0001104659-02-004129.txt : 20020814 0001104659-02-004129.hdr.sgml : 20020814 20020814160551 ACCESSION NUMBER: 0001104659-02-004129 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020814 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: 1934 Act SEC FILE NUMBER: 000-21481 FILM NUMBER: 02736557 BUSINESS ADDRESS: STREET 1: 195 ALBANY ST CITY: CAMBRIDGE STATE: MA ZIP: 02139 BUSINESS PHONE: 6173490200 10-Q 1 j4280_10q.htm 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarter Ended June 30, 2002

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 incorporation or organization)		(I.R.S. Employer 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 ý No o

At July 31, 2002, there were 34,811,022 shares of Common Stock, $.01 par value, outstanding.

Transkaryotic Therapies, Inc.

INDEX

PART I.	FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements (unaudited)

	Condensed Consolidated Balance Sheets as of June 30, 2002 and December 31, 2001

	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2002 and 2001

	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2002 and 2001

	Notes to Condensed Consolidated Financial Statements

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings

Item 2.	Changes in Securities and Use of Proceeds

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

Item 6.	Exhibits and Reports on Form 8-K

SIGNATURES

EXHIBIT INDEX

Part I - Item 1 - Condensed Consolidated Financial Statements

Transkaryotic Therapies, Inc.

Condensed Consolidated Balance Sheets

(unaudited)

(in thousands, except par values)	June 30, 2002			December 31, 2001
Assets

Current assets:
Cash and cash equivalents	$	145,090		$	323,877
Marketable securities	181,529			75,877
Accounts receivable	9,708			2,374
Inventories	14,117			7,147
Prepaid expenses and other current assets	5,607			4,620
Total current assets	356,051			413,895
Property and equipment, net	59,240			41,587
Other assets	1,841			2,225
Total assets	$	417,132		$	457,707

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	10,906		$	9,394
Accrued expenses	14,046			12,150
Total current liabilities	24,952			21,544

Stockholders' equity:
Series A convertible preferred stock, $.01 par value, 10,000 shares authorized; no shares issued and outstanding at June 30, 2002 and December 31, 2001, respectively	—			—
Series B preferred stock, $.01 par value, 1,000 shares authorized; no shares issued and outstanding at June 30, 2002 and December 31, 2001, respectively	—			—
Common stock, $.01 par value; 100,000 shares authorized; 34,798 and 34,302 shares issued and outstanding at June 30, 2002 and December 31, 2001, respectively	348			343
Additional paid-in capital	687,460			670,959
Accumulated deficit	(297,020		)	(235,672		)
Deferred compensation	(5		)	(114		)
Accumulated other comprehensive income	1,397			647
Total stockholders' equity	392,180			436,163
Total liabilities and stockholders' equity	$	417,132		$	457,707

See accompanying Notes to Condensed Consolidated Financial Statements.

Transkaryotic Therapies, Inc.

Condensed Consolidated Statements of Operations

(unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands, except per share amounts)	2002			2001			2002			2001

Revenues:
Product sales	$	8,782		$	297		$	14,840		$	297
License and research revenues	83			410			635			1,628
	8,865			707			15,475			1,925
Operating expenses:
Cost of goods sold	1,650			—			2,198			—
Research and development	18,868			18,805			39,277			35,311
Intellectual property license expense	26,000			—			26,000			—
Selling, general and administrative	7,476			5,831			13,899			10,790
	53,994			24,636			81,374			46,101

Loss from operations	(45,129		)	(23,929		)	(65,899		)	(44,176		)

Other income:
Interest income, net	2,248			2,864			4,551			6,294
Gain on sale of investment	—			—			—			2,785
	2,248			2,864			4,551			9,079

Net loss	$	(42,881	)	$	(21,065	)	$	(61,348	)	$	(35,097	)

Basic and diluted net loss per share	$	(1.24	)	$	(0.92	)	$	(1.78	)	$	(1.54	)

Shares used to compute basic and diluted net loss per share	34,462			22,859			34,397			22,789

See accompanying Notes to Condensed Consolidated Financial Statements.

Transkaryotic Therapies, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

(in thousands)	Six Months Ended June 30,
	2002			2001

Operating activities:
Net loss	$	(61,348	)	$	(35,097	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Issuance of common stock, intellectual property license expense	15,000			—
Depreciation and amortization	3,456			2,801
Compensation expense related to equity issuances	109			357
Changes in operating assets and liabilities	(11,106		)	2,192

Net cash used for operating activities	(53,889		)	(29,747		)

Investing activities:
Proceeds from sales and maturities of marketable securities	116,773			105,171
Purchases of marketable securities	(222,598		)	(35,932		)
Purchases of property and equipment	(21,109		)	(13,685		)
Changes in other assets	384			(792		)

Net cash provided by (used for) investing activities	(126,550		)	54,762

Financing Activities:
Issuance of common stock, net	1,507			95,542
Repayment of long-term debt	—			(1,500		)
Net cash provided by financing activities	1,507			94,042

Effect of exchange rate changes on cash and cash equivalents	145			(76		)
Net increase (decrease) in cash and cash equivalents	(178,787		)	118,981

Cash and cash equivalents at January 1	323,877			49,445

Cash and cash equivalents at June 30	$	145,090		$	168,426

Supplemental disclosure of non-cash financing activity:
Issuance of common stock as consideration for intellectual property license	$	15,000		$	—

See accompanying Notes to Condensed Consolidated Financial Statements.

Transkaryotic Therapies, Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

June 30, 2002 and 2001

1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States 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 in the United States for complete financial statements. In the opinion of management, the accompanying financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented. The results of operations for the interim periods ended June 30, 2002 are not necessarily indicative of the results to be expected for the year ending December 31, 2002.

These financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2001 included in the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission.

Niche Protein®, Gene-Activated®, and TKT® are registered trademarks and Replagal™ and Transkaryotic Therapy™ are trademarks of Transkaryotic Therapies, Inc. Dynepo™ is a trademark of Aventis Pharmaceuticals, Inc. (“Aventis”).

2. NET LOSS PER SHARE

The Company calculates net loss per share in accordance with Statement of Financial Accounting Standard (“SFAS”) No. 128, “Earnings Per Share,” and related interpretations. Basic earnings per share is computed using the weighted average shares outstanding.

Basic net loss per share was equivalent to diluted net loss per share for the three and six months ended June 30, 2002 and 2001 because common equivalent shares from convertible preferred stock and stock options have been excluded as their effect is antidilutive.

3. COMPREHENSIVE LOSS

Comprehensive loss comprises net loss, unrealized gains and losses on marketable securities designated as available-for-sale, and cumulative foreign currency translation adjustments. The Company had a total comprehensive loss of $40,895,000 and $21,492,000 for the three months ended June 30, 2002 and 2001, respectively. For the six months ended June 30, 2002 and 2001, the Company had a total comprehensive loss of $60,598,000 and $34,633,000, respectively.

4. INVENTORIES

Inventories consist of the following:

(in thousands)	June 30, 2002		December 31, 2001
Raw materials	$	681	$	452
Work in process	8,612		4,214
Finished goods	4,824		2,481
	$	14,117	$	7,147

Inventories are stated at the lower of cost or market, with cost determined under a first-in, first-out method.

5. INTELLECTUAL PROPERTY LICENSE EXPENSE

In June 2002, the Company obtained an exclusive license to certain intellectual property from Cell Genesys, Inc., related to their approach to gene activation. For the quarter ended June 30, 2002, the Company incurred a license fee expense of $26 million, which was funded with $11 million in cash and $15 million worth of shares of the Company’s Common Stock. Cell Genesys also has the potential to receive certain milestone payments contingent upon the outcome of related patent matters. The Company is not required to make royalty payments under the agreement.

6. LEGAL PROCEEDINGS

The Company cannot provide assurance as to the outcome of any legal proceeding. A decision by a court in any jurisdiction in a manner adverse to the Company could have a material adverse effect on the Company’s business, financial position, and results of operations.

Replagal Patent Litigation

Since July 2000, the Company has been involved in patent litigation relating to Replagal brought by Genzyme Corporation (“Genzyme”) and Mount Sinai School of Medicine of New York University (“Mount Sinai”) in the United States District Court for the District of Delaware (the “Delaware District Court”) regarding a patent licensed by Genzyme from Mount Sinai. In January 2002, the Delaware District Court dismissed this patent litigation. In March 2002, Genzyme appealed the ruling to the United States Court of Appeals for the Federal Circuit (the “Federal Circuit”). If Genzyme is successful in its appeal, the case will be remanded to the Delaware District Court for further proceedings on non-infringement and invalidity issues. As of June 30, 2002, the Company had incurred approximately $4.3 million in litigation expenses associated with the Replagal litigation.

Dynepo Patent Litigation

The Company and Aventis are involved in a patent infringement action with Amgen Inc. (“Amgen”). In April 1997, Amgen commenced a patent infringement action against the Company and Aventis in the United States District Court for the District of Massachusetts (the

“Massachusetts District Court”). In January 2001, the Massachusetts District Court concluded that Dynepo (epoietin delta), the Company’s Gene-Activated erythropoietin for the treatment of anemia, infringed eight of the 18 claims of patents asserted by Amgen. The Company and Aventis filed an appeal of the decision with the Federal Circuit. Amgen has also appealed this decision.

In addition, in July 1999, Aventis and the Company commenced legal proceedings in the United Kingdom against Kirin-Amgen, Inc. (“Kirin-Amgen”), seeking a declaration that a U.K. patent held by Kirin-Amgen will not be infringed by the Company’s activities relating to Dynepo. In April 2001, the High Court of Justice in the United Kingdom ruled that Dynepo infringed one of four claims of the patent asserted by Kirin-Amgen. In July 2002, the Court of Appeals in the United Kingdom reversed the High Court of Justice and ruled that Dynepo did not infringe Kirin-Amgen’s patent. Kirin-Amgen may appeal this decision.

The litigation is costly and the Company is required to reimburse Aventis, which is paying the litigation expenses, for 50% of the expenses. Aventis is entitled to deduct up to 50% of any royalties due to the Company from the sale of Dynepo until Aventis has recouped the full amount of TKT’s share of litigation expenses. The Company currently estimates that its share of the expenses associated with the litigation will total between approximately $5 million and $10 million by the time the matter is finally adjudicated. Although Dynepo received marketing approval from the European Agency for the Evaluation for Medicinal Products (“EMEA”) in March 2002, the launch of Dynepo has not been planned due to the uncertainty of the outcome of the litigation in the United States.

PART I - Financial Information

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

OVERVIEW

TKT is a biopharmaceutical company developing protein- and cell-based therapeutics for the treatment of a wide range of human diseases. TKT is building a broad and renewable product pipeline based on three proprietary development platforms: Niche Protein products, Gene-Activated proteins and Transkaryotic Therapy gene therapy products.

During 2001, the Company received its first product marketing approvals. In August 2001, Replagal (agalsidase alfa), the Company’s enzyme replacement therapy for the long-term treatment of patients with Fabry disease, was granted marketing authorization in the European Union. Since August 2001, the Company has received approval to market Replagal in a number of other countries but has not received approval to market Replagal in the United States. In September 2001, the Company launched Replagal in Europe.

In the United States, the Company has submitted a Biologics License Application (“BLA”) to the Food and Drug Administration (“FDA”) seeking marketing authorization for Replagal. In January 2001, the FDA issued a complete review letter regarding the BLA. The FDA letter stated that the data that the Company provided was not adequate for approval of the BLA at that time and requested additional information. In response to this letter, TKT has discussed the BLA with the FDA and has submitted additional data.

On September 27, 2002, the FDA’s Endocrinologic and Metabolic Drugs Advisory Committee is scheduled to meet to evaluate the Company’s BLA for Replagal. FDA Advisory Committees provide the FDA with independent advice on marketing applications. The FDA generally follows the recommendations of its Advisory Committees but is not bound to do so. After this meeting, the FDA may either approve the Company’s BLA or decline to approve it. If it declines to approve the BLA, the FDA may request additional information, possibly including data from additional trials.

With the exception of 1995, the Company has incurred substantial annual operating losses since inception. The Company expects that its research and development expenditures will increase in future years as product development efforts accelerate. Accordingly, the Company expects to incur significant operating losses until substantial product sales are generated. Until such time, the Company is dependent upon product sales, existing cash resources, interest income, external financing from equity offerings, debt financings and collaborative research and development arrangements with corporate sponsors to finance its operations. At June 30, 2002, the Company’s accumulated deficit was $297,020,000. For the years ending December 31, 2001, 2000 and 1999, the Company had a net loss of $70,243,000, $51,021,000 and $44,456,000, respectively. In addition, the Company had a net loss of $42,881,000 and $61,348,000 for the three and six months ended June 30, 2002, respectively. An

intellectual property license fee expense of $26 million increased basic and diluted net loss per share by $0.75 and $0.76 for the three and six months ended June 30, 2002, respectively.

Results of operations may vary significantly from period to period depending on, among other factors, Replagal product sales, costs associated with the manufacture, marketing and sale of Replagal, expenses related to the Company’s research and development efforts, the timing of approvals, if granted, to market the Company’s products either additional jurisdictions, including the United States, the ability of the Company to access capital markets, the timing of additional license fees and milestone payments under existing collaborative research agreements and the establishment of additional collaborative research agreements, if any.

CRITICAL ACCOUNTING POLICIES

The Company’s significant accounting policies are more fully described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2001 under the caption “Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in the Notes to the Consolidated Financial Statements. Application of these policies is particularly important to the portrayal of the Company’s financial condition and results of operations. These accounting policies require the Company to make subjective judgements in determining estimates about the effect of matters that are inherently uncertain. Actual results could differ materially from these estimates. The following accounting policies meet these characteristics and are considered significant:

Revenue Recognition

The Company recognizes revenue from product sales when there is persuasive evidence that an arrangement exists, delivery has occurred, the price is fixed and determinable, and collection is reasonably assured. The Company recorded its first product sales from the sale of Replagal in Europe in 2001. In Europe and in some other countries outside of the United States, collection is reasonably assured once reimbursement agreements and pricing arrangements are established and formalized, as these agreements establish the relevant governmental agency’s intent to pay. The Company has only recorded revenues in those countries for which these agreements have been established, thereby reasonably assuring collection. The Company does not provide the right of return to its customers and, consequently, has not recorded a reserve for sales returns and allowances.

Inventories

Inventories are stated at the lower of cost or market with cost determined under the first-in, first-out method. Inventories are reviewed periodically for slow-moving or obsolete status based on sales activity, both projected and historical. Replagal produced before product approval in August 2001 was expensed as a research and development cost. If product sales differ from projections, inventory may not be fully utilized and could be subject to impairment.

The following discussion of the financial condition and results of operations of the Company should be read in conjunction with the accompanying condensed consolidated financial statements and the related footnotes thereto.

RESULTS OF OPERATIONS

For the Three Months Ended June 30, 2002 and 2001

Product sales for the quarter ended June 30, 2002 and 2001 totaled $8,782,000 and $297,000, respectively. Substantially all Replagal product sales were made in Europe. Prior to product approval in August 2001, product sales were made under compassionate use programs in Europe. The Company expects sales of Replagal to increase significantly for the remainder of 2002 and beyond, as additional patients begin Replagal therapy, additional pricing and reimbursement arrangements are established and formalized, and marketing authorizations are received in additional countries.

License and research revenues totaled $83,000 and $410,000 for the three months ended June 30, 2002 and 2001, respectively. License and research revenues were earned from collaborative agreements with Sumitomo Pharmaceutical Co. Ltd. (“Sumitomo”) and Wyeth, formerly Genetics Institute, Inc.

For the second quarter of 2002, cost of goods sold was $1,650,000, or 19% of product sales. In the second quarter of 2001, there was no cost of goods sold. Inventory and components of inventory, which were previously expensed as a research and development cost prior to marketing approval in August 2001, were sold in 2001 and in the first half of 2002. As of June 30, 2002, this inventory has been fully utilized. As a result, gross margins will reflect full production costs in the second half of 2002. For fiscal year 2002, the Company expects that its cost of goods sold will be approximately 25% of product sales. For 2003 and beyond, the Company expects to increase production to meet increasing demand as the launch of Replagal accelerates, thereby creating volume efficiencies, and that cost of goods sold, as a percentage of product sales, will likely decline.

Research and development expenses totaled $18,868,000 in the second quarter of 2002, as compared to $18,805,000 during the same period in 2001. During the quarter ended June 30, 2002, the Company capitalized $5,133,000 of Replagal production costs as inventory during the quarter that, prior to product approval in August 2001, would have been included in research and development expenses. Taking into account the capitalization of inventory costs in 2002, research and development expenses were higher due to increases in research and development staffing and manufacturing development costs as the Company’s product platforms continue to expand and mature as well as increases in research and development occupancy costs.

