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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, 2000
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 ____ 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 June 15,
2000 was approximately $139,378,313.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of June 15, 2000: 26,548,250.
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,
2000. Portions of such Proxy Statement are incorporated by reference in
Part III of this Form 10-K.
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ITEM 1: BUSINESS
Any statements which are not historical facts contained in this Annual
Report on Form 10-K, including without limitation projections or statements
concerning use and success of technology, progress of programs or clinical
trials, completion, timing and benefits of development programs, liquidity,
suitability of products for specific applications, product performance,
advantages or significance of technology, benefits and results of acquisitions,
collaborations and strategic and other alliances, and improvements to operating
and other results, are forward-looking statements that involve risks and
uncertainties, including but not limited to those relating to product demand,
pricing, market acceptance, the effect of economic conditions, intellectual
property rights and litigation, the results of governmental proceedings,
competitive products, risks in timing and success of clinical trials and product
development, the results of financing efforts, the ability to exploit
technologies, the ability to complete transactions, and other 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. Our actual results may differ significantly from the results
discussed in the forward-looking statements.
THE COMPANY
Repligen Corporation ("Repligen") develops new drugs based on naturally
occurring peptides and proteins for autism, organ transplantation and immune
system diseases. Our lead therapeutic products are secretin for autism and
CTLA4-Ig for organ transplantation and autoimmune diseases. We manufacture and
market products based on Protein A for the purification of antibodies, and we
own commercial rights to two products based on synthetic forms of secretin for
the diagnosis of pancreatic function. Repligen was incorporated in March 1981,
under the laws of the State of Delaware. Our principal executive officers 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 poor communication,
impaired social interaction and repetitive behavior. Many autistic individuals
also have irregular sleep patterns and gastrointestinal dysfunction. Secretin is
a hormone produced in the small intestine which regulates the function of the
pancreas as part of the process of digestion. A form of secretin derived from
pigs is approved by the United States Food and Drug Administration ("FDA") for
use in diagnosing problems with pancreatic function. Anecdotal reports indicate
that secretin may have beneficial effects in some autistic children, including
improvements in sleep, digestive function, communicative and social behavior.
Following media reports of the potential benefits of secretin, more than 2,000
autistic children have been treated with the pig-derived hormone. In addition,
several published reports indicate that some autistic children who have
gastrointestinal dysfunction demonstrate improvements in these symptoms after
treatment with secretin.
We are conducting an FDA-approved clinical trial on a human, synthetic form
of secretin in order to evaluate its potential benefits on the gastrointestinal,
social and communicative symptoms of autism. This clinical trial is a
double-blind, placebo-controlled study which will enroll up to 140 autistic
children aged 3 to 6 at multiple sites in the United States. After extensive
documentation of their autistic and gastrointestinal symptoms, each patient will
receive three treatments and a thorough follow-up evaluation over a 10-week
period. Patients will be assessed with multiple tools including video taping of
structured play sessions, clinical and parent evaluations using accepted tools
and a daily diary of symptoms. A secondary objective of our clinical trial is to
assess changes in the patients' gastrointestinal symptoms following treatment.
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We have also initiated a research effort to better understand the biology of
secretin and its mechanism of action in autistic patients. Analysis of patient
samples to date has demonstrated physiological changes in some children treated
with secretin. Similar analyses will be conducted on patients enrolled in the
clinical trial which will be correlated with changes in autism symptomatology
and gastrointestinal function.
According to the American Society for Autism there are approximately 500,000
individuals affected by autism in the United States. There are currently no FDA
approved drugs for the treatment of autism and no therapy which has been
reported to improve the social or communicative deficits of autism.
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. Additional patent
applications are currently being prosecuted in the United States, Europe and
Japan.
CTLA4-IG FOR ORGAN TRANSPLANTATION
We are also developing a product named "CTLA4-Ig," based on a natural
regulator of the immune system. CTLA4-Ig has been shown in animal models to
selectively block unwanted immune responses in organ transplantation and several
autoimmune diseases. Initial clinical testing of CTLA4-Ig was carried out in
patients receiving a bone marrow transplant, which is a potential cure for
several diseases of the immune system including leukemia, myeloma, lymphoma and
sickle cell anemia.
Despite the clinical success of bone marrow transplants, a significant
number of patients experience a severe and potentially life-threatening
complication--graft versus host disease (GVHD) in which the newly transplanted
immune system attacks the tissues of the recipient. To minimize this
complication, most bone marrow transplants require a search for a genetically
"matched" donor. This only partially eliminates graft versus host disease, and
also can delay treatment for months and cost $25,000 or more.
In June 1999, the results of a Phase 1 clinical trial of CTLA4-Ig in bone
marrow transplantation were published in the NEW ENGLAND JOURNAL OF MEDICINE.
The trial involved eleven patients who received bone marrow from family members
who were only partially genetically matched with the patient. The results
demonstrated that treatment of bone marrow from a genetically "mismatched"
family member with CTLA4-Ig prior to transplantation substantially reduced the
incidence of GVHD. We intend to further evaluate CTLA4-Ig in bone marrow
transplantation and expand its clinical evaluation to selected auto-immune
disease patients.
We believe that the University of Michigan and Repligen have rights to
certain U.S. patents on CTLA4 which have been issued to Bristol-Myers Squibb
Company. We have filed our own patents related to compositions of matter and
methods of use of CTLA4-Ig and licensed a patent application claiming the use of
CTLA4-Ig in immune diseases. (For more information on our intellectual property
rights to CTLA4-Ig, please see "Patents, Licenses and Proprietary Rights" and
"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 been chemically attached
(immobilized). The immobilized Protein A binds the antibody product while
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other impurities are washed away. The antibody is then recovered from the
support in a substantially purified form.
We manufacture and market recombinant Protein A (rProtein A-TM-). Our
primary customers incorporate our product into their proprietary antibody
purification systems which they sell directly to the biopharmaceutical industry.
We also manufacture an immobilized rProtein A-TM- product which is marketed by
Amersham Pharmacia Biotech. Substantially all of our product sales for the last
three years have been sales of rProtein A-TM-.
In the past three years, the sales of therapeutic antibody products have
increased from $300 million in 1997 to $1.2 billion in 1999. This growth is
based on new therapeutic antibody products including
Rituxin-Registered Trademark- for lymphoma, Herceptin-TM- for breast cancer,
Synagis-TM- for RSV infection, Remicade-TM- for Crohn's disease and Enbrel-TM-
for arthritis. There are more than 60 additional monoclonal antibodies in
various stages of clinical testing which may lead to additional growth of the
antibody market and in the demand for rProtein A-TM-.
We own a patent in the U.S. covering the manufacture of recombinant Protein
A which expires in 2009. Similar patents have been issued to us in certain
European countries and Japan which expire in 2002.
SECRETIN DIAGNOSTIC PRODUCTS
In October 1999, we acquired the 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 for each product has been filed with the FDA. In March 2000, the FDA
issued an "approvable letter" for the use of synthetic porcine secretin in the
diagnosis of pancreatic function. Final approval to market this product will be
based on a satisfactory response to questions raised by the FDA.
We intend to market these diagnostic products directly to
gastroenterologists in the U.S. The FDA has granted both products Orphan Drug
Status which means that they will each have a seven year period of exclusivity
following final approval of the NDA.
REPLIGEN'S BUSINESS STRATEGY
Our primary objective is to develop drugs based on naturally-occurring
proteins and peptides. By harnessing the natural actions of these compounds, it
may be possible to modify a disease process in a specific way and with a minimum
of toxicity. We intend to maintain the rights to our lead product candidates,
secretin and CTLA4-Ig, 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 control our operating losses by out-sourcing certain aspects of
clinical product development and manufacturing. In addition, we seek to offset
some of the expenses associated with product development with profits from the
sales of Protein A products and, pending FDA approval, secretin diagnostic
products. We intend to seek additional current product opportunities to increase
our current product revenues as we increase expenditures on clinical development
of our therapeutic products.
