UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORMFORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 20142017
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number000-14656
REPLIGEN CORPORATION
(Exact name of registrant as specified in its charter)
Delaware | 04-2729386 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
41 Seyon Street, Bldg. 1, Suite 100 Waltham, MA | 02453 | |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code:(781) 250-0111
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, $0.01 Par Value Per Share
Name of Exchange on Which Registered
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨☒ No x.☐.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨☐ No x.☒.
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. Yes x☒ No ¨.☐.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x☒ No ¨.☐.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of RegulationS-K (§229.405 of this chapter) 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 Form10-K or any amendment to this Form10-K. x☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” andfiler,” “smaller reporting company” and “emerging growth company” in Rule12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ||||||
Non-accelerated filer | Smaller reporting company | ☐ | ||||
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes ☐ No ☐.
Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Act). Yes ¨☐ No x.☒.
The aggregate market value of the voting andnon-voting common equity held bynon-affiliates as of June 30, 2014,2017, the last business day of the registrant’s most recently completed second fiscal quarter, was $744,293,642.$1,225,041,904.
The number of shares of the registrant’s common stock outstanding as of March 12, 2015February 15, 2018 was 32,777,774.43,588,469.
Documents Incorporated By Reference
The registrant intends to file a proxy statement pursuant to Regulation 14A within 120 days of the end of the fiscal year ended December 31, 2014.2017. Portions of such proxy statement are incorporated by reference into Part III of this Annual Report on Form10-K.
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PART IV | ||||||||||
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Item 16. | 10-K Summary | 53 | ||||||||
This Annual Report on Form10-K contains forward-looking statements which are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The forward-looking statements in this Annual Report on Form10-K do not constitute guarantees of future performance. Investors are cautioned that statements in this Annual Report on Form10-K that are not strictly historical statements, including, without limitation, statements regarding current or future financial performance, potential impairment of future earnings, management’s strategy, plans and objectives for future operations or acquisitions, product development and sales, product candidate research and development, selling, general and administrative expenditures, intellectual property, development and manufacturing plans, availability of materials, and adequacy of capital resources and financing plans constitute forward-looking statements. Such forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated, including, without limitation, the risks identified under the caption “Risk Factors” and other risks detailed in this Annual Report on Form10-K and our other filings with the Securities and Exchange Commission. We assume no obligation to update any forward-looking information contained in this Annual Report on Form10-K, except as required by law.
PART I
BUSINESS |
The following discussion of our business contains forward-looking statements that involve risks and uncertainties. When used in this report, the words “intend,” “anticipate,” “believe,” “estimate,” “plan” and “expect” and similar expressions as they relate to us are included to identify forward-looking statements. Our actual results could differ materially from those anticipated in these forward-looking statements and are a result of certain factors, including those set forth under “Risk Factors” and elsewhere in this Annual Report onForm 10-K.
References throughout this Annual Report on FormOverview10-K
to “Repligen”, “we”, “us”, “our”, or the “Company” refer to Repligen Corporation (“Repligen,”and its subsidiaries, taken as a whole, unless the “Company” or “we”)context otherwise indicates.
Overview
Repligen is a life sciences company that develops, manufacturesleading provider of advanced bioprocessing technology and markets high-value, bioprocessingsolutions used in the process of manufacturing biologic drugs. Our products for life sciencesare made to substantially increase biopharmaceutical manufacturing efficiencies and flexibility. As the global biologics market continues to experience strong growth and expansion, our customers – primarily large biopharmaceutical companies worldwide.and contract manufacturing organizations – face critical production cost, capacity, quality and time pressures that our products are made to address. Our commitment to bioprocessing is helping to set new standards for the way our customers manufacture biologic drugs – monoclonal antibodies, recombinant proteins, vaccines and gene therapies. We are dedicated to inspiring advances in bioprocessing as a world-leading manufacturertrusted partner in the production of biologic drugs that improve human health worldwide.
We currently operate as one bioprocessing business, with a comprehensive suite of products to serve both nativeupstream and recombinant formsdownstream processes in biologic drug manufacturing. Building on over 35 years of industry expertise, we have developed a broad and diversified product portfolio that reflects our commitment to build abest-in-class bioprocessing technology company with a world-class direct sales and commercial organization.
We are committed to capitalizing on growth opportunities and maximizing the value of our product platform through both organic growth initiatives (internal innovation and commercial leverage) and targeted acquisitions.
History
Prior to 2012, the Company was focused on drug development, with clinical trial costs supported by bioprocessing product sales. At that time our bioprocessing business was largely represented by sales of Protein A critical reagents used in biomanufacturing to purify monoclonal antibodies, a type of biologic drug. We alsoligands, which we sell through long term OEM supply several growth factor products and cell filtration products used to increase cell culture productivity during the bioproduction process. In the expanding area of flexible biomanufacturing technologies, we have developed and currently market a series of OPUS® chromatography columns for use in clinical-scale manufacturing. These pre-packed, “plug-and-play” columns are uniquely customizable to our customers’ media and size requirements.
On December 20,agreements. Our 2011 we significantly increased the size of our bioprocessing business through a strategic acquisition. We acquired certain assets and assumed certain liabilitiesacquisition of Novozymes Biopharma Sweden AB (“Novozymes”(the “Novozymes Acquisition”) further expanded our proteins product portfolio and provided impetus to set a new direction for the company. Bymid-2012, we permanently discontinued and have since divested all drug development programs. We retained our proteins OEM business and, through internal innovation and strategic acquisitions, we have built chromatography and filtration product offerings that we sell direct to biologics manufacturers. We continue to seek out strategic opportunities to strengthen and expand our bioprocessing business.
Our Products
OEM Products (Proteins)
Our OEM products are represented by our Protein A ligands and cell culture growth factor products.
Protein A
We are a leading provider of Protein A ligands to life sciences companies. Protein A ligands are an essential “binding” component of Protein A chromatography resins used in the purification of virtually all monoclonal
antibody (mAb) based drugs on the market or in development. We manufacture multiple forms of Protein A ligands under long-term supply agreements with major life sciences companies including GE Healthcare and MilliporeSigma, who in turn sell their Protein A chromatography resins to end users (mAb manufacturers). We have two manufacturing sites supporting overall global demand for our Protein A ligands: one in Lund, Sweden including the manufacture and supply of cell culture ingredients for useanother in industrial cell culture, stem and therapeutic cell culture as well as Waltham, MA.
Protein A affinity ligandschromatography resins are considered the industry standard for use in biopharmaceutical manufacturing (the “Novozymes Biopharma Business” andpurification of antibody-based therapeutics due to the acquisitionability of the Novozymes Biopharma Business,Protein A ligand to selectively bind to or “capture” antibodies from crude protein mixtures. Protein A resins are packed into the “Novozymes Acquisition”) forfirst chromatography column of typically three columns used in a total purchase price of 20,310,000 Euros (~$26,400,000).mAb purification process. As a result of Protein A’s high affinity for antibodies, the mAb product is highly purified and concentrated within this first capture step before moving to polishing steps.
Growth Factors
Most biopharmaceuticals are produced through an upstream mammalian cell fermentation process. In order to stimulate increase cell growth and maximize overall yield from a bioreactor, manufacturers often add growth factors, such as insulin, to their cell culture fermentation media. As part of the Novozymes Acquisition in 2011, we doubledgained several cell culture growth factor additives. Among those products is LONG®R3 IGF-1, our insulin-like growth factor that has been shown to be up to 100 times more biologically potent than insulin (the industry standard), thereby increasing recombinant protein production in cell culture fermentation applications. LONGR3IGF-1 is sold through a distribution partnership with MilliporeSigma.
Direct-to-Customer Products (Chromatography and Filtration)
Since 2012, we have significantly expanded ourdirect-to-customer presence through our Chromatography and Filtration franchises, which include highly differentiated, market-leading products and systems. We have diversified and grown our direct-to-customer product offering through internal innovation and through disciplined, accretive acquisitions of assets or businesses that leverage existing product lines and/or expand our customer and geographic scope.
To support our sales goals for ourdirect-to-consumer products, we have invested in our commercial organization, expanding from 3 field employees in 2014 to 54 field employees currently, which include sales reps, field applications specialists and field service personnel. In addition, to meet increased demand for our products, we continue to invest in increasing the sizevolume and scale of manufacturing at our facilities in the United States, Sweden and Germany.
Chromatography
Our Chromatography franchise includes a number of products used in the downstream purification and quality control of biological drugs. The main driver of growth in this portfolio is our process-scale OPUSpre-packed chromatography (“PPC”) column line.
Our other products include chromatography resins (such as CaptivA®) used in a small number of commercial drug processes and ELISA test kits used by quality control departments to detect and measure the presence of leached Protein A and/or growth factor in the final product.
OPUS
Our Chromatography franchise featurespre-packed chromatography columns under our OPUS brand. OPUS columns, which we deliver to our customerspre-packed with their choice of chromatography resin, are single-campaign(“single-use”) disposable columns that replace the use of traditional and more permanent glass columns used in downstream purification processes. By designing OPUS to be the most technologically
advanced and most flexible option for the purification of biologics from process development through clinical-scale and some commercial manufacturing, Repligen has become a leader in thepre-packed column market. The customization andready-to-use nature of our bioprocessing business.OPUS columns makes them ideal for purification of antibodies and recombinant proteins. Biomanufacturers value the time savings, labor and utility cost savings, product consistency and the “plug and play” convenience of OPUS.
On June 2, 2014,We launched our first production-scale OPUS columns in 2012, and have since added larger diameter options such as OPUS 45 and OPUS 60. We have also introduced next-generation features such as a resin recovery port on our larger columns. This allows our customers to reuse the recovered resin in other applications. The unpacking port feature was made available in the first quarter of 2017 on our largest production-scale OPUS columns.
Through our acquisition of Atoll GmbH in 2016, we acquiredestablished a customer-facing center in Europe and expanded our portfolio to include our smaller-scale columns, named OPUS PD, that are used in high throughput process development screening, viral validation studies and scale down validation of chromatography processes. We maintain a broad and customizablepre-packed column product line to meet our customers’ diverse needs.
Other Chromatography
Also included in our Chromatography portfolio are ELISA kits, which are analytical test kits to detect the businesspresence of Refine Technology,proteins and growth factors, and chromatography resins, including Refine’sour CaptivA® brand. In addition, following our acquisition of Spectrum in 2017, we sell Spectra/Chrom® liquid chromatography products as part of our chromatography product line.
Filtration
XCell™ ATF
Our Filtration products offer a number of advantages to manufacturers of biologic drugs at volumes that span from pilot studies to clinical and commercial-scale production. We first established our Filtration franchise through our acquisition of XCell™ Alternating Tangential Flow (“ATF”) System,assets from Refine Technology (“Refine”) in 2014. XCell ATF systems are used primarily in upstream perfusion, or “continuous manufacturing”, processes.
XCell ATF is a market-leadingtechnologically advanced filtration device used in upstream processes to significantly increase product yieldcontinuously remove cellular metabolic waste products during the course of a fermentation step ofrun, freeing healthy cells to continue producing the biologic drug manufacturing process (the “Refine Business”of interest. XCell ATF was designed to both increase the density of cells in a bioreactor and extend the acquisitionproduction run. By continuously removing waste products from the fermenter, the XCell ATF System routinely increases cell densities to2- or3-times the levels achieved by standard batch fermentation. As a result, product yield is increased, which improves facility utilization and can reduce the size of a bioreactor required to manufacture a given volume of biologic drug product. This is important to biomanufacturers who seek to maximize output from their existing facilities. XCell ATF Systems are suitable for use in laboratory andscale-up all the way to production bioreactors as large as 2,000 liters.
Through internal innovation, we developed and in 2016 launchedsingle-use formats of the Refine Business,original stainless steel XCell ATF device to address increasing industry demand for“plug-and-play” technology. The XCell ATF device is now available to customers in both its original configuration (steel housing and replaceable filters) in all sizes (2, 4, 6 and 10), and/or as asingle-use device (disposable housing/filter combination) in most sizes (2, 6, and 10). The availability of XCell ATF in asingle-use format eliminates the “Refine Acquisition”). We purchased allpre-use workflow associated with autoclaving, leading to an 80% reduction in implementation time. Thesingle-use format also enables our customers to accelerate evaluations of the assetsproduct with a lower initial overall cost of ownership. Based on strong demand, we have continued to expand thesingle-use XCell ATF offering.
Sius™ TFF (TangenX)
In December 2016, we acquired TangenX Technology Corporation (“TangenX”), balancing our upstream XCell ATF offering with a downstream portfolio of flat-sheet tangential flow filters (TFF) and assumed certain specified liabilities relatedcassettes used in downstream biologic drug purification and formulation processes. The TangenX portfolio includes oursingle-use Sius™ TFF brand, providing customers with a high-performance,low-cost alternative to Refine’sreusable TFF cassettes.
TFF is a rapid and efficient method for separation and purification of biomolecules that is widely used in laboratory, process development and process scale applications in biopharmaceutical manufacturing. Sius is an innovativesingle-use TFF line of cassettes and hardware forlab-scale through large-scale biopharmaceutical manufacturing.Single-use Sius TFF cassettes with enclosed flat sheet membranes are designed to provide a high performing membrane at significantly lower product and labor costs than reusable TFF products. Each disposable cassette is deliveredpre-sanitized, integrity tested and ready to be equilibrated and used for tangential flow diafiltration and ultrafiltration processing. Use of Sius TFF cassettes eliminatesnon-value added steps of cleaning and flushing required in reusable TFF products. The cassettes are interchangeable with filter hardware from multiple manufacturers, simplifying customer trial and adoption of Sius products.
KrosFlo®, ProConnex® (Spectrum)
We acquired Spectrum and its subsidiaries in August 2017 to strengthen our filtration business with the addition of a leading portfolio of hollow-fiber (HF) filters and modules,single-use flow path connectors and TFF filtration systems. Spectrum products are used inbench-top through commercial-scale processes, primarily for the filtration, isolation, purification and concentration of biologics and diagnostic products. Our Spectrum filtration products offer both standard and customized solutions to bioprocessing customers, with particular strength in consumable andsingle-use offerings.
With the addition of Spectrum, we nowin-house manufacture hollow-fiber filters that can be used in our XCell ATF System. This acquisition strengthenedsystem. In addition, we increased our bioprocessing business by adding a complementary product line while expanding itsdirect sales presence worldwide. The termsin Europe and Asia, and we diversified our end markets beyond monoclonal antibodies to include vaccines, recombinant protein and gene therapies.
Spectrum’s filtration brands include its KrosFlo® line of the acquisition included an upfront cash paymenthollow-fiber cartridges and TFF systems, its Spectra/Por® portfolio of $21,235,937, less $66,277 as a result of the final determination of working capital, issuance of 215,285 of Repligen’s $0.01 par value common stock valued at $4,000,000, future potential contingent payments totaling up to $10,900,000 if specific sales targets are met for the years 2014, 2015laboratory and 2016,process dialysis products and future potential payments up to $7,500,000 out of any amounts that might be received in connection with the resolution, withdrawal or settlement of certain patent oppositions with a third party.itsPro-Connex®single-use hollow-fiberModule-Bag-Tubing sets.
Corporate Information
We generally manufacture and sell Protein A and growth factors to life sciences companies under supply agreements and sell our chromatography columns, as well as media and quality test kits, and our ATF products directly to biopharmaceutical companies or contract manufacturing organizations or through distributors. We refer to these activities as our bioprocessing business.
Historically, Repligen also conducted activities aimed at developing proprietary therapeutic drug candidates, oftenare a Delaware corporation with a potential of entering into a collaboration with a larger commercial stage pharmaceutical or biotechnology companyglobal headquarters in respect of these programs. As part of our strategic decision in 2012 to focus our efforts on our core bioprocessing business, we reduced our efforts on our clinical development programs and increased our efforts to find collaboration partners to pursue the development and, if successful, the commercialization of these drug programs.
Corporate Background
Waltham, Massachusetts. We were incorporated in May 1981 and became a publicly traded company in 1986. Our common stock is listed on The Nasdaq Global Market under the laws ofsymbol “RGEN”. We have over 470 employees and operate globally with offices and manufacturing sites located at multiple locations in the State of Delaware.United States, Europe and Asia. Our principal executive offices are located at 41 Seyon Street, Waltham, Massachusetts 02453, our website iswww.repligen.comand our telephone number is(781) 250-0111. We conduct manufacturing in Waltham and at our facility in Lund, Sweden.
Currently Marketed Products
We currently sell various commercial bioprocessing products based on Protein A and growth factors, as well as a line of pre-packed chromatography columns, ATF cell filtration products and quality test kits, which are used in the production of monoclonal antibodies and other biopharmaceutical products.Our Market Opportunity
Our Products for the Manufacturing of Biologic Drugs
Repligen is a leading developer and manufacturer of certain bioprocessing products used in the production of monoclonal antibodies and other biologic drugs. We manufacture multiple forms of Protein A, a critical component of Protein A media that is used in the downstream purification processes for monoclonal antibodies, on behalf of several major life sciences companies. We also manufacture and sell growth factors and ATF System products, used to increase cell growth and productivity during the fermentation step of biomanufacturing, and chromatography products for purification of biologic products. Our chromatography products include OPUS pre-packed columns for biologics purification, proprietary Protein A media and quality control test kits. These products are sold directly and through distributors to life sciences companies, contract manufacturing organizations and biopharmaceutical companies for use in the biologic drug production. Demand for Protein A and our bioprocessing products has grown in concert with the expanding global market for biologics, particularly monoclonal antibodies.
In 2014, theThe global biologics drug market was valued at approximatelyis estimated to be over $200 billion. This market includes therapeutic antibodies, recombinant proteins and vaccines. Antibody-based biologics alone accounted for over $100 billion of global biopharma revenue and is expectedrepresented a majority of the top 10 best-selling drugs across the pharmaceutical industry in 2016. Industry sources project the biologics market to grow at a rate inof8%-10% annually over the high single digits annually. Market research indicates that the monoclonal antibody segment comprised over 40% of the overall biologics market in 2013 and is growing more rapidly than the overall market. Six of the ten worldwide best-selling drugs in 2014 were monoclonal antibodies, including products such as Enbrel® and Remicade® for the treatment of rheumatoid arthritis and other inflammatory disorders, Rituxan® for non-Hodgkin’s lymphoma and Herceptin® for the treatment of breast cancer. There are more than 40 approved monoclonal antibody products and over 350 product candidates currently in development, most of which are manufactured using Protein A.
Repligen has been a leading manufacturer of Protein A for over fifteennext five years, and manufactures multiple forms of Protein A for major life sciences companies including GE Healthcare and EMD Millipore. Pursuant to Repligen’s Strategic Supplier Alliance Agreement with GE Healthcare, Repligen has agreed to manufacture and sell to GE Healthcare two forms of GE Healthcare proprietary recombinant Protein A through 2021. Repligen’s Strategic Supplier Alliance Agreement with GE Healthcare is terminabledriven by either party upon written notice of breach or insolvency or if Repligen markets a Protein A media equivalent to GE Healthcare’s leading products. In addition, pursuant to the Strategic Supplier Alliance Agreement, or Sweden Supplier Agreement, by and between Repligen Sweden AB and GE Healthcare, Repligen Sweden AB agrees to manufacture and sell to GE Healthcare native Protein A and three forms of GE Healthcare proprietary recombinant Protein A through December 31, 2016. Either party may terminate the Sweden Supplier Agreement unilaterally for convenience upon one years’ written notice or upon written notice of material default or breach of the agreement and bankruptcy or insolvency. GE Healthcare may terminate the Sweden Supplier Agreement if Repligen Sweden AB markets or sells any chromatography media products, transfers control of the Sweden Supplier Agreement or upon delay or defect in the Protein A products. To be usefulstrength in the monoclonal antibody manufacturing process, Protein A is chemically bound to proprietary microscopic beads that are manufactured(mAb) class of biologics, as evidenced by life sciences companies, such as those mentioned above. These beads provide the rigid support required to use Protein A ligands. The combinationrate of Protein A ligands bound tonew approvals, expanded labels for marketed antibodies and the beads is known as Protein A chromatographic media, which is packed by end-users into cylindrical columns and used to purify monoclonal antibodies. For example,emergence of biosimilar versions of originator mAbs.
afterIn 2017, a fermentation process that produces monoclonalrecord 14 antibodies (10 originator and four biosimilar antibodies) were approved by the broth containingU.S. Food and Drug Administration (“FDA”) to treat a diverse range of diseases. There are currently more than 80 mAbs on the monoclonalmarket and more than 400 in various stages of interest,clinical development addressing a wide range of medical conditions including asthma, migraines and Alzheimer’s disease.
In addition to investments in the discovery and development of novel biologic drugs, there has been substantial investment infollow-on products (biosimilars) by generic and specialty pharmaceutical as well as numerous fermentation by-productslarge biopharmaceutical companies. Development offollow-on products has accelerated as the first major mAbs have come off patent in the European Union and contaminants, is pumped through a column filled with Protein A chromatographic media. The Protein A media selectively bindsUnited States. Due to or “captures�� the monoclonal antibody. Protein A has a high affinitycost of biologic drugs, many countries in the developing and emerging markets have been aggressively investing in biomanufacturing capabilities to supply lower cost biosimilars for the monoclonal antibodylocal markets. For both originator and asfollow-on biologics manufacturing, Repligen products are well-positioned to enable greater manufacturing flexibility, production yields and lower costs through improved process efficiencies.
The Biologics Manufacturing Process
Manufacturing biologic drugs requires three fundamental steps. First, upstream manufacturing involves the production of the biologic by living cells that are grown in a result, the antibody remains boundbioreactor under controlled conditions. These cells, or factories, are highly sensitive to the Protein Aconditions under which they grow, including the composition of the cell culture media while impurities flowand the growth factors used to stimulate increased cell growth and protein production, or titre. In the second, downstream step, the biologic must be separated and purified, typically through various filtration and chromatography (purification) steps. In the column and are discarded. Oncethird stage of the impurities are removed, a change in pH conditions releasesprocess, the purified antibody frombiologic drug is formulated, quality controlled and packaged into its final injectable form.
Detailed specifications for a drug’s manufacturing process are included in the Protein A media.applications that biopharmaceutical companies file for marketing approval with regulators such as the FDA and the European Medicines Agency. Once a drug advances to late-stage clinical trials, the commercial manufacturing process is typically established by the developer, and the process specifications become part of the regulatory approval package. As a result, the monoclonal antibody product is highly purified and concentrated from a single purification step. Further purification stepsbioprocessing products that are usually necessary to increase purity to a level greater than 98%. Over the past three years, the majority of our product sales have been sales of Protein A products.
Most biopharmaceuticals are produced through mammalian cell fermentation. In order to spur increased cell growth, manufacturers often add growth factorsincluded in these manufacturing specifications can be very “sticky” due to the fermentation media. As partcosts and regulatory uncertainties associated with displacing them.
Our Strategy
We are focused on the development, production and commercialization of the Novozymes Acquisition, the Company acquired several cell culture growth factor products. Among those products is LONG®R3 IGF-I, a growth factordifferentiated bioprocessing technologies and solutions that is more biologically potent than insulin, and that has been shown to significantly increase recombinant protein production in fermentation applications. LONG®R3 IGF-I is currently usedaddress pressure points in the manufacture of several commercial biopharmaceutical productsinherently complex biologics manufacturing process and is sold under a distribution agreementdeliver substantial value to our customers. We are committed to supporting our customers with Sigma-Aldrich Corporation (“Sigma”) which extends to 2021. Sigma has distribution rights for industrial cell culturestrong customer service and applications while Repligen sells the product for use in stem cell and other cell-based therapies. In addition, we acquired long epidermal growth factor (LONG®EGF) for both bioproduction and cell-based therapy applications.expertise.
We also sell ATF System products which are designed to increase cell density and product yield in the fermentation step of biomanufacturing. The ATF System is a filtration device which is used to continuously remove cellular metabolic waste products during the course of a fermentation run. This enables the fermented cells to grow to significantly higher density which increases the yield of the biologic product and reduces costs. ATF Systems consist of a stainless steel housing which contains a consumable filter and an associated pump and controller. They are sold in a variety of sizes suitable for use at laboratory scale up to production fermenters as large as 1,000 liters. ATF Systems are used in the production of several FDA-approved monoclonal antibodies.
We also sell a number of products used in purification and quality control applications to contract manufacturers and biopharmaceutical companies. These products include: OPUS pre-packed, disposable chromatography columns, proprietary Protein A chromatography media and quality control test kits. Our OPUS pre-packed chromatography columns are sold in a variety of sizes with the customer’s choice of media. This product line’s smaller sizes consist of proprietary technology that we acquired from BioFlash Partners, LLC (“BioFlash”) in January 2010 while the larger sizes encompass products and technology that we developed as a result of our internal research and development efforts. OPUS columns have the potential to improve manufacturing efficiencies and lower costs by reducing labor and time spent on column packing, validation, set-up and cleaning of traditional glass columns. In addition, because OPUS columns are “plug-and-play” we believe they offer customers significantly greater manufacturing efficiency and flexibility when used with other flexible, disposable technologies. In early 2012, we introduced new, process-scale OPUS chromatography columns with diameters of 20cm and 30cm. These new products are well suited for the production of a broad range of clinical trial material and niche commercial products such as orphan biologics. In early 2014, we introduced a 45 cm diameter version of OPUS columns, the largest pre-packed column on the market which is suitable for purification of biological products produced in fermenters as large as 1,000 liters.
Our proprietary Protein A chromatography media is used by contract manufacturers and biopharmaceutical companies in the purification of some currently marketed monoclonal antibodies. Customers use our Protein A and Growth Factor ELISA test kits to ensure that there are minimal levels of residual Protein A and growth factor, respectively, in the final bulk drug product.
Research and Development
Historically, our research activities focused on both the development of proprietary therapeutic drug candidates and the development of new and improved bioprocessing products. As part of our strategic decision in
2012 to focus the Company’s efforts on our core bioprocessing business, we reduced our research efforts on our clinical development programs and increased our efforts to find collaboration partners to finish their development and, if successful, commercialize these therapeutic drug candidates. We intend to focus allbuild on our recent history of our futuredeveloping market-leading solutions and delivering strong financial performance through the following strategies:
• | Continued innovation. We plan to capitalize on our internal technological expertise to develop products that address unmet needs in upstream and downstream bioprocessing. We intend to invest further in our core Proteins franchise while developing platform and derivative products to support our Filtration and Chromatography franchises. |
• | Platforming our products.A key strategy for accelerating market adoption of our products is delivery of enabling technologies that become the standard, or “platform,” technology in markets where we compete. We focus our efforts on winning early-stage technology evaluations through direct interaction with the key biomanufacturing decision makers in process development labs. This strategy is designed to establish both early adoption of our enabling technologies at key accounts and accelerate the implementation of our products as platform products, thereby strengthening our competitive advantage and contributing to long-term growth. |
• | Targeted acquisitions. We have recently completed strategic acquisitions that strengthen our market position, and we continue to selectively pursue acquisitions and intend to leverage our balance sheet to acquire technologies and products that improve our overall financial performance by improving our competitiveness and/or moving us into adjacent markets with common commercial call points. |
• | Geographical expansion. We will continue to incrementally expand our global commercial team and distribution channels, particularly in the United States, Europe and Asia, to increase our global presence and simplify our interactions and transactions with customers. |
• | Operational efficiency. In recognition of the increasing size and scale of our organization, we continue to invest in systems to support our global operations in order to optimize resources and productivity. |
Research and Development
Our research and development effortsactivities are focused on developing new high-value bioprocessing products. Specifically, we plan to focus these efforts on expanding our growth factor,product portfolio and applications for our OPUS PPC columns, XCell ATF systems, Sius TFF, KrosFlo®, TFF systems and chromatography product offerings because we believe those markets may offer a higher rate of growth than the bulkother products, and developing next generation Protein A market.
HDAC Agreement with BioMarin
On January 21, 2014, we out-licensed our HDACi portfolio, which includes the Friedreich’s ataxia program, to BioMarin Pharmaceuticals Inc. Friedreich’s ataxia is an inherited disease that causes progressive damage to the nervous system resulting in symptoms ranging from impaired walkingligands. Research and speech problems to heart disease. Pursuant to the terms of the agreement, BioMarin agrees to use commercially reasonable efforts to commercialize HDACi portfolio product until the later of (i) the expiration of the last-to-expire valid claim of an issueddevelopment expenses totaled approximately $8.7 million, $7.4 million and unexpired patent or pending patent application claiming a compound included in the agreement or (ii) 10 years. Under the terms of the agreement, Repligen received an upfront payment of $2$5.7 million in January 2014 from BioMarin and we have the potential to receive up to $160 million in future milestone payments for BioMarin’s development, regulatory approval and commercial sale of portfolio compounds included in the agreement. These potential milestone payments are approximately 37% related to clinical development and 63% related to initial commercial sales in specific geographies. In addition, Repligen is eligible to receive royalties on sales of qualified products developed. The royalty rates are tiered and begin in the mid-single-digits for the first HDACi portfolio product and for the first non-HDACi portfolio product with lesser amounts for any backup products developed under the agreement. Repligen’s receipt of these royalties is subject to customary offsets and deductions. There are no refund provisions in this agreement. Royalties under this agreement are paid on a country-by-country basis during the period beginning on the first commercial sale of a compound in such country, until the later of: (i) the expiration of exclusivity period granted by a governmental authority to prevent the entry of generic product into such country; (ii) the expiration of the last-to-expire valid claim of an issued and unexpired patent or pending patent application claiming such compound in such country; or (iii) ten years following the first commercial sale of such HDACi portfolio product in any country. Royalty payments on products derived from the compounds included in the agreement are calculated by multiplying net sales of such product for the calendar year by an applicable royalty rate based on incremental net sale amounts. We have no further obligations to BioMarin.
SMA Agreement with Pfizer
On December 28, 2012, we entered into an exclusive worldwide licensing agreement (the “License Agreement”) with Pfizer to advance the SMA program, which is led by RG3039 and also includes backup compounds and enabling technologies. Under the terms of the License Agreement, we received $5 million from Pfizer as an upfront payment on January 22, 2013, a $1 million milestone payment on September 4, 2013 and a $1 million milestone payment on December 28, 2014. On January 26, 2015 Pfizer notified us that they were terminating the License Agreement for convenience, effective as of April 26, 2015. We have no further obligations to Pfizer and do not intend to invest additional resources to the development of the SMA program.
RG1068
Our clinical development portfolio also includes RG1068, a synthetic human hormone developed as a novel imaging agent for the improved detection of pancreatic duct abnormalities in combination with magnetic resonance imaging in patients with pancreatitis and potentially other pancreatic diseases. We submitted an NDA to the FDA and a marketing authorization application to the European Medicines Agency in the first quarter of 2012. In the second quarter of 2012, we received a complete response letter from the FDA, indicating the need for additional clinical efficacy and safety trial data. On December 23, 2014, Innovate Biopharmaceuticals, Inc.
(“Innovate”) acquired our RG1068 program for a nominal amount. Innovate is solely responsible for future development and commercialization of RG1068. If Innovate gains marketing approval and successfully commercializes RG1068, Repligen is eligible to receive royalties through the latter of ten years after the first commercial sale or the entry of a generic equivalent into the U.S. market.
Orencia® (CTLA4-Ig) Royalties
CTLA4 is a regulator that “turns off” the immune system after it has successfully cleared a bacterial or viral infection by blocking the activation of T-cells, the immune cells responsible for initiating an immune response. In the 1990’s, our collaborators at the University of Michigan and the U.S. Navy demonstrated that a fusion protein consisting of fragments of CTLA4 and an antibody (“CTLA4-Ig”) could be used to treat certain autoimmune diseases. This research finding resulted in the granting of U.S. patent No. 6,685,941 (“the ‘941 Patent”) covering the treatment of certain autoimmune disorders including rheumatoid arthritis with CTLA4-Ig.
In December 2005, the FDA approved Bristol’s application to market CTLA4-Ig, under the brand name Orencia®, for treatment of rheumatoid arthritis. In April 2008, Repligen and the University of Michigan entered into a settlement agreement with Bristol pursuant to which, Bristol made an initial payment of $5 million to us and agreed to pay us royalties on the U.S. net sales of Orencia® for any clinical indication at a rate of 1.8% for the first $500 million of annual sales, 2.0% for the next $500 million and 4.0% of annual sales in excess of $1 billion for each year from January 1, 2008 untilended December 31, 2013. These royalty payments have ceased,2017, 2016 and we did not receive any royalties from Bristol relating to 2014 net sales.2015, respectively.
Sales and Marketing
Our sales and marketing strategy supports our objective of establishing Repligenstrengthening our position as a leading provider of products and services, addressing upstream, downstream and quality control needs of bioprocessing customers in the biotechnology and biopharmaceutical industries. Throughindustry.
OEM Agreements
For our products and brands, including Protein A,IGF-1, OPUS, ATFProteins franchise, we provide premiere offerings and services to our bioprocess customers. We are committed to being a partner of choice for our customers with distributor and supply agreements in place with large life sciences companies such as GE Healthcare, MilliporeSigma and Purolite. The GE Healthcare Protein A supply agreement relating to our Lund, Sweden facility runs, pursuant to its terms, through 2019. The GE Healthcare Protein A supply agreement relating to our Waltham, Massachusetts facility runs, pursuant to its terms, through 2021. Our Protein A supply agreement with MilliporeSigma runs, pursuant to its terms, through 2023, and in 2017 we secured a Protein A supply agreement with Purolite that runs, pursuant to its terms, to November 2022 with an option for renewal through 2025. Our dual manufacturing capability provides strong business continuity and reduces overall supply risk for our growth factorOEM customers.
Direct-to-Customer Team
Supporting ourdirect-to-customer Chromatography and Protein A products with Sigma Aldrich, GE Healthcare, EMD Millipore. WeFiltration franchises, we have invested in our commercial organization, expanding from 3 field employees in 2014 to 54 field employees (field sales, applications and nowservice) in the U.S., Europe and Asia as of February 15, 2018. This includes the team of 26 highly experienced field personnel that we added with our acquisition of Spectrum in 2017. With the acquisition, we have approximately 20greatly expanded our direct sales team in Asia, where we also work effectively with key distributors to serve our expanding customer base. In addition, we have 41 employees in marketing, product management and customer service individuals providing service and support to our expanding customer base. In Asia, we also work effectively with key distributors.
As part of the Spectrum integration process, we expect to transition to a hybrid sales model by the end of the first quarter of 2018, whereby all sales staff will represent all Repligen products across our Chromatography and Filtration portfolios. Our globalbioprocess account managers will be supported in each region by technically trained field applications specialists and field service providers, who can work closely with customers on product demonstrations, implementation and support. We believe that this model will help drive further adoption at our key accounts and also open up new sales organization has both distributor and direct sales personnel, depending on the market and application area. We will continue to expand our commercial organization. This organization also helps us identify market needs and new technologies that we can license and develop into new products.opportunities within each region.
Segment and Geographic Areas
We have one reportable segment. Segment and geographical information is contained in Note 2 of the notes to our consolidated financial statements.statements as of and for the years ended December 31, 2017, 2016, and 2015.
Significant Customers and Geographic Reporting
Customers for our bioprocessing products include major life science companies, contract manufacturing organizations, biopharmaceutical companies, diagnostics companies and laboratory researchers. For
The following table represents the fiscal years ended December 31, 2014, 2013 and 2012,Company’s total revenues from sales to customers inrevenue by geographic area (based on the United States were approximately 33%, 51% and 46%, respectively,location of total revenues. During the same periods, total revenues generated through sales to customers in Sweden were 38%, 35% and 42%, respectively, of total revenues. During the same periods, total revenues generated through sales to customers in the United Kingdom were 20%, 12% and 9%, respectively, of total revenues. For the fiscal years ended December 31, 2014, 2013 and 2012, royalty revenue from Bristol represented 0%, 27% and 24% of total revenues, respectively. customer):
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United States | 43 | % | 39 | % | 28 | % | ||||||
Sweden | 20 | % | 29 | % | 37 | % | ||||||
United Kingdom | 4 | % | 7 | % | 17 | % | ||||||
Other | 33 | % | 25 | % | 18 | % | ||||||
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GE Healthcare, our largest bioprocessing customer, accounted for 38%21%, 35%29% and 42%37% of total revenues in the fiscal years ended December 31, 2014, 20132017, 2016 and 2012,2015, respectively.
Employees
As of March 13, 2015,February 15, 2018, we had 136 employees.476employees. Of those employees, 9742 were engaged in engineering and research and development, 289 in manufacturing, 95 in sales and manufacturingmarketing and 39 were50 in administrative and marketing functions. Each of our employees has signed a confidentiality agreement. None of our U.S. employees are covered by collective bargaining agreements. We have twoone collective bargaining agreementsagreement with two unions that covercovers our 5760 employees in Sweden, comprising approximately 50%13% of our total workforce. The currentWe renewed these collective bargaining agreements during 2017, and the new collective bargaining agreements expire on March 31, 2016. The Company considers its2019. We consider our employee relations to be satisfactory.
Patents, Licenses and Proprietary Rights
Repligen considersWe consider patents to be an important element in the protection of our competitive and proprietary position and actively, and selectively, pursuespursue patent protection in the United States and in major countries abroad. As further described below, Repligen ownswe own or hashave exclusive rights to a number of U.S. patents and U.S. pending patent applications as well as corresponding foreign patents and patent applications. The expiration of key patents owned or licensed by us or the failure of patents to issue on pending patent applications could create increased competition, with potential adverse effects on our business prospects.
Other forms of market protection, including trade secrets andknow-how, are also considered important elements of our proprietary strategy. Our policy is to require each of our employees, consultants, business partners, and major customers to execute confidentiality agreements upon the commencement of an employment, consulting, business relationship, or product related audit with us. These agreements provide that all confidential information developed or made known to the other party during the course of the relationship with us 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 Repligen shall be our exclusive property.property and must be assigned to Repligen.
Protein A
We have developed proprietary technology, trade secrets, andknow-how relating to the manufacture of recombinant Protein A at a scale and quality standard whichthat is consistent with the requirements of the biopharmaceutical industry. In addition, in April 2010, we were grantedour U.S. Patent No. 7,691,608, B2, “Nucleic Acids Encoding Recombinant Protein A,” which claims a recombinant genean isolated nucleic acid molecule that encodes a Protein A molecule with an amino acid sequence identical to that of the natural Protein A molecule, which has long been commercialized for bioprocessing applications. This U.S. patent, with the term extensionadjustment that was granted, will remain in effect until June 2028. Foreign equivalents of this patent are being prosecuted outside of the United Stateshave been issued in Sweden, Netherlands, Great Britain, France, and Germany, and have issued in Canada. The claims of U.S. Patent No. 7,691,608 cover compositions of matter including isolated nucleic acids, expression vectors, bacterial cells that include the nucleic acids, as well as methods of producing truncated Protein A polypeptides, methods of producing affinity chromatography resins, and methods of purifying proteins.
OPUS
In JanuarySince 2012, Repligenwe filed afive provisional patent applicationapplications with the U.S. Patent and Trademark Office (“USPTO”) and four patent applications based on those provisional patent applications, which coverscover certain unique methods and features of our OPUSpre-packed columns. Pending claims that relate toThese unique methods and features include methods of making and loading these unique features coverchromatography columns as well as the easecolumns themselves; methods of sterilizing plastic chromatography columns; disposable (single use) alternating tangential flow filtration units and flexibilitymethods of columnmanufacture, testing, and use; methods of recovering packing bed height adjustmentmedium frompre-packed chromatography columns and cleaning that is improved over existing pre-packed column designs.specialized chromatography columns for use in such methods; and methods and systems for removing air from chromatography columns using specialized tubing and valve systems. In January 2013,addition, we have filed an international patent cooperation treaty (“PCT”) application as wellapplications as a utility application with the USPTO on the basis of the provisional application. Theapplications. Certain of these patent applications related to the OPUSpre-packed column patent application isare pending in the United States, Australia, Canada, Europe, Hong Kong, India, and Japan.Japan, and certain related patents have been granted in Australia and Canada.
XCell ATF Systems
As part of the Refine Acquisition, Repligenwe acquired the exclusive rights to an issued U.S. patent (US 6,544,424) covering the ATF System and a process related to the filtration of biologic fluids from a bioreactor
through hollow fiber filters by the action of a diaphragm pump whichthat creates alternating tangential flow through the filter. The patent expires in 2020.
Spinal Muscular AtrophyAnother patent has been issued in the U.S. covering improvements on the original ATF design that include a screen filter module (U.S. Patent No. 9,050,547). This family of patents and applications has issued or is pending in Brazil, China, Germany, France, Great Britain, India, Korea and Sweden.
In 2009, Repligen entered into an exclusive license agreement with a non-profit organization, FSMA, for worldwide rights toOther additional improvements on the original ATF systems and methods are covered by patents and patent applications relatedpending in one or more of the U.S., Canada, China, Europe, Hong Kong, India, Japan, and Korea. These patents and patent applications expire between 2029 and 2033. In particular, one family of improvement patents and applications relating to compositionsATF systems has issued in Japan and methods for the treatment of spinal muscular atrophy. FSMA had funded the development of these compoundsChina. These patents and identified a novel enzyme target (“DcpS”) that these compounds inhibit. In 2011, we were granted U.S. Patent Nos. 7,888,366 and 7,985,755, both entitled “2,4 Diaminoquinazolines for Spinal Muscular Atrophy,” with allowed compositionapplications include claims that cover bothenclosed filtration and bioreactor systems and dual pump systems.
