Genzyme 10-K 2005
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Annual Report Pursuant to Section 13 or 15(d)
For the fiscal year ended December 31, 2004
Commission File No. 0-14680
registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12(g) of the Act:
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ý NO o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý
Indicate by check mark whether the Registrant is an accelerated filer (as defined by Rule 12b-2 of the Exchange Act). YES ý NO o
Aggregate market value of voting stock held by non-affiliates of the Registrant as of June 30, 2004: $10,686,891,407
Number of shares of Genzyme Stock outstanding as of March 1, 2005: 251,313,803
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's 2004 Annual Report are incorporated by reference into Parts I, II and IV of this Form 10-K. Portions of the Registrant's Proxy Statement for the Annual Meeting of Shareholders to be held on May 26, 2005 are incorporated by reference into Part III of this Form 10-K.
Throughout this Form 10-K, the words "we," "us," "our" and "Genzyme" refer to Genzyme Corporation as a whole, and "our board of directors" refers to the board of directors of Genzyme Corporation.
Through June 30, 2003, we had three operating divisions, which we refer to as follows:
Through June 30, 2003, we also had three outstanding series of common stock. Each series was designed to reflect the value and track the performance of one of our divisions. We refer to each series of common stock as follows:
Through June 30, 2003, we allocated earnings or losses to each series of tracking stock based on the net income or loss attributable to the corresponding division determined in accordance with accounting principles generally accepted in the United States of America, as adjusted for the allocation of tax benefits.
Effective July 1, 2003, we eliminated our tracking stock capital structure by exchanging, in accordance with the provisions of our charter, each share of Biosurgery Stock for 0.04914 of a share of Genzyme General Stock and each share of Molecular Oncology Stock for 0.05653 of a share of Genzyme General Stock. Options and warrants to purchase shares of Biosurgery Stock and options to purchase shares of Molecular Oncology Stock were converted into options and warrants to purchase shares of Genzyme General Stock. Effective July 1, 2003, we have one outstanding series of common stock. From July 1, 2003 through May 27, 2004, we referred to our outstanding series of common stock as Genzyme General Stock. At our annual meeting of shareholders on May 27, 2004, our shareholders approved an amendment to our charter that eliminated the designation of separate series of common stock, resulting in 690,000,000 authorized shares of a single series of common stock, which we now refer to as Genzyme Stock.
Effective July 1, 2003, as a result of the elimination of our tracking stock capital structure, all of our earnings or losses are now allocated to Genzyme Stock. Earnings or losses allocated to Biosurgery Stock and Molecular Oncology Stock prior to that date remain allocated to those series of stock in the preparation of our consolidated financial statements and are not affected by the elimination of our tracking stock structure. Accordingly, earnings or losses allocated to Biosurgery Stock and Molecular Oncology Stock represent earnings allocated to those tracking stocks through June 30, 2003. Earnings or losses allocated to Genzyme Stock through June 30, 2003 represent the earnings or losses of Genzyme General, as adjusted for the allocation of tax benefits. Earnings or losses allocated to Genzyme Stock after June 30, 2003 represent the earnings or losses for the corporation as a whole.
On July 1, 2003, we reclassified the Biosurgery Stock and Molecular Oncology Stock equity accounts into the Genzyme Stock equity accounts. The elimination of our tracking stock capital structure had no effect on our consolidated net income or loss. Because we now have only one series of common stock outstanding, we rescinded the management and accounting policies that governed the relationships between our former divisions. In this Annual Report on Form 10-K, and future Quarterly and Annual Reports, we will not provide separate financial statements and management's discussion
and analysis for each of our former divisions, but will continue to provide our consolidated financial statements and management's discussion and analysis for the corporation as a whole.
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-K contains forward-looking statements, including statements regarding our:
These statements are subject to risks and uncertainties, and our actual results may differ materially from those that are described in this report. These risks and uncertainties include:
We have included more detailed descriptions of these and other risks and uncertainties in Item 2 of this report under the heading "Factors Affecting Future Operating Results." We encourage you to read those descriptions carefully. We caution investors not to place substantial reliance on the forward-looking statements contained in this report. These statements, like all statements in this report, speak only as of the date of this report (unless another date is indicated) and we undertake no obligation to update or revise the statements.
NOTE REGARDING INCORPORATION BY REFERENCE
The Securities and Exchange Commission allows us to disclose important information to you by referring you to other documents we have filed or will file with the SEC. The information that we refer you to is "incorporated by reference" into this Form 10-K. Please read that information.
NOTE REGARDING TRADEMARKS
Genzyme®, Renagel®, Cerezyme®, Ceredase®, Fabrazyme®, Thyrogen®, Synvisc®, Hylaform®, Carticel®, Seprafilm®, Epicel®, IMPATH®, Myozyme®, Aldurazyme®, Thymoglobulin®, Lymphoglobuline®, Campath® and MACI® are registered trademarks of Genzyme or its subsidiaries, Sepra, VERIGEN and Clolar are trademarks of Genzyme or its subsidiaries. AVONEX® is a registered trademark of Biogen IDEC, Inc. Thymoglobulin® and Lymphoglobuline® are registered trademarks of SangStat Medical Corporation. WelChol® is a registered trademark of Sankyo Pharma, Inc. Gengraf® is a registered trademark of Abbott Laboratories. All rights reserved.
We are a global biotechnology company dedicated to making a major impact on the lives of people with serious diseases. Our broad product and service portfolio is focused on rare genetic disorders, renal disease, orthopaedics, organ transplant, and diagnostic and predictive testing. We were founded as a Delaware corporation in June 1981 and became a Massachusetts corporation in 1991. We are organized into five financial reporting units, which we also consider to be our reporting segments:
We report the activities of our oncology, bulk pharmaceuticals, cardiovascular and drug discovery and development business units under the caption "Other." We report our corporate, general and administrative operations, and corporate science activities that we do not allocate to our financial reporting units, under the caption "Corporate."
Products and Development Programs
Renagel (sevelamer hydrochloride). Renagel is a non-absorbed, calcium-free, metal-free phosphate binder indicated for the control of serum phosphorus in patients with Chronic Kidney Disease (CKD) on hemodialysis. Three formulations of the product have been approved for sale in the United Statesthe 403 mg. capsules were launched in the fourth quarter of 1998, and the 400 and 800 mg. tablets were launched in September 2000. We ceased marketing the 403 mg. capsules in 2004. Renagel was approved for sale in Israel in 1999, the European Union and Canada in 2000, Brazil in 2002, and Japan in 2003. In the United States, there are an estimated 320,000 end-stage renal disease patients, approximately 95% of whom receive a phosphate control product. There are also an estimated 250,000 end-stage renal disease patients in Europe, 60,000 in Brazil, 20,000 in Canada and 200,000 in Japan. We are now marketing the product in a total of 45 countries. In 2005, we anticipate filing for marketing approval in Peru, Argentina and Mexico.
We market Renagel tablets in the United States, the European Union and Brazil directly to nephrologists through a dedicated sales force. Chugai Pharmaceutical Co., Ltd. and its partner, Kirin Brewery Co., Ltd., have rights to develop and market Renagel in Japan, China and other Pacific Rim countries. Our sales of Renagel (including sales of bulk sevelamer), totaled $363.7 million, or 18% of our consolidated product revenue in 2004, $281.7 million, or 18% of our consolidated product revenues, in 2003, and $156.9 million, or 13% of our consolidated product revenues, in 2002.
In October 2003, the National Kidney Foundation (NKF) published clinical practice guidelines related to bone metabolism and disease in patients with chronic kidney disease. These guidelines, which are part of the NKF's Kidney Disease Outcomes Quality Initiative (K/DOQI), include Renagel among first-line options for reducing phosphorus in hemodialysis. Elevated phosphorus levels are associated with increased morbidity and mortality. The guidelines also define a broader set of patients for whom calcium-based phosphate binders are not appropriate. Renagel is the only marketed phosphate binder available to patients on hemodialysis that does not contain either calcium or metal, is not absorbed systemically and does not accumulate in the body.
