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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington,WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30,December 31, 1995
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 number 0-14656
REPLIGEN CORPORATION
Delaware 04-2729386
- ---------------------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization) Identification No.)
One Kendall Square
Cambridge, Massachusetts 02139
- ---------------------------------------- -------------------------------------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (617) 225-6000
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d)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]/x/ No [ ]/ /
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of NovemberFebruary 2, 1995:1996:
Common Stock, par value $.01 per share 15,358,938
- ---------------------------------------- -------------------------------------
Class Number of Shares
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PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
--------------------REPLIGEN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
REPLIGEN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended SixNine Months Ended
---------------------------- ----------------------------
September 30, September 30, September 30, September 30,----------------------------- ---------------------------
December 31, December 31, December 31, December 31,
1995 1994 1995 1994
------------- ------------- ------------- ------------------------- ------------ ------------ ------------
Revenues:
Research and development $ 3,775,9431,674,850 $ 2,287,3632,427,509 $ 5,859,6297,534,479 $ 5,992,0018,419,510
Product 981,646 703,054 1,373,737 1,274,947169,289 538,061 1,543,026 1,813,008
Investment income 191,009 277,185 462,717 592,540161,394 512,807 624,111 1,105,347
Other 70,520 174,861 159,351 386,42798,833 100,655 258,184 487,082
------------ ------------ ------------ -------------
------------- ------------- -------------
5,019,118 3,442,463 7,855,434 8,245,915
------------- ------------- -------------2,104,366 3,579,032 9,959,800 11,824,947
------------ ------------ ------------ -------------
Cost and expenses:Expenses:
Research and development 3,552,624 7,475,864 7,330,659 16,204,0162,863,923 7,528,755 10,194,582 23,732,771
Selling, general and
administrative 1,696,083 1,369,379 3,043,462 3,011,2191,426,515 1,549,458 4,469,977 4,560,677
Cost of goods 699,530 368,756 989,677 764,198113,828 269,660 1,103,505 1,033,858
Interest and other 5,101 124,490 64,476 184,6772,125 63,105 66,601 247,782
Restructuring charge -- 975,000-- -- 975,000
------------ ------------ ------------ -------------
------------- ------------- -------------
5,953,338 10,313,489 11,428,274 21,139,110
------------- ------------- -------------4,406,391 9,410,978 15,834,665 30,550,088
------------ ------------ ------------ -------------
Net loss ($934,220) 2,302,025) ($6,871,026) 5,831,946) ($3,572,840) 5,874,865) ($12,893,195)
============= ============= =============18,725,141)
============ ============ ============ =============
Net loss per common share
outstanding ($0.06) 0.15) ($0.45) 0.38) ($0.23) 0.38) ($0.84)
============= ============= ============= 1.22)
============ ============ ============ =============
Weighted average common shares
outstanding 15,358,938 15,357,030 15,358,364 15,355,544
============= ============= ============= =============
15,358,555 15,355,844
============ ============ ============ =============
See accompanying notes to consolidated financial statements.
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REPLIGEN CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
(Unaudited)
September 30,December 31, March 31,
1995 1995
------------- ------------------------- -----------
Current assets:
Cash and cash equivalents $ 11,418,965 $ 13,821,3878,710,617 $13,821,387
Marketable securities 1,395,1611,364,224 1,480,712
Accounts receivable 1,483,966249,909 1,686,902
Amounts due from affiliates 41,8881,926 962,361
Inventories 1,264,9961,222,528 1,213,379
Prepaid expenses 851,224 1,039,197
Note receivable from affiliate -- 4,620,000
Prepaid expenses 802,579 1,039,197
------------- ------------------------ -----------
Total current assets 16,407,55512,400,428 24,823,938
Property, plant and equipment, at cost:
Leasehold improvements 11,801,85412,256,628 11,801,854
Equipment 7,710,5977,616,906 7,625,094
Furniture and fixtures 840,236842,017 869,590
------------- -------------
20,352,687----------- -----------
20,715,551 20,296,538
Less: accumulated depreciation 16,303,503 15,312,326
----------- -----------
and amortization 16,056,984 15,312,326
------------- -------------
4,295,7034,412,048 4,984,212
Restricted cash -- 1,000,000
Other assets, net 1,293,891 521,803
------------- ------------------------ -----------
$ 21,997,149 $ 31,329,953
============= =============
18,106,367 $31,329,953
============ ===========
See accompanying notes to consolidated financial statements.
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REPLIGEN CORPORATION
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(Unaudited)
September 30,December 31, March 31,
1995 1995
------------- -------------
Current liabilities:
Accounts payable $ 827,136997,448 $ 1,221,2271,221,277
Accrued expenses and other 8,086,2256,988,677 9,709,292
Unearned income 697,471-- 203,000
Term loan payable to a bank -- 4,620,000
------------- -------------
Total current liabilities 9,610,8327,986,125 15,753,569
Commitments and contingencies (Notes 7 and 8)
Stockholders' equity:
Preferred stock, $.01 par value--value --
authorized -- 5,000,000 shares --
outstanding -- none -- --
Common stock, $.01 par value --
authorized -- 30,000,000 shares --
outstanding -- 15,358,938 and 15,357,030
shares at September 30,December 31, 1995 and
March 31, 1995, respectively 153,589153,590 153,570
Additional paid-in capital 127,325,679127,361,631 126,942,925
Accumulated deficit (115,092,951)(117,394,979) (111,520,111)
------------- -------------
Total stockholders' equity 12,386,31710,120,242 15,576,384
------------- -------------
$ 21,997,14918,106,367 $ 31,329,953
=============
============= =============
See accompanying notes to consolidated financial statements.