Another family of improvement patents and applications relating to ATF systems has issued in the genus and the species of the chemical structures of the lead clinical candidates. The expiration date of U.S. (U.S. Patent No. 7,888,366 (the ‘366 patent) is9,446,354) with claims that cover product concentration systems and corresponding methods. Corresponding applications are pending in 2028 with potential forthe U.S., Europe, Korea, and Hong Kong.
Spectrum
In August 2017, Repligen acquired Spectrum, including its patent term extension. The expiration date of U.S. Patent No. 7,985,755 (the ‘755 patent) isportfolio. Spectrum currently has 2 issued patents and one pending patent application in 2027 with potential for patent term extension.
Pursuant to the License Agreement, we licensed all of our intellectual propertyUnited States and 2 pending applications in other countries related to SMA to Pfizersurgical drapes, cell proliferation methods, and Pfizer has assumed responsibility for maintaining existing intellectual property and prosecuting new intellectual property relating to this program. On January 26, 2015, Pfizer issued to us a notice of its termination of the License Agreement for convenience, effective as of April 26, 2015.thick wall, hollow fiber tangential flow filters.
Histone Deacetylase Inhibitors
Repligen hasIn 2007, we entered into an exclusive license agreement with The Scripps Research Institute for worldwide rights to a patent application claiming compounds and methods for treating Friedreich’s ataxia with inhibitors of histone deacetylase. We have extended this original work and filed additional patent applications which claim both methods and compositions for treating Friedreich’s ataxia. We licensedOn January 21, 2014, weout-licensed all of our intellectual property related to HDAC to BioMarin Pharmaceuticals Inc. (“BioMarin”), and BioMarin has assumed responsibility for maintaining existing intellectual property and prosecuting new intellectual property relating to this program. On January 21, 2014, we Ourout-licensed our HDAC Inhibitor (HDACi) portfolio to BioMarin Pharmaceuticals Inc. Our out-licensed HDACi portfolio included patent applications in the United States as well as patent applications in Europe, Canada, Japan and Australia. Patents, if any, that are granted in the U.S. based on these patent applications are expected to expire from 2029 to 2032.
Trademarks
Our ability to compete effectively in the marketplace is dependent in part on our ability to protect our intellectual property rights, which includes protecting the trademarks we use in connection with our products and services. We rely on several registered and unregistered trademarks to protect our brand. Repligen currently has 12 registered trademarks in the United States and 34 registrations in other countries. Repligen continues to file trademark applications and currently has 4 pending applications in the United States and 13 pending applications in other countries.
Spectrum currently has 25 registered trademarks in the United States and 2 registrations in other countries.
Licensing Agreements
HDAC Agreement with BioMarin
On January 21, 2014, weout-licensed our HDAC portfolio, which includes the Friedreich’s ataxia program, to BioMarin. Friedreich’s ataxia is an inherited disease that causes progressive damage to the nervous system resulting in symptoms ranging from impaired walking and speech problems to heart disease. Pursuant to the terms of the agreement, BioMarin agrees to use commercially reasonable efforts to commercialize HDAC portfolio products until the later of: (i) the expiration of thelast-to-expire valid claim of an issued and unexpired patent or pending patent application claiming a compound included in the agreement or (ii) 10 years. Under the terms of the agreement, Repligen received an upfront payment of $2 million in January 2014 from BioMarin and we have the potential to receive up to $160 million in future milestone payments for BioMarin’s development, regulatory approval, and commercial sale of portfolio compounds included in the agreement.
These potential milestone payments are approximately 37% related to clinical development and 63% related to initial commercial sales in specific geographies. In addition, Repligen is eligible to receive royalties on sales of qualified products developed. The royalty rates are tiered and begin in themid-single-digits for the first HDAC portfolio product and for the firstnon-HDAC portfolio product with lesser amounts for any backup products developed under the agreement. Repligen’s receipt of these royalties is subject to customary offsets and deductions. There are no refund provisions in this agreement. Royalties under this agreement are paid on acountry-by-country basis during the period beginning on the first commercial sale of a compound in such country, until the later of: (i) the expiration of exclusivity period granted by a governmental authority to prevent the entry of generic product into such country; (ii) the expiration of thelast-to-expire valid claim of an issued and unexpired patent or pending patent application claiming such compound in such country; or (iii) ten years
following the first commercial sale of such HDAC portfolio product in any country. Royalty payments on products derived from the compounds included in the agreement are calculated by multiplying net sales of such product for the calendar year by an applicable royalty rate based on incremental net sale amounts. We have no further obligations to BioMarin.
RG1068
Our clinical development portfolio previously included RG1068, a synthetic human hormone we had developed as a novel imaging agent for the improved detection of pancreatic duct abnormalities in combination with magnetic resonance imaging in patients with pancreatitis and potentially other pancreatic diseases. In December 23, 2014, Innovate Biopharmaceuticals, Inc. (“Innovate”) acquired our RG1068 program for a nominal amount. Innovate is solely responsible for future development and commercialization of RG1068. If Innovate gains marketing approval and successfully commercializes RG1068, Repligen is eligible to receive royalties through the later of ten years after the first commercial sale or the entry of a generic equivalent into the U.S. market.
Competition
Our bioprocessing products compete on the basis of quality, performance, cost effectiveness, and application suitability with numerous established technologies. Additional products using new technologies that may be competitive with our products may also be introduced. Many of the companies selling or developing competitive products, which in some cases include GE Healthcare and MilliporeSigma, our two largest customers, have greater financial and human resources, research and development, manufacturing and marketing experience than we do. They may undertake their own development of products that are substantially similar to, or compete with, our products and they may succeed in developing products that are more effective or less costly than any that we may develop. These competitors may also prove to be more successful in their production, marketing and commercialization activities. We cannot be certain that the research, development and commercialization efforts of our competitors will not render any of our existing or potential products obsolete.
Manufacturing
We manufacture seven commercial forms of Protein A, including “native” Protein A for life sciences companies, including GE Healthcare, MilliporeSigma and EMD MilliporePurolite, under long-term supply agreements which expire between 20152019 and 2021.2023. Native Protein A is manufactured in Lund, Sweden, while the recombinant forms are manufactured in Waltham, Massachusetts or in both Waltham, Massachusetts and Lund, Sweden. We currently manufacture our growth factor products in Sweden and ourLund, Sweden. Our OPUS chromatography columns and XCell ATF System products are manufactured in Waltham, Massachusetts. Our OPUSPD columns are manufactured in Ravensburg, Germany, and our Sius TFF products are manufactured in Shrewsbury, Massachusetts. Our KrosFlo line of products is manufactured in Rancho Dominguez, California. Our Spectra/Pro andPro-Connex products are manufactured in Irving, Texas, and our Spectra/Chrom products are manufactured in Houston, Texas.
We generally purchase raw materials from more than one commercially established company and believe that the necessary raw materials are currently commercially available in sufficient quantities necessary to meet market demand. However, there are only a limited number of suppliers of materials related to the XCell ATF System products, one of which is the soleprimary supplier of materials used for consumable XCell ATF System products.
We utilize our own facilities in Waltham, Massachusetts and Lund, Sweden as well as third party contract manufacturing organizations to carry out certain fermentation and recovery operations, while the purification, immobilization, packaging and quality control testing of our bioprocessing products are conducted at our facilities. Our U.S. facility,facilities located in Waltham, MassachusettsMassachusetts; Lund, Sweden; Ravensburg, Germany; and our Sweden facility, located in Lund,Rancho Dominguez, California are both ISO 90019001:2015 certified and maintain formal quality systems to maintain process control, traceability, and product conformance. Additionally, our facility in Irving, Texas is ISO 13485:2012
certified. We practice continuous improvement initiatives based on routine internal audits as well as external feedback and audits performed by our partners and customers. In addition, we maintain a business continuity management system which focuses on key areas such as contingency planning, security stocks andoff-site storage of raw materials and finished goods to ensure continuous supply of our products.
Available Information
We maintain a website with the address www.repligen.com.www.repligen.com. We are not including the information contained on our website as a part of, or incorporating it by reference into, this Annual Report on Form10-K. We make available free of charge through our website our annual reportsAnnual Reports on Form10-K, quarterly reports Quarterly Reports on Form10-Q and current reportsCurrent Reports on Form8-K, and amendments to these reports, as soon as reasonably practicable after we electronically file such materials with, or furnish such materials to, the Securities and Exchange Commission. Our Code of Business Conduct and Ethics is also available free of charge through our website.
In addition, the public may read and copy any materials that we file with the Securities and Exchange Commission at the Securities and Exchange Commission’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the Securities and Exchange Commission at1-800-SEC-0330. Also, our filings with the Securities and Exchange Commission may be accessed through the Securities and Exchange Commission’s Electronic Data Gathering, Analysis and Retrieval (EDGAR) system at www.sec.gov.
RISK FACTORS |
Investors should carefully consider the risk factors described below before making an investment decision.
If any of the events described in the following risk factors occur, our business, financial condition or results of operations could be materially harmed. In that case the trading price of our common stock could decline, and investors may lose all or part of their investment. Additional risks and uncertainties that we are unaware of or that we currently deem immaterial may also become important factors that affect Repligen.
This Annual Report on Form10-K contains forward looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward looking statements as a result of certain factors, including the risks faced by us described below and elsewhere in this Annual Report onForm 10-K.
We face competition from numerous competitors, most of whom have far greater resources than we have, which may make it more difficult for us to achieve significant market penetration.
The bioprocessing market is intensely competitive, subject to rapid change and significantly affected by new product introductions and other market activities of industry participants.
Many of our competitors are large, well-capitalized companies with significantly more market share and resources than we have. As a consequence, they are able to spend more aggressively on product development, marketing, sales and other product initiatives than we can. Many of these competitors have:
significantly greater name recognition;
larger and more established distribution networks;
additional lines of products and the ability to bundle products to offer higher discounts or other incentives to gain a competitive advantage;
greater experience in conducting research and development, manufacturing, clinical trials, marketing, obtaining regulatory approval and entering into collaboration or other strategic partnership arrangements; and
greater financial and human resources for product development, sales and marketing and patent litigation.
Our current competitors, including certain of our customers, or other companies may at any time develop additional products that compete with our products. If an existing or future competitorany company develops products that compete with or are superior to our products, our revenue may decline. In addition, some of our competitors may compete by lowering the price of their products. If prices were to fall, we may not be able to improve our gross margins or sales growth sufficiently to maintain and grow our profitability.
We dependDespite our increasingly diversified client base, we have historically depended on, and expect to continue to depend on, a limited number of customers for a high percentage of our revenues.
As a result, theThe loss of, or a significant reduction in orders from, any of these customers, including following any termination or failure to renew a long-term supply contract, would significantly reduce our revenues and harm our results of operations. If a large customer purchases fewer of our products, defers orders or fails to place additional orders with us for any other reason, including for business continuity purposes, our revenue could decline, and our operating results may not meet market expectations. In addition, if those customers order our products, but fail to pay on time or at all, our liquidity and operating results could be materially and adversely affected. Furthermore, if any of our current or future products compete with those of any of our largest customers, these customers may place fewer orders with us or cease placing orders with us, which would could negatively affect our revenues and operating results.
AsIf we evolve from a company dependent on othersare unable to commercialize our products to a company selling directly to end users, we may encounter difficulties in expandingexpand our product portfolio, and our commercial efforts.ability to generate revenue could be adversely affected.
In connection with the Company’s decision to focus our efforts on the growth of our core bioprocessing business, we are increasingly seeking to develop and commercialize our own portfolio of products. Our future financial performance will depend, in part, on our ability to successfully develop and acquire additional bioprocessing products. There is no guarantee that we will be able to successfully acquire or develop additional bioprocessing products, and the Company’s financial performance will likely suffer if we are unable to do so.
If intangible assets and goodwill that we recorded in connection with our acquisitions become impaired, we couldmay have to take significant charges against earnings.
In connection with the accounting for theour acquisitions of Novozymes, Acquisition,Refine, Atoll, TangenX and Spectrum, we recorded a significant amount of intangible assets, including developed technology and customer relationships relating to the growth factor products. In addition, in connection with the accounting for the Refine acquisition, we recorded a significant amount of intangible assets, including developed technologyacquired product lines, and customer relationships relating to the ATF system.goodwill. Under U.S. GAAP, we must assess, at least annually and potentially more frequently, whether the value of intangible assets and goodwill has been impaired. Intangible assets and goodwill will be assessed for impairment in the event of an impairment indicator. Any reduction or impairment of the value of intangible assets and goodwill will result in a charge against earnings, which could materially adversely affect our results of operations and shareholders’ equity in future periods.
Spectrum may have unknown liabilities or liabilities which exceed our estimates. Any such liabilities could adversely affect our financial position.
Spectrum’s business activities may have associated with them various potential liabilities relating to the conduct of its business prior to the Spectrum Acquisition, including, but not limited to, product liability, historical tax matters and other potential liabilities that could adversely affect our financial position. We have assumed these potential liabilities as of the closing of the Spectrum Acquisition on August 1, 2017. The obligations of Spectrum’s former security holders to indemnify us is limited to approximately $36.0 million, subject to limited exceptions. If any liability claims were to arise, we may not be entitled to sufficient, or any, indemnification or recourse from Spectrum’s former security holders, which could have a materially adverse impact on our business and results of operations.
Our exposure to political, economic and other risks that arise from operating a multinational business has and may continue to increase.
We operate on a global basis with offices or activities in Japan, South Korea, China, India, Europe and North America. Our operations and sales outside of the United StatesU.S. have increased as a result of theour acquisitions of Novozymes, AcquisitionRefine, Atoll, TangenX and the Refine AcquisitionSpectrum and the continued expansion of our commercial organization. Risks related to these increased foreign operations include:
fluctuations in foreign currency exchange rates;
changes in general economic and political conditions in countries where we operate, particularly as a result of ongoing economic instability within the European Union and other foreign jurisdictions;
being subject to complex and restrictive employment and labor laws and regulations, as well as union and works council restrictions;
changes in tax laws or rulings in the United StatesU.S. or other foreign jurisdictions that may have an adverse impact on our effective tax rate;
being subject to burdensome foreign laws and regulations, including regulations that may place an increased tax burden on our operations;
being subject to longer payment cycles from customers and experiencing greater difficulties in timely accounts receivable collections; and
required compliance with a variety of foreign laws and regulations.
Our business success depends in part on our ability to anticipate and effectively manage these and other.other related factors. We cannot assure you that these and other related factors will not materially adversely affect our international operations or business as a whole.
In addition, a deterioration in diplomatic relations between the U.S. and any country where we conduct business could adversely affect our future operations and lead to a decline in profitability.
We may be unable to efficiently manage efficiently having become a larger and more geographically diverse organization.
TheOur acquisitions of Novozymes, Acquisition, the Refine, Acquisition,Atoll, TangenX and Spectrum, the continued expansion of our commercial sales operations, and our organic growth have increased the scope and complexity of our business. We will face
challenges inherent in efficiently managing a more complex business with an increased number of employees over large geographic distances, including the need to implement appropriate systems, policies, benefits and compliance programs. Our inability to manage successfully the geographically more diverse (including from a cultural perspective) and substantially larger combined organization could materially adversely affect our operating results and, as a result, the market price of our common stock.
TheOur business is subject to a number of environmental risks of our business have increased dramatically.risks.
Our manufacturing business involves the controlled use of hazardous materials and chemicals and is therefore subject to numerous environmental and safety laws and regulations and to periodic inspections for possible violations of these laws and regulations. In addition to these hazardous materials and chemicals, our facility in
Sweden also uses Staphylococcus aureus and toxins produced by Staphylococcus aureus in some of its manufacturing processes. Staphylococcus aureus and the toxins it produces, particularly enterotoxins, can cause severe illness in humans. The costs of compliance with environmental and safety laws and regulations are significant and have increased since we completed the acquisition of the Novozymes Biopharma Business.significant. Any violations, even if inadvertent or accidental, of current or future environmental, safety laws or regulations and the cost of compliance with any resulting order or fine could adversely affect our operations.
Our acquisitions expose us to risks that could adversely affect our business, and we may not achieve the anticipated benefits of acquisitions of businesses or technologies.
In addition to theour acquisitions of Novozymes, AcquisitionRefine, Atoll, TangenX and the Refine Acquisition,Spectrum, and as a part of our growth strategy, we may make selected acquisitions of complementary products and/or businesses. Any acquisition involves numerous risks and operational, financial, and managerial challenges, including the following, any of which could adversely affect our business, financial condition, or results of operations:
difficulties in integrating new operations, technologies, products, and personnel;
problems maintaining uniform procedures, controls and policies with respect to our financial accounting systems;
lack of synergies or the inability to realize expected synergies and cost-savings;
difficulties in managing geographically dispersed operations;
underperformance of any acquired technology, product, or business relative to our expectations and the price we paid;
negative near-term impacts on financial results after an acquisition, including acquisition-related earnings charges;
the potential loss of key employees, customers, and strategic partners of acquired companies;
claims by terminated employees and shareholders of acquired companies or other third parties related to the transaction;
the assumption or incurrence of additional debt obligations or expenses, or use of substantial portions of our cash;
the issuance of equity securities to finance or as consideration for any acquisitions wouldthat dilute the ownership of our stockholders;
the issuance of equity securities to finance or as consideration for any acquisitions may not be an option of if the price of our common stock is low or volatile which could preclude us from completing any such acquisitions;
any collaboration, strategic alliance and licensing arrangement may require us to relinquish valuable rights to our technologies or product candidates, or grant licenses on terms that are not favorable to us;
diversion of management’s attention and company resources from existing operations of the business;
inconsistencies in standards, controls, procedures, and policies;
the impairment of intangible assets as a result of technological advancements, or worse-than-expected performance of acquired companies; and
assumption of, or exposure to, historical liabilities of the acquired business, including unknown contingent or similar liabilities that are difficult to identify or accurately quantify.quantify; and
In addition, the successful integration of acquired businesses requires significant efforts and expense across all operational areas, including sales and marketing, research and development, manufacturing, finance, legal, and information technologies. There can be no assurance that any of the acquisitions we may make will be successful or will be, or will remain, profitable. Our failure to successfully address the foregoing risks may prevent us from achieving the anticipated benefits from any acquisition in a reasonable time frame, or at all.
Servicing our debt will require a significant amount of cash, and we may not have sufficient cash flow from our business to make payments on our debt.
We incurred significant indebtedness in the amount of $115.0 million in aggregate principal with additional accrued interest under our 2.125% Convertible Senior Notes due 2021 (the “Notes”). Our ability to make scheduled payments of the principal of, to pay interest on, or to refinance our indebtedness, including the Notes, depends on our future performance, which is subject to economic, financial, competitive and other factors that may be beyond our control. Our business may not generate cash flow from operations in the future sufficient to service our debt and make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time. In addition, in the event of a fundamental change or a default under the Notes, the holders and/or the trustee under the indentures governing the Notes may accelerate the payment obligations or trigger the holders’ repurchase rights under the Notes. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations, including the Notes.
If a make-whole fundamental change, such as an acquisition of our company, occurs prior to the maturity of the Notes, under certain circumstances, the conversion rate for the Notes will increase such that additional shares of our common stock will be issued upon conversion of the Notes in connection with such make-whole fundamental change. The increase in the Refine Acquisition,conversion rate will be determined based on the date on which the make-whole fundamental change occurs or becomes effective and the price paid (or deemed paid) per share of our common stock in such transaction. Upon conversion of the Notes, unless we entered into a transition services agreement whereby the sellers agreedelect to provide transitional services that were reasonablydeliver solely shares of our common stock to settle such conversion (other than paying cash in lieu of delivering any fractional share), we will be required to operatemake cash payments in respect of the Refine BusinessNotes being converted. We may not have enough available cash or be able to obtain financing at the time we are required to make repurchases of Notes surrendered therefor or notes being converted. Our failure to repurchase Notes at a time when the repurchase is required by the indenture or to pay any cash payable on future conversions of the Notes as required by the indenture would constitute a default under the indenture. If the repayment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and repurchase the notes or make cash payments upon conversions thereof.
In addition, our significant indebtedness, combined with our other financial obligations and contractual commitments, could have other important consequences. For example, it could:
Any of these factors could materially and adversely affect our business, financial condition orand results of operations. Furthermore,In addition, if we expectincur additional indebtedness, the risks related to our business and our ability to service or repay our indebtedness would increase.
Future strategic transactions or acquisitions may require us to seek additional financing, which we may not be able to secure on favorable terms, if at all.
We plan to continue a portionstrategy of growth and development for our future revenue growthbioprocessing business, and we actively evaluate various strategic transactions on an ongoing basis, including licensing or acquiring complementary products, technologies or businesses that would complement our existing portfolio of development programs. In order to come from existingcomplete such strategic transactions, we may need to seek additional financing to fund these investments and new ATF System products and technologies. The commercial success will dependacquisitions. Should we need to do so, we may not be able to secure such financing, or obtain such financing on among other factors, our successful integrationfavorable terms because of the Refine Business, and the acceptancevolatile nature of the ATF System products and technologies bybiotechnology marketplace. In addition, future acquisitions may require the life science and biopharmaceutical industries. As aissuance or sale of additional equity or debt securities, which may result there can be no assurance that these products and technologies, even if successfully developed and introduced, will be accepted by customers. If customers do not adoptin additional dilution to our ATF products and technologies, our results of operations may suffer and, as a result, the market price of our common stock may decline.stockholders.
The ATF System business reliesWe rely on a limited number of suppliers or, in some cases,for certain of our products, one supplier, and we may not be able to find replacements or immediately transition to alternative suppliers, which could have a material adverse effect on the ATF System business and our financial condition, results of operations and reputation.
There are only a limited number of suppliers of materials related to the ATF System products, one of which is the sole supplier of materials used for consumableXCell ATF System products. An interruption in operations of the business related to these products could occur if we encounter delays or difficulties in securing thesethe required materials, or if we cannot then obtain an acceptable substitute. Any such interruption could significantly affect the business related to these products and our financial condition, results of operations and reputation.
WeFor example, we believe that only a small number of suppliers are currently qualified to supply materials for the XCell ATF system.System. The use of materials furnished by these replacement suppliers would require us to alter our operations related to the XCell ATF system.System. Transitioning to a new supplier for our products would be time consuming and expensive, may result in interruptions in our operations, could affect the performance specifications of the ATF systemour product lines or could require that we revalidate the materials. There can be no assurance that we will be able to secure alternative materials, and bring such materials on line and revalidate them without experiencing interruptions in our workflow. If we should encounter delays or difficulties in securing, reconfiguring or revalidating the materials required for ATF Systemour products, our business related to these products and our financial condition, results of operations and reputation could be adversely affected.
Our royalty agreement with Bristol-Myers SquibbAs we evolve from a company dependent on sales of Orencia expired on December 31, 2013.
Our royalty agreement with Bristol provided for usothers to receive payments from Bristol based on their net sales of their Orencia® product in the United States through December 31, 2013. Ascommercialize our products to a result, we no longer receive royalty payments under this agreement as of December 31, 2013. If we are unablecompany selling directly to replace these royalty payments with an alternative source of revenue and related income, our operating results will decline and, as a result,end users, we may experience a declineencounter difficulties in the price ofexpanding our common stock.
Our license agreement with Pfizer will expire on April 26, 2015.
Our licensing agreement with Pfizer provided for us to potentially receive payments from Pfizer based on milestones related to clinical developmentproduct portfolio and initialour commercial sales in specific geographies, as well as royalty payments from Pfizer based on its future sales of RG3039 or any SMA compounds developed under the license agreement. On January 26, 2015, Pfizer issued to us a notice of its termination of the License Agreement for convenience, effective as of April 26, 2015. As a result, we will no longer receive milestone payments under this agreement.
We have limited sales and marketing capabilities.
We have a small sales force and, historically,Prior to 2016, we have generated most of our revenues through sales of bioprocessing products to a limited number of life sciences companies, such as GE Healthcare, EMD Millipore, Sigma-Aldrich, Life TechnologiesMilliporeSigma and through other individual distributors. However, due in part to the Refine Acquisition,our recent strategic acquisitions, an increasing amount of our revenue is attributable to our commercialization of bioprocessing products that we sell directly toend-users such as biopharmaceutical companies and contract manufacturing organizations. This has required and will continue to require us to invest additional resources in our sales and marketing capabilities. We may not be able to attract and retain additional sales and marketing professionals, and the cost of building the sales and marketing function may not generate our anticipated revenue growth. In addition, our sales and marketing efforts may be unsuccessful. Our failure to manage these risks may have a negative impact on our financial condition, or results of operations and may cause our stock price to decline.
If we are unable to obtain or maintain our intellectual property, we may not be able to succeed commercially.
We endeavor to obtain and maintain patent and trade secret protection for our products and processes when available in order to protect them from unauthorized use and to produce a financial return consistent with the significant time and expense required to bring our products to market. Our success will depend, in part, on our ability to:
obtain and maintain patent protection for our products and manufacturing processes;
preserve our trade secrets;
operate without infringing the proprietary rights of third parties; and
secure any necessary licenses from others on acceptable terms.
We consider trade secrets,know-how and other forms of market protection to be among the most important elements of our proprietary position. We also own or have exclusive rights to a number of U.S. patents and U.S. pending patent applications as well as corresponding foreign patents and patent applications. We cannot be sure that any patent applications relating to our products that we will file in the future or that any currently pending applications will issue on a timely basis, if ever. Since patent applications in the United StatesU.S. filed prior to November 2000 are maintained in secrecy until patents issue and since publication of discoveries in the scientific or patent literature often lag behind actual discoveries, we cannot be certain that we were the first to make the inventions covered by each of our pending patent applications or that we were the first to file patent applications for such inventions. Even if patents are issued, the degree of protection afforded by such patents will depend upon the:
scope of the patent claims;
validity and enforceability of the claims obtained in such patents; and
our willingness and financial ability to enforce and/or defend them.
The patent position of life sciences companies is often highly uncertain and usually involves complex legal and scientific questions. Patents which may be granted to us in certain foreign countries may be subject to opposition proceedings brought by third parties or result in suits by us, which may be costly and result in adverse consequences for us.
In some cases, litigation or other proceedings may be necessary to assert claims of infringement, to enforce patents issued to us or our licensors, to protect trade secrets,know-how or other intellectual property rights we own or to determine the scope and validity of the proprietary rights of third parties. Such litigation could result in substantial cost to us and diversion of our resources. An adverse outcome in any such litigation or proceeding could have a material adverse effect on our business, financial condition and results of operations.
If our competitors prepare and file patent applications in the United StatesU.S. that claim technology also claimed by us, we may be required to participate in interference proceedings declared by the U.S. Patent and Trademark Office to determine priority of invention, which would result in substantial costs to us.
Since someWhile one of our U.S. patents covering recombinant Protein A had its term adjusted to expire in 2028, our other U.S. patents covering recombinant Protein A have expired, and as a result, we may face increased competition, which could harm our results of operations, financial condition, cash flow and future prospects.
Other companies could begin manufacturing and selling native or some of the commercial forms of recombinant Protein A in the U.S. and may directly compete with us on certain Protein A products. This may induce us to sell Protein A at lower prices and may erode our market share, which could adversely affect our results of operations, financial condition, cash flow and future prospects.
Our freedom to develop our products may be challenged by others, and we may have to engage in litigation to determine the scope and validity of competitors’ patents and proprietary rights, which, if we do not prevail, could harm our business, results of operations, financial condition, cash flow and future prospects.
There has been substantial litigation and other proceedings regarding the complex patent and other intellectual property rights in the life sciences industry. We have been a party to, and in the future may become a party to, patent litigation or other proceedings regarding intellectual property rights.
Other types of situations in which we may become involved in patent litigation or other intellectual property proceedings include:
We may initiate litigation or other proceedings against third parties to seek to invalidate the patents held by such third parties or to obtain a judgment that our products or services do not infringe such third parties’ patents.
We may initiate litigation or other proceedings against third parties to seek to enforce our patents against infringement.
If our competitors file patent applications that claim technology also claimed by us, we may participate in interference or opposition proceedings to determine the priority of invention.
If third parties initiate litigation claiming that our processes or products infringe their patent or other intellectual property rights, we will need to defend against such claims.
The cost to us of any patent litigation or other proceeding, even if resolved in our favor, could be substantial. Some of our competitors may be able to sustain the cost of such litigation or proceedings more effectively than we can because of their substantially greater financial resources. If a patent litigation or other intellectual property proceeding is resolved in a way that is unfavorable to us, we or our collaborative or strategic partners may be enjoined from manufacturing or selling our products and services without a license from the other party and be held liable for significant damages. The failure to obtain any required license on commercially acceptable terms or at all may harm our business, results of operations, financial condition, cash flow and future prospects.
Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace. Patent litigation and other proceedings may also absorb significant management time, attention and resources.
We may become involved in litigation or other proceedings with collaborative partners, which may be time consuming, costly and could result in delays in our development and commercialization efforts.
In connection with the Company’s decision to focus its efforts on the growth of its core bioprocessing business, we will seeksought development and commercialization partnerships for our remaining portfolio of clinical stage assets. Any disputes with such partners, such as BioMarin, that lead to litigation or similar proceedings may result in us incurring legal expenses, as well as facing potential legal liability. Such disputes, litigation or other proceedings are also time consuming and may cause delays in our development and commercialization efforts. If we fail to resolve these disputes quickly and with terms that are no less favorable to us than the current terms of the arrangements, our business, results of operations, financial condition, cash flow and future prospects may be harmed.
If we are unable to continue to hire and retain skilled personnel, then we will have trouble developing and marketing our products.
Our success depends largely upon the continued service of our management and scientific staff and our ability to attract retain and motivate highly skilled technical, scientific, management and marketing personnel. We also
face significant competition in the hiring and retention of such personnel from other companies, research and academic institutions, government and other organizations who have superior funding and resources. The loss of key personnel or our inability to hire and retain skilled personnel could materially adversely affect our product development efforts and our business.
The market may not be receptive to our new bioprocessing products upon their introduction.
We expect a portion of our future revenue growth to come from introducing new bioprocessing products, such as a larger size version ofincluding line extensions and new features for our OPUS disposable chromatography products, thecolumns, our XCell ATF System, we acquired from Refine,our Sius TFF product line, our Spectrum hollow fiber modules and newTFF systems and our growth factors. The commercial success of theseall of our products as well as the products acquired in the Novozymes Acquisition and the Refine Acquisition, will depend upon their acceptance by the life science and biopharmaceutical industries. Many of the bioprocessing products that we are developing are based upon new technologies or approaches. As a result, there can be no assurance that these new products, even if successfully developed and introduced, will be accepted by customers. If customers do not adopt our new products and technologies, our results of operations may suffer and, as a result, the market price of our common stock may decline.
If our newOur products do not achieve sufficient market acceptance, our resultsare subject to quality control requirements.
Whether a product is produced by us or purchased from outside suppliers, it is subjected to quality control procedures, including the verification of operationsporosity and competitive position could suffer.
There can be no assurance that unforeseen problems will not occur with respectcertain products, the complete validation for good manufacturing practices, U.S. Food and Drug Administration, CE and ISO 2001 compliance, prior to final packaging. Quality control is performed by a staff of technicians utilizing calibrated equipment. In the development, performance or market acceptance of new products or thatevent we, will otherwise be able to successfully develop and market new products. Failure of our new products to gain market acceptance or our failuremanufacturers, produce products that fail to successfully developcomply with required quality standards, it may incur delays in fulfilling orders, write-downs, damage to our reputation and market new products could reduce our margins, which would have an adverse effect on our business, financial condition and results of operations.damages resulting from product liability claims.
If our products do not perform as expected or the reliability of the technology on which our products are based is questioned, we could experience lost revenue, delayed or reduced market acceptance of our products, increased costs and damage to our reputation.
Our success depends on the market’s confidence that we can provide reliable, high-quality bioprocessing products. We believe that customers in our target markets are likely to be particularly sensitive to product defects and errors. Our reputation and the public image of our products and technologies may be impaired if our products fail to perform as expected. Although our products are tested prior to shipment, defects or errors could nonetheless occur in our products. Furthermore, the Protein A that we manufacture is subsequently incorporated into products that are sold by other life sciences companies and we have no control over the manufacture and production of those products.
In the future, if our products experience, or are perceived to experience, a material defect or error, this could result in loss or delay of revenues, delayed market acceptance, damaged reputation, diversion of development resources, legal claims, increased insurance costs or increased service and warranty costs, any of which could harm our business. Such defects or errors could also narrow the scope of the use of our products, which could hinder our success in the market. Even after any underlying concerns or problems are resolved, any lingering concerns in our target market regarding our technology or any manufacturing defects or performance errors in our products could continue to result in lost revenue, delayed market acceptance, damaged reputation, increased service and warranty costs and claims against us.
If we are unable to manufacture our products in sufficient quantities and in a timely manner, our operating results will be harmed, our ability to generate revenue could be diminished and our gross margin may be negatively impacted.
Our revenues and other operating results will depend in large part on our ability to manufacture and assemble our products in sufficient quantities and in a timely manner. Any interruptions we experience in the manufacturing or shipping of our products could delay our ability to recognize revenues in a particular quarter. Manufacturing
problems can and do arise, and as demand for our products increases, any such problems could have an increasingly significant impact on our operating results. While we have not generally experienced problems with, or delays in, our production capabilities that resulted in delays in our ability to ship finished products, there can be no assurance that we will not encounter such problems in the future. We may not be able to quickly ship products and recognize anticipated revenues for a given period if we experience significant delays in the manufacturing process. In addition, we must maintain sufficient production capacity in order to meet anticipated customer demand, which carries fixed costs that we may not be able to offset if orders slow, which would adversely affect our operating margins. If we are unable to manufacture our products consistently, in sufficient quantities, and on a timely basis, our bioprocessing revenue, gross margins and our other operating results will be materially and adversely affected.
Our operating results may fluctuate significantly, our customers’ future purchases are difficult to predict and any failure to meet financial expectations may result in a decline in our stock price.
Our quarterly operating results may fluctuate in the future as a result of many factors such as the impact of seasonal spending patterns, changes in overall spending levels in the life sciences industry, the inability of some of our customers to consummate anticipated purchases of our products due to changes inend-user demand, and other unpredictable factors that may affect ordering patterns. Because our revenue and operating results are difficult to predict, we believe thatperiod-to-period comparisons of our results of operations are not a good indicator of our future performance. Additionally, if revenue declines in a quarter, whether due to a delay in recognizing expected revenue, adverse economic conditions or otherwise, our results of operations will be harmed because many of our expenses are relatively fixed. In particular, a large portion of our manufacturing costs, our research and development, sales and marketing and general and administrative expenses are not significantly affected by variations in revenue. If our quarterly operating results fail to meet investor expectations, the price of our common stock may decline.
Our future revenues pursuant to our asset purchase agreement with BioMarin regarding the HDACiHDAC program dependsdepend significantly on BioMarin’s development and commercialization activities, over which we have no control. If BioMarin is unable or determines not to further develop or commercialize the HDACiHDAC program, or experiences significant delays in doing so, we may see a delay in receiving any potential milestone or royalty payments or fail to receive any additional financial benefits from the program.
We entered into an asset purchase agreement with BioMarin on January 21, 2014, related to the histone deacetylase inhibitor (“HDACi”HDAC”) portfolio, which includes the Friedreich’s ataxia program. We are dependent on BioMarin for the future success of this development program. We have no control over the conduct and timing of
development efforts with respect to the HDACiHDAC program. BioMarin’s failure to devote sufficient financial and other resources to the development plan may result in the delayed or unsuccessful development of the program, which could lead to thenon-payment or delay in payment of milestones under the asset purchase agreement and may preclude or delay commercialization of any product under the HDACiHDAC program and any royalties we could receive on future commercial sales. Our future financial results may be harmed if BioMarin does not commercialize the HDACiHDAC program successfully or on a timely basis prior to the achievement of any milestones or the payment of any royalties to us.
Health care reform measures could adversely affect our business.
The efforts of governmental and third-party payors to contain or reduce the costs of health care may adversely affect the business and financial condition of pharmaceutical and biotechnology companies, including us.ours. Specifically, in both the United States andU.S.and some foreign jurisdictions, there have been a number of legislative and regulatory proposals to change the health care system in ways that could affect our ability to sell our products profitably. The U.S. Congress passed the America Affordable Health Choices Act of 2009 and the Patient Protection and Affordable Care Act This Act and is considering a number of proposals that are intended to reduce or limit the growth of health care costs and which could significantly transform the market for pharmaceuticals products. We expect furtherother federal and state proposals and health care reforms to continue to be proposed by legislators, which could limit the prices that can be charged for the products we develop and may limit our commercial opportunity. In the United States,
U.S., the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, also called the Medicare Modernization Act (the “MMA”) changed the way Medicare covers and pays for pharmaceutical products. These cost reduction initiatives and other provisions of this legislation could decrease the coverage and price that we receive for any approved products and could seriously harm our business. While the MMA applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates, and any reduction in reimbursement that results from the MMA may result in a similar reduction in payments from private payors. The continuing efforts ofEfforts by the government and other third-party payors to contain or reduce the costs of health care through various means may limit our commercial opportunities. In addition, the pendency or approval of such proposals couldopportunities and result in a decrease in the price of our common stock or limit our ability to raise capital.
Recent federal government efforts have been aimed at amending or repealing all or portions of existing health care reform legislation, including the Affordable Care Act. Changes in existing health care reform measures may result in uncertainty with respect to legislation, regulation and government policy that could significantly impact our business and the life sciences industry.
Comprehensive tax reform legislation could adversely affect our business and financial condition.
The U.S. government has recently enacted comprehensive tax legislation that includes significant changes to the taxation of business entities. These changes include, among others, a permanent reduction to the corporate income tax rate, limiting interest deductions, allowing for the expensing of capital orexpenditures, and putting into effect the migration from a “worldwide” system of taxation to enter into collaborations or license rightsa territorial system. The overall impact of this tax reform is uncertain, and it is possible that our business and financial condition could be adversely affected. We continue to examine the impact this tax reform legislation may have on our products.business.
We compete with life science, pharmaceutical and biotechnology companies who are capable of developing new approaches that could make our products and technology obsolete.
The market for therapeutic and commercial products is intensely competitive, rapidly evolving and subject to rapid technological change. LifeWe compete with several medium and small companies in each of our product categories, as well as, several large companies such as GE Healthcare, Pall, MilliporeSigma and Sartorius. These competitors, as well as other life science, pharmaceutical and biotechnology companies may have substantially greater financial, manufacturing, marketing, and research and development resources than we have. Newhave, as well as stronger name recognition, longer operating histories and benefits derived from greater economies of scale. These factors, among others, may enable our competitors to market their products at lower prices or on terms more advantageous to customers than what we can offer. Competition may result in price reductions, reduced gross margins and loss of market share, any of which could have a material adverse effect on our business, financial condition and results of operations. Additionally, new approaches by these competitors may make our products and technologies obsolete or noncompetitive.
We may become subject to litigation, which could result in substantial costs and divert management’s attention and resources from our business.
From time to time, we may become involved in litigation or other legal proceedings relating to claims arising from the ordinary course of business. Litigation is subject to inherent risks and uncertainties that may cause actual results to differ materially from our expectations. If we receive an adverse judgment in any litigation, we could be required to pay substantial damages. With or without merit, litigation can be complex, can extend for a protracted period of time, can be very expensive and the expense can be unpredictable. Litigation initiated by us could also result in counter-claims against us, which could increase the costs associated with the litigation and result in our payment of damages or other judgments against us. In addition, litigation, and any related publicity, may divert the efforts and attention of some of our management and key personnel, which could adversely affect our business.
We may be exposed to liabilities under the Foreign Corrupt Practices Act, and any determination that we violated the Foreign Corrupt Practices Act could have a material adverse effect on our business.
We are subject to the Foreign Corrupt Practice Act (the “FCPA”) and other laws that prohibit improper payments or offers of payments to foreign governments and their officials and political parties by U.S. persons and issuers as defined by the statute for the purpose of obtaining or retaining business. We have operations, agreements with third parties and make sales in jurisdictions outside of the U.S., which may experience corruption. Our activities in jurisdictions outside of the U.S. create the risk of unauthorized payments or offers of payments by one of our employees, consultants, sales agents or distributors, because these parties are not always subject to our control. These risks have increased following the Novozymes Acquisition.our recent acquisitions of overseas operations and facilities. It is our policy to implement safeguards to discourage these practices by our employees. However, our existing safeguards and any future improvements may prove to be less than effective, and the employees, consultants, sales agents or distributors of our Company may engage in conduct for which we might be held responsible. Violations of the
FCPA may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could negatively affect our business, operating results and financial condition. In addition, the government may seek to hold us liable for successor liability FCPA violations committed by any companies in which we invest or that we acquire.
Our stock price could be volatile, which could cause shareholders to lose part or all of their investment.
The market price of our common stock, like that of the common stock of many other companies with similar market capitalizations, is highly volatile. In addition, the stock market has experienced extreme price and volume fluctuations. This volatility has significantly affected the market prices of securities of many life sciences, biotechnology and pharmaceutical companies for reasons frequently unrelated to or disproportionate to the operating performance of the specific companies. These broad market fluctuations may adversely affect the market price of our common stock.
Our growth potential is changing as we evolve from an organization that was heavily involved in research and development to an organization with a strategic focus on our bioprocessing business.
In connection with the Company’s decision to focus its efforts on the growth of its core bioprocessing business, the Company has terminated its therapeutic product development activities. The core bioprocessing business on which the Company now focuses will provide growth opportunities that are different than those of a research and development oriented biotechnology company. As a result, the price of the Company’s common stock may behave differently than it has historically and, during the shift in our business, may behave in a manner not expected by securities analysts and investors. If the Company’s future business focused on bioprocessing generates results that fall below the revised expectations of securities analysts and investors, the trading price of the Company’s common stock could decline.
