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******SECURITIES AND EXCHANGECOMMISSION****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** |
|------------|----------------------------------------------------------------------------------------------|

**F****or theQuarter Ended June 30, 2001**

**Commission File Number 0–21481**

**TRANSKARYOTIC THERAPIES, INC.******(Exact name of registrant as specified inits charter)

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| **Delaware**                     | **04-3027191**      |
|----------------------------------|---------------------|
| (State or other  jurisdiction of | (I.R.S. Employer    |
| incorporation or  organization)  | Identification No.) |

 
| **195 Albany Street**                     |       |
|-------------------------------------------|------------|
| **Cambridge, Massachusetts**              | **02139**  |
| (Address of principal  executive offices) | (Zip Code) |

Registrant's telephonenumber, including area code:  **(617)349-0200**

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        Indicate by check mark whether the registrant (1) has filedall reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.

Yes**ý****  **No**o**

                At July 31, 2001, there were26,395,162 shares of Common Stock, $.01 par value, outstanding.

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Transkaryotic Therapies,Inc.

INDEX
|   |           |                                                                                                        |
|--------|----------------|-------------------------------------------------------------------------------------------------------------|
|   | PART  I.       | FINANCIAL  INFORMATION                                                                                      |   |
|   |           |                                                                                                        |   |
|   | Item  1.  | Condensed  Consolidated Financial Statements (unaudited)                                                    |   |
|   |           |                                                                                                        |   |
|   |           | Condensed  Consolidated Balance Sheets as of June 30, 2001 and December 31, 2000                            |   |
|   |           |                                                                                                        |
|   |           |                                                                                                        |
|   |           | Condensed  Consolidated Statements of Operations for the Three and Six Months Ended June  30, 2001 and 2000 |   |
|   |           |                                                                                                        |   |
|   |           | Condensed  Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2001  and 2000           |   |
|   |           |                                                                                                        |   |
|   |           | 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  4.       | Submission  of Matters to a Vote of Security Holders                                                        |   |
|   |           |                                                                                                        |   |
|   | Item 6.        | Exhibits and  Reports on Form 8-K                                                                           |   |
|   |           |                                                                                                        |   |
|   | SIGNATURES     |                                                                                                        |   |

 

PARTI - Item 1 - Condensed Consolidated Financial Statements

 

Part1- Item 1- CondensedConsolidated Financial StatementsTranskaryotic Therapies, Inc.Condensed Consolidated BalanceSheets(unaudited)
| (in thousands, except par values)           |                                                                                                                                                                   | June  30, |     | December  31, |     |
|---------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------|----------|---------------|----------|
|                                        |                                                                                                                                                                   | 2001      |     | 2000          |     |
|                                        |                                                                                                                                                                   |           |     |               |     |
| **Assets**                                  |                                                                                                                                                                   |      |     |          |     |
|                                        |                                                                                                                                                                   |      |     |          |     |
| Current assets:                             |                                                                                                                                                                   |      |     |          |     |
|                                        | Cash and cash equivalents                                                                                                                                              |      | $        | 168,426       |     | $ | 49,445 |   |
|                                        | Marketable securities                                                                                                                                                  |      | 127,278  |          | 196,011  |   |
|                                        | Prepaid expenses and other  current assets                                                                                                                             |      | 1,698    |          | 1,842    |   |
|                                        |                                                                                                                                                                   |           |     |               |     |
|                                        | Total current assets                                                                                                                                                   |      | 297,402  |          | 247,298  |   |
|                                        |                                                                                                                                                                   |           |     |               |     |
| Property and equipment, net                 |                                                                                                                                                                   | 34,481    |     | 23,597        |     |
| Other assets                                |                                                                                                                                                                   | 2,289     |     | 1,498         |     |
|                                        |                                                                                                                                                                   |           |     |               |     |
| Total assets                                |                                                                                                                                                                   | $         | 334,172  |          | $        | 272,393 |   |
|                                        |                                                                                                                                                                   |           |     |               |     |
| **Liabilities and Stockholders' Equity**    |                                                                                                                                                                   |      |     |          |     |
|                                        |                                                                                                                                                                   |      |     |          |     |
| Current liabilities:                        |                                                                                                                                                                   |      |     |          |     |
|                                        | Accounts payable                                                                                                                                                       | $         | 5,844    |          | $        | 3,986 |   |
|                                        | Accrued expenses                                                                                                                                                       |      | 8,705    |          | 8,550    |   |
|                                        | Current maturities of long-term  debt                                                                                                                                  |      | 2,000    |          | 2,500    |   |
|                                        |                                                                                                                                                                   |           |     |               |     |
|                                        | Total current liabilities                                                                                                                                              |      | 16,549   |          | 15,036   |   |
|                                        |                                                                                                                                                                   |      |     |          |     |
| Long-term debt, less current  maturities    |                                                                                                                                                                   | 8,500     |     | 9,500         |     |
|                                        |                                                                                                                                                                   |      |     |          |     |
| Stockholders' equity:                       |                                                                                                                                                                   |      |     |          |     |
|                                        | Series A convertible preferred  stock, $.01 par value, 10 shares authorized; 10 shares issued and outstanding  at June 30, 2001 and December 31, 2000, respectively    |      |     |          |     |   |
|                                        | 1                                                                                                                                                                      |      | 1        |          |
|                                        | Series B preferred stock, $.01  par value, 1,000 shares authorized; no shares issued and outstanding at June  30, 2001 and December 31, 2000, respectively             |      |     |          |     |   |
|                                        | -                                                                                                                                                                      |      | -        |          |
|                                        | Common stock, $.01 par  value;  100,000 shares authorized;  26,335 and 22,700 shares issued and outstanding at June 30, 2001 and December  31, 2000, respectively |      |     |          |     |   |
|                                        | 263                                                                                                                                                                    |      | 227      |          |
|                                        | Additional paid-in capital                                                                                                                                             |      | 508,736  |          | 413,242  |   |
|                                        | Accumulated deficit                                                                                                                                                    |      | (200,526 | )             | (165,429 | ) |
|                                        | Deferred compensation                                                                                                                                                  |      | (491     | )             | (860     | ) |
|                                        | Accumulated other comprehensive  income                                                                                                                                |      | 1,140    |          | 676      |   |
|                                        |                                                                                                                                                                   |           |     |               |     |
|                                        | Total stockholders' equity                                                                                                                                             |      | 309,123  |          | 247,857  |   |
|                                        |                                                                                                                                                                   |           |     |               |     |
| Total liabilities and  stockholders' equity |                                                                                                                                                                   | $         | 334,172  |          | $        | 272,393 |   |
|                                        |                                                                                                                                                                   |           |     |               |     |
|                                             |                                                                                                                                                                        |           |          |               |          |  |  |  |  |

