SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended March 31, 2001
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
(Exact name of Registrant as specified in its charter)
Delaware 04-2729386
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
117 Fourth Avenue, Needham, Massachusetts 02494
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (781) 449-9560
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 Par Value
(Title of Class)
Indicate by checkmark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes __X__ No_____.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K |_|
State the aggregate market value of the voting common equity held by
non-affiliates of the Registrant. The aggregate market value, computed by
reference to the closing sale price of such stock quoted on NASDAQ on June 15,
2001 was approximately $49,785,492.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of June 15, 2001: 26,633,950.
DOCUMENTS INCORPORATED BY REFERENCE
The Company intends to file a definitive Proxy Statement pursuant to Regulation
14A within 120 days of the end of the fiscal year ended March 31, 2001. Portions
of such Proxy Statement are incorporated by reference in Part III of this Form
10-K.
Item 1. BUSINESS
Any statements which are not historical facts contained in this Annual
Report on Form 10-K, including, without, limitation, projections or statements
concerning use and success of technology, progress of product development,
programs or clinical trials, completion, timing and benefits of development
programs, liquidity, suitability of products for specific applications, product
performance, advantages or significance of technology, benefits and results of
acquisitions, collaborations and strategic and other alliances, and improvements
to operating and other results, are forward-looking statements that involve
risks and uncertainties, including but not limited to those relating to product
demand, pricing, market acceptance, the effect of economic conditions,
intellectual property rights and litigation, the results of governmental
proceedings, competitive products, risks in timing and success of clinical
trials and product development, the results of financing efforts, the ability to
exploit technologies, the ability to complete transactions, and other risks
identified under the caption "Certain Factors That May Affect Future Results"
and elsewhere in this Annual Report, as well as in our other Securities and
Exchange Commission filings. Our actual results may differ significantly from
the results discussed in the forward-looking statements.
The Company
Repligen Corporation ("Repligen") develops new drugs for autism, immune
system diseases and mitochondrial disease. Our lead therapeutic products are
secretin for autism, CTLA4-Ig for stem cell transplantation and uridine for
mitochondrial disease. We also manufacture and market products based on Protein
A for the purification of antibodies, and we own commercial rights to two
products based on synthetic forms of secretin for the diagnosis of pancreatic
function. Repligen was incorporated in March 1981, under the laws of the State
of Delaware. Our principal executive officers are at 117 Fourth Avenue, Needham,
Massachusetts 02494 and our telephone number is (781) 449-9560.
Secretin for Autism
Autism is a developmental disorder characterized by poor communication,
impaired social interaction and repetitive behavior. Many autistic individuals
also have gastrointestinal dysfunction. Secretin is a hormone produced in the
small intestine which regulates the function of the pancreas as part of the
process of digestion. A form of secretin derived from pigs is approved by the
United States Food and Drug Administration ("FDA") for use in diagnosing
problems with pancreatic function. Anecdotal reports indicate that secretin may
have beneficial effects in some autistic children, including improvements in the
social deficit which is the defining feature of autism.
We have completed an FDA-approved Phase 2 clinical trial on a human,
synthetic form of secretin in order to evaluate its potential benefits on the
gastrointestinal, social, communicative and behavioral symptoms of autism. This
trial was a randomized, double-blind, placebo-controlled study which enrolled
126 autistic children aged 3 to 6 at multiple sites in the United States. All of
the children had gastrointestinal symptoms and moderate to severe symptoms of
autism. Each patient received 3 doses of secretin or a placebo at 3 week
intervals. Patients were assessed before the first dose and two weeks after the
third dose with multiple standardized tests including clinical and parental
evaluations, a daily diary of gastrointestinal and autistic symptoms and video
taping of structured play sessions.
Results from the trial indicated that parents of secretin-treated children
rated their child's symptoms to be improved compared to children who received a
placebo, a result that was
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statistically significant. We also identified two biological parameters which
defined a group of patients whose symptoms were highly variable over time. When
these patients were removed from the analysis, the beneficial effect of secretin
was also observed in two types of evaluations carried out by a trained
psychologist. This trial also evaluated the safety of secretin. There was no
statistically significant increase in the side-effects (adverse events) observed
in secretin-treated patients versus patients who received a placebo.
We have also initiated a research effort to better understand the biology
of secretin and its mechanism of action in autistic patients. We intend to
analyze multiple biological parameters in the multiple blood, urine and stool
samples that were collected from these patients to search for additional
biological markers which may be correlated with the response to secretin. We are
also investigating the neurobiology of secretin in animals to better understand
its mechanism of action.
According to the American Society for Autism, there are approximately
500,000 individuals affected by autism in the United States. There are currently
no FDA-approved drugs for the treatment of autism and no drug therapy which has
been reported to improve the social or communicative deficits of autism.
In February 2000, we were issued a U.S. patent for the use of secretin in
the treatment of autism which will expire in 2018. We are currently prosecuting
additional patent applications in the United States, Europe and Japan.
CTLA4-Ig for Transplantation and Immune Disorders
We are also developing a product named "CTLA4-Ig," based on a natural
regulator of the immune system. CTLA4-Ig has been shown in animal models to
selectively block unwanted immune responses in organ transplantation and several
autoimmune diseases. We are conducting our initial clinical testing of CTLA4-Ig
in patients receiving a stem cell (bone marrow) transplant, which is a potential
cure for several cancers of the immune system, including leukemia, myeloma and
lymphoma. A stem cell transplant is also a potential treatment for certain
metabolic diseases, autoimmune diseases and sickle cell anemia.
Despite the clinical potential of stem cell transplantation, its use is
limited by a severe and potentially life-threatening complication - graft versus
host disease ("GVHD"), in which the newly transplanted immune system attacks the
tissues of the recipient. To minimize this complication, most stem cell
transplants require a search for a genetically "matched" donor which only
partially eliminates GVHD and which can delay treatment for months and cost
$25,000 or more.
In June 1999, the results of a Phase 1 clinical trial of our CTLA4-Ig in
stem cell transplantation were published in the New England Journal of Medicine.
The trial involved eleven patients who received a graft from a family member who
was only partially genetically matched with the patient. The results
demonstrated that pre-treatment of stem cells (bone marrow) from a genetically
"mismatched" family member with CTLA4-Ig prior to transplantation resulted in a
lower incidence of GVHD than expected based on prior experience. We intend to
further evaluate CTLA4-Ig for stem cell transplantations in which the donor and
recipient are genetically "mismatched" in an FDA-approved Phase 2 clinical
trial.
In the last five years, a new technique has been developed to reduce the
morbidity and mortality of stem cell transplantation. In this "mini-transplant"
procedure, the patient receives substantially less radiation treatment prior to
the transplant. While this can reduce side effects and the time spent in
intensive care, the problem of GVHD remains. We intend to evaluate the
3
use of CTLA4-Ig to prevent the development of GVHD in patients receiving a
"mini-transplant" in a second Phase 2 clinical trial. Reduction of the severity
of GVHD in this setting may enable stem cell transplantation to be applied to a
broader range of cancer patients and to other diseases for which the current
morbidity associated with the transplant is unacceptable.
Repligen has obtained an exclusive license to the patent rights of the
University of Michigan which pertain to CTLA4-Ig and is prosecuting patents
filed by the University related to compositions of matter and methods of use of
CTLA4-Ig. We also believe that the University of Michigan and Repligen are
entitled to rights to certain U.S. patents on compositions and uses of CTLA4
which have been issued to Bristol-Myers Squibb Company. (For more information on
our intellectual property rights to CTLA4-Ig, please see "Legal Proceedings.")
Uridine for Mitochondrial Disorders
Mitochondria are small structures present in every cell which serve to
produce energy for cellular processes. Defects in the genes which encode
mitochondrial proteins are responsible for mitochondrial disease which affects
multiple organs, particularly the nervous system, heart, liver and lungs. Inborn
forms of mitochondrial disease affect approximately 20,000 people in the United
States and result in symptoms, including seizures, skeletal and heart muscle
weakness and neurological and cognitive defects.
It has recently been recognized that a second function of mitochondria is
to produce uridine, an essential precursor for the synthesis of RNA and DNA as
well as other cellular functions. This insight led researchers at The University
of California, San Diego ("UCSD") to evaluate synthetic uridine as a therapy for
mitochondrial disease.
In Phase 1 clinical trials carried out by UCSD, daily oral administration
of uridine or an analog of uridine was evaluated in 14 patients. This study
indicated that the therapy is well tolerated in patients with mitochondrial
disease including a few who have received it for more than two years. Several
patients also had marked improvements in their symptoms, including a reduction
in the number of seizures, improved muscle strength and improvements in kidney
function. Repligen is currently preparing for a placebo-controlled Phase 2
clinical trial to extend these observations.
In December 2000, Repligen exclusively licensed the rights to patent
applications from UCSD for the treatment of mitochondrial disease with uridine
or analogs of uridine.
Protein A Products for Antibody Manufacturing
Protein A is a naturally occurring protein used in the purification of
antibodies. Virtually all therapeutic monoclonal antibodies are manufactured by
a process in which an impure mixture containing the desired antibody product is
passed over a solid support to which Protein A has been chemically attached
(immobilized). The immobilized Protein A binds the antibody product while other
impurities are washed away. The antibody is then recovered from the support in a
substantially purified form.
We manufacture and market several forms of recombinant Protein A. Our
primary customers incorporate our product into their proprietary antibody
purification systems which they sell directly to the biotechnology and
pharmaceutical industry. We also manufacture an immobilized Protein A product
which is marketed by Amersham Pharmacia Biotech. Substantially all of our
product sales for the last three years have been sales of Protein A.
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In the past four years, the sales of therapeutic antibody products have
increased from $300 million in 1997 to approximately $2 billion in 2000. This
growth is based on the growth of new therapeutic antibody products, including
Rituxin(R) for lymphoma, Herceptin(TM) for breast cancer, Synagis(TM) for RSV
infection, Remicade(TM) for Crohn's disease and arthritis and Enbrel(TM) for
arthritis. There are more than 100 additional monoclonal antibodies in various
stages of clinical testing which may lead to additional growth of the antibody
market and in the demand for Protein A.
We own a patent in the U.S. covering the protein A gene and the manufacture
of recombinant Protein A which expires in 2009. Similar patents have been issued
to us in certain European countries and Japan which expire in 2002.
Secretin Diagnostic Products
In October 1999, we acquired the commercial rights to two diagnostic
products based on synthetic forms of porcine (pig-derived) and human secretin
from ChiRhoClin, Inc., a private company. Both of these products have been
evaluated in clinical trials for their safety and efficacy in diagnosing
pancreatic function and gastrinoma. A New Drug Application for each product has
been filed with the FDA. In March 2000, the FDA issued an "approvable letter"
for the use of synthetic porcine secretin in the diagnosis of pancreatic
function. The FDA issued a second "approvable letter" issued in November 2000
which contained questions concerning the manufacture and quality control of the
synthetic porcine substance. Final approval to market this synthetic porcine
product will be based on a satisfactory response by ChiRhoClin to questions
raised by the FDA.