As a result of these risks, we may not be able to achieve the expected benefits of any such transaction or deliver the value thereof to our shareholders. If we are unsuccessful in consummating any such transaction, we may be required to reevaluate our business only after we have incurred substantial expenses and devoted significant management time and resources.
Anti-takeover provisions in our charter documents, certain of our contracts with third parties, and under Delaware law could make an acquisition of us, even one that may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.
Provisions in our certificate of incorporation andby-laws may delay or prevent an acquisition of us or a change in our management. These provisions include the ability of our board of directors to issue preferred stock without stockholder approval. In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which limits the ability of stockholders owning in excess of 15% of our outstanding voting stock to merge or combine with us. Although we believe these provisions collectively provide for an opportunity to obtain greater value for stockholders by requiring potential acquirers to negotiate with our board of directors, they would apply even if an offer rejected by our board were considered beneficial by some stockholders. In addition, theseAdditionally, certain of our contracts with third parties allow for termination upon specified change of control transactions. Anti-takeover provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management.management, and anti-takeover or change of control contract termination rights may frustrate or prevent any attempts by a third party to acquire or attempt to acquire the Company.
Changes in accounting standards and subjective assumptions, estimates, and judgments by management related to complex accounting matters could significantly affect our financial results or financial condition.
Generally accepted accounting principles and related accounting pronouncements, implementation guidelines, and interpretations with regard to a wide range of matters that are relevant to our business, such as
revenue recognition, asset impairment and fair value determinations, inventories, business combinations and intangible asset valuations, leases, and litigation, are highly complex and involve many subjective assumptions, estimates,
and judgments. Changes in these rules or their interpretation or changes in underlying assumptions, estimates, or judgments could significantly change our reported or expected financial performance or financial condition.
The Company’sOur results of operations could be negatively affected by potential fluctuations in foreign currency exchange rates.
The Company conductsWe conduct a large portion of itsour business in international markets. For the fiscal year ended December 31, 2014, 37%2017, 23% of the Company’s revenueour revenues and 31%24% of itsour costs and expenses were denominated in foreign currencies, primarily the Swedish Kroner,Krona, the British pound sterling, and the Euro. The Company isWe are exposed to the risk of an increase or decrease in the value of the foreign currencies relative to the U.S. Dollar, which could increase the value of our expenses and decrease the value of our revenue when measured in U.S. Dollars. As a result, our results of operation may be influenced by the effects of future exchange rate fluctuations and such effects may have an adverse impact on our common stock price.
Our ability to use net operating loss and tax credit carryforwards and certainbuilt-in losses to reduce future tax payments is limited by provisions of the Internal Revenue Code, and it is possible that certain transactions or a combination of certain transactions may result in material additional limitations on our ability to use our net operating loss and tax credit carryforwards.
Section 382 and 383 of the Internal Revenue Code of 1986, as amended, contain rules that limit the ability of a company that undergoes an ownership change, which is generally any change in ownership of more than 50% of its stock over a three-year period, to utilize its net operating loss and tax credit carryforwards and certainbuilt-in losses recognized in years after the ownership change. These rules generally operate by focusing on ownership changes involving stockholders owning directly or indirectly 5% or more of the stock of a company and any change in ownership arising from a new issuance of stock by the company. Generally, if an ownership change occurs, the yearly taxable income limitation on the use of net operating loss and tax credit carryforwards and certainbuilt-in losses is equal to the product of the applicable long term tax exempt rate and the value of the company’s stock immediately before the ownership change. We may be unable to offset our taxable income with losses, or our tax liability with credits, before such losses and credits expire and therefore would incur larger federal income tax liability. We have completed a number of financings sinceWhile our inception which may have resulted in a change in control as defined by Section 382 analysis completed during 2017 did not show any current exposure, future transactions or couldcombinations of future transactions may result in a change in control under Section 382 in the future.
If we identify a material weaknesses in our internal control over financial reporting, our ability to meet our reporting obligations and the trading price of our stock could be negatively affected.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Accordingly, a material weakness increases the risk that the financial information we report contains material errors.
We regularly review and update our internal controls, disclosure controls and procedures, and corporate governance policies. In addition, we are required under the Sarbanes-Oxley Act of 2002 to report annually on our internal control over financial reporting. Any system of internal controls, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met. For example, in 2012, we updated our internal controls to include our operations in Sweden. If we, or our independent registered public accounting firm, determine that our internal controls over financial reporting are not effective, or we discover areas that need improvement in the future, these shortcomings could have an adverse effect on our business and financial results, and the price of our common stock could be negatively affected.
If we cannot conclude that we have effective internal control over our financial reporting, or if our independent registered public accounting firm is unable to provide an unqualified opinion regarding the effectiveness of our internal control over financial reporting, investors could lose confidence in the reliability of our financial statements, which could lead to a decline in our stock price. Failure to comply with reporting requirements could also subject us to sanctions and/or investigations by the SEC, The NASDAQNasdaq Stock Market or other regulatory authorities.
If we fail to maintain an effective system of internal controls, we may not be able to accurately report financial results or prevent fraud.
Effective internal controls are necessary to provide reliable financial reports and to assist in the effective prevention of fraud. Any inability to provide reliable financial reports or prevent fraud could harm our business. We must annually evaluate our internal procedures to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, which requires management and our independent registered public accounting firm to assess the effectiveness of internal control over financial reporting.
We are implementing a new enterprise resource planning (“ERP”) system and have recentlypreviously implemented several significant ERP modules and expect to implement additional ERP modules in the future. The implementation of the ERP system represents a change in our internal control over financial reporting. Although we continue to monitor and assess our internal controls in the new ERP system environment as changes are made and new modules are implemented, and have taken additional steps to modify and enhance the design and effectiveness of our internal control over financial reporting, there is a risk that deficiencies may occur that could constitute significant deficiencies or in the aggregate a material weakness.
If we fail to remedy any deficiencies or maintain the adequacy of our internal controls, we could be subject to regulatory scrutiny, civil or criminal penalties or shareholder litigation. In addition, failure to maintain adequate internal controls could result in financial statements that do not accurately reflect our operating results or financial condition.
UNRESOLVED STAFF COMMENTS |
None.
PROPERTIES |
We currently lease office and occupy approximately 76,000 square feet of space located in Waltham, Massachusetts which servesmanufacturing properties as our corporate headquarters. We also conduct manufacturing, research and development, marketing and administrative operations at this facility. This lease expires on May 31, 2023. We also lease four adjacent buildings in Lund, Sweden totaling approximately 45,000 square feet of space used primarily for manufacturing and administrative operations. The lease for three buildings totaling approximately 41,000 square feet expires on June 30, 2017 while the lease for the fourth building with approximately 4,000 square feet of space expires on September 30, 2019.detailed below:
Location | Square Feet | Principal Use | Lease Expiration | |||||
Waltham, Massachusetts | 76,000 | Corporate headquarters, manufacturing, research and development, marketing and administration offices | May 31, 2023 | |||||
Marlborough, Massachusetts | 64,000 | Manufacturing operations | November 30, 2028 | |||||
Shrewsbury, Massachusetts | 12,000 | Manufacturing operations | December 31, 2018 | |||||
Rancho Dominguez, California | 54,000 | Manufacturing, research and development, marketing and administrative operations | July 15, 2020 | |||||
Las Vegas, Nevada | 30,000 | Manufacturing operations | December 31, 2023 | |||||
Irving, Texas | 45,000 | Manufacturing operations | December 31, 2026 | |||||
Houston, Texas | 36,500 | Manufacturing operations | July 31, 2019 | |||||
Lund, Sweden | 45,000 | Manufacturing and administrative operations | December 31, 2021 | |||||
Ravensburg, Germany | 12,300 | Manufacturing and administrative operations | June 30, 2022 | |||||
Bangalore, India | 27,000 | Sales and distribution center | February 28, 2019 | |||||
Shanghai, China | 2,800 | Sales and distribution center | October 14, 2018 | |||||
Seongnam, Republic of Korea | 1,400 | Sales and distribution center | May 10, 2019 |
During the fiscal year ended December 31, 2014,2017, we incurred total rental costs for all facilities of approximately $2,735,000.$3,367,000.
In addition to the above, we own certain of our office and manufacturing properties, as detailed below:
Location | Square Feet | Principal Use | ||||
Breda, Netherlands | 23,000 | Sales and distribution center | ||||
Shiga, Japan | 7,000 | Sales and distribution center |
LEGAL PROCEEDINGS |
From time to time, we may be subject to legal proceedings and claims in the ordinary course of business. We are not currently aware of any such proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition or results of operations.
MINE SAFETY DISCLOSURES |
Not applicable.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Market Information
Our common stock is traded on theThe Nasdaq Global Market under the symbol “RGEN.” The quarterly high and low sales prices for our common stock are shown in the following tables.
Year Ended December 31, 2014 | Year Ended December 31, 2017 | |||||||||||||||
High | Low | High | Low | |||||||||||||
First Quarter | $ | 17.26 | $ | 11.70 | $ | 35.61 | $ | 28.48 | ||||||||
Second Quarter | $ | 23.14 | $ | 12.60 | $ | 46.81 | $ | 32.73 | ||||||||
Third Quarter | $ | 24.68 | $ | 18.23 | $ | 46.12 | $ | 35.73 | ||||||||
Fourth Quarter | $ | 26.75 | $ | 19.02 | $ | 40.05 | $ | 31.96 |
Year Ended December 31, 2013 | Year Ended December 31, 2016 | |||||||||||||||
High | Low | High | Low | |||||||||||||
First Quarter | $ | 7.31 | $ | 5.73 | $ | 28.85 | $ | 20.07 | ||||||||
Second Quarter | $ | 9.65 | $ | 6.65 | $ | 28.97 | $ | 21.11 | ||||||||
Third Quarter | $ | 11.44 | $ | 8.25 | $ | 33.79 | $ | 25.93 | ||||||||
Fourth Quarter | $ | 14.05 | $ | 9.89 | $ | 34.06 | $ | 26.16 |
Stockholders and Dividends
As of MarchFebruary 15, 2015,2018, there were approximately 480381 stockholders of record of our common stock. We have not paid any dividends since our inception and do not intend to pay any dividends on our common stock in the foreseeable future. We anticipate that we will retain all earnings, if any, to support our operations. Any future determination as to the payment of dividends will be at the sole discretion of our Board of Directors and will depend on our financial condition, results of operations, capital requirements and other factors our Board of Directors deems relevant.
Equity Compensation Plan Information
See Part III, Item 12 forThe following table sets forth information as of December 31, 2017 regarding securities authorized for issuanceshares of common stock that may be issued under ourthe Company’s equity compensation plans.plans, consisting of the Second Amended and Restated 2001 Repligen Corporation Stock Plan, and the Amended and Restated 2012 Stock Option and Incentive Plan.
Plan Category | Number of securities to be issued upon exercise of outstanding options | Weighted- average exercise price of outstanding options | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in first column) | |||||||||
Equity compensation plans approved by security holders | 1,240,175 | (1) | $ | 20.80 | (2) | 1,220,915 | ||||||
Equity compensation plans not approved by security holders | N/A | $ | N/A | N/A | ||||||||
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Total | 1,240,175 | $ | 20.80 | 1,220,915 |
(1) | Includes 734,940 shares of common stock issuable upon the exercise of outstanding options and 505,235 shares of common stock issuable upon the vesting of restricted stock units. No shares of restricted stock are outstanding. |
(2) | Since restricted stock units do not have any exercise price, such units are not included in the weighted average exercise price calculation. |
Issuer Purchases of Equity Securities
In June 2008, the Board of Directors authorized a program to repurchase up to 1.25 million shares of our common stock to be repurchased at the discretion of management from time to time in the open market or through privately negotiated transactions. The repurchase program has no set expiration date and may be suspended or discontinued at any time. We did not repurchase any shares of common stock during the year ended December 31, 2014.2017. In prior years, we repurchased a total of 592,827 shares, leaving 657,173 shares remaining under this authorization.
The graph below matches Repligen Corporation’s cumulative 69-month5-year total shareholder return on common stock with the cumulative total returns of the NASDAQ Composite index, the NASDAQ Pharmaceutical index, and the NASDAQ Biotechnology index. The graph tracks the performance of a $100 investment in our common stock and in each index (with the reinvestment of all dividends) from MarchDecember 31, 20092012 to December 31, 2014.2017.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Repligen Corporation, the NASDAQ Composite Index,
the NASDAQ Pharmaceutical Index and the NASDAQ Biotechnology Index
*$100 invested on 12/31/12 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.
The information contained in the performance graph shall not be deemed to be “soliciting material” or to be “filed” with the Securities and Exchange Commission, and such information shall not be incorporated by reference into any future filing under the Securities Act of 1933, as amended (the “Securities Act”) or the Securities Exchange Act of 1934 (the “Exchange Act”), except to the extent that Repligen specifically incorporates it by reference into such filing.
Recent Sales of Unregistered Securities and Equity Purchases by the Company
In June 2014, in connection with the Refine Acquisition,August 2017, we issued and sold 215,2856,153,995 unregistered shares of our common stock to Refine Technology, LLC, an accredited investor, in exchangevalued at $247.6 million as part of the consideration for certainour acquisition of Refine’s assets and contract rights related to its ATF System. ThisSpectrum. The issuance was intended to be exempt from the registration requirements pursuant to Section 4(2) ofis not registered under the Securities Act, of 1933 andin reliance upon the exemption from registration provided by Rule 506(b) promulgated underof Regulation D.
SELECTED CONSOLIDATED FINANCIAL DATA |
The following selected consolidated financial data are derived from the audited financial statements of Repligen. The selected financial data set forth below should be read in conjunction with our financial statements and the related notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Annual Report, and in our Annual Reports on Form10-K for the fiscal years ended December 31, 20132016, 2015, 2014 and 2012, our Transition Report on Form 10-K for the nine months ended December 31, 2011 and our Annual Reports on Form 10-K for the fiscal year ended March 31, 2011.2013.
Years Ended December 31, | Nine Months Ended December 31, 2011 | Year Ended March 31, 2011 | ||||||||||||||||||||||||||||||||||||||
2014 | 2013 | 2012 (1) | ||||||||||||||||||||||||||||||||||||||
(In thousands, except per share data) | 2017(1) | 2016 | 2015(2) | 2014 | 2013 | |||||||||||||||||||||||||||||||||||
Revenue: | ||||||||||||||||||||||||||||||||||||||||
Product revenue | $ | 60,432 | $ | 47,482 | $ | 41,834 | $ | 13,215 | $ | 14,961 | $ | 141,089 | $ | 104,441 | $ | 83,537 | $ | 60,431 | $ | 47,482 | ||||||||||||||||||||
Royalty and other revenue | 3,117 | 20,687 | 20,433 | 10,235 | 12,330 | 147 | 100 | — | 3,117 | 20,687 | ||||||||||||||||||||||||||||||
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Total revenue | 63,549 | 68,169 | 62,267 | 23,450 | 27,291 | 141,236 | 104,541 | 83,537 | 63,548 | 68,169 | ||||||||||||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||||||||||||
Cost of product revenue | 28,022 | 22,481 | 24,957 | 5,157 | 5,580 | 67,050 | 47,117 | 35,251 | 28,022 | 22,481 | ||||||||||||||||||||||||||||||
Cost of royalty and other revenue | — | 2,682 | 2,213 | 1,315 | 1,537 | — | — | — | — | 2,682 | ||||||||||||||||||||||||||||||
Research and development | 5,609 | 7,341 | 10,490 | 9,462 | 12,529 | 8,672 | 7,355 | 5,740 | 5,609 | 7,341 | ||||||||||||||||||||||||||||||
Selling, general and administrative | 17,155 | 12,701 | 13,227 | 9,050 | 8,019 | 51,509 | 30,853 | 24,699 | 17,154 | 12,701 | ||||||||||||||||||||||||||||||
Contingent consideration – fair value adjustments | 2,072 | 91 | 611 | — | — | — | 3,242 | 4,083 | 2,072 | 91 | ||||||||||||||||||||||||||||||
Gain on bargain purchase | — | — | (314 | ) | (427 | ) | — | |||||||||||||||||||||||||||||||||
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Total operating expenses | 52,858 | 45,296 | 51,184 | 24,557 | 27,665 | 127,231 | 88,567 | 69,773 | 52,857 | 45,296 | ||||||||||||||||||||||||||||||
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Income (loss) from operations | 10,691 | 22,873 | 11,083 | (1,107 | ) | (374 | ) | |||||||||||||||||||||||||||||||||
Income from operations | 14,005 | 15,974 | 13,764 | 10,691 | 22,873 | |||||||||||||||||||||||||||||||||||
Investment income | 309 | 301 | 219 | 161 | 357 | 371 | 346 | 136 | 309 | 301 | ||||||||||||||||||||||||||||||
Interest expense | (50 | ) | (50 | ) | (57 | ) | (28 | ) | (26 | ) | (6,441 | ) | (3,768 | ) | (32 | ) | (50 | ) | (50 | ) | ||||||||||||||||||||
Other income (expense) | 188 | (110 | ) | 26 | (623 | ) | — | (687 | ) | (860 | ) | (445 | ) | 188 | (110 | ) | ||||||||||||||||||||||||
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Income (loss) before income taxes | 11,138 | 23,014 | 11,271 | (1,597 | ) | (43 | ) | |||||||||||||||||||||||||||||||||
Income before taxes | 7,248 | 11,692 | 13,423 | 11,138 | 23,014 | |||||||||||||||||||||||||||||||||||
Income tax (benefit) provision | 2,968 | 6,921 | (2,885 | ) | 16 | — | (21,105 | ) | 11 | 4,078 | 2,968 | 6,921 | ||||||||||||||||||||||||||||
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Net income (loss) | $ | 8,170 | $ | 16,093 | $ | 14,156 | $ | (1,613 | ) | $ | (43 | ) | $ | 28,353 | $ | 11,681 | $ | 9,345 | $ | 8,170 | $ | 16,093 | ||||||||||||||||||
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Earnings (loss) per share: | ||||||||||||||||||||||||||||||||||||||||
Basic | $ | 0.25 | $ | 0.51 | $ | 0.46 | $ | (0.05 | ) | $ | (0.00 | ) | $ | 0.74 | $ | 0.35 | $ | 0.28 | $ | 0.25 | $ | 0.51 | ||||||||||||||||||
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Diluted | $ | 0.25 | $ | 0.50 | $ | 0.45 | $ | (0.05 | ) | $ | (0.00 | ) | $ | 0.72 | $ | 0.34 | $ | 0.28 | $ | 0.25 | $ | 0.50 | ||||||||||||||||||
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Weighted average shares outstanding: | ||||||||||||||||||||||||||||||||||||||||
Basic | 32,498 | 31,667 | 30,914 | 30,774 | 30,782 | 38,234 | 33,573 | 32,882 | 32,498 | 31,667 | ||||||||||||||||||||||||||||||
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Diluted | 33,264 | 32,407 | 31,253 | 30,774 | 30,782 | 39,150 | 34,099 | 33,577 | 33,264 | 32,407 | ||||||||||||||||||||||||||||||
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2014 | 2013 | 2012 | 2011 | 2011 | 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||||||||||||||||||
Balance Sheet Data: | ||||||||||||||||||||||||||||||||||||||||
Cash and marketable securities (2) | $ | 62,003 | $ | 73,842 | $ | 49,970 | $ | 36,025 | $ | 61,503 | ||||||||||||||||||||||||||||||
Cash and marketable securities(3) | $ | 173,759 | $ | 141,780 | $ | 73,407 | $ | 62,003 | $ | 73,842 | ||||||||||||||||||||||||||||||
Working capital | 70,263 | 75,049 | 55,457 | 39,431 | 51,221 | 217,571 | 163,078 | 84,471 | 70,264 | 75,049 | ||||||||||||||||||||||||||||||
Total assets | 128,293 | 118,645 | 97,010 | 76,057 | 72,294 | 743,519 | 288,913 | 146,237 | 128,293 | 118,645 | ||||||||||||||||||||||||||||||
Long-term obligations | 5,879 | 3,458 | 2,133 | 2,606 | 584 | 126,760 | 99,074 | 4,708 | 5,879 | 3,458 | ||||||||||||||||||||||||||||||
Accumulated deficit | (80,887 | ) | (89,057 | ) | (105,151 | ) | (119,307 | ) | (117,965 | ) | (31,508 | ) | (59,861 | ) | (71,542 | ) | (80,887 | ) | (89,057 | ) | ||||||||||||||||||||
Stockholders’ equity | 111,732 | 103,886 | 84,125 | 65,987 | 67,087 | 591,548 | 168,764 | 122,748 | 111,732 | 103,886 |
(1) | Includes the full year impact of the |
(2) | Includes the full year impact of the acquisition of Refine Technology on June 2, 2014. |
(3) | Excludes restricted cash of |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
This Annual Report on Form 10-K contains forward-looking statements whichRepligen and its subsidiaries, collectively doing business as Repligen Corporation (“Repligen”, “we”, “our”, or “the Company”) is a leading provider of advanced bioprocessing technology and solutions used in the process of manufacturing biologic drugs. Our products are made pursuant to substantially increase biopharmaceutical manufacturing efficiencies and flexibility. As the safe harbor provisionsglobal biologics market continues to experience strong growth and expansion, our customers – primarily large biopharmaceutical companies and contract manufacturing organizations – face critical production cost, capacity, quality and time pressures that our products are made to address. Our commitment to bioprocessing technology innovation and our expanding product platform can create significant value for our customers by facilitating the manufacturing process for manufacture biologic drugs – monoclonal antibodies, recombinant proteins, vaccines and gene therapies. We are dedicated to “inspiring advances in bioprocessing” as a trusted partner in the production of Section 27Abiologic drugs that improve human health worldwide.
We are a leading OEM manufacturer and supplier of Protein A ligands to life sciences companies. Protein A ligands are the Securities Actcritical “binding” component of 1933,Protein A affinity resins that our customers sell to end users (biopharmaceutical manufacturers) for use in downstream purification of monoclonal antibodies. We also manufacture and sell growth factor products used to supplement cell culture media in order to increase cell growth and productivity in a bioreactor.
Our Chromatography products featurepre-packed chromatography columns under our OPUS® brand. OPUS columns, which we deliver to our customerspre-packed with their choice of chromatography resin, are single-campaign(“single-use”) disposable columns that replace the use of traditional (more permanent) glass columns used in downstream purification processes. By designing OPUS as amended,an advanced and Section 21Eflexible option for the purification of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The forward-looking statementsbiologics from process development through clinical-scale and some commercial manufacturing, Repligen has become a leader in this Annual Report on Form 10-K do not constitute guarantees of future performance. Investors are cautioned that statements in this Annual Report on Form 10-K that are not strictly historical statements, including, without limitation, statements regarding current or future financial performance, potential impairment of future earnings, management’s strategy, plans and objectives for future operations or acquisitions, product development and sales, product candidate research and development, selling, general and administrative expenditures, intellectual property, development and manufacturing plans, availability of materials, and product and adequacy of capital resources and financing plans constitute forward-looking statements. Such forward-looking statements are subject topre-packed columns.
Our Filtration products offer a number of risks and uncertainties that could cause actual resultsadvantages to differ materially from those anticipated, including, without limitation, the risks identified under the caption “Risk Factors” and other risks detailed in this Annual Report on Form 10-K and our other filings with the Securities and Exchange Commission. We assume no obligation to update any forward-looking information contained in this Annual Report on Form 10-K, except as required by law.
Repligen Corporation (“Repligen,” the “Company” or “we”) is a life sciences company that develops, manufactures and markets high-value, bioprocessing products for life sciences and biopharmaceutical companies worldwide. We are a world-leading manufacturer of both native and recombinant forms of Protein A, critical reagents used in biomanufacturing to purify monoclonal antibodies, a typemanufacturers of biologic drug. We also supply several growth factor productsdrugs spanning stages from pilot studies to clinical and cell filtration productscommercial-scale production. XCell ATF™ systems are used primarily in upstream perfusion (“continuous manufacturing”) processes to increase cell culture productivity during the bioproduction process. In the expanding area of flexible biomanufacturing technologies,concentration and significantly improve biologic product yield from a bioreactor. To address increasing industry demand for“plug-and-play” technology, we have developed and currently marketin 2016 launchedsingle-use formats of the original stainless steel XCell ATF device. In December 2016, we acquired TangenX Technology Corporation (“TangenX”), balancing our upstream XCell ATF offering with a seriesdownstream portfolio of OPUSflat-sheet filters and cassettes used in biologic drug purification and formulation processes. The TangenX portfolio includes thesingle-use Sius™ TFF brand, providing customers with a high-performance,low-cost alternative to reusable TFF products. Most recently, in August 2017, we completed our acquisition of Spectrum. Spectrum brands include the KrosFlo® family of products, ProConnex® disposable flow-path products, TFF systems and others. The Spectrum acquisition significantly strengthened our Filtration product line and diversifies our end markets beyond monoclonal antibodies to include vaccine, recombinant protein and gene therapies.
Customers use our products to produce initial quantities of drug for clinical studies, thenscale-up chromatography columnsto larger volumes as the drug progresses to commercial production following regulatory approval. Detailed specifications for usea drug’s manufacturing process are included in clinical-scale manufacturing. These pre-packed, “plug-and-play” columns are uniquely customizable to our customers’ mediathe applications that biopharmaceutical companies file for marketing approval with regulators such as the U.S. Food and size requirements.
On December 20, 2011, we significantly increased the size of our bioprocessing business through a strategic acquisition. We acquired certain assets and assumed certain liabilities of Novozymes Biopharma Sweden, ABDrug Administration (“Novozymes”FDA”) in Lund, Sweden, including the manufacture and supply of cell culture ingredients for use in industrial cell culture, stem and therapeutic cell culture as well as Protein A affinity ligands for use in biopharmaceutical manufacturing (the “Novozymes Biopharma Business” and the acquisitionEuropean Medicines Agency (“EMEA”). Once a drug advances to late-stage clinical trials, the manufacturing process is typically locked down by the company, and this process becomes part of the Novozymes Biopharma Business, the “Novozymes Acquisition”) for a total purchase price of 20,310,000 Euros (~$26,400,000).regulatory approval package. As a result, ofbioprocessing products that are included in these manufacturing specifications can be very “sticky” due to the Novozymes Acquisition, we doubled the size of our bioprocessing business.
On June 2, 2014, we acquired the business of Refine Technology, including Refine’s Alternating Tangential Flow (“ATF”) System, a market-leading device used to significantly increase product yield during the fermentation step of the biologic drug manufacturing process (the “Refine Business”costs and the acquisition of the Refine Business, the “Refine Acquisition”). We purchased all of the assets and assumed certain specified liabilities related to Refine’s ATF System. This acquisition strengthened our bioprocessing business by adding a complementary product line while expanding our sales presence worldwide. The terms of the acquisition included an upfront cash payment of $21,235,937, less $66,277 as a result of the final determination of working capital, issuance of 215,285 of Repligen’s $0.01 par value common stock valued at $4,000,000, future potential milestone and royalty payments totaling up to $10,900,000 if specific sales targets are met for the years 2014, 2015 and 2016, and future potential payments up to $7,500,000 out of any amounts that might be received in connectionregulatory uncertainties associated with the resolution, withdrawal or settlement of certain patent oppositions with a third party.
We generally manufacture and sell Protein A and growth factors to life sciences companies under supply agreements and sell our chromatography columns, as well as media and quality test kits, and our ATF products directly to biopharmaceutical companies or contract manufacturing organizations or through distributors. We refer to these activities as our bioprocessing business.displacing them.
Historically, Repligen also conducted activities aimed at developing proprietary therapeutic drug candidates, often with a potential of entering into a collaboration with a larger commercial stage pharmaceutical or biotechnology company in respect of these programs. As part of our strategic decision in 2012 to focus our efforts on our core bioprocessing business, we reduced our efforts on our clinical development programsCritical Accounting Policies and increased our efforts to find collaboration partners to pursue the development and, if successful, the commercialization of these drug programs.
CRITICAL ACCOUNTING POLICIES AND ESTIMATESEstimates
While our significant accounting policies are more fully described in the notes to our financial statements, we have identified the policies and estimates below as being critical to our business operations and the understanding of our results of operations. The impact of and any associated risks related to these policies on our business operations are discussed throughout “Management’s Discussion and Analysis of Financial Condition,” including in the “Results of Operations” section, where such policies affect our reported and expected financial results.
Revenue recognition
Product Sales
We generate revenue from the sale of bioprocessing products, equipment devices, and related consumables used with these equipment devices to customers in the life science and biopharmaceutical industries. On product sales to end customers, revenue is recognized, net of discounts, when both the title and risk of loss have transferred to the customer, as determined by the shipping terms provided there are no uncertainties regarding acceptance, and all obligations have been completed. Generally, our product arrangements for equipment sales are multiple element arrangements, and may include services, such as installation and training, and multiple products, such as consumables and spare parts. In accordance with ASC605-25, based on terms and conditions of the product arrangements, the Company believeswe believe that these services and undelivered products can be accounted for separately from the delivered product element as the delivered products have value to our customers on a standalone basis. Accordingly, revenue for services not yet performed at the time of product shipment are deferred and recognized as such services are performed. The relative selling price of any undelivered products is also deferred at the time of shipment and recognized as revenue when these products are delivered. For product sales to distributors, the Company recognizeswe recognize revenue for both equipment and consumables upon delivery to the distributor’sdistributors unless direct shipment to the end user’s is requested. In this case, revenue is recognized upon delivery to the end user’s location. In general, distributors are responsible for shipment to the end customer along with installation, training and acceptance of the equipment by the end customer. Shipments to distributors are not contingent upon resale of the product. We have had no significant write-offs of uncollectible invoices in the periods presented. We have a few longstanding customers who comprise the majority of revenue and have excellent payment histories and therefore we do not require collateral. We have had no significant write-offs of uncollectible invoices in the periods presented.
At the time of sale, we also evaluate the need to accrue for warranty and sales returns. The supply agreements we have with our customers and related purchase orders identify the terms and conditions of each sale and the price of the goods ordered. Due to the nature of the sales arrangements, inventory produced for sale is tested for quality specifications prior to shipment. Since the product is manufactured to order and in compliance with required specifications prior to shipment, the likelihood of sales return, warranty or other issues is largely diminished. Furthermore, there is no customer right of return in our sales agreements. Sales returns and warranty issues are infrequent and have not had a nominalmaterial impact on our financial statements historically.
Orencia Royalty
In April 2008, we settled our outstanding litigation with BristolShipping and began recognizing royalty revenue from that settlement in fiscal year 2009 for Bristol’s net sales in the United States of Orencia®, which is used in the
treatment of rheumatoid arthritis. Pursuant to the settlement with Bristol, we recognized royalty revenue of $17,881,000 and $14,753,000 for the fiscal years ended December 31, 2013 and 2012, respectively, and $8,769,000 for the nine-month fiscal year ended December 31, 2011. Revenue earned from Bristol royalties washandling fees are recorded in the periods when it was earned based on royalty reports sent by Bristol to us. We have no continuing obligations to Bristol as a resultcomponent of this settlement. Our royalty agreementproduct revenue, with Bristol provided that we would receive such royalty payments on salesthe associated costs recorded as a component of Orencia® by Bristol through December 31, 2013. These royalty payments have ceased.cost of product revenue.
Pfizer License Agreement
In December 2012, we entered into an exclusive worldwide licensing agreement (the “License Agreement”) with Pfizer to advance the SMA program, which is led by RG3039 and also includes backup compounds and enabling technologies. Under the terms of the License Agreement, we received $5 million from Pfizer as an upfront payment on January 22, 2013, a $1 million milestone payment on September 4, 2013 and a $1 million milestone payment on December 28, 2014. On January 26, Pfizer sent us a termination notice. We do not intend to pursue further development or licensing activities for our SMA program.
BioMarin License Agreement
On January 21, 2014, weout-licensed our histone deacetylase inhibitor (“HDACi”HDAC”) portfolio, which includes the Friedreich’s ataxia program, to BioMarin Pharmaceuticals Inc., or BioMarin. (“BioMarin”). Under the terms of the agreement, Repligenwe received an upfront payment of $2 million in January 2014 from BioMarin and a $125,675 payment in September 2014 upon tech transfer, and we have the potential to receive up to $160 million in future milestone payments for the development, regulatory approval and commercial sale of portfolio compounds included in the agreement. In addition, Repligen iswe are eligible to receive royalties on sales of qualified products developed.
Research and Development Agreements
We did not recognize any revenue from sponsored research and development projects in the fiscal year ended December 31, 2014. For the fiscal year ended December 31, 2013, we recognized $1,589,000 of revenue from sponsored research and development projects under agreements with the National Institutes of Health / Scripps Research Institute, the Muscular Dystrophy Association, GoFar and the European Friedrich’s Ataxia Consortium for Translational Studies. In the fiscal year ended December 31, 2012, we recognized $803,000 of revenue from sponsored research and development projects under agreements with the National Institutes of Health / Scripps Research Institute, the European Friedrich’s Ataxia Consortium for Translational Studies, GoFar, and the Friedreich’s Ataxia Research Alliance.
Inventories
Research revenue is recognized when the expense has been incurred and services have been performed. Determination of which incurred costs qualify for reimbursement under the terms of our contractual agreements and the timing of when such costs were incurred involves the judgment of management. Our calculations are based upon the agreed-upon terms as stated in the arrangements. However, should the estimated calculations change or be challenged by other parties to the agreements, research revenue may be adjusted in subsequent periods. The calculations have not historically changed or been challenged, and we do not anticipate any significant subsequent change in revenue related to sponsored research and development projects.
There have been no material changes to our initial estimates related to revenue recognition in any periods presented in the accompanying consolidated financial statements.
Inventories
Inventories relate to our bioprocessing business. We value inventory at cost or, if lower, fair marketnet realizable value, using thefirst-in,first-out method. We review our inventory at least quarterly and record a provision for excess
and obsolete inventory based on our estimates of expected sales volume, production capacity and expiration dates of raw materials,work-in-process and finished products. Expected sales volumes are determined based on supply forecasts provided by key customers for the next three to 12 months. We write down inventory that has become obsolete, inventory that has a cost basis in excess of its expected net realizable value, and inventory in excess of expected requirements to cost of product revenue. Manufacturing of bioprocessing finished goods is done to order and tested for quality specifications prior to shipment.
A change in the estimated timing or amount of demand for our products could result in additional provisions for excess inventory quantities on hand. Any significant unanticipated changes in demand or unexpected quality failures could have a significant impact on the value of inventory and reported operating results. During all periods presented in the accompanying consolidated financial statements, there have been no material adjustments related to a revised estimate of inventory valuations.
Business combinations
Amounts paid for acquisitions are allocated to the assets acquired and liabilities assumed, if any, based on their fair values at the dates of acquisition. The fair value of identifiable intangible assets is based on detailed valuations that use information and assumptions determined by management. Any excess of purchase price over the fair value of the net tangible and intangible assets acquired is allocated to goodwill. The fair value of contingent consideration includes estimates and judgments made by management regarding the probability that future contingent payments will be made, the extent of royalties to be earned in excess of the defined minimum royalties, etc. Management updates these estimates and the related fair value of contingent consideration at each reporting period based on the estimated probability of achieving the earnout targets and applying a discount rate that captures the risk associated with the expected contingent payments. To the extent our estimates change in the future regarding the likelihood of achieving these targets we may need to record material adjustments to our accrued contingent consideration. Changes in the fair value of contingent consideration are recorded in our Statementconsolidated statement of Operations. The largest and most judgmental component of our contingent consideration relates to the contingent consideration tied to Refine sales targets. The maximum potential liability related to Refine’s sales based contingent consideration is $10.9 million and we have accrued $3.3 million as of December 31, 2014 as the estimated fair value. Fair value estimates are based on our projections of future Refine sales.operations.
We use the income approach to determine the fair value of certain identifiable intangible assets including customer relationships and developed technology. This approach determines fair value by estimatingafter-tax cash flows attributable to these assets over their respective useful lives and then discounting theseafter-tax cash flows back to a present value. We base our assumptions on estimates of future cash flows, expected growth rates, expected trends in technology, etc. We base the discount rates used to arrive at a present value as of the date of acquisition on the time value of money and certain industry-specific risk factors. We believe the estimated purchased customer relationships, developed technologies, trademark / tradename, patents, and in process research and development amounts so determined represent the fair value at the date of acquisition and do not exceed the amount a third party would pay for the assets.
Intangible assets and goodwill
Intangible Assets
We amortize our intangible assets that have finite lives using the straight-line method. Amortization is recorded over the estimated useful lives ranging from 82 to 1520 years. We review our intangible assets subject to amortization to determine if any adverse conditions exist or a change in circumstances has occurred that would indicate impairment or a change in the remaining useful life. Further, we also review our indefinite-lived intangible assets not subject to amortization to determine if any adverse conditions exist or a change in circumstances occurred that would indicate an impairment. If the carrying value of an asset exceeds its estimated undiscounted cash flows, we will write-down the carrying value of the intangible asset to its fair value in the
period identified. In assessing fair value, we must make assumptions regarding estimated future cash flows and discount rates. If these estimates or related assumptions change in the future, we may be required to record
impairment charges. We generally calculate fair value as the present value of estimated future cash flows to be generated by the asset using a risk-adjusted discount rate. If the estimate of an intangible asset’s remaining useful life is changed, we will amortize the remaining carrying value of the intangible asset prospectively over the revised remaining useful life.
Goodwill
We test goodwill for impairment on an annual basis and between annual tests if events and circumstances indicate it is more likely than not that the fair value of a reporting unit is less than its carrying value. Events that would indicate impairment and trigger an interim impairment assessment include, but are not limited to current economic and market conditions, including a decline in market capitalization, a significant adverse change in legal factors, business climate or operational performance of the business, and an adverse action or assessment by a regulator. Our annual impairment test date is the last day of our fiscal year, December 31, 2014. The Company performed its31. While we currently operate as one operating segment, we perform our annual impairment test over each of the Company’s onetwo reporting unitunits and concluded that goodwill was not impaired.
Accrued liabilities
We estimate accrued liabilities by identifying services performed on our behalf, estimating the level of service performed and determining the associated cost incurred for such service as of each balance sheet date. For example, we would accrue for professional and consulting fees incurred with law firms, audit and accounting service providers and other third party consultants. These expenses are determined by either requesting those service providers to estimate unbilled services at each reporting date for services incurred or tracking costs incurred by service providers under fixed fee arrangements.
We have processes in place to estimate the appropriate amounts to record for accrued liabilities, which principally involve the applicable personnel reviewing the services provided. In the event that we do not identify certain costs that have begun to be incurred or we under or over-estimate the level of services performed or the costs of such services, the reported expenses for that period may be too low or too high. The date on which certain services commence, the level of services performed on or before a given date, and the cost of such services often require the exercise of judgment. We make these judgments based upon the facts and circumstances known at the date of the financial statements.
A change in the estimated cost or volume of services provided could result in additional accrued liabilities. Any significant unanticipated changes in such estimates could have a significant impact on our accrued liabilities and reported operating results. There have been no material adjustments to our accrued liabilities in any of the periods presented in the accompanying financial statements.
Stock-based compensation
We use the Black-Scholes option pricing model to calculate the fair value of share-based awards on the grant date.
The expected term of options granted represents the period of time for which the options are expected to be outstanding and is derived from our historical stock option exercise experience and option expiration data. For purposes of estimating the expected term, we have aggregated all individual option awards into one group, as we do not expect substantial differences in exercise behavior among our employees. The expected volatility is a measure of the amount by which our stock price is expected to fluctuate during the expected term of options granted. We determined the expected volatility based upon the historical volatility of our common stock over a period commensurate with the option’s expected term. The risk-free interest rate is the implied yield available on
U.S. Treasuryzero-coupon issues with a remaining term equal to the option’s expected term on the grant date. We have never declared or paid any cash dividends on any of our capital stock and do not expect to do so in the foreseeable future. Accordingly, we use an expected dividend yield of zero to calculate the grant-date fair value of a stock option.
We recognize compensation expense on awards that vest based on service conditions on a straight-line basis over the requisite service period based upon the number of options that are ultimately expected to vest, and accordingly, such compensation expense has been adjusted by an amount of estimated forfeitures. We recognize compensation expense on awards that vest based on performance conditions based on our assessment of the probability that the performance condition will be achieved over the service period. Forfeitures represent only the unvested portion of a surrendered option. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Based on an analysis of historical data, we have calculated an 8% annual forfeiture rate fornon-executive level employees, a 3% annual forfeiture rate for executive level employees, and a 0% forfeiture rate fornon-employee members of the Board of Directors, which we believe are reasonable assumptions to estimate forfeitures. However, the estimation of forfeitures requires significant judgment and, to the extent actual results or updated estimates differ from our current estimates, such amounts will be recorded as a cumulative adjustment in the period estimates are revised.
For the fiscal years ended December 31, 2014, 20132017, 2016 and 2012,2015, we recorded stock-based compensation expense of approximately $1,767,000, $1,060,000$6,747,000, $4,595,000 and $1,024,000,$3,598,000, respectively, for share-based awards granted under all of the Company’s stock plans.
As of December 31, 2014,2017, there was $4,143,883$16,133,000 of total unrecognized compensation cost related to unvested share-based awards. This cost is expected to be recognized over a weighted average remaining requisite service period of 3.262.52 years. We expect 723,010772,791 unvested options and restricted stock units to vest over the next five years.
