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, 1997
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 02194
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (781)-449-9560
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(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 ____ No ____.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of January 31, 1998.
Common Stock, par value $.01 per share 18,001,785
-------------------------------------- ----------------
Class Number of Shares
REPLIGEN CORPORATION
Form 10-Q for the Quarter Ending December 31, 1997
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of December
31, 1997 and March 31, 1997 3
Condensed Consolidated Statements of Operations for
the Three and Nine Months Ended December 31, 1997
and 1996 4
Condensed Consolidated Statement of Cash Flows for
the Nine Months Ended December 31, 1997 and 1996 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities 9
Item 3. Defaults Upon Senior Securities
None
Item 4. Submissions of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K 10
(a) Exhibits
4.1 Form of Warrant
10.1 Stock and Warrant Purchase Agreement
27.1 Financial Data Schedule
(b) Reports on Form 8-K
2
Signature 11
Exhibit Index 12
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
3
REPLIGEN CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS December 31, 1997 March 31, 1997
----------------- --------------
Current assets:
Cash and cash equivalents $ 4,919,340 $ 3,465,881
Marketable securities -- 72,353
Accounts receivable 364,927 534,929
Inventories 528,379 452,241
Prepaid expenses and other current
assets 132,929 165,720
------------- -------------
Total current assets 5,945,575 4,691,124
Property, plant and equipment, at cost:
Equipment 770,512 724,564
Furniture and fixtures 31,807 28,820
Leasehold improvements
442,528 386,199
1,244,847 1,139,583
Less: accumulated depreciation and
amortization 532,048 349,112
------------- -------------
712,799 790,471
Restricted cash -- 50,087
Other assets, net 88,909 88,909
------------- -------------
$ 6,747,283 $ 5,620,591
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 64,660 $ 168,269
Accrued expenses 245,722 399,988
Unearned income -- 133,313
------------- -------------
Total current liabilities 310,382 701,570
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value --
authorized -- 5,000,000 shares --
outstanding - none -- --
Common stock, $.01 par value --
authorized -- 30,000,000 shares--
outstanding - 18,001,785 shares at
December 31, 1997 and 16,001,785 at
March 31, 1997 180,017 160,017
Additional paid-in capital 130,264,048 128,309,048
Deferred compensation (3,535) (26,447)
Accumulated deficit (124,003,629) (123,523,597)
------------- -------------
Total stockholders' equity 6,436,901 4,919,021
$ 6,747,283 $ 5,620,591
============= =============
See accompanying notes to condensed consolidated financial statements.
4
REPLIGEN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
------------------ -----------------
December 31, December 31, December 31, December 31,
1997 1996 1997 1996
------------ ------------ ------------ ------------
Revenues:
Research and development $ 377,957 $ 440,180 $ 802,326 $ 890,641
Product 316,146 503,049 855,532 1,123,827
Investment income 44,862 98,744 159,968 206,543
Other 14,472 24,593 114,447 667,180
------------ ------------ ------------ ------------
753,437 1,066,566 1,932,273 2,888,191
------------ ------------ ------------ ------------
Costs and expenses:
Research and development 348,860 240,139 1,063,061 934,599
Selling, general and 300,609 353,775 922,818 1,540,137
administrative
Cost of goods sold 198,607 211,538 426,425 363,187
Charge for purchased research &
development -- 365,285 -- 365,285
------------ ------------ ------------ ------------
848,076 1,170,737 2,412,304 3,203,208
Net loss $ (94,639) $ (104,171) $ (480,031) $ (315,017)
============ ============ ============ ============
Basic loss per common share $ (.01) $ (.01) $ (0.03) $ (0.02)
============ ============ ============ ============
Weighted average common shares
outstanding 16,023,763 15,605,846 16,009,084 15,603,639
============ ============ ============ ============
See accompanying notes to condensed consolidated financial statements.
