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 December 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
----------------------------------------------------
(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 February 1, 2002.
Common Stock, par value $.01 per share 26,642,750
-------------------------------------- ----------
Class Number of Shares
REPLIGEN CORPORATION
INDEX
PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements
Balance Sheets as of December 31, 2001 and March 31, 2001
(Unaudited) 3
Statements of Operations for the Three Months and Nine Months
Ended December 31, 2001 and 2000 (Unaudited) 4
Statements of Cash Flows for the Nine Months
Ended December 31, 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 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
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
None
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 December 31, 2001 March 31, 2001
----------------- --------------
Current assets:
Cash and cash equivalents $ 5,708,023 $ 16,163,625
Marketable securities 13,683,339 7,773,427
Accounts receivable, net 523,292 443,760
Interest receivable 507,003 368,721
Inventories 913,391 634,723
Prepaid expenses and other current assets 356,840 270,252
-------------- --------------
Total current assets 21,691,888 25,654,508
-------------- --------------
Property and equipment, at cost:
Equipment 1,167,452 1,103,527
Leasehold improvements 533,114 473,288
Furniture and fixtures 352,173 331,501
-------------- --------------
2,052,739 1,908,316
Less: accumulated depreciation and amortization 1,678,534 1,464,195
-------------- --------------
374,205 444,121
Long term marketable securities 6,148,018 5,992,478
Restricted cash (Note 10) 500,000 --
Other assets, net -- 56,882
-------------- --------------
Total assets $ 28,714,111 $ 32,147,989
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 423,528 $ 529,914
Accrued expenses 923,009 726,910
-------------- --------------
Total current liabilities 1,346,537 1,256,824
-------------- --------------
Stockholders' equity:
Preferred stock, $.01 par value -
Authorized, 5,000,000 shares,-- no shares issued or -- --
outstanding
Common stock, $.01 par value
Authorized, 40,000,000 shares,-- issued and outstanding,
26,642,750 shares at December 31, 2001 and 26,628,950
shares at March 31, 2001 266,427 266,289
Additional paid-in capital 166,597,654 166,583,684
Accumulated deficit (139,496,507) (135,958,808)
-------------- --------------
Total stockholders' equity 27,367,574 30,891,165
-------------- --------------
Total liabilities and stockholders' equity $ 28,714,111 $ 32,147,989
============== ==============
See accompanying notes to financial statements.
3
REPLIGEN CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
Three-Months Ended Nine-Months Ended
December 31, December 31,
2001 2000 2001 2000
---------------------------------------------------------------------------
Revenues:
Product $ 1,179,892 $ 615,155 $ 2,779,160 $ 1,494,942
Research and development -- 2,745 -- 159,615
------------ ------------ ------------ ------------
Total revenues 1,179,892 617,900 2,779,160 1,654,557
Costs and expenses:
Cost of products sold 585,099 393,029 1,496,137 951,721
Research and development 1,021,386 1,780,506 3,777,906 4,206,242
Selling, general and
administrative 649,900 566,290 1,947,835 1,865,601
------------ ------------ ------------ ------------
Total costs and expenses 2,256,385 2,739,825 7,221,878 7,023,564
------------ ------------ ------------ ------------
Loss from operations (1,076,493) (2,121,925) (4,442,718) (5,369,007)
------------ ------------ ------------ ------------
Investment and interest
income 259,174 539,322 905,019 1,603,453
------------ ------------ ------------ ------------
Net loss $ (817,319) $ (1,582,603) $ (3,537,699) $ (3,765,554)
============ ============ ============ ============
Basic and diluted net loss
per share $ (.03) $ (.06) $ (.13) $ (.14)
============ ============ ============ ============
Basic and diluted weighted
average common shares
outstanding 26,642,319 26,576,434 26,638,306 26,531,159
============ ============ ============ ============
See accompanying notes to financial statements.