Income Taxes
PriorDeferred taxes are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Valuation allowances are provided, if, based upon the endweight of 2012, our U.S. net operating losses (“NOL’s”) and the majority of our other deferred tax assets were fully offset by a valuation allowance primarily because we were in a cumulative loss position and did not have sufficient history of income to conclude thatavailable evidence, it wasis more likely than not that we would be able to realize the tax benefits of those deferred tax assets. As of December 31, 2012 we had incurred three-year cumulative pre-tax income and concluded that it was more likely than not that we would generate sufficient taxable income in 2013 based on our 2013 projections to realize the tax benefit of a portion of our deferred tax assets. As such, we reversed $3,021,000some or all of the deferred tax asset valuation allowanceassets will not be realized. We account for uncertain tax positions using a“more-likely-than-not” threshold for recognizing and resolving uncertain tax positions. The evaluation of uncertain tax positions is based on factors including, but not limited to, changes in tax law, the U.Smeasurement of tax positions taken or expected to be taken in tax returns, the fourth quartereffective settlement of 2012. The amount was recorded asmatters subject to audit, new audit activity and changes in facts or circumstances related to a benefittax position. We evaluate our tax position on a quarterly basis. We also accrue for potential interest and penalties related to unrecognized tax benefits in income taxes in the consolidated statementtax expense.
Results of operations. During the year ended December 31, 2013, the Company utilized $8.9 million of Net Operating Losses. As a result of the fact that we no longer receive royalty payments on Bristol’s sales of Orencia, as of December 31, 2013, we concluded that realization of U.S. deferred tax assets beyond December 31, 2013 was not more likely than not, and as such, as of December 31, 2013 we maintained a valuation allowance against the majority of our remaining deferred tax assets. As of December 31, 2014, we concluded that realization of deferred tax assets beyond December 31, 2014 is not more likely than not, and as such, as of December 31, 2014 we maintained a valuation allowance against the majority of our remaining deferred tax assets.
RESULTS OF OPERATIONSOperations
The following discussion of the financial condition and results of operations should be read in conjunction with the accompanying consolidated financial statements and the related footnotes thereto.
Revenues
Total revenues for fiscal years 2014, 2013,2017, 2016, and 20122015 were comprised of the following:
Years ended December 31, | % Change | Years ended December 31, | % Change | |||||||||||||||||||||||||||||||||||||
2014 | 2013 | 2012 | 2014 vs. 2013 | 2013 vs. 2012 | 2017 | 2016 | 2015 | 2017 vs. 2016 | 2016 vs. 2015 | |||||||||||||||||||||||||||||||
(in thousands, except percentages) | (in thousands, except percentages) | |||||||||||||||||||||||||||||||||||||||
Bioprocessing product revenue | $ | 60,432 | $ | 47,482 | $ | 41,834 | 27% | 14 | % | |||||||||||||||||||||||||||||||
Product revenues | $ | 141,089 | $ | 104,441 | $ | 83,537 | 35 | % | 25 | % | ||||||||||||||||||||||||||||||
Royalty and other revenue | 3,117 | 20,687 | 20,433 | (85% | ) | 1 | % | 147 | 100 | — | 47 | % | 100 | % | ||||||||||||||||||||||||||
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Total revenue | $ | 63,549 | $ | 68,169 | $ | 62,267 | (7% | ) | 9 | % | $ | 141,236 | $ | 104,541 | $ | 83,537 | 35 | % | 25 | % | ||||||||||||||||||||
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Product revenues
TheHistorically, the majority of our bioprocessing products are sold to customers who incorporate our products into their proprietary antibody purification processes for monoclonal antibodies. These customers then sell their products directly to the pharmaceutical industry. Increasingly, we are selling our products directly to the pharmaceutical industry and its contract manufacturers. These direct sales increased to approximately 62% of our product revenue during fiscal 2017. Sales of our bioprocessing products can therefore be impacted by the timing of large-scale production orders and the regulatory approvals for such antibodies, which may result in significant quarterly fluctuations.
Product revenues were comprised of the following (in thousands):
December 31, 2017 | December 31, 2016 | December 31, 2015 | ||||||||||
Protein products | $ | 53,969 | $ | 54,716 | $ | 52,938 | ||||||
Filtration products | 49,050 | (3) | 19,774 | (1) | 15,676 | |||||||
Chromatography products | 36,309 | (3) | 29,520 | (2) | 14,613 | |||||||
Other | 1,761 | (3) | 431 | 310 | ||||||||
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Total product revenues | $ | 141,089 | $ | 104,441 | $ | 83,537 | ||||||
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(1) | 2016 revenue for filtration products includes revenue related to TangenX from December 14, 2016 through December 31, 2016. |
(2) | 2016 revenue for chromatography products includes revenue related to Atoll from April 1, 2016 through December 31, 2016. |
(3) | 2017 revenue for filtration, chromatography and other products includes revenue related to Spectrum from August 1, 2017 through December 31, 2017. |
Revenue from protein products includes our Protein A ligands and cell culture growth factors. Revenue from filtration products includes our XCell ATF Systems and consumables, KrosFlo filtration products and Sius filtration products. Revenue from chromatography products includes our OPUS and OPUS PD chromatography columns, chromatography resins and ELISA test kits. Other revenue primarily consists of freight revenues.
For fiscal 2014, bioprocessing2017, product salesrevenues increased by $12,949,000$36,648,000 or 27%35% as compared to fiscal 2013 primarily due to sales of the ATF System following the Refine Acquisition.
For fiscal 2013, bioprocessing2016. The increase in product sales increased by $5,648,000 or 14% as compared to fiscal 2012revenues is due largely to increased volumevolumes in our growth factor, affinity ligandFiltration and OPUSChromatography products, offset by slightly lower pricingfull year of revenue generated from Atoll and TangenX in some2017, and revenues of our more mature products.$19,394,000 generated from the Spectrum Acquisition in 2017. We sell our various bioprocessing products at different price points. The mix of products sold varies and impacts the fluctuations in total product revenue and cost of product revenues from period to period.
Pursuant
For fiscal 2016, bioprocessing product sales increased by $20,904,000 or 25% as compared to the settlement with Bristol, we recognized royalty revenue of $17,881,000fiscal 2015, due largely to increased volumes in our Filtration and $14,753,000 for fiscal 2013 and 2012, respectively. This increase was due to Bristol’s increased U.S. sales of Orencia. As this royalty arrangement with Bristol expired on December 31, 2013, we will not recognize any further royalty revenueChromatography products, as well as from Bristol.
We recognized $2,126,000 of revenue for fiscal 2014revenues generated from the out-licenseAtoll Acquisition. We sell our various bioprocessing products at different price points. The mix of products sold varies and impacts the fluctuations in total product revenue and cost of product revenues from period to period.
Royalty revenues
Royalty revenues in fiscal 2017 and 2016 relate to royalties received from a third party systems manufacturer associated with our HDACi portfolio to BioMarinOPUS PD chromatography columns. Royalty revenues are variable and are dependent on January 21, 2014. We also recognized $1,000,000, $1,217,000 and $4,876,000 of revenue for fiscal 2014, 2013 and 2012, respectively, from the out-license ofsales generated by our Spinal Muscular Atrophy program to Pfizer on December 28, 2012. In fiscal 2013, we also recognized $1,589,000 of revenue from sponsored research and development projects under agreements with the National Institutes of Health / Scripps Research Institute, the Muscular Dystrophy Association, GoFar and the European Friedrich’s Ataxia Consortium for Translational Studies. In fiscal 2012, we also recognized $803,000 of revenue from sponsored research and development projects under agreements with the National Institutes of Health / Scripps Research Institute, the European Friedrich’s Ataxia Consortium for Translational Studies, GoFar, and the Friedreich’s Ataxia Research Alliance. Going forward we do not expect to recognize any research and license revenue or to receive any incremental funding for our therapeutic development programs.partner.
Costs and operating expenses
Total costs and operating expenses for fiscal years 2014, 2013,2017, 2016 and 20122015 were comprised of the following:
Years ended December 31, | % Change | Years ended December 31, | % Change | |||||||||||||||||||||||||||||||||||||
2014 | 2013 | 2012 | 2014 vs. 2013 | 2013 vs. 2012 | 2017 | 2016 | 2015 | 2017 vs. 2016 | 2016 vs. 2015 | |||||||||||||||||||||||||||||||
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Cost of product revenue | $ | 28,022 | $ | 22,481 | $ | 24,957 | 25 | % | (10 | )% | $ | 67,050 | $ | 47,117 | $ | 35,251 | 42 | % | 34 | % | ||||||||||||||||||||
Cost of royalty and other revenue | — | 2,682 | 2,213 | (100 | )% | 21 | % | |||||||||||||||||||||||||||||||||
Research and development | 5,609 | 7,341 | 10,490 | (24 | %) | (30 | )% | 8,672 | 7,355 | 5,740 | 18 | % | 28 | % | ||||||||||||||||||||||||||
Selling, general and administrative | 17,155 | 12,701 | 13,227 | 35 | % | (4 | )% | 51,509 | 30,853 | 24,699 | 67 | % | 25 | % | ||||||||||||||||||||||||||
Contingent consideration – fair value adjustments | 2,072 | 91 | 611 | 2,177 | % | (85 | )% | — | 3,242 | 4,083 | (100 | %) | (21 | %) | ||||||||||||||||||||||||||
Gain on bargain purchase | — | — | (314 | ) | — | 100 | % | |||||||||||||||||||||||||||||||||
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Total costs and operating expenses | $ | 52,858 | $ | 45,296 | $ | 51,184 | 17 | % | (12 | )% | $ | 127,231 | $ | 88,567 | $ | 69,773 | 44 | % | 27 | % | ||||||||||||||||||||
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Cost of product revenue
For fiscal 2014,2017, cost of product revenue increased $5,541,000$19,933,000 or 25%42% as compared to fiscal 2013.2016. This increase is primarily due to the increasedincrease in product revenuerevenues noted above, the sale of higher cost Spectrum finished goods inventory due to step up to fair value upon acquisition, and the addition of the Refine Business.costs related to continuing investments in our operations to support future growth. For fiscal 2013,2016, cost of product revenue decreased $2,476,000increased $11,866,000 or 10%34% as compared to fiscal 2012.2015. This decreaseincrease is primarily due to increased manufacturing efficiencies and favorablethe increase in product mix, particularly in our Sweden facility.revenues noted above.
Gross margins were 54%53%, 53%55%, and 40%58% for fiscal 2014, 2013,2017, 2016 and 2012,2015, respectively. During fiscal 2014,2017, gross margins increaseddeclined slightly compared to fiscal 20132016 due to favorable Refineproduct mix, the sale of higher cost Spectrum finished good inventory due to step up to fair value upon acquisition and continuing investments in operations to support future growth. During fiscal 2016, gross margins decreased slightly compared to fiscal 2015 due to product mix and increased capacity utilizationinvestments in operations to support growing demands for the bioprocessing products that we manufacture.
Research and product yield which offset higherdevelopment expenses related additional Waltham facility build-out for Refine manufacturing at the Waltham facility. For fiscal 2013, the Company recognized the benefits of an extensive cost reduction initiative in both the Sweden and Waltham facilities that began in fiscal 2012.
Pursuant to the settlement with Bristol, we remitted 15% of royalty revenue received through the expiration of the agreement in December 2013 to the University of Michigan. For the fiscal years 2014, 2013, and 2012, cost of royalty revenue was $0, $2,682,000, and $2,213,000, respectively. These increases are directly related to the increases in Bristol royalty revenues noted above. As this royalty arrangement with Bristol expired on December 31, 2013, we do not expect to incur any further cost of royalty revenue to the University of Michigan.
During fiscal 20142017, 2016 and 2013,2015, research and development expenses were primarily related to bioprocessing products which included personnel, supplies and other research expenses. In August 2012, we announced a strategic focus on our Bioprocessing business and a simultaneous effort to find partners, out-licensing opportunities or other funding arrangements with external parties to reduce or eliminate the net expenditures on research and development activities for our therapeutic programs. Through this time, research and development costs represent bioprocessing product and therapeutic drug development costs and primarily include costs of internal personnel, supplies, external pharmacology and toxicology research, clinical trials and the costs associated with the manufacturing and testing of clinical materials. In January 2013, we announced that we entered into an outlicensing agreement with Pfizer, Inc. for our Spinal Muscular Atrophy program, under an arrangement that would provide $5.0 million up front and up to $65.0 million in milestone payments, plus royalties. On January 26, 2015, Pfizer notified us that they were terminating this arrangement for convenience effective as of April 26, 2015. In January 2014, we announced that we entered into an outlicensing agreement with BioMarin Pharmaceutical Inc. for our Friedreich’s ataxia portfolio, under an arrangement that would provide $2.0 million up front and up to $160.0 million in future milestones, plus royalties.
Due to the small size of the Company and the fact that these various programs share personnel and fixed costs, we do not track all of our expenses or allocate any fixed costs by program, and therefore, have not provided an estimate of historical costs incurred by project. In addition to the legacy product research and development, the currentsingle-use XCell ATF project incurs expenses related to product development, sterilization, validation testing, and other research related expenses.
For fiscal 2014,2017, research and development expenses decreasedincreased by $1,732,000$1,317,000 or 24%.18% as compared to fiscal 2016. This decreaseincrease is directly related to the increased expenditures related to the continued development of our decisionsingle-use XCell ATF products and other new products in 2012 to exit therapeutic drug development, and is partially offsetas well as expenses incurred by an increase in bioprocessing research and development expense.Spectrum since acquisition.
For fiscal 2013,2016, research and development expenses decreasedincreased by $3,149,000$1,615,000 or 30%28% as compared to fiscal 2012.2015. This decreaseincrease is directly related to the increased expenditures related to the development of oursingle-use XCell ATF products, our decisionOPUS resin recovery port, and other new products in 2012 to cease therapeutic drug development activities.development.
We expect our research and development expenses in the year ending December 31, 2015, which relate primarily to bioprocessing product development,2018 to increase slightly.in order to support new product development.
Selling, general and administrative expenses
Selling, general and administrative (“SG&A”) expenses include the costs associated with selling our commercial products and costs required to support our marketing efforts, including legal, accounting, patent, shareholder services, amortization of intangible assets and other administrative functions.
For fiscal 2014,2017, SG&A costs increased by $4,454,000$20,656,000 or 35%67% as compared to fiscal 2013.2016. This increase is primarily due to costs related to our acquisition of Spectrum, the continuing buildout of our administrative infrastructure to support future growth, the continuing expansion of our sales and marketing activities and closing and transition costs associated with the Refine Acquisition. We expect SG&A expenses to increase in the year ending December 31, 2015 as we continue to expand our customer-facing activities to drive sales of our bioprocessing products.products, a full year of costs related to Atoll and TangenX and costs incurred by Spectrum since acquisition.
For fiscal 2013,2016, SG&A costs decreasedincreased by $526,000$6,154,000 or 4%25% as compared to fiscal 2012.2015. This decreaseincrease is primarily due to the terminationcontinuing buildout of our Secretin commercialization efforts fromadministrative infrastructure to support future growth, the prior yearcontinuing expansion of our customer-facing activities to drive sales of our bioprocessing products, costs related to our acquisitions of Atoll and lower acquisition-related dealTangenX and closing costs associated with the Novozymes Acquisition.expenses incurred by Repligen GmbH (formerly Atoll) post-acquisition.
Contingent Consideration
ForIn fiscal 2014, the2016, we recorded contingent consideration increased approximately $2,196,000 comparedexpense related primarily to fiscal 2013. The increase is primarily attributed to $3,321,000 stemming from theour acquisitions of Refine acquisition. The contingent consideration stems from the Novozymes, BioFlash and Refine acquisitions. The contingent consideration related to the Novozymes Acquisition is based upon actual amounts remaining to be paid to Novozymes Denmark per the Deed of Settlement and Amendment entered into on May 5, 2014. The contingent consideration related to BioFlash is valued using management’s estimates of royalties to be paid to the former shareholders of BioFlash based on sales of the acquired assets. The contingentAtoll. Contingent consideration related to the Refine Acquisition in 2016 is valued using management’s estimates of expected future milestone payments based on forecastedactual 2016 XCell ATF sales of the acquired assets and portion of any receipts that might be received in connection withrelated to the resolution, withdrawal or settlement of certain patent disputes with a third party to be paid to the former shareholders of Refine. Contingent consideration related to Atoll is based on actual 2016 sales growth compared to 2015 sales. The decrease is attributable to recording Refine contingent consideration fair value ofadjustments related to projected 2015 and 2016 XCell ATF sales in the previous year, while in 2016 we only recorded fair value adjustments related to 2016 sales. This decrease is partially offset by contingent consideration atexpense related to our acquisition of Atoll. Because the contingent consideration periods related to our acquisitions of BioFlash, Refine and Atoll all concluded in 2016, we did not incur any contingent consideration expense in fiscal 2017.
Investment income
Investment income for the years ended December 31, 20142017, 2016 and 20132015 was $3,845,000 and $1,649,000, respectively.as follows:
Investment income
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Investment income | $ | 371 | $ | 346 | $ | 136 | 7 | % | 154 | % |
Investment income includes income earned on invested cash balances. Investment income for fiscal 2014, 2013, and 2012 was $309,000, $301,000, and $219,000, respectively. The increase of $8,000$25,000 or 3%7% for fiscal 2014 compared to fiscal 20132017 was primarily due to slightly higher interest rates and adjusted investment mix.during 2017 compared to 2016. The increase of $82,000$210,000 or 37%154% for fiscal 20132016 was primarily due to higher invested funds following the issuance of our 2.125% Convertible Senior Notes due 2021 (the “Notes”) during 2016 compared to fiscal 2012 was due to slightly higher interest rates and a higher invested amount as we transferred $10,000,000 from our operating account to our investments in 2013.2015. We expect interestinvestment income to vary based on changes in the amount of funds invested and fluctuation of interest rates.
Interest expense
Interest expense for the years ended December 31, 2017, 2016 and 2015 was as follows:
Years ended December 31, | % Change | |||||||||||||||||||
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Interest expense | $ | 6,441 | $ | 3,768 | $ | 32 | 70.9 | % | 11,675.0 | % |
Interest expense primarily relates to interest related to our issuance of the Notes in May 2016. The increase of $2,673,000 in fiscal 2017 was due to incurring a full year of interest expense on the Notes in 2017. The increase of $3,736,000 in fiscal 2016 was related to the issuance of the Notes in May 2016.
Other income (expense)
Other income (expense) for the years ended December 31, 2017, 2016 and 2015 was as follows:
Years ended December 31, | % Change | |||||||||||||||||||
2017 | 2016 | 2015 | 2017 vs. 2016 | 2016 vs. 2015 | ||||||||||||||||
(in thousands, except percentages) | ||||||||||||||||||||
Other income (expense) | $ | (687 | ) | $ | (860 | ) | $ | (445 | ) | 20.1 | % | (93.3 | %) |
Other income (expense) primarily relates to foreign currency gains (losses) related to amounts due fromnon-Swedish kronor-based customers and cash balance denominated in U.S. dollars and British pounds held by our Sweden operations.
Provision for income taxes
For the year ended December 31, 2017, we recorded an income tax benefit of ($21,105,000). Our current tax provision of $3,624,000 primarily relates to a foreign tax provision of $3,345,000. Our deferred tax benefit of ($24,729,000) is primarily due to a reduction of the valuation allowance on our deferred tax assets in the amount of $12,164,000 from the sale of certain intellectual property to Repligen Sweden AB during 2017 and taxable temporary differences generated from the Spectrum Acquisition. Additionally, the Company recorded a deferred tax benefit of $12,839,000 resulting from a reduction of the U.S. federal income tax on the Company’s net U.S. deferred tax liabilities stemming from new U.S. federal tax legislation passed in December 2017.
The provision for income taxes for the year ended December 31, 20142016 totaled $2,968,000.$11,000. Our current tax provision of $2,481,000$4,077,000 primarily relates to a foreign tax provision of $2,670,000 and $125,000 related to an uncertain tax position for historic research and development credits.$4,027,000. Our deferred tax provisionbenefit of $488,000($4,066,000) is primarily due to a reduction of the valuation allowance on our deferred tax assets in the amount of $8,535,000 resulting from taxable temporary differences generated from the acquisition of TangenX and the issuance of our convertible senior notes, partially offset by an increase in deferred tax liabilities related to tax amortization of indefinite lived intangibles.intangibles and the conversion option on our convertible senior notes.
Non-GAAP Financial Measures
We providenon-GAAP adjusted income from operations,non-GAAP adjusted net income and adjusted EBITDA as supplemental measures to GAAP measures regarding our operating performance. These financial measures exclude the impact of certain acquisition related items and, therefore, have not been calculated in accordance with GAAP. A detailed explanation and a reconciliation of eachnon-GAAP financial measures to its most comparable GAAP financial measures are described below.
We include this financial information because we believe these measures provide a more accurate comparison of our financial results between periods and more accurately reflect how management reviews its financial results. We excluded the impact of certain acquisition related items because we believe that the resulting charges do not accurately reflect the performance of our ongoing operations for the period in which such charges are incurred.
Non-GAAP Adjusted Income from Operations
Non-GAAP adjusted income from operations is measured by taking income from operations as reported in accordance with GAAP and excluding acquisition and integration costs, inventorystep-up charges, intangible amortization and contingent consideration expenses booked through our consolidated statements of comprehensive income. The fiscal years ended March 31, 2007 through March 31, 2011 as well as the nine-month fiscal year ended December 31, 2011 andfollowing is a reconciliation of income from operations in accordance with GAAP tonon-GAAP adjusted income from operations for the years ended December 31, 2012, 20132017 and 2014 are subject to examination2016 (in thousands):
Year ended December 31, | ||||||||
2017 | 2016 | |||||||
GAAP income from operations | $ | 14,005 | $ | 15,974 | ||||
Non-GAAP adjustments to net income: | ||||||||
Acquisition and integration costs | 7,519 | 2,214 | ||||||
Inventorystep-up charges | 3,816 | 59 | ||||||
Intangible amortization | 6,215 | 2,052 | ||||||
Contingent consideration – fair value adjustments | — | 3,242 | ||||||
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Non-GAAP adjusted income from operations | $ | 31,555 | $ | 23,541 | ||||
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Non-GAAP Adjusted Net Income
Non-GAAP adjusted net income is measured by taking net income as reported in accordance with GAAP and excluding acquisition and integration costs and related tax effects, inventorystep-up charges, contingent consideration expenses, intangible amortization and related tax effects,non-cash interest expense, the federal and state taxing authorities. Currently, a corporate excise tax audit is underway in the Commonwealth of Massachusetts (“the Commonwealth”) for the fiscal years ended March 31, 2008 through 2011, and the nine-month period ended December 31, 2011. For the years ended March 31, 2008 and 2009, two matters have been identified by the Commonwealth in these audits that could result in future assessments. First, the Commonwealth has indicated that it is seeking to disallow up to $713,000 in Research and Development Credits that were generated between 1993 and 2007, and taken as a benefits in 2008 and 2009. Including potential penalties, if any, this assessment could increase to $856,000.
In addition, the Commonwealth has indicated it may apportion to Massachusetts, and therefore tax, certain, although not all, payments received by the Company in connection with our intellectual property settlements with ImClone and Bristol Myers Squibb in 2007 and 2008, respectively. The Commonwealth believes that the full $40 million ImClone payment and the initial $5 million Bristol payment received under these settlements are litigation awards as opposed to royalty payments received for the use of intellectual property, as we contend, and therefore are taxable in Massachusetts. However, the Commonwealth agrees with our position that all subsequent Bristol payments received under the settlement are in fact royalty payments and therefore not subject to tax in the Commonwealth. The Company believes the Commonwealth intends to assess up to $1,383,000, or $1,659,000 including potential penalties, in connection with these transactions.
On October 29, 2013, we met with the Commonwealth in an attempt to remediate these matters and we were not successful. The Company received a Notice of Intent to Assess on this matter on November 16, 2014 and we requested a hearing with the Office of Appeals on December 16, 2014. We presented our case to the Office of Appeals on March 12, 2015 and are now awaiting a response. With respect to the R&D credit, the issue for the Company is that the documentation requested by the Commonwealth would be up to twenty years old and simply no longer exists to the standard we now believe the Commonwealth will require. In consideration of these facts, we now believe that the utilization of credits has not met the “more likely than not” standard for recognition. The Company performed an evaluation of the available documentation, the likelihood of similar matters in other open audit periods, the impact of interest and penalties and other relevant factors and recorded a provision of $800,000 related to this matter for the year ended December 31, 2013.
Conversely, with respect to the apportionment issue, the Company asserts that according to the settlement agreements with ImClone and Bristol, all amounts received were in fact payments in exchange for licenses granted to those entities. The Company further believes the Commonwealth is inconsistent in its approach, taxing some, but not all of the payments received. As such, we continue to believe strongly in the legal merits of our position and therefore believe this matter meets the more likely than not standard to be treated as license payments. Accordingly, no further provision has been made for this matter.
While no formal assessments have been made to date, for the years ended March 31, 2010 and 2011, as well as the nine months ended December 31, 2011, the Commonwealth has indicated that it is seeking to disallow certain Research and Development Credits that were generated between 2010 and 2011. The Company performed an evaluation of the available documentation, the likelihood of similar matters in other open audit periods, the impact of interest and penalties and other relevant factors and recorded a provision of $125,000 related to this matter for the year ended December 31, 2014.
In the year ended December 31, 2012, we recorded a tax benefit of $2,885,000 that is comprised of the reversal of $3,021,000partial release of the valuation allowance on our deferred tax assets offset byand the net impact of tax reform legislation booked through our consolidated statements of comprehensive income. The following is a provision for a state tax liability. In the fourth quarterreconciliation of 2012, we entered into a cumulative pre-tax income position and concluded that it was more likely than not that we will generate sufficient taxablenet income in 2013 based onaccordance with GAAP tonon-GAAP adjusted net income for the years ended December 31, 2017 and 2016:
Year Ended December 31, | ||||||||||||||||
2017 | 2016 | |||||||||||||||
Amount (in thousands) | Fully Diluted Earnings per Share | Amount (in thousands) | Fully Diluted Earnings per Share | |||||||||||||
GAAP net income | $ | 28,353 | $ | 0.72 | $ | 11,681 | $ | 0.34 | ||||||||
Non-GAAP adjustments to net income: | ||||||||||||||||
Acquisition costs | 7,519 | 0.19 | 2,214 | 0.06 | ||||||||||||
Inventorystep-up charges | 3,816 | 0.10 | 59 | 0.00 | ||||||||||||
Contingent consideration – fair value adjustments | — | — | 3,242 | 0.10 | ||||||||||||
Intangible amortization | 6,215 | 0.16 | 2,052 | 0.06 | ||||||||||||
Non-cash interest expense | 3,977 | 0.10 | 2,274 | 0.07 | ||||||||||||
Tax effect of intangible amortization and acquisition costs | (882 | ) | (0.02 | ) | (415 | ) | (0.01 | ) | ||||||||
Release of valuation allowance on deferred tax assets | (12,236 | ) | (0.31 | ) | (4,269 | ) | (0.13 | ) | ||||||||
Net impact of tax reform legislation | (9,586 | ) | (0.24 | ) | — | — | ||||||||||
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Non-GAAP adjusted net income | $ | 27,176 | $ | 0.69 | $ | 16,838 | $ | 0.49 | ||||||||
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Note that earnings per share amounts may not add due to rounding.
Adjusted EBITDA
Adjusted EBITDA is measured by taking net income as reported in accordance with GAAP, excluding investment income, interest expense, taxes, depreciation and amortization, and excluding acquisition and integration costs, inventorystep-up charges and contingent consideration expenses booked through our 2013 projectionsconsolidated statements of comprehensive income. The following is a reconciliation of net income in accordance with GAAP to realize the tax benefit of a portion of our deferred tax assets.adjusted EBITDA for years ended December 31, 2017 and 2016 (in thousands):
Year ended December 31, | ||||||||
2017 | 2016 | |||||||
GAAP net income | $ | 28,353 | $ | 11,681 | ||||
Non-GAAP EBITDA adjustments to net income: | ||||||||
Investment income | (371 | ) | (346 | ) | ||||
Interest expense | 6,441 | 3,768 | ||||||
Tax provision | (21,105 | ) | 11 | |||||
Depreciation | 4,237 | 3,269 | ||||||
Amortization | 6,215 | 2,052 | ||||||
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EBITDA | 23,770 | 20,435 | ||||||
Othernon-GAAP adjustments: | ||||||||
Acquisition and integration costs | 7,519 | 2,214 | ||||||
Inventorystep-up charges | 3,816 | 59 | ||||||
Contingent consideration – fair value adjustments | — | 3,242 | ||||||
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Adjusted EBITDA | $ | 35,105 | $ | 25,950 | ||||
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Liquidity and capital resources
We have financed our operations primarily through revenues derived from product sales, and research grants, as well as proceeds and royalties from license arrangements, the issuance of the Notes in May 2016 and a litigation settlement and salesthe issuance of equity securities.common stock in our July 2017 public offering. Our revenue for the foreseeable future will primarily be limited to our bioprocessing product revenue. Given the uncertainties related to pharmaceutical product development, we are currently unable to reliably estimate when, if ever, our therapeutic product candidates will generate revenue and cash flows.
At December 31, 2014,2017, we had cash of $173,759,000 compared to cash and marketable securities of $62,003,000 compared to $73,842,000$141,780,000 at December 31, 2013. In fiscal 2014 we utilized $21,236,000 of cash in the Refine Acquisition and invested an additional $3,400,000 in the expansion of our Waltham manufacturing and administrative facility.2016. A deposit for leased office space of $450,000 and $200,000 is classified as restricted cash and is not included in cash and marketable securities totals for December 31, 2014 or2016. There were no restrictions on cash for December 31, 2013, respectively.2017.
In July 2017, we completed a public offering in which 2,807,017 shares of our common stock were sold to the public at a price of $42.75 per share. The underwriters were granted an option, which they exercised in full, to purchase an additional 421,052 shares of our common stock. The total proceeds from this offering, net of underwriting discounts, commissions and other offering expenses, totaled approximately $129.3 million.
On August 1, 2017, we completed our acquisition of Spectrum for approximately $112.8 million in cash (net of cash received) and 6,153,995 unregistered shares of the Company’s common stock.
During the third quarter of 2017, the closing price of the Company’s common stock exceeded 130% of the conversion price of the Notes for more than 20 of the last 30 consecutive trading days of the quarter. As a result, the Notes became convertible at the option of the holders of the Notes during the fourth quarter of 2017. Notes with a face value of $11,000 were submitted for conversion in the fourth quarter of 2017; this conversion was settled in the first quarter of 2018. During the fourth quarter of 2017, the closing price of the Company’s common stock did not exceed 130% of the conversion price of the Notes for more than 20 of the last 30 consecutive trading days of the quarter. As a result, the Notes are no longer convertible as of December 31, 2017, and the Notes are classified as long term liabilities on the Company’s consolidated balance sheet as of
December 31, 2017. It is the Company’s policy and intent to settle the face value of the Notes in cash and any excess conversion premium in shares of our common stock.
Cash flows
(In thousands) | ||||||||||||||||||||||||||||||||||||||||
Cash provided by (used in) | Year ended December 31, 2014 | Increase / (Decrease) | Year ended December 31, 2013 | Increase / (Decrease) | Year ended December 31, 2012 | Year ended December 31, 2017 | Increase / (Decrease) | Year ended December 31, 2016 | Increase / (Decrease) | Year ended December 31, 2015 | ||||||||||||||||||||||||||||||
Operating activities | $ | 18,401 | $ | (7,529 | ) | $ | 25,930 | $ | 12,490 | $ | 13,440 | $ | 17,451 | $ | 9,930 | $ | 7,521 | $ | (7,532 | ) | $ | 15,053 | ||||||||||||||||||
Investing activities | (19,792 | ) | (1,886 | ) | (17,906 | ) | (20,747 | ) | 2,841 | (98,246 | ) | (49,052 | ) | (49,194 | ) | (53,985 | ) | 4,791 | ||||||||||||||||||||||
Financing activities | 1,680 | (842 | ) | 2,522 | 1,363 | 1,159 | 129,945 | 17,832 | 112,113 | 111,346 | 767 |
Operating activities
For fiscal 2014,2017, our operating activities provided cash of $18,401,000$17,451,000, reflecting net income of $8,170,000 and $28,353,000 offset by netnon-cash charges totaling $8,188,000$3,384,000 comprised mainly of depreciation, amortization, stock-based compensation charges and deferred tax benefits. Increases in accounts receivable consumed $6,887,000 of cash, which is based on timing of revenues billed to and payments from customers. Decreases in accounts payable and accrued liabilities consumed $1,186,000 of cash due to timing of payments to vendors.
For fiscal 2016, our operating activities provided cash of $7,521,000 reflecting net income of $11,681,000 andnon-cash charges totaling $11,345,000 comprised mainly of depreciation, amortization, stock-based compensation charges, deferred tax benefits and the revaluation of contingent consideration. Increases in accounts receivable and inventories consumed $9,385,000 of cash. Decreases in accounts payable and accrued liabilities consumed $5,840,000 of cash.
For fiscal 2015, our operating activities provided cash of $15,053,000 reflecting net income of $9,345,000 andnon-cash charges totaling $12,158,000 including depreciation, amortization, stock-based compensation charges, deferred tax asset valuation allowance changes and the revaluation of contingent consideration. Decreases in royalties and other receivables and increasesIncreases in accounts payable and long-term liabilities provided an additional $6,557,000 and $2,288,000$5,139,000 of cash. Increases in accounts receivable, inventories and prepaid expenses and other current assets consumed $3,277,000$10,155,000 of cash. Decreases in accrued liabilities and long term liabilities consumed $3,525,000$1,592,000 of cash.
Investing activities
For fiscal 2013, our operating activities provided cash of $25,930,000 reflecting net income of $16,093,000 and non-cash charges totaling $7,055,000 including depreciation, amortization, stock-based compensation charges, deferred tax asset valuation allowance changes and the revaluation of contingent consideration. Decreases in royalties and other receivables and in prepaid expenses and increases in accrued and long term liabilities provided an additional $2,457,000 and $2,458,000 of cash. Increases in accounts receivable and inventories as well as a decrease in accounts payable consumed $1,400,000 and $734,000 of cash.
Investing activities
We place our marketable security investments in high quality credit instruments as specified in our investment policy guidelines. For fiscal 2014,2017, our investing activities consumed $19,792,000$98,246,000 of cash. We used $112,795,000 in cash (net of cash received) for our acquisition of Spectrum. Fixed asset additions consumed $5,454,000, as we continued to increase our manufacturing capacity. Net redemptions of marketable securities provided $19,553,000 of cash in fiscal 2017.
For fiscal 2016, our investing activities consumed $49,194,000 of cash. We used $8,767,000 in cash (net of cash received) for our acquisition of Atoll and $35,847,000 (net of cash received) for our acquisition of TangenX. Fixed asset additions consumed $4,325,000, as we increased the manufacturing capacity of our facilities in the United States and Sweden. Net purchases of marketable securities consumed $300,000 of cash in fiscal 2016.
In fiscal 2015, our investing activities provided $4,791,000 of cash, comprised of $21,236,000 for the Refine Acquisition, $5,602,000 of fixed asset additions as we completed the second phase of our Waltham facility expansion and a $250,000 increase in restricted cash related to our amended lease for our Waltham facility and partially offset by $7,296,000$7,419,000 of net redemptions of marketable securities. In fiscal 2013, our investing activities consumed $17,906,000 of cash, which is comprised of $13,272,000 of net purchases of marketable securities, and $4,635,000offset by $2,628,000 of fixed asset additions asadditions.
Financing activities
In July 2017, we completedreceived net proceeds of $129,309,000 from the first phaseissuance of common stock. In May 2016, we received net proceeds of $111,070,000 from the issuance of our Waltham facility expansion. For fiscal 2012, our investing activities provided $2,841,000 of cash, which is primarily capital expenditures of $1,264,000, offset by net redemptions of marketable securities of $4,105,000. We expect capital expenditures to decrease in 2015 as compared to 2014.
Financing activities
senior convertible notes. Exercises of stock
options provided cash receipts of $1,680,000, $2,450,000$2,351,000, $1,841,000 and $1,159,000$866,000 in fiscal 2014, 20132017, 2016 and 2012,2015, respectively. In fiscal 2013, an excess tax benefitCash payments to Atoll and Refine in 2017 totaled $5,053,000, of which $1,715,000 related to stock option exercisesthe fair value of these liabilities as of the respective acquisition dates and is included as part of financing activities. Cash payments to Refine and BioFlash in 2016 totaled $4,105,000, of which $798,000 related to the fair value of these liabilities as of the respective acquisition dates and is included as part of financing activities. Payments to Refine in 2015 related to achieving 2014 sales goals totaled $1,000,000, of which $99,000 related to the fair value of this liability as of the acquisition date and is included as part of financing activities. The remaining amounts are included as an offset to our cash provided $72,000.by operating activities.
Off-balance sheet arrangements
We do not have any special purpose entities oroff-balance sheet financing arrangements.
Contractual obligations
As of December 31, 2014,2017, we had the following fixed obligations and commitments:commitments (in thousands):
Payments Due By Period | ||||||||||||||||||||
(In thousands) | Total | Less than 1 Year | 1 – 3 Years | 3 – 5 Years | More than 5 Years | |||||||||||||||
Operating lease obligations | $ | 14,045 | $ | 2,420 | $ | 4,350 | $ | 2,861 | $ | 4,414 | ||||||||||
Purchase obligations (1) | 2,835 | 2,835 | — | — | — | |||||||||||||||
Contingent consideration (2) | 3,846 | 1,135 | 2,565 | 146 | — | |||||||||||||||
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Total | $ | 20,726 | $ | 6,390 | $ | 6,915 | $ | 3,007 | $ | 4,414 | ||||||||||
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Total | Less than 1 Year | 1 – 3 Years | 3 – 5 Years | More than 5 Years | ||||||||||||||||
Convertible senior notes | $ | 115,000 | $ | — | $ | — | $ | 115,000 | $ | — | ||||||||||
Operating lease obligations | 15,071 | 3,611 | 6,597 | 4,442 | 421 | |||||||||||||||
Purchase obligations(1) | 15,512 | 15,512 | — | — | — | |||||||||||||||
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Total | $ | 145,883 | $ | 19,123 | $ | 6,597 | $ | 119,442 | $ | 421 | ||||||||||
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(1) | Primarily represents purchase orders for the procurement of raw material for manufacturing. |
(2) |
Capital requirements
Our future capital requirements will depend on many factors, including the following:
the expansion of our bioprocessing business;
the ability to sustain sales and profits of our bioprocessing products;
our ability to acquire additional bioprocessing products;
the ability to replace the Orencia royalty revenue that we ceased receiving at the end of 2013;
the resources required to successfully integrate the Refine Acquisition and recognize expected synergies;
our ability to realize value from our outlicensed early stage CNS programs and the RG1068 program;
the scope of and progress made in our research and development activities;
the extent of any share repurchase activity; and
the success of any proposed financing efforts.
Absent acquisitions of additional products, product candidates or intellectual property, we believe our current cash balances are adequate to meet our cash needs for at least the next 24 months. We expect operating expenses in the year ending December 31, 20152018 to increase as we continue to expand our bioprocessing business. We expect to incur continued spending related to the development and expansion of our bioprocessing product lines and expansion of our commercial capabilities for the foreseeable future. Our future capital requirements may include, but are not limited to, purchases of property, plant and equipment, the acquisition of additional bioprocessing products and technologies to complement our existing manufacturing capabilities, and continued investment in our intellectual property portfolio.
We plan to continue to invest in our bioprocessing business and in key research and development activities associated with the development of new bioprocessing products. We actively evaluate various strategic transactions on an ongoing basis, including monetizing existing assets and licensing or acquiring complementary products, technologies or businesses that would complement our existing portfolio of development programs.portfolio. We continue to seek to acquire such potential assets that may offer us the best opportunity to create value for our
shareholders. In order to acquire such assets, we may need to seek additional financing to fund these investments. ThisIf our available cash balances and anticipated cash flow from operations are insufficient to satisfy our liquidity requirements, including because of any such acquisition-related financing needs or lower demand for our products, we may require the issuanceseek to sell common or sale of additionalpreferred equity or convertible debt securities.securities, enter into a credit facility or another form of third-party funding, or seek other debt funding. The sale of additional equity and convertible debt securities may result in additional dilution to our stockholders. Shouldstockholders, and those securities may have rights senior to those of our common shares. If we needraise additional funds through the issuance of preferred stock, convertible debt securities or other debt financing, these securities or other debt could contain covenants that would restrict our operations. Any other third-party funding arrangement could require us to securerelinquish valuable rights. We may require additional financing to acquire a product, fund future investment in research and development, or meetcapital beyond our future liquidity requirements, wecurrently anticipated amounts. Additional capital may not be able to secure such financing, or obtain such financingavailable on favorablereasonable terms, because of the volatile nature of the biotechnology marketplace.if at all.
Net operating loss carryforwards
At December 31, 2014,2017, we had net operating loss carryforwards of approximately $43,387,000$19,652,000 and business tax credits carryforwards of approximately $1,782,000$396,000 available to reduce future federal income taxes, if any. The net operating loss and business tax credits carryforwards will continue to expire at various dates through December 2032.2037. Net operating loss carryforwards and available tax credits are subject to review and possible adjustment by the Internal Revenue Service, state and foreign jurisdictions and may be limited in the event of certain changes in the ownership interest of significant stockholders.
