SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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
------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of November 1, 2001.
Common Stock, par value $.01 per share 26,641,950
- -------------------------------------- ----------------
Class Number of Shares
REPLIGEN CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
PAGE
----
Item 1. Financial Statements
Balance Sheets as of September 30, 2001 and March 31, 2001
(Unaudited) 3
Statements of Operations for the Three Months and Six Months
Ended September 30, 2001 and 2000 (Unaudited) 4
Statements of Cash Flows for the Three Months and Six Months
Ended September 30, 2001 and 2000 (Unaudited) 5
Notes to Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk
None
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K 15
Signature 15
Exhibit Index 16
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
REPLIGEN CORPORATION
BALANCE SHEETS
(Unaudited)
ASSETS September 30, 2001 March 31, 2001
------------------ --------------
Current assets:
Cash and cash equivalents $ 3,561,558 $ 16,163,625
Marketable securities 17,246,268 7,773,427
Accounts receivable, net 261,775 443,760
Interest receivable 565,777 368,721
Inventories 943,168 634,723
Prepaid expenses and other current assets 446,818 270,252
------------- -------------
Total current assets 23,025,364 25,654,508
------------- -------------
Property and equipment, at cost:
Equipment 1,167,452 1,103,527
Leasehold improvements 495,488 473,288
Furniture and fixtures 350,913 331,501
------------- -------------
2,013,853 1,908,316
Less: accumulated depreciation and amortization 1,629,542 1,464,195
------------- -------------
384,311 444,121
Long term marketable securities 6,262,913 5,992,478
Other assets, net -- 56,882
------------- -------------
Total assets $ 29,672,588 $ 32,147,989
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 558,109 $ 529,914
Accrued expenses 916,353 726,910
Other current liabilities 14,282 --
------------- -------------
Total current liabilities 1,488,744 1,256,824
------------- -------------
Stockholders' equity:
Preferred stock, $.01 par value -
authorized, 5,000,000 shares,-- outstanding, none, -- --
Common stock, $.01 par value -
Authorized, 40,000,000 shares,-- outstanding,
26,641,950 shares at September 30, 2001
and 26,628,950 shares at March 31, 2001 266,419 266,289
Additional paid-in capital 166,596,613 166,583,684
Accumulated deficit (138,679,188) (135,958,808)
------------- -------------
Total stockholders' equity 28,183,844 30,891,165
------------- -------------
Total liabilities and stockholders' equity $ 29,672,588 $ 32,147,989
============= =============
See accompanying notes to financial statements.
3
REPLIGEN CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
September 30, September 30,
---------------------------- ----------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
Revenues:
Product $ 886,733 $ 323,994 $ 1,599,268 $ 879,788
Research and development -- 126,870 -- 156,870
------------ ------------ ------------ ------------
Total revenues 886,733 450,864 1,599,268 1,036,658
Costs and expenses:
Research and development 1,330,207 1,342,667 2,756,520 2,425,736
Selling, general and
administrative 680,518 643,226 1,297,935 1,299,310
Cost of products sold 554,600 228,505 911,039 558,692
------------ ------------ ------------ ------------
Total costs and expenses 2,565,325 2,214,398 4,965,494 4,283,738
------------ ------------ ------------ ------------
Loss from operations (1,678,592) (1,763,534) (3,366,226) (3,247,080)
------------ ------------ ------------ ------------
Investment and interest
income 301,720 551,526 645,845 1,064,130
Net loss $ (1,376,872) $ (1,212,008) $ (2,720,381) $ (2,182,950)
============ ============ ============ ============
Basic and diluted net loss
per share $ (.05) $ (.05) $ (.10) $ (.08)
============ ============ ============ ============
Basic and diluted weighted
average common shares
outstanding 26,639,150 26,559,675 26,636,291 26,508,333
============ ============ ============ ============
See accompanying notes to financial statements.