5
REPLIGEN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
December 31,
-------------------------
1997 1996
----------- -----------
Cash flows from operating activities:
Net loss $ (480,031) $ (315,017)
Adjustments to reconcile net loss to net cash
used in operating activities -
Depreciation and amortization 182,935 128,709
Compensation charge from stock options 22,912 32,395
Charge for purchased research & development -- 365,285
Changes in assets and liabilities -
Accounts receivable 170,002 (242,720)
Amounts due from affiliates -- 42,284
Inventories (76,138) 256,784
Prepaid expenses and other current assets 32,791 35,187
Accounts payable (103,609) (292,254)
Accrued expenses (154,266) (3,388,055)
Unearned income (133,313) 78,316
----------- -----------
Net cash used in operating activities (538,717) (3,299,086)
----------- -----------
Cash flows from investing activities:
Decrease in marketable securities 72,353 137,704
Purchases of property, plant and equipment, net (105,264) (367,020)
Decrease in other assets -- 5,900
Decrease (increase) in restricted cash 50,087 (104,466)
----------- -----------
Net cash provided by (used in) investing
activities 17,176 (327,882)
----------- -----------
Cash flows from financing activities:
Net proceeds from the issuance of common stock
and warrants, net of issuance costs 1,975,000 --
----------- -----------
Net cash provided by financing activities 1,975,000 --
----------- -----------
Net increase (decrease) in cash and cash equivalents 1,453,459 (3,626,968)
Cash and cash equivalents, beginning of period 3,465,881 6,944,140
----------- ===========
Cash and cash equivalents, end of period $ 4,919,340 $ 3,317,172
=========== ===========
See accompanying notes to condensed consolidated financial statements.
6
REPLIGEN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The condensed consolidated 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 ending March 31, 1997.
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. 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.
Reclassifications have been made in prior year condensed consolidated
financial statements to conform with the current year's presentations.
2. Basic Loss Per Common Share
Basic loss per common share has been computed by dividing net loss by the
weighted average number of shares outstanding during the period. At December
31, 1997, there are 559,000 options outstanding, with a weighted average
exercise price of $1.36 and 2,832,000 warrants outstanding, with a weighted
average exercise price of $3.97. These common stock equivalents have not
been included for any period as the impact would be antidilutive.
In February 1997 the Financial Accounting Standard Board issued SFAS No.
128 Earnings Per Share, which requires a new method of calculating earnings
per share (EPS). The Company is required to use this method beginning with
the financial statements for period ended December 31, 1998. The reported
EPS will be unchanged from amounts presented in prior periods' interim
reports.
3. Cash Equivalents and Marketable Securities
The Company considers all highly liquid investments with a maturity of
three months or less at the time of acquisition to be cash equivalents.
Included in cash equivalents at December 31, 1997 are approximately
$1,600,000 of cash, $525,000 of money market funds and approximately
$2,800,000 investment in commercial paper. Investments with a maturity
period of greater than three months are classified as marketable securities.
8
4. Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market and consist of the following:
December 31, March 31,
1997 1997
--------- ---------
Raw materials and work-in-process $ 343,000 $ 298,000
Finished goods 185,000 154,000
--------- ---------
Total $ 528,000 $ 452,000
========= =========
Work in process and finished goods inventories consist of material,
labor, outside processing and manufacturing overhead.
5. Stockholders' Equity
On December 31, 1997, the Company completed a $2.0 million private
placement of its securities. The Company received net proceeds of $1.975 million
for the issuance of 2,000,000 shares of Common Stock (the "Common Shares") and
warrants to purchase an aggregate of 750,000 shares of Common Stock.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Statement Regarding Forward-Looking Statements
Statements in this Quarterly Report on Form 10-Q under this caption,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," 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"
within the meaning of the Private Securities Litigation Reform Act of 1996.
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.
Certain Factors That May Affect Future Results
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 restructuring and 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. Each of these factors, and others, are discussed from
time to time in the filings made by the Company with the Securities and
Exchange Commission.
The Company
Repligen Corporation is developing a new class of synthetic drugs
designed to block important protein-carbohydrate and protein-protein
interactions. Although clinical experience with complex natural products and
monoclonal antibodies has shown that many of these interactions are important
in disease, it has not been possible to identify easily synthesized organic
compounds for these types of targets. Repligen is developing technologies to
discover drugs which can block protein-macromolecule interactions including
methods for the rapid synthesis of chemical compound libraries with "natural
product-like" complexity and high throughput screening assays based on
specific biological targets.
