-----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, RW+WDcSDGw/AJEEcvH94zv54gTtzupUftmgBmK56FPzml1OCeZHzMnibaN0kbELu lizNZ2T9G6BoCNPi285iHg== 0000950135-97-004414.txt : 19971114 0000950135-97-004414.hdr.sgml : 19971114 ACCESSION NUMBER: 0000950135-97-004414 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971112 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRANSKARYOTIC THERAPIES INC CENTRAL INDEX KEY: 0000885259 STANDARD INDUSTRIAL CLASSIFICATION: BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836] IRS NUMBER: 043027191 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-21481 FILM NUMBER: 97712614 BUSINESS ADDRESS: STREET 1: 195 ALBANY ST CITY: CAMBRIDGE STATE: MA ZIP: 02138 BUSINESS PHONE: 6173490200 10-Q 1 TRANSKARYOTIC THERAPIES, INC. 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED SEPTEMBER 30, 1997 COMMISSION FILE NUMBER 0-21481 TRANSKARYOTIC THERAPIES, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ------------------------ DELAWARE 04-3027191 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 195 ALBANY STREET CAMBRIDGE, MASSACHUSETTS 02139 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (617) 349-0200 ------------------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] At October 31, 1997, there were 18,413,086 shares of Common Stock, $.01 par value, issued and outstanding. ================================================================================ 2 TRANSKARYOTIC THERAPIES, INC. INDEX
PAGE NUMBER ------ PART I. FINANCIAL INFORMATION Item 1. Condensed Financial Statements (unaudited).............................. 3-7 Condensed Balance Sheets as of September 30, 1997 and December 31, 1996.................................................................. 3 Condensed Statements of Operations for the Three and Nine Months Ended September 30, 1997 and 1996........................................... 4 Condensed Statements of Cash Flows for the Nine Months Ended September 30, 1997 and 1996..................................................... 5 Notes to Condensed Financial Statements................................. 6-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations......................................................... 8-10 PART II. OTHER INFORMATION Item 3. Changes in Securities and Use of Proceeds............................... 11-12 Item 6. Exhibits and Reports on Form 8-K........................................ 12 SIGNATURES......................................................................... 13 EXHIBIT INDEX...................................................................... 14
2 3 PART I -- FINANCIAL INFORMATION ITEM 1. CONDENSED FINANCIAL STATEMENTS TRANSKARYOTIC THERAPIES, INC. CONDENSED BALANCE SHEETS (UNAUDITED)
SEPTEMBER 30, DECEMBER 31, 1997 1996 ------------- ------------ (IN THOUSANDS) ASSETS Current assets: Cash and cash equivalents........................................ $ 10,209 $ 10,414 Marketable securities............................................ 123,227 75,841 Prepaid expenses and other current assets........................ 417 818 -------- ------- Total current assets..................................... 133,853 87,073 Property and equipment, net........................................ 3,662 3,237 Other assets....................................................... 735 688 -------- ------- $ 138,250 $ 90,998 ======== ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable................................................. $ 757 $ 612 Accrued expenses................................................. 1,324 652 -------- ------- Total current liabilities................................ 2,081 1,264 Other long-term liabilities........................................ 23 90 Stockholders' equity: Preferred stock, $1.00 par value, 10,000,000 shares authorized; no shares issued and outstanding.............................. -- -- Common stock, $.01 par value; 30,000,000 shares authorized; 18,411,489 shares issued and outstanding at September 30, 1997 (16,614,273 at December 31, 1996)............................. 184 166 Additional paid-in capital....................................... 184,594 131,796 Accumulated deficit.............................................. (44,604) (37,116) Deferred compensation............................................ (4,060) (5,218) Unrealized gain on marketable securities......................... 32 16 -------- ------- Total stockholders' equity............................... 136,146 89,644 -------- ------- $ 138,250 $ 90,998 ======== =======
See accompanying Notes to Condensed Financial Statements. 3 4 TRANSKARYOTIC THERAPIES, INC. CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------- -------------------- 1997 1996 1997 1996 ------- ------- -------- ------- (IN THOUSANDS, EXCEPT PER SHARE DATA) License and research revenues...................... $ 300 $ 1,975 $ 5,513 $ 3,950 Operating expenses: Research and development......................... 4,498 3,811 12,523 10,791 General and administrative....................... 1,480 1,227 4,388 2,997 ------- ------- -------- ------- 5,978 5,038 16,911 13,788 ------- ------- -------- ------- Loss from operations............................... (5,678) (3,063) (11,398) (9,838) Interest income.................................... 1,657 646 3,910 1,434 ------- ------- -------- ------- Net loss........................................... $(4,021) $(2,417) $ (7,488) $(8,404) ======= ======= ======== ======= Net loss per share (pro forma in 1996)............. $ (0.23) $ (0.17) $ (0.44) $ (0.59) ======= ======= ======== ======= Shares used to compute net loss per share (pro forma in 1996)................................... 17,838 14,255 17,050 14,255 ======= ======= ======== =======
See accompanying Notes to Condensed Financial Statements. 4 5 TRANSKARYOTIC THERAPIES, INC. CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, ---------------------- 1997 1996 --------- -------- (IN THOUSANDS) OPERATING ACTIVITIES: Net loss.............................................................. $ (7,488) $ (8,404) Adjustments to reconcile net loss to net cash used for operating activities: Depreciation and amortization....................................... 1,321 1,183 Compensation expense related to equity issuances.................... 868 803 Changes in operating assets and liabilities........................... 1,151 258 --------- -------- Net cash used for operating activities................................ (4,148) (6,160) --------- -------- INVESTING ACTIVITIES: Proceeds from sales of marketable securities.......................... 61,264 42,745 Purchases of marketable securities.................................... (108,634) (59,002) Purchases of property and equipment................................... (1,609) (676) Changes in other assets............................................... (184) (567) --------- -------- Net cash used for investing activities................................ (49,163) (17,500) --------- -------- FINANCING ACTIVITIES: Proceeds from sale of common stock and exercise of stock options and warrants, net of expenses...................... 53,106 -- Proceeds from sale of convertible preferred stock..................... -- 23,522 --------- -------- Net cash provided by financing activities............................. 53,106 23,522 --------- -------- Net decrease in cash and cash equivalents............................. (205) (138) Cash and cash equivalents at January 1................................ 10,414 11,539 --------- -------- Cash and cash equivalents at September 30............................. $ 10,209 $ 11,401 ========= ========