We are conducting a 2,100-patient post-marketing study of Renagel to evaluate the ability of the product to improve patient morbidity and mortality. The trial compares Renagel to calcium-based phosphate binders with respect to overall morbidity and mortality. We expect top-line data from this trial to be available in 2005. In early 2005, we initiated a clinical trial for sevelamer carbonate, a new formulation of Renagel, in patients with end-stage renal disease. We plan to initiate additional studies in 2005 that are directed at expanding the use of Renagel into larger populations, notably for patients who have CKD but have not progressed to kidney failure.
Our Therapeutics segment currently has four therapeutic products on the market and several other therapeutic products in varying stages of development. The chart set forth below provides summary information on these four products and our most advanced product candidate as of March 10, 2005.
Additional details on our Therapeutic products and our largest development program are set forth below.
Cerezyme (imiglucerase)/Ceredase (alglucerase). Treatment with Cerezyme or Ceredase enzyme replacement therapy currently represents the only safe and effective enzyme replacement therapy approved for treatment of Type 1 Gaucher disease, a lysosomal storage disorder. We began marketing Ceredase for the treatment of Type 1 Gaucher disease in the United States in 1991 and in the European Union in 1994. Because production of Ceredase was subject to supply constraints, we developed Cerezyme, a recombinant form of human glucocerebrosidase, the enzyme that is deficient in Gaucher patients. Recombinant technology uses specially engineered cells to produce enzymes, or other substances, by inserting into cells of one organism the genetic material of a different species. In the case of Cerezyme, Chinese hamster ovary, or CHO, cells are engineered to produce human beta glucocerebrosidase. We stopped producing Ceredase, except for small quantities, in 1998 after we converted substantially all of the patients who previously used Ceredase to Cerezyme. In the E.U., Cerezyme is also approved for the treatment of patients who exhibit clinically significant, non-neurological manifestations of the disease (Type 3 Gaucher disease).
We market Cerezyme directly to physicians, hospitals and treatment centers worldwide through a highly trained sales force. Cerezyme, like all of our therapies developed for LSDs, is an ultra orphan drug, or one aimed at treating a patient population of less than 10,000 worldwide. Cerezyme has received marketing approval in 47 countries to treat symptoms that include anemia, spleen and liver enlargement and bone deterioration. Our results of operations are highly dependent on sales of this product, although our dependence is lessening as we diversify our product portfolio. Sales of Cerezyme and Ceredase totaled approximately $839.4 million, or 42% of our consolidated product revenues, in 2004, $733.8 million, or 47% of our consolidated product revenues, in 2003, and $619.2 million, or 52% of our consolidated product revenues, in 2002.
Fabrazyme (agalsidase beta). We have developed Fabrazyme, a recombinant form of the human enzyme alpha-galactosidase, as a treatment for Fabry disease. Fabry disease is a LSD that is caused by a deficiency of the enzyme alpha-galactosidase A, which leads to the progressive accumulation of lipids within cells of the kidneys, heart, and other organs. It is estimated to affect less than 10,000 people worldwide. This ultra orphan drug received marketing approval in the European Union in 2001, in the United States in 2003 and in Japan in 2004. In the United States, we have agreed with the FDA on a number of post-marketing commitments, including the completion of a Phase 4, multi- national, multi-center, double-blind placebo-controlled study we initiated in 2001. During 2004, we completed that Phase 4 study and submitted a preliminary summary of the study to the FDA. We plan to submit the final study results to regulatory authorities in the United States, European Union and certain other regions during 2005 to fulfill post-approval commitments. We also expect to file the results for labeling purposes in 2005. We have now launched Fabrazyme in 23 countries. Because kidney failure is associated with Fabry disease, Fabrazyme is sold by our existing LSD and renal sales forces.
Thyrogen (thyrotropin alfa). Thyrogen is an adjunctive diagnostic agent used in the follow-up of patients with well-differentiated thyroid cancer. We developed this product to allow patients to continue taking their thyroid hormone supplements while they are being screened for residual or recurring thyroid cancer. This helps patients avoid the debilitating effects of hypothyroidism, increasing the likelihood that they will seek follow-up treatment, and ultimately improve the likelihood of early detection of any recurrent disease. We began marketing Thyrogen in the United States in 1998, in Brazil in 2000 and in the European Union in 2001. In the United States and the European Union, physicians order over 200,000 thyroid cancer screening tests per year. Thyrogen, which is currently approved for commercial sale in 38 countries, is sold through distributors in the United States and by direct sales force and through distributors in Brazil and the European Union.
We are currently pursuing additional indications for Thyrogen. In March 2005, we received European Union approval for use of Thyrogen in combination with radioiodine in ablation of thyroid tissue. We expect a decision on our U.S. submission for this same indication in the second half of 2005. Approximately 35,000 ablation procedures are performed annually in the United States and European Union combined, and we believe that Thyrogen has the potential to be used in up to 80% of these procedures. We also are conducting a Phase 1 trial of TSH, the active ingredient in Thyrogen, for use in patients with nontoxic multinodular goiter.
Aldurazyme (laronidase). We formed a joint venture with BioMarin Pharmaceutical Inc. to develop and market Aldurazyme, a recombinant form of the human enzyme alpha-L-iduronidase, to treat a LSD known as mucopolysaccharidosis I, or MPS I. MPS I, which is estimated to affect less than 10,000 people worldwide, causes serious disabilities, pain and often death before adulthood. In 2003, the joint venture received marketing approval for Aldurazyme in both the United States and the European Union. We market Aldurazyme directly to physicians in the United States through our LSD sales force. European sales of Aldurazyme, which are undertaken by our European sales and marketing teams, are being launched on a country-by-country basis as pricing and reimbursement approvals are obtained. The joint venture's applications for marketing approval are currently pending in several countries,
including Brazil, Mexico, South Korea and Switzerland. In total, Aldurazyme has received marketing approvals in 29 countries. We currently are conducting a post-marketing clinical study of MPS I patients under the age of 5 that we expect to complete in 2005. Aldurazyme revenues are recorded by the joint venture.
Myozyme (alglucosidase alfa). We are developing a potential therapy for Pompe disease, which is a progressive and often fatal muscle disease resulting from an underlying LSD. Pompe disease ranges from a rapidly fatal infantile-onset form with severe cardiac and skeletal muscle involvement to a more slowly progressive late-onset form primarily affecting skeletal muscle. There is currently no therapeutic treatment available for the disease. Based on results from the two ongoing trials involving patients younger than 3 years old with the infantile-onset form of Pompe disease, and from previous studies of enzyme replacement therapy for Pompe disease, we submitted a marketing application for this ultra orphan drug in the European Union in late 2004. We plan to submit marketing applications in the United States and Japan during 2005. In anticipation of commercialization in 2006, we are scaling up our manufacturing capacity in the United States and Europe. During 2005, we also intend to begin enrollment in the first clinical trial of Myozyme in patients with the late-onset form of Pompe disease. We have created special access programs to increase Myozyme's availability to patients who are in need and are unable to participate in our trials.
This business segment includes two marketed products, as well as product candidates in the research and development stages that we acquired through our acquisition of SangStat Medical Corporation in the third quarter of 2003.
Thymoglobulin (anti-thymocyte globulin, rabbit). Thymoglobulin is an immunosuppressive polyclonal antibody that suppresses certain types of immune cells responsible for acute organ rejection in transplant patients. It has been marketed in the United States since 1999 for the treatment, and in Canada since 2003 for the prevention and treatment, of acute rejection in patients with renal transplant. More kidney transplants are performed in the United States than any other organ transplant, with approximately 16,000 transplants performed each year. Of this number of renal transplants, we estimate that acute immunosuppressant therapies such as Thymoglobulin are used in approximately 70% of procedures. In the European Union, Thymoglobulin received approval for a broader label in the major European markets and is indicated for induction and treatment of rejection in solid organ transplants, for prevention and treatment of graft versus host disease, and for the treatment of aplastic anemia. This broader indication is also held in several Asian and Latin American countries. We have filed for marketing approval of Thymoglobulin in Japan, where we also market Lymphoglobuline for aplastic anemia. Thymoglobulin, which has received marketing approval and is sold in 56 countries, is sold through a direct sales force to transplant centers for end use by transplant surgeons and nephrologists. We currently are conducting studies of Thymoglobulin in living donor renal transplantation, liver transplantation and bone marrow transplantation.
