-----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, EdaymCgnLCh3opEC1Kmi5ChAeuySXQHSLFUMUnIYCs39+pOydBiHrbuBbqHXXQ+h WeL266iCiMXi6RnI2hxLYw== /in/edgar/work/0001048477-00-000019/0001048477-00-000019.txt : 20001030 0001048477-00-000019.hdr.sgml : 20001030 ACCESSION NUMBER: 0001048477-00-000019 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001027 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BIOMARIN PHARMACEUTICAL INC CENTRAL INDEX KEY: 0001048477 STANDARD INDUSTRIAL CLASSIFICATION: [2834 ] IRS NUMBER: 680397820 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-26727 FILM NUMBER: 747745 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 10-Q 1 0001.txt BIOMARIN PHARMACEUTICAL INC. FORM 10-Q 9/30/00 United States Securities and Exchange Commission Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______ to _________. Commission file number: 000-26727 BIOMARIN PHARMACEUTICAL INC. (Exact name of registrant issuer as specified in its charter) Delaware 68-0397820 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 371 Bel Marin Keys Blvd., Suite 210, Novato, California 94949 (address of principal executive offices) (Zip Code) (415) 884-6700 (Registrant's telephone number, including area code) (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Indicate by check mark whether the registrant filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes____ No_____ APPLICABLE ONLY TO CORPORATE ISSUERS Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 36,729,025 shares common stock, par value $0.001, outstanding as of October 15, 2000. BIOMARIN PHARMACEUTICAL INC. TABLE OF CONTENTS Page PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited). Consolidated Balance Sheets....................................................2 Consolidated Statements of Operations for the three-month periods ended September 30, 1999 and 2000....................................3 Consolidated Statements of Operations for the nine-month periods ended September 30, 1999 and 2000 and for the period from March 21, 1997 (inception) through September 30, 2000..............4 Consolidated Statements of Cash Flows..........................................5 Notes to Consolidated Financial Statements....................................6 Item 2. Management's Discussion and Analysis..................................8 Item 3. Quantitative and Qualitative Disclosure about Market Risk............18 PART II. OTHER INFORMATION Item 1. Legal Proceedings....................................................19 Item 2. Changes in Securities and Uses of Proceeds...........................19 Item 3. Defaults upon Senior Securities......................................19 Item 4. Submission of Matters to a Vote of Security Holders..................19 Item 5. Other Information....................................................19 Item 6. Exhibits and Reports on Form 8-K.....................................19 SIGNATURE.....................................................................21 PART 1. FINANCIAL INFORMATION BioMarin Pharmaceutical Inc. and Subsidiaries (a development-stage company) Consolidated Balance Sheets as of December 31, 1999 and September 30, 2000 ($ Thousands) December 31, September 30, 1999 2000 ------------------- ------------------ (unaudited) Assets Current assets: Cash and cash equivalents $ 23,413 $ 16,098 Short-term investments 39,573 31,407 Accounts receivable, net 1,047 1,278 Due from Glyko Biomedical Ltd. 139 194 Due from BioMarin/Genzyme LLC 1,280 1,488 Inventories 676 446 Prepaid expenses 294 503 ------------------- ------------------ Total current assets 66,422 51,414 Property, plant and equipment, net 25,093 20,031 Goodwill and other intangibles, net 11,462 10,345 Investment in BioMarin/Genzyme LLC 421 1,201 Deposits 151 333 ------------------- ------------------ Total assets $ 103,549 $ 83,324 =================== ================== Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 3,095 $ 1,792 Accrued liabilities 1,966 1,789 Notes payable - short-term 26 28 ------------------- ------------------ Total current liabilities 5,087 3,609 Long-term liabilities: Long term portion of notes 85 63 ------------------- ------------------ Total liabilities 5,172 3,672 Stockholders' equity: Common stock, $0.001 par value: 75,000,000 shares authorized, 34,832,578 and 36,725,595 shares issued and outstanding at December 31, 1999 and September 30, 2000, respectively 35 37 Additional paid in capital 146,592 153,156 Common stock warrants 128 - Deferred compensation (2,591) (1,605) Notes from stockholders (2,638) (1,817) Accumulated deficit (43,149) (70,119) ------------------- ------------------ Total stockholders' equity 98,377 79,652 ------------------- ------------------ Total liabilities and stockholders' equity $ 103,549 $ 83,324 =================== ==================
The accompanying notes are an integral part of these statements. 2 BioMarin Pharmaceutical Inc. and Subsidiaries (a development-stage company) Consolidated Statements of Operation For the Three Month Periods Ended September 30, 1999 and 2000 (In Thousands, except for per share data) (Unaudited) Three Months Ended September 30, ------------------------------------------- 1999 2000 -------------------- -------------------- Revenues: Revenues - products $ 489 $ 662 Revenues - services 3 9 Revenues from BioMarin/Genzyme LLC 1,507 2,136 Revenues - other - - -------------------- -------------------- Total revenues 1,999 2,807 Operating Costs and Expenses: Cost of products 117 188 Cost of services 1 6 Research and development 7,658 8,529 Selling, general and administrative 1,955 2,331 Carson Street closure - - -------------------- -------------------- Total operating costs and expenses 9,731 11,054 -------------------- -------------------- Loss from operations (7,732) (8,247) Interest income 724 691 Interest expense (167) (2) Loss from BioMarin/Genzyme LLC (468) (590) -------------------- -------------------- Net loss $ (7,643) $ (8,148) ==================== ==================== Net loss per share, basic and diluted $ (0.24) $ (0.23) ==================== ==================== Weighted average common shares outstanding 32,476 36,064 ==================== ====================