During the remainder of 2002, costs relating to both preclinical and clinical programs are expected to increase significantly as product development activities are initiated or expanded. The Company is advancing several other preclinical programs toward the Investigational New Drug stage. The largest component of increases for the remainder of 2002 is expected to be costs related to building and operating its manufacturing facilities for its preclinical and clinical candidates. In late 2002, the Company expects to occupy a new headquarters and research and development facility, which will continue to increase its occupancy costs in the second half of 2002 and beyond.

The Company’s four largest research and development programs, Replagal, iduronate-2-sulfatase for the treatment of Hunter Syndrome, glucocerebrosidase for the treatment of Gaucher disease and Factor VIII gene therapy for the treatment of hemophilia A, represent the significant majority of our research and development spending. The expenses associated with these programs totaled approximately 82% of total research and development expenses for the quarter ended June 30, 2002 and 88% of total research and development expenses for the corresponding period in 2001.

During 2002 and 2001, research and development expenses for the Replagal program primarily included basic research, the costs of clinical trials, manufacturing costs of clinical supplies and costs associated with preparation of worldwide product marketing applications. In 2001, after receipt of its first product marketing approval, the Company began to capitalize Replagal production costs as inventory, reducing the amount classified as research and development expense. The amount of future research and development expenses associated with the Replagal program is not reasonably certain as these costs are dependent principally upon the regulatory process and information required by regulatory agencies, as well as the timing of obtaining marketing authorization in the United States and other countries, if granted. The Company expects expenses associated with the development of Replagal to decrease during the second half of 2002 and beyond, as many of the costs related to its development have previously been incurred.

The iduronate-2-sulfatase (“I2S”) program has completed a Phase I/II clinical trial. Based on preliminary results, the Company intends to conduct a pivotal Phase III study of I2S. Research and development expenses for the I2S program in the second quarter of 2002 and 2001 include costs associated with the Company’s Phase I/II clinical trial, including the manufacture of clinical supplies. Future research and development costs for the I2S program are not reasonably certain because such costs are dependent on a number of variables, including the cost, nature and extent of the Phase III study and additional clinical trials, if any, uncertainties in the timing of the regulatory process and information required by regulatory agencies, and the costs associated with large scale manufacture of iduronate-2-sulfatase. The Company expects that these costs will be significant and are likely to increase each year until such time, if ever, as marketing approvals are received, which the Company believes will not be earlier than 2004.

The Company’s gene therapy product to deliver Factor VIII to patients with hemophilia A has completed a Phase I clinical trial. For 2002 and 2001, research and development expenses included the cost of the Phase I clinical study, the related manufacture of clinical supplies and additional basic research and process development expenses. The Company is currently designing a Phase II study. Given the regulatory hurdles likely to be encountered in the

development and marketing approval of any gene therapy product, the timing or cost associated with the project is not reasonably certain. As no gene therapy product has ever received marketing approval, the Company expects development costs will be substantial.

Selling, general and administrative expenses were $7,476,000 for the quarter ended June 30, 2002, compared with $5,831,000 for the same period in 2001. The increase in 2002 of $1,645,000, or 28%, principally was the result of Replagal launch activities in Europe and the expansion of the Company’s global commercial infrastructure including sales, marketing and distribution capabilities and increased administrative facility costs. During the second half of 2002, selling, general and administrative costs are expected to increase significantly in anticipation of a possible launch of Replagal in the United States. In addition, with the completion of the new corporate headquarters discussed above, selling, general and administrative occupancy costs will continue to increase significantly in 2002.

Net interest income was $2,248,000 and $2,864,000 for the three months ended June 30, 2002 and 2001, respectively. The average cash and marketable securities balances were $351,517,000 and $213,082,000 for the three months ended June 30, 2002 and 2001, respectively. Despite higher average cash and marketable securities balances for the second quarter of 2002, interest income decreased by $616,000 as a result of significantly lower rates of return in the second quarter of 2002.

The Company had a net loss of $42,881,000 and $21,065,000 for the three months ended June 30, 2002 and 2001, respectively. Basic and diluted net loss per share was $1.24 for the three months ended June 30, 2002, as compared to a basic and diluted net loss per share of $0.92 for the corresponding period in 2001. As noted above, included in the loss for the second quarter of 2002 is an intellectual property license fee expense of $26 million which increased basic and diluted net loss per share by $0.75.

For the three months ended June 30, 2002 and 2001, weighted average shares outstanding were 34,462,000 and 22,859,000, respectively. The increase in weighted average shares outstanding reflects the sale of 7,785,000 common shares from the Company’s public offerings of Common Stock in June and December 2001 and the issuance of 3,571,000 shares of Common Stock upon the conversion of all of the then outstanding Series A Convertible Preferred Stock in November 2001.

For the Six Months Ended June 30, 2002 and 2001

Product sales totaled $14,840,000 for the six months ended June 30, 2002. For the six months ended June 30, 2001, the Company recognized product revenue of $297,000 from compassionate use sales of Replagal in Europe.

License and research revenues totaled $635,000 and $1,628,000 for the six months ended

June 30, 2002 and 2001, respectively. License and research revenues in 2002 and 2001 were earned primarily under the Company’s collaboration agreements with Wyeth and Sumitomo.

Cost of goods sold was $2,198,000, or 15% of product sales, for the six months ended June 30, 2002. For the six months ended June 30, 2001, there were no costs of goods sold. Inventory and components of inventory, which were previously expensed as a research and development cost prior to marketing approval in August 2001, were sold in 2001 and in the first half of 2002. As of June 30, 2002, this inventory has been fully utilized.

Research and development expenses totaled $39,277,000 in the first six months of 2002, as compared to $35,311,000 during the same period in 2001. The increase in 2002 was $3,966,000, or 11%. In addition, the Company capitalized $9,167,000 of Replagal production costs as inventory during the first half of 2002 that, prior to product approval in August 2001, would have been included in research and development expenses. Increases in research and development spending in 2002 were primarily due to increased hiring of research and development staff, an expenditure of $5.5 million related to set-up and technology transfer fees to a contract manufacturer and increased occupancy costs related to the Company’s new headquarters.

The expenses associated with the Company’s four largest research and development programs totaled approximately 85% of total research and development expenses for the six months ended June 30, 2002 and 88% of total research and development expenses for the corresponding period in 2001.

In June 2002, the Company obtained an exclusive license to certain intellectual property from Cell Genesys related to their approach to gene activation. For the six months ended June 30, 2002, the Company incurred a license fee of $26 million.

Selling, general and administrative expenses were $13,899,000 for the six months ended June 30, 2002, compared with $10,790,000 during the same period in 2001. The increase in 2001 of $3,109,000, or 29%, was principally due to costs incurred in preparation for worldwide launch of the Company’s Replagal product and increased administrative facility costs.

Net interest income was $4,551,000 and $6,294,000 for the six months ended June 30, 2002 and 2001, respectively. For the six months ended June 30, 2002 and 2001, the average cash and marketable securities balances were $368,183,000 and $223,395,000,respectively. Despite higher average cash and marketable securities balances in 2002, interest income decreased by $1,743,000 as a result of significantly lower rates of return in 2002.

During the six months ended June 30, 2001, TKT sold substantially all of its investment in a European biotechnology company resulting in a gain of $2,785,000. In 1996, TKT made a strategic investment of $300,000 in such company.

The Company had a net loss of $61,348,000 and $35,097,000 for the six months ended June 30, 2002 and 2001, respectively. Basic and diluted net loss per share was $1.78 for the six months ended June 30, 2002, as compared to a basic and diluted net loss per share of $1.54 for the corresponding period in 2001. Included in the loss for the six months ended June 30, 2002 is

an intellectual property license fee expense of $26 million which impacted basic and diluted net loss per share by $0.76 per share.

For the six months ended June 30, 2002 and 2001, weighted average shares outstanding were 34,397,000 and 22,789,000, respectively. The increase in weighted average shares outstanding reflects the sale of 7,785,000 common shares from the Company’s public offerings of Common Stock in June and December 2001 and the issuance of 3,571,000 shares of Common Stock upon the conversion of all of the then outstanding Series A Convertible Preferred Stock in November 2001.

LIQUIDITY AND SOURCES OF CAPITAL

Since its inception, the Company has financed its operations through the sale of Common and Preferred Stock, borrowings under debt agreements, revenues from collaborative agreements, interest income, and, more recently, with the sale of Replagal.

The Company had cash, cash equivalents and marketable securities totaling $326,619,000 at June 30, 2002, including restricted marketable securities collateralizing letters of credit totaling $8,123,000. Cash equivalents and marketable securities are invested in United States government and agency obligations and money market funds.

Substantial additional funds may be required to support the Company’s research and development programs, acquisition of technologies, preclinical and clinical testing of its products, pursuit of regulatory approvals, acquisition of capital equipment, expansion of laboratory and office facilities, expansion of manufacturing capabilities, selling, general and administrative expenses and the buyout of the minority interests in TKT Europe – 5S AB (“TKT Europe”), if applicable, as discussed below.

The Company expects that its existing capital resources, together with cash from collaborative agreements, product sales, and interest income, will be sufficient to fund its operations through at least 2004. The Company’s cash requirements for operating activities, financing activities and investment activities have exceeded its internally generated funds. The Company expects that its cash requirements for such activities will continue to exceed its internally generated funds until it is able to generate substantial product sales, particularly because it expects operating expenses to continue to increase in the future, including its research and development expenses, as its product development efforts accelerate.

The Company’s cash requirements may vary depending on a number of factors, including Replagal product sales, costs associated with the manufacture, marketing and sale of Replagal, expenses related to the Company’s research and development efforts, the timing of approvals, if granted, to market the Company’s products either in the United States or abroad, the ability of the Company to access capital markets, the timing of additional license fees and milestone payments under existing collaborative research agreements and the establishment of additional collaborative research agreements, if any.

Until such time, if any, as the Company’s operations generate significant product sales, the Company will seek to fund operations with cash resources, interest income, proceeds from

equity offerings, and debt financings, and funding from collaborative agreements. 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 may pursue opportunities to obtain additional financing in the future through equity financings, debt financings, lease arrangements related to facilities and capital equipment, and collaborative research agreements. The source, timing and availability of any future financing will depend principally upon equity and debt market conditions, interest rates and, more specifically, on the Company’s continued progress in its exploratory, preclinical, and clinical development programs, and the extent of its commercial success. There can be no assurance that such funds will be available on favorable terms, if at all.

In December 2001, the Company sold 4,220,000 shares of its Common Stock resulting in net proceeds to the Company of $158,945,000.

In June 2001, the Company sold 3,565,000 shares of its Common Stock resulting in net proceeds to the Company of $96,161,000.

In January 2001, the Company purchased a manufacturing facility for $8,800,000 and leased an adjoining facility. The Company expects to make improvements to these facilities, which could total approximately $30,000,000 in 2002 and 2003. The Company expects that these facilities will be used to manufacture one or more of the proteins in its product pipeline.

The Company may seek financing for all or a significant portion of the cost of the leasehold improvements described above. There can be no guarantee that financing will be available on favorable terms, if at all.

In August 2000, the Company entered into a lease for a new corporate headquarters and research and development facility in Cambridge, Massachusetts. The Company expects to spend approximately $20,000,000 for leasehold improvements and equipment for the remainder of 2002 to outfit the building.

In April 2000, the Company entered into an agreement with stockholders of TKT Europe to establish the Company’s European sales and marketing subsidiary. Prior to this agreement, these stockholders were neither employees nor affiliated parties of the Company. These stockholders are the principal managers of TKT Europe and own a 20% interest in it, while the Company owns the remaining 80% interest. The agreement includes provisions entitling the Company to purchase the stockholders’ ownership interest in TKT Europe in August 2004, under a specified formula. Should the Company not exercise that right, the stockholders of TKT Europe can require the Company to purchase its ownership interest sixty days thereafter. The buy out price is equal to (a) 20% of operating profits of TKT Europe, as defined, for the period from September 1, 2003 to August 31, 2004, multiplied by a buy-out factor of four, subject to adjustment, plus (b) 20% of the accumulated positive earnings of TKT Europe. As a result, the amount of the buy out price will be dependent on the revenues and profits of TKT Europe, primarily from the commercial success of Replagal in Europe. These revenues and profits cannot be estimated at this time.

In June 2002, the Company obtained an exclusive license to certain intellectual property from Cell Genesys, related to their approach to gene activation. For the quarter ended June 30, 2002, the Company incurred a license fee expense of $26 million, which was funded with $11 million in cash and $15 million worth of shares of the Company’s Common Stock. Cell Genesys also has the potential to receive certain milestone payments contingent upon the outcome of related patent matters. The Company is not required to make royalty payments under the agreement.

At June 30, 2002, the Company had committed to pay approximately $43,050,000 to third parties for certain product development activities through 2004. The Company has the right to terminate the agreements upon six months written notice.

At December 31, 2001, the Company had net operating loss carryforwards of approximately $200,075,000, which expire at various times through 2022. Due to the degree of uncertainty related to the ultimate use of loss carryforwards and tax credits, the Company has fully reserved against any potential tax benefit. The future utilization of net operating loss carryforwards and tax credits may be subject to limitation under the changes in stock ownership rules of the Internal Revenue Code. Because of this limitation, it is possible that taxable income in future years, which would otherwise be offset by net operating losses, will not be offset and, therefore, will be subject to tax.

The Company has been engaged in patent litigation with Genzyme and Mount Sinai with respect to the development of Replagal. As of June 30, 2002, the Company had incurred approximately $4.3 million in litigation expenses associated with the Replagal litigation.

In addition, the Company and Aventis have been involved in a patent infringement action with Amgen and Kirin-Amgen with respect to the development of Dynepo. The litigation is costly and the Company is required to reimburse Aventis, which is paying the litigation expenses, for 50% of the expenses. Aventis is entitled to deduct up to 50% of any royalties due to the Company from the sale of Dynepo until Aventis has recouped the full amount of TKT’s share of litigation expenses. The Company currently estimates that its share of the expenses associated with the litigation will total between approximately $5 million and $10 million by the time the matter is finally adjudicated. Although Dynepo was approved by the European Agency for the Evaluation for Medicinal Products in March 2002, the launch of Dynepo has not been planned due to the uncertainty of the outcome of litigation in the United States.

The Company can provide no assurance as to the outcome of these proceedings. A decision by a court in any jurisdiction in a manner adverse to the Company would have a material adverse effect on the Company’s business, financial condition, and the results of operations.

FORWARD-LOOKING STATEMENTS

This quarterly report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 that involve risks and uncertainties

The Company may, in some cases, use words such as “project,” “believe,” “anticipate,” “plan,” “expect,” “estimate,” “intend,” “should,” “would,” “could,” “will,” or “may,” or other words that convey uncertainty of future events or outcomes to identify these forward–looking statements. There are a number of important factors that could cause actual results to differ materially from the results anticipated by these forward–looking statements. These important factors include those set forth below under “Certain Factors That May Affect Future Results.” These factors and the other cautionary statements made in this quarterly report should be read as being applicable to all related forward–looking statements wherever they appear in this quarterly report. If one or more of these factors materialize, or if any underlying assumptions prove incorrect, the Company’s actual results, performance or achievements may vary materially from any future results, performance or achievements expressed or implied by these forward–looking statements. In addition, any forward-looking statements represent the Company’s estimates only as of the date this quarterly report was filed with the Securities and Exchange Commission and should not be relied upon as representing the Company’s estimates as of any subsequent date. While the Company may elect to update forward-looking statements at some point in the future, the Company specifically disclaims any obligation to do so, even if its estimates change.

CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS

The following important factors could cause actual results to differ from those indicated by forward-looking statements made by the Company from time to time.

RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below before purchasing our common stock. If any of the following risks actually occur, our business, financial condition or results of operations would likely suffer. In that case, the trading price of our common stock could fall, and you could lose all or part of the money you paid to buy our common stock.

Regulatory Risks

We may not be able to obtain marketing approvals for our products.

We are not able to market any of our products in Europe, the United States or in any other jurisdiction without marketing approval from the European Agency for the Evaluation of Medicinal Products, the United States Food and Drug Administration, or FDA, or any equivalent foreign regulatory agency. The regulatory process to obtain market approval for a new drug or biologic takes many years and requires the expenditure of substantial resources. We have had only limited experience in preparing applications and obtaining regulatory approvals.