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SALES AND MARKETING
We sell our rProtein A-TM- products primarily through value-added resellers
including Amersham Pharmacia Biotech, AB ("APBiotech"), PE Biosystems, Inc. and
Millipore Corporation, and through distributors in certain foreign markets.
Pending approval by the FDA, we intend to market our secretin diagnostic
products 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 2000, customers that accounted for more than 10% of our total
revenues were APBiotech, PE Biosystems Inc. and Millipore Corporation.
EMPLOYEES
As of June 15, 2000, we had 27 employees. Of the 27 employees, 18 were
engaged in research, development and manufacturing and 9 in administrative and
marketing functions. Doctorates or other advanced degrees are held by 7 of our
employees. Each of our employees has signed a confidentiality agreement. Our
employees are not covered by a collective bargaining agreement.
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 16 U.S. patents and corresponding foreign equivalents. In addition, we have
14 U.S. patent applications pending. 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.
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 an U.S. patent covering
the use of secretin in the treatment of autism or the symptoms of autism which
will expire in 2018. Additional related patent applications are currently being
prosecuted in the U.S. and key foreign markets.
As part of our program to develop drugs directed to the immune cell
receptors known as CD28, B7 and CTLA4 (costimulatory factors), we licensed the
rights to certain patent applications from the University of Michigan in 1992.
In addition, we independently filed additional patent applications based on
internal and collaborative research findings. 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 also received an unrestricted right to sub-license our
CTLA4-Ig rights. In May 2000, we purchased the rights to a patent application
claiming the use of CTLA4-Ig in the treatment of diseases of the immune system
from Tolerance Therapeutics, LLC.
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We own U.S. and European patents covering recombinant Protein A which expire
in 2009 and 2002 respectively. We also own rights to modified forms of Protein A
which were licensed to APBiotech in December 1998 as part of a ten year
agreement covering the supply of recombinant Protein A to APBiotech.
We also rely upon trade secret protection for our confidential and
proprietary information. Our policy is to require each of our employees,
consultants and significant scientific collaborators to execute confidentiality
agreements upon the commencement of an employment or consulting 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.
COMPETITION
Our Protein A products compete on the basis of quality, performance, cost
effectiveness, and application suitability with numerous established
technologies for protein purification. 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 manufacture our rProtein A-TM- products from a recombinant strain of E.
COLI. Certain fermentation and recovery operations are carried out by third
parties under supply agreements. The purification, immobilization, packaging and
quality control testing of rProtein A-TM- are conducted at our facilities in
Needham, Massachusetts. (For more information about our manufacturing
facilities, please see "Description of Property.") We maintain an active quality
assurance effort to support the regulatory requirements of our customers. Our
secretin diagnostic product is purchased from ChiRhoClin, Inc. who manufactures
it through third party contractors.
GOVERNMENT REGULATION
The development of drug candidates such as secretin or CTLA4-Ig by us or our
collaborative partners 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
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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-reviewed protocol. Human clinical trials are typically
conducted in three sequential phases:
- Phase I 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.
- Phase II 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 determine dose tolerance and the
optimal dose range, and to gather additional information relating to
safety and potential adverse effects.
- Once an investigational drug is found to have some efficacy and an
acceptable safety profile in the targeted patient population, Phase III
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 III 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 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 scientifically 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
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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:
- the timing of receipt of marketing approvals and the countries in which
such approvals are obtained;
- the safety, efficacy and ease of administration of our products;
- the success of physician education programs; and
- the availability of government and third party payor reimbursement of our
products.
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 bioprocessing 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
bioprocessing 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 bioprocessing 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
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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.
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.
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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:
- obtain and maintain patent protection for our products and manufacturing
processes;
- preserve our trade secrets; and
- 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:
- scope of the patent claims;
- validity and enforceability of the claims obtained in such patents; and
- 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 declared by the U.S. Patent and Trademark Office to
determine priority of invention, which would result in substantial costs to us.
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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:
- We may initiate litigation or other proceedings against third parties to
enforce our patent rights.
- 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.
- 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.
- 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.
If in the future we determine to perform sales, marketing and distribution
functions ourselves, we would face a number of additional risks, including:
- we may not be able to attract and build a significant marketing staff or
sales force;
- the cost of establishing a marketing staff or sales force may not be
justifiable in light of any product revenues; and
- our direct sales and marketing efforts may not be successful.
11
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. 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. However,
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:
- we may not be able to meet commercial demands for our products;
- we may not be able to initiate or continue clinical trials of products
that are under development; and
- we may be delayed in submitting applications for regulatory approvals for
our products.
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.
12
ITEM 2. DESCRIPTION OF PROPERTY
Our executive office, research and manufacturing facilities are located at
117 Fourth Avenue in Needham, Massachusetts. We occupy approximately 15,000
square feet under a six-year sublease which expires on April 30, 2002.
In April 2000, we terminated a lease for 10,500 square feet of laboratory
space that had been subleased, located at 83 Rogers Street, Cambridge,
Massachusetts.
ITEM 3. LEGAL PROCEEDINGS
In July 1998, we filed a complaint against Bristol-Myers Squibb Company
("BMS") at the United States District Court for the District of Massachusetts in
Boston, Massachusetts seeking correction of inventorship of certain United
States patents which claim compositions and methods of use for CTLA4-Ig as well
as unspecified monetary damages. A correction of inventorship would result in
the University of Michigan being designated as a co-assignee on any corrected
BMS patent. Repligen would then have rights to such technology pursuant to our
1992 License Agreement with the University of Michigan. In July 1999, the court
dismissed the complaint without prejudice citing a lack of legal standing of
Repligen to bring such a complaint. We believe that the court's finding on
standing was in error. The court did not rule on the validity of Repligen's
inventorship claim. Repligen continues to believe that the University of
Michigan is a rightful co-assignee of the aforesaid BMS patents and we intend to
continue to pursue the correction of inventorship. Repligen's failure to obtain
shared ownership rights in the patents may restrict Repligen's ability to
commercialize CTLA4-Ig.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of our security holders of the Company
through solicitation of proxies or otherwise, during the last quarter of the
fiscal year ended March 31, 2000.
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 closing prices for the Common Stock as reported by
Nasdaq:
HIGH LOW
-------- --------
FISCAL YEAR 2000
Fourth Quarter.............................................. $16.625 $3.000
Third Quarter............................................... 4.750 2.875
Second Quarter.............................................. 3.125 2.375
First Quarter............................................... 3.313 2.625
FISCAL YEAR 1999
Fourth Quarter.............................................. $ 3.063 $1.250
Third Quarter............................................... 1.781 1.000
Second Quarter.............................................. 1.656 1.219
First Quarter............................................... 3.000 1.188
13
STOCKHOLDERS AND DIVIDENDS
As of June 15, 2000 there were approximately 1,023 stockholders of record of
our Common Stock, excluding stockholders whose shares were held in nominee name.
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.
RECENT SALES OF SECURITIES
On March 9, 2000, we sold an aggregate of 2,598,927 shares of our common
stock to investors at $8.625 per share for an aggregate consideration of
$22.4 million in a private placement pursuant to a stock purchase agreement by
and among the investors and us. Based on the representations of the investing
parties and our reasonable belief that all such parties were "accredited" (as
such term is defined in Rule 501 of the Securities Act of 1933) and that the
parties were acquiring our shares of Common Stock for investment and not with a
view to the distribution thereof, we consummated a private placement of the
2,598,927 shares of our Common Stock pursuant to Regulation D, Rule 506 of the
Securities Act of 1933. Paramount Capital, Inc. ("Paramount") acted as the
placement agent for the transaction and we paid Paramount approximately
$1.57 million for its services plus Paramount's related transactional expenses,
and issued to Paramount warrants to purchase up to 129,946 shares of our common
stock at $9.49 per share. We engaged Paramount to act as our placement agent for
that transaction pursuant to a finder's agreement and we terminated the
financial advisory agreement (described in the paragraph immediately below) with
Paramount for an additional payment by us to Paramount of $200,000 in cash. We
filed a registration statement with the Securities and Exchange Commission on
Form S-3 on May 5, 2000 for the resale of the 2,598,927 shares of our common
stock sold to the investors in the private placement transaction. The Securities
and Exchange Commission declared such resale registration statement effective on
May 10, 2000.
