** **

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C.  20549**

 

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**FORM 10-Q**

 

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

 

**For the Quarter Ended March 31, 2002**

 

**CommissionFile Number 0-21481**

 

**TRANSKARYOTICTHERAPIES, INC.**

(Exact name ofregistrant as specified in its charter)

 

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| **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** |

 

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Indicate by checkmark whether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.

 

Yes         ý                    No           o

 

At April 30, 2002,there were 34,393,854 shares of Common Stock, $.01 par value, outstanding.

 

 

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TranskaryoticTherapies, Inc.

 

INDEX

 
| PART  I.  | FINANCIAL  INFORMATION                                                                               |
|----------------|------------------------------------------------------------------------------------------------------|
|           |                                                                                                 |
| Item  1.  | Condensed  Consolidated Financial Statements (unaudited)                                             |
|           |                                                                                                 |
|           | Condensed  Consolidated Balance Sheets as of  March 31, 2002 and December 31, 2001                   |
|           |                                                                                                 |
|           | Condensed  Consolidated Statements of Operations for the  Three Months Ended March 31, 2002 and 2001 |
|           |                                                                                                 |
|           | Condensed  Consolidated Statements of Cash Flows for the  Three Months Ended March 31, 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 6.        | Exhibits and  Reports on Form 8-K                                                                    |
|           |                                                                                                 |
| SIGNATURES     |

 

2

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Part 1 - Item 1 - Condensed Consolidated FinancialStatements

 

Transkaryotic Therapies,Inc.

Condensed ConsolidatedBalance Sheets

(unaudited)

 
| **(in  thousands, except par values)**                                                                                                                                    |   | **March 31,  2002** |    | **December  31,  2001** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|---------|-------------------------|--------|
| **Assets**                                                                                                                                                                |   |                |    |                    |   |
| Current assets:                                                                                                                                                           |   |                |    |                    |   |
| Cash and cash  equivalents                                                                                                                                                |   | $                   | 186,686 |                    | $      | 323,877 |   |
| Marketable  securities                                                                                                                                                    |   | 187,111             |    | 75,877                  |   |
| Accounts  receivable                                                                                                                                                      |   | 4,975               |    | 2,374                   |   |
| Inventories                                                                                                                                                               |   | 10,634              |    | 7,147                   |   |
| Prepaid expenses  and other current assets                                                                                                                                |   | 2,686               |    | 4,620                   |   |
| Total current  assets                                                                                                                                                     |   | 392,092             |    | 413,895                 |   |
| Property and  equipment, net                                                                                                                                              |   | 46,275              |    | 41,587                  |   |
| Other assets                                                                                                                                                              |   | 2,994               |    | 2,225                   |   |
| Total assets                                                                                                                                                              |   | $                   | 441,361 |                    | $      | 457,707 |   |
|                                                                                                                                                                      |   |                |    |                    |   |
| **Liabilities  and Stockholders’ Equity**                                                                                                                            |   |                |    |                    |   |
| Current  liabilities:                                                                                                                                                     |   |                |    |                    |   |
| Accounts payable                                                                                                                                                          |   | $                   | 8,992   |                    | $      | 9,394 |   |
| Accrued expenses                                                                                                                                                          |   | 14,934              |    | 12,150                  |   |
| Total current  liabilities                                                                                                                                                |   | 23,926              |    | 21,544                  |   |
|                                                                                                                                                                      |   |                |    |                    |   |
| Stockholders’  equity:                                                                                                                                               |   |                |    |                    |   |
| Series A  convertible preferred stock, $.01 par value, 10,000 shares authorized; no  shares issued and outstanding at March 31, 2002 and December 31, 2001,  respectively |   | —              |    | —                  |   |
| Series B  preferred stock, $.01 par value, 1,000 shares authorized; no shares issued  and outstanding at March 31, 2002 and December 31, 2001, respectively               |   | —              |    | —                  |   |
| Common stock,  $.01 par value;  100,000 shares  authorized; 34,379 and 34,302 shares issued and outstanding at March 31, 2002  and December 31, 2001, respectively   |   | 344                 |    | 343                     |   |
| Additional  paid-in capital                                                                                                                                               |   | 671,868             |    | 670,959                 |   |
| Accumulated  deficit                                                                                                                                                      |   | (254,139            | )       | (235,672                | )      |
| Deferred  compensation                                                                                                                                                    |   | (49                 | )       | (114                    | )      |
| Accumulated  other comprehensive income (loss)                                                                                                                            |   | (589                | )       | 647                     |   |
| Total  stockholders’ equity                                                                                                                                          |   | 417,435             |    | 436,163                 |   |
| Total  liabilities and stockholders’ equity                                                                                                                          |   | $                   | 441,361 |                    | $      | 457,707 |   |

