the Company or a subsidiary, any member of any group of organizations described in Sections 414(b),(c),(m) or (o) of the Internal Revenue Code of 1986, as amended, and the regulations and published interpretations thereunder (the "Code") of which the Company or such subsidiary is a member. No "reportable event" (as defined under ERISA) has occurred or is reasonably expected to occur with respect to any "employee benefit plan" 16 established or maintained by the Company, its subsidiaries or any of their ERISA Affiliates. No "employee benefit plan" established or maintained by the Company, its subsidiaries or any of their ERISA Affiliates, if such "employee benefit plan" were terminated, would have any "amount of unfunded benefit liabilities" (as defined under ERISA). Neither the Company, its subsidiaries nor any of their ERISA Affiliates has incurred or reasonably expects to incur any liability under (i) Title IV of ERISA with respect to termination of or withdrawal from, any "employee benefit plan" or (ii) Sections 412, 4971, 4975 or 4980B of the Code. Each "employee benefit plan" established or maintained by the Company, its subsidiaries or any of their ERISA Affiliates that is intended to be qualified under Section 40 1 (a) of the Code is so qualified and nothing has occurred, whether by action or failure to act, which would cause the loss of such qualification; and (xxxv) Except as set forth in the Prospectus, the Company is reviewing its computer systems, software products and other business systems to evaluate whether they will experience any error or interruption as a result of an inability to properly recognize the Year 2000 (the "Year 2000 Problem") and is assessing whether the Company's suppliers, providers, contractors and collaborators will experience any Year 2000 Problems that will adversely affect the Company. Except as disclosed in the Prospectus, the Company is not aware that it will experience any Year 2000 Problems or that any of its suppliers, providers, contractors or collaborators will experience any problems in connection with the Year 2000 Problem that will adversely affect the Company. 3. Offering by the U.S. Underwriters --------------------------------- It is understood that the U.S. Underwriters and Vontobel Securities Ltd. propose to offer the U.S. Offered Shares for sale to the public as set forth in the U.S. Prospectus. 4. Delivery and Payment -------------------- (a) The U.S. Offered Shares will be delivered by the Company to the U.S. Underwriters against payment of the purchase price, in U.S. dollars, therefor by certified or official bank check or other next day funds payable to the order of the Company, at the offices of U.S. Bancorp Piper Jaffray, Piper Jaffray Tower, 222 South Ninth Street, Minneapolis, Minnesota, or such other location as may be mutually acceptable, at 9:00 a.m. Central time on the third (or if the U.S. Offered Shares are priced, as contemplated by Rule 15c6-1(c) under the Exchange Act, after 4:30 p.m. Eastern time, 17 the fourth) full business day following the date hereof, or at such other time and date as you and the Company determine pursuant to Rule 15c6-1(a) under the Exchange Act, such time and date of delivery being herein referred to as the "Closing Date." If the Global Coordinators so elect, delivery of the U.S. Offered Shares may be made by credit through full fast transfer to the accounts at The Depository Trust Company designated by the Global Coordinators. Certificates representing the U.S. Offered Shares, in definitive form and in such denominations and registered in such names as you may request upon at least two business days' prior notice to the Company, will be made available for checking and packaging not later than 10:30 a.m., Central time, on the business day next preceding the Closing Date at the offices of U.S. Bancorp Piper Jaffray, Piper Jaffray Tower, 222 South Ninth Street, Minneapolis, Minnesota, or such other location as may be mutually acceptable. (b) The U.S. Greenshoe Shares will be delivered by the Company, as appropriate, to you for the accounts of the U.S. Underwriters against payment of the purchase price therefor by certified or official bank check or other next day funds payable to the order of the Company, as appropriate, at the offices of U.S. Bancorp Piper Jaffray, Piper Jaffray Tower, 222 South Ninth Street, Minneapolis, Minnesota, or such other location as may be mutually acceptable at 9:00 a.m., Central time, on the date and time, as determined by the Global Coordinators, when the U.S. Greenshoe Shares are to be delivered (the "Greenshoe Closing Date"). If the Global Coordinators so elect, delivery of the Greenshoe Shares may be made by credit through full fast transfer to the accounts at The Depository Trust Company designated by the Global Coordinators. Certificates representing the Greenshoe Shares in definitive form and in such denominations and registered in such names as you have set forth in your notice of option exercise, will be made available for checking and packaging not later than 10:30 a.m., Central time, on the business day next preceding the Second Closing Date at the office of U.S. Bancorp Piper Jaffray, Piper Jaffray Tower, 222 South Ninth Street, Minneapolis, Minnesota, or such other location as may be mutually acceptable. (c) It is understood that the Global Coordinators, individually and not as representatives of the U.S. Underwriters, may (but shall not be obligated to) make payment to the Company, on behalf of any U.S. Underwriter for the U.S. Offered Shares to be purchased by such U.S. Underwriter. Any such payment by the Global Coordinators shall not relieve any such U.S. Underwriter of any of its obligations hereunder. Nothing herein contained shall constitute any of the U.S. Underwriters an unincorporated association or partner with the Company. 18 (d) The documents to be delivered on the Closing Date and the Greenshoe Closing Date, respectively, by or on behalf of the parties hereto pursuant to Section 7 hereof will be delivered at the offices of Wilson Sonsini Goodrich & Rosati, professional corporation, or at such other location as the parties hereto may agree (the "Closing Location") on the Closing Date or the Greenshoe Closing Date, as the case may be. 5. Agreements ---------- (a) The Company agrees with each U.S. Underwriter and Vontobel Securities Ltd. as follows: (i) The Company, subject to Section 3(b), will comply with the requirements of Rule 430A or Rule 434, as applicable, and will notify the Global Coordinators immediately, and confirm the notice in writing, (i) when any post-effective amendment to the Registration Statement shall become effective, or any supplement to the U.S. Prospectus or any amended U.S. Prospectus shall have been filed, (ii) of the receipt of any comments from the Commission, (iii) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the U.S. Prospectus or for additional information, and (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or of any order preventing or suspending the use of any preliminary prospectus, or of the suspension of the qualification of the Offered Shares for offering or sale in any jurisdiction, or of the initiation or threatening of any proceedings for any of such purposes. The Company will promptly effect the filings necessary pursuant to Rule 424(b) and will take such steps as it deems necessary to ascertain promptly whether the form of prospectus transmitted for filing under Rule 424(b) was received for filing by the Commission and, in the event that it was not, it will promptly file such prospectus. The Company will make every reasonable effort to prevent the issuance of any stop order and, if any stop order is issued, to obtain the lifting thereof at the earliest possible moment. (ii) The Company will give the Global Coordinators notice of its intention to file or prepare any amendment to the Registration Statement (including any filing under Rule 462(b)), any Term Sheet or any amendment, supplement or revision to either the prospectus included in the Registration Statement at the time it became effective or to any Prospectus, will furnish the Global Coordinators with copies of any such documents a reasonable amount of time prior to such proposed filing or use, as the case may be, and will not file or 19 use any such document to which the Global Coordinators or counsel for the U.S. Underwriters and Vontobel Securities Ltd. and the International Managers shall object in good faith. (iii) The Company has furnished or will deliver to the U.S. Underwriters and Vontobel Securities Ltd. and counsel for the U.S. Underwriters and Vontobel Securities Ltd. and the International Managers, without charge, signed copies of the Registration Statement as originally filed and of each amendment thereto (including exhibits filed therewith) and signed copies of all consents and certificates of experts, and will also deliver to the U.S. Underwriters and Vontobel Securities Ltd., without charge, a conformed copy of the Registration Statement as originally filed and of each amendment thereto (without exhibits) for each of the U.S. Underwriters and Vontobel Securities Ltd. The copies of the Registration Statement and each amendment thereto furnished to the U.S. Underwriters and Vontobel Securities Ltd. will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T. (iv) The Company has delivered to each U.S. Underwriter and Vontobel Securities Ltd., without charge, as many copies of each U.S. Preliminary Prospectus as such reasonably requested, and the Company hereby consents to the use of such copies for purposes permitted by the 1933 Act. The Company will furnish to each U.S. Underwriter and Vontobel Securities Ltd., without charge, during the period when the U.S. Prospectus is required to be delivered under the 1933 Act, such number of copies of the U.S. Prospectus (as amended or supplemented) as such U.S. Underwriter or Vontobel Securities Ltd. may reasonably request. The U.S. Prospectus and any amendments or supplements thereto furnished to the U.S. Underwriters and Vontobel Securities Ltd. will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T. The Company will furnish to each U.S. Underwriter and Vontobel Securities Ltd., without charge, such number of copies of the International Prospectus (as amended or supplemented) as such U.S. Underwriter or Vontobel Securities Ltd. may reasonably request. (v) The Company will comply with the 1933 Act and the 1933 Act Regulations so as to permit the completion of the distribution of the Offered Shares as contemplated in this Agreement and the International Underwriting Agreement and in the Prospectuses. If at any time when a prospectus is 20 required by applicable law to be delivered by the U.S. Underwriters in connection with sales of the U.S. Offered Shares, any event shall occur or condition shall exist as a result of which it is necessary, in the reasonable opinion of counsel for the U.S. Underwriters and Vontobel Securities Ltd. and the International Managers or for the Company, to amend the Registration Statement or amend or supplement any Prospectus in order that such Prospectus will not include any untrue statements of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading in the light of the circumstances existing at the time it is delivered to a purchaser, or if it shall be necessary, in the reasonable opinion of such counsel, at any such time to amend the Registration Statement or amend or supplement any Prospectus in order to comply with the requirements of applicable law, the Company will (i) with respect to the U.S. Prospectus, promptly prepare and file with the Commission, subject to Section 5(a)(ii), such amendment or supplement as may be necessary to correct such statement or omission or to make the Registration Statement or the U.S. Prospectus comply with such requirements, (ii) with respect the International Prospectus, supplement such prospectus to correct such statement or omission and (iii) the Company will furnish to the U.S. Underwriters and Vontobel Securities Ltd. such number of copies of such amendment or supplement as the U.S. Underwriters and Vontobel Securities Ltd. may reasonably request. (vi) The Company will use its best efforts, in cooperation with the U.S. Underwriters and Vontobel Securities Ltd., to qualify the Offered Shares for offering and sale under the applicable securities laws of the United States and such other jurisdictions (domestic or foreign) as the Global Coordinators may designate and to maintain such qualifications in effect for so long as may be required for purposes of distribution of the Offered Shares; provided, -------- however, that the Company shall not be obligated to ------- file any general consent to service of process or to qualify as a foreign corporation or as a dealer in securities in any jurisdiction in which it is not so qualified or to subject itself to taxation in respect of doing business in any jurisdiction in which it is not otherwise so subject. In each jurisdiction in which the Offered Shares have been so qualified, the Company will file such statements and reports as may be required by the laws of such jurisdiction to continue such qualification in effect for a period of not less than one year from the effective date of the Registration Statement and any Rule 462(b) Registration Statement. 21 (vii) During a period of five years commencing with the date hereof, the Company will furnish to the Global Coordinators, and to each U.S. Underwriter who may so request in writing, copies of all periodic and special reports furnished to the stockholders of the Company and all information, documents and reports filed with the Commission, the National Association of Securities Dealers, Inc., NASDAQ or any securities exchange. (viii) The Company will make generally available to its securityholders as soon as practicable, but in any event not later than the forty-fifth (45th) day following the end of the fiscal quarter first occurring after the first anniversary of the effective date of the Registration Statement, an earnings statement for the purposes of, and to provide the benefits contemplated by, the last paragraph of Section 11(a) of the 1933 Act. (ix) The Company will use the net proceeds received by it from the sale of the Offered Shares in the manner specified in each Prospectus under "Use of Proceeds". (x) The Company, during the period when the U.S. Prospectus is required to be delivered under the 1933 Act or the Securities Exchange Act of 1934 (the "1934 Act"), will file all documents required to be filed with the Commission pursuant to the 1934 Act within the time periods required by the 1934 Act and the rules and regulations of the Commission thereunder. (xi) The Company will file with the Commission such information on Form 10-Q or Form 10-K as may be required pursuant to Rule 463 of the 1933 Act Regulations. (xii) The Company will furnish to the SWX New Market, through Bank Vontobel, any and all documents (including, without limitation, an updated excerpt from the commercial register), instruments, information and warranties that may be requested by Bank Vontobel in order to obtain and maintain the listing of the Common Stock for trading with official quotation on the SWX New Market. The Company will sign the Initial International Prospectus and the International Prospectus and any other necessary documents to conform with the listing requirements of the SWX New Market, and will deliver the same to Bank Vontobel in due course to ensure the timely listing of the Common Stock. 22 (xiii) It will bear and pay any issue, stamp or other transactional duty or tax (including interest and penalties, if any) payable in connection with the issue and sale of the Offered Shares. (xiv) So long as the Common Stock is listed on the SWX New Market, the Company shall comply with the publicity guidelines of the listing rules of the SWX New Market. (xv) The Company will not without the prior written consent (which consent may be withheld at the sole discretion of U.S. Bancorp Piper Jaffray Inc. and Bank Vontobel) issue, sell or otherwise transfer, or announce the intent to issue, sell or otherwise transfer any shares of Common Stock or other securities convertible or exchangeable into shares of Common Stock or representing rights to subscribe for shares of Common Stock, for a period from the date hereof until 180 days from the date of the commencement of the public offering of the U.S. Offered Shares by the U.S. Underwriters (other than (i) pursuant to the exercise of options and warrants outstanding as of the date hereof or conversion of convertible securities outstanding on the date hereof, (ii) pursuant to the exercise of options granted, or the purchase of shares, under the Company's stock plans existing on the date hereof or (iii) to Genzyme Corporation as described in the Prospectus). (xvi) The Company either has caused to be delivered to you or will cause to be delivered to you prior to the effective date of the Registration Statement a letter from each of the Company's directors, officers and greater than 1% shareholders stating that such person agrees that he or she will not, without your prior written consent, offer for sale, sell, contract to sell or otherwise dispose of any shares of Common Stock or rights to purchase Common Stock, except to the U.S. Underwriters pursuant to this agreement, for a period of 180 days after commencement of the public offering of the U.S. Offered Shares by the U.S. Underwriters. (xvii) The Company has not taken and will not take, directly or indirectly, any action designed to or which might reasonably be expected to cause or result in, or which has constituted, the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Offered Shares, and has not effected any sales of Common Stock which are required to be disclosed in response to Item 701 of Regulation S-K under the 1933 Act which have not been so disclosed in the Registration Statement. 23 (xviii) The Company will not incur any liability for any finder's or broker's fee or agent's commission in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby. (xix) The Company will inform the Florida Department of Banking and Finance at any time prior to the consummation of the distribution of the U.S. Offered Shares by the U.S. Underwriters if it commences engaging in business with the government of Cuba or with any person or affiliate located in Cuba. Such information will be provided within 90 days after the commencement thereof or after a change occurs with respect to previously reported information. (xx) The Company will list the Common Stock for quotation on the Nasdaq National Market ("Nasdaq"). 6. Payment of Expenses ------------------- The Company covenants and agrees with the several U.S. Underwriters and Vontobel Securities Ltd. that whether or not the transactions contemplated hereunder are consummated or this Agreement is prevented from becoming effective or is terminated, in addition to its other obligations hereunder and under the International Underwriting Agreement, it will bear the following costs: (a) such expenses and listing fees as required in connection with the listing of the Common Stock on the SWX New Market and the cost of the listing advertisement and the listing of the Common Stock on Nasdaq; (b) all expenses in connection with the preparation, printing and filing of each Preliminary Prospectus, and any Term Sheets and each Prospectus and any amendments and supplements thereto and the mailing and delivering of copies thereof to the U.S. Underwriters and the International Managers; (c) the out-of-pocket expenses (including fees and disbursements of legal counsel to the U.S. Underwriters and Vontobel Securities Ltd. and the International Managers) incurred by the Global Coordinators on behalf of the U.S. Underwriters and Vontobel Securities Ltd. and the International Managers in connection with the transactions contemplated by this Agreement and the International Underwriting Agreement; (d) the cost and expenses of the Global Coordinators in connection with "road show" presentations to be made to prospective investors; 24 (e) the cost of preparing certificates in definitive form representing Offered Shares if required by the initial purchasers thereof in connection with the Offering; (f) all expenses in connection with the preparation, printing and filing of the Registration Statement (including financial statements and exhibits) as originally filed and of each amendment thereto; (g) the fees and expenses of the Company's counsel, accountants and other advisors; (h) all expenses in connection with the qualification of the Offered Shares under securities laws in accordance with the provisions of Section 5(a)(vi) hereof, including filing fees and the reasonable fees and disbursements of counsel for the U.S. Underwriters and Vontobel Securities Ltd. and the International Managers in connection therewith and in connection with the preparation of the Blue Sky Survey and any supplement thereto; (i) all expenses in connection with the preparation, printing and delivery to the U.S. Underwriters and Vontobel Securities Ltd. and the International Managers of copies of the Blue Sky Survey and any supplement thereto; (j) the fees and expenses of any transfer agent or registrar for the Offered Shares; and (k) the filing fees incident to, and the reasonable fees and disbursements of counsel to the U.S. Underwriters and Vontobel Securities Ltd. and the International Managers in connection with, the review by the NASD of the terms of the sale of the Offered Shares provided, however, that the Company shall not bear the portion of such costs that exceed, if at all, either (a) $400,000 if the aggregate offering price of the Offered Shares equals or exceeds $40,000,000, or (b) $200,000 if the aggregate offering price of the Offered Shares is less than $40,000,000. 7. Conditions Precedent -------------------- (a) The obligations of the several U.S. Underwriters to purchase and pay for the U.S. Offered Shares are subject to the satisfaction of the following conditions precedent: (i) the Registration Statement, including any Rule 462(b) Registration Statement, has become effective and at the Closing Date no stop order suspending the effectiveness of the Registration Statement shall have been issued under the 1933 Act or proceedings therefor initiated or threatened by the Commission, and any request on the part of the Commission for 25 additional information shall have been complied with to the reasonable satisfaction of counsel to the U.S. Underwriters and Vontobel Securities Ltd. and the International Managers. A prospectus containing the Rule 430A Information shall have been filed with the Commission in accordance with Rule 424(b) (or a post-effective amendment providing such information shall have been filed and declared effective in accordance with the requirements of Rule 430A) or, if the Company has elected to rely upon Rule 434, a Term Sheet shall have been filed with the Commission in accordance with Rule 424(b); (ii) each of the representations and warranties of the Company contained herein shall be true and correct in all material respects at the Closing Date and, with respect to the U.S. Greenshoe Shares, at the Greenshoe Closing Date, as if made at the Closing Date and, with respect to the U.S. Greenshoe Shares, at the Greenshoe Closing Date, and all covenants and agreements herein contained to be performed on the part of the Company and all conditions herein contained to be fulfilled or complied with by the Company at or prior to the Closing Date and, with respect to the U.S. Greenshoe Shares, at or prior to the Greenshoe Closing Date shall have been performed, fulfilled or complied with in all material respects; (iii) approval by the Admission Board (Zulassungsstelle) of the SWX New Market of the application for the Common Stock to be listed for trading with official quotation on the SWX New Market and approval by Nasdaq of the application for the Common Stock to be listed for quotation on Nasdaq; (iv) delivery to the U.S. Underwriters, except to the extent waived by the Global Coordinators in writing (x) on the Closing Date and (y) on the Greenshoe Closing Date (except items A(dd), B(bb)) and D): (A) legal opinions from (aa) Wilson, Sonsini, Goodrich & Rosati, Professional Corporation, U.S. counsel to the Company, substantially in the form attached hereto as Schedule 4, (bb) Howery & Simon, patent counsel to the Company, substantially in the form attached hereto as Schedule 5, (cc) Wilson, Sonsini, Goodrich & Rosati, Professional Corporation, counsel to the Company, regarding regulatory matters substantially in the form attached hereto as Schedule 6, and (dd) Cooley Godward LLP, U.S. counsel to the U.S. Underwriters with respect to the formation of the Company, the validity of the securities, the Registration Statement, the U.S. Prospectus, and other related matters as may reasonably be requested 26 and such counsel shall have received such papers and information as they request to enable them to pass upon such matters. (B) a certificate addressed to the U.S. Underwriters and Vontobel Securities Ltd. signed by the Company and dated the Closing Date (or the Greenshoe Closing Date with respect to the Greenshoe Shares) to the effect stated in Section 7(a)(i) and (ii) and to the effect that the signers of said certificate have carefully examined the Registration Statement and the Prospectuses, and any amendments thereof or supplements thereto (including any term sheet within the meaning of Rule 434 of the Rules and Regulations), and (A) such documents contain all statements and information required to be included therein, other than statements and information required to be included therein under the laws of jurisdictions outside the United States, the Registration Statement, or any amendment thereof, does not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and the Prospectuses, as amended or supplemented, do not include any untrue statement of material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, (B) since the effective date of the Registration Statement, there has occurred no event required to be set forth in an amended or supplemented prospectus which has not been so set forth, (C) subsequent to the respective dates as of which information is given in the Registration Statement and the U.S. Prospectus and the International Prospectus, neither the Company nor any of its subsidiaries has incurred any material liabilities or obligations, direct or contingent, or entered into any material transactions, not in the ordinary course of business, or declared or paid any dividends or made any distribution of any kind with respect to its capital stock, and except as disclosed in the Prospectuses, there has not been any change, in the capital stock (other than a change in the number of outstanding shares of Common Stock due to the issuance of shares upon the exercise of outstanding options or' warrants), or any material change in the short-term or long-term debt, or any issuance of options, warrants, convertible securities or other rights to purchase the capital stock of the Company (other than options granted since May 31, 1999 under the Company's option plans described in the Prospectus to purchase up to ______ shares of common stock of the 27 Company) or any of its subsidiaries, or any material adverse change or any development involving a prospective material adverse change (whether or not arising in the ordinary course of business), in the general affairs, condition (financial or otherwise), business, key personnel, property, prospects, net worth or results of operations of the Company and its subsidiaries, taken as a whole, and (D) except as stated in the Registration Statement and the Prospectuses, there is not pending, or, to the knowledge of the Company, threatened or contemplated, any action, suit or proceeding to which the Company or any of its subsidiaries is a party before or by any court or governmental agency, authority or body, or any arbitrator, which might result in any material adverse change in the condition (financial or otherwise), business, prospects or results of operations of the Company and its subsidiaries, taken as a whole; (C) a comfort letter from the auditors of the Company substantially in the agreed form; (D) a copy of the Company's Certificate of Incorporation, certified by the Secretary of State of the State of Delaware as of the Closing Date or a date as near thereto as possible and a copy of the Company's Bylaws in effect as of the Closing Date, certified by the Secretary of the Company; (v) delivery of the resolutions of the Board of Directors of the Company authorizing and approving the Offering and all actions taken or to be taken in connection therewith including, without limitation, the execution and delivery of this Agreement and the International Underwriting Agreement and the implementation of all transactions contemplated hereby and thereby, certified by the Secretary of the Company; (vi) each of the persons listed on Schedule 2 hereto (consisting of the executive officers and directors of the Company and all 1% or greater stockholders other than those stockholders listed on Schedule 3.1 hereto) shall have executed and delivered a lock-up letter substantially in the form attached hereto as Schedule 3; (vii) execution and delivery of a pricing agreement between the Company and the Global Coordinators substantially in the agreed form; 28 (viii) neither a U.S. Underwriter nor Vontobel Securities Ltd. shall have advised the Company that the Registration Statement or the Prospectuses, or any amendment thereof or supplement thereto (including any term sheet within the meaning of Rule 434 of the Rules and Regulations), contains an untrue statement of fact which, in their opinion, is material, or omits to state a fact which, in their opinion, is material and is required to be stated therein or necessary to make the statements therein not misleading; and (ix) except as contemplated in the Prospectuses, subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectuses, neither the Company nor any of its subsidiaries shall have incurred any material liabilities or obligations, direct or contingent, or entered into any material transactions, or declared or paid any dividends or made any distribution of any kind with respect to its capital stock; and there shall not have been any change in the capital stock (other than a change in the number of outstanding shares of Common Stock due to the issuance of shares upon the exercise of outstanding options or warrants), or any material change in the short-term or long-term debt of the Company, or any issuance of options, warrants, convertible securities or other rights to purchase the capital stock of the Company (other than options granted since May 31, 1999 under the Company's option plans described in the Prospectus to purchase up to ______ shares of common stock of the Company) or any of its subsidiaries, or any material adverse change or any development involving a prospective material adverse change (whether or not arising in the ordinary course of business), in the general affairs, condition (financial or otherwise), business, key personnel, property, prospects, net worth or results of operations of the Company and its subsidiaries, taken as a whole, that, in the judgment of the U.S. Underwriters or Vontobel Securities Ltd., makes it impractical or inadvisable to offer or deliver the Offered Shares on the terms and in the manner contemplated in the Prospectuses. Documents in the agreed form means documents in the form signed for identification on the date hereof by Cooley Godward LLP. (b) If any condition specified in this Section 7 shall not have been fulfilled when and as required to be fulfilled, this Agreement, or, in the case of any condition to the purchase of the U.S. Greenshoe Shares on the Greenshoe Closing Date, the obligations of the several U.S. Underwriters to purchase the U.S. Greenshoe Shares, may be terminated by the Global Coordinators by notice to the Company at any time at or prior to the Closing Date or the Greenshoe Closing Date, as the case may be, 29 and such termination shall be without liability of any party to any other party except that (i) any liability (including as to indemnification) as a result of any prior breach of the provisions of this Agreement or the International Underwriting Agreement shall continue in full force and effect; and (ii) the obligations of the Company to pay to the Global Coordinators the costs, charges and expenses, to the extent incurred, as provided for in Section 6 shall continue in full force and effect. 8. Effective Date of this Agreement This agreement shall become effective at -------------------------------- 10:00 a.m., Central time, on the first full business day following the effective date of the Registration Statement, or at such earlier time after the effective time of the Registration Statement as the U.S. Underwriters and Vontobel Securities Ltd. in their discretion shall first release the U.S. Offered Shares for sale to the public; provided, that if the Registration Statement is effective at the time this Agreement is executed, this Agreement shall become effective at such time as the U.S. Underwriters and Vontobel Securities Ltd. in their discretion shall first release the U.S. Offered Shares for sale to the public. For the purpose of this Section, the U.S. Offered Shares shall be deemed to have been released for sale to the public upon release by the U.S. Underwriters and Vontobel Securities Ltd. of the publication of a newspaper advertisement relating thereto or upon release by the U.S. Underwriters and Vontobel Securities Ltd. of telexes offering the U.S. Offered Shares for sale to securities dealers, whichever shall first occur. 30 9. Termination ----------- (a) The Global Coordinators (on behalf of the U.S. Underwriters and Vontobel Securities Ltd.) may, by notice to the Company, terminate this Agreement at any time whereupon the obligation of the U.S. Underwriters to purchase and pay for the U.S. Offered Shares and to procure investors shall terminate if, in the opinion of the Global Coordinators, (i) there has been, since the time of execution of this Agreement, any material adverse change in the financial condition, earnings or business affairs of the Company and its Subsidiaries considered as one enterprise or (ii) there has occurred any material adverse change in the financial markets in the United Kingdom, the United States, Switzerland or the international financial markets, any outbreak of hostilities or escalation thereof or other calamity or crisis or any change or development involving a prospective change in national or international political, financial or economic conditions in the United Kingdom, the United States or Switzerland and the effect of any such material adverse change, outbreak, escalation, calamity, crisis, change or development is such as to make it impossible or impracticable to market the Offered Shares or to enforce contracts for the sale of the Offered Shares, or (iii) trading generally on either the SWX New Market, the London Stock Exchange or the New York Stock Exchange or Nasdaq has been suspended or limited, or minimum or maximum prices for trading have been fixed, or maximum ranges for prices for securities have been required, by any of said exchanges or by such system or by order of the United States Securities and Exchange Commission, the National Association of Securities Dealers, Inc. or any other governmental authority, or (iv) a banking moratorium has been declared by the United States, New York State, Switzerland or the United Kingdom, or (v) there has been a material change, or an official announcement by a competent authority of a prospective material change, in Swiss, United Kingdom or United States taxation affecting the transfer of the Common Stock, or (vi) there has been any material adverse change in currency rates between the U.S. dollar and the Swiss franc, or (vii) additional exchange controls are imposed by Switzerland or the United States. (b) In the event that a pricing agreement is not entered into by _______ __, 1999, the Global Coordinators (on behalf of the U.S. Underwriters and Vontobel Securities Ltd.) may, by notice to the Company, terminate this Agreement. (c) In the event that the Company shall fail at the Closing Date to sell and deliver the number of Offered Shares which it is obligated to sell hereunder, then this Agreement shall terminate without any liability on the part of any non-defaulting party. 31 (d) In the event that this Agreement is terminated pursuant to this Section 9, the parties to this Agreement shall be released and discharged from their respective obligations hereunder except for any liability (including as to indemnification) of any party hereto as a result of any prior breach by it of this Agreement and except that the Company shall pay to the Global Coordinators on the costs, charges and expenses, to the extent incurred, as provided for in Section 6. 