Pursuant to a Financial Advisory Agreement dated as of July 15, 1999 by and
between us and Paramount, we engaged Paramount as a non-exclusive financial
adviser for an initial period of twelve months from the date thereof. In
exchange and as consideration for Paramount's financial services, we paid to
Paramount $100,000 in cash and issued to Paramount (and its designees) warrants
to purchase an aggregate of 100,000 shares of our common stock (the "Warrants").
Each Warrant is exercisable at $2.75 per share at any time prior to July 15,
2004. We also agreed to pay Paramount additional fees to be agreed upon between
the parties upon the consummation of certain equity financing transactions as
set forth in the Financial Advisory Agreement. Based on certain representations
by Paramount, we had a reasonable belief that Paramount (and its designees) were
acquiring the Warrants (and the shares issuable upon exercise thereof) for
investment and not for distribution and that of the ten designees receiving the
Warrants, at least five were "accredited" (as such term is defined under
Rule 501 of the Securities Act of 1933). Pursuant thereto, we issued the
Warrants to such designees in a private placement transaction exempt from the
registration requirements of the Securities Act of 1933 pursuant to
Regulation D, Rule 506 of the Securities Act of 1933. We registered these shares
underlying these warrants and the Securities and Exchange Commission declared
such resale registration statement effective on March 10, 2000.
Pursuant to two stock purchase agreements dated as of April 30, 1999 and
May 14, 1999, respectively, by and among us and the respective parties thereto,
we issued to the parties thereto an aggregate of 3,600,000 shares of our common
stock for an aggregate purchase price of $9 million. Based on the
representations of the investing parties and our reasonable belief that all such
parties were "accredited" (as such term is defined in Rule 501 of the Securities
Act of 1933) and that the parties were acquiring the shares of our common stock
for investment and not with a view to the distribution thereof, we consummated a
private placement of the 3,600,000 shares of our common
14
stock pursuant to Regulation D, Rule 506 of the Securities Act of 1933. We
closed the private placement transaction on June 23, 1999. There were no
underwriters or placement agents involved in such private placement transaction.
We filed a registration statement with the Securities and Exchange Commission on
Form S-3 on June 16, 1999 for the resale of the 3,600,000 shares of our common
stock sold to the parties of the private placement transaction. The Securities
and Exchange Commission declared such resale registration statement effective on
June 23, 1999.
Unregistered warrants were exercised during the period for a total number of
222,634 shares of our common stock, of which we issued 83,184 shares pursuant to
the "net exercise provision" allowed in these warrants and we received no
proceeds for these issuances. We received proceeds of $329,250 for the remaining
139,500 shares from the exercise of the warrants of our common stock. We have on
file with the SEC registration statements to the resale of the remaining 139,500
shares that we issued upon exercise of the warrants during the period. Based on
the representations of the investing parties and our reasonable belief that all
such parties were "accredited" (as such term is defined in Rule 501 of the
Securities Act of 1933) and that the parties were acquiring our shares of Common
Stock for investment and not with a view to the distribution thereof, we issued
these shares of our Common Stock upon exercise of the warrants pursuant to
either Regulation D, Rule 506, or Section 4 (2) of the Securities Act of 1933.
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, 1996, 1997, 1998, 1999 and 2000
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, 1996, 1997, 1998, and 1999.
YEARS ENDED MARCH 31,
----------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
OPERATING STATEMENT DATA:
Revenues:................................................. $ 2,041 $ 1,010 $1,114 $ 1,554 $ 1,874
Product................................................. 863 1,268 917 1,180 7,949
Research and development................................ 547 212 225 269 738
Investment.............................................. 74 100 129 799 298
------- ------- ------ ------- --------
Other................................................... 3,525 2,590 2,385 3,802 10,859
------- ------- ------ ------- --------
Costs and expenses:
Research and development................................ 3,754 2,882 1,420 1,378 11,980
Selling, general & administrative....................... 2,480 1,563 1,281 1,940 4,925
Cost of product sales................................... 1,107 689 480 537 1,516
Charge for acquired research & development.............. -- -- -- 549 334
Restructuring (credit) charge........................... -- -- -- (111) 3,567
Interest................................................ -- -- -- -- 58
------- ------- ------ ------- --------
Total costs and expenses.............................. 7,341 5,134 3,181 4,293 22,380
------- ------- ------ ------- --------
Net loss.................................................. $(3,816) $(2,544) $ (796) $ (491) $(11,521)
======= ======= ====== ======= ========
Net loss per common share................................. $ (0.18) $ (0.14) $(0.05) $ (0.03) $ (0.75)
======= ======= ====== ======= ========
Weighted average common shares outstanding................ 21,538 18,018 16,502 15,678 15,370
======= ======= ====== ======= ========
15
AS OF MARCH 31,
---------------------------------------------------------
2000 1999 1998 1997 1996
--------- --------- --------- --------- ---------
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and investments........................... $ 34,033 $ 3,251 $ 4,726 $ 3,538 $ 7,222
Working capital................................ 34,473 3,860 5,377 3,990 4,154
Total assets................................... 36,287 5,224 6,513 5,621 9,231
Accumulated deficit............................ (130,680) (126,864) (124,320) (123,533) (123,042)
Stockholders' equity........................... 35,090 4,592 6,124 4,919 4,809
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.
RESULTS OF OPERATIONS
FISCAL YEAR ENDED MARCH 31, 2000 COMPARED WITH FISCAL YEAR ENDED MARCH 31, 1999
REVENUES. Total revenues for fiscal 2000 were $3,525,000 as compared to
$2,590,000 in fiscal 1999, an increase of $935,000 or 36%. This increase was
largely attributable to increased product sales of recombinant Protein A and an
increase in investment income due to higher average cash and cash equivalent and
marketable securities balances.
Product revenues for fiscal 2000 were $2,041,000 compared to $1,010,000 in
fiscal 1999, an increase of 102%. The increase in the product sales volume is
attributed the initiation of product shipments to APBiotech under a Supply
Agreement executed in May 1999 and strong demand from monoclonal antibody
producers for Protein A products. Sales of Protein A products accounted for 58%
of our revenues in fiscal 2000.
Research and development revenues for fiscal 2000 include revenues relating
to drug discovery collaboration arrangements with pharmaceutical partners,
licensing revenue and revenue generated from Phase I and Phase II government
grants from the National Institutes of Health and the National Science
Foundation. The decrease in research and development revenues of $405,000 or 32%
from fiscal 1999 levels is primarily attributable to the discontinuance of
research collaborations and grant programs as the Company focuses its staffing
on its own development programs.
Investment income for fiscal 2000 was $547,000, an increase of $335,000 or
58% from $212,000 for fiscal 1999. The increase in investment income is due to
higher average cash, cash equivalent and marketable securities balances and
higher interest rates.
Other revenues for the fiscal 2000 period decreased by approximately $29,000
from the comparable fiscal 1999 period primarily due to gains on sales of unused
equipment during fiscal year 1999.
EXPENSES. Total expenses for fiscal 2000 were $7,341,000, compared to
$5,134,000 in fiscal 1999, an increase of $2,207,000 or 43%. Increased expenses
in fiscal 2000 were attributable to our increased
16
product development activities and a licensing fee of $1,000,000 paid to
ChiRhoClin, Inc. in connection with the licensing of two secretin diagnostic
products.