 

See accompanying Notes toCondensed Consolidated Financial Statements.

 

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Transkaryotic Therapies,Inc.

Condensed ConsolidatedStatements of Operations

(unaudited)

 
|                                                         |   | **Three  Months Ended March 31,** |    |
|--------------------------------------------------------------|--------|-----------------------------------|---------|
| **(in thousands, except per share amounts)**                 |   | **2002**                          |    | **2001** |   |
| Revenues:                                                    |   |                              |    |   |   |
| Product sales                                                |   | $                                 | 6,058   |   | $ | — |   |
| License and  research revenues                               |   | 552                               |    | 1,218 |   |
|                                                         |   | 6,610                             |    | 1,218 |   |
| Operating  expenses:                                         |   |                              |    |   |   |
| Cost of goods  sold                                          |   | 548                               |    | — |   |
| Research and  development                                    |   | 20,409                            |    | 16,506 |   |
| Selling, general  and administrative                         |   | 6,423                             |    | 4,959 |   |
|                                                         |   | 27,380                            |    | 21,465 |   |
| Loss from  operations                                        |   | (20,770                           | )       | (20,247 | ) |
| Interest income,  net                                        |   | 2,303                             |    | 3,430 |   |
| Gain on sale of  investment                                  |   | —                            |    | 2,785 |   |
|                                                         |   | 2,303                             |    | 6,215 |   |
| Net loss                                                     |   | $                                 | (18,467 | ) | $ | (14,032 | ) |
| Basic and  diluted net loss per share                        |   | $                                 | (0.54   | ) | $ | (0.62 | ) |
| Shares used to  compute basic and diluted net loss per share |   | 34,331                            |    | 22,718 |   |

 

See accompanying Notes toCondensed Consolidated Financial Statements.

 

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TranskaryoticTherapies, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

 
|                                                                             |   | **Three  Months Ended  March 31,** |       |
|----------------------------------------------------------------------------------|--------|------------------------------------|------------|
| **(in  thousands)**                                                              |   | **2002**                           |       | **2001** |   |
| **Operating  activities:**                                                       |   |                               |       |   |   |
| Net loss                                                                         |   | $                                  | (18,467    | ) | $ | (14,032 | ) |
| Adjustments to  reconcile net loss to net cash provided by operating activities: |   |                               |       |   |   |
| Depreciation and  amortization                                                   |   | 1,640                              |       | 1,340 |   |
| Compensation  expense related to equity issuances                                |   | 65                                 |       | 180 |   |
| Changes in  operating assets and liabilities                                     |   | (1,735                             | )          | (1,568 | ) |
|                                                                             |   |                               |       |   |   |
| Net cash used  for operating activities                                          |   | (18,497                            | )          | (14,080 | ) |
|                                                                             |   |                               |       |   |   |
| **Investing  activities:**                                                       |   |                               |       |   |   |
| Proceeds from  sales and maturities of marketable securities                     |   | 50,776                             |       | 50,320 |   |
| Purchases of  marketable securities                                              |   | (163,175                           | )          | (28,401 | ) |
| Purchases of  property and equipment                                             |   | (6,329                             | )          | (10,540 | ) |
| Changes in other  assets                                                         |   | (769                               | )          | (26 | ) |
|                                                                             |   |                               |       |   |   |
| Net cash (used  for) provided by investing activities                            |   | (119,497                           | )          | 11,353 |   |
|                                                                             |   |                               |       |   |   |
| **Financing  Activities:**                                                       |   |                               | ** ** |   | ** ** |
| Issuance of  common stock, net                                                   |   | 910                                |       | 58 |   |
| Repayment of  long-term debt                                                     |   | —                             |       | (1,000 | ) |
| Net cash  provided by (used for) financing activities                            |   | 910                                |       | (942 | ) |
|                                                                             |   |                               |       |   |   |
| Effect of  exchange rate changes on cash and cash equivalents                    |   | (107                               | )          | (111 | ) |
|                                                                             |   |                               |       |   |   |
| Net decrease in  cash and cash equivalents                                       |   | (137,191                           | )          | (3,780 | ) |
|                                                                             |   |                               |       |   |   |
| Cash and cash  equivalents at January 1                                          |   | 323,877                            |       | 49,445 |   |
|                                                                             |   |                               |       |   |   |
| Cash and cash  equivalents at March 31                                           |   | $                                  | 186,686    |   | $ | 45,665 |   |