We intend to market these diagnostic products directly to
gastroenterologists in the U.S. The FDA has granted both products Orphan Drug
Status which means that they will each have a seven year period of exclusivity
following final approval of the NDA.
Repligen's Business Strategy
Our primary objective is to develop drugs based on naturally-occurring
peptides, proteins and nucleotides. By harnessing the natural actions of these
compounds, it may be possible to modify a disease process in a specific way and
with a minimum of toxicity. We intend to maintain the commercial rights to our
lead product candidates through "proof of efficacy" clinical trials. After
demonstration of a product candidate's therapeutic potential, we may seek a
biotechnology or pharmaceutical partner for further clinical development or
commercialization of our product candidates.
We seek to control our operating losses by out-sourcing certain aspects of
clinical product development and manufacturing. In addition, we seek to offset
some of the expenses associated with product development with profits from the
sales of Protein A products and, pending FDA approval, secretin diagnostic
products. We intend to seek additional current product opportunities to increase
our current product revenues as we increase expenditures on clinical development
of our therapeutic products.
Sales and Marketing
We sell our rProtein A(TM) products primarily through value-added resellers
including Amersham Pharmacia Biotech, AB ("APBiotech"), PE Biosystems, Inc. and
Millipore Corporation, and through distributors in certain foreign markets.
Pending approval by the FDA,
5
we intend to market our secretin diagnostic products directly to
gastroenterologists in the United States.
Customers
Customers for our Protein A products include chromatography companies,
diagnostics companies, biopharmaceutical companies and laboratory researchers.
During fiscal 2001, customers that accounted for more than 10% of our total
revenues were APBiotech and PE Biosystems Inc.
Employees
As of June 15, 2001, we had 40 employees. Of the 40 employees, 26 were
engaged in research, development and manufacturing and 14 in administrative and
marketing functions. Doctorates or other advanced degrees are held by 15 of our
employees. Each of our employees has signed a confidentiality agreement. Our
employees are not covered by a collective bargaining agreement.
Patents, Licenses and Proprietary Rights
Our policy is to seek patent protection for our significant proprietary
products. We pursue patent protection in the United States and file
corresponding patent applications in relevant foreign jurisdictions. We believe
that patents are an important element in the protection of our competitive and
proprietary position, but other elements, including trade secrets, orphan drug
status and know-how, are also important. We own or have exclusive rights to more
than 15 U.S. patents and corresponding foreign equivalents. In addition, we have
rights to more than 20 U.S. pending patent applications. The invalidation 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.
In March 1999, we acquired the rights to certain patent applications
claiming the therapeutic use of secretin to treat autism and other pervasive
developmental disorders. In February 2000, we received a U.S. patent covering
the use of secretin in the treatment of autism or the symptoms of autism which
will expire in 2018. Additional related patent applications are currently being
prosecuted in the United States and key foreign markets.
As part of our program to develop drugs directed to the immune cell
receptors known as CD28, B7 and CTLA4 (costimulatory factors), we licensed the
rights to certain patent applications from the University of Michigan in 1992.
In September 1995, we assigned these patent rights to Genetics Institute, Inc.
In January 1996, Genetics Institute, Inc. returned the rights to CTLA4-Ig to us.
In November 1999, we executed an agreement with Genetics Institute and the
University of Michigan which confirmed the prior transfer of certain CTLA4-Ig
related rights from Genetics Institute to the University of Michigan and the
exclusive license of those rights to us. We have an unrestricted right to
sub-license our CTLA4-Ig rights. (For more information on our intellectual
property rights to CTLA4-Ig, please see "Legal Proceedings.")
We have licensed two patent applications from the University of California,
San Diego (UCSD) covering novel methods for the treatment of mitochondrial
disease and for the treatment of autism in patients with abnormal metabolism.
Under the terms of the license agreement, Repligen receives exclusive commercial
rights to both inventions and will pay UCSD an up-front fee, clinical
development milestones and royalties on product sales. Repligen will also
support two research projects at UCSD. One patent application covers the use of
analogs of uridine, a naturally
6
occurring component of RNA and DNA, for the treatment of diseases characterized
by defects in the function of mitochondria. A second patent application covers
the use of uridine and a form of uridine, triacetyl uridine ("TAU"), for the
correction of defects in purine metabolism which produce the symptoms of autism
or pervasive developmental disorder.
We own U.S. and European patents covering recombinant Protein A which
expire in 2009 and 2002 respectively. We also own rights to modified forms of
Protein A which were licensed to APBiotech in December 1998 as part of a ten
year agreement covering the supply of recombinant Protein A to APBiotech.
We also rely upon trade secret protection for our confidential and
proprietary information. Our policy is to require each of our employees,
consultants and significant scientific collaborators to execute confidentiality
agreements upon the commencement of an employment or consulting relationship
with us. These agreements generally provide that all confidential information
developed or made known to the individual during the course of the individual's
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.
Competition
Our Protein A products compete on the basis of quality, performance, cost
effectiveness, and application suitability with numerous established
technologies for protein purification. Additional products using new
technologies which may be competitive with our products may also be introduced.
Many of the companies selling or developing competitive products have financial,
manufacturing and distribution resources significantly greater than ours.
The field of drug development in which we are involved is characterized by
rapid technological change. New developments are expected to continue at a rapid
pace in both industry and academia. There are many companies, both public and
private, including large pharmaceutical companies, chemical companies and
specialized biotechnology companies, engaged in developing products competitive
with products that we have under development. Many of these companies have
greater capital, human resources, research and development, manufacturing and
marketing experience than we do. 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 than we are in production and
marketing. In addition, academic, government and industry-based research is
intense, resulting in considerable competition in obtaining qualified research
personnel, submitting patent filings for protection of intellectual property
rights and establishing corporate strategic alliances. We can not be certain
that research, discoveries and commercial developments by others will not render
any of our programs or potential products noncompetitive.
Manufacturing
We manufacture Protein A products from recombinant strains of bacteria. We
manufacture a modified form of Protein A for AP Biotech under a ten year supply
agreement which was initiated in December 1998. Certain fermentation and
recovery operations are carried out by third parties. The purification,
immobilization, packaging and quality control testing of Protein A are conducted
at our facilities in Needham, Massachusetts. (For more information about our
manufacturing facilities, please see "Description of Property.") We maintain an
active quality
7
assurance effort to support the regulatory requirements of our customers. Our
secretin diagnostic product is purchased from ChiRhoClin, Inc. who manufactures
it through third party contractors.
Government Regulation
The development of drug candidates, such as secretin or CTLA4-Ig, by us or
our collaborative partners are subject to regulation in the United States by the
FDA and abroad by foreign equivalents. Product development and approval within
the FDA regulatory framework usually takes a significant number of years,
involves the expenditure of substantial capital resources and timelines for
development are uncertain.
Before clinical testing in the United States of any drug candidate may
begin, FDA requirements for preclinical efficacy and safety must be completed.
Required toxicity testing typically involves characterization of the drug
candidate in several animal species. Safety and efficacy data are submitted to
the FDA as part of an Investigational New Drug Application ("IND") and are
reviewed by the FDA prior to the commencement of human clinical trials.
Clinical trials involve the administration of the drug to human volunteers
or patients under the supervision of a qualified investigator, usually a
physician, with an FDA-approved protocol. Human clinical trials are typically
conducted in three sequential phases:
o Phase 1 clinical trials represent the initial administration of the
investigational drug to a small group of human subjects to test for safety
(adverse effects), dose tolerance, absorption, biodistribution, metabolism,
excretion and clinical pharmacology and, if possible, to gain early
evidence regarding efficacy.
o Phase 2 clinical trials typically involve a small sample of the actual
intended patient population and seek to assess the efficacy of the drug for
specific targeted indications, to determine dose tolerance and the optimal
dose range, and to gather additional information relating to safety and
potential adverse effects.
o Once an investigational drug is found to have some efficacy and an
acceptable safety profile in the targeted patient population, Phase 3
clinical trials are initiated to establish further clinical safety and
efficacy of the investigational drug in a broader sample of the general
patient population at multiple study sites in order to determine the
overall risk-benefit ratio of the drug and to provide an adequate basis for
product approval. The Phase 3 clinical development program consists of
expanded, large-scale studies of patients with the target disease or
disorder, to obtain definitive statistical evidence of the efficacy and
safety of the proposed product.
All data obtained from a comprehensive development program are submitted in
a New Drug Application (NDA) to the FDA and the corresponding agencies in other
countries for review and approval. The NDA includes information pertaining to
clinical studies and the manufacture of the new drug. Review of an NDA by the
FDA can be a time-consuming process and the FDA may request that we submit
additional data or carry out additional studies.
Certain Factors That May Affect Future Results
Additional risks and uncertainties that we are unaware of or that we
currently deem immaterial also may become important factors that affect
Repligen.
8
WE MAY BE DEPENDENT ON OUR COLLABORATIVE PARTNERS TO DEVELOP, CONDUCT CLINICAL
TRIALS FOR, AND MANUFACTURE, MARKET AND SELL OUR PRINCIPAL PRODUCTS.
We conduct some of our development activities, and may conduct most of our
commercialization activities, through collaborations. Our collaborations are
heavily dependent on the efforts and activities of our collaborative partners.
Our existing and any future collaborations may not be scientifically or
commercially successful.
For example, if any of our collaborative partners were to breach or
terminate an agreement with us, reduce its funding or otherwise fail to conduct
the collaboration successfully, we may need to devote additional internal
resources to the program that is the subject of the collaboration, scale back or
terminate the program or seek an alternative partner.
THE MARKET MAY NOT BE RECEPTIVE TO OUR PRODUCTS UPON THEIR INTRODUCTION.
The commercial success of our products that are approved for marketing will
depend upon their acceptance by the medical community and third party payors as
being clinically useful, cost effective and safe. All of the products that we
are developing are based upon new technologies or therapeutic approaches. As a
result, it is hard to predict market acceptance of our products.
Other factors that we believe will materially affect market acceptance of
our products and services include:
o the timing of receipt of marketing approvals and the countries in
which such approvals are obtained;
o the safety, efficacy and ease of administration of our products;
o the success of physician education programs; and
o the availability of government and third party payor reimbursement of
our products.
WE COMPETE WITH LARGER, BETTER FINANCED AND MORE MATURE PHARMACEUTICAL AND
BIOTECHNOLOGY COMPANIES WHO ARE CAPABLE OF DEVELOPING NEW APPROACHES THAT COULD
MAKE OUR PRODUCTS AND TECHNOLOGY OBSOLETE.
The market for therapeutic and bioprocessing products is intensely
competitive, rapidly evolving and subject to rapid technological change.
Pharmaceutical and mature biotechnology companies have substantially greater
financial, manufacturing, marketing, research and development resources than we
have. New approaches to the treatment of our targeted diseases by these
competitors may make our products and technologies obsolete or noncompetitive.
WE HAVE INCURRED SUBSTANTIAL LOSSES, WE EXPECT TO CONTINUE TO INCUR LOSSES AND
WE WILL NOT BE SUCCESSFUL UNTIL WE REVERSE THIS TREND.