4
REPLIGEN CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine-Months Ended
December 31,
2001 2000
------------ ------------
Cash flows from operating activities:
Net loss $ (3,537,699) $ (3,765,554)
Adjustments to reconcile net loss to net cash
used in operating activities -
Depreciation and amortization 214,339 188,263
Non-cash charge for patent acquisition -- 183,750
Non-cash charges relating to issuance of stock and warrants -- 218,735
Changes in assets and liabilities -
Accounts receivable (79,532) 224,916
Interest receivable (138,282) --
Inventories (278,668) (18,259)
Prepaid expenses and other current assets (86,588) (61,791)
Other assets 56,882 24,500
Accounts payable (106,386) 147,308
Accrued expenses 196,099 (194,789)
------------ ------------
Net cash used in operating activities (3,759,835) (3,052,921)
------------ ------------
Cash flows from investing activities:
Redemption of marketable securities 13,425,710 30,000,000
Purchases of marketable securities (19,491,162) (39,963,511)
Increase in restricted cash (500,000) --
Purchases of property and equipment (144,423) (124,834)
------------ ------------
Net cash used in investing activities (6,709,875) (10,088,345)
------------ ------------
Cash flows from financing activities:
Proceeds from exercise of warrants -- 537,899
Proceeds from exercise of stock options 14,108 15,500
------------ ------------
Net cash provided by financing activities 14,108 553,399
------------ ------------
Net decrease in cash and cash equivalents (10,455,602) (12,587,867)
Cash and cash equivalents, beginning of period 16,163,625 25,226,546
------------ ------------
Cash and cash equivalents, end of period $ 5,708,023 $ 12,638,679
============ ============
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, as long as there is persuasive evidence
of an arrangement, the fee is fixed or determinable and collection of the
related receivable is probable.
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 and nine-month
periods ended December 31, 2001 and December 31, 2000 exclude the potential
common shares issuable upon the exercise of outstanding warrants and stock
options because to do so would be antidilutive for the periods presented. At
December 31, 2001, there were outstanding options to purchase 1,714,441 shares
of the Company's common stock at a weighted average exercise price of $2.24 per
share and
6
warrants to purchase 404,846 shares of the Company's common stock at a weighted
average exercise price of $4.61 per share. At December 31, 2000, there were
outstanding options to purchase 1,503,441 shares of the Company's common stock
at a weighted average exercise price of $2.65 per share and warrants to purchase
934,625 shares of the Company's common stock at a weighted average exercise
price of $4.11 per share.
4. Recent Pronouncements
In July 2001, the Financial Accounting Standards Board ("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 2003. Management believes
that the adoption of SFAS No. 141 and SFAS No. 142 will not have a significant
impact on the Company's financial statements.
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, if
any, 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 December 31, 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 December
31, 2001. The average maturity of the Company's short-term marketable securities
as of December 31, 2001 is approximately 4 months. The average maturity as of
December 31, 2001 of the Company's long-term marketable securities is
approximately 13 months. Cash, cash equivalents and marketable securities
consist of the following at December 31, 2001 and March 31, 2001:
7
December 31, March 31,
2001 2001
---- ----
Cash and cash equivalents
Cash $ 1,720,520 $ 222,766
Commercial paper and corporate bonds -- 489,719
Money market accounts 3,987,503 15,451,140
----------- -----------
Total cash and cash equivalents $ 5,708,023 $16,163,625
=========== ===========
Short-term marketable securities
Corporate and other debt securities $13,683,339 $ 7,773,427
=========== ===========
Long-term marketable securities
Corporate and other debt securities $ 6,148,018 $ 5,992,478
=========== ===========
The Company also has $500,000 in restricted cash in connection with certain
long-term obligations as of December 31, 2001 (See note 10).
6. Inventories
Inventories are stated at the lower of cost (first in, first out) or market
and consist of the following at December 31, 2001 and March 31, 2001.
December 31, March 31,
2001 2001
---- ----
Raw materials and work-in-process $833,180 $459,288
Finished goods 80,211 175,435
-------- --------
Total $913,391 $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.
8
The following table represents the Company's revenue by geographic area:
Three-Months Nine-Months
Ended Ended
December 31, December 31,
2001 2000 2001 2000
---- ---- ---- ----
US 27% 28% 38% 53%
Europe 71% 71% 60% 45%
Other 2% 1% 2% 2%
---- ---- ---- ----
Total 100% 100% 100% 100%
During the three-month period ended December 31, 2001, there were two
customers who accounted for approximately 54% and 20%, respectively, of the
Company's revenues. During the three-month period ended December 31, 2000, there
was one customer who accounted for approximately 37% of the Company's revenues.