See accompanying Notes to Condensed Financial Statements. 5 6 TRANSKARYOTIC THERAPIES, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS SEPTEMBER 30, 1997 AND 1996 (UNAUDITED) 1. NATURE OF BUSINESS AND BASIS OF PRESENTATION Transkaryotic Therapies, Inc. ("TKT" or the "Company" ) is a biopharmaceutical company engaged in the development and commercialization of therapeutic proteins and gene therapy products for the long-term treatment and cure of a broad range of human diseases. The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, 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, the accompanying financial statements include all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the financial condition, results of operations and cash flows for the periods presented. The results of operations for the interim period ended September 30, 1997 are not necessarily indicative of the results to be expected for the year ended December 31, 1997. These financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 1996 included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission. Certain reclassifications have been made to the 1996 financial statements to conform to the 1997 presentation. 2. NET LOSS PER SHARE Net loss per share is computed using the weighted average number of shares of common stock, and common equivalent shares are excluded as their effect is antidilutive. For the three and nine months ended September 30, 1996, the weighted average number of shares also includes the common stock equivalents for convertible preferred shares, assuming conversion at date of issuance, which occurred upon the completion of the Company's initial public offering of common stock in October 1996. Pursuant to the requirements of the Securities and Exchange Commission, shares and equivalent shares issued by the Company during the twelve-month period prior to the public offering have been included in the calculations as if they were outstanding for all periods prior to the initial public offering whether or not they are anti-dilutive, using the treasury stock method. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 128, "Earnings Per Share" ("Statement 128"), which is required to be adopted on December 31, 1997. At that time, the Company will be required to change the method currently used to compute earnings (loss) per share and to restate all prior periods. Under the new requirements for calculating basic earnings (loss) per share, the dilutive effect of stock options will be excluded. The impact is not expected to result in a change in basic loss per share for the three and nine months ended September 30, 1997 or in the pro forma basic loss per share for the three and nine months ended September 30, 1996. 3. STOCKHOLDERS' EQUITY On August 4, 1997, the Company completed a directed public offering of 1,700,000 shares of common stock to a small number of accredited institutional investors, resulting in net proceeds to the Company of approximately $52,893,000. 6 7 TRANSKARYOTIC THERAPIES, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED) 4. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board issued Statement No. 130, "Reporting Comprehensive Income", which is required to be adopted for fiscal years beginning after December 15, 1997. The Statement establishes standards for the reporting and display of comprehensive income and its components in a full set of general purpose financial statements. Also, in June 1997, the Financial Accounting Standards Board issued Statement No. 131, "Disclosures about Segments of an Enterprise and Related Information", which is required to be adopted for fiscal years beginning after December 15, 1997. The Statement changes the way in which public companies report segment information in annual financial statements and also requires those companies to report selected segment information in interim financial reports to shareholders. Adoption of these standards is not expected to have a material impact on the Company's financial statements or results of operations. 5. LEGAL PROCEEDINGS In April 1997, Amgen Inc. filed a civil action in the U.S. District Court in Massachusetts against the Company and Hoechst Marion Roussel, Inc. ("HMRI"), its collaborative partner. The complaint in the action alleges that the Company's product, Gene Activated erythropoetin ("GA-EPO"), and processes for producing GA-EPO infringe three Amgen patents and requests that TKT and HMRI be enjoined from making, using or selling GA-EPO and that the court award Amgen monetary damages. In May 1997, TKT and HMRI filed a "Motion To Dismiss, Or, In The Alternative, For Summary Judgment" stating that under 35 U.S.C. sec. 271(e)(1), TKT's and HMRI's activities do not constitute infringement and further stating that "neither the product created by TKT nor the process used by TKT and HMR infringes any valid claim of any of the Amgen patents in suit." In July 1997, the court denied TKT's and HMRI's motion and stated that the motion should instead be filed as a Motion for Summary Judgment. Pursuant to the Amended and Restated License Agreement, dated March 1, 1995, by and between HMRI and TKT, HMRI has assumed the cost of defense of the suit by Amgen. TKT will reimburse HMRI for its share of litigation expenses, as defined, from future royalties received from the sale of GA-EPO. The Company and HMRI believe that they have substantial defenses to the allegations in the complaint and expect that their position will be thoroughly vindicated in court. Nonetheless, the Company can provide no assurance as to the outcome of this litigation. A decision by the court in Amgen's favor, including the issuance of an injunction against the manufacture and sale of GA-EPO by the Company and HMRI in the United States, or any other conclusion of this litigation in a manner adverse to the Company and HMRI, could have a material adverse effect on the Company's business, financial condition and results of operations. 