We have incurred losses in each year since our founding in 1981. We expect
to continue to incur operating losses for the foreseeable future.
While we generate revenue from product sales, this revenue is not
sufficient to cover the costs of our clinical trials and drug development
programs. We expect to increase our spending significantly as we continue to
expand our research and development programs and commercialization activities.
As a result, we will need to generate significant revenues in order to achieve
profitability. We cannot be certain whether or when this will occur because of
the significant uncertainties that affect our business.
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IF WE DO NOT OBTAIN ADDITIONAL CAPITAL FOR OUR DRUG DEVELOPMENT PROGRAMS, WE
WILL BE UNABLE TO DEVELOP OR DISCOVER NEW DRUGS.
We need additional long-term financing to develop our drug development
programs through the clinical trial process as required by the FDA and our
bioprocessing products business. We also need additional long-term financing to
support future operations and capital expenditures, including capital for
additional personnel and facilities. If we spend more money than currently
expected for our drug development programs and our bioprocessing products
business, we will need to raise additional capital by selling debt or equity
securities, by entering into strategic relationships or through other
arrangements. We may be unable to raise any additional amounts on reasonable
terms when they are needed due to the volatile nature of the biotechnology
marketplace. If we are unable to raise this additional capital, we may have to
delay or postpone critical clinical studies or abandon other development
programs.
IF OUR CLINICAL TRIALS ARE NOT SUCCESSFUL, WE WILL NOT BE ABLE TO DEVELOP AND
COMMERCIALIZE ANY RELATED PRODUCTS.
In order to obtain regulatory approvals for the commercial sale of our
future products, we and our collaborative partners will be required to complete
extensive clinical trials in humans to demonstrate the safety and efficacy of
the products. We have limited experience in conducting clinical trials.
The submission of an IND may not result in FDA authorization to commence
clinical trials. If clinical trials begin, we or our collaborative partners may
not complete testing successfully within any specific time period, if at all,
with respect to any of our products. Furthermore, we, our collaborative
partners, or the FDA, may suspend clinical trials at any time on various
grounds, including a finding that the subjects or patients are being exposed to
unacceptable health risks. Clinical trials, if completed, may not show any
potential product to be safe or effective. Thus, the FDA and other regulatory
authorities may not approve any of our potential products for any indication.
The rate of completion of clinical trials is dependent in part upon the
rate of enrollment of patients. Patient enrollment is a function of many
factors, including the size of the patient population, the proximity of patients
to clinical sites, the eligibility criteria for the study, and the existence of
competitive clinical trials. Delays in planned patient enrollment may result in
increased costs and program delays.
WE MAY NOT OBTAIN REGULATORY APPROVALS; THE APPROVAL PROCESS IS COSTLY AND
LENGTHY.
We must obtain regulatory approval for our ongoing development activities
and before marketing or selling any of our future products. We may not receive
regulatory approvals to conduct clinical trials of our products or to
manufacture or market our products. In addition, regulatory agencies may not
grant such approvals on a timely basis or may revoke previously granted
approvals.
The process of obtaining FDA and other required regulatory approvals is
lengthy and expensive. The time required for FDA and other clearances or
approvals is uncertain and typically takes a number of years, depending on the
complexity and novelty of the product. Our analysis of data obtained from
preclinical and clinical activities is subject to confirmation and
interpretation by regulatory authorities, which could delay, limit or prevent
regulatory approval. Any delay in obtaining or failure to obtain required
clearance or approvals could materially adversely affect our
10
ability to generate revenues from the affected product. We have only limited
experience in filing and prosecuting applications necessary to gain regulatory
approvals.
We also are subject to numerous foreign regulatory requirements governing
the design and conduct of the clinical trials and the manufacturing and
marketing of our future products. The approval procedure varies among countries.
The time required to obtain foreign approvals often differs from that required
to obtain FDA approvals. Moreover, approval by the FDA does not ensure approval
by regulatory authorities in other countries.
All of the foregoing regulatory risks also are applicable to development,
manufacturing and marketing undertaken by our collaborative partners or other
third parties.
EVEN IF WE OBTAIN MARKETING APPROVAL, OUR PRODUCTS WILL BE SUBJECT TO ONGOING
REGULATORY REVIEW WHICH WILL BE EXPENSIVE AND MAY EFFECT OUR ABILITY TO
SUCCESSFULLY COMMERCIALIZE OUR PRODUCTS.
Even if we receive regulatory approval of a product, such approval may be
subject to limitations on the indicated uses for which the product may be
marketed, which may limit the size of the market for the product or contain
requirements for costly post-marketing follow-up studies. The manufacturer of
our products for which we have obtained marketing approval will be subject to
continued review and periodic inspections by the FDA and other regulatory
authorities. The subsequent discovery of previously unknown problems with the
product, clinical trial subjects, or with the manufacturer or facility may
result in restrictions on the product or manufacturer, including withdrawal of
the product from the market.
If we fail to comply with applicable regulatory requirements, we may be
subject to fines, suspension or withdrawal of regulatory approvals, product
recalls, seizure of products, operating restrictions, and criminal prosecution.
IF WE ARE UNABLE TO OBTAIN AND MAINTAIN PATENTS FOR OUR PRODUCTS, WE WILL NOT BE
ABLE TO SUCCEED COMMERCIALLY.
We must obtain and maintain patent and trade secret protection for our
products and processes 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:
o obtain and maintain patent protection for our products and
manufacturing processes;
o preserve our trade secrets; and
o operate without infringing the proprietary rights of third parties.
We can not 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 States
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:
o scope of the patent claims;
o validity and enforceability of the claims obtained in such patents;
and
11
o our willingness and financial ability to enforce and/or defend them.
The patent position of biotechnology and pharmaceutical firms is often
highly uncertain and usually involves complex legal and scientific questions.
Moreover, no consistent policy has emerged in the United States and in many
other countries regarding the breadth of claims allowed in biotechnology
patents. 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.
If our competitors prepare and file patent applications in the United
States 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.
In addition, patents blocking our manufacture, use or sale of our products
could be issued to third parties in the United States or foreign countries. The
issuance of blocking patents or an adverse outcome in an interference or
opposition proceeding, could subject us to significant liabilities to third
parties and require us to license disputed rights from third parties on
unfavorable terms, if at all, or cease using the technology.
WE MAY BECOME INVOLVED IN EXPENSIVE PATENT LITIGATION OR OTHER INTELLECTUAL
PROPERTY PROCEEDINGS WHICH COULD RESULT IN LIABILITY FOR DAMAGES OR STOP OUR
DEVELOPMENT AND COMMERCIALIZATION EFFORTS.
There has been substantial litigation and other proceedings regarding the
complex patent and other intellectual property rights in the pharmaceutical and
biotechnology industries. We 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:
o We may initiate litigation or other proceedings against third parties
to enforce our patent rights.
o 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.
o 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.
o 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 unfavorably to
us, we or our collaborative partners may be enjoined from manufacturing or
selling our products and
12
services without a license from the other party and be held liable for
significant damages. We may not be able to obtain any required license on
commercially acceptable terms or at all.
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.
WE HAVE LIMITED SALES AND MARKETING EXPERIENCE AND CAPABILITIES.
We have limited sales, marketing and distribution experience and
capabilities. We may, in some instances, rely significantly on sales, marketing
and distribution arrangements with our collaborative partners and other third
parties. In these instances, our future revenues will be materially dependent
upon the success of the efforts of these third parties.
If in the future we determine to perform sales, marketing and distribution
functions ourselves, we would face a number of additional risks, including:
o we may not be able to attract and build a significant marketing staff
or sales force;
o the cost of establishing a marketing staff or sales force may not be
justifiable in light of any product revenues; and
o our direct sales and marketing efforts may not be successful.
WE HAVE LIMITED MANUFACTURING CAPABILITIES AND WILL BE DEPENDENT ON THIRD PARTY
MANUFACTURERS.
We have limited manufacturing experience and no commercial or pilot scale
manufacturing facilities for the production of pharmaceuticals. In order to
continue to develop pharmaceutical products, apply for regulatory approvals and,
ultimately, commercialize any products, we will need to develop, contract for,
or otherwise arrange for the necessary manufacturing capabilities.
We currently rely upon third parties to produce material for preclinical
and clinical testing purposes and expect to continue to do so in the future. We
also expect to rely upon third parties, including our collaborative partners, to
produce materials required for the commercial production of certain of our
products if we succeed in obtaining necessary regulatory approvals. We believe
that there is no proprietary aspect to the manufacture of our products. We
believe our products could be manufactured at other facilities; however, there
are a limited number of manufacturers that operate under the FDA's regulations
for good manufacturing practices which are capable of manufacturing for us.
Timing for the initiation of new manufacturers is uncertain, and, if we are
unable to arrange for third party manufacturing of our products, or to do so on
commercially reasonable terms, we may not be able to complete development of our
products or market them.
To the extent that we enter into manufacturing arrangements with third
parties, we are dependent upon these third parties to perform their obligations
in a timely manner. If such third party suppliers fail to perform their
obligations, we may be adversely affected in a number of ways, including:
o we may not be able to meet commercial demands for our products;
13
o we may not be able to initiate or continue clinical trials of products
that are under development; and
o we may be delayed in submitting applications for regulatory approvals
for our products.
The manufacture of products by us and our collaborative partners and
suppliers is subject to regulation by the FDA and comparable agencies in foreign
countries. Delay in complying or failure to comply with such manufacturing
requirements could materially adversely affect the marketing of our products.
IF WE ARE UNABLE TO CONTINUE TO HIRE AND RETAIN SKILLED TECHNICAL AND SCIENTIFIC
PERSONNEL, THEN WE WILL HAVE TROUBLE DEVELOPING 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 scientific, management and marketing personnel. Potential employees with
an expertise in the field of biochemistry, regulatory affairs and/or clinical
development of new drug and biopharmaceutical manufacturing are not generally
available in the market and are difficult to attract and retain. We also face
significant competition for such personnel from other companies, research and
academic institutions, government and other organizations who have superior
funding and resources to be able to attract such personnel. The loss of key
personnel or our inability to hire and retain personnel who have technical and
scientific backgrounds could materially adversely affect our product development
efforts and our business.
OUR STOCK PRICE COULD BE VOLATILE, WHICH COULD CAUSE YOU TO LOSE PART OR ALL OF
YOUR INVESTMENT.
The market price of our common stock, like that of the common stock of many
other development stage biotechnology companies, may be 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 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.
Item 2. DESCRIPTION OF PROPERTY
Our executive office, research and manufacturing facilities are located at
117 Fourth Avenue in Needham, Massachusetts. We occupy approximately 15,000
square feet under a six-year sublease, which expires on April 30, 2002. We
believe that suitable additional or alternate space will be available at
commercially reasonable terms when our lease expires.
