SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended March 31, 2002
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________
Commission file number: 0-14656
REPLIGEN CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 04-2729386
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
117 Fourth Avenue, Needham, Massachusetts 02494
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (781) 449-9560
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 Par Value
(Title of Class)
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K |_|
State the aggregate market value of the voting common equity held by
non-affiliates of the registrant. The aggregate market value, computed by
reference to the closing sale price of such stock quoted on NASDAQ on May 15,
2002 was approximately $67,139,730.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of May 15, 2002: 26,642,750.
DOCUMENTS INCORPORATED BY REFERENCE
The Company intends to file a definitive proxy statement pursuant to Regulation
14A within 120 days of the end of the fiscal year ended March 31, 2002. Portions
of such proxy statement are incorporated by reference in Part III of this Form
10-K.
Item 1. BUSINESS
Statements in this annual report on Form 10-K, as well as oral statements
that may be made by Repligen or by officers, directors or employees of Repligen
acting on Repligen'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 the annual report on Form 10-K do not constitute
guarantees of future performance. Investors are cautioned that statements which
are not strictly historical statements contained in this annual report on Form
10-K, including, without, limitation, 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 risks identified under the caption
"Certain Factors That May Affect Future Results" and elsewhere in this annual
report, as well as in our other Securities and Exchange Commission filings.
The Company
Repligen's goal is to develop innovative therapeutic products for
debilitating pediatric diseases. Our therapeutic product candidates are secretin
for autism, uridine for mitochondrial disease and CTLA4-Ig for immune disorders.
These products are synthetic forms of naturally-occurring substances which may
correct improperly regulated biological processes with minimal toxicity or
side-effects. Our product candidates have the potential to produce clinical
benefits not attainable with any existing drug in diseases for which there are
few alternatives.
Our business strategy is to partially fund the development of our
proprietary therapeutic products with the profits derived from the sales of our
specialty pharmaceutical products: Protein A and SecreFlo(TM). This will enable
us to advance our proprietary drug development programs while at the same time
minimizing our operating losses.
Repligen was incorporated in March 1981, under the laws of the State of
Delaware. Our principal executive offices are at 117 Fourth Avenue, Needham,
Massachusetts 02494 and our telephone number is (781) 449-9560.
Secretin for Autism
Autism is a developmental disorder characterized by impaired communication
and social interaction as well as repetitive behaviors. The disease is typically
diagnosed by the age of three and affects approximately 1 in 300 children in the
United States. Secretin is a hormone produced in the small intestine which
regulates the function of the pancreas as part of the process of digestion.
Anecdotal reports indicated that secretin may have beneficial effects in some
autistic children, including improvements in social interaction and
communication which are the core symptoms of the disease.
We have completed a FDA-approved Phase 2 clinical trial on a synthetic,
human form of secretin in order to evaluate its potential benefits on the
social, communicative and behavioral symptoms of autism. This trial was a
randomized, double-blind, placebo-controlled study which evaluated 126 autistic
children aged three to six at multiple sites in the United States. All of the
children had gastrointestinal symptoms and moderate to severe symptoms of
autism. Each patient
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received three doses of secretin or a placebo at three week intervals. Patients
were assessed before the first dose and two weeks after the third dose with
several standardized tests to evaluate symptom changes.
Results from the trial demonstrated that three and four year old patients
treated with secretin had a statistically significant improvement in social
interaction as measured by the Autism Diagnostic Observation Schedule, a
standardized clinical assessment. These patients were also observed to have
improvements in their expressive vocabulary. In an assessment of overall
improvement, Clinical Global Impression of Change, there was significant
improvement in the entire secretin treated group versus the placebo group. We
also identified two biological parameters which defined a group of patients
whose symptoms were highly variable over time. When these patients were removed
from the analysis, the beneficial effect of secretin was also observed in two
types of evaluations carried out by a trained psychologist and two assessments
based on parental data. This trial also evaluated the safety of secretin. There
were no serious adverse events in the trial and no clinically significant
adverse event trends observed in secretin-treated patients versus patients who
received a placebo.
We have initiated two randomized, placebo-controlled, double-blind Phase 3
clinical trials to evaluate the impact of secretin on the social interaction
deficits of autism in children 2.7 to 4.9 years of age. Each child will receive
six doses of secretin or a placebo over 18 weeks and be evaluated with the
social interaction scale of the Autism Diagnostic Observation Schedule and with
a Clinical Global Impression of Change.
We have also initiated a research effort to better understand the biology
of secretin and its mechanism of action in patients. Initial results in rats
indicate that a single intravenous dose of secretin can activate neurons in
several brain regions including a region called the amygdala. Literature reports
indicate that the amygdala is one of several brain regions affected in patients
with autism and that it is an important part of neural circuits which facilitate
social interaction. We are currently evaluating the potential activation of the
amygdala in humans in a clinical study in which brain activity is monitored with
Magnetic Resonance Imaging.
According to recent reports from the Centers for Disease Control and
Prevention, approximately 1 in 300 children in the United States is affected by
autism. There are currently no FDA-approved drugs for the treatment of autism.
Although some existing drugs may reduce certain behavioral symptoms associated
with autism such as irritability or hyperactivity, there is no drug therapy
which has been demonstrated to improve the social or communicative deficits of
autism. It is estimated that the annual cost of care and education required for
autism in the United States is greater than $10 billion.
In February 2000, we were issued a U.S. patent for the use of secretin in
the treatment of autism which will expire in 2018. In March 2001, we were issued
a U.S. patent covering the transdermal delivery of secretin for the treatment of
autism, which will expire in 2018. We are currently prosecuting additional
patent applications in the United States, Europe and Japan.
Uridine for Mitochondrial Disorders
Mitochondria are small structures present in every cell which serve to
produce energy for cellular processes. Defects in the genes which encode
mitochondrial proteins are responsible for mitochondrial disease which affects
multiple organs and systems, particularly the nervous system, heart, kidney and
skeletal muscle. Inborn forms of mitochondrial disease affect 10-20,000 people
in the United States and result in multiple symptoms, including seizures,
skeletal and heart muscle weakness, kidney failure and neurological and
cognitive defects.
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It has recently been recognized that a second function of mitochondria is
to produce uridine, an essential precursor for the synthesis of RNA and DNA as
well as other cellular functions. This discovery led researchers at The
University of California, San Diego ("UCSD") to evaluate synthetic uridine as a
therapy for mitochondrial disease.
In Phase 1 clinical trials carried out at UCSD, daily oral administration
of uridine or an analog of uridine was evaluated in 14 patients. This study
indicated that the therapy is well tolerated in patients with mitochondrial
disease including a few who have received it for more than two years. Several
patients also had marked improvements in their symptoms, including a reduction
in the number of seizures, improved muscle strength and improvements in kidney
function. A placebo-controlled Phase 2 clinical trial to extend these
observations will be initiated during 2002.
Literature reports indicate that there is a subset of patients with autism
with evidence of a defect in the regulation of nucleic acid metabolism, a
building block for RNA and DNA, who can be identified by testing a sample of
urine. A published case report described improvements in one such patient in the
symptoms of cognition, speech and motor skills after treatment with uridine.
Studies at Repligen have confirmed that some patients with autism have signs of
a defect in purine metabolism and we intend to initiate clinical trials of
uridine in this patient population.
In December 2000, Repligen exclusively licensed the rights to patent
applications from UCSD for the treatment of mitochondrial disease with uridine
or analogs of uridine. The Company has also licensed a patent application
covering the use of uridine in patients with autism. (For more information on
our intellectual property rights to uridine and related compound for the
treatment of mitochondrial disease, please see "Legal Proceedings.")
CTLA4-Ig for Immune Disorders
We are also developing a product named "CTLA4-Ig," based on a natural
regulator of the immune system. CTLA4-Ig is a protein consisting of a portion of
the immune regulator CTLA4 fused to a portion of a human antibody molecule
("Ig"). CTLA4-Ig has been shown in animal models to selectively block unwanted
immune responses in organ transplantation and several autoimmune diseases.
We are currently conducting a Phase 2 clinical trial of CTLA4-Ig in
patients with refractory immune thrombocytopenic purpura ("ITP"). ITP is an
autoimmune disease in which the patient's immune system mounts an attack on
their own blood platelets which can result in internal bleeding.
In March 2002, we received a Notice of Allowance from the U.S. Patent and
Trademark Office for the specific CTLA4-Ig composition which we are developing.
Repligen has also obtained an exclusive license to the patent rights of the
University of Michigan which pertain to CTLA4-Ig and is prosecuting patents
filed by the University related to therapeutic uses of CTLA4-Ig. We also believe
that the University of Michigan and Repligen are entitled to rights to certain
U.S. patents on compositions and therapeutic uses of CTLA4 which have been
issued to Bristol-Myers Squibb Company. (For more information on our
intellectual property rights to CTLA4-Ig, please see "Legal Proceedings.")
Protein A Products for Antibody Manufacturing
Protein A is a naturally occurring protein used in the purification of
antibodies. Virtually all therapeutic monoclonal antibodies are manufactured by
a process in which an impure mixture containing the desired antibody product is
passed over a solid support to which Protein A has
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been chemically attached (immobilized). The immobilized Protein A binds the
antibody product while other impurities are washed away. The antibody is then
recovered from the support in a substantially purified form.
We manufacture and market several products based on recombinant Protein A.
Our primary customers incorporate our Protein A products into their proprietary
antibody purification systems which they sell directly to the biotechnology and
pharmaceutical industry. We also manufacture an immobilized Protein A product
which is marketed by Amersham Biosciences ("Amersham"). Substantially all of our
product sales for the last three years have been sales of Protein A products.
In the past four years, sales of therapeutic antibody products have
increased from $300 million in 1997 to approximately $3.5 billion in 2001. This
growth is based on the increasing use of therapeutic antibody products,
including Rituxan(R) for lymphoma, Herceptin(TM) for breast cancer, Synagis(TM)
for RSV infection, Remicade(TM) for Crohn's disease and arthritis and Enbrel(TM)
for arthritis. There are more than 100 additional monoclonal antibodies in
various stages of clinical testing which may lead to additional growth of the
antibody market and in the demand for Protein A.
We own a U.S. patent covering the protein A gene and the manufacture of
recombinant Protein A which expires in 2009.
Secretin Diagnostic Products
In October 1999, we licensed exclusive commercial rights to two diagnostic
products based on synthetic forms of porcine (pig-derived) and human secretin
from a private company. Both of these products have been evaluated in clinical
trials for their safety and efficacy in diagnosing pancreatic function and
gastrinoma, a form of cancer. In April 2002, the FDA approved the use of
synthetic porcine secretin ("SecreFlo(TM)") to aid in the assessment of
pancreatic function and the diagnosis of gastrinoma. The FDA has granted
SecreFlo(TM) orphan drug designation, which means that we will have a seven year
period of exclusivity to market the product in the U.S. In December of 2001, the
FDA issued an "approvable letter" for a synthetic form of human secretin which
contained questions concerning the manufacture and quality control of the
product. Prior to approval, ChiRhoClin will need to provide additional
information to the FDA to satisfy the FDA's concerns. The FDA has granted this
product orphan drug status which means we will have a seven year period of
exclusivity following final approval to market this product. We intend to market
these diagnostic products directly to gastroenterologists in the U.S.
Repligen's Business Strategy
Our primary objective is to develop drugs for pediatric diseases,
particularly those which affect development. Our products are based on
naturally-occurring peptides, proteins and nucleotides. By harnessing the
natural actions of these compounds, it may be possible to modify disease
processes with a minimum of toxicity. We intend to maintain the commercial
rights to our product candidates through "proof of efficacy" clinical trials.
After demonstration of a product candidate's therapeutic potential, we may seek
a biotechnology or pharmaceutical partner for further clinical development or
commercialization of our product candidates.
We seek to offset some of the expenses associated with product development
with profits from the sales of Protein A products and SecreFlo(TM), our secretin
diagnostic product. We intend
5
to seek additional current product opportunities to increase our current product
revenues as we increase expenditures on clinical development of our therapeutic
products.
Sales and Marketing
We sell our rProtein A products primarily through value-added resellers
including Amersham, Applied Biosystems, Inc. and Millipore Corporation, and
through distributors in certain foreign markets. For the past three years, sales
of our Protein A products comprised all of our product sales revenue. We intend
to market SecreFlo(TM) directly to gastroenterologists in the United States.
Customers
Customers for our Protein A products include chromatography companies,
diagnostics companies, biopharmaceutical companies and laboratory researchers.
During fiscal 2002, customers that accounted for more than 10% of our total
revenues were Amersham and Applied Biosystems Inc.