The accompanying notes are an integral part of these statements. 3 BioMarin Pharmaceutical Inc. and Subsidiaries (a development-stage company) Consolidated Statements of Operations For the Nine-Month Periods Ended September 30, 1999 and 2000 and for the Period from March 21, 1997 (inception) through September 30, 2000 (In Thousands, except for per share data) (unaudited) Period from March 21, 1997 Nine Months Ended September 30, (inception), to ---------------------------------------- September 30, 1999 2000 2000 ------------------- ------------------- ------------------ Revenues: Revenues - products $ 1,018 $ 1,749 $ 3,288 Revenues - services 81 177 374 Revenues from BioMarin/Genzyme LLC 3,411 7,262 13,399 Revenues - other 151 - 293 ------------------- ------------------- ------------------ Total revenues 4,661 9,188 17,354 Operating Costs and Expenses: Cost of products 234 480 891 Cost of services 99 59 220 Research and development 18,029 25,109 64,731 Selling, general and administrative 4,759 6,517 17,768 Carson Street closure - 4,423 4,423 ------------------- ------------------- ------------------ Total operating costs and expenses 23,121 36,588 88,033 ------------------- ------------------- ------------------ Loss from operations (18,460) (27,400) (70,679) Interest income 1,177 2,281 4,863 Interest expense (728) (6) (738) Loss from BioMarin/Genzyme LLC (1,023) (1,845) (3,565) ------------------- ------------------- ------------------ Net loss $ (19,034) $ (26,970) $ (70,119) =================== =================== ================== Net loss per share, basic and diluted $ (0.67) $ (0.76) $ (2.91) =================== =================== ================== Weighted average common shares outstanding 28,299 35,493 24,165 =================== =================== ==================
The accompanying notes are an integral part of these statements. 4 BioMarin Pharmaceutical Inc. and Subsidiaries (a development-stage compnay) Consolidated Statements of Cash Flows For the Nine-Month Periods Ended September 30, 1999 and 2000, and for the Period from March 21, 1997 (inception) to September 30, 2000 ($ Thousands) (unaudited) Period from Nine Months Ended March 21, 1997 September 30, (inception) to ----------------------------------- September 30, 1999 2000 2000 --------------- ---------------- ---------------- Cash flows from operating activities: Net loss $ (19,034) $ (26,970) $ (70,118) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 2,353 3,234 7,621 Amortization of deferred compensation 965 986 2,512 Amortization of goodwill 841 1,118 2,532 Compensation in the form of common stock and - common stock options - - 18 Loss from BioMarin/Genzyme LLC 4,433 9,947 16,967 Write off of in-process technology - - 2,625 Carson Street closure - 4,423 4,423 Changes in operating assets and liabilities: - Accounts receivable (284) (285) (1,470) Due from BioMarin/Genzyme LLC (1,766) (208) (1,488) Inventories (867) 230 153 Prepaid expenses 148 (209) (502) Deposits (41) (182) (333) Accounts payable 3,620 (1,303) 1,791 Accrued liabilities (17) (808) 1,157 --------------- ---------------- ---------------- Total adjustments 9,385 16,943 36,006 --------------- ---------------- ---------------- Net cash used in operating activities (9,649) (10,027) (34,112) Cash flows from investing activities: Purchase of property and equipment (19,063) (1,962) (31,441) Purchase of Biochemical Research Reagent Division of Oxford Glycosciences (OGS) (1,500) - (1,500) Investment in BioMarin/Genzyme LLC (5,260) (10,727) (18,168) Intangible and other assets, net 750 - Sale/(Purchase) of short-term investments (37,596) 8,165 (31,408) --------------- ---------------- ---------------- Net cash used in investing activitities (62,669) (4,524) (82,517) Cash flows from financing activities: Proceeds from note payable - 842 976 Bridge loan - - 880 Proceeds from issuance of convertible notes payable - - 25,615 Accrued interest on notes receivable from stockholders (112) 68 (120) Proceeds from exercise of common stock options and warrants - 6,347 6,495 Repayment of equipment loan (18) (21) (45) Proceeds from sale of common stock, net of issuance costs 95,619 - 98,926 --------------- ---------------- ---------------- Net cash provided by financing activities 95,489 7,236 132,727 --------------- ---------------- ---------------- Net increase (decrease) in cash and cash equivalents 23,171 (7,315) 16,098 Cash and cash equivalents, beginning of period 9,414 23,413 - --------------- ---------------- ---------------- Cash and cash equivalents, end of period $ 32,585 $ 16,098 $ 16,098 =============== ================ ================
