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, 1998
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 October 31, 1998.
Common Stock, par value $.01 per share 18,001,785
- -------------------------------------- ----------------
Class Number of Shares
REPLIGEN CORPORATION
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 1998 and
March 31, 1998 3
Condensed Consolidated Statements of Operations for the Three and Six Months
Ended September 30, 1998 and 1997 4
Condensed Consolidated Statement of Cash Flows for the Six Months Ended
September 30, 1998 and 1997 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 10
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submissions of Matters to a Vote of Security Holders 11
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K 11
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
Signature 12
Exhibit Index 13
Exhibits 14
2
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
REPLIGEN CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS September 30, 1998 March 31, 1998
------------------ --------------
Current assets:
Cash and cash equivalents $ 4,099,874 $ 4,725,544
Accounts receivable 460,719 212,857
Inventories 727,495 670,818
Prepaid expenses and other current assets 77,113 156,228
------------ ------------
Total current assets 5,365,201 5,765,447
Property, plant and equipment, at cost:
Equipment 810,858 770,512
Furniture and fixtures 61,376 40,563
Leasehold improvements 460,318 442,528
------------ ------------
1,332,552 1,253,603
Less: accumulated depreciation and amortization 726,303 594,719
------------ ------------
606,249 658,884
Other assets, net 88,472 88,472
------------ ------------
$ 6,059,922 $ 6,512,803
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 111,921 $ 100,719
Accrued expenses 365,498 254,312
Unearned income -- 33,332
------------ ------------
Total current liabilities 477,419 388,363
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 September
30, 1998 and March 31, 1998 180,017 180,017
Additional paid-in capital 130,264,048 130,264,048
Accumulated deficit (124,861,562) (124,319,625)
------------ ------------
Total stockholders' equity 5,582,503 6,124,440
------------ ------------
$ 6,059,922 $ 6,512,803
============ ============
See accompanying notes to consolidated financial statements.
3
REPLIGEN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
------------------ ----------------
September 30, September 30, September 30, September 30,
------------- ------------- ------------- -------------
1998 1997 1998 1997
---- ---- ---- ----
Revenues:
Research and development $ 470,032 $ 166,085 $ 738,438 $ 424,369
Product 197,010 257,202 426,149 539,385
Investment income 57,491 68,428 119,182 115,106
Other 37,648 11,613 70,836 99,975
------------- ------------- ------------ ------------
762,181 503,328 1,354,604 1,178,835
------------- ------------- ------------ ------------
Costs and expenses:
Research and development 464,955 350,544 931,025 714,201
Selling, general and administrative 354,311 315,352 711,243 622,208
Cost of products sold 141,991 79,233 254,273 227,818
------------- ------------- ------------ ------------
961,258 745,129 1,896,541 1,564,227
------------- ------------- ------------ ------------
Net loss $ (199,077) $ (241,801) $ (541,937) $ (385,392)
============= ============= ============ ============
Basic and diluted net loss per share $ (0.01) $ (0.02) $ (0.03) $ (0.02)
============= ============= ============ ============
Basic and diluted weighted average 18,001,785 16,001,785 18,001,785 16,001,785
common shares outstanding ============= ============= ============ ============
See accompanying notes to condensed consolidated financial statements.
4
REPLIGEN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended September 30,
------------------------------
1998 1997
----------- -----------
Cash flows from operating activities:
Net loss $ (541,937) $ (385,392)
Adjustments to reconcile net loss to net cash
used in operating activities -
Depreciation and amortization 131,586 120,692
Compensation charge from stock options -- 17,475
Changes in assets and liabilities -
Accounts receivable (247,862) 266,388
Inventories (56,677) (110,928)
Prepaid expenses and other current assets 79,115 50,129
Accounts payable 11,202 (104,635)
Accrued expenses 111,186 (145,972)
Unearned income (33,332) (100,002)
----------- -----------
Net cash used in operating activities (546,719) (392,245)
----------- -----------
Cash flows from investing activities:
Decrease in marketable securities -- 55,211
Purchases of property, plant and equipment, net (78,951) (98,667)
Decrease in restricted cash -- 50,087
----------- -----------
Net cash (used in) provided by investing activities (78,951) 6,631
----------- -----------
Net decrease in cash and cash equivalents (625,670) (385,614)
Cash and cash equivalents, beginning of period 4,725,544 3,465,881
----------- -----------
Cash and cash equivalents, end of period $ 4,099,874 $ 3,080,267
=========== ===========
See accompanying notes to consolidated financial statements.