Seeaccompanying Notes to Condensed Consolidated Financial Statements.

TranskaryoticTherapies, Inc.Condensed ConsolidatedStatements of Operations(unaudited)

| (in thousands, except per share  amounts)                    | Three  Months Ended June 30,         |    | Six  Months Ended June 30, |   |
|--------------------------------------------------------------|--------------------------------------|---------|----------------------------|--------|
|                                                         | 2001                                 |    | 2000                       |   | 2001 |   | 2000 |   |
|                                                         |                                      |    |                            |   |  |   |  |   |
| Revenues:                                                    |                                 |    |                       |   |   |   |   |   |
|                                                         | Product sales                        | $       | 297                        |   | $ | - |   | $ | 297 |   | $ | - |   |
|                                                         | License and research revenues        | 410     |                       | 1,514  |   | 1,628 |   | 1,514 |   |
|                                                         |                                      |    |                            |   |  |   |  |   |
|                                                         | 707                                  |    | 1,514                      |   | 1,925 |   | 1,514 |   |
| Operating expenses:                                          |                                 |    |                       |   |   |   |   |   |
|                                                         | Research and development             | 18,805  |                       | 13,643 |   | 35,311 |   | 26,327 |   |
|                                                         | Selling, general and  administrative | 5,831   |                       | 3,012  |   | 10,790 |   | 6,049 |   |
|                                                         |                                      |    |                            |   |  |   |  |   |
|                                                         | 24,636                               |    | 16,655                     |   | 46,101 |   | 32,376 |   |
|                                                         |                                      |    |                            |   |  |   |  |   |
| Loss from operations                                         | (23,929                              | )       | (15,141                    | )      | (44,176 | ) | (30,862 | ) |
|                                                         |                                 |    |                       |   |   |   |   |   |
| Other income:                                                |                                 |    |                       |   |   |   |   |   |
|                                                         | Interest income, net                 | 2,864   |                       | 2,921  |   | 6,294 |   | 5,543 |   |
|                                                         | Gain on sale of investment           | -       |                       | -      |   | 2,785 |   | - |   |
|                                                         |                                      |    |                            |   |  |   |  |   |
|                                                         | 2,864                                |    | 2,921                      |   | 9,079 |   | 5,543 |   |
|                                                         |                                      |    |                            |   |  |   |  |   |
| Net loss                                                     | $                                    | (21,065 | )                          | $      | (12,220 | ) | $ | (35,097 | ) | $ | (25,319 | ) |
|                                                         |                                      |    |                            |   |  |   |  |   |
| Basic and diluted net loss per  share                        | $                                    | (0.92   | )                          | $      | (0.54 | ) | $ | (1.54 | ) | $ | (1.12 | ) |
|                                                         |                                      |    |                            |   |  |   |  |   |
| Shares used to  compute basic and diluted net loss per share | 22,859                               |    | 22,684                     |   | 22,789 |   | 22,657 |   |
|                                                         |                                      |    |                            |   |  |   |  |   |

Seeaccompanying Notes to Consolidated Financial Statements.