Expected customers for our SecreFlo(TM) product will be
gastroenterologists in the United States.
Geographic Reporting
Of the Company's revenue in fiscal 2002, 35% is attributable to U.S.
customers and 65% is attributable to foreign customers, of which 85% is
attributable to three customers. Of the Company's fiscal 2001 revenue, 56% is
attributable to U.S. customers and 44% is attributable to foreign customers, of
which 71% is attributable to four customers. Of the Company's fiscal 2000
revenue, 51% is attributable to U.S. customers and 49% is attributable to
foreign customers, of which 46% is attributable to three customers.
Employees
As of May 15, 2002, we had 39 employees. Of those employees, 27 were
engaged in research, development and manufacturing and 12 in administrative and
marketing functions. Doctorates or other advanced degrees are held by 15 of our
employees. Each of our employees has signed a confidentiality agreement. None of
our employees are covered by collective bargaining agreements.
Patents, Licenses and Proprietary Rights
Our policy is to seek patent protection for our significant proprietary
products. We pursue patent protection in the United States and file
corresponding patent applications in relevant foreign jurisdictions. We believe
that patents are an important element in the protection of our competitive and
proprietary position, but other elements, including trade secrets, orphan drug
status and know-how, are also important. We own or have exclusive rights to more
than 12 U.S. patents and corresponding foreign equivalents. The initial terms of
such patents expire at various times between 2002 and 2019. In addition, we have
rights to more than 20 U.S. pending patent applications. The invalidation of key
patents owned or licensed by us or the failure of patents to issue on pending
patent applications could create increased competition, with potential adverse
effects on our business prospects. For each of our license agreements where we
license the rights to patents or patent applications, the license shall
terminate on the day that the last to expire patent under each such license
agreement expires.
6
Secretin for Autism
In March 1999, we acquired the rights to certain patent applications
claiming the therapeutic use of secretin to treat autism and other pervasive
developmental disorders. In February 2000, we received a U.S. patent covering
the use of secretin in the treatment of autism or the symptoms of autism which
will expire in 2018. In March 2001 we received a U.S. patent covering the
transdermal delivery of secretin for the treatment of autism which will expire
in 2018. Additional related patent applications are currently being prosecuted
in the United States and key foreign markets.
Uridine for Mitochondrial Disorders
We have licensed two patent applications from the University of
California, San Diego ("UCSD") covering novel methods for the treatment of
mitochondrial disease and for the treatment of autism in patients with abnormal
metabolism of purines. Under the terms of the license agreement, Repligen
receives exclusive commercial rights to both inventions and will pay UCSD
clinical development milestones and royalties on product sales. One patent
application covers the use of analogs of uridine, a naturally occurring
component of RNA and DNA, for the treatment of diseases characterized by defects
in the function of mitochondria. A second patent application covers the use of
uridine and a form of uridine, triacetyl uridine ("TAU"), for the correction of
defects in purine metabolism which literature reports indicate produce the
symptoms of autism or pervasive developmental disorder. (For more information on
our intellectual property rights to uridine and related compound for the
treatment of mitochondrial disease, please see "Legal Proceedings.")
CTLA4-Ig for Immune Disorders
In March 2002, we received a Notice of Allowance from the U.S. Patent and
Trademark Office for the specific CTLA4-Ig composition which we are developing.
We also licensed the rights to certain patent applications from the University
of Michigan in 1992. In September 1995, we assigned these patent rights to
Genetics Institute, Inc. In January 1996, Genetics Institute, Inc. returned the
rights to CTLA4-Ig to us. In November 1999, we executed an agreement with
Genetics Institute and the University of Michigan which confirmed the prior
transfer of certain CTLA4-Ig related rights from Genetics Institute to the
University of Michigan and the exclusive license of those rights to us. We have
an unrestricted right to sub-license our CTLA4-Ig rights. (For more information
on our intellectual property rights to CTLA4-Ig, please see "Legal
Proceedings.")
Protein A for Antibody Manufacturing
We own a U.S. patent covering recombinant Protein A which expires in 2009.
We also own rights to modified forms of Protein A which were licensed to
Amersham in December 1998 as part of a ten year agreement covering the supply of
recombinant Protein A to Amersham.
Secretin Diagnostic Products
In October 1999, we licensed exclusive commercial rights to two diagnostic
products based on synthetic forms of porcine (pig-derived) and human secretin
from a private company. Both of these products have been evaluated in clinical
trials for their safety and efficacy in diagnosing pancreatic function and
gastrinoma. In April 2002, the FDA approved the use of synthetic porcine
secretin ("SecreFlo(TM)") to aid in the assessment of pancreatic function and
the diagnosis of gastrinoma, a form of cancer. The FDA has granted SecreFlo
Orphan Drug Designation, which means that we will have a seven year period of
exclusivity to market the product. In December of 2001, the FDA issued an
"approvable letter" for a synthetic form of human secretin which contained
questions concerning the manufacture and quality control of the product. The FDA
has granted this product Orphan Drug Status which means we will have a
7
seven year period of exclusivity following final approval to market this
product. We intend to market these diagnostic products directly to
gastroenterologists in the U.S.
We also rely upon trade secret protection for our confidential and
proprietary information. Our policy is to require each of our employees,
consultants, business partners and significant scientific collaborators to
execute confidentiality agreements upon the commencement of an employment,
consulting or business relationship with us. These agreements generally provide
that all confidential information developed or made known to the individual
during the course of the individual's relationship with us is to be kept
confidential and not disclosed to third parties except in specific
circumstances. In the case of employees and consultants, the agreements
generally provide that all inventions conceived by the individual in the course
of rendering services to Repligen shall be our exclusive property.
Research and Development
For the past three years, we have devoted substantially all of our
resources on the research and development of therapeutic product candidates for
pediatric developmental disorders and our specialty pharmaceutical products and
product candidates discussed herein. We spent $5,361,000 in fiscal 2002,
$5,786,000 in fiscal 2001 and $3,754,000 in fiscal 2000 on company-sponsored
research and development activities.
Competition
Our Protein A and SecreFlo(TM) products compete on the basis of quality,
performance, cost effectiveness, and application suitability with numerous
established technologies. Additional products using new technologies which may
be competitive with our products may also be introduced. Many of the companies
selling or developing competitive products have financial, manufacturing and
distribution resources significantly greater than ours.
The field of drug development in which we are involved is characterized by
rapid technological change. New developments are expected to continue at a rapid
pace in both industry and academia. There are many companies, both public and
private, including large pharmaceutical companies, chemical companies and
specialized biotechnology companies, engaged in developing products competitive
with products that we have under development. Many of these companies have
greater capital, human resources, research and development, manufacturing and
marketing experience than we do. They may succeed in developing products that
are more effective or less costly than any that we may develop. These
competitors may also prove to be more successful than we are in production and
marketing. In addition, academic, government and industry-based research is
intense, resulting in considerable competition in obtaining qualified research
personnel, submitting patent filings for protection of intellectual property
rights and establishing corporate strategic alliances. We can not be certain
that research, discoveries and commercial developments by others will not render
any of our programs or potential products noncompetitive.
Manufacturing
We currently rely, and will continue to rely, for at least the next few
years, on contract manufacturers to produce synthetic human secretin, uridine
for mitochondrial disease and CTLA4-Ig for use in our clinical trials. Our
product candidates will need to be manufactured in a facility by processes that
comply with the FDA's good manufacturing practices and other similar
regulations. It may take a substantial period of time to begin manufacturing our
products in compliance with such regulations. If we are unable to establish and
maintain relationships with
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third parties for manufacturing sufficient quantities of our product candidates
and their components that meet our planned time and cost parameters, the
development and timing of our clinical trials may be adversely affected. (For
more information about our manufacturing facilities, please see "Description of
Property.")
Protein A for Antibody Manufacturing
We manufacture Protein A products from recombinant strains of bacteria. We
manufacture Protein A for Amersham under a ten year supply agreement which was
initiated in December 1998. Certain fermentation and recovery operations are
carried out by third parties. The purification, immobilization, packaging and
quality control testing of Protein A are conducted at our facilities. We
maintain an active quality assurance effort to support the regulatory
requirements of our customers. We purchase raw materials from more than one
commercially established firm. We believe that our necessary raw materials are
currently commercially available in sufficient quantities necessary to meet
demand.
SecreFlo(TM) (synthetic porcine secretin)
SecreFlo(TM), our secretin diagnostic product, is purchased from
ChiRhoClin, Inc. who contracts with third parties for the synthesis of the drug
substance and the drug product.
Therapeutic Product Candidates
We rely upon contractors for both the procurement of raw materials and for
manufacturing finished product. We purchase raw materials from more than one
commercially established firm. Our necessary raw materials are currently
commercially available in quantities far in excess of the scale required to
complete all of our future planned Phase II and Phase III clinical trials.
Government Regulation
The development of drug candidates, such as secretin, uridine or CTLA4-Ig
are subject to regulation in the United States by the FDA and abroad by foreign
equivalents. Product development and approval within the FDA regulatory
framework usually takes a significant number of years, involves the expenditure
of substantial capital resources and timelines for development are uncertain.
Before clinical testing in the United States of any drug candidate may
begin, FDA requirements for preclinical efficacy and safety must be completed.
Required toxicity testing typically involves characterization of the drug
candidate in several animal species. Safety and efficacy data are submitted to
the FDA as part of an Investigational New Drug Application ("IND") and are
reviewed by the FDA prior to the commencement of human clinical trials.
Clinical trials involve the administration of the drug to human volunteers
or patients under the supervision of a qualified investigator, usually a
physician, with an FDA-approved protocol. Human clinical trials are typically
conducted in three sequential phases:
o Phase 1 clinical trials represent the initial administration of the
investigational drug to a small group of human subjects to test for
safety (adverse effects), dose tolerance, absorption,
biodistribution, metabolism, excretion and clinical pharmacology
and, if possible, to gain early evidence regarding efficacy.
o Phase 2 clinical trials typically involve a small sample of the
actual intended patient population and seek to assess the efficacy
of the drug for specific targeted indications, to
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determine dose tolerance and the optimal dose range, and to gather
additional information relating to safety and potential adverse
effects.
o Once an investigational drug is found to have some efficacy and an
acceptable safety profile in the targeted patient population, Phase
3 clinical trials are initiated to establish further clinical safety
and efficacy of the investigational drug in a broader sample of the
general patient population at multiple study sites in order to
determine the overall risk-benefit ratio of the drug and to provide
an adequate basis for product approval. The Phase 3 clinical
development program consists of expanded, large-scale studies of
patients with the target disease or disorder, to obtain definitive
statistical evidence of the efficacy and safety of the proposed
product.
All data obtained from a comprehensive development program are submitted
in a New Drug Application ("NDA") to the FDA and the corresponding agencies in
other countries for review and approval. The NDA includes information pertaining
to clinical studies and the manufacture of the new drug. Review of an NDA by the
FDA can be a time-consuming process and the FDA may request that we submit
additional data or carry out additional studies.
Certain Factors That May Affect Future Results
Additional risks and uncertainties that we are unaware of or that we
currently deem immaterial also may become important factors that affect
Repligen.
WE MAY BE DEPENDENT ON OUR COLLABORATIVE PARTNERS TO DEVELOP, CONDUCT CLINICAL
TRIALS FOR, AND MANUFACTURE, MARKET AND SELL OUR PRINCIPAL PRODUCTS.
We conduct some of our development activities, and may conduct most of our
commercialization activities, through collaborations. Our collaborations are
heavily dependent on the efforts and activities of our collaborative partners.
Our existing and any future collaborations may not be technically or
commercially successful.
For example, if any of our collaborative partners were to breach or
terminate an agreement with us, reduce its funding or otherwise fail to conduct
the collaboration successfully, we may need to devote additional internal
resources to the program that is the subject of the collaboration, scale back or
terminate the program or seek an alternative partner.
THE MARKET MAY NOT BE RECEPTIVE TO OUR PRODUCTS UPON THEIR INTRODUCTION.
The commercial success of our products that are approved for marketing
will depend upon their acceptance by the medical community and third party
payors as being clinically useful, cost effective and safe. All of the products
that we are developing are based upon new technologies or therapeutic
approaches. As a result, it is hard to predict market acceptance of our
products.
Other factors that we believe will materially affect market acceptance of
our products and services include:
o the timing of receipt of marketing approvals and the countries in
which such approvals are obtained;
o the safety, efficacy and ease of administration of our products;
o the success of physician education programs; and
o the availability of government and third party payor reimbursement
of our products.