Item 3. LEGAL PROCEEDINGS
Repligen and the University of Michigan (the "University") believe that the
University is entitled to rights to certain United States patents owned by
Bristol-Myers Squibb Company ("BMS"), which patents cover claims for composition
and methods of use for CTLA4. On August 31, 2000, Repligen and the University
filed a complaint against BMS at the United States District Court for the
District of Michigan in Detroit, Michigan seeking correction of inventorship on
these patents. A correction of inventorship would result in the University being
designated as a co-assignee on any corrected BMS patent. Repligen would then
have rights to such technology
14
pursuant to a 2000 License Agreement with the University, a 1995 Asset
Acquisition Agreement with Genetics Institute and other related agreements.
Repligen's failure to obtain shared ownership rights in the BMS patents may
restrict Repligen's ability to commercialize CTLA4-Ig. Repligen and the
University have also filed patents related to compositions of matter and methods
of use of CTLA4-Ig.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of our security holders of the Company
through solicitation of proxies or otherwise, during the last quarter of the
fiscal year ended March 31, 2001.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Market Information
Our common stock is traded over-the-counter on the Nasdaq National Market
under the symbol "RGEN." The following table sets forth for the periods
indicated the high and low bid quotations for the common stock as reported by
Nasdaq. These quotations reflect inter-dealer prices, without retail markup,
markdown or commission and may not necessarily reflect actual transactions.
Fiscal Year 2001 High Low
---------------- ---- ---
Fourth Quarter $5.875 $2.031
Third Quarter 8.688 3.000
Second Quarter 8.875 5.313
First Quarter 9.688 4.000
Fiscal Year 2000
----------------
Fourth Quarter $18.000 $2.875
Third Quarter 4.875 2.688
Second Quarter 3.188 2.375
First Quarter 3.469 2.563
Stockholders and Dividends
As of June 15, 2001 there were approximately 929 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.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data are derived from, and are qualified
in their entirety by reference to, the consolidated financial statements of
Repligen as of and for the years ended March 31, 2001, 2000, 1999, 1998 and 1997
which have been audited by Arthur Andersen LLP, independent public accountants.
The selected financial data set forth below should be read in conjunction with
the consolidated financial statements of Repligen and the related notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this report and our report on Form 10-K for
the years ended March 31, 2000, 1999, 1998 and 1997.
15
Years Ended March 31,
--------------------------------------------------------
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
(In thousands, except per share amounts)
Operating Statement Data:
Revenues:
Product $ 2,083 $ 2,041 $ 1,010 $ 1,114 $ 1,554
Research and development 172 863 1,268 917 1,180
Other 91 74 100 129 799
-------- -------- -------- -------- --------
Total revenues $ 2,346 $ 2,978 $ 2,378 $ 2,160 $ 3,533
-------- -------- -------- -------- --------
Costs and expenses:
Research and development 5,786 3,754 2,882 1,420 1,927
Selling, general & administrative 2,493 2,480 1,563 1,281 1,940
Cost of product sales 1,400 1,107 689 480 537
Restructuring (credit) charge -- -- -- -- (111)
-------- -------- -------- -------- --------
Total costs and expenses 9,679 7,341 5,134 3,181 4,293
-------- -------- -------- -------- --------
Loss from operations (7,333) (4,363) (2,756) (1,021) (760)
-------- -------- -------- -------- --------
Investment income 2,054 547 212 225 269
Net loss $ (5,279) $ (3,816) $ (2,544) $ (796) $ (491)
======== ======== ======== ======== ========
Net loss per common share $ (0.20) $ (0.18) $ (0.14) $ (0.05) $ (0.03)
======== ======== ======== ======== ========
Weighted average common shares
outstanding 26,548 21,538 18,018 16,502 15,678
======== ======== ======== ======== ========
(In thousands)
As of March 31,
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
Balance Sheet Data:
Cash and investments $ 29,930 $ 34,033 $ 3,251 $ 4,726 $ 3,538
Working capital 24,398 34,473 3,860 5,377 3,990
Total assets 32,148 36,287 5,224 6,513 5,621
Accumulated deficit (135,959) (130,680) (126,864) (124,320) (123,533)
Stockholders' equity 30,891 35,090 4,592 6,124 4,919
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations 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. Repligen's
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 "Certain Factors that May Affect Future Results" and elsewhere
in this report.
16
Results of Operations
Fiscal Year Ended March 31, 2001 Compared with Fiscal Year Ended March 31, 2000
Revenues
Total revenues for fiscal 2001 were $2,346,000, compared to $2,978,000 in
fiscal 2000, a decrease of $632,000 or 21%. This decrease in revenue is a result
of the discontinuance of research collaborations and grants programs that
occurred during fiscal 2000 as we focus our efforts on our own proprietary drug
programs.
Product revenues for fiscal 2001 were $2,083,000, compared to $2,041, 000
in fiscal 2000, an increase of $42,000 or 2%. Product sales under our supply
agreement with AP Biotech increased during fiscal 2001 partially offset by a
decrease in sales of our Protein A product as a result of the timing of large
production scale orders.
Research and development revenues for fiscal 2001 were $172,000 compared to
$863,000 in fiscal 2000, a decrease of $691,000 or 80%. During fiscal 2000, we
received non-recurring licensing payments and completed our SBIR grants for NIH
and NSF.
Cost and Expenses
Total costs and expenses for fiscal 2001 were $9,679,000 compared to
$7,341,000 in fiscal 2001, an increase of $2,338,000 or 32%.
Research and development expenses for fiscal 2001 were $5,786,000 compared
to $3,754,000 in fiscal 2000, an increase of $2,032,000 or 54%. This increase is
largely due to increased clinical and manufacturing costs related to development
activities for secretin, CTLA4-Ig and uridine.
Selling, general and administrative expenses for fiscal 2001 were
$2,493,000 compared to $2,480,000 in fiscal 2000, an increase of $13,000 or .5%.
This increase was attributable to increases in payroll and related expenses,
non-cash charges related to the issuance of warrants, and increased shareholder
communication expenses as a result of an expanded shareholder base. These
increases were partially offset by a decrease in financial advisory costs that
were incurred during fiscal 2000.
Cost of products sold for fiscal 2001 was $1,400,000, compared to
$1,107,000 in fiscal 2000, an increase of $293,000 or 26%. Cost of product sales
in fiscal 2001 was 67% of product revenues versus 54% of product revenues for
fiscal 2000. These increases are a result of increased personnel costs and
production costs.
Investment income
Investment income for fiscal 2001 was $2,054,000, compared to $547,000 in
fiscal 2000, an increase of $1,507,000 or 276%. The increase in investment
income is due to higher average cash, cash equivalent and marketable securities
balances as result of the common stock financings that took place during March
2000.
Fiscal Year Ended March 31, 2000 Compared with Fiscal Year Ended March 31, 1999
Revenues
Total revenues for fiscal 2000 were $2,978,000 compared to $2,378,000 in
fiscal 1999, an increase of $601,000 or 25%. This increase was largely
attributable to increased product sales of recombinant Protein A offset by
decreased research and development revenue.
17
Product revenues for fiscal 2000 were $2,041,000 compared to $1,010,000 in
fiscal 1999, an increase of $1,031,000 or 102%. The increase in the product
sales volume is attributed to the initiation of product shipments to APBiotech
under a supply agreement executed in May 1999 and strong demand from monoclonal
antibody producers for Protein A products.
Research and development revenues for fiscal 2000 were $863,000 compared to
$1,268,000 in fiscal 1999, a decrease of $405,000 or 32%. The decrease in
research and development revenues of $405,000 or 32% from fiscal 1999 levels is
primarily attributable to the discontinuance of certain research collaborations
and grant programs.
Costs and Expenses
Total expenses for fiscal 2000 were $7,341,000, compared to $5,134,000 in
fiscal 1999, an increase of $2,207,000 or 43%.
Research and development expenses for fiscal 2000 were $3,754,000, compared
to $2,882,000 in fiscal 1999, an increase of $872,000, or 30%. Research and
development costs for fiscal 2000 include a $1,000,000 payment to ChiRhoClin
pursuant to our license agreement with them. Fiscal 1999 research and
development costs include $1,035,000 in costs associated with the acquisition of
rights to certain patent applications covering the use of secretin in the
treatment of autism. In addition, the increase in research and development
expenses in 2000 reflects increased costs associated with our drug development
programs for secretin and CTLA4-Ig.
Selling, general and administrative expenses for fiscal 2000 were
$2,480,000, compared to $1,563,000 in fiscal 1999, an increase of $917,000 or
59%. Included in selling, general and administrative expenses for fiscal 2000
were one time charges associated with a financial advisory agreement with
Paramount Capital of $493,000, including a non-cash charge of $188,000
associated with the issuance of warrants to purchase common stock.
Cost of product sales for fiscal 2000 totaled $1,107,000, compared to
$689,000 in fiscal 1999, which represents an increase of $418,000 or 61% over
the prior fiscal year. Costs of product sales in fiscal 2000 were 54% of product
revenues versus 68% of product revenues for fiscal 1999. The increase in costs
of product sales and decrease in cost of revenues as a percentage of sales is
due primarily to increased Protein A product sales. In addition, during fiscal
2000, we incurred additional expenses associated with the start-up of the
manufacture of Protein A for AP Biotech and the write off of inventory resulting
from the introduction of a new Protein A product that took place during fiscal
1999.
Investment income
Investment income for fiscal 2000 was $547,000, compared to $212,000 for
fiscal 1999, an increase of $335,000 or 158%. The increase in investment income
is due to higher average cash, cash equivalent and marketable securities
balances as a result of the private placement that took place in May 1999.
Liquidity and Capital Resources
We have financed our operations primarily through sales of equity
securities and revenues derived from product sales, collaborative research
agreements, government grants, and payments on licensing and royalty agreements.
At March 31, 2001 we had cash, cash equivalents, and marketable securities of
$29,930,000, compared to $34,033,000 at March 31, 2000.
18
Repligen's operating activities in 2001 used cash of approximately
$4,620,000, consisting of the net loss from operations for the year, an increase
in inventory and a decrease in accrued expenses. These cash uses were offset by
noncash charges for depreciation and amortization and stock and warrant
issuances and an increase in accounts payable. During fiscal 2001, we purchased
$185,000 of capital equipment, consisting of laboratory and office equipment. We
received cash of $677,000 from the proceeds of stock option and warrant
exercises.
We expect to incur significantly higher costs in fiscal 2002 as a result of
expanded research and development costs associated with the expansion of
activities associated with clinical trials of our proprietary drug candidates.
In addition, under terms of our secretin diagnostic agreement with ChiRhoClin,
if the FDA approves an NDA, we will be required to pay ChiRhoClin future
milestones in cash and through issuance of our common stock as well as royalties
on sales. We believe that we have sufficient resources to satisfy our working
capital and capital expenditure requirements for the next twenty-four months.
Should we need to secure additional financing to meet our future liquidity
requirements, we may not be able to secure such financing, or obtain such
financing on favorable terms because of the volatile nature of the biotechnology
marketplace.
We do not currently use derivative financial instruments. We generally
place our marketable security investments in high quality credit instruments, as
specified in our investment policy guidelines. Our investment policy also limits
the amount of credit exposure to any one issue, issuer, and type of investment.
We do not expect any material loss from our marketable securities.