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REPLIGEN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
SixNine Months Ended September 30,December 31,
------------------------------
1995 1994
-------------- ------------------------- ------------
Cash flows from operating activities:
Net loss $ (3,572,840) $ (12,893,195)$(5,874,865) $(18,725,141)
Adjustments to reconcile net loss
to net cash used in operating activities -
Depreciation and amortization 776,536 1,368,7791,126,356 1,917,875
Equity in net loss of an affiliate 227,636 31,56552,925
Net proceeds fromfrOm sales of property, plant and equipment 30,000133,389 --
Changes in assets and liabilities -
Accounts receivable 202,936 775,0741,436,993 1,286,223
Amounts due from affiliates 920,473 4,561,493960,435 3,808,318
Inventories (51,617) (361,168)(9,149) (70,878)
Prepaid expenses 236,618 245,024187,973 98,802
Accounts payable (394,141) (1,234,289)(223,829) (105,117)
Accrued expenses and other (1,623,067) (486,236)(2,720,615) 190,879
Unearned income 494,471 99,968
-------------- --------------(203,000) (214,315)
----------- ------------
Net cash used in operating activities (2,752,995) (7,892,985)
-------------- --------------(4,958,676) (11,760,429)
----------- ------------
Cash flows from investing activities:
Decrease in marketable securities 85,551 977,863116,488 1,008,538
Purchases of property, plant and equipment (118,027) (236,260)(687,581) (404,946)
Decrease in other assets 276 638,800
-------------- --------------273 728,800
----------- ------------
Net cash (used in) provided by investing activities (32,200) 1,380,403
-------------- --------------(570,820) 1,332,392
----------- ------------
Cash flows from financing activities:
Proceeds from sales of common stock
and issuance of warrants, net of
issuance costs and commissions 382,773 132,374418,726 363,374
Proceeds from leasing activities -- 361,673
Proceeds from note receivable due from affiliate 4,620,000 --
Payment of term loan to a bank (4,620,000) --
-------------- ------------------------- ------------
Net cash provided by financing activities 382,773 132,374
-------------- --------------418,726 725,047
----------- ------------
Net decrease in cash and cash equivalents (2,402,422) (6,380,208)(5,110,770) (9,702,990)
Cash and cash equivalents, beginning of period 13,821,387 27,655,061
-------------- ------------------------- ------------
Cash and cash equivalents, end of period $ 11,418,9658,710,617 $ 21,274,853
============== ==============17,952,071
=========== ============
Supplemental disclosure of cash flow information:
Cash paid for interest $ 276,680280,042 $ 193,697
============== ==============199,388
=========== ============
Supplemental disclosure of non-cash financing activities:
Restricted cash released to lessor of certain equipment $ 1,000,000 $ --
============== ==============
=========== ============
See accompanying notes to consolidated financial statements.
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REPLIGEN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of PresentationBASIS OF PRESENTATION
The financial statements included herein have been prepared by Repligen
Corporation (the "Company" or "Repligen") without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such
rules and regulations. The Company believes, however, that the
disclosures made are adequate to ensure that the information presented
is not misleading. It is suggested that these financial statements be
read in conjunction with the audited financial statements and notes
thereto included in the Company's 1995 Form 10-K, filed with the
Securities and Exchange Commission.
This financial information includes all adjustments (consisting of
normal, recurring adjustments) which the Company considers necessary
for a fair presentation of such information. The results of operations
for the interim periods presented are not necessarily indicative of
results to be expected for the entire year.
The Company has incurred significant operating losses since inception
and is currently undergoing ahas undergone major restructuringrestructurings of its operations. TheAccordingly,
the Company anticipateshas determined to focus its remaining resources on its core
research and development activities. As part of its strategy, and in
order to ensure that sufficient funds are available to support these
activities, the Company is seeking to divest its manufacturing
operations, restructure its long-term debts and reduce its overhead.
See discussion under Item 2 - "Recent Developments". If this strategy
cannot be successfully implemented, management believes that Repligen
will have funds to continue operations through no later than September
30, 1996. In that case, without additional significant financing in the
first half of calendar 1995 or early 1996 from either an offering by the Company of
its securities, from a third party funding, or the merger of the
Company with or the acquisition of the Company by an entity capable of
fundingassisting Repligen to fund its operations, the Company will be forced
to significantly curtail or cease operations.operations or seek bankruptcy
protection.
2. Net Loss Per Common ShareNET LOSS PER COMMON SHARE
Primary net loss per common share has been computed by dividing net
loss by the weighted average number of shares outstanding during the
period. Common stock equivalents have not been included for any period
as the effect would be antidilutive. Fully diluted net loss per common
share has not been presented for any period as the amounts would not
differ from primary net loss per common share.
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3. Cash Equivalents and Marketable SecuritiesCASH EQUIVALENTS AND MARKETABLE SECURITIES
The Company considers all highly liquid investments with original
maturities of three months or less at the time of acquisition to be
cash equivalents. Included in cash equivalents at September 30,December 31, 1995 are
$7,212,000$5,354,000 of money market funds, $3,000,000$2,000,000 of commercial paper and
$900,000$1,000,000 of bank time deposits. Investments with a maturity period of
greater than three months are classified as marketable securities and
consist of $1,000,000 of government agency bonds and notes and $395,000$364,000
of collateralized mortgage obligations at September 30,December 31, 1995. These
securities are reported at amortized cost, which approximates fair
market value at September 30,December 31, 1995.