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WE COMPETE WITH LARGER, BETTER FINANCED AND MORE MATURE PHARMACEUTICAL AND
BIOTECHNOLOGY COMPANIES WHO ARE CAPABLE OF DEVELOPING NEW APPROACHES THAT COULD
MAKE OUR PRODUCTS AND TECHNOLOGY OBSOLETE.
The market for therapeutic and specialty pharmaceutical products is
intensely competitive, rapidly evolving and subject to rapid technological
change. Pharmaceutical and mature biotechnology companies have substantially
greater financial, manufacturing, marketing, research and development resources
than we have. New approaches to the treatment of our targeted diseases by these
competitors may make our products and technologies obsolete or noncompetitive.
WE HAVE INCURRED SUBSTANTIAL LOSSES, WE EXPECT TO CONTINUE TO INCUR LOSSES AND
WE WILL NOT BE SUCCESSFUL UNTIL WE REVERSE THIS TREND.
We have incurred losses in each year since our founding in 1981. We expect
to continue to incur operating losses for the foreseeable future.
While we generate revenue from product sales, this revenue is not
sufficient to cover the costs of our clinical trials and drug development
programs. We expect to increase our spending significantly as we continue to
expand our research and development programs and commercialization activities.
As a result, we will need to generate significant revenues in order to achieve
profitability. We cannot be certain whether or when this will occur because of
the significant uncertainties that affect our business.
IF WE DO NOT OBTAIN ADDITIONAL CAPITAL FOR OUR DRUG DEVELOPMENT PROGRAMS, WE
WILL BE UNABLE TO DEVELOP OR DISCOVER NEW DRUGS.
We need additional long-term financing to develop our drug development
programs through the clinical trial process as required by the FDA and our
specialty pharmaceutical products business. We also need additional long-term
financing to support future operations and capital expenditures, including
capital for additional personnel and facilities. If we spend more money than
currently expected for our drug development programs and our specialty
pharmaceutical products business, we will need to raise additional capital by
selling debt or equity securities, by entering into strategic relationships or
through other arrangements. We may be unable to raise any additional amounts on
reasonable terms when they are needed due to the volatile nature of the
biotechnology marketplace. If we are unable to raise this additional capital, we
may have to delay or postpone critical clinical studies or abandon other
development programs.
IF OUR CLINICAL TRIALS ARE NOT SUCCESSFUL, WE WILL NOT BE ABLE TO DEVELOP AND
COMMERCIALIZE ANY RELATED PRODUCTS.
In order to obtain regulatory approvals for the commercial sale of our
future products, we and our collaborative partners will be required to complete
extensive clinical trials in humans to demonstrate the safety and efficacy of
the products. We have limited experience in conducting clinical trials.
11
The submission of an IND may not result in FDA authorization to commence
clinical trials. If clinical trials begin, we or our collaborative partners may
not complete testing successfully within any specific time period, if at all,
with respect to any of our products. Furthermore, we, our collaborative
partners, or the FDA, may suspend clinical trials at any time on various
grounds, including a finding that the subjects or patients are being exposed to
unacceptable health risks. Clinical trials, if completed, may not show any
potential product to be safe or effective. Thus, the FDA and other regulatory
authorities may not approve any of our potential products for any indication.
The rate of completion of clinical trials is dependent in part upon the
rate of enrollment of patients. Patient enrollment is a function of many
factors, including the size of the patient population, the proximity of patients
to clinical sites, the eligibility criteria for the study, and the existence of
competitive clinical trials. Delays in planned patient enrollment may result in
increased costs and program delays.
WE MAY NOT OBTAIN REGULATORY APPROVALS; THE APPROVAL PROCESS IS COSTLY AND
LENGTHY.
We must obtain regulatory approval for our ongoing development activities
and before marketing or selling any of our future products. We may not receive
regulatory approvals to conduct clinical trials of our products or to
manufacture or market our products. In addition, regulatory agencies may not
grant such approvals on a timely basis or may revoke previously granted
approvals.
The process of obtaining FDA and other required regulatory approvals is
lengthy and expensive. The time required for FDA and other clearances or
approvals is uncertain and typically takes a number of years, depending on the
complexity and novelty of the product. Our analysis of data obtained from
preclinical and clinical activities is subject to confirmation and
interpretation by regulatory authorities, which could delay, limit or prevent
regulatory approval. Any delay in obtaining or failure to obtain required
clearance or approvals could materially adversely affect our ability to generate
revenues from the affected product. We have only limited experience in filing
and prosecuting applications necessary to gain regulatory approvals.
We also are subject to numerous foreign regulatory requirements governing
the design and conduct of the clinical trials and the manufacturing and
marketing of our future products. The approval procedure varies among countries.
The time required to obtain foreign approvals often differs from that required
to obtain FDA approvals. Moreover, approval by the FDA does not ensure approval
by regulatory authorities in other countries.
All of the foregoing regulatory risks also are applicable to development,
manufacturing and marketing undertaken by our collaborative partners or other
third parties.
12
EVEN IF WE OBTAIN MARKETING APPROVAL, OUR PRODUCTS WILL BE SUBJECT TO ONGOING
REGULATORY REVIEW WHICH WILL BE EXPENSIVE AND MAY EFFECT OUR ABILITY TO
SUCCESSFULLY COMMERCIALIZE OUR PRODUCTS.
Even if we receive regulatory approval of a product, such approval may be
subject to limitations on the indicated uses for which the product may be
marketed, which may limit the size of the market for the product or contain
requirements for costly post-marketing follow-up studies. The manufacturer of
our products for which we have obtained marketing approval will be subject to
continued review and periodic inspections by the FDA and other regulatory
authorities. The subsequent discovery of previously unknown problems with the
product, clinical trial subjects, or with the manufacturer or facility may
result in restrictions on the product or manufacturer, including withdrawal of
the product from the market.
If we fail to comply with applicable regulatory requirements, we may be
subject to fines, suspension or withdrawal of regulatory approvals, product
recalls, seizure of products, operating restrictions, and criminal prosecution.
IF WE ARE UNABLE TO OBTAIN AND MAINTAIN PATENTS FOR OUR PRODUCTS, WE WILL NOT BE
ABLE TO SUCCEED COMMERCIALLY.
We must obtain and maintain patent and trade secret protection for our
products and processes in order to protect them from unauthorized use and to
produce a financial return consistent with the significant time and expense
required to bring our products to market. Our success will depend, in part, on
our ability to:
o obtain and maintain patent protection for our products and
manufacturing processes;
o preserve our trade secrets; and
o operate without infringing the proprietary rights of third parties.
We can not be sure that any patent applications relating to our products
that we will file in the future or that any currently pending applications will
issue on a timely basis, if ever. Since patent applications in the United States
are maintained in secrecy until patents issue and since publication of
discoveries in the scientific or patent literature often lag behind actual
discoveries, we cannot be certain that we were the first to make the inventions
covered by each of our pending patent applications or that we were the first to
file patent applications for such inventions. Even if patents are issued, the
degree of protection afforded by such patents will depend upon the:
o scope of the patent claims;
o validity and enforceability of the claims obtained in such patents;
and
o our willingness and financial ability to enforce and/or defend them.
The patent position of biotechnology and pharmaceutical firms is often
highly uncertain and usually involves complex legal and scientific questions.
Moreover, no consistent policy has emerged in the United States and in many
other countries regarding the breadth of claims allowed in biotechnology
patents. Patents which may be granted to us in certain foreign countries may be
subject to opposition proceedings brought by third parties or result in suits by
us which may be costly and result in adverse consequences for us.
If our competitors prepare and file patent applications in the United
States that claim technology also claimed by us, we may be required to
participate in interference proceedings
13
declared by the U.S. Patent and Trademark Office to determine priority of
invention, which would result in substantial costs to us.
In addition, patents blocking our manufacture, use or sale of our products
could be issued to third parties in the United States or foreign countries. The
issuance of blocking patents or an adverse outcome in an interference or
opposition proceeding, could subject us to significant liabilities to third
parties and require us to license disputed rights from third parties on
unfavorable terms, if at all, or cease using the technology.
WE MAY BECOME INVOLVED IN EXPENSIVE PATENT LITIGATION OR OTHER INTELLECTUAL
PROPERTY PROCEEDINGS WHICH COULD RESULT IN LIABILITY FOR DAMAGES OR STOP OUR
DEVELOPMENT AND COMMERCIALIZATION EFFORTS.
There has been substantial litigation and other proceedings regarding the
complex patent and other intellectual property rights in the pharmaceutical and
biotechnology industries. We may become a party to patent litigation or other
proceedings regarding intellectual property rights.
Other types of situations in which we may become involved in patent
litigation or other intellectual property proceedings include:
o We may initiate litigation or other proceedings against third
parties to enforce our patent rights.
o We may initiate litigation or other proceedings against third
parties to seek to invalidate the patents held by such third parties
or to obtain a judgment that our products or services do not
infringe such third parties' patents.
o If our competitors file patent applications that claim technology
also claimed by us, we may participate in interference or opposition
proceedings to determine the priority of invention.
o If third parties initiate litigation claiming that our processes or
products infringe their patent or other intellectual property
rights, we will need to defend against such claims.
The cost to us of any patent litigation or other proceeding, even if
resolved in our favor, could be substantial. Some of our competitors may be able
to sustain the cost of such litigation or proceedings more effectively than we
can because of their substantially greater financial resources. If a patent
litigation or other intellectual property proceeding is resolved unfavorably to
us, we or our collaborative partners may be enjoined from manufacturing or
selling our products and services without a license from the other party and be
held liable for significant damages. We may not be able to obtain any required
license on commercially acceptable terms or at all.
Uncertainties resulting from the initiation and continuation of patent
litigation or other proceedings could have a material adverse effect on our
ability to compete in the marketplace. Patent litigation and other proceedings
may also absorb significant management time.
WE HAVE LIMITED SALES AND MARKETING EXPERIENCE AND CAPABILITIES.
We have limited sales, marketing and distribution experience and
capabilities. We may, in some instances, rely significantly on sales, marketing
and distribution arrangements with our collaborative partners and other third
parties. In these instances, our future revenues will be materially dependent
upon the success of the efforts of these third parties.
14
If in the future we determine to perform sales, marketing and distribution
functions ourselves, we would face a number of additional risks, including:
o we may not be able to attract and build a significant marketing
staff or sales force;
o the cost of establishing a marketing staff or sales force may not be
justifiable in light of any product revenues; and
o our direct sales and marketing efforts may not be successful.
WE HAVE LIMITED MANUFACTURING CAPABILITIES AND WILL BE DEPENDENT ON THIRD PARTY
MANUFACTURERS.
We have limited manufacturing experience and no commercial or pilot scale
manufacturing facilities for the production of pharmaceuticals. In order to
continue to develop pharmaceutical products, apply for regulatory approvals and,
ultimately, commercialize any products, we will need to develop, contract for,
or otherwise arrange for the necessary manufacturing capabilities.
We currently rely upon third parties to produce material for preclinical
and clinical testing purposes and expect to continue to do so in the future. We
also expect to rely upon third parties, including our collaborative partners, to
produce materials required for the commercial production of certain of our
products if we succeed in obtaining necessary regulatory approvals. We believe
that there is no proprietary aspect to the manufacture of our products. We
believe our products could be manufactured at other facilities; however, there
are a limited number of manufacturers that operate under the FDA's regulations
for good manufacturing practices which are capable of manufacturing for us.
Timing for the initiation of new manufacturers is uncertain, and, if we are
unable to arrange for third party manufacturing of our products, or to do so on
commercially reasonable terms, we may not be able to complete development of our
products or market them.
We currently rely upon third parties for fermentation and recovery
operations relating to our Protein A products. We believe that there is no
proprietary aspect to the manufacture of our products. We believe our products
could be manufactured at other facilities; however, there are a limited number
of manufacturers which are capable of manufacturing for us. Timing for the
initiation of new manufacturers is uncertain, and, if we are unable to arrange
for third party manufacturing of our products, or to do so on commercially
reasonable terms, we may not be able to complete development of our products or
market them.
To the extent that we enter into manufacturing arrangements with third
parties, we are dependent upon these third parties to perform their obligations
in a timely manner. If such third party suppliers fail to perform their
obligations, we may be adversely affected in a number of ways, including:
o we may not be able to meet commercial demands for our products;
o we may not be able to initiate or continue clinical trials of
products that are under development; and
o we may be delayed in submitting applications for regulatory
approvals for our products.
15
The manufacture of products by us and our collaborative partners and
suppliers is subject to regulation by the FDA and comparable agencies in foreign
countries. Delay in complying or failure to comply with such manufacturing
requirements could materially adversely affect the marketing of our products.