The accompanying notes are an integral part of these statements. 5 BIOMARIN PHARMACEUTICAL INC. AND SUBSIDIARIES (a development-stage company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. BASIS OF PRESENTATION: --------------------- BioMarin Pharmaceutical Inc. (BioMarin or Company) is a publicly-traded (Nasdaq National Market and SWX New Market: BMRN) biopharmaceutical company specializing in the development of carbohydrate enzyme therapies for debilitating, life-threatening, chronic genetic disorders and other diseases or conditions. 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 manufacturing facilities, clinical manufacturing, and related administrative activities. BioMarin was incorporated in October 1996 as a wholly-owned subsidiary of Glyko Biomedical Ltd. (GBL) (TSE: GBL). The Company was funded by GBL and began operations on March 21, 1997 (the date of inception). In October 1998, the Company acquired Glyko, Inc., a wholly-owned subsidiary of GBL, in a transaction valued at $14.5 million. The Company completed its Initial Public Offering (IPO) of 4.5 million shares of common stock at $13 per share on July 23, 1999, raising net proceeds of approximately $51.9 million. In a private placement concurrent with the IPO, Genzyme invested $10.0 million at the IPO price of $13 per share (769,230 shares of common stock). In addition, the $26.0 million of convertible notes sold by the Company on April 13, 1999, plus accrued interest, were converted into 2,672,020 shares of common stock at $10 per share. The underwriters' over-allotment exercise of 675,000 shares in August 1999 raised additional net proceeds of $8.1 million at the IPO price. The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information on substantially the same basis as the annual audited financial statements. However, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation have been included. Operating results for the nine-month period ended September 30, 2000 are not necessarily indicative of the results that may be expected for the year ending December 31, 2000. These consolidated financial statements should be read in conjunction with the financial statements and footnotes thereto for the year ended December 31, 1999 included in the Company's Form 10-K Annual Report. 2. 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. 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. Short-term Investments The Company records its investment securities as available-for-sale because the sale of such securities may be required prior to maturity. These securities are recorded at cost, which approximates fair market value. These securities are comprised mainly of Federal Agency investments, including Federal National Mortgage and Federal Home Loans, and A1/P1 rated commercial paper and bank certificates of deposit. 6 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 ($ thousands): December 31, September 30, Estimated 1999 2000 Useful Life ------- ------- ------------------- Computer hardware and software $ 426 $ 516 3 years Office furniture and equipment 1,017 1,000 5 years Manufacturing/laboratory equipment 8,254 8,681 5 years Leasehold improvements 19,768 16,796 Shorter of life of asset or lease term -------- -------- 29,465 26,993 Less: Accumulated depreciation (4,372) (6,962) -------- -------- Total, net $25,093 $20,031 ======== ======== Research and Development Research and development expenses include the expenses associated with contract research and development provided by third parties, research and development provided in connection with BioMarin/Genzyme LLC, a joint venture, including clinical manufacturing, clinical operations and regulatory costs, and internal research and development costs. All research and development costs discussed above are expensed as incurred. 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 anti-dilutive. 3. CARSON STREET CLOSURE: ---------------------- During the first quarter of 2000, the Company decided to close its Carson Street clinical manufacturing facility. In connection with this decision the Company recorded a charge of approximately $4.4 million. The facility was no longer required for the production of Aldurazyme(TM), the initial purpose of the plant, after a decision by the BioMarin/Genzyme LLC (joint venture) to use the Company's Galli Drive facility for the manufacture of bulk Aldurazyme both for the confirmatory Phase III trial and for the commercial launch of Aldurazyme. This decision was based in part on U.S. Food and Drug Administration guidance to use an improved production process, which was installed in the Galli Drive facility, for the clinical trial, the biologics license application submission and for commercial production. The majority of the Company's technical staff at the Carson Street facility in Torrance, California transferred to the Galli Drive facility in Novato, California in May. The charge primarily consisted of write-downs of leasehold improvements and equipment located in the Carson Street facility. 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations FORWARD-LOOKING STATEMENTS The following discussion and analysis of financial condition and results of operations contains "forward-looking statements" as defined under securities laws. These statements can often 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 "Factors that May Affect Future Operating Results," and other sections of this document. Our actual results or experience could differ significantly from the forward-looking statements. Factors that could cause or contribute to these differences include those discussed in " Factors that May Affect Future Operating Results," as well as those discussed elsewhere in this document. 