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4. InventoriesINVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or
market and consist of the following:
September 30,December 31, March 31,
1995 1995
------------- ----------------------- ----------
Raw materials and work-in-process $ 278,79651,202 $ 240,044
Finished goods 986,2001,171,326 973,335
------------- ----------------------- ----------
Total $ 1,264,996 $ 1,213,379
============= =============$1,222,528 $1,213,379
========== ==========
Work in process and finished goods inventories consist of material,
labor and manufacturing overhead.
5. Eli LillyELI LILLY AND COMPANY AGREEMENT
Effective October 8, 1995, the collaboration and Company Agreement
In May 1992, the Company entered into a Research, Collaboration and License
Agreement withlicensing agreement
between Eli Lilly and Company ("Lilly"), whereby and Repligen for the Company granted
Lilly an exclusive license to make, use and selljoint
development of products utilizing antibodies, antibody fragments and
engineered polypeptides that bind to CD11b (the "Products""CD11b Program"). This agreement expired in February 1995. In June
1995, the Company and Lilly announced an extension of their collaboration
and licensing agreement through November 1996. was
terminated. The Company recognized revenues of approximately $1,133,000, $2,446,000, $1,468,000$167,000,
$2,613,000, $1,609,000 and $3,082,000$4,691,000 for research and development
performed during the three and sixnine month periods ended September 30,December 31,
1995 and 1994, respectively. In September
1995, following an internal portfolio review, Lilly informed the Company of
its intent to discontinue the inflammatory disease collaboration due to the
reallocation of its resources among other research priorities. Under the terms of the Development and License Agreement,agreement, the
entire CD11b program,Program, including preclinical and clinical data packages
for product candidates m60.1 and h60.1, were returned to the Company.
Lilly discontinued funding
the program effective October 8, 1995.
6. Repligen Clinical Partners,REPLIGEN CLINICAL PARTNERS, L.P.
In February 1992,The Company has granted Repligen Clinical Partners, L.P. (the
"Partnership")
completed a private placement of 900 limited partnership units, with net
proceeds of approximately $40,300,000 in cash and notes receivable, to be
received by the Partnership over a three-year period. In connection with
the formation of the Partnership, the Company granted to the Partnership an exclusive license to all technology and know-how
related to the manufacture, use and sale of recombinant platelet
factor-4 (rPF4)("rPF4") in the United States, Canada and Europe (the
"Technology"). The Company believes that rPF4 may be useful as (i) a
neutralizing
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agent to reverse the anticoagulant effects of heparin and (ii) a
therapy in the treatment of certain solid tumor cancers. Under the
terms of the agreements between the Partnership and its limited
partners and the Company, the limited partners are entitled to various
milestone payments and other royalties in the event that products
derived from the Technology are successfully carried to market. The
Company also has certain rights to purchase the limited partner
interests. A wholly-owned subsidiary of the Company, Repligen
Development Corporation, serves as the general partnerGeneral Partner of the
Partnership (the "General Partner").
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The Partnership's primary source of funding and capital resources has been
the capital contributions made by the limited partners and the General
Partner. The primary use of the Partnership's capital resources is to fund
research and development performed by the Company pursuant to the Product
Development Agreement (the "Development Agreement") and to develop products
and receive marketing approval for the sale of such products. As of
September 30, 1995, the Partnership had working capital of $1,838,000. As
of October 25, 1995 the Partnership has received $11,792,000 of the
$13,433,000 final installment due from the limited partners and although
the Partnership's working capital and capital requirements may change, the
Company believes that the existing resources of the Partnership, assuming
the remaining $1,641,000 of unpaid installations is not paid, will be
sufficient to fund the operations of the Partnership until at least
March 31, 1996. At that time it is expected that the additional funds
necessary to continue clinical trials and begin commercialization of
products will be provided by the Company if the Company has the necessary
resources or by other corporate partners.Partnership.
Under the terms of thea Product Development Agreement withbetween the
Partnership and the Company (the "Development Agreement"), the Company
performs research and development activities and will seek to
obtain approval fromregulatory work and
services in connection with the U.S. FoodTechnology on behalf of the Partnership
(the "Research and Drug Administration for the sale of
products that may be developed utilizing the licensed technology.Development Program"). The Partnership is required to reimbursereimburses
the Company for the research and development expenses incurred by the
Company under the Development Agreement and paypays the Company a
management fee under the Development Agreement equal to 10% of such
expenses.
The Company anticipates that the Partnership will need in excess of $50
million to complete the Research and Development Program and commence
sales of products derived from the Technology. At December 31, 1995,
the Partnership had working capital of $743,000 which it is utilizing
for the continuation of the clinical development of the Technology. The
Company estimates that these funds will be exhausted by the end of
March or early April 1996. To date, the Company has not identified a
joint venture partner or collaborator to fund the Research and
Development Program. In addition, the Company does not currently have
sufficient resources to fund the Research and Development Program on
its own nor does it believe that an offering of securities by it or the
Partnership sufficient in aggregate amount to fund the remainder of the
Research and Development Program is currently feasible. Although the
Company continues to believe in the viability of the Technology, the
estimated cost of bringing products derived from the Technology to
market and the Company's own limited financial resources have made the
continued support of the Research and Development Program by the
Company economically impractical. Under the terms of the Development
Agreement, if the Company declines any request for funds by the
Partnership, the Research and Development Program will terminate. No
such request has yet been made. The Company understands that the
Partnership is considering its alternatives and intends to explore all
available options. The Company has pledged its full cooperation and
support to the Partnership in this endeavor.