In a proprietary program these technologies are being applied to the
discovery of small molecule inhibitors for several growth factors responsible
for angiogenesis or new blood vessel growth. Compounds which inhibit
angiogenic growth factors may have application in certain ocular diseases
(including diabetic retinopathy or macular degeneration) and oncology. The
Company's high throughput screening assays can identify inhibitors of the
interaction of these growth factors with cell surface carbohydrates by
screening customized combinatorial chemical libraries. The Company also has
ongoing collaborations with Pfizer Inc., Glaxo Wellcome and Cambridge
NeuroScience based on its drug discovery technologies.
9
Repligen also manufactures and markets a line of products for the
production of monoclonal antibodies intended for human clinical use. These
products are based on recombinant Protein A for which Repligen holds patents
in the United States and major foreign markets. In addition, the Company has
out-licensed certain intellectual property pertaining to its former programs
on biological products.
Results of Operations
Revenues
Total revenues for the three month periods ended December 31, 1997 and
1996 were $753,000 and $1,067,000, respectively, a decrease of approximately
29%. Year to date total revenues decreased approximately 33% to $1,932,000 at
December 31, 1997 from $2,888,000 at December 31, 1996. This decrease is
largely attributable to the one-time sales of securities and equipment for
approximately $505,000 reported as "Other Income" in the nine month period
ended December 31, 1996.
Research and development revenues for the three month period ended
December 31, 1997 were $378,000 compared to $440,000 in the comparable fiscal
1997 period. In the first nine months of fiscal 1998, the Company recorded
research and development revenues totaling $802,000 consisting primarily of
approximately $620,000 from contracted research and development programs and
$182,000 from licensing revenues. In the first nine months of fiscal 1997,
the Company recorded research and development revenues totaling $891,000
consisting primarily of $662,000 from contracted research and development
programs and $229,000 from licensing revenues.
Product revenues for the three months ended December 31, 1997 and 1996
were $316,000 and $503,000, respectively, and were $856,000 and $1,124,000
for the nine months ended December 31, 1997 and 1996, respectively. This
decrease is attributed to the timing of large production scale orders of
Protein A.
Investment income decreased in fiscal 1998 over the comparable three
and nine month periods in fiscal 1997 primarily due to lower average funds
available for investment.
Other revenues for the three and nine month periods ended December 31,
1997 decreased from the comparable fiscal 1997 periods primarily due to the
Company's one-time sales of equipment and furnishings of approximately
$205,000 and non-investment securities of approximately $300,000 during
fiscal 1997.
Expenses
Total expenses for the three month periods ended December 31, 1997 and
1996 decreased 28% to $848,000 from $1,171,000. This decrease is largely
attributable to the $365,000 charge for purchased research and development
that occurred in the quarter ended December 31,1997 relating to the
acquisition of Proscure, Inc. For the nine months ended December 31, 1997 and
1996, expenses were $2,412,000 and $3,203,000, respectively.
Research and development expenses for the three months ended December
31, 1997 and 1996 were $349,000 and $240,000, respectively, an increase of
45%. For the nine months ended
10
December 31, 1997 and 1996, research and development expenses were
$1,063,000 and $935,000, respectively, an increase of 14%. This increase is
largely attributable to increased investment in the Company's proprietary
product development during fiscal 1998.
Selling, general and administrative expenses for the three month and
nine month periods ended December 31, 1997 were $301,000 and $923,000,
respectively, which reflects a decrease of $53,000 and $617,000,
respectively, from the comparable 1997 periods. These decreases resulted from
the reduction of administrative personnel and related expenses as part of the
Company's cost reduction efforts in April through June of 1996.
Cost of goods sold for the three month and nine month periods ended
December 31, 1997 were $199,000 and $426,000, respectively, as compared to
$212,000 and $363,000 for the three and nine months ended December 31, 1996.
Cost of goods sold in the three month periods ended December 31, 1997 and
1996 were 63% and 42% of product revenues, respectively. In the nine month
periods ended December 31, 1997 and 1996, cost of goods sold was 50% and 32%
of product sales, respectively. The increase in cost of sales as a percentage
of revenue is primarily a result of the realization of inventory that had
been previously reserved for in the three and nine month periods ended
December 31, 1996.