4
REPLIGEN CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
September 30,
----------------------------
2001 2000
------------ ------------
Cash flows from operating activities:
Net loss $ (2,720,381) $ (2,182,950)
Adjustments to reconcile net loss to net cash
used in operating activities -
Depreciation and amortization 165,347 135,497
Non-cash charge for patent acquisition -- 183,750
Non-cash charges relating to stock and warrant
issuance -- 218,735
Changes in assets and liabilities -
Accounts receivable 181,985 692,951
Interest receivable (197,056) --
Inventories (308,445) (2,434)
Prepaid expenses and other current assets (176,566) (27,441)
Other assets 56,882 24,500
Accounts payable 28,195 124,440
Accrued expenses 203,725 (395,118)
Deferred Revenue -- 41,626
------------ ------------
Net cash used in operating activities (2,766,314) (1,186,444)
------------ ------------
Cash flows from investing activities:
Redemption of marketable securities 5,996,839 14,000,000
Purchases of marketable securities (15,740,115) (26,931,063)
Purchases of property and equipment (105,537) (101,206)
------------ ------------
Net cash used in investing activities (9,848,813) (13,032,269)
------------ ------------
Cash flows from financing activities:
Proceeds from exercise of warrants -- 482,999
Proceeds from exercise of stock options 13,060 12,500
------------ ------------
Net cash provided by financing activities 13,060 495,499
------------ ------------
Net decrease in cash and cash equivalents (12,602,067) (13,723,216)
Cash and cash equivalents, beginning of period 16,163,625 25,226,546
------------ ------------
Cash and cash equivalents, end of period $ 3,561,558 $ 11,503,330
============ ============
See accompanying notes to financial statements.
5
REPLIGEN CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The financial statements included herein have been prepared by Repligen
Corporation (the "Company" or "Repligen"), pursuant to the rules and regulations
of the Securities and Exchange Commission for quarterly reports on Form 10-Q and
do not include all of the information and footnote disclosures required by
generally accepted accounting principles. These financial statements should be
read in conjunction with the audited financial statements and notes thereto
included in the Company's Form 10-K for the year ended March 31, 2001.
In the opinion of management, the accompanying unaudited financial
statements include all adjustments, consisting of only normal, recurring
adjustments, necessary to present fairly, the consolidated financial position,
results of operations and cash flows of the Company. The results of operations
for the interim periods presented are not necessarily indicative of results to
be expected for the entire year.
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.
2. Revenue Recognition
The Company generates product revenues from the sale of its Protein A
products to customers in the pharmaceutical and process chromatography
industries. The Company recognizes revenue related to product sales upon
shipment of the product to the customer. Licensing and royalties from the
Company's licensed technologies are recognized as earned.
The Company applies Staff Accounting Bulletin (SAB) No. 101, Revenue
Recognition. SAB 101 requires companies to recognize certain upfront
nonrefundable fees 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 did not have a significant impact on the Company's financial
position or results of operations.
3. Net Loss Per Share
The Company applies Statement of Financial Accounting Standards (SFAS) No.
128, Earnings per Share. Basic and diluted net loss per share represents net
loss divided by the weighted average number of common shares outstanding during
the period. The dilutive effect of the potential common shares consisting of
outstanding stock options and warrants is determined using the treasury stock
method. Diluted weighted average shares outstanding for the three months and six
months ended September 30, 2001 and 2000 exclude the potential common shares
issuable upon the exercise of warrants and stock options because to do so would
be antidilutive for the periods presented. At September 30, 2001, there were
outstanding options to purchase 1,688,841 shares of the Company's common stock
at a weighted average exercise price of $2.65 per share and warrants to purchase
6
404,846 shares of the Company's common stock at a weighted average exercise
price of $4.61 per share. At September 30, 2000, there were outstanding options
to purchase 1,422,541 shares of the Company's common stock at a weighted average
exercise price of $2.56 per share and warrants to purchase 952,025 shares of the
Company's common stock at a weighted average exercise price of $4.09 per share.
4. Recent Announcements
In July 2001, the FASB issued SFAS No. 141, Business Combinations and SFAS
No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires that all
business combinations be accounted for under the purchase method only and that
certain acquired intangible assets in a business combination be recognized as
assets apart from goodwill. SFAS No. 142 requires that ratable amortization of
goodwill be replaced with periodic tests of the goodwill's impairment and that
intangible assets other than goodwill be amortized over their useful lives. SFAS
No. 141 is effective for all business combinations initiated after June 30, 2001
and for all business combinations accounted for by the purchase method for which
the date of acquisition is after June 30, 2001. The provisions of SFAS No.142
will be effective for fiscal years beginning after December 15, 2001, and will
thus be adopted by the Company, as required, in fiscal year 2002. The impact of
SFAS No. 141 and SFAS No. 142 on the Company's financial statements has not yet
been determined.