Research and development expenses for fiscal 2000 were $3,754,000 compared
to $2,882,000 in fiscal 1999, an increase of $872,000, or 30%. Research and
development costs for fiscal 2000 include the $1,000,000 licensing payment to
ChiRhoClin. Fiscal 1999 research and development costs include $1,035,000 in
costs associated with the acquisition of rights to certain patent applications
covering the use of secretin in the treatment of autism. In addition, the
increase in research and development expenses in 2000 reflects increased costs
associated with our drug development programs for secretin and CTLA4-Ig. We
anticipate that research and development expenses will continue to increase
significantly as we increase our investment in its drug development programs
during fiscal 2001.
Selling, general and administrative expenses for fiscal 2000 were $2,480,000
compared to $1,563,000 in fiscal 1999, an increase of $917,000 or 59%. Included
in selling, general and administrative expenses for fiscal 2000 were one time
charges associated with a financial advisory agreement with Paramount Capital of
$493,000, including a non-cash charge of $188,000 associated with the issuance
of warrants to purchase common stock.
Cost of product sales for fiscal 2000 totaled $1,107,000, compared to
$689,000 in fiscal 1999, which represents an increase of $418,000 or 61% over
the prior fiscal year. Cost of product sales in fiscal 2000 were 54% of product
revenues versus 68% of product revenues for fiscal 1999. The decrease in cost of
revenues as a percentage of sales is due primarily to increased Protein A
product sales offset by expenses associated with the start-up of the manufacture
of Protein A for Amersham Pharmacia Biotech and the write off of certain
obsolete raw materials and work in process resulting from the introduction of a
new Protein A product that took place during fiscal 1999.
FISCAL YEAR ENDED MARCH 31, 1999 COMPARED WITH FISCAL YEAR ENDED MARCH 31, 1998
REVENUES. Total revenues for fiscal 1999 were $2,590,000 as compared to
$2,385,000 in fiscal 1998, an increase of $205,000. Research and development
revenues for fiscal 1999 totaled $1,268,000, including revenues relating to drug
discovery collaboration arrangements with pharmaceutical partners, licensing
revenue, and revenue generated from a Phase II Small Business Innovation
Research grant from the National Institutes of Health. The increase in research
and development revenues of $351,000 or 38% from fiscal 1998 levels is primarily
attributable to licensing payments relating to intellectual property rights
licensed to Neocrin, Co. During fiscal 1999 this licensing payment accounted for
more than 10% of total revenues. Research and development revenue accounted for
49% of our total revenues.
Product revenues for fiscal 1999 were $1,010,000 compared to $1,114,000 in
fiscal 1998. The decrease in the product sales volume is attributed to a
decrease in sales of reagent products partially offset by the increase in sales
of Protein A. Sales of Protein A products accounted for 39% of our revenues in
fiscal 1999.
Investment income for fiscal 1999 was $212,000, a decrease of $13,000 from
$225,000 for fiscal 1998. This decrease in investment income was due primarily
to the sale of non-investment securities held by Repligen during fiscal 1998
offset by higher average funds available for investment during fiscal 1999.
Other revenues for the fiscal 1999 period decreased by approximately $29,000
from the comparable fiscal 1998 period due primarily to the one-time sale of
equipment and furnishings.
EXPENSES. During fiscal 1999, total expenses were $5,134,000, significantly
higher than fiscal 1998 expenses of $3,181,000. Research and development
expenses for fiscal 1999, totaled $2,882,000, an increase of $1,462,000, or
102%, from fiscal 1998 levels. Fiscal 1999 research and development costs
include the $1,035,000 charge associated with the acquisition of rights to
certain patent applications
17
covering the use of secretin in the treatment of autism and expenses associated
with the expansion of our clinical development activities.
Cost of product sales for fiscal 1999 totaled $689,000, an increase of
$209,000 from the prior fiscal year. Cost of product sales in fiscal 1999 were
68% of product revenues versus 43% of product revenues for fiscal 1998. This
increase is largely attributable to a write off of certain obsolete raw
materials and work in process resulting from the introduction of a new Protein A
product in fiscal 1999.
Selling, general and administrative expenses for fiscal 1999 were
$1,563,000, an increase from fiscal 1998 of $282,000. This increase is partly
attributable to a noncash charge associated with the issuance of warrants for
legal services related to Repligen's complaint filed against Bristol-Myers
Squibb.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations primarily through placements of equity
securities and revenues derived from product sales, collaborative research
agreements, government grants, and payments on licensing and royalty agreements.
Total cash, cash equivalents and marketable securities increased to $34,033,000
at March 31, 2000 from $3,251,000 at March 31, 1999. The increase of $30,782,000
reflects proceeds from financing activities of $29,835,000 resulting from the
sale of our common stock to certain investors through two private placements
during fiscal 2000 and warrant and stock option exercise proceeds of
approximately $4,480,000. Working capital increased to $34,473,000 at March 31,
2000 from $3,860,000 at March 31, 1999.
Repligen's operating activities in 2000 used cash of approximately
$3,134,500, consisting of a net loss from operations incurred during the year
ended March 31, 2000 of approximately $3,816,000, an increase in accounts
receivable of $418,000, offset by noncash charges for depreciation and
amortization of $324,000 and warrant issuance of $188,000 and an increase in
accounts payable and accrued expenses of $157,000 and $458,000 respectively.
During fiscal 2000, we purchased $217,000 of capital equipment, consisting of
laboratory and office equipment.
We expect to incur significantly higher costs in fiscal 2001 as a result of
expanded research and development costs associated with the expansion of
activities associated with clinical trials of our proprietary drug candidates.
In addition, under terms of our secretin diagnostic agreement with ChiRhoClin,
if the FDA approves a NDA, we will be required to pay ChiRhoClin future
milestones in cash and our common stock as well as royalties on sales. 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 its 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 market place.
NEW ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities. SFAS No. 133, as amended by SFAS
No. 137, is effective for all fiscal quarters of fiscal years beginning after
June 15, 2000. This new standard is not anticipated to have a significant impact
on our financial statements based on its current structure and operations.
18
Staff Accounting Bulletin (SAB) No. 101, REVENUE RECOGNITION, was issued in
December 1999. SAB 101 will require 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 Company is required to adopt this new accounting principle through
a cumulative charge to the statement of operations, in accordance with
Accounting Principles Board Opinion (APB) No. 20, ACCOUNTING CHANGES, no later
than the first quarter of fiscal 2001. We are currently evaluating the effects
on SAB No. 101 on our financial statements and based upon current guidance we do
not expect it to have a significant impact on our financial statements.
YEAR 2000
To date, we have not experienced any problems with our computer systems
relating to the Year 2000 issue. We are also unaware of any material Year 2000
problems with our customers or vendors. Accordingly, we do not anticipate
incurring material expenses or experiencing any material operational disruptions
as a result of any Year 2000 problems.
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
Not applicable.
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 "Compliance with Section 16 (a) of
the Securities Exchange Act of 1934" in our definitive proxy statement for our
annual meeting of stockholders to be held on September 14, 2000 which will be
filed with the SEC within 120 days of March 31, 2000 and is incorporated herein
by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item will be set forth under the caption
"Summary of Executive Compensation" and "Compensation of Directors" in our
definitive proxy statement for our annual meeting of stockholders to be held on
September 14, 2000 which will be filed with the SEC within 120 days of
March 31, 2000 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 caption "Stock
Ownership of Principal Stockholders and Management" and "Stock Price Performance
Graph" in our definitive proxy statement for our annual meeting of stockholders
to be held on September 14, 2000 which will be filed with the SEC within
120 days of March 31, 2000 and is incorporated herein by reference.
19
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 14,
2000 which will be filed with the SEC within 120 days of March 31, 2000 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, 2000 and 1999... F-3
Consolidated Statements of Operations for the Years Ended
March 31, 2000, 1999, and 1998............................ F-4
Consolidated Statements of Stockholders' Equity for the
Years Ended March 31, 2000, 1999, and 1998................ F-5
Consolidated Statements of Cash Flows for the Years Ended
March 31, 2000, 1999, and 1998............................ F-6
Notes to Consolidated Financial Statements.................. F-7
(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 March 21, 2000, we filed a current report on Form 8-K reporting the
completion of a private placement transaction for aggregate consideration of
$22.4 million.