5
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, 1998.
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.
2. Net Loss Per Share
The Company has adopted Statement of Financial Accounting Standards
(SFAS) No. 128, Earnings per Share, effective December 15, 1997. SFAS No.
128 establishes standards for computing and presenting earnings per share
and applies to entities with publicly held common stock or potential
common stock. The Company has applied the provisions of SFAS No. 128,
retroactively to all periods presented. 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 in accordance with SFAS No.
128. Diluted weighted average shares outstanding at September 30, 1998 and
1997 excluded the potential common shares from warrants and stock options
because to do so would be antidilutive for the periods presented. At
September 30, 1998, there are 1,042,000 options outstanding with a
weighted average exercise price of $1.34 and 2,832,000 warrants
outstanding with a weighted average exercise price of $3.97.
3. Cash Equivalents
The Company accounts for investments in accordance with SFAS No.
115, Accounting for Certain Investments in Debt and Equity 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 September 30, 1998 and 1997 are $972,000 and
$280,000 of cash and money market funds and approximately $3,128,000 and
$2,800,000 of commercial paper, respectively.
4. Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market and consist of the following:
6
September 30, March 31,
1998 1998
----------------- -----------------
Raw materials and work-in-process $ 514,114 $ 388,727
Finished goods 213,381 282,091
--------- ---------
Total $ 727,495 $ 670,818
========= =========
Work in process and finished goods inventories consist of material,
labor, outside processing costs and manufacturing overhead.
5. Comprehensive Income
Effective January 1, 1998, the Company adopted SFAS No. 130
Reporting Comprehensive Income, effective January 1, 1998. SFAS No. 130
establishes standards for reporting and display of comprehensive income
and its components in financial statements. Comprehensive income includes
all changes in equity during a period except those resulting from
investments by owners and distributions to owners. The comprehensive net
loss is the same as net loss for all periods presented.
6. New Accounting Standards
In April 1998, the AICPA issued Statements of Position 98-5
Reporting on the Costs of Start-up Activities (SOP 98-5). SOP 98-5
requires all costs associated with the pre-opening, pre-operating and
organization activities to be expenses as incurred. The Company will adopt
SOP 98-05 beginning January 1, 1999. Adoption of this statement will not
have a material impact on the Company's consolidated financial position or
results of operations.
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 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 1997. 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, and (vi) recruit
and retain highly talented professionals in a competitive job market.
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, 1998 (File No.000-14656).
7
Overview
Repligen Corporation ("Repligen" or the "Company") develops new
drugs for cancer, organ transplant and autoimmune diseases. The Company
applies proprietary methods for the synthesis of libraries of chemical
compounds designed to block or stabilize pharmaceutically important
interactions between proteins and other macromolecules. To date, this type
of interaction has only been accessible with complex natural products or
protein pharmaceuticals both of which are difficult to develop, administer
to patients and manufacture.
Repligen is applying its technology to collaborations with
pharmaceutical company partners and to the discovery of proprietary drug
leads. The leading proprietary drug discovery program at the Company is
the development of novel inhibitors of angiogenesis or new blood vessel
growth which is essential for solid tumor growth and in certain ocular
diseases. This program is based on the Company's patented, high throughput
screening assays designed to detect inhibitors of the growth factors which
drive angiogenesis and proprietary libraries of compounds designed to
mimic the natural cell surface ligands of these growth factors. In initial
preclinical studies, a compound identified from these libraries inhibited
angiogenic growth factors in vitro and in vivo at non-toxic doses.
The Company has also developed a biopharmaceutical (protein) product
(CTLA4-Ig) which acts to selectively block unwanted immune responses in
organ transplant and other diseases. Initial clinical evaluation of this
product in bone marrow transplant patients has been carried out by
investigators at the Dana-Farber Cancer Institute. The objective of this
study is to determine if CTLA4-Ig can block Graft Versus Host Disease
("GVHD"), an immune response which can occur when a bone marrow donor is
genetically "mismatched" with the recipient. The Dana-Farber investigators
have reported that ex vivo treatment of bone marrow from a genetically
"mismatched" family member substantially reduced GVHD in eleven bone
marrow transplant recipients.