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets, which supersedes FASB Statement No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of. This new statement also supersedes certain aspects of APB 30,
Reporting the Results of Operations-Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions, with regard to reporting the effects of a disposal of a
segment of a business and will require expected future operating losses from
discontinued operations to be reported in discontinued operations in the period
incurred (rather than as of the measurement date as presently required by APB
30). In addition, more dispositions may qualify for discontinued operations
treatment. The provisions of this statement are required to be applied for
fiscal years beginning after December 15, 2001 and interim periods within those
fiscal years. The Company has not yet determined what effect this statement will
have on its financial statements.
5. Cash, Cash Equivalents and Marketable Securities
The Company applies SFAS No. 115, Accounting for Certain Investments in
Debt and Equity Securities. At September 30, 2001, the Company's cash
equivalents and marketable securities are classified as held-to-maturity, as the
Company has the positive intent and ability to hold these securities to
maturity. The Company considers highly liquid investments purchased with
original maturities at the date of acquisition of 90 days or less to be cash
equivalents. Marketable securities are recorded at amortized cost, which
approximates fair value. The company has not recorded any realized gains or
losses on its marketable securities for the three-month period ending September
30, 2001. The average maturity of the Company's short-term marketable securities
is approximately 5 months. The average maturity of the Company's long-term
marketable securities is approximately 17 months. Cash, cash equivalents and
marketable securities consist of the following at September 30, 2001 and March
31, 2001:
7
September 30, March 31,
2001 2001
---- ----
Cash and cash equivalents
Cash $ 1,309,669 $ 222,766
Commercial paper and corporate bonds -- 489,719
Money market accounts 2,251,889 15,451,140
----------- -----------
Total cash and cash equivalents $ 3,561,558 $16,163,625
=========== ===========
Short-term marketable securities
Corporate and other debt securities $17,246,268 $ 7,773,427
=========== ===========
Long-term marketable securities
Corporate and other debt securities $ 6,262,913 $ 5,992,478
=========== ===========
6. Inventories
Inventories are stated at the lower of cost (first in, first out) or market
and consist of the following at September 30, 2001 and March 31, 2001.
September 30, March 31,
2001 2001
---- ----
Raw materials and work-in-process $766,031 $459,288
Finished goods 177,137 175,435
-------- --------
Total $943,168 $634,723
======== ========
Work in process and finished goods inventories consist of material, labor,
outside processing costs and manufacturing overhead.
7. Comprehensive Income
The Company applies SFAS No. 130, Reporting Comprehensive Income. SFAS No.
130 establishes standards for reporting and display of comprehensive income and
its components in financial statements. Comprehensive income includes all
non-owner changes in equity during a period. The Company's comprehensive net
loss is the same as its reported net loss for all periods presented.
8. Disclosures about Segments of an Enterprise and Significant Customers
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. Operating segments are identified as components of an
enterprise about which separate discrete financial information is available for
evaluation by the chief operating decision maker, or decision making group, in
order to allocate resources and assess performance. 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:
8
Three Months Ended Six Months Ended
September 30, September 30,
2001 2000 2001 2000
---- ---- ---- ----
US 12% 80% 44% 68%
Europe 86% 16% 54% 30%
Other 2% 4% 2% 2%
---- ---- ---- ----
Total 100% 100% 100% 100%
During the three months ended September 30, 2001, there was one customer
who accounted for approximately 85% of the Company's revenues. During the three
months ended September 30, 2000, there were two customers who accounted for
approximately 36% and 21% of the Company's revenues. One customer accounted for
80% of the Company's accounts receivable at September 30, 2001. Three customers
accounted for 53%, 26% and 10%, respectively, of the Company's accounts
receivable at March 31, 2001.
9. Reclassifications
The Company has reclassified certain prior-period information to conform to
the current period's presentation.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
We are developing innovative therapeutic products for debilitating
pediatric diseases including autism, leukemia, metabolic and immune system
diseases based on naturally occurring peptides, proteins and nucleotides. Our
lead therapeutic products are secretin for autism, CTLA4-Ig for stem cell
transplantation and uridine for mitochondrial disease. Our product candidates
have the potential to produce clinical benefits not attainable with any existing
drug, in diseases for which there are few alternatives.