7 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Since its inception in 1988, Transkaryotic Therapies, Inc. (the "Company") has been primarily engaged in the development and commercialization of products based on the Company's proprietary Gene Activation and gene therapy technologies. No revenues have been derived from the sale of any products, and the Company does not expect to receive revenues from product sales for a number of years. The Company expects that its research and development expenditures will increase substantially in future years as research and product development efforts accelerate and clinical trials are broadened or initiated. With the exception of 1995, the Company has incurred substantial annual operating losses since inception and expects to incur substantial operating losses in the future. At September 30, 1997, the Company's accumulated deficit was $44,604,000. As a result, the Company is dependent upon existing cash resources, external financing from equity and debt offerings or collaborative research and development arrangements with corporate sponsors to finance its operations. Results of operations may vary significantly from period to period depending on, among other factors, the progress of the Company's research and development efforts, the receipt, if any, of additional license fees and milestone payments, the timing of certain expenses, and the establishment of additional collaborative research agreements. The following discussion of the financial condition and results of operations of the Company should be read in conjunction with the accompanying financial statements and the related footnotes thereto. RESULTS OF OPERATIONS For the Three Months Ended September 30, 1997 and 1996 License and research revenues totaled $300,000 and $1,975,000 for the three months ended September 30, 1997 and 1996, respectively. All revenues were earned from two collaborative agreements with Hoechst Marion Roussel, Inc. ("HMRI"). The decrease of $1,675,000 in 1997 is principally due to $1,500,000 received by the Company pursuant to the final of four scheduled research and development funding payments in September 1996 relating to the Company's second Gene Activation collaboration with HMRI. Research and development expenses totaled $4,498,000 for the three months ended September 30, 1997, as compared to $3,811,000 during the same period in 1996. The increase in 1997 of $687,000, or 18%, is principally due to increases in research and development staff, an increase in facilities costs for additional leased space, and an increase in external research costs. During 1997, the Company expanded primarily its Gene Activation programs. General and administrative expenses were $1,480,000 in the three months ended September 30, 1997, compared with $1,227,000 during the same period in 1996. The increase in 1997 of $253,000, or 21%, is principally due to increases in outside professional service fees associated with being a public company, and increases in insurance costs. Interest income was $1,657,000 and $646,000 for the three months ended September 30, 1997 and 1996, respectively. The average cash and marketable securities balances were $108,875,000 and $43,828,000 in the 1997 and 1996 periods, respectively. The increase in interest income of $1,011,000, or 157%, is primarily attributable to higher average balances in the respective three months ended September 30, 1997. The Company had a net loss of $4,021,000 and $2,417,000 for the three months ended September 30, 1997 and 1996, respectively. Net loss per share was $0.23 for the three months ended September 30, 1997, as compared to a pro forma net loss per share of $0.17 in 1996. Weighted average common and common equivalent shares outstanding were 17,838,000 for the three months ended September 30, 1997, as compared to 14,255,000 for the comparable period in 1996. The increase in 1997 is due principally to the issuance of 2,500,000 shares of common stock in the Company's initial public offering in October 1996, as well as the 8 9 weighted average effect of the issuance of 1,700,000 shares of common stock related to the Company's directed public offering in August 1997. For the Nine Months Ended September 30, 1997 and 1996 License and research revenues totaled $5,513,000 and $3,950,000 for the nine months ended September 30, 1997 and 1996, respectively. All revenues were earned from two collaborative agreements with HMRI. The increase of $1,563,000 in 1997 is principally due to $4,500,000 received in milestone payments from HMRI in excess of milestone payments and research and development funding received in the comparable period in 1996. Research and development expenses totaled $12,523,000 in the first nine months of 1997, as compared to $10,791,000 during the same period in 1996. The increase in 1997 of $1,732,000, or 16%, is principally due to an increase in research and development staff, an increase in facilities costs for additional leased space, increases in consulting services, and increases in external research costs. During 1997, the Company expanded primarily its Gene Activation programs. General and administrative expenses were $4,388,000 in the nine months ended September 30, 1997, compared with $2,997,000 during the same period in 1996. The increase in 1997 of $1,391,000, or 46%, is principally due to increases in outside professional service fees associated with being a public company, as well as increases in administrative employee costs, including several additions in administrative personnel, and increases in insurance costs. Interest income was $3,910,000 and $1,434,000 for the nine months ended September 30, 1997 and 1996, respectively. The average cash and marketable securities balances were $96,762,000 and $36,700,000 in 1997 and 1996, respectively. The increase in interest income of $2,476,000, or 173%, is primarily attributable to higher average balances in the respective nine month periods. The Company had a net loss of $7,488,000 and $8,404,000 for the nine months ended September 30, 1997 and 1996, respectively. Net loss per share was $0.44 for the nine months ended September 30, 1997, as compared to a pro forma net loss per share of $0.59 for the corresponding period in 1996. Weighted average common shares and pro forma common shares outstanding were 17,050,000 and 14,255,000, respectively, for the nine months ended September 30, 1997 and 1996. The increase in 1997 is related principally to the Company's initial public offering of 2,500,000 shares of common stock in October 1996 as well as the weighted average effect