TranskaryoticTherapies, Inc.Condensed ConsolidatedStatements of Cash Flows(unaudited)

 

| (in thousands)                                                                | Six  Months Ended  June 30,                       |          |
|-------------------------------------------------------------------------------|---------------------------------------------------|---------------|
|                                                                          | 2001                                              |          | 2000 |   |
|                                                                          |                                                   |          |  |   |
| **Operating activities:**                                                     |                                              |          |   |   |
| Net loss                                                                      | $                                                 | (35,097       | ) | $ | (25,319 | ) |
| Adjustments to reconcile net loss  to net cash used for operating activities: |                                              |     |   |     |
|                                                                          | Depreciation and amortization                     | 2,801         |   | 1,166 |   |
|                                                                          | Compensation expense related to  equity issuances | 357           |     | 379 |     |
| Changes in operating assets and  liabilities                                  | 2,192                                             |          | 887 |   |
|                                                                          |                                                   |          |  |   |
| Net cash used for operating  activities                                       | (29,747                                           | )             | (22,887 | ) |
|                                                                          |                                                   |          |  |   |
| **Investing activities:**                                                     |                                              |          |   |   |
| Proceeds from maturities of  marketable securities                            | 105,171                                           |          | 58,080 |   |
| Purchases of marketable  securities                                           | (35,932                                           | )             | (90,388 | ) |
| Purchases of property and  equipment                                          | (13,685                                           | )             | (2,548 | ) |
| Changes in other  assets                                                      | (792                                              | )             | 78 |   |
|                                                                          |                                                   |          |  |   |
| Net cash provided by (used for)  investing activities                         | 54,762                                            |          | (34,778 | ) |
|                                                                          |                                                   |          |  |   |
| **Financing Activities:**                                                     |                                              | ** **    |   | ** ** |
| Issuance of common stock                                                      | 95,542                                            |          | 1,320 |   |
| Repayment of long-term debt                                                   | (1,500                                            | )             | (1,000 | ) |
| Issuance of convertible preferred  stock                                      | -                                                 |          | 99,940 |   |
|                                                                          |                                                   |          |  |   |
| Net cash provided by financing  activities                                    | 94,042                                            |          | 100,260 |   |
|                                                                          |                                                   |          |  |   |
| Net increase in cash and cash equivalents                                     | 119,057                                           |          | 42,595 |   |
| Effect of exchange rate changes  on cash and cash equivalents                 | (76                                               | )             | - |   |
| Cash and cash equivalents at  January 1                                       | 49,445                                            |          | 151,202 |   |
|                                                                          |                                                   |          |  |   |
| Cash and cash equivalents at June  30                                         | $                                                 | 168,426       |   | $ | 193,797 |   |
|                                                                          |                                                   |          |  |   |

See accompanying Notes to Condensed ConsolidatedFinancial Statements.

Transkaryotic Therapies, Inc.Notes to CondensedConsolidated Financial Statements (unaudited)June 30, 2001 and 2000

1.          BASISOF PRESENTATION

             Theaccompanying unaudited condensed consolidated financial statements have beenprepared in accordance with accounting principles generally accepted in theUnited States for interim financial information and with the instructions toForm 10–Q and Article 10 of Regulation S–X.  Accordingly, they do not include all of theinformation and footnotes required by accounting principles generally acceptedin the United States for complete financial statements.  In the opinion of management, theaccompanying financial statements include all adjustments, consisting only ofnormal recurring adjustments, necessary for a fair presentation of thefinancial position, results of operations and cash flows for the periodspresented.  The results of operationsfor the interim period ended June 30, 2001 are not necessarily indicative ofthe results to be expected for the year ending December 31, 2001.

             Thesefinancial statements should be read in conjunction with the auditedconsolidated financial statements and footnotes thereto for the year endedDecember 31, 2000 included in the Company's Annual Report on Form 10-K as filedwith the Securities and Exchange Commission.