20
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 (filed as Exhibit 3.4 to Repligen Corporation's Form
S-1 Registration Statement No. 33-3959 and incorporated
herein by reference).
4.1 Specimen Stock Certificate (filed as Exhibit 4.2 to Repligen
Corporation's Form S-1 Registration Statement No. 33-3959
and incorporated herein by reference).
4.2 Stock Purchase Agreement dated as of April 30, 1999, by and
among Repligen Corporation and Wellington Management
Company, LLP, as Investment Advisor to the investors listed
on Schedule I thereto (previously filed as Exhibit 4.1 to
Repligen's report on Form 8-K on May 17, 1999 and
incorporated herein by reference).
4.3 Stock Purchase Agreement dated as of May 14, 1999, by and
among Repligen Corporation and the investors listed on the
Schedule I thereto (previously filed as Exhibit 4.2 to
Repligen's report on Form 8-K on May 17, 1999 and
incorporated herein by reference).
4.4 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).
4.5 Form of Amended, Modified and Restated Limited Partner
Warrant (filed as Exhibit 4.2 to Repligen Corporation's Form
S-3 Registration Statement No. 333-95641 and incorporated
herein by reference).
4.6 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).
4.7 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).
4.8 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).
10.1* Consulting Agreement, dated October 1, 1981, between Dr.
Paul Schimmel and Repligen Corporation (filed as Exhibit
10.14 to Repligen Corporation's Form S-1 Registration
Statement No. 33-3959 and incorporated herein by reference).
10.2 Consulting Agreement, dated November 1, 1981, between Dr.
Alexander Rich and Repligen Corporation (filed as Exhibit
10.15 to Repligen Corporation's Form S-1 Registration
Statement No. 33-3959 and incorporated herein by reference).
10.3* The Amended 1992 Repligen Corporation Stock Option Plan
(filed as Exhibit 4.1 to Repligen Corporation's Annual
Report on Form 10-K for the year ended March 31, 1997 and
incorporated herein by reference).
10.4* Employment Agreement, dated March 14, 1996, between Repligen
Corporation and Walter C. Herlihy (filed as Exhibit 10.43 to
Repligen Corporation's Annual Report on Form 10-K for the
year ended March 31, 1996 and incorporated herein by
reference).
10.5* Employment Agreement, dated March 14, 1996, between Repligen
Corporation and James R. Rusche (filed as Exhibit 10.44 to
Repligen Corporation's Annual Report on Form 10-K for the
year ended March 31, 1996 and incorporated herein by
reference).
21
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- --------------------- --------------------
10.6* Employment Agreement, dated March 14, 1996, between Repligen
Corporation and Daniel P. Witt (filed as Exhibit 10.45 to
Repligen Corporation's Annual Report on Form 10-K for the
year ended March 31, 1996 and incorporated herein by
reference).
10.7 Sublease Agreement dated as of May 1, 1996 between T Cell
Sciences, Inc. and Repligen Corporation (filed as Exhibit
10.46 to Repligen Corporation's Annual Report on Form 10-K
for the year ended March 31, 1996 and incorporated herein by
reference).
#10.8 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).
#10.9 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).
#10.10 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 Financial Advisory Agreement with Paramount Capital, Inc.
and Repligen Corporation (filed as Exhibit 10.1 to Repligen
Corporation's Form 10-Q for the quarter ended September 30,
1999 and incorporated herein by reference).
10.12 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).
10.13 Letter Agreement terminating July 1, 1999 Financial Advisory
Agreement, Agreement to pay Termination Fee and Mutual
Release by and between Repligen Corporation and Paramount
Capital, Inc. dated as of March 8, 2000 (filed as Exhibit
10.2 to Repligen Corporation's Registration Statement
No. 333-36280 Form S-3 filed May 4, 2000).
21+ Subsidiaries of the Registrant.
23+ Consent of Arthur Andersen LLP.
27+ Financial Data Schedule.
- ------------------------
# Confidential treatment obtained as to certain portions.
* Management contract or compensatory plan or arrangement
+ Filed herewith.
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 2000 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.
22
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: June 23, 2000
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 June 23, 2000
Alexander Rich, M.D.
/s/ PAUL SCHIMMEL Co-Chairman of the Board of
------------------------------------------- Directors June 23, 2000
Paul Schimmel, Ph.D.
/s/ WALTER C. HERLIHY President, Chief Executive Officer
------------------------------------------- and Director (Principal executive, June 23, 2000
Walter C. Herlihy financial and accounting officer)
/s/ ROBERT J. HENNESSEY Director
------------------------------------------- June 23, 2000
Robert J. Hennessey
/s/ G. WILLIAM MILLER Director
------------------------------------------- June 23, 2000
G. William Miller
23
INDEX TO FINANCIAL STATEMENTS
PAGE
--------
Report of Independent Public Accountants.................... F-2
Balance Sheets as of March 31, 2000 and 1999................ F-3
Statements of Operations for the Years Ended March 31, 2000,
1999 and 1998............................................. F-4
Statement of Stockholders' Equity for the Years Ended
March 31, 2000, 1999 and 1998............................. F-5
Statements of Cash Flows for the Years Ended March 31, 2000,
1999 and 1998............................................. F-6
Notes to Financial Statements............................... F-7
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Repligen Corporation:
We have audited the accompanying balance sheets of Repligen Corporation (a
Delaware corporation) as of March 31, 2000 and 1999 and the related statements
of operations, stockholders' equity and cash flows for each of the three years
in the period ended March 31, 2000. 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, 2000 and 1999 and the results of its operations and its cash flows for
each of the three years in the period ended March 31, 2000, in conformity with
accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
May 25, 2000
F-2
REPLIGEN CORPORATION
BALANCE SHEETS
AS OF MARCH 31,
-----------------------------
ASSETS 2000 1999
------ ------------- -------------
Current assets:
Cash and cash equivalents................................. $ 25,226,546 $ 3,250,751
Marketable securities..................................... 8,806,367 --
Accounts receivable, less reserves of $25,000............. 847,838 429,720
Inventories............................................... 547,448 630,329
Prepaid expenses and other current assets................. 241,654 181,617
------------- -------------
Total current assets.................................... 35,669,853 4,492,417
Property, plant and equipment, at cost:
Equipment................................................. 1,092,831 944,644
Leasehold improvements.................................... 473,288 460,319
Furniture and fixtures.................................... 157,475 101,376
------------- -------------
1,723,595 1,506,339
Less--accumulated depreciation and amortization......... 1,187,343 862,934
------------- -------------
536,252 643,405
Other assets, net........................................... 81,382 88,472
------------- -------------
$ 36,287,487 $ 5,224,294
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 425,565 $ 268,708
Accrued expenses.......................................... 771,520 313,926
Unearned income........................................... -- 49,969
------------- -------------
Total current liabilities............................... 1,197,085 632,603
Commitments (Note 5)
Stockholders' equity:
Preferred stock, $.01 par value -- authorized -- 5,000,000
shares -- issued and outstanding -- none.................. -- --
Common stock, $.01 par value -- authorized -- 40,000,000
shares -- issued and outstanding -- 26,315,979 shares and
18,264,285 shares at March 31, 2000 and 1999,
respectively.............................................. 263,159 182,642
Additional paid-in capital.................................. 165,507,184 131,272,607
Accumulated deficit......................................... (130,679,941) (126,863,558)
------------- -------------
Total stockholders' equity.............................. 35,090,402 4,591,691
------------- -------------
$ 36,287,487 $ 5,224,294
============= =============
The accompanying notes are an integral part of these financial statements.