of 1,700,000 shares of common stock issued in connection with the Company's directed public offering in August 1997. LIQUIDITY AND SOURCES OF CAPITAL Since its inception, the Company has financed its operations through the sale of common and preferred stock, revenues from collaborative agreements and interest income. During the nine months ended September 30, 1997, the Company received proceeds of approximately $53,106,000 from the sale of common stock in a directed public offering in August 1997 and the exercise of stock options and warrants. The Company expended $4,148,000 in operating activities and $1,609,000 for capital expenditures. At September 30, 1997, the Company had unrestricted cash, cash equivalents and marketable securities totaling $133,436,000. Cash equivalents and marketable securities are invested in U.S. Treasury notes, agencies of the U.S. government and money market funds. Substantial additional funds will be required to support the Company's research and development programs, for acquisition of technologies and intellectual property rights, for preclinical and clinical testing of its products, pursuit of regulatory approvals, acquisition of capital equipment, expansion of laboratory and office facilities, establishment of production capabilities and for general and administrative expenses. Until the Company's operations generate significant revenues from product sales, cash reserves and interest thereon and 9 10 proceeds from equity and debt offerings and funding from collaborative arrangements will be used to fund operations. The Company expects to pursue opportunities to obtain additional financing in the future through equity and debt financings, lease arrangements related to capital equipment and collaborative research agreements. The source, timing and availability of any future financing will depend principally upon financial market conditions, interest rates and, more specifically, on the Company's continued progress in its exploratory, preclinical and clinical development programs. There can be no assurance that such funds will be available on favorable terms, if at all. The Company expects that its existing capital resources, together with revenues from collaborative agreements and interest income, will be sufficient to fund its operations through 2001. The Company's cash requirements may vary, however, depending on numerous factors. Lack of necessary funds may require the Company to delay, scale back or eliminate some or all of its research and product development programs or to license its potential products or technologies to third parties. The Company is engaged in litigation with Amgen Inc. with respect to the development of GA-EPO. See Note 4 to Notes to Condensed Financial Statements, which is incorporated by reference herein. FORWARD LOOKING STATEMENTS This Quarterly Report on Form 10-Q contains forward-looking statements. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "believes," "anticipates," "plans," "expects," "intends," and similar expressions are intended to identify forward-looking statements. There are a number of important factors that could cause the Company's actual results to differ materially from those indicated by such forward-looking statements. These factors include, without limitation, those set forth in Exhibit 99 to this Quarterly Report on Form 10-Q. 10 11 PART II -- OTHER INFORMATION ITEM 3. CHANGES IN SECURITIES AND USE OF PROCEEDS (d) The following information is provided pursuant to Rule 463 under the Securities Act of 1933, as amended (the "Securities Act"), with respect to the Company's first registration statement filed pursuant to the Securities Act: Effective date of the Registration Statement: October 16, 1996 Securities and Exchange Commission file number: 333-10845 Date offering commenced: October 16, 1996 Has offering terminated: Yes Managing underwriters: Morgan Stanley & Co. Incorporated, UBS Securities LLC and Pacific Growth Equities, Inc. Title of securities registered: Common Stock, $.01 par value per share
All shares of Common Stock were sold on behalf of the Company. Amount of shares registered: 2,500,000 Aggregate offering price of amount sold to date: $37,500,000
11 12 Amount of expenses incurred for the Company's account in connection with the issuance and distribution of the securities registered for each of the following: Underwriting discounts and commissions: $2,625,000 Finders fees: -- Expenses paid to or for Underwriters: $53,000 Other expenses: $711,419 Total expenses: $3,389,419
All such payments were direct or indirect payments to individuals or entities other than directors, officers, general partners of the Company or their associates; persons owning 10 per cent or more of any class of equity securities of the issuer; or affiliates of the Company. Net offering proceeds to the Company after deducting total expenses: $34,110,581
Set forth below is the amount of net offering proceeds to the Company used for each of the following: Construction of plant, building and facilities: -- Purchase and installation of machinery and equipment: Purchases of real estate: -- Acquisition of other businesses: -- Repayment of indebtedness: -- Working capital: -- Temporary investments: $34,110,581
Any other purposes for which at least the lessor of 5% of the issuer's total offering proceeds or $100,000 has been used: All such payments were direct or indirect payments to individuals or entities other than directors, officers, general partners of the Company or their associates; persons owning 10 per cent or more of any class of equity securities of the issuer; or affiliates of the Company. Such payments did not represent a material change in the use of proceeds described in the prospectus contained in the Registration Statement. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits The Exhibits filed as part of this Form 10-Q are listed on the Exhibit Index immediately preceding such Exhibits, which Exhibit Index is incorporated herein by reference. (b) Reports on Form 8-K No reports were filed on Form 8-K during the three months ended September 30, 1997. 12 13 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TRANSKARYOTIC THERAPIES, INC. By: /s/ DANIEL E. GEFFKEN ------------------------------------ Daniel E. Geffken Vice President, Finance and Chief Financial Officer (Principal Financial and Accounting Officer) Date: November 12, 1997 13 14 TRANSKARYOTIC THERAPIES, INC. EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION - ------- ------------------------------------------------------------------------------------- 11 Statement Re: Computation of Loss Per Share 27 Financial Data Schedule 99 Important Factors Regarding Forward-looking Statements