Replagal was granted marketing authorization in the fifteen countries of the European Union by the European Commission in August 2001, approximately one year after we submitted our Marketing Authorization Application to the European Agency for the Evaluation of Medicinal Products and approximately five years after we filed our Investigational New Drug application with the FDA. We have also received approval to market Replagal in a number of other countries.

In the United States, we submitted a Biologics License Application to the FDA seeking marketing authorization for Replagal. In January 2001, the FDA issued a complete review letter regarding the Biologics License Application. The FDA letter stated that the data that we had provided was not adequate for approval of the Biologics License Application at that time and requested additional information. In response to this letter, we have discussed the Biologics License Application with the FDA and have submitted additional data.

On September 27, 2002, the FDA’s Endocrinologic and Metabolic Drugs Advisory Committee is scheduled to meet to evaluate our Biologics License Application for Replagal. FDA Advisory Committees provide the FDA with independent advice on marketing applications. The FDA generally follows the recommendations of its Advisory Committees, but is not bound to do so. The Advisory Committee is scheduled to meet to discuss Genzyme’s competing drug for the treatment of Fabry disease on September 26, 2002.

After the Advisory Committee meets, the FDA may either approve our Biologics License Application or decline to approve it. If it declines to approve the Biologics License Application, the FDA may request additional information, possibly including data from additional clinical trials.

During 2000, Aventis submitted a Marketing Authorization Application to the European Agency for the Evaluation of Medicinal Products seeking marketing authorization of Dynepo in the European Union for the treatment of anemia associated with kidney disease. In March 2002, the European Commission granted marketing approval of Dynepo in the European Union.

Also during 2000, Aventis submitted a Biologics License Application to the FDA seeking marketing authorization for Dynepo in the United States. The FDA did not accept this Biologics License Application for filing, requesting that Aventis provide additional manufacturing data. Aventis is currently accumulating these data and, when complete, we expect that Aventis will submit a new Biologics License Application.

There can be no assurance as to whether or when any of these applications for marketing authorization relating to Replagal and Dynepo, or additional applications for marketing authorization

that we may make in the future as to these or other products, will be approved by the relevant regulatory authorities.

If we fail to comply with the extensive regulatory requirements to which our products are subject, we could be subject to adverse consequences and penalties.

The testing, manufacturing, labeling, advertising, promotion, export, and marketing, among other things, of our products are subject to extensive regulation by governmental authorities in Europe, the United States, and elsewhere throughout the world.

In general, there can be no assurance that submission of materials requesting permission to conduct clinical trials will result in authorization by the European Agency for the Evaluation of Medicinal Products, the FDA or equivalent foreign regulatory agency to commence clinical trials, or that once clinical trials have begun, testing will be completed successfully within any specific time period, if at all, with respect to any of our products. Once trials are complete and an application has been submitted to the relevant regulatory agency, the regulatory agency may deny the application if applicable regulatory criteria are not satisfied, or may require additional testing or information.

If regulatory approval of a product is granted, such approval may be subject to limitations on the indicated uses for which the product may be marketed or contain requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of the product. As to any product for which we obtain marketing approval, the product, the facilities at which the product is manufactured, any post-approval clinical data and our promotional activities will be subject to continual review and periodic inspections by the European Agency for the Evaluation of Medicinal Products, the FDA and other regulatory authorities.

In addition to regulations adopted by the FDA, the European Agency for the Evaluation of Medicinal Products and other foreign regulatory authorities, we are also subject to regulation under the Occupational Safety and Health Act, the Toxic Substances Control Act, the Resource Conservation and Recovery Act, and other federal, state, or local regulations. We expend significant funds, time and other resources in our effort to comply with applicable regulatory requirements.

Violations of regulatory requirements may result in various adverse consequences, including the European Agency for the Evaluation of Medicinal Products’ or FDA’s delay in approving or refusal to approve a product, suspension or withdrawal of an approved product from the market, operating restrictions, or the imposition of civil or criminal penalties.

We may not be able to obtain orphan drug exclusivity for our Niche Protein products. If our competitors are able to obtain orphan drug exclusivity before us, we may be precluded from marketing our Niche Protein products.

Some jurisdictions, including Europe and the United States, may designate drugs for relatively small patient populations as “orphan drugs.” Orphan drug designation must be requested before submitting a Biologics License Application. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process but does make the product eligible for orphan drug exclusivity. Generally, if a product which has an orphan drug designation subsequently receives the first marketing approval for the indication for which it has such designation, the product is entitled to orphan drug exclusivity. Orphan drug exclusivity means that applications to market the same product for the same use may not be approved, except in very limited circumstances, for a period of up to 10 years in Europe and for a period of seven years in the United States. Obtaining orphan drug designations and orphan drug exclusivity for our Niche Protein products may be critical to the success of this platform. Even if we obtain orphan drug exclusivity for any of our potential products, we may not be able to maintain it. For example, if a competitive product is shown to be clinically superior to our product, any orphan drug exclusivity we have obtained will not apply to

such competitive product. Our competitors may also seek and obtain orphan drug exclusivity for products competitive with our products before we obtain marketing approval.

Replagal was granted marketing authorization in the fifteen countries of the European Union by the European Commission in August 2001. A competitive product for the treatment of patients with Fabry disease, marketed by Genzyme, was also granted marketing authorization in the European Union. Both Replagal and Genzyme’s competing product were granted co-exclusive orphan drug status in the European Union for up to 10 years.

In the United States, both we and Genzyme have received orphan drug designation for our respective products for Fabry disease. Whichever product is the first to receive FDA marketing approval would likely receive orphan drug exclusivity for that product. Once a product receives orphan drug exclusivity, the FDA may not approve any other applications to market the same class of product for Fabry disease for a period of seven years, except in limited circumstances.

If our clinical trials are not successful, we may not be able to develop and commercialize our products.

In order to obtain regulatory approvals for the commercial sale of our potential products, we and our collaborators will be required to complete extensive clinical trials in humans to demonstrate the safety and efficacy of our products. We may not be able to obtain authority from the European Agency for Evaluation to Medicinal Products, the FDA or other regulatory agencies to commence or complete these clinical trials.

The results from preclinical testing of a product that is under development may not be predictive of results that will be obtained in human clinical trials. In addition, the results of early human clinical trials may not be predictive of results that will be obtained in larger scale, advanced stage clinical trials. Furthermore, we, one of our collaborators, or a regulatory agency with jurisdiction over the trials may suspend clinical trials at any time if the subjects or patients participating in such trials are being exposed to unacceptable health risks, or for other reasons.

The rate of completion of clinical trials is dependent in part upon the rate of 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, the existence of competitive clinical trials, and the availability of alternative treatments. In particular, the patient populations for some of our Niche Protein products are small. For instance, we believe there are up to 5,000 patients worldwide afflicted with Hunter syndrome and up to 5,000 patients worldwide afflicted with Fabry disease. We are currently conducting clinical trials of iduronate-2-sulfatase for the treatment of Hunter syndrome and Factor VIII gene therapy for the treatment of Hemophilia A. Delays in planned patient enrollment may result in increased costs and prolonged clinical development.

We and our collaborators may not be able to successfully complete any clinical trial of a potential product within any specified time period. In some cases, we may not be able to complete the trial at all. Moreover, clinical trials may not show our potential product to be both safe and efficacious. Thus, the European Agency for Evaluation to Medicinal Products, the FDA and other regulatory authorities may not approve any of our potential products for any indication.

Because gene therapy is a relatively new technology and gene therapy products have not been extensively tested in humans, we may face delays and incur increased costs in the regulatory process related to our gene therapy products.

We are developing gene therapy products. 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 more uncertain than for other types of products. This uncertainty may cause delays in the regulatory process relating to our gene therapy products, including

delays in our initiating clinical trials of these products. This uncertainty may also increase the cost of obtaining regulatory approvals of our gene therapy products.

Ethical and social issues may cause regulatory authorities to increase the regulation of gene therapy clinical trials, which may impair our ability to conduct gene therapy clinical trials in the future.

No patients in our gene therapy clinical trials of Factor VIII for the treatment of hemophilia A have experienced any serious adverse events that have been judged to be related to our gene therapy products. However, due to adverse events that have occurred during some gene therapy clinical trials conducted by other biotechnology and pharmaceutical companies and institutions, the Federal government, the European Agency for Evaluation to Medicinal Products, the FDA, industry organizations, and institutions conducting gene therapy clinical trials have grown increasingly concerned about the safety of these clinical trials. An increased concern over gene therapy trials generally may lead the Federal government, the European Agency for Evaluation to Medicinal Products, the FDA or other regulatory agencies to impose further regulation on gene therapy clinical trials. If further regulations are imposed on gene therapy research generally, the delays and costs involved in complying with such regulations may impair our ability to conduct gene therapy clinical trials in the future.

Patent Litigation and Intellectual Property Risks

We are a party to litigation with Genzyme and Mount Sinai involving Replagal which could preclude us from manufacturing or selling Replagal.

Since July 2000, we have been involved in patent litigation relating to Replagal brought by Genzyme and Mount Sinai in the U.S. District Court for the District of Delaware regarding a patent licensed by Genzyme from Mount Sinai. In January 2002, the Delaware District Court dismissed this patent litigation, granting our motion for summary judgment of non-infringement and denying Genzyme’s motion for summary judgment of infringement. In March 2002, Genzyme appealed the ruling to the U.S. Federal Circuit Court of Appeals. If Genzyme is successful in its appeal, the case will be remanded to the Delaware District Court for further proceedings on non-infringement and invalidity issues. If we were to ultimately lose this case after trial and appeal, we would be precluded from making, using and selling Replagal. We can provide no assurance as to the outcome of this litigation. As of March 31, 2002, we have incurred approximately $4.1 million in litigation expenses associated with the Replagal litigation.

We are a party to litigation with Amgen and Kirin-Amgen involving Dynepo which could preclude us from manufacturing or selling Dynepo.

In April 1997, Amgen commenced a patent infringement action against us and Aventis in the U.S. District Court for the District of Massachusetts. In January 2001, the Massachusetts District Court concluded that Dynepo infringed 8 of the 18 claims of patents asserted by Amgen. Amgen did not seek and was not awarded monetary damages. We and Aventis have filed an appeal of the decision with the U.S. Federal Circuit Court of Appeals. Amgen has also appealed this decision. If we are not successful in our appeal, we and Aventis would be precluded from making, using and selling Dynepo in the United States.

In addition, in July 1999, we and Aventis commenced legal proceedings in the U.K. against Kirin-Amgen, seeking a declaration that a U.K. patent held by Kirin-Amgen will not be infringed by our activities related to Dynepo and that certain claims of Kirin-Amgen’s U.K. patent are invalid. In April 2001, the High Court of Justice in the United Kingdom ruled that Dynepo infringed one of four claims of a patent asserted by Kirin-Amgen. In July 2002, the Court of Appeals in the United Kingdom reversed the High Court of Justice and ruled that Dynepo did not infringe Kirin-Amgen’s patent. Kirin-Amgen may appeal this decision.

We can provide no assurance as to the outcome of either litigation. In addition, the launch of Dynepo has not been planned due to the uncertainty of the outcomes of the litigation. The litigation is costly and we are required to reimburse Aventis, which is paying the litigation expenses, for 50% of the expenses. Aventis is entitled to deduct up to 50% of any royalties due to us from it with respect to the sale of Dynepo until Aventis has recouped the full amount of our share of litigation expenses. We currently estimate that our share of the expenses associated with the litigation will total between approximately $5 million and $10 million by the time the matter is finally adjudicated.

We may become involved in additional and expensive patent litigation or other proceedings.

The biotechnology industry has been characterized by significant litigation, and interference and other proceedings regarding patents, patent applications, and other intellectual property rights. We may become a party to additional patent litigation and other proceedings with respect to our Niche Protein products, Gene-Activated proteins, Transkaryotic gene therapy technology or other technologies. Such litigation could result in liability for damages, prevent our development and commercialization efforts, and divert management’s attention and resources.

An adverse outcome in any patent litigation or other proceeding involving patents could subject us to significant liabilities to third parties and require us to cease using the technology or product that is at issue or to license the technology or product from third parties. We may not be able to obtain any required licenses on commercially acceptable terms, or at all.

The cost to us of any patent litigation or other proceeding, even if resolved in our favor, could be substantial. Some of our competitors may be able to sustain these costs more effectively than we can because of their substantially greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to develop, manufacture, and market products, form strategic alliances, and compete in the marketplace.

If we are unable to obtain patent protection for our discoveries, the value of our technology and products may be adversely affected.

Our success will depend in large part on our ability to obtain patent protection for our processes and products in the United States and other countries. The patent situation in the field of biotechnology generally is highly uncertain and involves complex legal, scientific and factual questions. We may not be issued patents relating to our technology. Even if issued, patents may be challenged, invalidated, or circumvented. Our patents also may not afford us protection against competitors with similar technology. Because patent applications in the United States are maintained in secrecy until patents issue, third parties may have filed or maintained patent applications for technology used by us or covered by our pending patent applications without our being aware of these applications.

We may not hold proprietary rights to certain product patents, process patents, and use patents related to our products or their methods of manufacture. In some cases, these patents may be owned or controlled by third parties. As a result, we may be required to obtain licenses under third party patents to market certain of our potential products. If licenses are not available to us on acceptable terms, we may not be able to market these products.

As of June 30, 2002, we owned 27 issued U.S. patents and 95 corresponding issued foreign patents. As of June 30, 2002, we licensed 13 issued U.S. patents and additional corresponding foreign patents. The patents owned or licensed by us expire at various dates through 2020 and cover our Niche Protein products, Gene-Activated protein products and gene therapy products.

If we are unable to protect the confidentiality of our proprietary information and know-how, the value of our technology and products will be adversely affected.

We rely upon unpatented proprietary technology, processes, and know-how. We seek to protect this information in part by confidentiality agreements with our employees, consultants, and other third party contractors. These agreements may be breached, and we may not have adequate remedies for any such breach. In addition, our trade secrets may otherwise become known or be independently developed by competitors.

If we fail to comply with any of our obligations under any of the agreements under which we license commercialization rights to products or technology from third parties, we could lose license rights that are important to our business.

We are a party to 13 patent licenses that are important to our business and expect to enter into additional patent licenses in the future. These licenses impose various commercialization, sublicensing, royalty, insurance, and other obligations on us. If we fail to comply with these obligations, the licensor may have the right to terminate the license and we may not be able to market products that were covered by the license.

Business Risks

Our revenue from product sales is dependent on the commercial success of Replagal

During 2001, we received marketing authorizations for our first product. Replagal was granted marketing authorization in the European Union in August 2001. We have also received approval to market Replagal in seven other countries. We expect that Replagal will account for all of our product sales into 2004, at the earliest. Through March 31, 2002, we had recorded $9.6 million of product sales from the sale of Replagal.

The commercial success of Replagal will depend on its acceptance by physicians, patients and other key decision-makers for the treatment of Fabry disease. If Replagal does not generate significant product sales, we will be required to fund operations with cash resources, interest income, proceeds from equity offerings and debt financings and funding from collaborative agreements.

The market may not be receptive to our products upon their introduction.

The commercial success of any of our products for which we obtain marketing approval from the European Agency for Evaluation to Medicinal Products, the FDA, and other regulatory authorities will depend upon their acceptance by patients, the medical community and third party payors as clinically effective, safe and cost-effective. It may be difficult for us to achieve market acceptance of our products.

Other factors that we believe will materially affect market acceptance of our products include:

• the timing of the receipt of marketing approvals;

• the countries in which such approvals are obtained; and

• the safety, efficacy, convenience, and cost-effectiveness of the product as compared to competitive products.

We have limited experience and resources in manufacturing and will incur significant costs to develop this experience or rely on third parties to manufacture our products on our behalf.

We have limited manufacturing experience and in order to continue to develop products, apply for regulatory approvals, and commercialize our products, we will need to develop, contract for, or otherwise arrange for the necessary manufacturing capabilities. We currently use, and expect to continue to use in the future, internal manufacturing and contract manufacturing by third parties to meet our production requirements for preclinical testing, clinical trials, and commercial supply.

To the extent that we are a party to manufacturing arrangements with third parties, we will be dependent upon these third parties to perform their obligations in a timely manner and in accordance with applicable government regulations. There are a limited number of such third-party manufacturers capable of manufacturing our protein products with a limited amount of production capacity. As a result, we may experience difficulty in obtaining adequate manufacturing capacity for our needs. If we are unable to obtain or maintain contract manufacturing of these products, or to do so on commercially reasonable terms, we may not be able to complete development of these products or market them.