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 Ltd. (GBL). BioMarin was initially funded by GBL and began operations on March 21, 1997, the date of inception. We have incurred net losses since inception and had an accumulated deficit through September 30, 2000 of $70.1 million. Our losses have resulted primarily from research and development activities and related administrative expenses. We expect to continue to incur operating losses at least through 2001. To date, we have not generated revenues from the sale of our drug candidates. Our lead product is Aldurazyme, alronidase for injection, (recombinant human (alpha)-L-iduronidase), which is undergoing clinical trials for use in enzyme replacement therapy for Mucopolysaccharidosis-I (MPS-I). In August, the Galli Drive manufacturing facility and a smaller clinical manufacturing laboratory in our Bel Marin Keys Boulevard facility were both subjected to an extensive inspection by the State of California Food and Drug Branch and were granted licenses to produce clinical product. We submitted an Investigational New Drug Application (IDA) for recombinant human N-acetylgalactosamine-4-sulfatase also known as arylsulfatase B or rhASB (formerly referred to as BM102) and received U.S. Food and Drug Administration (FDA) approval to begin a Phase I/II clinical trial in enzyme replacement therapy for Mucopolysaccharidosis-VI (MPS-VI), which was initiated on October 11, 2000. MPS-VI, also known as Maroteaux-Lamy syndrome, is similar in its clinical symptoms to MPS-I. MPS-VI does not appear to have the central nervous system involvement and mental retardation characteristic of the most severe form of MPS-I. We are manufacturing clinical bulk enzyme in the Bel Marin Keys facility. Our financial results may vary depending on many factors, including: . The progress of Aldurazyme in the clinical and regulatory processes and possible subsequent sales activities . The progress of rhASB in clinical trials and regulatory processes . The investment in manufacturing process development and in manufacturing capacity for Aldurazyme, rhASB and other product candidates . The acceleration of our other pharmaceutical candidates into preclinical and clinical trials with BM202 for burn debridement the most advanced candidate . The progress of our additional research and development efforts . Related facility and administrative expenses to support the above activities In September 1998, we established a joint venture with Genzyme for the worldwide development and commercialization of Aldurazyme for the treatment of MPS-I. Under the agreement with Genzyme, 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 Aldurazyme. We will share equally in any profits generated from the sales of Aldurazyme. 8 In October 1998, we acquired Glyko, Inc., a wholly-owned subsidiary of GBL 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. In July 1999, we completed our initial public offering (IPO) of 4.5 million shares of our common stock at $13 per share raising net proceeds of approximately $51.9 million. In a private placement concurrent with the IPO, Genzyme purchased $10.0 million of our common stock (769,230 shares) at the IPO price of $13. In addition, the $26 million of convertible notes sold by the Company on April 13, 1999, plus accrued interest, were converted into 2,672,020 shares of common stock at $10 per share. In August 1999, the underwriters exercised their over-allotment option for 675,000 shares at the IPO price of $13 per share, raising additional net proceeds of $8.1 million. Results of Operations The Quarters Ended September 30, 2000 and 1999 Revenues for the third quarter of 2000 totaled $2.8 million compared to revenues of $2.0 million in the third quarter of 1999. Third quarter 2000 revenues included $2.1 million for services provided to the joint venture for Aldurazyme compared to $1.5 million in the same period in 1999. The increase was primarily the result of increased services provided to the joint venture for the start-up of manufacturing operations in the Galli Drive facility in preparation for the supply of clinical trial bulk enzyme. Third quarter 2000 revenues also included $671,000 generated by Glyko, Inc. compared to $492,000 for the third quarter of 1999. Cost of products and cost of services related to Glyko, Inc. operations were $194,000 in the third quarter of 2000 and were $118,000 in the comparable period of 1999. Glyko's total external product and service costs as a percent of the sales of products and services were 29% in the third quarter of 2000 and 24% in the third quarter of 1999. The change was due primarily to a less favorable mix, with a greater percentage of lower margin product sales. Research and development expenses for the third quarter of 2000 increased by $800,000 to $8.5 million in the third quarter of 2000 from $7.7 million in the third quarter of 1999. This increase was due primarily to increased activities in support of the joint venture for Aldurazyme, the Company's enzyme product candidate rhASB and our enzyme for burn debridement. Selling, general and administrative expenses increased to $2.3 million in the third quarter of 2000 from $2.0 million in the third quarter 1999. This increase was primarily due to the acceleration of the amortization of goodwill for the purchase of Glyko, Inc. The estimated life of the goodwill had been decreased from ten years to seven years. The Company's equity in the loss of its joint venture with Genzyme was $590,000 for the third quarter 2000 compared to $468,000 for the same period of 1999 as the joint venture continued the original clinical trial and prepared for a confirmatory Phase III clinical trial. Interest income was $691,000 for the third quarter of 2000 compared to $724,000 for the same period of 1999. In the third quarter of 1999, the interest expense accrued on the April 1999 convertible notes totaled $167,000. These notes converted in the initial public offering on July 23, 1999 and, consequently, interest expense in the third quarter of 2000 was only $2,000, representing investment on our equipment loan. Net loss was $8.1 million ($0.22 per share) in the third quarter of 2000 compared to a net loss of $7.6 million ($0.24 per share) in