Autism is a developmental disorder characterized by poor communicative and
social skills, repetitive and restricted behaviors and in some patients,
gastrointestinal problems and irregular sleep patterns. 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 suggested that
secretin may have beneficial effects in autism, including improvements in sleep,
digestive function, communicative and social behavior.
We have recently completed an FDA-approved, placebo-controlled,
double-blind Phase 2 clinical trial on a human, synthetic form of secretin in
order to evaluate its potential benefits. Results from the trial indicated that
the parents of secretin-treated children rated their child's symptoms to be
improved compared to children who received a placebo, a result that was
statistically significant. We have also identified two biological markers that
defined a group of 64 patients, or 51% of the total patient population, a
statistically significant treatment effect of secretin was demonstrated in which
there was a more significant effect of secretin treatment. In this subgroup,
there was a statistically significant effect of secretin by four endpoints
including improvement in social function as determined with the Autism
Diagnostic Observation Schedule, overall symptom improvements as determined by
the Clinical Global Impression Scale by both a
9
professional and independently a parent and an increase in receptive language as
determined by the MacArthur Communicative Development Inventory. Pending
approval by the FDA, we intend to initiate Phase 3 clinical trials of secretin
in autism in 2002.
In February 2000, we were issued a broad U.S. patent covering the use of
secretin in the treatment of autism. We are currently prosecuting additional
patent applications in the United States, Europe and Japan. There are currently
no drugs approved by the FDA for the treatment of autism.
We are also developing a product named "CTLA4-Ig," which has been shown to
suppress unwanted immune responses in animal models of organ transplants and
autoimmune diseases, such as lupus or multiple sclerosis, in which the immune
system mistakenly attacks the body. Our product candidate is a derivative of a
natural protein whose role is to turn-off an immune response. In animal models
of organ transplantation and autoimmune diseases, CTLA4-Ig has been shown to
block the rejection of a transplanted organ or the effects of the autoimmune
disease. Initial clinical testing of CTLA4-Ig has been carried out in patients
receiving a bone marrow transplant, which is a potential cure for several
diseases of the immune system, including leukemia, myeloma, lymphoma and sickle
cell anemia. Despite the clinical success of bone marrow transplants, a
significant number of patients experience a severe and potentially
life-threatening complication known as Graft Versus Host Disease, in which the
newly transplanted immune system attacks the host (i.e., the patient). In June
1999, results from a Phase 1 clinical trial reported that treatment of bone
marrow from a family member with Repligen's CTLA4-Ig prevented Graft Versus Host
Disease in eight of eleven transplant patients. In October 2000, the FDA
approved the initiation of a Phase 2 clinical trial evaluating CTLA4-Ig in
patients receiving stem cell transplant for leukemia or other malignancies. For
more information on our intellectual property rights to CTLA4-Ig, please see
"Legal Proceedings."
In December 2000, the Company licensed from the University of California,
San Diego ("UCSD") rights to a U.S. patent application covering novel methods
for the treatment of mitochondrial disease. Mitochondria are small bodies found
in every cell, which produce energy for cellular processes. Mitochondrial
diseases are characterized by impaired function of many tissues particularly
skeletal muscles (weakness, poor motor skills), the nervous system (seizures,
poor cognition) and dysfunction of the heart and kidney. Uridine is a naturally
occurring substance required by all cells for the synthesis of RNA, DNA and
other essential factors. Mitochondria are the only cellular (non-dietary) source
of uridine and its synthesis is often impaired in patients with mitochondrial
disease. In a Phase 1 study at UCSD, daily administration of uridine or a
derivative of uridine was well tolerated by the patients and produced symptom
improvements in some patients. Investigators at UCSD have developed a clinical
protocol for a placebo-controlled Phase 2 clinical trial of uridine in
mitochondrial patients which they intend to submit to the FDA. For more
information on our intellectual property rights to uridine and related compounds
for the treatment of mitochondrial disease, please see "Legal Proceedings."
We develop, manufacture and market products for the production of
therapeutic antibodies. We currently market a line of products for the
purification of antibodies based on a naturally occurring protein, Protein A,
which can specifically bind to antibodies. Repligen owns composition of matter
patents for recombinant Protein A in the United States and in Europe. In
December 1998, we entered into a ten-year agreement to supply recombinant
Protein A to Amersham Pharmacia Biotech, a leading supplier to the
biopharmaceutical market.