To the extent that we elect not to or cannot contract for third-party manufacturing for any of our products, we will need to manufacture these products in our own manufacturing facilities. We have limited manufacturing experience. We are investing, and may need to invest in the future, substantial additional funds to build our own manufacturing facilities and need to recruit qualified personnel in order to build or lease and operate any manufacturing facilities. There can be no assurance that we will be able to successfully build or operate our own facilities, that our facilities will comply with applicable regulations or that our facilities will enable us to manufacture our products at a commercially reasonable cost.

Any manufacturing of our products must comply with the FDA’s Good Manufacturing Practices. Before approving a Biologics License Application for a product, the FDA will inspect the facilities at which the product is manufactured. If the FDA determines that we or our third party manufacturers do not comply with Good Manufacturing Practices, the FDA may refuse to approve our future Biologics License Applications, require additional testing or information, or require post-marketing testing and surveillance to monitor the safety or efficacy of a product. Once the FDA approves a product, we or our third party manufacturers must continue to comply with Good Manufacturing Practices. If we or our third party manufacturers fail to maintain compliance with Good Manufacturing Practices, the FDA could impose fines on us or restrictions on a product or on us, including requiring us to withdraw a product from the market. We expend significant funds, time and effort in the area of production and quality control to maintain compliance with Good Manufacturing Practices.

If we fail to obtain an adequate level of reimbursement by third party payors for our products, we may not have commercially viable markets for our products.

In certain countries, particularly the countries of the European Union, the pricing of prescription pharmaceuticals and the level of reimbursement are subject to governmental control. In the United States, the availability of reimbursement by governmental and other third party payors affects the market for any pharmaceutical product. These third party payors continually attempt to contain or reduce the costs of health care by challenging the prices charged for medical products and services.

We expect that the prices for many of our products, when commercialized, including in particular, our Niche Protein products, may be high compared to other pharmaceutical products. We have established pricing and reimbursement in substantially all countries in which Replagal has been approved. The price established averages approximately $165,000 per patient per year. We have not received any revenues from the sale of Replagal in the countries where we have received marketing approval but have not established reimbursement. We do not expect to receive any revenues in those countries until reimbursement is established. The price of our products may make reimbursement more difficult to obtain, if it can be obtained at all.

The Centers for Medicare and Medicaid Services of the United States Department of Health and Human Services has considered proposals from time to time to reduce the reimbursement rate with respect to erythropoietin. If Dynepo is approved and commercialized, adoption by the Centers for Medicare and Medicaid Services of any such proposal might have an adverse effect on the pricing of Dynepo.

We also may experience pricing pressure with respect to Replagal and other products for which we may obtain marketing approval due to the trend toward managed health care, the increasing influence of health maintenance organizations and legislative proposals. We may not be able to sell our products profitably if reimbursement is unavailable or limited in scope or amount.

We face significant competition, which may result in others discovering, developing or commercializing products before, or more successfully, than we do.

The biotechnology industry is highly competitive and characterized by rapid and significant technological change. Our competitors include pharmaceutical companies, biotechnology firms, universities, and other research institutions. Many of these competitors have substantially greater financial and other resources than we do and are conducting extensive research and development activities on technologies and products similar to, or competitive, with ours.

We may be unable to develop technologies and products that are more clinically efficacious or cost-effective than products developed by our competitors. Even if we obtain marketing approval for our product candidates, many of our competitors have more extensive and established sales, marketing, and distribution capabilities than we do. Litigation with third parties, including litigation with Amgen and Genzyme, could delay our time to market or preclude us from reaching the market for certain products and enable our competitors to more quickly and effectively penetrate certain markets.

Niche Protein Products. For many of the disease targets of our Niche Protein product platform, there is currently no cure or effective treatment. Treatments generally are focused on the management of the disease’s symptoms. In general, we believe that these diseases represent markets too small to attract the resources of larger pharmaceutical companies but may provide attractive commercial opportunities to smaller companies.

We believe that the primary competition with respect to our Niche Protein product program is from biotechnology and smaller pharmaceutical companies. Competitors include BioMarin Pharmaceutical Inc., Genzyme, and Oxford GlycoSciences plc. The markets for some of the potential Niche Protein products are quite small. As a result, if competitive products exist, we may not be able to successfully commercialize our products.

We believe that our primary competition with respect to Replagal is Genzyme. Replagal was granted marketing authorization in the fifteen countries of the European Union by the European Commission in August 2001. A competitive product for the treatment of patients with Fabry disease, marketed by Genzyme, was also granted marketing authorization in the European Union. Both Replagal and Genzyme’s competing product were granted co-exclusive orphan drug status in the European Union for up to 10 years.

Gene-Activated Protein Products. In our Gene-Activated protein program, we are developing potentially improved versions of proteins that are currently marketed and proteins that have no currently-marketed counterparts. For instance, in the case of Dynepo, erythropoietin and competing products are marketed by Amgen, Johnson & Johnson, F. Hoffmann-La Roche Ltd. (Boehringer Mannheim GmbH), Sankyo Company Ltd., Chugai Pharmaceutical Co., Ltd., and the pharmaceutical division of Kirin Brewery Co., Ltd.

Many of the protein products against which our Gene-Activated proteins would compete have well-known brand names, have been promoted extensively and have achieved market acceptance by third-party payors, hospitals, physicians, and patients. In addition, many of the companies that produce these protein products have patents covering techniques used to produce these products, which have served as effective barriers to entry in the therapeutic proteins market. As with Amgen and its erythropoietin product, these companies may seek to block our entry into the market by asserting that our Gene-Activated proteins infringe their patents. Many of these companies are also seeking to develop and commercialize new or potentially improved versions of their proteins.

Gene Therapy. Our gene therapy system will have to compete with other gene therapy systems, as well as with conventional methods of treating the diseases and conditions targeted. Although no gene therapy product is currently marketed in the United States, a number of companies, including major biotechnology and pharmaceutical companies, as well as development stage companies, are actively involved in this field.

Competition for technical, commercial and administrative personnel is intense in our industry and we may not be able to sustain our operations or grow if we are unable to attract and retain key personnel.

Our success is highly dependent on the retention of principal members of our technical, commercial, and administrative staff including, in particular, Dr. Richard F Selden, our founder and President and Chief Executive Officer. We are a party to an employment agreement with Dr. Selden, but this agreement may be terminated by us or Dr. Selden for any reason or no reason at any time upon notice to the other party. We do not have key man life insurance for Dr. Selden.

Our future growth will require hiring a significant number of qualified technical, commercial and administrative personnel. Accordingly, recruiting and retaining such personnel in the future will be critical to our success. There is intense competition from other companies and research and academic institutions for qualified personnel in the areas of our activities. If we are not able to continue to attract and retain, on acceptable terms, the qualified personnel necessary for the continued development of our business, we may not be able to sustain our operations or grow.

We have limited sales and marketing experience and capabilities and will need to develop this expertise or depend on third parties to successfully sell and market our products on our behalf.

We have limited sales and marketing experience and capabilities. In order to market our products, including Replagal, we will need to develop this experience and these capabilities or rely upon third parties, such as our collaborators, to perform these functions. If we rely on third parties to sell, market, or distribute our products, our success will be dependent upon the efforts of these third parties in performing these functions. In many instances, we may have little or no control over the activities of these third parties in selling, marketing, and distributing our products. If we choose to conduct these activities directly, as we plan to do with respect to some of our potential products, we may not be able

to recruit and maintain an effective sales force. Currently, our 80% owned subsidiary, TKT Europe, markets Replagal in Europe. Under our agreement with Aventis, Aventis is responsible for the sale and marketing of Dynepo. Due to the uncertainty of the outcomes of the ongoing litigation, the launch of Dynepo has not been planned.

We depend on our collaborators to develop, conduct clinical trials, obtain regulatory approvals for, and manufacture, market and sell certain products on our behalf and none of their efforts may be scientifically or commercially successful.

We are parties to collaborative agreements with third parties relating to certain of our principal products. We are relying on Aventis to develop, conduct clinical trials, obtain regulatory approvals for, and manufacture, market, and sell Dynepo in the United States and Europe; Sumitomo Pharmaceuticals Co., Ltd. to develop and commercialize Replagal for Fabry disease in Japan and other Asian countries; and Genetics Institute, Inc. to co-develop and commercialize Factor VIII gene therapy for hemophilia A in Europe. Our collaborators may not devote the resources necessary or may otherwise be unable or unwilling to complete development and commercialization of these potential products. Our existing collaborations are subject to termination without cause on short notice under specified circumstances.

Our existing collaborations and any future collaborative arrangements with third parties may not be scientifically or commercially successful. Factors that may affect the success of our collaborations include the following:

• our collaborators may be pursuing alternative technologies or developing alternative products, either on their own or in collaboration with others, that may be competitive with the product as to which they are collaborating with us or which could affect our collaborative partners’ commitment to the collaboration with us;

• reductions in marketing or sales efforts or a discontinuation of marketing or sales of our products by our collaborators would reduce our revenues, which will be based on a percentage of net sales by the collaborator;

• our collaborators may terminate their collaborations with us, which could make it difficult for us to attract new collaborators or adversely affect the perception of us in the business and financial communities; and

• our collaborators may pursue higher priority programs or change the focus of their development programs, which could affect the collaborator’s commitment to us.

We may be exposed to product liability claims and may not be able to obtain adequate product liability insurance.

Our business exposes us to the risk of product liability claims that is inherent in the manufacturing, testing, and marketing of human therapeutic products. We maintain clinical trial liability insurance and product liability insurance in amounts that we believe to be reasonable. This insurance is subject to deductibles and coverage limitations. We may not be able to obtain additional insurance or maintain insurance on acceptable terms or at all. Moreover, any insurance that we do obtain may not provide adequate protection against potential liabilities. If we are unable to obtain insurance at acceptable cost or otherwise protect against potential product liability claims, we will be exposed to significant liabilities, which may materially and adversely affect our business and financial position. These liabilities could prevent or interfere with our product commercialization efforts.

Financing Risks

We have not been profitable and expect to continue to incur substantial losses.

We have experienced significant operating losses since our inception in 1988. As of March 31, 2002, our accumulated deficit was $254.1 million. We had a net loss of $18.5 million for the three months ended March 31, 2002 and net losses of $70.2 million, $51.0 million and $44.5 million in 2001, 2000 and 1999, respectively.

We expect that we will continue to incur substantial losses and that, until we have substantial product sales, our cumulative losses will increase as our research and development, sales and marketing, and manufacturing efforts expand. We expect that the losses that we incur will fluctuate from quarter to quarter and that these fluctuations may be substantial. We recorded $3.5 million in product sales in 2001, and $6.1 million in product sales in the first quarter of 2002.

We may need additional financing, which may be difficult to obtain.

We believe that our existing capital resources, together with cash from collaborative agreements, product sales, and interest income, will be sufficient to fund our operations through at least 2004. Our cash requirements for operating activities, financing activities and investment activities have exceeded our internally generated funds. We expect that our cash requirements for such activities will continue to exceed our internally generated funds until we are able to generate substantial product sales, particularly because we expect our operating expenses to continue to increase in the future, including our research and development expenses, as our product development efforts accelerate. Our future capital requirements will depend on many factors, including the following:

• the timing, receipt, and amount of product sales;

• continued progress in our research and development programs, as well as the magnitude of these programs;

• the scope and results of our clinical trials;

• the timing of, and the costs involved in, obtaining regulatory approvals;

• the cost of manufacturing activities;

• the cost of commercialization activities, including product marketing, sales and distribution;

• the cost of additional facilities requirements;

• the costs involved in preparing, filing, prosecuting, maintaining, and enforcing patent claims and other patent-related costs, including litigation costs and the results of such litigation;

• the cost of obtaining and maintaining licenses to use patented technologies;

• our ability to establish and maintain collaborative arrangements;

• the cost of buying out the minority interest in TKT 5S-Europe, a subsidiary of ours in which we own an 80% interest, if applicable;

• the timing, receipt, and amount of milestones, royalties and other payments from collaborators; and

• other working capital requirements.

If we determine to seek additional funding, we may do so through collaborative arrangements and public or private financings. Additional financing may not be available to us on acceptable terms, if at all.

If we raise additional funds by issuing equity securities, further dilution to our then existing stockholders will result. In addition, the terms of the financing may adversely affect the holdings or the rights of such stockholders. If we are unable to obtain funding on a timely basis, we may be required to significantly curtail one or more of our research or development programs. We also could be required to seek funds through arrangements with collaborators or others that may require us to relinquish rights to certain of our technologies, product candidates, or products which we would otherwise pursue on our own.

PART II - Other Information

Item 1. Legal Proceedings

The Company can provide no assurance as to the outcome of any legal proceedings. A decision by a court in any other jurisdiction in a manner adverse to the Company could have a material adverse effect on the Company’s business, financial position, and results of operations.

Replagal™ Patent Litigation

Since July 2000, the Company has been involved in patent litigation relating to Replagal brought by Genzyme and Mount Sinai in the Delaware District Court regarding a patent licensed by Genzyme from Mount Sinai. In January 2002, the Delaware District Court dismissed this patent litigation. In March 2002, Genzyme appealed the ruling to the Federal Circuit. If Genzyme is successful in its appeal, the case will be remanded to the Delaware District Court for further proceedings on non-infringement and invalidity issues. As of June 30, 2002, the Company had incurred approximately $4.3 million in litigation expenses associated with the Replagal litigation.

Dynepo™ Patent Litigation

The Company and Aventis are involved in patent infringement actions with Amgen in the United States and Kirin-Amgen in the United Kingdom.

The Company and Aventis are involved in a patent infringement action with Amgen Inc. In April 1997, Amgen commenced a patent infringement action against the Company and Aventis in the “Massachusetts District Court. In January 2001, the Massachusetts District Court concluded that Dynepo (epoietin delta), the Company’s Gene-Activated erythropoietin for the treatment of anemia, infringed eight of the 18 claims of patents asserted by Amgen. The Company and Aventis filed an appeal of the decision with the Federal Circuit. Amgen has also appealed this decision.

In addition, in July 1999, Aventis and the Company commenced legal proceedings in the United Kingdom against Kirin-Amgen, seeking a declaration that a U.K. patent held by Kirin-Amgen will not be infringed by the Company’s activities relating to Dynepo. In April 2001, the High Court of Justice in the United Kingdom ruled that Dynepo infringed one of four claims of the patent asserted by Kirin-Amgen. In July 2002, the Court of Appeals in the United Kingdom reversed the High Court of Justice and ruled that Dynepo did not infringe Kirin-Amgen’s patent. Kirin-Amgen may appeal this decision.

the EMEA in March 2002, the launch of Dynepo has not been planned due to the uncertainty of the outcome of the litigation in the United States.

Item 2. Changes in Securities and Use of Proceeds

On June 17, 2002, the Company issued 366,928 shares of common stock to Cell Genesys, Inc. in partial consideration for the exclusive license by Cell Genesys to the Company of intellectual property of Cell Genesys. Such number of shares will be adjusted at the time of registration so that, at such time, such shares have a market value of $15 million, as calculated in accordance with a predetermined formula. These shares were issued to an “accredited investor” without registration under the Securities Act of 1933, as amended, in reliance on the exemption provided by Section 4(2) of the Securities Act.

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

The following matters were submitted to a vote of security holders at the Annual Meeting of Stockholders held on June 6, 2002:

1A.	The election of Walter Gilbert, Jonathan S. Leff, William R. Miller, Rodman W. Moorhead, III, Richard F Selden, James E. Thomas and Wayne P. Yetter to serve as directors until the 2003 Annual Meeting of Stockholders.

		Nominee		Votes For	Votes Withheld
		Walter Gilbert		29,482,276	185,841
		Jonathan S. Leff		29,482,462	185,655
		William R. Miller		29,441,276	226,841
		Rodman W. Moorhead, III		29,482,984	185,133
		Richard F Selden		25,924,564	3,743,553
		James E. Thomas		29,441,846	226,271
		Wayne P. Yetter		29,441,776	226,341

1B.		The approval of the Company’s 2002 Stock Incentive Plan.

			For	17,874,028
			Against	7,964,740
			Abstain	9,326
			Non-Vote	3,820,023

Item 6. Exhibits and Reports on Form 8-K

(a) The Exhibits listed in the Exhibit index immediately preceding such Exhibits are filed as part of this Quarterly Report on Form 10-Q, and such Exhibit Index is incorporated herein by reference.

(b) Reports on Form 8-K

For the quarterly period ended June 30, 2002, the Company did not file any reports on Form 8-K.

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.