Lymphoglobuline (anti-thymocyte-globuline, equine). We market Lymphoglobuline, another immunosuppressive polyclonal antibody, in Latin America, the European Union, Japan and other Asia Pacific countries for the treatment of aplastic anemia and for the prevention and treatment of graft rejection. This product is sold through our sales force in Europe and through distributors elsewhere.
Synvisc (hylan GF20). Synvisc is a biomaterial derived from hyaluronan used to treat the pain associated with osteoarthritis of the knee. An estimated 8 to 9 million of the approximately 14 million people in the United States with osteoarthritis of the knee may be candidates for treatment with Synvisc. Synvisc is approved for sale and sold in over 60 countries, both directly and through marketing
and distribution arrangements. At the beginning of 2005, we bought back from Wyeth the sales and marketing rights to the product in the United States and several European countries. We anticipate receiving approval to market Synvisc in Japan to treat pain associated with osteoarthritis in the knee within the next two years.
Our current plans for Synvisc include expanding its indications to joints beyond the knee through new clinical trials. We are enrolling patients in a Phase 3 clinical trial in the United States for Synvisc in the hip, an indication that is already approved in the European Union and Canada. We also are enrolling patients in Phase 3 trials of the ankle and shoulder in the European Union. At the same time, we are continuing clinical development of a next-generation product that would require fewer injections.
Sepra Products. The Sepra family of products is aimed primarily at preventing adhesions (internal scar tissue) following various surgical procedures in areas of the body such as the abdomen and pelvis. These products are biomaterials derived from hyaluronan. We market the Sepra products primarily through a direct sales force in the United States and the European Union, and primarily through distribution arrangements in Japan and the rest of the world.
Seprafilm, the first marketed product and largest by sales volume of the Sepra family, is the only FDA-approved product clinically proven to reduce the incidence, extent and severity of postsurgical adhesions in the abdomen and pelvis. There are approximately 2,000,000 applicable abdominal and pelvic procedures performed annually in the United States.
Diagnostic Products. We develop, market and distribute in vitro diagnostic products with an emphasis on point of care products for the in-hospital and out-of-hospital rapid test segment, and clinical chemistry reagents and raw materials focused on the clinical laboratory. Sales in Europe and the United States are made primarily to diagnostic reagent and equipment manufacturers who, in turn, distribute the products under their own brand. In Japan, sales are primarily made to distributors. We also maintain a manufacturing, research and development and sales subsidiary in Germany that sells diagnostic products directly to hospital laboratories.
Diagnostic Services. We develop and provide high quality, sophisticated genetic and other complex testing and offer genetic counseling services focused on pre-natal and post-natal care, reproductive and fertility medicine and oncology in both the United States and Japan. We offer several types of testingthe most significant are cytogenetic testing, molecular genetic (DNA) testing, immunohistochemistry testing, flow cytometry testing and biochemical testing. These services are promoted through a direct sales force in the United States, with testing performed in our clinical laboratories located throughout the United States. We service the Japanese market through a direct sales force and distributors, with testing primarily performed in our clinical laboratory in Santa Fe, New Mexico. During 2004, we acquired substantially all of the oncology testing assets of the Physician Services and the Analytical Services business units of IMPATH. This acquisition brought to us an array of solid-tumor and blood-based oncology diagnostic tests and associated services, a team of board-certified anatomic and clinical pathologists, and clinical laboratories located in New York City, Phoenix and Los Angeles.
We are engaged in segments of the human healthcare products and services industry that are extremely competitive. Our competitors in the United States and elsewhere include major pharmaceutical, biotechnology, diagnostic testing and device companies. Some of these competitors may have more extensive research and development, regulatory, manufacturing, production, and sales and marketing capabilities. Some competitors may have greater financial resources. These companies may succeed in developing products and services that are more effective than any that we have or may
develop and may also prove to be more successful than we are in producing, marketing and selling products and services. In addition, technological advances or different approaches developed by one or more of our competitors may render our products and services obsolete, less effective or uneconomical. Each of our products and services faces different competitive challenges, and we describe many of them below.
Renagel is a phosphate binder for the treatment of hyperphosphatemia. Phosphate binders, such as Renagel, are currently the only available treatment for hyperphosphatemia, or elevated serum phosphorus levels. There are several phosphate binders available or under development. PhosLo®, a prescription calcium acetate preparation sold by Nabi Biopharmaceuticals, and Fosrenol®, a prescription lanthanum carbonate sold by Shire Pharmaceuticals Group plc, are currently the only other products approved in the United States for the control of elevated phosphorus levels in patients with chronic kidney failure and on hemodialysis. Other products used as phosphate binders include over-the-counter calcium- and aluminum-based antacids and dietary calcium supplements. The doses necessary for calcium acetate and calcium carbonate, the most commonly used agents, to achieve adequate reductions in phosphate absorption can lead to constipation and patient noncompliance. In addition, calcium therapy requires frequent monitoring because its use can cause hypercalcemia and evidence suggests that increasing doses of calcium-based binders may lead to cardiac calcification. Aluminum hydroxide, another treatment option, is more effective at lower doses than calcium acetate or calcium carbonate, but it is infrequently used because aluminum absorbed from the intestinal tract accumulates in the tissues of patients with chronic kidney failure, causing aluminum-related osteomalacia, anemia and dementia. We are aware of several potential treatments under development for hyperphosphatemia in end stage renal disease. In addition, current competitors are looking to expand into new markets. Shire Pharmaceuticals has received marketing approval of Fosrenol in Sweden and has filed for approval in the European Union and Canada. Nabi Biopharmaceuticals has filed for marketing approval for PhosLo in the European Union.
Cerezyme and Ceredase. There is one marketed product as well as development efforts aimed at treating Gaucher disease. Zavesca®, a small molecule oral therapy developed by CellTech Group plc, which was acquired by UCB S.A. in 2004, and marketed by Teva and Actelion Ltd., has been approved in the United States, the European Union and Israel for use in patients with mild to moderate Type 1 Gaucher disease for whom enzyme replacement therapy is unsuitable. To date, virtually all Gaucher disease patients who have received enzyme therapy have experienced strong clinical benefits with few side effects, so we do not expect the competition from Zavesca to have a significant impact on our sales of Cerezyme. Transkaryotic Therapies Inc. (TKT) is conducting a Phase 1/2 clinical trial for its gene-activated human glucocerebrosidase (GA-GCB) product. TKT has reported that it expects to report top-line data from this study in the second half of 2005. Other competitors could develop competitive products based on protein replacement therapy, small molecule or gene therapy approaches. We believe that our proprietary production techniques give us a number of advantages over potential competitors using protein replacement therapy for the treatment of Gaucher disease. In addition, gene therapy approaches are still in experimental stages. We believe that the principal factors that will affect competition for Cerezyme and Ceredase enzymes will be clinical effectiveness and absence of adverse side effects.
Fabrazyme. Replagal®, TKT's enzyme replacement therapy for Fabry disease, competes with Fabrazyme. Replagal has received marketing approval in 34 countries, including Canada, Australia and several countries in the European Union. TKT has publicly announced that it has abandoned its efforts
to obtain marketing approval in the United States. We are also aware that Amicus Therapeutics is conducting a Phase 1 clinical trial of a small molecule treatment for Fabry disease.
Thymoglobulin and Lymphoglobuline. Several companies market products used for the prevention and treatment of acute rejection in renal transplant. These products include Novartis AG's Simulect®, Pfizer Inc.'s ATGAM®, Ortho Biotech's Orthoclone OKT®3, Fresenius Biotech GmbH's ATG-Fresenius S® and the Roche Group's Zenapax®. Competition in the acute transplant rejection market largely is driven by product efficacy due to the potential loss of transplanted organs as the result of an acute organ rejection episode.