In July 1998, Repligen filed a complaint relating to a United States
patent which was issued in 1995 to Bristol-Myers Squibb Corporation (see
Legal Proceedings). The Company believes that the patent which is the
subject of the lawsuit does not restrict Repligen from developing CTLA4-Ig
for use in bone marrow transplants. The Company has filed its own patents
related to compositions of matter and methods of use of CTLA4-Ig.
Repligen also develops, manufactures and markets products for the
production of protein pharmaceuticals (biopharmaceuticals) by affinity
chromatography. The Company currently markets a line of products for the
production of monoclonal antibodies intended for human clinical use based
on a recombinant form of Protein A, a naturally occurring affinity ligand.
The Company believes that its chemical libraries may be the source of
additional affinity ligands for biopharmaceutical manufacturing.
Results of Operations
Revenues
Total revenues for the three month period ended September 30, 1998
and 1997 were approximately $762,000 and $503,000, respectively, an
increase of approximately $259,000 or 51%. This increase was largely
attributable to increased research and development revenue. Year to date
total revenues increased approximately $176,000, or 15%, to $1,355,000 at
September 30,1998 from September 30,1997.
Research and development revenues for the three month period ended
September 30, 1998 were approximately $470,000 compared to $166,000 in the
comparable fiscal 1998 period. Revenues for
8
the quarter ended September 30, 1998 also include a licensing fee received
from Neocrin, Inc. pursuant to an agreement to license certain of
Repligen's technology. In the first six months of fiscal 1999, the Company
recorded research and development revenues totaling $738,000 consisting of
approximately $377,000 from contracted research and development programs
and $361,000 from licensing arrangements. In the first six months of
fiscal 1998, the Company recorded research and development revenues
totaling $424,000 of revenue with approximately $264,000 from contracted
research and $160,000 from licensing arrangements.
Product revenues for the three month period ended September 30, 1998
and 1997 were approximately $197,000 and $257,000, respectively, a
decrease of $60,000 or 23% in the area of product sales. During fiscal
1998, the Company had a significant order to supply reagents for
contracted research.
Investment income for the three and six month periods ended
September 30, 1998 were $57,000 and $119,000, respectively, compared with
$68,000 and $115,00 over the comparable periods in fiscal 1998. An
increase in higher average funds available for interest is offset by the
sale of common stock held as an investment that took place during the
second quarter of fiscal 1998.
Other revenues for the three month period ended September 30, 1998
were approximately $38,000 as compared to $12,000 in the comparable period
ended September 30, 1997. Other revenues for the six month period ended
September 30, 1998 decreased from the six month period ended September 30,
1997 primarily due to the sale of equipment held by the Company reported
as other income in fiscal 1998.
Expenses
Total expenses for the three month periods ended September 30, 1998
and 1997 increased approximately $216,000 or 29% to $961,000 from $745,000
and increased 21% or approximately $333,000 to $1,897,000 from $1,564,000
for the six months ended September 30, 1998 and 1997, respectively.
Research and development expenses for the three months ended
September 30, 1998 and 1997 were approximately $465,000 and $351,000. For
the first half of fiscal 1999, research and development expenses were
approximately $931,000, or 30% higher than the comparable period in fiscal
1998. This increase reflects increased staffing in research and
development as the Company expands its investment in proprietary drug
discovery programs.
Selling, general and administrative expenses for the three and six
month periods ended September 30, 1998 were approximately $354,000 and
$711,000, respectively, which reflects an increase of approximately
$39,000 and $89,000, respectively, from the comparable fiscal 1998 period.
This increase is attributable to increased costs in patent, legal and
shareholder services.
Cost of products sold for the three month and six month periods
ended September 30, 1998 were approximately $142,000 and $254,000,
respectively, as compared to $79,000 and $228,000 for the three and six
month periods ended September 30, 1997. Cost of products sold in the three
months ended September 30, 1998 and 1997 were 72% and 31% of product
revenues. This decrease is attributable to a change in product mix of
protein A and reagent sales. In the six month periods ended September 30,
1998 and 1997, cost of products sold was 59% and 42%. This increase is
largely attributable to increased inventory reserves because of increased
inventory levels and the introduction of new protein A products.