10. Indemnification --------------- (a) The Company will indemnify and hold harmless each U.S. Underwriter and Vontobel Securities Ltd. against any losses, claims, damages or liabilities, joint or several, to which such U.S. Underwriter or Vontobel Securities Ltd. may become subject, under Swiss law, the 1933 Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon (i) an untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus, the Registration Statement or any Prospectus, including any amendment or supplement thereto, (ii) the omission or alleged omission to state in any Preliminary Prospectus, the Registration Statement or any Prospectus, including any amendment or supplement thereto, a material fact required to be stated therein or necessary to make the statements therein in light of the circumstances under which they were made not misleading or (iii) any breach by the Company of its representations, warranties or obligations under this Agreement or the International Underwriting Agreement, and will reimburse each U.S. Underwriter and Vontobel Securities Ltd. for any legal or other expenses reasonably incurred by such U.S. Underwriter or Vontobel Securities Ltd. in connection with defending or investigating any such action or claim as such expenses are incurred; In addition to its other obligations under this Section 10(a), the Company agrees that, as an interim measure during the pendency of any claim, action, investigation, inquiry or other proceeding arising out of or based upon any statement or omission, or any alleged statement or omission, described in this Section 10(a), it will reimburse each U.S. Underwriter and Vontobel Securities Ltd. on a monthly basis for all reasonable legal fees or other expenses incurred in connection with investigating or defending any such claim, action, investigation, inquiry or other proceeding, notwithstanding the absence of a judicial determination as to the propriety and enforceability of the Company's obligation to reimburse the U.S. Underwriters and Vontobel Securities Ltd. for such expenses and the possibility that such payments might later be held to have been improper by a court of competent jurisdiction. To the extent that any such interim reimbursement payment is so held to have been improper, the U.S. Underwriters or Vontobel Securities Ltd. that received such 32 payment shall promptly return it to the Company, together with interest, compounded daily, determined on the basis of the prime rate (or other commercial lending rate for borrowers of the highest credit standing) announced from time to time by ____________________ (the "Prime Rate"). Any such interim reimbursement payments which are not made to an U.S. Underwriter or Vontobel Securities Ltd. within 30 days of a request for reimbursement shall bear interest at the Prime Rate from the date of such request. This indemnity agreement shall be in addition to any liabilities which the Company may otherwise have. (b) Each U.S. Underwriter and Vontobel Securities Ltd. will, severally and not jointly, indemnify and hold harmless the Company against any losses, claims, damages or liabilities to which the Company, may become subject under the 1933 Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon (i) (A) an untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus, the Registration Statement or any Prospectus, including any amendment or supplement thereto or (B) the omission or alleged omission to state in any Preliminary Prospectus, the Registration Statement or any Prospectus, including any amendment or supplement thereto, a material fact required to be stated therein or necessary to make the statements therein in light of the circumstances under which they were made not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in any Preliminary Prospectus, the Registration Statement or any Prospectus or any such amendment or supplement in reliance upon and in conformity with written information furnished to the Company by such U.S. Underwriter or Vontobel Securities Ltd. through the Global Coordinators expressly for use therein, or (ii) any breach by such U.S. Underwriter or Vontobel Securities Ltd. of its representations, warranties or obligations in this Agreement or the International Underwriting Agreement, and will reimburse the Company, for any legal or other expenses reasonably incurred by the Company, in connection with defending any such action or claim as such expenses are incurred. (c) Promptly after receipt by an indemnified party under subsection (a) or (b) above of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under such subsection, notify the indemnifying party in writing of the commencement thereof; but the omission so to notify the indemnifying party shall not relieve it from any liability hereunder to the extent it is not materially prejudiced as a result thereof and in any event shall not relieve it from any liability which it may have otherwise than under this Agreement. In case any such action shall be brought against any indemnified 33 party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall have the option to participate in and to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof including the employment of legal advisors approved by the indemnified party (such approval not to be unreasonably withheld), subject to the payment by the indemnifying party of all expenses; provided, however, that if in the sole judgment of the Global Coordinators it is advisable for the U.S. Underwriters and Vontobel Securities, Ltd. to be represented as a group by separate counsel, the Global Coordinators shall have the right to employ a single counsel to represent the U.S. Underwriters and Vontobel Securities, Ltd. in connection with any liability arising from any claim in respect of which indemnity may be sought by the U.S. Underwriters and Vontobel Securities, Ltd. under subsection (a) of this Section 10, in which event the reasonable fees and expenses of such separate counsel shall be borne by the indemnifying party of parties and reimbursed to the U.S. Underwriters and Vontobel Securities, Ltd. as incurred (in accordance with the provisions of the second paragraph of subsection (a) above). The indemnifying party shall not be liable to indemnify any indemnified party for any settlement of any claim, action or demand made without its consent (such consent not to be unreasonably withheld), unless the indemnifying party fails to assume the defense thereof and to employ legal advisors as aforesaid for such purpose. (d) If the indemnification provided for in this Section 10 is unavailable to or insufficient to hold harmless an indemnified party under subsection (a) or (b) above in respect of any losses, claims, damages or liabilities (or actions in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the U.S. Underwriters and Vontobel Securities Ltd. on the other from the offering of the U.S. Offered Shares. If, however, the allocation provided by the immediately preceding sentence is not permitted by applicable law or if the indemnified party failed to give the notice required under subsection (d) above, then each indemnifying party shall contribute to such amount paid or payable by such indemnified party in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Company on the one hand and the U.S. Underwriters and Vontobel Securities Ltd. on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the U.S. Underwriters and Vontobel Securities Ltd. on the other shall be deemed to be in the same proportion as the total net proceeds from 34 the offering (before deducting expenses) received by the Company bear to the total underwriting discounts and commissions received by the U.S. Underwriters and Vontobel Securities Ltd., in each case as set forth in the table on the cover page of the Prospectuses. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or the U.S. Underwriters and Vontobel Securities, Ltd. on the other and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company, the U.S. Underwriters and Vontobel Securities Ltd. agree that it would not be just and equitable if contributions pursuant to this subsection (d) were determined by pro rata allocation (even if the U.S. Underwriters and Vontobel Securities Ltd. were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this subsection (d). The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subsection (d), neither any U.S. Underwriter nor Vontobel Securities Ltd. shall be required to contribute any amount in excess of the amount by which the total price at which the U.S. Offered Shares underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such U.S. Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The U.S. Underwriters' obligations in this subsection (d) to contribute are several in proportion to their respective underwriting obligations and not joint. (e) The obligations of the Company under this Section 10 shall be in addition to any liability which any of them may otherwise have and shall extend, upon the same terms and conditions, to each officer and director of each U.S. Underwriter or Vontobel Securities Ltd. and to each person, if any, who controls, is controlled by or is under common control with any U.S. Underwriter or Vontobel Securities Ltd.; and the obligations of the U.S. Underwriters and Vontobel Securities Ltd. under this Section 10 shall be in addition to any liability which the respective U.S. Underwriters and Vontobel Securities Ltd. may otherwise have and shall extend, upon the same terms and conditions, to each officer, director and stockholder of the Company, to the 35 extent applicable and to each person, if any, who controls, is controlled by or is under common control with any of the foregoing (to the extent applicable). 11. Representations and Indemnities to Survive ------------------------------------------ The respective indemnities, agreements, warranties and other statements of the Company, and the several U.S. Underwriters and Vontobel Securities Ltd., as set forth in this Agreement or made by or on behalf of them, respectively, pursuant to this Agreement, shall remain in full force and effect, regardless of any investigation (or any statements as to the results thereof) made by or on behalf of any U.S. Underwriter or Vontobel Securities Ltd. or any officer or director of any U.S. Underwriter or Vontobel Securities Ltd. or any person who controls, is controlled by or is under common control with any U.S. Underwriter or Vontobel Securities Ltd., or made by or on behalf of the Company, or any officer or director of any of the foregoing or any person who controls, is controlled by or is under common control with the Company, and shall remain in full force and effect regardless of any investigation made by or on behalf of any U.S. Underwriter or Vontobel Securities Ltd. or any controlling person thereof or the Company or any of its officers, directors or controlling persons and shall survive delivery of and payment for the Offered Shares. 12. Reimbursement on Termination or Default --------------------------------------- If for any reason (other than the default of a U.S. Underwriter in respect of its obligation to purchase any Offered Shares, in which case the Company shall be under no further liability to such U.S. Underwriter) any Offered Shares are not delivered by or on behalf of the Company when and as required herein, the Company will reimburse the U.S. Underwriters and Vontobel Securities Ltd. through the Global Coordinators for all out-of- pocket expenses approved by the Global Coordinators, including fees and disbursements of counsel, reasonably incurred by the U.S. Underwriters and Vontobel Securities Ltd. in making preparations for the purchase, sale and delivery of the Offered Shares not so delivered by the Company, as the case may be, but the Company shall then be under no further liability to any U.S. Underwriter and Vontobel Securities Ltd. in respect of such Offered Shares, except as provided in Sections 6 and 10 hereof. 36 13. Stabilization ------------- The Global Coordinators may, to the extent permitted by, and in accordance with, applicable laws and regulations, overallot and effect transactions on the Nasdaq National Market or SWX New Market or otherwise in connection with the offer and sale of the Offered Shares with a view to establishing or maintaining the market price of the Offered Shares at levels which might not otherwise prevail but, in doing so, the Global Coordinators shall act as agent of the U.S. Underwriters and Vontobel Securities Ltd. (as principals) and not as agent of the Company and any profit or loss resulting from such overallotment and stabilization shall be retained or borne (as the case may be) by the U.S. Underwriters and Vontobel Securities Ltd. The Company shall not as a result of any action taken by the Global Coordinators under this Section 13 be obliged to sell to the U.S. Underwriters or Vontobel Securities Ltd. any shares of Common Stock in excess of the number of Offered Shares to be sold as set forth in Section 1 of this Agreement. 14. Notices ------- All statements, requests, notices and agreements, hereunder shall be in writing with copies to each of the Global Coordinators, and the Company, and (i) if to the U.S. Underwriters or Vontobel Securities Ltd. shall be delivered or sent by international courier, telex or facsimile transmission care of U.S. Bancorp Piper Jaffray, Piper Jaffray Tower, 222 South Ninth Street, Minneapolis, Minnesota, 55402, facsimile transmission no. _______________; and (ii) if to the Company shall be delivered or sent by international courier or facsimile transmission to Biomarin Pharmaceutical Inc., 11 Pimental Court, Novato, California, 94949, Attention: Grant W. Denison, Jr., facsimile transmission no. _______________. Any such statements, requests, notices or agreements shall take effect upon receipt thereof. 15. Successors ---------- This Agreement shall be binding upon, and inure solely to the benefit of, the U.S. Underwriters, Vontobel Securities Ltd. and the Company and, to the extent provided in Section 10 hereof, the officers, directors and stockholders of, and each person who controls, is controlled by or is under common control with the Company or any U.S. Underwriter or Vontobel Securities Ltd., and their respective successors and assigns, and no other person shall acquire or have any right under or by virtue of this Agreement. No purchaser of any of the Offered Shares from any U.S. Underwriter or Vontobel Securities Ltd. shall be deemed a successor or assign by reason merely of such purchase. 37 16. Governing Law ------------- This Agreement shall be governed by and construed in accordance with the substantive law of the State of New York. 17. Submission to Jurisdiction -------------------------- The Company irrevocably (i) agrees that any legal suit, action or proceeding against it brought by any U.S. Underwriter or Vontobel Securities Ltd. or by any officer or director of any U.S. Underwriter or Vontobel Securities Ltd. or by any person who controls, is controlled by or is under common control with any U.S. Underwriter or Vontobel Securities Ltd. arising out of or based upon this Agreement or the International Underwriting Agreement or the transactions contemplated herein or therein shall be brought in New York, (ii) waives, to the fullest extent it may effectively do so, any objection which it may now or hereafter have to the laying of venue of any such proceeding and (iii) submits to the exclusive jurisdiction of such court in any such suit, action or proceeding. 18. Counterparts ------------ This Agreement may be executed by any one or more of the parties hereto in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same instrument. 19. Severability ------------ Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be unenforceable or invalid under applicable law, such provision shall be ineffective only to the extent of such unenforceability or invalidity and be replaced by such valid and enforceable provision which the parties bona fide consider to match as closely as possible the invalid or unenforceable provision, attaining the same or a similar economic effect. The remaining provisions of this Agreement shall under all circumstances continue to be binding and in full force and effect. 38 If the foregoing is in accordance with your understanding, please sign and return to us __ counterparts hereof, and upon the acceptance hereof by you, on behalf of each of the U.S. Underwriters and Vontobel Securities Ltd., this letter and such acceptance hereof shall constitute a binding agreement between each of the U.S. Underwriters, Vontobel Securities Ltd. and the Company. Very truly yours, BIOMARIN PHARMACEUTICAL INC. By: ----------------------------------------- Name: Title: Accepted as of the date hereof: BANK J. VONTOBEL & CO AG U.S. BANCORP PIPER JAFFRAY INC. For themselves and as representatives of the U.S. Underwriters named in Schedule 1 hereto and Vontobel Securities Ltd. By: ------------------------------ Name: Title: By: ------------------------------ Name: Title: SCHEDULE 1 ---------- U.S. Underwriters New Shares Greenshoe Shares - ------------------------------------------------------------------------------- U.S. Bancorp Piper Jaffray Inc. - ------------------------------------------------------------------------------- Shroders & Co. Inc. - ------------------------------------------------------------------------------- Leerink Swann & Company - ------------------------------------------------------------------------------- Total - ------------------------------------------------------------------------------- SCHEDULE 2 ---------- Executive Officers, Directors and 1% and Greater Stockholders BioMarin Pharmaceutical Inc. Directors and Officers and 1% or more Stockholders who executed the Lock-up Agreement and NASD Questionnaire 1. Anderson, Raymond W. 2. Banca Del Gottardo 3. BB BioVentures L.P. 4. Cardigan Inc. 5. Danske & Co. 6. Denison, Grant W. Jr. 7. Gadicke, Ansbert 8. Genzyme Corporation 9. Glyko Biomedical Ltd. 10. Grosvenor Fund, L.P. 11. Kakkis, Emil 12. Klock, John C. 13. LaMont Asset Management S.A. 14. Royal Bank of Canada Trust Company (Jersey) Limited 15. Rud, Blass & Cie 16. Sager, Erich 17. Starr, Christopher 18. Williams, Gwynn R. - ----------- (1) The lock-up agreement and NASD questionnaire were executed by Florian Schonharting on behalf of BankInvest Biotechnologi who is the beneficial owner of the 333,500 shares of BioMarin Pharmaceutical Inc. Common Stock registered under Danske & Co. This information was furnished to us by Stacey Parnell of Blake Cassels & Graydon, attorney for the investors during the 1998 Common Stock Financing. SCHEDULE 3 ---------- Form of Lock-up Letter BIOMARIN PHARMACEUTICAL, INC. LOCK-UP AGREEMENT April ___, 1999 U.S. Bancorp Piper Jaffray Bank J. VonTobel & Co. AG Schroders & Co., Inc. Leerink Swann & Company as Representatives of the several Underwriters 345 California Street San Francisco, CA 94123 Re: BioMarin Pharmaceutical, Inc. Public Offering Ladies and Gentlemen: The undersigned understands that you, as representatives (the "Representatives") of the several underwriters (the "Underwriters"), propose to enter into an Underwriting Agreement with BioMarin Pharmaceutical, Inc. (the "Company") providing for the public offering (the "Public Offering") by the Underwriters, including yourselves, of shares of common stock of the Company (the "Common Stock") pursuant to a Registration Statement (the "Registration Statement") to be filed by the Company with the Securities and Exchange Commission (the "Commission"). In consideration of the Underwriters' agreement to purchase and undertake the Public Offering of the Company's Common Stock, and for other good and valuable consideration, the receipt of which is hereby acknowledged, the undersigned hereby agrees that, without the prior written consent of U.S. Bancorp Piper Jaffray on behalf of the Underwriters, it will not, during the period commencing on the date hereof and ending 180 days after the date of the final prospectus for the Public Offering (the "Lock-Up Period"), (1) offer, pledge, sell, lend, contract to sell (including, without limitation, any short sale), sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, establish an open "put equivalent position" within the meaning of Rule 16a-1(h) under the Securities Exchange Act of 1934, as amended, or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock owned directly by the undersigned or with respect to which the undersigned has or acquires beneficial ownership within the meaning of the rules and regulations of the Commission (collectively the "Shares") (whether such shares or any such securities are now owned by the undersigned or are hereafter acquired), or (2) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Common Stock, whether any such transaction described in clause (1) above or this clause (2) is to be settled by delivery of Common Stock or such other securities, in cash or otherwise, or (3) publicly announce the undersigned's intention to do any of the foregoing. The foregoing sentence shall not apply to transactions relating to Shares acquired in the Public Offering by the Underwriters. Notwithstanding the foregoing, if the undersigned is an individual, he or she may transfer any securities of the Company either during his or her lifetime or on death by gift, will or intestacy to his or her immediate family or to a trust, the beneficiaries of which are exclusively the undersigned, and/or a member or members of his or her immediate family; provided, however, that in each such case described in this paragraph the transferee enters into a lock-up agreement in substantially the form hereof covering the remainder of the Lock-Up Period under this Agreement. For purposes of this Agreement, "immediate family" shall mean spouse, lineal descendant, father mother, brother or sister of the transferor. The undersigned now has and except as contemplated by the preceding paragraph, for the duration of the Lock-Up Period will have, good and marketable title to the Shares, free and clear of all liens, claims and encumbrances. In addition, the undersigned agrees that, without the prior written consent of U.S. Bancorp Piper Jaffray on behalf of the Underwriters, it will not, during the Lock-Up Period make any demand for or exercise any right with respect to, the registration of any such Shares or any security convertible into or exercisable or exchangeable for such Shares and hereby waives any rights to receive notice of the Public Offering. The undersigned confirms that the agreements of the undersigned are irrevocable and shall be binding upon the undersigned's legal representatives successors and assigns. The undersigned agrees and consents to the entry of stop transfer instructions with the Company's transfer agent against the transfer of any Shares held by the undersigned except in compliance with the terms and condition of this Agreement. The undersigned also understands that the Company and the Underwriters will proceed with the Public Offering in reliance on this Agreement. Whether or not the Public Offering actually occurs depends on a number of factors, including market conditions. Any Public Offering will only be made pursuant to an Underwriting Agreement, the terms of which are subject to agreement between the Company and the Underwriters. Notwithstanding anything else herein, in the event the Registration Statement is not declared effective by the Commission on or prior to April 30, 2000, the terms and provisions of this Agreement shall be of no further force or effect. Very truly yours, ____________________________________________ (Print name) ____________________________________________ (Signature) By:_________________________________________ (Name and title of signatory, if stockholder is an entity) ____________________________________________ (Address) ____________________________________________ SCHEDULE 3.1 ------------ BioMarin Pharmaceutical Inc. Stockholders who did not turn in the lock-up agreement and NASD questionnaire 1. Argentiere Holdings Ltd. 2. Clariden Biotechnology Equity Fund 3. Fondation Limbau, Vaduz 4. Gerlach & Company 5. John S. Glass 6. Hare & Co. 7. Swiss Bank Corporation 8. H. Donald & June M. Stork Irrevokable Trust Dated October 21, 1995, Morey S. Rosenbloom, Trustee SCHEDULE 4 ----------- Company Counsel form of Opinion (i) Each of the Company and Glyko, Inc. has been duly organized and is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation. Each of the Company and Glyko, Inc. has full corporate power and authority to own its properties and conduct its business as currently being carried on and as described in the Registration Statement and Prospectus, and is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction in which, whether by reason of the ownership of property or the conduct of business, the conduct of its business makes such qualification necessary and in which the failure to so qualify would have a material adverse effect upon the business, condition (financial or otherwise) or properties of the Company and Glyko, Inc., taken as a whole. (ii) The capital stock of the Company conforms as to legal matters to the description thereof contained in the Prospectus under the caption "Description of Capital Stock." The description of the Company's stock option, stock bonus and other stock plans or arrangements, and the options or other rights granted and exercised thereunder, set forth in the Prospectus accurately and fairly presents the information required to be shown with respect to such plans, arrangements, options and rights. All of the issued and outstanding shares of the capital stock of the Company have been duly authorized and validly issued and are fully paid and nonassessable and have been issued in compliance with the registration and qualification requirements of federal and state securities laws. The Securities to be issued and sold by the Company hereunder have been duly authorized and, when issued, delivered and paid for in accordance with the terms of this Agreement, will have been validly issued and will be fully paid and nonassessable. Except as otherwise stated in the Registration Statement and Prospectus, there are no preemptive rights or other rights to subscribe for or to purchase, or any restriction upon the voting or transfer of, any shares of Common Stock pursuant to the Company's charter, by-law's or any agreement or other instrument known to such counsel to which the Company is a party or by which the Company is bound. Except as otherwise stated in the Registration Statement and Prospectus, to the best of such counsel's knowledge, neither, the filing of the Registration Statement nor the offering or sale of the Securities as contemplated by this Agreement gives rise to any rights for or relating to the registration of any shares of Common Stock or other securities of the Company. (iii) All of the issued and outstanding shares of capital stock of each of the Company's subsidiaries have been duly and validly authorized and issued and are fully paid and nonassessable, and, to the best of such counsel's knowledge, except as otherwise described in the Registration Statement and Prospectus, the Company owns of record and beneficially, free and clear of any security interests, claims, liens, proxies, equities or other encumbrances, all of the issued and outstanding shares of such stock. To the best of such counsel's knowledge, except, as described in the Registration Statement and Prospectus, there are no options, warrants, agreements, contracts or other rights in existence to purchase or acquire from any shares of the capital stock of the Company or any subsidiary of the Company. (iv) The Registration Statement has become effective under the 1933 Act and, to the best of such counsel's knowledge, no stop order suspending the effectiveness of the Registration Statement has been issued and no proceeding for that purpose has been instituted or, to the knowledge of such counsel, contemplated or threatened by the Commission. Any required filing of the Prospectus and any supplement thereto pursuant to Rule 424(b) under the Securities Act has been made in the manner and within the time period required by such Rule 424(b). (v) The statements (A) in the Prospectus: (i) relating to the agreements and joint venture with Genzyme; (ii) relating to the convertible promissory notes issued by the Company (iii) under the captions "Risk Factors--Anti- takeover provisions in out charter documents and under Delaware law any make an acquisition of us, which may be beneficial to our stockholders, more difficult"; "Shares eligible for future sale: the sale of a substantial number of shares of common stock could cause the market price of our common stock to decline"; "Business--Corporate Collaborations"; "Business--Legal Proceedings"; "Management--1998 Director Option Plan"; "Management--Employment Agreements"; "Management--Employee Benefit Plans"; "Certain Transactions"; "Description of Capital Stock"; "Shares Eligible for Future Sale"; and (B) in the Registration Statement in Items 14 and 15, in each case insofar as such statements constitute summaries of the legal matters, documents or proceedings referred to therein, fairly present the information called for with respect to such legal matters, documents and proceedings and are fair summaries of such legal matters, documents or proceedings. To the best of such counsel's knowledge, no contracts or documents required to be included as exhibits to the Registration Statement that are not included as required. (vi) The Company has full corporate power and authority to enter into this Agreement, and this Agreement has been duly authorized, executed and delivered by the Company and constitutes a valid, legal and binding obligation of the Company enforceable in accordance with its terms (except as rights to indemnity hereunder may be limited by federal or state securities laws and except as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting the rights of creditors generally and subject to general principles of equity); the execution, delivery and performance of this Agreement and the consummation of the transactions herein contemplated will not result in a breach or violation of any of the terms and provisions of, or constitute a default under, any statute, rule or regulation, any agreement or instrument known to such counsel to which the Company is a party or by which it is bound or to which any of its property is subject, the Company's charter or by-laws, or any order or decree known to such counsel of any court or governmental agency or body having jurisdiction over the Company or any of its respective properties; and no consent, approval, authorization or order of, or filing with, any court or governmental agency or body in the United States is required for the execution, delivery and performance of this Agreement or for the consummation of the transactions contemplated hereby, including the issuance or sale of the Securities by the Company, except such as may be required under the 1933 Act or state securities laws. (viii) To the best of such counsel's knowledge, neither the Company nor any of its subsidiaries is in violation of its respective charter or by-laws. (ix) The Registration Statement and the Prospectus, and any amendment thereof or supplement thereto, comply as to form in all material respects with the requirements of the 1933 Act and the Rules and Regulations. That while such counsel have not independently verified the accuracy or completeness of the Registration Statement, such counsel have no reason to believe that the Registration Statement (except the financial statements and schedules and other financial and statistical data contained therein and derived from the Company's financial statements or financial records, as to which such counsel need express no opinion or belief) at the Effective Date contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or that the Prospectus (except the financial statements and schedules and other financial and statistical data contained therein and derived from the Company's financial statements or financial records, as to which such counsel need express no opinion or belief) as of its date or at the Closing Date, contained or contains any untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. (x) Such other matters as you may reasonably request. In rendering such opinion such counsel may rely (i) as to matters of law other than the General Corporation Law of the State of Delaware, the General Corporation Law of the State of California or federal law, upon the opinion or opinions of local counsel provided that the extent of such reliance is specified in such opinion and that such counsel shall state that such opinion or opinions of local counsel are satisfactory to them and that they believe they and you are justified in relying thereon and (ii) as to matters of fact, to the extent such counsel deems reasonable upon certificates of officers of the Company and its subsidiaries provided that the extent of such reliance is specified in such opinion. SCHEDULE 5 ----------- Patent Counsel Form of Opinion (i) Such patent counsel has no reason to believe that the Registration Statement or the Prospectus (A) contains any untrue statement of a material fact with respect to Intellectual Property Rights owned or used by the Company, or the manner of the manner of use of such Intellectual Property Rights, or any allegation on the part of any person that the Company is infringing any Intellectual Property Rights of another or (B) omits to state any material fact with respect to Intellectual Property Rights owned or used by the Company, or the manner of its use thereof, or any allegation on the part of any person that the Company is infringing any Intellectual Property Rights of such person, that is required to be stated therein or necessary to make the statements therein not misleading. (ii) Except as disclosed in the Prospectus, to the best of such patent counsel's knowledge, the Company is not under any obligation to pay to any third party royalties or fees of any kind whatsoever with respect to the Intellectual Property Rights developed, employed, or used in the Company's business as currently conducted and as proposed to be conducted as disclosed in the Prospectus. (iii) To the best of such patent counsel's knowledge, there are no legal or governmental proceedings pending with respect to the Company's Intellectual Property Rights, and, to the best of such counsel's knowledge, no such proceedings are threatened or contemplated by governmental authorities or others. (iv) To the best of such patent counsel's knowledge, the Company is not infringing or otherwise violating any Intellectual Property Rights of others, and, to the best of such patent counsel's knowledge, there are no infringements by others of the Company's Intellectual Property Rights. (v) Such patent counsel does not know of any material contracts or other documents relating to the Company's Intellectual Property Rights that are not described in the Registration Statement. SCHEDULE 6 ----------- Regulatory Counsel Form of Opinion (i) The statements of federal law or regulation contained in the Prospectus under the captions "Risk Factors--If we fail to obtain regulatory approval to commercially manufacture or sell any of our future drug products, or if approval is delayed, we will be unable to generate revenue from the sale of our products"; "Risk Factors--If we fail to obtain orphan drug exclusivity for our products, our competitors may sell products to treat the same conditions and our revenues may be reduced"; "Business--Products Under Development"; "Business-- Government Regulation" and other references in the Registration Statement and Prospectus to regulatory matters are, in all material respects, correct and accurate statements or summaries of applicable federal law and regulation, and fairly present the information disclosed therein. (ii) Such regulatory counsel has no reason to believe that the Registration Statement or the Prospectus contains any untrue statement of a material fact with respect to government regulation or clinical trials. (iii) To the best of such regulatory counsel's actual knowledge without further investigation, the Company's business, as currently conducted and as described in the Registration Statement and Prospectus, does not violate the Federal Food, Drug and Cosmetic Act or any Food and Drug Administration ("FDA") rule or regulation, and, to the best of such regulatory counsel's knowledge, there are no FDA or judicial administration proceedings pending or threatened against the Company. EX-5.1 3 OPINION OF WILSON SONSINI GOODRICH & ROSATI Exhibit 5.1 July 19, 1999 Bank J. Vontobel & Co A G U.S. Bancorp Piper Jaffray Inc. As Representatives of the several U.S. Underwriters and Vontobel Securities Ltd. c/o Bank J. Vontobel & Co AG Bahnhofstrasse 3 8022 Zurich Switzerland Re: BIOMARIN PHARMACEUTICAL INC. ---------------------------- Ladies and Gentlemen: This opinion is furnished to you pursuant to Section 7(a)(iv) of the Underwriting Agreement dated July __, 1999 (the "Underwriting Agreement") among BioMarin Pharmaceutical Inc., a Delaware corporation (the "Company"), and Bank J. Vontobel & Co A G and U.S. Bancorp Piper Jaffray Inc. as Representatives of the several U.S. Underwriters named in Schedule 1 thereto and Vontobel Securities Ltd. We have acted as counsel for the Company in connection with the Underwriting Agreement and the preparation and filing of the Company's Registration Statement on Form S-1 (No. 333-77701) filed with the Securities and Exchange Commission (the "Commission") on May 4, 1997 and Amendments No. 1, 2 and 3 thereto filed with the Commission on June 14, 1999, July 6, 1999 and July 19, 1999 respectively (these amendments, collectively, with the Registration Statement, the "Registration Statement"). Capitalized terms used herein shall have the same meaning given to them in the Underwriting Agreement unless otherwise defined herein. We are licensed to practice law only in the State of California. Accordingly, the opinions expressed herein are limited in all respects to existing laws of the State of California, the General Corporation Law of the State of Delaware and applicable federal laws. We have made no inquiry into, and express no opinion as to, any U.S. federal or state statute, rule or regulation relating to any patent, copyright, trademark or trade name matter, the statutes, rules, regulations, treaties or common laws of any other nation, state or jurisdiction, or the effect on the transactions contemplated by the Underwriting Agreement of non-compliance under any such statutes, rules, regulations, treaties or common laws. We have assumed that the laws of any state or jurisdiction other than California (except the General Corporation Law of the State of Delaware) applicable to the opinions rendered herein are identical to the laws of the State of California. This paragraph does not in any way limit the statements made in the second to last paragraph of this letter. As such counsel, we have made such legal and factual examinations and inquiries as we have deemed advisable or necessary for the purpose of rendering this opinion, and we have examined, among other things, originals, certified copies or copies otherwise identified to us as being true copies of the originals, of the following: (a) The Certificate of Incorporation of the Company filed with the Delaware Secretary of State on October 25, 1996, the Restated Certificate of Incorporation filed with the Delaware Secretary of State on May 6, 1997, the Amended and Restated Certificate of Incorporation filed with the Delaware Secretary of State on March 22, 1999, and the Certificate of Correction filed with the Delaware Secretary of State on April 21, 1999. (b) The Bylaws of the Company adopted April 18, 1997, as amended on April 22, 1999. (c) Resolutions adopted by the Board of Directors of the Company on April 22, 1999 and resolutions adopted by the Pricing Committee of the Board of Directors of the Company on July __, 1999 with respect to the transactions covered by this opinion. (d) The Registration Statement on Form S-1 (Registration No. 333-77701), filed by the Company under the Securities Act with the Commission on May 4, 1999, and Amendments No. 1, 2, and 3 thereto filed with the Commission on June 14, 1999, July 6, 1999 and July 19, 1999 (said Registration Statement in the form in which it became effective (including the information deemed to be a part of the Registration Statement at the time it became effective pursuant to Rule 430A of the Rules and Regulations) and the Prospectus in the form filed with the Commission on July __, 1999, pursuant to Rule 424(b)(4) under the Securities Act being hereinafter referred to as the "Prospectus.") (e) Telephonic confirmation of the Commission fixing the effective date of the Registration Statement as ____ p.m., Eastern Time, July __, 1999. (f) Specimen certificates for shares of the Company's Common Stock. (g) Executed copies of the Underwriting Agreement. (h) The letters dated July __, 1999 and July __, 1999 of Arthur Andersen L.L.P. addressed and delivered to you pursuant to the Underwriting Agreement. (i) The officers' certificate dated the date of this opinion delivered to you pursuant to the Underwriting Agreement. (j) The secretary's certificate dated the date of this opinion delivered to you. (k) The certificates of certain state authorities and filing officers, copies of which are being delivered to you on the date hereof. (l) The certificate of the Company's transfer agent delivered to you on the date hereof. (m) The cross-receipt delivered by you and the Company to each other on the date hereof. (n) The other documents delivered on the Closing Date. In addition, we have obtained from public officials and from officers of the Company such other certificates, and we have examined such other corporate records, other documents and questions of law, as we have considered necessary or appropriate for purposes of this opinion. We have also relied as to certain matters upon conversations between attorneys or agents of this firm and public officials. In rendering this opinion, we have assumed the genuineness of all signatures on original documents, the authenticity of all documents submitted to us as originals, the conformity to originals of all documents submitted to us as copies thereof, and the due execution and delivery of all documents (other than the signatures of the Company's officers and directors with respect to the Underwriting Agreement and the Registration Statement) where due execution and delivery are a prerequisite to the effectiveness thereof. In addition, in rendering our opinion, we have relied on the truthfulness of the representations and warranties as to factual matters, but not legal conclusions, made by the Company and you in the Underwriting Agreement and pursuant thereto. We have also relied upon the truthfulness of representations as to factual matters, but not legal conclusions, made to us in certain certificates delivered by the Company to us. As used in this opinion, the expressions "to our knowledge," "known to us," "of which we are aware" and similar phrases with reference to matters of fact mean that, after an examination of documents made available to us by the Company, and after inquiries of officers of the Company, but without any further independent factual investigation, we find no reason to believe that the opinions expressed herein are factually incorrect. Further, such expressions and similar phrases with reference to matters of fact refer to the current actual knowledge of the attorneys of this firm who have worked on matters for the Company in connection with the Registration Statement, the Underwriting Agreement and the transactions contemplated by the Underwriting Agreement. Except to the extent expressly set forth herein or as we otherwise believe to be necessary to our opinion, we have not undertaken any independent investigation to determine the existence or absence of any fact, and no inference as to our knowledge of the existence or absence of any fact should be drawn from our representation of the Company or the rendering of the opinions set forth below. The opinions hereinafter expressed are subject to the following qualifications: (a) We express no opinion as to the effect of bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting the rights of creditors generally. (b) We express no opinion as to limitations imposed by general principles of equity, regardless of whether such limitations are considered in a proceeding in law or at equity. (c) We express no opinion as to the provisions of the Underwriting Agreement relating to indemnification or contribution for liabilities arising under the Securities Act, which may be unenforceable under applicable law. Based upon, and subject to the foregoing, we are of the opinion that: (i) Each of the Company and Glyko, Inc. has been duly organized and is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation. Each of the Company and Glyko, Inc. has full corporate power and authority to own its properties and conduct its business as currently being carried on and as described in the Registration Statement and Prospectus, and is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction in which the failure to so qualify would have a material adverse effect upon the business, condition (financial or otherwise) or properties of the Company and Glyko, Inc., taken as a whole. (ii) The capital stock of the Company confirms as to legal matters to the description thereof contained in the Prospectus under the caption "Description of Capital Stock." The description of the Company's stock option, stock bonus and other stock plans or arrangements, and the options or other rights granted and exercised thereunder, set forth in the Prospectus accurately and fairly presents the information required to be shown with respect to such plans, arrangements, options and rights. All of the issued and outstanding shares of the capital stock of the Company have been duly authorized and validly issued and are fully paid and nonassessable and have been issued in compliance with the registration and qualification requirements of federal and state securities laws. The securities to be issued and sold by the Company pursuant to the Underwriting Agreement have been duly authorized and, when issued, delivered and paid for in accordance with the terms of this Agreement, will have been validly issued and will be fully paid and nonassessable. Except as otherwise stated in the Registration Statement and Prospectus, there are no preemptive rights or other rights to subscribe for or to purchase, or any restriction upon the voting or transfer of, any shares of Common Stock pursuant to the Company's charter, by- laws or any agreement or other instrument known to us to which the Company is a party or by which the Company is bound. Except as otherwise stated in the Registration Statement and Prospectus, to the best of our knowledge, neither the filing of the Registration Statement nor the offering or sale of the Securities as contemplated by this Agreement gives rise to any rights for or relating to the registration of any shares of Common Stock or other securities of the Company. (iii) All the issued and outstanding shares of capital stock of each of the Company's Subsidiaries have been duly and validly authorized and issued and are fully paid and nonassessable, and, to the best of our knowledge, except as otherwise described in the Registration Statement and Prospectus, the Company owns of record and beneficially, free and clear of any security interests, claims, liens, proxies, equities or other encumbrances, all of the issued and outstanding shares of such stock. To the best of our knowledge, except as described in the Registration Statement and Prospectus, there are no options, warrants, agreements, contracts or other rights in existence to purchase or acquire from any shares of the capital stock of the Company or any subsidiary of the Company. (iv) The Registration Statement has become effective under the 1933 Act and, to the best of our knowledge, no stop order suspending the effectiveness of the Registration Statement has been issued and no proceeding for that purpose has been instituted or, to the best of our knowledge, contemplated or threatened by the Commission. Any required filing of the Prospectus and any supplement thereto pursuant to Rule 424(b) under the Securities Act has been made in the manner and within the time period required by such Rule 424(b). (v) The statements (A) in the Prospectus: (i) relating to the agreements and joint venture with Genzyme; (ii) relating to the convertible promissory notes issued by the Company; (iii) under the captions "Risk Factors--Anti- takeover provisions in out charter documents and under Delaware law any make an acquisition of us, which may be beneficial to our stockholders, more difficult;" "Shares eligible for future sale: the sale of a substantial number of shares of common stock could cause the market price of our common stock to decline;" "Business--Corporate Collaborations;" "Business-Legal Proceedings;" "Management--1998 Director Option Plan;" "Management--Employment Agreements;" "Management--Employee Benefit Plans;" "Certain Transactions;" "Description of Capital Stock;" "Shares Eligible for Future Sale;" and (B) in the Registration Statement in Items 14 and 15, in each case insofar as such statements constitute summaries of the legal matters, documents or proceedings referred to therein, fairly present the information called for with respect to such legal matters, documents and proceedings and are fair summaries of such legal matters, documents or proceedings. To the best of our knowledge, no contracts or documents required to be included as exhibits to the Registration Statement that are not included as required. (vi) The Company has full corporate power and authority to enter into this Agreement, and this Agreement has been duly authorized, executed and delivered by the Company and constitutes a valid, legal and binding obligation of the Company enforceable in accordance with its terms (except as rights to indemnity hereunder may be limited by federal or state securities laws and except as such enforceability may be limited by bankruptcy, insolvency, reorganization or similar laws affecting the rights of creditors generally and subject to general principles equity); the execution, delivery and performance of this Agreement and the consummation of the transactions herein contemplated will not result in a breach or violation of any of the terms and provisions of, or constitute a default under, any statute, rule or regulation, any agreement or instrument known to us to which the Company is a party or by which it is bound or to which any of its property is subject, the Company's charter or bylaws, or any order or decree known to us of any court or governmental agency or body having jurisdiction over the Company or any of its respective properties; and no consent, approval, authorization or order of, or filing with, any court or governmental agency or body is required for the execution, delivery and performance of this Agreement or for the consummation of the transactions contemplated hereby, including the issuance or sale of the Securities by the Company, except such as may be required under the 1933 Act or state or foreign securities laws. (vii) To the best of such counsel's knowledge, neither the Company nor any of its subsidiaries is in violation of its respective charter or bylaws. (viii) The Registration Statement and the Prospectus, and any amendment thereof or supplement thereto, comply as to form in all material respects with the requirements of the 1933 Act and the rules and regulations promulgated thereunder. While we have not independently verified the accuracy or completeness of the Registration Statement, we have no reason to believe that the Registration Statement (except the financial statements and schedules and other financial and statistical data contained therein and derived from the Company's financial statements or financial records, as to which we express no opinion or belief) at the Effective Date contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or that the Prospectus (except the financial statements and schedules and other financial and statistical data contained therein and derived from the Company's financial statements or financial records, as to which we express no opinion or belief) as of its date or at the Closing Date, contained or contains any untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. This opinion is furnished by us as counsel for the Company to you and is solely for your benefit in connection with the transactions contemplated by the Underwriting Agreement. It may not be relied upon by any other person or for any other purpose without our prior written consent. Very truly yours, WILSON SONSINI GOODRICH & ROSATI Professional Corporation EX-10.17 4 GRANT TERMS AND AGREEMENT WITH HARBOR-UCLA EXHIBIT 10.17 CONFIDENTIAL ------------ [* * *]: CONFIDENTIAL TREATMENT REQUESTED FOR PORTIONS OF THIS EXHIBIT GRANT TERMS AND CONDITIONS AGREEMENT This agreement documents the grant terms and conditions between BioMarin Pharmaceuticals at 11 Pimentel Court, Novato, CA 94949 (hereinafter referred to as "BioMarin") and Harbor-UCLA Research and Education Institute at 1124 West Carson Street, Torrance, CA 90502-2084 (hereinafter referred to as "REI"), and each referred to as the "Party" or collectively as the "Parties". 1. Principal Investigator: The Principal Investigator on behalf of REI is Emil D. Kakkis, M.D., Ph.D. (hereinafter referred to as "Dr. Kakkis" or "Principal Investigator"). 2. Research Project: The Research Project is titled, "Enzyme Replacement Therapy for MPS I with Recombinant a-L-iduronidase". The research plan for this project is attached as Appendix A, and includes work which is to be done beyond the current term of the initial grant period. It is understood that changes to the protocol may occur as dictated by the progress and needs of the project. 3. Grant Period: The Initial grant period is for a period of one year and shall be effective as of the date the Initial payment #1 (see clause #5(a)) is received by REI and the date this agreement is fully executed, whichever occurs later. It is anticipated that this period will be extended with additional funds based upon project progress and funding available to BioMarin. 4. Grant Amount: (a) [***] (b) Appendix B contains the budget for the initial period of the Research Project. REI can rebudget funds between the major cost categories (e.g., personnel, facilities, equipment, etc.) as necessary with the consent of BioMarin, such consent not to be unreasonably withheld, to achieve the goals of the Research Project. REI may make changes within the major cost categories without seeking the consent of BioMarin. (c) The first year's budget reflects the current anticipated costs for the Initial grant period. [* CONFIDENTIAL TREATMENT REQUESTED] Grant Terms and Conditions Agreement Page 2 (d) The second year's budget represents an estimate of the operating budget for the second year. REI shall submit to BioMarin at least 90 days prior to the end of the Initial grant period its request for the second year's funding. BioMarin shall advise REI of its approval of the second year's budget, including any additional funding to be provided if applicable, at least 60 days prior to the end of the initial grant period. (e) It is understood that the budgets prepared by REI are based upon the current best estimates of anticipated costs, and that additional funds may be necessary for the project, including funds for costs in year 2 and those described under clause #5(c). If at any time REI and BioMarin determine that the funding provided by BioMarin will not be adequate to meet the project's needs, REI and BioMarin will decide on a need for a funding change and BioMarin will endeavor to provide such funding. If REI and BioMarin are unable to agree on an adequate amount of funding, then REI shall have the right to terminate the Research Project and this Agreement in accordance with clause #18(c). 5. PAYMENT TERMS: (a) BioMarin shall, within ten (10) days of signing this Agreement or within ten (10) days of the time BioMarin has been funded and has approved the Research Project, whichever occurs later, make its initial payment #1 to REI. BioMarin shall make quarterly payments thereafter which are due two weeks in advance of the start of the next quarter and in amounts as indicated below. [***] (b) If spending needs to be changed due to the progress of the Research Project, REI and BioMarin shall negotiate in good faith the payment amounts and due dates. It is understood that, in addition to any other remedy provided to REI hereunder, REI shall not be obligated to continue to work on the Research Project, and may terminate this Agreement in accordance with clause #18, if funds are not received when due or are otherwise determined by REI in its good faith discretion to be inadequate to [*CONFIDENTIAL TREATMENT REQUESTED] Grant Terms and Conditions Agreement Page 3 fulfill the project needs (pay personnel, purchase supplies, etc.) (See also clause #18(a).) (c) The items listed below may be needed in order to complete the work, but they have not been budgeted as these costs cannot be predicted at this time. BioMarin and REI will determine if any of these or additional items are necessary in order to complete the Research Project, and BioMarin will provide these services directly to the Research Project at its own expense. - FDA or other special consultant fees - Biologics or other safety testing by outside subcontractors - Validation of purification system performed off-site at outside subcontractor facility - Computer consultants - CGMP or other specialized training from staff - Genotyping of patients by a subcontractor facility - Costs relating to clinical trial complications and needed medical specialists and treatment (d) [***] (e) In addition, REI will at its own expense deposit and maintain in a secure, off site location adequate copies of protocols and operating procedures, and backup cultures or cryopreserved specimens of any living biological property such as cell lines, cultures, etc. (f) Checks are to be made payable and sent to: Harbor-UCLA Research and Education Institute P.O. Box 60637 Terminal Annex Los Angeles, California 90060 ATTN: Project No. 008831-00-00 [*CONFIDENTIAL TREATMENT REQUESTED] Grant Terms and Conditions Agreement Page 4 6. Equipment Title: REI shall retain title to all equipment purchased with grant funds under this Agreement. 7. Financial Reports: REI shall submit to BioMarin quarterly financial reports detailing research project expenses by major cost category (e.g., personnel, facilities, equipment, supplies, animal costs, other expenses, and travel) within 45 days after the end of each quarter. At BioMarin's request, a detailed audit can be done by BioMarin or its authorized agent at its own expense with reasonable advance notice during REI's normal business hours in order to satisfy BioMarin that payments have been used in accordance with this Agreement anti REI will cooperate with such audit. REI will maintain annual financial records for the Research Project for a period of five (5) years. 8. Compliance Committee Approvals: The Principal Investigator will obtain the necessary approvals from the Institutional Animal Care and Use Committee for animal studies and approvals from the Institutional Review Board for human studies and approvals from the FDA to perform the manufacture of recombinant a-L- iduronidase for clinical use. 9. Ownership of Data and Records REI shall own all data and records which it generates relating to or resulting from the Research Project. BioMarin shall have the right to inspect such data and records with reasonable advance notice during REI's normal business hours. It also is understood that applicable governmental agencies shall have the right to inspect such data and records as required by law. 10. Right to Publish (a) The Principal Investigator has the right to publish all research preclinical and clinical data, methods, negative results or adverse effects resulting from the Research Project it is understood that Intellectual property will be protected prior to submission of such research results for publication. The Principal Investigator will submit to BioMarin all manuscripts and abstracts containing data or proprietary Information derived from this grant for review and comment. BioMarin will have 30 days in which to conduct such review and comment end shall have the right to require that all confidential and/or proprietary information be removed. Failure by BioMarin to respond within Grant Terms and Conditions Agreement Page 5 30 days will indicate their approval to publish in the form in which it was submitted. (b) BioMarin has the right to request that any publications and abstracts resulting from this research acknowledge funding from BioMarin. 11. Use of Name: BioMarin shall not use the names of REI, the County of Los Angeles, or the University of California, Los Angeles, or their agents, officers, or employees, for promotional or advertising purposes without the prior written approval of REI. However, BioMarin has the right to use REI's name with actual and potential investors for the purpose of raising capital for this project. 12. Existing Intellectual Property: The following list delineates the existing patentable or proprietary Inventions, trade secrets, scientific knowledge, materials or processes belonging to and/or known to REI which are covered by this Agreement and are described more fully in Appendix C: (a) Cell line 2.131. (b) Microcarrier culture and harvest process/medium used. (c) Purification system: heparin phenyl rapid two-step protocol. (d) ELISA procedure to detect anti-iduronidase antibodies. (e) Enzyme replacement as therapy for MPS I. An exclusive worldwide license to this existing Intellectual property is hereby granted to BioMarin subject to the terms in clause #5(d), 15, and 18(f). 13. New Inventions, Materials, or Processes Anticipated to be Produced and Which are Covered Under This Agreement: (a) Methods developed to produce enzyme in Chinese Hamster Ovary Cells. (b) Methods developed to purify protein or ensure it is safe. (c) New cell lines produced to make enzyme. (d) Reagents created to assess enzyme purity or quality. (e) Use of the enzyme in diagnostic applications. An exclusive worldwide licensing agreement to the new inventions, materials or processes produced and covered under this Agreement will be negotiated subject to the terms in clause #15. Grant Terms and Conditions Agreement Page 6 14. Inventions or Research Discoveries Excluded From This Agreement: Inventions or research discoveries excluded from this agreement include, but are not limited to, all research developments or techniques initially developed during studies of the canine MPS I model during this grant period since these experiments will be 100% funded by other sources. The excluded items include, but are not limited to, the following: (a) A non-invasive method for monitoring enzyme that is currently under development in the canine model. (b) Localized application methods of enzyme therapy to be developed in the dog such as intrathecal, ophthalmic or intrajoint administration. (c) Optimized administration methods or dosing regimens developed first in dog studies. (d) Methods to induce immune tolerance using the enzyme. (e) Computer software developed to monitor and control the manufacturing process produced without funding from BioMarin. 15. Inventions and Patent Rights: . (a) For purposes of this Agreement, the term "Invention" shall mean any inventions or discoveries made during the term of this Agreement and also the existing intellectual property as listed In clause #12, whether or not patentable, and any know-how or patent rights relating thereto, which arise out of or relate to the Research Project, with the exclusions noted in Clause #14 above. (b) In the event that the inventorship of an Invention under applicable patent law is attributed solely to personnel performing work on research on behalf of REI, then such Invention shall be assigned to and shall be the sole property of REI. The Principal Investigator agrees to notify BioMarin and REI promptly of the existence of such invention. (c) In the event that the inventorship of an Invention under applicable patent law is attributed solely to personnel performing work on the research on behalf of BioMarin, then such Invention shall be assigned to and shall be the sole property of BioMarin. BioMarin agree to notify REI and Principal Investigator promptly of the existence of such invention. (d) In the event that the Inventorship of an Invention under applicable patent law is attributed jointly to personnel performing work on the research on behalf of REI and to personnel performing work on the research on behalf of BioMarin. Grant Terms and Conditions Agreement Page 7 then such Invention shall be assigned by each such person referenced in this paragraph Jointly and shall be the joint property of BioMarin and REI. (e) REI and BioMarin shall in a timely manner jointly review all Inventions and shall mutually decide whether to prepare and file patent applications at BioMarin's expense, REI's expense or Jointly. (f) REI agrees that with respect to any Invention which is assigned solely to REI hereunder or which is assigned Jointly to BioMarin and REI hereunder, BioMarin shall have an exclusive worldwide license, with a right to sublicense, all rights owned by REI in such Invention to make, have made, use and sell such Invention and products embodying such Invention, but subject to the provisions of clause 15(g) hereof. (g) (i) BioMarin shall pay to REI a royalty of [***] of net sales and net leasing income, of products, processes and/or apparatus, or otherwise arising out of or resulting from the Inventions as defined in clause #12, 13, and 15(a) hereof. Such royalty shall be paid until the expiration of the last of any patents arising out of or resulting from the inventions, and if no such patents exist for a period of ten (10) years from the effective date of this Agreement. (ii) Net sales for the purpose of computing royalties means BioMarin's invoice price, f.o.b, factory, after deduction of regular trade and quantity discounts, but before deduction of other Items, including but not limited to freight allowances, cash discounts and agents commissions. For purposes of this agreement, "regular trade discounts" shall include pricing discounts to foreign distributors given in the ordinary course of business. (iii) [***] [*CONFIDENTIAL TREATMENT REQUESTED] Grant Terms and Conditions Agreement Page 8 (iv) BioMarin shall maintain accurate books of account and other records respecting the sale of such products and payment of royalties and shall make such books of accounts and other records available to REI for inspection and copying on reasonable advance notice at all reasonable times. BioMarin shall provide in connection with each royalty payment a schedule setting forth the basis for such payment in a form satisfactory to REI. (v) In order to maintain the license, BioMarin agrees to pursue the development of enzyme therapy with due diligence acceptable to REI. (h) REI represents that it is authorized to grant license. REI represents that all personnel performing work on the Research Project on behalf of REI have a legal obligation to assign to REI all inventions and discoveries made by such personnel during the course of their work performed pursuant to this Agreement. (i) BioMarin represents that all personnel performing work on the Research Project on behalf of BioMarin have a legal obligation to assign to BioMarin all inventions and discoveries made by such personnel during the course of their work performed pursuant to this agreement. (j) REI represents that, to the best of its knowledge and belief, the intellectual property listed in clause #12, and described more fully in Appendix C, constitutes the trade secrets of, and is proprietary to, REI. It is understood and agreed that certain background proprietary rights may be held by third parties, those known to REI being described in Appendix C. It is further understood and agreed that REI does not Indemnify nor hold harmless BioMarin from and against any claims, liabilities, costs, attorneys fees, and expenses arising out of a claim that the manufacture, use, or sale of the intellectual property listed in clause #12, as described more fully in Appendix C, infringes any third party patent or other intellectual property right. (k) BioMarin shall have the right but not the obligation to prosecute at its own expense any third party infringement of intellectual property owned by BioMarin or jointly held by REI and BioMarin which relates to this Research Project. REI shall have the right but not the obligation to prosecute at its own expense any third party infringement of intellectual property owned exclusively by REI or jointly by BioMarin and REI which relates to this Research Project. Grant Terms and Conditions Agreement Page 9 16. Other Scientific Pursuits and Obligations of Principal Investigator (a) Dr. Kakkis is a co-Investigator on an NIH grant in which Dr. Elizabeth Neufeld is Principal Investigator. The project is a high dose dog trial and intrathecal enzyme trial. Dr. Kakkis shall have the right to work on this project. (b) Dr. Kakkis is the Principal Investigator of a subcontract to purify iduronidase under a pending NIH SBIR grant to Croptech Development Corporation. This will be performed using space, equipment, and personnel not covered by this Agreement. Dr. Kakkis has the right to work on this project. If the methods used under the NIH SBIR grant are covered by this Agreement and are needed for commercial use by Croptech, Croptech will negotiate for this with REI and BioMarin. (c) Dr. Kakkis has the right to pursue other gene therapy research in MPS I. It is understood that the other work may generate an alternative therapy which may at some time impact the revenue BioMarin might receive from enzyme replacement therapy. (d) Dr. Kakkis also has the right to participate in and submit other grant and/or contract proposals to any potential funding agency, with the understanding that he will still have adequate time to complete the work on this project in a timely fashion. (e) Dr. Kakkis has a right to develop funding methods to lessen the impact of enzyme costs on affected families without restraint by BioMarin. Such alternative sources of funding would enhance the positive impact of this therapy, provide a paradigm for payment in other rare disorders, and improve the financial position of BioMarin by lessening economic resistance to therapy. 17. Progress Reports (a) Principal Investigator will provide verbal progress reports as requested by BioMarin. (b) Principal Investigator will provide quarterly written progress reports to BioMarin within 45 days after the end of each quarter. Grants Terms and Conditions Agreement Page 10 18. Termination (a) REI may immediately stop work on this project if BioMarin fails for any reason to fully fund the Research Project as provided for herein. REI shall provide BioMarin prompt written notice of its election to stop work under this Agreement, and BioMarin shall not thereafter be responsible for further funding of the Research Project; provided, however, that BioMarin shall remain obligated to pay, for a period of ninety (90) days after work stoppage, the salaries and fringe benefits of all project personnel who were assigned to work on the Research Project on the date that the work stopped, at the rates and benefits in effect as of the date of work stoppage, and including REI's Indirect costs. (b) In the event of a breach of this Agreement by any party hereto, then any party not in breach may terminate this Agreement effective ninety (90) days after providing written notice of termination. The failure of BioMarin to timely make any scheduled payment as set forth in clauses #5(a) and 5(d) shall be deemed a material breach of this Agreement. (c) The failure or inability of BioMarin and REI to agree in accordance with clauses #4(d) and 4(e), within thirty (30) days after written request therefor, on the amount or payment date of any additional funding that REI deems in its good faith judgment is necessary to conduct the Research Project, shall be cause for termination of this Agreement (but shall not be breach of this Agreement). In such event, any party hereto may terminate this Agreement effective ninety (9O) clays after providing written notice of termination. (d) Notwithstanding anything to the contrary in this Agreement, BioMarin shall be obligated to REI to pay all costs and reasonable noncancellable obligations (including those indicated under clause #18(a))incurred by REI on or before the effective date of termination. Such payment shall be made within 30 days after receipt of an invoice therefor from REI. (e) Expiration or termination of this Agreement shall not relieve the parties of any obligation accruing prior to such expiration or termination. The provisions of this clause #18, as well as any rights of the parties hereto arising out of a breach by the other party of any obligations hereunder, shall survive termination of this Agreement. (f) (I) In the event of termination of this Agreement for lack of full funding of Grant Terms and Conditions Agreement Page 11 the Research Project during the Initial grant period (see clause #3, 5(a), 5(b), 5(c), 18(a), 18(b), 18(c), and 18(d)), or for any breach by BioMarin during the initial grant period (see clause #3 and 18(b)), or at any time for lack of payment of licensing fees when due, or if at any time BioMarin is in breach of clause #18(d), any and all rights and licensee granted hereunder to BioMarin with respect to REI's patents or intellectual property shall terminate immediately. (11) Upon termination of this Agreement subsequent to the Initial grant period (see clause #3 and 18), the license granted herein, and any sublicenses issued thereunder, may survive the said termination provided that BioMarin is in full compliance with payment of licensing fees when due and clause #18(d) and the terms and conditions of said license including but not limited to clause #1 5(f) and 15(g), and provided further, that there is full compliance with the terms and conditions of any sublicense issued by BioMarin. In addition the licensing rights will only survive if the grant is terminated in a coordinated, planned manner satisfactorily to REI, including a minimum ninety-day notification of termination of funding. If the licensing rights survive termination of the agreement, Dr. Kakkis shall retain the right to produce the iduronidase enzyme at REI with all the materials and processes included in the license, such production to be for research purposes only. 19. Notices Notices regarding this agreement shall be sent to: If to BioMarin: BioMarin Pharmaceuticals 11 Pimentel Court Novato, California 94949 Facsimile 415-382-7889 ATTN: Chief Executive Officer If to REI: Emil Kakkis, M.D., Ph.D. Harbor-UCLA Research end Education Institute 1124 West Carson Street, Building E4 Torrance, California 90502-2084 Facsimile 310-328-9921 Grant Terms and Conditions Agreement Page 12 and Cathleen Tierney Grants and Contracts Officer Harbor-UCLA Research and Education Institute 1124 West Carson Street, Building N14 Torrance, California 90502-2064 Facsimile 310-320-8615 20. Confidentiality Maintained (a) Proprietary Information Each Party agrees that the other Party has a proprietary interest in any information provided by it, whether in connection with this Agreement or otherwise, and whether in written or oral form, which is (i) a trade secret, confidential, or proprietary information, (ii) not publicly known, and (iii) annotated by legend, stamp, or other written identification as confidential or proprietary information (hereinafter referred to as "Proprietary Information"). Each Party shall disclose the Proprietary Information provided by the other Party only to those of its agents and employees to whom it is necessary in order to carry out its obligations in accordance with the terms and conditions hereof. Both during and after the term of this Agreement, all disclosures by the Party receiving Proprietary Information to its agents and employees shall be held in strict confidence by such agents and employees. During and after the term of this Agreement, such receiving Party, its agents, and employees shall not use the Proprietary Information for any purpose other than in connection with discharging its duties in the Territory pursuant to this Agreement. The receiving Party shall, at its expense, return to the disclosing Party the Proprietary Information provided by the disclosing Party as soon as practicable after the term or expiration of this Agreement. During the term of this Agreement and thereafter, all such Proprietary Information shall remain the exclusive property of the Party which provided it. This clause #20 shall, also apply to any consultants or subcontractors that the receiving Party may engage in connection with its obligations under this Agreement. The confidentiality obligations set forth in this clause #20 shall survive for a period of five (5) years alter termination or expiration of this Agreement. (b) Exceptions Notwithstanding anything contained in this Agreement to the contrary, each of the Parties shall not be liable for a disclosure of the Proprietary Information of the other Party if the information so disclosed: (i) was in the public domain Grant Terms and Conditions Agreement Page 13 at the time of disclosure without breach of this Agreement; (ii) was known to or contained in the records of receiving Party at the time of disclosure by the providing Party, as evidenced by written records; (iii) was independently developed and is so demonstrated promptly upon receipt of the documentation and technology by receiving Party; (iv) becomes known to the receiving Party from a source other than the providing Party without breach of this Agreement by receiving Party, and can be so demonstrated; (v) must be disclosed pursuant to a contract or subcontract with a governmental agency in order to obtain/retain, procurement contract; or (vi) was disclosed pursuant to court order or as otherwise compelled by law, provided that the Party compelled to make such disclosure provides the other Party notice thereof sufficiently in advance of such disclosure so as to provide the other Party a reasonable time within which to seek a protective or similar order. 21. Assignment: This agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective affiliates, successors, transferees and assignees; provided, however, that neither party hereto may assign or transfer this agreement or any interest herein, either directly or indirectly, in whole or in part, without the prior written consent of the other party, which consent shall not be unreasonably withheld. A change in control of the company shall be considered an assignment. ACCEPTANCE BioMarin Pharmaceuticals Harbor-UCLA Research and Education Institute /s/ John C Klock 01 Apr 97 /s/ Frank J. De Santis, 4/1/97 - --------------------------------------- -------------------------------- Signature and Date Signature and Date Frank J. De Santis, CAE John Klock - President President - ------------------------------------- --------------------------------- Typed Name and Title Typed Name and Title Principal Investigator: /s/ [SIGNATURE] --------------------------------- Signature and Date [LOGO OF BIOMARIN APPEARS HERE] Harbor-UCLA Research and Education Institute 1124 West Carson Street Torrance, California 90502-2064 Attn: Arthur I. Zweben August 21, 1998 RE: REI-BIOMARIN GRANT TERMS AND CONDITIONS AGREEMENT Dear Mr. Zweben: This Letter Agreement (the "Agreement") sets forth the understanding between Harbor-UCLA Research and Education institute ("REI") and BioMarin Pharmaceutical, Inc. ("BioMarin") in connection with BioMarin's sublicense of certain of the rights (the "REI Technology") granted to BioMarin pursuant to that certain Grant Terms and Conditions Agreement between REI and BioMarin executed April 1, 1997 (the "Grant Agreement"). This Agreement represents the agreement of the REI and BioMarin as follows: 1. This Agreement hereby revises the Grant Agreement to incorporate the terms and conditions set forth in this Agreement. The relationship of the parties shall continue to be governed by the terms and conditions of the Grant Agreement, as amended and revised herein; and in the event that there is any conflict between the terms and conditions of the Grant Agreement and this Agreement, the terms and conditions of this Agreement shall control. As used in this Agreement all capitalized terms shall have the meanings defined for such terms in this Agreement or, if not defined in the Agreement, the meanings defined in the Grant Agreement. 2. REI hereby consents and approves of BioMarin's entering into an arrangement with a limited liability company to :be formed by BioMarin and Genzyme Corporation for the purpose of commercializing among other things the REI Technology ("BioMarin/Genzyme LLC") pursuant to which BioMarin will grant to BioMarin/Genzyme LLC a sublicense under the REI Technology (the "Sublicense"). 3. In connection with the Sublicense, BioMarin hereby agrees to pay to REI a running royalty of [* * *] of net sales (as such term is defined in the Grant Agreement) and net leasing income of products, processes and/or apparatus or otherwise arising out of or resulting from the Inventions (as such term is defined in paragraph 15(a) of the Grant Agreement) resulting from BioMarin/Genzyme LLC's exercise of the Sublicense. The foregoing royalty shall be paid until the expiration of the last of any patents arising out of or resulting from the Inventions, and if no such patents exist until April 1, 2007. Accordingly and notwithstanding the provisions of clause 15(g)(iii) of the Grant Agreement, BioMarin shall not have any obligation to share the gross income derived from the Sublicense and REI shall have no right to such gross income. 1- [* CONFIDENTIAL TREATMENT REQUESTED] 4. This Agreement and the Grant Amendment (together with the Appendices thereto) constitute the entire agreement between the parties in connection with the subject matter thereof and supersede all prior and contemporaneous agreements, understandings, negotiations and discussions, whether oral or written, of the parties. 5. This Agreement shall become effective on the date when BioMarin/Genzyme LLC has executed this agreement as indicated below and shall remain in effect until expiration or termination of the Grant Agreement. 