Included in the accompanying statements of operations for the three and
sixnine month periods ended September 30,December 31, 1995 and 1994 are research and
development revenues of approximately $575,000, $1,346,000,$951,000, $2,297,000, $819,000
and $2,910,000,$3,729,000, respectively, recognized pursuant toby the Company under the
Development Agreement. During fiscalThese amounts exclude for the three and nine
month periods ended December 31, 1995 and 1994 approximately $98,000,
$271,000, $105,000 and $445,000, respectively, recognized by the
Company incurred an additionaland included in other revenue, representing the 10%
management fee payable under the Development Agreement. These amounts
also
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exclude $1,641,000 of research and development expenses which were
incurred by the Company during fiscal 1995 that could have been
charged to the Partnership but which waswere instead absorbed by the Company
in an effort to preserve the fundsPartnership's funds. The Company currently expects
some revenues from the Partnership in respect of services performed
or to be performed by it for the Partnership during the fourth
quarter of fiscal 1996, although at a reduced rate from fiscal 1995.
Thereafter, the Company does not anticipate deriving any further
revenue from the Partnership.
In connection with the initial capitalization of the Partnership. No such costs were absorbed inPartnership, the
three and six month
periods ended September 30, 1995. Included in other revenues forCompany issued warrants to purchase common stock of Repligen to the
three
and six month periods ended September 30, 1995 and 1994 are approximately
$74,000, $173,000, $105,000 and $340,000, respectively, representinglimited partners of the 10% management fee under the Development Agreement.Partnership (the "Original Warrants"). In June
1994, the Company completed an exchange offer withpursuant to which a majority of
the holders of Limited Partnerthe Original Warrants and Class Bexchanged their Original Warrants pursuant to
which their existing warrants ("Existing Warrants") were exchanged
for new warrants ("Exchange(the "Exchange Warrants"). InSubsequently, in March
1995, the Company subsequently offered to modify thea majority of Existingthe remaining
Original Warrants and the Exchange Warrants. Each holder of an
outstanding warrant who madewas not then in default under its obligations
to the fourth installment paymentPartnership was free to accept or reject such modifications. During the quarter, the Partnership wrote off
approximately $1,630,000 of notes receivable, relating to 98-1/2 limited
partnership units which were foreclosed for failure to pay the fourth
installment. As
of October 25, 1995, 623-1/February 5, 1996, 623 1/2 of the 712-1/2712 nondefaulted limited
partnership units had accepted the modifications. As a result,
ExistingAccordingly, as of
that date, there were issued and outstanding Original Warrants to
purchase 75,400 shares of the Company's common stock, modified ExistingOriginal
Warrants to purchase 163,850 shares of the Company's common stock,
Exchange Warrants to purchase 198,650 shares of the Company's common
stock and modified Exchange Warrants to purchase 1,722,500 shares of
the Company's common stock are outstanding at October 25, 1995.
9stock.
7. Restructuring ChargeRESTRUCTURING CHARGE
During fiscal 1995, the Company substantially restructured its
operations in an effort to reduce its current rate of expenditures and
preserve its available cash and investment balances. In the second
quarter of fiscal 1995, the Company recorded a charge of $975,000 to
cover severance costs and related benefits, as well as certain rental
losses associated with the sublease of certain facilities. During the
fourth quarter of fiscal 1995, the Company recorded a charge of
$10,325,000 to cover severance costs and related benefits, rental
losses associated with the sublease of certain facilities, the
write-off of certain leasehold improvements, equipment and intangible
assets that will no longer be utilized and to reserve for future
operating lease payments for equipment that will also no longer be
utilized. The
restructurings were done in order to reorganize certain business operations
and to permit its senior management team to focus on the clinical
development of certain lead product candidates. The total restructuring charge of $11,300,000 included cash
related expenditures of $6,545,000 and a non-cash charge of $4,755,000.
The cash related expenditures consisted of $2,035,000 of severance and
related benefits for approximately 140 terminated employees, $3,250,000
of future operating lease payments for assets no longer being utilized,
$940,000 of rental losses associated with the sublease of surplus lab
and office space, and $320,000 of contract termination fees. The
non-cash charge was related to the write-off of leasehold improvements,
equipment and other intangibles no longer being utilized. As of
September 30,December 31, 1995, approximately
$2,266,0009
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$2,352,000 of the severance costs, benefit costs and contract
termination fees have been paid. The balance is anticipated to be paid over the following two months.
As of September 30,December 31, 1995,
approximately $929,000$1,505,000 of the equipment and facility lease payments
have been paid. The balance is scheduled to be paid through fiscal
1998; however, the Company is currently in default under the terms of
certainthree equipment leases, which gives the lessors
thereunder the right to accelerate all future payments ($3,375,000 at
September 30, 1995, of which $2,592,000 is included in accrued expenses at
September 30, 1995) under these leases. In September 1995, the lessors terminated an
escrow agreement, released $1,000,000 in funds from the escrow account
and applied these funds to the Company's future liabilities and
obligations under certainthe equipment leases. In January 1996, the lessors
accelerated all future payments under these leases (the aggregate
balance of all future rental payments under these leases was
($2,569,000 at December 31, 1995, of which $2,277,000 is included in
accrued expenses at December 31, 1995). The aggregate amount claimed
due by the equipment lessors, including penalties, default interest
and value attributable to the underlying equipment, is approximately
$3.7 million. The Company is currently negotiating with the equipment
lessors and certain of the facility lessors for early lease
terminationterminations and a reduction in lease obligation.obligations. See discussion
under Item 2 - "Recent Developments".