Foreign earnings
At December 31, 2014,2017, we have not provided for U.S. income taxes or foreign withholding taxes on outside basis differences of foreign subsidiaries of approximately $16,498,000$53,747,000 as we have the ability and intendintent to indefinitely reinvest the undistributed earnings of Repligen Swedenour foreign subsidiaries, and there are no needs for such earnings in the U.S. that would contradict our plan to indefinitely reinvest.
Effects of inflation
Our assets are primarily monetary, consisting of cash, cash equivalents and marketable securities. Because of their liquidity, these assets are not directly affected by inflation. Since we intend to retain and continue to use our equipment, furniture and fixtures and leasehold improvements, we believe that the incremental inflation related to replacement costs of such items will not materially affect our operations. However, the rate of inflation affects our expenses, such as those for employee compensation and contract services, which could increase our level of expenses and the rate at which we use our resources.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Interest rate risk
We have historically held investments in commercial paper, U.S. Government and agency securities as well as corporate bonds and other debt securities. As a result, we arehave been exposed to potential loss from market risks that may occur as a result of changes in interest rates, changes in credit quality of the issuer or otherwise. We do not have any such investments as of December 31, 2017. As a result, a hypothetical 100 basis point increase in interest rates would have no effect on our cash position as of December 31, 2017.
We generally place our marketable security investments in high quality credit instruments, as specified in our investment policy guidelines. A hypothetical 100 basis point decrease in interest rates would result in an approximate $172,000 decrease in the fair value of our investments as of December 31, 2014. We believe however, that the conservative nature of our investments mitigates our interest rate exposure, and our investment policy limits the amount of our credit exposure to any one issue, issuer (with the exception of U.S. agency obligations) and type of instrument. We do not expect any material loss from our marketable security investments and therefore believe that our potential interest rate exposure is limited.
Foreign exchange risk
Transactions byThe reporting currency of the Company is U.S. dollars, and the functional currency of each of our subsidiary, Repligen Sweden, may be denominated inforeign subsidiaries is its respective local currency. Our foreign currency exposures include the Swedish kronor, Euro, British pound, sterling, U.S. dollars, or in Euros whileChinese yuan, Japanese yen, Singapore dollar, South Korean won and Indian rupee; of these, the entity’s functionalprimary foreign currency isexposures are the Swedish krona. Certain sales transactions related to ATF system products are denominated in foreign currencies.kronor, Euro and British pound. Exchange gains or losses resulting from the translation between the transactional currency and the functional currency of Repligen Sweden and ATF System product sales are included in our consolidated statements of operations. The functional currency of the Company is U.S. dollars.net income. Fluctuations in exchange rates may adversely affect our results of operations, financial position and cash flows. We currently do not seek to hedge this exposure to fluctuations in exchange rates.
Although a majority of our contracts are denominated in U.S. dollars, 37%23% and 32%40% of total revenues during fiscal 20142017 and 2013,2016, respectively, were denominated in foreign currencies while 31%24% and 37%22% of our costs and expenses during fiscal 20142017 and 2013,2016, respectively, were denominated in foreign currencies, primarily operating expenses associated with cost of revenue, sales and marketing and general and administrative. In addition, 41%18% and 36%26% of our consolidated tangible assets were subject to foreign currency exchange fluctuations as of each of December 31, 20142017 and 2013,2016, respectively, while 27%8% and 43%2% of our consolidated liabilities were exposed to foreign currency exchange fluctuations as of each of December 31, 20142017 and 2013,2016, respectively.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
Financial statements and supplementary data required by Item 8 are set forth at the pages indicated in Item 15(a) below and are incorporated herein by reference.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. |
None.
CONTROLS AND PROCEDURES |
(a) Disclosure Controls and Procedures.
The Company’s management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined inRules 13a-15(e) or15d-15(e) under the Exchange Act and as required by paragraph (b) of Rules13a-15 or15d-15 under the Exchange Act) as of the end of the period covered by this report. Based on such evaluation, our principal executive officer and principal financial officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were effective at the reasonable assurance level.
(b) Report of Management on Internal Control Over Financial Reporting.
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined inRule 13a-15(f) and15d-15(f) under the Exchange Act as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers and effected by the Company’s Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles and includes those policies and procedures that:
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Management has excluded from its assessment of, and its conclusion on the effectiveness of internal control over financial reporting the internal controls of Refine Technology acquired June 2, 2014, which is included in the 2014 consolidated financial statements of Repligen Corporation. Refine Technology constituted approximately $4.8 million of total assets as of December 31, 2014 and $6.8 million of revenues for the year then ended.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2014.2017. In making this assessment, management used the criteria established inInternal Control—Control – Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (COSO).
Management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Spectrum, Inc. (now known as Spectrum LifeSciences, LLC) acquired on August 1, 2017, which are included in the December 31, 2017 consolidated financial statements of Repligen Corporation and constituted $35,641,000 of total assets as of December 31, 2017 and $19,394,000 of revenues for the year then ended.
Subject to the foregoing, based on this assessment, our management concluded that, as of December 31, 2014,2017, our internal control over financial reporting is effective based on those criteria. Ernst & Young LLP, the independent registered public accounting firm that audited our financial statements included in this Annual Report on Form10-K, has issued an attestation report on our internal control over financial reporting as of December 31, 2014.2017.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
(c) Attestation Report of the Independent Registered Public Accounting Firm.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors and Stockholders of Repligen Corporation:
Opinion on Internal Control over Financial Reporting
We have audited Repligen Corporation’s (the “Company”) internal control over financial reporting as of December 31, 2014,2017, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Repligen Corporation’sCorporation (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on the COSO criteria.
As indicated in the accompanying Report of Management on Internal Control Over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Spectrum LifeSciences, LLC, which is included in the 2017 consolidated financial statements of the Company and constituted $35,641,000 of total assets as of December 31, 2017 and $19,349,000 of revenues for the year then ended. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of Spectrum LifeSciences, LLC.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2017 and 2016, the related consolidated statements of operations and comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2017, and the related notes and our reported dated February 22, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Report of Management on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’sCompany’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As indicated in the accompanying Report of Management on Internal Control Over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Refine Technology acquired on June 2, 2014, which is included in the 2014 consolidated financial statements of Repligen Corporation and constituted $4.8 million of total assets as of December 31, 2014 and $6.8 million of revenues for the year then ended. Our audit of internal control over financial reporting of Repligen Corporation also did not include an evaluation of the internal control over financial reporting of Refine Technology.
In our opinion, Repligen Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Repligen Corporation as of December 31, 2014 and December 31, 2013, and the related consolidated statements of operations and comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2014 of Repligen Corporation and our report dated March 17, 2015 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Boston, Massachusetts
March 17, 2015
(d) Changes in Internal Control Over Financial Reporting
As previously reported, we continue to implement an enterprise resource planning (“ERP”) system. In the fourth quarterWe acquired Spectrum in August 2017. The financial results of 2014, the implementation processSpectrum are included several significant ERP modules associated with inventory costing and invoicing. The implementation of the ERP modules are not fully completedin our consolidated financial statements as of December 31, 2014,2017 and for the year then ended and represented approximately $35,641,000 of our total assets as suchof December 31, 2017 and $19,394,000 of revenues from the company diddate of acquisition through December 31, 2017. As this acquisition occurred during the second half of 2017, the scope of our assessment of our internal control over financial reporting does not rely on these system automated controls. The Company utilizedinclude Spectrum. This exclusion is in accordance with the SEC’s general guidance that an assessment of a modified manual process to establish internal controls related to processing cost of goods sold and valuing inventoryrecently acquired business may be omitted from our scope in the fourth quarteryear of 2014. At the completion of the ERP system implementation and all significant modules, the Company will update its internal control environment to utilize the automated system processes and controls.acquisition.
Except as otherwise described above, there have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules13a-15(f) and15d-15(f) under the Exchange Act) during the quarter ended December 31, 20142017 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
OTHER INFORMATION |
None.
Pursuant to General Instructions G to Form10-K, the information required for Part III, Items 10, 11, 12, 13 and 14, is incorporated herein by reference from the Company’s proxy statement for the 20152017 Annual Meeting of Stockholders.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
The following documents are filed as part of this Annual Report on Form10-K:
(a) (1)Financial Statements:
The financial statements required by this item are submitted in a separate section beginning on page 3647 of this Report, as follows:
Page | ||||
Consolidated Balance Sheets as of December 31, | ||||
(a) (2)Financial Statement Schedules:
None.
(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.
EXHIBIT INDEX
# | Confidential treatment obtained as to certain portions. |
* | Management contract or compensatory plan or arrangement. |
+ | Filed herewith. |
The exhibits listed above are not contained in the copy of the Annual Report on Form10-K distributed to stockholders. Upon the request of any stockholder entitled to vote at the 2015 annual meeting, the Registrant will furnish that person without charge a copy of any exhibits listed above. Requests should be addressed to Repligen Corporation, 41 Seyon Street, Waltham, MA 02453.
ITEM 16. | 10-K SUMMARY |
We may voluntarily include a summary of information required by Form10-K under this Item 16. We have elected not to include such summary information.
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 | ||||||
Date: | By: | / | ||||
President and Chief Executive Officer |
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below hereby makes, constitutes and appoints Walter C. HerlihyTony J. Hunt and Jon K. Snodgres with full power to act without the other, his true and lawfulattorney-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 Form10-K, and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto saidattorney-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 saidattorney-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 below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature | Title | Date | ||
/
| President, Chief Executive Officer and Director (Principal executive officer) | |||
/ Jon K. Snodgres | Chief Financial Officer (Principal financial and accounting officer) | |||
/ Karen Dawes | Chairperson of the Board | |||
/
| Director | |||
/
| Director | |||
/
| Director | |||
/
| Director | |||
/ Thomas F. Ryan, Jr. | Director |
EXHIBIT INDEX
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Consolidated Balance Sheets as of December 31, | ||||
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors and Stockholders of Repligen Corporation:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Repligen Corporation (the Company) as of December 31, 20142017 and December 31, 2013,2016, and the related consolidated statements of operations and comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2014. These2017, and the related notes (collectively referred to as the “consolidated 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 the standards of the Public Company Accounting Oversight Board (United States)statements”). 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 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Repligen Corporationthe Company at December 31, 20142017 and December 31, 2013,2016, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2014,2017, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), Repligen Corporation’sthe Company’s internal control over financial reporting as of December 31, 2014,2017, based on criteria established in Internal Control-Integrated Framework issued by the Committee of the Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 17, 2015February 22, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company‘s management. Our responsibility is to express an opinion on the Company‘s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the US federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2002
Boston, Massachusetts
March 17, 2015February 22, 2018
REPLIGEN CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 2014 | December 31, 2013 | |||||||||||||||
(in thousands, except share data) | December 31, 2017 | December 31, 2016 | ||||||||||||||
Assets | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 35,363,024 | $ | 39,829,653 | $ | 173,759 | $ | 122,233 | ||||||||
Marketable securities | 23,090,209 | 21,793,550 | — | 19,547 | ||||||||||||
Accounts receivable, less reserve for doubtful accounts of $40,644 and $10,000 respectively | 7,760,382 | 4,946,132 | ||||||||||||||
Accounts receivable, less reserve for doubtful accounts of $58 and $23, respectively | 27,585 | 15,194 | ||||||||||||||
Royalties and other receivables | 239,890 | 6,730,818 | 153 | 839 | ||||||||||||
Inventories, net | 12,383,633 | 11,798,638 | 39,004 | 24,696 | ||||||||||||
Deferred tax asset, net | 4,928 | 1,984 | ||||||||||||||
Prepaid expenses and other current assets | 2,103,576 | 1,249,824 | 2,281 | 1,644 | ||||||||||||
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Total current assets | 80,945,642 | 86,350,599 | 242,782 | 184,153 | ||||||||||||
Property, plant and equipment, at cost: | ||||||||||||||||
Leasehold improvements | 9,108,214 | 8,973,615 | ||||||||||||||
Equipment | 13,115,630 | 13,684,954 | ||||||||||||||
Furniture and fixtures | 2,270,347 | 2,116,017 | ||||||||||||||
Construction in progress | 3,847,746 | 21,647 | ||||||||||||||
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Total property, plant and equipment, at cost | 28,341,937 | 24,796,233 | ||||||||||||||
Less: Accumulated depreciation | (13,815,697 | ) | (12,287,010 | ) | ||||||||||||
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Property, plant and equipment, net | 14,526,240 | 12,509,223 | 22,417 | 14,956 | ||||||||||||
Long-term deferred tax asset, net | — | 184,848 | ||||||||||||||
Long-term marketable securities | 3,550,210 | 12,218,602 | ||||||||||||||
Intangible assets, net | 14,636,307 | 6,187,632 | 144,753 | 29,806 | ||||||||||||
Goodwill | 14,184,835 | 994,000 | 327,333 | 59,548 | ||||||||||||
Restricted cash | 450,000 | 200,000 | — | 450 | ||||||||||||
Other assets | 6,234 | — | ||||||||||||||
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Total assets | $ | 128,293,234 | $ | 118,644,904 | $ | 743,519 | $ | 288,913 | ||||||||
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Liabilities and stockholders’ equity | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Accounts payable | $ | 3,863,350 | $ | 1,721,459 | $ | 7,282 | $ | 5,061 | ||||||||
Accrued liabilities | 6,819,063 | 9,579,712 | 17,929 | 16,014 | ||||||||||||
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Total current liabilities | 10,682,413 | 11,301,171 | 25,211 | 21,075 | ||||||||||||
Convertible senior notes, net | 99,250 | 95,272 | ||||||||||||||
Deferred tax liabilities | 25,167 | 2,103 | ||||||||||||||
Other long-term liabilities | 5,879,013 | 3,457,631 | 2,343 | 1,699 | ||||||||||||
Commitments and contingencies (Note 6) | ||||||||||||||||
Stockholders’ equity: | ||||||||||||||||
Preferred stock, $.01 par value, 5,000,000 shares authorized, no shares issued or outstanding | — | — | — | — | ||||||||||||
Common stock, $.01 par value, 80,000,000 shares authorized, 32,774,374 shares at December 31, 2014 and 31,925,741 shares at December 31, 2013 issued and outstanding | 327,744 | 319,257 | ||||||||||||||
Common stock, $.01 par value, 80,000,000 shares authorized, 43,587,079 shares at December 31, 2017 and 33,844,074 shares at December 31, 2016 issued and outstanding | 436 | 338 | ||||||||||||||
Additional paid-in capital | 198,064,414 | 190,625,937 | 628,983 | 242,036 | ||||||||||||
Accumulated other comprehensive income (loss) | (5,773,142 | ) | 1,998,330 | |||||||||||||
Accumulated other comprehensive loss | (6,363 | ) | (13,749 | ) | ||||||||||||
Accumulated deficit | (80,887,208 | ) | (89,057,422 | ) | (31,508 | ) | (59,861 | ) | ||||||||
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Total stockholders’ equity | 111,731,808 | 103,886,102 | 591,548 | 168,764 | ||||||||||||
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Total liabilities and stockholders’ equity | $ | 128,293,234 | $ | 118,644,904 | $ | 743,519 | $ | 288,913 | ||||||||
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The accompanying notes are an integral part of these consolidated financial statements.
REPLIGEN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
Years ended December 31, | ||||||||||||||||||||||||
(in thousands, except share and per share data) | Years ended December 31, | |||||||||||||||||||||||
2014 | 2013 | 2012 | 2017 | 2016 | 2015 | |||||||||||||||||||
Revenue: | ||||||||||||||||||||||||
Product revenue | $ | 60,431,508 | $ | 47,482,382 | $ | 41,834,188 | $ | 141,089 | $ | 104,441 | $ | 83,537 | ||||||||||||
Royalty and other revenue | 3,116,841 | 20,687,241 | 20,432,348 | 147 | 100 | — | ||||||||||||||||||
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Total revenue | 63,548,349 | 68,169,623 | 62,266,536 | 141,236 | 104,541 | 83,537 | ||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||
Cost of product revenue | 28,022,034 | 22,481,122 | 24,957,243 | 67,050 | 47,117 | 35,251 | ||||||||||||||||||
Cost of royalty and other revenue | — | 2,682,177 | 2,213,004 | |||||||||||||||||||||
Research and development | 5,608,693 | 7,340,698 | 10,489,811 | 8,672 | 7,355 | 5,740 | ||||||||||||||||||
Selling, general and administrative | 17,154,555 | 12,701,195 | 13,226,732 | 51,509 | 30,853 | 24,699 | ||||||||||||||||||
Contingent consideration – fair value adjustments | 2,071,994 | 91,191 | 610,877 | — | 3,242 | 4,083 | ||||||||||||||||||
Gain on bargain purchase | — | — | (314,244 | ) | ||||||||||||||||||||
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Total operating expenses | 52,857,276 | 45,296,383 | 51,183,423 | 127,231 | 88,567 | 69,773 | ||||||||||||||||||
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Income from operations | 10,691,073 | 22,873,240 | 11,083,113 | 14,005 | 15,974 | 13,764 | ||||||||||||||||||
Investment income | 309,467 | 301,078 | 218,604 | 371 | 346 | 136 | ||||||||||||||||||
Interest expense | (49,957 | ) | (49,849 | ) | (56,714 | ) | (6,441 | ) | (3,768 | ) | (32 | ) | ||||||||||||
Other income (expense) | 188,000 | (110,648 | ) | 26,403 | (687 | ) | (860 | ) | (445 | ) | ||||||||||||||
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Income before income taxes | 11,138,583 | 23,013,821 | 11,271,406 | 7,248 | 11,692 | 13,423 | ||||||||||||||||||
Income tax (benefit) provision | 2,968,369 | 6,920,666 | (2,884,631 | ) | ||||||||||||||||||||
Income tax provision (benefit) | (21,105 | ) | 11 | 4,078 | ||||||||||||||||||||
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Net income | $ | 8,170,214 | $ | 16,093,155 | $ | 14,156,037 | $ | 28,353 | $ | 11,681 | $ | 9,345 | ||||||||||||
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Earnings per share: | ||||||||||||||||||||||||
Basic | $ | 0.25 | $ | 0.51 | $ | 0.46 | $ | 0.74 | $ | 0.35 | $ | 0.28 | ||||||||||||
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Diluted | $ | 0.25 | $ | 0.50 | $ | 0.45 | $ | 0.72 | $ | 0.34 | $ | 0.28 | ||||||||||||
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Weighted average shares outstanding: | ||||||||||||||||||||||||
Basic | 32,497,657 | 31,667,015 | 30,914,424 | 38,233,527 | 33,572,883 | 32,881,940 | ||||||||||||||||||
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Diluted | 33,263,667 | 32,406,641 | 31,253,434 | 39,150,374 | 34,098,898 | 33,577,091 | ||||||||||||||||||
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Other comprehensive income: | ||||||||||||||||||||||||
Unrealized (loss) gain on investments | (27,773 | ) | (19,411 | ) | 7,792 | |||||||||||||||||||
Foreign currency translation (loss) gain | (7,743,699 | ) | 105,771 | 1,790,551 | ||||||||||||||||||||
Unrealized gain (loss) on investments | 5 | 6 | 22 | |||||||||||||||||||||
Foreign currency translation gain (loss) | 7,381 | (5,189 | ) | (2,815 | ) | |||||||||||||||||||
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Comprehensive income | $ | 398,742 | $ | 16,179,515 | $ | 15,954,380 | $ | 35,739 | $ | 6,498 | $ | 6,552 | ||||||||||||
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The accompanying notes are an integral part of these consolidated financial statements.
REPLIGEN CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Income (Loss) | Accumulated Deficit | Stockholders’ Equity | ||||||||||||||||||||
Number of Shares | Amount | |||||||||||||||||||||||
Balance, December 31, 2011 | 30,714,757 | $ | 307,148 | $ | 184,872,839 | $ | 113,627 | $ | (119,306,614 | ) | $ | 65,987,000 | ||||||||||||
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Net income | 14,156,037 | 14,156,037 | ||||||||||||||||||||||
Unrealized gain on investments | 7,792 | 7,792 | ||||||||||||||||||||||
Foreign currency translation adjustment | 1,790,551 | 1,790,551 | ||||||||||||||||||||||
Share-based compensation expense | 1,024,152 | 1,024,152 | ||||||||||||||||||||||
Exercise of stock options | 480,284 | 4,802 | 1,154,262 | 1,159,064 | ||||||||||||||||||||
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Balance, December 31, 2012 | 31,195,041 | $ | 311,950 | $ | 187,051,253 | $ | 1,911,970 | $ | (105,150,577 | ) | $ | 84,124,596 | ||||||||||||
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Net income | 16,093,155 | 16,093,155 | ||||||||||||||||||||||
Unrealized loss on investments | (19,411 | ) | (19,411 | ) | ||||||||||||||||||||
Foreign currency translation adjustment | 105,771 | 105,771 | ||||||||||||||||||||||
Share-based compensation expense | 1,059,806 | 1,059,806 | ||||||||||||||||||||||
Exercise of stock options | 730,700 | 7,307 | 2,514,878 | 2,522,185 | ||||||||||||||||||||
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Balance, December 31, 2013 | 31,925,741 | $ | 319,257 | $ | 190,625,937 | $ | 1,998,330 | $ | (89,057,422 | ) | $ | 103,886,102 | ||||||||||||
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Net income | 8,170,214 | 8,170,214 | ||||||||||||||||||||||
Unrealized loss on investments | (27,773 | ) | (27,773 | ) | ||||||||||||||||||||
Foreign currency translation adjustment | (7,743,699 | ) | (7,743,699 | ) | ||||||||||||||||||||
Share-based compensation expense | 1,766,532 | 1,766,532 | ||||||||||||||||||||||
Shares issued in acquisition | 215,285 | 2,153 | 3,997,847 | 4,000,000 | ||||||||||||||||||||
Exercise of stock options | 633,348 | 6,334 | 1,674,098 | 1,680,432 | ||||||||||||||||||||
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Balance, December 31, 2014 | 32,774,374 | $ | 327,744 | $ | 198,064,414 | $ | (5,773,142 | ) | $ | (80,887,208 | ) | $ | 111,731,808 | |||||||||||
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(in thousands, except share data) | Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Income (Loss) | Accumulated Deficit | Stockholders’ Equity | |||||||||||||||||||
Number of Shares | Amount | |||||||||||||||||||||||
Balance, December 31, 2014 | 32,774,374 | $ | 328 | $ | 198,064 | $ | (5,773 | ) | $ | (80,887 | ) | $ | 111,732 | |||||||||||
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Net income | 9,345 | 9,345 | ||||||||||||||||||||||
Unrealized gain on investments | 22 | 22 | ||||||||||||||||||||||
Foreign currency translation adjustment, net | (2,815 | ) | (2,815 | ) | ||||||||||||||||||||
Share-based compensation expense | 3,598 | 3,598 | ||||||||||||||||||||||
Exercise of stock options and vesting of restricted stock | 174,979 | 1 | 865 | 866 | ||||||||||||||||||||
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Balance, December 31, 2015 | 32,949,353 | $ | 329 | $ | 202,527 | $ | (8,566 | ) | $ | (71,542 | ) | $ | 122,748 | |||||||||||
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Net income | 11,681 | 11,681 | ||||||||||||||||||||||
Unrealized gain on investments | 6 | 6 | ||||||||||||||||||||||
Shares issued in acquisition | 538,700 | 5 | 14,130 | 14,135 | ||||||||||||||||||||
Payment of contingent consideration in stock | 34,803 | — | 875 | 875 | ||||||||||||||||||||
Conversion option of convertible notes, net of issuance costs of $639,000 | 18,072 | 18,072 | ||||||||||||||||||||||
Foreign currency translation adjustment, net | (5,189 | ) | (5,189 | ) | ||||||||||||||||||||
Share-based compensation expense | 4,595 | 4,595 | ||||||||||||||||||||||
Exercise of stock options and vesting of restricted stock | 321,218 | 4 | 1,837 | 1,841 | ||||||||||||||||||||
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Balance, December 31, 2016 | 33,844,074 | $ | 338 | $ | 242,036 | $ | (13,749 | ) | $ | (59,861 | ) | $ | 168,764 | |||||||||||
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Net income | 28,353 | 28,353 | ||||||||||||||||||||||
Unrealized gain on investments | 5 | 5 | ||||||||||||||||||||||
Shares issued in acquisition | 6,153,995 | 62 | 247,513 | 247,575 | ||||||||||||||||||||
Payment of contingent consideration in stock | 30,756 | 1 | 1,062 | 1,063 | ||||||||||||||||||||
Proceeds from issuance of common stock, net of issuance costs of $8,691,000 | 3,228,069 | 32 | 129,277 | 129,309 | ||||||||||||||||||||
Foreign currency translation adjustment, net | 7,381 | 7,381 | ||||||||||||||||||||||
Share-based compensation expense | 6,747 | 6,747 | ||||||||||||||||||||||
Exercise of stock options and vesting of restricted stock | 330,185 | 3 | 2,348 | 2,351 | ||||||||||||||||||||
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Balance, December 31, 2017 | 43,587,079 | $ | 436 | $ | 628,983 | $ | (6,363 | ) | $ | (31,508 | ) | $ | 591,548 | |||||||||||
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The accompanying notes are an integral part of these consolidated financial statements.
REPLIGEN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, | ||||||||||||||||||||||||
(In thousands) | Years ended December 31, | |||||||||||||||||||||||
2014 | 2013 | 2012 | 2017 | 2016 | 2015 | |||||||||||||||||||
Cash flows from operating activities: | ||||||||||||||||||||||||
Net income: | $ | 8,170,214 | $ | 16,093,155 | $ | 14,156,037 | $ | 28,353 | $ | 11,681 | $ | 9,345 | ||||||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||||||||||
Depreciation and amortization | 4,019,387 | 3,113,892 | 3,508,592 | 10,507 | 5,334 | 4,594 | ||||||||||||||||||
Non-cash interest expense | 3,977 | 2,274 | — | |||||||||||||||||||||
Stock-based compensation expense | 1,766,532 | 1,059,806 | 1,024,152 | 6,747 | 4,595 | 3,598 | ||||||||||||||||||
Deferred tax expense (benefit) | 295,095 | 2,787,967 | (3,143,268 | ) | ||||||||||||||||||||
Gain on bargain purchase | — | — | (314,244 | ) | ||||||||||||||||||||
Deferred tax benefit | (24,679 | ) | (4,092 | ) | (118 | ) | ||||||||||||||||||
Loss on revaluation of contingent consideration | 2,071,994 | 91,191 | 604,133 | — | 3,242 | 4,083 | ||||||||||||||||||
Gain on disposal of assets | 35,028 | 1,836 | — | |||||||||||||||||||||
Gain on sale of fixed assets | — | (15 | ) | — | ||||||||||||||||||||
Loss on disposal of assets | 64 | 7 | 1 | |||||||||||||||||||||
Changes in assets and liabilities: | ||||||||||||||||||||||||
Accounts receivable | (1,596,803 | ) | (773,954 | ) | (1,211,343 | ) | (6,888 | ) | (3,222 | ) | (3,729 | ) | ||||||||||||
Royalties and other receivables | 6,557,205 | 2,399,697 | (5,923,675 | ) | 644 | (652 | ) | 158 | ||||||||||||||||
Inventories | (860,124 | ) | (625,895 | ) | 2,734,239 | 605 | (6,163 | ) | (6,149 | ) | ||||||||||||||
Prepaid expenses and other current assets | (820,060 | ) | 57,604 | 30,266 | ||||||||||||||||||||
Prepaid expenses and other assets | (1,304 | ) | 612 | (277 | ) | |||||||||||||||||||
Accounts payable | 2,288,064 | (733,728 | ) | 1,001,546 | 807 | (1,802 | ) | 3,024 | ||||||||||||||||
Accrued liabilities | (2,489,152 | ) | 1,256,736 | 2,083,964 | (1,993 | ) | (4,038 | ) | (1,592 | ) | ||||||||||||||
Long-term liabilities | (1,036,082 | ) | 1,201,660 | (1,110,791 | ) | 611 | (240 | ) | 2,115 | |||||||||||||||
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Net cash provided by operating activities | 18,401,298 | 25,929,967 | 13,439,608 | 17,451 | 7,521 | 15,053 | ||||||||||||||||||
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Cash flows from investing activities: | ||||||||||||||||||||||||
Purchases of marketable securities | (27,507,599 | ) | (42,480,331 | ) | (39,109,959 | ) | (47 | ) | (23,700 | ) | (20,168 | ) | ||||||||||||
Redemptions of marketable securities | 34,803,854 | 29,208,818 | 43,214,487 | 19,600 | 23,400 | 27,587 | ||||||||||||||||||
Acquisition of assets of Refine Technology, LLC | (21,235,937 | ) | — | — | ||||||||||||||||||||
Increase of restricted cash | (250,000 | ) | — | — | ||||||||||||||||||||
Acquisition of assets of Spectrum, Inc., net of cash acquired | (112,795 | ) | — | — | ||||||||||||||||||||
Acquisition of assets of Atoll GmbH, net of cash acquired | — | (8,767 | ) | — | ||||||||||||||||||||
Acquisition of assets of TangenX Technology Corporation, net of cash acquired | — | (35,847 | ) | — | ||||||||||||||||||||
Decrease of restricted cash | 450 | — | — | |||||||||||||||||||||
Proceeds from sale of fixed assets | — | 45 | — | |||||||||||||||||||||
Purchases of property, plant and equipment | (5,602,547 | ) | (4,634,776 | ) | (1,263,647 | ) | (5,454 | ) | (4,325 | ) | (2,628 | ) | ||||||||||||
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Net cash provided by (used in) investing activities | (19,792,229 | ) | (17,906,289 | ) | 2,840,881 | (98,246 | ) | (49,194 | ) | 4,791 | ||||||||||||||
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Cash flows from financing activities: | ||||||||||||||||||||||||
Proceeds from issuance of senior convertible notes, net of issuance costs | — | 111,070 | — | |||||||||||||||||||||
Proceeds from issuance of common stock, net of issuance costs | 129,309 | — | — | |||||||||||||||||||||
Exercise of stock options | 1,680,431 | 2,450,220 | 1,159,064 | 2,351 | 1,841 | 866 | ||||||||||||||||||
Excess tax benefit on exercise of stock options | — | 71,964 | — | |||||||||||||||||||||
Payments of contingent consideration | (1,715 | ) | (798 | ) | (99 | ) | ||||||||||||||||||
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Net cash provided by financing activities | 1,680,431 | 2,522,184 | 1,159,064 | 129,945 | 112,113 | 767 | ||||||||||||||||||
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Effect of exchange rate changes on cash and cash equivalents | (4,756,129 | ) | 73,970 | 602,523 | 2,376 | (2,299 | ) | (1,882 | ) | |||||||||||||||
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Net increase (decrease) in cash and cash equivalents | (4,466,629 | ) | 10,619,832 | 18,042,076 | 51,526 | 68,141 | 18,729 | |||||||||||||||||
Cash and cash equivalents, beginning of period | 39,829,653 | 29,209,821 | 11,167,745 | 122,233 | 54,092 | 35,363 | ||||||||||||||||||
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Cash and cash equivalents, end of period | $ | 35,363,024 | $ | 39,829,653 | $ | 29,209,821 | $ | 173,759 | $ | 122,233 | $ | 54,092 | ||||||||||||
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Supplemental information: | ||||||||||||||||||||||||
Income taxes paid | $ | 2,547,000 | $ | 1,264,000 | $ | 140,000 | $ | 4,021 | $ | 3,993 | $ | 4,948 | ||||||||||||
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Interest paid | $ | 2,444 | $ | 1,222 | $ | — | ||||||||||||||||||
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Payment of contingent consideration in common stock | $ | 1,063 | $ | 875 | $ | — | ||||||||||||||||||
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Common stock tendered for acquisition of Spectrum, Inc. | $ | 247,575 | $ | — | $ | — | ||||||||||||||||||
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Common stock tendered for acquisition of Atoll GmbH | $ | — | $ | 14,135 | $ | — | ||||||||||||||||||
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Years ended December 31, | Years ended December 31, | |||||||||||||||||||||||
2014 | 2013 | 2012 | 2017 | 2016 | 2015 | |||||||||||||||||||
Business Acquisitions: | ||||||||||||||||||||||||
Fair value of tangible assets acquired | 1,175,398 | — | — | $ | 19,709 | $ | 1,420 | $ | — | |||||||||||||||
Fair value of accounts receivable | 1,646,746 | — | — | 5,075 | 1,267 | — | ||||||||||||||||||
Fair value of other assets | 184,080 | — | — | 1,718 | 183 | — | ||||||||||||||||||
Liabilities assumed | (365,359 | ) | — | — | (7,698 | ) | (3,662 | ) | — | |||||||||||||||
Fair value of stock issued | (4,000,000 | ) | — | — | (247,575 | ) | (14,135 | ) | — | |||||||||||||||
Cost in excess of fair value of assets acquired (Goodwill) | 13,198,835 | — | — | 265,519 | 46,505 | — | ||||||||||||||||||
Acquired identifiable intangible assets | 9,100,000 | — | — | 120,080 | 19,829 | — | ||||||||||||||||||
In-process research and development | 1,600,000 | — | — | |||||||||||||||||||||
Deferred tax liabilities, net | (43,608 | ) | (5,841 | ) | — | |||||||||||||||||||
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22,539,660 | — | — | 113,220 | 45,566 | — | |||||||||||||||||||
Less accrued contingent consideration | (1,370,000 | ) | — | — | — | (952 | ) | — | ||||||||||||||||
Working capital adjustment, reflected in other receivables as of December 31, 2014 | 66,277 | — | — | |||||||||||||||||||||
Less working capital adjustment | (425 | ) | — | — | ||||||||||||||||||||
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Net cash paid for business acquisition | 21,235,937 | — | — | |||||||||||||||||||||
Net cash paid for business acquisitions | $ | 112,795 | $ | 44,614 | $ | — | ||||||||||||||||||
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The accompanying notes are an integral part of these consolidated financial statements.
REPLIGEN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. | Organization and Nature of Business |
Repligen Corporation (“Repligen” or the “Company”)(NASDAQ:RGEN) is a life sciencesbioprocessing company that develops, manufacturesfocused on the development, manufacture and markets high-value, consumablecommercialization of highly innovative products used to improve the interconnected phases of the biological drug manufacturing process. The Company’s portfolio includes protein products (Protein A affinity ligands, cell culture growth factors), chromatography products (OPUSpre-packed columns, chromatography resins, ELISA kits), and filtration products (XCell ATF Systems, Sius TFF cassettes, KrosFlo filters, modules and systems). The Company’s bioprocessing products forare sold to major life sciences companies, biopharmaceutical development companies and biopharmaceuticalcontract manufacturing companiesorganizations worldwide. The Protein A ligands and growth factor products that the Company manufactures are components of chromatography resins and cell culture media, respectively.
The Company is a world-leadingthe leading manufacturer of both native and recombinant forms of Protein A ligands, a critical reagentscomponent of Protein A resins that are the industry standard for downstream separation and purification of monoclonal antibody-based therapeutics. The Company’s growth factors are used in biomanufacturingupstream processes to separateaccelerate cell growth and purify monoclonal antibodies,productivity in a type of biologic drug. Repligen also supplies several growth factor products, ATF System products and cell filtration products used to increase cell culture productivity during the bioproduction process. In the expanding area of flexible biomanufacturing technologies, the Company has developed and currently markets a seriesbioreactor. The Company’s innovative line of OPUS chromatography columns, used in downstream processes for usebench-scale through clinical-scale purification needs, are deliveredpre-packed with its customers’ choice of resin and volume. The Company’s XCell ATF Systems, available in clinical-scale manufacturing. The Company generally manufacturesstainless steel and sells Protein Asingle-use configurations, continuously eliminate waste from a bioreactor, to accelerate and growth factors to life sciences companies under long-term supply agreementsincrease productivity in upstream processes.Single-use Sius TFF cassettes and sells its chromatography columns, as well as mediahardware are used for biologic drug concentration in downstream processes. KrosFlo filters and quality test kits, and ATF products directly to biopharmaceutical companies or contract manufacturing organizations or through distributors. Repligen refers to these activities as its bioprocessing business. The Company manufactures its products in production facilitiessystems are used in the United Statesfiltration, isolation, purification and Sweden.
Historically, Repligen also conducted activities aimed at developing proprietary therapeutic drug candidates, often with a potentialconcentration of entering into a collaboration with a larger commercial stage pharmaceutical or biotechnology companybiologics. Repligen’s corporate headquarters are in respect of these programs. In addition, the Company has out-licensed certain intellectual property to Bristol-Myers Squibb Company, from which Repligen received royalties on Bristol’s net salesWaltham, Massachusetts (USA) and its manufacturing facilities are located in the United States of their product Orencia®. On April 7, 2008, the Company entered into a settlement agreement with Bristol in connection with a patent infringement lawsuit that Repligen filed against Bristol. Under the terms of the settlement agreement, Bristol was obligated to pay us royalties on its U.S. net sales of Orencia® for any clinical indication at a rate of 1.8% for the first $500,000,000 of annual sales, 2.0% for the next $500,000,000 of annual salesWaltham, Massachusetts; Shrewsbury, Massachusetts; Rancho Dominguez, California; Las Vegas, Nevada; Houston, Texas; Irving, Texas; Lund, Sweden; and 4% of annual sales in excess of $1 billion. Under the terms of the agreement, Repligen will not receive any future royalties on Bristol’s sales of Orencia® made after December 31, 2013. As part of Repligen’s strategic decision in 2012 to focus the Company’s efforts on its core bioprocessing business, the Company reduced efforts on its clinical development programs and increased its efforts to find collaboration partners to finish their development and, if successful, commercialize these therapeutic drug candidates.Weingarten, Germany.
The Company is subject to a number of risks typically associated with companies in the biotechnology industry. These risks principally include the Company’s dependence on key customers, development by the Company or its competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with the FDA and other governmental regulations and approval requirements, as well as the ability to grow the Company’s business and obtain adequate funding to finance this growth.
2. | Summary of Significant Accounting Policies |
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) 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 revenues and expenses during the reporting periods.
Significant estimates and assumptions by management affect the Company’s revenue recognition for multiple element arrangements, allowance for doubtful accounts, the net realizable value of inventory, estimated fair value of cost method investments, valuations and purchase price allocations related to business combinations, expected future cash flows including growth rates, discount rates, terminal values and other assumptions and estimates used to evaluate the recoverability of long-lived assets, and goodwill, estimated fair values of intangible
assets and goodwill, amortization methods and periods, warranty reserves, certain accrued expenses, stock-based compensation, fair value estimates of contingent consideration, contingent liabilities, tax reserves and recoverability of the Company’s net deferred tax assets and related valuation allowance.
Although the Company regularly assesses these estimates, actual results could differ materially from these estimates. Changes in estimates are recorded in the period in which they become known. The Company bases its estimates on historical experience and various other assumptions that it believes to be reasonable under the circumstances.
Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Repligen Sweden AB, Repligen GmbH, Spectrum LifeSciences LLC and its subsidiaries (“Spectrum,” acquired on August 1, 2017), TangenX Technology Corporation (“TangenX,” acquired on December 14, 2016 and merged into and with the Company as of June 30, 2017) and Repligen Singapore Pte. Ltd. All significant intercompany accounts and transactions have been eliminated in consolidation.
Foreign Currency
The Company translates the assets and liabilities of its foreign subsidiary at rates in effect at the end of the reporting period. Revenues and expenses are translated at average rates in effect during the reporting period. Translation adjustments, including adjustments related to the Company’s intercompany loan with Repligen Sweden and Repligen Sweden’s intercompany loan with Repligen GmbH, are remeasured at each period end and included in accumulated other comprehensive income.
Revenue Recognition
Product Sales
The Company’s revenue recognition policy is to recognize revenues from product sales and services in accordance with ASC 605, Revenue Recognition. These standards require that revenues are recognized when persuasive evidence of an arrangement exists, product delivery, including customer acceptance, has occurred or services have been rendered, the price is fixed or determinable and collectability is reasonably assured. Determination of whether these criteria have been met are based on management’s judgments primarily regarding the fixed nature of the fee charged for the product delivered and the collectability of those fees. The Company has a few longstanding customers who comprise the majority of revenue and have excellent payment histories and therefore the Company does not require collateral. The Company has had no significant write-offs of uncollectible invoices in the periods presented. When more than one element such as equipment, consumables, and services are contained in a single arrangement, the Company allocates revenue between the elements based on each element’s relative selling price, provided that each element meets the criteria for treatment as a separate unit of accounting. An item is considered a separate unit of accounting if it has value to the customer on a stand-alone basis. The selling price of the undelivered elements is determined by the price charged when the element is sold separately, or in cases when the item is not sold separately, by third-party evidence of selling price or management’s best estimate of selling price.
The Company’s product revenues are from the sale of bioprocessing products, equipment devices, and related consumables used with these equipment devices to customers in the life science and biopharmaceutical industries. On product sales to end customers, revenue is recognized, net of discounts, when both the title and risk of loss have transferred to the customer, as determined by the shipping terms provided there are no uncertainties regarding acceptance, and all obligations have been completed. Generally, our product arrangements for equipment sales are multiple element arrangements, and may include services, such as installation and training, and multiple products, such as consumables and spare parts. In accordance with ASC605-25, based on terms and conditions of the product arrangements, the Company believes that these services and undelivered products can be accounted for separately from the delivered product element as the delivered products have value to our customers on a standalone basis. Accordingly, revenue for services not yet performed
at the time of product shipment are deferred and recognized as such services are performed. The relative selling
price of any undelivered products is also deferred at the time of shipment and recognized as revenue when these products are delivered. For product sales to distributors, the Company recognizes revenue for both equipment and consumables upon delivery to the distributor unless direct shipment to the end user is requested. In this case, revenue is recognized upon delivery to the end user’s location. In general, distributors are responsible for shipment to the end customer along with installation, training and acceptance of the equipment by the end customer. Sales to distributors are not contingent upon resale of the product.