6. This Agreement shall bind and inure to the benefit of the parties hereto and BioMarin/Genzyme LLC and their successors and assigns. This Agreement shall be governed by the laws of the State of California, without reference to conflict of laws principles. This Agreement may not be amended, nor any obligation waived, except by a writing signed by both parties hereto. If the foregoing is acceptable, please indicate acceptance by having this Agreement executed by the appropriate officer of REI and returning an executed copy to BioMarin to my attention Very truly yours, BioMarin Pharmaceutical Inc. /s/ John C Klock John C. Klock, M.D. President APPROVED AND ACCEPTED this 24 day of August, 1998. Harbor-UCLA Research and Education Institute Print Name: C. William Steers, CAE Title: Executive Vice President, APPROVED AND ACCEPTED this ___ day of _______,1998 BioMarin/Genzyme LLC Print Name: ___________________ Title: ___________________ 2- EX-10.18 5 LICENSE AGREEMENT WITH WOMENS AND CHILDREN HOSP. EXHIBIT 10.18 CONFIDENTIAL ------------ [* * *]: CONFIDENTIAL TREATMENT REQUESTED FOR PORTIONS OF THIS EXHIBIT LICENSE AGREEMENT ----------------- This License Agreement ("Agreement"), is made and entered into this 14th day of August, 1998 ("Effective Date") by and between BioMarin Pharmaceutical, Inc., having its principal office at 11 Pimentel Court, Novato, California 94949, USA ("BioMarin") and Women and Children's Hospital, Adelaide, Australia having its principal office at 72 King William Road, North Adelaide, South Australia, Australia ("WCH"). RECITALS A. WCH has been active in the field of research relating to the development of therapeutic agents for the treatment of Lysosomal Storage Disorders (LSD) and has, confidential information and know-how in respect to a group of LSD known as Mucopolysaccharidosis ("MPS") type diseases. B. BioMarin has agreed to work in the field of developing an enzyme replacement therapy ("ERT") for the treatment of the disease MPS VI and subsequent production, clinical trials, marketing and commercialization of Licensed Products for the benefit of patients. BioMarin desires to develop the Licensed Products and undertakes to commit significant resources to the said development for a therapy for children suffering with MPS VI. C. WCH possesses the Licensed Technology. D. BioMarin is interested in taking an exclusive worldwide license to the Licensed Technology for the commercialization of Licensed Products. E. WCH is willing to grant to BioMarin a license for the Licensed Technology, on the terms and conditions set forth below. NOW, THEREFORE, in consideration of the premises and mutual covenants, WCH and BioMarin hereby agree as follows: ARTICLE I DEFINITIONS ----------- 1.1 "Inventions" shall have the meaning as set forth in Section 8.1. ---------- 1.2 "Licensed Product" means any therapeutic product for ERT used in the ---------------- treatment of MPS VI, which is developed from or utilizes any part of the Licensed Technology. 1.3 "Licensed Technology" means the biological materials, clones, host cell ------------------- lines, and any research and development information, inventions, know-how, and all technical data applicable solely for MPS VI therapy which has been developed as of the Effective Date and which shall include recombinant human enzyme N-acetylgalactosamine-4-sulfatase, the cDNA clone encoding this enzyme, and the host cell line which expresses this enzyme for the treatment of MPS VI disease. 1.4 "Net Sales" means the aggregate gross sales price received by BioMarin on --------- any Sale of the Licensed Product less any credits for returns and allowances, cash and trade discounts, sales, use, excise or similar taxes, duties, insurance and freight and other shipping expenses, to the extent that such items are separately stated on BioMarin invoices to purchasers. 1.5 A "Sale" means a sale or lease of a Licensed Product. As used herein, ---- "Sale" shall not include Licensed Product retained for quality assurance purposes, any distribution for assessment by regulatory authorities for which BioMarin does not receive financial gain. ARTICLE II TERMS OF LICENSE ---------------- 2.1 License. WCH grants to BioMarin a perpetual, nontransferable, exclusive, ------- world-wide license, (i) to make use or sell the Licensed Technology or Inventions to make, use, distribute, market, sell, lease and sub-license Licensed Products and (ii) to make modifications to and to further develop the Licensed Technology or Inventions to make, use, distribute, market, sell, lease and sub-license the Licensed Products. 2.2 Access. WCH will provide to BioMarin, subject to the principles of ------ confidentiality set forth in Article IX, access to all Licensed Technology and all accompanying know-how and documentation necessary to use the Licensed Technology. ARTICLE III DEVELOPMENT ----------- 3.1 BioMarin will be responsible for the production of the Licensed Product, including, enzyme material using on any aspect of the Licensed Technology for clinical trials and, for world wide supply, based on real cost calculations, in the case of successful clinical trials. WCH hereby grants and BioMarin accepts the fight to sublicense the Licensed Product to ensure BioMarin can enter into partnerships or business collaborations, which involve the manufacture, marketing, sales, and distribution of the Licensed Products. 3.2 During the term of this Agreement, WCH, under the direction of Professor John Hopwood, will have substantial responsibility in the design of BioMarin's MPS VI clinical studies, the terms and conditions of which are to be agreed by WCH and BioMarin within six (6) months of the effective date. 2 ARTICLE IV DELIVERY -------- 4.1 WCH shall make its best effort to supply to BioMarin a copy of materials and/or documentation in its possession that contains the Licensed Technology within sixty (60) days from the Effective Date. 4.2 On the Effective Date, BioMarin shall designate one or more qualified individual(s) to be responsible for receiving the Licensed Technology. On or before the expiration of sixty (60) days from the Effective Date, WCH shall provide up to seventy (70) hours of training to such designated individual(s) who manufacture or use the Licensed Technology pursuant to such schedules and locations as the parties may agree. BioMarin will pay all travel, board, and lodging costs related to the supply of a copy of the Licensed Technology and documentation from WCH to BioMarin in accordance with Section 4.1. ARTICLE V PAYMENT ------- 5.1 In consideration of the license set forth in Article II above, BioMarin must pay to WCH the following: (a) License Fee: On the Effective Date, BioMarin must pay to WCH the ----------- sum of [* * *] as a licensing fee payment to WCH. (b) Maintenance Fee: On each anniversary date of the Effective Date, --------------- BioMarin must pay to WCH an annual license maintenance fee of [* * *]. If the annual royalty payments set forth in Section 5.1(c) exceeds [* * *] BioMarin shall not be required to pay the annual license maintenance fee and shall make only the royalty payment in accordance with Section 5.1(c). Each annual license maintenance payment must be made within eight (8) business days from the anniversary date. (c) Royalties: Commencing with the first commercial sale of the --------- Licensed Products by BioMarin, BioMarin shall pay to WCH a royalty rate of [* * *] of the Net Sales of Licensed Products. If a product which can be used for the treatment of MPS IV enters the market during the term of this Agreement and is competitive with the Licensed Product, then the royalty rate to WCH shall be decreased to [* * *] of annual Net Sales: 3 [* CONFIDENTIAL TREATMENT REQUESTED] (d) Payment: BioMarin shall make royalty payments to WCH within sixty (60) ------- days after the end of each calendar quarter during the term of this Agreement, for Net Sales within such calendar quarter. Each royalty payment shall be accompanied by a report by BioMarin describing royalty calculations due hereunder, for Net Sales of the Licensed Products within such calendar quarter. (e) Sublicensee's Royalty: In the event that BioMarin sublicenses the --------------------- Licensed Technology, then a condition of any sub-license must be that the sub- licensee pays a royalty to WCH on its Net Sales in accordance with Sections 5.1(c) and (d) and BioMarin guarantees to WCH any required royalty payments by the sub-licensee. (f) Records: BioMarin shall keep at its principal offices, complete, true ------- and accurate business books and records of account in sufficient detail to enable the royalties due WCH under this Article 5 to be verified, which books and records shall be maintained until at least six (6) years following the relevant royalty period or termination of this Agreement. Not more than one (1) time each calendar year during the term of this Agreement, WCH shall be entitled to inspect and audit BioMarin's accounts to verify the accuracy of (i) the reports provided to WCH under this Section 5.1 (c) and (d) and the amounts of the accompanying payments. Such audit shall be conducted by an independent accounting firm who is bound by strict confidentiality. Such audit shall be preceded by three (3) days prior written notice to BioMarin and shall be during BioMarin's normal business hours. If any such audit reveals an underpayment by BioMarin of its royalty obligations hereunder, BioMarin shall promptly remit to WCH the amount of such underpayment within thirty (30) days. ARTICLE VI REPRESENTATIONS BY WCH ---------------------- 6.1 WCH represents and warrants that: (i) WCH has developed and owns all fight, title and interest in and to the Licensed Technology existing as of the Effective Date; (ii) WCH has the fight to enter into this Agreement, to fully comply with the terms and conditions of this Agreement to the best of WCH's knowledge, to grant to BioMarin the fights and licenses contemplated in Section 2.1 above; and (iii) WCH has not executed any agreement or contract that is inconsistent with the fights and licenses granted hereunder. Except for the warranties made in this Section 6.1, WCH has made no other warrantees and expressly excludes all warranties to the extent possible by law. 4 ARTICLE VII REPRESENTATIONS BY BIOMARIN --------------------------- 7.1 BioMarin will commit best commercially reasonable efforts towards the said development. For the purposes of this Agreement, commercially reasonable efforts shall be interpreted as: Submission of Investigational New Drug Application ("IND") for MPS VI enzyme replacement therapy (i.e., Licensed Product) to the United States Food and Drug Administration ("FDA") or equivalent application to be made to the appropriate regulatory authority of another country at least nine (9) months from the Execution Date, or twelve (12) months if additional pre-clinical toxicology studies are required for the submission. Clinical trials should begin within three (3) months of the filing of an IND provided that the initiation of clinical trials has been approved by the FDA. 7.2 BioMarin represents and warrants that (i) BioMarin has the fight to enter into this Agreement; (ii) BioMarin will fully comply with the terms and conditions of this Agreement; and (iii) BioMarin will be responsible for all liability to third parties arising form any use of the Licensed Technology and its manufacture, distribution and sale of the Licensed Product. ARTICLE VIII PATENTS ------- 8.1 Ownership of Inventions. WCH shall have and retain sole and exclusive title ------------------------ to all inventions, discoveries and know how ("Inventions") which are made by either party, its employees, agents, or other third parties acting under authority from either party relating to Licensed Product. 8.2 Maintenance of Patents. ----------------------- (a) Filings. As between WCH and BioMarin, BioMarin shall, at its expense, ------- have responsibility for filing, prosecution and maintenance of all patents in the name of WCH. WCH shall have the fight to review pending patent applications and make recommendations to BioMarin concerning them. BioMarin will consider in good faith all reasonable suggestions of WCH with respect thereto. BioMarin agrees to keep WCH informed of the course of patent prosecution or other proceedings with respect to the patents. WCH shall provide such patent consultation to BioMarin at no cost to BioMarin. WCH shall hold all information disclosed to it under this Section 8.2(a) as confidential. 5 (b) Extensions. BioMarin shall have the right but not the obligation to ---------- seek extensions of the terms of patents. At BioMarin's request, WCH shall either authorize BioMarin to act as WCH's agent for the purpose of making any application for any extensions of the term of patents and provide reasonable assistance therefor to BioMarin or shall diligently seek to obtain such extensions, in either event, at BioMarin's expense. 8.3 Infringement by Licensed Product. In the event of the institution of any -------------------------------- suit by a third party against WCH for patent infringement involving the manufacture, use, sale, distribution or marketing of Licensed Product, WCH shall promptly notify BioMarin in writing. BioMarin shall have the right but not the obligation to defend such suit against it at its own expense. BioMarin and WCH shall assist one another and cooperate in any such litigation at the other's reasonable request without expense to the requesting party, and in any event WCH may participate in any such suit with counsel of its choice at its own expense. 8.4 Third Party Infringement. In the event that BioMarin or WCH becomes aware ------------------------ of actual or threatened infringement of a patent by the manufacture or sale or use of an ERT product for treatment of MPS VI (the "Field"), that party shall promptly notify the other party in writing. BioMarin shall have the first right but not the obligation to bring, at its own expense, an infringement action against any third party. If BioMarin does not commence a particular infringement suit within the Field within one hundred twenty (120) days of receipt of a request by WCH to do so, then WCH, after notifying BioMarin in writing and obtaining BioMarin's consent, which shall not be unreasonably withheld, shall be entitled to bring such infringement action at its own expense. WCH shall keep BioMarin reasonably informed of its activities during the 120-day period. The party conducting such action shall have full control over its conduct, including settlement thereof subject to Section 8.6. In any event, BioMarin and WCH shall assist one another and cooperate in any such litigation at the other's reasonable request without expense to the requesting party. 8.5 Recovery. BioMarin and WCH shall recover their respective actual out-of- -------- pocket expenses, or equitable proportions thereof, associated with any litigation against infringers undertaken pursuant to Section 8.4 above or settlement thereof from any resulting recovery made by any party. Any excess amount of such a recovery shall belong to BioMarin to the extent such recovery represents damages relative to sales. 8.6 Status of Activities. The parties shall keep one another informed of the -------------------- status of their respective activities regarding any litigation or settlement thereof concerning Licensed Product, provided however that no settlement or consent judgment or other voluntary final disposition of any suit defended or action brought by a party pursuant to this Section 8 may be entered into without the consent of the other party if such settlement would require the other party to be subject to an injunction or to make a monetary payment or would otherwise adversely affect the other party's rights under this Agreement. 6 ARTICLE IX CONFIDENTIALITY --------------- 9.1 BioMarin and WCH shall use their best efforts to protect the confidentiality of proprietary information provided to it by the other party and identified in writing or orally as confidential and proprietary and not to use such information except for the purposes of this Agreement. This obligation of confidentiality shall not apply to information which (a) is or becomes known publicly through no fault of the other party; (b) is obtained or learned by the receiving party from a third party entitled to disclose it; (c) is already known to the receiving party at the time of disclosure, as shown by the receiving party's prior written records; (d) is developed by the receiving party independent of any disclosure made hereunder, which can be demonstrated by written or other documentary evidence; or is required by law to be disclosed. 9.2 The foregoing restrictions shall not apply to any confidential information of either party ("Disclosing Party") that (i) is in the possession of the other party ("Receiving Party") at the time of disclosure, (ii) prior to or after the time of disclosure becomes part of the public domain, not as a result of any breach by the Receiving Party, (iii) is developed independently by the Receiving Party without use of or reference to the confidential Information of the Disclosing Party, (iv) is acquired from a third party having the fight to disclose such information, or (v) is approved in writing for release by the Disclosing Party. ARTICLE X TERM AND TERMINATION -------------------- 10.1 This Agreement shall commence on the Effective Date for a period of ten years. BioMarin shall have the option to renew this Agreement for two (2) periods of one (1) year upon terms to be agreed upon between the parties. 10.2 In the event that BioMarin fails to demonstrate to the WCH that best commercially reasonable efforts to develop and commercialize any of the Licensed Technology and Licensed Product then the WCH will inform BioMarin of this in writing. In case of a dispute, the parties shall have cause to negotiate in good faith to resolve any such dispute. If a dispute is not resolved within 30 days then the parties shall have the matter resolved by binding arbitration. 7 ARTICLE XI INDEMNITY BY BIOMARIN --------------------- 11.l BioMarin shall indemnify and hold harmless WCH and its employees, from and against any and all costs, losses, liabilities and expenses (including WCH attorneys' fees) arising out of the manufacture, use or sale of Licensed Products by BioMarin and from any use of the Licensed Technology, except for any gross negligence or willful acts by WCH employees, that serve to prohibit BioMarin from carrying out its fights under this Agreement. 11.2 BioMarin confirms that BioMarin has adequate insurance to cover all the risks referred to in Section 11.1. BioMarin agrees that on request by WCH,will provide WCH with evidence of the insurance on a certificate of currency. ARTICLE XII GENERAL PROVISIONS ------------------ 12.1 Transfer Costs. Costs associated with the manufacture of the Licensed -------------- Technology or travel costs directly related to the requirement of attendance by Professor Hopwood or members of his staff, are to be paid for by BioMarin. 12.2 Return of Licensed Technology. In the event that ----------------------------- BioMarin terminates their participation in the MPS VI project, all Licensed Technology including, without limitation, confidential information, cell lines etc. shall be returned to WCH. 12.3 Governing Law. This Agreement shall be construed and interpreted, and the ------------- fights and obligations of the parties hereto shall be determined, in accordance with the laws of the State of California, without regard to the conflicts of law principles thereof. 12.4 Alteration. No alteration or amendment of this Agreement shall be ---------- effective unless embodied in writing and executed by an authorized representative of each party. 12.5 Assignment. This Agreement, and the rights and obligations hereunder, ---------- shall not be assigned by WCH without the prior written consent of BioMarin. 12.6 Addresses The addresses of the parties for purposes of notices, payments --------- and other communications shall be as follows: BioMarin Pharmaceutical, Inc. 11 Pimentel Court Novato CA 94949 Attn.: Dr. Christopher M. Starr, Vice President of Research 8 Women and Children's Hospital 72 King William Road North Adelaide South Australia, Australia Attn: Mr Steven Hood, Intellectual Property Manager Either party, by notice to the other, may change its address for the purpose of this Section 12.6. 12.7 Entire Agreement. This Agreement sets forth the entire understanding of ---------------- the parties hereto with respect to the subject matter hereof and supersedes any previous understandings and agreements, written or oral, which the parties hereto may have reached with respect to the subject matter hereof. 12.8 Arbitration. Any dispute or claim arising out of this Agreement shall be ----------- finally settled by binding arbitration in San Francisco, California under the rules of arbitration of the American Arbitration Association by one arbitrator appointed in accordance with said rules. Judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. Notwithstanding the foregoing, the parties may apply to any court of competent jurisdiction for injunctive relief without breach of this arbitration provision. Both parties agree to attempt to resolve disputes within thirty (30) days prior to initiating arbitration. 12.9 Waiver. The failure or delay of either party to exercise any fight under ------ this Agreement may not be construed as a waiver of that fight, and no waiver of any term or condition of this Agreement shall be valid or binding on either party unless set forth in a writing signed by such party. 12.10 Independent Contractors. The relationship of BioMarin and WCH established ----------------------- by this Agreement is that of independent contractors, and nothing contained in this Agreement shall be construed to (i) give either party the power to direct and control the day-to-day activities of the other, (ii)constitute the parties as partners, joint venturers, co-owners or otherwise as participants in a joint or common undertaking, or (iii)allow either party to create or assume any obligation on behalf of the other party for any purpose whatsoever. All financial obligations associated with each party's business are the sole responsibility of that party. 12.11 Public Announcement. Neither party shall have the right to disclose to ------------------- third parties the terms of or the existence of this Agreement, unless approved in writing by the other party; provided that either party shall have the right to disclose the terms and existence of this Agreement to third parties as required by law, to prospective investors and to such party's accountants, attorneys and other professional advisors. 9 12.12 Notices. All notices under this Agreement shall be in writing and shall ------- be deemed to have been given if personally delivered, sent by certified or registered mail (return receipt) to the persons names in Section 12.6, or such other address as is provided by notice as set forth herein. Notices shall be deemed effective upon receipt or, if delivery is not effected by reason of some fault of the addressee, when tendered. 12.13 Severability. In the event any provision of this Agreement is held to be ------------ unenforceable in any respect, such unenforceability shall not affect any other provision of this Agreement, provided that the expected economic benefits of this Agreement are not denied to either party. 12.14 Limitation of Liability. EXCEPT 1N RELATION TO AN INDEMNITY PROVIDED BY ----------------------- BIOMARIN PURSUANT TO CLAUSE 11.1, THE PARTY'S LIABILITY (IF ANY) 1N ALL CASES SHALL BE EXCLUDED TO THE EXTENT POSSIBLE BY LAW, AND WHERE IT CANNOT BE EXCLUDED, IT WILL BE LIMITED TO THE AMOUNTS PAID BY BIOMARIN HEREUNDER. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR ANY SPECIAL, INCIDENTAL, CONSEQUENTIAL OR INDIRECT DAMAGES ARISING IN ANY WAY OUT OF THIS AGREEMENT, HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY. THIS LIMITATION SHALL APPLY EVEN IF EITHER PARTY KNOWS OR HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES AND NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY PROVIDED FOR HEREIN. 12.15 Counterparts. This Agreement may be executed in any number of ------------ counterparts and when so executed and delivered shall have the same force and effect as though all signatures appeared on one document. 12.16 Compliance with Laws. BioMarin shall be responsible, at its own expense, -------------------- for obtaining any and all governmental authorizations required (and comply with all applicable laws) in connection with the manufacture sale or use of any of the Licensed Technology and the Licensed Products. 12.17 Force Majeure. Nonperformance of either party shall be excused to the ------------- extent that performance is rendered impossible by strike, fire, flood, earthquake, governmental acts or orders or restrictions, failure of suppliers, or any other reason when failure to perform is beyond the control and not caused by the negligence of the non-performing party. 10 IN WITNESS WHEREOF, the parties hereto have caused this License Agreement to be executed as of the day and year first above written. /s/ [SIGNATURE] ------------------------------------- ("WCH") By: /s/ G. Tattersall ---------------------------------- ASST CHIEF EXECUTIVE OFFICER /s/ [SIGNATURE] ------------------------------------- ("BioMarin") By: /s/ Christopher M. Starr ---------------------------------- VP Research 11 EX-10.24 6 COLLABORATION AGREEMENT WITH GENZYME CORP. EXHIBIT 10.24 CONFIDENTIAL ------------ [* * *]: CONFIDENTIAL TREATMENT REQUESTED FOR PORTIONS OF THIS EXHIBIT COLLABORATION AGREEMENT among GENZYME CORPORATION, BIOMARIN PHARMACEUTICAL, INC. and BIOMARIN/GENZYME LLC Dated as of September 4, 1998 TABLE OF CONTENTS
PAGE ---- ARTICLE I - DEFINITIONS............................................................................ 1 ARTICLE II - SCOPE AND STRUCTURE OF THE COLLABORATION.............................................. 7 2.1 General.................................................................................. 7 2.2 Exclusive Relationship................................................................... 8 ARTICLE III - GRANTS AND RESERVATIONS OF RIGHTS.................................................... 9 3.1 Licenses of Rights to BioMarin/Genzyme LLC............................................... 9 3.2 Sublicenses of Rights from BioMarin/Genzyme LLC to BioMarin and Genzyme.................. 10 3.3 Reservation of Rights.................................................................... 11 3.4 Assignment of Orphan Drug Designation.................................................... 11 ARTICLE IV - PROGRAM FUNDING; LLC INTEREST......................................................... 11 4.1 Program Funding Commitments.............................................................. 11 4.2 Program Funding Capital Contributions.................................................... 11 4.3 Distributions............................................................................ 12 4.4 Sale and Purchase of LLC Interest........................................................ 13 4.5 Books of Account; Audit.................................................................. 13 4.6 Enforceability of Sections 4............................................................. 13 ARTICLE V - THE DEVELOPMENT PROGRAM................................................................ 14 5.1 Conduct of the Development Program....................................................... 14 5.2 Development Information.................................................................. 16 5.3 Regulatory Approval Filings.............................................................. 16 5.4 Clinical Data............................................................................ 5.5 Facilities Visit......................................................................... 17 ARTICLE VI - SALES, MARKETING AND ADMINISTRATIVE SERVICES.......................................... 17 6.1 Commercialization Plans.................................................................. 17 6.2 Exclusive Engagement; Diligence.......................................................... 18 6.3 Orders................................................................................... 18 6.4 Marketing and Distribution Expenses...................................................... 19 6.5 Responsibilities of Genzyme.............................................................. 19 6.6 Responsibilities of BioMarin/Genzyme LLC and BioMarin.................................... 20 6.7 General and Administrative Services...................................................... 20 ARTICLE VII - MANUFACTURE AND SUPPLY............................................................... 21 7.1 Process Development...................................................................... 21 7.2 Manufacture and Supply of Collaboration Product.......................................... 21 7.3 Certificates of Analysis................................................................. 22 7.4 Certificates of Manufacturing Compliance................................................. 22
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PAGE ---- 7.5 Access to Facilities.................................................................... 23 ARTICLE VIII - MANAGEMENT.......................................................................... 23 8.1 Program Management Team................................................................. 23 8.2 Steering Committee...................................................................... 24 8.3 General Disagreements................................................................... 25 ARTICLE IX - INTELLECTUAL PROPERTY RIGHTS.......................................................... 26 9.1 Ownership............................................................................... 26 9.2 Filing, Prosecution and Maintenance of Patent Rights.................................... 27 9.3 Cooperation............................................................................. 28 9.4 Notification of Patent Term Restoration................................................. 28 9.5 No Other Technology Rights.............................................................. 28 9.6 Defense of Third Party Infringement Claims.............................................. 28 9.7 Enforcement............................................................................. 29 9.8 Third Party Rights...................................................................... 29 9.9 Third Party Agreements--Reports......................................................... 30 ARTICLE X - CONFIDENTIALITY........................................................................ 30 10.1 Nondisclosure Obligations............................................................... 30 10.2 Terms of this Agreement; Press Releases................................................. 31 10.3 Publications............................................................................ 31 ARTICLE XI - REPRESENTATIONS AND WARRANTIES........................................................ 32 11.1 Authorization........................................................................... 32 11.2 Intellectual Property Rights............................................................ 32 11.3 Warranties.............................................................................. 32 11.4 Disclaimer of Representations and Warranties............................................ 33 11.5 Limitation of Liability................................................................. 33 ARTICLE XII - INDEMNITY............................................................................ 33 12.1 BioMarin/Genzyme LLC Indemnity Obligations.............................................. 33 12.2 Insurance............................................................................... 34 ARTICLE XIII - TERM AND TERMINATION................................................................ 34 13.1 Term.................................................................................... 34 13.2 Termination............................................................................. 34 13.3 Effects of Termination.................................................................. 35 13.4 Inventory............................................................................... 13.5 Survival of Rights and Duties........................................................... 42 ARTICLE XIV - MISCELLANEOUS........................................................................ 43
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PAGE ---- 14.1 Cooperation............................................................................ 43 14.2 Exchange Controls...................................................................... 43 14.3 Withholding Taxes...................................................................... 43 14.4 Interest on Late Payments.............................................................. 43 14.5 Force Majeure.......................................................................... 44 14.6 Assignment............................................................................. 44 14.7 Severability........................................................................... 44 14.8 Notices................................................................................ 44 14.9 Applicable Law......................................................................... 46 14.10 Arbitrate.............................................................................. 46 14.11 Injunctive Relief...................................................................... 47 14.12 Entire Agreement....................................................................... 47 14.13 Headings............................................................................... 48 14.14 Independent Contractors................................................................ 48 14.15 Waiver................................................................................. 48 14.16 Counterparts........................................................................... 48
-iii- COLLABORATION AGREEMENT THIS COLLABORATION AGREEMENT dated as of September 4, 1998 (the "Agreement") is made among Genzyme Corporation, a Massachusetts corporation having its principal place of business at One Kendall Square, Cambridge, Massachusetts 02139 ("Genzyme"), BioMarin Pharmaceutical, Inc., a Delaware ------- corporation having its principal place of business at 11 Pimentel Court, Novato, California 94949 ("BioMarin") and BioMarin/Genzyme LLC, a Delaware limited -------- liability company having its principal place of business at One Kendall Square, Cambridge, Massachusetts 02139 ("Genzyme/BioMarin LLC"). Genzyme, BioMarin and -------------------- BioMarin/Genzyme LLC are sometimes referred to herein individually as a "Party" ----- and collectively as the "Parties". ------- RECITALS A. BioMarin is developing recombinant human alpha-L-iduronidase ("Alpha- ----- L- iduronidase"). Decreased levels of the Alpha-L-iduronidase enzyme result in - -------------- individuals having mucopolysaccharidosis I ("MPS I"). BioMarin is currently ----- developing Alpha-L-iduronidase for the treatment of MPS I and other Alpha-L- iduronidase deficiencies. B. Genzyme has expertise in developing, manufacturing and marketing biopharmaceutical products. C. BioMarin/Genzyme LLC has been organized by BioMarin and Genzyme as the vehicle for a joint venture between BioMarin and Genzyme to develop and commercialize the Collaboration Products (as defined herein) throughout the Territory (as defined herein). NOW THEREFORE, in consideration of the premises and of the covenants herein contained, the Parties mutually agree as follows: ARTICLE I DEFINITIONS For purposes of this Agreement, the terms defined in this Article shall have the meanings specified below. Certain other capitalized terms are defined elsewhere in this Agreement. 1.1 "Affiliate" shall mean any corporation or other entity which --------- controls, is controlled by, or is under common control with a Party. A corporation or other entity shall be regarded as in control of another corporation or entity if it owns or directly or indirectly controls more than fifty percent (50%) of the voting stock or other ownership interest of the other corporation or entity, or if it possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of the corporation or other entity or the power to elect or appoint more than fifty percent (50%) of the members of the governing body of the corporation or other entity. 1.2 "BioMarin Companies" shall mean BioMarin and BioMarin Genetics, Inc., ------------------ a Delaware corporation and a wholly-owned subsidiary of BioMarin ("BioMarin Genetics"). 1.3 "BioMarin/Genzyme Patent Rights" shall mean the Patent Rights that ------------------------------ claim Joint Inventions (as such term is defined in Section 9.1.1 hereof) that are discovered, made or conceived during and in connection with the Program jointly by employees or consultants of Genzyme and BioMarin to the extent that such Patent Rights relate to or are useful for the research, development, manufacture or commercialization of Collaboration Products for use in the Field. 1.4 "BioMarin/Genzyme Technology" shall mean all Technology discovered, --------------------------- made or conceived during and in connection with the Program jointly by employees or consultants of Genzyme and BioMarin relating to or useful for the research, development, manufacture or commercialization of Collaboration Products for use in the Field. 1.5 "BioMarin Patent Rights" shall mean all Patent Rights Controlled by ---------------------- BioMarin during the term of this Agreement to the extent that such Patent Rights relate to or are useful for the research, development, manufacture or commercialization of Collaboration Products for use in the Field, including the BioMarin Patent Rights listed in Schedule 1.5 hereto. ------------ 1.6 "BioMarin Technology" shall mean all Technology Controlled by BioMarin ------------------- during the term of this Agreement to the extent that such Technology relates to or is useful for the research, development, manufacture or commercialization of Collaboration Products for use in the Field. 1.7 "BLA" shall mean a Biologics License Application or similar --- application filed with the FDA after completion of human clinical trials to obtain marketing approval for a Collaboration Product. 1.8 "Collaboration Product" shall mean any pharmaceutical compositions of --------------------- Alpha-L-iduronidase, including without limitation any and all improvements, derivatives, analogs, combination products, delivery systems and dosage forms related thereto. 1.9 "Commercialization Costs" with respect to a Collaboration Product ----------------------- shall mean the variable costs and fixed costs incurred by BioMarin/Genzyme LLC with respect to work performed by the Parties and their Affiliates and subcontractors in connection with the performance of and in accordance with the Commercialization Plan for such Collaboration Product, including without limitation, sales and marketing costs related to performing market research, post-marketing studies, advertising, producing promotional literature, sponsoring seminars and symposia, sales training meetings and seminars, originating sales, providing reimbursement and other patient support services and such other expenses described in Section 6.4 hereof. For purposes of this Section 1.9, "variable costs" shall be deemed to be the cost of labor, raw -------------- materials, supplies and other resources directly consumed in the conduct of the Commercialization Plan and manufacture of Collaboration Product for use in commercialization activities, as well as amounts paid to Third Parties under a Third Party Agreement as a result of performance of the Commercialization Plan, to the extent not included in Development Costs or Fully Absorbed Cost of Goods. For purposes of this Section 1.9, "fixed costs" shall be deemed to be the cost ----------- of facilities, utilities, insurance, equipment depreciation and other fixed costs directly related to the conduct of and in accordance with the Commercialization -2- Plan and the manufacture of Collaboration Product for use in commercialization activities, allocated based upon the proportion of such costs directly attributable to support or performance of the Commercialization Plan and the manufacture of Collaboration Product for use in commercialization activities or by such other method of cost allocation as may be approved by the Steering Committee. All cost determinations made hereunder shall be made in accordance with GAAP. 1.10 "Commercialization Plan" shall mean, with respect to a particular ---------------------- Collaboration Product, the comprehensive plan and budget for the commercialization of such Collaboration Product, as more specifically described in Section 6.1.1 hereof. 