IF WE ARE UNABLE TO CONTINUE TO HIRE AND RETAIN SKILLED TECHNICAL AND SCIENTIFIC
PERSONNEL, THEN WE WILL HAVE TROUBLE DEVELOPING PRODUCTS.
Our success depends largely upon the continued service of our management
and scientific staff and our ability to attract, retain and motivate highly
skilled scientific, management and marketing personnel. Potential employees with
an expertise in the field of biochemistry, regulatory affairs and/or clinical
development of new drug and biopharmaceutical manufacturing are not generally
available in the market and are difficult to attract and retain. We also face
significant competition for such personnel from other companies, research and
academic institutions, government and other organizations who have superior
funding and resources to be able to attract such personnel. The loss of key
personnel or our inability to hire and retain personnel who have technical and
scientific backgrounds could materially adversely affect our product development
efforts and our business.
OUR STOCK PRICE COULD BE VOLATILE, WHICH COULD CAUSE YOU TO LOSE PART OR ALL OF
YOUR INVESTMENT.
The market price of our common stock, like that of the common stock of
many other development stage biotechnology companies, may be highly volatile. In
addition, the stock market has experienced extreme price and volume
fluctuations. This volatility has significantly affected the market prices of
securities of many biotechnology and pharmaceutical companies for reasons
frequently unrelated to or disproportionate to the operating performance of the
specific companies. These broad market fluctuations may adversely affect the
market price of our common stock.
Item 2. DESCRIPTION OF PROPERTY
In October 2001, we entered into a ten-year lease agreement for 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. We anticipate that this new facility will increase
operating efficiencies and increase manufacturing capacity to meet growing
demand for our Protein A products, and to better meet corporate goals and
objectives. We believe that this new facility will be adequate for our needs now
and in the near term. We intend to relocate to these new facilities in the first
quarter of fiscal 2003.
Our current executive, office, research and manufacturing facilities are
located at 117 Fourth Avenue in Needham, Massachusetts where we occupy
approximately 15,000 square feet under six-year sublease which expired on April
30, 2002. We will continue to lease this space on a month-to-month basis until
we relocate to our new facility.
Item 3. 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 a 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 the
16
court order the Regents assign all rights licensed to Repligen pursuant to the
UCSD License Agreement to Pro-Neuron pursuant to the Regent's agreement with
Pro-Neuron. The Regents and Repligen believe that the Complaint is without merit
and intend to vigorously defend their rights. If Pro-Neuron is successful in
this action, our 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
compositions and methods of use for CTLA4-Ig. On August 31, 2000, Repligen and
the University filed a complaint against BMS at the United States District Court
for the Eastern 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.
From time to time, we may be subject to other legal proceedings and claims
in the ordinary course of business. We are not currently aware of any such
proceedings or claims that we believe will have, individually or in the
aggregate, a material adverse effect on our business, financial condition or
results of operations.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the security holders of the Company
through the solicitation of proxies or otherwise, during the last quarter of the
fiscal year ended March 31, 2002.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Market Information
Our common stock is traded over-the-counter on the Nasdaq National Market
under the symbol "RGEN." The following table sets forth for the periods
indicated the high and low bid quotations for the common stock as reported by
Nasdaq. These quotations reflect inter-dealer prices, without retail markup,
markdown or commission and may not necessarily reflect actual transactions.
Fiscal Year 2002 High Low
---------------- ---- ---
Fourth Quarter $4.50 $2.29
Third Quarter 3.13 1.85
Second Quarter 3.04 1.81
First Quarter 3.57 1.28
Fiscal Year 2001
----------------
Fourth Quarter $5.88 $2.03
Third Quarter 8.69 3.00
Second Quarter 8.88 5.31
First Quarter 9.69 4.00
17
Stockholders and Dividends
As of May 15, 2002 there were approximately 898 stockholders of record of
our common stock. We have not paid any dividends since our inception and do not
intend to pay any dividends on our common stock in the foreseeable future. We
anticipate that we will retain all earnings, if any, to support our operations
and our proprietary drug development programs. Any future determination as to
the payment of dividends will be at the sole discretion of our board of
directors and will depend on our financial condition, results of operations,
capital requirements and other factors our board of directors deems relevant.
Securities Authorized for Issuance under Equity Compensation Plans
Equity Compensation Plan Information
Number of securities
remaining available for
Number of securities to be future issuance under equity
issued upon exercise of Weighted-average exercise compensation plans (excluding
outstanding options, warrants price of outstanding options, securities reflected
Plan category and rights warrants and rights in column (a))
------------- ---------- ------------------- --------------
(a) (b) (c)
Equity compensation plans
approval by security holders 1,701,900 $ 2.64 1,538,919
Equity compensation plans not
approved by security holders -- $ --
--------- ------ ---------
Total 1,701,900 $ 2.64 1,538,919
========= ====== =========
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data are derived from, and are qualified
in their entirety by reference to, the consolidated financial statements of
Repligen as of and for the years ended March 31, 2002, 2001, 2000, 1999 and 1998
which have been audited by Arthur Andersen LLP, independent public accountants.
The selected financial data set forth below should be read in conjunction with
the consolidated financial statements of Repligen and the related notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this report and our report on Form 10-K for
the years ended March 31, 2001, 2000, 1999 and 1998.
Years Ended March 31,
----------------------------------------------------------------
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
(In thousands, except per share amounts)
Operating Statement Data:
Revenue:
Product $ 4,302 $ 2,083 $ 2,041 $ 1,010 $ 1,114
Research and development -- 172 863 1,268 917
-------- -------- -------- -------- --------
Total revenue 4,302 $ 2,255 $ 2,904 $ 2,278 $ 2,031
-------- -------- -------- -------- --------
18
Costs and expenses:
Cost of product sold 1,993 1,400 1,107 689 480
Research and development 5,361 5,786 3,754 2,882 1,420
Selling, general & administrative 2,526 2,402 2,406 1,463 1,152
-------- -------- -------- -------- --------
Total costs and expenses 9,880 9,588 7,267 5,034 3,052
-------- -------- -------- -------- --------
Loss from operations (5,578) (7,333) (4,363) (2,756) (1,021)
-------- -------- -------- -------- --------
Investment income 1,117 2,054 547 212 225
Net loss $ (4,461) $ (5,279) $ (3,816) $ (2,544) $ (796)
======== ======== ======== ======== ========
Net loss per common share $ (0.17) $ (0.20) $ (0.18) $ (0.14) $ (0.05)
======== ======== ======== ======== ========
Weighted average common shares outstanding 26,640 26,548 21,538 18,018 16,502
======== ======== ======== ======== ========
(In thousands)
As of March 31,
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Balance Sheet Data:
Cash and investments $ 25,250 $ 30,298 $ 34,033 $ 3,263 $ 4,752
Working capital 20,577 24,398 34,473 3,860 5,377
Total assets 29,111 32,148 36,287 5,224 6,513
Accumulated deficit (140,419) (135,959) (130,680) (126,864) (124,320)
Stockholders' equity 26,445 30,891 35,090 4,592 6,124
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements that involve risks
and uncertainties. When used in this report, the words "intend," "anticipate,"
"believe," "estimate," "plan" and "expect" and similar expressions as they
relate to us are included to identify forward-looking statements. Repligen's
actual results could differ materially from those anticipated in these
forward-looking statements and are a result of certain factors, including those
set forth under "Certain Factors that May Affect Future Results" and elsewhere
in this report.
We are developing innovative therapeutic products for debilitating
pediatric diseases. Our therapeutic product candidates are secretin for autism,
uridine for mitochondrial disease and CTLA4-Ig for immune disorders. These
products are synthetic forms of naturally-occurring substances which may correct
improperly regulated biological processes with minimal toxicity or side-effects.
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 repetitive behaviors and in some patients,
gastrointestinal problems. We have initiated two randomized, placebo-controlled,
double-blind Phase 3 clinical trials to evaluate the impact of secretin on the
social interaction deficits of autism in children 2.7 to 4.9 years of age. Each
child will receive six doses of secretin or a placebo over 18 weeks and be
evaluated with the social interaction scale of the Autism Diagnostic Observation
Schedule and with a Clinical Global Impression of Change.
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
19
States, Europe and Japan. There are currently no drugs approved by the FDA for
the treatment of autism.
In December 2000, the Company licensed from the University of California,
San Diego ("UCSD") exclusive 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 systems
and organs, 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. We are currently
conducting a placebo-controlled Phase 2 clinical trial to extend these
observations. (For more information on our intellectual property rights to
uridine and related compound for the treatment of mitochondrial disease, please
see "Legal Proceedings.")
We are currently conducting a Phase 2 clinical trial of CTLA4-Ig in
patients with refractory immune thrombocytopenic purpura ("ITP"). ITP is an
autoimmune disease in which the patient's immune system mounts an attack on
their own blood platelets which can result in internal bleeding.
In March 2002, we received a Notice of Allowance from the U.S. Patent and
Trademark Office for the specific CTLA4-Ig composition which we are developing.
Repligen has also obtained an exclusive license to the patent rights of the
University of Michigan which pertain to CTLA4-Ig and is prosecuting patents
filed by the University related to therapeutic uses of CTLA4-Ig. We also believe
that the University of Michigan and Repligen are entitled to rights to certain
U.S. patents on compositions and therapeutic uses of CTLA4 which have been
issued to Bristol-Myers Squibb Company. (For more information on our
intellectual property rights to CTLA4-Ig, please see "Legal Proceedings.")
In October 1999, we licensed exclusive commercial rights to two diagnostic
products based on synthetic forms of porcine (pig-derived) and human secretin
from a private company. Both of these products have been evaluated in clinical
trials for their safety and efficacy in diagnosing pancreatic function and
gastrinoma. In April 2002, the FDA approved the use of synthetic porcine
secretin ("SecreFlo(TM)") to aid in the assessment of pancreatic function and
the diagnosis of gastrinoma, a form of cancer. The FDA has granted SecreFlo(TM)
orphan drug designation, which means that we will have a seven year period of
exclusivity to market the product in the U.S. In December of 2001, the FDA
issued an "approvable letter" for a synthetic form of human secretin which
contained questions concerning the manufacture and quality control of the
product. Prior to approval, ChiRhoClin will need to provide additional
information to the FDA to satisfy the FDA's concerns. The FDA has granted this
product orphan drug status which means we will have a seven year period of
exclusivity following final approval to market this product. We intend to market
these diagnostic products directly to gastroenterologists in the U.S.
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 which expire in 2009. 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.
20
Recent Accounting Pronouncements
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 does not expect the impact of SFAS No.
144 to have a material impact on the Company's financial position or results of
operations.
CRITICAL ACCOUNTING POLICIES
In December 2001, the Securities and Exchange Commission requested that
reporting companies discuss their most "critical accounting policies" in
management's discussion and analysis of financial condition and results of
operations. The SEC indicated that a "critical accounting policy" is one that is
important to the portrayal of a company's financial condition and operating
results and requires management's most difficult, subjective or complex
judgments, often as a result of the need to make estimates about the effect of
matters that are inherently uncertain.
We have identified the policies below as critical to our business
operations and the understanding of our results of operations. The impact and
any associated risks related to these policies on our business operations is
discussed throughout Management's Discussion and Analysis of Financial Condition
and Results of Operations where such policies affect our reported and expected
financial results. For a detailed discussion on the application of this and
other accounting policies, see Note 1 in the Notes to the Consolidated Financial
Statements of this annual report on Form 10-K. The Company's preparation of this
annual report on Form 10-K requires it to make estimates and assumptions that
affect the reported amount of assets and liabilities, disclosure of contingent
assets and liabilities at the date of its financial statements, and assurance
that actual results will not differ from those estimates.
Revenue Recognition
We generate product revenues from the sale of our Protein A products to
customers in the pharmaceutical and process chromatography industries. We
recognize revenue related to product sales upon shipment of the product to the
customer. Licensing and royalties from our licensed technologies are recognized
as earned in accordance with 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.
Clinical Trial Estimates
Our clinical development trials related to our proprietary drug products
are primarily performed by outside parties. It is not unusual at the end of each
accounting period to estimate both the total cost of the trials and the percent
completed as of that accounting date. We then
21
need to adjust our estimates when final invoices are received. To date, these
adjustments have not been material to our financial statements, and we believe
that the estimates that we made as of March 31, 2002 are reflective of the
actual expenses incurred as of that date. However, readers should be cautioned
that the possibility exists that the timing or cost of certain trials might be
longer or shorter or cost more or less than we have estimated and that the
associated financial adjustments would be reflected in future periods.