At the time of sale, the Company also evaluates the need to accrue for warranty and sales returns. The supply agreements the Company has with its customers and the related purchase orders identify the terms and conditions of each sale and the price of the goods ordered. Due to the nature of the sales arrangements, inventory produced for sale is tested for quality specifications prior to shipment. Since the product is manufactured to order and in compliance with required specifications prior to shipment, the likelihood of sales return, warranty or other issues is largely diminished. Furthermore, there is no customer right of return in our sales agreements. Sales returns and warranty issues are infrequent and have not had nominala material impact on the Company’s financial statements historically.
The Scripps Research Institute
On April 6, 2007, the Company entered into an exclusive worldwide commercial license agreement (“Scripps License Agreement”) with The Scripps Research Institute (“Scripps”). Pursuant to the License Agreement, the Company obtainedShipping and handling fees are recorded as a license to use, commercialize and sublicense certain patented technology and improvements thereon, owned or licensed by Scripps, relating to compounds that may have utility in treating Friedreich’s ataxia, an inherited neurodegenerative disease.
Pursuant to the Scripps License Agreement, the Company agreed to pay Scripps an initial license feecomponent of $300,000, certain royalty and sublicense fees and, in the event that the Company achieved specified developmental and commercial milestones, certain additional milestone payments. Total future milestone payments, if all milestones had been achieved, would have been approximately $4,300,000. In addition, the Company issued Scripps and certain of its designees 87,464 shares of the Company’s common stock, which had a value of $300,000 on the date of issuance.
In connectionproduct revenue, with the Scripps License Agreement, the Company issued warrants to an individual at Scripps to purchase up to 150,000 sharesassociated costs recorded as a component of common stock. No expense has been recorded related to these warrants through December 31, 2014. During the year ending December 31, 2014, the warrant’s seven-year term expired.cost of product revenue.
As of January 2014, all rights and obligations have been transferred to BioMarin.
Sale of Intellectual Property to BioMarin
In January 2014, the Company entered into an asset purchase agreement (the “Asset Purchase Agreement”) with BioMarin Pharmaceutical Inc. (“BioMarin”) to sell Repligen’s histone deacetylase inhibitor (HDACi) portfolio. Pursuant to the terms of the Asset Purchase Agreement, the Company received $2 million from BioMarin as an upfront payment on January 30, 2014 and a $125,675 payment on September 3, 2014 upon completion of the Technology Transfer. The Company is entitled to receive up to $160 million in potential future milestone payments for the development, regulatory approval and commercial sale of portfolio compounds included in the agreement. These potential milestone payments are approximately 37% related to clinical development and 63% related to initial commercial sales in specific geographies. In addition, Repligen is eligible to receive royalties on sales of therapeutic products originating from the HDACi portfolio. The royalty rates are tiered and begin in themid-single-digits for the first HDACi portfolio product and for the firstnon-HDACi portfolio product with lesser amounts for any backup products developed under the Asset Purchase Agreement. Repligen’s receipt of these royalties is subject to customary offsets and deductions. There are no refund provisions in this agreement. The Company recognized $2.1 million of revenue in the fiscal year ended December 31, 2014 related to the transfer of the HDACi technology under the Asset Purchase Agreement. Any milestones earned upon specified clinical development or commercial sales events or future royalty payments, under the Asset Purchase Agreement will be recognized as revenue when they are earned.
Activities under this agreement were evaluated in accordance with ASC 605-25 to determine if they represented a multiple element revenue arrangement. The Company identified the following deliverables in the BioMarin agreement:
The assignment by Repligen to BioMarin of the Repligen Technology (“Repligen Know-How” and “Repligen Patents”) and the Scripps Agreement (the “Transferred Assets”);
The transfer of certain notebooks, data, documents, biological materials (if any) and other such documents in our possession that might be useful to further development of the program (the “Technology Transfer”).
Two criteria must be met in order for a deliverable to be considered a separate unit of accounting. The first criterion requires that the delivered item or items have value to the customer on a stand-alone basis. The second criterion, which relates to evaluating a general right of return, is not applicable because such a provision does not exist in the Asset Purchase Agreement. The deliverables outlined above were deemed to have stand-alone value and to meet the criteria to be accounted for as separate units of accounting. Factors considered in this determination included, among other things, BioMarin’s right under the agreement to assign the Transferred Assets, whether any other vendors sell the items separately and if BioMarin could use the delivered item for its intended purpose without the receipt of the remaining deliverables. If multiple deliverables included in an arrangement are separable into different units of accounting, the multiple-element arrangements guidance addresses how to allocate the arrangement consideration to those units of accounting. The amount of allocable arrangement consideration is limited to amounts that are fixed or determinable. Arrangement consideration is allocated at the inception of the arrangement to the identified units of accounting based on their relative selling price.
The Company identified the arrangement consideration to allocate among the units of accounting as the $2.0 million non-refundable up-front payment and the $125,675 payment to be received upon completion of the Technology Transfer. The Company excluded the potential milestone payments provided for in the Asset Purchase Agreement from the arrangement consideration as they were not considered fixed or determinable at the time the Asset Purchase Agreement was signed. Because Repligen had not sold these items on a standalone basis previously, Repligen had no vendor-specific objective evidence of selling price. Furthermore, Repligen did not have detailed third-party evidence of selling price, and as a result we used our best estimate of selling price for each item. In determining these prices, Repligen considered what Repligen would be willing to sell the items for on a standalone basis, what the market would bear for such items and what another party might charge for these items.
The up-front arrangement consideration allocated to the Transferred Assets was recognized upon execution of the Asset Purchase Agreement as the risks and rewards associated with the Transferred Assets transferred at that time. The Company used a discounted cash flow analysis to determine the value of the Transferred Assets. Key assumptions in the analysis included: the estimated market size for a compound targeted at Friedreich’s ataxia, the estimated remaining costs of development and time to commercialization, and the probability of successfully developing and commercializing the program. Based on this analysis, the Company allocated $2,115,000 to the value of the Transferred Assets. However, as the recognized revenue is limited to the non-contingent consideration received, the Company recognized $2,000,000, the amount of the up-front payment, as revenue in the three months ended March 31, 2014.
The estimated selling price of the Technology Transfer items was approximately $300,000 resulting in consideration allocation of approximately $11,000. However, as this item was not delivered prior to March 31, 2014, the Company did not recognize any revenue related to the Technology Transfer in the three months ended March 31, 2014. Repligen received the payment and recognized $125,675 of other revenues in September 2014 upon completion of the Technology Transfer.
The Company believes that a change in the key assumptions used to determine best estimate of selling price for each of the deliverables would not have a significant effect on the allocation of arrangement consideration.
In addition to the $2.1 million up-front payment, the Company is also eligible to receive up to $160 million in potential milestone payments from BioMarin comprised of:
Up to $60 million related to the achievement of specified clinical and regulatory milestone events; and
Up to $100 million related to the achievement of specified commercial sales events, specifically the first commercial sale in specific territories.
The Company evaluated the potential milestones in accordance with ASC 605-28, which allows an entity to make an accounting policy election to recognize a payment that is contingent upon the achievement of a substantive milestone in its entirety in the period in which the milestone is achieved. This evaluation included an assessment of the risks that must be overcome to achieve the respective milestone as well as whether the achievement of the milestone was due in part to our initial clinical work, the level of effort and investment required to achieve the respective milestone and whether the milestone consideration is reasonable relative to all deliverables and payment terms in the arrangement. There is considerable judgment involved in determining whether a milestone satisfies all of the criteria required to conclude that a milestone is substantive. Milestones that are not considered substantive are recognized as earned if there are no remaining performance obligations or over the remaining period of performance, assuming all other revenue recognition criteria are met.
The Company believes that the $60 million of specified clinical and regulatory milestone payments are substantive. Therefore, any such milestones achieved will be recognized as revenue when earned.
Any milestones achieved upon specified commercial sales events or future royalty payments are considered contingent revenue under the Asset Purchase Agreement, and will be recognized as revenue when they are earned as there are no undelivered elements remaining and no continuing performance obligations under the arrangement.
Sale of SecreFlo
On December 23, 2014, the Company sold our synthetic human secretin line, SecreFlo, to Innovate Biopharmaceuticals, Inc., or Innovate, pursuant to an asset purchase agreement. Under the terms of the agreement, Repligen received a nominal upfront payment and is eligible to receive royalties on net sales of qualified products for a period beginning on the first commercial sale of such product through the earlier of the expiration of the regulatory exclusivity period for the product or 10 years from its first commercial sale.
Pfizer License Agreement
In December 2012, the Company entered into an exclusive worldwide licensing agreement (the “License Agreement”) with Pfizer Inc. (“Pfizer”) to advance the spinal muscular atrophy program, or SMA program. Pursuant to the terms of the License Agreement, the Company received $5 million from Pfizer as an upfront payment on January 22, 2013, a $1 million milestone payment on September 4, 2013 and a $1 million milestone payment on December 28, 2014. On January 26, 2015 Pfizer notified the Company that they were terminating the License Agreement for convenience, effective as of April 26, 2015. The Company has no further obligations to Pfizer and does not intend to invest additional resources to the development of the SMA program.
Orencia Royalty
In April 2008, the Company settled its outstanding litigation with Bristol-Myers Squibb Company (“Bristol”) and began recognizing royalty revenue in fiscal year 2009 for Bristol’s net sales in the United States of Orencia® which is used in the treatment of rheumatoid arthritis. The royalty agreement with Bristol provided that the Company would receive such royalty payments on sales of Orencia® by Bristol through December 31, 2013. These royalty payments have ceased. Pursuant to the settlement with Bristol (“Bristol Settlement”), the Company recognized royalty revenue of approximately $0, $17,881,000 and $14,753,000 for the fiscal years
ended December 31, 2014, 2013 and 2012, respectively. Revenue earned from Bristol royalties was recorded in the periods when it was earned based on royalty reports sent by Bristol to the Company. The Company has no continuing obligations to Bristol as a result of this settlement.
Pursuant to the Bristol Settlement, Repligen remitted to the University of Michigan 15% of all royalty revenue received from Bristol. Royalty expense for the fiscal years ended December 31, 2014, 2013 and 2012 was approximately $0, $2,682,000 and $2,213,000, respectively. This operating expense was included in the Company’s statements of comprehensive income under the line item “Cost of royalty revenue.”
Therapeutics Licensing Agreements
Activities under licensing agreements are evaluated in accordance with ASC 605-25 to determine if they represent a multiple element revenue arrangement. The Company identifies the deliverables included within the agreement and evaluates which deliverables represent separate units of accounting. The Company accounts for those components as separate units of accounting if the following two criteria are met:
The delivered item or items have value to the customer on a stand-alone basis.
If there is a general right of return relative to the delivered items, delivery or performance of the undelivered items is considered probable and within our control.
Factors considered in this determination include, among other things, whether any other vendors sell the items separately and if the licensee could use the delivered item for its intended purpose without the receipt of the remaining deliverables. If multiple deliverables included in an arrangement are separable into different units of accounting, the Company allocates the arrangement consideration to those units of accounting. The amount of allocable arrangement consideration is limited to amounts that are fixed or determinable. Arrangement consideration is allocated at the inception of the arrangement to the identified units of accounting based on their relative selling price. Revenue is recognized for each unit of accounting when the appropriate revenue recognition criteria are met.
Future milestone payments, if any, under a license agreement will be recognized under the provisions of ASC 605-28, which the Company adopted on January 1, 2011. The Company has elected to recognize a payment that is contingent upon the achievement of a substantive milestone in its entirety in the period in which the milestone is achieved. A milestone is substantive if:
It can only be achieved based in whole or in part on either (1) the Company’s performance or (2) on the occurrence of a specific outcome resulting from the Company’s performance;
There is substantive uncertainty at the date an arrangement is entered into that the event will be achieved; and
It would result in additional payments being due to the entity.
The commercial milestone payments and royalty payments received under license agreements, if any, will be recognized as revenue when they are earned.
Research and Development Agreements
For the fiscal years ended December 31, 2014, 2013 and 2012, the Company recognized $0, $1,589,000 and $803,000 of revenue, respectively, from sponsored research and development projects under agreements with the National Institutes of Health / Scripps Research Institute, the Muscular Dystrophy Association, Go Friedreich’s Ataxia Research, the European Friedrich’s Ataxia Consortium for Translational Studies, and the Friedreich’s Ataxia Research Alliance.
Research revenue is recognized when the expense has been incurred and services have been performed. Determination of which costs incurred qualify for reimbursement under the terms of the Company’s contractual
agreements and the timing of when such costs were incurred involves the judgment of management. The Company’s calculations are based upon the agreed-upon terms as stated in the arrangements. However, should the estimated calculations change or be challenged by other parties to the agreements, research revenue may be adjusted in subsequent periods. The calculations have not historically changed or been challenged and the Company does not anticipate any subsequent change in its revenue related to sponsored research and development projects.
There have been no material changes to the Company’s initial estimates related to revenue recognition in any periods presented in the accompanying consolidated financial statements.
Risks and Uncertainties
The Company evaluates its operations periodically to determine if any risks and uncertainties exist that could impact its operations in the near term. The Company does not believe that there are any significant risks which have not already been disclosed in the consolidated financial statements. A loss of certain suppliers could temporarily disrupt operations, although alternate sources of supply exist for these items. The Company has mitigated these risks by working closely with key suppliers, identifying alternate sources and developing contingency plans.
Cash, Cash Equivalents and Marketable Securities
At December 31, 2014 and December 31, 2013,2016, the Company’s investments included money market funds as well asand short-term and long-term marketable securities. MarketableThere were no such investments as of December 31, 2017. Short-term marketable securities are investments with original maturities of greater than 90 days. Long-term marketable securities are securities with maturities of greater than one year. The average remaining contractual maturityyear at the original date of marketable securities at December 31, 2014 is approximately 7.7 months.purchase.
Investments in debt securities consisted of the following at December 31, 2014:2016 (in thousands):
December 31, 2014 | ||||||||||||||||||||||||||||||||
Amortized Cost | Gross Unrealized Gain | Gross Unrealized Loss | Fair Value | Amortized Cost | Gross Unrealized Gain | Gross Unrealized Loss | Fair Value | |||||||||||||||||||||||||
Marketable securities: | ||||||||||||||||||||||||||||||||
U.S. Government and agency securities | $ | 12,716,167 | $ | 2,174 | $ | (2,072 | ) | $ | 12,716,269 | $ | 807 | $ | — | $ | — | $ | 807 | |||||||||||||||
Corporate and other debt securities | 10,373,332 | 4,229 | (3,621 | ) | 10,373,940 | 18,745 | 2 | (7 | ) | 18,740 | ||||||||||||||||||||||
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23,089,499 | 6,403 | (5,693 | ) | 23,090,209 | ||||||||||||||||||||||||||||
Long-term marketable securities: | ||||||||||||||||||||||||||||||||
U.S. Government and agency securities | 1,227,843 | — | (207 | ) | 1,227,636 | |||||||||||||||||||||||||||
Corporate and other debt securities | 2,326,066 | — | (3,492 | ) | 2,322,574 | |||||||||||||||||||||||||||
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3,553,909 | — | (3,699 | ) | 3,550,210 | ||||||||||||||||||||||||||||
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Total | $ | 26,643,408 | $ | 6,403 | $ | (9,392 | ) | $ | 26,640,419 | $ | 19,552 | $ | 2 | $ | (7 | ) | $ | 19,547 | ||||||||||||||
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AtThere were no long-term marketable securities as of December 31, 2014, the Company’s investments included forty-one debt securities in unrealized loss positions with a total unrealized loss of approximately $9,400 and a total fair market value of approximately $23,666,285. All investments with gross unrealized losses have been in unrealized loss positions for less than 12 months. The unrealized losses were caused primarily by current economic and market conditions. There was no change in the credit risk of the securities. The Company does not intend to sell any investments in an unrealized loss position and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases. 2016.
There were no realized gains or losses on the investments for the fiscal years ended December 31, 2014, 20132017, 2016 and 2012.
Investments in debt securities consisted of the following at December 31, 2013:
December 31, 2013 | ||||||||||||||||
Amortized Cost | Gross Unrealized Gain | Gross Unrealized Loss | Fair Value | |||||||||||||
Marketable securities: | ||||||||||||||||
U.S. Government and agency securities | $ | 8,165,464 | $ | 435 | $ | (630 | ) | $ | 8,165,269 | |||||||
Corporate and other debt securities | 13,626,690 | 3,636 | (2,045 | ) | 13,628,281 | |||||||||||
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21,792,154 | 4,071 | (2,675 | ) | 21,793,550 | ||||||||||||
Long-term marketable securities: | ||||||||||||||||
U.S. Government and agency securities | 11,599,415 | 466 | (7,034 | ) | 11,592,847 | |||||||||||
Corporate and other debt securities | 625,882 | 100 | (227 | ) | 625,755 | |||||||||||
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12,225,297 | 566 | (7,261 | ) | 12,218,602 | ||||||||||||
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Total | $ | 34,017,451 | $ | 4,637 | $ | (9,936 | ) | $ | 34,012,152 | |||||||
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The contractual maturities of debt securities at December 31, 2014 were as follows:
Amortized Cost | Fair Value | |||||||
Due in 1 year or less | $ | 23,089,499 | $ | 23,090,209 | ||||
Due in 1 to 2 years | 3,553,909 | 3,550,210 | ||||||
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$ | 26,643,408 | $ | 26,640,419 | |||||
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Fair Value Measurement
In determining the fair value of its assets and liabilities, the Company uses various valuation approaches. The Company employs a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances. The fair value hierarchy is broken down into three levels based on the source of inputs as follows:
Level 1 | Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. | |||
Level 2 | Valuations based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and models for which all significant inputs are observable, either directly or indirectly. | |||
Level 3 | Valuations based on inputs that are unobservable and significant to the overall fair value measurement. |
The availability of observable inputs can vary among the various types of financial assets and liabilities. To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for financial statement disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is categorized is based on the lowest level input that is significant to the overall fair value measurement.
The Company’s fixed income investments arewere historically comprised of obligations of U.S. government agencies, corporate debt securities and other interest bearing securities. These investments have been initially valued at the transaction price and subsequently valued, at the end of each reporting period, utilizing third party pricing services or other market observable data. The pricing services utilize industry standard valuation models, including both income and market based approaches and observable market inputs to determine value. These observable market inputs include reportable trades, benchmark yields, credit spreads, broker/dealer quotes, bids, offers, current spot rates and other industry and economic events. The Company validates the prices provided by third party pricing services by reviewing their pricing methods and matrices, obtaining market values from other pricing sources, analyzing pricing data in certain instances and confirming that the relevant markets are active. After completing its validation procedures, the Company did not adjust or override any fair value measurements provided by the pricing services as of December 31, 2014.2017.
The following fair value hierarchy table presents information about each major category of the Company’s assets measured at fair value on a recurring basis as
As of December 31, 2014:
Fair value measurement at reporting date using: | ||||||||||||||||
Quoted prices in active markets for identical assets (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | Total | |||||||||||||
Assets: | ||||||||||||||||
Money market funds | $ | 4,889,153 | $ | — | $ | — | $ | 4,889,153 | ||||||||
U.S. Government and agency securities | 7,263,624 | 6,680,281 | — | 13,943,905 | ||||||||||||
Corporate and other debt securities | — | 12,696,514 | — | 12,696,514 | ||||||||||||
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Total | $ | 12,152,777 | $ | 19,376,795 | $ | — | $ | 31,529,572 | ||||||||
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The2017, the Company hashad no other assets or liabilities for which fair value measurement is either required or has been elected to be applied, other thanapplied.
As of December 31, 2016, the Company had accrued liabilities forwith a fair value of $6,119,000 related to contingent consideration recorded in connection with the Novozymes Acquisition, the acquisition of the assets of BioFlash Partners, LLC (“BioFlash”)Refine and the Refine Acquisition.Atoll business combinations. The contingent consideration related to the Novozymes Acquisition isRefine was based uponon actual amounts remaining to be paid to Novozymes Denmark per the Deed of Settlement and Amendment entered into on May 5, 2014.2016 revenues. The contingent consideration related to BioFlash is valued using management’s estimates of royalties to be paid to the former shareholders of BioFlashAtoll was based on sales of the acquired assets. The contingent consideration related to the Refine Acquisition is valued using management’s estimates of expected future milestone payments based on forecasted sales of the acquired assets and portion of any receipts that might be receivedmeeting revenue growth targets in connection with the resolution, withdrawal or settlement of certain patent disputes with a third party to be paid to the former shareholders of Refine.2016. These valuations arewere Level 3 valuations, as the primary inputs are unobservable. All contingent consideration liabilities were paid in the first quarter of 2017.
The following tables provide quantitative information associated with the fair value measurementtable provides a rollforward of the Company’s contingent consideration related to Refine using Level 3 inputs:
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Fixed Earn-out | Variable Earn-out | Accrued Balance | ||||||||||
2014 | $ | 1,000,000 | — | $ | 1,000,000 | |||||||
2015 | 3,500,000 | 850,000 | 2,219,000 | |||||||||
2016 | 4,250,000 | 1,250,000 | 102,000 |
The significant unobservable inputs used in the fair value measurement of Refine’s contingent consideration are the probabilities of a successful achievement of sales milestones, the period in which these milestones are expected to be achieved and a discount rate. Significant increases or decreases in any of the probabilities of success would result in a significantly higher or lower fair value measurement, respectively.
Changes in the fair value of contingent consideration in fiscal 2014 are primarily attributable to a 850,000 Euro milestone payment made to Novozymes Denmark and a $80,000 minimum royalty payment made to BioFlash, which were previously accrued, and(in thousands):
Balance at December 31, 2016 | $ | 6,119 | ||
Payments | (6,119 | ) | ||
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Balance at December 31, 2017 | $ | — | ||
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In May 2016, the addition and remeasurementCompany issued $115 million aggregate principal amount of the $3,321,000 contingent consideration related to Refine. The following table provides a roll forwardNotes due June 1, 2021. Interest is payable semi-annually in arrears on June 1 and December 1 of each year, beginning on December 1, 2016. As of December 31, 2017, the carrying value of the Notes was $99.3 million, net of unamortized discount, and the fair value of the contingent consideration:Notes was approximately $149.5 million. The fair value of the Notes is a Level 1 valuation and was determined based on the most recent trade activity of the Notes as of December 31, 2017. The Notes are discussed in more detail in Note 10, “Convertible Senior Notes.”
Balance at December 31, 2013 | $ | 1,648,928 | ||
Additions | 1,370,000 | |||
Payments | (1,246,348 | ) | ||
Changes in fair value | 2,071,994 | |||
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Balance at December 31, 2014 | $ | 3,844,574 | ||
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There were no remeasurements to fair value during the year ended December 31, 20142017 of financial assets and liabilities that are not measured at fair value on a recurring basis.
Inventories
Inventories relate to the Company’s bioprocessing business. The Company values inventory at cost or, if lower, fair marketnet realizable value, using thefirst-in,first-out method. The Company reviews its inventories at least quarterly and records a provision for excess and obsolete inventory based on its estimates of expected sales volume, production capacity and expiration dates of raw materials,work-in-process and finished products. Expected sales volumes are determined based on supply forecasts provided by key customers for the next 3 to 12 months. The Company writes down inventory that has become obsolete, inventory that has a cost basis in excess of its expected net realizable value, and inventory in excess of expected requirements to cost of product revenue. Manufacturing of bioprocessing finished goods is done to order and tested for quality specifications prior to shipment. Reserves for excess and obsolete inventory were $78,000$455,000 and $183,000$435,000 as of December 31, 20142017 and 2013,2016, respectively. During the year ended December 31, 2013, several lots were identified which increased the reserve and were subsequently written off. The reserve balance at December 31, 2014,2017 and 2016 is sufficient to cover an excess or obsolete inventory for the consolidated Company.
A change in the estimated timing or amount of demand for the Company’s products could result in additional provisions for excess inventory quantities on hand. Any significant unanticipated changes in demand or unexpected quality failures could have a significant impact on the value of inventory and reported operating results. During all periods presented in the accompanying financial statements, there have been no material adjustments related to a revised estimate of inventory valuations.
Work-in-process and finished products inventories consist of material, labor, outside processing costs and manufacturing overhead.
Inventories consist of the following:following (in thousands):
December 31, 2014 | December 31, 2013 | |||||||
Raw Materials | $ | 5,373,860 | $ | 4,557,870 | ||||
Work-in-process | 2,256,265 | 4,285,648 | ||||||
Finished products | 4,753,508 | 2,955,120 | ||||||
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Total | $ | 12,383,633 | $ | 11,798,638 | ||||
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December 31, 2017 | December 31, 2016 | |||||||
Raw Materials | $ | 22,351 | $ | 14,954 | ||||
Work-in-process | 4,083 | 2,789 | ||||||
Finished products | 12,570 | 6,953 | ||||||
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Total | $ | 39,004 | $ | 24,696 | ||||
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Accrued Liabilities
The Company estimates accrued liabilities by identifying services performed on the Company’s behalf, estimating the level of service performed and determining the associated cost incurred for such service as of each balance sheet date. For example, the Company would accrue for professional and consulting fees incurred with law firms, audit and accounting service providers and other third party consultants. These expenses are determined by either requesting those service providers to estimate unbilled services at each reporting date for services incurred or tracking costs incurred by service providers under fixed fee arrangements.
The Company has processes in place to estimate the appropriate amounts to record for accrued liabilities, which principally involve the applicable personnel reviewing the services provided. In the event that the Company does not identify certain costs that have begun to be incurred or the Company under or over-estimates the level of services performed or the costs of such services, the reported expenses for that period may be too low or too high. The date on which certain services commence, the level of services performed on or before a given date, and the cost of such services often require the exercise of judgment. The Company makes these judgments based upon the facts and circumstances known at the date of the financial statements.
Income Taxes
Deferred taxes are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Valuation allowances are provided, if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company accounts for uncertain tax positions using a “more-likely-than-not”“more-likely-than-not” threshold for recognizing and resolving uncertain tax positions. The evaluation of uncertain tax positions is based on factors including, but not limited to, changes in tax law, the measurement of tax positions taken or expected to be taken in tax returns, the effective settlement of matters subject to audit, new audit activity and changes in facts or circumstances related to a tax position. The Company evaluates this tax position on a quarterly basis. The Company also accrues for potential interest and penalties related to unrecognized tax benefits in income tax expense.
Property, Plant & Equipment
Property, Plant & Equipment is recorded at cost less allowances for depreciation. Depreciation is calculated using the straight-line method over the estimated useful life of the asset as follows:
Classification | Estimated Useful Life | |
Buildings | Thirty years | |
Leasehold improvements | Shorter of the term of the lease or estimated useful life | |
Equipment | Three to | |
Furniture and fixtures | Three to eight years |
For depreciation of property and equipment, the Company expensed approximately $2,594,000, $2,092,000 and $2,492,000 in the years ended December 31, 2104, 2013 and 2012, respectively.
Earnings Per Share
Basic earnings per share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income available to common shareholders by the weighted-average number of common shares and dilutive common share equivalents then outstanding. Potential common share equivalents consist of restricted stock awards and the incremental common shares issuable upon the exercise of stock options and warrants. Under the treasury stock method, unexercised “in-the-money”“in-the-money” stock options are assumed to be exercised at the beginning of the period or at issuance, if later. The assumed proceeds are then used to purchase
common shares at the average market price during the period. Share-based payment awards that entitle their holders to receivenon-forfeitable dividends before vesting are considered participating securities and are included in the calculation of basic and diluted earnings per share. There are no such participating securities as of December 31, 2017.
A reconciliation of basic and diluted share amounts is as follows:
Years ended December 31, | Years ended December 31, | |||||||||||||||||||||||
2014 | 2013 | 2012 | 2017 | 2016 | 2015 | |||||||||||||||||||
Numerator: | ||||||||||||||||||||||||
Net income | $ | 8,170,214 | $ | 16,093,155 | $ | 14,156,037 | $ | 28,353,000 | $ | 11,681,000 | $ | 9,345,000 | ||||||||||||
Denominator: | ||||||||||||||||||||||||
Basic weighted average common shares outstanding | 32,497,657 | 31,667,015 | 30,914,424 | 38,233,527 | 33,572,883 | 32,881,940 | ||||||||||||||||||
Weighted average common stock equivalents from assumed exercise of stock options and restricted stock awards | 766,010 | 739,626 | 339,010 | |||||||||||||||||||||
Effect of dilutive securities: | ||||||||||||||||||||||||
Stock options and restricted stock awards | 441,924 | 526,015 | 695,151 | |||||||||||||||||||||
Convertible senior notes | 474,923 | — | — | |||||||||||||||||||||
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Diluted weighted average common shares outstanding | 33,263,667 | 32,406,641 | 31,253,434 | 39,150,374 | 34,098,898 | 33,577,091 | ||||||||||||||||||
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Basic net income per common share | $ | 0.25 | $ | 0.51 | $ | 0.46 | $ | 0.74 | $ | 0.35 | $ | 0.28 | ||||||||||||
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Diluted net income per common share | $ | 0.25 | $ | 0.50 | $ | 0.45 | $ | 0.72 | $ | 0.34 | $ | 0.28 | ||||||||||||
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At December 31, 2014,2017, there were outstanding options to purchase 1,225,117734,940 shares of the Company’s common stock at a weighted average exercise price of $8.31$20.80 per share.share and 505,235 shares of common stock issuable upon the vesting of restricted stock units. For the fiscal year ended December 31, 2014, 307,4752017, 317,923 shares of the Company’s common stock were excluded from the calculation of diluted earnings per share because the exercise prices of the stock options were greater than or equal to the average price of the common shares, and were therefore anti-dilutive.
As provided by the terms of the indenture underlying the senior convertible notes, the Company has a choice to settle the conversion obligation for the Convertible Notes in cash, shares or any combination of the two. The Company currently intends to settle the par value of the Convertible Notes in cash and any excess conversion premium in shares. The Company applies the provisions of ASC 260,Earnings Per Share, Subsection10-45-44, to determine the diluted weighted average shares outstanding as it relates to the conversion spread on its convertible notes. Accordingly, the par value of the Convertible Notes is not included in the calculation of diluted income per share, but the dilutive effect of the conversion premium is considered in the calculation of diluted net income per share using the treasury stock method. The dilutive impact of the Company’s convertible notes is based on the difference between the Company’s current period average stock price and the conversion price of the convertible notes, provided there is a premium. Pursuant to this accounting standard, there is no dilution from the accreted principal of the Convertible Notes.
At December 31, 2013,2016, there were outstanding options to purchase 1,610,9881,236,586 shares of the Company’s common stock at a weighted average exercise price of $5.07$12.05 per share. For the fiscal year ended December 31, 2013, 187,0002016, 381,686 shares of the Company’s common stock were excluded from the calculation of diluted earnings per share because the exercise prices of the stock options were greater than or equal to the average price of the common shares, and were therefore anti-dilutive.
At December 31, 2012,2015, there were outstanding options to purchase 2,315,0901,240,935 shares of the Company’s common stock at a weighted average exercise price of $4.20$10.44 per share. For the fiscal year ended December 31, 2012, 1,296,7002015, 196,209 shares of the Company’s common stock were excluded from the calculation of diluted earnings per share because the exercise prices of the stock options were greater than or equal to the average price of the common shares, and were therefore anti-dilutive.
Segment Reporting
The Company views its operations, makes decisions regarding how to allocate resources and manages its business as one operating segment.segment and two reporting units. As a result, the financial information disclosed herein represents all of the material financial information related to the Company.
The following table represents product revenues by product line (in thousands):
December 31, 2017 | December 31, 2016 | December 31, 2015 | ||||||||||
Protein products | $ | 53,969 | $ | 54,716 | $ | 52,938 | ||||||
Filtration products | 49,050 | (3) | 19,774 | (1) | 15,676 | |||||||
Chromatography products | 36,309 | (3) | 29,520 | (2) | 14,613 | |||||||
Other | 1,761 | (3) | 431 | 310 | ||||||||
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Total product revenues | $ | 141,089 | $ | 104,441 | $ | 83,537 | ||||||
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(1) | 2016 revenue for filtration products includes revenue related to TangenX from December 14, 2016 through December 31, 2016. |
(2) | 2016 revenue for chromatography products includes revenue related to Atoll from April 1, 2016 through December 31, 2016. |
(3) | 2017 revenue for filtration, chromatography and other products includes revenue related to Spectrum from August 1, 2017 through December 31, 2017. |
Revenue from protein products includes the Company’s principal operating segment.Protein A ligands and cell culture growth factors. Revenue from filtration products includes the Company’s XCell ATF Systems and consumables and Sius filtration products. Revenue from chromatography products includes the Company’s OPUS and OPUS PD chromatography columns, chromatography resins and ELISA test kits. Other revenue primarily consists of freight revenues.
The following table represents the Company’s total revenue by geographic area (based on the location of the customer):
Years ended December 31, | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Sweden | 38 | % | 35 | % | 42 | % | ||||||
United States | 33 | % | 51 | % | 46 | % | ||||||
United Kingdom | 20 | % | 12 | % | 9 | % | ||||||
Other | 9 | % | 2 | % | 3 | % | ||||||
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Total | 100 | % | 100 | % | 100 | % | ||||||
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United States Sweden United Kingdom Other Total Years ended December 31, 2017 2016 2015 43 % 39 % 28 % 20 % 29 % 37 % 4 % 7 % 17 % 33 % 25 % 18 % 100 % 100 % 100 %
The following table represents the Company’s total assets by geographic area:area (in thousands):
December 31, 2014 | December 31, 2013 | December 31, 2017 | December 31, 2016 | |||||||||||||
United States | $ | 83,784,971 | $ | 73,557,001 | $ | 654,673 | $ | 209,728 | ||||||||
Sweden | 44,508,263 | 45,087,903 | ||||||||||||||
Europe | 85,169 | 79,145 | ||||||||||||||
Asia | 3,677 | 40 | ||||||||||||||
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Total | $ | 128,293,234 | $ | 118,644,904 | $ | 743,519 | $ | 288,913 | ||||||||
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The following table represents the Company’s long-lived assets by geographic area:area (in thousands):
December 31, 2014 | December 31, 2013 | December 31, 2017 | December 31, 2016 | |||||||||||||
United States | $ | 38,694,687 | $ | 19,858,691 | $ | 465,453 | $ | 77,039 | ||||||||
Sweden | 8,652,905 | 12,435,614 | ||||||||||||||
Europe | 34,430 | 27,721 | ||||||||||||||
Asia | 854 | — | ||||||||||||||
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Total | $ | 47,347,592 | $ | 32,294,305 | $ | 500,737 | $ | 104,760 | ||||||||
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Concentrations of Credit Risk and Significant Customers
Financial instruments that subject the Company to significant concentrations of credit risk primarily consist of cash and cash equivalents, marketable securities and accounts receivable. Per the Company’s investment policy, cash equivalents and marketable securities are invested in financial instruments with high credit ratings and credit exposure to any one issue, issuer (with the exception of U.S. treasury obligations) and type of instrument is limited. At December 31, 20142017 and 2013,2016, the Company had no investments associated with foreign exchange contracts, options contracts or other foreign hedging arrangements.
Concentration of credit risk with respect to accounts receivable is limited to customers to whom the Company makes significant sales. While a reserve for the potentialwrite-off of accounts receivable is maintained, the Company has not written off any significant accounts to date. To control credit risk, the Company performs regular credit evaluations of its customers’ financial condition.
Revenue from significant customers as a percentage of the Company’s total revenue is as follows:
Years ended December 31, | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Orencia® Royalties from Bristol | — | 27 | % | 24 | % | |||||||
GE Healthcare | 38 | % | 35 | % | 42 | % | ||||||
Bioprocessing Customer B | 20 | % | 12 | % | 10 | % | ||||||
Bioprocessing Customer C | 13 | % | 13 | % | 10 | % |
Years ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
GE Healthcare | 21 | % | 29 | % | 37 | % | ||||||
MilliporeSigma | 18 | % | 28 | % | 29 | % |
Significant accounts receivable balances as a percentage of the Company’s total trade accounts receivable and royalties and other receivable balances are as follows:
December 31, 2014 | December 31, 2013 | December 31, 2017 | December 31, 2016 | |||||||||||||
GE Healthcare | 29 | % | 42 | % | 11 | % | 26 | % | ||||||||
Customer D | 11 | % | 0 | % | ||||||||||||
MilliporeSigma | 19 | % | 8 | % |
Goodwill, Other Intangible Assets and Acquisitions
Acquisitions
Total consideration transferred for acquisitions is allocated to the assets acquired and liabilities assumed, if any, based on their fair values at the dates of acquisition. The fair value of identifiable intangible assets is based
on detailed valuations that use information and assumptions determined by management. Any excess of purchase price over the fair value of the net tangible and intangible assets acquired is allocated to goodwill. Any excess of the fair value of the net tangible and intangible assets acquired over the purchase price is recognized in the statement of operations. The fair value of contingent consideration includes estimates and judgments made by management regarding the probability that future contingent payments will be made and the extent of royalties to be earned in excess of the defined minimum royalties. Management updates these estimates and the related fair value of contingent consideration at each reporting period. Changes in the fair value of contingent consideration are recorded in the consolidated statements of operations.
The Company uses the income approach to determine the fair value of certain identifiable intangible assets including customer relationships and developed technology. This approach determines fair value by estimatingafter-tax cash flows attributable to these assets over their respective useful lives and then discounting theseafter-tax cash flows back to a present value. The Company bases its assumptions on estimates of future cash flows, expected growth rates, expected trends in technology, etc. Discount rates used to arrive at a present value as of the date of acquisition are based on the time value of money and certain industry-specific risk factors.
Goodwill
Goodwill is not amortized and is reviewed for impairment at least annually. There was no evidence of impairment to goodwill at December 31, 2014.2017 and 2016. There were no goodwill impairment charges during the fiscal years ended December 31, 2014, 20132017, 2016 and 2012.2015.
Intangible Assets
Intangible assets are amortized over their useful lives using the estimated economic benefit method, as applicable, and the amortization expense is recorded within cost of product revenue and selling, general and administrative expense in the statements of operations. Intangible assets and their related useful lives are reviewed at least annually to determine if any adverse conditions exist that would indicate the carrying value of these assets may not be recoverable. More frequent impairment assessments are conducted if certain conditions exist, including a change in the competitive landscape, any internal decisions to pursue new or different technology strategies, a loss of a significant customer, or a significant change in the marketplace, including changes in the prices paid for our products or changes in the size of the market for our products. If impairment indicators are present, the Company determines whether the underlying intangible asset is recoverable through estimated future undiscounted cash flows. If the asset is not found to be recoverable, it is written down to the estimated fair value of the asset based on the sum of the future discounted cash flows expected to result from the use and disposition of the asset. If the estimate of an intangible asset’s remaining useful life is changed, the remaining carrying amount of the intangible asset is amortized prospectively over the revised remaining useful life. The Company continues to believe that its intangible assets are recoverable at December 31, 2014.2017.
Intangible assets consisted of the following at December 31, 2014:2017 (in thousands):
Gross Carrying Amount | Accumulated Amortization | Weighted Average Useful Life (in years) | ||||||||||
Technology – developed | $ | 3,337,658 | $ | (750,066 | ) | 12 | ||||||
In process research and development | 1,600,000 | — | — | |||||||||
Patents | 240,000 | (147,500 | ) | 8 | ||||||||
Customer relationships | 12,202,219 | (2,546,004 | ) | 9 | ||||||||
Trademark/ tradename | 700,000 | — | — | |||||||||
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Total intangible assets | $ | 18,079,877 | $ | (3,443,570 | ) | 10 | ||||||
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Technology – developed Patents Customer relationships Trademarks – definite lived Trademarks – indefinite lived Other intangibles Total intangible assets Gross Carrying
Amount Accumulated
Amortization Weighted
Average
Useful Life
(in years) $ 51,801 $ (3,201 ) 19 240 (238 ) 8 102,120 (9,636 ) 14 2,160 (47 ) 20 700 — — 1,063 (209 ) 3 $ 158,084 $ (13,331 ) 16
Intangible assets consisted of the following at December 31, 2013:2016 (in thousands):
Gross Carrying Amount | Accumulated Amortization | Weighted Average Useful Life (in years) | Gross Carrying Amount | Accumulated Amortization | Weighted Average Useful Life (in years) | |||||||||||||||||||
Technology – developed | $ | 1,455,382 | $ | (537,589 | ) | 8 | $ | 12,911 | $ | (1,468 | ) | 17 | ||||||||||||
Patents | 240,000 | (117,500 | ) | 8 | 240 | (208 | ) | 8 | ||||||||||||||||
Customer relationships | 6,897,052 | (1,749,713 | ) | 8 | 22,555 | (4,995 | ) | 11 | ||||||||||||||||
Trademark/ tradename | 711 | — | — | |||||||||||||||||||||
Other intangibles | 84 | (24 | ) | 2 | ||||||||||||||||||||
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Total intangible assets | $ | 8,592,434 | $ | (2,404,802 | ) | 8 | $ | 36,501 | $ | (6,695 | ) | 13 | ||||||||||||
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Amortization expense for amortized intangible assets was approximately $1,425,000, $1,022,000$6,215,000, $2,052,000 and $1,017,000$1,600,000 for the years ended December 31, 2014, 20132017, 2016 and 2012,2015, respectively. As of December 31, 2014,2017, the Company expects to record the approximatefollowing amortization expense:expense (in thousands):
Years Ending | Amortization Expense | |||
December 31, 2015 | $ | 1,697,000 | ||
December 31, 2016 | 1,759,000 | |||
December 31, 2017 | 1,759,000 | |||
December 31, 2018 | 1,595,000 | |||
December 31, 2019 | 1,580,000 |
Year Ending | Amortization Expense | |||
December 31, 2018 | $ | 10,633 | ||
December 31, 2019 | 10,578 | |||
December 31, 2020 | 9,894 | |||
December 31, 2021 | 9,376 | |||
December 31, 2022 | 9,374 |
Stock Based Compensation
The Company measures stock-based compensation cost at the grant date based on the estimated fair value of the award, and recognizes it as expense over the employee’s requisite service period on a straight-line basis. The Company records the expense for share-based awards subject to performance-based milestone vesting over the remaining service period when management determines that achievement of the milestone is probable. Management evaluates whether the achievement of a performance-based milestone is probable as of the reporting date. The Company has no awards that are subject to market conditions. The Company recognizes stock-based compensation expense based upon options that are ultimately expected to vest, and accordingly, such compensation expense has been adjusted by an amount of estimated forfeitures.