the comparable period of 1999. The Nine Months Ended September 30, 2000 and 1999 For the nine-month periods ended September 30, 2000 and 1999, revenues were $9.2 million and $4.7 million, respectively. Joint venture revenues were $7.3 million and Glyko, Inc. revenues were $1.9 million for the first nine months of 2000, as compared to $3.4 million and $1.1 million, respectively, for the same period in 1999. The primary reasons for these increases in revenues are the same as described for the third quarter increases in revenues. Cost of products and cost of services related to Glyko, Inc. operations were $539,000 for the first nine months of 2000 compared to $333,000 for the same period in 1999. Glyko's total external product and service costs as a percent of the sales of products and services were 28% and 30% for the nine-month periods ended September 30, 2000 and 1999, respectively. 9 Research and development expenses increased to $25.1 million in the first nine months of 1999 from $18.0 million in the comparable period of 2000. Increased expenses in support of the Aldurazyme joint venture with Genzyme, especially manufacturing requirements, and of the MPS-VI program were the major factors in the growth of research and development expenses. Selling, general and administrative expenses increased to $6.5 million in the first nine months of 2000 to $4.8 million in the first nine months of 1999. The increase resulted primarily form an increase in staffing and expenses in BioMarin administration in 2000 compared to 1999, including the effect of increased expenses associated with being a public company and the acceleration of the amortization of goodwill as described for the third quarter. In the first quarter of 2000, the Company recorded a provision of $4.4 million for the closure of its Carson Street clinical manufacturing facility. The facility was no longer required for the production of Aldurazyme, the initial purpose of the plant, after a decision by the BioMarin/Genzyme LLC (joint venture) to use BioMarin's Galli Drive facility for the manufacture of bulk Aldurazyme both for the confirmatory Phase III trial and for the commercial launch of Aldurazyme. This decision was based in part on U.S. Food and Drug Administration (FDA) guidance to use an improved production process, which was installed in the Galli facility, for the clinical trial, the biologics license application (BLA) submission and for commercial production. The majority of its technical staff at the Carson Street facility transferred to the Galli Drive facility in Novato, California in May. The provision primarily consisted of write-downs of leasehold improvements and equipment located in the Carson Street facility. BioMarin's equity in the loss of its joint venture with Genzyme was $1.8 million for the first nine months of 2000 compared to $1.0 million for the same period of 1999. The primary reasons for this increase in the loss of the joint venture are the same as described for the third quarter. Interest income increased by $1.1 million to $2.3 million in the first nine months of 2000 from $1.2 million in the first nine months of 1999 primarily due to increased cash reserves in 2000 resulting from the initial public offering, concurrent with an investment by Genzyme, in July 1999. The net loss was $27.0 million ($0.76 per share) and $19.0 million ($0.67 per share) for the first nine months of 2000 and 1999, respectively. 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 inception, we have raised aggregate net proceeds of approximately $133.0 million. We were initially funded by GBL 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 into common stock, an investment of $8.0 million by Genzyme as part of our joint venture with them, an initial public offering including the underwriters' over-allotment exercise, the concurrent $10.0 million Genzyme investment in our Company and pursuant to stock option and warrant exercises. Our combined cash, cash equivalents and short-term investments totaled $63.0 million at December 31, 1999 and decreased $15.5 million to $47.5 million at September 30, 2000. The primary use of cash during the nine months ended September 30, 2000 was to finance operations, fund the joint venture and purchase equipment and leasehold improvements. The primary source of cash during this period was the issuance of common stock pursuant to the exercise of stock options under the 1997 Stock Plan and pursuant to the exercise of common stock warrants. For the nine months ended September 30, 2000, operations used $10.0 million, we invested $10.7 million in the joint venture (which was consumed in joint venture operations), we purchased $2.0 million of equipment and leasehold improvements, we raised $6.3 million from the exercise of stock options and warrants and we received $842,000 from the repayment of a promissory note. From our inception through September 30, 2000, we have purchased approximately $31.4 million of leasehold improvements and equipment. We expect that our investment in leasehold improvements and equipment will increase significantly during the next two years because we will provide facilities and equipment for a larger 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. 