1.11 "Control" shall mean possession of the ability to grant a license or ------- sublicense as provided for herein without violating the terms of an agreement with a Third Party. 1.12 "Date of Execution" shall mean the last date on which the Parties ----------------- executed this Agreement, as shown on the signature pages hereto. 1.13 "Development Costs" with respect to a Collaboration Product shall ----------------- mean the variable costs and fixed costs incurred by BioMarin/Genzyme LLC with respect to work performed by the Parties and their Affiliates and subcontractors in connection with the conduct of and in accordance with the Development Plan for such Collaboration Product, including without limitation (a) direct, out-of- pocket external costs, including clinical grants, clinical laboratory fees, positive controls and the cost of studies conducted and services provided by contract research organizations and individuals, consultants, toxicology contractors, and manufacturers necessary or useful for the purpose of obtaining Regulatory Approvals for such Collaboration Product, (b) amounts paid to Genzyme and BioMarin by BioMarin/Genzyme LLC with respect to research and development and pre-commercialization sales and marketing efforts as set forth in the Development Plan for such Collaboration Product, including without limitation the efforts of Genzyme and BioMarin to develop and document process methods and procedures for the manufacture of such Collaboration Product and the Fully Absorbed Cost of Goods for batches of such Collaboration Product manufactured and supplied for use in preclinical and clinical trials and pre- commercialization activities, (c) costs related to data management, statistical designs and studies, document preparation and other expenses associated with the clinical testing program for such Collaboration Product, (d) costs for preparing, submitting, reviewing or developing data or information for the purpose of submission of applications to obtain Regulatory Approvals for such Collaboration Product, (e) license fees and other amounts paid to a Third Party pursuant to a Third Party Agreement as a result of performance of the Development Plan (excluding any fees payable pursuant to Section 15(g)(iii), but including amounts payable pursuant to Section 15(g)(i), in each case of that certain General Terms and Conditions Agreement dated April 1, 1997 between BioMarin and Harbor-UCLA Research and Education Institute ("REI"), as amended --- pursuant to that certain letter agreement dated August 24, 1998 between BioMarin and REI) and (f) costs relating to the prosecution and maintenance of Patent Rights which claim, or disclose subject matter relevant to, the manufacture or use of such Collaboration Product. For purposes of this Section 1.13, "variable -------- costs" shall be deemed to be the cost of labor, raw materials, supplies and - ----- other resources directly consumed in the conduct of and in accordance with the Development Program and the manufacture of the Collaboration Product for use in preclinical and clinical trials and pre-commercialization activities. For purposes of this Section 1.13, "fixed costs" shall be deemed to be the cost of ----------- facilities, utilities, insurance, facility and -3- equipment depreciation and other fixed costs directly related to the conduct of the Development Program and the manufacture of the Collaboration Product for use in preclinical and clinical trials and pre-commercialization activities, allocated based upon the proportion of such costs directly attributable to the support or performance of the Development Program and the manufacture of the Collaboration Product for use in preclinical and clinical trials and pre- commercialization activities or by such other method of cost allocation as may be approved by the Steering Committee. All cost determinations made hereunder shall be made in accordance with GAAP. 1.14 "Development Plan" shall mean, with respect to a particular ---------------- Collaboration Product, the comprehensive plan and budget for the development of such Collaboration Product under the Development Program, as more specifically described in Section 5.1.2 hereof. 1.15 "Development Program" shall mean, with respect to a particular ------------------- Collaboration Product, the preclinical and clinical development of such Collaboration Product including the preparation and filing of all applications for Regulatory Approvals for such Collaboration Product. Subject to Section 7.2.3 below, the Development Program will include establishment and validation of facilities for the preclinical, clinical and commercial manufacture and/or preparation of Collaboration Products. 1.16 "Effective Date" shall mean September 4, 1998. -------------- 1.17 "Field" shall mean any and all therapeutic applications of Alpha-L- ----- iduronidase for MPS I and other Alpha-L-iduronidase deficiencies. Notwithstanding the foregoing, the Field shall not include Gene Therapy for MPS I or other Alpha-L-iduronidase deficiencies. For purposes of this Agreement, "Gene Therapy" shall mean treatment or prevention of MPS I or other Alpha-L- ------------ iduronidase deficiencies by means of ex vivo or in vivo introduction (via viral or nonviral gene transfer systems) of nucleotide sequences (including without limitation, DNA, RNA and complementary and reverse complementary nucleotide sequences thereto, whether coding or noncoding). 1.18 "FDA" shall mean the United States Food and Drug Administration, any --- successor agency, or the regulatory authority of any country other than the United States with responsibilities comparable to those of the United States Food and Drug Administration. 1.19 "Fully Absorbed Cost of Goods" with respect to units of Collaboration ---------------------------- Product shall mean (a) the variable costs and fixed costs incurred by a Party associated with the manufacture (inclusive of finishing processes including filling, packaging, labeling and/or other preparation) quality assurance, quality control and other testing, storage and shipping of batches of such units of Collaboration Product or (b) if such units or portions of Collaboration Product are not manufactured by the Parties, the amounts paid to the vendor plus costs associated with acquisition from such vendor. For purposes of this Section 1.19, "variable costs" shall be deemed to be the cost of labor, raw -------------- materials, supplies and other resources directly consumed in the manufacture, quality assurance, quality control and other testing, storage and shipping of batches of such Collaboration Product. For purposes of this Section 1.19, "fixed costs" shall be deemed to be the cost of facilities, utilities, ----------- insurance, facility and equipment depreciation and other fixed costs directly related to the manufacture, quality assurance, quality control and other testing, storage and shipping of batches of -4- such Collaboration Product, as well as amounts paid to Third Parties under a Third Party Agreement as a result of the manufacture, use or sale of such units of Collaboration Products. Fixed costs shall be allocated to such units of Collaboration Product based upon the proportion of such costs directly attributable to support of the manufacturing, quality assurance, quality control and other testing, storage and shipping processes for such Collaboration Product. If a facility is used to manufacture Collaboration Products and has the capacity to manufacture products for other programs of either Genzyme or BioMarin, fixed costs shall be allocated in proportion to the actual use of such facility for the manufacture of Collaboration Products and the capacity to manufacture products for such other programs. For the avoidance of doubt, no idle capacity of a manufacturing facility shall be included in Fully Absorbed Cost of Goods unless such facility is appropriately sized and dedicated solely to the manufacture of Collaboration Products. Fully Absorbed Cost of Goods shall exclude all costs otherwise reimbursed pursuant to this Agreement. In the event that either BioMarin or Genzyme subcontracts with the other Party to perform any work on its behalf in connection with the manufacturing responsibilities assigned to BioMarin or Genzyme, respectively, pursuant to Section 7.2.1 hereof, BioMarin and Genzyme (i) shall each directly charge BioMarin/Genzyme LLC their respective Fully Absorbed Cost of Goods and (ii) shall not include any part of the other Party's Fully Absorbed Cost of Goods in the amount so charged to BioMarin/Genzyme LLC. Except as otherwise provided in this Agreement, all cost determinations made hereunder shall be made in accordance with GAAP. 1.20 "GAAP" shall mean the then-current United States generally accepted ---- accounting principles, consistently applied, except when different accounting principles are required under the terms of the Operating Agreement, in which case the accounting principles mandated under the Operating Agreement shall control. 1.21 "Genzyme Patent Rights" shall mean all Patent Rights Controlled by --------------------- Genzyme during the term of this Agreement to the extent that such Patent Rights relate to or are useful for the research, development, manufacture or commercialization of Collaboration Products for use in the Field, including the Genzyme Patent Rights listed in Schedule 1.21 hereto. ------------- 1.22 "Genzyme Technology" shall mean all Technology Controlled by Genzyme ------------------ during the term of this Agreement to the extent such Technology relates to or is useful for the research, development manufacture or commercialization of Collaboration Products for use in the Field. 1.23 "Major Market Country" shall mean the United States, the United -------------------- Kingdom, France, Germany, Italy, Japan and Spain. 1.24 "Manufacturing Party" shall have the meaning set forth in Section ------------------- 7.2.1. 1.25 "Manufacturing Know-How" shall mean all information, techniques, ---------------------- inventions, discoveries, improvements, practices, methods, knowledge, skill, experience and other technology, whether or not patentable or copyrightable, and any copyrights based thereon, relating to or necessary or useful for the production, purification, packaging, storage and transportation of Collaboration Products, including without limitation specifications, acceptance criteria, manufacturing batch records, standard operating procedures, engineering plans, installation, operation and process qualification protocols for equipment, validation records, master files -5- submitted to the FDA, process validation reports, environmental monitoring processes, test data including pharmacological, toxicological and clinical test data, cost data and employee training materials. 1.26 "Member" shall have the meaning set forth in the Operating Agreement. ------ 1.27 "Net Profit" of BioMarin/Genzyme LLC for any period shall be equal ---------- to (a) the sum during such period of all revenues recognized and recorded by BioMarin/Genzyme LLC during such period, including without limitation (i) revenues from sales of all Collaboration Products sold directly by BioMarin/Genzyme LLC and (ii) all revenues received by BioMarin/Genzyme LLC from Third Parties as consideration for sublicensing the manufacture, use, distribution or sale of Collaboration Products, less (b) all expenses incurred ---- by BioMarin/Genzyme LLC during such period, including without limitation expenses incurred in respect of Development Costs and Commercialization Costs and facility and equipment depreciation costs not otherwise accounted for. All determinations made hereunder shall be made in accordance with GAAP. 1.28 "Operating Agreement" shall mean the Operating Agreement of ------------------- BioMarin/Genzyme LLC dated of even date herewith by and between BioMarin and Genzyme. 1.29 "Patent Rights" shall mean any patents, patent applications, ------------- certificates of invention, or applications for certificates of invention, together with any extensions, registrations, confirmations, reissues, divisions, continuations or continuations-in-part, reexaminations or renewals thereof, that may be sought throughout the world. 1.30 "Percentage Interest" shall have the meaning set forth in the ------------------- Operating Agreement. 1.31 "Program" shall mean the collaboration among BioMarin/Genzyme LLC, ------- BioMarin and Genzyme described in this Agreement. 1.32 "Program Costs" shall mean all Program-related costs, including ------------- without limitation Development Costs and Commercialization Costs, in each case as such costs are incurred or accrued by BioMarin/Genzyme LLC on or after the Effective Date. Notwithstanding anything herein to the contrary, it is understood that the Parties shall apply mutually agreed upon cost allocation methods in determining Program Costs hereunder. 1.33 "Program Management Team" shall mean the joint team composed of ----------------------- representatives of Genzyme and BioMarin described in Section 8.1.1 hereof. 1.34 "Purchase Agreement" shall mean the Purchase Agreement dated of even ------------------ date herewith by and between BioMarin and Genzyme. 1.35 "Regulatory Approvals" shall mean all approvals from regulatory -------------------- authorities in any country in the Territory required lawfully to manufacture and market Collaboration Products in any such country, including without limitation approval of any BLA, any establishment license application filed with the FDA to obtain approval of the facilities and equipment to be used to manufacture a Collaboration Product, and any product pricing approvals where applicable. -6- 1.36 "Regulatory Scheme" shall mean the United States Public Health Service ----------------- Act and the regulations, interpretations and guidelines promulgated thereunder by the FDA or the regulatory scheme applicable to the Collaboration Products in any country other than the United States, as such statutes, regulations, interpretations and guidelines or regulatory schemes may be amended from time to time. 1.37 "Specifications" with respect to a particular Collaboration Product -------------- shall mean the written specifications for such Collaboration Product determined by the Program Management Team and approved by the Steering Committee; provided that such specifications shall at all times comply with the relevant Regulatory Scheme in the country of sale and in the country of use. The Specifications may be amended from time to time by the Program Management Team provided that such amendments are approved by the Steering Committee or the written agreement of the Parties, as the case may be. Copies of the then-current Specifications shall be maintained by both BioMarin and Genzyme and shall become a part of this Agreement as if incorporated herein. 1.38 "Steering Committee" shall mean the governing body of BioMarin/Genzyme ------------------ LLC composed of representatives of BioMarin and Genzyme appointed as described in Section 8.2.1 hereof. 1.39 "Technology" shall mean inventions, trade secrets, copyrights, know- ---------- how, data and other intellectual property of any kind (including without limitation any proprietary biological or other materials, compounds or reagents, but not including Patent Rights). 1.40 "Territory" shall mean the world. --------- 1.41 "Third Party" shall mean any entity other than BioMarin/Genzyme LLC, ----------- BioMarin or Genzyme and their respective Affiliates. 1.42 "Third Party Agreements" shall mean collectively those agreements --------------------- between BioMarin and a Third Party existing as of the Date of Execution as listed on Schedule 1.42 hereto, pursuant to which BioMarin obtained rights ------------- applicable to the development, manufacture, sale or use of Collaboration Products hereunder. If after the Date of Execution any of BioMarin, Genzyme and/or BioMarin/Genzyme LLC enter into an agreement to license or acquire rights from a Third Party with respect to subject matter to be utilized in connection with Collaboration Products in accordance with Section 3.1.4 below, such agreements shall also be included in the definition of Third Party Agreements for purposes of this Agreement. ARTICLE II SCOPE AND STRUCTURE OF THE COLLABORATION 2.1 General. BioMarin has previously formed BioMarin/Genzyme LLC as the ------- vehicle for a joint venture between BioMarin and Genzyme to develop and commercialize Collaboration Products in and throughout the Territory. BioMarin is the sole initial member of BioMarin/Genzyme LLC -7- and, immediately following the execution and delivery of this Agreement, will transfer and assign one percent (1%) of its interest to BioMarin Genetics, and BioMarin Genetics will be admitted as a member of BioMarin/Genzyme LLC. Immediately thereafter, BioMarin will sell and assign to Genzyme a fifty percent (50%) interest in BioMarin/Genzyme LLC (subject to adjustment pursuant to Section 4.1.4 hereof and pursuant to the Operating Agreement) pursuant to the Purchase Agreement and Article 4 hereof and, upon execution and delivery of the Operating Agreement, Genzyme will be admitted as a Member of BioMarin/Genzyme LLC. BioMarin/Genzyme LLC will undertake the Development Program for each Collaboration Product, with each of the Parties assuming responsibility for those portions of the Development Program allocated to it under this Agreement in accordance with the Development Plan then in effect. Upon receipt of Regulatory Approval in any country within the Territory, the Manufacturing Party or Parties will manufacture the Collaboration Products on behalf of BioMarin/Genzyme LLC and Genzyme will market and sell the Collaboration Products in such country as exclusive agent for BioMarin/Genzyme LLC all on the terms and conditions set forth in this Agreement or such other terms and conditions as the Parties may agree upon. All services provided by or on behalf of BioMarin, Genzyme or their respective Affiliates for BioMarin/Genzyme LLC in connection with the Program shall be provided at cost. For avoidance of doubt, "cost" for services provided by a Third Party on behalf of BioMarin, Genzyme or their respective Affiliates for BioMarin/Genzyme LLC in connection with the Program shall be the amount paid for such services plus costs associated with the acquisition, including quality control, of such services from such Third Party. 2.2 Exclusive Relationship. Except as otherwise expressly provided herein ---------------------- during the term of this Agreement, neither BioMarin/Genzyme LLC, Genzyme nor BioMarin, nor any of their respective Affiliates shall independently, or with or through a Third Party, conduct research or development activities regarding, or engage in the manufacture, marketing, sale or distribution of, Collaboration Products in the Field and in the Territory other than as part of the Program. In addition, during the two-year period following termination of this Agreement, neither (a) the breaching Party and its Affiliates in the case of termination pursuant to Section 13.2.1 hereof, (b) Genzyme or its Affiliates in the case of termination pursuant to Section 13.2.2 hereof, (c) the terminating Party and its Affiliates in the case of termination pursuant to Section 13.2.3 hereof or (d) the non-terminating Party and its Affiliates in the case of termination pursuant to Sections 13.2.4 or 13.2.5 hereof shall independently, or with or through a Third Party, conduct research regarding, or engage in the manufacture, marketing, sale or distribution of, Collaboration Products in the Field and in the Territory; provided, however, that in the event that this Agreement is terminated pursuant to Section 13.2.3 hereof and the non-terminating Party does not exercise its option under Section 13.3.3(a) hereof, then the restrictions set forth in this sentence shall not apply. Notwithstanding the foregoing, except as provided in Section 3.1.5 nothing herein is intended to restrict BioMarin, Genzyme or their respective Affiliates from conducting research or development activities regarding, or engaging in the manufacture, marketing, sale or distribution of Gene Therapy products targeted to MPS I and other Alpha- L-iduronidase deficiencies. -8- ARTICLE III GRANTS AND RESERVATIONS OF RIGHTS 3.1 Licenses of Rights to BioMarin/Genzyme LLC. ------------------------------------------ 3.1.1 Grants from BioMarin. Except as otherwise expressly provided -------------------- herein, BioMarin hereby grants to BioMarin/Genzyme LLC a worldwide, exclusive, royalty-free right and license during the term of this Agreement under the BioMarin Patent Rights, BioMarin Technology, BioMarin/Genzyme Patent Rights and the BioMarin/Genzyme Technology and Manufacturing Know-How Controlled by BioMarin to develop, make, have made, use, offer for sale, sell, have sold, import and export Collaboration Products for use in the Field and in the Territory. 3.1.2 Grants from Genzyme. Except as otherwise expressly provided ------------------- herein, Genzyme hereby grants to BioMarin/Genzyme LLC a worldwide, exclusive, royalty-free right and license during the term of this Agreement under the Genzyme Patent Rights, Genzyme Technology, BioMarin/Genzyme Patent Rights and the BioMarin/Genzyme Technology and Manufacturing Know-How Controlled by Genzyme to develop, make, have made, use, offer for sale, sell, have sold, import and export Collaboration Products for use in the Field and in the Territory. 3.1.3 BioMarin/Genzyme LLC Undertakings; Sublicenses. In ---------------------------------------------- consideration of the licenses granted under this Section 3.1, BioMarin/Genzyme LLC hereby undertakes to pay all royalties, sublicense fees and other costs or expenses payable to Third Parties under a Third Party Agreement associated with the acquisition or exercise of such licenses by or on behalf of BioMarin/Genzyme LLC for use in connection with the Program. Schedule 3.1.3 hereto lists all of -------------- such obligations as of the Date of Execution. The licenses granted or to be granted under Sections 3.1.1 and 3.1.2 above shall include the right to grant and further authorize sublicenses within the scope of such licenses; provided, however, all sublicenses granted by BioMarin/Genzyme LLC (other than those provided in Section 3.2.1 below) shall be subject to prior approval by the Steering Committee. 3.1.4 Rights of BioMarin/Genzyme LLC to Patent Rights or -------------------------------------------------- Technology Developed Outside the Program. In the event that either BioMarin or - ---------------------------------------- Genzyme develops, acquires or otherwise Controls Patent Rights, Technology or Manufacturing Know-How after the Date of Execution other than in connection with the Program and such Patent Rights, Technology or Manufacturing Know-How are useful in the Field ("Additional Technology"), the Party Controlling such --------------------- Additional Technology hereby grants to BioMarin/Genzyme LLC an option exercisable at the discretion of the Steering Committee to obtain an exclusive, irrevocable (during the term of this Agreement) right and license, with the right to grant sublicenses, to such Additional Technology limited to use in the Field and in the Territory to the extent necessary or appropriate to enable BioMarin/Genzyme LLC to develop, make, have made, use, offer for sale, sell, have sold, import and export Collaboration Products, in each case subject only to BioMarin/Genzyme LLC's undertaking to pay (a) a commercially reasonable portion of all costs incurred by BioMarin or Genzyme, as the case may be, to acquire or develop such Additional Technology, (b) a commercially reasonable portion of any and all development costs relating to the Additional Technology incurred by BioMarin or Genzyme, as -9- the case may be, since the date such Party acquired or developed such Additional Technology and (c) a pro rata share of all royalties, sublicense fees and other costs or expenses payable to Third Parties under a Third Party Agreement associated with the acquisition or exercise of such license by or on behalf of BioMarin/Genzyme LLC, allocated based upon the proportion of such costs attributable to the acquisition or use of such Additional Technology by BioMarin/Genzyme LLC; provided, however, that if BioMarin or Genzyme, as the case may be, has more limited rights to such Additional Technology that those described above, the license subject to BioMarin/Genzyme LLC's option hereunder shall be consistent with the rights held by BioMarin or Genzyme, as the case may be, with respect to such Additional Technology. Subject to BioMarin/Genzyme LLC agreeing to pay the appropriate amounts due to a Third Party under an agreement with a Party as a result of the acquisition of Additional Technology and/or exercise of the rights therein by or on behalf of BioMarin/Genzyme LLC, the same shall be a "Third Party Agreement" for purposes of this Agreement. 3.1.5 External Products. If at any time during the term of this ----------------- Agreement either Genzyme, BioMarin or their respective Affiliates intends to collaborate with a Third Party regarding the development and/or commercialization of a Gene Therapy product for the treatment or prevention of MPS I or other Alpha-L-iduronidase deficiencies (an "External Product"), such ---------------- Party (the "Proposing Party") shall provide written notice of its intent to the --------------- Steering Committee. The Proposing Party and the Steering Committee shall negotiate in good faith the terms and conditions upon which the Proposing Party and BioMarin/Genzyme LLC would be willing to collaborate for such purposes. If the Proposing Party and the Steering Committee are unable to agree upon such terms and conditions within sixty (60) days after receipt by the Steering Committee of the Proposing Party's notice, the Proposing Party shall have the right to develop or commercialize such External Product with a Third Party. 3.2 Sublicenses of Rights from BioMarin/Genzyme LLC to BioMarin and --------------------------------------------------------------- Genzyme. - ------- 3.2.1 General. BioMarin/Genzyme LLC hereby grants to each of ------- BioMarin and Genzyme a worldwide, non-exclusive, royalty-free right and sublicense during the term of this Agreement under the Patent Rights, Technology and Manufacturing Know-How licenses granted to BioMarin/Genzyme LLC pursuant to Section 3.1 solely to the extent required to permit such Party to perform its duties and obligations under this Agreement. BioMarin/Genzyme LLC also hereby agrees to grant to each of BioMarin and Genzyme a worldwide, non-exclusive, royalty-free right and license during the term of this Agreement under any Additional Technology as to which BioMarin/Genzyme LLC elects to obtain a license pursuant to Section 3.1.4 above solely to the extent required to permit such Party to perform its duties and obligations under this Agreement. BioMarin/Genzyme LLC also hereby grants to Genzyme a worldwide, non-exclusive, royalty-free right and license during the term of this Agreement to use any and all present and future trademarks Controlled by BioMarin/Genzyme LLC in connection with the commercialization of Collaboration Products in the Territory to the extent required to permit Genzyme to perform its duties and obligations under this Agreement. 3.2.2 Further Sublicenses. The foregoing licenses granted to ------------------- Genzyme and BioMarin, respectively, shall include the right to grant and further authorize sublicenses to Third Parties within the scope of such licenses. -10- 3.3 Reservation of Rights. --------------------- 3.3.1 Reservation by BioMarin. Notwithstanding the license grants ----------------------- set forth in Section 3.1, BioMarin at all times reserves the rights under the BioMarin Patent Rights, the BioMarin Technology, the BioMarin/Genzyme Patent Rights, the BioMarin/Genzyme Technology and the Manufacturing Know-How Controlled by BioMarin (a) to make, have made and use Collaboration Products for research and development purposes only; (b) to develop, make, have made, use, offer for sale, sell, have sold, import and export (i) products outside the Field and (ii) products other than a Collaboration Product; and (c) to grant licenses to Third Parties for the foregoing purposes. 3.3.2 Reservation by Genzyme. Notwithstanding the license grants ---------------------- set forth in Section 3.1, Genzyme at all times reserves the rights under the Genzyme Patent Rights, the Genzyme Technology, the BioMarin/Genzyme Patent Rights, the BioMarin/Genzyme Technology and Manufacturing Know-How Controlled by Genzyme (a) to make, have made and use Collaboration Products for research and development purposes only; (b) to develop, make, have made, use, offer for sale, sell, have sold, import and export (i) products outside the Field and/or outside the Territory and (ii) products other than a Collaboration Product; and (c) to grant licenses to Third Parties for the foregoing purposes. 3.4 Assignment of Orphan Drug Designation. Except to the extent prohibited ------------------------------------- by the applicable Regulatory Scheme, BioMarin hereby assigns and BioMarin and Genzyme each hereby agree to assign to BioMarin/Genzyme LLC any "Orphan Drug" (or similar designation outside the United States) for any Collaboration Product which BioMarin has received or which BioMarin or Genzyme may receive during the term of this Agreement in the Territory. ARTICLE IV PROGRAM FUNDING; LLC INTEREST 4.1 Program Funding Commitments. Genzyme hereby undertakes to make capital --------------------------- contributions to BioMarin/Genzyme LLC in an amount equal to fifty percent (50%) of all Program Costs and BioMarin, on behalf of the BioMarin Companies, hereby undertakes to make capital contributions to BioMarin/Genzyme LLC in an aggregate amount equal to fifty percent (50%) of all Program Costs. In the event that either BioMarin, on behalf of the BioMarin Companies, or Genzyme fails to make a capital contribution pursuant to this Section 4.1 and Section 4.2 below, and the other Party does not elect to terminate this Agreement pursuant to Section 13.2.1 hereof, then the Percentage Interests in BioMarin/Genzyme LLC and the future funding responsibility of the Members shall be adjusted as provided in Section 4.1(b) of the Operating Agreement. 4.2 Program Funding Capital Contributions. ------------------------------------- 4.2.1 Initial Capital Contributions. Within five (5) working days ----------------------------- after the Effective Date, BioMarin and Genzyme shall each make a capital contribution to BioMarin/Genzyme LLC in -11- an amount equal to one-half of the Program Costs budgeted to be incurred from the Effective Date through and including September 30, 1998. 4.2.2 Monthly Capital Contributions. With respect to each calendar ----------------------------- month after September 30, 1998, Genzyme and BioMarin, on behalf of the BioMarin Companies, shall each make capital contributions to BioMarin/Genzyme LLC, monthly in advance, not later than the fifteenth (15th) day of the prior calendar month, in an aggregate amount equal to one-third of the Program Costs budgeted to be incurred by BioMarin/Genzyme LLC in the then-current Development Plan or Commercialization Plan for the calendar quarter in which such calendar month occurs, allocated between such Parties in accordance with the funding responsibility assumed by Genzyme and BioMarin, on behalf of the BioMarin Companies, pursuant to Section 4.1 above. Upon receipt of each such capital contribution from Genzyme or BioMarin, as the case may be, BioMarin/Genzyme LLC shall promptly pay each of the Parties an amount equal to that portion of the budgeted Program Costs to which they are respectively entitled in accordance with this Agreement. 4.2.3 Quarterly Statements; Quarterly Reconciliation. Within ---------------------------------------------- twenty (20) days after the end of each of the first three (3) calendar quarters of each calendar year and within fifty (50) days after the end of each calendar year, each of BioMarin and Genzyme shall provide BioMarin/Genzyme LLC with a detailed itemization of Program Costs actually incurred by such Party during the previous quarter. Each of BioMarin and Genzyme shall provide the other Party with estimates of such costs upon the reasonable request of the other Party prior to the dates such statements are due. Within thirty (30) days following receipt of the quarterly statement of actual Program Costs provided by each of BioMarin and Genzyme, BioMarin, on behalf of the BioMarin Companies, and Genzyme shall each make an additional capital contribution to BioMarin/Genzyme LLC in the amount of any actual Program Costs shown thereon and not yet paid for which such Party has assumed funding responsibility pursuant to Section 4.1 above but only to the extent that such amount, together with all prior capital contributions to date during such year, does not exceed one hundred ten percent (110%) of the total Program Costs budgeted year-to-date through the end of the quarter to which such statement relates (except to the extent such excess is approved by the Steering Committee pursuant to Section 5.1.3 hereof). If the aggregate amount stated to be due from BioMarin/Genzyme LLC in such quarterly statements for actual Program Costs is less than the amount already contributed by the Parties to the capital of BioMarin/Genzyme LLC with respect to budgeted Program Costs for such calendar quarter, such excess shall be credited against the next successive monthly capital contribution(s) due from Genzyme or BioMarin hereunder. 4.3 Distributions. Distributions shall be made semi-annually to each ------------- Member in amounts determined in accordance with the Operating Agreement. Amounts available for distribution shall be calculated for each calendar quarter after the date of the first sale of a Collaboration Product following Regulatory Approval of such Collaboration Product and shall be reported to each of BioMarin and Genzyme within ninety (90) days following the end of each such quarter. All distributions to the Parties will be accompanied by a report setting forth the basis for such distribution. Such reports shall be subject to audit rights as set forth in Section 4.5 below, mutatis mutandis. -12- 4.4 Sale and Purchase of LLC Interest. Immediately after the execution of --------------------------------- this Agreement and the assignment by BioMarin of one percent (1%) of its interest in BioMarin/Genzyme LLC to BioMarin Genetics, in accordance with the terms and conditions of the Purchase Agreement, BioMarin shall sell, assign and transfer to Genzyme, and Genzyme shall purchase from BioMarin, a fifty percent (50%) interest in BioMarin/Genzyme LLC (subject to adjustment pursuant to Section 4.1.4 hereof and pursuant to the Operating Agreement) for an aggregate amount of twelve million one hundred thousand and ten dollars ($12,100,010) payable as set forth below: (a) Genzyme shall pay to BioMarin an amount of ten dollars ($10) upon execution of the Purchase Agreement; and (b) Genzyme shall pay to BioMarin an amount of twelve million one hundred thousand dollars ($12,100,000) on the first approval by the U.S. FDA of a BLA filed by or on behalf of BioMarin/Genzyme LLC for the use of a Collaboration Product in the Field. For purposes of the foregoing, "approval" shall be deemed to occur upon the U.S. FDA's issuance of an approval letter as set forth in 21 C.F.R. (S)314.105. Each of the aforementioned payments described in clauses (a) and (b) above shall be made in United States dollars by certified or bank check or by wire transfer within seven (7) days following the occurrence and confirmation of each event. 4.5 Books of Account; Audit. Genzyme shall keep and maintain proper and ----------------------- complete books of account, and shall maintain a bank account, on behalf of BioMarin/Genzyme LLC. In the event that either BioMarin or Genzyme reasonably deems the Program to be material to BioMarin or Genzyme, as the case may be, for financial accounting purposes, then, upon such Party's request, audited financial statements of BioMarin/Genzyme LLC shall be prepared by an independent accounting firm to be selected by the Steering Committee. Each of BioMarin and Genzyme shall keep and maintain proper and complete records and books of account documenting all Program Costs incurred by such Party. Each of BioMarin/Genzyme LLC, BioMarin and Genzyme shall permit independent accountants retained by BioMarin or Genzyme (the "Auditing Party") to have access to its records and books for the sole purpose of determining the appropriateness of Program Costs charged by or accrued to the Party being audited hereunder. Such examination shall be conducted during regular business hours and upon reasonable notice, at the Auditing Party's own expense and no more than once in each calendar year during the term of this Agreement and once during the three (3) calendar years following the expiration or termination hereof. If such examination reveals that such Program Costs have been misstated, any adjustment shall be promptly refunded or paid, as appropriate. The Auditing Party shall pay the fees and expenses of the accountant engaged to perform the audit, unless such audit reveals an overcharge or accrual of ten percent (10%) or more for the period examined, in which case the Party who received such overpayment shall pay all reasonable costs and expenses incurred by the Auditing Party in the course of making such determination, including the fees and expenses of the accountant along with interest at the rate set forth in Section 14.4. 4.6 Enforceability of Sections 4.1 and 4.2. The agreements regarding -------------------------------------- capital contributions set forth in Sections 4.1 and 4.2 hereof are by and between, and for the benefit of, Genzyme and BioMarin only, and are not enforceable by BioMarin/Genzyme LLC or any Third Party. -13- ARTICLE V THE DEVELOPMENT PROGRAM 5.1 Conduct of the Development Program. ---------------------------------- 5.1.1 General. The Parties each agree to collaborate diligently ------- in the development of Collaboration Products for use in the Field and to use commercially reasonable and diligent efforts to file for and obtain Regulatory Approvals for and bring to market Collaboration Products for use in the Field and in the Territory as soon as practicable, all in accordance with the Development Plan and the Commercialization Plan for such Collaboration Products. The Parties agree to use commercially reasonable and diligent efforts to execute and substantially perform and to cooperate with each other in carrying out the Development Plan and the Commercialization Plan for each Collaboration Product. Neither BioMarin nor Genzyme shall be required to undertake activities in furtherance of the Development Plan or Commercialization Plan in the absence of funding from BioMarin/Genzyme LLC pursuant to the provisions of this Agreement. As used in this Agreement, the phrase "commercially reasonable and diligent ------------------------------------ efforts" will mean that level of effort which, consistent with the exercise of - ------- prudent scientific and business judgment, is applied by the Party in question to its other therapeutic products at a similar stage of development and with similar commercial potential. 