14 EX-11 2 STATEMENT RE: COMPUTATION OF LOSS PER SHARE 1 EXHIBIT 11 TRANSKARYOTIC THERAPIES, INC.
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------- ------------------- 1997 1996 1997 1996 ------- ------- ------- ------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Weighted average common shares outstanding.......... 17,838 5,197 17,050 5,197 Effect of preferred stock -- assumed converted at date of issuance.................................. -- 5,777 -- 5,777 Effect of common and common stock equivalent shares issued by the Company during the twelve month period immediately preceding the Company's initial public offering in October 1996 (using the treasury stock method)............................ -- 3,281 -- 3,281 ------- ------- ------- ------- Shares used to compute net loss per share........... 17,838 14,255 17,050 14,255 ======= ======= ======= ======= Net loss............................................ $(4,021) $(2,417) $(7,488) $(8,404) ======= ======= ======= ======= Net loss per share (pro forma in 1996).............. $ (0.23) $ (0.17) $ (0.44) $ (0.59) ======= ======= ======= =======
EX-99 3 IMPORTANT FACTORS RE. FORWARD LOOKING STATEMENTS 1 EXHIBIT 99 IMPORTANT FACTORS REGARDING FORWARD LOOKING STATEMENTS The following important factors, among others, could cause actual results to differ materially from those indicated by forward-looking statements made in the Company's Quarterly Report on Form 10-Q for the three months ended September 30, 1997 and presented elsewhere by management from time to time. PATENT LITIGATION The biotechnology industry has been characterized by significant litigation and interference proceedings regarding patents, patent applications and other intellectual property rights, and many companies in the biotechnology industry have attempted to employ intellectual property litigation to gain or preserve a competitive advantage. For example, there has been substantial intellectual property litigation between suppliers of erythropoietin throughout the world. The defense and prosecution of intellectual property suits and related legal and administrative proceedings can be both costly and time consuming. Litigation and interference proceedings could result in substantial expense to the Company or its corporate partner and significant diversion of effort by the Company's technical and management personnel. An adverse determination in litigation to which the Company may become a party could subject the Company to significant liabilities to third parties or require the Company to seek licenses from third parties. Although a number of patent and intellectual property disputes in the biotechnology area have been settled through licensing or similar arrangements, costs associated with any such arrangement may be substantial and could include ongoing royalties. Furthermore, there can be no assurance that necessary licenses would be available to the Company or its corporate partner or would be available on acceptable terms. Adverse determinations in a judicial or administrative proceeding or failure to obtain necessary licenses could prevent the Company or its corporate partner from manufacturing and selling some or all of its products, which would have a material adverse effect on the Company's business, financial condition and results of operations. In April 1997, Amgen Inc. filed a civil action in the U.S. District Court in Massachusetts against the Company and Hoechst Marion Roussel, Inc. ("HMRI"), its collaborative partner. The complaint in the action alleges that GA-EPO and processes for producing GA-EPO infringe on Amgen's U.S. Patent Numbers 5,547,933, 5,618,698, and 5,621,080 and requests that TKT and HMRI be enjoined from making, using, or selling GA-EPO and that the court award Amgen monetary damages. In May 1997, TKT and HMRI filed a "Motion To Dismiss, Or, In The Alternative, For Summary Judgment" stating that under 35 U.S.C. sec. 271(e)(1), TKT's and HMRI's activities do not constitute patent infringement and further stating that "(n)either the product created by TKT nor the process used by TKT and HMR infringes any valid claim of any of the Amgen patents in suit." In July 1997, the court denied TKT's and HMRI's motion and stated that the motion instead should be refiled as a Motion for Summary Judgment. The Company can provide no assurance as to the outcome of this litigation. A decision by the court in Amgen's favor, including the issuance of an injunction against the making, use or sale of GA-EPO by the Company and HMRI in the United States, or any other conclusion of the litigation in a manner adverse to the Company and HMRI, would have a material adverse effect on the Company's business, financial condition, and results of operations. There can be no assurance that the Company will not in the future become subject, in the United States or any other country, to additional patent infringement claims, interferences and other litigation involving patents, or any patents that may issue on any pending patent applications, including Amgen patent applications. With respect to gene therapy technology, the Company requested, and the U.S. Patent and Trademark Office (the "PTO") declared in January 1996, an interference regarding an issued patent with broad claims to ex vivo gene therapy. The participants in the interference are TKT, Genetic Therapy, Inc. (a wholly-owned subsidiary of Novartis AG) and Somatix Therapy Corporation ("Somatix"). Somatix subsequently merged into Cell Genesys, Inc. With the possible exception of the patents involved in the interference, the Company believes its Transkaryotic Therapy technology does not infringe on patents issued to date. The PTO proceeding will determine the patentability of the subject matter of the interference and which of the parties first 2 developed this subject matter. The process to resolve the interference can take many years. The outcome of interferences can be quite variable: for example, none of the three parties may receive the desired claims, one party may prevail, or a settlement involving two or more of the parties may be reached. There can be no assurance that TKT will prevail in this interference or that, even if it does prevail, that the Company can meaningfully protect its proprietary position. In the event TKT does not prevail in the interference, a January 1997 Federal Trade Commission ("FTC") decision would then be relevant. The FTC accepted a consent order to resolve anticompetitive concerns raised by the merger of Ciba-Geigy Limited and Sandoz Limited into the newly formed Novartis AG. As part of the consent order, the constituent entities of Novartis will be required to provide all gene therapy researchers and developers with non-exclusive licenses to the patent upon which Novartis is involved in the interference. The Company has entered into an agreement with Somatix under which the Company's ability to market its non-viral gene therapy products will not be affected should Somatix win the interference. Should any of its competitors have filed additional patent applications in the U.S. that claim technology also invented by the Company, the Company may have to participate in additional interference proceedings declared by the PTO, all of which could result in substantial cost to the Company to determine its rights or potential loss of rights. PATENTS AND PROPRIETARY RIGHTS The Company's success may depend in large part on its ability to obtain patent protection for its Gene Activation and gene therapy processes and potential products in the U.S. and other countries and to obtain the right to use in its potential products genes or other technology that have been or may be patented by others. Currently, the Company has two issued patents and 21 pending patent applications in the U.S. to protect its proprietary methods and processes; it has also filed foreign patent applications corresponding to certain of these U.S. patent applications. In addition, the Company has entered into several agreements to license proprietary rights from other parties. However, the patent situation in the field of biotechnology generally is highly uncertain and involves complex legal, scientific and factual questions. To date there has emerged no consistent policy regarding the breadth of claims allowed in biotechnology