In October 1999, Repligen obtained a license from ChiRhoClin, Inc., a
private company, to commercialize two diagnostic secretin products. These
products are synthetic, injectable forms of the natural hormone which has
traditionally been used by gastroenterologists to assess the function of the
pancreas. New Drug Applications ("NDAs") have been filed for both products. The
NDA for the synthetic
10
porcine (pig-derived) product has been reviewed by the FDA which indicated that
it could be approved for marketing in the United States upon satisfactory
response by ChiRhoClin to a request for additional data concerning the product's
manufacturing. Both synthetic products have been granted orphan drug status by
the FDA. If the FDA approves either product, the license agreement obligates
Repligen to pay ChiRhoClin future milestones in cash, Repligen common stock and
royalties. We cannot be certain that the FDA will approve either product.
Results of Operations
Revenues
Total revenues for the three-month periods ended September 30, 2001 and
2000, were approximately $887,000 and $451,000, respectively, an increase of
$436,000 or 97%. Year to date total revenues for the six-month periods ended
September 30, 2001 and 2000, were approximately $1,600,000 and $1,037,000,
respectively, an increase of approximately $563,000 or 54%.
Product revenues for the three-month periods ended September 30, 2001 and
2000, were approximately $887,000 and $324,000, respectively, an increase of
$563,000 or 174%. This increase is largely attributable to the timing of
large-scale production orders of Protein A. Year to date total product sales for
the six-month periods ended September 30, 2001 and 2000, were approximately
$1,600,000 and $880,000, respectively, an increase of approximately $720,000 or
82%. This increase is due to increased product shipments to Amersham Pharmacia
Biotech and demand from monoclonal antibody producers during such period.
Research and development revenues for the three-month periods ended
September 30, 2001 and 2000, were approximately $0 and $127,000, respectively, a
decrease of $127,000 or 100%. Year to date total research and development
revenues for the six-month periods ended September 30, 2001 and 2000, were
approximately $0 and $157,000, respectively, a decrease of approximately
$157,000 or 100%. This decrease during the three and six-month periods ended
September 30, 2001 is a result of the non-recurring licensing payments made
during fiscal 2001.
Costs and Expenses
Total costs and expenses for the three-month periods ended September 30,
2001 and 2000, were approximately $2,565,000 and $2,214,000, respectively, an
increase of $351,000 or 16%. Year to date total expenses for the six-month
periods ended September 30, 2001 and 2000, were approximately $4,965,000 and
$4,284,000, respectively, an increase of approximately $681,000 or 16%.
Research and development expenses for the three-month period ended
September 30, 2001, compared to the three-month period ended September 30, 2000,
were approximately $1,330,000 and $1,343,000, respectively, a decrease of
$13,000 or 1%. This decrease for the three-month period ended September 30, 2001
is attributable to increased staffing offset by non-cash charges incurred from
the issuance of a warrant associated with a licensing agreement during the same
period in fiscal 2001. Research and development expenses for the six-month
periods ended September 30, 2001 and 2000, were approximately $2,757,000 and
$2,426,000, respectively, an increase of $331,000 or 14%. The increase for the
six-month period ended September 30, 2001 is largely attributable to increased
costs associated with production of the drugs for the clinical programs for
uridine, Secretin and CTLA4-Ig.
Selling, general and administrative expenses (SG&A) for the three-month
period ended September 30, 2001 compared to the three-month period ended
September 30, 2000, were approximately $681,000 and $643,000, respectively, an
increase of $38,000 or 6%. The increase is largely attributable to increased
11
staffing and litigation expenses offset by decreased marketing costs that were
related to a Repligen sponsored conference in fiscal 2001. Selling, general and
administrative expenses for the six-month periods ended September 30, 2001 and
2000, were approximately $1,298,000 and $1,299,000, respectively, a decrease of
$1,000 or 0%.
Cost of products sold for the three-month periods ended September 30, 2001
and 2000, were approximately $555,000 and $229,000, respectively, an increase of
$326,000 or 142%. This increase is due primarily to additional staffing and
increased product sales. Gross margin for products sold in the three-month
periods ended September 30, 2001 and 2000 were 37% and 29%, respectively. This
increase in gross margin is due primarily to the mix of product sales. Cost of
product sales for the six-month periods ended September 30, 2001 and 2000, were
approximately $911,000 and $559,000, respectively, an increase of approximately
$352,000 or 63%. This increase is largely attributable to increased Protein A
sales and to mix of product sales. Gross margin for products sold in the
six-month periods ended September 30, 2001 and 2000 were 43% and 36%,
respectively, of product revenues. This increase in gross margin is due
primarily to sales mix of products.