 

See accompanying Notes toCondensed Consolidated Financial Statements.

 

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Transkaryotic Therapies,Inc.

Notes to CondensedConsolidated Financial Statements (unaudited)

March 31, 2002 and 2001

 

1.             BASISOF PRESENTATION

 

The accompanying unaudited condensed consolidatedfinancial statements have been prepared in accordance with accountingprinciples generally accepted in the United States for interim financialinformation and with the instructions to Form 10–Q and Article 10 ofRegulation S–X.  Accordingly, theydo not include all of the information and footnotes required by generallyaccepted accounting principles in the United States for complete financialstatements.  In the opinion ofmanagement, the accompanying financial statements include all adjustments,consisting only of normal recurring adjustments, necessary for a fairpresentation of the financial position, results of operations and cash flowsfor the periods presented.  The resultsof operations for the interim period ended March 31, 2002 are not necessarilyindicative of the results to be expected for the year ending December 31, 2002.

 

These financial statements should be read inconjunction with the audited financial statements and notes thereto for theyear ended December 31, 2001 included in the Company’s Annual Report on Form10-K as filed with the Securities and Exchange Commission.

 

Niche Protein®, Gene-Activated®, and TKT®  are registered trademarks and  ReplagalTM and Transkaryotic TherapyTM aretrademarks of Transkaryotic Therapies, Inc. DynepoTM is a trademark of Aventis Pharmaceuticals, Inc. (“Aventis”).

 

2.             NETLOSS PER SHARE

 

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

 

Basic net loss per share was equivalent to diluted netloss per share for the three months ended March 31, 2002 and 2001 becausecommon equivalent shares from convertible preferred stock and stock optionshave been excluded as their effect is antidilutive.

 

3.             COMPREHENSIVELOSS

 

Comprehensive loss comprises net loss, unrealizedgains and losses on marketable securities designated as available-for-sale, andcumulative foreign currency translation adjustments.  The Company had a total comprehensive loss of $19,703,000 and$13,141,000 for the three months ended March 31, 2002 and 2001, respectively.

 

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4.             INVENTORIES

 

Inventories consist of the following:

 
|               |   | **March 31,  2002** |   | **December 31,  2001** |   |
|--------------------|--------|---------------------|--------|------------------------|--------|
| **(in thousands)** |   |                |   |
| Raw materials      |   | $                   | 617    |                   | $      | 452 |   |
| Work in process    |   | 6,795               |   | 4,214                  |   |
| Finished goods     |   | 3,222               |   | 2,481                  |   |
|               |   | $                   | 10,634 |                   | $      | 7,147 |   |

 

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

 

5.             LEGALPROCEEDINGS

 

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

 

*Replagal  Patent Litigation*

 

The Company is involved in patent litigation relatingto Replagal brought by Genzyme Corporation (“Genzyme”) and Mount Sinai Schoolof Medicine of New York University (“Mount Sinai”) in the United StatesDistrict Court for the District of Delaware (the “Delaware District Court”)regarding a patent licensed by Genzyme from Mount Sinai.  In January 2002, the Delaware DistrictCourt dismissed this patent litigation, granting the Company’s motion forsummary judgment of non-infringement and denying Genzyme’s motion for summaryjudgment of infringement.  In March2002, Genzyme appealed the ruling of the District Court to the United States Courtof Appeals for the Federal Circuit (the “Federal Circuit”).