5.1.2 Development Plan. The Development Program shall be conducted ---------------- by the Parties for BioMarin/Genzyme LLC in accordance with the then-current Development Plan which shall describe the proposed overall program of development for each Collaboration Product, including preclinical studies, toxicology, formulation, manufacturing, clinical trials and regulatory plans and other key elements necessary to obtain Regulatory Approvals for such Collaboration Product. Pursuant to the Development Plan, development work may be subcontracted to Genzyme and BioMarin or their respective Affiliates, at fully absorbed costs determined by GAAP. The respective charges to BioMarin/Genzyme LLC for Development Costs incurred by a Party shall be invoiced following completion of the work, and shall be payable by BioMarin/Genzyme LLC within a commercially reasonable time thereafter (but in no event later than forty-five (45) days of the date of invoice therefor). The Development Plan shall include (i) a summary of estimated Development Costs expected to be incurred by each Party hereunder in performing activities of the Development Program assigned to such Party pursuant to Section 5.1.4 below and (ii) a detailed budget for all development activities proposed for the applicable period and for each Collaboration Product. 5.1.3 Initial and Updated Development Plan. The Parties have ------------------------------------ agreed to an initial budget for the development and pre-commercialization activities of BioMarin/Genzyme LLC for the period beginning on the Effective Date and ending on December 31, 1998. The Program Management Team shall submit an initial Development Plan for the period beginning on the Effective Date and ending on December 31, 1998 to the Steering Committee for review and approval not later than thirty (30) days after the Effective Date. The Development Plan shall be updated annually by the Program Management Team and submitted to the Steering Committee for review and approval not later than sixty (60) days prior to January 1 of each year during the Development Program. Each such updated Development Plan shall include (a) an overall development plan for -14- each Collaboration Product which sets forth all major development tasks remaining to be accomplished prior to submission of filings for Regulatory Approvals and (b) a detailed description and budget for the development and pre- commercialization activities proposed for the forthcoming calendar year. The Project Management Team shall be primarily responsible for preparing the annual updates to the Development Plan and, in connection with the preparation of such updates, shall consult with Genzyme and BioMarin regarding the identification, timing and execution of and budget for the major tasks and detailed activities required to perform the updated Development Plan. Each such updated Development Plan approved by the Steering Committee shall be signed by an authorized representative of each of BioMarin and Genzyme. The members of the Program Management Team shall actively consult with one another throughout the term of the Development Plan so as to adjust the specific work performed under the Development Plan to conform to evolving developments in technology and the results of the development work performed. While minor adjustments to the Development Plan may be made from time to time upon approval of the Program Management Team, significant changes in the scope or direction of the work and any changes in funding exceeding one hundred ten percent (110%) of the total amount budgeted in any calendar year for the Development Program must be approved by the Steering Committee, in the absence of which approval the most recently approved Development Plan shall remain in effect. 5.1.4 Execution and Performance. The Development Program shall ------------------------- allocate among the Parties responsibility for each of the activities described therein. The Parties shall use commercially reasonable and diligent efforts to conduct the activities described in the Development Plan. The Development Plan shall be supervised by the Program Management Team. The Program Management Team will coordinate preclinical and clinical testing of the Collaboration Products in the Territory and work with designated individuals at BioMarin and Genzyme in the preparation of Regulatory Approval filings for the Collaboration Products and filing the same with regulatory agencies designated by the Steering Committee. The Parties acknowledge and agree that their current intention is that the Development Program will focus as its first priority on completion of a clinical development program as necessary to file a BLA for and in the United States. It is further acknowledged and agreed, however, that when and to the extent the Steering Committee determines that it is appropriate, complementary development efforts will be conducted in other countries where such activities need to be performed in such other countries for Regulatory Approval. 5.1.5 Attendance at Regulatory Meetings; Correspondence. Each ------------------------------------------------- Party shall provide the others with prior notice of all meetings and teleconferences between representatives of the notifying Party and regulatory authorities regarding any Collaboration Product for use in the Territory. Except as otherwise provided herein, the Party receiving such notice shall have the right to have representatives participate in all such meetings and teleconferences. Each Party shall use reasonable efforts to provide the other Party with a reasonable opportunity to review and comment upon submissions to, and correspondence with, any regulatory agency in the Territory with respect to Collaboration Products prior to the filing or delivery of such submissions or correspondence. Without limiting the foregoing, each Party shall use reasonable efforts to confirm in writing to the other Party all communications with a regulatory authority with respect to a Regulatory Approval (including filings therefor) and to provide to the other Party copies of all documents sent to or received from such regulatory authority regarding such Regulatory Approvals. -15- 5.2 Development Information. ----------------------- 5.2.1 Reports and Information Exchange. As between the Parties -------------------------------- hereto, BioMarin/Genzyme LLC shall own all clinical trial data accumulated from all clinical trials of Collaboration Products conducted as part of the Program or otherwise funded or partially funded by BioMarin/Genzyme LLC. Each of BioMarin and Genzyme shall use commercially reasonable and diligent efforts to disclose to BioMarin/Genzyme LLC and to the other Party all material information relating to any Collaboration Product promptly after it is learned or its materiality is appreciated. The Party performing or supervising clinical trials of Collaboration Products in accordance with the Development Plan shall, on behalf and in the name of BioMarin/Genzyme LLC, maintain the database of clinical trial data accumulated from all clinical trials of Collaboration Products and of adverse reaction information for all such Collaboration Products. Each Party shall also keep the Program Management Team informed as to its progress in the Development Plan. All protocols for clinical trials to be conducted, and all product registration plans, for Collaboration Products for applications within the Field in the Territory shall be submitted to the Program Management Team for review and comment by the Program Management Team prior to filing of such protocols or registrations with any regulatory agency. Within sixty (60) days following the end of each calendar quarter during the Development Program, each of BioMarin and Genzyme shall provide the other Parties with a reasonably detailed written report describing the progress to date of all activities for which such Party was allocated responsibility during such quarter under the Development Plan. 5.2.2 Adverse Reaction Reporting. Each of BioMarin and Genzyme -------------------------- shall notify the other Parties of any Adverse Reaction Information relating to any Collaboration Product within twenty-four (24) hours of the receipt of such information and as necessary for compliance with regulatory requirements. "Adverse Reaction Information" includes without limitation information relating ---------------------------- to any experience that (a) suggests a significant hazard, contraindication, side effect or precaution, (b) is fatal or life threatening, (c) is permanently disabling, (d) requires or prolongs inpatient hospitalization, (e) involves a congenital anomaly, cancer or overdose or (f) is one not identified in nature, specificity, severity or frequency in the current investigator brochure or the United States labeling for the Collaboration Product. 5.2.3 Clinical and Regulatory Audits. Each of BioMarin and Genzyme ------------------------------ shall permit BioMarin/Genzyme LLC and the other Party or the representatives of BioMarin/Genzyme LLC or the other Party to have access during regular business hours and upon reasonable advance notice, at the auditing Party's own expense and no more than once in each calendar year during the term of this Agreement, to the non-auditing Party's records and facilities relating to the Development Program for the purpose of monitoring compliance with Good Clinical Practice and other applicable requirements of the Regulatory Scheme. 5.3 Regulatory Approval Filings. Regulatory Approval filings in the --------------------------- Territory for the Collaboration Products and for the facilities used to manufacture such Collaboration Products shall be filed in the name of BioMarin/Genzyme LLC or, if required with respect to filings to be made with governmental authorities or deemed to be in the best interest of the Parties by the Steering Committee, in the name of such other entity as may be agreed upon by the Steering Committee (such as filings with European regulatory authorities). Prior to submission to the FDA, the Parties, through the Program Management Team, shall consult, cooperate in preparing and mutually agree on the -16- content and scope of the Regulatory Approval filings. In the event that Regulatory Approvals are required to be filed in the name of an entity other than BioMarin/Genzyme LLC, the Steering Committee shall ensure that a duly authorized officer of such entity agrees in writing that (a) such entity shall hold the licenses issued in respect of such Regulatory Approval filings, maintain control over the manufacturing facilities, equipment and personnel, and engage in pharmacovigilence to the extent required by the Regulatory Scheme, (b) such entity shall maintain compliance with applicable Regulatory Schemes, (c) such entity shall provide manufacturing and supply services to BioMarin/Genzyme LLC at the Fully Absorbed Cost of Goods of Collaboration Products so manufactured and supplied, (d) the Parties shall have an irrevocable right of access and reference to such Regulatory Approval filings, licenses and facilities and (e) such entity agrees to comply with the provisions of Article 13 hereof with respect to the ownership and/or disposition of such Regulatory Approvals in the event this Agreement is terminated and to provide the level of cooperation described in Section 14.1 hereof in connection therewith. 5.4 Clinical Data. In all agreements with Third Parties or Affiliates ------------- involving the development of preclinical or clinical data for a Collaboration Product, Genzyme and BioMarin shall require that such Third Parties and Affiliates provide BioMarin/Genzyme LLC and the other Party access to all such data, to the extent such data is required to be obtained from such Third Parties by the Japanese Ministry of Health and Welfare, the U.S. FDA, the Commission of Proprietary Medicines of the European Community, the European Medicines Evaluation Agency or other regulatory agency, in each case with respect to Regulatory Approvals. 5.5 Facilities Visit. Representatives of BioMarin and Genzyme may visit ---------------- all manufacturing sites and the sites of any clinical trials or other experiments being conducted by the other Party or BioMarin/Genzyme LLC in connection with the Development Program. If requested by the other Party, BioMarin and Genzyme shall cause appropriate individuals working on the Development Program to be available for meetings at the location of the facilities where such individuals are employed at times reasonably convenient to the Party responding to such request. ARTICLE VI SALES, MARKETING AND ADMINISTRATIVE SERVICES 6.1 Commercialization Plans. ----------------------- 6.1.1 General. The commercialization of each Collaboration Product ------- shall be governed by a Commercialization Plan which shall describe the overall plan for commercializing such Collaboration Product, including without limitation (a) a comprehensive marketing, sales, pricing, manufacturing, distribution and licensing strategy for such Collaboration Product in all applicable countries, including the identification of any Third Parties engaged or to be engaged in connection with such activities and the arrangements with them that have been or are proposed to be agreed upon (including policies and procedures for adjustments, rebates, bundling and the like), (b) estimated launch date, market and sales forecasts, in numbers of patients and local currency, and competitive analysis for such Collaboration Product for the overall Territory and for each Major -17- Market Country, (c) a detailed budget for the Commercialization Costs to be incurred in connection with performing such Commercialization Plan, (d) reasonable due diligence obligations to be met by Genzyme with respect to commercialization objectives to be achieved during the calendar year to which the Collaboration Plan relates (such as minimum annual sales objectives) and (e) a detailed manufacturing plan. 6.1.2 Initial and Updated Commercialization Plans. No later than ------------------------------------------- immediately prior to the completion of the submission of all Regulatory Approval filings for a Collaboration Product in any given country, Genzyme shall develop and submit to the Steering Committee for review and approval an initial Commercialization Plan in accordance with its customary standard for a product of comparable market potential, taking into consideration factors such as market conditions, regulatory factors, competition and the costs and profits of such Collaboration Product. Genzyme shall be primarily responsible for developing each Commercialization Plan and, in connection therewith, shall consult with BioMarin regarding the identification, timing and execution of and budget for the major commercialization tasks required to perform the Commercialization Plan. Each Commercialization Plan shall be updated annually by Genzyme, in consultation with BioMarin below as herein provided, and shall be submitted to the Steering Committee for approval not later than sixty (60) days prior to January 1 of each year. Each Commercialization Plan approved by the Steering Committee shall be signed by an authorized representative of each of BioMarin and Genzyme. While minor adjustments to the Commercialization Plan may be proposed by either of Genzyme or BioMarin from time to time without Steering Committee approval, significant changes in the scope or direction of the work and any changes in funding exceeding one hundred ten percent (110%) of the total amount budgeted in any calendar year for the Commercialization Plan must be approved by the Steering Committee, and in the absence of such approval, the provisions of the most recently approved Commercialization Plan shall remain in effect. Within sixty (60) days following the end of each calendar quarter after the filing of the first application for a Regulatory Approval, each of BioMarin and Genzyme shall provide the other Parties with a reasonably detailed written report describing the progress to date of all activities for which such Party was allocated responsibility during such quarter under the Commercialization Plan. 6.2 Exclusive Engagement; Diligence. Subject to Section 6.7 below, ------------------------------- BioMarin/Genzyme LLC hereby engages Genzyme as its exclusive agent to market and sell Collaboration Products within the Territory for use within the Field. Genzyme hereby accepts such engagement and agrees (by itself or through its Affiliates) to use commercially reasonable and diligent efforts to establish each Collaboration Product in the markets, fulfill market demand and meet the marketing and distribution goals set forth in the Commercialization Plan for such Collaboration Product. Genzyme will not engage a Third Party to market and sell Collaboration Products on its behalf without prior approval of the Steering Committee. 6.3 Orders. Genzyme shall provide written notice to BioMarin/Genzyme LLC ------ of the requirements for the Collaboration Products in the Territory, setting forth the quantity of Collaboration Products required, the Specifications therefor and the date required. BioMarin/Genzyme LLC shall use commercially reasonable and diligent efforts to deliver the Collaboration Products to Genzyme for sale within the Territory, on the date set forth in the applicable requirements notice. All freight, insurance, duties and all other charges associated with -18- shipment of the Collaboration Products shall be considered Commercialization Costs for such Collaboration Products only to the extent such costs are not charged to Genzyme's customers. 6.4 Marketing and Distribution Expenses. Genzyme's ordinary expenses ----------------------------------- incurred in the course of performing its marketing and distribution obligations hereunder shall constitute Commercialization Costs and, as such, shall be reimbursed by BioMarin/Genzyme LLC, but only to the extent that such amounts, together with all other Commercialization Costs to date during such calendar year, do not exceed one hundred ten percent (110%) of the Commercialization Costs budgeted therefor in the Commercialization Plan then in effect for such calendar year (except to the extent such excess is approved by the Steering Committee pursuant to Section 6.1.2 above). Ordinary marketing and distribution expenses include, but are not limited to, recruitment costs and salaries and associated expenses for sales and marketing personnel and support staff, advertising and promotion costs, transportation expenses including insurance (but only to the extent not charged to customers and only such proportion of all such costs directly attributable to support of the Commercialization Plan), duties and taxes, bad debt expense, and costs associated with cash and other trade discounts and allowances and other marketing concessions to customers actually allowed and taken. 6.5 Responsibilities of Genzyme. Genzyme shall be solely responsible for --------------------------- all aspects of the marketing and sale of the Collaboration Products in accordance with the strategy, policies and procedures established in the Commercialization Plan, including without limitation the responsibilities described in this Section 6.5. (a) Genzyme shall be primarily responsible for the implementation of each Commercialization Plan, including without limitation setting all terms of sale, including establishing pricing policies, credit terms and cash discounts and allowances, formulating marketing plans, providing patient information, providing customer support services, providing reimbursement counseling services and conducting sales force training, all in accordance with good business practices and industry standards. (b) Genzyme shall employ sufficiently trained and experienced individuals in numbers adequate to carry out its responsibilities under this Article 6. Sales and support personnel shall be familiar with the Collaboration Products and with competitive products and shall respond promptly to customer requests for support. (c) Genzyme shall provide instructions and appropriate training to customers in the proper use and handling of the Collaboration Products and shall monitor performance of the Collaboration Products. (d) Genzyme shall have sole responsibility for responding to all requests for medical information regarding Collaboration Products. Notwithstanding the foregoing, BioMarin may maintain a website or other informational resources where it may publish general medical information relating to MPS I, so long as such website complies in all respects with applicable laws and regulations, including without limitation regulations of the FDA regarding "off-label" promotion of Collaboration Products. -19- (e) Genzyme shall comply with all laws and government regulations applicable to the marketing and sale of Collaboration Products within the Territory. (f) The Collaboration Products shall be sold under trademarks selected by the Steering Committee and owned by or licensed to BioMarin/Genzyme LLC in accordance with Section 9.1.2 hereof. (g) Genzyme shall maintain complete and accurate records of all movements and transactions involving Collaboration Products by an appropriate identifier and by customer so that all such movements and transactions can be traced quickly and effectively. Upon written request, Genzyme will provide copies of such records to the other Parties, with access to facilities used by Genzyme in performing its duties under this Article 6 during normal business hours and upon reasonable advance notice for the purpose of inspecting such facilities for compliance with the terms of this Agreement. The records maintained by Genzyme pursuant to this clause (g) shall be subject to the other Parties' audit rights under Section 4.5 hereof. (h) Genzyme shall report promptly to the Steering Committee in writing the occurrence of each material incident of Collaboration Product performance required to be reported to regulatory authorities, including without limitation Adverse Reaction Information in accordance with Section 5.2.2 hereof. 6.6 Responsibilities of BioMarin/Genzyme LLC and BioMarin. BioMarin/ ----------------------------------------------------- Genzyme LLC shall use commercially reasonable and diligent efforts to supply Collaboration Products to Genzyme in accordance with notices of requirements pursuant to Section 6.3 above. Neither BioMarin/Genzyme LLC nor BioMarin shall actively solicit for its own account sales of Collaboration Products in the Territory. Any solicitations or requests to purchase Collaboration Products received by BioMarin/Genzyme LLC or BioMarin from any customer or prospective customer with its principal address or place of business located in the Territory or who BioMarin/Genzyme LLC or BioMarin, as the case may be, knows intends to use the Collaboration Products in the Territory or ship such Collaboration Products into the Territory shall be immediately referred to Genzyme. 6.7 Commercialization Milestones. The Steering Committee shall establish, ---------------------------- as part of the initial Commercialization Plan, milestones for Genzyme's marketing and sales of Collaboration Products hereunder (collectively, "Commercialization Milestones"). The Commercialization Milestones shall ---------------------------- include, without limitation, minimum sales levels for the first three (3) years after the first approval by the U.S. FDA of a BLA for the use of a Collaboration Product in the Field. It is understood and agreed, however, that such Commercialization Milestones shall be subject to (i) Regulatory Approvals and reimbursement approvals occurring at the times anticipated by the Parties and (ii) BioMarin, its Affiliates and Third Parties satisfying their respective obligations hereunder (e.g., the Manufacturing Party providing an adequate supply of Collaboration Products to Genzyme). In the event that Genzyme is unable to meet a Commercialization Milestone for a particular Collaboration Product in a particular territory for reasons other than those set forth in the preceding sentence, the Steering Committee shall promptly confer and discuss how to resolve such issue as soon as possible, including without limitation, appointing BioMarin or a Third Party as agent to -20- market and sell such Collaboration Product in such territory, all as the Steering Committee deems appropriate under the circumstances. 6.8 General and Administrative Services. General and administrative ----------------------------------- services required by BioMarin/Genzyme LLC shall be provided at cost by either or both of BioMarin and Genzyme as determined by the Steering Committee. All such costs, in addition to general and administrative costs payable to Third Parties (such as accountants) and general and administrative costs incurred by BioMarin and Genzyme in satisfying their respective obligations under this Agreement, shall be considered to be Program Costs. ARTICLE VII MANUFACTURE AND SUPPLY Subject to the terms and conditions of this Agreement, Collaboration Products shall be manufactured and supplied for preclinical and clinical testing and for commercial sale upon the following terms and conditions: 7.1 Process Development. The Parties will use commercially reasonable and ------------------- diligent efforts to develop a process for the manufacture of each Collaboration Product and to scale up that process to a scale sufficient to manufacture and supply (a) the anticipated demand for preclinical studies and clinical trials of such Collaboration Product in accordance with the projections set forth in the Development Plan and (b) the anticipated market demand for such Collaboration Product for the Territory at the time Regulatory Approval is obtained for such Collaboration Product in accordance with the projections set forth in the Commercialization Plan for such Collaboration Product. The development of the process for the manufacture of Collaboration Products as well as the scale up of such process and all material issues incident to the development of the ability to produce Collaboration Products for commercial purposes in sufficient quantity and in a timely manner will be within the purview of the Program Management Team, and all changes to the manufacturing process shall be subject to the approval of the Program Management Team. 7.2 Manufacture and Supply of Collaboration Product. BioMarin/Genzyme LLC ----------------------------------------------- shall manufacture (or, subject to Section 7.2.1, have manufactured) and supply Collaboration Products for preclinical and clinical activities and commercial sale in the following terms and conditions (and such other terms and conditions established by the Steering Committee consistent with the provisions of this Agreement): 7.2.1 General. All decisions relating to the manufacture of ------- Collaboration Products shall be subject to the approval of, or modification by, the Steering Committee. Without limiting the foregoing, BioMarin/Genzyme LLC shall initially contract with BioMarin to manufacture and supply Collaboration Products (a) for preclinical studies and clinical trials in quantities and within a time period sufficient to conduct the activities set forth in the Development Plan and (b) to meet market demand for Collaboration Products ordered in accordance with the terms hereof, and that BioMarin would so exclusively manufacture and supply Collaboration Products until such time as the Steering Committee otherwise deems appropriate. At such time, BioMarin/Genzyme LLC may -21- subcontract with BioMarin, Genzyme and Third Parties for the manufacture, packaging or other finishing processes of Collaboration Products, as determined by the Steering Committee. To the extent the Steering Committee determines that the quantity of Collaboration Product required by the Development Program or the Commercialization Plan is greater than the quantity which may reasonably be manufactured by BioMarin, or if the cost per unit of Collaboration Product exceeds commercially reasonable levels, prior to engaging a Third Party to manufacture Collaboration Products, BioMarin/Genzyme LLC will offer Genzyme the opportunity to manufacture and supply Collaboration Products, on terms and conditions determined by the Steering Committee. Notwithstanding the foregoing provisions of this Section 7.2.1, to the extent required by the Regulatory Scheme, any entity selected by the Steering Committee pursuant to Section 5.3 above may be engaged by BioMarin/Genzyme LLC to manufacture Collaboration Products (whether such entity be a Party or Third Party, each a "Manufacturing ------------- Party"). Without limiting the foregoing, the Manufacturing Party shall agree to - ----- use commercially reasonable and diligent efforts to manufacture and supply Collaboration Products hereunder. 7.2.2 Forecasts. The Program Management Team shall establish a --------- procedure for providing forecasts of customer orders for Collaboration Products pursuant to Section 6.3 above, updating such forecasts and ordering Collaboration Product, in each case within time periods sufficient to enable BioMarin/Genzyme LLC to manufacture such Collaboration Products to meet such forecasts in a commercially reasonable and diligent manner. 7.2.3 Facilities. Notwithstanding any provision of this Agreement ---------- to the contrary, the Parties acknowledge and agree that BioMarin/Genzyme LLC shall not bear any costs relating to the construction of manufacturing facilities for a Collaboration Product (other than through normal depreciation and amortization included in Fully Absorbed Cost of Goods). 7.3 Certificates of Analysis. The Manufacturing Party shall perform, or ------------------------ cause its contract manufacturer(s) to perform, quality assurance and control tests on each lot of Collaboration Products before delivery and shall prepare, or cause its contract manufacturer(s) to prepare and deliver, a written report of the results of such tests (for purposes of Sections 7.3, 7.4 and 7.5, such contract manufacturer(s) shall be included in the definition of the term "Manufacturing Party"). Each test report shall set forth for each lot delivered the items tested, specifications and results in a certificate of analysis containing the types of information which shall have been approved by the Program Management Team or required by the FDA or other applicable regulatory authority. The Manufacturing Party shall maintain such certificates for a period of not less than five (5) years from the date of manufacture or for such longer period as required under applicable requirements of the FDA or other applicable regulatory authority. 7.4 Certificates of Manufacturing Compliance. The Manufacturing Party ---------------------------------------- shall prepare, or cause to be prepared and delivered, and maintain for a period of not less than five (5) years or for such longer period as required under applicable requirements of the FDA or other applicable regulatory authority for each lot of Collaboration Products manufactured a certificate of manufacturing compliance containing the types of information which shall have been approved by the Program Management Team or required by the FDA or other applicable regulatory authority, which certificate will certify that the lot of Collaboration Products was manufactured in accordance with the Specifications and the Good Manufacturing Practices of the FDA or other applicable -22- regulatory authority as the same may be amended from time to time. The Manufacturing Party shall advise the other Parties immediately if an authorized agent of the FDA or other regulatory authority visits any of the Manufacturing Party's manufacturing facilities, or the facilities where the Collaboration Products are being manufactured, for an inspection with respect to the Collaboration Products. The Manufacturing Party shall furnish to the other Parties the report by such agency of such visit, to the extent that such report relates to Collaboration Products, within ten (10) business days of the Manufacturing Party's receipt of such report, and the other Parties shall have the right to comment on any response by the Manufacturing Party to such inspecting agency. 7.5 Access to Facilities. Each Party shall have the right to inspect those -------------------- portions of the manufacturing, finish processing or storage facilities of the Manufacturing Party where Collaboration Products are being manufactured, finished or stored, or any subcontractor who is manufacturing, finishing or storing Collaboration Products for the Manufacturing Party, at any time during regular business hours and upon reasonable advance notice to ascertain compliance with the Good Manufacturing Practices of the FDA or other applicable regulatory authority, as the same may be amended from time to time. Subject to the terms and conditions of Section 10.1 below, confidential information disclosed to or otherwise gathered by the Party conducting such inspection during any such inspection shall be maintained as confidential. ARTICLE VIII MANAGEMENT 8.1 Program Management Team. 8.1.1 General. The Parties have established a Program Management ------- Team to oversee and control development of Collaboration Products and to prepare for and oversee the launch of Collaboration Products. The Program Management Team is and shall continue to be composed of four (4) representatives appointed by BioMarin and four (4) representatives appointed by Genzyme. Such representatives will include individuals with expertise and responsibilities in such areas as preclinical development, clinical development, manufacturing, regulatory affairs, marketing, sales management and reimbursement. The Program Management Team shall meet as needed but not less than monthly. The Program Management Team shall appoint one of its members to act as Secretary. Such meetings shall be at times and places or in such form (e.g., telephone or video conference) as the members of the Program Management Team shall agree. A Party may change one or more of its representatives to the Program Management Team at any time. Members of the Program Management Team may be represented at any meeting by another member of the Program Management Team or by a deputy. Any approval, determination or other action agreed to by a majority of the members of the Program Management Team appointed by each of BioMarin and Genzyme or their deputies present at the relevant Team meeting shall be the approval, determination or other action of the Program Management Team, provided at least two (2) representatives of each of BioMarin and Genzyme are present at such meeting. Representatives of either BioMarin and Genzyme who are not members of the Program Management Team may attend meetings of the Program Management Team as agreed to by the representative members of the other Party. The -23- Program Management Team may designate project leaders to the extent it deems it necessary or advisable. 8.1.2 Development Program Functions. During the term of the ----------------------------- Development Program, the Program Management Team shall coordinate, expedite and control the development of Collaboration Products to obtain Regulatory Approvals. The Program Management Team will (a) develop and recommend to the Steering Committee Development Plans (including annual development budgets), (b) facilitate the flow of information with respect to development work being conducted for each Collaboration Product throughout the Territory and (c) discuss and cooperate regarding the conduct of such development work. 8.1.3 Commercialization Functions. Following submission of filings --------------------------- for Regulatory Approvals for the first Collaboration Product, the Program Management Team shall function as the operational staff of BioMarin/Genzyme LLC and the functions of the Program Management Team shall be expanded to include: (a) monitoring the commercialization of Collaboration Products pursuant to the Commercialization Plan, including oversight of planning, annual budgeting, manufacturing, marketing, sales and distribution, and licensing of Collaboration Products; (b) monitoring actual expenses incurred in the manufacture, marketing, sale and distribution of Collaboration Products; (c) overseeing any post- marketing studies of a Collaboration Product and (d) facilitating cooperation regarding the commercialization and marketing activities of the Parties. 8.1.4 Minutes. The Program Management Team shall keep accurate ------- minutes of its deliberations which shall record all proposed decisions and all actions recommended or taken. The Secretary shall be responsible for the preparation of draft minutes. Draft minutes shall be sent to all members of the Program Management Team within five (5) working days after each meeting and shall be approved, if appropriate, at the next meeting. All records of the Program Management Team shall at all times be available to all of the Parties. 8.2 Steering Committee. 8.2.1 General. The Parties have established a Steering Committee ------- to oversee and manage the collaboration contemplated by this Agreement. The Steering Committee is and shall continue to be composed of three (3) representatives appointed by BioMarin and three (3) representatives appointed by Genzyme. Such representatives will be senior officers and/or managers of their respective companies, except that Barry Frankel may represent BioMarin on the Steering Committee provided that he executes a Confidentiality Agreement reasonably acceptable to Genzyme prior to the first meeting of the Steering Committee. Genzyme and BioMarin shall each designate one (1) of their respective representatives on the Steering Committee to act as Co-Chairman. The Steering Committee shall appoint one (1) of its members to act as Secretary. The Steering Committee will meet as needed but not less than once each calendar quarter. Such meetings shall be at times and places or in such form (e.g., telephone or video conference) as the members of the Steering Committee shall agree. A Party may change one or more of its representatives to the Steering Committee at any time. Members of the Steering Committee may be represented at any meeting by another member of the Steering Committee or by a deputy. Any approval, determination or -24- other action agreed to by unanimous consent of the members of the Steering Committee or their deputies present at the relevant Steering Committee meeting shall be the approval, determination or other action of the Steering Committee, provided at least two (2) representatives of each of BioMarin and Genzyme are present at such meeting. Representatives of either BioMarin and Genzyme who are not members of the Steering Committee may attend meetings of the Steering Committee as agreed to by the representative members of the other Party. Each Party shall bear its own personnel and travel costs and expenses relating to Steering Committee meetings, which costs and expenses shall not be included in the Program Costs. 8.2.2 Functions. The Steering Committee shall perform the --------- following functions: (a) determine the overall strategy for the Program in the manner contemplated by this Agreement; (b) coordinate the activities of the Parties hereunder; (c) settle disputes or disagreements that are unresolved by the Program Management Team; (d) approve any agreements with Third Parties regarding a Collaboration Product or which involve the grant of any rights related to the development, manufacture or marketing of a Collaboration Product; (e) review and approve each Development Plan, including each significant change and annual update thereto, submitted to it pursuant to Section 5.1.3 hereof; (f) review and approve each Commercialization Plan, including each significant change and annual update thereto, submitted to it for approval pursuant to Section 6.1.2 hereof; (g) serve as the governing body of BioMarin/Genzyme LLC; and (h) perform such other functions as appropriate to further the purposes of this Agreement as determined by the Parties. 