One customer accounted for 89%, of the Company's accounts receivable at December
31, 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.
10. Long-term Obligations
In October 2001, the Company entered into a ten-year lease agreement for a
new corporate headquarters in Waltham, Massachusetts. The new facility is 25,000
square feet, approximately 10,000 of which will be constructed as manufacturing
and laboratory space. The Company anticipates that this new facility will
increase operating efficiencies and increase manufacturing capacity to meet
growing demand for Protein A products, and to better meet corporate goals and
objectives. The company plans to relocate to these new facilities in the first
quarter of fiscal 2003. In connection with this lease agreement, the Company
issued a letter of credit in the amount of $500,000 to its landlord. The letter
of credit is collateralized by a certificate of deposit held by the bank that
issued the letter of credit. The certificate of deposit is included in
restricted cash in the accompanying balance sheet as of December 31, 2001.
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, 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.
9
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 suggest that
secretin may have beneficial effects in autism, including improvements in
communicative and social behavior.
We have 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. In this subgroup, there was a
statistically significant treatment 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 ("CGI") by both a 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 for 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. We recently completed a Phase I clinical trial of intravenously
administered CTLA4-Ig in 12 normal adults who received escalating doses of
CTLA4-Ig. No serious adverse events or toxicities were observed. These data
provide the basis for testing in auto-immune disease patient populations. We
plan to initiate a Phase 1/2 open label, dose escalating clinical trial to
evaluate the safety and efficacy of CTLA4-Ig in patients with refractory
auto-immune thrombocytopenic purpura (ITP) in the United Kingdom pending
Medicines Control Agency approval. A total of 12 patients with ITP will be
treated with CTLA4-Ig by intravenous infusion once a day for three consecutive
days. Clinical outcome will be monitored by change in platelet number after
treatment. 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
10
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 been
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 porcine (pig-derived) product ("SecreFlo") 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. A second product,
synthetic human secretin ("SecreFlux"), received an approvable letter in
December 2001. Both products have been granted orphan drug status by the FDA,
which means that they will be the only secretin products available in the United
States for a period of seven years following approval to market the drugs. 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 December 31, 2001 and
December 31, 2000, were approximately $1,180,000 and $618,000 respectively, an
increase of $562,000 or 91%. Total revenues for the nine-month periods ended
December 31, 2001 and December 31, 2000, were approximately $2,779,000 and
$1,655,000, respectively, an increase of approximately $1,124,000 or 68%.
Product revenues for the three-month periods ended December 31, 2001 and
December 31, 2000, were approximately $1,180,000 and $615,000, respectively, an
increase of $565,000 or 92%. This increase is largely attributable to the timing
of large-scale production orders of Protein A. Year to date total product
revenue for the nine-month periods ended December 31, 2001 and December 31,
2000, were approximately $2,779,000 and $1,495,000, respectively, an increase of
approximately $1,284,000 or 86%. This increase is due to increased product
shipments to Amersham Pharmacia Biotech and increased demand from several
monoclonal antibody producers during such period.
Costs and Expenses
Total costs and expenses for the three-month periods ended December 31,
2001 and December 31, 2000, were approximately $2,256,000 and $2,740,000,
respectively, a decrease of $484,000 or 18%. Total costs and expenses for the
nine-month periods ended December 31, 2001 and December 31 2000, were
approximately $7,222,000 and $7,024,000, respectively, an increase of
approximately $198,000 or 3%.
Research and development expenses for the three-month periods ended
December 31, 2001, and December 31, 2000, were approximately $1,021,000 and
$1,781,000, respectively, a decrease of $760,000
11
or 43%. Research and development expenses for the nine-month periods ended
December 31, 2001 and December 31, 2000, were approximately $3,778,000 and
$4,206,000, respectively, a decrease of $428,000 or 10%. These decreases are
largely attributable to decreased clinical material and trial costs partially
offset by increased staffing in fiscal 2002.
Selling, general and administrative expenses for the three-month periods
ended December 31, 2001 and December 31, 2000, were approximately $650,000 and
$566,000, respectively, an increase of $84,000 or 15%. Selling, general and
administrative expenses for the nine-month periods ended December 31, 2001 and
December 31, 2000, were approximately $1,948,000 and $1,866,000, respectively,
an increase of $82,000 or 4%. These increases are largely attributable to
increased staffing and litigation expenses partially offset by decreased costs
in shareholder services in fiscal 2002.