Diagnostic Products. We act as a primary supplier of enzymes and substrates, and generally do not compete with our customers in the sale of complete diagnostic kits. The market in the diagnostic products industry is mature and competition is based on service, quality, technical support, price, reliability of supply and the purity and specific activity of products. In the rapid test arena at the point of care, there are several competitors, among them Acon Laboratories, Inc., Inverness Medical Innovations, Inc., Becton Dickenson & Co., Beckman Coulter, Inc. and Quidel Corp. Market success is largely dependant on sales and technical support, product differentiation, breadth of menu, quality and price. We compete effectively based on support, our distribution mechanism where we focus on private label offerings, quality and an expanding product line.
Diagnostic Services. The United States market for genetic and complex testing is divided among many laboratories, the largest of which are Quest Diagnostics and LabCorp. In addition, many hospitals provide some or all of these services through in-house laboratories. Competitive factors in the genetic and complex testing and diagnostic services business generally include reputation of the laboratory, range of services offered, pricing, convenience of sample collection and pick-up, quality of analysis and reporting and timeliness of delivery of completed reports. Our ability to develop and introduce new testing services, our experienced sales force, and the high quality of our testing and consulting services, have played significant roles in the growth of our genetic and complex testing and diagnostic services business.
Synvisc. Current competition for Synvisc includes Hyalgan®, produced by Fidia S.p.A. and marketed in the United States by Sanofi-Synthelabo; Orthovisc®, produced and marketed outside of the United States by Anika Therapeutics, Inc. and marketed in the United States by Ortho Biotech; Artz®, a product manufactured by Seikagaku Kogyo that is sold in Japan by Kaken Pharmaceutical Co. and in the United States by Smith & Nephew Orthopaedics under the name Supartz®; a product owned and manufactured by Savient Pharmaceuticals, Inc., which is marketed under the name Nuflexxa in the United States and Euflexxa in Europe; and Durolane®, manufactured by Q-Med AB. Durolane and Nuflexxa, the most recently approved products in Europe and the United States, respectively, are produced by bacterial fermentation, as opposed to Synvisc, which is avian sourced. In addition, the treatment protocol for Durolane is a single injection, as compared to Synvisc's three injection regimen. Production via bacterial fermentation and treatment with a reduced number of injections may represent competitive advantages for these products. We are aware of various other viscosupplementation products on the market or in development, but are unaware of any other products that have physical properties of viscosity, elasticity or molecular weight comparable to those of Synvisc.
Sepra Products. The Sepra products face competition from other products based on hyaluronic acid as well as from other products and changes in surgical techniques. We believe that the principal factor
that will affect competition in this area is acceptance of the product by surgeons, which depends, in large part, upon product efficacy and safety.
Seprafilm does not have significant direct competition in the area of abdominal surgery in the United States, but does compete with other products in other indications. Gynecare markets Interceed®, an anti-adhesion barrier that has properties similar to Seprafilm, but is indicated only for selected gynecological indications. FzioMed, Inc.'s Oxiplex®/AP Gel, an adhesion barrier for abdominal/pelvic surgery, has received CE Mark approval in the European Union. Life Medical Sciences, Inc. is developing several adhesion prevention products, including REPEL for gynecologic surgery and REPEL-CV for cardiovascular surgery. Confluent Surgical, Inc.'s Spraygel, an adhesion barrier used in abdominopelvic procedures, is approved for sale in certain European countries. MAST Biosurgery AG's bioresorbable film product, SurgiWrap, is CE marked with an indication for abdominal and pelvic adhesion prevention, but holds an FDA clearance as a surgical mesh in the United States. In addition, FzioMed's Oxiplex®/SP Gel, an adhesion barrier for spine surgery, is approved for sale in the European Union and in other countries outside the United States.
Patents, License Agreements and Trademarks
In general, we pursue a policy of obtaining patent protection both in the United States and in selected countries outside the United States for subject matter we consider patentable and important to our business. Patents owned by us that we consider material include the following:
Renagel is protected by U.S. Patent No. 5,667,775, which expires on September 16, 2014; 5,496,545 and 6,509,013 which expire August 11, 2013; 6,733,780, which expires on October 18, 2020 and corresponding international counterparts.
Cerezyme is protected by U.S. Patent Nos. 5,236,838 which expires August 17, 2010; 5,549,892 which expires August 27, 2013; 6,451,600 which expires September 17, 2019; and corresponding international counterparts. Cerezyme is also protected by Canadian Patent No. 2,099,876, European Patent No. 568647, and Israeli Patent No. 100715 which expire January 17, 2012. Myozyme is protected by U.S. Patent No. 6,118,045 which expires July 31, 2016, and corresponding international counterparts.
Synvisc is protected by U.S. Patent Nos. 5,143,724 which expires July 9, 2010; 5,399,351 which expires March 21, 2012; and corresponding international counterparts. Seprafilm is protected by U.S. Patent Nos. 5,017,229 which expires May 21, 2008; 5,527,893 which expires June 18, 2013; 6,235,726 which expires September 18, 2007; and corresponding international counterparts.
Diagnostic dipstick products are protected by U.S. Patent No. 5,712,172 which expires April 18, 2015; 6,194,221 which expires November 3, 2017; and corresponding international counterparts.
Genetic testing services, e.g. for Cystic Fibrosis, are protected by U.S. Patent Nos. 5,585,330 and 5,834,181 which expire July 28, 2014; 5,849,483 which expires December 15, 2015; 5,882,856 which expires March 16, 2016; 6,207,372 which expires June 6, 2016; and corresponding international counterparts.
In addition, a portion of our proprietary position is based upon patents that we have licensed from others either through collaboration or traditional license agreements, including patents relating to:
These collaboration and license agreements generally require us to share profits with our collaborative partners or pay royalties to our licensors upon commercialization of products covered by the licensed technology.
Generally, patents issued in the United States are effective for:
In some cases, the patent term can be extended to recapture a portion of the term lost during FDA regulatory review. The duration of foreign patents varies in accordance with local law.
We also rely on trade secrets, proprietary know-how and continuing technological innovation to develop and maintain a competitive position in our product areas. We require our employees, consultants and corporate partners who have access to our proprietary information to sign confidentiality agreements.
Our patent position and proprietary technology are subject to certain risks and uncertainties. We have included information about these risks and uncertainties under the subheading "Factors Affecting Future Operating Results" in "Management's Discussion and Analysis of Genzyme Corporation and Subsidiaries' Financial Condition and Results of Operations" below. We encourage you to read that discussion, which we are incorporating into this section by reference.
Our products and services are sold around the world under brand-name trademarks and service marks. Trademark protection continues in some countries as long as the mark is used; in other countries, as long as it's registered. Registrations generally are for fixed, but renewable, terms. We consider our registered trademarks Genzyme®, Cerezyme®, Ceredase®, Fabrazyme®, Thyrogen®, Aldurazyme®, Myozyme®, Renagel®, Thymoglobulin®, Lymphoglobuline®, Campath®, Synvisc®, Carticel®, MACI®, Seprafilm®, Sepragel®, Hylaform®, Hylashield® and Epicel®, Contrast®, N-geneous®, GlyPro®, InSight®, AFP3®, AFP4®, together with our trademarks, Captique, VERIGEN, Cholestagel, Clolar, CF87, Sepra, Sepramesh, Seprapack, Hylashield Nite, SAGE, LongSAGE and SPHERE, in the aggregate, to be of material importance to our business.
Regulation by governmental authorities in the United States and other countries is a significant factor in the development, manufacture, commercialization and reimbursement of our products and services.
We expect that most of our products and services will require approval from the FDA and corresponding agencies in other countries before they can be marketed. In the United States, we market products that the FDA classifies as either "drugs," "biologics" or "devices." The activities required before drugs or biologics may be marketed in the United States include:
As part of product approval, the manufacturer of the product must undergo a pre-approval Good Manufacturing Practices inspection (for a drug or biologic) from the FDA. Since any approval granted by the FDA is both site and process specific, any material change by a company in the manufacturing process, equipment or location may necessitate additional FDA review and approval.
In addition, the FDA may grant accelerated approval for drugs and biologics on the basis of a surrogate endpoint reasonably likely to predict clinical benefit. In such cases, we are required to conduct post-approval clinical studies to confirm the clinical benefit of the surrogate endpoint that was the basis of the accelerated approval. These clinical studies require the collection of additional data before full approval will be given and can often be long-term commitments. Although the FDA has not historically invoked its authority to withdraw an accelerated approval, it may do so. We currently have a number of products approved under the accelerated approval mechanism.