Date: August 14, 2002	By:	/s/ Daniel E. Geffken
		Daniel E. Geffken
		Senior Vice President, Finance and Chief Financial Officer (Principal Financial and Accounting Officer)

EXHIBIT INDEX

10.31# License Agreement, dated June 7, 2002, by and between Cell Genesys, Inc. and the Registrant

99.1 Certification by the Registrant’s President and Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

# Confidential treatment requested as to certain portions pursuant to Rule 24-b-2 promulgated under the Exchange Act of 1934, as amended.

EX-10 3 j4280_ex10.htm EX-10

Exhibit 10.31

Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.

LICENSE AGREEMENT

between

TRANSKARYOTIC THERAPIES, INC.

and

CELL GENESYS, INC.

LICENSE AGREEMENT

This License Agreement (the “Agreement”), effective as of June 7, 2002 (the “Effective Date”), is between TRANSKARYOTIC THERAPIES, INC., a corporation organized and existing under the laws of Delaware and having its principal place of business at 195 Albany Street, Cambridge, MA 02139 (“TKT”), and CELL GENESYS, INC., a corporation organized and existing under the laws of Delaware and having its principal place of business at 342 Lakeside Drive, Foster City, CA 94404 (“CELL GENESYS”). TKT and CELL GENESYS are sometimes hereinafter referred to each as a “Party” and collectively as the “Parties.”

WITNESSETH:

WHEREAS, CELL GENESYS has certain Patent Rights (as hereinafter defined);

WHEREAS, TKT desires to obtain a license under the CELL GENESYS Patent Rights upon the terms and conditions set forth herein, and CELL GENESYS desires to grant such a license;

NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants herein contained, and intending to be legally bound, the Parties hereby agree as follows:

ARTICLE I

DEFINITIONS

Unless specifically set forth to the contrary herein, the following terms, whether used in the singular or plural, shall have the respective meanings set forth below:

1.1 “Affiliate” shall mean, with respect to a particular Party, a person, corporation, partnership, or other entity that controls, is controlled by or is under common control with such Party. For the purposes of the definition in this Section 1.1, the word “control” (including, with correlative meaning, the terms “controlled by” or “under the common control with”) means the actual power, either directly or indirectly through one or more intermediaries, to direct or cause the direction of the management and policies of such entity, whether by the ownership of at least fifty percent (50%) of the voting stock of such entity, or by contract or otherwise.

1.2 “Designated Protein” shall mean one of the [**], as described in or determined by the provisions set forth in the letter dated June 7, 2002 from Robert H. Tidwell of CELL GENESYS to Michael J. Astrue of TKT (the “Side Letter”), and subject to Sections 2.2 and 2.3 hereof.

1.3 “[**]”.

1.4 “Licensed Product(s)” shall mean [**] Licensed Products and [**] Licensed Products. “[**] Licensed Product” shall mean [**] of a Designated Protein, the making, using, selling, offering for sale or import of which is covered by a claim in the Patent Rights. “[**]

Licensed Product” shall mean [**], the making, using, selling, offering for sale or import of which is covered by a claim in the Patent Rights. For clarity, the term “Licensed Product(s)” does not include a composition that includes a protein that is covered by, or that was made by a process covered by, a claim in the Patent Rights, if that protein is not a Designated Protein.

1.5 “Patent Rights” shall mean: (a) all patents and patent applications (including provisional and utility applications) owned by CELL GENESYS, or licensed by CELL GENESYS with the right to sublicense, as of the Effective Date that claim [**], including, but not limited to: [**]; and also any new patent or patent application (i.e., not a continuing application) filed after the Effective Date that is owned by CELL GENESYS and [**] (b) divisions, continuations, continuations-in-part (but solely as to claims that encompass subject matter disclosed in the parent application), extensions, supplementary protection certificates, utility models, reexaminations, reissues and renewals of the patents and patent applications in clause (a) above,; and (c) foreign equivalents of the patents and applications in clauses (a) and (b) above.

1.6 “Third Party” shall mean a party other than TKT, CELL GENESYS, or their respective Affiliates.

ARTICLE II

LICENSE GRANT

2.1 License Grant. Subject to the terms and conditions of this Agreement, CELL GENESYS grants to TKT (i) an [**] under the Patent Rights to [**], and (ii) a [**] under the Patent Rights to [**] solely for use to [**].

2.2 Identification of Designated Proteins. TKT shall designate in writing each additional protein that TKT desires to designate as a Designated Protein pursuant to the Side Letter (up to the maximum number and within the timeframes set forth therein), but subject to the following. Until such time as TKT’s rights to designate additional Designated Proteins as provided in this Agreement have terminated, CELL GENESYS shall [**] of any protein.

2.3 Substitution of Designated Proteins. Notwithstanding Section 1.2, Section 2.2 and the Side Letter, if, on the [**] of the Effective Date, CELL GENESYS has [**] then TKT shall have the right to designate an [**]: (i) a method or composition for, or in cluding, the activation of a gene that is [**], (ii) a composition or a gene activation method that does [**] and (iii) a method or composition for or including gene activation which does [**]. Such additional [**] shall be identified on or before [**].

ARTICLE III

CONFIDENTIALITY/PRESS RELEASES

3.1 Nondisclosure Obligation. All proprietary or confidential information disclosed by or on behalf of one Party (the “Disclosing Party”) to the other Party (the “Receiving Party”)

hereunder in writing and marked “Confidential” or the equivalent (the “Proprietary Information”) shall be maintained in confidence by the Receiving Party and shall not be disclosed to a Third Party or used for any purpose whatsoever except as set forth herein without the prior written consent of the Disclosing Party. All information disclosed by CELL GENESYS or TKT pursuant to the Binding Letter of Intent dated April 21, 2002 (the “LOI”) shall be deemed Proprietary Information of CELL GENESYS or TKT, as the case may be, and shall be subject to the terms of this Article 3. For purposes of clarity, it is the intent of the Parties that general financial terms may be disclosed but that the number of Licensed Products and the nature and category of proteins which may be designated under this Agreement, as well as the nature of the milestones herein shall be considered Proprietary Information of both Parties. The identity of the Licensed Products and Designated Proteins shall be TKT Proprietary Information. However, the foregoing obligations shall not apply to particular Proprietary Information solely to the extent that the receiving Party can demonstrate with written evidence that such information:

(a) is known by the Receiving Party at the time of its receipt, and not through a prior confidential disclosure by or on behalf of the Disclosing Party;

(b) is properly in the public domain through no fault of the Receiving Party;

(c) is subsequently disclosed to the receiving Party by a Third Party who may lawfully do so and is not directly or indirectly under an obligation of confidentiality to the Disclosing Party; or

(d) is developed by the Receiving Party independently of, and without reference to or use of, Proprietary Information received from the Disclosing Party.

3.2 Authorized Disclosures. A Party may disclose the Proprietary Information of the other Party to the extent such disclosure:

(a) is required to be disclosed by any governmental or other regulatory agency in order to obtain patents, to obtain approval to conduct clinical trials or to market a Licensed Product; provided, however, that (i) prior written notice is promptly delivered to the disclosing Party in order to provide an opportunity to challenge or limit the disclosure obligations, (ii) such disclosure may be only to the extent necessary to obtain such patents or approval, or to comply with regulations as appropriate and (iii) confidential treatment shall be sought to the extent reasonably practicable;

(b) is necessary to be disclosed to employees, agents, consultants and/or other Third Parties for purposes related to the development and commercialization of Licensed Products (or for such Third Parties to determine their interest in performing such activities) in accordance with this Agreement on the condition that such Third Parties agree to be bound by confidentiality obligations at least as restrictive as the terms herein; or

(c) is required to be disclosed by law or court order, provided that prior written notice is promptly delivered to the disclosing Party in order to provide an opportunity to

challenge or limit the disclosure obligations, and provided further that such disclosure may be only to the extent reasonably necessary to comply with the applicable law or court order.

3.3 Press Releases. Neither Party shall issue a press release relating to this Agreement without the prior review and written consent of the other Party.

3.4 Confidential Treatment. In the event that either Party is required to include this Agreement and any agreements or letters referred to herein in any report, statement or other document filed by such Party with the United States Securities and Exchange Commission (the “SEC”), then the disclosing Party shall [**] to obtain, to the maximum extent permitted by law, confidential treatment from the SEC of any trade secrets and commercial or financial information of a privileged or confidential nature, including without limitation all information relating to the number or identity of the Designated Proteins under this Agreement and the specific financial terms and the nature of the milestones herein, and shall notify the other Party as to such efforts and all related communications with the SEC. Notwithstanding the foregoing, neither Party shall submit a confidentiality request for this Agreement or the agreements or letters referred to herein without providing the other Party with an opportunity for prior review and comment on such confidentiality request. The filing Party shall reasonably consider and attempt to accommodate any such comments by such other Party in submitting such confidentiality request.

ARTICLE IV

PAYMENTS

4.1 Upfront Fees. In consideration for the license granted to TKT by CELL GENESYS under Section 2.1 and CELL GENESYS’s fulfillment of its other obligations and undertakings under this Agreement, within [**] of the Effective Date, TKT shall make a cash payment to CELL GENESYS of Eleven Million U.S. Dollars (US $11,000,000), less the credit provided for in Section 4.2, and shall issue and transfer to CELL GENESYS three hundred sixty six thousand nine hundred twenty eight (366,928) shares of TKT common stock (the “Shares”) pursuant to an executed Stock Purchase Agreement in the form attached hereto as Exhibit A (the “Stock Purchase Agreement”).

4.2 Cash Payment Credit. The cash payment of Three Million U.S. Dollars (US $3,000,000) paid by TKT pursuant to the LOI between the Parties effective April 21, 2002 shall be credited towards the upfront cash fee of Eleven Million U.S. Dollars (US $11,000,000), thereby reducing the payment required pursuant to Section 4.1 to Eight Million U.S. Dollars (US $8,000,000).

4.3 Milestone Payments. In further consideration for the license granted to TKT by CELL GENESYS under Section 2.1 and CELL GENESYS’s fulfillment of its other obligations and undertakings under this Agreement, TKT shall make cash and stock payments to CELL GENESYS in the respective amounts set forth below upon attainment of the respective milestone events set forth below:

EVENT		AMOUNT
(a) [**].		[**].

(b) [**].		[**].

(c) [**].		[**].

4.4 Milestone Conditions. No milestone shall be payable more than once by TKT. Further, milestones 4.3(b) and 4.3(c) are exclusive of each other and only one can be achieved. For clarity, TKT shall pay the amount designated above upon the achievement of milestone 4.3(a) and upon the achievement of either of milestone 4.3(b) or 4.3(c). CELL GENESYS shall notify TKT in writing upon the achievement of any of the milestone events set forth above and TKT shall have [**] to make the corresponding cash payment or stock grant, as the case may be.

4.5 Late Payments. For each payment or stock transfer not received by CELL GENESYS when due pursuant to Section 4.4, TKT must pay to CELL GENESYS a simple interest charge of [**] per annum, or such lower amount as is required by law, on the cash value of such payment or stock transfer to be calculated from the date such payment or stock transfer is due until it is actually received by CELL GENESYS.

ARTICLE V

REPRESENTATIONS, WARRANTIES AND INDEMNIFICATION

5.1 CELL GENESYS Representations and Warranties. CELL GENESYS hereby represents and warrants to TKT that:

(a) it has the full corporate power and authority to enter into this Agreement, to perform its obligations under this Agreement and to grant the license granted under Article 2 hereof, and this Agreement has been duly executed and constitutes a legal, valid and binding obligation of it enforceable against it in accordance with its terms and conditions, except as such enforceability may be limited by applicable bankruptcy, insolvency, moratorium, reorganization or similar laws, from time to time in effect, affecting creditor’s rights generally or by principles of equity;

(b) as of the Effective Date, there are no claims, oppositions, litigations, interferences, judgments or settlements against or owed by CELL GENESYS related to the Patent Rights that would materially affect the license granted hereunder, and there are no pending, and CELL GENESYS is not aware of any threatened, claims, oppositions, litigations, or

interferences relating to the Patent Rights, other than those claims of record as of the Effective Date [**];

(c) (i) CELL GENESYS is not aware that any of the data and information made available to TKT for the diligence conducted by TKT pursuant to the LOI are untrue or inaccurate to any material degree, and (ii) CELL GENESYS has made available to TKT all Materials (as defined in Section 1(a) of the LOI) in CELL GENESYS’s or any of its agents’ control or possession;

(d) to CELL GENESYS’ knowledge, it does not have any license rights granted to it by Third Party under any patent that claims the activation of genes to produce specific desired proteins, which license rights cannot be sublicensed to TKT for the purposes of the license rights granted under Section 2.1; and

(e) the execution and performance by it of its obligations hereunder does not and will not constitute a material breach of, or materially conflict with, any agreement or arrangement by which it is bound, and that it will not enter into any agreement which materially conflicts with the terms hereof.

5.2 TKT Representations and Warranties. TKT hereby represents and warrants to CELL GENESYS that:

(a) it has the full corporate power and authority to enter into this Agreement and to perform its obligations under this Agreement, and this Agreement has been duly executed and constitutes a valid, binding and enforceable agreement in accordance with its terms and conditions, except as such enforceability may be limited by applicable bankruptcy, insolvency, moratorium, reorganization or similar laws, from time to time in effect, affecting creditor’s rights generally or by principles of equity; and

(b) the execution and performance by it of its obligations hereunder does not and will not constitute a material breach of, or materially conflict with, any agreement or arrangement by which it is bound, and that it will not enter into any agreement which materially conflicts with the terms hereof.

5.3 CELL GENESYS Indemnification. CELL GENESYS hereby agrees to defend, hold harmless and indemnify TKT, its Affiliates, agents, directors, officers and employees from and against any and all Third Party suits, claims, actions, demands, liabilities, costs, damages, fees, expenses and/or losses, including without limitation reasonable legal expenses and attorneys’ fees (collectively “Third Party Claims”) resulting from a material breach by CELL GENESYS of any of the provisions of this Agreement, including without limitation, the representations and warranties made in Section 5.1 by CELL GENESYS; except to the extent such Third Party Claims result from the negligence or intentional misconduct of, or breach hereof by, TKT.

5.4 TKT Indemnification. TKT hereby agrees to defend, hold harmless and indemnify CELL GENESYS, its Affiliates, agents, directors, officers and employees from and

against any and all Third Party Claims (except to the extent such Third Party Claims result from the negligence or intentional misconduct of, or breach hereof by, CELL GENESYS), including any product liability claims, resulting:

(a) from a material breach by TKT of any of the provisions of this Agreement;

(b) directly or indirectly from the manufacture, use, handling, storage, sale or other disposition of Licensed Products by TKT, or its Affiliates, agents or sublicensees.

5.5 Indemnification Procedure. The Party seeking indemnification under this Section 5 (the “Indemnified Party”) shall (i) give prompt written notice to the other Party (the “Indemnifying Party”) of any Third Party Claim for which indemnification is sought, (ii) permit the Indemnifying Party to assume full responsibility to investigate, prepare for, defend against and/or compromise or settle (subject to the provisions set forth below) the Third Party Claim and (iii) if the Indemnifying Party assumes responsibility under clause (ii), reasonably assist the Indemnifying Party, at the Indemnifying Party’s reasonable expense, in the investigation of, preparation for and defense of such Third Party Claim. If the Indemnifying Party assumes control of the defense of a Third Party Claim, the Indemnifying Party shall not be liable for any litigation costs or expenses incurred by the Indemnified Party. If the Indemnifying Party does not assume control of the defense of the Third Party Claim, the Indemnified Party shall control such defense. The Indemnifying Party shall not compromise or settle such Third Party Claim without the Indemnified Party’s prior written consent if the compromise or settlement does not include a complete and unconditional release of the Indemnified Party from all liability with respect thereto or if the compromise or settlement imposes any liability or obligation on the Indemnified Party. The Indemnified Party shall not agree to any settlement of such action, suit, proceeding or claim without the prior written consent of the Indemnifying Party. The Indemnified Party shall have the right to participate, at its own expense and with counsel of its choice, in the defense of any claim or suit the defense of which has been assumed by the Indemnifying Party.

5.6 LIMITATION OF LIABILITY. EXCEPT FOR OBLIGATIONS UNDER SECTIONS 5.3 AND 5.4 OR IN CASE OF BREACH OF SECTION 3.1, IN NO EVENT SHALL EITHER PARTY, ITS DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR AFFILIATES BE LIABLE TO THE OTHER PARTY FOR ANY INDIRECT, INCIDENTAL, SPECIAL, EXEMPLARY OR CONSEQUENTIAL DAMAGES, WHETHER BASED UPON A CLAIM OR ACTION OR CONTRACT, WARRANTY, NEGLIGENCE, STRICT LIABILITY OR OTHER TORT, OR OTHERWISE, ARISING OUT OF THIS AGREEMENT.