F-3
REPLIGEN CORPORATION
STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31,
---------------------------------------
2000 1999 1998
----------- ----------- -----------
Revenues:
Product................................................... $ 2,040,828 $ 1,009,655 $ 1,114,452
Research and development.................................. 863,035 1,268,036 916,726
Investment income......................................... 546,733 212,157 224,913
Other..................................................... 73,969 99,711 128,885
----------- ----------- -----------
3,524,565 2,589,559 2,384,976
----------- ----------- -----------
Costs and expenses:
Research and development.................................. 3,753,908 2,882,124 1,419,825
Selling, general and administrative....................... 2,480,398 1,562,750 1,281,090
Cost of product sales..................................... 1,106,642 688,618 480,089
----------- ----------- -----------
7,340,948 5,133,492 3,181,004
----------- ----------- -----------
Net loss.................................................... $(3,816,383) $(2,543,933) $ (796,028)
=========== =========== ===========
Basic and diluted net loss per share........................ $ (0.18) $ (0.14) $ (0.05)
=========== =========== ===========
Basic and diluted weighted average shares outstanding....... 21,537,584 18,017,650 16,501,785
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
F-4
REPLIGEN CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
NUMBER OF TOTAL
COMMON COMMON STOCK ADDITIONAL DEFERRED ACCUMULATED STOCKHOLDERS'
SHARES $.01 PAR VALUE PAID-IN CAPITAL COMPENSATION DEFICIT EQUITY
----------- ---------------- --------------- -------------- ------------- --------------
Balance, March 31,
1997............... 16,008,211 $160,082 $128,318,430 $(26,447) $(123,533,044) $ 4,919,021
Retirement of common
stock issued in
connection with the
acquisition of
Procure, Inc....... (6,426) (65) (9,382) -- 9,447 --
Issuance of common
stock and
warrants........... 2,000,000 20,000 1,955,000 -- -- 1,975,000
Compensation relating
to issuance of
stock options...... -- -- -- 26,447 -- 26,447
Net loss............. -- -- -- -- (796,028) (796,028)
---------- -------- ------------ -------- ------------- -----------
Balance, March 31,
1998............... 18,001,785 180,017 130,264,048 -- (124,319,625) 6,124,440
Issuance of common
stock and
warrants........... 262,500 2,625 1,008,559 -- -- 1,011,184
Net loss............. -- -- -- -- (2,543,933) (2,543,933)
---------- -------- ------------ -------- ------------- -----------
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
Exercise of stock
option............. 64,458 645 147,293 -- -- 147,938
Exercise of
warrants........... 1,788,309 17,883 4,314,367 -- -- 4,332,250
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
========== ======== ============ ======== ============= ===========
The accompanying notes are an integral part of these financial statements.
F-5
REPLIGEN CORPORATION
STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31,
--------------------------------------
2000 1999 1998
----------- ----------- ----------
Cash flows from operating activities:
Net loss.................................................. $(3,816,383) $(2,543,933) $ (796,028)
Adjustments to reconcile net loss to net cash used in
operating activities--
Depreciation and amortization........................... 324,409 268,217 245,607
Issuance of stock options and warrants for services..... 188,265 126,270 26,447
Non cash portion of purchased patent rights charge...... -- 884,914 --
Changes in assets and liabilities
Accounts receivable..................................... (418,118) (216,863) 322,072
Inventories............................................. 82,882 40,488 (218,577)
Prepaid expenses and other current assets............... (60,037) (25,389) 9,493
Accounts payable........................................ 156,857 167,989 (67,550)
Accrued expenses and other.............................. 457,594 59,614 (145,676)
Unearned income......................................... (49,969) 16,637 (99,981)
----------- ----------- ----------
Net cash used in operating activities................. (3,134,500) (1,222,056) (724,193)
----------- ----------- ----------
Cash flows from investing activities:
Purchases of marketable securities...................... (8,806,367) -- --
Sales of marketable securities.......................... -- -- 72,353
Purchases of property, plant and equipment, net......... (217,256) (252,737) (114,021)
Decrease in restricted cash............................. -- -- 50,087
Decrease in other assets................................ 7,090 -- 437
----------- ----------- ----------
Net cash (used in) provided by investing activities... (9,016,533) (252,737) 8,856
----------- ----------- ----------
Cash flows from financing activities:
Exercise of warrants.................................... 4,332,250 -- --
Exercise of stock options............................... 147,938 -- --
Issuance of common stock and warrants................... 29,834,906 -- 1,975,000
----------- ----------- ----------
Net cash provided by financing activities............. 34,126,829 -- 1,975,000
----------- ----------- ----------
Net increase (decrease) in cash and cash equivalents........ 21,975,796 (1,474,793) 1,259,663
Cash and cash equivalents, beginning of year................ 3,250,751 4,725,544 3,465,881
----------- ----------- ----------
Cash and cash equivalents, end of year...................... $25,226,546 $ 3,250,751 $4,725,544
=========== =========== ==========
The accompanying notes are an integral part of these financial statements.
F-6
REPLIGEN CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Repligen Corporation ("Repligen" or the "Company") develops new drugs based
on naturally-occurring peptides and proteins for autism, organ transplantation
and immune system diseases. Lead therapeutic products are secretin for autism
and CTLA4-Ig for organ transplantation and autoimmune diseases. Repligen
manufactures and markets products based on Protein A for the purification of
antibodies, and owns commercial rights to two products based on synthetic forms
of secretin for the diagnosis of pancreatic function. In addition, the Company
has licensed certain intellectual property pertaining to its former programs on
biological products.
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.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The financial statements for the year ended March 31, 1998 include the
accounts of the Company and its wholly owned subsidiaries, ProsCure, Inc. and
Glycan Pharmaceuticals, Inc. All material intercompany accounts and transactions
were eliminated in consolidation. These subsidiaries were dissolved during the
year ended March 31, 1999.
RECLASSIFICATIONS
The Company has reclassified certain prior-year information to conform with
the current year's presentation.
REVENUE RECOGNITION
The Company recognizes revenue related to product sales upon shipment of the
product.
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
revenues as milestones are achieved. Licensing and royalties from the Company's
licensed technologies are recognized as earned. Unearned income represents
amounts received prior to recognition of revenue.
Staff Accounting Bulletin (SAB) No. 101, REVENUE RECOGNITION, was issued by
the S.E.C in December 1999. SAB 101 will require 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 Company is required to adopt this new accounting
F-7
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
principle through a cumulative charge to the statement of operations, in
accordance with Accounting Principles Board Opinion (APB) No. 20, ACCOUNTING
CHANGES, no later than the first quarter of fiscal 2001. Management is currently
evaluating the effects on SAB No. 101 on the Company's financial statements and,
based upon current guidance, does not expect it to have a 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 reported net loss for all
periods presented.
CASH EQUIVALENTS & INVESTMENTS
The Company considers highly liquid investments purchased with original
maturities at the date of acquisition of three months or less to be cash
equivalents.
In addition to cash equivalents, at March 31, 2000, the Company had
investments in corporate and government securities which are classified in the
balance sheet as held-to-maturity securities in accordance with the provisions
of SFAS No. 115, "ACCOUNTING FOR CERTAIN INSTRUMENTS IN DEBT AND EQUITY
SECURITIES." Held-to-maturity investments are securities for which the Company
has the positive intent and ability to hold to maturity. These securities are
accounted for at amortized cost, which approximates fair value. All of the
marketable securities held at March 31, 2000 mature in one year or less. Cash
and cash equivalents and marketable securities consist of the following at
March 31, 2000 and 1999.