The Company uses the Black-Scholes option pricing model to calculate the fair value of share-based awards on the grant date. The following assumptions are used in calculating the fair value of share-based awards:
Expected term— – The expected term of options granted represents the period of time for which the options are expected to be outstanding. For purposes of estimating the expected term, the Company has aggregated all individual option awards into one group as the Company does not expect substantial differences in exercise behavior among its employees.
Expected volatility— – The expected volatility is a measure of the amount by which the Company’s stock price is expected to fluctuate during the expected term of options granted. The Company determines the expected volatility based primarily upon the historical volatility of the Company’s common stock over a period commensurate with the option’s expected term.
Risk-free interest rate— – The risk-free interest rate is the implied yield available on U.S. Treasuryzero-coupon issues with a remaining term equal to the option’s expected term on the grant date.
Expected dividend yield— – The Company has never declared or paid any cash dividends on any of its capital stock and does not expect to do so in the foreseeable future. Accordingly, the Company uses an expected dividend yield of zero to calculate the grant-date fair value of a stock option.
Estimated forfeiture rates— – The Company has applied, based on an analysis of its historical forfeitures, annual forfeiture rates of 8% for awards granted tonon-executive level employees, 3% for awards granted to executive level employees and 0% for awards granted tonon-employee members of the Board of Directors to all unvested stock options as of December 31, 2014.2017. The Company reevaluates this analysis periodically and adjusts these estimated forfeiture rates as necessary. Ultimately, the Company will only recognize expense for those shares that vest.
Recently Issued Accounting Pronouncements
In May 2014, the FASB issued ASUNo. 2014-09, which amends the guidance for accounting for revenue “Revenue from contractsContracts with customers. This ASUCustomers (Topic 606),”which supersedes the revenue recognition requirements in Accounting Standards Codification Topic 605,Revenue Recognition, and creates a new Topic 606,Revenue from Contracts with Customers. This guidance is effective for fiscal years beginning after December 15, 2016, with early adoption not permitted. Two adoption methods are permitted: retrospectively to all prior reporting periods presented, with certain practical expedients permitted; or retrospectively with the cumulative effect of initially adopting the ASU recognized at the date of initial application. The Company has not yet determined which adoption method it will utilize or the effect that the adoption of this guidanceASU will include updates as provided under ASU2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date”; ASU2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)”; ASU2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing”; and ASU2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients.” The Company intends to adopt the provisions of Topic 606 using the modified retrospective method effective January 1, 2018. The Company has completed its assessment of the impact of the new revenue standard on its current contracts of all principal revenue streams and has determined that the new standard will not have a material impact on its consolidated financial statements. The Company will modify its accounting policies and procedures beginning in the first quarter of 2018 related to variable pricing and material rights in certain of its contracts. The Company will not require significant changes to its business processes, systems and controls to comply with this new standard.
In July 2015, the FASB issued ASUNo. 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory” (“ASU2015-11”). ASU2015-11 requires inventory be measured at the lower of cost and net realizable value, and options that currently exist for market value be eliminated. ASU2015-11 defines net realizable value as estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The guidance is effective prospectively for reporting periods beginning after December 15, 2016 and interim periods within those fiscal years with early adoption permitted. The adoption of ASU2015-11 did not have a material impact on its consolidated financial statements, as it does not measure any inventory at market value.
In February 2016, the FASB issued ASU No.2016-02, “Leases (Topic 842)” (“ASU2016-02”). ASU2016-02 requires lessees to recognize aright-of-use asset and a lease liability for most leases. Extensive quantitative and qualitative disclosures, including significant judgments made by management, will be required to provide greater insight into the extent of revenue and expense recognized and expected to be recognized from existing contracts. The accounting applied by a lessor is largely unchanged from that applied under the current standard. The standard must be adopted using a modified retrospective transition approach and provides for certain practical expedients. The ASU is effective for public entities for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company has not yet completed its assessment of the impact of the new standard on its consolidated financial statements; however, the Company anticipates that it will recognizeright-of-use assets and lease liabilities for leases on its current facilities.
In March 2016, the FASB issued ASU No.2016-09, “Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting”, which aims to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, classification of certain items on the statement of cash flows and accounting for forfeitures. The ASU is effective for public entities for fiscal years beginning after December 15, 2016, with early adoption permitted. The Company adopted the provisions of this ASU as of January 1, 2017. As a result of this standard, the Company increased its U.S. federal and state net operating loss carryovers by approximately $5.1 million for previously unrecognized excess tax benefits outstanding as of January 1, 2017. Since the Company maintained a full valuation allowance on its net U.S. deferred tax assets as of the adoption date, the Company recorded a corresponding increase to the valuation allowance and the impact of adopting ASU2016-09 on retained earnings is zero.
In August 2016, the FASB issued ASUNo. 2016-15, “Statement of Cash Flows (Topic 203): Classification of Certain Cash Receipts and Cash Payments”. ASUNo. 2016-15 addresses eight specific cash flow issues and clarifies their presentation and classification in the Statement of Cash Flows. ASUNo. 2016-15 is effective for fiscal years beginning after December 15, 2017 and is to be applied retrospectively with early adoption permitted. The Company does not expect the adoption of ASU2016-15 to have a material impact on its consolidated financial statements.
In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash,” which requires that the statement of cash flows explain the change during the period in the total cash, which is inclusive of cash and cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. Restricted cash and restricted cash equivalents will be included with cash and cash equivalents when reconciling the beginning of period and end of period balances on the statement of cash flows upon adoption of this standard. The ASU is effective for the Company on January 1, 2018 with early adoption permitted. The Company intends to adopt the ASU on January 1, 2018. Upon adoption, the ASU requires retrospective application. Beginning in 2018, the Company will include $450,000 of restricted cash with total cash and cash equivalents in its 2016 and 2017 cash flow statements.
3. | Acquisitions, Goodwill and Other Intangible Assets |
Acquisitions
Refine Technology,Spectrum LifeSciences, LLC
On June 2, 2014,August 1, 2017, the Company completed the acquisition of Spectrum pursuant to the terms of the Asset Purchase Agreement and Plan of Merger and Reorganization, dated as of June 2, 2014 (the “Asset Purchase Agreement”22, 2017 (such acquisition, the “Spectrum Acquisition”), by.
Spectrum is a diversified filtration company with a differentiated portfolio of hollow fiber cartridges,bench-top to commercial scale filtration and amongperfusion systems and a broad portfolio of disposable andsingle-use solutions. Spectrum’s products are primarily used for the Company, Refine Technology, LLC (a limited liabilityfiltration, isolation, purification and concentration of monoclonal antibodies, vaccines, recombinant proteins, diagnostic products and cell therapies where the company formed underoffers both standard and customized solutions to its bioprocessing customers.
Spectrum’s filtration products include its KrosFlo® line of hollow-fiber cartridges, tangential flow filtration (TFF) systems andsingle-use flow path consumables, as well as its Spectra/Por® portfolio of laboratory dialysis products and itsPro-Connex®single-use hollow fiberModule-Bag-Tubing (MBT) sets. Outside of filtration, the lawscompany sells its Spectra/Chrom® liquid chromatography products for research applications. These bioprocessing products account for the majority of the StateSpectrum revenues. Spectrum also offers a line of New Jersey) (“Refine”), the members of Refine Technology, LLC, Jerry Shevitz, Refine Technology Sales LLC (a limited liability company formed under the laws of the State of New Jersey) and Refine Technology Sales Asia PTE. LTD. (a limited private company organized in the Republic of Singapore), the Company acquired the business of Refine, including Refine’s Alternating Tangential Flow (“ATF”) System, a market-leading device used to significantly increase product yield during the fermentation step of the biologic drug manufacturing process (the “Refine Business” and the acquisition of the Refine Business, the “Refine Acquisition”). Pursuant to the Asset Purchase Agreement, Repligen purchased all of the assets related to Refine’s ATF system and assumed certain specified liabilities related to Refine’s ATF system. This acquisition strengthened Repligen’s bioprocessing business by adding a complementary product line while expanding its direct sales presence worldwide. operating room products.
The transactionSpectrum Acquisition was accounted for as a purchase of a business under ASC 805, Business Combinations. The terms of the acquisition included an upfront cashSpectrum Acquisition was funded through payment of $21,235,937 less $66,277 as a result of the final determination of working capital, issuance of 215,285approximately $122.9 million in cash, 6,153,995 unregistered shares of the Company’s $0.01 par value common stock valued at $4,000,000, future potential milestone payments totaling up to $10,900,000 if specific sales targets are met$247.6 million and a working capital adjustment of $425,000 for the years 2014, 2015 and 2016, and future potential payments up to $7,500,000 outa total purchase price of any amounts that might be received in connection with the resolution, withdrawal or settlement of certain patent disputes with a third party. The $10,900,000 potential contingent consideration had an initial probability weighted fair value at acquisition of $1,370,000. The $7,500,000 potential contingent consideration had only a nominal probability weighted fair value at acquisition. In addition to the initial consideration, approximately $774,000 was paid to Refine following the acquisition under a Transition Services Agreement under which certain employees of Refine provided services to the Company in support of the Refine Business. As these payments were contingent upon future service, they were recognized as operating expense, ratably while the services were provided.$370.9 million.
Consideration Transferred
The Company accounted for the RefineSpectrum Acquisition as thea purchase of a business under U.S. GAAP. Under the acquisition method of accounting, the assets of the Refine BusinessSpectrum were recorded as of the acquisition date,
at their respective fair values, and consolidated with those of Repligen.the Company. The fair value of the net assets acquired was approximately $ 26,539,660.$370.9 million.
The preparation of the valuation required the use of significant assumptions and estimates. Critical estimates included, but were not limited to, future expected cash flows, including projected revenues and expenses, and the applicable discount rates. These estimates were based on assumptions that the Company believes to be reasonable. However,reasonable; however, actual results may differ from these estimates.
The total consideration transferred follows:follows (in thousands):
Cash consideration, less $66,277 of working capital adjustments reflected in other receivables as of December 31, 2014 | $ | 21,169,660 | ||
Value of common stock issued | 4,000,000 | |||
Estimated fair value of contingent consideration | 1,370,000 | |||
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Total consideration transferred | $ | 26,539,660 | ||
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Cash consideration | $ | 122,932 | ||
Equity consideration | 247,575 | |||
Working capital adjustment | 425 | |||
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Net assets acquired | $ | 370,932 | ||
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The fair value of contingent consideration was determined based upon a probability weighted analysis of expected future milestone and settlement payments to be made to the seller. The Company could make payments of up to $10,900,000 if specific sales targets are met for years 2014, 2015 and 2016 and up to $7,500,000 out of any receipts that might be received in connection with the resolution, withdrawal or settlement of certain patent disputes with a third party. The liability for contingent consideration is included in current and long-term liabilities on the consolidated balance sheets and will be remeasured at each reporting period until the contingency is resolved. Please see Note 8—Accrued Liabilities for further details.
Acquisition relatedAcquisition-related costs are not included as a component of consideration transferred, but are expensed in the periods in which the costs are incurred. The Company has incurred approximately $817,835$7,060,000 in transaction costs related to the Refine Acquisition. The transactionSpectrum Acquisition for the year ended December 31, 2017. These costs are primarily included in selling, general and administrative expenses in the consolidated statements of operations.
Fair Value of Net Assets Acquired
The allocation of purchase price was based on the fair value of assets acquired and liabilities assumed as of June 2, 2014.August 1, 2017, based on the preliminary valuation. The components and allocation of the purchase price consists of the following amounts:amounts (in thousands):
Cash and cash equivalents | $ | 10,137 | ||||||
Accounts receivable | $ | 1,646,746 | 5,075 | |||||
Inventory | 1,090,736 | 13,705 | ||||||
Other current assets | 184,080 | |||||||
Prepaid expenses and other assets | 616 | |||||||
Fixed assets | 84,662 | 6,004 | ||||||
Deferred tax assets | 1,102 | |||||||
Customer relationships | 6,400,000 | 78,400 | ||||||
Developed technology | 2,000,000 | 38,560 | ||||||
In process research and development (“IPR&D”) | 1,600,000 | |||||||
Trademark and trade name | 700,000 | |||||||
Accounts payable and other liabilities assumed | (357,399 | ) | ||||||
Trademark and tradename | 2,160 | |||||||
Non-competition agreements | 960 | |||||||
Goodwill | 13,190,835 | 265,519 | ||||||
Accounts payable | (1,335 | ) | ||||||
Unrecognized tax benefit | (576 | ) | ||||||
Accrued liabilities | (5,787 | ) | ||||||
Deferred tax liabilities | (43,608 | ) | ||||||
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Net assets acquired | $ | 26,539,660 | ||||||
Fair value of net assets acquired | $ | 370,932 | ||||||
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Of the consideration paid, $6,400,000$78.4 million represents the fair value of customer relationships that will be amortized over the weighted average determined useful life of 1015 years, and $2,000,000$38.6 million represents the fair value of developed technology that will be amortized over a determined useful life of 1520 years. $700,000$960,000 represents the fair value of trademark and trade namenon-competition agreements that will be amortized over a determined to have an indefinite useful life and is not subject to amortization.
$1,600,000 of the consideration paid3 years. $2.2 million represents the fair value of acquired IPR&D projectstrademarks that are considered identifiablewill be amortized over a determined life of 2 to 20 years. The aforementioned intangible assets aswill be amortized on a straight-line basis.
The goodwill of $265.5 million represents future economic benefits expected to arise from synergies from combining operations and commercial organizations to increase market presence and the extension of existing customer relationships. None of the acquisition date. Those assets are considered indefinite lived until efforts associated with the projects are completed or abandoned. goodwill recorded is expected to be deductible for income tax purposes.
The major acquired technology IPR&D relatespurchase price allocation may be subject to the development of a single use system product extension to the ATF system business. The IPR&D projectadjustment as purchase accounting is not currently amortized and is reviewed for impairment at least annually. There was no evidence of impairment to IPR&Dpreliminary as of December 31, 2014. The excess of the purchase price over2017 related to inventory valuation, and accordingly, the fair value of tangible and intangible assetsinventory acquired was recordedmay be subject to goodwill. The goodwill recognized is attributable to expected synergies that the Company will realize from this acquisition. This goodwill is deductible for tax purposes over the next 15 years.change.
The assessment of fair value is preliminary and is based on information that was available to management at the time the condensed consolidated financial statements were prepared. The Company is finalizing its inventory valuation and, accordingly, such amounts may change.
Revenue, Net Income and Pro Forma Presentation
The Company recorded revenue from RefineSpectrum of $6,793,000$19,394,000 from June 2, 2014August 1, 2017 through December 31, 2014. The segregation of Refine’s net income is administratively impractical, as the Company operates as one operating segment and does not separately allocate expenses.2017. The Company has included the operating results of RefineSpectrum in its consolidated statements of operations since the June 2, 2014August 1, 2017 acquisition date. The following table presents unaudited supplemental pro forma information as if both the RefineSpectrum Acquisition had occurred as of January 1, 2013.2016 and the TangenX Acquisition had occurred as of January 1, 2015 (in thousands, except per share data):
December 31, 2014 | December 31, 2013 | December 31, 2017 | December 31, 2016 | |||||||||||||
Total revenue | $ | 67,330,000 | $ | 76,331,000 | 162,913 | 145,994 | ||||||||||
Net income | 9,493,000 | 16,403,000 | ||||||||||||||
Earnings per share | ||||||||||||||||
Net income (loss) | 17,220 | (12,656 | ) | |||||||||||||
Earnings (loss) per share: | ||||||||||||||||
Basic | $ | 0.41 | $ | (0.32 | ) | |||||||||||
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Basic | 0.28 | 0.58 | ||||||||||||||
Diluted | 0.27 | 0.56 | $ | 0.40 | $ | (0.32 | ) | |||||||||
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The unaudited pro forma information for the year-endedyears ended December 31, 20142017 and 20132016 was calculated after applying the Company’s accounting policies and the impact of acquisition date fair value adjustments. Unaudited pro forma net income for year-endedyear ended December 31, 20142017 was adjusted to exclude acquisition-related transaction costs. These expenses have been added to the unaudited pro forma net income for the year-ended December 31, 2013. In addition, the unaudited pro forma net income for the year-ended December 31, 2014 was adjusted to excludecosts, nonrecurring expenses related to the fair value adjustments associated with the acquisition of Refine that were recorded byand income tax benefits resulting from the Company. Theacquisition. In addition, the unaudited pro forma net income for the year-endedyear ended December 31, 20132017 was adjusted to include theseincremental amortization of intangible assets. These items have been factored to the unaudited pro forma net income for the year ended December 31, 2017. The unaudited pro forma net loss for the year ended December 31, 2016 was adjusted to include acquisition-related transaction costs, and expenses related to the fair value adjustments. The basicadjustments, amortization of intangible assets, and diluted EPS calculations reflectincome tax benefits resulting from the issuance of shares to Refine as if the equity consideration had been granted on January 1, 2013.acquisition.
These pro forma condensed consolidated financial results have been prepared for comparative purposes only and include certain adjustments to reflect the pro forma results of operations as if the acquisition had occurred as of the beginning of the periods presented, such as fair value adjustments to inventory and increased amortization for the fair value of acquired intangible assets. The pro forma information does not reflect the effect of costs or synergies that would have been expected to result from the integration of the acquisition. The pro forma information does not purport to be indicative of the results of operations that actually would have resulted had the combination occurred at the beginning of each period presented, or of future results of the consolidated entities.
TangenX Technology Corporation
On December 14, 2016, the Company acquired TangenX Technology Corporation (“TangenX”), pursuant to the terms of the Share Purchase Agreement, dated as of December 14, 2016 (the “Share Purchase Agreement”), by and among the Company and TangenX (such acquisition, the “TangenX Acquisition”). The Company acquired all outstanding shares and the business of TangenX, including TangenX’s innovativesingle-use Sius line of tangential flow filtration (“TFF”) cassettes and hardware used in downstream biopharmaceutical manufacturing processes.
Sius TFF is used in the filtration of biological drugs, complimenting Repligen’s OPUS line ofpre-packed chromatography columns used in downstream purification. Pursuant to the Share Purchase Agreement, Repligen acquired all of the outstanding shares of TangenX, as well as certain assets and liabilities. Effective June 30, 2017, TangenX was legally merged with and into the Company.
The TangenX Acquisition was accounted for as a purchase of a business under ASC 805, “Business Combinations.” The total purchase price of the TangenX Acquisition was $37.1 million in cash.
Consideration Transferred
The Company accounted for the TangenX Acquisition as the purchase of a business under U.S. GAAP. Under the acquisition method of accounting, the assets of TangenX were recorded as of the acquisition date, at their respective fair values, and consolidated with those of Repligen. The fair value of the net assets acquired was approximately $37.1 million.
The preparation of the valuation required the use of significant assumptions and estimates. Critical estimates included, but were not limited to, future expected cash flows, including projected revenues and expenses, and the applicable discount rates. These estimates were based on assumptions that the Company believes to be reasonable. However, actual results may differ from these estimates.
The total consideration transferred follows (in thousands):
Cash consideration | $ | 37,532 | ||
Less: working capital adjustment | (382 | ) | ||
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Net assets acquired | $ | 37,150 | ||
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Acquisition related costs are not included as a component of consideration transferred, but are expensed in the periods in which the costs are incurred. The Company incurred transaction costs of $431,000 in the year ended December 31, 2017 and $935,000 in the year ended December 31, 2016 related to the TangenX Acquisition. The transaction costs are included in selling, general and administrative expenses in the consolidated statements of operations.
Fair Value of Net Assets Acquired
The allocation of purchase price was based on the fair value of assets acquired and liabilities assumed as of December 14, 2016. The components and allocation of the purchase price consists of the following amounts (in thousands):
Cash and cash equivalents | $ | 1,218 | ||
Accounts receivable | 459 | |||
Other receivables | 111 | |||
Inventory | 936 | |||
Other current assets | 50 | |||
Fixed assets, net | 215 | |||
Customer relationships | 6,192 | |||
Developed technology | 6,044 | |||
Non-competition agreements | 21 | |||
Trademark and trade name | 11 | |||
Accounts payable and other liabilities assumed | (3,083 | ) | ||
Deferred tax liabilities | (4,525 | ) | ||
Goodwill | 29,501 | |||
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Net assets acquired | $ | 37,150 | ||
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Of the consideration paid, $6.2 million represents the fair value of customer relationships that will be amortized over the determined useful life of 13 years and $6.0 million represents the fair value of developed technology that will be amortized over a determined useful life of 20 years. $21,000 represents the fair value ofnon-competition agreements that will be amortized over a determined life of 5 years. $11,000 represents the fair
value of trademarks and trade names that will be amortized over a determined useful life of 2 years. The aforementioned intangible assets will be amortized on a straight-line basis.
The goodwill of $29.5 million represents future economic benefits expected to arise from synergies from combining operations and the extension of existing customer relationships.
Revenue, Net Income and Pro Forma Presentation
The Company recorded revenue from TangenX of approximately $119,000 from December 15, 2016 through December 31, 2016. The Company has included the operating results of TangenX in its consolidated statements of operations since the December 15, 2016 acquisition date. The following table presents unaudited supplemental pro forma information as if the TangenX Acquisition had occurred as of January 1, 2015 (in thousands, except per share data):
December 31, 2016 | December 31, 2015 | |||||||
Total revenue | 110,228 | 88,437 | ||||||
Net income | 5,744 | 13,208 | ||||||
Earnings per share: | ||||||||
Basic | $ | 0.17 | $ | 0.40 | ||||
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Diluted | $ | 0.17 | $ | 0.39 | ||||
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The unaudited pro forma information for the year ended December 31, 2016 and 2015 was calculated after applying the Company’s accounting policies and the impact of acquisition date fair value adjustments. Unaudited pro forma net income for year ended December 31, 2016 was adjusted to exclude acquisition-related transaction costs, nonrecurring expenses related to the fair value adjustments associated with the acquisition, and income tax benefits resulting from the acquisition. In addition, the unaudited pro forma net income for the year ended December 31, 2016 was adjusted to include incremental amortization of intangible assets. These items have been factored to the unaudited pro forma net income for the year ended December 31, 2016. The unaudited pro forma net income for the year ended December 31, 2015 was adjusted to include these acquisition-related transaction costs, expenses related to the fair value adjustments, amortization of intangible assets, and income tax benefits resulting from the acquisition.
These pro forma condensed consolidated financial results have been prepared for comparative purposes only and include certain adjustments to reflect the pro forma results of operations as if the acquisition had occurred as of the beginning of the periods presented, such as fair value adjustments to inventory and increased amortization for the fair value of acquired intangible assets. The pro forma information does not reflect the effect of costs or synergies that would have been expected to result from the integration of the acquisition. The pro forma information does not purport to be indicative of the results of operations that actually would have resulted had the combination occurred at the beginning of each period presented, or of future results of the consolidated entities.
Atoll GmbH
On April 1, 2016, the Company’s subsidiary Repligen Sweden acquired Atoll GmbH (“Atoll”) fromUV-Cap GmbH & Co. KG (the “Seller”) pursuant to a Share Purchase Agreement (the “Share Purchase Agreement”), dated as of March 31, 2016 (such acquisition, the “Atoll Acquisition”), by and among Repligen Sweden, the Seller, and the Company, in its capacity as guarantor of the obligations of Repligen Sweden under the Share Purchase Agreement. The Atoll Acquisition was subject to certain closing conditions that did not occur until April 1, 2016. Payment for the Atoll Acquisition was denominated in Euros but is reflected here in U.S. dollars for presentation purposes.
In connection with the Atoll Acquisition, the Company issued and contributed 538,700 shares of the Company’s common stock, par value of $0.01 per share valued at $14.1 million (the “Stock Consideration”) to Repligen
Sweden through a transfer by the Company on behalf of Repligen Sweden to fulfill Repligen Sweden’s obligation to deliver the Stock Consideration under the Share Purchase Agreement. The issuance of the Stock Consideration was not registered under the Securities Act of 1933, as amended (the “Securities Act”), in reliance upon the exemption from registration provided by Section 4(2) of the Securities Act. The Stock Consideration was based on the fair value of the Company’s common stock on April 1, 2016.
This acquisition strengthened Repligen’s bioprocessing business by adding a complementary extension to an existing product line while expanding its direct sales presence worldwide. On September 20, 2016, Atoll changed its name to Repligen GmbH.
The Atoll Acquisition was accounted for as a purchase of a business under ASC 805, “Business Combinations.” The total purchase price of the Atoll Acquisition was $25.3 million, consisting of an upfront cash payment of $10.2 million, less $74,000 as a result of the final determination of working capital, issuance of the Stock Consideration, and a future potential milestone payment of $1.1 million if specific revenue growth targets are met for 2016. The $1.1 million potential contingent consideration had an initial probability weighted fair value at the time of the closing of the Atoll Acquisition of approximately $952,000.
Consideration Transferred
The Company accounted for the Atoll Acquisition as the purchase of a business under U.S. GAAP. Under the acquisition method of accounting, the assets of Atoll were recorded as of the acquisition date, at their respective fair values, and consolidated with those of Repligen. The fair value of the net assets acquired was approximately $25.3 million.
The preparation of the valuation required the use of significant assumptions and estimates. Critical estimates included, but were not limited to, future expected cash flows, including projected revenues and expenses, and the applicable discount rates. These estimates were based on assumptions that the Company believes to be reasonable. However, actual results may differ from these estimates.
The total consideration transferred follows (in thousands):
Cash consideration, less $74 of working capital adjustments | $ | 10,176 | ||
Value of common stock issued | 14,138 | |||
Estimated fair value of contingent consideration | 952 | |||
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Total consideration transferred | $ | 25,266 | ||
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The fair value of contingent consideration was determined based upon a probability weighted analysis of expected future milestone and settlement payments to be made to the Seller. The Company could make a contingent consideration payment of $1.1 million if specific revenue growth targets are met for 2016. The liability for contingent consideration was included in current liabilities on the consolidated balance sheets. Because the contingent consideration related only to 2016 sales growth, no further remeasurement of this liability was required as of December 31, 2016. See Note 9 – Accrued Liabilities for further details.
Acquisition related costs are not included as a component of consideration transferred, but are expensed in the periods in which the costs are incurred. The Company incurred $1,307,000 in transaction costs related to the Atoll Acquisition. The transaction costs are included in selling, general and administrative expenses in the consolidated statements of operations.
Fair Value of Net Assets Acquired
The allocation of purchase price was based on the fair value of assets acquired and liabilities assumed as of April 1, 2016. The components and allocation of the purchase price consists of the following amounts (in thousands):
Cash and cash equivalents | $ | 1,409 | ||
Accounts receivable | 697 | |||
Inventory | 155 | |||
Other current assets | 169 | |||
Fixed assets | 114 | |||
Customer relationships | 5,318 | |||
Developed technology | 2,175 | |||
Non-competition agreements | 57 | |||
Trademark and trade name | 11 | |||
Deferred tax assets | 885 | |||
Accounts payable and other liabilities assumed | (599 | ) | ||
Deferred tax liabilities | (2,202 | ) | ||
Goodwill | 17,077 | |||
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Net assets acquired | $ | 25,266 | ||
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Of the consideration paid, $5.3 million represents the fair value of customer relationships that will be amortized over the determined useful life of 13 years and $2.2 million represents the fair value of developed technology that will be amortized over a determined useful life of 14 years. $57,000 represents the fair value ofnon-competition agreements and $11,000 represents the fair value of trademarks and trade names that will be amortized over a determined useful life of 2 years. The aforementioned intangible assets will be amortized on a straight-line basis.
The goodwill of $17.1 million represents future economic benefits expected to arise from synergies from combining operations, utilizing the Company’s existing sales infrastructure to increase market presence and the extension of existing customer relationships.
Goodwill
The changes in the carrying value of goodwill for the year ended December 31, 20142017 is as follows:follows (in thousands):
Balance at December 31, 2013 | $ | 994,000 | ||
Goodwill arising from business combination | 13,190,835 | |||
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Balance at December 31, 2014 | $ | 14,184,835 | ||
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Balance at December 31, 2016 | $ | 59,548 | ||
Goodwill adjustments arising from the TangenX Acquisition | 85 | |||
Goodwill arising from the Spectrum Acquisition | 265,519 | |||
Foreign currency adjustments on goodwill from the Atoll Acquisition | 2,181 | |||
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Balance at December 31, 2017 | $ | 327,333 | ||
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Other Intangible Assets
Intangible assets, except for the Refine Technology, LLCATF tradename, and in-process research and development, are amortized over their useful lives using the estimated economic benefit method, as applicable, and the amortization expense is recorded within selling, general and administrative expense in the Company’s statements of comprehensive income. The Refine Technology, LLCATF tradename and in-process research and development are not amortized. The Company reviews ourits indefinite-lived intangible assets not subject to amortization to determine if adverse conditions exist or a change in circumstances exists that would indicate an impairment. Intangible assets and their related useful lives are reviewed at least annually to determine if any adverse conditions exist that
would indicate the carrying value of these assets may not be recoverable. More frequent impairment assessments are conducted if certain conditions exist, including a change in the competitive landscape, any internal decisions to pursue new or different technology strategies, a loss of a significant customer, or a significant change in the marketplace, including changes in the prices paid for our products or changes in the size of the market for our products. An impairment results if the carrying value of the asset exceeds the estimated fair value of the asset. If the estimate of an intangible asset’s remaining useful life is changed, the remaining carrying amount of the intangible asset is amortized prospectively over the revised remaining useful life. The Company continues to believe that its intangible assets are recoverable at December 31, 2014.2017.
4. | Income Taxes |
Income tax data for the years ended December 31, 2014, 20132017, 2016 and 2012:2015 (in thousands):
December 31, 2014 | December 31, 2013 | December 31, 2012 | December 31, 2017 | December 31, 2016 | December 31, 2015 | |||||||||||||||||||
The components of income from operations before income taxes are as follows: | ||||||||||||||||||||||||
Domestic | $ | (1,151,984 | ) | $ | 12,782,598 | $ | 11,175,638 | $ | (6,709 | ) | $ | (4,882 | ) | $ | (2,490 | ) | ||||||||
Foreign | 12,290,567 | 10,231,223 | 95,768 | 13,957 | 16,574 | 15,913 | ||||||||||||||||||
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Total | $ | 11,138,583 | $ | 23,013,821 | $ | 11,271,406 | $ | 7,248 | $ | 11,692 | $ | 13,423 | ||||||||||||
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The current and deferred components of the provision for income taxes on operations are as follows: | ||||||||||||||||||||||||
Current | $ | 2,480,609 | $ | 4,123,752 | $ | 312,630 | $ | 3,624 | $ | 4,077 | $ | 3,745 | ||||||||||||
Deferred | 487,760 | 2,796,914 | (3,197,261 | ) | (24,729 | ) | (4,066 | ) | 333 | |||||||||||||||
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Total | $ | 2,968,369 | $ | 6,920,666 | $ | (2,884,631 | ) | $ | (21,105 | ) | $ | 11 | $ | 4,078 | ||||||||||
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The jurisdictional components of the provision for income taxes on operations are as follows: | ||||||||||||||||||||||||
Federal | $ | 214,274 | $ | 3,322,032 | $ | (2,915,673 | ) | $ | (24,012 | ) | $ | (3,809 | ) | $ | 295 | |||||||||
State | (67,383 | ) | 1,305,388 | 115,307 | (438 | ) | (207 | ) | 276 | |||||||||||||||
Foreign | 2,821,478 | 2,293,245 | (84,265 | ) | 3,345 | 4,027 | 3,507 | |||||||||||||||||
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Total | $ | 2,968,369 | $ | 6,920,665 | $ | (2,884,631 | ) | $ | (21,105 | ) | $ | 11 | $ | 4,078 | ||||||||||
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At December 31, 2014,2017, the Company had net operating loss carryforwards of approximately $43,387,000 and business tax credits$19,652,000 in the U.S., net operating loss carryforwards of approximately $1,782,000€603,000 (approximately $722,000) in Germany, federal business tax credit carryforwards of $297,000 and state business tax credit carryforwards of approximately $99,000 available to reduce future federaldomestic income taxes, if any. The cumulative U.S. federal net operating loss includes $6,377,000 related to excess tax deductions from share-based payments, the tax benefit of which will be recognized as an increase to additional paid in capital when the deduction reduces current taxes payable. The net operating loss and business tax credits carryforwards will continue to expire at various dates through December 2032.2037. The net operating loss and business tax credit carryforwards 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.
The Company’s consolidated deferred tax assets (liabilities) consist of the following:
December 31, 2014 | December 31, 2013 | December 31, 2017 | December 31, 2016 | |||||||||||||
Deferred tax assets: | ||||||||||||||||
Temporary timing differences | $ | 3,069,000 | $ | 3,018,000 | ||||||||||||
Temporary timing differences: | ||||||||||||||||
Stock compensation | $ | 1,662 | $ | 1,722 | ||||||||||||
Contingent consideration | 2,196 | 3,333 | ||||||||||||||
Other | 1,704 | 1,895 | ||||||||||||||
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Total temporary timing differences | 5,562 | 6,950 | ||||||||||||||
Net operating loss carryforwards | 12,580,000 | 12,264,000 | 4,361 | 12,284 | ||||||||||||
Tax business credits carryforwards | 1,782,000 | 1,520,000 | 1,265 | 2,036 | ||||||||||||
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Total deferred tax assets | 17,431,000 | 16,802,000 | 11,188 | 21,270 | ||||||||||||
Valuation allowance | (17,298,000 | ) | (16,571,000 | ) | (6 | ) | (9,979 | ) | ||||||||
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Net deferred tax assets | $ | 133,000 | $ | 231,000 | $ | 11,182 | $ | 11,291 | ||||||||
Deferred tax liabilities: | ||||||||||||||||
Goodwill | $ | (251,000 | ) | $ | (44,000 | ) | ||||||||||
Goodwill and intangible assets | $ | (33,166 | ) | $ | (7,346 | ) | ||||||||||
Conversion option on convertible notes | (3,183 | ) | (6,048 | ) | ||||||||||||
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Net deferred tax assets (liabilities) | $ | (118,000 | ) | $ | 187,000 | |||||||||||
Total deferred tax liabilities | $ | (36,349 | ) | $ | (13,394 | ) | ||||||||||
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Net deferred tax liabilities | $ | (25,167 | ) | $ | (2,103 | ) | ||||||||||
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The net change in the total valuation allowance was an increasea decrease of $727,000$9,973,000 in the year ended December 31, 2014.2017 and consisted of the following changes. During the first quarter of 2017 the Company adopted ASU2016-09. ASU2016-09 states that previously unrecognized excess tax benefits related to stock based compensation should be recognized on a modified retrospective basis. As such, the Company increased its U.S. federal and state net operating loss carryovers by approximately $5,100,000 as of January 1, 2017 for previously unrecognized stock based compensation excess tax benefits outstanding as of the beginning of the period. Because the Company maintained a full valuation allowance on its U.S. deferred tax assets at that date, the Company recorded a corresponding increase to the valuation allowance as of January 1, 2017. During the second quarter of 2017, the Company agreed to sell certain intellectual property to Repligen Sweden AB that allowed for the Company to utilize certain of its U.S. deferred tax assets. Accordingly, the Company reduced its valuation allowance on its U.S. deferred tax assets by approximately $9,200,000. Additionally, in conjunction with the Spectrum Acquisition, the Company determined that its U.S. deferred tax assets were more likely than not to be realized after considering deferred tax liabilities related to the acquired intangible assets. Accordingly, the Company reduced its valuation allowance on its U.S. deferred tax assets by $5,872,000. The valuation allowance decreased by $1,736,000$8,535,000 for the year ended December 31, 20132016 and decreasedincreased by $10,169,000$1,216,000 for the year ended December 31, 2012. Prior to 2012, the Company’s U.S. net operating losses (“NOL’s”) and other deferred tax assets were fully offset by a valuation allowance primarily because2015. As of December 31, 2017, the Company was in a cumulative loss position and did not have sufficient history of income to concludebelieves that it was more likely than not that the Company would be able to realize the tax benefits of those deferred tax assets. In the fourth quarter of 2012, the Company entered into a three-year cumulative pre-tax income position and concluded that it was more likely than not that it will generate sufficient taxable income in 2013 based on its 2013 projections to realize the tax benefit of a portionrealization of its deferred tax assets. Thus, the Company reversed $3,021,000 of the deferred tax asset valuation allowance in the U.S in the fourth quarter of 2012. The amount was recorded as a benefit for income taxes in the Company’s consolidated statements of operations and comprehensive income. The Company concluded that realization of deferred tax assets beyond December 31, 2013 wasrelated to capital loss carryovers is not more likely than not, as a result of the fact thatand the Company will not receive royalty payments from Bristol on U.S. net sales of Orencia after December 31, 2013. As of December 31, 2014 the Company continuedcontinues to maintain a fullits valuation allowance against its remainingthose U.S. deferred tax assets.
The reconciliation of the federal statutory rate to the effective income tax rate for the fiscal years ended December 31, 2014, 20132017, 2016 and 20122015 is as follows:follows (amounts in thousands):
Period Ended, | Year Ended | |||||||||||||||||||||||||||||||||||||||||||||||
December 31, 2014 | December 31, 2013 | December 31, 2012 | December 31, 2017 | December 31, 2016 | December 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||
Income before income taxes | $ | 11,138,583 | $ | 23,013,821 | $ | 11,271,406 | $ | 7,248 | $ | 11,692 | $ | 13,423 | ||||||||||||||||||||||||||||||||||||
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Expected tax at statutory rate | 3,787,118 | 34.0 | % | 7,824,699 | 34.0 | % | 3,944,996 | 35.0 | % | 2,537 | 35.0 | % | 3,975 | 34.0 | % | 4,564 | 34.0 | % | ||||||||||||||||||||||||||||||
Adjustments due to: | ||||||||||||||||||||||||||||||||||||||||||||||||
Difference between U.S. and foreign tax | (1,470,662 | ) | (13.2 | )% | (1,227,747 | ) | (5.3 | )% | (8,332 | ) | (0.1 | )% | (1,797 | ) | (24.8 | %) | (2,031 | ) | (17.4 | %) | (1,910 | ) | (14.2 | %) | ||||||||||||||||||||||||
State income and franchise taxes | 121,561 | 1.1 | % | 1,121,821 | 4.9 | % | 357,866 | 3.2 | % | (307 | ) | (4.2 | %) | (326 | ) | (2.8 | %) | 563 | 4.2 | % | ||||||||||||||||||||||||||||
Permanent differences | (171,921 | ) | (1.5 | )% | (298,185 | ) | (1.3 | )% | 242,629 | 2.1 | % | |||||||||||||||||||||||||||||||||||||
Business tax credits | (7,708 | ) | (9.8 | %) | (236 | ) | (2.0 | %) | (115 | ) | (0.9 | %) | ||||||||||||||||||||||||||||||||||||
Permanent differences: | ||||||||||||||||||||||||||||||||||||||||||||||||
Stock compensation | (946 | ) | (13.1 | %) | 31 | 0.3 | % | 348 | 2.6 | % | ||||||||||||||||||||||||||||||||||||||
Transaction costs | 1,232 | 17.0 | % | 156 | 1.3 | % | — | — | ||||||||||||||||||||||||||||||||||||||||
Other | 470 | 6.4 | % | 380 | 3.2 | % | (230 | ) | (1.7 | %) | ||||||||||||||||||||||||||||||||||||||
Change in U.S. federal tax rates | (12,839 | ) | (177.2 | %) | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
Transition tax | 3,266 | 45.1 | % | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
Change in valuation allowance | 727,157 | 6.5 | % | (508,629 | ) | (2.21 | )% | (7,272,092 | ) | (64.5 | )% | (12,164 | ) | (167.8 | %) | (1,981 | ) | (16.9 | %) | 1,216 | 9.1 | % | ||||||||||||||||||||||||||
Other | (24,884 | ) | (0.2 | )% | 8,707 | 0.1 | % | (149,698 | ) | (1.3 | )% | (151 | ) | (2.1 | %) | 43 | 0.4 | % | (358 | ) | (2.7 | %) | ||||||||||||||||||||||||||
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Provision (benefit) for income taxes | $ | 2,968,369 | 26.7 | % | $ | 6,920,666 | 30.1 | % | $ | (2,884,631 | ) | (25.6 | )% | |||||||||||||||||||||||||||||||||||
Provision for income taxes | $ | (21,105 | ) | (291.2 | %) | $ | 11 | 0.1 | % | $ | 4,078 | 30.4 | % | |||||||||||||||||||||||||||||||||||
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The fiscal years ended March 31, 2007 through March 31, 2011 as well as the nine-month fiscal year ended December 31, 2011 and the years ended December 31, 2012, 2013 and 2014Company’s tax returns are subject to examination by the federal, state and stateinternational taxing authorities. Currently, a corporate excise tax audit is underway in the Commonwealth of Massachusetts (“the Commonwealth”)authorities for the fiscal years ended March 31, 2008 through 2011, and the nine-
month period ended December 31, 2011. For the years ended March 31, 2008 and 2009, two matters have been identified by the Commonwealth in these audits that could result in future assessments. First, the Commonwealth has indicated that it is seeking to disallow up to $713,000 in Research and Development Credits that were generated between 1993 and 2007, and taken as a benefits in 2008 and 2009. Including potential penalties, if any, this assessment could increase to $856,000.