 

*DynepoPatent Litigation*

 

The Company and Aventis are involved in a patentinfringement action with Amgen Inc. (“Amgen”).

 

In April 1997, Amgen commenced a patent infringementaction against the Company and Aventis in the United States District Court forthe District of Massachusetts (the “Massachusetts District Court”).

 

In January 2001, the Massachusetts District Courtconcluded that Dynepo (epoietin delta), the Company’s Gene-Activatederythropoietin for the treatment of anemia related to chronic renal failure,infringed eight of the 18 claims of patents asserted by Amgen.  Amgen did not seek and was not awardedmonetary damages.  The Company and Aventisfiled an appeal of the decision with the Federal Circuit.  Amgen has also appealed this decision.

 

In addition, in July 1999, Aventis and the Companycommenced legal proceedings in the United Kingdom against Kirin-Amgen, Inc.(“Kirin-Amgen”), seeking a declaration that a U.K. patent held by Kirin-Amgenwill not be infringed by the Company’s activities related to Dynepo

 

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and that certain claims of Kirin-Amgen’s U.K. patent are invalid.

 

In April 2001, the High Court of Justice in theUnited Kingdom ruled that Dynepo infringed one of four claims of the patentasserted by Kirin–Amgen.  TheCompany and Aventis, as well as Kirin-Amgen, have filed appeals of thisdecision.

 

The Company believes that it and Aventis have stronggrounds for both of these appeals.

 

Pursuant to an Amendedand Restated License Agreement, dated March 1995, by and between Aventis andthe Company, Aventis has assumed the legal costs of the Amgen and Kirin-Amgenlitigation.  The Company will reimburseAventis for the Company’s share of the litigation expenses, as defined, fromfuture royalties, if any, received from the sale of Dynepo and in certain othercircumstances.

 

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PART I - Financial Information

 

Item 2.    Management’sDiscussion 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 humandiseases.  TKT is building a broad andrenewable product pipeline based on three proprietary development platforms:Niche Protein products, Gene-Activated proteins and Transkaryotic Therapy genetherapy.

 

During 2001, the Company received its first productmarketing approvals.  In August 2001,Replagal (agalsidase alfa), the Company’s enzyme replacement therapy for thelong-term treatment of patients with Fabry disease, was granted marketingauthorization in the European Union.  Asof March 31, 2002, Replagal was approved for commercial sale in 21 countries,including 19 in Europe.

 

The Company has incurred substantial annual operatinglosses since inception and expects that its research and developmentexpenditures will increase in future years as product development effortsaccelerate.  Accordingly, the Companyexpects to incur significant operating losses until substantial product salesare generated.   Until such time, theCompany is dependent upon product sales, existing cash resources, interestincome, external financing from equity offerings, debt financings andcollaborative research and development arrangements with corporate sponsors tofinance its operations. At March 31, 2002, the Company’s accumulated deficitwas $254,139,000.

 

Results of operations may vary significantly fromperiod to period depending on, among other factors, Replagal product sales,costs associated with the manufacture, marketing and sale of Replagal, expensesrelated to the Company’s research and development efforts, the timing ofapprovals, if granted, to market the Company’s products either in the UnitedStates or abroad, the ability of the Company to access capital markets, thetiming of additional license fees and milestone payments under existingcollaborative research agreements and the establishment of additionalcollaborative research agreements, if any.

 

CRITICAL ACCOUNTINGPOLICIES

 

TheCompany’s significant accounting policies are more fully described in theCompany’s Annual Report on Form 10-K for the year ended December 31, 2001 underthe caption “Item 7 Management’s Discussion and Analysis of Financial Conditionand Results of Operations” and in the Notes to the Consolidated FinancialStatements.  Application of these policies is particularly important tothe portrayal of the Company’s financial condition and results ofoperations.  These accounting policies require the Company to makesubjective judgements in determining estimates about the effect of matters thatare inherently uncertain. Actual results could differ materially from theseestimates.