             Gene-Activated®and the TKT® logo are registered trademarks of Transkaryotic Therapies,Inc.  Niche ProteinTM, ReplagalTM, andTranskaryotic TherapyTM, are trademarks of Transkaryotic Therapies, Inc.  DynepoTM is a trademark of AventisPharmaceuticals, Inc. (“Aventis”).

2.          BASICAND DILUTED NET LOSS PER SHARE

             TheCompany calculates net loss per share in accordance with Statement of FinancialAccounting Standard (“SFAS”) No. 128, “Earnings Per Share.”  Basic earnings per share is computed usingthe weighted average shares outstanding.

             Basicnet loss per share was equivalent to diluted net loss per share for the threemonths ended June 30, 2001 and 2000 since common equivalent shares fromconvertible preferred stock and stock options have been excluded as theireffect is antidilutive.

 

3.          COMPREHENSIVEINCOME

             The Company had total comprehensiveloss of $21,492,000 and $12,178,000 for the three months ended June 30, 2001and 2000, respectively.  For the sixmonths ended June 30, 2001 and 2000, total comprehensive loss was $34,633,000and $25,252,000, respectively.  Theitems of comprehensive income consist primarily of unrealized gains or losseson marketable securities.

4           COMMONSTOCK OFFERING

             InJune 2001, the Company agreed to sell 3,565,000 shares of its common stock at aprice to the public of $28.50.  Netoffering proceeds to the Company amounted to approximately $96,228,000,including certain proceeds which were received in July 2001.

5.          TKTEUROPE - 5S AB

             InApril 2000, the Company entered into a Stockholders’ Agreement (the“Stockholders’ Agreement”) with certain stockholders of TKT Europe –5S AB (“TKTEurope 5S”) to establish the foundation for the Company’s Europeanoperations.   These stockholders are theprincipal managers of  TKT Europe 5S andhold a 20% ownership interest in TKT Europe 5S while the Company holds theremaining 80% ownership interest.  TheStockholders’ Agreement details provisions entitling the Company to purchasethe entire 20% minority interest in TKT Europe 5S on August 3, 2004, the thirdanniversary of the European Agency for the Evaluation of Medicinal Products(the “EMEA”)  product approval of ReplagalTM(agalsidase alfa), under a specified formula. Should the Company not exercise that right, the stockholders of TKTEurope 5S can require the Company to purchase the minority interest sixty daysthereafter.  The buyout price cannot bedetermined at this time.

6.          LEGALPROCEEDINGS

             TheCompany cannot provide assurance as to the outcome of any legal proceeding.A  decision by a court in the U.S. or inany other jurisdiction in a manner adverse to the Company could have a materialadverse effect on the Company’s business, financial position, or results ofoperations.

*ReplagalTM Patent Litigation*

             InJuly 2000, Genzyme Corporation (“Genzyme”) and Mount Sinai School of Medicineof New York University (“Mt. Sinai”) filed a patent infringement suit againstthe Company in the U.S. District Court for the District of Delaware, allegingthat the manufacture, use, intended sale, and/or intended offer for sale of theCompany’s Replagal product infringes one or more claims of its U.S. Patent No.5,356,804.  Genzyme and Mt. Sinai seekinjunctive relief and an accounting for damages.  Discovery proceedings commenced in February 2001, and theDistrict Court has scheduled a jury trial in this action to begin in March2002.

*DynepoTM Patent Litigation*

             TheCompany and Aventis, its collaborative partner in the development of Dynepo(Gene-Activated® erythropoietin), are involved in patent infringement actionswith respect to DynepoTM with Amgen Inc. (“Amgen”) in the United States, andKirin-Amgen, Inc. (“Kirin Amgen”) in the United Kingdom.

             InJanuary 2001, the U.S. District Court for the District of Massachusetts ruledthat eight of eighteen patent claims asserted by Amgen were infringed by theCompany and Aventis.  In particular, theDistrict Court ruled that the asserted claims of U.S. Patent No. 5,547,933 werenot infringed (and, if this finding is in error, that the asserted claims wereinvalid); that the asserted claims of U.S. Patent 5,618,698 were not infringed;that Claims 2, 3 and 4 of U.S. Patent No. 5,621,080 were valid, enforceable andinfringed under the doctrine of equivalents; that Claims 1, 3, 4 and 6 of U.S.Patent No. 5,756,349 were valid, enforceable and literally infringed, but thatClaim 7 of the ‘349 patent was not infringed; and that Claim 1 of U.S. PatentNo. 5,955,422 was valid, enforceable and literally infringed.   Amgen did not seek and was not awardedmonetary damages.