patents. Accordingly, there can be no assurance that patent applications relating to the technology used by the Company will result in patents being issued or that, if issued, the patents will not be challenged, invalidated or circumvented or will afford protection against competitors with similar technology. Many biotechnology and pharmaceutical companies, universities and research institutions, including competitors with substantial resources, have filed patent applications and have been issued patents potentially relating to the Company's Gene Activation and gene therapy technologies. In addition, certain competitors have filed patent applications and have been issued patents relating to certain methods of producing therapeutic proteins that the Company anticipates producing using its Gene Activation technology. The Company's Gene Activation and gene therapy technologies and potential products may be found to conflict or be alleged to conflict with patents which have been or may be granted to competitors, universities or others. There are a substantial number of biotechnology patent applications under review at the PTO. Because patent applications in the U.S. are maintained in secrecy until patents issue, the Company cannot be certain that others have not filed or maintained patent applications for technology used by the Company or covered by the Company's pending patent applications or that the Company was the first to file patent applications for such technology. Competitors may have filed applications for, or may have received patents and may obtain additional patents and proprietary rights relating to, compositions of matter or processes that block or compete with those of the Company. Furthermore, as is the case with any pending patent application, competitors may attempt to amend existing applications to claim rights to compositions of matter or processes that may block the Company. No assurance can be given that the Company's products or processes may not infringe patents that may issue under pending patent applications. Although the Company has licensed proprietary rights to certain genes (for example, for Factor VIII and Factor IX) to be used in its gene therapy products, the Company presently has no proprietary rights to certain other genes that it may later seek to use in its products and which may be the subject of issued third party patents or pending patent applications. As a result, the Company may be required to obtain licenses under 3 third party patents in order to market certain of its products. If such licenses are not made available to the Company on acceptable terms, the Company will not be able to market such products. In addition, under the Company's license and sublicense agreements, the licensors and sublicensors may terminate these agreements upon the Company's failure to meet certain specified milestones. Any such termination of an existing license or sublicense by any such licensor or sublicensor, or any inability by the Company to obtain any required license, could have a material adverse effect on the Company's business. The Company also relies upon unpatented proprietary technology, processes and know-how, which the Company protects in part by confidentiality agreements with its employees, consultants and certain contractors. There can be no assurance that these agreements will not be breached, that the Company will have adequate remedies for any breach, or that the Company's trade secrets will not otherwise become known or be independently developed by competitors. EARLY STAGE OF DEVELOPMENT; COMMERCIAL UNCERTAINTY TKT is at an early stage of development. All of the Company's potential Gene Activation products are in research, preclinical development or early clinical development. No revenues have been generated from product sales, and no such revenues are expected for at least several years. The Gene Activation products currently under development by the Company will require significant additional development efforts, including extensive preclinical and clinical testing and regulatory approval, prior to commercial use. There can be no assurance that any Gene Activation products will ultimately be developed by the Company and its corporate partners, or that, even if developed, these products will receive regulatory approval. If approved, these products will compete with established products of proven safety and efficacy, the manufacturers of which can be expected to employ intellectual property challenges to commercialization of these products. There can be no assurance that the Company's Gene Activation products, if any, will be able to be commercialized or, if commercialized, that they will be accepted by medical centers, hospitals, physicians or patients in lieu of existing treatments. Accordingly, there can be no assurance that these products can be successfully manufactured and marketed at prices that would permit the Company and its corporate partners to operate profitably. The Company's potential gene therapy products may be even further from commercial introduction. Due to the early stage of development of the Company's potential gene therapy products and the extensive research, development, preclinical and clinical testing, and regulatory review process required before marketing approval can be obtained, the Company cannot predict with certainty when it will be able to commercialize any of its potential gene therapy products, if at all. TECHNOLOGICAL UNCERTAINTY Gene Activation and gene therapy are new and rapidly evolving technologies. Existing preclinical data on the safety and efficacy of proteins produced by the Company's Gene Activation technology are limited, and the Company's Gene Activation products have not yet been tested in humans or are in early clinical development. The Company's potential gene therapy products are even further from commercial introduction. While many approaches to gene therapy are being pursued by pharmaceutical and biotechnology companies and academic institutions, there are currently no marketed gene therapy products, and existing clinical data on the safety and efficacy of potential gene therapy products are limited. The potential gene therapy products currently under development by the Company will require substantial additional development efforts, including extensive preclinical and clinical testing and the receipt of regulatory approvals prior to commercial introduction. For any given disease, gene therapy generally, as well as the Company's specific approach to gene therapy, may not be efficacious or may prove to have undesirable and unintended side effects, toxicities or other characteristics that may prevent or limit commercial use. There can be no assurance that the Company's products will obtain approval from the U.S. Food and Drug Administration (the "FDA") or equivalent foreign regulatory authorities for any indication. UNCERTAINTY ASSOCIATED WITH CLINICAL TRIALS Subject to compliance with FDA regulations, TKT and its corporate partners plan to undertake extensive clinical testing in humans to evaluate the safety and efficacy of its Gene Activation and gene therapy products 4 in development. The Company's potential Gene Activation products have not yet been tested in humans or are in early clinical development. The rate of completion of clinical trials is dependent upon, among other factors, the enrollment of patients. Patient accrual is a function of many factors, including the size of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the study and the existence of competitive clinical trials. Delays in planned patient enrollment in the anticipated Gene Activation clinical trials may result in program delays, which could have a material adverse effect on TKT. Even if clinical trials are completed, there can be no assurance that the Company or its partners will be able to submit a Product License Application ("PLA") to the FDA or comparable regulatory agencies in foreign countries on the schedule anticipated or that such applications will be reviewed and approved by such regulatory agencies in a timely manner. Of the gene therapy products under development at the Company, only one is in Phase I human clinical trials. The Company currently intends to seek a collaborative partner prior to proceeding with further clinical development