8. Commitments
The Company leases its office, research and manufacturing facilities and
certain equipment under operating lease arrangements. Certain of the
equipment lease arrangements require that the Company maintain certain
restrictive covenants, including cash and cash equivalent balances of not
less than $12,000,000 and certain financial ratios. As discussed in
Note 7, $1,000,000 of cash held in an escrow account under one of these
lease arrangements was released in September 1995. Additionally, payment
under these equipment leases may be accelerated at the option of the
lessors.COMMITMENTS
In September 1995, the Company adopted an Incentive and Retention
Program (the "Program") to retain employees essential to the operations
of the Company. Under the terms of the Program, the Company will makemade two
payments of benefits of $320,000 on October 31, 1995 and $610,000 on
December 31, 1995 to eligible
individuals who remain employees1995. The payment of $320,000 was accrued in the Company onsecond
quarter of fiscal 1996 and the respective dates.
payment of $610,000 was expensed in the
quarter ended December 31, 1995.
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The anticipated payments are approximately $324,000 and $640,000,
respectively. As of September 30, 1995, the Company had accrued $320,000
of the anticipated payments.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
---------------------------------------------Recent Developments
Repligen Clinical Partners, L.P. -
The Company has granted Repligen Clinical Partners, L.P. (the
"Partnership") an exclusive license to all technology and know-how
related to the manufacture, use and sale of recombinant platelet
factor-4 ("rPF4") in the United States, Canada and Europe (the
"Technology"). The Company believes that rPF4 may be useful as (i) a
neutralizing agent to reverse the anticoagulant effects of heparin and
(ii) a therapy in the treatment of certain solid tumor cancers. Under
the terms of the agreements between the Partnership and its limited
partners and the Company, the limited partners are entitled to various
milestone payments and other royalties in the event that products
derived from the Technology are successfully carried to market. The
Company also has certain rights to purchase the limited partner
interests. A wholly-owned subsidiary of the Company, Repligen
Development Corporation, serves as the General Partner of the
Partnership.
Under the terms of a Product Development Agreement between the
Partnership and the Company (the "Development Agreement"), the Company
performs research and development activities and regulatory work and
services in connection with the Technology on behalf of the Partnership
(the "Research and Development Program"). The Partnership reimburses
the Company for the research and development expenses incurred by the
Company under the Development Agreement and pays the Company a
management fee under the Development Agreement equal to 10% of such
expenses.
The Company anticipates that the Partnership will need in excess of $50
million to complete the Research and Development Program and commence
sales of products derived from the Technology. At December 31, 1995,
the Partnership had working capital of $743,000 which it is utilizing
for the continuation of the clinical development of the Technology. The
Company estimates that these funds will be exhausted by the end of
March or early April 1996. To date, the Company has not identified a
joint venture partner or collaborator to fund the Research and
Development Program. In addition, the Company does not currently have
sufficient resources to fund the Research and Development Program on
its own nor does it believe that an offering of securities by it or the
Partnership sufficient in aggregate amount to fund the remainder of the
Research and Development Program is currently feasible. Although the
Company continues to believe in the viability of the Technology, the
estimated cost of bringing products derived from the Technology to
market and the Company's own limited financial resources have made the
continued support of the Research and Development Program by the
Company economically impractical. Under the terms of the Development
Agreement, if the Company declines any request for funds by the
Partnership, the Research and Development Program will terminate. No
such request
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has yet been made. The Company understands that the Partnership is
considering its alternatives and intends to explore all available
options. The Company has pledged its full cooperation and support to
the Partnership in this endeavor.
Restructuring -
The Company has determined to focus its remaining resources on its core
research and development activities. As part of its strategy, and in
order to ensure that sufficient funds are available to support these
activities, the Company is seeking to divest its manufacturing
operations, restructure its long-term debts and reduce its overhead.
See Note 7 to notes to Consolidated Financial Statements -
"Restructuring Charge".
The Company has executed a letter of intent with Genzyme Corporation's
General Division ("Genzyme") for the sale of Repligen's process
development and contract manufacturing division, known as "Allegro
Biologics" (the "Genzyme Transaction"). As part of the Genzyme
Transaction, Genzyme has offered immediate employment to certain of
Repligen's employees and will assume the Company's recombinant Protein
A (Protein A(TM)) business. Genzyme will also contract to perform the
Company's future process development and manufacturing requirements in
connection with its on-going clinical programs under terms to be
negotiated. The Genzyme Transaction is subject to the conclusion of a
definitive asset purchase agreement and other conditions of closing.
The Company is simultaneously negotiating with its equipment lessors
and one of its facility lessors to restructure and work-out its
long-term debts. The Company is presently in default under three
operating equipment lease agreements and expects to default under a
facility lease for a facility which is no longer used by the Company.
In September 1995, certain of the equipment lessors terminated an
escrow agreement, released $1 million in funds from the escrow account
and applied these funds to the Company's future liabilities and
obligations under the equipment leases. In January 1996, the equipment
lessors accelerated all future payments under these leases. The
aggregate amount claimed due by the equipment lessors as of the date of
this report, including penalties, default interest and value
attributable to the underlying equipment is approximately
$3.7 million. The Company has accrued the sum of $2,277,000 on
account of the equipment leases which amount is reflected in the
restructuring charge. See Note 7 to notes to Consolidated Financial
Statements "Restructuring Charge". The consummation of the Genzyme
Transaction is conditioned upon the Company coming to terms with its
equipment lessors, as certain of the equipment subject to the
equipment leases is required to be conveyed by Repligen to Genzyme as
part of the transaction.
There can be no assurance that the Company will come to terms with its
long-term creditors or consummate the Genzyme Transaction. If the
Company is unable to resolve its creditor disputes and/or close the
Genzyme Transaction, the Company estimates that it will have funds to
continue operations through no later than September 30, 1996. In that
case, without additional financing during the first half of calendar
1996 from either an offering by Repligen of its securities, from
third party funding, or the merger of Repligen with or acquisition of
Repligen by an entity capable of assisting Repligen to fund its
operations, Repligen will be forced to significantly curtail or cease
operations or seek bankruptcy protection. Management believes that its
chances of raising additional financing are not probable absent a
restructuring of its long-term debts and divesture of its
manufacturing operations for value.
12
13
If the Company is able to successfully implement its restructuring
strategy and close the Genzyme Transaction, it estimates that it will
have funds sufficient to continue operations through on or about June
30, 1997. In any case, the Company will aggressively seek to
out-license its technologies and pursue other strategic alternatives,
such as merger or acquisition candidates and other joint venture or
collaborative relationships. Additionally, the Company may seek, to the
extent commercially practicable, to raise additional equity financing
to reinvigorate its core research and development activities.
Results of Operations
- ---------------------
Revenues -
Total revenues for the three and sixnine month periods ended September 30,December 31,
1995 were $5,019,000$2,104,000 and $7,855,000$9,960,000 as compared to $3,442,000$3,579,000 and
$8,246,000$11,825,000 in the comparable fiscal 1995 periods.
Research and development revenues for the three and sixnine month periods
ended September 30,December 31, 1995 were $3,776,000$1,675,000 and $5,860,000$7,535,000 compared to
$2,287,000$2,428,000 and $5,992,000$8,420,000 in the comparable fiscal 1995 periods. The
increase of
$1,489,000, and the decrease of $132,000,$753,000 and $885,000, for the three and sixnine month periods
ended September 30,December 31, 1995, respectively, from the comparable fiscal 1995
periods is due to a $2,000,000 acquisition fee paid by Genetics
Institute, Inc. in September 1995 for the Company's immune modulation
business, which offset reductionsreduction in revenue from Lilly for the
anti-inflammation program, offset in part by a $525,000 license fee
paid by Genentech, Inc. in December 1995 for the exclusive sublicense
to make and sell antibody fragments, engineered polypeptides and other
small molecules that bind to CD18 and CD11a. Total revenue derived from
the Partnership relatedfor the three and nine month periods ended December 31,
1995 were $951,000 and $2,297,000, compared to $819,000 and $3,729,000
in the development program for recombinant platelet factor-4 (rPF4).comparable fiscal 1995 periods. The declinedecrease in revenues from
Lilly and the Partnership iswas caused by a decrease in the need for process
development, pre-clinical research and manufacturing activity as both
products under development have entered phase I/II clinical trials and
is also due to lack of resources of the Partnership, limiting the
Partnership's ability to fund the rPF4 program. In October 1995, costs
related to the exchange offer to the Partnership were fully amortized,
offsetting in part, the decline in Partnership revenues for the three
month period ended December 31, 1995. In September 1995, following an
internal portfolio review, Lilly informedterminated its collaboration and
licensing agreement with the Company respecting the joint development
of its intent to discontinue the inflammatory disease collaboration due to the
reallocation of its resources among other research priorities.CD11b Program. Under the terms of the Development and License Agreement, the entire
CD11b program,Program,
13
14
including preclinical and clinical data packages for product
candidates m60.1 and h60.1, were to be returned to the company. Lilly discontinued
funding the program effective October 8, 1995.Company. See Note 5
to notes to Consolidated Financial Statements.
Product revenues for the three and sixnine month periods ended September 30,December
31, 1995 were $982,000$169,000 and $1,374,000,$1,543,000, respectively, compared to
$703,000$538,000 and $1,275,000$1,813,000 in the comparable fiscal 1995 periods. Fiscal
1996 three and sixnine month periods product revenues increased overdecreased from the
similar fiscal 1995 periods due primarily to the recognitionlower sales volume of
$430,000the Company's rProtein A(TM) and $520,000,
respectively,diagnostic reagent products, offset in
part by the recognition of contract service revenues of $29,000 and
$549,000, respectively, generated by the Company's Allegro Biologics
division. This increase was offset in part by lower
sales volume of the Company's Protein A and diagnostic reagent products.
Investment income decreased in fiscal 1996 over the comparable three
and sixnine month periods primarily because of lower average funds
available for investment offset in part by higher interest rates.
Other revenues for the three and sixnine month periods ended September 30,December 31,
1995 decreased from the comparable fiscal 1995 periods primarily
because of a decrease in management fees received from the Partnership. 12
Expenses -
During fiscal 1995, the Company substantially restructured its
operations in an effort to reduce its current rate of expenditures and
preserve its available cash and investment balances. The restructurings
were done in order to reorganize certain business operations and to
permit its senior management team to focus on the clinical development
of the Company's two lead product candidates. In the second quarter,
the Company recorded a charge of $975,000 to cover severance costs and
related benefits, as well as certain rental losses associated with the
sublease of certain facilities. During the fourth quarter, the Company
recorded a charge of $10,325,000 to cover severance costs and related
benefits, rental losses associated with the sublease of certain
facilities, the write-off of certain leasehold improvements, equipment
and intangible assets which will no longer be utilized and to reserve
for future operating lease payments for equipment which will also no
longer be utilized.
Total expenses for the three and sixnine month periods ended September 30,December 31,
1995 were $5,953,000$4,406,000 and $11,428,000,$15,835,000, respectively, compared to
$10,313,000$9,411,000 and $21,139,000$30,550,000 in the comparable fiscal 1995 periods. This
decrease in the three and sixnine month periods ended September 30,December 31, 1995
reflects lower operating costs as a result of the fiscal 1995
restructuring efforts.
Research and development expenses for the three and sixnine month periods
ended September 30,December 31, 1995 were $3,553,000$2,864,000 and $7,331,000,$10,195,000, respectively,
compared to $7,476,000$7,529,000 and $16,204,000$23,733,000 in the comparable fiscal 1995
periods. The decreased
14
15
expenses in the three and sixnine month periods of fiscal 1996 from the
comparable periods in fiscal 1995 reflect the Company's efforts to
reduce costs and to focus its resources on the clinical development
of its two lead product candidates and offset partly by the salaries
and benefits in the fiscal 1995 periods relating to employees who
were terminated in July 1994 and February 1995.
The Company continues to be committed to its
research and development agreement with the Partnership and to moving the
rPF4 product candidates through clinical trials.
Selling, general and administrative expenses for the three and sixnine
month periods ended September 30,December 31, 1995 were $1,696,000$1,427,000 and $3,043,000, an
increase$4,470,000,
a decrease of $327,000$123,000 and $32,000,$91,000, respectively, overfrom the comparable
prior
yearfiscal 1995 periods. The increaseThese decreases in selling, general and
administrative expenses is due primarily toare net of an expense of $610,000 and
$930,000, for the accrual of
$320,000three and nine month periods ended December 31, 1995,
respectively, for the Company's Incentive and Retention Program adopted by the
Company to retain employees essential to the operations of the Company offset
partly by the salaries and benefits in the fiscal 1995 period relating
to employees who were terminated in July 1994 and February 1995. See
Note 8 to notes to Consolidated Financial Statements - "Commitments".
Cost of goods sold for the three and sixnine month periods ended September 30,December
31, 1995 were $700,000$114,000 and $990,000,$1,104,000, respectively. Cost of goods sold
infor the three and sixnine month periods were 71%67% and 72% of product
revenues, respectively, versus 52%50% and 60%57% of product revenues in the
comparable fiscal 1995 periods. The increase in cost of sales as a
percentage of revenue is primarily a result of the change in sales mix
between fiscal years and the addition of contract service revenues in
fiscal 1996.
Capital Resources and Liquidity
The Company's total cash, cash equivalents and marketable securities
decreased to $12,814,000$10,075,000 at September 30,December 31, 1995 from $15,302,000 at March
31, 1995, a decrease of $2,488,000$5,227,000 or 16%34%. The decrease reflects net
13
operating losses during the sixnine month period of approximately
$3,573,000
and$5,875,000, the reduction of current liabilities of $6,143,000, offset by the
receipt of a $2,000,000 acquisition fee from Genetics Institute, Inc.,$7,768,000, the
reduction in note receivable from affiliate of $4,620,000 and the
collection of amounts due from the Partnership as a result of the
receipt from the partners of their fourth installment. Working capital
decreased to $6,797,000$4,414,000 at September 30,December 31, 1995 from $9,070,000 at March
31, 1995 reflecting primarily the loss during the sixnine months ended
September 30,December 31, 1995.
The Company has funded operations primarily with cash derived from the
sales of its equity securities, research and development contracts, product
sales,out
licensing of technologies, investment income, proceeds from aproduct sales, term loan
with a bank, the sale of the Company's share of a joint venture and
leasing of certain equipment. In May 1992, the Company entered into a
research and development agreement with Lilly which provided $6,262,000
and $7,790,000 in research funding in fiscal 1995 and 1994,
respectively, and $1,133,000$167,000 and $2,446,000$2,613,000 in research funding during
the three and sixnine month periods ended September 30,December 31, 1995. In June 1995, the collaboration and licensingThis
agreement with Lilly
was extended through November 1996. In September 1995, Lilly informed the
Company of its intent to discontinue the inflammatory disease collaboration
due to the reallocation of resources among other research priorities.
Lilly discontinued funding the programterminated effective October 8, 1995.
15
16
In SeptemberDecember 1995, Genetics Institute,Genentech, Inc. paid a $2,000,000 acquisition$525,000 license fee for the
Company's immune modulation business. The Company will
maintain the rightsexclusive sublicense to independently commercializemake, use and sell antibodies, antibody
fragments, engineered polypeptides and other small molecule-based
drugs in the therapeutic area. Genetics Institute will have exclusive
rightsmolecules that bind
to commercialize any protein-based drugs that originate from the
Company's immune modulation technology as well as the right to develop
small molecule drugs based on this technology.
Repligen has determined to focus on its core researchCD18 and development
activities. As part of its strategy, and in order to ensure that
sufficient funds are available to support these activities, Repligen may
elect to divest its manufacturing operations or seek other alternatives.CD11a.
The Company is receiving research and development funding and a 10%
management fee from the Partnership pursuant to the Development
Agreement. The Company recorded revenue in the three and sixnine month
periods ended September 30,December 31, 1995 of $575,000$951,000 and $1,346,000$2,297,000 compared to
$819,000 and $2,910,000$3,729,000 in the comparable fiscal 1995 periods. The
Company currently expects fundingsome revenues from the Partnership in respect
of services performed or to continue intobe performed by it for the Partnership
during the fourth quarter of fiscal 1996, although at a reduced rate
from fiscal 1995, based upon1995. Thereafter, the existing resources ofCompany does not anticipate deriving
any further revenue from the Partnership.
Funding into the fourth quarter of
fiscal 1996 is dependent upon reductions in the rate of expenditures byThere can be no assurance that the Company underwill come to terms with its
long-term creditors or consummate the Development Agreement and the absorption byGenzyme Transaction. If the
Company of certain costs which would qualify for reimbursement underis unable to resolve its creditor disputes and/or close the
Product
Development Agreement. At September 30, 1995, the Partnership had working
capital of $1,838,000.
Repligen anticipates that it will need approximately $60,000,000 to
complete the remainder of the rPF4 Research Program, to obtain all FDA and
other regulatory approvals and to commence sales of any rPF4 Products.
Although the Company's working capital and capital requirements may change,Genzyme Transaction, the Company estimates that it haswill have funds sufficient to
continue the rPF4
Research Program and its other current operations until at least March 31,through no later than September 30, 1996. Thus,In that
case, without additional financing induring the first half of calendar
1995 or early 1996 14 from either an offering by Repligen of its securities, from
third party funding, or the merger of Repligen with or the acquisition of
Repligen by an entity capable of funding the rPF4 Research Program,assisting Repligen and the
Partnership will not have sufficient funding to continue the rPF4 Research
Program andfund its
operations, Repligen will be forced to significantly curtail or cease
operations or seek bankruptcy protection. Management believes that its
operations. In
the event that Repligen is unable to continue the rPF4 Research Program on
behalfchances of raising additional financing are not probable absent a
restructuring of its long-term debts and divesture of its
manufacturing operations for value.
For a further discussion of the Partnership, it is obligated under one of the agreements
ancillary to the Development Agreement to use its best efforts to license
or sell the Technology to a third party. Repligen does not believe that an
offering of its securities sufficient in aggregate amount to fund the
remainder of the rPF4 Research Program is currently feasible. Repligen is
currently discussing with various pharmaceutical companies options for
funding the remaining rPF4 Research ProgramCompany's capital resources and
manufacturing and
marketing any rPF4 Products on a joint basis. Because such discussions are
at various stages, the terms of any such arrangements are not known. Any
such third party may seek to modify the Development Agreement, possibly
including a reduction in the royalty rates payable to the Limited Partners
under such agreements. Any such amendment would require the consent of the
Limited Partners. In addition, any such third party may require that the
Partnership be a party to any such joint venture agreement, which may also
require the consent of the Limited Partners.
The General Partner of the Partnership periodically reviews the progress of
the Partnership's research program to determine whether the continuation of
all or any part thereof is in the best interest of the Limited Partners of
the Partnership. If at any time the Board of Directors determines that such
research is infeasible or uneconomic and should be discontinued or
otherwise determines that the program should be discontinued, or if the
Board of Directors of the Company determines not to contribute the
additional funds to the Partnership which are determined to be required
when all Partnership funds have been expended and no FDA marketing approval
has been received for any product developed by the Partnership, the Product
Development Agreement will terminate. The Company believes that rPF4 may
be useful (i) as a neutralizing agent to reverse the anticoagulant effects
of heparin and (ii) as a therapy in the treatment of certain solid tumor
cancers. Repligen is committed to the rPF4 development program and intends
to finance it with third party funding and Repligen's and the Partnership's
remaining funds.
Repligen has entered into certain operating lease agreements which require
the Company to maintain certain restrictive covenants. The Company was not
in compliance with certain of these covenants at September 30, 1995 and
anticipates that it will not meet these financial covenants during 1996,
which will give the lessors thereunder the right to accelerate all future
payments under these leases. In September 1995, the lessors terminated an
escrow agreement, released $1,000,000 in funds from the escrow account and
applied these funds to the Company's future liabilities and obligations
under certain equipment leases. As of September 30, 1995, $3,375,000 was
due on these operating leases, of which $2,592,000 was included in the
accrued restructuring charge.liquidity, see Item 2 - "Recent Developments", above.
16
1517
PART II. OTHER INFORMATION
Item 1. Not applicable
Item 2. Not applicable
Item 3. Not applicableDefaults upon Senior Securities
The Company is presently in default in the payment of rent under
three equipment lease agreements. The equipment lessors have
accelerated all future payments under these leases. The aggregate
balance of the future rental payments under these leases
was $2,569,000 at December 31, 1995. The total amount claimed due
by the equipment lessors as of the date of this report, including
penalties, default interest and value attributable to the
underlying equipment, is approximately $3.7 million. The Company
is currently negotiating with the equipment lessors for early
lease terminations and a reduction in certain of the lease
obligations. See discussion under Part I, Item 2 - "Recent
Developments".
Item 4. Not applicable
Item 5. Not applicable.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 -- Financial Data Schedule (provided for the
information of the Securities and Exchange
Commission only)None
(b) None
17
1618
SIGNATURES
Pursuant to the requirements 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
(Registrant)
Date: November 10, 1995February 16, 1996 By: /S//s/ Avery W. Catlin
--------------------------------------------------------
Chief Financial Officer
Signing on behalf of the Registrant
and as Principal Financial and
Accounting Officer
18