             InJanuary 2001, TKT and Aventis filed a Notice of Appeal from the Judgment of theDistrict Court with the U.S. Court of Appeals for the Federal Circuit in thiscase.  The Company believes it hasstrong grounds for appeal.  Amgen fileda Notice of Cross-Appeal in February 2001.

             InApril 2001, the English High Court of Justice ruled that one of four claims ofa patent asserted by Kirin-Amgen was infringed by the Company and Aventis. TheCompany believes it has strong grounds for appeal and filed a Notice of Appealin April 2001.

             Pursuantto an Amended and Restated License Agreement, dated March 1995, between Aventisand the Company, Aventis has assumed the legal costs of the Amgen andKirin-Amgen litigation.  The Companywill reimburse Aventis for the Company’s share of the litigation expenses, asdefined, from future royalties, if any, received from the sale of Dynepo and incertain other circumstances.

             
PART I - FinancialInformation

Item2.  Management’s Discussion and Analysisof Financial Condition and Results of Operations

OVERVIEW

             Sinceits inception in 1988, the Company has been primarily engaged in thedevelopment and commercialization of products based on the Company’s threeproprietary development platforms: Niche ProteinTM products, Gene-Activated®proteins and gene therapy. On August 3, 2001, the Company announced that theEuropean Commission granted marketing authorization for ReplagalTM (agalsidasealfa) - the Company’s enzyme replacement therapy for long-term treatment ofpatients with Fabry disease - for the fifteen countries of the European Union.  Replagal received co-exclusive orphan drugstatus in Europe.  To date, the Companyhas not recorded any significant revenues from the sale of products.** **With the exception of 1995, theCompany has incurred substantial annual operating losses since inception andexpects to incur significant operating losses until substantial product salesare generated. Until such time, the Company is dependent upon existing cashresources, interest income, external financing from equity offerings, debtfinancings or collaborative research and development arrangements withcorporate sponsors to finance its operations. At June 30, 2001, the Company’saccumulated deficit was $200,526,000.

             Resultsof operations may vary significantly from period to period depending on, amongother factors, the timing of approvals, if granted, to market the Company’sproducts either in the U.S. or abroad, the progress of the Company’s researchand development efforts, the timing of additional license fees and milestonepayments, if any, the timing of certain expenses, and the establishment ofadditional collaborative research agreements.

             Thefollowing discussion of the financial condition and results of operations ofthe Company should be read in conjunction with the accompanying condensedconsolidated financial statements and the related footnotes thereto.

RESULTS OF OPERATIONS

*For the Three Months Ended June 30, 2001 and 2000*

             Inthe second quarter of 2001, the Company recorded its first product sales ofReplagal under compassionate use programs in Europe.  Sales for the quarter totaled $297,000.  The Company recorded no sales in 2000.  On August 3, 2001, the Company announced that the EuropeanCommission has granted marketing authorization for Replagal for the fifteencountries of the European Union. Replagal received co-exclusive orphan drug status in Europe.   The Company anticipates ongoingcompassionate use sales in Europe pending finalization of reimbursementagreements with European countries.

             Licenseand research revenues totaled $410,000 and $1,514,000 for the three monthsended June 30, 2001 and 2000, respectively. License and research revenues in the second quarter of 2001 and 2000were earned primarily under the Company’s collaboration agreement with GeneticsInstitute, Inc., relating to the Company’s Factor VIII gene therapy program forthe treatment of hemophilia A.

             Researchand development expenses totaled $18,805,000 in the second quarter of 2001, ascompared to $13,643,000 during the same period in 2000.  The increase in 2001 of $5,162,000, or 38%,was principally due to expected increases in external development services andresearch and development staffing as Company’s product development platformscontinue to expand and mature.   Duringthe remainder of 2001, the Company expects the costs related to bothpreclinical and clinical programs for the Company’s Fabry disease, Huntersyndrome, hemophilia A and other Niche Protein programs will continue toincrease significantly compared to the same period in 2000.

             Selling,general and administrative expenses were $5,831,000 in the quarter ended June30, 2001, compared with $3,012,000 during the same period in 2000.  The increase in 2001 of $2,819,000, or 94%,was principally due to costsincurred in preparation for worldwide launch of Replagal.  During the remainder of 2001, selling,general and administrative costs will increase as the Company continues itsinvestment in becoming a fully integrated company, as well as building itsworldwide commercial operations infrastructure.

             Netinterest income was $2,864,000 and $2,921,000 for the three months ended June30, 2001 and 2000, respectively.  Theaverage cash and marketable securities balances were $213,082,000and$198,799,000 in 2001 and 2000, respectively.