Results of Operations
Fiscal Year Ended March 31, 2002 Compared with Fiscal Year Ended March 31, 2001
Revenues
Total revenues for fiscal 2002 were $4,302,000 compared to $2,255,000 in
fiscal 2001, an increase of $2,047,000 or 91%. This increase in revenue is a
result of increased Protein A sales driven predominantly by the rapid market
growth and success of antibody therapeutic drugs.
Product revenues for fiscal 2002 were $4,302,000 compared to $2,083,000 in
fiscal 2001, an increase of $2,219,000 or 107%. This increase is due to
increased product shipments to Amersham and increased demand from several
monoclonal antibody producers during the year.
Research and development revenues for fiscal 2002 were $0 compared to
$172,000 in fiscal 2001, a decrease of $172,000 or 100%. During fiscal 2001, we
received non-recurring licensing payments from certain intellectual property
pertaining to our former programs.
Costs and Expenses
Total costs and expenses for fiscal 2002 were $9,880,000 compared to
$9,588,000 in fiscal 2001, an increase of $292,000 or 3%.
Research and development expenses for fiscal 2002 were $5,361,000 compared
to $5,786,000 in fiscal 2001, a decrease of $425,000 or 7%. This decrease is
largely due to decreased clinical trial costs, pharmacology-toxicology testing,
and manufacturing costs related to development activities for our CTLA4-Ig for
immune disorders and uridine for mitochondrial disease product candidates.
Selling, general and administrative expenses for fiscal 2002 were
$2,526,000 compared to $2,402,000 in fiscal 2001, an increase of $124,000 or 5%.
This increase was attributable to increases in payroll and related expenses, and
litigation expense. These increases were partially offset by a decrease in
non-cash charges related to the issuance of warrants that were incurred during
fiscal 2001.
Cost of product sold for fiscal 2002 was $1,993,000, compared to
$1,400,000 in fiscal 2001, an increase of $593,000 or 42%. This increase is
largely attributable to increased Protein A sales and to mix of product sales
partially offset by manufacturing efficiencies. Gross margin for our product
revenue in fiscal 2002 was 54% of product revenues versus 33% of product revenue
for fiscal 2001. This increase is a result of changes in product mix and
improvements in manufacturing efficiencies.
Investment income
Investment income for fiscal 2002 was $1,117,000, compared to $2,054,000
in fiscal 2001, a decrease of $937,000 or 46%. This decrease is attributable to
lower average funds available for investment and lower interest rates during
fiscal 2002 compared to fiscal 2001. We expect interest income to vary based on
changes in the amount of funds invested and fluctuation of interest rates. We
do, however, expect our cash balance to decline during fiscal 2003 and expect
that our interest income will also decrease.
22
Fiscal Year Ended March 31, 2001 Compared with Fiscal Year Ended March 31, 2000
Revenues
Total revenues for fiscal 2001 were $2,255,000, compared to $2,904,000 in
fiscal 2000, a decrease of $649,000 or 22%. This decrease in revenue is a result
of the discontinuance of research collaborations and grants programs that
occurred during fiscal 2000 as we focused our efforts on our own proprietary
drug programs.
Product revenues for fiscal 2001 were $2,083,000, compared to $2,041, 000
in fiscal 2000, an increase of $42,000 or 2%. Product sales under our supply
agreement with Amersham increased during fiscal 2001 partially offset by a
decrease in sales of our Protein A product as a result of the timing of large
production scale orders.
Research and development revenues for fiscal 2001 were $172,000 compared
to $863,000 in fiscal 2000, a decrease of $691,000 or 80%. During fiscal 2000,
we received non-recurring licensing payments and completed our SBIR grants for
NIH and NSF.
Costs and Expenses
Total costs and expenses for fiscal 2001 were $9,588,000 compared to
$7,267,000 in fiscal 2001, an increase of $2,321,000 or 32%.
Research and development expenses for fiscal 2001 were $5,786,000 compared
to $3,754,000 in fiscal 2000, an increase of $2,032,000 or 54%. This increase is
largely due to increased clinical and manufacturing costs related to development
activities for secretin, CTLA4-Ig and uridine.
Selling, general and administrative expenses for fiscal 2001 were
$2,402,000 compared to $2,406,000 in fiscal 2000, a decrease of $4,000 or 0%.
During fiscal 2001 increases in payroll and related expenses, non-cash charges
related to the issuance of warrants, and increased shareholder communication
expenses were partially offset by an early termination fee received in fiscal
2001 from a tenant and a decrease in financial advisory costs that were incurred
during fiscal 2000.
Cost of product sold for fiscal 2001 was $1,400,000, compared to
$1,107,000 in fiscal 2000, an increase of $293,000 or 26%. Gross margin for our
product revenue in fiscal 2001 was 33% of product revenues versus 46% of product
revenues for fiscal 2000. This decrease is a result of increased personnel costs
and production costs relating to the Amersham supply agreement.
Investment income
Investment income for fiscal 2001 was $2,054,000, compared to $547,000 in
fiscal 2000, an increase of $1,507,000 or 276%. The increase in investment
income is due to higher average cash, cash equivalent and marketable securities
balances as result of the common stock financings that took place during March
2000.
Liquidity and Capital Resources
We have financed our operations primarily through sales of equity
securities and revenues derived from product sales, collaborative research
agreements, government grants, and payments received from licensing and royalty
agreements.
At March 31, 2002 we had cash, cash equivalents, and marketable securities
of $25,250,000, compared to $30,298,000 at March 31, 2001. Our operating
activities in 2002 used
23
cash of approximately $4,461,000, consisting of the net loss from operations for
the year and increases in inventory, accounts receivable and prepaid expenses.
These cash uses were offset by noncash charges for depreciation and amortization
and an increase in accrued expenses and accounts payable. During fiscal 2002, we
purchased $86,000 of capital equipment, consisting of laboratory and office
equipment.
We have leased, pursuant to a ten-year lease agreement, a new corporate
headquarters in Waltham, Massachusetts. We expect to expend approximately
$2,000,000 for leasehold improvements for this 25,000 square foot facility. We
incurred costs of $1,184,000 associated with our new facility in Waltham during
fiscal 2002. We anticipate that this new facility will increase operating
efficiencies and manufacturing capacity to meet the growing demand for our
Protein A products, and to better meet corporate goals and objectives. We plan
to relocate to these new facilities in the first quarter of 2003. In connection
with this lease agreement, a letter of credit in the amount of $500,000 was
issued to the Company's 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 March 31, 2002.
In fiscal 2002, we received proceeds of $14,100 from the exercise of stock
options.
We expect to incur significantly higher costs in fiscal 2003 as a result
of expanded research and development costs associated with the expansion of
activities associated with clinical trials of our proprietary drug candidates
and the launch of our diagnostic product, SecreFlo(TM). During April 2002 and as
required by the terms of our license agreement with ChiRhoClin, we paid a
milestone payment of $1,250,000 in connection with the FDA's approval of
SecreFlo, our synthetic porcine secretin product. Also pursuant to such license
agreement, we are required to issue to ChiRhoClin approximately, 696,000 shares
of our common stock no later than the end of the second quarter of fiscal 2003.
We have not granted registration rights to ChiRhoClin with respect to the shares
to be issued under the license agreement. In addition, under terms of licensing
agreement with ChiRhoClin, if the FDA approves the NDA for human secretin
diagnostic, we will be required to pay ChiRhoClin future milestones in cash. We
will be required to pay royalties on sales of both synthetic porcine and human
products.
We believe that we have sufficient resources to satisfy our working
capital and capital expenditure requirements for the next twenty-four months.
Should we need to secure additional financing to meet our future liquidity
requirements, we may not be able to secure such financing, or obtain such
financing on favorable terms because of the volatile nature of the biotechnology
marketplace.
At March 31, 2002, we had net operating loss carryforwards of
approximately $110,970,000 and research and development credit carryforwards of
approximately $7,192,000 to reduce future federal income taxes, if any. The net
operating loss and tax credit carryforwards will expire at various dates,
beginning in 2003, if not used. Net operating loss carryforwards and available
tax credits are subject to review and possible adjustment by the Internal
Revenue Service and may be limited in the event of certain changes in the
ownership interest of significant stockholders.
We do not currently use derivative financial instruments. We generally
place our marketable security investments in high quality credit instruments, as
specified in our investment policy guidelines. Our investment policy also limits
the amount of credit exposure to any one issue, issuer, and type of investment.
We do not expect any material loss from our investment in marketable securities.
24
We believe that inflation has not had a material effect on our operations.
Item 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
We have investments in commercial paper, U.S. Government and agency
securities as well as corporate bonds and other debt securities; as a result, we
are exposed to potential loss from market risks that may occur as a result of
changes in interest rates and the change in credit quality of the issuer.
We generally place our marketable security investments in high quality
credit instruments, as specified in our investment policy guidelines. Our
investment policy also limits the amount of credit exposure to any one issue,
issuer, and type of investment. We intend to hold these investments to maturity,
as the intention is to hold these assets in accordance with our business plans.
Item 8. FINANCIAL STATEMENTS
All financial statements required to be filed hereunder are filed as an
exhibit hereto, are listed under item 14 (a) (1) and are incorporated herein by
reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding our directors and executive officers will be set
forth under the captions "Election of Directors," "Occupations of Directors and
Executive Officers," "Biographical Information," "Information Regarding the
Board of Directors and its Committees" and "Section 16 (a) Beneficial Ownership
Reporting Compliance" in our definitive proxy statement for our annual meeting
of stockholders to be held on September 12, 2002 which will be filed with the
SEC within 120 days of March 31, 2002 and is incorporated herein by reference.
Item 11. EXECUTIVE COMPENSATION
Information required by this Item will be set forth under the captions
"Summary of Executive Compensation" and "Compensation of Directors" in our
definitive proxy statement for our annual meeting of stockholders to be held on
September 12, 2002 which will be filed with the SEC within 120 days of March 31,
2002 and is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this Item will be set forth under the captions
"Principal Holders of Voting Securities" and "Stock Ownership of Executive
Officers and Directors" in our definitive proxy statement for our annual meeting
of stockholders to be held on September 12, 2002 which
25
will be filed with the SEC within 120 days of March 31, 2002 and is incorporated
herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this Item will be set forth under the caption
"Certain Relationships and Related Transactions" in our definitive proxy
statement for our annual meeting of stockholders to be held on September 12,
2002 which will be filed with the SEC within 120 days of March 31, 2002 and is
incorporated herein by reference.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The following documents are filed as part of this Annual Report on Form 10-K:
(a) (1) Financial Statements:
The consolidated financial statements required by this item are submitted in a
separate section beginning on page F-2 of this Report, as follows:
Page
----
Report of Independent Public Accountants.................................. F-2
Consolidated Balance Sheets as of March 31, 2002 and 2001................. F-3
Consolidated Statements of Operations for the Years Ended
March 31, 2002, 2001, and 2000............................................ F-4
Consolidated Statements of Stockholders' Equity for the Years
Ended March 31, 2002, 2001, and 2000...................................... F-5
Consolidated Statements of Cash Flows for the Years Ended
March 31, 2002, 2001, and 2000............................................ F-6
Notes to Consolidated Financial Statements................................ F-7
(a) (2) Financial Statement Schedules:
None
(a) (3) Exhibits:
The Exhibits which are filed as part of this Annual Report or which are
incorporated by reference are set forth in the Exhibit Index hereto.
(b) Reports on Form 8-K:
On April 9, 2002, we filed a current report on Form 8-K reporting that the
United States Food and Drug Administration (FDA) has granted approval to market
SecreFlo(TM) (synthetic porcine secretin), the first synthetic version of the
hormone secretin. SecreFlo(TM) has been approved for stimulation of pancreatic
secretions.
26
EXHIBIT INDEX
Exhibit
Number Document Description
- ------- --------------------
3.1 Restated Certificate of Incorporation dated June 30, 1992 and
amended September 30, 1999 (filed as Exhibit 4.1 to Repligen
Corporation's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999 and incorporated herein by reference).
3.2 + By-laws
4.1 + Specimen Stock Certificate
4.2 Form of Warrant Agreement (filed as Exhibit 4.1 to Repligen
Corporation's Form 10-Q for the quarter ended September 30, 1999 and
incorporated herein by reference).
4.3 Form of Common Stock Purchase Warrant (filed as Exhibit 4.3 to
Repligen Corporation's Form S-3 Registration Statement No. 333-36280
and incorporated herein by reference).