YEAR ENDED MARCH 31,
------------------------
2000 1999
----------- ----------
Cash and Cash Equivalents
U.S. Government and Agency securities....................... $ 7,342,874 $1,197,624
Commercial paper............................................ 17,031,292 1,136,119
Money markets............................................... 801,434 802,755
Cash........................................................ 50,946 114,253
----------- ----------
Total cash and cash equivalents........................... $25,226,546 $3,250,751
=========== ==========
YEAR ENDED
MARCH 31,
----------------------
2000 1999
---------- ---------
Marketable Securities
U.S. Government and Agency securities....................... $2,951,823 $ --
Commercial paper............................................ 5,854,544 --
---------- ---------
Total marketable securities............................... $8,806,367 $ --
========== =========
F-8
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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,
2000 and 1999 consist of the following:
YEAR ENDED MARCH 31,
---------------------
2000 1999
--------- ---------
Raw materials and work-in-process........................... $371,405 $412,480
Finished goods.............................................. 176,043 217,849
-------- --------
Total..................................................... $547,448 $630,329
======== ========
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 USEFUL LIFE
- ----------- -----------
Equipment 5 years
Leasehold improvements Shorter of term of the lease or estimated useful
life
Furniture and fixtures 5-7 years
EARNINGS PER SHARE
The Company applies SFAS No. 128, EARNINGS PER SHARE. SFAS No. 128
establishes standards for computing and presenting earnings per share and
applies to entities with publicly held common stock or potential common stock.
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 2000, 1999 and 1998 exclude the
potential common shares from warrants and stock options because to do so would
have been antidilutive for the years presented. The number of potential common
shares prior to application of the treasury stock method at March 31, 2000, 1999
and 1998 was 2,484,953, 4,496,341, and 3,572,741 shares, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
In accordance with SFAS No. 107, DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL
INSTRUMENTS, the carrying amounts of the Company's cash and cash equivalents,
marketable securities, accounts receivable and accounts payable approximate fair
value 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 consist primarily 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. Concentration of credit risk with respect to accounts receivable is
limited to customers to whom the Company makes significant sales. The Company
does not believe significant risk exists
F-9
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
at March 31, 2000. To control credit risk, the Company performs regular credit
evaluations of its customers' financial conditions and maintains allowances for
potential credit losses.
Revenues from significant customers as a percentage of the Company's total
revenues are as follows:
YEAR ENDED
MARCH 31,
------------------------------
2000 1999 1998
-------- -------- --------
Customer A.................................................. 13% --% 1%
Customer B.................................................. 13 1 4
Customer C.................................................. 12 11 --
Customer D.................................................. 7 15 --
Significant accounts receivable balances as a percentage of the Company's
total accounts receivable balances are as follows:
YEAR ENDED
MARCH 31,
-------------------
2000 1999
-------- --------
Customer A.................................................. 22% --%
Customer C.................................................. 5 15
Customer E.................................................. 12 --
Customer F.................................................. 12 40
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. Operating segments are identified as components of an
enterprise about which separate discrete financial information is available for
evaluation by the chief operating decision maker, or decision making group, in
making decisions now to allocate resources and assess performance. To date, the
Company has viewed its operations and manages its business as principally one
operating segment. As a result, the financial information disclosed herein
represents all of the material financial information related to the Company's
principal operating segment.
The following table represents the Company's revenue by geographic area:
YEAR ENDED
MARCH 31,
------------------------------
2000 1999 1998
-------- -------- --------
United States............................................... 60% 70% 76%
Europe...................................................... 37 26 23
Other....................................................... 3 4 1
--- --- ---
Total..................................................... 100% 100% 100%
=== === ===
F-10
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NEW ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. SFAS No. 133 is effective
for all fiscal quarters of fiscal years beginning after June 15, 2000. This new
standard is not anticipated to have a significant impact on the Company's
financial statements based on its current structure and operations.
2. INCOME TAXES
The Company accounts for income taxes under SFAS No. 109, ACCOUNTING FOR
INCOME TAXES. At March 31, 2000, the Company had net operating loss
carryforwards for income tax purposes of approximately $101,351,000. The Company
also had available tax credit carryforwards of approximately $4,585,000 at
March 31, 2000 to reduce future federal income taxes, if any. 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 net operating loss carryforwards and tax credit carryforwards are
approximately as follows:
NET OPERATING
LOSS TAX CREDIT
EXPIRATION DATE CARRYFORWARDS CARRYFORWARDS
- --------------- ------------- -------------
2001....................................................... $ 1,334,000 $ 109,000
2002....................................................... 2,500,000 73,000
2003....................................................... 4,807,000 346,000
2004....................................................... 6,642,000 408,000
2005....................................................... 6,707,000 681,000
2006-2020.................................................. 79,361,000 2,968,000
------------ ----------
Total.................................................... $101,351,000 $4,585,000
============ ==========
The deferred tax asset consists of the following:
YEAR ENDED MARCH 31,
-----------------------------
2000 1999
------------- -------------
Temporary differences.................................... $ 3,416,000 $ 3,800,000
Operating loss carryforwards............................. 40,540,000 39,400,000
Tax credit carryforwards................................. 4,585,000 4,690,000
------------- -------------
48,541,000 47,890,000
Valuation allowance...................................... (48,541,000) (47,890,000)
------------- -------------
$ -- $ --
============= =============
A full valuation allowance has been provided, as it is uncertain if the
Company will realize the deferred tax asset.
F-11
3. COMMON STOCK
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 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 entered into an agreement for legal services
relating to a complaint filed against Bristol-Myers Squibb. Under the terms of
the agreement, the Company is required to pay $50,000 in annual fees for three
years, and, if successful in the litigation, a portion of any financial recovery
will be paid and warrants to purchase 100,000 shares of common stock will be
issued. The Company will value these warrants at the time of issuance. In
addition, the Company issued a fully vested warrant to legal counsel to purchase
100,000 shares of common stock at an exercise price of $1.63 per share. The
Company valued these warrants at fair value and recorded legal expense of
$126,270 during fiscal 1999 relating to this issuance. In March 2000, these
warrants were exercised pursuant to the "net exercise" provision in the
warrants. Repligen issued 83,184 shares of common stock upon exercise of the
warrants and received no proceeds from such transaction.
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 (see Note 7). The Company valued the shares and warrants in
accordance with ETIF 96-18 using the Black-Scholes model and recorded a charge
of $1,035,000. In March 2000, 125,000 of these warrants were exercised. Repligen
received $198,750 of proceeds from this transaction.
In December 1997, the Company completed a $2.0 million private placement of
its securities. The Company received net proceeds of $1.975 million for the
issuance of 2,000,000 shares of common stock and warrants to purchase an
aggregate of 750,000 shares of common stock at a price of $1.50 per share. In
October 1999, pursuant to this Common Stock and Warrant Purchase Agreement,
these investors exercised these warrants pursuant to the "net exercise"
provision in the warrants, Repligen issued 447,225 shares of common stock to
such investors upon exercise of the warrants and received no proceeds from such
transaction.
F-12
3. COMMON STOCK (CONTINUED)
In connection with the initial capitalization of the Repligen Clinical
Partners, L.P. ("the Partnership") in February 1992, the Company issued warrants
to purchase common stock of Repligen to the limited partners of the Partnership
(the "Original Warrants"). In June 1994, Repligen completed an exchange pursuant
to which a majority of the holders of Original Warrants exchanged their Original
Warrants for new warrants (the "Exchange Warrants"). Subsequently, in
March 1995, Repligen offered to modify the majority of the remaining Original
Warrants and the Exchange Warrants. Each holder of an outstanding warrant who
was not in default under its obligations to the Partnership was free to accept
or reject such modifications. During fiscal 2000, 394 of these warrant holders
exercised and 1,132,900 shares were issued for proceeds of $4,133, 500. The
Original Warrants and the Exchange Warrants expired during fiscal 2000. At
March 31, 2000, there were issued and outstanding modified Exchange Warrants to
purchase 616,050 shares of the Company's common stock at an average weighted
price of $3.16 per share. These warrants will expire during fiscal 2001.