Products that are classified as devices also require some form of FDA approval prior to marketing. Devices are classified as Class I, II or III, depending upon the information available to assure their safety and effectiveness. In general, Class I and Class II devices are devices whose safety and effectiveness can reasonably be assured through general or specific controls, respectively. Class III devices are life sustaining, life supporting, are of substantial importance in preventing impairment to health or pose an unreasonable risk of adverse effect. They are implantable devices or new devices which have been found not to be substantially equivalent to legally marketed devices. The steps required for approval of a Class III device include:
Typically, clinical testing of devices involves initial testing to evaluate safety and feasibility and expanded trials to collect sufficient data to prove safety and effectiveness. In addition, the procedures and the facilities used to manufacture the device are subject to review and approval by the FDA.
A device (other than a Class III device) that is proven to be substantially equivalent to a device marketed prior to May 28, 1976, when government regulations for devices were first introduced, can be marketed after clearance of a 510(k) application rather than the filing of an Investigational Device Exemption application and a PMA. The 510(k) application must contain a description of the device, its methods of manufacture and quality control procedures and the results of testing to demonstrate that the device is substantially equivalent to the device already marketed.
The time and expense required to perform the clinical testing necessary to obtain FDA approval for regulated products can frequently exceed the time and expense of the research and development initially required to create the product. Even after initial FDA approval has been obtained, we could be required to conduct further studies to provide additional data on safety or efficacy or, should we desire, to gain approval for the use of a product as a treatment for additional clinical indications. In addition, use of these products during testing and after marketing approval has been obtained could reveal side effects which, if serious, could limit uses, or in the most serious cases, result in a market withdrawal of the product or expose us to product liability claims.
Regulation Outside of the United States
For marketing outside the United States, we are subject to foreign regulatory requirements governing human clinical testing and marketing approval for our products. These requirements vary by jurisdiction, differ from those in the United States and may require us to perform additional pre-clinical or clinical testing regardless of whether FDA approval has been obtained. The amount of time required to obtain necessary approvals may be longer or shorter than that required for FDA approval. In many foreign countries, coverage, pricing and reimbursement approvals are also required.
Our initial focus for obtaining marketing approval outside the United States is typically the European Union. European Union Regulations and Directives generally classify health care products either as medicinal products, medical devices or in vitro diagnostics. For medicinal products, marketing approval may be sought using either the centralized procedure of the European Agency for the Evaluation of Medicinal Products, or EMEA, or the decentralized, mutual recognition process. The centralized procedure, which is mandatory for biotechnology derived products, results in a recommendation in all member states, while the European Union mutual recognition process involves country by country approval. European Union regulations for products classified as medical devices have been implemented. Devices, such as our Sepra products, must receive market approval through a centralized procedure, in which the device receives a CE Mark allowing distribution to all member states of the European Union. The CE mark certification requires us to receive International Standards Organization certification for each facility involved in the manufacture or distribution of the device. This certification comes only after the development of an all inclusive quality system, which is reviewed for compliance to International Quality Standards by a licensed "Notified Body" working within the European Union. After certification is received a product dossier is reviewed which attests to the product's compliance with European Union directive 93/42/EEC for medical devices. Only after this point is a CE Mark granted.
Other Government Regulation
Good Manufacturing Practices. All facilities and manufacturing techniques used for the manufacture of Genzyme's products must comply with applicable FDA regulations governing the production of pharmaceutical products known as "Good Manufacturing Practices."
Orphan Drug Act. The Orphan Drug Act provides incentives to manufacturers to develop and market drugs for rare diseases and conditions affecting fewer than 200,000 persons in the United States at the time of application for orphan drug designation. The first developer to receive FDA marketing approval for an orphan drug is entitled to a seven-year exclusive marketing period in the United States for that product. However, a drug that the FDA considers to be clinically superior to, or different from, another approved orphan drug, even though for the same indication, may also obtain approval in the United States during the seven year exclusive marketing period. We believe that the commercial success of our orphan drug products depend more significantly on the associated safety and efficacy profile and on the price relative to competitive or alternative treatments and other marketing characteristics of each product than on the exclusivity afforded by the Orphan Drug Act. Additionally, these products may be protected by patents and other means.
Legislation similar to the Orphan Drug Act has been enacted in other countries outside of the United States, including the European Union. The orphan legislation in the European Union is available for therapies addressing conditions that affect fewer than five out of 10,000 persons. The market exclusivity period is for ten years, although that period can be reduced to six years if, at the end of the fifth year, available evidence establishes that the product is sufficiently profitable not to justify maintenance of market exclusivity.
Regulation of Diagnostic Testing Services. The Clinical Laboratories Improvement Act of 1967, as amended in 1988 (CLIA) provides for the regulation of clinical laboratories by the United States Department of Health and Human Services (HHS). All of our clinical laboratories are CLIA approved, licensed by the College of American Pathologists and certified by the appropriate state agencies. CLIA regulates virtually all clinical laboratories by requiring they be certified by the federal government and comply with various operational, personnel and quality requirements intended to ensure that their clinical laboratory testing services are accurate, reliable and timely. CLIA does not preempt state laws that are more stringent than federal law. For example, state laws may require additional personnel qualifications, quality control, record maintenance and/or proficiency testing.
Regulation of Diagnostic Products. The FDA has regulatory responsibility over instruments, test kits, reagents and other devices used to perform diagnostic testing by clinical laboratories. In the past, the FDA has claimed regulatory authority over laboratory-developed tests, but has exercised enforcement discretion in not regulating most laboratory-developed tests performed by high complexity CLIA-certified laboratories. In December 2000, the HHS's Secretary's Advisory Committee on Genetic Testing recommended that the FDA be the lead federal agency to regulate genetic testing. In late 2002, a new HHS Secretary's Advisory Committee on Genetics, Health and Society was appointed to replace the prior Advisory Committee, but it has not yet made any final recommendations. In the meantime, the FDA is considering revising its regulations on analyte specific reagents, which are used in laboratory-developed tests, including laboratory developed genetic testing. Increased FDA regulation of the reagents used in laboratory-developed testing could lead to increased costs and delays in introducing new tests, including genetic tests. In addition, the Medicare and Medicaid programs provide a substantial portion of reimbursement for our diagnostic products. Whether these programs pay for any particular test, and the amounts that they pay, may be unilaterally changed at any time.
Regulation of Gene Therapy Products. In addition to FDA requirements, the National Institutes of Health have established guidelines providing that transfers of recombinant DNA into human subjects at NIH laboratories or with NIH funds must be approved by the NIH Director. The NIH has established the Recombinant DNA Advisory Committee to review gene therapy protocols. We expect that many of our gene therapy protocols will be subject to review by the Recombinant DNA Advisory Committee. In the United Kingdom, our gene therapy protocols will be subject to review by the Gene Therapy Advisory Committee and in Germany, these protocols will be subject to review by the Commission for Somatic Cell Therapy. Greater government regulation of gene therapy products may lead to regulatory
delays, increased development costs, and negative public perception of the gene therapy products we are developing.
Other Laws and Regulations. Our operations are or may be subject to various federal, state and local laws, regulations and recommendations relating to the marketing of products and relationships with treating physicians, data protection, safe working conditions, laboratory and manufacturing practices, the export of products to certain countries, and the purchase, storage, movement, use and disposal of hazardous or potentially hazardous substances used in connection with our research work and manufacturing operations, including radioactive compounds and infectious disease agents. Although we believe that our safety procedures comply with the standards prescribed by federal, state and local regulations, the risk of contamination, injury or other accidental harm cannot be eliminated completely. In the event of an accident, we could be held liable for any damages that result and any liabilities could exceed our resources.