4.4 Stock Purchase Agreement dated as of March 7, 2000, by and among
Repligen Corporation and the investors listed on Schedule I thereto
(filed as Exhibit 4.1 to Repligen Corporation's Form 8-K filed March
21, 2000 and incorporated herein by reference).
4.5 Common Stock Purchase Warrant dated July 24, 2000 (filed as Exhibit
4.1 to Repligen Corporation's Form 10-Q for the quarter ended
September 30, 2000 and incorporated herein by reference).
4.6 * The 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).
4.7 * The Amended 1992 Repligen Corporation Stock Option Plan, as
amended (filed as Exhibit 4.2 to Repligen Corporation's Form 10-Q
for the quarter ended September 30, 2000 and incorporated herein by
reference).
10.1 +* Consulting Agreement, dated October 1, 1981, between Dr. Paul
Schimmel and Repligen Corporation.
10.2 +* Consulting Agreement, dated November 1, 1981, between Dr.
Alexander Rich and Repligen Corporation.
10.3 +* Employment Agreement, dated March 14, 1996, between Repligen
Corporation and Walter C. Herlihy.
10.4 +* Employment Agreement, dated March 14, 1996, between Repligen
Corporation and James R. Rusche.
10.5 +* Employment Agreement, dated March 14, 1996, between Repligen
Corporation and Daniel P. Witt.
27
10.6 + Sublease Agreement dated as of May 1, 1996 between T Cell
Sciences, Inc. and Repligen Corporation.
#10.7 Patent Purchase Agreement dated as of March 9, 1999 among the
Company and Autism Research Institute and Victoria Beck (filed as
Exhibit 2.1 to Repligen Corporation's Form 8-K/A filed June 15, 1999
and incorporated herein by reference).
#10.8 Manufacturing Transfer Agreement dated as of December 31, 1998 among
the Company and Amersham Pharmacia Biotech AB (filed as Exhibit 10.1
to Repligen Corporation's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1998 and incorporated herein by
reference).
#10.9 Supply Agreement dated as of May 26, 1999 by and between Repligen
Corporation and Amersham Pharmacia Biotech AB (filed as Exhibit 10.1
to Repligen Corporation's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1999 and incorporated herein by reference).
10.11 Licensing Agreement by and between ChiRhoClin, Inc. and Repligen
Corporation (filed as Exhibit 10.1 to Repligen Corporation's
Quarterly Report on Form 10-Q for the quarter ended December 31,
1999 and incorporated herein by reference).
10.12 Finders Agreement by and between Repligen Corporation and Paramount
Capital, Inc. dated as of March 2, 2000 (filed as Exhibit 4.2 to
Repligen Corporation's Form 8-K filed March 21, 2000 and
incorporated herein by reference).
10.13 Patent Purchase Agreement dated as of May 9, 2000 by and between
Tolerance Therapeutics LLC and Repligen Corporation (filed as
Exhibit 10.1 to Repligen Corporation's Quarterly Report on Form 10-Q
for the quarter ended June 30, 2000 and incorporated herein by
reference).
10.14 License Agreement with University of Michigan (filed as Exhibit 10.1
to Repligen Corporation's Quarterly Report on Form 10-Q for the
quarter ended September 30, 2000 and incorporated herein by
reference).
10.15 Lease Between Repligen Corporation as Tenant and West Seyon LLC as
Landlord, 35 Seyon Street, Waltham, MA (filed as Exhibit 10.1 to
Repligen Corporation's Quarterly Report on Form 10-Q for the quarter
ended December 31, 2001 and incorporated herein by reference).
10.16 + Standard Form of Agreement between Repligen Corporation and Siena
Construction Corporation.
21 + Subsidiaries of Registrant.
23 + Consent of Arthur Andersen LLP.
99.1 + Letter to commission Pursuant to Temporary Note 3T dated May 17,
2002.
- -----------
# Confidential treatment obtained as to certain portions.
* Management contract or compensatory plan or arrangement
+ Filed herewith.
28
The exhibits listed above are not contained in the copy of the annual report on
Form 10-K distributed to stockholders. Upon the request of any stockholder
entitled to vote at the 2002 annual meeting, the Registrant will furnish that
person without charge a copy of any exhibits listed above. Requests should be
addressed to Repligen Corporation, 117 Fourth Avenue, Needham, MA 02494.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
REPLIGEN CORPORATION
By: /s/ Walter C. Herlihy
---------------------------------------
Walter C. Herlihy
President and Chief Executive Officer
(Principal executive, financial and accounting officer)
Date: May 24, 2002
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby makes, constitutes and appoints Walter C. Herlihy with full power
to act without the other, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities to sign any or all amendments to this Form
10-K, and to file the same with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agents of any of them, or any substitute or substitutes,
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Alexander Rich Co-Chairman of the Board of Directors May 24, 2002
- ------------------------------------
Alexander Rich, M.D.
/s/ Paul Schimmel Co-Chairman of the Board of Directors May 24, 2002
- ------------------------------------
Paul Schimmel, Ph.D.
/s/ Walter C. Herlihy President, Chief Executive Officer and May 24, 2002
- ------------------------------------ Director (Principal executive, financial
Walter C. Herlihy and accounting officer)
/s/ Robert J. Hennessey Director May 24, 2002
- ------------------------------------
Robert J. Hennessey
/s/ G. William Miller Director May 24, 2002
- ------------------------------------
G. William Miller
29
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Public Accountants F-2
Balance Sheets as of March 31, 2002 and 2001 F-3
Statements of Operations for the Years
Ended March 31, 2002, 2001 and 2000 F-4
Statements of Stockholders' Equity for the Years
Ended March 31, 2002, 2001 and 2000 F-5
Statements of Cash Flows for the Years
Ended March 31, 2002, 2001 and 2000 F-6
Notes to Financial Statements F-7
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of Repligen Corporation:
We have audited the accompanying balance sheets of Repligen Corporation (a
Delaware corporation) as of March 31, 2002 and 2001, and the related statements
of operations, stockholders' equity and cash flows for each of the three years
in the period ended March 31, 2002. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Repligen Corporation as of
March 31, 2002 and 2001, and the results of its operations and its cash flows
for each of the three years in the period ended March 31, 2002, in conformity
with accounting principles generally accepted in the United States.
/s/ ARTHUR ANDERSEN LLP
-----------------------
ARTHUR ANDERSEN LLP
Boston, Massachusetts
May 13, 2002
F-2
REPLIGEN CORPORATION
BALANCE SHEETS
As of March 31,
2002 2001
--------------------------------
Assets
Current assets:
Cash and cash equivalents $ 8,696,194 $ 16,163,625
Marketable securities 12,143,170 8,142,148
Accounts receivable, less reserves of $25,000 865,861 443,760
Inventories 916,091 634,723
Prepaid expenses and other current assets 622,309 270,252
------------- -------------
Total current assets 23,243,625 25,654,508
------------- -------------
Property, plant and equipment, at cost:
Leasehold improvements 1,657,416 331,501
Equipment 1,169,080 1,103,527
Furniture and fixtures 352,174 473,288
------------- -------------
3,178,670 1,908,316
Less - accumulated depreciation and amortization 1,721,732 1,464,195
------------- -------------
1,456,938 444,121
------------- -------------
Long-term marketable securities 3,910,852 5,992,478
Restricted cash 500,000 --
Other assets, net -- 56,882
------------- -------------
$ 29,111,415 $ 32,147,989
============= =============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 1,407,955 $ 529,914
Accrued expenses 1,258,804 726,910
------------- -------------
Total current liabilities 2,666,759 1,256,824
------------- -------------
Commitments and contingencies (Notes 5, 6, 8 & 9)
Stockholders' equity:
Preferred stock, $0.01 par value, 5,000,000 shares
authorized, no shares issued or outstanding -- --
Common stock, $0.01 par value, 40,000,000 shares
authorized, issued and outstanding, 26,642,750 shares and
26,628,950 shares in 2002 and 2001, respectively 266,427 266,289
Additional paid-in capital 166,597,654 166,583,684
Accumulated deficit (140,419,425) (135,958,808)
------------- -------------
Total stockholders' equity 26,444,656 30,891,165
------------- -------------
$ 29,111,415 $ 32,147,989
============= =============
The accompanying notes are an integral part of these financial statements.
F-3
REPLIGEN CORPORATION
STATEMENTS OF OPERATIONS
Years Ended March 31,
2002 2001 2000
------------------------------------------------
Revenue:
Product $ 4,301,565 $ 2,083,529 $ 2,040,828
Research and development -- 171,615 863,035
------------ ------------ ------------
Total revenue 4,301,565 2,255,144 2,903,863
------------ ------------ ------------
Costs and expenses:
Cost of product sold 1,992,734 1,399,849 1,106,642
Research and development 5,360,720 5,786,392 3,753,908
Selling, general and administrative 2,525,827 2,401,460 2,406,429
------------ ------------ ------------
Total costs and expenses 9,879,281 9,587,701 7,266,979
------------ ------------ ------------
Loss from operations (5,577,716) (7,332,557) (4,363,116)
------------ ------------ ------------
Investment income 1,117,099 2,053,690 546,733
------------ ------------ ------------
Net loss $ (4,460,617) $ (5,278,867) $ (3,816,383)
============ ============ ============
Basic and diluted net loss per share $ (.17) $ (.20) $ (.18)
============ ============ ============
Basic and diluted weighted average
shares outstanding 26,639,525 26,547,238 21,537,584
============ ============ ============
The accompanying notes are an integral part of these financial statements.
F-4
REPLIGEN CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock
------------------------ Total
Number of $.01 Par Additional Accumulated Stockholders'
Shares Value Paid-in Capital Deficit Equity
- ----------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1999 18,264,285 $182,642 $131,272,607 ($126,863,558) $ 4,591,691
- ----------------------------------------------------------------------------------------------------------------------
Issuance of common stock and warrants 6,198,927 61,989 29,772,917 -- 29,834,906
Issuance of warrants for services -- -- 188,265 -- 188,265
Exercise of stock options 64,458 645 147,293 -- 147,938
Exercise of warrants 1,788,309 17,883 4,126,102 -- 4,143,985
Net loss -- -- -- (3,816,383) (3,816,383)
- ----------------------------------------------------------------------------------------------------------------------
Balance, March 31, 2000 26,315,979 263,159 165,507,184 (130,679,941) 35,090,402
- ----------------------------------------------------------------------------------------------------------------------
Issuance of common stock for
patent acquisition 30,000 300 183,450 -- 183,750
Issuance of warrants for services -- -- 218,735 -- 218,735
Exercise of stock options 34,200 342 24,354 -- 24,696
Exercise of warrants 248,771 2,488 649,961 -- 652,449
Net loss -- -- -- (5,278,867) (5,278,867)
- ----------------------------------------------------------------------------------------------------------------------
Balance, March 31, 2001 26,628,950 266,289 166,583,684 (135,958,808) 30,891,165
- ----------------------------------------------------------------------------------------------------------------------
Exercise of stock options 13,800 138 13,970 -- 14,108
Net loss -- -- -- (4,460,617) (4,460,617)
- ----------------------------------------------------------------------------------------------------------------------
Balance, March 31, 2002 26,642,750 $266,427 $166,597,654 ($140,419,425) $ 26,444,656
- ----------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
F-5
REPLIGEN CORPORATION
STATEMENTS OF CASH FLOWS
Years Ended March 31,
2002 2001 2000
------------------------------------------------
Cash flows from operating activities:
Net loss $ (4,460,617) $ (5,278,867) $ (3,816,383)
Adjustments to reconcile net loss to net cash
used in operating activities --
Depreciation and amortization 257,537 276,852 324,409
Issuance of common stock warrants for services -- 218,735 188,265
Noncash expense related to common stock issued for
patent acquisition -- 183,750 --
Changes in assets and liabilities
Accounts receivable (422,101) 404,078 (418,118)
Inventories (281,368) (87,276) 82,882
Prepaid expenses and other current assets (352,057) (28,598) (60,037)
Changes in other assets 56,882 24,500 7,090
Accounts payable 19,306 104,350 156,857
Accrued expenses 428,246 (44,610) 457,594
Unearned income -- -- (49,969)
------------ ------------ ------------
Net cash used in operating activities (4,754,172) (4,227,086) (3,127,410)
------------ ------------ ------------
Cash flows from investing activities:
Purchases of marketable securities (22,801,063) (50,328,259) (8,806,367)
Redemptions of marketable securities 20,881,667 45,000,000 --
Increase in restricted cash (500,000) -- --
Purchases of property, plant and equipment (307,971) (184,721) (217,256)
------------ ------------ ------------
Net cash used in investing activities (2,727,367) (5,512,980) (9,023,623)
------------ ------------ ------------
Cash flows from financing activities:
Exercise of warrants -- 652,449 4,143,984
Exercise of stock options 14,108 24,696 147,938
Issuance of common stock and warrants -- -- 29,834,906
------------ ------------ ------------
Net cash provided by financing activities 14,108 677,145 34,126,828
------------ ------------ ------------
Net (decrease) increase in cash and cash equivalents (7,467,431) (9,062,921) 21,975,795
Cash and cash equivalents, beginning of year 16,163,625 25,226,546 3,250,751
------------ ------------ ------------
Cash and cash equivalents, end of year $ 8,696,194 $ 16,163,625 $ 25,226,546
============ ============ ============
Supplemental disclosure of noncash investing activities:
Noncash purchases of leasehold improvements $ 962,383 $ -- $ --
The accompanying notes are an integral part of these financial statements.