10 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 September 30, 2000, we had expended to date approximately $950,000 on the analytic projects and $1.0 million on the diagnostic projects. If all acquired in-process research and development projects proceed to completion, we expect to spend approximately $200,000 in incremental direct expense to complete the analytic projects in phases over approximately 9 months. We expect to spend approximately $450,000 to complete the diagnostic projects in phases within the next 12 months. None of these projects have been terminated to date. Since the acquisition of these in-process research and development projects, 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 expanding the Aldurazyme and rhASB manufacturing facilities, developing new research and development facilities, and expanding our administrative and support offices. In September 1998, we established a joint venture with Genzyme for the worldwide development and commercialization of Aldurazyme for the treatment of MPS-I. We share expenses and profits from the joint venture equally with Genzyme. Genzyme purchased $8.0 million in common stock upon signing the agreement and $10.0 million of common stock at the IPO price of $13 per share in a private placement concurrent with the IPO. Genzyme has committed to pay us an additional $12.1 million upon approval of the biologics license application for Aldurazyme. We expect our current funds to last at least through 2001. 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 cash flow from operations at least through 2002 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 We anticipate a need for additional financing to fund the future operations of our 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 or in a timely manner. 11 Our future capital requirements will depend on many factors, including, but not limited to: . The progress of our research and development programs . The progress of preclinical studies and clinical trials . The time and cost involved in obtaining regulatory approvals . 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. 12 FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS We operate in a highly competitive and rapidly changing industry that is subject to a number of risks, some of which are beyond our control. The following discussion highlights some of these risks. Research and Development/Rapid Growth A substantial portion of our business plan is based upon the development, production and sale of carbohydrate enzyme therapies for various medical applications. Although we currently have several products at various stages of research and development, none of our products is approved for marketing and sales. All of the products currently in development will require substantial additional research and development including clinical trials prior to distribution and sales. To be able to effectively address all of the issues associated with developing commercially viable products, we need to continue to develop and improve our research and development capabilities, manufacturing and quality capacities, sales and marketing capabilities, and financial and administrative systems. Our systems, procedures and controls may not be adequate to support our operations and our management may not be able to successfully manage future market opportunities or our relationships with customers and other third parties. Because the development and manufacture of our carbohydrate enzyme therapy products require specialized technical expertise, the loss of key scientific, technical and managerial personnel may delay or otherwise harm our product development programs. We rely heavily on our ability to attract and retain qualified scientific, technical and managerial personnel. The competition for qualified personnel in the biopharmaceutical field is intense. Our location is in the San Francisco Bay Area, which has a rapidly growing concentration of biopharmaceutical companies, exposes us to particularly intense competition for qualified staff at all levels. We may not be able to continue to attract and retain qualified personnel necessary for the development of our business. Capital Resources Developing and bringing our carbohydrate enzyme therapy products to market is a particularly time consuming and capital intensive process which requires substantial expenditures. We believe that the cash, cash equivalents, and short-term investment securities balances at September 30, 2000 will be sufficient to meet our operating and capital requirements through 2001. This estimate is based on assumptions and estimates, which may prove to be wrong. As a result, we may need or choose to obtain additional financing during that time. Such financing may not 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. Regulatory Considerations We must obtain regulatory approval before marketing or selling our 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 drug products. 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 will be adversely affected. As part of the FDA approval process, we must conduct, at our own expense, preclinical studies in the laboratory, on animals, and clinical trials on humans for each drug candidate. 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, the results of prior studies, and trials and regulations applicable to the particular drug. Even if we obtain favorable results in preclinical studies on animals, the results in humans may be different. Adverse or inconclusive clinical results would stop us from filing for regulatory approval of our products. 13 Typically, if a drug product, such as Aldurazyme, is intended to treat a chronic disease, safety and efficacy data must be gathered over an extended period of time, which can range from six months to three years or more. 