5.7 Limited Warranty. Except for the warranties provided by CELL GENESYS in Section 5.1 AND TKT IN SECTION 5.2, EACH PARTY disclaims all other warranties, express or implied, and specifically, without limitation, any warranty of merchantability, fitness for a particular purpose or any warranty that exercise by TKT of its rights under the Patent Rights will not infringe any intellectual property rights of third parties.

ARTICLE VI

INTELLECTUAL PROPERTY PROVISIONS

6.1 Filing, Prosecution and Maintenance of Patents

(a) Subject to Section 6.1(b) below, CELL GENESYS agrees to file, prosecute and maintain all Patent Rights [**] and shall provide TKT with copies of all documentation and correspondence related to the Patent Rights. To the extent that such documents pertain to Licensed Products, CELL GENESYS shall give TKT an opportunity to comment on any official communication related to the Patent Rights before filing, shall [**], and shall consult with TKT thereon. CELL GENESYS shall comply with any applicable duty to disclose information relevant to the Patent Rights as required by the United States Patent and Trademark Office during the prosecution of any of the Patent Rights. CELL GENESYS shall [**] related to the scope of appropriate disclosure.

(b) In the event that CELL GENESYS elects not to file, prosecute or maintain any patent or patent application involving a particular patent or application in the Patent Rights, then CELL GENESYS shall give TKT at least [**] notice thereof and TKT shall have the right to elect to undertake such prosecution and maintenance. In such case, CELL GENESYS shall, [**], either (i) assign such patent or application (including any patent or application to which such patent or application claims priority) to TKT, or (ii) allow TKT to prosecute and maintain such patent in CELL GENESYS’s name, and grant TKT an [**]. TKT shall, [**], file, prosecute and maintain such patent or application (including any priority patent or patent application) in the Patent Rights. CELL GENESYS shall execute such documents and perform such acts as may be reasonably necessary to effect an assignment or transfer of power of attorney to such Patent Rights to allow TKT to continue in a timely manner such filing, prosecution or maintenance. Upon completion of such assignment or transfer of power of attorney, TKT shall be deemed automatically to have granted CELL GENESYS a [**] license under such assigned Patent Rights [**]. Further, TKT agrees that it shall, upon CELL GENESYS’s request, negotiate in good faith with any Third Party to grant a license [**] under such Patent Right to the extent needed for such Third Party to practice license rights granted to it by CELL GENESYS under the Patent Rights prior to CELL GENESYS’s election not to file, prosecute or maintain such Patent Right, provided that (a) such license rights do not include any right to make, have made, use, sell, offer for sale or import any Licensed Products, and (b) such Third Party is not, as of the date such election is made by CELL GENESYS not to file, prosecute or maintain such Patent Right, [**]. CELL GENESYS shall give notice to TKT as soon as practicable in advance of the grant, lapse, revocation, surrender, invalidation or abandonment of any CELL GENESYS Patent Right being prosecuted by CELL GENESYS.

6.2 Opposition, Reexamination and Reissue.

(a) CELL GENESYS shall notify TKT, within [**] of learning of, and in any case, prior to public disclosure of, any request for, or filing or declaration of, any interference, opposition, reexamination, or the foreign equivalent of any of the foregoing involving the Patent Rights.

(b) CELL GENESYS shall not initiate any reexamination, interference or reissue proceeding involving Patent Rights [**].

(c) In connection with any interference, opposition, reissue, or reexamination proceeding (or the foreign equivalent of any of the foregoing) involving the Patent Rights, CELL GENESYS agrees to give TKT an opportunity to provide comments on any official communication related to such interference, opposition, reissue, or reexamination proceeding (or the foreign equivalent of any of the foregoing) before filing, shall consider TKT’s comments in good faith, and shall consult with TKT thereon. Additionally, CELL GENESYS shall [**], and [**], including to the extent permissible by law and contracts, the [**]. Notwithstanding the foregoing, CELL GENESYS shall not be required to make any disclosure of any communication or other information that would destroy either the attorney/client privilege or attorney work product privilege protecting such communication or other information, provided that if such communication or other information is material to TKT’s interests under this Agreement, CELL GENESYS shall, in good faith, use [**] to facilitate disclosure without destroying any such privilege.

6.3 Enforcement and Defense.

(a) Each Party shall give the other Party notice of any unauthorized making, using, selling, offering for sale or importing of a Licensed Product that may come to such Party’s attention (a “Field Infringement”). Each Party shall have the right to bring suit against such alleged infringer in a Field Infringement, [**], and either Party may [**]; provided, however, that in the event that TKT brings a suit against an alleged infringer as the result of a possible Field Infringement, but in its sole reasonable discretion believes that CELL GENESYS is or may be a necessary or indispensable party under the applicable law, CELL GENESYS agrees to become a party in such action, and shall execute all documents and take all steps reasonably necessary to enable TKT to initiate, prosecute and/or maintain such action, or for TKT to defend any declaratory judgment action brought by the alleged infringer. Each Party shall be entitled in any such action [**] to assert its own claims for damages and to defend it interests in the Patent Rights. For any infringement of the Patent Rights other than a Field Infringement, CELL GENESYS shall have the sole and exclusive right to bring an action against the infringer.

(b) Each Party shall [**] pursuant to an action brought under subclause (a) above.

(c) Each Party shall notify the other of any certification regarding any Patent Rights which it has received pursuant to 21 U.S.C. §§355(b)(2)(A)(iv) or (j)(2)(A)(vii)(IV) or its successor provisions or the foreign equivalent thereof and shall provide the other with a copy of such certification within five (5) days of receipt. CELL GENESYS’s and TKT’s rights with respect to the initiation and prosecution of any legal action (or the defense of any such legal action) as a result of such certification or any recovery obtained as a result of such legal action shall be as defined above; provided, however, that if either Party shall exercise its first right to initiate and prosecute any action or to control the defense of any such action, such Party shall notify the other Party of such decision within ten (10) days of receipt of the certification.

(d) If any Licensed Product becomes the subject of a Third Party claim, or there is the potential for a claim of patent infringement related to TKT’s development, use, sale, offer for sale or import of Licensed Products, TKT shall defend against such claim [**]. CELL GENESYS and TKT shall fully cooperate and provide assistance to each other, [**], with respect to any proceeding related to gene activation patents owned or licensed by a Third Party and asserted, or threatened to be asserted, by such Third Party, including without limitation, [**].

6.4 Third Party License; Settlement. Except as otherwise provided herein, CELL GENESYS shall [**] that [**] under the Patent Rights [**].

ARTICLE VII

TERM AND TERMINATION

7.1 Term and Expiration. This Agreement shall be effective as of the Effective Date and, unless terminated earlier pursuant to the provisions of Section 7.2 below, shall continue until the expiration of the last-to-expire Patent Right.

7.2 Termination by Either Party for Cause. This Agreement may be terminated by written notice by either Party at any time during the term of this Agreement if the other Party is in breach of a material obligation hereunder and has not cured such breach within [**] after notice requesting cure of the breach. If TKT terminates this Agreement pursuant to this Section 7.2, then: (a) the license granted pursuant to Section 2.1 shall [**)], and provided that [**], and (b) in addition, TKT shall have (i) [**] under the Patent Rights to [**] and (ii) a [**] under the Patent Rights to [**], but excluding from the foregoing rights any [**] under the Patent Rights that have been [**] prior to the date of breach.

7.3 Survivals. Termination or expiration of this Agreement shall not relieve either Party of any obligation of such Party accrued prior to such termination or expiration. Any termination or expiration of this Agreement shall be without prejudice to the rights of either Party against the other accrued under this Agreement prior to termination or expiration hereof. The provisions of Articles 1, 3, 5, and 7 shall survive the termination or expiration of this Agreement. Notwithstanding the termination of this Agreement pursuant to this Article VII, any sublicenses of Patent Rights granted by TKT hereunder prior to such termination shall survive such termination. In such event, CELL GENESYS shall have the right to receive directly from the sublicensee any payments or other consideration otherwise payable to TKT as the sublicensor under such sublicense, and to otherwise exercise all of the rights of TKT as the sublicensor under such sublicense; provided however that CELL GENESYS shall not assume, and shall not be responsible for, any representations, warranties, promises or obligations of TKT to any sublicensees other than the licenses under such sublicenses.

ARTICLE VIII

MISCELLANEOUS

8.1 Force Majeure. Neither Party shall be held liable or responsible to the other Party nor be deemed to have defaulted under or breached this Agreement for failure or delay in fulfilling or performing any term of this Agreement when such failure or delay is caused by or results from causes beyond the reasonable control of the affected Party including, but not limited to, earthquakes, fire, floods, embargoes, war, acts of war (whether war be declared or not), insurrections, riots, civil commotions, strikes, lockouts or other labor disturbances, acts of God or acts, omissions or delays in acting by any governmental authority or the other Party. The affected Party shall notify the other Party of such force majeure circumstances as soon as reasonably practical and shall make reasonable, diligent efforts to remove the condition constituting force majeure or to avoid its effects so as to resume performance as soon as practicable.

8.2 Sublicenses. All sublicenses granted by TKT under the Patent Rights to Third Parties shall be on such terms as are consistent with the provisions of this Agreement and shall be subject to the rights of CELL GENESYS under this Agreement.

8.3 Assignment. Except as otherwise expressly provided below, this Agreement may not be assigned or otherwise transferred, nor may any right or obligation hereunder be assigned or transferred, by either Party without the prior written consent of the other Party; except that either Party may, without the prior written consent of the other Party, assign this Agreement and such Party’s rights and obligations hereunder to its successor in interest in connection with the transfer or sale of all or substantially all of such Party’s assets or the business to which this Agreement relates, or in the event of its merger, acquisition, consolidation, change in control or similar transaction. Any permitted assignee shall assume all obligations of its assignor under this Agreement except as otherwise provided herein.

8.4 Severability. If any provision hereof should be held invalid, illegal or unenforceable in any respect, then, to the fullest extent permitted by law, (a) all other provisions hereof shall remain in full force and effect and shall be liberally construed in order to carry out the intentions of the Parties as nearly as may be possible and (b) the Parties shall use their best efforts to replace the invalid, illegal or unenforceable provision(s) with valid, legal and enforceable provision(s) which, insofar as practical, implement the purposes of such provision(s) in this Agreement.

8.5 Notices. All notices or other communications which are required or permitted hereunder, including any notices required pursuant to Section 2.2 hereof, shall be in writing and addressed as follows:

if to CELL GENESYS, to:	Cell Genesys, Inc.
	342 Lakeside Drive
	Foster City, CA 94404

Attention:	Robert Tidwell
	Vice President, Corporate Development

with a copy to:	Cooley Godward LLP
	3000 El Camino Real
	Palo Alto, CA 94306-2155

Attention:	Barclay J. Kamb, Esq.

if to TKT, to:	Transkaryotic Therapies, Inc.
	195 Albany Street
	Cambridge, MA 02139

Attention:	Michael J. Astrue
	Senior Vice President, Administration

with a copy to:	Kerry A. Flynn
	Senior Director, Business Development

or to such other address as the Party to whom notice is to be given may have furnished to the other Party in writing in accordance herewith. Any such communication shall be deemed to have been given when delivered if personally delivered or sent by facsimile (provided that the Party providing such notice promptly confirms receipt of such transmission with the other Party by telephone), on the business day after dispatch if sent by a nationally-recognized overnight courier and on the third business day following the date of mailing if sent by mail, postage prepaid, return receipt requested.

8.6 Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to any rules regarding conflict of laws. The Parties hereby consent to the jurisdiction of the state and federal courts of the State of Delaware and agree that any disputes related hereto shall be adjudicated therein.

8.7 Entire Agreement. This Agreement, together with the Side Letter and the Stock Purchase Agreement, contains the entire understanding of the Parties with respect to the subject matter hereof and supercedes all prior agreements with respect to the subject matter hereof, including without limitation the LOI. All express or implied agreements and understandings, either oral or written, heretofore made are expressly merged in and made a part of this Agreement. Except as expressly set forth in this Agreement, this Agreement may be amended, or any term hereof modified, only by a written instrument duly executed by both Parties.

8.8 Headings. The captions to the several Articles and Sections hereof are not a part of this Agreement, but are merely guides or labels to assist in locating and reading the several Articles and Sections hereof.

8.9 Independent Contractors. It is expressly agreed that CELL GENESYS and TKT shall be independent contractors and that the relationship between the two Parties shall not constitute a partnership, joint venture or agency. Neither CELL GENESYS nor TKT shall have the authority to make any statements, representations or commitments of any kind, or to take any action, which shall be binding on the other, without the prior written consent of the other Party.

8.10 Waiver. The waiver by either Party hereto of any right hereunder or the failure to perform or of a breach by the other Party shall not be deemed a waiver of any other right hereunder or of any other breach or failure by said other Party whether of a similar nature or otherwise.

8.11 Counterparts. This Agreement may be executed in two (2) or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

8.12 Waiver of Rule of Construction. Each Party has had the opportunity to consult with counsel in connection with the review, drafting and negotiation of this Agreement. Accordingly, the rule of construction that any ambiguity in this Agreement shall be construed against the drafting Party shall not apply.

8.13 Section 365(n) of the Bankruptcy Code. All licenses granted under this Agreement are, and shall otherwise be, deemed to be, for purposes of Section 365(n) of the Bankruptcy Code, licenses of rights to “intellectual property” as defined under Section 101(35A) of the Bankruptcy Code. The Parties shall retain and may fully exercise all of their respective rights and elections under the Bankruptcy Code.

8.14 Third Party Beneficiaries. Except as otherwise expressly provided in this Agreement, nothing herein expressed or implied is intended or shall be construed to confer upon or to give to any Third Party any rights or remedies by reason of this Agreement. Except as otherwise expressly provided in this Agreement, there are no intended Third Party beneficiaries under or by reason of this Agreement.

IN WITNESS WHEREOF, the Parties have executed this License Agreement as of the date first set forth above.

TRANSKARYOTIC THERAPIES, INC.				CELL GENESYS, INC.


By:	/s/Michael J. Astrue			By:

Name:		Michael J. Astrue	Name:
Title:		Senior Vice President Administration & General Counsel	Title:

EXHIBIT A

FORM OF STOCK PURCHASE AGREEMENT

STOCK PURCHASE AGREEMENT

THIS AGREEMENT (“Agreement”) is made and entered into as of June 7, 2002 (the “Effective Date”), by and among Transkaryotic Therapies, Inc., a Delaware corporation (the “Company”), and Cell Genesys, Inc., a Delaware corporation (“CELL GENESYS”).

A. Concurrently with the execution of this Agreement, the Company is entering into an Exclusive License Agreement with CELL GENESYS, (the “License Agreement”), pursuant to which CELL GENESYS is licensing the rights to certain technology to the Company; and

B. In partial consideration for the execution and delivery of the License Agreement by CELL GENESYS, the Company has agreed to issue to CELL GENESYS certain shares of the Company’s common stock in accordance with the terms and conditions of this Agreement.

AGREEMENT

In consideration of the mutual covenants contained in this Agreement and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Company and CELL GENESYS hereby agree as follows:

SECTION 1 Authorization of Sale of Shares.

1.1 Authorization. Subject to the terms and conditions of this Agreement, the Company has or before the Closings (as defined below) will have authorized the sale and issuance of up to the following number of shares of the Company’s Common Stock, par value $0.01 per share (the “Shares”):

(a) Three-Hundred Sixty Six Thousand Nine Hundred Twenty Eight (366,928) Shares (the “Up Front Shares”), subject to adjustment pursuant to Section 1.2;

(b) that number of Shares equal to [**] divided by the average closing price of the Company’s Shares as reported on the Nasdaq National Market for the ten (10) consecutive trading days ending two days prior to the date of the Second Tranche Closing, as hereinafter defined (the “First Milestone Shares”), which shares shall only be issued if the milestone in Section 4.3(a) of the License Agreement is achieved; and

(c) that number of Shares equal to [**], divided by the average closing price of the Company’s Shares as reported on the Nasdaq National Market for the ten (10)

consecutive trading days ending two days prior to the date of the Third Tranche Closing, as hereinafter defined (the “Second Milestone Shares”), which shares shall only be issued if the milestone in Section 4.3(b) of the License Agreement is achieved.