In addition, the Commonwealth has indicated it may apportion to Massachusetts, and therefore tax, certain, although not all, payments received by the Company in connection with our intellectual property settlements with ImClone and Bristol Myers Squibb in 2007 and 2008, respectively. The Commonwealth believes that the full $40 million ImClone payment and the initial $5 million Bristol payment received under these settlements are litigation awards as opposed to royalty payments received for the use of intellectual property, as the Company contends, and therefore are taxable in Massachusetts. However, the Commonwealth agrees with our position that all subsequent Bristol payments received under the settlement are in fact royalty payments and therefore not subject to tax in the Commonwealth. The Company believes the Commonwealth intends to assess up to $1,383,000, or $1,659,000 including potential penalties, in connection with these transactions.
On October 29, 2013, the Company met with the Commonwealth in an attempt to remediate these matters and were not successful. The Company received a Notice of Intent to Assess on this matter on November 16, 2014 and we requested a hearing with the Office of Appeals on December 16, 2014. We presented our case to the Office of Appeals on March 12, 2015 and are now awaiting a response. With respect to the R&D credit, the issue for the Company is that the documentation requested by the Commonwealth would be up to twenty years old and simply no longer exists to the standard the Company now believes the Commonwealth will require. In consideration of these facts, the Company now believes the utilization of credits has not met the “more likely than not” standard for recognition. The Company performed an evaluation of the available documentation, the likelihood of similar matters in other open audit periods, the impact of interest and penalties and other relevant factors and recorded a provision of $800,000 related to this matter for the year ended December 31, 2013.
Conversely, with respect to the apportionment issue, the Company asserts that according to the settlement agreements with ImClone and Bristol, all amounts received were in fact payments in exchange for licenses granted to those entities. The Company further believes the Commonwealth is inconsistent in its approach, taxing some, but not all of the payments received. As such, the Company continues to believe strongly in the legal merits of our position and therefore believe this matter meets the more likely than not standard to be treated as license payments. Accordingly, no further provision has been made for this matter.
While no formal assessments have been made to date, for the years ended March 31, 2010 and 2011, as well as the nine months ended December 31, 2011, the Commonwealth has indicated that it is seeking to disallow certain Research and Development Credits that were generated between 2010 and 2011. The Company performed an evaluation of the available documentation, the likelihood of similar matters in other open audit periods, the impact of interest and penalties and other relevant factors and recorded a provision of $125,000 related to this matter for the year ended December 31, 2014.
At December 31, 2012, the Company had accumulated Federal research credits of $2,160,000, which were not recognized for financial statement purposes as it was not more likely than not that the Company would have sufficient earnings to realize those benefits in addition to the benefits the Company may derive from use of our Net Operating Losses. However, given the uncertainty noted above at the state level in the current year regarding the documentation of our historical research credits and their sustainability under audit, the Company recorded a partial reserve of $1,117,000 against cumulative Federal research credits as of December 31, 2013. As the Federal research credits were not previously recognized for financial statement purposes, the recording of this partial reserve had no impact on net income for the year ended December 31, 2013.
Jurisdiction | Fiscal years subject to examination | |||
United States – federal and state | 2014-2017 | |||
Sweden | 2011-2017 | |||
Germany | 2016-2017 | |||
Netherlands | 2012-2017 |
The following is a tabular reconciliation of the total amounts of unrecognized tax benefits:benefits (in thousands):
December 31, 2014 | ||||||||
Unrecognized tax benefits at January 1, 2014 | $ | 1,917,247 | ||||||
Unrecognized tax benefits at January 1, 2017 | 1,407 | |||||||
Gross increases – tax positions in prior period | 125,000 | 679 | ||||||
Gross increases – tax positions in current period | 38,319 | 199 | ||||||
Gross decreases – release | (479 | ) | ||||||
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Unrecognized tax benefits at December 31, 2014 | $ | 2,080,566 | ||||||
Unrecognized tax benefits at December 31, 2017 | $ | 1,806 | ||||||
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The amountIncluded in the balance of unrecognized tax benefits at December 31, 2014 that will impact our effective tax rate are $2,080,566.
For the year ended December 31, 2014, the Company recognized interest and penalties of $139,000. Asas of December 31, 2014 Repligen have accrued interest and penalties2017 are $1,806,000, of $274,000 intax benefits that, if recognized, would affect the consolidated balance sheet.effective tax rate.
At December 31, 2014,2017, the Company has not provided for U.S. income taxes or foreign withholding taxes on outside basis differences of foreign subsidiaries of approximately $16,498,000$53,747,000 as it is the Company’s current intention to permanently reinvest these earnings outside the U.S. It
On December 22, 2017, President Trump signed into law H.R. 1/Public LawNo. 115-97, the tax legislation commonly known as the Tax Cuts and Jobs Act (the “Act”). The Act made significant changes to federal tax law, including, but not limited to, a reduction in the federal income tax rate from 35% to 21%, taxation of certain global intangiblelow-taxed income, allowing for immediate expensing of qualified assets, stricter limits on deductions for interest and certain executive compensation, and aone-time transition tax on previously deferred
earnings of certain foreign subsidiaries. Due to the complexities involved in accounting for the enactment of the Act, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which allows a registrant to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. Under the SAB 118 guidance, we have determined that our accounting for the following items is not practicalincomplete where noted, we are able to estimatemake reasonable estimates for certain effects of tax reform and therefore have recorded provisional amounts.
The Act lowered the additionalCompany’s U.S. statutory federal tax rate from 35% to 21% effective January 1, 2018. The Company recorded a tax benefit of $12,812,000 in the year ended December 31, 2017 for the reduction in its US deferred tax assets and liabilities resulting from the rate change.
The Act also includes aone-time deemed repatriation transition tax whereby entities that are shareholders of a specified foreign corporation must include in gross income the undistributed and previously untaxed post-1986 earnings and profits of the specified foreign corporation. Our provisional amount recorded at December 31, 2017 increased our tax provision by $3,266,000. This amount may change as we refine our calculations of post-1986 earnings and profits for our foreign subsidiaries, as well as the amounts held in cash.
We anticipate that future guidance and interpretations with the respect to the Act will cause us to further adjust the provisional amounts recorded as of December 31, 2017. Any measurement period adjustments will be reported as a component of provision for income taxes that mayin the reporting period the amounts are determined. The final accounting will be payable upon repatriation.completed no later than one year from the enactment of the Act.
5. | Stockholders’ Equity |
Public Offering of Common Stock and Warrants
At December 31, 2013,On July 3, 2017, the Company has reserved 4,005,174completed a public offering in which 2,807,017 shares of its common stock pursuantwere sold to the Plans, as described below. On April 6, 2007, the Company issued warrants topublic at a price of $42.75 per share. The underwriters were granted an individual at Scrippsoption, which they exercised in full, to purchase up to 150,000an additional 421,052 shares of the Company’s common stock at $0.01 per share, as discussed in Note 10.stock. The warrants have a seven-year termtotal proceeds from this offering, net of underwriting discounts, commissions and are exercisable based on performance criteria as detailed in the warrant agreement during 2014. The warrant expired prior to the performance criteria being achieved.other offering expenses, totaled approximately $129.3 million.
Stock-Based Compensation
The Company recorded stock-based compensation expense of approximately $1,767,000, $1,060,000$6,747,000, $4,595,000 and $1,024,000$3,598,000 for the years ended December 31, 2014, 20132017, 2016 and 2012,2015, respectively, for share-based awards granted under the Second Amended and Restated 2001 Repligen Corporation Stock Plan (the “2001 Plan”) and the Repligen Corporation 2012 Stock Option and Incentive Plan (the “2012 Plan,” and collectively with the 2001 Plan and the 1992 Repligen Corporation Stock Option Plan, the “Plans”).
The following table presents stock-based compensation expense in the Company’s consolidated statements of operations:operations (in thousands):
Years ended December 31, | Years ended December 31, | |||||||||||||||||||||||
2014 | 2013 | 2012 | 2017 | 2016 | 2015 | |||||||||||||||||||
Cost of product revenue | $ | 129,000 | $ | 74,000 | $ | 45,000 | $ | 704 | $ | 341 | $ | 213 | ||||||||||||
Research and development | 185,000 | 97,000 | 219,000 | 481 | 537 | 336 | ||||||||||||||||||
Selling, general and administrative | 1,453,000 | 889,000 | 760,000 | 5,562 | 3,717 | 3,049 | ||||||||||||||||||
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Total | $ | 1,767,000 | $ | 1,060,000 | $ | 1,024,000 | $ | 6,747 | $ | 4,595 | $ | 3,598 | ||||||||||||
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During 2016, the Company modified certain stock option grants for its former senior vice president of research and development in conjunction with his retirement. As part of the April 2016 transition agreement, all outstanding equity awards continued to vest through December 31, 2016, and fifty percent (50%) of the option awards that are unvested on February 28, 2017 immediately vested and became exercisable as of that date. As a
result of these modifications to his share-based payment arrangements, the Company incurred stock compensation expense of $292,000 for the year ended December 31, 2016. This expense was recorded to research and development expense on the Company’s consolidated statement of operations.
During 2015, the Company modified certain stock option grants for its former president and chief executive officer in conjunction with his retirement. As part of the January 2015 transition agreement, all outstanding equity awards continued to vest through December 31, 2015, and fifty percent (50%) of the option awards that are unvested on December 31, 2015 immediately vested and became exercisable as of that date. As a result of these modifications to his share-based payment arrangements, the Company incurred stock compensation expense of $826,000 for the year ended December 31, 2015. This expense was recorded to selling, general and administrative expense on the Company’s consolidated statement of operations.
The 2012 Plan allows for the granting of incentive and nonqualified options to purchase shares of common stock, restricted stock and other equity awards. Incentive options granted to employees under the Plans generally vest over a three to five-year period, with20%-33% vesting on the first anniversary of the date of grant and the
remainder vesting in equal yearly installments thereafter. Nonqualified options issued tonon-employee directors and consultants under the Plans generally vest over one year. Options granted under the Plans have a maximum term of ten years from the date of grant and generally, the exercise price of the stock options equals the fair market value of the Company’s common stock on the date of grant. At December 31, 2014,2017, options to purchase 1,225,117734,940 shares and 505,235 restricted stock units were outstanding under the Plans. At December 31, 2014, 2,780,0572017, 1,220,915 shares were available for future grant under the 2012 Plan.
The Company uses the Black-Scholes option pricing model to calculate the fair value of share-based awards on the grant date. The fair value of share-based awards granted during the years ended December 31, 2014, 20132017, 2016 and 20122015 were calculated using the following estimated assumptions:
2014 | 2013 | 2012 | 2017 | 2016 | 2015 | |||||||
Expected term (years) | 6.5 | 6.5 | 6.5 | 6.1 | 6.7 – 7.1 | 6.6 – 7.2 | ||||||
Volatility | 51.00 - 51.71% | 51.39% - 53.63% | 49.76% - 53.54% | 51.48% | 50.85 – 51.01% | 50.09 – 51.89% | ||||||
Risk-free interest rate | 1.88 - 2.11% | 1.09% - 2.08% | 0.89% - 1.06% | 1.88 – 1.99% | 1.51 – 2.37% | 1.67 – 2.03% | ||||||
Expected dividend yield | — | — | — | — | — | — |
Information regarding option activity for the year ended December 31, 20142017 under the Plans is summarized below:
Options Outstanding | Weighted- Average Exercise Price Per Share | Weighted- Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value | |||||||||||||
Options outstanding at December 31, 2013 | 1,610,988 | $ | 5.07 | |||||||||||||
Granted | 420,698 | 13.98 | ||||||||||||||
Exercised | (700,738 | ) | 4.41 | |||||||||||||
Forfeited/cancelled | (105,831 | ) | 7.49 | |||||||||||||
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Options outstanding at December 31, 2014 | 1,225,117 | $ | 8.31 | 7.30 | $ | 14,261,197 | ||||||||||
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Options exercisable at December 31, 2014 | 412,500 | $ | 4.31 | 4.75 | $ | 6,391,377 | ||||||||||
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Vested and expected to vest at December 31, 2014 (1) | 723,010 | $ | 10.40 | 8.64 | $ | 6,969,962 | ||||||||||
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Options Outstanding | Weighted- Average Exercise Price Per Share | Weighted- Average Remaining Contractual Term (in years) | (in thousands) Aggregate Intrinsic Value | |||||||||||||
Options outstanding at December 31, 2016 | 882,748 | $ | 16.88 | |||||||||||||
Granted | 101,844 | 33.38 | ||||||||||||||
Exercised | (215,495 | ) | 10.92 | |||||||||||||
Forfeited/cancelled | (34,157 | ) | 20.23 | |||||||||||||
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Options outstanding at December 31, 2017 | 734,940 | $ | 20.80 | 6.46 | $ | 11,558 | ||||||||||
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Options exercisable at December 31, 2017 | 420,688 | $ | 15.86 | 5.28 | $ | 8,720 | ||||||||||
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Vested and expected to vest at December 31, 2017(1) | 727,278 | $ | 20.71 | 6.44 | $ | 11,472 | ||||||||||
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(1) |
The aggregate intrinsic value in the table above represents the totalpre-tax intrinsic value (the difference between the closing price of the common stock on December 29, 2017, the last business day of 2017, of $36.28 per share and the exercise price of eachin-the-money option) that would have been received by the option holders had all option holders exercised their options on December 31, 2017. The aggregate intrinsic value of stock options exercised during the years ended December 31, 2017, 2016 and 2015 was approximately $5,305,000, $5,043,000 and $3,638,000, respectively.
The weighted average grant date fair value of options granted during the years ended December 31, 2017, 2016 and 2015 was $16.94, $14.16 and $16.05, respectively. The total fair value of stock options that vested during the years ended December 31, 2017, 2016 and 2015 was approximately $2,220,000, $1,713,000 and $1,536,000, respectively.
Information regarding restricted stock unit activity for the year ended December 31, 2017 under the Plans is summarized below:
Options Outstanding | Weighted- Average Remaining Contractual Term (in years) | (in thousands) Aggregate Intrinsic Value | ||||||||||
Restricted stock units outstanding at December 31, 2016 | 353,838 | |||||||||||
Granted | 293,004 | |||||||||||
Vested | (114,690 | ) | ||||||||||
Forfeited/cancelled | (26,917 | ) | ||||||||||
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Restricted stock units outstanding at December 31, 2017 | 505,235 | 2.65 | $ | 18,330 | ||||||||
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Vested and expected to vest at December 31, 2017(1) | 466,201 | 2.40 | $ | 16,914 | ||||||||
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(1) | Represents the number of vested restricted stock units as of December 31, 2017 plus the number of unvested restricted stock units expected to vest as of December 31, 2017 based on the unvested outstanding restricted stock units at December 31, 2017 adjusted for estimated forfeiture rates of 8% for awards granted tonon-executive level employees and 3% for awards granted to executive level employees. |
The aggregate intrinsic value in the table above represents the totalpre-tax intrinsic value (the difference between(equal to the closing price of the common stock on December 31, 201429, 2017, the last business day of $19.802017, of $36.28 per share, and theas restricted stock units do not have an exercise price of each in-the-money option)price) that would have been received by the optionrestricted stock unit holders had all option holders exercised their options on December 31, 2014.2017. The aggregate intrinsic value of restricted stock options exercisedunits vested during the years ended December 31, 2014, 20132017, 2016 and 20122015 was approximately $10,474,833, $3,723,000$4,010,000, $1,671,000 and $1,384,000,$1,304,000, respectively.
The weighted average grant date fair value of optionsrestricted stock units granted during the years ended December 31, 2014, 20132017, 2016 and 20122015 was $4.41, $4.31$26.03, $27.25 and $3.62,$29.07, respectively. The total fair value of restricted stock optionsunits that vested during the years ended December 31, 2014, 20132017, 2016 and 20122015 was approximately $1,084,000, $991,000$4,010,000, $1,474,000 and $931,000,$781,000, respectively.
As of December 31, 2014,2017, there was $4,143,883$16,133,000 of total unrecognized compensation cost related to unvested share-based awards. This cost is expected to be recognized over a weighted average remaining requisite service period of 3.262.52 years. The Company expects 723,010772,791 unvested options and restricted stock units to vest over the next five years.
6. | Commitments and Contingencies |
Lease Commitments
In 2001, the Company entered into aten-year lease agreement for approximately 25,000 square feet of space located in Waltham, Massachusetts to be used for its corporate headquarters, manufacturing, research and development, and marketing and administrative operations. In July 2011, the Company amended this agreement to expand the lease to cover approximately 55,694 square feet and to extend the term of the lease by eleven years, which expires on May 31, 2023. In connection with this lease agreement, the Company issued a letter of credit in the amount of $200,000 to the lessor.lessor in lieu of a security deposit. The letter of credit is collateralized by a certificate of deposit held by the bank that issued the letter of credit. The certificate of deposit is classified as restricted cash in the accompanying consolidated balance sheets.
In March 2014, the Company entered into an amendment of its existing lease to expand the rented space from 55,694 to 75,594 square feet at 41 Seyon Street, Waltham, Massachusetts. Pursuant to the terms of the amended lease, Repligen leased an additional 19,900 square feet (the “Expansion Space”) for a period of eight years and one month, commencing on August 1, 2014. The Expansion Space shall become a part of Repligen’s corporate headquarters.
The amended lease provides for additional rent expense of approximately $361,000 on an annualized basis. The amended lease also requiresrequired an increased security depositincrease to the letter of credit from $200,000 to $450,000 and continues to require the Company to pay a proportionate share of certain of the landlord’s annual operating costs and real estate taxes. In 2017, the issuing bank no longer required collateral to secure the letter of credit; as a result, the Company released the funds from restricted cash. Future minimum rental commitments under the amended lease as of December 31, 20142017 are $1,371,000 for the years ending December 31, 2015, 2016, 20172018, 2019, 2020 and 2018, respectively.2021, respectively and $1,251,000 for the year ended December 31, 2022.
In 2007, the Company entered into a five-year lease agreement for approximately 2,500 square feet of space in Waltham, Massachusetts to provide for expanded manufacturing operations. Adjacent to this space, the Company entered into atwo-year lease in 2008 for approximately 7,350 square feet of additional space to be used for expanded manufacturing and administrative operations. Both of these leases expired on December 31, 2012 and2012. The Company converted to amonth-to-month basis for both sites. The Company terminated the Company is nowlease on a month-to-month basis.the 7,350 square feet of space in the first quarter of 2015.
Following the completion of the Novozymes Acquisition, theThe Company now leases four adjacent buildings in Lund, Sweden totaling approximately 45,000 square feet of space used primarily for biologics manufacturing and administrative operations. The lease for three buildings totaling approximately 41,000 square feetwas renewed during 2016 and expires on June 30,December 31, 2021. Future minimum rental commitments under the amended lease as of December 31, 2017 while the leaseare $1,087,000 for the fourth building with approximately 4,000 square feet of space expires on September 30, 2019.years ending December 31, 2018, 2019, 2020 and 2021, respectively.
Obligations undernon-cancelable operating leases, including the facility leases discussed above, as of December 31, 20142017 are approximately as follows:follows (in thousands):
Years Ending | Operating Leases | |||
December 31, 2015 | $ | 2,420,000 | ||
December 31, 2016 | 2,420,000 | |||
December 31, 2017 | 1,930,000 | |||
December 31, 2018 | 1,439,000 | |||
December 31, 2019 | 1,422,000 | |||
Thereafter | 4,414,000 | |||
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Minimum lease payments | $ | 14,045,000 | ||
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Years Ending December 31, 2018 December 31, 2019 December 31, 2020 December 31, 2021 December 31, 2022 Thereafter Minimum lease payments Operating Leases 3,611 3,383 3,077 2,750 1,464 786 $ 15,071
Rent expense charged to operations under operating leases was approximately $2,735,000, $2,437,000$3,367,000, $2,644,000 and $2,183,000$2,619,000 for the fiscal years ended December 31, 2014, 20132017, 2016 and 2012,2015, respectively. As of December 31, 2014, 2013
2017, 2016 and 2012,2015, the Company had deferred rent liabilities of $1,956,068, $2,028,000$1,656,000, $1,792,000 and $329,000,$1,899,000, respectively, related to the escalating rent provisions for the Waltham headquarters.headquarters and the Company’s facility in Rancho Dominguez, California.
Licensing and Research Agreements
The Company licenses certain technologies that are, or may be, incorporated into its technology under several agreements and also has entered into several clinical research agreements which require the Company to fund certain research projects. Generally, the license agreements require the Company to pay annual maintenance fees and royalties on product sales once a product has been established using the technologies. The Company recorded research and development expenses associated with license agreements of approximately $7,000, $302,000$161,000, $5,000 and $55,000$7,000 for the years ended December 31, 2014, 2013,2017, 2016 and 2012,2015, respectively.
In October 2009, the Company entered into an exclusive worldwide commercial license agreement with Families of Spinal Muscular Atrophy (see Note 11)2). Pursuant to the License Agreement dated December 28, 2012, the Company transferred all rights and obligations related to the FSMA License Agreement to Pfizer. On January 26, 2015 Pfizer notified us that they were terminating theThe License Agreement was terminated by Pfizer, effective as of April 26, 2015.
Purchase Orders, Supply Agreements and Other Contractual Obligations
In the normal course of business, the Company has entered into purchase orders and other agreement with manufacturers, distributors and others. Outstanding obligations at December 31, 20142017 of approximately $2,835,000$15,512,000 are expected to be completed within one year.
7. | Prepaid Expenses and Other Current Assets |
Prepaid expenses and other current assets consist of the following:following (in thousands):
December 31, 2014 | December 31, 2013 | December 31, 2017 | December 31, 2016 | |||||||||||||
Vendor credit | 485,670 | — | ||||||||||||||
Equipment maintenance and services | 492,408 | 521,772 | $ | 1,091 | $ | 586 | ||||||||||
Prepaid VAT | 418,831 | — | ||||||||||||||
Prepaid taxes | 311 | 626 | ||||||||||||||
Prepaid insurance | 359,062 | 344,698 | 594 | 356 | ||||||||||||
Prepaid taxes | 220,029 | 135,102 | ||||||||||||||
Interest receivable | 99,802 | 214,902 | ||||||||||||||
Deferred costs | 67 | 5 | ||||||||||||||
Other | 27,774 | 33,350 | 218 | 71 | ||||||||||||
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Total | $ | 2,103,576 | $ | 1,249,824 | $ | 2,281 | $ | 1,644 | ||||||||
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8. | Property, Plant and Equipment |
Property, plant and equipment consist of the following (in thousands):
December 31, 2017 | December 31, 2016 | |||||||
Land | $ | 1,023 | $ | — | ||||
Buildings | 764 | — | ||||||
Leasehold improvements | 15,673 | 14,592 | ||||||
Equipment | 21,904 | 15,214 | ||||||
Furniture and fixtures | 4,272 | 3,218 | ||||||
Construction in progress | 2,581 | 1,264 | ||||||
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Total property, plant and equipment | 46,217 | 34,288 | ||||||
Less: accumulated depreciation | (23,800 | ) | (19,332 | ) | ||||
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Property, plant and equipment, net | $ | 22,417 | $ | 14,956 | ||||
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Depreciation expense totaled approximately $4,237,000, $3,269,000 and $2,996,000 in the fiscal years ended December 31, 2017, 2016 and 2015, respectively.
9. | Accrued Liabilities |
Accrued liabilities consist of the following:following (in thousands):
December 31, 2014 | December 31, 2013 | December 31, 2017 | December 31, 2016 | |||||||||||||
Employee compensation | $ | 3,758,511 | $ | 3,166,086 | $ | 9,560 | $ | 5,586 | ||||||||
Taxes | 571,080 | 2,324,711 | 1,668 | 1,692 | ||||||||||||
Royalty and license fees | — | 1,897,473 | 1,383 | 248 | ||||||||||||
Current portion of contingent consideration | 1,135,061 | 1,195,248 | ||||||||||||||
Contingent consideration | — | 6,119 | ||||||||||||||
Accrued purchases | 1,191 | 382 | ||||||||||||||
Professional fees | 511,588 | 385,478 | 947 | 411 | ||||||||||||
VAT liabilities | — | 7,591 | ||||||||||||||
Unearned revenue | 129,904 | 3,341 | 960 | 408 | ||||||||||||
Other accrued expenses | 712,919 | 599,784 | 2,220 | 1,168 | ||||||||||||
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Total | $ | 6,819,063 | $ | 9,579,712 | $ | 17,929 | $ | 16,014 | ||||||||
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Convertible Senior Notes |
The carrying value of the Company’s convertible senior notes is as follows:
December 31, 2017 | December 31, 2016 | |||||||
2.125% Convertible Senior Notes due 2021: | ||||||||
Principal amount | $ | 115,000 | $ | 115,000 | ||||
Unamortized debt discount | (13,395 | ) | (16,777 | ) | ||||
Unamortized debt issuance costs | (2,355 | ) | (2,951 | ) | ||||
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Total convertible senior notes | $ | 99,250 | $ | 95,272 | ||||
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On May 24, 2016, the Company issued $115 million aggregate principal amount of its 2.125% Convertible Senior Notes due 2021 (the “Notes”). The net proceeds from the sale of the Notes, after deducting the underwriting discounts and commissions and other related offering expenses, were approximately $111.1 million. The Notes bear interest at the rate of 2.125% per annum, payable semiannually in arrears on June 1 and December 1 of each year, beginning on December 1, 2016.
The Notes will mature on June 1, 2021, unless earlier repurchased, redeemed or converted in accordance with their terms. Prior to March 1, 2021, the Notes will be convertible at the option of holders of the Notes only upon satisfaction of certain conditions and during certain periods, and thereafter, the notes will be convertible at any time until the close of business on the second scheduled trading day immediately preceding the maturity date. Upon conversion, holders of the Notes will receive shares of the Company’s common stock, cash or a combination thereof, at the Company’s election. It is the Company’s current intent and policy to settle all conversions through combination settlement, which involves satisfying the principal amount outstanding with cash and any note conversion value over the principal amount in shares of the Company’s common stock.
During the third quarter of 2017, the closing price of the Company’s common stock exceeded 130% of the conversion price of the Notes for more than 20 trading days of the last 30 consecutive trading days of the quarter. As a result, the Notes were convertible at the option of the holders of the Notes during the fourth quarter of 2017 and were classified as a current liability on our September 30, 2017 consolidated balance sheet. Notes with a par value of $11,000 were submitted for conversion in the fourth quarter of 2017; this conversion was settled in the
first quarter of 2018. During the fourth quarter of 2017, the closing price of the Company’s common stock did not exceed 130% of the conversion price of the Notes for more than 20 trading days of the last 30 consecutive trading days of the quarter. As a result, the Notes are not convertible in the first quarter of 2018 and are classified as long term liabilities on the Company’s consolidated balance sheet as of December 31, 2017. In the event the closing price conditions are met in a future fiscal quarter, the Notes will be convertible at a holder’s option during the immediately following fiscal quarter. As of December 31, 2017, the if-converted value of the Notes exceeded the aggregate principal amount by approximately $34.5 million.
The conversion rate for the Notes will initially be 31.1813 shares of the Company’s common stock per $1,000 principal amount of Notes, which is equivalent to an initial conversion price of approximately $32.07 per common share, and is subject to adjustment under the terms of the Notes. Holders of the Notes may require the Company to repurchase their Notes upon the occurrence of a fundamental change prior to maturity for cash at a repurchase price equal to 100% of the principal amount of the Notes to be repurchased plus accrued and unpaid interest, if any, to, but excluding, the repurchase date.
The Company will not have the right to redeem the Notes prior to June 5, 2019, but may redeem the Notes, at its option, in whole or in part, on any business day on or after June 5, 2019 and prior to the maturity date if the last reported sale price of the Company’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides written notice of redemption. The redemption price will be equal to 100% of the principal amount of the principal amount of Notes to be redeemed plus accrued and unpaid interest to, but excluding, the redemption date.
The Notes contain customary terms and events of default. If an event of default (other than certain events of bankruptcy, insolvency or reorganization involving the Company) occurs and is continuing, the holders of at least 25% in aggregate principal amount of the outstanding Notes may declare 100% of the principal of, and any accrued and unpaid interest on, all of the Notes to be due and payable. Upon the occurrence of certain events of bankruptcy, insolvency or reorganization involving the Company, 100% of the principal of and accrued and unpaid interest, if any, on all of the Notes will become due and payable automatically. Notwithstanding the foregoing, the Notes provide that, to the extent the Company elects and for up to 270 days, the sole remedy for an event of default relating to certain failures by the Company to comply with certain reporting covenants consist exclusively of the right to receive additional interest on the Notes. The Company is not aware of any events of default, current events or market conditions that would allow holders to call or convert the Notes as of December 31, 2017, except as noted above.
The cash conversion feature of the Notes required bifurcation from the Notes and was initially accounted for as an equity instrument classified to stockholders’ equity, as the conversion feature was determined to be clearly and closely related to the Company’s stock. Based on market data available for publicly traded, senior, unsecured corporate bonds issued by companies in the same industry and asset base and with similar maturity, the Company estimated the implied interest rate, assuming no conversion option. Assumptions used in the estimate represent what market participants would use in pricing the liability component, including market interest rates, credit standing, and yield curves, all of which are defined as Level 2 observable inputs. The estimated implied interest rate was applied to the Notes, which resulted in a fair value of the liability component of $96,289,000 upon issuance, calculated as the present value of implied future payments based on the $115 million aggregate principal amount. The equity component of the Notes was recognized as a debt discount, recorded in additionalpaid-in capital, and represents the difference between the aggregate principal of the Notes and the fair value of the Notes without conversion option on their issuance date. The debt discount is amortized to interest expense using the effective interest method over five years, or the life of the Notes. The Company assesses the equity classification of the cash conversion feature quarterly, and it is not remeasured as long as it continues to meet the conditions for equity classification.
Interest expense recognized on the Notes during the year ended December 31, 2017 includes $2,444,000, $3,382,000 and $595,000 for the contractual coupon interest, the accretion of the debt discount and the
amortization of the debt issuance costs, respectively. Interest expense recognized on the Notes during the year ended December 31, 2016 includes $1,473,000, $1,934,000 and $340,000 for the contractual coupon interest, the accretion of the debt discount and the amortization of the debt issuance costs, respectively. The effective interest rate on the Notes is 6.6%, which includes the interest on the Notes, amortization of the debt discount and debt issuance costs. As of December 31, 2017, the carrying value of the Notes was approximately $99.3 million and the fair value of the principal was approximately $149.5 million. The fair value of the Notes was determined based on the most recent trade activity of the Notes as of December 31, 2017.
11. | Accumulated Other Comprehensive Income (Loss) |
Changes in accumulated other comprehensive income (loss) consisted of the following for the years ended December 31, 2017 and 2016 (in thousands):
Unrealized gain (loss) on investments | Foreign currency translation adjustment | Total | ||||||||||
Balance as of December 31, 2015 | $ | (11 | ) | $ | (8,555 | ) | $ | (8,566 | ) | |||
Other comprehensive income (loss) | 6 | (5,189 | ) | (5,183 | ) | |||||||
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Balance as of December 31, 2016 | (5 | ) | (13,744 | ) | (13,749 | ) | ||||||
Other comprehensive income (loss) | 5 | 7,381 | 7,386 | |||||||||
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Balance as of December 31, 2017 | $ | — | $ | (6,363 | ) | $ | (6,363 | ) | ||||
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12. | Employee Benefit Plans |
In the U.S., the Repligen Corporation 401(k) Savings and Retirement Plan (the “401(k) Plan”) is a qualified defined contribution plan in accordance with Section 401(k) of the Internal Revenue Code. All U.S. employees over the age of 21 are eligible to makepre-tax contributions up to a specified percentage of their compensation. Under the 401(k) Plan, the Company may, but is not obligated to match a portion of the employees’ contributions up to a defined maximum. The match is calculated on a calendar year basis. The Company matched approximately $107,000 for$451,000, $184,000 and $141,000 in the yearfiscal years ended December 31, 2014, $92,000 for the year ended December 31, 2013,2017, 2016 and $103,000 for year ended December 31, 2012.2015, respectively.
In Sweden, the Company contributes to a government-mandated occupational pension plan that is a qualified defined contribution plan. All employees in Sweden are eligible for this pension plan. The Company pays premiums to a third party occupational pension specialist who administers the pension plan. These premiums are based on various factors including each employee’s age, salary, employment history and selected benefits in the pension plan. When an employee terminates or retires, these premium payments cease for that employee and the Company has no further pension-related obligations for that employee. For the fiscal years ended December 31, 2014, 20132017, 2016 and 2012,2015, the Company contributed approximately $493,000, $457,000$539,000, $519,000 and $532,000,$485,000, respectively, to the pension plan.
Related Party Transactions |
In July 2017, in conjunction with the Spectrum Acquisition, the Board of Directors engaged one of the Company’s independent directors to serve as the chairperson of the Spectrum Integration Committee. In this role, this Director will work directly with the Company’s executive team on general integration strategy and focus on the integration of Spectrum’s operations and commercial organization with the Company. The Company has recorded approximately $190,000 of expense for the year ended December 31, 2017 related to this director’s services.
Additionally, certain facilities leased by Spectrum are owned by the former owner of Spectrum, who currently holds greater than 10% of the Company’s outstanding common stock. The lease amounts paid to this shareholder
were negotiated in connection with the Spectrum Acquisition. The Company has incurred rent expense totaling $334,000 for the year ended December 31, 2017 related to these leases.
14. | Selected Quarterly Financial Data (Unaudited) |
The following table contains consolidated statements of operations information for each of the previous eight quarters. The Company believes that the following information reflects all normal recurring adjustments necessary for a fair presentation of the information for the periods presented. The operating results for any quarter are not necessarily indicative of results for any future period.
December 31, 2014 | September 30, 2014 | June 30, 2014 | March 31, 2014 | December 31, 2013 | September 30, 2013 | June 30, 2013 | March 31, 2013 | December 31, 2017 | September 30, 2017 | June 30, 2017 | March 31, 2017 | December 31, 2016 | September 30, 2016 | June 30, 2016 | March 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||
(in thousands, except per share amounts) | (in thousands, except per share amounts) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Product revenue | $ | 15,393 | $ | 15,153 | $ | 15,551 | $ | 14,335 | $ | 10,350 | $ | 12,184 | $ | 13,014 | $ | 11,934 | $ | 41,572 | $ | 36,514 | $ | 32,434 | $ | 30,569 | $ | 25,500 | $ | 24,677 | $ | 29,170 | $ | 25,094 | ||||||||||||||||||||||||||||||||
Royalty and other revenue | 1,000 | 125 | — | 1,991 | 5,032 | 6,638 | 4,495 | 4,522 | 39 | 66 | 21 | 21 | 100 | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
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Total revenue | 16,393 | 15,278 | 15,551 | 16,326 | 15,382 | 18,822 | 17,509 | 16,456 | 41,611 | 36,580 | 32,455 | 30,590 | 25,600 | 24,677 | 29,170 | 25,094 | ||||||||||||||||||||||||||||||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cost of product revenue | 8,084 | 6,931 | 6,671 | 6,335 | 4,627 | 5,659 | 5,298 | 6,897 | 19,136 | 19,987 | 13,937 | 13,990 | 12,162 | 11,242 | 12,644 | 11,069 | ||||||||||||||||||||||||||||||||||||||||||||||||
Cost of royalty and other revenue | — | — | — | — | 738 | 724 | 643 | 577 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Research and development | 1,328 | 1,650 | 1,430 | 1,201 | 1,422 | 1,430 | 2,306 | 2,183 | 3,069 | 2,001 | 1,860 | 1,742 | 2,040 | 1,886 | 1,890 | 1,539 | ||||||||||||||||||||||||||||||||||||||||||||||||
Selling, general and administrative | 4,975 | �� | 4,471 | 4,326 | 3,384 | 3,367 | 2,902 | 3,124 | 3,308 | 16,144 | 14,998 | 11,185 | 9,182 | 8,568 | 7,127 | 8,140 | 7,018 | |||||||||||||||||||||||||||||||||||||||||||||||
Contingent consideration – fair value adjustments | 1,945 | 10 | 18 | 98 | 45 | 65 | 35 | (54 | ) | — | — | — | — | (75 | ) | 675 | 637 | 2,005 | ||||||||||||||||||||||||||||||||||||||||||||||
Gain on bargain purchase | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Total operating expenses | 16,332 | 13,062 | 12,445 | 11,018 | 10,199 | 10,780 | 11,406 | 12,911 | 38,349 | 36,986 | 26,982 | 24,914 | 22,695 | 20,930 | 23,311 | 21,631 | ||||||||||||||||||||||||||||||||||||||||||||||||
Loss income from operations | 61 | 2,216 | 3,106 | 5,308 | 5,183 | 8,042 | 6,103 | 3,545 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income (loss) from operations | 3,262 | (406 | ) | 5,473 | 5,676 | 2,905 | 3,747 | 5,859 | 3,463 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Investment income | 59 | 64 | 85 | 102 | 98 | 76 | 65 | 62 | 63 | 102 | 110 | 96 | 112 | 97 | 76 | 61 | ||||||||||||||||||||||||||||||||||||||||||||||||
Interest expense | (12 | ) | (11 | ) | (13 | ) | (14 | ) | (12 | ) | (12 | ) | (12 | ) | (14 | ) | (1,637 | ) | (1,618 | ) | (1,601 | ) | (1,585 | ) | (1,570 | ) | (1,555 | ) | (638 | ) | (5 | ) | ||||||||||||||||||||||||||||||||
Other income (expense) | 134 | (14 | ) | 65 | 2 | (54 | ) | 37 | (122 | ) | 29 | (139 | ) | (100 | ) | (328 | ) | (120 | ) | 119 | (75 | ) | 75 | (979 | ) | |||||||||||||||||||||||||||||||||||||||
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Income before income taxes | 242 | 2,255 | 3,243 | 5,398 | 5,215 | 8,143 | 6,034 | 3,622 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income tax provision | 640 | 789 | 418 | 1,121 | 1,887 | 2,255 | 1,495 | 1,284 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income (loss) before income taxes | 1,549 | (2,022 | ) | 3,654 | 4,067 | 1,566 | 2,214 | 5,372 | 2,540 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income tax provision (benefit) | (10,629 | ) | (6,691 | ) | (4,784 | ) | 999 | (3,463 | ) | 1,059 | 1,500 | 915 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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Net income | $ | (398 | ) | $ | 1,466 | $ | 2,825 | $ | 4,277 | $ | 3,328 | $ | 5,888 | $ | 4,539 | $ | 2,338 | |||||||||||||||||||||||||||||||||||||||||||||||
Net income (loss) | $ | 12,178 | $ | 4,669 | $ | 8,438 | $ | 3,068 | $ | 5,029 | $ | 1,155 | $ | 3,872 | $ | 1,625 | ||||||||||||||||||||||||||||||||||||||||||||||||
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Earnings per share: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Basic | $ | (0.01 | ) | $ | 0.04 | $ | 0.09 | $ | 0.13 | $ | 0.10 | $ | 0.18 | $ | 0.14 | $ | 0.07 | $ | 0.28 | $ | 0.11 | $ | 0.25 | $ | 0.09 | $ | 0.15 | $ | 0.03 | $ | 0.12 | $ | 0.05 | |||||||||||||||||||||||||||||||
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Diluted | $ | (0.01 | ) | $ | 0.04 | $ | 0.09 | $ | 0.13 | $ | 0.10 | $ | 0.18 | $ | 0.14 | $ | 0.07 | $ | 0.27 | $ | 0.11 | $ | 0.24 | $ | 0.09 | $ | 0.15 | $ | 0.03 | $ | 0.11 | $ | 0.05 | |||||||||||||||||||||||||||||||
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Weighted average shares outstanding: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Basic | 32,747 | 32,677 | 32,234 | 31,963 | 31,916 | 31,858 | 31,644 | 31,241 | 43,569 | 41,237 | 34,098 | 33,892 | 33,833 | 33,779 | 33,649 | 33,025 | ||||||||||||||||||||||||||||||||||||||||||||||||
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Diluted | 32,747 | 33,327 | 33,076 | 31,855 | 32,708 | 32,552 | 32,317 | 31,855 | 44,385 | 42,563 | 35,095 | 34,382 | 34,369 | 34,313 | 34,175 | 33,494 | ||||||||||||||||||||||||||||||||||||||||||||||||
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8291