F-6
REPLIGEN CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. Organization and Nature of Business
Repligen Corporation's ("Repligen" or the "Company") goal is to develop
innovative therapeutic products for debilitating pediatric diseases. Our
therapeutic product candidates are secretin for autism, uridine for
mitochondrial disease and CTLA4-Ig for immune disorders. These products are
synthetic forms of naturally-occurring substances which may correct improperly
regulated biological processes with minimal toxicity or side-effects. Our
product candidates have the potential to produce clinical benefits not
attainable with any existing drug in diseases for which there are few
alternatives.
Our business strategy is to partially fund the development of our
proprietary therapeutic products with the profits derived from the sales of our
specialty pharmaceutical products: Protein A and SecreFlo(TM). This will enable
us to advance these programs while at the same time increasing our financial
stability.
The Company is subject to a number of risks associated with companies in
the biotechnology industry. Principal among these are the risks associated with
the Company's dependence on collaborative arrangements, development by the
Company or its competitors of new technological innovations, dependence on key
personnel, protection of proprietary technology, compliance with the U.S. Food
and Drug Administration and other governmental regulations and approval
requirements, as well as the ability to grow the Company's business and
obtaining adequate financing to fund this growth.
The accompanying financial statements reflect the application of certain
accounting policies described in this note and elsewhere in the accompanying
notes to the financial statements.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Reclassifications
The Company has reclassified certain prior-year information to conform to
the current year's presentation.
Revenue Recognition
The Company 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.
F-7
Research and development revenue derived from collaborative arrangements
is recognized as earned under cost plus fixed-fee contracts, or on a
straight-line basis over development contracts, which approximates when work is
performed and costs are incurred. Research and development expenses in the
accompanying statements of operations include funded and unfunded expenses. In
addition, under certain contracts, the Company recognizes research and
development milestones as they are achieved assuming the milestone is deemed to
be substantive. 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 No. 101 requires companies to recognize certain upfront
nonrefundable fees and milestone payments over the life of the related alliance
when such fees are received in conjunction with alliances that have multiple
elements. The adoption of SAB No. 101 had no significant impact on the Company's
financial statements.
Comprehensive Income
The Company applies Statement of Financial Accounting Standards (SFAS) No.
130, "Reporting Comprehensive Income." SFAS No. 130 requires disclosure of all
components of comprehensive income on an annual and interim basis. Comprehensive
income is defined as the change in equity of a business enterprise during a
period from transactions and other events and circumstances from nonowner
sources. The Company's comprehensive loss is equal to its reported net loss for
all periods presented.
Cash, Cash Equivalents & Marketable Securities
The Company applies SFAS No. 115, "Accounting for Certain Instruments in
Debt and Equity Securities." At March 31, 2002, the Company's cash equivalents
and marketable securities are classified as held-to-maturity investments as the
Company has the positive intent and ability to hold to maturity. As a result,
these investments are recorded at amortized cost. Cash equivalents are
short-term, highly liquid investments with original maturities of 90 days or
less. Marketable securities are investments with original maturities of greater
than 90 days. Long-term marketable securities are investment grade securities
with maturities of greater than one year. The Company recorded during the years
ended March 31, 2002 and 2001 respectively, realized gains of $5,558 and $0 on
sales of its marketable securities.
Cash, cash equivalents and marketable securities consist of the following
at March 31, 2002 and 2001:
Unrealized Gain (Loss)
Years Ended March 31, Years Ended March 31,
2002 2001 2002 2001
----------- ----------- -------- -------
Cash and cash equivalents
Cash $ 8,696,194 $ 222,766 -- --
Commercial paper and corporate bonds -- 489,719 -- --
U.S. Government and agency securities -- -- -- --
Money market accounts -- 15,451,140 -- --
----------- ----------- -------- -------
Total cash and cash equivalents $ 8,696,194 $16,163,625 $ -- $ --
=========== =========== ======== =======
Marketable securities
U.S. Government and agency securities $ 1,414,994 $ -- $ (774) --
Corporate and other debt securities 10,728,176 8,142,148 $ 51,610 $ 8,823
----------- ----------- -------- -------
(Average of remaining maturity 5 months at
March 31, 2002) $12,143,170 $ 8,142,148 $ 50,836 $ 8,823
=========== =========== ======== =======
(Average of remaining maturity 14.5 months at
March 31, 2002) $ 3,910,852 $ 5,992,478 $ (9,334) $15,510
=========== =========== ======== =======
F-8
Restricted cash of $500,000 is related to the Company's facility lease
obligation (see note 5).
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market. Work-in-process and finished goods inventories consist of material,
labor, outside processing costs and manufacturing overhead. Inventories at March
31, 2002 and 2001 consist of the following:
Year Ended March 31,
2002 2001
-------------------------
Raw materials and work-in-process ................. $652,940 $459,288
Finished goods .................................... 263,151 175,435
-------- --------
Total .......................................... $916,091 $634,723
======== ========
Depreciation and Amortization
The Company provides for depreciation and amortization by charges to
operations in amounts estimated to allocate the cost of fixed assets over their
estimated useful lives, on a straight-line basis, as follows:
Description Estimated Useful Life
----------- ---------------------
Leasehold improvements Shorter of term of the lease or estimated
useful life
Equipment 3-5 years
Furniture and fixtures 5-7 years
In June 2002, the Company will relocate to its new corporate headquarters
in Waltham, Massachusetts at which time approximately $1,184,000 of leasehold
improvements will be placed into service and depreciation will commence.
Earnings Per Share
The Company applies SFAS No. 128, "Earnings per Share." SFAS No. 128
establishes standards for computing and presenting earnings per share. Basic net
loss per share represents net loss divided by the weighted average number of
common shares outstanding during the period. The dilutive effect of potential
common shares, consisting of outstanding stock options and warrants, is
determined using the treasury stock method in accordance with SFAS No. 128.
Diluted weighted average shares outstanding for 2002, 2001 and 2000 do not
include the potential common shares from warrants and stock options because to
do so would have been antidilutive for the years presented. Accordingly, basic
and diluted net loss per share is the same. The number of potential common
shares excluded from the calculation of diluted earnings per share during the
year ended March 31, 2002, 2001 and 2000 was 2,106,846, 1,904,387 and 2,484,953
shares, respectively.
F-9
Fair Value of Financial Instruments
The carrying amounts of the Company's financial instruments which
represent cash and cash equivalents, marketable securities, accounts receivable
and accounts payable approximate fair value generally due to the short-term
nature of these instruments.
Concentrations of Credit Risk and Significant Customers
Financial instruments that subject the Company to significant
concentrations of credit risk primarily consist of cash and cash equivalents,
marketable securities and accounts receivable. The Company's cash equivalents
and marketable securities are invested in financial instruments with high credit
ratings. At March 31, 2002, the Company has no off-balance-sheet risks such as
those associated with foreign exchange contracts, options contracts or other
foreign hedging arrangements.
Concentration of credit risk with respect to accounts receivable is
limited to customers to whom the Company makes significant sales. The Company
maintains reserves for the potential write-off of accounts receivable. To date,
the Company has not written off any significant accounts. To control credit
risk, the Company performs regular credit evaluations of its customers'
financial conditions and maintains allowances for potential credit losses. The
Company does not believe significant risk exists at March 31, 2002.
Revenue from significant customers as a percentage of the Company's total
revenue are as follows:
Years Ended March 31,
2002 2001 2000
---------------------
Customer A 56% 42% 14%
Customer B 23% 19% 16%
Customer C 6% 5% 16%
Significant accounts receivable balances as a percentage of the Company's
total trade accounts receivable balances are as follows:
As of March 31,
2002 2001
---------------------
Customer A 69% 53%
Customer B 24% --
Customer C -- 26%
Customer D -- 10%
Segment Reporting
The Company applies SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 establishes standards for
reporting information regarding operating segments in annual financial
statements and requires selected information for those segments to be presented
in interim financial reports issued to stockholders. SFAS No. 131 also
establishes standards for related disclosures about products and services and
geographic areas. The chief operating decision maker, or decision-making group,
in making decisions how to allocate resources and assess performance, identifies
operating segments as components of an enterprise about which separate discrete
financial information is available for evaluation. To date, the Company has
viewed its operations and manages its business as principally one operating
segment. As a result, the financial information disclosed herein represents all
of the material financial information related to the Company's principal
operating segment.
The following table represents the Company's revenue by geographic area:
Year Ended March 31,
2002 2001 2000
--------------------------------------
Europe 63% 42% 45%
United States 35% 56% 51%
Other 2% 2% 4%
---- ---- ----
Total 100% 100% 100%
==== ==== ====
F-10
As of March 31, 2002 and 2001, all of the Company's assets are located in
the United States.
Recent Accounting Pronouncements
In August 2001, the Financial Accounting Standards Board (FASB) issued
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets,"
which supersedes SFAS 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 Accounting Principles Board Opinion No. 30 (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. Management believes that the adoption of SFAS No.144 will not have
a significant impact on its financial statements.
3. Income Taxes
The Company accounts for income taxes under SFAS No. 109, "Accounting for
Income Taxes." At March 31, 2002, the Company had net operating loss
carryforwards for income tax purposes of approximately $114,270,000. The Company
also had available tax credit carryforwards of approximately $7,192,000 at March
31, 2002 to reduce future federal income taxes, if any. The net operating loss
and tax credit carryforwards will expire at various dates, beginning in 2003.
Net operating loss carryforwards and available tax credits are subject to review
and possible adjustment by the Internal Revenue Service and may be limited in
the event of certain changes in the ownership interest of significant
stockholders.
The deferred tax asset consists of the following:
Years Ended March 31,
2002 2001
---------------------------------
Temporary differences ................ $ 5,375,000 $ 6,738,000
Operating loss carryforwards ......... 45,708,000 40,307,000
Tax credit carryforwards ............. 7,192,000 4,476,000
------------ ------------
58,275,000 51,521,000
Valuation allowance .................. (58,275,000) (51,521,000)
------------ ------------
$ -- $ --
============ ============
A full valuation allowance has been provided, as it is uncertain if the
Company will realize its deferred tax asset.
4. Stockholders' Equity
(a) Common Stock & Warrants
F-11
On July 24, 2000, Repligen issued to a third party a warrant to purchase
50,000 shares of common stock at $7.125 per share exercisable through July 2003
in partial consideration for a licensing agreement entered into with such third
party. The Company recorded the value of this warrant, as determined using
Black-Scholes option pricing model, as research and development expense.
On May 10, 2000, pursuant to a patent purchase agreement, Repligen issued
to Tolerance Therapeutics LLC ("Tolerance"), in partial consideration for the
assignment by Tolerance to Repligen of a U.S. patent application claiming the
use of CTLA4-Ig in treatment of diseases of the immune system, 30,000 shares of
Repligen common stock. The Company recorded the value of these shares as
research and development expense. During fiscal 2002, the Company elected not to
make its final payment and as a result its interest in these assets was returned
to Tolerance.
On April 7, 2000, Repligen issued to each of its investor relation firm
and public relations firm, in consideration for services, a warrant exercisable
through July 2001 to purchase 10,000 shares of common stock of Repligen at $8.56
per share. The Company recorded the value of these warrants, as determined using
Black-Scholes option pricing model, as selling, general and administrative
expense. These warrants expired unexercised during fiscal 2002.
Also, on April 7, 2000, Repligen issued a warrant to purchase 2,900 shares
of common stock at $9.00 per share to an existing shareholder exercisable
through July 2000. This warrant expired during fiscal 2001. The Company recorded
the value of this warrant, as determined using Black-Scholes option pricing
model, as selling, general and administrative expense. These warrants expired
unexercised during fiscal 2002.
On March 9, 2000, Repligen sold an aggregate of 2,598,927 shares of common
stock to investors at $8.625 per share for an aggregate consideration of $22.4
million in a private placement. Repligen engaged Paramount Capital, Inc.
("Paramount") to act as placement agent for this transaction. For this
transaction, Repligen paid Paramount approximately $1.57 million for its
services, plus related transactional expenses, and issued to Paramount warrants
to purchase up to 129,946 shares of common stock at $9.49 per share.
In July 1999, Repligen engaged Paramount as a nonexclusive financial
adviser for an initial period of 12 months from the date thereof. In exchange
and as consideration for these financial services, Repligen paid to Paramount
$100,000 in cash and issued to Paramount (and its designees) warrants to
purchase an aggregate of 100,000 shares of common stock. Each warrant is
exercisable at $2.75 per share at any time prior to July 15, 2004. Repligen also
agreed to pay Paramount additional fees upon the consummation of certain equity
financing transactions. The Company valued these warrants at fair value and
recorded an expense of $188,285 during fiscal 2000 relating to this issuance. In
March 2000, Repligen terminated the financial advisory agreement with Paramount
for an additional payment of $200,000 in cash. All payments were expensed in the
accompanying statement of operations as selling, general and administrative
expense for the year ended March 31, 2000.
Pursuant to stock purchase agreements dated April 30, 1999 and May 14,
1999, respectively, Repligen issued to certain accredited investors in a private
placement an aggregate of 3,600,000 shares of common stock at $2.50 per share
for an aggregate purchase price of approximately $9 million, resulting in net
proceeds to Repligen of approximately $8.9 million.
In March 1999, the Company acquired all rights to certain patent
applications relating to the use of secretin in the treatment of autism. The
rights were acquired pursuant to a Patent Purchase Agreement whereby the Company
paid $150,000 in cash, issued a warrant to purchase 350,000 shares of common
stock with an exercise price of $1.59 per share, and issued 262,500 shares of
common stock.
F-12
At March 31, 2002, common stock reserved for issuance is as follows:
Reserved for Shares
- ------------ ------
Incentive and nonqualified stock option plans 3,240,819
Warrants granted in connection with the Patent Purchase Agreement 125,000
Warrants granted in connection with the Licensing Agreement 50,000
Warrants granted for payment of services 229,946
---------
3,645,765
=========
(b) Stock Options
The Company's 2001 and 1992 stock option plans authorize the grant of
either incentive stock options or nonqualified stock options. Incentive stock
options are granted to employees at the fair market value at the date of grant.
Nonqualified stock options are granted to employees or nonemployees. The options
generally vest over four or five years and expire no more than 10 years from the
date of grant. As of March 31, 2002, the Company had 1,538,919 options available
for future grant.
A summary of stock option activity under all plans is as follows:
Years Ended March 31,
2002 Weighted 2001 Weighted 2000 Weighted
Range of Average Number Range of Average Number Range of Average
Number of Exercise Price per of Exercise Price per of Exercise Price per
Shares Prices Share Shares Prices Share Shares Prices Share
------ ------ ----- ------ ------ ----- ------ ------ -----
Outstanding
at beginning
of period 1,479,441 $.50-$12.45 $2.64 1,288,041 $.50-$12.45 $1.81 1,289,291 $.50-$12.45 $1.78
Granted 276,900 $2.35-$2.60 2.60 258,400 $4.13-$8.56 6.59 169,908 $2.91-$3.88 2.86
Exercised (13,800) $.50-$1.53 1.01 (34,200) $.50-$1.37 0.72 (64,458) $.79-$2.78 2.30
Forfeited (40,641) $1.03-$7.19 2.62 (32,800) $1.25-$7.17 3.73 (106,700) $1.31-$9.00 1.44
---------- ----- ---------- ------ --------- -----
Outstanding at
end of period 1,701,900 $.50-$12.45 $2.64 1,479,441 $.50-$12.45 $2.64 1,288,041 $.50-$12.45 $1.81
---------- ----- ---------- ------ --------- -----
Exercisable at
end of period 1,115,900 $.50-$12.45 $2.25 894,941 $.50-$12.45 $1.92 694,941 $.50-$12.45 $1.96
========== ===== ========== ====== ========= =====
F-13
As of March 31, 2002
Options Outstanding Options Exercisable
------------------- -------------------
Weighted Weighted
Average Average Weighted Average
Number Remaining Exercise Price Number Exercise Price
Outstanding Contractual Life Per Share Outstanding Per Share
----------- ---------------- --------- ----------- ---------
$.50-$1.38 384,000 4.45 $1.15 375,600 $1.15
$1.41-$1.63 572,000 5.86 1.43 460,800 1.44
$2.60-$3.00 448,400 7.27 2.68 145,200 2.79
$3.13-$6.56 134,500 7.21 4.48 49,700 4.69
$7.64-$12.45 163,000 6.99 8.81 84,600 9.23
- -----------------------------------------------------------------------------------------
1,701,900 6.13 $2.64 1,115,900 $2.25
========= ==== ===== ========= =====
The Company accounts for its stock-based compensation under SFAS No. 123
"Accounting for Stock-Based Compensation." The Company continues to apply APB
No. 25 for employee stock options awards and elected the disclosure-only
alternative for the same under SFAS No. 123.
The Company has computed the pro forma disclosures required under SFAS No.
123 for all stock options granted to employees in 2002, 2001 and 2000 using the
Black-Scholes option-pricing model prescribed by SFAS No. 123. The assumptions
used and the weighted average information for the years ended March 31, 2002,
2001 and 2000 are as follows:
Years Ended March 31,
2002 2001 2000
-----------------------------------------------
Risk-free interest rates 4.31%-5.06% 5.28%-6.33% 5.08%-6.03%
Expected dividend yield -- -- --
Expected lives 7 years 7 years 7 years
Expected volatility 101% 108% 70%
Weighted average grant date fair value of options
granted during the period $2.21 $5.78 $2.02
Weighted average remaining contractual life of
options outstanding 6.1 years 6.6 years 7.0 years
If compensation expense for the Company's stock option plans had been
determined consistent with SFAS No. 123, the pro forma net loss and net loss per
share would have been as follows:
Years Ended March 31,
Net loss- 2002 2001 2000
------------------------------------------------
As reported ($4,460,617) ($5,278,867) ($3,816,383)
Pro forma ($5,206,414) ($5,681,311) ($4,103,293)
Basic and diluted net loss per share-
As reported $ (0.17) $ (0.20) $ (0.18)
Pro forma $ (0.20) $ (0.21) $ (0.19)
5. Commitments
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 June 2002.
In connection with this lease agreement, a letter of credit in the amount of
$500,000 was
F-14
issued to the Company's 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 March 31, 2002.
Obligations under noncancellable operating leases, including the new
facility lease discussed above, as of March 31, 2002 are approximately as
follows:
Years Ending March 31,
----------------------
2003 $ 316,000
2004 330,000
2005-2007 379,000
2008-2009 404,000
2010-2012 428,000
----------
Total minimum lease payments $1,857,000
==========
Rent expense charged to operations under operating leases was
approximately $308,000, $377,000, and $296,000 for the years ended March 31,
2002, 2001 and 2000, respectively.
6. Certain Technologies and Product Candidates
In December 2000, the Company purchased from the University of California,
San Diego ("UCSD") a right to a U.S. patent application covering novel methods
for the treatment of mitochondrial disease. Under terms of the agreement,
Repligen received the exclusive right under the license to commercialize
products to treat mitochondrial disease and paid UCSD an up-front fee. Repligen
will also pay UCSD clinical development milestones and royalties on product
sales. The Company has expensed the purchase price as research and development
expense as the realizability of the patent is subject to the outcome of
additional research and development and the successful prosecution of the
patent.
In May 2000, the Company purchased from Tolerance Therapeutics LLC the
rights to a U.S. patent application claiming the use of CTLA4-Ig in the
treatment of diseases of the immune system. Under terms of the agreement, the
Company paid cash and issued stock for the purchase. The Company has expensed
the purchase price as research and development expense as the realizability of
the patent is subject to the outcome of additional research and development and
the successful prosecution of the patent.
In October 1999, the Company acquired the commercial rights to two
diagnostic products based on synthetic forms of porcine and human secretin from
ChiRhoClin, Inc. a private company. Both of these products have been evaluated
in clinical trials for their safety and efficacy in diagnosing pancreatic
function and gastrinoma. A New Drug Application ("NDA") for each product has
been filed with the United States Food and Drug Administration ("FDA"). In April
2002, the FDA approved the use of synthetic porcine secretin ("SecreFlo(TM)") to
aid in the diagnosis of pancreatic function and the diagnosis of gastrinoma, a
form of cancer. In December of 2001, the FDA issued an "approvable letter" for a
synthetic form of human secretin which contained questions concerning the
manufacture and quality control of the product.
Under terms of the licensing agreement, Repligen paid $1,000,000 upon
execution of the agreement and the Company will be required to pay future
royalties, milestones in cash and to issue common stock. This $1,000,000 payment
is included in research and development expense in the accompanying statement of
operations for the year ended March 31, 2000.
F-15
7. Accrued Expenses
Accrued expenses consist of the following:
Years ended March 31,
2002 2001
---------------------------
Research & development costs $ 771,465 $321,850
Payroll & payroll related costs 337,786 255,811
Professional and consulting costs 78,803 71,795
Other accrued expenses 70,750 77,454
---------- --------
$1,258,804 $726,910
========== ========
8. Subsequent Events
In April 2002 the United States Food and Drug Administration granted
approval to market SecreFlo(TM) (synthetic porcine secretin), the first
synthetic version of the hormone secretin. SecreFlo(TM) has been approved for
stimulation of pancreatic secretions. Under terms of its licensing agreement,
Repligen paid a milestone payment of $1,250,000 in cash and is required to issue
approximately 696,000 shares of unregistered common stock to ChiRhoClin, Inc. in
October 2002. The Company expects to record the fair value of these shares,
$2,576,025, and the cash of $1,250,000, as a long-term intangible asset. This
amount will be amortized to cost of product revenue over the remaining term of
the license. In addition, the Company will be required to pay future royalties
related to product sales in cash.
9. 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 the court order the
Regents 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
Eastern 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.
10. Selected Quarterly Financial Data (Unaudited)
The following table contains Statement of Operations information for each
quarter of fiscal 2002 and 2001. The Company believes that the following
information reflects all normal
F-16
recurring adjustments necessary for a fair presentation of the information for
the period presented. The operating results for any quarter are not necessarily
indicative of results for any future period.
Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1
FY02 FY02 FY02 FY02 FY01 FY01 FY01 FY01
---- ---- ---- ---- ---- ---- ---- ----
Revenue:
Product $ 1,522 $ 1,180 $ 887 $ 713 $ 588 $ 615 $ 324 $ 556
Research and development -- -- -- -- 12 3 127 30
-------- -------- -------- -------- -------- -------- -------- --------
Total revenue 1,522 1,180 887 713 600 618 451 586
-------- -------- -------- -------- -------- -------- -------- --------
Costs and expenses:
Cost of product sold 496 585 555 357 448 393 229 330
Research and development 1,583 1,021 1,330 1,426 1,580 1,781 1,343 1,083
Selling, general and administrative 578 650 681 617 536 566 643 656
-------- -------- -------- -------- -------- -------- -------- --------
Total costs and expenses 2,657 2,256 2,566 2,400 2,564 2,740 2,215 2,069
-------- -------- -------- -------- -------- -------- -------- --------
Loss from operations (1,135) (1,076) (1,679) (1,687) (1,964) (2,122) (1,764) (1,483)
-------- -------- -------- -------- -------- -------- -------- --------
Investment income 212 259 302 344 450 539 552 513
-------- -------- -------- -------- -------- -------- -------- --------
Net loss $ (923) $ (817) $ (1,377) $ (1,343) $ (1,514) $ (1,583) $ (1,212) $ (970)
======== ======== ======== ======== ======== ======== ======== ========
Net loss per common share $ (0.03) $ (0.03) $ (0.05) $ (0.05) $ (0.06) $ (0.06) $ (0.05) $ (0.04)
Weighted average common
shares outstanding 26,643 26,642 26,639 26,633 26,599 26,576 26,560 26,456
======== ======== ======== ======== ======== ======== ======== ========
11. Valuation and Qualifying Accounts
Balance at Beginning Balance at End of
of Period Additions Deletions Period
--------- --------- --------- ------
Allowance for Doubtful Accounts:
2000 $25,000 -- -- $25,000
2001 $25,000 -- -- $25,000
2002 $25,000 -- -- $25,000
F-17