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, 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, fewer trials may be sufficient to prove safety and efficacy under the FDA's Modernization Act of 1997. Where appropriate, we intend to seek fast track designation from the FDA for our drug candidates. To date, Aldurazyme and rhASB are our only candidates to have received a fast track designation. However, obtaining a fast track designation does not guarantee a faster review process or faster approval compared to the normal FDA procedures. In addition to the risks associated with obtaining regulatory approval for our products, we must comply with strict regulatory requirements relating to the manufacture of our drug candidates that can be costly and delay or prevent our production efforts. Our manufacturing facilities must obtain regulatory certification prior to production and upon any material change to the production process, before and after product approval, and are continuously subject to inspection by the FDA, the State of California and foreign regulatory authorities. Our Galli Drive and our Bel Marin Keys Boulevard manufacturing facilities have been inspected and licensed by the State of California for clinical pharmaceutical manufacture. We cannot guarantee that these facilities will pass federal or international regulatory inspection. Manufacture of our drug products must comply with the FDA's current Good Manufacturing Practices regulations, commonly known as cGMP. The cGMP regulations govern quality control and documentation policies and procedures. We cannot guarantee that the Company, or any potential third-party manufacturer of our drug products, will be able to comply with cGMP regulations. Protection of Intellectual Property We are dependent on the protection of our intellectual property. We employ several strategies to attempt to prevent our competitors from utilizing our research and technical information. However, these strategies may not be successful. 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 Aldurazyme and rhASB. 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, including the structure of the enzymes, the methods for purifying or producing the enzymes and the methods of treatment, has existed in the public domain for many years. Publication of this information may prevent us from obtaining composition-of-matter patents, which are generally believed to offer the strongest patent protection. Even if we seek a patent on an aspect of our technology, obtaining the patent may be difficult or impossible and may require the expenditure of substantial time and money. Competitors may interfere with our patent process in a variety of ways, including claiming that they invented the claimed invention prior to us or that we are infringing on their patents. Competitors may also contest our patents by showing the patent examiner that the invention was obvious or was not original or novel. 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. Also, 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. In addition to seeking patent protection for our intellectual property, we attempt to protect our trade secrets from disclosure to our competitors. We accomplish this in a number of ways, including limiting access to information to necessary employees and requiring persons with access to trade secrets to enter into nondisclosure agreements. 14 It is 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. Also, 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. Orphan Drug Status As part of our business strategy, and as a further means of protecting our intellectual property, we intend to develop certain 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 in the United States. 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 products 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 and we are unable to otherwise protect the product, our competitors may then sell the same drug to treat the same condition. We received orphan drug designation from the FDA for Aldurazyme in September 1997. In February 1999, we received orphan drug designation from the FDA for rhASB for the treatment of MPS-VI. Even though we have obtained orphan drug designation for these drugs and even if we obtain orphan drug designation for other products we develop, 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 neither shortens the development or FDA review time of a drug so designated nor gives the drug any advantage in the FDA review or approval process. Issues Relating to Our Joint Venture We have entered into a joint venture with Genzyme Corporation to assist us in obtaining international regulatory approval for Aldurazyme as well as marketing and commercializing the product worldwide. 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. Because it is our initial product, our operations are substantially dependent upon the development of Aldurazyme. Genzyme may not devote the resources necessary to successfully market Aldurazyme. In addition, either party may terminate the joint venture for specified reasons, including if the other party is in material breach of the agreement or has experienced a change of control or has declared bankruptcy and also is in breach of the agreement. 