Cost of products sold for the three-month periods ended December 31, 2001
and December 31, 2000, were approximately $585,000 and $393,000, respectively,
an increase of $192,000 or 49%. This increase is due primarily to additional
staffing and increased product sales partially offset by manufacturing
efficiencies. Cost of product sales for the nine-month periods ended December
31, 2001 and December 31, 2000, were approximately $1,496,000 and $952,000,
respectively, an increase of approximately $544,000 or 57%. This increase is
largely attributable to increased Protein A sales and to mix of product sales
partially offset by manufacturing efficiencies. Gross margin for products sold
in the three-month periods ended December 31, 2001 and December 31, 2000 were
50% and 36%, respectively, of product revenue. Gross margin for products sold in
the nine-month periods ended December 31, 2001 and December 31, 2000 were 46%
and 36%, respectively, of product revenues. These increases in gross margin are
due primarily to mix of product sales and improvements in manufacturing
efficiencies.
Investment and Interest Income
Investment income for the three-month periods ended December 31, 2001 and
December 31, 2000, was approximately $259,000 and $539,000, respectively, a
decrease of $280,000 or 52%. Year to date total investment income for the
nine-month periods ended December 31, 2001 and December 31, 2000, were
approximately $905,000 and $1,603,000, respectively, a decrease of approximately
$698,000 or 44%. These decreases are attributable to lower average funds
available for investment and lower interest rates during the three and
nine-months ended December 31, 2001 compared to the same period, in fiscal 2001.
The Company expects interest income to vary based on changes in the amount of
funds invested and fluctuations in interest rates.
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
December 31, 2001 equaled $25,539,000 a decrease of $4,391,000 from $29,930,000
at March 31, 2001.
Repligen's operating activities used cash of approximately $3,760,000 for
the nine-month period ended December 31, 2001, consisting of a net loss from
operations of approximately $3,538,000, increases in inventory of $279,000,
prepaid expenses of $87,000, accounts receivable of $80,000, and interest
receivable of $138,000, and a decrease in accounts payable of $106,000. This use
of cash was offset by non-cash charges of $214,000 for depreciation and
amortization, an increase in accrued expenses of $196,000 and a decrease in
other assets of $57,000. Our investing activities used cash of approximately
$6,565,000 for the purchase of marketable securities and restricted cash
requirements. Our cash was reduced
12
by capital expenditures of $144,000. Our financing activities provided cash of
approximately $14,000 from the proceeds of a stock option exercises.
Working capital decreased to $20,345,000 at December 31, 2001 from
$24,398,000 at March 31, 2001.
Repligen is building new corporate headquarters in Waltham, Massachusetts.
We expect to expend a substantial amount of funds in the construction of this
new 25,000 square foot facility. We are in the process of finalizing
construction contracts related to the build out of the office, manufacturing and
research and development space. The Company anticipates that this new facility
will increase operating efficiencies and increase manufacturing capacity to meet
the growing demand for Protein A products, and to better meet corporate goals
and objectives. The company plans to relocate to these new facilities in the
first quarter of fiscal 2003. In connection with this lease agreement, the
Company issued a letter of credit in the amount of $500,000 to its landlord. The
letter of credit is collateralized by a certificate of deposit held by the bank
that issued the letter of credit. The certificate of deposit is included in
restricted cash in the accompanying balance sheet as of December 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
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, clinical trials and results, 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
13
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 included
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).
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to potential loss from financial market risks that may occur
as a result of changes in interest rates. Our exposure to these risks has not
materially changed since March 31, 2001. We incorporate by reference our
disclosure related to market risk which is set forth under the heading,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the sub-heading, "Liquidity and Capital Resources" in our 2001
Form 10-K.
PART II. OTHER INFORMATION
Item 2. 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 the assignee or a co-assignee on any corrected BMS patent.
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.
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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).
10.1 Lease Between Repligen Corporation as Tenant and West Seyon
LLC as Landlord, 35 Seyon Street, Waltham, MA (filed
herewith).
(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: February 14, 2002 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).
10.1 Lease Between Repligen Corporation as Tenant and West Seyon
LLC as Landlord, 35 Seyon Street, Waltham, MA (filed
herewith).
16