Liquidity and Capital Resources
The Company's total cash and cash equivalents decreased to
$4,100,000 at September 30, 1998 from $4,726,000 at March 31, 1998. This
decrease of $626,000 reflects net losses incurred during the six month
period ended September 30, 1998 of approximately $542,000, an increase in
9
accounts receivable of $248,000 and capital expenditures of $79,000 offset
in part by the increase in accrued expenses of $122,000 and decrease of
prepaid expenses and other current assets of $79,000. Working capital
decreased to $4,888,000 at September 30, 1998 from $5,377,000 at March 31,
1998.
The Company has entered into agreements with a number of
collaborative partners and licensees. Under the terms of these agreements,
generally, the Company may be eligible to receive research support,
additional milestones or royalty revenue if the focus of these
collaborations continue to clinical evaluation and commercialization. The
Company cannot be assured of the continuation of these collaborations and
any future payments.
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. While the
Company anticipates that its cost of operations will increase in fiscal
1999 as it continues to expand its investment in proprietary product
development, 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.
Year 2000
The Company has undertaken an initial review of its information
technology computer systems and believes that the Year 2000 problem does
not pose significant operational problems to its information technology
systems. The majority of the Company's software and computer equipment has
been purchased within the last five years from third-party vendors who
have already provided upgrades intended to bring their products into Year
2000 compliance. The Company has begun to address the small number of
internal systems that are not yet Year 2000 compliant, and expects full
compliance by the end of 1999. The Company currently believes that the
costs of addressing these issues will not have a material adverse impact
on the Company's financial position.
The Company has also recently begun interviewing third parties,
vendors and suppliers of the Company to determine their exposure to Year
2000 issues, their anticipated risks and responses to those risks. To
date, those vendors that have been contacted have indicated that their
hardware or software is or will be Year 2000 compliant in time frames that
meet the Company's requirement. However, the Company intends to continue
to assess its exposure to Year 2000 noncompliance on the part of any of
its material vendors and there can be no assurance that their systems will
be Year 2000 compliant.
The Company does not have a contingency plan in the event Year 2000
compliance cannot be achieved in a timely manner. A contingency plan will
be developed immediately upon completion of the Company's Year 2000
compliance assessment.
Item 1. LEGAL PROCEEDINGS.
On July 17, 1998, Repligen filed a complaint at the United States
District Court for the District of Massachusetts in Boston, Massachusetts
(the "Complaint"). The Complaint relates to a United States patent which
was issued in 1995 to Bristol-Myers Squibb Corporation (the "BMS Patent")
which claims a method of treating immune system diseases with CTLA4-Ig.
The Complaint seeks to correct the inventorship on the BMS Patent and
seeks unspecified monetary damages. If successful in its claims, a
licensor of Repligen will be named as an inventor on the BMS Patent which
will give Repligen and Bristol-Myers Squibb shared rights to the patent.
There can be no assurances that the litigation will conclude in a result
beneficial to the Company. The failure of the litigation may restrict the
Company's ability to commercialize CTLA4-Ig for certain applications.
10
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 10, 1998. At the Annual Meeting, the stockholders of
the Company: (i) elected five members to the Board of Directors and (ii)
ratified the selection of Arthur Andersen LLP as the independent auditors
of the Company for the fiscal year ending March 31, 1999.
The Company had 18,001,785 shares of Common Stock of the Company
issued and outstanding and entitled to vote as of the close of business on
June 22, 1998, the record date established by the Board of Directors for
the Annual Meeting. At the Annual Meeting, holders of a total of
13,498,572 shares of Common Stock or approximately 74% of all stockholders
entitled to vote 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* 13,420,397 78,175
Alexander Rich, M.D.* 13,368,096 130,476
Paul Schimmel, Ph.D.* 13,374,176 124,396
Walter C. Herlihy, Ph.D.* 13,389,222 109,350
G. William Miller* 13,351,921 146,651
* Incumbent
Proposal 2. Ratification of Selection of Arthur Andersen LLP as independent
auditors:
Shares voting in favor: 13,432,122
Shares voting against: 34,335
Abstention: 32,115
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT DESCRIPTION
------- -----------
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No current reports on Form 8-K were filed by the Company during the
quarter covered by this report.
11
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 13, 1998 By: /s/ Walter C. Herlihy
--------------------------
Chief Executive Officer
Principal Financial and
Accounting Officer
12
REPLIGEN CORPORATION AND SUBSIDIARIES
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
27.1 Financial Data Schedule 14
13