8.2.3 Minutes. The Steering Committee shall keep accurate minutes ------- of its deliberations which shall record all proposed decisions and all actions recommended or taken. The Secretary shall be responsible for the preparation of draft minutes. Draft minutes shall be sent to all members of the Steering Committee within ten (10) working days after each meeting and shall be approved, if appropriate, at the next meeting. All records of the Steering Committee shall at all times be available to both BioMarin and Genzyme. 8.3 General Disagreements. All disagreements within the Program Management --------------------- Team or the Steering Committee shall be subject to the following: (a) The representatives to the Program Management Team or Steering Committee (as the case may be) will negotiate in good faith for a period of not less than thirty (30) days to attempt to resolve the dispute. In the case of the Program Management Team, any unresolved dispute shall be referred to the Steering Committee for good faith negotiations for an additional period of not less than thirty (30) days to attempt to resolve the dispute. (b) In the event that the dispute is not resolved after the period specified in clause (a), the representatives shall promptly present the disagreement to the Chief Executive Officers of BioMarin and Genzyme or a designee of such Chief Executive Officer reasonably acceptable to the other Party. (c) Such executives shall meet or discuss in a telephone or video conference each of BioMarin and Genzyme's views and explain the basis for such dispute. (d) If such executives cannot resolve such disagreement within thirty (30) days after such issue has been referred to them, then such dispute shall be referred to arbitration as described in Section 14.10 hereof. -25- ARTICLE IX INTELLECTUAL PROPERTY RIGHTS 9.1 Ownership. The Parties acknowledge that the ownership rights set forth --------- herein (a) shall not be affected by the participation in the discovery or development of an Invention (as defined below) by the Program Management Team or the Steering Committee in the course of discharging their duties hereunder and (b) are subject to the license grants set forth in Article 3 above. 9.1.1 Ownership and Assignment of Discoveries and Improvements. -------------------------------------------------------- All right, title and interest in all writings, inventions, discoveries, improvements and other technology, whether or not patentable or copyrightable, and any patent applications, patents or copyrights based thereon (collectively, the "Inventions") that are discovered, made or conceived during and in ---------- connection with the Program solely by employees of BioMarin or others acting on behalf of BioMarin ("BioMarin Inventions") shall be owned by BioMarin. All -------- ---------- right, title and interest in all Inventions that are discovered, made or conceived during and in connection with the Program solely by employees of Genzyme or others acting on behalf of Genzyme ("Genzyme Inventions") shall be ------------------ owned by Genzyme. All right, title and interest in all Inventions that are discovered, made or conceived during and in connection with the Program jointly by employees of BioMarin and Genzyme ("Joint Inventions") shall be jointly owned ---------------- by Genzyme and BioMarin. Each of BioMarin and Genzyme shall promptly disclose to BioMarin/Genzyme LLC and the other Party the making, conception or reduction to practice of Inventions by employees or others acting on behalf of such Party. All BioMarin Inventions, Genzyme Inventions and Joint Inventions shall be automatically licensed to BioMarin/Genzyme LLC pursuant to Section 3.1 hereof. Except as expressly provided in this Agreement, it is understood that neither BioMarin nor Genzyme shall have any obligation to account to the other Party for profits, or obtain any approval of the other to grant a license or exploit a Joint Invention outside of the Field by reason of joint ownership of such Invention or other intellectual property. For avoidance of doubt, in any jurisdiction where consent of all owners of a Joint Invention is required in order to grant a license to such Invention, BioMarin and Genzyme each grants the other Party consent to grant a non-exclusive license to Joint Invention outside the Field. 9.1.2 Ownership of Trademarks. The Steering Committee shall ----------------------- select and as between the Parties hereto BioMarin/Genzyme LLC shall own all trademarks for the sale and use of Collaboration Products in the Territory (collectively, "Product Marks") and all goodwill therein shall inure to the ------------- benefit of BioMarin/Genzyme LLC, and all expenses incurred by a Party with respect thereto shall be considered Program Costs. All Product Marks shall be registered in the name of BioMarin/Genzyme LLC if and when registered. In the event that the applicable laws and regulations of any country in which the Steering Committee elects to register any Product Marks require that such trademark(s) be registered in the name of an entity other than BioMarin/Genzyme LLC, or if the Steering Committee determines that it is in the best interests of the Parties, then the Steering Committee shall select such entity and ensure that a duly authorized officer of such entity agrees in writing that such entity shall (a) grant BioMarin/Genzyme LLC a worldwide, exclusive, fully-paid, royalty-free, irrevocable right and license (with the right to grant and authorize sublicenses) to use such Product Marks and (b) comply with the provisions of Article 13 hereof with -26- respect to the ownership and/or disposition of such Product Marks in the event this Agreement is terminated and provide the level of cooperation described in Section 14.1 hereof in connection therewith. Each Party hereby acknowledges agrees that at no time during of this Agreement to challenge or assist others to challenge the Product Marks or the registration thereof or attempt to register any trademarks, marks or trade names confusingly similar to such Product Marks. 9.1.3 Cooperation of Employees. Each of BioMarin and Genzyme ------------------------ represents and agrees that all employees or others acting on its behalf in performing its obligations under this Agreement shall be obligated under a binding written agreement to assign to such Party, or as such Party shall direct, all Inventions made or conceived by such employee or other person. In the case of non-employees working for other companies or institutions on behalf of BioMarin or Genzyme, BioMarin or Genzyme, as applicable, shall have the right to obtain licenses for all Inventions made by such non-employees on behalf of BioMarin or Genzyme, as applicable, in accordance with the policies of said company or institution. BioMarin and Genzyme agree to undertake to enforce such agreements (including, where appropriate, by legal action) considering, among other things, the commercial value of such Inventions. 9.2 Filing, Prosecution and Maintenance of Patent Rights. 9.2.1 Filing, Prosecution and Maintenance. Each of BioMarin and ----------------------------------- Genzyme shall be responsible for the filing, prosecution and maintenance of all Patent Rights within the BioMarin Patent Rights and Genzyme Patent Rights, respectively. The Steering Committee shall designate either BioMarin or Genzyme as the Party responsible for the filing, prosecution and maintenance of Patent Rights within the BioMarin/Genzyme Patent Rights. For so long as any of the license grants set forth in Article 3 hereof remain in effect and upon request of the other Party, each of BioMarin and Genzyme agrees to file and prosecute patent applications and maintain the Patent Rights for which it is responsible in all countries in the Territory selected by the Steering Committee. Each of BioMarin and Genzyme shall consult with and keep the other fully informed of important issues relating to the preparation and filing (if time permits), prosecution and maintenance of such patent applications and patents, and shall furnish to the other Party copies of documents relevant to such preparation, filing, prosecution or maintenance in sufficient time prior to filing such document or making any payment due thereunder to allow for review and comment by the other Party and, to the extent possible in the reasonable exercise of its discretion, the filing Party shall incorporate all such comments. 9.2.2 Patent Filing Costs. All costs associated with filing, ------------------- prosecuting and maintaining patent applications and patents covering each of the BioMarin Patent Rights, Genzyme Patent Rights and BioMarin/Genzyme Patent Rights specific to the Collaboration Products in the Territory shall be deemed Development Costs; provided, however, that if any such Patent Rights include claims directed at subject matter other than Collaboration Products, one-half (1/2) of the costs incurred for the filing, prosecution and maintaining of such Patent Rights shall be deemed Development Costs. For purposes of this Section 9.2, "prosecution and maintenance" of Patent Rights shall be deemed to include, without limitation, the conduct of interferences or oppositions, and/or requests for re-examinations, reissues or extensions of patent terms. -27- 9.3 Cooperation. Each of BioMarin and Genzyme shall make available to the ----------- other Party (or to the other Party's authorized attorneys, agents or representatives) its employees, agents or consultants to the extent necessary or appropriate to enable the appropriate Party to file, prosecute and maintain patent applications and resulting patents with respect to inventions owned by a Party and for periods of time sufficient for such Party to obtain the assistance it needs from such personnel. Where appropriate, each of BioMarin and Genzyme shall sign or cause to have signed all documents relating to said patent applications or patents at no charge to the other Party. 9.4 Notification of Patent Term Restoration. Each of BioMarin and Genzyme --------------------------------------- shall notify the other Party of (a) the issuance of each patent included within the Patent Rights for which the notifying Party is responsible pursuant to Section 9.2.1 above, giving the date of issue and patent number for each such patent, and (b) each notice pertaining to any patent included within the Patent Rights for which the notifying Party is so responsible which it receives as patent owner pursuant to the Drug Price Competition and Patent Term Restoration Act of 1984, including notices pursuant to (S)(S)101 and 103 of such Act from persons who have filed an abbreviated NDA. Such notices shall be given promptly, but in any event within ten (10) business days after receipt of each such notice pursuant to such Act. Each of BioMarin and Genzyme shall notify the other Party of each filing for patent term restoration under such Act, any allegations of failure to show due diligence and all awards of patent term restoration (extensions) with respect to the Patent Rights for which the notifying Party is responsible. 9.5 No Other Technology Rights. Except as otherwise expressly provided in -------------------------- this Agreement, under no circumstances shall a Party hereto, as a result of this Agreement, obtain any ownership interest in or other right to the Patent Rights, Technology or Manufacturing Know-How of the other Party, including items owned, controlled or developed by the other Party, or transferred by the other Party to said Party at any time pursuant to this Agreement. It is understood and agreed that this Agreement does not grant either Party any license or other right in the Patent Rights of the other Party except as expressly provided in Article 3 hereof and this Article 9. 9.6 Defense of Third Party Infringement Claims. If the manufacture, ------------------------------------------ production, sale or use of any Collaboration Product pursuant to this Agreement results in a claim, suit or proceeding (collectively, "Actions") alleging patent ------- infringement against BioMarin or Genzyme (or their respective Affiliates), such Party shall promptly notify the other Party hereto in writing. The Party subject to such Action (for purposes of this Section 9.6, the "Controlling ----------- Party") shall have the exclusive right to defend and control the defense of any such Action using counsel of its own choice; provided, however, that if such Action is directed to the subject of the Patent Rights of the other Party (i.e., the BioMarin Patent Rights or the Genzyme Patent Rights), such other Party may participate in the defense and/or settlement thereof at its own expense with counsel of its choice. Except as agreed in writing by Genzyme and BioMarin, the Controlling Party shall not enter into any settlement relating to a Collaboration Product, if such settlement admits the invalidity or unenforceability of any Patent Rights within the BioMarin Patent Rights or the Genzyme Patent Rights, as applicable, of the other Party. The Controlling Party agrees to keep the other Party hereto reasonably informed of all material developments in connection with any such Action. Any cost, liability or expense (including amounts paid in settlement) incurred by the Controlling Party as a result of such Action shall be included in Commercialization Costs for the Collaboration Product(s) -28- that are the subject of such Action (or, if the Action is brought prior to the first commercial sale of such Collaboration Product(s), such amounts shall be included in Development Costs incurred by the Controlling Party) and shall not be subject to the limitations of Sections 1.9, 4.2, 5.1.3, 6.1.2 or 6.4 above provided that the other Party consents to incurrence of such cost, liability or expense, with such consent not to be unreasonably withheld. 9.7 Enforcement of Patent Rights. ---------------------------- 9.7.1 Enforcement. Subject to the provisions of this Section 9.7, ----------- in the event that BioMarin or Genzyme reasonably believes that any BioMarin Patent Rights, BioMarin Technology, Genzyme Patent Rights, Genzyme Technology, BioMarin/Genzyme Patent Rights or BioMarin/Genzyme Technology necessary for the manufacture, use or sale of a Collaboration Product in the Field is infringed or misappropriated by a Third Party or is subject to a declaratory judgment action arising from such infringement in a country, in each case with respect to the manufacture, sale or use of a product potentially competitive with a Collaboration Product within the Field, Genzyme or BioMarin (respectively) shall promptly notify the other Party hereto. Promptly after such notice the Parties shall meet to discuss the course of action to be taken with respect to an Enforcement Action (as defined below) with respect to such infringement or misappropriation, including the control thereof and sharing of costs and expenses related thereto, for the purposes of entering into a litigation agreement setting forth the same ("Litigation Agreement"). If the Parties do -------------------- not enter such Litigation Agreement, the Party whose Patent Rights or Technology is so allegedly infringed or misappropriated, or is subject to such declaratory judgment action, (for purposes of this Section 9.7, the "Owner") shall have the ----- initial right (but not the obligation) to enforce the intellectual property rights within such Patent Rights or Technology, or defend any declaratory judgment action with respect thereto (for purposes of this Section 9.7, an "Enforcement Action"); provided that the Owner agrees to indemnify the other ------------------ Party for any and all liabilities and expenses (including, without limitation, reasonable attorneys' fees and other expenses of litigation) incurred by such other Party as a result of such Enforcement Action. 9.7.2 Information. Absent a Litigation Agreement, the Party ----------- initiating or defending any such Enforcement Action shall keep the other Party hereto reasonably informed of the progress of any such Enforcement Action, and such other Party shall have the right to participate with counsel of its own choice at its own expense. 9.7.3 Enforcement Costs; Recoveries. Unless otherwise agreed, the ----------------------------- Party initiating an Enforcement Action shall, at the option of such Party, have the right to either: (i) assume responsibility for all costs and expenses of such Enforcement Action, in which case all amounts recovered in the Enforcement Action (including without limitation amounts resulting from a settlement thereof) shall be retained by such Party; or (ii) include such costs and expenses within the Development Costs or Commercialization Costs, as applicable, in which case all amounts recovered in the Enforcement Action, after reimbursing the Party initiating the Action for any costs and expenses not previously so offset, shall be shared by BioMarin and Genzyme in accordance with their respective Percentage Interests. 9.8 Third Party Rights. The foregoing provisions of this Article 9 shall ------------------ be subject to and limited by any agreements pursuant to which BioMarin and Genzyme, as the case may be, acquired -29- any particular BioMarin Patent Rights, BioMarin Technology or Genzyme Patent Rights or Genzyme Technology. 9.9 Third Party Agreements--Reports. To the extent that a Party is ------------------------------- obligated to provide reports to a Third Party pursuant to a Third Party Agreement as a result of or reporting on the status of activities of the other Party hereunder, the other Party hereto shall reasonably assist the reporting Party by providing information in its possession or control and in sufficient detail to complete and submit such reports as required. ARTICLE X CONFIDENTIALITY 10.1 Nondisclosure Obligations. Except as otherwise provided in this ------------------------- Article 10, during the term of this Agreement and for a period of five (5) years thereafter, the Parties shall, and BioMarin shall cause BioMarin Genetics to, maintain in confidence and use only for purposes specifically authorized under this Agreement any information furnished to it by the other Party hereto pursuant to this Agreement which if disclosed in tangible form is marked "Confidential" or with other similar designation to indicate its confidential or proprietary nature or if disclosed orally or by inspection is indicated orally to be confidential or proprietary by the Party disclosing such information at the time of such disclosure and is confirmed in writing as confidential or proprietary by the disclosing Party (describing in reasonable detail the information to be treated as confidential) within a reasonable time after such disclosure (collectively, "Information"). ----------- To the extent it is reasonably necessary or appropriate to fulfill its obligations or exercise its rights under this Agreement, a Party may disclose Information of the other Party it is otherwise obligated under this Section 10.1 not to disclose to its Affiliates, permitted sublicensees, consultants, outside contractors and clinical investigators, on a need-to-know basis and on the condition that such entities or persons agree to keep the Information confidential for the same time periods and to substantially the same extent as such Party is required to keep such Information confidential; and a Party or its permitted sublicensees may disclose such Information to government or other regulatory authorities to the extent that such disclosure is reasonably necessary to obtain patents or authorizations to conduct clinical trials or to file and maintain Regulatory Approvals with and to market commercially Collaboration Products. The obligation not to disclose Information shall not apply to any part of such Information that: (i) is or becomes patented, published or otherwise becomes publicly known other than by acts of the Party obligated not to disclose such Information or its Affiliates or sublicensees in contravention of this Agreement; (ii) can be shown by written documents to have been disclosed to the receiving Party or its Affiliates or sublicensees by a Third Party, provided that such Information was not obtained by such Third Party directly or indirectly from the disclosing Party under this Agreement; (iii) prior to disclosure under this Agreement, was already in the possession of the receiving Party or its Affiliates or sublicensees, provided that such Information was not obtained directly or indirectly from the disclosing Party under this Agreement; (iv) can be shown by written documents to have been independently developed by the receiving Party or its Affiliates without breach of any of the provisions of this Agreement; or (v) is required to -30- be disclosed by the receiving Party to comply with applicable laws or regulations, or with a court or administrative order, provided that the receiving Party notifies the disclosing Party in writing prior to any such disclosure and agrees to use reasonable efforts to secure confidential treatment thereof prior to its disclosure (whether by protective order or otherwise). 10.2 Terms of this Agreement; Press Releases. The Parties agree to seek --------------------------------------- confidential treatment for any filing of this Agreement with the Securities and Exchange Commission and shall agree upon the content of the request for confidential treatment made by each Party in respect of such filing. Except as permitted by the foregoing provisions or as otherwise required by law, BioMarin and Genzyme each agree not to disclose any terms or conditions of this Agreement to any Third Party without the prior consent of the other Party; provided that each Party shall be entitled to disclose the terms of this Agreement without such consent to its advisors and potential investors or other financing sources on the condition that such entities or persons agree to keep such terms confidential for the same time periods and to the same extent as such Party is required to keep such terms confidential. The Parties agree that all press releases related to the Program shall be issued jointly by BioMarin and Genzyme and that the Party preparing any such press release shall provide the other Party with a draft thereof reasonably in advance of disclosure so as to permit the other Party to review and comment on such press release. Notwithstanding the foregoing, the Parties shall agree upon a press release to announce the execution of this Agreement, together with a corresponding Question & Answer outline for use in responding to inquiries about the Agreement; thereafter, BioMarin and Genzyme may each disclose to Third Parties the information contained in such press release and Question & Answer outline without the need for further approval by the other. 10.3 Publications. Each Party recognizes the mutual interest in obtaining ------------ valid patent protection. Consequently, any Party, its employees or consultants wishing to make a publication (including any oral disclosure made without obligation of confidentiality) relating to work performed by such Party as part of the Program (the "Publishing Party") shall transmit to the other Party (the ---------------- "Reviewing Party") a copy of the proposed written publication at least forty- --------------- five (45) days prior to submission for publication, or an abstract of such oral disclosure at least fifteen (15) days prior to submission of the abstract or the oral disclosure, whichever is earlier. The Reviewing Party shall have the right to (a) request a delay in publication or presentation in order to protect patentable information, (b) propose modifications to the publication for patent reasons or (c) request that the information be maintained as a trade secret. With respect to publications or disclosures by investigators or other Third Parties, such publications and disclosures shall be subject to review by the Reviewing Party under this Section 10.3 only to the extent that the submitting Party has the right to do so. 10.3.1 Patents. If the Reviewing Party requests a delay as described ------- in clause (a) above, the Publishing Party shall delay submission or presentation of the publication for a period of ninety (90) days to enable patent applications protecting each Party's rights in such information to be filed. Upon the expiration of forty-five (45) days, in the case of proposed written disclosures, or fifteen (15) days, in the case of an abstract of proposed oral disclosures, from transmission of such proposed disclosures to the Reviewing Party, the Publishing Party shall be free to proceed with the written publication or the oral presentation, respectively, unless the Reviewing Party has requested the delay described above. -31- 10.3.2 Other. To the extent possible in the reasonable exercise of ----- its discretion, the Publishing Party shall incorporate all modifications proposed under clause (b) above. If a trade secret that is the subject of a request made under clause (c) above cannot be otherwise protected without unreasonable expense to the Reviewing Party, such information shall be omitted from the publication. ARTICLE XI REPRESENTATIONS AND WARRANTIES 11.1 Authorization. Each Party warrants and represents to the other ------------- Parties that (a) it has the legal right and power to enter into this Agreement, to extend the rights and licenses granted to the other in this Agreement, and to perform fully its obligations hereunder, (b) this Agreement has been duly executed and delivered and is a valid and binding agreement of such Party, enforceable in accordance with its terms, (c) such Party has obtained all necessary approvals to the transactions contemplated hereby and (d) such Party has not made and will not make any commitments to others in conflict with or in derogation of such rights or this Agreement. 11.2 Intellectual Property Rights. ---------------------------- 11.2.1 BioMarin hereby represents and warrants that, as of the Date of Execution, (a) it possesses an exclusive right, title and interest in or to, the BioMarin Patent Rights and the BioMarin Technology, (b) the BioMarin Patent Rights and the BioMarin Technology are free and clear of any lien or other encumbrance and (c) it has the right to (i) enter into the obligations set forth in this Agreement and (ii) grant the rights and licenses set forth in Article 3 hereof. 11.2.2 BioMarin hereby represents and warrants that it is not aware of any issued patent that would be infringed by the manufacture and sale of Collaboration Products as contemplated by this Agreement. 11.2.3 Genzyme hereby represents and warrants that as of the Date of Execution (a) it possesses an exclusive right, title and interest in the Genzyme Patent Rights and the Genzyme Technology, (b) the Genzyme Patent Rights and the Genzyme Technology are free and clear of any lien or other encumbrance and (c) it has the right to (i) enter into the obligations set forth in this Agreement and (ii) grant the rights and licenses set forth in Article 3 hereof. 11.3 Warranties. ---------- 11.3.1 Genzyme Warranties. Genzyme warrants that (i) the ------------------ Collaboration Products delivered by Genzyme pursuant to Section 7.2 hereof, if any, will conform in all material respects to the Specifications, the conditions of any applicable Regulatory Approvals regarding the manufacturing process and any applicable requirements of the Regulatory Scheme regarding the manufacturing process and (ii) the Collaboration Products sold pursuant to Section 6.2 hereof will be -32- marketed and sold in all material respects in accordance with the conditions of any applicable Regulatory Approvals and any applicable labeling claims. 11.3.2 BioMarin Warranties. BioMarin warrants that the ------------------- Collaboration Products delivered by BioMarin pursuant to Section 7.2 hereof will conform in all material respects to the Specifications, the conditions of any applicable Regulatory Approvals regarding the manufacturing process and any applicable requirements of the Regulatory Scheme regarding the manufacturing process. 11.4 Disclaimer of Representations and Warranties. EXCEPT AS OTHERWISE -------------------------------------------- EXPRESSLY SET FORTH IN THIS AGREEMENT, NONE OF BIOMARIN, GENZYME OR BIOMARIN/GENZYME LLC MAKES ANY REPRESENTATIONS OR EXTENDS ANY WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND THE NON-INFRINGEMENT OF ANY THIRD-PARTY PATENTS OR PROPRIETARY RIGHTS. ALL UNIFORM COMMERCIAL CODE WARRANTIES ARE EXPRESSLY DISCLAIMED BY THE PARTIES. 11.5 Limitation of Liability. IT IS AGREED BY THE PARTIES THAT NO PARTY ----------------------- SHALL BE LIABLE TO ANOTHER PARTY FOR ANY SPECIAL, CONSEQUENTIAL, EXEMPLARY OR INCIDENTAL DAMAGES (INCLUDING LOST OR ANTICIPATED REVENUES OR PROFITS RELATING TO THE SAME), ARISING FROM ANY CLAIM RELATING TO THIS AGREEMENT, WHETHER SUCH CLAIM IS BASED ON CONTRACT, TORT (INCLUDING NEGLIGENCE) OR OTHERWISE, EVEN IF AN AUTHORIZED REPRESENTATIVE OF SUCH PARTY IS ADVISED OF THE POSSIBILITY OR LIKELIHOOD OF SAME. Remedies shall be limited to claims for amounts due hereunder or as otherwise provided in this Agreement, including claims for indemnification as provided in Section 12.1 hereof. ARTICLE XII INDEMNITY 12.1 BioMarin/Genzyme LLC Indemnity Obligations. The Operating Agreement ------------------------------------------ shall provide that BioMarin/Genzyme LLC shall indemnify each of the Members and its Affiliates, employees and agents (each an "Indemnified Person") for any act ------------------ performed by such Indemnified Person within the scope of the authority conferred upon such Indemnified Person under this Agreement; provided that it shall be a condition to such indemnity that (a) the Indemnified Person seeking indemnification acted in good faith and in a manner reasonably believed to be in, or not opposed to, the best interests of BioMarin/Genzyme LLC, (b) the act for which indemnification is sought did not constitute gross negligence or willful misconduct by such Indemnified Person and (c) payment and indemnification of any matter disposed of by a compromise payment by such Indemnified Person, pursuant to consent decree or otherwise, shall have been approved by the Members, which approval shall not be unreasonably withheld or delayed, or by a court of competent jurisdiction. -33- 12.2 Insurance. BioMarin/Genzyme LLC shall maintain clinical trial and --------- product liability insurance with respect to development, manufacture and sales of Collaboration Products in an amount reasonably believed by Genzyme and BioMarin to be adequate and customary for the development, manufacture and sale of novel therapeutic products. Genzyme and BioMarin shall be named as additional insureds on any such policy. Genzyme and BioMarin shall each maintain similar clinical trial and product liability insurance coverage in amounts reasonably determined by the Steering Committee from time to time. ARTICLE XIII TERM AND TERMINATION 13.1 Term. The term of this Agreement shall be perpetual unless terminated ---- pursuant to Section 13.2 below. 13.2 Termination. This Agreement may be terminated in the following ----------- circumstances: 13.2.1 For Certain Material Breaches. If either BioMarin or ----------------------------- Genzyme (a) fails to use commercially reasonable and diligent efforts to perform any material duty imposed upon such Party under this Agreement or a Development Plan or Commercialization Plan or (b) fails to make two (2) or more capital contributions in accordance with Section 4.2 hereof, and such failure to perform is not cured within ninety (90) days of written notice thereof from the non- breaching Party, the non-breaching Party may elect, in its sole discretion, to (i) in the case of clause (b) above, waive the terms of Article 4 hereof with respect to any one or more required capital contributions and cause the respective Percentage Interests and future funding responsibilities of the Parties to be adjusted in accordance with Section 4.1 of the Operating Agreement or (ii) terminate this Agreement with the consequences set forth in Section 13.3.1 below. Such 90-day period shall be extended to one hundred eighty (180) days if the breaching Party has engaged in good faith efforts to remedy such default within such 90-day period and indicated in writing to the non-breaching Party prior to the expiration of such 90-day period that it believes that it will be able to remedy the default within such 180-day period, but such extension shall apply only so long as the breaching Party is engaging in good faith efforts to remedy such default. 13.2.2 For Failure to Make the Section 4.4 Payment. In the event ------------------------------------------- that Genzyme fails to make the payment pursuant to Section 4.4(b) hereof and such failure is not cured within ten (10) days of written notice thereof from BioMarin, BioMarin may elect, in its sole discretion, to either (a) enforce the terms of this Agreement and seek any and all remedies available to it at law and in equity or (b) terminate this Agreement with the consequences set forth in Section 13.3.2 below. 13.2.3 For Convenience. Either BioMarin or Genzyme may elect to --------------- terminate this Agreement for any reason at any time after the earlier of (i) such time as BioMarin/Genzyme LLC has received U.S. FDA approval for the BLA for the first Collaboration Product or (ii) December 31, 2000 if BioMarin/Genzyme LLC has not received U.S. FDA approval of the BLA for the first Collaboration Product on or before such date upon one (1) year prior written notice to the other Party -34- (during which one-year period the obligations of the Parties, including without limitation obligations with respect to capital contributions, shall continue in full force and effect). For purposes of the foregoing, "approval" shall be deemed to occur upon the U.S. FDA's issuance of an approval letter as set forth in 21 C.F.R. (S)314.105. If either Party terminates this Agreement pursuant to clause (ii) above, the Development Plan in effect and the Parties' respective obligations with respect to capital contributions as of the date notice of termination is given shall be extended until the effective date of such termination. 13.2.4 Upon Change of Control. Either BioMarin or Genzyme may ---------------------- terminate this Agreement in the event that the other Party is a party to a transaction involving (a) a merger or consolidation in which such Party is not the surviving entity or (b) the sale of all or substantially all of the assets of such Party to a Third Party. Termination of this Agreement pursuant to this Section 13.2.4 shall be effective as of the effective date of such transaction. 13.2.5 Upon Bankruptcy. Either BioMarin or Genzyme may terminate --------------- this Agreement with the consequences set forth in Section 13.3.5 below, if (A) the other Party fails to meet any material obligation hereunder and: (i) applies for or consent to the appointment of a receiver, trustee, liquidation or custodian of itself or of all or a substantial part of its property, (ii) becomes unable, or admit in writing its inability, to pay its debts generally as they mature, (iii) makes a general assignment for the benefit of its or any of its creditors, (iv) is dissolved or liquidated in full or in part (v) commences a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or consent to any such relief or to the appointment of or taking possession of its property by any official in an involuntary case or other proceeding commenced against it, or (vi) takes any action for the purpose of effecting any of the foregoing; or (B) proceedings for the appointment of a receiver, trustee, liquidator or custodian of the other Party or of all or a substantial part of the property thereof, or an involuntary case or other proceedings seeking liquidation, reorganization or other relief with respect to the other Party or the debts thereof under any bankruptcy, insolvency or other similar law now or hereafter in effect shall be commenced and an order for relief entered or such proceeding shall not be dismissed or discharged within sixty (60) calendar days of commencement. 13.3 Effects of Termination. ---------------------- 13.3.1 For Certain Material Breaches. In addition to the rights and ----------------------------- duties set forth in Sections 13.4 and 13.5 below, BioMarin Genetics shall have the following rights and BioMarin and Genzyme shall have the following rights and duties upon termination of this Agreement pursuant to Section 13.2.1 above: (a) the non-breaching Party shall have an irrevocable right and license, with the right to grant and authorize sublicenses, under the breaching Party's Patent Rights, Technology (i.e., the BioMarin Patent Rights and BioMarin Technology or the Genzyme Patent Rights and Genzyme Technology, as appropriate) and Manufacturing Know-How Controlled by the breaching Party to develop, make, have made, use, offer for sale, sell, have sold, import and export Collaboration Products in the Field and in the Territory, and the breaching Party shall execute such documents and take all action as may be necessary or desirable to effect the foregoing; provided, that -35- such license shall be for the same level of exclusivity as the rights granted with respect thereto under Section 3.1 hereof immediately prior to such termination; provided further that any license granted hereunder shall be subject to the obligation of the non-breaching Party to use commercially reasonable and diligent efforts to develop and market Collaboration Products pursuant to such license; (b) the breaching Party shall assign and transfer all of its interest in BioMarin/Genzyme LLC to the non-breaching Party, and the non- breaching Party may dissolve BioMarin/Genzyme LLC in its sole discretion; provided that in the event that BioMarin is the breaching Party, it shall also cause BioMarin Genetics to assign and transfer all of its interest in BioMarin/Genzyme LLC to Genzyme. (c) (i) all licenses granted pursuant to Article 3 shall be revoked, (ii) if BioMarin/Genzyme LLC is dissolved, any applicable Regulatory Approvals (other than any Regulatory Approvals filed in the name of an entity other than BioMarin/Genzyme LLC pursuant to Section 5.3 hereof), "Orphan Drug" designations and clinical data owned or licensed by BioMarin/Genzyme LLC and any trademarks owned or licensed by BioMarin/Genzyme LLC (other than any trademarks registered in the name of an entity other than BioMarin/Genzyme LLC pursuant to Section 9.1.2 hereof) shall be assigned or exclusively licensed to the non- breaching Party and (iii) any Regulatory Approvals filed and any trademarks registered in the name of an entity other than BioMarin/Genzyme LLC shall be (A) exclusively licensed to BioMarin/Genzyme LLC, the non-breaching Party or any Third Party or Affiliate designated by the non-breaching Party until such time as BioMarin/Genzyme LLC, the non-breaching Party or its designee is qualified to hold such Regulatory Approvals or trademarks under the applicable provisions of the Regulatory Scheme and (B) transferred or assigned to BioMarin/Genzyme LLC, the non-breaching Party or its designee, as appropriate, as soon as practicable thereafter; (d) the non-breaching Party shall become obligated to pay the breaching Party an amount equal to (i) ninety percent (90%) of the Fair Value (as defined in Section 13.3.6 below) of the breaching Party's interest in the Collaboration Products as of the date of termination, plus (ii) the non- ---- terminating Party's Percentage Interest of the net asset value of BioMarin/Genzyme LLC as of the date of termination after deduction of net assets included in the Fair Value of Collaboration Products, plus (iii) ---- interest thereon at the Base Rate of interest declared from time to time by BankBoston, N.A. in Boston, Massachusetts from the date of termination to the date payment is made (the "Breach Buyout Amount"), payable as follows: -------------------- (1) if the non-breaching Party elects to sell or otherwise dispose of all or any portion of its or its Affiliates' right, title and interest in the Collaboration Products, then the non-breaching Party shall, upon any such sale or other disposition, pay the breaching Party an amount equal to seventy-five percent (75%) of the net proceeds of such sale or other disposition when such payments are actually paid; (2) for as long as the non-breaching Party (together, in the case of BioMarin with BioMarin Genetics) has not sold or otherwise disposed of all or a portion of its (together in the case of BioMarin, with BioMarin Genetics) right, title and interest in the Collaboration Products which is equal to or greater than the breaching Party's (together in the case of -36- BioMarin, with BioMarin Genetics) Percentage Interest as of the date of termination, the non-breaching Party shall pay the breaching Party (and, in the event that BioMarin is the breaching Party, BioMarin Genetics) a percentage of Net Profits, which percentage shall equal (i) the breaching Party's (and, in the event that BioMarin is the breaching Party, BioMarin Genetics) Percentage Interest as of the date of termination minus (ii) a percentage equal to the portion of the right, title and interest in the Collaboration Products sold or otherwise disposed of by the non-breaching Party (and in the event that BioMarin is the nonbreaching Party, BioMarin Genetics) as described in the preceding paragraph; and (3) on the fourth anniversary of the date of termination, the non-breaching Party shall pay the breaching Party (and, in the event that BioMarin is the breaching Party, BioMarin Genetics) the difference between the aggregate amounts paid pursuant to clauses (1) and (2) above and the Breach Buyout Amount; provided, that the aggregate amount of all payments made under clauses (1), (2) and (3) shall not exceed the Breach Buyout Amount; and (e) if Genzyme has not paid all of the payments described in Section 4.4 hereof on or before the date of termination, termination of this Agreement shall not relieve Genzyme of its obligations to pay any such unpaid amount at such time as it becomes due and payable in accordance with the schedule set forth in Section 4.4 hereof. 