| Summary of Significant Accounting Policies | 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,
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 ASC 605-25,
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 a material impact on the
Company’s financial statements historically.
Shipping and handling fees are recorded as a component of product
revenue, with the associated costs recorded as a component of cost
of product revenue.
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.
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 the mid-single-digits non-HDACi
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, 2016, the Company’s investments included
money market funds and short-term marketable securities. There 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 at the original
date of purchase.
Investments in debt securities consisted of the following at
December 31, 2016 (in thousands):
Amortized Cost Gross Unrealized Gain Gross Unrealized Loss Fair Value
Marketable securities:
U.S. Government and agency securities $ 807 $
— $
— $ 807
Corporate and other debt securities 18,745 2 (7 ) 18,740
Total $ 19,552 $ 2 $ (7 ) $ 19,547
There were no long-term marketable securities as of
December 31, 2016.
There were no realized gains or losses on the investments for the
fiscal years ended December 31, 2017, 2016 and 2015.
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 were 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, 2017.
As of December 31, 2017, the Company had no assets or
liabilities for which fair value measurement is either required or
has been elected to be applied.
As of December 31, 2016, the Company had accrued liabilities
with a fair value of $6,119,000 related to contingent consideration
in connection with the Refine and Atoll business combinations. The
contingent consideration related to Refine was based on actual 2016
revenues. The contingent consideration related to Atoll was based
on meeting revenue growth targets in 2016. These valuations were
Level 3 valuations, as the primary inputs are unobservable.
All contingent consideration liabilities were paid in the first
quarter of 2017.
The following table provides a rollforward of the fair value of
contingent consideration (in thousands):
Balance at December 31, 2016 $ 6,119
Payments (6,119 )
Balance at December 31, 2017 $
—
In May 2016, the Company issued $115 million aggregate
principal amount of the Notes 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 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 .
There were no remeasurements to fair value during the year ended
December 31, 2017 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, net realizable
value, using the first-in, first-out work-in-process
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
Inventories consist of the following (in thousands):
December 31, December 31,
Raw Materials $ 22,351 $ 14,954
Work-in-process 4,083 2,789
Finished products 12,570 6,953
Total $ 39,004 $ 24,696
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”
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 twelve years
Furniture and fixtures Three to eight years
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” non-forfeitable
A reconciliation of basic and diluted share amounts is as
follows:
Years ended December 31,
2017 2016 2015
Numerator:
Net income $ 28,353,000 $ 11,681,000 $ 9,345,000
Denominator:
Basic weighted average common shares outstanding 38,233,527 33,572,883 32,881,940
Effect of dilutive securities:
Stock options and restricted stock awards 441,924 526,015 695,151
Convertible senior notes 474,923
—
—
Diluted weighted average common shares outstanding 39,150,374 34,098,898 33,577,091
Basic net income per common share $ 0.74 $ 0.35 $ 0.28
Diluted net income per common share $ 0.72 $ 0.34 $ 0.28
At December 31, 2017, there were outstanding options to
purchase 734,940 shares of the Company’s common stock at a
weighted average exercise price of $20.80 per share and 505,235
shares of common stock issuable upon the vesting of restricted
stock units. For the fiscal year ended December 31, 2017,
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, 10-45-44,
At December 31, 2016, there were outstanding options to
purchase 1,236,586 shares of the Company’s common stock at a
weighted average exercise price of $12.05 per share. For the fiscal
year ended December 31, 2016, 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, 2015, there were outstanding options to
purchase 1,240,935 shares of the Company’s common stock at a
weighted average exercise price of $10.44 per share. For the fiscal
year ended December 31, 2015, 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 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
Total product revenues $ 141,089 $ 104,441 $ 83,537
(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 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,
2017 2016 2015
United States 43 % 39 % 28 %
Sweden 20 % 29 % 37 %
United Kingdom 4 % 7 % 17 %
Other 33 % 25 % 18 %
Total 100 % 100 % 100 %
The following table represents the Company’s total assets by
geographic area (in thousands):
December 31, December 31,
United States $ 654,673 $ 209,728
Europe 85,169 79,145
Asia 3,677 40
Total $ 743,519 $ 288,913
The following table represents the Company’s long-lived
assets by geographic area (in thousands):
December 31, December 31,
United States $ 465,453 $ 77,039
Europe 34,430 27,721
Asia 854
—
Total $ 500,737 $ 104,760
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, 2017 and 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 potential write-off
Revenue from significant customers as a percentage of the
Company’s total revenue is as follows:
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, 2017 December 31, 2016
GE Healthcare 11 % 26 %
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 estimating after-tax after-tax
Goodwill
Goodwill is not amortized and is reviewed for impairment at least
annually. There was no evidence of impairment to goodwill at
December 31, 2017 and 2016. There were no goodwill impairment
charges during the fiscal years ended December 31, 2017, 2016
and 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, 2017.
Intangible assets consisted of the following at December 31,
2017 (in thousands):
Gross Carrying Accumulated Weighted
Technology – developed $ 51,801 $ (3,201 ) 19
Patents 240 (238 ) 8
Customer relationships 102,120 (9,636 ) 14
Trademarks – definite lived 2,160 (47 ) 20
Trademarks – indefinite lived 700
—
—
Other intangibles 1,063 (209 ) 3
Total intangible assets $ 158,084 $ (13,331 ) 16
Intangible assets consisted of the following at December 31,
2016 (in thousands):
Gross Carrying Accumulated Weighted
Technology – developed $ 12,911 $ (1,468 ) 17
Patents 240 (208 ) 8
Customer relationships 22,555 (4,995 ) 11
Trademark/ tradename 711
—
—
Other intangibles 84 (24 ) 2
Total intangible assets $ 36,501 $ (6,695 ) 13
Amortization expense for amortized intangible assets was
approximately $6,215,000, $2,052,000 and $1,600,000 for the years
ended December 31, 2017, 2016 and 2015, respectively. As of
December 31, 2017, the Company expects to record the following
amortization expense (in thousands):
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
Expected volatility
Risk-free interest rate zero-coupon
Expected dividend yield
Estimated forfeiture rates non-executive non-employee
Recently Issued Accounting Pronouncements
In May 2014, the FASB issued ASU No. 2014-09, Revenue Recognition Revenue from Contracts with Customers 2015-14, 2016-08, 2016-10, 2016-12,
In July 2015, the FASB issued ASU No. 2015-11, 2015-11”). 2015-11 2015-11 2015-11
In February 2016, the FASB issued ASU No. 2016-02, “Leases 2016-02”). 2016-02 right-of-use right-of-use
In March 2016, the FASB issued ASU No. 2016-09, “Compensation—Stock 2016-09
In August 2016, the FASB issued ASU No. 2016-15, No. 2016-15 No. 2016-15 2016-15
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. |