If after the date hereof (i) the outstanding shares of the Company’s Common Stock shall be subdivided or split into a greater number of shares or a dividend in Common Stock shall be paid in respect of such Common Stock, (ii) the outstanding shares of Common Stock are combined, (iii) the Company shall pay a dividend in securities of the Company (other than Common Stock) or of other property (including cash) on the Common Stock, or (iv) there shall occur any merger, consolidation, capital reorganization or reclassification in which the Common Stock is converted or exchanged for securities, cash or other property, all share quantities in this Agreement, as well as the class or series of stock constituting the Common Stock for purposes of this Agreement, shall be appropriately adjusted to reflect such stock splits, stock dividend, combination, other dividend, merger, consolidation, capital reorganization or reclassification. After any event referenced in clauses (i) through (iv) is consummated, if applicable, all references herein to the Company’s Common Stock shall be deemed to refer to the capital stock or property (including cash) into or for which the Common Stock was converted or exchanged, with the necessary changes in detail.

1.2 Adjustment of Up Front Shares. The number of Up Front Shares shall be adjusted as follows:

(a) if the product of the average closing price of the Company’s Shares as reported on the Nasdaq National Market for the ten (10) trading days ending two days prior to the effective date of the Registration Statement (as hereinafter defined) with respect to the Up Front Shares multiplied by 366,928 is less than Fifteen Million Dollars ($15,000,000), then the number of Up Front Shares shall be increased by the number of Shares equal to (x) the difference between $15,000,000 and such product divided by (y) such average closing price; and the Company shall issue to CELL GENESYS such additional Up Front Shares promptly following the end of such ten (10) day period for a price per share equal to the par value of each such share, which price shall be deemed paid in partial consideration for the execution and delivery by CELL GENESYS of the License Agreement; provided further that the Company shall promptly cause any such additional shares to be registered, through supplement or amendment, on the Registration Statement with respect to the Up Front Shares; and

(b) if the product of the average closing price of the Company’s Shares as reported on the Nasdaq National Market for the ten (10) trading days ending two days prior to the effective date of the Registration Statement (as hereinafter defined) with respect to the Up Front Shares multiplied by 366,928 is greater than Fifteen Million Dollars ($15,000,000), then the number of Up Front Shares shall be decreased by a number of Shares equal to (x) the difference between such product and $15,000,000 divided by (y) such average closing price; and CELL GENESYS shall surrender to the

Company the number of Shares by which the Up Front Shares are decreased, promptly following the end of such ten (10) day period, at a price per share equal to the par value of each such share, which price shall be deemed paid in partial consideration for the execution and delivery by Company of the License Agreement.

SECTION 2 Closing and Delivery

2.1 Sale of Shares. Subject to the terms and conditions of this Agreement and in reliance upon the representations, warranties and agreements contained herein, the Company will issue and sell to CELL GENESYS, and CELL GENESYS will purchase from the Company, at each of the Closings, the applicable number of Shares, at a price per share equal to the par value of each such share at such time, which price shall be deemed paid in partial consideration for the execution and delivery by CELL GENESYS of the License Agreement.

2.2 Closings. The closings of the purchase and sale of the Shares to be issued pursuant to this Agreement shall be held at the offices of Hale and Dorr LLP, 60 State Street, Boston, Massachusetts, 02109 in three tranches, as follows:

(a) Within ten days of execution of the License Agreement, at a date mutually agreed by the parties hereto, the closing of the purchase and sale of the Up Front Shares will occur (the “First Tranche Closing”);

(b) Within [**] of the achievement of the milestone in Section 4.3(a) of the License Agreement, if achieved, at a date mutually agreed by the parties hereto, the closing of the purchase and sale of the First Milestone Shares will occur (the “Second Tranche Closing”); and

(c) Within [**] of the achievement of the milestone in Section 4.3(b) of the License Agreement, if achieved,, at a date mutually agreed by the parties hereto, the closing of the purchase and sale of the Second Milestone Shares will occur (the “Third Tranche Closing”).

Each of the First Tranche Closing, Second Tranche Closing and Third Tranche Closing are collectively hereinafter referred to as the “Closings” and individually as a “Closing”.

2.3 Delivery of the Shares. Promptly following a Closing, the Company shall deliver to CELL GENESYS a certificate representing the number of Shares purchased at such Closing, registered in the name of CELL GENESYS.

SECTION 3 Representations, Warranties and Covenants of the Company.

Subject to and except as set forth on the Schedule of Exceptions which is arranged in sections corresponding to the sub-section numbered provisions contained below in this Section and except as described in the SEC Reports (as defined below), the Company

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hereby represents and warrants to, and covenants with, CELL GENESYS as of the date hereof as follows:

3.1 Organization and Qualification. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to perform its obligations hereunder and to consummate the transactions contemplated hereby.

3.2 Due Execution, Delivery and Performance. The Company’s execution, delivery and performance of this Agreement and the issuance and sale of the Shares have been duly authorized by all requisite corporate action by the Company. Upon the execution and delivery by the Company, and assuming the valid execution and delivery of this Agreement by CELL GENESYS, this Agreement will constitute the valid and binding obligation of the Company, enforceable in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ and contracting parties’ rights generally and except as enforceability may be subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law), including specific performance, and except as the indemnification provisions contained in Section 8.3 hereof may be legally unenforceable.

3.3 No Conflicts. The Company’s execution, delivery and performance of this Agreement and the issuance of the Shares will not violate, conflict with, result in a breach of or constitute (upon notice or lapse of time or both) a default under, or result in the creation or imposition of any lien, security interest, mortgage, pledge, charge or other encumbrance, of any material nature, upon any properties or assets of the Company under any (a) law, regulation, rule, injunction, judgment, order, decree, ruling, charge or other restriction of any government, governmental agency, court or arbitrator to which the Company is subject, (b) the Company’s Amended Restated Certificate of Incorporation or Bylaws or (c) any provision of any material indenture, mortgage, agreement, contract or other material instrument to which the Company is a party or by which the Company or any of its properties or assets is bound as of the date hereof, except in the case of clause (a) and clause (c), where such violation, conflict, breach, default, or imposition would not have a Material Adverse Effect. As used in this Agreement, a “Material Adverse Effect” means (a) a material adverse effect upon the business, operations, properties, assets or condition (financial or otherwise) of the Company or, as the case may be, the Company and any of its subsidiaries, taken as a whole or (b) a material impairment of the ability of the Company to perform its obligations under this Agreement.

3.4 Governmental Consents. Except for applicable filings with The Nasdaq Stock Market, Inc. (the “Nasdaq Market”), under the Securities Act of 1933, as amended (the “Securities Act”), or the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or state securities laws, no consent, approval, qualification, order or authorization of, or filing with, any local, state, or federal governmental authority is

required on the part of the Company in connection with the Company’s valid execution, delivery, or performance of this Agreement, or the offer, sale or issuance of the Up Front Shares by the Company, other than any post-closing filings as may be required under applicable federal or state securities laws, which will be timely filed within the applicable periods therefor.

3.5 Issuance and Sale of the Securities. When issued and paid for in accordance with this Agreement, the Shares to be sold hereunder by the Company will be validly issued and outstanding, fully paid and non-assessable.

3.6 SEC Reports.

(a) Since January 1, 2001, the Company has filed in a timely manner with the Securities and Exchange Commission (the “SEC”) all reports (“SEC Reports”) required to be filed by it under the Exchange Act. All of the SEC Reports filed by the Company comply in all material respects with the requirements of the Exchange Act. To the knowledge of the Company, none of the SEC Reports contain, as of the respective dates thereof, any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances under which they were made.

(b) No event has occurred since January 1, 2002, requiring the filing of an SEC Report that has not heretofore been filed and furnished to CELL GENESYS (including, without limitation, any amendment to any such SEC Report).

3.7 Capitalization. The authorized capital stock of the Company consists of (i) 100,000,000 shares of Common Stock, par value $0.01 per share, of which 34,383,308 were issued and outstanding as of April 10, 2002 and (ii) 10,000,000 shares of preferred stock, par value $0.01 per share, of which no shares are issued and outstanding on the date hereof. As of the date hereof, the Company has no intention, obligation or commitment, fixed or contingent, to issue any shares of such Preferred Stock, other than pursuant to its Stockholders’ Rights Plan.

3.8 Nasdaq Compliance. The Company’s Common Stock is registered pursuant to Section 12(g) of the Exchange Act, and is listed on the Nasdaq National Market (the “Nasdaq Stock Market”), and the Company has taken no action designed to, or which to its knowledge is likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act or delisting the Common Stock from the Nasdaq Stock Market. The issuance of the shares does not require stockholder approval, including, without limitation, pursuant to the Nasdaq Marketplace Rules.

3.9 Form S-3 Eligibility. The Company qualifies as a registrant whose securities may be resold pursuant to Form S-3 promulgated by the SEC pursuant to the 1933 Securities Act, as amended.

3.10 Absence of Litigation. There is no action, suit, proceeding or investigation pending or, to the Company’s best knowledge, that has been filed, commenced or threatened, by or before any governmental agency, court or arbitrator against the Company which might have, either individually or in the aggregate, a Material Adverse Effect (including, without limitation, any such action, suit, proceeding or investigation that questions the validity of this Agreement or the issuance of the Shares hereunder).

3.11 Legal Compliance. To the Company’s knowledge, the Company is not in default or violation of its Amended Restated Certificate of Incorporation or Bylaws and has not violated any applicable laws (including, without limitation, rules, regulations, codes, plans, injunctions, judgments, orders, decrees, rulings and charges thereunder) of federal, state, local and foreign governments (and all agencies thereof) in respect of the conduct of its business or the ownership of its properties which default violation would (either individually or in the aggregate) have a Material Adverse Effect. To the knowledge of the Company, there exists no condition, event or act which constitutes, or which after notice, lapse of time or both, would constitute, such a default or violation under any of the foregoing except where such a default is not reasonably expected to have a Material Adverse Effect.

3.12 Securities Act Exemption. Assuming and relying in part on the truth and accuracy of CELL GENESYS’ representations and warranties in Section 4 of this Agreement, the offer, sale and issuance of the Shares is exempt from registration under the Securities Act.

3.13 No Manipulation of Stock. The Company has not taken and will not, in violation of applicable law, take, any action outside the ordinary course of business designed to or that might reasonably be expected to cause or result in unlawful manipulation of the price of the Common Stock to facilitate the sale or resale of the Shares by CELL GENESYS.

3.14 Brokers. Neither the Company nor any of the officers, directors or employees of the Company has employed any broker or finder in connection with the transaction contemplated by this Agreement. The Company shall indemnify CELL GENESYS from and against any broker’s, finder’s or agent’s fees for which the Company is responsible.

SECTION 4 Representations, Warranties and Covenants of Cell Genesys.

4.1 Authority, Approval and Enforceability.

CELL GENESYS represents and warrants to and covenants with the Company that:

(a) CELL GENESYS is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to perform its obligations hereunder and to consummate the transactions contemplated hereby..

(b) CELL GENESYS’ execution, delivery and performance of this Agreement have been duly authorized by all requisite corporate action by CELL GENESYS. Upon the execution and delivery by CELL GENESYS, and assuming the valid execution and delivery of this Agreement by the Company, this Agreement will constitute a valid and binding obligation of CELL GENESYS, enforceable in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ and contracting parties’ rights generally and except as enforceability may be subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law), including specific performance, and except as the indemnification provisions contained in Section 8.3 hereof may be legally unenforceable.

4.2 Investment Representations. CELL GENESYS understands that the Shares have not been registered under the Securities Act. CELL GENESYS also understands that the Shares are being offered and sold pursuant to an exemption from registration contained in the Securities Act based in part upon CELL GENESYS’ representations contained in the Agreement, including this Section 4.2. CELL GENESYS represents and warrants to, and covenants with, the Company that as of the date hereof and as of the date of any issuance of Shares hereunder:

(a) CELL GENESYS has substantial experience in evaluating and investing in private purchases of securities in companies similar to the Company so that it is capable of evaluating the merits and risks of its investment in the Company and has the capacity to protect its own interests. CELL GENESYS must bear the economic risk of this investment indefinitely unless the Shares are registered pursuant to the Securities Act, or an exemption from registration is available.

(b) CELL GENESYS has been advised or is aware of the provisions of Rule 144 promulgated under the Securities Act, which permits limited resale of shares purchased in a private purchase subject to the satisfaction of certain conditions.

(c) CELL GENESYS agrees that it will not sell, assign or transfer, (collectively, “Transfer”) any of the Shares unless the Transfer will be made pursuant to an exemption from the registration requirements of the Securities Act or pursuant to an effective registration statement under the Securities Act and pursuant to an exemption from any applicable state securities laws or an effective registration or other qualification under any applicable state securities laws. CELL GENESYS understands that exemptions from such registration requirements are limited. The Company is under no obligation to register the Shares except as provided in Section 8.

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(d) CELL GENESYS acknowledges and agrees that the Shares are subject to certain restrictions as to resale under the federal and state securities laws. CELL GENESYS agrees and understands that stop transfer instructions will be given to the transfer agent for the Shares, and each share certificate and each certificate delivered on transfer of or in substitution for any such certificate, shall have affixed a legend in substantially the following form:

“The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended (the “Act”), and may not be offered, sold or otherwise transferred, assigned, pledged or hypothecated unless and until registered under the Act or unless the Company has received an opinion of counsel satisfactory to the Company and its counsel that such registration is not required.”

(e) CELL GENESYS is acquiring the Shares for its own account for investment only, and not with a view towards their distribution or sale, nor with any present intention of distributing or selling the same (except in compliance with securities laws), and except as set forth herein, CELL GENESYS has no present or contemplated agreement, understanding, obligation, or commitment providing for the disposition thereof.

(f) CELL GENESYS represents that by reason of its, or of its management’s, business or financial experience, it has the capacity to protect its own interests in connection with the transactions contemplated in this Agreement. Further, CELL GENESYS is aware of no publication of any advertisement in connection with the transactions contemplated in the Agreement.

(g) CELL GENESYS represents that it is an accredited investor within the meaning of Regulation D under the Securities Act.

(h) CELL GENESYS has had an opportunity to discuss the Company’s business, management and financial affairs with directors, officers and management of the Company and has had the opportunity to review the Company’s operations and facilities. CELL GENESYS has also had the opportunity to ask questions of and receive answers from, the Company and its management regarding the terms and conditions of this investment.

4.3 No Manipulation of Stock. CELL GENESYS has not taken and will not, in violation of applicable law, take, any action outside the ordinary course of business designed to or that might reasonably be expected to cause or result in unlawful manipulation of the price of the Company’s Common Stock to facilitate the sale or resale of the Shares.

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SECTION 5 Survival of Representations, Warranties and Agreements.

Notwithstanding any investigation made by any party to this Agreement, all covenants, agreements, representations and warranties made by the Company and CELL GENESYS herein shall survive the execution of this Agreement and the issuance and sale to CELL GENESYS of the Shares and shall terminate one year after the achievement of, or failure to achieve, as the case may be, the last remaining milestone under the License Agreement; provided, however, that the representations and warranties in Section 3.6 and Section 3.10 shall survive the execution of this Agreement for 18 months from the date of the First Tranche Closing.

SECTION 6 Conditions to Company’s Obligations at the Closing.

The Company’s obligation to complete the sale and issuance of the Shares at each Closing shall be subject to the following conditions to the extent not waived by the Company:

6.1 Representations and Warranties Correct. The representations and warranties made by CELL GENESYS in Sections 4.1, 4.2 and 4.3 hereof shall be true and correct when made, and shall be true and correct on the date of the First Tranche Closing. Moreover, with respect to the Second Tranche Closing and Third Tranche Closing, the representations and warranties made by CELL GENESYS in Section 4.2 hereof shall be true and correct on the respective dates of such Closings.

6.2 Compliance Certificate; Certified Resolutions. At the First Tranche Closing, CELL GENESYS shall have delivered to the Company a compliance certificate, executed by the Chief Executive Officer of CELL GENESYS, dated as of the date of the First Tranche Closing, to the effect that the conditions, specified in Sections 6.1 have been satisfied.

SECTION 7 Conditions to Cell Genesys’ Obligations At the Closing.

CELL GENESYS’ obligation to purchase the Shares at each Closing shall be subject to the following conditions to the extent not waived by CELL GENESYS:

7.1 Representations and Warranties Correct. The representations and warranties made by the Company in Section 3 hereof shall be true and correct when made, and shall be true and correct as of the date of the First Tranche Closing.

7.2 Legal Opinion. CELL GENESYS shall have received from counsel to the Company, an opinion letter addressed to CELL GENESYS, with respect to the issuance of the Shares, dated as of the date of each Closing, in a form customarily and usually delivered by law firms of publicly traded companies in stock issuances of the nature contemplated by this Agreement.