Sales, Marketing and Product Pricing
We are subject to various federal and state laws pertaining to health care "fraud and abuse," including anti-kickback and false claims statutes. Anti-kickback laws make it illegal for a prescription drug manufacturer to solicit, offer, receive, or pay any remuneration in exchange for, or to induce, the referral of business, including the purchase or prescription of a particular drug. The federal government has published regulations that identify "safe harbors" or exemptions for certain payment arrangements that do not violate the anti-kickback statutes. Genzyme seeks to comply with the safe harbors where possible. Due to the breadth of the statutory provisions, and the lack of guidance in the form of regulations or court decisions addressing some industry activities, it is possible that our practices might be challenged under anti-kickback or related laws.
False claims laws prohibit anyone from knowingly and willingly presenting, or causing to be presented for payment to third-party payors, including Medicare and Medicaid, claims for reimbursed drugs or services that are false or fraudulent, claims for items or services not provided as claimed, or claims for medically unnecessary items or services.
Our activities relating to the sale and marketing of, and price reporting for, our products are subject to scrutiny under these laws. Violations of these laws may result in criminal and/or civil sanctions, including fines and civil monetary penalties, as well as possible exclusion from federal health care programs, including Medicare and Medicaid. Federal and state authorities are paying increased attention to the pharmaceutical and biotechnology industries in enforcement of these laws, and we have been named in several civil actions alleging violations.
We participate in the Medicaid rebate program. Participation in this program has included extending comparable discounts under the Public Health Service (PHS) pharmaceutical pricing program. Under the Medicaid rebate program, we pay a rebate for each unit of drug product that is reimbursed by Medicaid. The amount of the rebate for each product is set by law as a minimum 15.1% of the average manufacturer price (AMP) of that product, or if it is greater, the difference between AMP and the best price available from Genzyme to any customer. The rebate amount also includes an inflation adjustment if AMP increases greater than inflation. The PHS pricing program extends discounts comparable to the Medicaid rebate to a variety of community health clinics and other entities that receive health services grants from the PHS, as well as hospitals that serve a disproportionate share of poor Medicare and Medicaid beneficiaries. The rebate amount is recomputed each quarter based on our reports of our current average manufacturer price and best price for each of our products. The terms of our participation in the Medicaid program impose an obligation to correct the prices reported in previous quarters, if necessary. Any such corrections could result in an overage or underage in our rebate liability for past quarters, depending on the nature of the correction. In addition to retroactive rebates (and interest, if any), if we were found to have knowingly submitted false information to the government, in addition to other penalties available to the government, the
statute provides for civil monetary penalties in the amount of $10,000 for each claim containing false information.
The Medicaid Prescription Drug, Improvement and Modernization Act of 2003 (the "MMA") has significantly changed how Medicare pays for certain of our products, most prominently Cerezyme, Fabrazyme and Synvisc. Beginning on January 1, 2005, Medicare will pay for products covered by the Part B benefit based on the average selling price (ASP) plus 6%. Medicare had previously paid for these products based on 95% of the average wholesale price (AWP). We do not anticipate the change from the AWP to the ASP system to have a material adverse impact on our ability to obtain adequate reimbursement for our products. The MMA also has made Medicare coverage available for the first time for a number of drugs, including Renagel.
As of December 31, 2004, we (together with all of our consolidated subsidiaries) had approximately 7,100 employees. We consider our employee relations to be excellent.
Financial Information Regarding Segment Reporting
We have provided the information required by Item 101(b) of Regulation S-K in Note R., "Segment Information," to our Consolidated Financial Statements in the 2004 Genzyme Corporation Annual Report set forth in Exhibit 13.1 to this Annual Report on Form 10-K. We are incorporating that information into this section by reference.
Research and Development Costs
We have provided the information required by Item 101(c)(1)(xi) of Regulation S-K in Part II, Item 8, "Financial Statements and Supplementary Data," and specifically in the Genzyme Corporation and Subsidiaries Consolidated Statements of Operations and Comprehensive Income and in Note J., "Investments in Marketable Securities and Strategic Equity Investments" to our Consolidated Financial Statements in the 2004 Genzyme Corporation Annual Report set forth in Exhibit 13.1 to this Annual Report on Form 10-K. We are incorporating that information into this section by reference.
Sales by Geographic Area, Significant Customers and Products
We have provided the information required by Items 101(c)(1)(i) and (vii) and 101(d) of Regulation S-K in the 2004 Genzyme Corporation Annual Report under the heading "Management's Discussion and Analysis of Genzyme Corporation and Subsidiaries' Financial Condition and Results of Operations" and in Note R., "Segment Information," to our Consolidated Financial Statements set forth in Exhibit 13.1 to this Annual Report on Form 10-K. We are incorporating that information into this section by reference.
We file electronically with the SEC our annual report on Form 10-K, our quarterly reports on Form 10-Q, and current reports on Form 8-K pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. You may read or copy any materials we file with the SEC at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site that contains reports, proxy and information statements, and other information about issuers that file reports electronically with the SEC. The address of that site is http://www.sec.gov.
You may obtain a free copy of our annual report on Form 10-K, our quarterly reports on Form 10-Q and current reports on Form 8-K, and amendments to those reports, as soon as reasonably
practicable after we file them with the SEC, on our website at http://www.genzyme.com or by contacting our Investor Relations department at 1-617-252-7570. The reference to our website is not intended to incorporate information on our website into this document by reference.
Set forth below is a list of individuals that are currently serving as our executive officers, or who served in such capacity during the fiscal year ended December 31, 2004:
Mr. Termeer has served as our President and a Director since October 1983, as Chief Executive Officer since December 1985 and as Chairman of the Board of Directors since May 1988. For ten years prior to joining us, Mr. Termeer worked for Baxter International Laboratories, Inc., a manufacturer of human health care products. Mr. Termeer is a director of ABIOMED, Inc. and a trustee of Hambrecht & Quist Healthcare Investors and Hambrecht & Quist Life Sciences Investors.
Mr. Collier has served as Executive Vice President since July 1997 and since August 2003, has had responsibility for our Oncology and Cardiovascular businesses. He joined us in January 1997 as Senior Vice President, Health Systems, and served as Executive Vice President, Surgical Products and Health Systems from July 1997 until June 1999. He served as President of Genzyme Surgical Products from June 1999 until December 2000. Mr. Collier was also responsible for Genzyme Tissue Repair from December 1999 to December 2000. From December 2000 until August 2003, Mr. Collier served as President of Genzyme Biosurgery. Prior to joining us, Mr. Collier was President of Vitas HealthCare Corporation (formerly Hospice Care Incorporated), a provider of health care services, from October 1991 until August 1995. Prior to that, Mr. Collier was a partner in the Washington, D.C. law firm of Hogan & Hartson, which he joined in 1981. Mr. Collier is a director of Covalent Group, Inc., a contract research organization which provides independent clinical trial and product development services to the pharmaceutical, biotechnology and medical devices industries.
Mr. Csimma joined us in July 2000 as Senior Vice President, Human Resources. Prior to joining us, he served as Vice President, Human Resources of Wyeth Ayerst Research, a pharmaceutical research organization, from August 1998 to July 2000. During that time, Mr. Csimma also served as Site Head, Genetics Institute, for Wyeth Ayerst. From May 1988 to August 1998, he served as Vice President, Human Resources and Operations of Genetics Institute, Inc., a biotechnology company, which was integrated into Wyeth Ayerst in March 1998.
Dr. Gemayel joined us in August 2003 as Executive Vice President with responsibility for our Renal, Therapeutics and Transplant business units. For sixteen years prior to joining us, Dr. Gemayel
worked for Hoffmann-LaRoche, a leading healthcare company, where he served most recently from July 2000 until August 2003 as vice president of the United States Specialty Care unit, and from January 1998 until July 2000 as general manager of Hoffmann-LaRoche Portugal.
Dr. Moscicki joined us in March 1992 as Medical Director, became Vice President, Medical Affairs in early 1993 and was named Vice President, Clinical, Medical and Regulatory Affairs in December 1993. In September 1996 he became Senior Vice President, Clinical, Medical and Regulatory Affairs and Chief Medical Officer. Since 1979, he has also been a physician staff member at the Massachusetts General Hospital and a faculty member at the Harvard Medical School.