Liquidity and Capital Resources
The Company's total cash, cash equivalents and marketable securities
increased to $4,919,000 at December 31, 1997 from $3,538,000 at March 31,
1997, an increase of $1,381,000 or 39%. The increase reflects $2,000,000 of
proceeds (before expenses) resulting from the sale of Common Stock and
Warrants through a private placement that took place during the three months
ended December 31, 1997 offset by the net losses during the nine month period
ended December 31, 1997 of approximately $480,000, an increase in inventory
of $76,000, the reduction of accounts payable and accrued expenses of
$260,000, offset in part by the reduction in accounts receivables and prepaid
expenses of $203,000. Working capital increased to $5,635,000 at December 31,
1997 from $3,990,000 at March 31, 1997.
During the nine months ended December 31, 1997, the Company entered
into a $450,000 note receivable with a licensee for past due licensing fees.
As the Company has historically recorded licensing fees under this agreement
on a cash basis, the Company has not recorded this note receivable as an
asset. The note requires full payment of principal and interest in August
1998. The Company will continue to record this license fee on a cash basis.
The Company has funded operations primarily with cash derived from the
sales of its equity securities, revenue derived from research and development
contracts, product sales and investment income. The Company believes it has
sufficient cash equivalents and marketable securities to satisfy its working
capital and capital expenditure requirements for the next twenty-four months.
Should the Company need to secure additional financing to meet its future
liquidity requirements, there can be no assurances that the Company will be
able to secure such financing, or that such financing, if available, will be
on terms favorable to the Company.
On February 23, 1998, Nasdaq will initiate new requirements for listing
on the Nasdaq National Market. Currently, the Company believes it is in
compliance with all of the new requirements. There can be no assurance,
however, that the Company will be able to continue to satisfy all the
requirements issued by Nasdaq or that the Company's Common Stock will
continue
11
to be listed on the Nasdaq National Market. Should it occur, the delisting of
the Company's Common Stock from the Nasdaq National Market could have a
material adverse effect on the Company's business, results of operations and
financial condition.
PART II. OTHER INFORMATION
Item 2. CHANGES IN SECURITIES
Pursuant to the Stock and Warrant Purchase Agreement dated as of
December 31, 1997 (the "Purchase Agreement") among the Company and
Biotechnology Value Fund, L.P., certain of its affiliates, and Four Partners,
L.P.(collectively, the "Purchasers"), the Purchasers invested an aggregate of
$2 million in exchange for 2,000,000 shares of the Company's Common Stock
(the "Common Shares"), and warrants to purchase at any time prior to December
31, 2004 an aggregate of 750,000 shares of Common Stock at a price per share
of $1.50.
The sale of the Common Shares and Warrants was made in reliance upon
the exemption from registration under section 4 (2) of the Securities Act as
transactions not involving any public offering. The Company has reason to
believe that the Purchasers were "accredited investors"(as such term is
defined in Regulation D of the Securities Acts), were familiar with and had
access to information concerning the operations and financial conditions of
the Company, and were acquiring the securities for investment and not with a
view to the distribution thereof. No underwriter was engaged in connection
with the foregoing issuance of securities.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT DESCRIPTION
------- -----------
4.1 Form of Stock Purchase Warrant
10.1 Stock & Warrant Purchase Agreement
27.1 Financial Data Schedule
(b) Reports on Form 8-K
Current Report dated December 31, 1997 filed with the Securities and
Exchange Commission on January 2, 1998 relating to the Company's private
placement of stocks and warrants.
12
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.
SIGNATURE
REPLIGEN CORPORATION
(Registrant)
Date: February 13, 1998 By: /S/ Walter C. Herlihy
--------------------------------
Chief Executive Officer
Signing on behalf of the Registrant
and as Principal Financial and
Accounting Officer
13
REPLIGEN CORPORATION AND SUBSIDIARIES
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE
----------- ----------- ----
4.1 Form of Stock Purchase Warrant 15
10.1 Stock and Warrant Purchase Agreement 22
27.1 Financial Data Schedule 38
14