of this product. There can be no assurance that the Company will be able to obtain authorization from the FDA for additional human clinical testing of any of its gene therapy products currently in research or preclinical development. There can be no assurance that any authorized clinical testing will be completed successfully within any specified time period, if at all, with respect to any potential product. There also can be no assurance that such testing will show any potential product to be safe or efficacious or that any such product will be approved by the FDA for any indication. Furthermore, the Company or the FDA may suspend clinical trials at any time if the subjects or patients participating in such trials are being exposed to unacceptable health risks. There can be no assurance that the Company will not encounter problems in clinical trials which will cause the Company or the FDA to delay or suspend clinical trials. UNCERTAINTY OF GOVERNMENT REGULATORY REQUIREMENTS; LENGTHY APPROVAL PROCESS The Company's research and development, preclinical testing, clinical trials, facilities and manufacturing and marketing of its products will be subject to extensive regulation by numerous governmental authorities in the U.S. and other countries. The regulatory process for new therapeutic products, which includes preclinical and clinical testing of each product to establish its safety and efficacy, can take many years and require the expenditure of substantial resources. Data obtained from preclinical and clinical activities are susceptible to varying interpretations which could delay, limit or prevent FDA regulatory approval. In addition, delays or rejections may be encountered based upon changes in FDA policy during the period of product development and FDA regulatory review of each submitted License Application. Similar delays may also be encountered and substantial resources expended in foreign countries. There can be no assurance that even after such time and expenditures, regulatory approval will be obtained for any Gene Activation or gene therapy products developed by the Company. Moreover, if regulatory approval of a product is granted, such approval may entail limitations on the indicated uses for which it may be marketed and contain requirements for post-marketing follow-up studies. Because gene therapy is a relatively new technology and products for gene therapy have not been extensively tested in humans, the regulatory requirements governing gene therapy products may be subject to substantial additional review by various regulatory authorities in the U.S. and abroad. These requirements may result in extensive delays in initiating clinical trials of gene therapy products and in the regulatory approval process in general. Any of the foregoing effects of government regulation, as well as of comparable foreign regulation, could delay the marketing of the Company's Gene Activation and gene therapy products for a considerable or indefinite period of time, materially increase the cost involved in developing, manufacturing and marketing the Company's products, diminish or eliminate any competitive advantage the Company may enjoy, or otherwise adversely affect the Company's ability to conduct its business. Compliance with applicable government regulations governing each of the Company's potential Gene Activation and gene therapy products will require a significant commitment of time, money and effort by the Company and its corporate partners with no assurances that any approval will ultimately be granted on a timely basis, if at all. 5 HISTORY OF OPERATING LOSSES; FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING The Company has experienced significant operating losses since its inception in 1988. As of September 30, 1997, the Company had an accumulated deficit of $44,604,000. The Company expects that it will continue to incur substantial losses for at least several years and expects cumulative losses to increase as the Company's research and development efforts expand. The Company expects that such losses will fluctuate from quarter to quarter and that such fluctuations may be substantial. There can be no assurance that the Company will ever achieve sales or profitability. The Company will require substantial funds to conduct research and development (including preclinical and clinical testing) of its potential products and to manufacture and market any products that are approved for commercial sale. Based on its current operating plan, the Company believes that its available cash will be adequate to satisfy its capital needs through 2001. The Company's future capital requirements will depend on many factors, including continued progress in its research and development programs, the magnitude of these programs, the scope and results of clinical trials, the timing and receipt of milestone payments, the time and costs involved in obtaining regulatory approvals, the costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims and other patent-related costs, competing technological and market developments, the ability of the Company to establish and maintain collaborative arrangements, and the cost of manufacturing and commercialization activities. To date, the Company has not received any revenues from product sales. The Company intends to seek additional funding through collaborative arrangements or through public or private financings. There can be no assurance that additional financing will be available on acceptable terms, if at all. COMPETITION The field of biotechnology is new and evolving, and it is expected to continue to undergo significant and rapid technological change. Technological developments could result in the Company's potential products becoming obsolete. The Company's products and technologies will be subject to substantial competition, both from other companies in the field of Gene Activation and gene therapy and from companies which have other forms of treatment of the diseases targeted by the Company. The Company is initially focusing its Gene Activation efforts on established products with proven safety and efficacy. The Company anticipates that companies selling such products will compete vigorously. There can be no assurance that the Company's Gene Activation products will be accepted by medical centers, hospitals, physicians or patients in lieu of existing products, or as to the effect of such competition on the market prices of the Company's products. Although the Company has a major corporate partner, many of the Company's existing or potential competitors have substantially greater product development capabilities and financial, scientific, marketing or human resources than the Company. Similarly, other competitors of the Company may enter into collaborative relationships with other companies having such greater resources. In addition, certain of these competitors have significantly greater experience than the Company in undertaking human clinical trials of new therapeutic products. Accordingly, other companies may succeed in developing products earlier than the Company, obtaining FDA approvals for such products more rapidly than the Company, or developing products that are more effective or less costly than those proposed to be developed by the Company. Furthermore, if the Company is permitted to commence commercial sales of products, it may also be competing with respect to commercial manufacturing and marketing capabilities, areas in which it has no experience. NO MANUFACTURING, DISTRIBUTION OR MARKETING CAPABILITY Although the Company has a pilot gene therapy manufacturing facility and believes it will be able to manufacture its potential products on a large scale, the feasibility of large-scale manufacturing of such products has not been demonstrated. If the Company is unable to develop or contract for manufacturing capabilities on acceptable terms, the Company's ability to commercialize its potential products would be materially adversely affected. If the Company is delayed in establishing suitable manufacturing capabilities, the Company's ability to conduct human clinical testing may be adversely affected, resulting in the delay of 6 submission of potential products for regulatory approval and initiation of new development programs, which in turn could impair materially the Company's competitive position and the possibility of the Company achieving profitability. In addition, although the Company believes that its potential products will be cost-effective, there can be no assurance that the Company will be able to manufacture and distribute such products at a reasonable cost, that the Company will be able to price such products competitively or, if priced competitively, that the Company will be able to achieve margins sufficient to allow it to achieve profitability. The Company plans to provide its gene therapy products through central manufacturing facilities. The establishment of these facilities will require substantial additional funds and personnel and will require compliance with extensive regulations applicable to such facilities. There can be no assurance that such funds and personnel will be available on acceptable terms, if at all, or that the Company will be able to comply with such regulations at acceptable cost, if at all. In addition, in managing this expansion the Company may encounter unforeseen regulatory, logistical or management problems or incur unexpected operating costs. Failure or delays in establishing these facilities, or the incurrence of unexpected operating costs, could adversely affect the ability of the Company to manufacture and market its gene therapy products. Furthermore, the Company has no experience in sales, marketing or distribution. In order to market any of its gene therapy products, the Company must develop a marketing and sales capability, either on its own or in conjunction with others. There can be no assurance that the Company will be able to enter into any arrangements for the marketing of its products, that such arrangements will be successful, or that the Company will be able to obtain additional capital and expertise to conduct such activities independently. The Company has no manufacturing, sales, marketing or distribution capabilities for its Gene Activation products. The Company's collaborative partner, HMRI, is responsible for the manufacture, sales, marketing and distribution of GA-EPO and the undisclosed second protein. With respect to future Gene Activation products, the Company may seek collaborative partners or may manufacture and commercialize the products on its own. There can be no assurance that the Company will be successful in establishing such future collaborative relationships or that the Company will be able to conduct such activities independently. DEPENDENCE ON KEY PERSONNEL The Company's success is highly dependent on the retention of principal members of its scientific and management staff. Furthermore, the Company's future growth will require the hiring of significant numbers of qualified scientific and management personnel. Accordingly, recruiting and retaining such personnel in the future will be critical to the Company's success. There is intense competition from other companies and research and academic institutions for qualified personnel in the areas of the Company's activities, and there can be no assurance that the Company will be able to continue to attract and retain on acceptable terms the qualified personnel necessary for the development of its business. DEPENDENCE ON HMRI AND OTHER COLLABORATIVE PARTNERS The Company has entered into arrangements with HMRI on two of its Gene Activation development programs and with another corporate partner on a gene therapy development program. Each agreement with HMRI is subject to termination without cause on short notice under certain circumstances, and there is no assurance that in the future either partner will not exercise its termination rights. The Company is relying on HMRI to develop, conduct clinical trials, obtain regulatory approval for the sale of, manufacture and market GA-EPO and the undisclosed second protein worldwide. There can be no assurance that HMRI will devote the resources necessary to complete development of and commercialize these two potential products. Should HMRI fail to develop and commercialize these two potential products, the Company's business would be materially adversely affected. The Company's strategy for the research, development and commercialization of certain of its potential products includes the possibility that it will enter into various additional arrangements with corporate partners, licensors, licensees and others. There can be no assurance that any further arrangements will be effected in the future. Although the Company believes parties to any existing and future arrangements, if entered into, would have economic and other motivations to perform their contractual responsibilities in full, the amount and 7 timing of resources which they would devote to these activities would not be within the control of the Company. There can be no assurance that such parties would perform their obligations as expected or that any revenue would be derived by the Company from such arrangements. PRODUCT LIABILITY AND INSURANCE The Company's business will in the future expose it to potential product liability risks which are inherent in the testing, manufacturing and marketing of human therapeutic products. Although the Company has clinical trial liability insurance for trials conducted in the U.S., the Company does not currently have any product liability insurance, and there can be no assurance that it will be able to obtain or maintain such insurance on acceptable terms, if at all, or that any insurance obtained will provide adequate protection against potential liabilities. An inability to obtain insurance at acceptable cost or otherwise protect against potential product liability claims, in addition to exposing the Company to significant liabilities, could prevent or inhibit the commercialization of products developed by the Company. UNCERTAINTY OF PHARMACEUTICAL PRICING AND REIMBURSEMENT The business and financial condition of pharmaceutical and biotechnology companies will continue to be affected by the efforts of government and third-party payors to contain or reduce the cost of health care through various means. For example, in certain foreign markets, pricing and profitability of prescription pharmaceuticals is subject to government control. In particular, individual pricing negotiations are often required in each country of the European Community, even if approval to market the drug is obtained. In the U.S. there have been, and the Company expects that there will continue to be, a number of federal and state proposals to implement similar government control. In addition, an increasing emphasis on managed care in the U.S. has and will continue to increase the pressure on pharmaceutical pricing. While the Company cannot predict whether any such legislative or regulatory proposals will be adopted or the effect such proposals or managed care efforts may have on its business, the announcement of such proposals or efforts could have a material adverse effect on the Company's ability to raise capital, and the adoption of such proposals or efforts could have a material adverse effect on the Company's business, financial condition and results of operations. Further, to the extent that such proposals or efforts have a material adverse effect on other pharmaceutical companies that are prospective corporate partners for the Company, the Company's ability to establish corporate collaborations may be adversely affected. In addition, in both domestic and foreign markets, sales of the Company's products, if any, will be dependent in part on the availability of reimbursement from third party payors, such as government and private insurance plans. Third party payors are increasingly challenging the prices charged for medical products and services. If the Company succeeds in commercializing products, there can be no assurance that these products will be considered cost effective, that reimbursement will be available, or if available, that the payor's reimbursement policies will be adequate to permit the Company to realize a reasonable return. EX-27 4 FINANCIAL DATA SCHEDULE
5 1,000 U.S. DOLLARS 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 1 10,209 123,227 138 0 0 133,853 10,689 7,027 138,250 2,081 0 0 0 184 135,962 138,250 0 5,513 0 16,911 0 0 0 0 0 0 0 0 0 (7,488) (.44) (.44)
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