Dr. Smith joined us in August 1989 as Senior Vice President, Research and became Chief Scientific Officer in September 1996. Prior to joining us, he served as Vice PresidentScientific Director of Integrated Genetics, Inc., from November 1984 until its acquisition by us in August 1989. From October 1980 to October 1984, Dr. Smith was head of the Biochemistry Division of the National Institute for Medical Research, Mill Hill, London, England and from 1972 to October 1980, he was a member of the scientific staff at the Imperial Cancer Research Fund in London, England.
Mr. van Heek joined us in September 1991, holding several positions of increasing responsibility. From January 2000 until August 2003 he served as Executive Vice President, Therapeutics and Genetics, with responsibility for our therapeutics and genetics business units and international operations. From August 2003 until April 2004 he had responsibility for our Biosurgery, Genetics and Pharmaceuticals business units and global manufacturing of all of our therapeutic and biosurgery products. Effective April 1, 2004, Mr. van Heek resigned his full-time position and is working part-time as an advisor to our Chief Executive Officer.
Mr. Wirth joined us in January 1996 and has served as Executive Vice President and Chief Legal Officer since September 1996, with responsibility for Genzyme's corporate development and legal activities. Since 2001, Mr. Wirth has had responsibility for our drug discovery and development business. In addition, from September 1996 until June 2003, Mr. Wirth was responsible for our Oncology business. Mr. Wirth was a partner of Palmer & Dodge LLP, a Boston, Massachusetts law firm, from 1982 through September 1996. Mr. Wirth remains of counsel to Palmer & Dodge LLP. Mr. Wirth is also a director of EPIX Pharmaceuticals, Inc., a developer of contrast agents for magnetic resonance imaging.
Mr. Wyzga has served as Executive Vice President, Finance since May 2003, as Chief Accounting Officer since January 1999 and as Chief Financial Officer since July 1999. He joined us in February 1998 as Vice President and Corporate Controller and served as Senior Vice President, Corporate Controller from January 1999 until July 1999. He served as Senior Vice President, Finance from July 1999 until May 2003. Prior to joining us, from February 1997 to February 1998, Mr. Wyzga served as Chief Financial Officer of Sovereign Hill Software, Inc., a software company, and from 1991 to 1997 held various senior management positions with CACHELINK Corporation and Lotus Development Corporation. Mr. Wyzga is also a director of Altus Pharmaceuticals Inc., a developer of protein therapeutics.
Our operations are conducted in manufacturing, warehousing, pilot plant, clinical laboratories, and research and office facilities that are located principally in:
We lease all of our facilities except for certain facilities in:
Our principal manufacturing facilities are used for the large-scale production of therapeutic proteins and enzymes, including Cerezyme, Fabrazyme and Thyrogen, renal products and immunosuppressive agents, including Renagel, Thymoglobulin and Lymphoglobuline, biomaterials, including Synvisc and Sepra, cell processing services, including Carticel and Epicel, genetic testing services, and diagnostic test kits and reagents.
Our administrative activities are concentrated at facilities we have leased in Cambridge and Framingham, Massachusetts; San Antonio, Texas; Naarden, The Netherlands; and Tokyo, Japan. Our sales and marketing activities are principally located in Cambridge, Massachusetts and in sales offices located in major cities throughout the world. We conduct our product research and development activities primarily at our laboratory facilities in the United States and, since 2004, at our Cambridge, U.K. facility. Leases for our facilities contain typical commercial lease provisions, including renewal options, rent escalators and tenant responsibility for operating expenses. We believe that we have, or are in the process of developing or acquiring, adequate manufacturing capacity to support our requirements for the next several years.
We manufacture the majority of our supply requirements for sevelamer hydrochloride, the active ingredient in Renagel, at our facilities in Haverhill, England. In 2003, we expanded this facility to increase its capacity for producing sevelamer hydrochloride. In 2003, we also constructed a manufacturing facility in Waterford, Ireland for use in manufacturing the tablet formulation of Renagel. All of our Renagel manufacturing facilities are operational, and have received all European and U.S. approvals material to such operations.
We manufacture Cerezyme and Fabrazyme at our multi-product manufacturing facility in Allston, Massachusetts. This facility, which we own and which contains extensive sterile filling capacity, is built on land that we hold under a 65-year lease, which expires in May 2057. We manufacture Thyrogen and Fabrazyme in our small-scale manufacturing facility in Framingham, Massachusetts and final drug product at our Allston facility.
At our Waterford, Ireland facility, we are installing new fill-finish capabilities for therapeutic proteins. We anticipate these improvements will be completed and operational in 2005, and that we will receive approval to supply commercial product in 2006.
As a result of our acquisition of SangStat Medical Corporation in September 2003, we lease and operate a manufacturing facility in Lyon, France. At this site we manufacture Thymoglobulin and Lymphoglobuline, and maintain administrative offices nearby.
We produce Synvisc and other hyaluronan-based products in a manufacturing facility located in Ridgefield, New Jersey. We produce bulk hyaluronic acid and Seprafilm at commercial scale in our manufacturing facility in Framingham, Massachusetts.
Our diagnostic test kits and reagents are produced in manufacturing facilities in San Diego, California; Cambridge, Massachusetts and Russelsheim, Germany.
We produce diagnostic enzymes and other fermentation products in a multi-purpose fermentation and purification facility that we own in Maidstone, England. We conduct research and development and support sales and marketing efforts at our leased facility in West Malling, England.
Our genetic and oncology testing business primarily conducts operations in clinical laboratory and administrative facilities we own in Santa Fe, New Mexico and lease in Westborough, Massachusetts; New York City and Yonkers, New York; Tampa, Florida; and Los Angeles, Orange, and Pasadena California.
We periodically become subject to legal proceedings and claims arising in connection with our business. We do not believe that there were any asserted claims against us as of December 31, 2004 that will have a material adverse effect on our results of operations, financial condition or liquidity.
Four lawsuits have been filed against us regarding the exchange of all of the outstanding shares of Biosurgery Stock and Molecular Oncology Stock for shares of Genzyme Stock, each of which is a purported class action on behalf of holders of Biosurgery Stock. The first case, filed in Massachusetts Superior Court in May 2003, alleged a breach of the implied covenant of good faith and fair dealing in our charter and a breach of our board of directors' fiduciary duties. The plaintiff in this case sought an injunction to adjust the exchange ratio for the tracking stock exchange. The Court dismissed the complaint in November 2003, but the plaintiff in this case has appealed this dismissal. This appeal was argued before the Massachusetts Appeals Court in March 2005 and we are awaiting the Appeals Court's ruling. Two substantially similar cases were filed in Massachusetts Superior Court in August and October 2003. These cases were consolidated in January 2004, and in July 2004, the consolidated case was stayed pending disposition of a fourth case, which was filed in the U.S. District Court for the Southern District of New York in June 2003. This case alleges violations of federal securities laws, common law fraud, and a breach of the merger agreement with Biomatrix in addition to the state law claims contained in the other cases. The plaintiffs are seeking an adjustment to the exchange ratio, the rescission of the acquisition of Biomatrix, and unspecified compensatory damages. We believe each of these cases is without merit and continue to defend against them vigorously.
On March 27, 2003, the OFT in the United Kingdom issued a decision against our wholly-owned subsidiary, Genzyme Limited, finding that Genzyme Limited held a dominant position and abused that dominant position with no objective justification by pricing Cerezyme in a way that excludes other
delivery/homecare service providers from the market for the supply of home delivery and homecare services to Gaucher patients being treated with Cerezyme. In conjunction with this decision, the OFT imposed a fine on Genzyme Limited and required modification to its list price for Cerezyme in the United Kingdom. Genzyme Limited appealed this decision to the Competition Appeal Tribunal. On May 6, 2003, the Tribunal issued an order that stayed the OFT's decision, but required Genzyme Limited to provide a homecare distributor a discount of 3% per unit during the appeal process. The Tribunal issued its judgment on Genzyme Limited's appeal on March 11, 2004, rejecting portions of the OFT's decision and upholding others. The Tribunal found that the list price of Cerezyme should not be reduced, but that Genzyme Limited must negotiate a price for Cerezyme that will allow homecare distributors an appropriate margin. Those negotiations are ongoing. The Tribunal also reduced the fine imposed by the OFT for violation of U.K. competition laws. In response to the Tribunal's decision, we recorded an initial liability of approximately $11 million in our 2003 financial statements and additional liabilities totaling approximately $3 million during 2004, all of which remain in accrued expenses in our consolidated balance sheet as of December 31, 2004. On April 13, 2004, Genzyme Limited filed an application with the Tribunal for permission to appeal to the High Court. That application is still pending.