13.3.2 For Failure to Make the Section 4.4 Payment. In addition to ------------------------------------------- the rights and duties set forth in Sections 13.4 and 13.5 below, BioMarin shall have the following rights and duties upon termination of this Agreement pursuant to Section 13.2.2(b) above: (a) BioMarin shall have an irrevocable right and license, with the right to grant and authorize sublicenses, under the Genzyme Patent Rights, Genzyme Technology and Manufacturing Know-How Controlled by Genzyme to develop, make, have made, use, offer for sale, sell, have sold, import and export Collaboration Products in the Field and in the Territory, and Genzyme shall execute such documents and take all action as may be necessary or desirable to affect the foregoing; provided, that such license shall be for the same level of exclusivity as the rights granted with respect thereto under Section 3.1; provided further that any license granted hereunder shall be subject to the obligation of BioMarin to use commercially reasonable and diligent efforts to develop and market Collaboration Products pursuant to such license; (b) Genzyme shall assign and transfer all of its interest in BioMarin/Genzyme LLC to BioMarin, and BioMarin may dissolve BioMarin/Genzyme LLC in its sole discretion; (c) (i) all licenses granted pursuant to Article 3 shall be revoked, (ii) if BioMarin/Genzyme LLC is dissolved, any applicable Regulatory Approvals (other than any Regulatory Approvals filed in the name of an entity other than BioMarin/Genzyme LLC pursuant to Section 5.3 hereof), "Orphan Drug" designations and clinical data owned or licensed by BioMarin/Genzyme LLC and any trademarks owned or licensed by BioMarin/Genzyme LLC (other than any trademarks registered in the name of an entity other than BioMarin/Genzyme LLC pursuant to Section 9.1.2 hereof) shall be assigned or exclusively licensed to BioMarin and (iii) any Regulatory Approvals filed and any trademarks registered in the name of an entity other than BioMarin/Genzyme LLC shall be (A) exclusively licensed to BioMarin/Genzyme LLC, BioMarin or -37- any Third Party or Affiliate designated by BioMarin until such time as BioMarin/Genzyme LLC, BioMarin or its designee is qualified to hold such Regulatory Approvals or trademarks under the applicable provisions of the Regulatory Scheme and (B) transferred or assigned to BioMarin/Genzyme LLC, BioMarin or its designee, as appropriate, as soon as practicable thereafter; and (d) BioMarin shall become obligated to pay Genzyme an amount equal to (i) the aggregate amount of Genzyme's capital contributions to BioMarin/Genzyme LLC minus two million dollars ($2,000,000) plus (ii) ---- interest thereon at the Base Rate of interest declared from time to time by BankBoston, N.A. in Boston, Massachusetts from the date of termination to the date payment is made (the "Milestone Breach Buyout Amount"), payable on the ------------------------------- terms and conditions and in accordance with the schedule of payments set forth in Section 13.3.1(d), mutatis mutandis. 13.3.3 For Convenience. In addition to the rights and duties set --------------- forth in Sections 13.4 and 13.5 below, BioMarin Genetics shall have the following rights and BioMarin and Genzyme shall have the following rights and duties upon termination of this Agreement pursuant to Section 13.2.3 above: (a) the non-terminating Party shall have an option exercisable upon written notice to the terminating Party within the one-year period provided in Section 13.2.3 hereof to obtain from the terminating Party the irrevocable right and license, with the right to grant and authorize sublicenses, under the terminating Party's Patent Rights, Technology and Manufacturing Know-How to develop, make, have made, use, offer for sale, sell, have sold, import and export Collaboration Products in the Field and in the Territory, and the terminating Party shall execute such documents and take all action as may be necessary or desirable to affect the foregoing; provided, that such license shall be for the same level of exclusivity as the rights granted with respect thereto under Section 3.1; provided further that any license granted hereunder shall be subject to the obligation of the non-terminating Party to use commercially reasonable and diligent efforts to develop and market Collaboration Products pursuant to such license; (b) upon exercise of its license option provided in paragraph (a) of this Section 13.3.3, the terminating Party shall assign and transfer all of its interest in BioMarin/Genzyme LLC to the non-terminating Party, and the non-terminating Party may dissolve BioMarin/Genzyme LLC in its sole discretion; (c) upon exercise of its license option provided in paragraph (a) of this Section 13.3.3, (i) all licenses granted pursuant to Article 3 shall be revoked, (ii) if BioMarin/Genzyme LLC is dissolved, any applicable Regulatory Approvals (other than any Regulatory Approvals filed in the name of an entity other than BioMarin/Genzyme LLC pursuant to Section 5.3 hereof), "Orphan Drug" designations and clinical data owned or licensed by BioMarin/Genzyme LLC and any trademarks owned or licensed by BioMarin/Genzyme LLC (other than any trademarks registered in the name of an entity other than BioMarin/Genzyme LLC pursuant to Section 9.1.2 hereof) shall be assigned to the non-terminating Party and (iii) any Regulatory Approvals filed and any trademarks registered in the name of an entity other than BioMarin/Genzyme LLC shall be (A) exclusively licensed to BioMarin/Genzyme LLC, the non-terminating- Party or any Third Party or Affiliate designated by such Party until such time as BioMarin/Genzyme LLC, the non-terminating Party or its designee is qualified to hold such -38- Regulatory Approvals or trademarks under the applicable provisions of the Regulatory Scheme and (B) transferred or assigned to BioMarin/Genzyme LLC, the non-terminating Party or its designee, as appropriate, as soon as practicable thereafter; (d) upon the exercise of its license option provided in paragraph (a) of this Section 13.3.3, the non-terminating Party shall become obligated to pay to the terminating Party an amount equal to (i) one hundred percent (100%) of the Fair Value (as defined in Section 13.3.6 below) of the terminating Party's interest in the Collaboration Products as of the date of termination (or, in the event that BioMarin is the non-terminating Party, Genzyme shall pay the BioMarin Companies an amount equal to one hundred percent (100%) of the Fair Value of the BioMarin Companies' aggregate interest in the Collaboration Products as of the date of termination) plus (ii) the ---- non-terminating Party's Percentage Interest of the net asset value of BioMarin/Genzyme LLC as of the date of termination after deduction of net assets included in the Fair Value of Collaboration Products, plus (iii) ---- interest thereon at the Base Rate of interest declared from time to time by BankBoston, N.A. in Boston, Massachusetts from the date of termination to the date payment is made (the "Convenience Buyout Amount"), payable on the terms ------------------------- and conditions and in accordance with the schedule of payments set forth in Section 13.3.1(d), mutatis mutandis; and (e) if the license option provided in paragraph (a) of this Section 13.3.3 is not exercised, then all right, title and interest in the Collaboration Products shall be sold to the highest bidder within eighteen (18) months from the date of termination and the proceeds shall be allocated between the Members in proportion to their Percentage Interests in BioMarin/Genzyme LLC as of the date of termination and BioMarin/Genzyme LLC shall be dissolved. (f) Notwithstanding the foregoing provisions of Section 13.3.3(d), if Genzyme terminates this Agreement for convenience prior to December 31, 2000, the Convenience Buyout Amount shall be equal to (i) the aggregate amount of Genzyme's capital contributions to BioMarin/Genzyme LLC minus two million dollars ($2,000,000) plus (ii) interest thereon at the Base - ----- ---- Rate of interest declared from time to time by BankBoston, N.A. in Boston, Massachusetts from the date of termination to the date payment is made. 13.3.4 Upon a Change of Control. In addition to the rights and ------------------------ duties set forth in Sections 13.4 and 13.5 below, BioMarin and Genzyme shall have the following rights and duties upon termination of this Agreement pursuant to Section 13.2.4 above: (a) the terminating Party shall have the exclusive, irrevocable and, except as provided in Section 13.3.4(d), royalty-free right and license, with the right to grant sublicenses, under the non-terminating Party's Patent Rights, Technology and Manufacturing Know-How to develop, make, have made, use, offer for sale, sell, have sold, import and export Collaboration Products in the Territory and in the Field, and the non-terminating Party shall execute such documents and take all action as may be necessary or desirable to effect the foregoing; provided, that any license granted hereunder shall be subject to the obligation of the terminating Party to use commercially reasonable and diligent efforts to develop and market Collaboration Products pursuant to such license; -39- (b) the non-terminating Party shall assign and transfer all of its interest in BioMarin/Genzyme LLC to the terminating Party, and the terminating Party may dissolve BioMarin/Genzyme LLC in its sole discretion; provided that in the event that BioMarin is the non-terminating Party, it shall also cause BioMarin Genetics to assign and transfer all of its interest in BioMarin/Genzyme LLC to Genzyme; (c) all licenses granted pursuant to Article 3 shall be revoked and, if BioMarin/Genzyme LLC is dissolved, any applicable Regulatory Approval, "Orphan Drug" designations and clinical data owned or licensed by BioMarin/Genzyme LLC and any trademarks owned or licensed by BioMarin/Genzyme LLC shall be assigned or licensed to the terminating Party; and (d) the terminating Party (the "Offeror") shall, pursuant to the ------- conditions set forth in this Section 13.4(d), give the other Party (Genzyme in the case BioMarin is terminating or the BioMarin Companies in the case Genzyme is terminating, in either case the "Offeree") at the time of termination written ------- notice of the Offeror's intention to purchase Offeree's entire interest in and to (i) the Collaboration Products as of the date of termination and (ii) the Percentage Interest of the net asset value of BioMarin/Genzyme LLC as of the date of termination (the "Notice of Offer"). The Notice of Offer shall state --------------- therein the specific price, terms and conditions under which the Offeror agrees to purchase Offeree's entire interest in and to (i) the Collaboration Products as of the date of termination and (ii) the Percentage Interest of the net asset value of BioMarin/Genzyme LLC as of the date of termination; provided, however, that the purchase price shall be paid in cash, publicly-traded and registered securities or as the Parties otherwise agree. The Offeree shall then have ninety (90) days (the "Acceptance Period") from the receipt of the Notice of Offer to ----------------- give notice (the "Notice of Acceptance") of the Offeree's intention to accept -------------------- the offer of the Offeror and shall sell Offeree's entire interest in and to (i) the Collaboration Products as of the date of termination and (ii) the Percentage Interest of the net asset value of BioMarin/Genzyme LLC as of the date of termination to Offeror for the price and upon such terms and conditions as set forth in the Notice of Offer. In the event the Offeree gives such Notice of Acceptance, a closing shall be held within ninety (90) days of the receipt of the Notice of Acceptance by the Offeror. In the event the Offeree elects not to accept the Offeror's offer to purchase, by giving the Offeror written notice thereof, or by failing to give the appropriate Notice of Acceptance within the Acceptance Period, the Offeree shall thereby automatically be bound to purchase Offeror's entire interest in and to (i) the Collaboration Products as of the date of termination and (ii) the Percentage Interest of the net asset value of BioMarin/Genzyme LLC as of the date of termination for the same price (as adjusted for Percentage Interest, if necessary) and upon such terms and conditions as specified in the Notice of Offer. In such event, a closing shall be held within ninety (90) days of the earlier to occur of the expiration of the Acceptance Period and the date of receipt of the written rejection, whichever is the first to occur. In addition to any other remedies provided by this Agreement, in the event the Offeree rejects the offer contained in the Notice of Offer, but thereafter fails for any reason to timely close as provided herein above, the Offeree shall, by such failure to close, be deemed to have accepted the original offer contained in the Notice of Offer, and shall thereafter sell Offeree's entire interest in and to (i) the Collaboration Products as of the date of termination and (ii) the Percentage Interest of the net asset value of BioMarin/Genzyme LLC as of the date of termination to the Offeror pursuant to the terms of the Notice of Offer. For purposes of Sections 13.3.4 (a)-(c) above, the Party -40- purchasing the other Party's interest in (i) the Collaboration Products and (ii) the Percentage Interest of the net asset value of BioMarin/Genzyme LLC shall be deemed to be the terminating Party and the other Party shall be deemed to be the non-terminating Party. 13.3.5 Upon Bankruptcy. In addition to the rights and duties set --------------- forth in Sections 13.4 and 13.5 below, BioMarin and Genzyme shall have the following rights and duties upon termination of this Agreement pursuant to Section 13.2.5 above: (a) the terminating Party shall obtain from the non- terminating Party the irrevocable right and license, with the right to grant sublicenses, under the non-terminating Party's Patent Rights, Technology and Manufacturing Know-How to develop, make, have made, use, offer for sale, sell, have sold, import and export Collaboration Products in the Field and in the Territory, and the non-terminating Party shall execute such documents and take all action as may be necessary or desirable to affect the foregoing; provided, that such license shall be for the same level of exclusivity as the rights granted with respect thereto under Section 3.1 hereof; provided further that any license granted hereunder shall be subject to the obligation of the terminating Party to use commercially reasonable and diligent efforts to develop and market Collaboration Products pursuant to such license; (b) the non-terminating Party shall assign and transfer all of its interest in BioMarin/Genzyme LLC to the terminating Party, and the terminating Party may dissolve BioMarin/Genzyme LLC in its sole discretion; provided that in the event that BioMarin is the non-terminating Party, it shall also cause BioMarin Genetics to assign and transfer all of its interest in BioMarin/Genzyme LLC to Genzyme. (c) all licenses granted to Article 3 shall be revoked and, if BioMarin/Genzyme LLC is dissolved, any applicable Regulatory Approvals (other than any Regulatory Approvals filed in the name of an entity other than BioMarin/Genzyme LLC pursuant to Section 5.3 hereof), "Orphan Drug" designations and clinical data owned or licensed by BioMarin/Genzyme LLC and any trademarks owned or licensed by BioMarin/Genzyme LLC (other than any trademarks registered in the name of an entity other than BioMarin/Genzyme LLC pursuant to Section 9.1.2 hereof) shall be assigned or licensed to the terminating Party and (iii) any Regulatory Approvals filed and any trademarks registered in the name of an entity other than BioMarin/Genzyme LLC shall be (A) exclusively licensed to BioMarin/Genzyme LLC, the terminating Party or any Third Party or Affiliate designated by such Party until such time as BioMarin/Genzyme LLC, the terminating Party or its designee is qualified to hold such Regulatory Approvals or trademarks under the applicable provisions of the Regulatory Scheme and (B) transferred or assigned to BioMarin/Genzyme LLC, the terminating Party or its designee, as appropriate, as soon as practicable thereafter; (d) the terminating Party shall become obligated to pay to the non-terminating Party an amount equal to (i) one hundred percent (100%) of the Fair Value (as defined in Section 13.3.6 below) of the non-terminating Party's interest in the Collaboration Products as of the date of termination (or, in the event that BioMarin is the non-terminating Party, Genzyme shall pay the BioMarin Companies an amount equal to one hundred percent (100%) of the Fair Value of the BioMarin Companies' aggregate interest in the Collaboration Products as of the date of termination), plus (ii) the ---- non-terminating Party's Percentage Interest of the net asset value of BioMarin/Genzyme -41- LLC as of the date of termination after deduction of net assets included in the Fair Value of Collaboration Products, plus (iii) interest thereon at the ---- Base Rate of interest declared from time to time by BankBoston, N.A. in Boston, Massachusetts from the date of termination to the date payment is made (the "Bankruptcy Buyout Amount"), payable on the terms and conditions and in ------------------------ accordance with the schedule of payments set forth in Section 13.3.1(d), mutatis mutandis; and (e) if Genzyme has not paid all of the payments described in Section 4.4 hereof on or before the date of termination, termination of this Agreement shall not relieve Genzyme of its obligations to pay any such unpaid amount at such time as it becomes due and payable in accordance with the schedule set forth in Section 4.4 hereof. 13.3.6 Fair Value. For purposes of this Section 13.3, the "Fair ---------- ---- Value" of a Party's interest in the Collaboration Products shall be the amount an informed and willing buyer under no compulsion to buy would be willing to pay and an informed and willing seller under no compulsion to sell would be willing to accept for all right, title and interest in the Collaboration Products, determined as of the date of termination, which determination shall be made by the mutual agreement of BioMarin and Genzyme. In the event that BioMarin and Genzyme are unable to agree upon the Fair Value within one hundred and twenty (120) days of the date of termination the Fair Value shall be determined by an investment banking firm selected by mutual agreement of BioMarin and Genzyme, and the costs and expenses incurred in connection with the engagement of such investment banking firm shall be shared equally by BioMarin and Genzyme. 13.3.7 Other. In the event that a Party (the "Purchasing Party") ----- ---------------- purchases the other Party's (or in the case of BioMarin, the BioMarin Companies', in each case the "Selling Party") entire interest in and to (i) the ------------- Collaboration Products and (ii) the Percentage Interest of the net asset value of BioMarin/Genzyme LLC pursuant to this Section 13.3, the Purchasing Party shall be deemed to assume all of the liabilities inuring to the Selling Party's Percentage Interest being acquired. At closing, the Parties shall execute any and all documents necessary to effectuate such transfer, including an assignment of all of the Selling Party's Percentage Interest and mutual releases which shall have the effect of releasing each Party from all claims or liabilities pertaining to BioMarin/Genzyme LLC (except for any liabilities specifically included in the terms of such sale). 13.4 Survival of Rights and Duties. No termination of this Agreement shall ----------------------------- eliminate any rights or duties of the Parties accrued prior to such termination. The provisions of Article 1, Sections 3.3, 4.3, 4.5, 9.1.1, 9.3, 9.5, Article 10, Section 11.5, Article 12, Sections 13.3, 13.4, 14.1, 14.3, 14.4, 14.8, 14.9, 14.10 and 14.11 and the first sentence of Section 7.4 and the last sentences of Sections 2.2, 7.3 and 9.1.3 hereof shall survive any termination of this Agreement. -42- ARTICLE XIV MISCELLANEOUS 14.1 Cooperation. If either BioMarin or Genzyme (the "Assuming Party") ----------- -------------- shall assume the Program rights from the other Party (the "Responsible Party") ----------------- in accordance with the provisions of Article 13 hereof, the Responsible Party shall promptly provide to the Assuming Party (or any Third Party or Affiliate designated by the Assuming Party) all Technology, Manufacturing Know-How and access to regulatory filings filed hereunder reasonably necessary to allow the Assuming Party to perform the duties assumed and otherwise exercise the rights and licenses granted hereunder. The Responsible Party shall further use its best efforts to provide reasonable assistance required by the Assuming Party with respect to such transfer so as to permit the Assuming Party to begin to perform such duties as soon as possible to minimize any disruption in the continuity of supply or marketing of Collaboration Products. If the Responsible Party is the Manufacturing Party for a Collaboration Product, the Responsible Party shall, at the option of the Assuming Party, supply such Collaboration Product until the earlier of (i) twenty-four (24) months from the effective date of termination and (ii) ninety (90) days after the Assuming Party delivers notice to the Responsible Party that the Assuming Party is able to manufacture such Collaboration Product, in each case subject to customary and commercially reasonable terms and conditions (but at a price not to exceed one hundred twenty percent (120%) of the Fully Allocated Cost of Goods for such Collaboration Product. In addition, if upon the date this Agreement is terminated Collaboration Products are being manufactured in facilities owned or leased by the Responsible Party (including facilities subleased by BioMarin/Genzyme LLC from the Responsible Party), the Responsible Party agrees to lease such facilities to the Assuming Party on commercially reasonable terms for a period of up to twenty-four (24) months at the option of the Assuming Party. 14.2 Exchange Controls. All payments due hereunder shall be paid in United ----------------- States dollars. If at any time legal restrictions prevent the prompt remittance of part or all payments with respect to any country in which Collaboration Products are sold, payment shall be made through such lawful means or methods as the Parties may determine in good faith. 14.3 Withholding Taxes. If applicable laws or regulations require that ----------------- taxes be withheld from payments made hereunder, the Party paying such taxes will (a) deduct such taxes, (b) timely pay such taxes to the proper authority and (c) send written evidence of payment to the Party from whom such taxes were withheld within sixty (60) days after payment. Each Party will assist the other Party or Parties in claiming tax refunds, deductions or credits at such other Party's request and will cooperate to minimize the withholding tax, if available, under various treaties applicable to any payment made hereunder. 14.4 Interest on Late Payments. Any payments to be made hereunder that are ------------------------- not paid on or before the date such payments are due under this Agreement shall bear interest, to the extent permitted by applicable law, at the Base Rate of interest declared from time to time by BankBoston, N.A. in Boston, Massachusetts, calculated on the number of days payment is delinquent. -43- 14.5 Force Majeure. Neither Party shall be held liable or responsible to ------------- the other Party nor be deemed to have defaulted under or breached this Agreement for failure or delay in fulfilling or performing any term of this Agreement when such failure or delay is caused by or results from causes beyond the reasonable control of the affected Party, including without limitation fire, floods, embargoes, war, acts of war (whether war is declared or not), insurrections, riots, civil commotions, strikes, lockouts or other labor disturbances, acts of God or acts, omissions or delays in acting by any governmental authority or the other Party; provided, however, that the Party so affected shall use commercially reasonable and diligent efforts to avoid or remove such causes of non-performance, and shall continue performance hereunder with reasonable dispatch wherever such causes are removed. Each Party shall provide the other Parties with prompt written notice of any delay or failure to perform that occurs by reason of force majeure. The Parties shall mutually seek a resolution of the delay or the failure to perform in good faith. 14.6 Assignment. This Agreement may not be assigned or otherwise ---------- transferred by any Party without the consent of the other Parties; provided, however, that either BioMarin or Genzyme may, without such consent, assign its rights and obligations under this Agreement (a) in connection with a corporate reorganization, to any member of an affiliated group, all or substantially all of the equity interest of which is owned and controlled by such Party or its direct or indirect parent corporation or (b) in connection with a merger, consolidation or sale of substantially all of such Party's assets to an unrelated Third Party; provided, however, that such Party's rights and obligations under this Agreement shall be assumed by its successor in interest in any such transaction and shall not be transferred separate from all or substantially all of its other business assets, including without limitation those business assets that are the subject of this Agreement. Any permitted assignee shall assume all obligations of its assignor under this Agreement; accordingly, all references herein to the assigning Party shall be deemed references to the assignee to whom the Agreement is so assigned. Any purported assignment in violation of this Section 14.6 shall be void. 14.7 Severability. Each Party hereby agrees that it does not intend to ------------ violate any public policy, statutory or common laws, rules, regulations, treaty or decision of any government agency or executive body thereof of any country or community or association of countries. Should one or more provisions of this Agreement be or become invalid, the Parties hereto shall substitute, by mutual consent, valid provisions for such invalid provisions which valid provisions in their economic effect are sufficiently similar to the invalid provisions that it can be reasonably assumed that the Parties would have entered into this Agreement with such valid provisions. In case such valid provisions cannot be agreed upon, the invalidity of one or several provisions of this Agreement shall not affect the validity of this Agreement as a whole, unless the invalid provisions are of such essential importance to this Agreement that it is to be reasonably assumed that the Parties would not have entered into this Agreement without the invalid provisions. In the event a Party seeks to avoid a material provision of this Agreement upon an assertion that such provision is invalid, illegal or otherwise unenforceable, the other Party shall have the right to terminate this Agreement upon sixty (60) days prior written notice to the asserting Party, unless such assertion is eliminated and cured within such sixty (60) day period. Such a termination shall be deemed a termination by such Party for breach pursuant to Section 13.2.1. -44- 14.8 Notices. Any consent, notice or report required or permitted to be ------- given or made under this Agreement by one of the Parties hereto to the other shall be in writing, delivered personally or by facsimile (and promptly confirmed by personal delivery or courier), by a next business day delivery service of a nationally recognized overnight courier service or by courier, postage prepaid (where applicable), addressed to such other Party at its address indicated below, or to such other address as the addressee shall have last furnished in writing to the addressor in accordance with this Section 14.8 and shall be effective upon receipt by the addressee. If to BioMarin: BioMarin Pharmaceutical Inc. or BioMarin Genetics 11 Pimentel Court Novato, California 94949 Attention: President Facsimile: (415) 382-7889 with a copy to: Wilson Sonsini Goodrich & Rosati 650 Page Mill Road Palo Alto, California 94304-1050 Attention: Frank Currie Facsimile: (650) 493-6811 If to Genzyme: Genzyme Corporation One Kendall Square Cambridge, Massachusetts 02139 Attention: President Facsimile: (617) 374-7423 with a copy to: Genzyme Corporation One Kendall Square Cambridge, Massachusetts 02139 Attention: Chief Legal Officer Facsimile: (617) 252-7553 If to BioMarin/Genzyme BioMarin/Genzyme LLC LLC (if such notice is sent c/o Genzyme Corporation by BioMarin): One Kendall Square Cambridge, Massachusetts 02139 Attention: President Facsimile: (617) 374-7423 with a copy to: Genzyme Corporation One Kendall Square Cambridge, Massachusetts 02139 Attention: Chief Legal Officer Facsimile: (617) 252-7553 -45- If to BioMarin/Genzyme BioMarin/Genzyme LLC LLC (if such notice is sent c/o BioMarin Pharmaceutical Inc. by Genzyme): 11 Pimentel Court Novato, California 94949 Attention: President Facsimile: (415) 382-7889 with a copy to: Wilson Sonsini Goodrich & Rosati 650 Page Mill Road Palo Alto, California 94304-1050 Attention: Frank Currie Facsimile: (650) 493-6811 14.9 Applicable Law. This Agreement shall be governed by and construed -------------- in accordance with the laws of the Commonwealth of Massachusetts without regard to any choice of law principle that would dictate the application of the laws of another jurisdiction. 14.10 Arbitrate. Any disputes arising between the Parties relating to, --------- arising out of or in any way connected with this Agreement or any term or condition hereof, or the performance by either Party of its obligations hereunder, whether before or after termination of this Agreement (a "Dispute"), ------- which has not resolved in accordance with the provisions of Section 8.3 hereof, shall be finally resolved by binding arbitration as herein provided. 14.10.1 General. Except as otherwise provided in this Section ------- 14.10, any arbitration hereunder shall be conducted under the commercial rules of the American Arbitration Association. Each such arbitration shall be conducted in the English language by a single arbitrator appointed in accordance with such rules, provided that if either Party requests the arbitration shall be conducted by a panel of three (3) arbitrators (the "Arbitration Panel"). In the ----------------- case of three (3) arbitrators, each of BioMarin and Genzyme shall appoint one (1) arbitrator to the Arbitration Panel and the third arbitrator shall be appointed by the two (2) arbitrators appointed by BioMarin and Genzyme. The Arbitration Panel shall be convened upon delivery of the Notice of Arbitration (as herein defined). Any such arbitration shall be held in Chicago, Illinois. The Arbitration Panel shall have the authority to grant specific performance, and to allocate between the Parties the costs of arbitration in such equitable manner as it shall determine. Judgment upon the award so rendered may be entered in any court having jurisdiction or application may be made to such court for judicial acceptance of any award and an order of enforcement, as the case may be. 14.10.2 Procedure. --------- (a) Whenever a Party (the "Claimant") shall decide to -------- institute arbitration proceedings, it shall give written notice to that effect (the "Notice of Arbitration") to the other Party (the "Respondent"). The Notice --------------------- ---------- of Arbitration shall set forth in detail the nature of the Dispute, the facts upon which the Claimant relies and the issues to be arbitrated (collectively, the "Arbitration Issues"). Within fifteen (15) days of its receipt of the Notice ------------------- of Arbitration, the Respondent shall send the Claimant and the Arbitration Panel a written Response (the "Response"). The Response shall set forth in detail the -------- facts upon which the Respondent relies. In addition, the Response shall -46- contain all counterclaims which the Respondent may have against the Claimant which are within the Arbitration Issues, whether or not such claims have previously been identified. If the Response sets forth a counterclaim, the Claimant may, within fifteen (15) days of the receipt of the Response, deliver to the Respondent and the Arbitration Panel a rejoinder answering such counterclaim. (b) Within fifteen (15) days after the later of (i) the expiration of the period provided in Section 14.10.2(a) above for the Claimant to deliver a rejoinder or (ii) the completion of any discovery proceedings authorized by the Arbitration Panel: (A) the Claimant shall send to the Arbitration Panel a proposed resolution of the Arbitration Issues and a proposed resolution of any counterclaims set forth in the Response, including without limitation the amount of monetary damages, if any, or other relief sought (the "Claimant's Proposal"); and (B) the Respondent shall send to the Arbitration ------------------- Panel a proposed resolution of the Arbitration Issues, a proposed resolution of any counterclaims set forth in the Response and a proposed resolution of any rejoinder submitted by the Claimant, including without limitation the amount of monetary damages, if any, or other relief sought (the "Respondent's Proposal"). --------------------- Once both the Claimant's Proposal and the Respondent's Proposal have been submitted, the Arbitration Panel shall deliver to each Party a copy of the other Party's proposal. (c) The Arbitration Panel shall issue an opinion with respect to any Dispute, which opinion shall explicitly accept either the Claimant's Proposal or the Respondent's Proposal in its entirety (the "Final Decision"). -------------- The Arbitration Panel shall not have the authority to reach a Final Decision that provides remedies or requires payments other than those set forth in the Claimant's Proposal or the Respondent's Proposal. The concurrence of two (2) arbitrators shall be sufficient for the entry of a Final Decision. The arbitrators shall issue a Final Decision within one (1) month from the later of (i) the last day for submission of proposals under Section 14.10.2(b) above or (ii) the date of the final hearing on any Dispute held by the Arbitration Panel. A Final Decision shall be binding on both Parties. 14.11 Injunctive Relief. The Parties hereby acknowledge that a breach of ----------------- their respective obligations under Article 10 hereof may cause irreparable harm and that the remedy or remedies at law for any such breach may be inadequate. The Parties hereby agree that, in the event of any such breach, in addition to all other available remedies hereunder, the non-breaching Party or Parties shall have the right to seek equitable relief to enforce Article 10 hereof. 14.12 Entire Agreement. This Agreement, the Purchase Agreement and the ---------------- Operating Agreement contain the entire understanding of the Parties with respect to the subject matter hereof. All express or implied agreements and understandings, either oral or written, heretofore made are expressly merged in and made a part of this Agreement, including, but not limited to the Confidential Disclosure Agreement and modifications thereof dated February 23, 1998, June 25, 1998 and June 29, 1998. This Agreement may be amended, or any term hereof modified, only by a written instrument duly executed by both Parties hereto. Each of the Parties hereby acknowledges that this Agreement, the Purchase Agreement and the Operating Agreement are both the result of mutual negotiation and therefore any ambiguity in their respective terms shall not be construed against the drafting Party. -47- 14.13 Headings. The captions to the several Articles and Sections -------- hereof are not a part of this Agreement, but are merely guides or labels to assist in locating and reading the several Articles and Sections hereof. 14.14 Independent Contractors. It is expressly agreed that BioMarin and ----------------------- Genzyme shall be independent contractors and that, except as Members of BioMarin/Genzyme LLC, the relationship between the two Parties shall not constitute a partnership, joint venture or agency. Neither BioMarin nor Genzyme shall have the authority to make any statements, representations or commitments of any kind, or to take any action, which shall be binding on the other, without the prior consent of the other Party to do so. 14.15 Waiver. Except as expressly provided herein, the waiver by either ------ Party hereto of any right hereunder or of any failure to perform or any breach by the other Party shall not be deemed a waiver of any other right hereunder or of any other failure to perform or breach by said other Party, whether of a similar nature or otherwise, nor shall any singular or partial exercise of such right preclude any further exercise thereof or the exercise of any other such right. 14.16 Counterparts. This Agreement may be executed in two or more ------------ counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. -48- IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first set forth above. GENZYME CORPORATION By: /s/ G. Jan van Heek ------------------- Title: Executive Vice President ------------------------- Date: September 4, 1998 ------------------ BIOMARIN PHARMACEUTICAL, INC. By: /s/ Grant W. Denison, Jr. ------------------------- Title: Chief Executive Officer ------------------------ Date: September 4, 1998 ----------------- BIOMARIN/GENZYME LLC By: BIOMARIN PHARMACEUTICAL, INC. By: /s/ Grant W. Denison, Jr. ------------------------- Title: Chief Executive Officer ------------------------ Date: September 4, 1998 ----------------- -49- EX-23.1 7 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our reports (and to all references to our firm) included in or made a part of this registration statement. Arthur Andersen LLP July 20, 1999 San Francisco, California -----END PRIVACY-ENHANCED MESSAGE-----