New Accounting Standards
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. As amended in June 1999, the statement is
effective for all fiscal quarters of all fiscal years beginning after June 15,
2000. In June 2000, the FASB issued statement No. 138, which is a significant
amendment to SFAS NO. 133. SFAS No. 133 and its amendments establish accounting
and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities. The Emerging Issues Task Force (EITF)
has also issued a number of derivative-related tentative and final consensuses.
We do not expect the adoption of these statements to have a material impact on
our consolidated financial position or results of operations.
In March 2000, the FASB issued Interpretation No. 44, Accounting for
Certain Transactions Involving Stock Compensation--An Interpretation of APB
Opinion No. 25. The Interpretation clarifies the application of Accounting
Principles Board Opinion (APB) No. 25 in certain situations, as defined.
Interpretation No. 44 is effective July 1, 2000; however, it covers certain
events occurring during the period after December 15, 1998 but before the
effective date, the effects of applying this Interpretation No. 44 would be
recognized on a prospective basis from the effective date. Accordingly, upon
initial application of the final Interpretation No. 44, no adjustments would be
made to the financial statements for periods before the effective date and no
expense would be recognized for any additional compensation cost measured that
is attributable to periods before the effective date. The adoption of this
statement had no material impact on our financial statements.
In September 2000, the EITF issued 00-19, Accounting for Derivative
Financial Instruments Indexed to and Potentially Settled in a Company's Own
Stock, which requires freestanding contracts that are settled in a company's own
stock, including common stock warrants, to be designated as an equity
instrument, asset or a liability. Under the provisions of EITF 00-19, a contract
designated as an asset or a liability must be carried at fair value, with any
19
changes in fair value recorded in the results of operations. A contract
designated as an equity instrument must be included within equity and no fair
value adjustments are required. We do not expect the adoption of this statement
to have a material impact on our consolidated financial position or results of
operations.
Item 8. FINANCIAL STATEMENTS
All financial statements required to be filed hereunder are filed as an
exhibit hereto, are listed under item 14 (a) (1) and are incorporated herein by
reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding our directors and executive officers will be set
forth under the captions "Election of Directors," "Occupations of Directors and
Executive Officers," "Biographical Information," "Information Regarding the
Board of Directors and its Committees" and "Section 16 (a) Beneficial Ownership
Reporting Compliance" in our definitive proxy statement for our annual meeting
of stockholders to be held on September 13, 2001 which will be filed with the
SEC within 120 days of March 31, 2001 and is incorporated herein by reference.
Item 11. EXECUTIVE COMPENSATION
Information required by this Item will be set forth under the captions
"Summary of Executive Compensation" and "Compensation of Directors" in our
definitive proxy statement for our annual meeting of stockholders to be held on
September 13, 2001 which will be filed with the SEC within 120 days of March 31,
2001 and is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this Item will be set forth under the captions
"Principal Holders of Voting Securities" and "Stock Ownership of Executive
Officers and Directors" in our definitive proxy statement for our annual meeting
of stockholders to be held on September 13, 2001 which will be filed with the
SEC within 120 days of March 31, 2001 and is incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this Item will be set forth under the caption
"Certain Relationships and Related Transactions" in our definitive proxy
statement for our annual meeting of stockholders to be held on September 13,
2001 which will be filed with the SEC within 120 days of March 31, 2001 and is
incorporated herein by reference.
20
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The following documents are filed as part of this Annual Report on Form 10-K:
(a) (1) Financial Statements:
The consolidated financial statements required by this item are submitted in a
separate section beginning on page F-2 of this Report, as follows:
Page
----
Report of Independent Public Accountants.................................. F-2
Consolidated Balance Sheets as of March 31, 2001 and 2000................. F-3
Consolidated Statements of Operations for the Years Ended
March 31, 2001, 2000, and 1999............................................ F-4
Consolidated Statements of Stockholders' Equity for the Years
Ended March 31, 2001, 2000, and 1999...................................... F-5
Consolidated Statements of Cash Flows for the Years Ended March 31,
2001, 2000, and 1999 ..................................................... F-6
Notes to Consolidated Financial Statements................................ F-7
(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.
(b) Reports on Form 8-K:
No current reports on Form 8-K were filed during the last quarter of our fiscal
year ended March 31, 2001.
21
EXHIBIT INDEX
-------------
Exhibit
Number Document Description
- ------ --------------------
3.1 Restated Certificate of Incorporation, dated June 30, 1992 and amended
September 30, 1999 (filed as Exhibit 4.1 to Repligen Corporation's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1999
and incorporated herein by reference).
3.2 By-laws (filed as Exhibit 3.4 to Repligen Corporation's Form S-1
Registration Statement No. 33-3959 and incorporated herein by
reference).
4.1 Specimen Stock Certificate (filed as Exhibit 4.2 to Repligen
Corporation's Form S-1 Registration Statement No. 33-3959 and
incorporated herein by reference).
4.2 Form of Warrant Agreement (filed as Exhibit 4.1 to Repligen
Corporation's Form 10-Q for the quarter ended September 30, 1999 and
incorporated herein by reference).
4.3 Form of Common Stock Purchase Warrant (filed as Exhibit 4.3 to Repligen
Corporation's Form S-3 Registration Statement No. 333-36280 and
incorporated herein by reference).
4.4 Stock Purchase Agreement dated as of March 7, 2000, by and among
Repligen Corporation and the investors listed on Schedule I thereto
(filed as Exhibit 4.1 to Repligen Corporation's Form 8-K filed March
21, 2000 and incorporated herein by reference).
4.5 Common Stock Purchase Warrant dated July 24, 2000 (filed as Exhibit 4.1
to Repligen Corporation's Form 10-Q for the quarter ended September 30,
2000 and incorporated herein by reference).
4.6 The Amended 1992 Repligen Corporation Stock Option Plan, as amended
(filed as Exhibit 4.2 to Repligen Corporation's Form 10-Q for the
quarter ended September 30, 2000 and incorporated herein by reference).
10.1* Consulting Agreement, dated October 1, 1981, between Dr. Paul Schimmel
and Repligen Corporation (filed as Exhibit 10.14 to Repligen
Corporation's Form S-1 Registration Statement No. 33-3959 and
incorporated herein by reference).
10.2* Consulting Agreement, dated November 1, 1981, between Dr. Alexander
Rich and Repligen Corporation (filed as Exhibit 10.15 to Repligen
Corporation's Form S-1 Registration Statement No. 33-3959 and
incorporated herein by reference).
10.3* Employment Agreement, dated March 14, 1996, between Repligen
Corporation and Walter C. Herlihy (filed as Exhibit 10.43 to Repligen
Corporation's Annual Report on Form 10-K for the year ended March 31,
1996 and incorporated herein by reference).
10.4* Employment Agreement, dated March 14, 1996, between Repligen
Corporation and James R. Rusche (filed as Exhibit 10.44 to Repligen
Corporation's Annual Report on Form 10-K for the year ended March 31,
1996 and incorporated herein by reference).
22
10.5* Employment Agreement, dated March 14, 1996, between Repligen
Corporation and Daniel P. Witt (filed as Exhibit 10.45 to Repligen
Corporation's Annual Report on Form 10-K for the year ended March 31,
1996 and incorporated herein by reference).
10.6 Sublease Agreement dated as of May 1, 1996 between T Cell Sciences,
Inc. and Repligen Corporation (filed as Exhibit 10.46 to Repligen
Corporation's Annual Report on Form 10-K for the year ended March 31,
1996 and incorporated herein by reference).
#10.7 Patent Purchase Agreement dated as of March 9, 1999 among the Company
and Autism Research Institute and Victoria Beck (filed as Exhibit 2.1
to Repligen Corporation's Form 8-K/A filed June 15, 1999 and
incorporated herein by reference).
#10.8 Manufacturing Transfer Agreement dated as of December 31, 1998 among
the Company and Amersham Pharmacia Biotech AB (filed as Exhibit 10.1 to
Repligen Corporation's Quarterly Report on Form 10-Q for the quarter
ended December 31, 1998 and incorporated herein by reference).
#10.9 Supply Agreement dated as of May 26, 1999 by and between Repligen
Corporation and Amersham Pharmacia Biotech AB (filed as Exhibit 10.1 to
Repligen Corporation's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1999 and incorporated herein by reference).
10.11 Licensing Agreement by and between ChiRhoClin, Inc. and Repligen
Corporation (filed as Exhibit 10.1 to Repligen Corporation's Quarterly
Report on Form 10-Q for the quarter ended December 31, 1999 and
incorporated herein by reference).
10.12 Finders Agreement by and between Repligen Corporation and Paramount
Capital, Inc. dated as of March 2, 2000 (filed as Exhibit 4.2 to
Repligen Corporation's Form 8-K filed March 21, 2000 and incorporated
herein by reference).
10.13 Patent Purchase Agreement dated as of May 9, 2000 by and between
Tolerance Therapeutics LLC and Repligen Corporation (filed as Exhibit
10.1 to Repligen Corporation's Quarterly Report on Form 10-Q for the
quarter ended June 30, 2000 and incorporated herein by reference).
10.14 License Agreement with University of Michigan (filed as Exhibit 10.1 to
Repligen Corporation's Quarterly Report on Form 10-Q for the quarter
ended September 30, 2000 and incorporated herein by reference).
21+ Subsidiaries of the Registrant.
23+ Consent of Arthur Andersen LLP.
- -----------
# 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
Form 10-K distributed to stockholders. Upon the request of any stockholder
entitled to vote at the 2001 annual meeting, the Registrant will furnish that
person without charge a copy of any exhibits listed above. Requests should be
addressed to Repligen Corporation, 117 Fourth Avenue, Needham, MA 02494.
23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
REPLIGEN CORPORATION
By: /s/ Walter C. Herlihy
--------------------------------
Walter C. Herlihy
President and Chief
Executive Officer
(Principal executive, financial
and accounting officer)
Date: June 29, 2001
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby makes, constitutes and appoints Walter C. Herlihy with full power
to act without the other, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities to sign any or all amendments to this Form
10-K, and to file the same with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorney-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
--------- ----- ----
/s/ Alexander Rich Co-Chairman of the Board of June 29, 2001
- -------------------------- Directors
Alexander Rich, M.D.
/s/ Paul Schimmel Co-Chairman of the Board of June 29, 2001
- -------------------------- Directors
Paul Schimmel, Ph.D.
/s/ Walter C. Herlihy President, Chief Executive Officer June 29, 2001
- -------------------------- and Director (Principal executive,
Walter C. Herlihy financial and accounting officer)
/s/ Robert J. Hennessey Director June 29, 2001
- --------------------------
Robert J. Hennessey
/s/ G. William Miller Director June 29, 2001
- --------------------------
G. William Miller
24
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Public Accountants F-2
Balance Sheets as of March 31, 2001 and 2000 F-3
Statements of Operations for the Years
Ended March 31, 2001, 2000 and 1999 F-4
Statement of Stockholders' Equity for the Years
Ended March 31, 2001, 2000 and 1999 F-5
Statements of Cash Flows for the Years
Ended March 31, 2001, 2000 and 1999 F-6
Notes to Financial Statements F-7
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Repligen Corporation:
We have audited the accompanying balance sheets of Repligen Corporation (a
Delaware corporation) as of March 31, 2001 and 2000 and the related statements
of operations, stockholders' equity and cash flows for each of the three years
in the period ended March 31, 2001. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Repligen Corporation as of
March 31, 2001 and 2000 and the results of its operations and its cash flows for
each of the three years in the period ended March 31, 2001, in conformity with
accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
May 21, 2001
F-2
REPLIGEN CORPORATION
BALANCE SHEETS
ASSETS
As of March 31,
2001 2000
-------------------------------
Current assets:
Cash and cash equivalents $ 16,163,625 $ 25,226,546
Marketable securities 7,773,427 8,806,367
Accounts receivable, less reserves of $25,000 812,481 847,838
Inventories 634,723 547,448
Prepaid expenses and other current assets 270,252 241,654
------------- -------------
Total current assets 25,654,508 35,669,853
------------- -------------
Property, plant and equipment, at cost:
Equipment 1,103,527 1,092,831
Leasehold improvements 331,501 473,289
Furniture and fixtures 473,288 157,475
------------- -------------
1,908,316 1,723,595
Less -- accumulated depreciation and amortization 1,464,195 1,187,343
------------- -------------
444,121 536,252
------------- -------------
Long-term marketable securities 5,992,478 --
Other assets, net 56,882 81,382
------------- -------------
$ 32,147,989 $ 36,287,487
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 529,914 $ 425,565
Accrued expenses 726,910 771,520
------------- -------------
Total current liabilities 1,256,824 1,197,085
------------- -------------
Commitments and Contingencies (Note 4 & 5)
Stockholders' equity:
Preferred stock, $0.01 par value, authorized,
5,000,000 shares, issued and outstanding, none -- --
Common stock, $0.01 par value, authorized,
40,000,000 shares, issued and outstanding, 26,628,950
shares and 26,315,979 shares
at March 31, 2001 and 2000, respectively 266,289 263,159
Additional paid-in capital 166,583,684 165,507,184
Accumulated deficit (135,958,808) (130,679,941)
------------- -------------
Total stockholders' equity 30,891,165 35,090,402
------------- -------------
$ 32,147,989 $ 36,287,487
============= =============
The accompanying notes are an integral part of these financial statements.
F-3
REPLIGEN CORPORATION
STATEMENTS OF OPERATIONS
Years Ended March 31,
2001 2000 1999
--------------------------------------------------
Revenues:
Product $ 2,083,529 $ 2,040,828 $ 1,009,655
Research and development 171,615 863,035 1,268,036
Other 91,554 73,969 99,711
------------ ------------ ------------
Total revenues 2,346,698 2,977,832 2,377,402
------------ ------------ ------------
Costs and expenses:
Research and development 5,786,392 3,753,908 2,882,124
Selling, general and administrative 2,493,014 2,480,398 1,562,750
Cost of product sales 1,399,849 1,106,642 688,618
------------ ------------ ------------
Total costs and expenses 9,679,255 7,340,948 5,133,492
------------ ------------ ------------
Loss from operations (7,332,557) (4,363,116) (2,756,090)
------------ ------------ ------------
Investment income 2,053,690 546,733 212,157
------------ ------------ ------------
Net loss $ (5,278,867) $ (3,816,383) $ (2,543,933)
============ ============ ============
Basic and diluted net loss per share $ (0.20) $ (0.18) $ (0.14)
============ ============ ============
Basic and diluted weighted average
shares outstanding 26,547,238 21,537,584 18,017,650
============ ============ ============
The accompanying notes are an integral part of these financial statements.
F-4
REPLIGEN CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
Number of Common Total
Common Stock $.01 Additional Accumulated Stockholders'
Shares Par Value Paid-in Capital Deficit Equity
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1998 18,001,785 $180,017 $130,264,048 ($124,319,625) $6,124,440
- ------------------------------------------------------------------------------------------------------------------------------------
Issuance of common stock and warrants 262,500 2,625 1,008,559 -- 1,011,184
Net loss -- -- -- (2,543,933) (2,543,933)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1999 18,264,285 182,642 131,272,607 (126,863,558) 4,591,691
- ------------------------------------------------------------------------------------------------------------------------------------
Issuance of common stock and warrants 6,198,927 61,989 29,772,917 -- 29,834,906
Issuance of warrants -- -- 188,265 -- 188,265
Exercise of stock options 64,458 645 147,293 -- 147,938
Exercise of warrants 1,788,309 17,883 4,126,102 -- 4,143,985
Net loss -- -- -- (3,816,383) (3,816,383)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 2000 26,315,979 263,159 165,507,184 (130,679,941) 35,090,402
- ------------------------------------------------------------------------------------------------------------------------------------
Issuance of common stock for patent
acquisition 30,000 300 183,450 -- 183,750
Issuance of warrants -- -- 218,735 -- 218,735
Exercise of stock options 34,200 342 24,354 -- 24,696
Exercise of warrants 248,771 2,488 649,961 -- 652,449
Net loss -- -- -- (5,278,867) (5,278,867)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 2001 26,628,950 $266,289 $166,583,684 ($135,958,808) $30,891,165
- ------------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
F-5
REPLIGEN CORPORATION
STATEMENTS OF CASH FLOWS
Years Ended March 31,
2001 2000 1999
---------------------------------------------------
Cash flows from operating activities:
Net loss $ (5,278,867) $ (3,816,383) $ (2,543,933)
Adjustments to reconcile net loss to net cash
used in operating activities --
Depreciation and amortization 276,852 324,409 268,217
Issuance of stock options and warrants for services 218,735 188,265 126,270
Non cash expense related to common stock issued for patent
acquisition 183,750 -- 884,914
Changes in assets and liabilities
Accounts receivable 35,357 (418,118) (216,863)
Inventories (87,276) 82,882 40,488
Prepaid expenses and other current assets (28,598) (60,037) (25,389)
Accounts payable 104,350 156,857 167,989
Accrued expenses and other (44,610) 457,594 59,614
Unearned income -- (49,969) 16,637
------------ ------------ ------------
Net cash used in operating activities (4,620,307) (3,134,500) (1,222,056)
------------ ------------ ------------
Cash flows from investing activities:
Purchases of marketable securities (49,959,538) (8,806,367) --
Redemptions of marketable securities 45,000,000 -- --
Purchases of property, plant and equipment (184,721) (217,256) (252,737)
Decrease in other assets 24,500 7,090 --
------------ ------------ ------------
Net cash used in investing activities (5,119,759) (9,016,533) (252,737)
------------ ------------ ------------
Cash flows from financing activities:
Exercise of warrants 652,449 4,143,984 --
Exercise of stock options 24,696 147,938 --
Issuance of common stock and warrants -- 29,834,906 --
------------ ------------ ------------
Net cash provided by financing activities 677,145 34,126,828 --
------------ ------------ ------------
Net (decrease) increase in cash and cash equivalents (9,062,921) 21,975,795 (1,474,793)
Cash and cash equivalents, beginning of year 25,226,546 3,250,751 4,725,544
------------ ------------ ------------
Cash and cash equivalents, end of year $ 16,163,625 $ 25,226,546 $ 3,250,751
============ ============ ============
The accompanying notes are an integral part of these financial statements.
F-6
REPLIGEN CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Repligen Corporation ("Repligen" or the "Company") develops innovative
therapeutic products for debilitating pediatric diseases including autism,
leukemia, metabolic and immune system diseases based on naturally-occurring
peptides and proteins. Lead therapeutic products are secretin for autism,
CTLA4-Ig for stem cell transplantation and uridine for mitochondrial disease.
Repligen manufactures and markets products based on Protein A for the
purification of antibodies, and owns commercial rights to two products based on
synthetic forms of secretin for the diagnosis of pancreatic function. In
addition, the Company has licensed to third parties certain intellectual
property pertaining to its former programs on biological products.
The accompanying financial statements reflect the application of certain
accounting policies described in this note and elsewhere in the accompanying
notes to the financial statements.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications
The Company has reclassified certain prior-year information to conform to
the current year's presentation.
Revenue Recognition
The Company recognizes revenue related to product sales upon shipment of
the product.
Research and development revenue derived from collaborative arrangements is
recognized as earned under cost plus fixed-fee contracts, or on a straight-line
basis over development contracts, which approximates when work is performed and
costs are incurred. Research and development expenses in the accompanying
statements of operations include funded and unfunded expenses. In addition,
under certain contracts, the Company recognizes research and development
revenues as milestones are achieved. Licensing and royalties from the Company's
licensed technologies are recognized as earned. Unearned income represents
amounts received prior to recognition of revenue.
The Company applies Staff Accounting Bulletin (SAB) No. 101, Revenue
Recognition. SAB No. 101 requires companies to recognize certain upfront
nonrefundable fees and milestone payments over the life of the related alliance
when such fees are received in conjunction with alliances that have multiple
elements. The adoption of SAB No. 101 had no significant impact on the Company's
financial statements.
F-7
Comprehensive Income
The Company applies Statement of Financial Accounting Standards (SFAS) No.
130, Reporting Comprehensive Income. SFAS No. 130 requires disclosure of all
components of comprehensive income on an annual and interim basis. Comprehensive
income is defined as the change in equity of a business enterprise during a
period from transactions and other events and circumstances from nonowner
sources. The Company's comprehensive loss is equal to reported net loss for all
periods presented.
Cash, Cash Equivalents & Investments
The Company applies SFAS No. 115, Accounting for Certain Instruments in
Debt and Equity Securities. At March 31, 2001, the Company's cash equivalents
and marketable securities are classified as held-to-maturity investments as the
Company has the positive intent and ability to hold to maturity. Cash
equivalents are short-term, highly liquid investments with original maturities
of less than three months. Marketable securities are investments with original
maturities of greater than three months. Long-term marketable securities are
investment grade securities with maturities of greater than one year.
Cash and cash equivalents and marketable securities consist of the
following at March 31, 2001 and 2000 were as follows:
March 31,
2001 2000
---------------------------
Cash and cash equivalents
Cash $ 222,766 $ 50,946
Commercial paper and corporate bonds 489,719 17,031,292
U.S. Government and agency securities -- 7,342,874
Money market accounts 15,451,140 801,434
----------- -----------
Total cash and cash equivalents $16,163,625 $25,226,546
=========== ===========
Marketable securities
U.S. Government and agency securities $ -- $ 2,951,823
Corporate and other debt securities 7,773,427 5,854,544
----------- -----------
(Average maturity of 7.2 months) $ 7,773,427 $ 8,806,367
=========== ===========
Long -term marketable securities
Corporate and other debt securities $ 5,992,478 $ --
=========== ===========
(Average maturity of 16 months)
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market. Work-in-process and finished goods inventories consist of material,
labor, outside processing costs and manufacturing overhead. Inventories at March
31, 2001 and 2000 consist of the following:
Year Ended March 31,
2001 2000
----------------------
Raw materials and work-in-process ........ $459,288 $371,405
Finished goods ........................... 175,435 176,043
-------- --------
Total ................................. $634,723 $547,448
======== ========
F-8
Depreciation and Amortization
The Company provides for depreciation and amortization by charges to
operations in amounts estimated to allocate the cost of fixed assets over their
estimated useful lives, on a straight-line basis, as follows:
Description Estimated Useful Life
----------- ---------------------
Equipment 3-5 years
Leasehold improvements Shorter of term of the lease or estimated useful
life
Furniture and fixtures 5-7 years
Earnings Per Share
The Company applies SFAS No. 128, Earnings per Share. SFAS No. 128
establishes standards for computing and presenting earnings per share. Basic net
loss per share represents net loss divided by the weighted average number of
common shares outstanding during the period. The dilutive effect of potential
common shares, consisting of outstanding stock options and warrants, is
determined using the treasury stock method in accordance with SFAS No. 128.
Diluted weighted average shares outstanding for 2001, 2000 and 1999 exclude the
potential common shares from warrants and stock options because to do so would
have been antidilutive for the years presented. Accordingly, basic and diluted
net loss per share is the same. The number of potential common shares prior to
application of the treasury stock method at March 31, 2001, 2000 and 1999 was
1,904,387, 2,484,953 and 4,498,249 shares, respectively.
Fair Value of Financial Instruments
In accordance with SFAS No. 107, Disclosure About Fair Value of Financial
Instruments, the carrying amounts of the Company's cash and cash equivalents,
marketable securities, accounts receivable and accounts payable approximate fair
value due to the short-term nature of these instruments.
Concentrations of Credit Risk and Significant Customers
Financial instruments that subject the Company to significant
concentrations of credit risk consist primarily of cash and cash equivalents,
marketable securities and accounts receivable. The Company's cash equivalents
and marketable securities are invested in financial instruments with high credit
ratings. Concentration of credit risk with respect to accounts receivable is
limited to customers to whom the Company makes significant sales. The Company
does not believe significant risk exists at March 31, 2001. To control credit
risk, the Company performs regular credit evaluations of its customers'
financial conditions and maintains allowances for potential credit losses.
Revenues from significant customers as a percentage of the Company's total
revenues are as follows:
Year Ended March 31,
2001 2000 1999
----------------------------
Customer A 42% 14% 12%
Customer B 19% 16% 1%
Customer C 5% 16% --%
Customer D --% 9% 16%
Customer E --% 3% 3%
Customer F 5% 3% 13%
F-9
Significant accounts receivable balances as a percentage of the Company's
total trade accounts receivable balances are as follows:
Year Ended March 31,
2001 2000
--------------------
Customer A 53% --%
Customer B 26% 32%
Customer C 10% --%
Segment Reporting
The Company applies SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information. SFAS No. 131 establishes standards for
reporting information regarding operating segments in annual financial
statements and requires selected information for those segments to be presented
in interim financial reports issued to stockholders. SFAS No. 131 also
establishes standards for related disclosures about products and services and
geographic areas. The chief operating decision maker, or decision-making group,
in making decisions how to allocate resources and assess performance, identifies
operating segments as components of an enterprise about which separate discrete
financial information is available for evaluation. To date, the Company has
viewed its operations and manages its business as principally one operating
segment. As a result, the financial information disclosed herein represents all
of the material financial information related to the Company's principal
operating segment.
The following table represents the Company's revenue by geographic area:
Year Ended March 31,
2001 2000 1999
------------------------------------
United States 58% 53% 68%
Europe 40% 44% 28%
Other 2% 3% 4%
---- ---- ----
Total 100% 100% 100%
==== ==== ====
New Accounting Standards
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities. As
amended in June 1999, the statement is effective for all fiscal quarters of all
fiscal years beginning after June 15, 2000. In June 2000, the FASB issued SFAS
No. 138, which is a significant amendment to SFAS No. 133. SFAS No. 133 and its
amendments establish accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives) and for hedging activities.
The Emerging Issues Task Force (EITF) has also issued a number of
derivative-related tentative and final consensuses. We do not expect the
adoption of these statements to have a material impact on our consolidated
financial position or results of operations.
In March 2000, the FASB issued Interpretation No. 44, Accounting for
Certain Transactions Involving Stock Compensation--An Interpretation of APB
Opinion No. 25. The Interpretation clarifies the application of Accounting
Principles Board Opinion (APB) No. 25 in certain situations, as defined.
Interpretation No. 44 is effective July 1, 2000; however, it covers certain
events occurring during the period after December 15, 1998 but before the
effective date, the effects of applying this Interpretation No. 44 would be
recognized on a prospective basis from the effective date. Accordingly, upon
initial application of the final Interpretation No. 44,
F-10
no adjustments would be made to the financial statements for periods before
the effective date and no expense would be recognized for any additional
compensation cost measured that is attributable to periods before the effective
date. The adoption of this statement had no material impact on our financial
statements.
In September 2000, the EITF issued 00-19, Accounting for Derivative
Financial Instruments Indexed to and Potentially Settled in a Company's Own
Stock, which requires freestanding contracts that are settled in a company's own
stock, including common stock warrants, to be designated as an equity
instrument, asset or a liability. Under the provisions of EITF 00-19, a contract
designated as an asset or a liability must be carried at fair value, with any
changes in fair value recorded in the results of operations. A contract
designated as an equity instrument must be included within equity and no fair
value adjustments are required. The adoption of this statement had no material
impact on our financial statements.
2. Income Taxes
The Company accounts for income taxes under SFAS No. 109, Accounting for
Income Taxes. At March 31, 2001, the Company had net operating loss
carryforwards for income tax purposes of approximately $105,654,000. The Company
also had available tax credit carryforwards of approximately $4,476,000 at March
31, 2001 to reduce future federal income taxes, if any. Net operating loss
carryforwards and available tax credits are subject to review and possible
adjustment by the Internal Revenue Service and may be limited in the event of
certain changes in the ownership interest of significant stockholders.
The net operating loss carryforwards and tax credit carryforwards are
approximately as follows:
Net Operating Loss Tax Credit
Expiration Date Carryforwards Carryforwards
-------------------------------------
2002 $ 2,500,000 $ 73,000
2003 4,807,000 346,000
2004 6,642,000 408,000
2005 6,707,000 681,000
2006 7,533,000 595,000
2007-2020 77,465,000 2,373,000
------------ ------------
Total $105,654,000 $ 4,476,000
============ ============
The deferred tax asset consists of the following:
Year Ended March 31,
2001 2000
--------------------------------
Temporary differences .................. $ 6,738,000 $ 3,416,000
Operating loss carryforwards ........... 40,307,000 40,540,000
Tax credit carryforwards ............... 4,476,000 4,585,000
------------ ------------
51,521,000 48,541,000
Valuation allowance .................... (51,521,000) (48,541,000)
------------ ------------
$ -- $ --
============ ============
A full valuation allowance has been provided, as it is uncertain if the
Company will realize the deferred tax asset.
F-11
3. Shareholder's Equity
(a) Common Stock & Warrants
On July 24, 2000, Repligen issued to a third party a warrant to purchase
50,000 shares of common stock at $7.125 per share exercisable through July 2003
in partial consideration for a licensing agreement entered into with such third
party. The Company recorded the value of this warrant, as determined using
Black-Scholes option pricing model, as research and development expense.
On May 10, 2000, pursuant to a patent purchase agreement, Repligen issued
to Tolerance Therapeutics LLC ("Tolerance"), in partial consideration for the
assignment by Tolerance to Repligen of a U.S. patent application claiming the
use of CTLA4-Ig in treatment of diseases of the immune system, 30,000 shares of
Repligen common stock. The Company recorded the value of these shares as
research and development expense.
On April 7, 2000, Repligen issued to each of its investor relation firm and
public relations firm, in consideration for services, a warrant exercisable
through July 2001 to purchase 10,000 shares of common stock of Repligen at $8.56
per share. The Company recorded the value of this warrant, as determined using
Black-Scholes option pricing model, as selling, general and administrative
expense.
On April 7, 2000, Repligen issued a warrant to purchase 2,900 shares of
common stock at $9.00 per share to an existing shareholder exercisable through
July 2000. This warrant expired during fiscal 2001. The Company recorded the
value of this warrant, as determined using Black-Scholes option pricing model,
as selling, general and administrative expense.
On March 9, 2000, Repligen sold an aggregate of 2,598,927 shares of common
stock to investors at $8.625 per share for an aggregate consideration of $22.4
million in a private placement. Repligen engaged Paramount Capital, Inc.
("Paramount") to act as placement agent for this transaction. For this
transaction, Repligen paid Paramount approximately $1.57 million for its
services, plus related transactional expenses, and issued to Paramount warrants
to purchase up to 129,946 shares of common stock at $9.49 per share.
In July 1999, Repligen engaged Paramount as a nonexclusive financial
adviser for an initial period of 12 months from the date thereof. In exchange
and as consideration for these financial services, Repligen paid to Paramount
$100,000 in cash and issued to Paramount (and its designees) warrants to
purchase an aggregate of 100,000 shares of common stock. Each warrant is
exercisable at $2.75 per share at any time prior to July 15, 2004. Repligen also
agreed to pay Paramount additional fees upon the consummation of certain equity
financing transactions. The Company valued these warrants at fair value and
recorded an expense of $188,285 during fiscal 2000 relating to this issuance. In
March 2000, Repligen terminated the financial advisory agreement with Paramount
for an additional payment of $200,000 in cash. All payments were expensed in the
accompanying statement of operations as selling, general and administrative
expense for the year ended March 31, 2000.
Pursuant to stock purchase agreements dated April 30, 1999 and May 14,
1999, respectively, Repligen issued to certain accredited investors in a private
placement an aggregate of 3,600,000 shares of common stock at $2.50 per share
for an aggregate purchase price of approximately $9 million, resulting in net
proceeds to Repligen of approximately $8.9 million.
In March 1999, the Company entered into an agreement for legal services
relating to a complaint filed against Bristol-Myers Squibb Company. Under the
terms of the agreement, the Company is required to pay $50,000 in annual fees
for three years, and, if successful in the
F-12
litigation, a portion of any financial recovery will be paid and a warrant to
purchase 100,000 shares of common stock at an exercise price of $1.63 per share
will be issued. The Company will value this warrant at the time of issuance. In
addition, the Company issued a fully vested warrant to legal counsel to purchase
100,000 shares of common stock at an exercise price of $1.63 per share. The
Company valued this warrant at fair value, as determined using the Black-Scholes
option pricing model and recorded legal expense of $126,270 during fiscal 1999
relating to this issuance. In March 2000, this warrant was exercised pursuant to
the "net exercise" provision in the warrant. Repligen issued 83,184 shares of
common stock upon exercise of the warrant and received no proceeds from such
transaction.
In March 1999, the Company acquired all rights to certain patent
applications relating to the use of secretin in the treatment of autism. The
rights were acquired pursuant to a Patent Purchase Agreement whereby the Company
paid $150,000 in cash, issued a warrant to purchase 350,000 shares of common
stock with an exercise price of $1.59 per share, and issued 262,500 shares of
common stock (see Note 5). The Company valued the shares and warrant in
accordance with ETIF 96-18 using the Black-Scholes option-pricing model and
recorded a charge of $1,035,000. As of March 31, 2001, 225,000 of these shares
of common stock underlying this warrant were exercised. Repligen received
$357,750 of proceeds from this exercise.
At March 31, 2001, common stock reserved for issuance is as follows:
Reserved for Shares
- ------------ ------
Incentive and nonqualified stock option plans 3,254,619
Warrants granted in connection with the Patent Purchase Agreement 125,000
Warrants granted in connection with Licensing Agreement 50,000
Warrants granted for payment of services 249,946
---------
3,679,565
=========
(b) Stock Options
The Company's stock option plan authorizes the grant of either incentive
stock options or nonqualified stock options. Incentive stock options are granted
to employees at the fair market value at the date of grant. Nonqualified stock
options are granted to employees or nonemployees. The options generally vest
over four or five years and expire no more than 10 years from the date of grant.
As of March 31, 2001, the Company had 1,775,178 shares of common stock available
for grant.
A summary of stock option activity under all plans is as follows:
Years Ended March 31,
2001 2000 1999
------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Number of Price per Number of Price per Number of Price per
Shares Share Shares Share Shares Share
---------- ---------- ---------- ---------- ---------- ----------
Outstanding at beginning of period 1,288,041 $ 1.81 1,289,291 $ 1.78 740,291 $ 2.05
Granted 258,400 6.59 169,908 2.86 568,500 1.38
Exercised (34,200) 0.72 (64,458) 2.30 -- --
Forfeited (32,800) 3.73 (106,700) 1.44 (19,500) 1.18
---------- ---------- ---------- ---------- ---------- ----------
Outstanding at end of period 1,479,441 $ 2.64 1,288,041 $ 1.82 1,289,291 $ 1.78
---------- ---------- ---------- ---------- ---------- ----------
Exercisable at end of period 894,941 $ 1.92 694,941 $ 1.96 529,691 $ 2.33
========== ========== ========== ========== ========== ==========
F-13
Options Outstanding Options Exercisable
------------------- -------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Number Contractual Exercise Price Number Exercise Price
Outstanding Life Per Share Outstanding Per Share
----------- ----------- -------------- ----------- --------------
$.05-$1.00 89,541 5.16 $ 0.60 89,541 $ 0.60
$1.03-$1.63 897,500 6.35 $ 1.38 619,400 $ 1.36
$2.75-$2.91 160,000 5.05 $ 2.76 113,600 $ 2.75
$3.00-$4.13 128,900 8.90 $ 3.77 32,400 $ 3.05
$6.13-$7.19 55,500 7.38 $ 6.60 15,000 $ 6.56
$7.64-$12.45 148,000 7.83 $ 8.97 25,000 $ 12.45
- -------------------------------------------------------------------------------------------------------
1,479,441 6.55 $ 2.64 894,941 $ 1.92
========= ========= ========= ========= =========
The Company accounts for its stock-based compensation under SFAS No. 123
Accounting for Stock-Based Compensation. The Company has adopted the
disclosure-only alternative for employee grants and, accordingly, will continue
to account for stock-based compensation for employees under APB Opinion No. 25.
The Company has computed the pro forma disclosures required under SFAS No.
123 for all stock options granted to employees in 2001, 2000 and 1999 using the
Black-Scholes option-pricing model prescribed by SFAS No. 123. The assumptions
used and the weighted average information for the years ended March 31, 2001,
2000 and 1999 are as follows:
Year ended March 31,
2001 2000 1999
-----------------------------------------------
Risk-free interest rates 5.28%-6.33% 5.08%-6.03% 4.54%-5.61%
Expected dividend yield -- -- --
Expected lives 7 years 7 years 10 years
Expected volatility 108% 70% 93%
Weighted average grant date fair value of options
granted during the period $6.59 $2.86 $1.38
Weighted average remaining contractual life of
options outstanding 6.6 years 7.0 years 7.7 years
If compensation expense for the Company's stock option plan had been determined
consistent with SFAS No. 123, the pro forma net loss and net loss per share
would have been as follows:
Year Ended March 31
Net loss- 2001 2000 1999
------------------------------------------------
As reported. ($5,278,867) ($3,816,383) ($2,543,933)
Pro forma ($5,681,311) ($4,103,293) ($2,768,827)
Basic and diluted net loss per share-
As reported $ (0.20) $ (0.18) $ (0.14)
Pro forma $ (0.21) $ (0.19) $ (0.15)
F-14
4. Commitments and Contingencies
The Company leases their facilities. Obligations under noncancellable
operating leases as of March 31, 2001 is approximately as follows:
Year Ending March 31,
---------------------
2002...................... $181,000
2003...................... 13,000
--------
Total minimum lease payments $194,000
--------
Rent expense charged to operations under operating leases was approximately
$377,000, $296,000 and $281,000 for the years ended March 31, 2001, 2000 and
1999, respectively.
5. Certain Technologies and Product Candidates
In December 2000, the Company purchased from the University of California,
San Diego (UCSD) a right to a U.S. patent application covering novel methods for
the treatment of mitochondrial disease. Under terms of the agreement, Repligen
received the exclusive right under the license to commercialize products to
treat mitochondrial disease and paid UCSD an up-front fee. Repligen will also
pay UCSD clinical development milestones and royalties on product sales. The
Company has expensed the purchase price as research and development expense as
the realizability of the patent is subject to the outcome of additional research
and development and the successful prosecution of the patent.
In May 2000, the Company purchased from Tolerance Therapeutics LLC the
rights to a U.S. patent application claiming the use of CTLA4-Ig in the
treatment of diseases of the immune system. Under terms of the agreement, the
Company paid cash and issued stock for the purchase. The Company has expensed
the purchase price as research and development expense as the realizability of
the patent is subject to the outcome of additional research and development and
the successful prosecution of the patent.
In October 1999, the Company acquired the commercial rights to two
diagnostic products based on synthetic forms of porcine and human secretin from
ChiRhoClin, Inc. a private company. Both of these products have been evaluated
in clinical trials for their safety and efficacy in diagnosing pancreatic
function and gastrinoma. A New Drug Application (NDA) for each product has been
filed with the United States Food and Drug Administration (FDA). In March 2000,
the FDA issued an "approvable letter" for the use of synthetic porcine secretin
in the diagnosis of pancreatic function. A second "approvable letter" was issued
in November 2000, which contained numerous questions concerning the manufacture
and quality control of the synthetic porcine product. Final approval to market
this product will be based on a satisfactory response to questions raised by the
FDA by ChiRhoClin.
Under terms of the licensing agreement, Repligen paid $1,000,000 upon
execution of the agreement and, if the NDAs are approved, the Company will be
required to pay future royalties and milestones in cash and to issue common
stock. This $1,000,000 payment is included in research and development expense
in the accompanying statement of operations for the year ended March 31, 2000.
The Company expensed the $1 million payment during fiscal 2000, as the Company
believes that the net realizable value of such license fee is uncertain until
such time as the NDA approval is obtained.
In March 1999, the Company acquired all rights to certain patent
applications relating to the use of secretin in the treatment of autism. The
rights were acquired pursuant to a patent purchase agreement. In addition, the
Company has agreed to make minimum annual royalty payments of $500,000 and
certain milestone payments upon (a) the Company's filing of a new drug
application with the FDA for a clinical indication covered by the intellectual
property rights transferred by the purchase agreement and (b) upon the approval
by the FDA of a product
F-15
covered by the intellectual property rights transferred to the Company pursuant
to the purchase agreement. These milestone payments, in the aggregate sum of
$700,000, will be largely credited against certain royalty payments in the event
the Company is able to derive sales and/or license revenues from the
intellectual property rights acquired pursuant to the purchase agreement.
In order for the Company to commercialize secretin as a treatment for
autism, the Company will need to expend a substantial amount in research and
development, preclinical testing and clinical trials, regulatory clearances and
manufacturing, distribution and marketing arrangements, the outcome of which is
uncertain. The cost and time to complete the development of the technology is
significant and difficult to estimate given the uncertainties of research and
development and regulatory process. Accordingly, the net realizable value of the
patent rights acquired is uncertain. Approximately $1,035,000 was charged to the
accompanying 1999 statement of operations as a research and development expense.
6. Accrued Expenses
Accrued expenses consist of the following:
Year Ended March 31,
2001 2000
------------------------
Research & development costs $321,850 $ 80,083
Payroll & payroll related cost 255,811 166,989
Professional and consulting costs 71,795 235,712
Other accrued expenses 74,864 109,289
Manufacturing costs 2,590 179,447
-------- --------
$726,910 $771,520
======== ========
7. Selected Quarterly Financial Data (Unaudited)
The following table contains Statement of Operations information for each
quarter of fiscal 2000 and 2001. The Company believes that the following
information reflects all normal recurring adjustments necessary for a fair
presentation of the information for the period presented. The operating results
for any quarter are not necessarily indicative of results for any future period.
F-16
Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1
FY01 FY01 FY01 FY01 FY00 FY00 FY00 FY00
------- ------- ------- ------- ------- ------- ------- -------
Revenues:
Product $ 588 $ 615 $ 324 $ 556 $ 671 $ 558 $ 579 $ 233
Research and development 12 3 127 30 92 160 232 379
Other -- 2 15 75 14 14 15 31
------- ------- ------- ------- ------- ------- ------- -------
Total revenues 600 620 466 661 777 732 826 643
------- ------- ------- ------- ------- ------- ------- -------
Costs and expenses:
Research and development 1,580 1,781 1,343 1,083 668 1,865 733 488
Selling, general and administrative 536 568 658 731 844 443 767 426
Cost of products sold 448 393 229 330 332 292 287 196
------- ------- ------- ------- ------- ------- ------- -------
Total costs and expenses 2,564 2,742 2,230 2,144 1,844 2,600 1,787 1,110
------- ------- ------- ------- ------- ------- ------- -------
Loss from operations (1,964) (2,122) (1,764) (1,483) (1,067) (1,868) (961) (467)
------- ------- ------- ------- ------- ------- ------- -------
Investment income 450 539 552 513 213 131 156 47
------- ------- ------- ------- ------- ------- ------- -------
Net loss $(1,514) $(1,583) $(1,212) $ (970) $ (854) $(1,737) $ (805) $ (420)
======= ======= ======= ======= ======= ======= ======= =======
Net loss per common share $ (0.06) $ (0.06) $ (0.05) $ (0.04) $ (0.04) $ (0.08) $ (0.04) $ (0.02)
Weighted average common shares outstanding 26,599 26,576 26,560 26,456 23,295 22,194 21,868 18,745
======= ======= ======= ======= ======= ======= ======= =======
8. Valuation and Qualifying Accounts
Balance at
Beginning of Balance at End
Period Additions Deletions of Period
------ --------- --------- ---------
Allowance for Doubtful Accounts:
1999 $25,000 -- -- $25,000
2000 $25,000 -- -- $25,000
2001 $25,000 -- -- $25,000
F-17