Investment and Interest Income
Investment income for the three-month periods ended September 30, 2001 and
2000 was approximately $302,000 and $552,000, respectively, a decrease of
$250,000 or 45%. Year to date total investment income for the six-month periods
ended September 30, 2001 and 2000, were approximately $646,000 and $1,064,000,
respectively, a decrease of approximately $418,000 or 39%. These decreases are
attributable to lower average funds available for investment and lower interest
rates during the three and six-month periods ended September 30, 2001 compared
to the same periods in 2000.
Liquidity and Capital Resources
We have financed our operations primarily through private placements of
common stock and revenues derived from product sales, collaborative research
agreements, government grants, and payments received pursuant to licensing and
royalty agreements. Total cash, cash equivalents and marketable securities at
September 30, 2001 equaled $27,071,000, a decrease of $2,859,000 from
$29,930,000 at March 31, 2001.
Repligen's operating activities used cash of approximately $2,766,000 for
the six-month period ended September 30, 2001, consisting of a net loss from
operations of approximately $2,720,000, an increase in interest receivable of
$197,000, inventory of $308,000, prepaid expenses of $177,000, accounts payable
of $28,000 and accrued expenses of $204,000. This use of cash was offset by
non-cash charges of $165,000 for depreciation and amortization and a decrease in
accounts receivable of $182,000 and other assets of $57,000. Our investing
activities used cash of approximately $9,743,000 for the purchase of marketable
securities. Our cash was reduced by capital expenditures of $106,000. Our
financing activities provided cash of approximately $13,000 from the proceeds of
a stock option exercise.
Working capital decreased to $21,230,000 at September 30, 2001 from
$24,398,000 at March 31, 2001.
While we anticipate that the cost of operations will increase as we
continue to expand our investment in proprietary product development, we believe
we have sufficient funding 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, there can
be no assurances that we will be able to secure such financing, or that such
financing, if available, will be on terms favorable to us.
Cautionary Statement Regarding Forward-Looking Statements
12
Statements in this Quarterly Report on Form 10-Q, as well as oral
statements that may be made by the Company or by officers, directors or
employees of the Company acting on the Company's behalf, that are not historical
facts constitute "forward-looking statements" which are made pursuant to the
safe harbor provisions of Section 21E of the Securities Exchange Act of 1934.
The forward-looking statements in this Quarterly Report on Form 10-Q do not
constitute guarantees of future performance. Investors are cautioned that
statements in this Quarterly Report on Form 10-Q which are not strictly
historical statements, including, without limitation, statements regarding
current or future financial performance, management's plans and objectives for
future operations, product plans and performance, management's assessment of
market factors, as well as statements regarding the strategy and plans of the
company and its strategic partners, constitute forward-looking statements. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that could cause the actual results of the Company to be
materially different from the historical results or from any results expressed
or implied by such forward-looking statements. The Company's future operating
results are subject to risks and uncertainties and are dependent upon many
factors, including, without limitation, the Company's ability to (i) meet its
working capital and future liquidity needs, (ii) successfully implement its
strategic growth strategies, (iii) understand, anticipate and respond to rapidly
changing technologies and market trends, (iv) develop, manufacture and deliver
high quality, technologically advanced products on a timely basis to withstand
competition from competitors which may have greater financial, information
gathering and marketing resources than the Company, (v) obtain and protect
licensing and intellectual property rights necessary for the Company's
technology and product development on terms favorable to the Company, (vi)
recruit and retain highly talented professionals in a competitive job market,
(vii) realize future revenues, (viii) maintain a timeline for clinical
development, (ix) obtain approval from the FDA for clinical trials or product
marketing approvals (x) obtain successful results of pending or future clinical
trials, (xi) continue to establish collaborative arrangements with third
parties, and (xii) compete against the biotechnology and pharmaceutical
industries. Further information on potential factors that could affect the
Company's financial results are included in filings made by the Company from
time to time with the Securities and Exchange Commission and in the section
entitled "Risk Factors" contained in the Company's Annual Report on Form 10-K
for the fiscal year ended March 31, 2001 (File No. 0-14656).