15 If the joint venture is terminated, one party, as determined by the joint venture agreement, must buy out the other party's interest in the joint venture and will then own all rights to Aldurazyme. If Genzyme were obligated to buy out our interest in the joint venture, Genzyme would be granted, exclusively, all of the rights to Aldurazyme and any related intellectual property and regulatory approvals. We would then effectively be unable to develop and commercialize Aldurazyme. If we were obligated to buy out Genzyme's interest in the joint venture, we would then be granted all of these rights to Aldurazyme exclusively. While we could then continue to develop Aldurazyme, that development would be slowed because we would have to divert substantial capital to buy out Genzyme's interest in the joint venture and would have to search for a new partner to commercialize the product and to obtain foreign regulatory approvals or to develop these capabilities ourselves. Termination of the joint venture where we retain the rights to Aldurazyme could cause us 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. Complicated Manufacturing Process Even once we have successfully developed a product and obtained regulatory approval for its sale and use, there are still several factors that could limit or prevent its commercial viability including large scale manufacturing complications, distribution and marketing, and market demand. We have developed a total of 41,200 square feet at our Novato facilities for the manufacturing of Aldurazyme and rhASB. We expect that the manufacturing process of all of our new products, including rhASB, will also require significant time and resources before we can begin to manufacture them in commercial quantity. We have no experience manufacturing drug products in volumes that will be necessary to support commercial sales. The large scale, consistent production of several of our drug candidates is complicated, expensive and unpredictable and may not yield the high quality and high purity required with acceptable quantity and costs. Improvements in manufacturing processes typically are very difficult to achieve and are often very expensive. We cannot know with 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 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. Even if we can establish the necessary capacity, we cannot be certain that manufacturing costs will be commercially reasonable, especially if third-party reimbursement is substantially lower than expected. Marketing and Pricing Issues 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 and the patient populations must be able to afford the treatments. For example, two of our initial drug products in genetic disorders, Aldurazyme and rhASB, 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 burn wounds, 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. The course of treatment for patients with MPS-I using Aldurazyme and MPS-VI using rhASB is expected to be expensive. We expect patients to need treatment throughout their lifetimes. We expect that most families of patients will not be capable of paying for this treatment themselves. There will be no commercially viable market for Aldurazyme or rhASB without reimbursement from third-party payors. 16 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. Third-party payors may not be willing to pay for the costs of our drugs and the courses of treatment at reimbursement rates that 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 Aldurazyme. 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. 17 Item 3. Quantitative and Qualitative Disclosure about Market Risk. The Company's exposure to market risk for changes in interest rates relates primarily to the Company's investment portfolio. The Company places its investments with high credit issuers and by policy limits the amount of credit exposure to any one issuer. As stated in its policy, the Company will seek to improve the safety and likelihood of preservation of its invested funds by limiting default risk and market risk. The Company has no investments denominated in foreign country currencies and therefore is not subject to foreign exchange risk. The Company mitigates default risk by investing in high credit quality securities and by positioning its portfolio to respond appropriately to a significant reduction in a credit rating of any investment issuer or guarantor. The portfolio includes only marketable securities with active secondary or resale markets to ensure portfolio liquidity. The table below presents the carrying value for the Company's investment portfolio. The carrying value approximates fair value at September 30, 2000. Investment portfolio: Carrying value (in $ thousands) ---------------- Cash and cash equivalents................ $16,098 Short-term investments................... 31,129* Certificates of deposit.................. 278 ------- Total.............................. $47,505 * 84% in United States agency securities and 16% in A1/P1 rated commercial paper. 18 PART II. OTHER INFORMATION Item 1. Legal Proceedings. None. Item 2. Changes in Securities and Uses of Proceeds. None. Item 3. Defaults upon Senior Securities. None. Item 4. Submission of Matters to a Vote of Security Holders. None. Item 5. Other Information. None. Item 6. Exhibits and Reports on Form 8-K. (a) The following documents are filed as part of this report See Exhibit Index attached hereto. (b) Reports on Form 8-K. No reports were filed on Form 8-K during the three months ended September 30, 2000. 19 EXHIBIT INDEX Exhibit Number Description of Document - -------------- ---------------------------- 27.1 Financial Data Schedule (available in EDGAR format only). 20 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. BIOMARIN PHARMACEUTICAL INC. Dated: October 26, 2000 By: \s\ Raymond W. Anderson - ------------------------------ ------------------------------------------- Raymond W. Anderson Chief Financial Officer, Chief Operating Officer and V.P. Finance and Administration (on behalf of registrant and as principle financial officer) 21 EX-27 2 0002.txt FDS --
5 (Replace this text with the legend) 0001048477 BioMarin Pharmaceutical Inc. 1,000 US Dollars 3-Mos DEC-31-2000 JUL-01-2000 SEP-30-2000 1 16,098 31,407 3,030 (70) 446 51,414 26,993 (6,962) 83,557 3,609 0 0 0 37 79,615 83,324 671 3,498 194 194 11,450 0 2 (8,148) (8,148) (8,148) 0 0 0 (8,148) (0.23) (0.23)
-----END PRIVACY-ENHANCED MESSAGE-----