In June 2003, we filed suit in U.S. District Court for the District of Massachusetts, as co-plaintiff with Biogen IDEC and Abbott Laboratories against Columbia University seeking a declaration that Columbia's U.S. Patent 6,455,275 is invalid. The patent relates to the manufacture of recombinant proteins in Chinese hamster ovary, or CHO, cells, which are the cells we use to manufacture Cerezyme, Fabrazyme and Thyrogen, and which our joint venture partner BioMarin uses to manufacture Aldurazyme. This new patent was issued by the USPTO in September 2002 from a family of patents and patent applications originally filed in 1980. We are licensed under the patent family for a royalty of 1.5% of sales but, because we were confident that the new patent was mistakenly issued by the USPTO and is invalid, we did not pay the royalty pending the outcome of the litigation. We then received notice from Columbia that we were in breach of our license agreement. A hearing on motions for a summary judgment was scheduled for November 2004; however, Columbia recently rescinded the breach notification and filed with the Court a covenant not to enforce its patent 6,455,275 against any plaintiff in this litigation. In view of this covenant, the Court granted Columbia's motion to dismiss the plaintiff's main claim for lack of subject matter jurisdiction.
We are not able to predict the outcome of these cases or estimate with certainty the amount or range of any possible loss we might incur if we do not prevail in the final, non-appealable determinations of these matters. Therefore, except for approximately $11 million in liabilities established in 2003 and approximately $3 million in additional liabilities arising during 2004 from the Tribunal's decision regarding Cerezyme pricing in the United Kingdom, we have not accrued any amounts in connection with these potential contingencies. We cannot provide you with assurance that the matters listed above, or other legal proceedings, will not have a material adverse impact on our financial condition or results of operations.
Effective July 1, 2003, we eliminated our tracking stock capital structure by exchanging, in accordance with the provisions of our charter, each share of Biosurgery Stock for 0.04914 of a share of Genzyme General Stock and each share of Molecular Oncology Stock for 0.05653 of a share of Genzyme General Stock. Options and warrants to purchase shares of Biosurgery Stock and options to purchase shares of Molecular Oncology Stock were converted into options and warrants to purchase shares of Genzyme General Stock. Since July 1, 2003, we have one outstanding series of common stock. From July 1, 2003 through May 27, 2004, we referred to our outstanding series of common stock as Genzyme General Stock. At our annual meeting of stockholders on May 27, 2004, our shareholders approved an amendment to our charter that eliminated the designation of separate series of common stock, resulting in 690,000,000 authorized shares of a single series of stock, which we now refer to as Genzyme Stock.
The tracking stocks were intended to reflect the value and track the performance of our three former divisions. Through June 30, 2003, all three series of our common stock were traded on the over-the-counter market and prices were quoted on The NASDAQ® National Market system under the symbols "GENZ," "GZBX" and "GZMO." Since July 1, 2003, our only outstanding series of common stock has traded under the symbol "GENZ".
As of March 1, 2005, there were 3,514 stockholders of record of Genzyme Stock.
The following table sets forth, for the periods indicated, the high and low sale price for each series of our common stock as reported by NASDAQ.
We have never paid any cash dividends on any series of our common stock and we do not anticipate paying cash dividends in the foreseeable future.
We incorporate information regarding securities authorized for issuance under our equity compensation plans into this section by reference to the section entitled "Equity Plans" in the proxy statement for our 2005 annual meeting of shareholders.
Issuer Purchases of Equity Securities
We did not make any purchases of our common stock during the three months ended December 31, 2004, which is the fourth quarter of our fiscal year.
We incorporate our Selected Financial Data into this section by reference from the 2004 Genzyme Corporation Annual Report under the heading "Genzyme CorporationConsolidated Selected Financial Data", which is included in Exhibit 13.1 to this Annual Report on Form 10-K.
We incorporate our Management's Discussion and Analysis of Financial Condition and Results of Operations into this section by reference from the 2004 Genzyme Corporation Annual Report under the heading "Management's Discussion and Analysis of Genzyme Corporation and Subsidiaries' Financial Condition and Results of Operations", which is included in Exhibit 13.1 to this Annual Report on Form 10-K.
We incorporate by reference from the 2004 Genzyme Corporation Annual Report our disclosure related to market risk which is set forth under the headings "Management's Discussion and Analysis of Genzyme Corporation and Subsidiaries' Financial Condition and Results of OperationsMarket Risk," "Interest Rate Risk," "Foreign Exchange Risk" and "Equity Price Risk", which is included in Exhibit 13.1 to this Annual Report on Form 10-K.
We incorporate the financial statements filed as part of this Annual Report on Form 10-K into this section by reference from the Consolidated Financial Statements of Genzyme Corporation and Subsidiaries and notes thereto from the 2004 Genzyme Corporation Annual Report, included in Exhibit 13.1 to this Annual Report on Form 10-K.
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (commonly referred to as the Exchange Act). Based on this evaluation, our chief executive officer and our chief financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Annual Report on Form 10-K.
Internal Control Over Financial Reporting
We incorporate the following reports into this section by reference from the 2004 Genzyme Annual Report, which is included in Exhibit 13.1 to this Annual Report on Form 10-K:
Changes in Internal Control Over Financial Reporting
There were no changes in our internal controls over financial reporting during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act).
We have adopted a Corporate Code of Conduct, which applies to our directors and all of our employees, including our principal executive officer, principal financial officer and accounting officer, and controller. A copy is available to you, free of charge, upon written request to the legal department at our corporate offices located at Genzyme Center, 500 Kendall Street, Cambridge, Massachusetts 02142. We intend to make all required disclosures concerning amendments to, or waivers from, this code on the governance page of our website, www.genzyme.com. Information contained on our website is not part of this document or the documents incorporated by reference into this document.
We incorporate information regarding our directors and executive officers into this section by reference from the section entitled "Executive Officers of the Registrant" in Part I, Item 1A of this Annual Report on Form 10-K and the sections entitled "Election of Directors," "Board Meetings and Committees" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the proxy statement for our 2005 annual meeting of shareholders.
We incorporate information regarding the compensation of our directors and executive officers into this section by reference from the sections entitled "Election of Directors," "Director Compensation" and "Executive Compensation" in the proxy statement for our 2005 annual meeting of shareholders.
We incorporate information regarding the ownership of our securities by our directors, executive officers and 5% shareholders into this section by reference from the sections entitled "Stock Ownership" and "Equity Plans" in the proxy statement for our 2005 annual meeting of shareholders.
We incorporate information regarding transactions with related parties into this section by reference from the section entitled "Certain Relationships and Related Transactions" in the proxy statement for our 2005 annual meeting of shareholders.
We incorporate information regarding our audit committee's pre-approval policies and procedures and the fees paid to our auditors from the section entitled "Independent Accountants" in the proxy statement for our 2005 annual meeting of shareholders.
We are incorporating the following financial statements (and related notes) of Genzyme Corporation and Subsidiaries into this section by reference from the 2004 Genzyme Corporation Annual Report, which is included in Exhibit 13.1 to this Annual Report on Form 10-K:
We are incorporating the following financial statement schedule of Genzyme Corporation and Subsidiaries into this section by reference from the 2004 Genzyme Corporation Annual Report, which is included in Exhibit 13.1 to this Annual Report on Form 10-K:
All other schedules are omitted as the information required is inapplicable or the information is presented in the Genzyme Corporation and Subsidiaries' Consolidated Financial Statements or notes thereto.
The exhibits are listed below under Part IV, Item 15(b) of this Annual Report on Form 10-K.
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
Exhibits 10.16 through 10.26 above are management contracts or compensatory plans or arrangements in which our executive officers or directors participate.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
TABLE OF CONTENTS
ITEM 2. PROPERTIES
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9B. OTHER INFORMATION
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES