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                       SECURITIES AND EXCHANGE COMMISSION
 
                             Washington,WASHINGTON, D.C. 20549
 
                                   FORM 10-K
 
             [X]/X/     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)15(D)
                        OF THE SECURITIES EXCHANGE ACT OF 1934
 
                                       For the fiscal year ended March 31, 1997

                                       OR
 
             [ ]/ /  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)15(D)
                       OF THE SECURITIES EXCHANGE ACT OF 1934
 
                  For the transition period from      ____________ to _____________
 
                        Commission file number: 0-21700
 
                              REPLIGEN CORPORATION
 
             (Exact name of Registrant as specified in its charter)
 
Delaware                        04-2729386
       (State or other jurisdiction of         (I.R.S. Employer
        incorporation or organization)        Identification No.)

  117 Fourth Avenue, Needham, Massachusetts          02194
  (Address of principal executive offices)         (Zip Code)
DELAWARE 04-2729386 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 117 FOURTH AVENUE, NEEDHAM, MASSACHUSETTS 02494 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES (ZIP CODE)
Registrant's telephone number, including area code: (617)-449-9560(781) 449-9560 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common stock,Stock, $0.01 Par Value (Title of Class) Indicate by checkmark 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. [X] Yes [ ]_X_ No ____ Indicate by checkmarkcheck 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. [ ] Yes [X]____ No _X_ State the aggregate market value of the voting stock held by non-affiliates of the Registrant. The aggregate market value, computed by reference to the closing sale price of such stock quoted on NASDAQ on April 30, 1997June 22, 1998 was approximately $24,012,316.$27,002,678. Indicate the number of shares outstanding of each of the registrant's classes of common stock as of April 30, 1997: 16,008,211June 22, 1998: 18,001,785 DOCUMENTS INCORPORATED BY REFERENCE The Company intends to file a definitive Proxy Statement pursuant to Regulation 14A within 120 days of the end of the fiscal year ended March 31, 1997.1998. Portions of such Proxy Statement are incorporated by reference in Part III of this Form 10-K. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART I ItemITEM 1: BUSINESS Forward Looking StatementsFORWARD LOOKING STATEMENTS Any statements which are not historical facts contained in this Annual Report on Form 10-K, including without limitation projections or statements concerning use and success of technology, progress of programs, completion, timing and benefits of development programs, liquidity, suitability of products for specific applications, product performance, advantages or significance of technology, benefits and results of acquisitions, collaborations and strategic and other alliances, and improvements to operating and other results, are forward-looking statements that involve risks and uncertainties, including but not limited to those relating to product demand, pricing, market acceptance, the effect of economic conditions, intellectual property rights and litigation, the results of governmental proceedings, competitive products, risks in product and technology development, the results of financing efforts, the ability to exploit technologies, the ability to complete transactions, and other risks identified under the caption "Certain Factors That May Affect Future Results" and elsewhere in this Annual Report, as well as in the Company's other Securities and Exchange Commission filings. The Company's actual results may differ significantly from the results discussed in the forward-looking statements. The CompanyTHE COMPANY Repligen Corporation ("Repligen" or the "Company") redirected its focus in March of 1996 from the clinical development of biological products to the development ofdevelops enabling technology for the discovery of new drugs. The Company is developing technology to increase the efficiency of the process by which new drug candidates are identified. These technologies include rapiddrugs including ultra-rapid methods for the synthesis of chemical compound libraries, novel detection technology for identifying active compounds in drug screening and specifichigh throughput screening assays based on defined biological targets. The Company's technology is designed to identify compounds capable of blocking or stabilizing pharmaceutically important interactions between proteins and other macromolecules. To date, this type of interaction has only been accessible with complex natural products or protein pharmaceuticals both of which are difficult to develop, administer to patients and manufacture. The Company's goal is to develop organically synthesized drugs which can mimic the action of these natural products and proteins. In selected therapeutic areas, Repligen is applying its technology to the discovery of proprietary drug leads capableleads. The primary proprietary drug discovery program at the Company is the development of blocking biologically important protein-proteinnovel inhibitors of angiogenesis or new blood vessel growth which is essential for solid tumor growth and protein-carbohydrate interactions.in certain ocular diseases. This program is based on proprietary, high throughput screening assays designed to detect inhibitors of the growth factors which drive angiogenesis and proprietary libraries of compounds designed to mimic the natural cell surface ligands of these growth factors. In initial preclinical studies, a compound identified from these libraries inhibited angiogenic growth factors IN VITRO AND IN VIVO at non-toxic doses. Repligen also develops, manufactures and markets products for the production of protein pharmaceuticals (biopharmaceuticals) by affinity chromatography. The Company currently markets a line of products for the production of monoclonal antibodies intended for human clinical use. These products areuse based on a recombinant form of Protein A, a naturally occurring affinity ligand. The Company believes that its chemical libraries may be the source of additional affinity ligands for which Repligen holds patents in the United States and major foreign markets. In addition, the Company is seeking to license to third parties certain intellectual property and other assets of the Company pertaining to its earlier research and clinical development programs.biopharmaceutical manufacturing. Repligen Corporation was incorporated in March, 1981, under the laws of the State of Delaware. Its principal executive officersoffices are at 117 Fourth Avenue, Needham, Massachusetts 0219402494 and its telephone number is (617)(781) 449-9560. 2 Drug Discovery Technology - Background Practically all major pharmaceuticalDRUG DISCOVERY TECHNOLOGY--BACKGROUND Pharmaceutical companies engaged inuse a drug discovery use a process which starts with the identification of a new "biological target""Biological Target" which is implicated in a disease. The target is then formatted into a test (known as a High(a "High Throughput Screening Assay),Assay") which can be used to determine if any of 100,000 to 1,000,000 individual chemical compounds (known as a Chemical(a "Chemical Compound Library)Library") shows activity against the biological target. ThisBiological Target. Compounds from the library which are identified by the screening assay (a "New Drug Lead") may be the basis for chemical analoging to improve their potency, specificity and pharmacology prior to evaluation in animal disease models and ultimately human clinical trials. The new drug lead discovery phase of this process is summarized below: [GRAPHIC] Chemical Compound Library [GRAPHIC] Biological Target New Drug Lead [GRAPHIC] High Throughput Screening Assay[CHART] Recent advances in human and bacterial genetics (genomics) have identified hundreds of potential new biological targetsBiological Targets for drug development. However, the traditional process used to identify drug candidates for a new biological target is inadequate to exploit this new resource.discovery. As a result, the pharmaceutical industry has and will likely continue to make substantial investments in its drug discovery infrastructure. In addition to genomics, two principal areas of investment by pharmaceutical companies are the construction of libraries of compounds through combinatorial chemistry and the development of more efficient high throughput screening technologies. RepligenEnzymes and cellular receptors which naturally bind a small molecule are two classes of Biological Targets well established in the pharmaceutical industry. For many of these types of targets the process outlined above is developing multiple technologiesa relatively efficient approach to improve the efficiencyidentifying a new drug lead. A third class of Biological Targets consists of the interaction of a protein and a second macromolecule such as a carbohydrate, a nucleic acid (DNA or RNA) or another protein. For most of these targets, it remains a formidable challenge to identify New Drug Leads which are organically synthesized small molecules. To date, drugs which target protein-macromolecular interactions have been identified by isolating active compounds from mixtures derived from extracts of plants or microorganisms. For example, * Taxol-TM-, a major drug discovery process including rapid methods for chemical library synthesis, screening assays based on specificthe treatment of certain cancers, was identified in extracts of the bark of the pacific yew tree and Cylcosporin A, a leading drug for organ transplant recipients, was identified in a fungal extract. Despite the fact that natural products are often more difficult to develop, manufacture and administer to patients than an organically synthesized drug, no chemically synthesized drugs have been identified which mimic the activity of these two important natural products. In addition, there are no synthetic compounds or natural products available for many interesting biological targets and newwhich involve protein-macromolecule interactions. Repligen believes that the development of technology to extend the application of high throughput screening technologies. Combinatorial Chemistryof chemical libraries to the identification of New Drug Leads which modulate protein- macromolecule interactions will have broad application within the pharmaceutical industry. - ------------------------ *Taxol-TM- is a registered trademark of Bristol-Myers Squibb Co. 3 COMBINATORIAL CHEMISTRY In the past severalfive years, the pharmaceutical industry has rapidly adopted combinatorial chemistry as a method to rapidly synthesize setslibraries of chemical compounds. Combinatorial chemical synthesis methods involve systematic variation of three or more chemical groups on a fixed framework or scaffold. For a scaffold in which three positions can each be substituted with twenty different chemical groups, it is possible to synthesize 8,000 (20 x 20 x 20) compounds with the same series of chemical reactions. By repeating this process with multiple scaffolds, libraries containing more than 300,000500,000 compounds have been constructed. Despite the powerThe primary application of this approach, it currently requires significant labor and investment intechnology has been the creation of chemical methodology and robotics to synthesize a relatively small library of 100,000 compounds. Thus, many organizations employing combinatorial chemistry have created libraries of small compounds with maximal chemical diversity in order to use it withsuitable for Biological Targets which are enzymes or receptors which bind a large number of biologicalsmall molecule. These compounds are generally not suitable for identifying drugs which can act on protein-macromolecular targets. 3 Repligen is currently developing what it believes may be ultra-efficient techniques for the synthesis of libraries of individual compounds.chemical compounds for targets involving protein-macromolecule interactions. These techniques rely upon a set of chemical reactions known as multi-component condensations (MCCs) in which three or morefour components combine in a single step to form the desired product while consuming the starting materials. Libraries of compounds can be synthesized far more rapidly with MCC'sMCCs than alternative methods since the synthesis step involves simple mixing of reactant solutions instead of the multiple chemical steps and manipulations required by other methods. The ability to synthesize compound libraries quickly and inexpensively will enableRepligen has focused the Company to create customized collectionsdevelopment of its MCC technology on the creation of compounds specifically designed for each biological target or class of target. By incorporating all of the available information for a target (such as itswith size and complexity comparable to natural ligand or substrate),products which are known to modulate important protein-macromolecule interactions. Like many natural products, these custom libraries can be richer sources of active leads than generic libraries designed for use with multiple targets. Lead"complex" organic compounds can then be the basis for the design of second and third generation libraries in which the activity of the lead compound is optimized in a rapid, iterative process. A second potential advantage of the efficiency of MCCs is the potential to more readily construct "complex" structures in whichcontain 4 to 67 different chemical substituents which can be combinatorially varied. For many biologically important targets involving protein-proteininteract with the target and are typically 2-3 times larger than either traditional drugs or protein-carbohydrate interactions, it can be difficult to find new drug leads in simplethe products of existing combinatorial libraries of structure containing only three substituents. In order to create libraries suitable for these targets, Repligen is employing two sequential MCCs to produce "complex" structures.chemical technology. The Company believes that these libraries of "complex" structures"complex structures" may be better sources of leads for certain classes of biological targets involving protein-macromolecule interactions which were previously only accessibleare difficult to access with natural products. Detection Technology for Drug Screening The Company believes that each year pharmaceutical and biotechnology companies carry out more than 200,000,000 individualexisting technology. HIGH THROUGHPUT SCREENING ASSAYS Repligen has developed a series of high throughput screening assays as a partfor the identification of their drug discovery efforts. A significant numberNew Drug Leads in its own libraries or those of its partners. Most of these assays involve measurement of whether a chemical compound can block the binding of a biological target to its natural ligand. This has created a largedetect compounds which inhibit protein-protein and increasing demand for simple, one-step assay procedures. To date, the only practical one-step procedure to measure binding or its inhibition requires the use of expensive and cumbersome radioactive reagents.protein-carbohydrate interactions. The Company is currently exploring a novel, alternative approach to the detection of active compounds in binding assays which may lead to a one-step, non-radioactive methodhas applied for detection of lead compounds. If such a system can be developed by the Company, it may be a viable product for sale to the pharmaceutical industrypatents covering its growth factor and may be applicable to increasing the efficiency of the Company's internal drug discovery programs which are based on protein-protein or protein-carbohydrate bindingchemokine screening assays. 4 High Throughput Screening Assays Growth Factor Screening AssaysGROWTH FACTOR SCREENING ASSAYS Many clinically important proteins involved in cell signaling and activation bind to a type of carbohydrate on the surface of the target cell known as a glycosaminoglycan. The Company believes that this interaction is important for optimal biological action of these proteins and represents a novel and advantageous point for pharmaceutical intervention. Repligen has developed a series of high throughput binding assays for two classes of glycosaminoglycan-binding proteins: growth factors and chemokines. Two of the Company's growth factor assays can detect inhibitors of glycosaminoglycan binding to Vascular Endothelial Growth Factor (VEGF) and basic Fibroblast Growth Factor (bFGF) and Vascular Endothelial Growth Factor (VEGF) both of which have been implicated in the new blood vessel growth which is required for tumor growth and in the progression of certain ocular diseases such as diabetic retinopathy.retinopathy and macular degeneration. The Company has employed its combinatorial chemical technology to construct libraries of compounds customized to contain chemical functional groups similar to those found in glycosaminoglycans. Screening of these libraries in the growth factor assays has identified several lead compounds which are currently undergoing additional testing. 4 In collaboration with Cambridge NeuroScience, Inc. ("CNS"), the Company has also constructed a high throughput screening assay capable of detecting compounds which block the interaction of the growth factor neuregulin with glycosaminoglycans. Neuregulin is believed to be an important factor in some forms of breast, brain breast and other cancers. The Company has screened a glycosaminoglycan-like library in the neuregulin assay. Several active compounds have been detected which are currently undergoing additional biological characterization. Repligen and CNS will jointly own compounds which result from this collaboration, if any. Chemokine Screening AssaysCHEMOKINE SCREENING ASSAYS Chemokines are a second class of glycosaminoglycan-binding factors which mediate the recruitment and activation of leukocytes or white blood cells. Inhibition of the activity of chemokines may be therapeutically useful in a variety of diseases characterized by excessive leukocyte activity including arthritis, psoriasis, inflammatory bowel disease and atherogenesis. Repligen's high throughput screens are designed to detect inhibitors of chemokine-glycosaminoglycanchemokine- glycosaminoglycan interaction which it believes is essential for proper leukocyte activation by the chemokine. Immunoregulatory Protein Screening AssaysOne of the chemokine assays is the basis for the Company's drug discovery collaboration with Glaxo Wellcome. IMMUNOREGULATORY PROTEIN SCREENING ASSAYS Repligen's immune modulation program is based on modifying the activity of costimulatory factors (CD28, B7, CTLA4), molecules on the surface of certain immune system cells, to selectively suppress or activate an immune response. BasedPublished data on data obtained by Repligen and others in animal models of transplantation and autoimmune disease, the Company believesindicate that drugs which modulateblock the activity of these costimulatory factors may suppress unwanted immune responses characteristic of transplantation and certain forms of multiple sclerosis, rheumatoid 5 arthritis and diabetes. These animal model experiments indicate that it may be possible to selectively suppress the undesired immune response without creating a general state of immunosuppression. The currently available treatments to prevent, for example, transplant rejection are powerful drugs which cause overall immune suppression, leaving recipients vulnerable to infection. In addition, data published by othersdata indicate that costimulatory factors can be manipulated in animal tumor models to enhance the immune response to a tumor resulting in slower tumor growth. Repligen is constructinghas constructed high throughput screening assays based on recombinant proteins and cell lines to detect molecules capable of suppressing or activatingmodulating the activity of these costimulatory molecules. Drug Discovery ProgramsHEPARANASE Heparanse is an enzyme which degrades carbohydrate (glycosaminoglycan) components of the extracellular matrix, a process which is essential for movement of cells from the vasculature into tissues. This type of cell migration appears to be essential for tumor cell invasion and metastasis. It is also believed to be an important step of the movement of white blood cells (leukocytes) into tissues, an early step in the initiation of an immune or inflammatory response. Repligen has developed a screening assay to detect small molecule compounds which block the activity of heparanase which it intends to use to screen its compound libraries. Inhibitors of heparanase may be applicable to cancer and a variety of inflammatory diseases. DRUG DISCOVERY PROGRAMS The Company is currently employing its screening assays in collaborative arrangements with Pfizer Inc. ("Pfizer"), Glaxo Wellcome plc ("Glaxo") and Cambridge NeuroScience Inc. ("CNS") in drug discovery projects in the areas of cardiovascular disease, cancer and immune regulation. The Company will also seekseeking to develop proprietary lead compounds by utilizing its screening assays to identify active compounds in its combinatorial chemical libraries. Its current focus is the development of inhibitors of the angiogenic growth factors VEGF and bFGF. To date, the Company has screened approximately 50,000 compounds from its internal libraries which were specifically designed to mimic the natural, cell surface ligand of VEGF and bFGF. Several families of lead compounds were identified and have subsequently been tested in additional assays for potency 5 and specificity. Selected compounds have been active in blocking the proliferation of endothelial (blood vessel) cells IN VITRO and blocking the intracellular (kinase) signaling pathway triggered by VEGF. A lead compound has demonstrated activity in an animal model of ocular angiogenesis. The Company intends to synthesize additional sets of compounds with structures related to its lead compounds and evaluate them for improvements in potency and pharmacology as well as in additional models of ocular and tumor angiogenesis. The Company is also employing its screening assays and chemical libraries in collaborative arrangements with Pfizer Inc. ("Pfizer"), Glaxo Wellcome plc ("Glaxo"), Cambridge NeuroScience, Inc. ("CNS"), Tularik, Inc. ("Tularik") and T Cell Sciences, Inc. ("T Cell"). The following table summarizes the status of both collaborativeproprietary and proprietarycollaborative drug discovery projects utilizing Repligen's high throughput screening assays: Current Statusprojects:
CURRENT STATUS OF DRUG DISCOVERY PROGRAMS - ------------------------------------------------------------------------------------------------------ BIOLOGICAL TARGET PARTNER APPLICATION STATUS - ----------------------------- --------- ----------------------------- ----------------------------- VEGF / bFGF Repligen Cancer/Ocular Disease Lead Identified Heparanase Repligen Tumor Metastasis Assay Development Growth Factor Pfizer Proliferative Disease Lead Identified Immunomodulator Pfizer Immune Enhancement Screening Chemokine Glaxo Cardiovascular Screening Neuregulin CNS Breast, Brain Cancer Lead Evaluation Multiple Targets Tularik Multiple Screening T Cell Activation T Cell Immune Regulation Screening
AFFINITY PRODUCTS FOR BIOPHARMACEUTICAL MANUFACTURING The manufacture of Drug Discovery Programs ----------------------------------------- Biological Target Partner Application Status - - ----------------- ------- ----------- ------ Growth Factor Pfizer Cancer Lead Evaluation Immunomodulation Pfizer Immune Enhancement Screening Chemokine Glaxo Cardiovascular Screening Neuregulin CNS Brain, Breast Cancer Lead Evaluation Angiogenic Growth Factor Repligen Cancer/Retinopathy Screening Immunomodulation Repligen Immune Suppression Assay Development Productsprotein pharmaceuticals (biopharmaceuticals) such as insulin, tissue plasminogen activator and monoclonal antibodies such as * ReoPro-TM- is a complex task which typically involves fermentation of a bacterium or mammalian cell to synthesize the protein followed by the recovery and purification of the product through a series of filtration and chromatographic steps. Two principal challenges in biopharmaceutical manufacturing are the recovery of the product from a large volume of fermentation broth and the purification of the product from a complex feedstream to >99% purity. Affinity chromatography is a protein purification technique based on the specific ("lock and key") interaction of a compound (an "affinity ligand") with the protein of interest. Typically, the fermentation broth is passed over a solid support containing the affinity ligand which binds only to the protein product and not to other components of the feedstream. Thus in a single step the product is captured from a dilute feedstream and substantially purified. The two affinity ligands most widely used in the manufacture of biopharmaceuticals are based on two naturally occurring products: Protein A for Bioprocessingthe production of monoclonal antibodies and the carbohydrate heparin which is used in the production of certain growth factors and coagulation factors. Protein A is a naturally occurring molecule which has the ability to bind tightly toaffinity ligand for certain classes of antibodies. The CompanyRepligen manufactures and markets a recombinant form of Protein A ("rProtein A"A-TM-") and immobilized Protein ArProtein A-TM- in sufficient quantity and quality to be used in the commercial production of antibodies intended for human clinical use. Repligen sells rProtein A(TM) directly and through distributors, including Itochu Techno Chemical, Ltd. (Japan), Kem-En-Tec (Denmark), and Pelichem A.G. (Switzerland). The Company believes that there are approximately 75 monoclonal antibodies in various stages of human clinical testing worldwide. In contrast, only 4 to 68 monoclonal antibodies have been approved for marketing by the United States Food and Drug Administration - ------------------------ *ReoPro-TM- is a registered tradmark of Centocor, Inc. 6 ("FDA") or comparable foreign regulatory agencies. 6 SignificantAdditional antibody product approvals may yield significant growth in the Protein A market will be dependent upon additional antibody product approvals.market. Repligen owns a patent in the U.S. covering the manufacture of recombinant Protein A which expires in 2009. Similar patents have been issued in certain European countries and Japan which expire in 2002. Repligen has granted a non-exclusive, royalty bearing license to Pharmacia Biotech AB, a subsidiary of Pharmacia & Upjohn, Inc., to its patents covering recombinant Protein A. Repligen has receivedWith the exception of antibodies and a second U.S. patent on a modified form of Protein A ("Cys-Protein A") which it believes may deliver superior performance in antibody purification at equivalent costs. No licenses have been granted to the Cys-Protein A patent. In November 1996, Repligen established a new manufacturing suite specifically designedfew other factors, there are currently no suitable affinity ligands for high volume, efficient manufacture of rProtein A(TM) using procedures derived from the Good Manufacturing Practices guidelines established by the FDA.most biopharmaceuticals. The Company believes that this facility will lower its "complex structure" chemical libraries may be sources of novel chemical affinity ligands. Successful application of the Company's technology to the development of new affinity ligands may enable biopharmaceuticals to be applied to applications not currently feasible due to their high cost of manufacturemanufacture. The use of transgenic plants and animals has dramatically lowered the costs of protein expression; however, there is currently no technology to lower the cost of protein recovery and purification. The availability of new affinity ligands may significantly improve the efficiency of manufacturing and enable itbiopharmaceuticals to be competitive in the Protein A marketplace. Intellectual Property and Licensingpenetrate new, cost-sensitive markets. INTELLECTUAL PROPERTY AND LICENSING Repligen has maintained certain intellectual property rights related to its former clinical development programs. The Company intendshas and continues to seek third parties to license its intellectual property which does not support the Company'sits current drug discovery or bioprocessing activities. The Company's former program for the inhibition of acute inflammation is based on the use of monoclonal antibodies to CD11b, a protein on the surface of certain white blood cells called neutrophils, to inhibit neutrophil-mediated inflammation and tissue damage. As part of this program Repligen had exclusively licensed certain patents issued from the University of Michigan covering the use of antibodies to CD11b to block acute inflammation. The Company also licensed from Pharmacia & Upjohn, Inc. an issued U.S. patent covering the use of antibodies to CD11a, CD11b, CD11c or CD18 to block the acute inflammation associated with reperfusion or the resupply of blood to an anoxic tissue. In December 1995, the Company sublicensed its rights to the Pharmacia & Upjohn patent for CD11a and CD18 to Genentech, Inc. Under the terms of the sublicense the Company is eligible to receive a milestone payment and royalties onaffinity products developed by Genentech under this patent. Repligen will seek a sublicensee for the University of Michigan's CD11b patent and its rights to CD11b from the Pharmacia & Upjohn patent.businesses. As part of its former program to develop immunomodulatory protein drugs directed to the immune cell receptors known as CD28, B7 and CTLA4 (costimulatory factors), Repligen licensed the rights to certain patent applications from the University of Michigan. In addition, the Company independently filed additional patent applications based on internal and collaborative research findings. In September 1995, Repligen assigned these patent rights to Genetics Institute, Inc. and received a fee of $2,000,000. The Company retained the right to independently use the 7 intellectual property and reagents for the discovery of small molecules which block or activate these costimulatory factors (see above). In January 1996, Genetics Institute, Inc. returned all the rights to a specific product candidate, CTLA4-IgG. Repligen has the right to sublicense its rights to CTLA4-IgG and intends to seek a licensee to develop this product candidate. The protein interleukin 8 ("IL-8") has the dual properties of mediating certain inflammatory responses and blocking the proliferationAs part of the myeloid progenitor cells. In itsCompany's former program Repligento inhibit acute inflammation it acquired certain patent rights covering the use of antibodies to CD11b to block acute inflammation and a U.S. patent covering the use of antibodies to CD11a, CD11b, CD11c and CD18 to block acute inflammation associated with reperfusion or the resupply of blood to anoxic tissue. In December 1995 the Company licensed its rights to CD11a and CD18 to Genentech, Inc. in exchange for a milestone payment and royalties on the sales of products developed modified versions ("mutants") of IL-8 which lackby Genentech under this patent. In 1993 the inflammatory neutrophil activating propertyCompany licensed its technology for the production of the parent molecule, but which retainHIV envelope protein gp160 to Calypte Biomedical Corporation in exchange for a licensing fee and royalties on the ability to suppresssales of diagnostic products developed under the proliferation of the progenitor cells. These novel molecules may have therapeutic utility in protecting these progenitor cellslicense. Calypte received approval from the toxic effectsFDA in September of anti-cancer drugs. The Company has received notice of allowance of1997 to market a patent application covering the composition of the mutant proteins from the U.S. Patent and Trademark Office. The Company may seek a strategic partner to develop its IL-8 technology. Repligen's Business StrategyHIV diagnostic test kit for use with urine samples. REPLIGEN'S BUSINESS STRATEGY Repligen's primary objective is to develop or acquire a serieshigh throughput screening and chemical synthesis technologies to apply to the discovery of technologies for drug discovery which will enable it to develop new drug leads for those biological targetsBiological Targets in which a protein binds to another protein, a carbohydrate or a nucleic acid. All of the Company's current high throughput screening assays are based on protein-protein or protein-carbohydrate binding assays. The Company intends to apply its drug discovery technologies to selected proprietary targets such as angiogenesis where it believes its 7 technology may give it a competitive advantage. If any lead compounds result from these activities, the Company willmay carry out additional optimization of the lead compound through chemical modification and characterize its biological activity in cell-based assays and animal models of disease. As appropriate, the Company will seek a biotechnology or pharmaceutical partner for clinical development and commercialization of its product candidates. In the near term, the Companyaddition to its proprietary programs, Repligen will seek to form additional drug discovery partnerships in order to further developmaximize the return on its technology base. If successful,The primary goal of these partnerships will be to apply the Company's technology to a broad range of Biological Targets to increase the opportunity of identifying New Drug Leads. In these partnerships the Company maywill seek future milestone and royalty revenues based on successful product development by a partner instead of current revenue.partner. The Company will also seek to expand its revenues from bioprocessing affinity reagents through sales and marketing efforts, partnerships and new product introductions. It may also endeavor to develop or acquire additional products for the manufacture of pharmaceutical products which can utilize the Company's existing rProtein A(TM) manufacturing capacity and regulatory infrastructure. The CompanyProfits from drug discovery partnerships and product sales will also seekbe applied to sublicense to third parties its intellectual property pertaining to its earlierfurther the development programs on CTLA4-IgG, CD11b and mutants of IL-8. Successful licensing of these assets may generate current revenue, equity or potential future milestone and royalty revenues based on successful product development by the licensee. 8 Sales and Marketingproprietary drug candidates. SALES AND MARKETING The Company currently sells its rProtein A(TM)A-TM- products directly to end-users and through distributors in certain foreign markets. While the Company has expanded its sales and marketing activities, there can be no assurance that the Company will be able to further expand its sales and distribution capabilities for the research market without undue delays or expenditures or that it will be successful in maintaining market acceptance for its products. CustomersCUSTOMERS Sales for the Company's bioprocessing products are distributed between chromatography companies and process development and manufacturing groups at biotechnology and pharmaceutical companies and accounted for 41%47% of the Company's revenues in fiscal 1997.1998. Research and development revenue is derived from the Company's drug discovery collaborations with Glaxo, Pfizer and CNS and grant awards from the National Institutes of Health. Research and development revenue accounted for 31%38% of the Company's total revenues in fiscal 1997. No single1998. During fiscal 1998 the Company received a milestone payment from one of its collaborations. As a result of this extraordinary payment, one customer accounted for more than 10% of the Company's total revenues in fiscal 1997. Competition1998. While the Company has an ongoing relationship with this customer, the customer is not obligated to make any additional milestone payments to the Company and the Company believes the loss of this customer would not have a material adverse effect on the Company's business. COMPETITION The Company's Protein A products compete on the basis of quality, performance, cost effectiveness, and application suitability with numerous established technologies for protein purification including ion exchange chromatography. Additional competitive products using new technologies which may be competitive to the Company's products may also be introduced. Many of the companies selling or developing competitive products have financial, manufacturing and distribution resources significantly greater than those of the Company. The field of drug discovery in which the Company is involved is characterized by rapid technological change. New developments are expected to continue at a rapid pace in both industry and 8 academia. There are many companies, both public and private, including large pharmaceutical companies, chemical companies and specialized biotechnology companies, engaged in developing products competitive with products under development by the Company. Many of these companies have greater capital, human resources and research and development, manufacturing and marketing experience than the Company and may succeed in developing products that are more effective or less costly than any that may be developed by the Company and may also prove to be more successful than the Company in production and marketing. In addition, academic, government and industry-based research is intense, resulting in considerable competition in obtaining qualified research personnel, submitting patent filings for protection of intellectual property rights and establishing corporate strategic alliances. There can be no assurance that research, discoveries and commercial developments by others will not render any of the Company's programs or potential products noncompetitive. 9 ManufacturingMANUFACTURING The Company manufactures its rProtein A(TM)A-TM- product line from a recombinant strain of E. coli.COLI. Certain fermentation and recovery operations are carried out by a third party under a supply agreement. The purification, immobilization, packaging and quality control testing of rProtein A(TM)A-TM- are conducted at the Company's facilities in Needham, Massachusetts. See "Properties." The Company maintains an active quality assurance effort to support the regulatory requirements of its customers. Government RegulationGOVERNMENT REGULATION Government regulations play a significant role in the research, development, production and commercialization of pharmaceutical, chemical and biochemical products. While the Company's rProtein A(TM) productsA-TM-products do not require FDA approval for sale, many of the Company's customers are required to obtain the approval of the FDA and similar health authorities in foreign countries for the clinical testing and commercial sale of biopharmaceuticals for human use. FDA regulations apply not only to health care products, but also to the process and production facilities used to produce such products. These regulations are called FDA current Good Manufacturing Practices ("cGMP"). The Company is often required to adopt aspects of cGMP regulations to support its customer's use of its products. In support of its customers' requirements to comply with FDA regulations regarding the use of its products, the Company strives to maintain production and documentation procedures for them that parallel certain parts of the FDA cGMP requirements. In addition to the regulatory framework for clinical trials and product approvals, the Company is subject to regulation under federal, state and local law, including requirements regarding occupational safety, laboratory practices, environmental protection and hazardous substance control, and may be subject to other present and possible future local, state, federal and foreign regulation. The Company is also subject to various laws and regulations relating to safe working conditions, laboratory and manufacturing practices, the experimental use of animals, and the use and disposal of hazardous or potentially hazardous substances, including radioactive compounds, used in connection with the Company's research. Compliance with laws and regulations relating to the protection of the environment has not had a material effect on capital expenditures or the competitive position of the Company. However, the extent of government regulation which might result from any legislative or administrative action cannot be accurately predicted. Patents, Licenses and Proprietary Rights9 PATENTS, LICENSES AND PROPRIETARY RIGHTS The Company's policy is to seek patent protection for certain of its proprietary products. The Company pursues patent protection in the United States and files corresponding patent applications in certain foreign jurisdictions. The Company believes that patent protection is an important element in the protection of its competitive and proprietary position, but other elements, including trade secrets and customer service, are of at least equal importance. The Company owns or has exclusive rights to more than 12 10 U.S. patents and corresponding foreign equivalents. In addition, the Company has 8 U.S. patent applications pending. The invalidation of key patents owned by the Company or the failure of patents to issue on pending patent applications could create increased competition, with potential adverse effects on the Company and its business prospects. The Company also relies upon trade secret protection for its confidential and proprietary information. There can be no assurance that others will not independently develop substantially equivalent proprietary information or techniques, gain access to the Company's trade secrets or disclose such technology, or that the Company can effectively protect its trade secrets. The unauthorized disclosure of the Company's trade secrets could have a material adverse effect on the Company's business. The Company's policy is to require each of its employees, consultants and significant scientific collaborators to execute confidentiality agreements upon the commencement of an employment or consulting relationship with the Company. These agreements generally provide that all confidential information developed or made known to the individual during the course of the individual's relationship with the Company is to be kept confidential and not disclosed to third parties except in specific circumstances. In the case of employees and consultants, the agreements generally provide that all inventions conceived by the individual in the course of rendering services to the Company shall be the exclusive property of the Company. There can be no assurance, however, that these agreements will provide meaningful protection or adequate remedies for the Company's trade secrets in the event of unauthorized use or disclosure of such information. Certain Factors That May Affect Future Results Additional Financing Requirements.CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS ADDITIONAL FINANCING REQUIREMENTS. The Company believes additional long-term financing will be required for the development of its drug discovery programs and bioprocessing products business and to support its future operations and capital expenditures. The Company from time to time may raise additional capital through equity or debt financing or by entering into corporate partnering arrangements; however, there can be no assurances that this funding will be made available or that terms acceptable to the Company will be reached. Potential Fluctuations in Operating Results.POTENTIAL FLUCTUATIONS IN OPERATING RESULTS. The Company's operating results may vary significantly from quarter to quarter or year to year, depending on factors such as the timing of increased research and development and sales and marketing expenses, the timing and size of product orders, the introduction of new products by the Company and the capital resources of the Company's customers. The Company's current and planned expense levels are based in part on its expectations as to future revenue. Consequently, revenue or profits may vary significantly from quarter to quarter or year to year and revenue or profits in any period will not necessarily be predictive of results in subsequent periods. There can be no assurance that the Company will achieve or maintain profitability or that its revenue growth can be sustained in the future. Dependence on Key Personnel.DEPENDENCE ON KEY PERSONNEL. The Company is highly dependent on the members of its management and scientific staff, the loss of whom could have a material adverse 11 effect on the Company. In addition, the Company believes that its future success will depend in large part upon its ability to 10 attract and retain highly skilled scientific, managerial and marketing personnel. The Company faces significant competition for such personnel from other companies, research and academic institutions, government entities and other organizations. There can be no assurance that the Company will be successful in hiring or retaining the personnel it requires for continued growth. The failure to hire and retain such personnel could materially adversely affect the Company's prospects. The Company's success will depend, in part, on attracting and maintaining key employees, successful integration of recent acquisitions, continued support from current customers, development of new customers and successful enforcement of the Company's patent and proprietary rights. Intense Competition and Risk of Technological Obsolescence.INTENSE COMPETITION AND RISK OF TECHNOLOGICAL OBSOLESCENCE. The Company encounters, and expects to continue to encounter, intense competition in the sale of its current and future products. There can be no assurance that developments by others will not render the Company's products or technologies obsolete or non-competitive. Many of the Company's competitors and potential competitors have substantially greater resources, manufacturing and marketing capabilities, research and development staff and production facilities than those of the Company. EmployeesEMPLOYEES As of May 15, 1997,29, 1998, the Company had 2024 employees. Of the 2024 employees, 1317 were engaged in research and development and manufacturing and 7 in administrative and marketing functions. Doctorates or other advanced degrees are held by 1011 of the Company's employees. Each of the Company's employees has signed a confidentiality agreement. The Company's employees are not covered by a collective bargaining agreement. ItemITEM 2: DESCRIPTION OF PROPERTY The Company's executive offices, research and manufacturing facilities are located at 117 Fourth Avenue in Needham, Massachusetts. The Company occupies approximately 13,000 square feet under a four year sublease. In May 1996 the Company's lease at One Kendall Square, Cambridge, Massachusetts expired and the Company terminated all of its operations at this facility. The 10,500 square feet of laboratory space located at 83 Rogers Street, Cambridge, Massachusetts has been subleased by the Company for the remaining term of the lease. In conjunction with the acquisition of Glycan Pharmaceuticals, Inc., the Company assumed a lease for approximately 2,000 square feet of office and laboratory space at 100 Inman Street, Cambridge, Massachusetts which terminated on September 30, 1996. ItemITEM 3: LEGAL PROCEEDINGS Not applicable. 1211 ItemITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders of the Company through solicitation of proxies or otherwise, during the last quarter of the fiscal year ended March 31, 1997.1998. EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth the names, ages and positions of the executive officers of the Company: Name Age Positions ---- --- ---------
NAME AGE POSITIONS - ------------------------------ --- ------------------------------ Walter C. Herlihy President, Chief Executive 45 Officer and Director James R. Rusche Vice President, Research and 43 Development Daniel P. Witt Vice President, Business 49 Development
WALTER C. Herlihy 45 President, Chief Executive Officer and Director James R. Rusche 43 Vice President, Research and Development Daniel P. Witt 49 Vice President, Business Development Walter C. Herlihy, Ph.D.HERLIHY, PH.D. joined the Company in March 1996 as President, Chief Executive Officer and Director in connection with the Company's merger with Glycan Pharmaceuticals, Inc. From July 1993 to March 1996, Dr. Herlihy was the President and CEO of Glycan Pharmaceuticals, Inc. From October 1981 to June 1993, he held numerous research positions at Repligen, most recently as Senior Vice President, Research and Development. Dr. Herlihy holds an A.B. degree in chemistry from Cornell University and a Ph.D. in chemistry from MIT. JamesJAMES R. Rusche, Ph.D.RUSCHE, PH.D. joined the Company in March 1996 as Vice President, Research and Development in connection with the Company's merger with Glycan Pharmaceuticals, Inc. From July 1994 to March 1996, Dr. Rusche was Vice President, Research and Development of Glycan Pharmaceuticals, Inc. From February 1985 to June 1994, he held numerous research positions at Repligen, most recently as Vice President, Discovery Research. Dr. Rusche holds a B.S. degree in microbiology from the University of Wisconsin, LaCrosse and a Ph.D. in immunology from the University of Florida. DanielDANIEL P. Witt, Ph.D.WITT, PH.D. joined the Company in March 1996 as Vice President, Business Development in connection with the Company's merger with Glycan Pharmaceuticals, Inc. From October 1993 to March 1996, Dr. Witt was Vice President, Business Development of Glycan Pharmaceuticals, Inc. From April 1983 to September 1993, he held numerous research positions at Repligen, most recently as Vice President, Technology Acquisition. Dr. Witt holds a B.A. degree in chemistry from Gettysberg College and a Ph.D. in biochemistry from the University of Vermont. 1312 PART II ItemITEM 5: MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS Market InformationMARKET INFORMATION The Company's Common Stock is traded on the Nasdaq National Market under the symbol "RGEN". The following table sets forth for the periods indicated the high and low saleclosing prices for the Common Stock as reported by Nasdaq: Fiscal Year 1996: High Low ---------------- ---- ---- First Quarter............ $3.000 $1.250 Second Quarter....... 2.125 1.188 Third Quarter.......... 1.938 .875 Fourth Quarter....... 1.688 .938 Fiscal Year 1997: ----------------- First Quarter............ $1.500 $ .938 Second Quarter....... 1.375 .500 Third Quarter.......... 1.500 1.063 Fourth Quarter.......
HIGH LOW --------- --------- FISCAL YEAR 1997: First Quarter......................................................... $ 1.484 $ .938 Second Quarter........................................................ 1.313 .500 Third Quarter......................................................... 1.484 1.063 Fourth Quarter........................................................ 1.750 1.125 FISCAL YEAR 1998: First Quarter......................................................... $ 1.500 $ 1.000 Second Quarter........................................................ 1.375 .969 Third Quarter......................................................... 1.118 .719 Fourth Quarter........................................................ 1.250 .969
On April 30, 1997,June 22, 1998, the reported closing price of the Common Stock as reported by Nasdaq was $1.50 per share. Stockholders and DividendsSTOCKHOLDERS AND DIVIDENDS As of April 30, 1997,June 22, 1998, there were approximately 1,0291,085 stockholders of record of the Company's common stock,Common Stock, excluding stockholders whose shares were held in nominee name. The Company has not paid any dividends since its inception and does not intend to pay any dividends on its Common Stock in the foreseeable future. Recent SalesRECENT SALES OF SECURITIES Pursuant to the Stock and Warrant Purchase Agreement dated as of Securities On MarchDecember 31, 1997 (the "Purchase Agreement") among the Company issued 105,000 sharesand Biotechnology Value Fund, L.P., certain of its Common Stockaffiliates, and Four Partners, L.P. (collectively, the "Purchasers"), the Purchasers invested an aggregate of $2 million in exchange for all2,000,000 shares of the outstanding commonCompany's Common Stock (the "Common Shares"), and warrants to purchase at any time prior to December 31, 2004 an aggregate of 750,000 shares of ProsCure, Inc.,Common Stock at a subsidiaryprice per share of Glycan Pharmaceuticals, Inc., the Company's wholly owned subsidiary.$1.50. The Company believes that the offer and sale of the shares were exemptCommon Shares and Warrants was made in reliance upon the exemption from registration requirementsunder section 4 (2) of the Securities Act of 1993, as amended, pursuanttransactions not involving any public offering. The Company has reason to Rule 505 ofbelieve that the Purchasers were "accredited investors" (as such term is defined in Regulation D thereunder, based upon the reliance upon the representations and warranties of the recipients.Securities Act), were familiar with and had access to information concerning the operations and financial conditions of the Company, and were acquiring the securities for investment and not with a view to the distribution thereof. No underwriter was engaged in connection with the foregoing issuance of securities. The Company intends to file a registration statement with the SEC on Form S-3 on or before June 30, 19971998 for the resale of these shares. 14the Common Shares. 13 ItemITEM 6: SELECTED CONSOLIDATED FINANCIAL DATA The following selected financial data are derived from the consolidated financial statements of the Company which have been audited by Arthur Andersen LLP, independent public accountants. The selected financial data set forth below should be read in conjunction with the consolidated financial statements of the Company and the related notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this report.
Years Ended MarchYEARS ENDED MARCH 31, ----------------------------------------------------------------------------------------------------------------------------------------- 1998 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- (In thousands, except per share amounts) Operating Statement Data:--------- --------- --------- --------- --------- (IN THOUSANDS , EXCEPT PER SHARE AMOUNTS) OPERATING STATEMENT DATA: Revenues: Research and developmentdevelopment........................ $ 917 $ 1,180 $ 7,949 $ 10,988 $ 19,392 $ 21,444 ProductProduct......................................... 1,114 1,554 1,874 3,885 4,947 2,113 Investment and otherother............................ 354 1,068 1,036 2,069 2,494 3,765 -------- -------- --------- -------- --------- --------- --------- --------- 2,385 3,802 10,859 16,942 26,833 27,322 -------- -------- --------- ----------------- --------- --------- --------- Costs and expenses: Research and developmentdevelopment........................ 1,420 1,378 11,980 31,012 35,919 30,705 Cost of goods soldproduct sales........................... 480 537 1,516 1,535 3,933 1,194 Selling, general and administrativeadministrative............. 1,281 1,940 4,925 4,673 6,206 6,710 Restructuring charge (credit)..................... -- (111) 3,567 11,300 -- -- Charge for acquired research and developmentdevelopment.... -- 549 334 -- -- Interest........................................ -- Interest -- 58 372 312 -- -------- -------- --------- ----------------- --------- --------- --------- Total costs and expensesexpenses........................ 3,181 4,293 22,380 48,892 46,370 38,609 -------- -------- --------- ----------------- --------- --------- --------- Net lossloss........................................ $ (796) $ (491) $ (11,521) $ (31,950) $(19,537) $ (11,287) ======= ========= ========= ======== =========(19,537) --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Net loss per common shareshare....................... $ (0.05) $ (0.03) $ (0.75) $ (2.08) $ (1.53) $ (0.93) ======= ========= ========= ======== =========--------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Weighted average common shares outstandingoutstanding........ 16,502 15,678 15,370 15,356 12,788 12,085 ======= ========= ========= ======== =========--------- --------- --------- --------- --------- --------- --------- --------- --------- --------- 1998 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- (In thousands) ----------------------------------------------------------------------------------- Balance Sheet Data:--------- --------- --------- --------- --------- (IN THOUSANDS) BALANCE SHEET DATA: Cash and investmentsinvestments............................ $ 4,726 $ 3,538 $ 7,222 $ 15,302 $ 29,215 $ 40,090 Working capitalcapital................................. 5,377 3,990 4,154 9,070 32,517 31,026 Total assetsassets.................................... 6,513 5,621 9,231 31,330 59,611 63,483 Long-term debtdebt.................................. -- -- -- -- 4,620-- Accumulated deficit (123,533)deficit............................. (124,320) (123,524) (123,042) (111,520) (79,570) (60,033) Stockholders' equityequity............................ 6,124 4,919 4,809 15,576 46,737 48,877
15 ItemITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Repligen is a biopharmaceutical company engaged in the research and development of technologies for drug discovery. The Company also devotes a portion of its resources to proprietary drug discovery projects. In addition, the Company receives income from the sale of products that are manufactured by the Company and from its investments. The Company has incurred operating losses since its inception in 1981. As of March 31, 1997,1998, its accumulated deficit was $123,533,000.$124,320,000. During fiscal 1996, the Company completed a major downsizing and restructuring of its activities, including the termination of certain research programs, which significantly reduced its level of operating expenses and its cash burn rate. These actions were completed in an effort to stabilize Repligen's financial condition and preserve its cash resources. As a result of the reduction of operating expenses and restructuring of its activities, theThe Company believes it has adequate cash reserves at March 31, 19971998 to finance its operations at their current levels for at least the next twenty-four months. Results14 RESULTS OF OPERATIONS FISCAL YEAR ENDED MARCH 31, 1998 COMPARED WITH FISCAL YEAR ENDED MARCH 31, 1997 REVENUES. Total revenues for fiscal 1998 were $2,385,000 as compared to $3,802,000 in fiscal 1997, a decrease of operations Fiscal Year Ended$1,417,000. Research and development revenues for fiscal 1998 totaled $917,000, including revenues relating to drug discovery collaboration arrangements with pharmaceutical partners, licensing revenue, receipt of a milestone payment, and revenue generated from two Phase I Small Business Innovation Research (SBIR) grants from the National Institutes of Health. The reduction in research and development revenues of $263,000 or 22% from fiscal 1997 levels is primarily attributable to the termination of its collaborations with Eli Lilly and Company ("Lilly") and Repligen Clinical Partners, L.P. (the "Partnership"). Product revenues for fiscal 1998 were $1,114,000 compared to $1,554,000 in fiscal 1997. The decrease in the product sales volume is largely attributed to the timing of large production scale orders of Protein A offset by an increase in sales of reagent products. Investment income decreased by $44,000 from fiscal 1997 levels due primarily to lower average funds available for investment during fiscal 1998. Other revenues for the fiscal 1998 period decreased by approximately $660,000 from the comparable fiscal 1997 period primarily due to the one-time sale of equipment and furnishings by the Company for $317,000 and the one-time sale of non-investment securities held by the Company for approximately $300,000 as part of the restructuring. EXPENSES. During fiscal 1998, total expenses of $3,181,000 were significantly lower than fiscal 1997 expenses of $4,293,000. Higher level of expenses in fiscal 1997 was primarily a result in expenditures associated with the Company's former facility in Cambridge. Research and development expenses for fiscal 1998, totaling $1,420,000, increased by $41,000, or 3%, from fiscal 1997 levels. The Company anticipates that research and development expenses will continue to increase significantly as the Company increases its investment in internal drug discovery programs during fiscal 1999. Cost of product sales for fiscal 1998 decreased by $57,000 from the prior fiscal year. Cost of product sales in fiscal 1998 were 43% of product revenues versus 35% of product revenues for fiscal 1997. The decrease is the result of a change in product mix between fiscal years and the result of the realization of inventory in fiscal 1997 that had previously been reserved for in fiscal 1996. Selling, general and administrative expenses for fiscal 1998 were $1,281,000, a decrease from fiscal 1997 of $659,000. This decrease is a result of the Company's restructuring efforts that took place during fiscal 1997 and 1996. As a result of the Company's relocation to smaller office and laboratory space, the Company has realized savings in rent and related facility costs. In addition, this decrease in expenses is a result the reduction of administrative personnel and related expenses that took place during fiscal 1997. In the year ended March 31, 1997, Comparedthe Company acquired, in exchange for the Company's common stock, all of the outstanding shares of ProsCure, Inc., a subsidiary of Glycan Pharmaceuticals, Inc. ("Glycan"). ProsCure has licensed the rights to certain drug discovery technologies and lead compounds for application to the field of cancer from Glycan, a wholly owned subsidiary of the Company. Since the technology acquired will require further development by the Company, this acquisition was accounted for as a purchase, with Fiscal Year Ended Marchthe excess of the purchase price and acquisition costs over the fair value of the assets acquired of approximately $549,000, charged to operations. FISCAL YEAR ENDED MARCH 31, 1997 COMPARED WITH FISCAL YEAR ENDED MARCH 31, 1996 Revenues.REVENUES. Total revenues for fiscal 1997 were $3,802,000 as compared to $10,859,000 in fiscal 1996, a decrease of $7,057,000. Research and development revenues for fiscal 1997, totaling 15 $1,180,000, decreased by $6,769,000 or 85% from fiscal 1996 levels. This decrease reflects reduced revenues from its collaborations with Eli Lilly and Company ("Lilly") and Repligen Clinical Partners, L.P. (" the Partnership"(the "Partnership"). Lilly terminated its collaboration and licensing agreement with the Company in September 1995, with respect to the joint development of the CD11b program. Under the terms of the agreement, the entire CD11b program, including preclinical and clinical data packages for product candidates, were returned to the Company. Revenues recognized under the Lilly agreement totaled $62,000 in fiscal 1997 and $2,613,000 in fiscal 1996. The decrease in funding from the Partnership reflects a decrease in billings based on the lack of resources of the Partnership and the Company's termination of its arrangement with the Partnership regarding the development and marketing of the rPF4 program in April 1996. Research and development revenues recognized under the rPF4 program totaled $190,000 and $2,693,000 in fiscal 1997 and fiscal 1996, respectively. In addition, during fiscal 1996, a one-time $2,000,000 fee was paid by Genetics Institute, Inc. for the assignment of intellectual property and the transfer of certain reagents associated with the Company's immune modulation technology and a one-time $525,000 license fee was paid by Genentech, Inc. to sublicense the Company's patent rights for CD11a and CD18. Product revenues for fiscal 1997 were $1,554,000 compared to $1,874,000 in fiscal 1996. The decrease of $320,000 or 17% was due to the discontinuance by Repligen of contract manufacturing and sales of diagnostic reagents that took place during fiscal year 1996. During fiscal year 1996 contract service revenues and sales of diagnostic reagents of $758,000 were generated by the Company. This reduction was offset by an increase in product sales volume of the Company's rProtein A(TM)A-TM- and reagent products in fiscal year 1997. 16 Investment income decreased by $469,000 from fiscal 1996 levels due primarily to lower average funds available for investment in fiscal 1997. Other revenues for the fiscal 1997 period increased by $501,000 from the comparable fiscal 1996 period primarily due to the one-time sale of equipment and furnishings by the Company for $317,000 and the one-time sale of non-investment securities held by the Company for approximately $300,000, offset by the decrease in management fees received from the Partnership. Expenses.EXPENSES. During fiscal 1997, total expenses of $4,293,000 were significantly lower than fiscal 1996 expenses of $22,380,000. This decrease resulted from the Company's restructuring in 1996.1996 and 1997. During the fourth quarter of fiscal 1996, the Company substantially downsized and consolidated its operations in order to stabilize the Company's financial condition and preserve its cash reserves. In fiscal 1996, the Company recorded a charge of $3,567,000 to cover severance costs and related benefits, the settlement of equipment and facility lease obligations and the write-off of certain leasehold improvements and equipment no longer being utilized, reduced in part by cash received from the sale of assets and the reversal of certain accruals no longer required due to the downsizing. The total restructuring charge of $3,567,000 included cash related expenditures of $1,246,000 and a non-cash charge of $2,321,000. The non-cash charge related to the write-off of leasehold improvements and equipment no longer being utilized, offset by the reversal of accruals no longer required. (See Note 11 of Notes to Consolidated Financial Statements. )Statements). In May 1996, the Company relocated its operations from an approximately 97,000 square facility in Cambridge, Massachusetts to approximately 13,000 square feet of subleased office and laboratory space in Needham, Massachusetts. This move has resulted in substantial savings in rent and related facility costs. If the move had been effective as of April 1, 1996, facility related expensesrent expense during the year ended March 31, 1997 would have been lower by approximately $381,000. 16 Research and development expenses for fiscal 1997, totaling $1,378,000, decreased by $10,602,000, or 88%, from fiscal 1996 levels. The decrease in expenses reflects a reduction in research and development headcount and related expenses, decreased development activities, lower expenditures for clinical trials and the Company's efforts to reduce costs. The Company anticipates that expenses will remain at the current level until additional research and development funding has been obtained. Cost of goods soldproduct sales for fiscal 1997 decreased by $979,000 from the prior fiscal year. Cost of goods soldproduct sales in fiscal 1997 were 35% of product revenues versus 81% of product revenues for fiscal 1996. The decrease is the result of a change in product mix between fiscal years and is attributable to lower margins experienced on contract service revenues in fiscal 1996 and the result of the realization of inventory in fiscal 1997 that had previously been reserved for in fiscal 1996. Selling, general and administrative expenses for fiscal 1997 were $1,940,000, a decrease from fiscal 1996 of $2,985,000. This decrease resulted from the reduction of administrative personnel and related expenses as part of the Company's cost reduction efforts. Interest expense for fiscal 1996 reflects interest incurred by the Company through May 1995 when its term loan with a bank was paid in full. In the year ended March 31, 1997, the Company acquired, in exchange for the Company's common stock, all of the outstanding shares of ProsCure, Inc., a subsidiary of Glycan Pharmaceuticals, Inc. ("Glycan"). ProsCure has licensed the rights to certain drug 17 discovery technologies and lead compounds for application to the field of cancer from Glycan, a wholly owned subsidiary of the Company. Since the technology acquired will require further development by the Company, this acquisition was accounted for as a purchase, with the excess of the purchase price and acquisition costs over the fair valued of the assets acquired, charged to operations of approximately $549,000. In the year ended March 31, 1996, the Company issued 243,600 shares of its common stock for all of the common stock of Glycan Pharmaceuticals, Inc. ("Glycan"). The acquisition was accounted for as a purchase, with the excess of the purchase price and acquisition costs over the fair value of the assets acquired of approximately $334,000 charged to operations as the cost of acquired research and development. Fiscal Year Ended March 31, 1996 Compared with Fiscal Year Ended March 31, 1995 Revenues. Total revenues for fiscal 1996 were $10,859,000 as compared to $16,942,000 in fiscal 1995, a decrease of $6,083,000. Research and development revenues for fiscal 1996, totaling $7,949,000, decreased by $3,040,000 or 28% from fiscal 1995 levels. This decrease reflects reduced product development funding from Lilly with respect to the Company's inflammation inhibition (CD11b) program and from the Partnership with respect to rPF4, offset in part by a $2,000,000 fee paid by Genetics Institute, Inc. in September 1995 for the assignment of intellectual property and the transfer of certain reagents associated with the Company's immune modulation technology and a $525,000 license fee paid by Genentech, Inc. in December 1995 for the exclusive sublicense to make and sell antibody fragments, engineered peptides and other small molecules that bind to CD18 and CD11a. The decrease in funding from Lilly in fiscal 1996 was due to the termination of the CD11b program. Lilly terminated its collaboration and licensing agreement with the Company in September 1995, with respect to the joint development of the CD11b program. Under the terms of the agreement, the entire CD11b program, including preclinical and clinical data packages for product candidates m60.1 and h60.1, were returned to the Company. Revenues recognized under the Lilly agreement totaled $2,613,000 in fiscal 1996. The decrease in funding from the Partnership reflects a decrease in billings based on lower levels of research activity and a decrease in the need for process development and manufacturing activity and a lack of resources of the Partnership, limiting the Partnership's ability to fund the rPF4 program. Research and development revenues recognized under the rPF4 program totaled $2,693,000 in fiscal 1996. Product revenues for fiscal 1996 were $1,874,000 compared to $3,885,000 in fiscal 1995. The decrease of $2,011,000 or 52% was due to a reduction in product sales volume of the Company's rProtein A(TM) and diagnostic reagent products by $590,000, sales of product to Hoffmann-LaRoche and Abbott Laboratories totaling $2,049,000 in fiscal 1995 which were not realized in fiscal 1996, offset in part by the recognition of contract service revenues of $549,000 generated by the Company. Investment income decreased by $687,000 from fiscal 1995 levels due primarily to lower average funds available for investment in fiscal 1996. Other revenues for the fiscal 1996 period decreased by $346,000 from fiscal 1995 due primarily to a decrease in management fees received from the Partnership. 18 Expenses. During fiscal 1996, the Company substantially downsized and consolidated its operations in order to stabilize the Company's financial condition and preserve its cash reserves. During the fourth quarter, the Company recorded a charge of $3,567,000 to cover severance costs and related benefits, the settlement of equipment and facility lease obligations and the write-off of certain leasehold improvements and equipment no longer being utilized, reduced in part by cash received from the sale of assets and the reversal of certain accruals no longer required due to the downsizing. The total restructuring charge of $3,567,000 included cash related expenditures of $1,246,000 and a non-cash charge of $2,321,000. The non-cash charge related to the write-off of leasehold improvements and equipment no longer being utilized, offset by the reversal of accruals no longer required. (See Note 11 of Notes to Consolidated Financial Statements.) Research and development expenses for fiscal 1996, totaling $11,980,000, decreased by $19,032,000, or 61%, from fiscal 1995 levels. The decrease in expenses reflects a reduction in research and development headcount and related expenses, decreased development activities, lower expenditures for clinical trials and the Company's efforts to reduce costs. Cost of goods sold for fiscal 1996 decreased by $20,000 from the prior fiscal year. Cost of goods sold in fiscal 1996 were 80% of product revenues versus 40% of product revenues for fiscal 1995. The increase in this percentage is the result of a change in product mix between fiscal years and is attributable to lower margins experienced on contract service revenues in fiscal 1996 and the write-off of products no longer being sold. Selling, general and administrative expenses for fiscal 1996, totaling $4,925,000, increased $251,000 from fiscal 1995 due primarily to increases in legal expenses and employee retention costs offset in part by a decrease in administrative personnel and related expenses as part of the Company's cost reduction efforts. Interest expense for fiscal 1996 reflects interest incurred by the Company through May 1995 when its term loan with a bank was paid in full and the decrease from the comparable fiscal 1995 period reflects a full twelve months of interest incurred in fiscal 1995. In the year ended March 31, 1996, the Company issued 243,600 shares of its common stock for all of the common stock of Glycan Pharmaceuticals, Inc. ("Glycan"). The acquisition was accounted for as a purchase, with the excess of the purchase price and acquisition costs over the fair value of the assets acquired of approximately $334,000 charged to operations as the cost of acquired research and development. Liquidity and Capital ResourcesLIQUIDITY AND CAPITAL RESOURCES The Company's total cash, cash equivalents and marketable securities decreasedincreased to $4,726,000 at March 31, 1998 from $3,538,000 at March 31, 1997. The increase reflects $2,000,000 of proceeds (before expenses) resulting from the sale of Common Stock and Warrants through a private placement that took place on December 31, 1997 from $7,222,000 atand a reduction of accounts receivable and prepaid expenses of $331,000. This increase in cash was offset by the net losses incurred in the year ended March 31, 1996. This decrease is primarily due to1998 of approximately $796,000, an increase in inventory of $219,000 resulting from increased manufacturing and the reductions in payablesdevelopment and accrualsproduction of $3,699,000.new Protein A products during fiscal 1998, and the reduction of accounts payable and accrued expenses of $181,000. Working capital decreasedincreased to $5,635,000 at December 31, 1997 from $3,990,000 at March 31, 1997 from $4,154,000 at March 31, 1996.1997. Capital expenditures for fiscal 1998 and 1997 were $114,000 and 1996 were $429,000, and $463,000, respectively. The capital expenditures in both fiscal 1998 and fiscal 1997 primarily reflect the leasehold 19 improvements for the newly leased space and the purchase of research and development equipment. During the fiscal year ended March 31, 1998, the Company entered into a $450,000 note receivable with a licensee for past due licensing fees. As the Company has historically recorded licensing fees under this agreement on a cash basis, the Company has not recorded this note receivable as an asset. The note requires full payment of principal and interest in August 1998. The Company will continue to record this license fee on a cash basis. 17 The Company has entered into agreements with a number of collaborative partners and licensees. Under the terms of these agreements, the Company may be eligible to receive research support, additional milestones or royalty revenue if these collaborations continue to clinical evaluation and commercialization. The Company can not be assured of the continuation of these collaborations and any future payments. The Company has funded operations primarily with cash derived from the sales of its equity securities, revenue derived from research and development contracts, product sales and investment income andincome. While the saleCompany anticipates that its cost of operations will increase in fiscal 1999 as it continues to expand its investment in proprietary product development, the Company's share of a joint venture. The Company believes it has sufficient cash equivalents and marketable securities to satisfy its working capital and capital expenditure requirements for the next twenty-four months. Should the Company need to secure additional financing to meet its future liquidity requirements, there can be no assurances that the Company will be able to secure such financing, or that such financing, if available, will be on terms favorable to the Company. ManagementThe Company has completed an assessment of its exposure to the "Year 2000" computer problem. Based on this assessment, the Company believes that no critical software systems of the Company will be impacted by this situation. Systems currently used by the Company are already "Year 2000" compliant. Although the Company believes that it is taking appropriate precautions against disruption of its system due to the "Year 2000" problem, there can be no assurance that the Company's suppliers and customers will not be adversely affected by the "Year 2000" problem. Nonetheless, the Company believes that the "Year 2000" issue will not have a material impact on the Company's currentbusiness operations are not materially impactedor financial condition. On February 23, 1998, Nasdaq initiated new requirements for listing on the Nasdaq National Market. Currently, the Company believes it is in compliance with all of the new requirements. There can be no assurance, however, that the Company will be able to continue to satisfy all the requirements issued by Nasdaq or that the effectsCompany's Common Stock will continue to be listed on the Nasdaq National Market. Should it occur, the delisting of inflation. Itemthe Company's Common Stock from the Nasdaq National Market could have a material adverse effect on the Company's business, results of operations and financial condition. ITEM 8: FINANCIAL STATEMENTS All financial statements required to be filed hereunder are filed as an exhibit hereto, are listed under item 14 (a) (1) and are incorporated herein by reference. ItemITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ItemITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information regarding the Company's directors will be set forth under the captions "Elections of Directors" and "The Board of Directors and its Committees" in the Company's definitive proxy statement for its annual meeting of stockholders to be held on July 24, 1997September 10, 1998 which will be filed with the Securities and Exchange Commission within 120 days of March 31, 19971998 and is incorporated herein by reference. 18 Information regarding the Company's executive officers is contained in Part 1I of this report. ItemITEM 11. EXECUTIVE COMPENSATION Information regarding the Company's directors will be set forth under the caption "Executive Compensation" in the Company's definitive proxy statement for its annual meeting of stockholders to be held on July 24, 1997September 10, 1998 which will be filed with the Securities and Exchange Commission within 120 days of March 31, 19971998 and is incorporated herein by reference. 20 ItemITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information regarding the Company's directors will be set forth under the caption "Security Ownership Ofof Certain Beneficial Owners And Management" in the Company's definitive proxy statement for its annual meeting of stockholders to be held on July 24, 1997September 10, 1998 which will be filed with the Securities and Exchange Commission within 120 days of March 31, 19971998 and is incorporated herein by reference. ItemITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information regarding the Company's directors will be set forth under the caption "Certain Relationships Andand Related Transactions" in the Company's definitive proxy statement for its annual meeting of stockholders to be held on July 24, 1997September 10, 1998 which will be filed with the Securities and Exchange Commission within 120 days of March 31, 19971998 and is incorporated herein by reference. PART IV ItemITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K The following documents are filed as part of this Annual Report on Form 10-K: (a) (1) Financial Statements: -------------------- The consolidated financial statements required by this item are submitted in a separate section beginning on page F-2 of this Report, as follows: Page Report of Independent Accountants............................................F-2 Consolidated Balance Sheets as of March 31, 1997 and 1996....................F-3 Consolidated Statements of Operations for Years Ended March 31, 1997, 1996, 1995.................................................F-4 Consolidated Statements of Stockholders' Equity for Years Ended March 31, 1997, 1996, 1995.................................................F-5 Consolidated Statements of Cash Flows for Years Ended March 31, 1997, 1996, 1995.................................................F-6 Notes to Consolidated Financial Statements...................................F-7
PAGE ----- Report of Independent Accountants.............................................................. F-2 Consolidated Balance Sheets as of March 31, 1998 and 1997...................................... F-3 Consolidated Statements of Operations for the Years Ended March 31, 1998, 1997 and 1996........ F-4 Consolidated Statements of Stockholders' Equity for the Years Ended March 31, 1998, 1997, and 1996......................................................................................... F-5 Consolidated Statements of Cash Flows for the Years Ended March 31, 1998, 1997 and 1996........ F-6 Notes to Consolidated Financial Statements..................................................... F-7
(a) (2) Index to Financial Statement Schedules: --------------------------------------- 1. Schedule II - Valuation and Qualifying Accounts 2. Other financial statement schedules are omitted as the required information is either presented in the financial statements or related notes thereto. (a) (3) Exhibits: --------- The Exhibits which are filed as part of this Annual Report or which are incorporated by reference are set forth in the Exhibit Index hereto. 21 (b) Reports on Form 8-K: -------------------- No Current Reports on Form 8-K were filed by the Company during the last quarter of the period covered by this report. 19 EXHIBIT INDEX ------------- Exhibit Number Document Description - - ------ -------------------- 3. Articles of Incorporation and By-Laws 3.1* Restated Certificate of Incorporation, dated June 30, 1992 and filed July 13, 1992 (filed as Exhibit 4.12 to Repligen Corporation's Annual Report on Form 10-K for the year ended March 31, 1993 and incorporated herein by reference). 3.2* By-laws (filed as Exhibit 3.4 to Repligen Corporation's Form S-1 Registration Statement No. 33-3959 and incorporated herein by reference). 4. Instruments Defining the Rights of Security Holders 4.1* Specimen Stock Certificate (filed as Exhibit 4.2 to Repligen Corporation's Form S-1 Registration Statement No. 33-3959 and incorporated herein by reference). 4.2* Form of Limited Partner Warrant, dated as of February 28, 1992 (filed as Exhibit 4.9 to Repligen Corporation's Annual Report on Form 10-K for the year ended March 31, 1992 and incorporated herein by reference). 4.3* Form of Class B Limited Partner Warrant, dated as of February 28, 1992 (filed as Exhibit 4.10 to Repligen Corporation's Annual Report on Form 10-K for the year ended March 31, 1992 and incorporated herein by reference). 4.4* Form of Incentive Warrant, dated as of February 28, 1992 (filed as Exhibit 4.11 to Repligen Corporation's Annual Report on Form 10-K for the year ended March 31, 1992 and incorporated herein by reference). 4.5* Form of Fund Warrant, dated as of February 28, 1992 (filed as Exhibit 4.12 to Repligen Corporation's Annual Report on Form 10-K for the year ended March 31, 1992 and incorporated herein by reference). 4.6* The 1992 Repligen Corporation Stock Option Plan (filed as Exhibit 4.12 to Repligen Corporation's Annual Report on Form 10-K for the year ended March 31, 1993 and incorporated herein by reference). 4.7* The Amended 1992 Repligen Corporation Stock Option Plan, adopted by the stockholders on September 10, 1996 (filed as Exhibit 4.1 to Repligen Corporation's Annual Report on Form 10-K for the year ended March 31, 1997 and incorporated herein by reference). 22 10. Material Contracts 10.1* License Agreement, dated December 2, 1980, between the Trustees of Leland Stanford Junior University and Repligen Corporation (filed as Exhibit 10.1 to Repligen Corporation's Form S-1 Registration Statement No. 33-3959 and incorporated herein by reference). 10.2* Consulting Agreement, dated October 1, 1981, between Dr. Paul Schimmel and Repligen Corporation (filed as Exhibit 10.14 to Repligen Corporation's Form S-1 Registration Statement No. 33-3959 and incorporated herein by reference). 10.3* Consulting Agreement, dated November 1, 1981, between Dr. Alexander Rich and Repligen Corporation (filed as Exhibit 10.15 to Repligen Corporation's Form S-1 Registration Statement No. 33-3959 and incorporated herein by reference). 10.4* License Agreement, dated November 14, 1990, between the Regents of the University of Michigan and Repligen Corporation (filed as Exhibit 10.27 to Repligen Corporation's Annual Report on Form 10-K for the year ended March 31, 1991 and incorporated herein by reference). 10.5* Product Development Agreement, dated as of February 2, 1992, between Repligen Corporation and Repligen Clinical Partners, L.P. (filed as Exhibit 10.29 to Repligen Corporation's Annual Report on Form 10-K for the year ended March 31, 1992 and incorporated herein by reference). 10.6* Purchase Agreement, dated February 2, 1992, between Repligen Corporation and each of the Limited Partners from time to time of Repligen Clinical Partners, L.P. (filed as Exhibit 10.30 to Repligen Corporation's Annual Report on Form 10-K for the year ended March 31, 1992 and incorporated herein by reference). 10.7* License Agreement, dated as of September 1, 1991, by and between Repligen Corporation and Kabi Pharmacia AB (filed as Exhibit 10.37 to Repligen Corporation's Annual Report on Form 10-K for the year ended March 31, 1992 and incorporated herein by reference). 10.8*
EXHIBIT NUMBER DOCUMENT DESCRIPTION - ----------- ----------------------------------------------------------------------------------------------------------------- 3. Articles of Incorporation and By-Laws 3.1 * Restated Certificate of Incorporation, dated June 30, 1992 and filed July 13, 1992 (filed as Exhibit 4.12 to Repligen Corporation's Annual Report on Form 10-K for the year ended March 31, 1993 and incorporated herein by reference). 3.2 * By-laws (filed as Exhibit 3.4 to Repligen Corporation's Form S-1 Registration Statement No. 33-3959 and incorporated herein by reference). 4. Instruments Defining the Rights of Security Holders 4.1 * Specimen Stock Certificate (filed as Exhibit 4.2 to Repligen Corporation's Form S-1 Registration Statement No. 33-3959 and incorporated herein by reference). 4.2 + Form of Limited Partner Warrant, dated as of February 28, 1992. 4.3 + Form of Modified Limited Partner Warrant, dated as of February 28, 1992. 4.4 * Form of Amended and Restated Limited Partner Warrant (filed as Exhibit 4.13 to Repligen Corporation's Form S-4 Registration Statement No. 33-76830 and incorporated herein by reference). 4.5 * Form of Amended and Restated Class B Limited Partner Warrant (filed as Exhibit 4.14 to Repligen Corporation's Form S-4 Registration Statement No. 33-76830 and incorporated herein by reference). 4.6 * Form of Amended and Restated Fund Warrant (filed as Exhibit 4.15 to Repligen Corporation's Form S-4 Registration Statement No. 33-76830 and incorporated herein by reference). 4.7 * Form of Stock Purchase Warrant (filed as Exhibit 4.1 to Repligen Corporation's Quarterly Report on Form 10-Q for the quarter ended December 31, 1997 and incorporated herein by reference). 10. Material Contracts 10.1 * Consulting Agreement, dated October 1, 1981, between Dr. Paul Schimmel and Repligen Corporation (filed as Exhibit 10.14 to Repligen Corporation's Form S-1 Registration Statement No. 33-3959 and incorporated herein by reference). 10.2 * Consulting Agreement, dated November 1, 1981, between Dr. Alexander Rich and Repligen Corporation (filed as Exhibit 10.15 to Repligen Corporation's Form S-1 Registration Statement No. 33-3959 and incorporated herein by reference). 10.3 * The 1992 Repligen Corporation Stock Option Plan (filed as Exhibit 4.12 to Repligen Corporation's Annual Report on Form 10-K for the year ended March 31, 1993 and incorporated herein by reference). 10.4 * Plan of Reorganization and Agreement of Merger, dated March 14, 1996, between Repligen Corporation and Glycan Pharmaceuticals, Inc. (omitting schedules and exhibits) (filed as Exhibit 10.42 to Repligen Corporation's Annual Report on Form 10-K for the year ended March 31, 1996 and incorporated herein by reference). 10.9* Employment Agreement, dated March 14, 1996, between Repligen Corporation and Walter C. Herlihy (filed as Exhibit 10.43 to Repligen Corporation's Annual Report on Form 10-K for the year ended March 31, 1996 and incorporated herein by reference). 23
20 10.10* Employment Agreement, dated March 14, 1996, between Repligen Corporation and James R. Rusche (filed as Exhibit 10.44 to Repligen Corporation's Annual Report on Form 10-K for the year ended March 31, 1996 and incorporated herein by reference). 10.11* Employment Agreement, dated March 14, 1996, between Repligen Corporation and Daniel P. Witt (filed as Exhibit 10.45 to Repligen Corporation's Annual Report on Form 10-K for the year ended March 31, 1996 and incorporated herein by reference). 10.12* Sublease Agreement dated as of May 1, 1996 between T Cell Sciences, Inc. and Repligen Corporation (filed as Exhibit 10.46 to Repligen Corporation's Annual Report on Form 10-K for the year ended March 31, 1996 and incorporated herein by reference). 10.13* Stock Exchange Agreement dated as of December 18, 1996 between ProsCure, Inc. Shareholders and Repligen Corporation (filed as Exhibit 10.1 to Repligen Corporation's Quarterly Report on Form 10-Q for the quarter ended December 31, 1996 and incorporated herein by reference). 10.14* Warrant Exchange Agreement dated as of December 18, 1996 between ProsCure, Inc. Warrant holders and Repligen Corporation (filed as Exhibit 10.2 to Repligen Corporation's Quarterly Report on Form 10-Q for the quarter ended December 31, 1996 and incorporated herein by reference). 21+ Subsidiaries of Repligen Corporation. 23+ Consent of Arthur Andersen LLP 27+ Financial Data Schedule
EXHIBIT NUMBER DOCUMENT DESCRIPTION - ----------- ----------------------------------------------------------------------------------------------------------------- 10.5 * Employment Agreement, dated March 14, 1996, between Repligen Corporation and Walter C. Herlihy (filed as Exhibit 10.43 to Repligen Corporation's Annual Report on Form 10-K for the year ended March 31, 1996 and incorporated herein by reference). 10.6 * Employment Agreement, dated March 14, 1996, between Repligen Corporation and James R. Rusche (filed as Exhibit 10.44 to Repligen Corporation's Annual Report on Form 10-K for the year ended March 31, 1996 and incorporated herein by reference). 10.7 * Employment Agreement, dated March 14, 1996, between Repligen Corporation and Daniel P. Witt (filed as Exhibit 10.45 to Repligen Corporation's Annual Report on Form 10-K for the year ended March 31, 1996 and incorporated herein by reference). 10.8 * Sublease Agreement dated as of May 1, 1996 between T Cell Sciences, Inc. and Repligen Corporation (filed as Exhibit 10.46 to Repligen Corporation's Annual Report on Form 10-K for the year ended March 31, 1996 and incorporated herein by reference). 10.9 * The Amended 1992 Repligen Corporation Stock Option Plan, adopted by the stockholders on September 10, 1996 (filed as Exhibit 4.1 to Repligen Corporation's Annual Report on Form 10-K for the year ended March 31, 1997 and incorporated herein by reference). 10.10 * Stock Exchange Agreement dated as of December 18, 1996 between ProsCure, Inc. Shareholders and Repligen Corporation (filed as Exhibit 10.1 to Repligen Corporation's Quarterly Report on Form 10-Q for the quarter ended December 31, 1996 and incorporated herein by reference). 10.11 * Warrant Exchange Agreement dated as of December 18, 1996 between ProsCure, Inc. Warrant holders and Repligen Corporation (filed as Exhibit 10.2 to Repligen Corporation's Quarterly Report on Form 10-Q for the quarter ended December 31, 1997 and incorporated herein by reference). 10.12 * Stock and Warrant Purchase Agreement dated as of December 31, 1997 among the Company and Biotechnology Value Fund, L.P., certain of its affiliates, and Four Partners, L.P. and Repligen Corporation (filed as Exhibit 10.1 to Repligen Corporation's Quarterly Report on Form 10-Q for the quarter ended December 31, 1997 and incorporated herein by reference). 21 + Subsidiaries of Repligen Corporation. 23 + Consent of Arthur Andersen LLP. 27 + Financial Data Schedule.
- - ----------------------------------- * Previously filed with the Securities and Exchange Commission and Incorporated herein by reference. + Filed herewith. The exhibits listed above are not contained in the copy of the annual report on Form 10-K distributed to stockholders. Upon the request of any stockholder entitled to vote at the 19971998 annual meeting, the Registrant will furnish that person without charge a copy of any exhibits listed above. Requests should be addressed to Repligen Corporation, 117 Fourth Avenue, Needham, MA 02194. 2402494. 21 SIGNATURES 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. REPLIGEN CORPORATION By: /s/ Walter C. Herlihy Walter C. Herlihy, President and Chief Executive Officer Date: May 22, 1997 REPLIGEN CORPORATION By: /s/ WALTER C. HERLIHY ------------------------------------------ Walter C. Herlihy, PRESIDENT AND CHIEF EXECUTIVE OFFICER Date: June 25, 1998
POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below hereby makes, constitutes and appoints Walter C. Herlihy and Daniel P. Witt, and each of them, with full power to act without the other, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities to sign any or all amendments to this Form 10-K, and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents of any of them, or any substitute or substitutes, lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date - - --------- ----- ---- Co-Chairman of the Board of Directors May 22,1997 /s/ Alexander Rich Alexander Rich, M.D. Co-Chairman of the Board of Directors May 22, 1997 /s/ Paul Schimmel Paul Schimmel, Ph.D. President, Chief Executive Officer and Director May 22, 1997 /s/ Walter C. Herlihy (Principal Financial and Accounting Officer) Walter C. Herlihy Director May 22, 1997 /s/ G. William MillerSIGNATURE TITLE DATE - ------------------------------ --------------------------- ------------------- /s/ ALEXANDER RICH Co-Chairman of the Board of - ------------------------------ Directors June 25, 1998 Alexander Rich, M.D. /s/ PAUL SCHIMMEL Co-Chairman of the Board of - ------------------------------ Directors June 25, 1998 Paul Schimmel, Ph.D. President, Chief Executive /s/ WALTER C. HERLIHY Officer and Director - ------------------------------ (Principal Financial and June 25, 1998 Walter C. Herlihy Accounting Officer) /s/ G. WILLIAM MILLER Director - ------------------------------ June 25, 1998 G. William Miller
2522 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page ----
PAGE ----------- Report of Independent Public Accountants F-2 Consolidated Balance Sheets as of Independent Public Accountants F-2 Consolidated Balance Sheets at March 31, 1998 and 1997 F-3 Consolidated Statements of Operations for the Years Ended March 31, 1998, 1997 F-4 and 1996 Consolidated Statements of Stockholders' Equity for the Years Ended March 31, F-5 1998, 1997 and 1996 Consolidated Statements of Cash Flows for the Years Ended March 31, 1998, 1997 F-6 and 1996 F-3 Consolidated Statements of Operations for Years Ended March 31, 1997, 1996 and 1995 F-4 Consolidated Statements of Stockholders' Equity for Years Ended March 31, 1997, 1996 and 1995 F-5 Consolidated Statements of Cash Flows for Years Ended March 31, 1997, 1996 and 1995 F-6 Notes to Consolidated Financial Statements F-7
F-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Repligen Corporation: We have audited the accompanying consolidated balance sheets of Repligen Corporation (a Delaware corporation) and subsidiaries as of March 31, 19971998 and 1996,1997, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended March 31, 1997.1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Repligen Corporation and subsidiaries as of March 31, 19971998 and 1996,1997, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 1997,1998, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Boston, Massachusetts May 13, 199712, 1998 F-2 REPLIGEN CORPORATION CONSOLIDATED BALANCE SHEETS
Years Ended MarchYEARS ENDED MARCH 31, --------------------------------------- 1997 1996 ----------- -------------------------------------- ASSETS 1998 1997 - ----------------------------------------------------------------------- ----------- ------------ Current assets: Cash and cash equivalents $3,465,881 $6,944,140$ 4,725,544 $ 3,465,881 Marketable securities -- 72,353 278,115 Accounts receivable, less reserves of $25,000 and $65,000, at March 31,1998 and $152,000,1997 respectively 212,857 534,929 421,254 Amounts due from affiliate -- 42,284 Inventories 670,818 452,241 701,224 Prepaid expenses and other current assets 165,720 188,554156,228 65,720 ----------- ------------------------- Total current assets 5,765,447 4,691,124 8,575,571 Property, plant and equipment, at cost: Equipment 770,512 724,564 688,091 Furniture and fixtures 40,563 28,820 20,422 Leasehold improvements 442,528 386,199 2,000 ----------- ------------------------- 1,253,603 1,139,583 710,513 Less -- accumulatedLess--accumulated depreciation and amortization 594,719 349,112 176,946 ----------- ------------------------- 658,884 790,471 533,567 Restricted cash -- 50,087 -- Other assets, net 88,472 88,909 121,389 ----------- ------------------------- $ 6,512,803 $ 5,620,591 $ 9,230,527 =========== ==============----------- ------------ ----------- ------------ LIABILITIES AND STOCKHOLDERS' EQUITY - -------------------------------------------------------------------------------------------------- Current liabilities: Accounts payable $ 168,269100,719 $ 546,129168,269 Accrued expenses and other 254,312 399,988 3,720,881 Unearned income 33,332 133,313 154,998 ----------- ------------------------- Total current liabilities 388,363 701,570 4,422,008 Commitments and contingencies (Notes 8 and 10) Stockholders' equity: Preferred stock, $.01 par value -- authorized -- 5,000,000 shares -- outstanding -- nonevalue--authorized--5,000,000 shares--issued and outstanding--none -- -- Common stock, $.01 par value -- authorized -- 30,000,000 shares -- outstanding -- 16,008,211value--authorized--30,000,000 shares--issued and outstanding--18,001,785 shares and 15,602,54216,008,211 shares at March 31, 1998 and 1997, and 1996, respectively 180,017 160,082 156,025 Additional paid-in capital 130,264,048 128,318,430 127,694,145 Deferred compensation -- (26,447) -- Accumulated deficit (124,319,625) (123,533,044) (123,041,651) ----------- ------------------------- Total stockholders' equity 6,124,440 4,919,021 4,808,519 ----------- ------------------------- $ 6,512,803 $ 5,620,591 $ 9,230,527 ============ =============----------- ------------ ----------- ------------
The accompanying notes are an integral part of these consolidated financial statements. F-3 REPLIGEN CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended MarchYEARS ENDED MARCH 31, ------------------------------------------------ 1997 1996 1995 ---------- ---------- -------------------------------------------- 1998 1997 1996 --------- --------- ----------- Revenues: Research and development $ 916,726 $1,179,980 $5,424,304 $10,988,567$ 5,424,304 Product 1,114,452 1,553,598 1,873,687 3,884,642 Investment income 224,913 268,645 737,536 1,424,558 Other 128,885 799,319 298,350 644,548 Sale of intellectual property rights -- -- 2,525,000 -- ---------- ------------------- --------- ----------- 2,384,976 3,801,542 10,858,877 16,942,315 ---------- ------------------- --------- ----------- Costs and expenses: Research and development 1,419,825 1,378,391 11,980,574 31,011,893 Selling, general and administrative1,939,881administrative 1,281,090 1,939,881 4,925,345 4,673,580 Cost of goods soldproduct sales 480,089 536,685 1,515,637 1,535,026 Restructuring charge (credit) -- (111,000) 3,567,000 11,300,000 Charge for purchased in-process research & development -- 548,978 333,811 -- Interest -- -- 58,050 372,133 ---------- ------------------- --------- ----------- 3,181,004 4,292,935 22,380,417 48,892,632 ---------- ------------------- --------- ----------- Net loss $ (491,393)$(796,028) $(491,393) $(11,521,540) $(31,950,317) ========== ========== =========== Net--------- --------- ----------- --------- --------- ----------- Basic and diluted net loss per common share $ (0.05) $ (0.03) $ (0.75) $ (2.08) ========== ========== =========== Weighted--------- --------- ----------- --------- --------- ----------- Basic and diluted weighted average common shares outstanding 16,501,785 15,677,998 15,370,252 15,356,136 ========== ========== ===========--------- --------- ----------- --------- --------- -----------
The accompanying notes are an integral part of these consolidated financial statements. F-4 REPLIGEN CORPORATION CONSOLIDATED STATEMENTSSTATEMENT OF STOCKHOLDERS' EQUITY
Additional Number of Paid-in Deferred Accumulated Stockholders' Shares Par Value Capital Compensation Deficit Equity - - ------------------------------------------------------------------------------------------------------------------------------------COMMON NUMBER OF STOCK ADDITIONAL COMMON $.01 PAID-IN DEFERRED ACCUMULATED SHARES PAR VALUE CAPITAL COMPENSATION DEFICIT ------------ ---------- -------------- -------------- --------------- Balance, March 31, 1994 15,302,675 $ 153,027 $126,153,487 $ -- $ (79,569,794) $ 46,736,720 Net loss -- -- -- -- (31,950,317) (31,950,317) Contribution of common stock to ESOP 54,355 543 373,140 -- -- 373,683 Issuance of warrants in connection with Repligen Clinical Partners, L.P., net of exchange warrants costs of $733,613 -- -- 416,298 -- -- 416,298 ---------- --------- ------------ ---------- ------------- ------------ Balance, March 31, 1995 15,357,030 153,570 126,942,925 -- (111,520,111) 15,576,384 Net loss -- -- -- -- (11,521,540) (11,521,540) Issuance of common stock in connection with therelating to acquisition of Glycan Pharmaceuticals Inc. 243,600 2,436 332,514 -- -- 334,950 Exercise of stock options 1,912 19 2,978 -- -- 2,997 Issuance of warrants in connection with Repligen Clinical Partners, L.P. -- -- 415,728 -- -- 415,728 ---------- --------- ------------ ---------- ------------- -------------------------- ------- --------------- Balance, March 31, 1996 15,602,542 156,025 127,694,145 -- (123,041,651) 4,808,519 Net loss (491,393)-- -- -- -- (491,393) Issuance of common stock in connection with the acquisition of Proscure,ProsCure, Inc. 405,669 4,057 544,921 548,978-- -- Compensation relating to issuance of stock options -- -- 79,364 (26,447) -- 52,917 ---------- --------- ------------ ---------- ------------- -------------------------- ------- --------------- Balance, March 31, 1997 16,008,211 160,082 128,318,430 (26,447) (123,533,044) Net loss -- -- -- -- (796,028) Retirement of common stock issued in connection with the acquisition of ProsCure, Inc. (6,426) (65) (9,382) -- 9,447 Issuance of common stock and warrants, net of issusance costs 2,000,000 20,000 1,955,000 -- -- Compensation relating to issuance of stock option -- -- 26,447 -- ------------ ---------- -------------- ------- --------------- Balance, March 31, 1998 18,001,785 $ 160,082 $128,318,430180,017 $ (26,447) $(123,533,044)130,264,048 $ -- $ (124,319,625) ------------ ---------- -------------- ------- --------------- ------------ ---------- -------------- ------- --------------- TOTAL STOCKHOLDERS' EQUITY -------------- Balance, March 31, 1995 15,576,384 Net loss (11,521,540) Issuance of common stock relating to acquisition of Glycan Pharmaceuticals 334,950 Exercise of stock options 2,997 Issuance of warrants in connection with Repligen Clinical Partners, L.P. 415,728 -------------- Balance, March 31, 1996 4,808,519 Net loss (491,393) Issuance of common stock in connection with the acquisition of ProsCure, Inc. 548,978 Compensation relating to issuance of stock options 52,917 -------------- Balance, March 31, 1997 4,919,021 ========== ========= ============ ========== ============= =============Net loss (796,028) Retirement of common stock issued in connection with the acquisition of ProsCure, Inc. -- Issuance of common stock and warrants, net of issusance costs 1,975,000 Compensation relating to issuance of stock option 26,447 -------------- Balance, March 31, 1998 $ 6,124,440 -------------- --------------
The accompanying notes are an integral part of these consolidated financial statements. F-5 REPLIGEN CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended MarchYEARS ENDED MARCH 31, -------------------------------------------- 1997 1996 1995 -------- ----------- ---------------------------------------------- 1998 1997 1996 --------- ---------- ----------- Cash flows from operating activities: Net loss $(796,028) $ (491,393) (11,521,540) $(31,950,317)$(11,521,540) Adjustments to reconcile net loss to net cash used in operating activities --activities-- Depreciation and amortization 172,399245,607 172,167 1,438,356 2,602,182 Issuance of stock options for services 52,90426,447 52,917 -- -- Contribution of common stock to ESOP -- -- 373,683 Equity in net loss of an affiliate -- -- 20,504 65,766 ResearchIn-process research and development charge -- 548,978 333,811 -- Restructuring (credit) charge, non-cashnon cash portion -- (111,000) 2,321,000 4,754,593 Changes in assets and liabilities, net of acquisition of Glycan Pharmaceuticals, Inc. Accounts receivable 322,072 (113,675) 1,279,915 939,146 Amounts due from affiliates -- 42,284 920,077 4,955,143 Inventories (218,577) 248,983 512,155 96,956 Prepaid expenses and other current assets 9,493 22,834 866,212 663,413 Accounts payable (67,550) (377,860) (678,022) (804,581) Accrued expenses and other (145,676) (3,209,893) (4,592,680) 4,483,274 Unearned income (99,981) (21,685) (203,000) (799,740)--------- ---------- ---------- -------------------- Net cash used in operating activities (3,237,124)(724,193) (3,237,344) (9,303,212) (14,620,482)--------- ---------- ---------- -------------------- Cash flows from investing activities: Decrease in marketable securities 72,353 205,762 1,202,597 79,680 Acquisition of Glycan Pharmaceuticals, Inc. -- -- (144,836) -- Purchases of property, plant and equipment, net (114,021) (429,070) (463,378) (556,174) (Increase) decrease in restricted cash 50,087 (50,087) 1,000,000 -- Proceeds formfrom a note receivable from affiliate -- -- 4,620,000 -- Decrease in other assets 437 32,480 412,857 484,091--------- ---------- ---------- -------------------- Net cash provided by (used in) provided by investing activities (241,135)8,856 (240,915) 6,627,240 7,597--------- ---------- ---------- -------------------- Cash flows from financing activities: Proceeds from salesissuance of common stock and issuance of warrants, net of issuance costs and commissions1,975,000 -- 418,725 416,298 Payment of term loan to a bank -- -- (4,620,000) -- Proceeds from leasing transactions -- -- 362,913--------- ---------- ---------- -------------------- Net cash provided by (used in) provided by financing activities 1,975,000 -- (4,201,275) 779,211--------- ---------- ---------- -------------------- Net decreaseincrease (decrease) in cash and cash equivalents 1,259,663 (3,478,259) (6,877,247) (13,833,674) Cash and cash equivalents, beginning of year 3,465,881 6,944,140 13,821,387 27,655,061--------- ---------- ----------- Cash and cash equivalents, end of year $4,725,544 $3,465,881 $6,944,140 $13,821,387 ========== ========== ==========$ 6,944,140 --------- ---------- ----------- --------- ---------- ----------- Supplemental disclosure of cash flow information: Cash paid for interest $ -- $ -- $ 58,050 $ 372,133 ========== ========== ==========--------- ---------- ----------- --------- ---------- -----------
The accompanying notes are an integral part of these consolidated financial statements. F-6 REPLIGEN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Summary of OperationsSUMMARY OF OPERATIONS Repligen Corporation and subsidiaries (the("Repligen" or the "Company") is a biopharmaceutical company engaged in the development of enabling technologies for discoverya new class of new drugs. The Company's technology issynthetic drugs designed to increaseblock important protein-carbohydrate and protein-protein interactions. Clinical experience with complex natural products and monoclonal antibodies has shown that many of these interactions are important in disease, although it has not been possible to identify easily synthesized organic compounds for these types of targets. Repligen is developing technologies to discover drugs which can block protein-macromolecule interactions including methods for the efficiencyrapid synthesis of the process by which new drug candidates are identified.chemical compound libraries with "natural product-like" complexity and high throughput screening assays based on specific biological targets. Repligen also manufactures and markets a line of bioprocessing products usedfor the production of monoclonal antibodies intended for human clinical use. These products are based on recombinant Protein A for which Repligen holds patents in the commercial production of antibodies. TheUnited States and major foreign markets. In addition, the Company has incurred significant operating losses since inception and underwent significant restructuring oflicensed certain intellectual property pertaining to its operations in fiscal 1996 and 1995 (see Note 11).former programs on biological products. During fiscal 1997, the Company issued 405,669 shares of its common stock for all of the outstanding stock of ProsCure, Inc. ("ProsCure)ProsCure"). The acquisition was accounted for as a purchase, with the excess of the purchase price and acquisition costs over the fair value of the assets acquired of approximately $549,000 charged to operations as the cost of acquired research and development in process. The Company acquired assets having a fair value of approximately $170,000, consisting primarily of cash and receivables. Results of operations for ProsCure are included in the consolidated financial statements of the Company, since March 14, 1996, as ProsCure is a subsidiary of Glycan Pharmaceuticals, Inc. Unaudited pro forma information with respect to ProsCure's pre-acquisition operating results has not been presented as it is not material. On March 14, 1996, the Company issued 243,600 shares of its common stock for all of the common stock of Glycan Pharmaceuticals, Inc. ("Glycan"). The acquisition was accounted for as a purchase, with the excess of the purchase price and acquisition costs over the fair value of the assets acquired of approximately $334,000 charged to operations as the cost of acquired research and development in process. The Company acquired assets having a fair value of approximately $296,000, consisting primarily of cash and equipment, and assumed liabilities of approximately $295,000. Results of operations for Glycan are included in the consolidated financial statements of the Company since the date of acquisition. Unaudited pro forma information with respect to Glycan's pre-acquisition operating results has not been presented as it is not material. The Company has incurred significant operating losses since its inception and underwent significant restructuring of its operations in fiscal 1996 (see Note 12). The Company continues to be subject to certain risks common to biotechnology companies in similar stages of development, including extensive government regulation, uncertainty of market acceptance, limited manufacturing, marketing and sales experience and uncertainty in future profitability. F-7 REPLIGEN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. Significant Accounting PoliciesSIGNIFICANT ACCOUNTING POLICIES The accompanying consolidated financial statements reflect the application of certain accounting policies described in this note and elsewhere in the accompanying notes to consolidated financial statements. Use of Estimates in the Preparation of Financial StatementsUSE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of F-7 revenues and expenses during the reporting period. Actual results could differ from those estimates. Principles of ConsolidationPRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries.subsidiaries, ProsCure, Inc. and Glycan Pharmaceuticals, Inc. All material intercompany accounts and transactions have been eliminated in consolidation. Reclassifications Reclassifications have been made in consolidated financial statements to conform with the current year's presentation. Revenue RecognitionREVENUE RECOGNITION Research and development revenue derived from collaborative arrangements is recognized as earned under cost plus fixed-fee contracts, or on a straight-line basis over the development contract, which approximates when work is performed and costs are incurred. In addition, under certain contracts, the Company recognizes research and development revenues as milestones are achieved. Unearned income represents amounts received prior to recognition of revenue. Research and development expenses in the accompanying consolidated statements of operations include funded and unfunded expenses. The Company recognizes revenue related to product sales upon shipment of the product. OtherRevenues recognized from the one-time sale of equipment and non investment securities are also included as other revenue during the year ended March 31, 1998 and 1997. In fiscal 1997 and 1996, other revenue includes the management fee received from Repligen Clinical Partners, L.P. The management fee revenue is recognized as earned (see Note 10)11). In fiscal 1997, revenues recognized from the one-time sale of equipment and non-investment securities are also included as other revenue. Depreciation and AmortizationDEPRECIATION AND AMORTIZATION The Company provides for depreciation and amortization by charges to operations in amounts estimated to allocate the cost of fixed assets over their estimated useful lives, on a straight-line basis, as follows: Description Life - - ----------- ---- Equipment 5 years Furniture and fixtures 5-7 years Leasehold improvements
DESCRIPTION LIFE - ----------------------------------- --------------------------------------------------------------------- Equipment.......................... 5 years Furniture and fixtures............. 5-7 years Leasehold improvements............. Shorter of term of the lease or estimated useful life
F-8 Net Loss Per Common Share NetREPLIGEN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) EARNINGS PER SHARE The Company has adopted Statement of Financial Accounting Standards (SFAS) No.128, EARNINGS PER SHARE, effective December 15, 1997. SFAS No. 128 establishes standards for computing and presenting earnings per share and applies to entities with publicly held common stock or potential common stock. The Company has applied the provisions of SFAS No. 128, retroactively to all periods presented. Basic net loss per common share has been computed by dividingrepresents net loss divided by the weighted average number of common shares outstanding during the period. CommonThe dilutive effect of potential common shares, consisting of outstanding stock equivalents have not been included for any period, asoptions and warrants, is determined using the amounts would be antidilutive. In February 1997 the Financial Accounting Standard Board issuedtreasury stock method in accordance with SFAS No. 128 Earnings Per Share, which requires a new128. Diluted weighted average shares outstanding for 1998, 1997 and 1996 exclude the potential common shares from warrants and stock options because to do so would have been antidilutive for the years presented. The potential common shares prior to application of the treasury stock method of calculating earnings per share (EPS). The Company will be required to use this method for fiscal 1998. The Company anticipates that reported EPS will be unchanged from amounts presented in the statement of operations. Disclosure of Fair Value of Financial Instruments1998, 1997 and Concentration of Credit Risk1996 were 3,354,450, 2,568,798 and 3,132,996 shares, respectively. FAIR VALUE OF FINANCIAL INSTRUMENTS SFAS No. 107, "Disclosure About Fair Value of Financial Instruments",DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, requires disclosure about the fair value of financial instruments. Financial instruments which potentially exposeThe carrying amounts of the Company to concentrations of credit risk consist mainly ofCompany's cash and cash equivalents, accounts receivable and accounts payable.payable approximate fair value due to the short-term nature of these instruments. CONCENTRATIONS OF CREDIT RISK Financial instruments that subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company's cash equivalents are invested in financial instruments with high credit ratings. Concentration of credit risk with respect to accounts receivable is limited to customers to whom the Company makes significant sales. The Company does not believe that significant credit risk exists at March 31, 1997. The estimated fair value1998. To control credit risk, the Company performs regular credit evaluations of theseits customers' financial instruments approximates their carrying value.condition and maintains allowances for potential credit losses. 3. Cash Equivalents and Marketable SecuritiesCASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES The Company considers all highly liquidaccounts for investments in accordance with original maturities of three months or less at the time of acquisition to be cash equivalents. Included in cash equivalents at March 31, 1997 are approximately $542,000 of money market funds and $2,730,000 of commercial paper. Cash equivalents at March 31, 1996 include $5,498,000 of money market funds and $3,000,000 of bank time deposits. Investments with a maturity period of greater than three months are classified as marketable securities and consist of approximately $13,000 and $278,000 of collateralized mortgage obligations at March 31, 1997 and March 31, 1996, respectively. The Company applies Statement of Financial Accounting StandardsSFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS No. 115").ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES. Under SFAS No. 115, securities thatinvestments for which the Company has the positive intent and ability to hold to maturity, consisting of cash equivalents and marketable securities, are classified as "held-to-maturity."reported at amortized cost, which approximates fair market value. These securities include cash, cash equivalents and corporate bonds with maturities of less than one year. The held-to-maturity securities are reported at amortized cost, which approximates fair market value at March 31, 1997 and 1996. Securities purchased to be held for indefinite periods of time, and not intended at the time of purchase to be held until maturity, are classified as "available-for-sale" securities. These securities consist of collateralized mortgage obligations with average maturities in excess of 10 years. The Company also carries these investments at amortized cost, which approximates fair market value at March 31, 1997 and 1996. TheF-9 REPLIGEN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES (CONTINUED) estimated fair market value of marketable securities is based primarily on market quotations. F-9 Cash, cash equivalents and marketable securities consist of the following:
YEAR ENDED MARCH 31, -------------------------- 1998 1997 ------------ ------------ Cash and cash equivalents Cash.............................................................................................. $ 225,940 $ 190,174 Money markets..................................................................................... 292,624 542,139 Commercial paper.................................................................................. 3,708,580 2,733,568 U.S. Government and Agency securities............................................................. 498,200 -- ------------ ------------ Total cash and cash equivalents............................................................... $ 4,725,344 $ 3,465,881 ------------ ------------ ------------ ------------ Marketable securities Equity securities................................................................................. $ -- $ 60,000 U.S. Government and Agency securities............................................................. -- 12,353 ------------ ------------ Total Marketable securities................................................................... $ -- $ 72,353 ------------ ------------ ------------ ------------
4. InventoriesINVENTORIES Inventories are stated at the lower of cost (first-in, first-out) or market and consist of the following: Year Ended March 31, --------------------------------- 1997 1996 -------- -------- Raw materials and work-in-process......... $298,287 $ 1,955 Finished goods............................ 153,954 699,269 -------- -------- Total.................................. $452,241 $701,224 ======== ========market. Work-in-process and finished goods inventories consist of material, labor, outside processing costs and manufacturing overhead. Inventories at March 31, 1998 and 1997 consist of the following:
YEAR ENDED MARCH 31, ---------------------- 1998 1997 ---------- ---------- Raw materials and work-in-process..................................................................... $ 388,727 $ 298,287 Finished goods........................................................................................ 282,091 153,954 ---------- ---------- Total............................................................................................. $ 670,818 $ 452,241 ---------- ---------- ---------- ----------
5. Accrued Expenses and OtherACCRUED EXPENSES Accrued expenses and other consisted of the following: Year Ended March 31, --------------------------------- 1997 1996 --------- ----------- Restructuring charges........................ $ -- $ 2,594,478 Payroll and payroll-related costs............ 128,399 78,958 Professional and consulting fees............. 83,000 677,818 Other accrued expenses....................... 188,589 369,627 --------- ----------- Total..................................... $ 399,988 $ 3,720,881 ========= ===========
YEAR ENDED MARCH 31, ---------------------- 1998 1997 ---------- ---------- Payroll and payroll-related costs..................................................................... $ 60,371 $ 128,399 Professional and consulting fees...................................................................... 113,000 188,589 Other accrued expenses................................................................................ 80,941 83,000 ---------- ---------- Total............................................................................................. $ 254,312 $ 399,988 ---------- ---------- ---------- ----------
6. Income TaxesINCOME TAXES The Company accounts for income taxes under SFAS No. 109, "Accounting for Income Taxes."ACCOUNTING FOR INCOME TAXES. At March 31, 1997,1998, the Company had net operating loss carryforwards for income tax purposes of F-10 REPLIGEN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. INCOME TAXES (CONTINUED) approximately $91,500,000.$91,300,000. The Company also had available tax credit carryforwards of approximately $4,800,000 at March 31, 19971998 to reduce future federal income taxes, if any. Net operating loss carryforwards and available tax credits are subject to review and possible adjustment by the Internal Revenue Service and may be limited in the event of certain changes in the ownership interest of significant stockholders. F-10The net operating loss carryforwards and tax credit carryforwards are approximately as follows:
NET OPERATING LOSS TAX CREDIT EXPIRATION DATE CARRYFORWARDS CARRYFORWARDS - -------------------------------------------------------------------------- -------------- -------------- 1999...................................................................... $ 400,000 $ 32,000 2000...................................................................... 1,000,000 104,000 2001...................................................................... 1,300,000 109,000 2002...................................................................... 2,500,000 73,000 2003...................................................................... 4,800,000 346,000 2004-2013................................................................. 81,300,000 4,136,000 -------------- -------------- Total..................................................................... $ 91,300,000 $ 4,800,000 -------------- -------------- -------------- --------------
The deferred tax asset consists of the following:
YEAR ENDED MARCH 31, ---------------------------- 1998 1997 ------------- ------------- Temporary differences....................................................... $ 3,900,000 $ 5,500,000 Operating loss carryforwards................................................ 36,500,000 35,048,000 Tax credit carryforwards.................................................... 4,840,000 4,800,000 ------------- ------------- 45,240,000 45,348,000 Valuation allowance......................................................... (45,240,000) (45,348,000) ------------- ------------- $ -- $ -- ------------- ------------- ------------- -------------
A full valuation allowance has been provided, as it is uncertain if the Company will realize the deferred tax asset. 7. COMMON STOCK On December 31, 1997, the Company completed a $2.0 million private placement of its securities. The Company received net proceeds of $1.975 million for the issuance of 2,000,000 shares of common stock and warrants to purchase an aggregate of 750,000 shares of common stock at a price of $1.50 per share. In connection with the initial capitalization of the Repligen Clinical Partners, L.P. ("the Partnership"), the Company issued warrants to purchase common stock of Repligen to the limited partners of the Partnership (the "Original Warrants"). In June 1994, Repligen completed an exchange pursuant to which a majority of the holders of Original Warrants exchanged their Original Warrants for new warrants (the "Exchange Warrants"). Subsequently, in March 1995, Repligen offered to modify the majority of the remaining Original Warrants and the Exchange Warrants. Each holder of an F-11 REPLIGEN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. COMMON STOCK (CONTINUED) outstanding warrant who was not in default under its obligations to the Partnership was free to accept or reject such modifications. As of March 31, 1998, 620 of the 711.5 nondefaulted limited partnership units had accepted the modifications. Accordingly, as of that date, there were issued and outstanding Original Warrants to purchase 75,400 shares of the Company's common stock at $22.73 per share, modified Original Warrants to purchase 163,850 shares of the Company's common stock at $9.00 per share, Exchange Warrants to purchase 189,950 shares of the Company's common stock at $9.00 per share and modified Exchange Warrants to purchase 1,653,250 shares of the Company's common stock at $2.50 and $3.50 per share. These warrants expire between 1999 and 2001. At March 31, 1998, common stock reserved for issuance was as follows:
RESERVED FOR SHARES - ------------------------------------------------------------------------------------------------------------------ ---------- Incentive and nonqualified stock option plans..................................................................... 3,353,277 Warrants granted in connection with the Repligen Clinical Partners, L.P. offering................................. 2,082,450 Warrants granted in connection with the private placement with BVF and affiliates................................. 750,000 ---------- 6,185,727 ---------- ----------
8. CommitmentsCOMMITMENTS The Company leases their facilities. Obligations under noncancellable operating leases as of March 31, 19971998 are approximately as follows: Year Ending March 31, --------------------- 1998 $ 275,000 1999 281,000 2000 281,000 2001 158,000 2002
YEAR ENDING MARCH 31, - ---------------------------------------------------------------------------------------------- 1999.......................................................................................... $ 281,000 2000.......................................................................................... 281,000 2001.......................................................................................... 158,000 2002.......................................................................................... 74,000 ---------- Total minimum lease payments.................................................................. $ 794,000 ---------- ---------- Total minimum lease payments $1,069,000 ==========
Rent expense charged to operations under operating leases was approximately $399,000, $832,000 $2,932,000, and $5,926,000$2,932,000 for the years ended March 31, 1998, 1997 1996 and 1995,1996, respectively. 9. Stock Option PlansSTOCK OPTION PLANS The Company has three stock option plans. The plans authorize the grant of either incentive stock options or non qualifiednonqualified stock options. Incentive stock options are granted to employees at the fair market value at the date of grant. Non-qualifiedNonqualified stock options are granted to employees or non-employees.nonemployees. The options generally vest over four or five years and expire no more than 10 years from the date of grant. As of March 31, 1998, the Company had available for grant options to purchase 2,831,277 shares of common stock. F-12 REPLIGEN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 9. STOCK OPTION PLANS (CONTINUED) A summary of stock option activity under all plans is as follows:
Years Ended MarchYEARS ENDED MARCH 31, ----------------------------------------------------------------------------------------------------------------------------------------------------------------------- 1998 1997 1996 1995 ---- ---- ---- Option Option Option No. of Price No. of Price No. of Price Shares Per Share Shares Per Share Shares Per Share ----------------------------- ----------------------- ------------------------ OPTION OPTION OPTION NO. OF PRICE NO. OF PRICE NO. OF PRICE SHARES PER SHARE SHARES PER SHARE SHARES PER SHARE --------- ------------------ --------- ------ --------------------- ---------- ------------ Outstanding at beginning of periodperiod..................... 486,348 $ 0.50-12.45 953,046 $0.05-19.25$ 0.05-19.25 1,291,730 $0.05-19.25 2,045,905 $0.05-19.25 Granted$ 0.05-19.25 Granted............................................ 117,500 1.00-1.50 180,500 .50- 1.37 454,550 1.25-2.44 1,524,056 2.06-5.25 ExercisedExercised.......................................... -- -- -- -- (1,912) 1.57 -- -- ForfeitedForfeited.......................................... 81,848 1.25-2.75 (647,198) .05-19.25 (791,322) 1.50-19.25 (2,278,231) 2.59-19.25 -------- --------- -------------------- --------- ------------ ---------- ---------- ---------------------- Outstanding at end of periodperiod........................... 522,000 $ 0.50-12.45 486,348 $0.50-12.45$ 0.50-12.45 953,046 $0.05-19.25 1,291,730 $0.05-19.25 -------- ========= ======== ========== ========== ==========$ 0.05-19.25 --------- ------------ --------- ------------ ---------- ------------ Exercisable at end of periodperiod........................... 243,422 $ 0.50-12.45 148,945 $0.50-12.45$ 0.50-12.45 343,129 $0.05-19.25 137,395 $0.05-19.25 ======== ========= ======== ========== ========== ==========$ 0.05-19.25 --------- ------------ --------- ------------ ---------- ------------ --------- ------------ --------- ------------ ---------- ------------
The Company accounts for its stock-based compensation under SFAS No. 123.123 ACCOUNTING FOR STOCK BASED COMPENSATION. The Company has adopted the disclosure-only alternative under SFAS No. 123for employee grants and, accordingly, will continue to account for stock based compensation for employees under APB Opinion No. 25. F-11 The Company has computed the pro forma disclosures required under SFAS No. 123 for all stock options granted in 19961998 and 1997 using the Black-Scholes option pricing model prescribed by SFAS No. 123. The assumptions used and the weighted average information for the years endingended March 31, 19971998 and 19961997 are as follows:
Years ended MarchYEAR ENDED MARCH 31, ---------------------------------------------------- 1998 1997 1996---------- ---------- Risk-free interest ratesrates............................................................................. 6.76% 6.44% 6.57% Expected dividend yieldyield.............................................................................. -- -- Expected liveslives....................................................................................... 10 years 10 years Expected volatility 106%volatility.................................................................................. 56% 106% Weighted-average grant date fair value of options granted during the periodperiod.......................... $1.41 $1.45 $ .96 Weighted-average exercise priceprice...................................................................... $1.28 $1.44 $3.16 Weighted-average remaining contractual life of options outstandingoutstanding................................... 8.4 years 8.9 years 7.4 years Weighted-average exercise price of options exercisable at March 31, 1998 and 1997, and 1996, respectivelyrespectively...... $1.23 $1.84 $5.33
HadF-13 REPLIGEN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 9. STOCK OPTION PLANS (CONTINUED) If compensation costexpense for the Company's stock option plan had been determined consistent with SFAS No. 123 pro forma net loss and net loss per share would have been: Years Ending March 31, ----------------------- 1997 1996 Net loss- As reported........................................ ($491,393) $(11,521,540) Pro forma.......................................... ($573,077) ($11,602,291) Net loss per share- As reported........................................ $ (.03) $ (.75) Pro forma..........................................been as follows:
YEAR ENDED MARCH 31, ------------------------ 1998 1997 ----------- ----------- Net loss-- As reported..................................................................... $ (796,028) $ (491,393) Pro forma....................................................................... $ (908,353) $ (573,077) Basic and diluted net loss per share-- As reported..................................................................... $ (.05) $ (.03) Pro forma....................................................................... $ (.06) $ (.04) $ (.76)
10. Research and Development Agreements and Significant Customers During fiscal 1997, the Company had no customer that represented 10% of fiscal 1997 revenues. During 1996 and 1995, the Company had twoSIGNIFICANT CUSTOMERS Revenues from significant customers comprising 49% and 66%as a percentage of the Company's total revenues respectively. Eli Lilly and Company In May 1992, the Company entered into a Research, Collaboration and License Agreement with Eli Lilly and Company ("Lilly"), whereby the Company granted Lilly an exclusive license to make, use and sell products utilizing antibodies, antibody fragments and engineered polypeptides that bind to CD11b (the "Products"). In addition, the Company recognized revenues of approximately $2,613,000 and $6,262,000 for research and development performed in fiscal 1996 and 1995 respectively. In September 1995, Lilly terminated its collaboration and licensing F-12 agreement with the Company with respect to the joint development of the CD11b Program and the rights to the Program were returned to Repligen. Repligen Clinical Partners, L.P.as follows:
YEAR ENDED MARCH 31, --------------------------------------- 1998 1997 1996 ----------- ------ ----------- Customer A...................................................................... -- 2% 24% *Customer B...................................................................... 1% 6% 28% Customer C...................................................................... 23% 6% --
- ------------------------ * Denotes related party 11. RELATED PARTIES In February 1992, Repligen Clinical Partners, L.P. (the "Partnership") completed a private placement of 900 limited partnership units, with net proceeds of approximately $40,300,000 in cash and notes receivable, to be received by the Partnership over a three-year period. In connection with the formation of the Partnership, the Company granted to the Partnership an exclusive license to all technology and know-how related to the manufacture, use and sale of recombinant platelet factor-4 ("rPF4") in the United States, Canada and Europe. A wholly owned subsidiary of the Company is the General Partner of the Partnership. The Company has received research and development funding from the Partnership pursuant to a Product Development Agreement, whereby the Company performed research and development work and charged the Partnership for actual costs incurred plus a 10% management fee. The Company recognized $12,000, $190,000 $2,693,000, and $4,352,000$2,693,000 of such funding as revenue in fiscal 1998, 1997 and 1996, and 1995, respectively. During fiscal 1995, the Company incurred an additional $1,641,000 of research and development costs which could have been charged to the Partnership, but which was absorbed by the Company in an effort to preserve the funds of the Partnership. Included in otherOther revenues for the years ended March 31, 1997 and 1996 included $25,000 and 1995 are approximately $25,000, $311,000, and $550,000, respectively, representing the 10% management fee under the Product Development Agreement. Profits and losses are allocated 1% to the General Partner and 99% to the Limited Partners. The Company accounts for its investment on the equity method and has recorded losses of approximately $21,000 and $66,000 as its share of the losses from the Partnership in the accompanying consolidated statements of operations for the years ended March 31, 1996 and 1995, respectively.1996. Although the Company was F-14 REPLIGEN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 11. RELATED PARTIES (CONTINUED) allocated a loss of approximately $1,000 and $2,400 for the yearyears ended March 31, 1998 and 1997, respectively, the Company had previously written down all of its original investment. As of March 31, 1997 and 1996, the Partnership owed the Company approximately $55,000 and $42,000, respectively, for amounts due under the Product Development Agreement. In April 1996, the Company terminated its arrangements with the Partnership regarding the development and marketing of the rPF4 program. Under the terms of the various agreements between the parties, the rights to the rPF4 technologies remain with the Partnership. The Company will assist the Partnership in exploring alternatives to maximize the value of the rPF4 program for the benefit of the Partnership. In connection with the initial capitalization of the Partnership, the Company issued warrants to purchase common stock of Repligen to the limited partners of the Partnership (the "Original Warrants"). As of March 31, 1997, 620 of the 711.5 non-defaulted limited partnership units had accepted the modifications. Accordingly, as of that date, there were issued and outstanding Original Warrants to purchase 75,400 shares of the Company's common F-13 stock at $22.73 per share, modified Original Warrants to purchase 163,850 shares of the Company's common stock at $9.00 per share, Exchange Warrants to purchase 189,950 shares of the Company's common stock at $9.00 per share and modified Exchange Warrants to purchase 1,653,250 shares of the Company's common stock at $2.50 and $3.50 per share. These warrants expire between 1999 and 2001. 11. Restructuring of Operations12. RESTRUCTURING OF OPERATIONS During fiscal 1996, the Company completed a majorsignificant downsizing and consolidation of its operations in an effort to stabilize its financial condition and preserve its cash resources. The restructuring included a substantial reduction in the Company's work force, the termination of several research programs and the closing of its Cambridge research and manufacturing facility. During the fourth quarter of fiscal 1996, the Company recorded a charge of $3,567,000 to cover (i) severance costs and related benefits ($333,000), (ii) the settlement of operating equipment lease and facility lease obligations ($1,991,000), (iii) the write-off of certain leasehold improvements and equipment no longer being utilized reduced in part by($3,854,000), net of cash received from the sale of assets ($1,250,000) and (iv) the reversal of certain accruals no longer required.required ($1,533,000). In fiscal 1997, under the terms of negotiated settlement arrangements, the Company paid approximately $3,300,000 in settlement fees to the facility landlord and equipment lessors, which included the purchase price of certain leased equipment from the equipment lessors. In May 1996, certain equipment originally on lease as well as certain surplus Company owned equipment was sold at public auction for approximately $1,250,000. The obligation for the settlement payments to the lessors and the landlord, net of funds received from the sale of equipment, was reflected in the restructuring accrual at March 31, 1996. During fiscal 1997, the Company made payments of approximately $2,483,000 for amounts accrued in fiscal 1996. In addition in fiscal 1997, the Company reversed accruals of approximately $111,000 no longer required . During fiscal 1995, the Company also substantially restructured its operations in an effort to reduce its rate of expenditures and preserve its available cash and investment balances. During fiscal 1995, the Company recorded charges of $11,300,000 to cover severance costs and related benefits, certain rental losses associated with the sublease of certain facilities, the write-off of certain leasehold improvements, equipment and other intangible assets that were no longer utilized and to reserve for future operating lease payments for equipment that was longer utilized. The details of the restructuring charges are as follows: F-14
Years Ended March 31, -------------------------------------- Amounts (in 000s) 1996 1995 ------------------ ------------------- Severance and related benefits for terminated employees $ 333 $ 2,035 Reserve for future operating lease payments for assets no longer being utilized 1,991 3,250 Reserve for rental losses associated with the sublease of surplus lab and office space -- 940 Contract termination fees -- 320 Legal fees 172 -- Less -- cash received from the sale of surplus equipment (1,250) -- ------- ------- Cash related expenditures 1,246 6,545 Write-off of leasehold improvements, equipment and other intangibles no longer being utilized 3,854 4,755 Less -- reversal of accruals no longer required due to changes in operations (1,533) -- ------- ------- Non-cash related expenditures 2,321 4,755 ------- ------- $3,567 $11,300 ======= ======= The accrued restructuring activity is as follows: Years Ended March 31, Amounts (in 000s) 1996 1995 ------------------ ------------------- Balance, beginning of year $5,469 $ -- Payments (4,300) (1,076) Provision 2,496 6,545 Write-off of leasehold improvements, equipment and other intangibles no longer being utilized, net of auction proceeds (2,604) -- Less -- reversal of accruals no longer required 1,533 -- ------- ------- Balance, end of year $2,594 $ 5,469 ======= =======
required. F-15 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE To Repligen Corporation: We have audited in accordance with generally accepted auditing standards, the consolidated financial statements included in this Form 10-K, and have issued our report thereon dated May 13, 1997. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in Item 14(a)(2) is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Boston, Massachusetts May 13, 1997 F-16 SCHEDULE II REPLIGEN CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS Balance at Balance Beginning at End Item of Period Addition Deduction of Period - - ------------------------ ------------- ----------- ---------- ----------- Allowance for Doubtful Accounts 1997 $152,000 $ -- $ 87,000 $ 65,000 1996 $300,000 $102,000 $250,000 $152,000 1995 $205,000 $ 95,000 $ -- $300,000 F-17 EXHIBIT 21 SUBSIDIARIES OF REPLIGEN CORPORATION RGEN Corporation Amira, Inc. Repligen Development Corporation Glycan Pharmaceuticals, Inc. ProsCure, Inc. EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included in this Form 10-K, into the previously filed Registration Statement File on Form S-8, No. 33-62796. ARTHUR ANDERSEN LLP Boston, Massachusetts May 29, 1997