 

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The following discussion of the financial conditionand results of operations of the Company should be read in conjunction with theaccompanying condensed consolidated financial statements and the relatedfootnotes thereto.

 

RESULTS OF OPERATIONS

 

*For theThree Months Ended March 31, 2002 and 2001*

 

Product sales for the quarter ended March 31, 2002totaled $6,058,000.  Substantially allReplagal product sales were made in Europe. There were no sales for the corresponding period in 2001.  The Company expects sales of Replagal toincrease significantly in 2002 and beyond, as additional patients beginReplagal therapy, additional pricing and reimbursement arrangements areestablished, and marketing authorizations are received in additional countries.

 

License and research revenues totaled $552,000 and$1,218,000 for the three months ended March 31, 2002 and 2001,respectively.  License and researchrevenues were earned from collaborative agreements with Sumitomo PharmaceuticalCo. Ltd. (“Sumitomo”) and Wyeth, formerly Genetics Institute, Inc.

 

For the first quarter of 2002, cost of goods sold was$548,000, or 9% of product sales. Costs associated with Replagal inventoryproduced before marketing approval in 2001, some of which was sold during thefirst quarter of 2002 and the balance of which will be sold later in 2002, havebeen recognized as a research and development expense in 2001.  As a result, gross margins will not reflectfull production costs until some time in the second half of 2002.  The Company expects that its cost of goodssold for 2002 will be approximately 25% of product sales.   For 2003 and beyond, the Company expects toincrease production to meet increasing demand as the launch of Replagalaccelerates, thereby creating volume efficiencies, and that cost of goods sold,as a percentage of product sales, will likely decline.

 

Research and development expenses totaled $20,409,000in the first quarter of 2002, as compared to $16,506,000 during the same periodin 2001.  The increase in 2002 was$3,903,000, or 24%.  Included in theincrease was $4,300,000 of set-up and technology transfer costs to a  contract manufacturer.  In addition, the Company capitalized$4,034,000 of Replagal production costs as inventory during the quarter that,prior to product approval in August 2001, would have been included in researchand development expenses.

 

During the remainder of 2002, costs relating to bothpreclinical and clinical programs are expected to increase significantly asproduct development activities are initiated or expanded.  The Company is advancing several otherpreclinical programs toward the Investigational New Drug stage in 2002.  The largest component of increases for the remainderof 2002 is expected to be costs related to building and operating its manufacturingfacilities for its preclinical and clinical candidates.  In late 2002, the Company expects to occupya new headquarters and research and development facility, which will increaseits occupancy costs in 2002 and beyond.

 

Selling, general and administrative expenses were$6,423,000 in the quarter ended March 31, 2002, compared with $4,959,000 duringthe same period in 2001.  The increasein 2002 of $1,464,000, or 30%, principally was the result of Replagal launchactivities in Europe and the

 

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expansion of the Company’s global commercial infrastructure includingsales, marketing and distribution capabilities.  During 2002, selling, general and administrative costs areexpected to increase significantly as world-wide product launch activitiesrelated to the Company’s Replagal product continue.  In addition, with the completion of the new corporateheadquarters discussed above, selling, general and administrative occupancycosts will increase significantly in 2002.

 

Net interest income was $2,303,000 and $3,430,000 forthe three months ended March 31, 2002 and 2001, respectively.  The average cash and marketable securitiesbalances were $385,426,000 and $233,311,000 in 2002 and 2001,respectively.  Despite higher averagecash and marketable securities balances in 2002, interest income decreased by$1,127,000 as a result of significantly lower rates of return in the firstquarter of 2002.

 

During the first quarter of 2001, TKT soldsubstantially all of its equity investment in a European biotechnology companyresulting in a gain of $2,785,000.  In1996, TKT made a strategic investment of $300,000 in such company.

 

The Company had a net loss of $18,467,000 and$14,032,000 for the three months ended March 31, 2002 and 2001, respectively.Basic and diluted net loss per share was $0.54 for the three months ended March31, 2002, as compared to a basic and diluted net loss per share of $0.62 forthe corresponding period in 2001.  Forthe three months ended March 31, 2002 and 2001, weighted average sharesoutstanding were 34,331,000 and 22,718,000, respectively.   The increase in weighted average sharesoutstanding reflects the sale of 7,785,000 common shares from the Company’sCommon Stock offerings in June and December 2001 and the issuance of 3,571,000shares of Common Stock upon the conversion of all of the then outstandingSeries A Convertible Preferred Stock in November 2001.

 

LIQUIDITY AND SOURCES OF CAPITAL

 

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

 

The Company had cash, cash equivalents and marketable securitiestotaling $373,797,000 at March 31, 2002, including restricted marketablesecurities collateralizing letters of credit totaling $8,077,000.  Cash equivalents and marketable securitiesare invested in United States government and agency obligations and moneymarket funds.

 

Substantial additionalfunds may be required to support the Company’s research and developmentprograms, acquisition of technologies, preclinical and clinical testing of itsproducts, pursuit of regulatory approvals, acquisition of capital equipment,expansion of laboratory and office facilities, expansion of manufacturingcapabilities, selling, general and administrative expenses and the buyout ofthe minority interests in TKT Europe — 5S AB (“TKT Europe”), if applicable, asdiscussed below.

 

The Company expects that its existing capitalresources, together with cash from collaborative agreements, product sales, andinterest income, will be sufficient to fund its operations through at least2004.  The Company’s cash requirements mayvary depending on a

 

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number of factors, including Replagal product sales, costs associatedwith the manufacture, marketing and sale of Replagal, expenses related to theCompany’s research and development efforts, the timing of approvals, ifgranted, to market the Company’s products either in the United States orabroad, the ability of the Company to access capital markets, the timing ofadditional license fees and milestone payments under existing collaborativeresearch agreements and the establishment of additional collaborative researchagreements, if any.  Lack of necessaryfunds may require the Company to delay, scale back or eliminate some or all ofits research and product development programs or to license its potentialproducts or technologies to third parties.

 

Until such time, if any, as the Company’s operationsgenerate significant product sales, the Company will seek to fund operationswith cash resources, interest income, proceeds from equity offerings, and debtfinancings, and funding from collaborative agreements.

 

The Company may pursue opportunities to obtainadditional financing in the future through equity financings, debt financings,lease arrangements related to facilities and capital equipment, andcollaborative research agreements.  Thesource, timing and availability of any future financing will depend principallyupon equity and debt market conditions, interest rates and, more specifically, onthe Company’s continued progress in its exploratory, preclinical, and clinicaldevelopment programs, and the extent of its commercial success.  There can be no assurance that such fundswill be available on favorable terms, if at all.

 

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

 

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

 

In January 2001, theCompany purchased a manufacturing facility for $8,800,000 and leased anadjoining facility. The Company expects to make improvements to thesefacilities, which could total approximately $20,000,000 in 2002.  The Company expects that these facilities willbe used to manufacture one or more of the proteins in its product pipeline.

 

In August 2000, theCompany entered into a lease for a new corporate headquarters and research anddevelopment facility in Cambridge, Massachusetts.  The Company expects to spend approximately $30,000,000 for leaseholdimprovements and equipment through December 2002 to outfit the building.

 

The Company may seek financing for all or asignificant portion of the cost of the leasehold improvements describedabove.  There can be no guarantee thatfinancing will be available on favorable terms, if at all.

 

In April 2000, theCompany entered into an agreement with stockholders of TKT Europe to establishthe Company’s European sales and marketing subsidiary.   Prior to this agreement, these stockholderswere neither employees nor affiliated parties of the Company.  These stockholders are the principalmanagers of TKT Europe and own a 20% interest in it, while the Company owns theremaining 80% interest.  The agreementincludes provisions entitling the Company to purchase the stockholders’ownership interest in TKT Europe in August 2004, under

 

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a specified formula. Should the Company not exercise that right, the stockholders of TKTEurope can require the Company to purchase its ownership interest sixty daysthereafter.  The buyout price, which isdependent upon the profitability of TKT Europe, cannot be determined at thistime, but is expected to be significant.

 

At March 31, 2002, the Company had committed to payapproximately $47,055,000 to third parties for certain product developmentactivities through 2004.  The Companyhas the right to terminate the agreements upon six months written notice.

 

At December 31, 2001, the Companyhad net operating loss carryforwards of approximately $200,075,000, which expire at various times through 2022.  Due to the degree of uncertainty related tothe ultimate use of loss carryforwards and tax credits, the Company has fullyreserved against any potential tax benefit. The future utilization of net operating loss carryforwards and taxcredits may be subject to limitation under the changes in stock ownership rulesof the Internal Revenue Code.  Becauseof this limitation, it is possible that taxable income in future years, whichwould 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 withGenzyme and Mount Sinai with respect to the development of Replagal and withAmgen and Kirin-Amgen with respect to the development of Dynepo.  Pursuant to the Amended and Restated LicenseAgreement, dated March 1995, by and between Aventis and the Company, Aventishas assumed the legal cost of the Amgen and Kirin-Amgen litigation.  The Company is required to reimburse Aventisfor the Company’s share of litigation expenses, as defined, from futureroyalties, if any, received from the sale of Dynepo, and in certain othercircumstances.

 

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

 

FORWARD-LOOKING STATEMENTS

 

This quarterly report contains forward-lookingstatements within the meaning of Section 27A of the Securities Act of 1933and Section 21E of the Securities Exchange Act of 1934 that involve risksand uncertainties, such as statements concerning:

 

•           ongoinglitigation in which the Company is involved;

 

•           theCompany’s efforts to obtain regulatory approval for its products;

 

•              productsales and margins on sales of the Company’s products;

 

•           theCompany’s growth and future operating results;

 

•           thediscovery and development of new products;

 

•           theCompany’s products and technologies;

 

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•           theCompany’s collaborators;

 

•           theCompany’s intellectual property; and

 

•           theCompany’s manufacturing, marketing, sales, and distribution capabilities.

 

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 conveyuncertainty of future events or outcomes to identify these forward—lookingstatements. There are a number of important factors that could cause actualresults to differ materially from the results anticipated by theseforward—looking statements. These important factors include those set forthunder the caption Risk Factors which are filed with this Quarterly Report onForm 10-Q as Exhibit 99.1, and are incorporated herein by reference. Thesefactors and the other cautionary statements made in this quarterly reportshould be read as being applicable to all related forward—looking statementswherever they appear in this quarterly report. If one or more of these factorsmaterialize, or if any underlying assumptions prove incorrect, the Company’sactual results, performance or achievements may vary materially from any futureresults, performance or achievements expressed or implied by theseforward—looking statements. In addition, any forward-looking statementsrepresent the Company’s estimates only as of the date this quarterly report wasfiled with the Securities and Exchange Commission and should not be relied uponas representing the Company’s estimates as of any subsequent date.  Whilethe Company may elect to update forward-looking statements at some point in thefuture, the Company specifically disclaims any obligation to do so, even if itsestimates change.

 

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PART II - OtherInformation

 

### Item 6.  Exhibits and Reports on Form 8-K

 

(a)         Exhibits

 

99.1      Risk Factors

 

(b)        Reports on Form 8-K

 

For the period ended March31, 2002, the Company did not file any reports on Form 8-K.

 

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SIGNATURES

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the Registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.

 
|                      |   |              | TRANSKARYOTIC THERAPIES, INC.                                                                            |
|---------------------------|--------|-------------------|----------------------------------------------------------------------------------------------------------|
|                      |
|                      |
| Date:  May  15, 2002 |   | By:               | /s/ Daniel E. Geffken                                                                                    |   |
|                      |   | Daniel E. Geffken |
|                      |   |              | Senior Vice President, Finance and Chief Financial  Officer (Principal Financial and Accounting Officer) |   |

 

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