             TheCompany had a net loss of $21,065,000 and $12,220,000 for the three monthsended June 30, 2001 and 2000, respectively. Basic and diluted net loss pershare was $0.92 for the three months ended June 30, 2001, as compared to abasic and diluted net loss per share of $0.54 for the corresponding period in2000.

*For the Six Months Ended June 30, 2001 and 2000*

             Forthe six months ended June 30, 2001, the Company recognized product revenue of$297,000 from compassionate use sales of Replagal in Europe.

             Licenseand research revenues totaled $1,628,000 and $1,514,000 for the six monthsended June 30, 2001 and 2000, respectively. License and research revenues in 2001 and 2000 were earned primarilyunder the Company’s collaboration agreements with Genetics Institute, Inc. andSumitomo Pharmaceuticals Co., Ltd.

             Researchand development expenses totaled $35,311,000 in the first six months of 2001,as compared to $26,327,000 during the same period in 2000.  The increase in 2001 of $8,984,000, or 34%,was principally due to increases in external development services and researchand development staffing as Company’s product development platforms continue toexpand and mature.

             Selling,general and administrative expenses were $10,790,000 for the six months endedJune 30, 2001, compared with $6,049,000 during the same period in 2000.  The increase in 2001 of $4,741,000, or 78%,was principally due to costsincurred in preparation for worldwide launch of the Company’s Replagal product.

             Netinterest income was $6,294,000 and $5,543,000 for the six months ended June 30,2000 and 2000, respectively.  Theaverage cash and marketable securities balances were $223,395,000 and$194,424,000 in 2001 and 2000, respectively. The increase in interest income of $751,000 resulted primarily fromhigher average cash and marketable securities balances.

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

             TheCompany had a net loss of $35,097,000 and $25,319,000 for the six months endedJune 30, 2001 and 2000, respectively. Basic and diluted net loss per share was$1.54 for the six months ended June 30, 2000, as compared to a basic anddiluted net loss per share of $1.12 for the corresponding period in 2000.

LIQUIDITY AND SOURCES OF CAPITAL

             Sinceits inception, the Company has financed its operations through the sale ofcommon and preferred stock, borrowings under debt agreements, revenues fromcollaborative agreements, and interest income.

             TheCompany had cash, cash equivalents, and marketable securities totaling$295,704,000 at June 30, 2001, including marketable securities collateralizingletters of credit totaling $8,565,000. Cash equivalents and marketable securities are invested in U.S.government and agency obligations and money market funds.

             InJune 2001, the Company agreed to sell 3,565,000 shares of its common stock at aprice to the public of $28.50.  Netoffering proceeds to the Company totaled approximately $96,228,000, includingcertain proceeds which were received in July 2001.

             InJune 2000, the Company sold 10,000 shares of Series A Convertible PreferredStock to investment funds affiliated with E. M. Warburg, Pincus & Co.,L.L.C., resulting in net proceeds to the Company of $99,797,000.

             InDecember 1998, the Company obtained an unsecured term loan facility for up to$14,000,000 to finance the capital costs related to leased space.  The loan became payable in December 2000 onthe basis of a seven year amortization schedule over a five year period, with afinal payment for any remaining amount in September 2004.  The loan bears interest at either the primerate or LIBOR plus 1.50% at the Company’s election.  The interest rate of the loan was 6.4% as of June 30, 2001.  The note contains certain restrictivecovenants, including, among other things, minimum cash and tangible net assetrequirements and limitations on the payment of dividends.  At June 30, 2001, $10,500,000 wasoutstanding under the loan.

 

             InAugust 2000, the Company entered into a ten-year lease for a new corporateheadquarters and research and development facility in Cambridge,Massachusetts.  The lease requires asecurity deposit of $7,680,000, of which $680,000 was paid in cash and thebalance provided in the form of a letter of credit.  An investment with a value of $7,851,000 collateralizes theletter of credit.   The Company expectsto spend up to an additional $30,000,000 for leasehold improvements.

             InJanuary 2001, the Company purchased a 45,000 square foot development facilityfor $8,800,000.  In addition, it leasedan adjoining 44,000 square foot facility under the terms of a ten-year lease.The Company is evaluating the financial requirements for capital improvementsof these facilities.  As a result, theCompany expects to make a substantial investment in leasehold improvements forthese facilities in 2002.

             TheCompany may seek financing for all or a significant portion of the cost of theleasehold improvements described above. There can be no guarantee that financing will be available on favorableterms, if at all.

             AtJune 30, 2001, the Company had committed to pay approximately $30,000,000 tothird parties for certain product development activities through 2004.

             AtDecember 31, 2000, the Company had net operating loss carryforwards ofapproximately $144,264,000, which expire at various times through 2020.  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 netoperating loss carryforwards and tax credits may be subject to limitation underthe changes in stock ownership rules of the Internal Revenue Code. Because ofthis 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.

             Substantialadditional funds will 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, establishment of productioncapabilities, establishment of sales and marketing capabilities, and selling,general and administrative expenses. Until such time, if any, as the Company’s operations generatesignificant revenues from product sales, the Company will be required to fundoperations with cash resources, interest income, proceeds from equity offeringsand debt financings, and funding from collaborative arrangements.

             TheCompany expects to pursue opportunities to obtain additional financing in thefuture through equity financings, debt financings, lease arrangements relatedto facilities and capital equipment, and collaborative researchagreements.  The source, timing andavailability of any future financing will depend principally upon equity and debtmarket conditions, interest rates and, more specifically, on the Company’scontinued progress in its exploratory, preclinical, and clinical developmentprograms, and the extent of its commercial success.  There can be no assurance that such funds will be available onfavorable terms, if at all.

             TheCompany expects that its existing capital resources, together with revenuesfrom collaborative agreements, product sales, and interest income, will besufficient to fund its operations through 2003.  The Company’s cash requirements may vary depending on numerousfactors.  Lack of necessary funds mayrequire the Company to delay, scale back or eliminate some or all of itsresearch and product development programs or to license its potential productsor technologies to third parties.

             TheCompany has been engaged in litigation with Amgen and Kirin-Amgen with respectto the development of Dynepo and with Genzyme and Mt. Sinai with respect to thedevelopment of Replagal.  Pursuant tothe Amended and Restated License Agreement, dated March 1995, between Aventisand the Company, Aventis has assumed the legal cost of the Amgen andKirin-Amgen litigation.  The Company isrequired to reimburse Aventis for the Company’s share of litigation expenses,as defined, from future royalties, if any, received from the sale of Dynepo andin certain other circumstances.

FORWARD-LOOKING STATEMENTS

             Statementsthat are not historical facts, including statements about the Company’sconfidence and strategies and its expectations about future products,technologies and opportunities, market demand or acceptance of future productsare forward-looking statements.  Withoutlimiting the foregoing, the words “believes,” “projects,” “anticipates,”“plans,” “expects,”  “estimates,”“intends,” “should,” “could,” “will,” “may,” and similar expressions areintended to identify forward-looking statements.  There are a number of important factors that could cause theCompany’s actual results to differ materially from those indicated by suchforward-looking statements.  Theseinclude, without limitation, the following: (1) whether any of the Company’s Niche Protein product, Gene-Activatedprotein or gene therapy product candidates will advance in the clinical trialprocess, (2) whether such clinical trials will proceed in a timely manner, (3)whether the Company’s clinical trial results will warrant continued productdevelopment, (4) whether the required regulatory filings, such asInvestigational New Drug applications and Biologics License Applications, aremade in a timely manner, (5) whether the Company’s products will receiveapproval from the U.S. Food andDrug Administration, European Agency for the Evaluation ofMedicinal Products, or equivalent foreign regulatory agencies, (6) if suchproducts receive approval, whether they will be successfully manufactured,distributed and marketed, (7) whether patent litigation or orphan drug issuesin which the Company is involved or may become involved are resolved in amanner adverse to the Company, (8) the effects of competition on the Company’s products,(9) the Company’s dependence on third parties, including collaborators,manufacturers and distributors, and (10) the other risks set forth under thecaption “Risk Factors” which are filed with this Quarterly Report on Form 10-Qas Exhibit 99.1.  In addition, anyforward-looking statements represent the Company’s estimates only as of thedate this Quarterly Report was filed with the Securities and ExchangeCommission and should not be relied upon as representing the Company’sestimates as of any subsequent date. While the Company may elect to update forward-looking statements at somepoint in the future, the Company specifically disclaims any obligation to doso, even if its estimates change.

PARTII - Other Information

Item1.  Legal Proceedings

             TheCompany can provide no assurance as to the outcome of any legal proceedings. Adecision by a court in the U.S. or in any other jurisdiction in a manneradverse to the Company could have a material adverse effect on the Company’sbusiness, financial position, and results of operations.

*ReplagalTM Patent Litigation*

             InJuly 2000, Genzyme and Mt. Sinai filed a patent infringement suit against theCompany in the U.S. District Court for the District of Delaware, alleging thatthe manufacture, use, intended sale, and/or intended offer for sale of theCompany’s Replagal product infringes one or more claims of its U.S. Patent No.5,356,804.  Genzyme and Mt. Sinai seekinjunctive relief and an accounting for damages.  Discovery proceedings commenced in February 2001, and theDistrict Court has scheduled trial in this action to begin in March 2002.

*DynepoTM Patent Litigation*

             TheCompany and Aventis, its collaborative partner to commercialize Dynepo (aGene-Activated erythropoietin product), are involved in two patent infringementactions with Amgen in the United States, and Kirin-Amgen in the United Kingdom.

             InJanuary 2001, the U.S. District Court for the District of Massachusetts ruledthat eight of eighteen patent claims asserted by Amgen were infringed by theCompany and Aventis.  In particular, theDistrict Court ruled that the asserted claims of U.S. Patent No. 5,547,933 werenot infringed (and, if this finding is in error, that the asserted claims wereinvalid); that the asserted claims of U.S. Patent 5,618,698 were not infringed;that Claims 2, 3 and 4 of U.S. Patent No. 5,621,080 were valid, enforceable andinfringed under the doctrine of equivalents; that Claims 1, 3, 4 and 6 of U.S.Patent No. 5,756,349 were valid, enforceable and literally infringed, but thatClaim 7 of the ‘349 patent was not infringed; and that Claim 1 of U.S. PatentNo. 5,955,422 was valid, enforceable and literally infringed.  Amgen did not seek and was not awardedmonetary damages.

             InJanuary 2001, TKT and Aventis filed a Notice of Appeal from the Judgment of theDistrict Court with the U.S. Court of Appeals for the Federal Circuit in thiscase.  The Company believes it hasstrong grounds for appeal.  Amgen fileda Notice of Cross-Appeal in February 2001.

             InApril 2001, the English High Court of Justice ruled that one of four claims ofa patent asserted by Amgen and Kirin-Amgen was infringed by the Company andAventis. The Company believes it has strong grounds for appeal and filed aNotice of Appeal in April 2001.

             Pursuantto an Amended and Restated License Agreement, dated March 1995, between Aventisand the Company, Aventis has assumed the legal costs of the Amgen andKirin-Amgen litigation.  The Companywill reimburse Aventis for the Company’s share of the litigation expenses, asdefined, from future royalties, if any, received from the sale of Dynepo and incertain other circumstances.

Item4.  Submission of Matters to a Vote ofSecurity Holders

             The following matters weresubmitted to a vote of security holders at the Annual Meeting of Stockholdersheld on June 14, 2001:
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 2001 Annual Meeting of Stockholders.
 
NomineeVotes  For Votes  Withheld Walter Gilbert17,402,777 1,369,859William R. Miller18,745,996 26,640Rodman W. Moorhead,  III18,736,736 36,200Richard F Selden17,959,787 812,849James E. Thomas18,749,841 22,795Wayne P. Yetter18,655,547 117,089
 
1B.The  election of Jonathan S. Leff by the holders of the Series A Preferred Stock  to serve as a director until the 2001 Annual Meeting of Stockholders.
 
NomineeVotes  For Votes  Withheld Jonathan S. Leff3,571,400 0
Item 6.  Exhibits and Reports on Form 8-K

(a)         Exhibits

99.1     Risk Factors

             (b)        Reports on Form 8-K

             CurrentReport on Form 8-K filed June 26, 2001 regarding the Company’s announcement apublic offering of 3,100,000 shares of its common stock at a price to thepublic of $28.50 per share.

                          Current Report on Form 8-Kfiled June 15, 2001 regarding the Company’s annoucement that at Annual Meetingof Stockholders, the Company's stockholders elected 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 next annual meetingof stockholders or until their successors are duly elected and qualified, andpursuant to which the Stockholders’ Agreement dated April 12, 2000 by and amongthe Company and certain stockholders of TKT Europe - 5S AB was filed.
              Current Report on Form 8-K filed April 12,2001 regarding the Company’s announcement that the High Court of Justice inLondon has issued an opinion in a patent infringement suit the Company andAventis brought against Kirin-Amgen, Inc., involving DynepoTM, the companies'Gene-Activated® erythropoietin for the treatment of anemia.

             CurrentReport on Form 8-K filed April 9, 2001 regarding the TKT’s announcement thatthe Committee for Proprietary Medicinal Products of the European Agency for theEvaluation of Medicinal Products has issued a positive opinion recommendingapproval of ReplagalTM (agalsidase alfa) enzyme replacement therapy for thetreatment of Fabry disease.

 

SIGNATURES

             Pursuantto the requirements of the Securities Exchange Act of 1934, the Registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.
 TRANSKARYOTIC  THERAPIES, INC.   Date:  August 14, 2001By:/s/  Daniel E. Geffken    Daniel  E. Geffken  Senior Vice President, Finance and  Chief Financial Officer (Principal   Financial and Accounting Officer)