7.3 Covenants Performed. All covenants, agreements and conditions contained herein to be performed by the Company on or prior to the date of each Closing shall have been performed or complied with in all material respects.

7.4 Qualifications. All authorizations, approvals, or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are binding upon the Company and that are required in connection with the lawful sale and issuance of the Shares at such Closing pursuant to this Agreement shall have been duly obtained and shall be effective on and as of the date of each Closing. No stop order or other order enjoining the sale of the Shares shall have been issued and no proceedings for such purpose shall be pending or, to the knowledge of the Company, threatened by the SEC, or any commissioner of corporations or similar officer of any state having jurisdiction over this transaction.

7.5 Legal Investment. At the time of each Closing, the sale and issuance of the Shares shall be legally permitted by all laws and regulations to which CELL GENESYS and the Company are subject.

7.6 Compliance Certificate; Certified Resolutions. At the First Tranche Closing, the Company shall have delivered to CELL GENESYS (i) a compliance certificate, executed by the Chief Executive Officer of the Company, dated as of the First Tranche Closing, to the effect that the conditions, specified in Sections 7.1, 7.3 and 7.4 have been satisfied; and (ii) a certificate of the Secretary of the Company evidencing the effective authorization of the issuance of the Stock by the Company’s Board of Directors as of the date of each Closing.

SECTION 8 Registration of the Shares; Compliance with the Securities Act.

8.1 Definitions. As used in this Section 8 the following terms shall have the following respective meanings:

(a) “Registrable Shares” shall mean all Shares issued pursuant to this Agreement (which, for greater certainty, shall include the Up Front Shares, the First Milestone Shares and the Second Milestone Shares, when issued) and any other shares of Common Stock issued or issuable in respect to the Shares (because of stock splits, stock dividends, reclassifications, recapitalizations, adjustments pursuant to this Agreement or similar events);

(b) “Untrue Statement” shall mean any untrue statement or alleged untrue statement, or any omission or alleged omission to state in the Registration Statement a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading.

8.2 Registration Procedures and Expenses. The Company shall:

(a) within fourteen (14) days immediately following each Closing, such actual date being referred to as the “Registration Date,” prepare and file with the SEC a registration statement on Form S-3 in order to register with the SEC under the Securities Act a sale by CELL GENESYS on a delayed or continuous basis pursuant to Rule 415 under the Securities Act any or all of the Registrable Shares then issued at such Closing through the automated quotation system of the Nasdaq National Market System or the facilities of any national securities exchange on which the Company’s Common Stock is then traded, or in privately-negotiated transactions (a “Registration Statement”) (notwithstanding anything to the contrary expressed or implied herein, if a registration statement on Form S-3, or any substitute form, is not then available for registration of the Registrable Shares, the Company shall be obligated instead to prepare and file with the SEC a registration statement on Form S-1 in order to register the Registrable Shares under the Securities Act and such registration statement will be a “Registration Statement” for the purposes of this Agreement);

(b) subject to receipt of necessary information from CELL GENESYS, use its commercially reasonably efforts to cause such Registration Statement to become effective as soon as possible after the Registration Date, and take all other reasonable actions necessary under any federal law or regulation to permit all Registrable Shares to be sold or otherwise disposed of thereunder;

(c) promptly notify CELL GENESYS, at any time when a prospectus relating to such Registration Statement is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus included in or relating to such Registration Statement contains an Untrue Statement;

(d) promptly prepare and file with the SEC, and deliver to CELL GENESYS, such amendments and supplements to such Registration Statement and the prospectus used in connection therewith as may be necessary to keep such Registration Statement effective until termination of such obligation as provided in Section 8.7 below;

(e) furnish to CELL GENESYS such number of copies of prospectuses in conformity with the requirements of the Securities Act, in order to facilitate the public sale or other disposition of all or any of the Registrable Shares by CELL GENESYS;

(f) file such documents as may be required of the Company for normal state securities law clearance for the resale of the Registrable Shares in which states of the United States as may be reasonably requested by CELL GENESYS provided, however, that the Company shall not be required in connection with this paragraph (f) to qualify as a foreign corporation or execute a general consent to service of process in any jurisdiction;

(g) no later than the Registration Date, use its best efforts to cause all Registrable Shares to be listed on each securities exchange, if any, on which equity securities by the Company are then listed; and

(h) bear all expenses in connection with the procedures in Section 8.2, other than (i) fees and expenses, if any, of counsel or other advisers to CELL GENESYS, and (ii) any expenses relating to the sale of the Registrable Shares by CELL GENESYS, including broker’s commission, discounts or fees and transfer taxes.

8.3 Indemnification.

(a) The Company agrees to indemnify and hold harmless CELL GENESYS (and each person, if any, who controls CELL GENESYS within the meaning of Section 15 of the Securities Act) from and against any losses, claims, damages or liabilities to which CELL GENESYS may become subject (under the Securities Act or otherwise) insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of, or are based upon, any Untrue Statement contained in the Registration Statement on the effective date thereof, or arise out of any failure by the Company to fulfill any undertaking included in the Registration Statement and the Company will reimburse CELL GENESYS for any reasonable legal or other expenses reasonably incurred in investigating, defending or preparing to defend any such action, proceeding or claim; provided, however, that the Company shall not be liable in any such case to the extent that such loss, claim, damage or liability arises out of, or is based upon, an Untrue Statement made in such Registration Statement in reliance upon and in conformity with written information furnished to the Company by or on behalf of CELL GENESYS specifically for use in preparation of the Registration Statement, or the failure of CELL GENESYS to comply with the covenants and agreements contained in Section 8.4 hereof respecting the sale of the Registrable Shares or any statement or omission in any prospectus that is corrected in any subsequent prospectus that was delivered to CELL GENESYS prior to the pertinent sale or sales by CELL GENESYS.

(b) CELL GENESYS agrees to indemnify and hold harmless the Company and underwriter (and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act, each officer of the Company who signs the Registration Statement and each director of the Company) from and against any losses, claims, damages or liabilities to which the Company (or any such underwriter, officer, director or controlling person) may become subject (under the Securities Act or otherwise), insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of, or are based upon, any failure to comply with the covenants and agreements contained in Section 8.4 hereof respecting sale of the Registrable Shares, or any Untrue Statement made in the Registration Statement on the effective date thereof if such Untrue Statement was made in reliance upon and in conformity with written information furnished by or on behalf of CELL GENESYS specifically for use in preparation of the Registration Statement, and CELL GENESYS

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will reimburse the Company (or such underwriter, officer, director or controlling person), as the case may be, for any legal or other expenses reasonably incurred in investigating, defending or preparing to defend any such action, proceeding or claim; provided that in no event shall any indemnity by CELL GENESYS under this Section 8.3 exceed the net proceeds received by CELL GENESYS from the sale of the Registrable Shares covered by such Registration Statement.

(c) Promptly after receipt by any indemnified person of a written notice of a claim or the beginning of any action in respect of which indemnity is to be sought against an indemnifying person pursuant to this Section 8.3, such indemnified person shall notify the indemnifying person in writing of such claim or of the commencement of such action, and, subject to the provisions hereinafter stated, in case any such action shall be brought against an indemnified person and such indemnifying person shall have been notified thereof, such indemnifying person shall be entitled to participate therein, and, to the extent it shall wish, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified person. After notice from the indemnifying person to such indemnified person of its election to assume the defense thereof, such indemnifying person shall not be liable to such indemnified person for any legal expenses subsequently incurred by such indemnified person in connection with the defense thereof; provided, however, that if there exists or shall exist a conflict of interest that would make it inappropriate, in the opinion of counsel to the indemnified person, for the same counsel to represent both the indemnified person and such indemnifying person or any affiliate or associate thereof, the indemnified person shall be entitled to retain its own counsel at the expense of such indemnifying person; provided, however, that no indemnifying person shall be responsible for the fees and expenses of more than one separate counsel for all indemnified parties; provided, however, that no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. No indemnifying party, in the defense of any such claim or litigation shall, except with the consent of each indemnified party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect to such claim or litigation. No indemnified party may settle or agree to settle any claim or litigation as to which indemnification may be sought hereunder without the prior written consent of the indemnifying party. Each indemnified party shall furnish such information regarding itself or the claim in question as an indemnifying party may reasonably request in writing as shall be reasonably required in connection with the defense of such claim and litigation resulting therefrom.

(d) If the indemnification provided for in this Section 8.3 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage, or expense referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim,

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damage, or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions that resulted in such loss, liability, claim, damage, or expense as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties’ relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission; provided, that in no event shall any contribution by CELL GENESYS hereunder exceed the net proceeds received by CELL GENESYS from the sale of the Shares covered by the Registration Statement.

8.4 Transfer of Shares After Registration; Notice. CELL GENESYS hereby covenants with the Company not to make any sale of the Registrable Shares after registration without effectively causing the prospectus delivery requirement under the Securities Act to be satisfied, and not to make sale of the Registrable Shares under the Registration Statement if the Company has notified it that the Registration Statement contains an Untrue Statement.

8.5 Reporting Requirements. The Company agrees to use its best efforts to:

(a) make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act;

(b) file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Securities Exchange Act of 1934; and

(c) so long as CELL GENESYS own Registrable Shares, to furnish to CELL GENESYS forthwith upon request (1) a written statement by the Company as to whether it complies with the reporting requirements of said Rule 144, the Securities Act and Securities Exchange Act of 1934, and whether it qualifies as a registrant whose securities may be resold pursuant to SEC Form S-3, and (2) such other information as may be reasonably requested in availing CELL GENESYS of any rule or regulation of the SEC that would permit the selling of the Registrable Shares without registration.

8.6 Limitations on Registration Rights.

(a) Notwithstanding the provisions of this Section 8, the Company may be written notice to CELL GENESYS require that CELL GENESYS immediately cease sales of shares under the Registration Statement (“Suspended Registration Statement”), in any period during which the Company is engaged in any activity or transaction or preparations or negotiations for any activity or transaction (“Company Activity”) that the Company desires to keep confidential for business reasons, if the

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Company determines in good faith that the public disclosure requirements imposed on the Company under the Securities Act in connection with any such Registration Statement would require disclosure of the Company Activity; provided, that (i) that the Company shall not suspend the use of said prospectus more than two times in any twelve month period and the duration of any one such suspension shall not be more than thirty (30) days and (ii) the Company shall cause any Suspended Registration Statement to remain effective for one additional day for each day, or any portion of a day, that CELL GENESYS was required to cease sales of shares thereunder, and provided further, that the Company shall use its commercially reasonable efforts to minimize the duration of any such suspension; and

(b) If the Company requires CELL GENESYS to cease sales of shares pursuant to Section 8.6(a) above, the Company shall, as promptly as practicable following the termination of the circumstance which entitled the Company to do so, give prompt written notice to CELL GENESYS that such circumstance has terminated and that it may resume sales pursuant to the Suspended Registration Statement has been amended to comply with the requirements of the Securities Act, the Company shall enclose such revised prospectus with the notice to CELL GENESYS given pursuant to this section 8.6(b) and CELL GENESYS shall make no offers or sales of shares pursuant to such Suspended Registration Statement other than by means of such revised prospectus. The foregoing provisions of this Section 8.6 shall in no manner diminish or otherwise impair the Company’s obligations under Section 8.2 and Section 8.3 hereof.

8.7 Termination of Obligations. The obligations of the Company pursuant to Sections 8.2 through 8.5 hereof with respect to Registrable Shares issued at a Closing and the Registration Statement covering such Shares shall cease and terminate at such time as all of such Registrable Shares (i) have been resold or (ii) such time as all of such Registrable Shares held by such Purchaser may be sold during any 90 day period pursuant to Rule 144, including Rule 144 (k), without being restricted by the volume limitations of Rule 144(e).

SECTION 9 NOTICES.

All notices or other communications which are required or permitted hereunder shall be in writing and addressed as follows:

if to CELL GENESYS:	Cell Genesys, Inc.
	342 Lakeside Drive
	Foster City, CA 94404

Attention:	Robert Tidwell
	Vice President, Corporate Development

with a copy to:	Cooley Godward LLP
	3000 El Camino Real
	Palo Alto, CA 94306-2155

Attention:	Barclay J. Kamb, Esq.

if to the Company:	Transkaryotic Therapies, Inc.
	195 Albany Street
	Cambridge, MA 02139

Attention:	Richard F Selden
	President and Chief Executive Officer

with a copy to:	Kerry A. Flynn
	Senior Director, Business Development

or to such other address as the party to whom notice is to be given may have furnished to the other party in writing in accordance herewith. Any such communication shall be deemed to have been given when delivered if personally delivered or sent by facsimile (provided that the party providing such notice promptly confirms receipt of such transmission with the other party by telephone), on the business day after dispatch if sent by a nationally-recognized overnight courier and on the third business day following the date of mailing if sent by mail, postage prepaid, return receipt requested.

SECTION 10 MISCELLANEOUS.

10.1 Waivers and Amendments. Neither this Agreement nor any provision hereof may be changed, waived, discharged, terminated, modified or amended except upon the written consent of the parties hereto.

10.2 Headings. The headings of the various sections of this Agreement have been inserted for convenience of reference only and shall not be deemed to be part of this Agreement.

10.3 Severability. If any provision hereof should be held invalid, illegal or unenforceable in any respect, then, to the fullest extent permitted by law, (a) all other provisions hereof shall remain in full force and effect and shall be liberally construed in order to carry out the intentions of the Parties as nearly as may be possible and (b) the parties shall use their best efforts to replace the invalid, illegal or unenforceable provision(s) with valid, legal and enforceable provision(s) which, insofar as practical, implement the purposes of such provision(s) in this Agreement.

10.4 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware as applied to contracts entered into and

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performed entirely in the State of Delaware by Delaware residents, without regard to conflicts of law principles.

10.5 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall constitute an original, but all of which, when taken together, shall constitute but one instrument, and shall become effective when one or more counterparts have been signed by each party hereto and delivered to the other parties.

10.6 Successors and Assigns. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto, provided that CELL GENESYS shall not assign its rights or obligations hereunder unless CELL GENESYS assigns such rights in whole and not in part to an assignee of such rights and obligations which shall agree in writing with the Company to be bound by this Agreement. The Company shall not, directly or indirectly, enter into any merger, consolidation or reorganization in which the Company shall not be the surviving corporation unless the proposed surviving corporation shall, prior to such merger, consolidation or reorganization, agree in writing to assume the obligations of the Company under this Agreement; provided, however, that the provisions of this Section 10.6 shall not apply in the event of any merger, consolidation or reorganization in which the Company is not the surviving corporation if CELL GENESYS is entitled to receive in exchange for their Registrable Shares consideration consisting solely of (i) cash, or (ii) securities of the acquiring corporation which may be immediately sold to the public without registration under the Securities Act.

10.7 Expenses. Each party shall pay all costs and expenses that it incurs with respect to the negotiation, execution, delivery and performance of this Agreement.

10.8 Entire Agreement. This Agreement, the License Agreements and other documents delivered pursuant hereto and thereto, including the exhibits, constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof.

10.9 Publicity. No party shall issue any press releases or otherwise make any public statement with respect to the transactions contemplated by this Agreement without the prior written consent of the other party, except as may be required by applicable law or regulations, in which case such party shall provide the other parties with reasonable notice of such publicity and/or opportunity to review such disclosure.

10.10 Waiver of Rule of Construction. Each Party has had the opportunity to consult with counsel in connection with the review, drafting and negotiation of this Agreement. Accordingly, the rule of construction that any ambiguity in this Agreement shall be construed against the drafting Party shall not apply.

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10.11 Termination. This Agreement shall terminate when the Company’s obligation to issue additional shares under the License Agreement terminates.

IN WITNESS WHEREOF, the parties hereto have caused this Stock Purchase Agreement to be executed by their duly authorized representatives as of the day and year first above written.

TRANSKARYOTIC THERAPIES, INC.			CELL GENESYS, INC.


By:			By:

Name:			Name:
Title:			Title:

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EX-99.1 4 j4280_ex99d1.htm EX-99.1 EXHIBIT 99

EXHIBIT 99.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Transkaryotic Therapies, Inc. (the “Company”) for the period ended June 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Richard F Selden, President and Chief Executive Officer of the Company, and Daniel E. Geffken, Senior Vice President, Finance, and Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: August 14, 2002			/s/ Richard F Selden
			Richard F Selden
			President and Chief Executive Officer


			/s/ Daniel E. Geffken
Dated: August 14, 2002			Daniel E. Geffken
			Senior Vice President, Finance and Chief Financial Officer