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
On June 21, 2001, Pro-Neuron, Inc. filed a complaint (the "Pro-Neuron
Complaint") against the Regents of the University of California (the "Regents")
and Repligen at the Superior Court of California, County of San Diego seeking to
void the License Agreement entered into between Repligen and the University of
California, San Diego ("UCSD") in December 2000 (the "UCSD License Agreement").
The Pro-Neuron Complaint, among other things, also requests that the court order
the Regents to assign all rights licensed to Repligen pursuant to the UCSD
License Agreement to Pro-Neuron pursuant to the Regent's agreement with
Pro-Neuron. UCSD and Repligen believe that the Complaint is without merit and
intend to vigorously defend their rights. If Pro-Neuron is successful in this
action, Repligen's ability to commercialize uridine for mitochondrial disease
may be limited.
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 so
13
corrected BMS patent. Should the University be designated an assignee or
co-assignee on any of the patents named in the aforesaid complaint, Repligen
would then have rights to such technology 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.
The Company's Annual Meeting of Stockholders (the "Annual Meeting") was
held on September 13, 2001. At the Annual Meeting, the stockholders of the
Company considered and acted upon proposals to: (i) elect five members to the
Board of Directors (ii) ratify the selection of Arthur Andersen LLP as the
independent auditors of the Company for the fiscal year ending March 31, 2002
and (iii) adopt the 2001 Repligen Corporation Stock Option Plan.
The Company had 26,633,950 shares of Common Stock of the Company issued and
outstanding as of the close of business on July 17, 2001, the record date
established by the Board of Directors for the Annual Meeting. At the Annual
Meeting and with respect to proposals 1 and 2, holders of 23,143,539 shares of
Common Stock, or approximately 87% of all of the Company's issued and
outstanding shares of Common Stock, were entitled to vote and were present in
person or represented by proxy. At the Annual meeting and with respect to
proposal 3, holders of 6,102,658 shares of the Company's Common Stock were
entitled to vote and were present in person or represented by proxy. The
following sets forth the information regarding the results of the voting at the
Annual Meeting:
Proposal 1. Election of Directors:
Directors Shares Voting Shares Voting
In Favor Against
------------- -------------
Robert J. Hennessey* 22,214,687 928,852
Alexander Rich, M.D.* 22,210,087 933,452
Paul Schimmel, Ph.D.* 22,216,487 927,052
Walter C. Herlihy, Ph.D.* 22,223,387 920,152
G. William Miller* 22,166,737 976,802
* Incumbent
Proposal 2. Ratification of Selection of Arthur Andersen LLP as independent
auditors of the Company for the fiscal year ending March 31, 2002:
Shares voting in favor: 23,055,334
Shares voting against: 38,790
Abstention: 49,415
Proposal 3. Adoption of the 2001 Repligen Corporation Stock Option Plan:
Shares voting in favor: 4,614,678
Shares voting against: 1,412,188
Abstention: 75,702
Non-votes: 17,040,971
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Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT DESCRIPTION
------- -----------
3.1 Restated Certificate of Incorporation, dated June 30, 1992 and amended September 30,
1999 (filed as Exhibit 3.1 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 The 2001 Repligen Corporation Stock Option Plan, adopted by the Stockholders on
September 13, 2001 (filed as Appendix B to Repligen Corporation's Definitive Proxy
Statement on Schedule 14A dated July 19, 2001 and incorporated herein by reference).
(b) Reports on Form 8-K
The Company filed no current reports on Form 8-K during the quarter
covered by the report.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
REPLIGEN CORPORATION
(Registrant)
Date: November 14, 2001 By: /S/ Walter C. Herlihy
------------------------------------------
Chief Executive Officer and President,
Principal Financial and Accounting Officer
15
Repligen Corporation
Exhibit Index
EXHIBIT DESCRIPTION
- ------- -----------
3.1 Restated Certificate of Incorporation, dated June 30, 1992 and amended September 30,
1999 (filed as Exhibit 3.1 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 The 2001 Repligen Corporation Stock Option Plan, adopted by the Stockholders on
September 13, 2001 (filed as Appendix B to Repligen Corporation's Definitive Proxy
Statement on Schedule 14A dated July 19, 2001 and incorporated herein by reference).
16