At March 31, 2000, common stock reserved for issuance is as follows:
RESERVED FOR SHARES
- ------------ ---------
Incentive and nonqualified stock option plans............... 3,288,819
Warrants granted in connection with the Repligen
Clinical Partners, L.P. offering............................ 616,050
Warrants granted in connection with the Patent
Purchase Agreement.......................................... 225,000
Warrants granted for payment of services.................... 229,946
---------
4,359,815
=========
4. STOCK OPTION PLANS
The Company has three stock option plans. The 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, 2000, the Company had 2,063,986 shares of common
stock available for grant.
F-13
4. STOCK OPTION PLANS (CONTINUED)
A summary of stock option activity under all plans is as follows:
YEARS ENDED MARCH 31,
----------------------------------------------------------------------
2000 1999 1998
--------------------- ---------------------- ---------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER AVERAGE AVERAGE NUMBER AVERAGE
OF PRICE PER NUMBER OF PRICE PER OF PRICE PER
SHARES SHARE SHARES SHARE SHARES SHARE
--------- --------- ---------- --------- --------- ---------
Outstanding at beginning of period........ 1,289,291 $1.78 740,291 $2.05 704,639 $2.20
Granted................................... 169,908 2.86 568,500 1.38 117,500 1.41
Exercised................................. (64,458) 2.30 -- -- -- --
Forfeited................................. (106,700) 1.44 (19,500) 1.18 (81,848) 2.45
--------- ----- ---------- ----- --------- -----
Outstanding at end of period.............. 1,288,041 $1.82 1,289,291 $1.78 740,291 $2.05
--------- ----- ---------- ----- --------- -----
Exercisable at end of period.............. 694,941 $1.96 529,691 $2.33 463,621 $2.43
========= ===== ========== ===== ========= =====
OPTIONS EXERCISABLE
OPTIONS OUTSTANDING ----------------------
------------------------------------- WEIGHTED
WEIGHTED WEIGHTED AVERAGE
AVERAGE AVERAGE EXERCISE
REMAINING EXERCISE PRICE
NUMBER CONTRACTUAL PRICE NUMBER PER
OUTSTANDING LIFE PER SHARE OUTSTANDING SHARE
----------- ----------- --------- ----------- --------
$.05-$.50........................................ 84,541 6.03 $ .45 84,541 $ .45
$.88-$1.03....................................... 32,500 6.91 .95 31,000 .94
$1.18-$1.63...................................... 914,000 7.36 1.37 427,400 1.34
$2.75-$2.75...................................... 152,000 5.88 2.75 102,000 2.75
$2.91-$3.88...................................... 65,000 8.69 3.07 10,000 3.13
$6.56-$12.45..................................... 40,000 2.59 10.24 40,000 10.24
--------- ---- ------ ------- ------
1,288,041 6.99 $ 1.82 694,941 $ 1.96
--------- ---- ------ ------- ------
The Company accounts for its stock-based compensation under SFAS No. 123
ACCOUNTING FOR STOCK-BASED COMPENSATION. The Company has adopted the
disclosure-only alternative for employee grants and, accordingly, will continue
to account for stock-based compensation for employees under APB Opinion No. 25.
The Company has computed the pro forma disclosures required under SFAS
No. 123 for all stock options granted to employees in 2000, 1999 and 1998 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, 2000, 1999 and 1998 are as follows:
YEAR ENDED MARCH 31,
------------------------------------------
2000 1999 1998
------------ ------------ ------------
Risk-free interest rates.................................... 5.61%-6.03% 6.23%-6.89% 5.97%-6.64%
Expected dividend yield..................................... -- -- --
Expected lives.............................................. 7 years 10 years 10 years
Expected volatility......................................... 70% 93% 56%
Weighted average grant date fair value of options granted
during the period......................................... $ 2.91 $ 1.12 $ 1.41
Weighted average remaining contractual life of options
outstanding............................................... 7.0 years 7.7 years 8.4 years
F-14
4. STOCK OPTION PLANS (CONTINUED)
If compensation expense for the Company's stock option plan had been
determined consistent with SFAS No. 123, the pro forma net loss and net loss per
share would have been as follows:
YEAR ENDED MARCH 31
----------------------------------------
2000 1999 1998
------------ ------------ ----------
Net loss--As reported ($ 3,816,383) ($ 2,543,933) ($ 796,028)
Pro forma................................................... ($ 4,103,293) ($ 2,768,827) ($ 908,353)
Basic and diluted net loss per share--As reported........... $ (.18) $ (.14) $ (.05)
Pro forma................................................... $ (.19) $ (.15) $ (.06)
5. COMMITMENTS
The Company leases their facilities. Obligations under noncancellable
operating leases as of
March 31, 2000 is approximately as follows:
YEAR ENDING MARCH 31,
- ---------------------
2001........................................................ $181,000
2002........................................................ 13,000
--------
Total minimum lease payments................................ $194,000
========
Rent expense charged to operations under operating leases was approximately
$296,000, $281,000 and $281,000 for the years ended March 31, 2000, 1999 and
1998, respectively.
6. CERTAIN SECRETIN TECHNOLOGIES AND PRODUCT CANDIDATES
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 (FDA). In March 2000, the FDA issued
an "approvable letter" for the use of synthetic porcine secretin in the
diagnosis of pancreatic function. Final approval to market this product will be
based on a satisfactory response to questions raised by the FDA.
Under terms of the licensing agreement, Repligen paid $1,000,000 upon
execution of the agreement and, if the NDAs are approved, the Company will be
required to pay future royalties and milestones in cash and Repligen 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.
The Company has expensed the $1 million payment during fiscal 2000, as the
Company believes that the net realizable value of such license fee is uncertain
until such time as the NDA approval is obtained.
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. In addition, the
Company has agreed to make minimum annual royalty payments of $500,000 and
certain milestone payments upon (a) the Company's filing of a new drug
application with the FDA for a clinical indication covered by the intellectual
property rights transferred by the Purchase Agreement and (b) upon the approval
by the FDA of a product covered by the intellectual property rights transferred
to the Company pursuant to the Purchase Agreement. These milestone payments, in
the aggregate sum of $700,000, will be largely credited against certain royalty
payments
F-15
6. CERTAIN SECRETIN TECHNOLOGIES AND PRODUCT CANDIDATES (CONTINUED)
in the event the Company is able to derive sales and/or license revenues from
the intellectual property rights acquired pursuant to the Purchase Agreement.
In order for the Company to commercialize secretin as a treatment for
autism, the Company will need to expend a substantial amount in research and
development, preclinical testing and clinical trials, regulatory clearances and
manufacturing, distribution and marketing arrangements, the outcome of which is
uncertain. The cost and time to complete the development of the technology is
significant and difficult to estimate given the uncertainties of research and
development and regulatory process. Accordingly, the net realizable value of the
patent rights acquired is uncertain. Approximately $1,035,000 is charged to the
accompanying 1999 statement of operations as a research and development expense.
7. RELATED PARTIES
In February 1992, Repligen Clinical Partners, L.P. (the "Partnership")
completed a private placement of 900 limited partnership units, with net
proceeds of approximately $40,300,000 in cash and notes receivable, to be
received by the Partnership over a three-year period. In connection with the
formation of the Partnership, the Company granted to the Partnership an
exclusive license to all technology and know-how related to the manufacture, use
and sale of recombinant platelet factor-4 ("rPF4") in the United States, Canada
and Europe. A wholly owned subsidiary of the Company is the General Partner of
the Partnership.
The Company has received research and development funding from the
Partnership pursuant to a Product Development Agreement, whereby the Company
performed research and development work and charged the Partnership for actual
costs incurred plus a 10% management fee. The Company recognized $12,000 of such
funding as revenue in fiscal 1998. Although the Company was allocated a loss of
approximately $1,000 for the year ended March 31, 1998, the Company had
previously written down all of its original investment.
In April 1996, the Company terminated its arrangements with the Partnership
regarding the development and marketing of the rPF4 program. Under the terms of
the various agreements between the parties, the rights to the rPF4 technologies
remain with the Partnership. In May 2000, the Limited Partners voted to dissolve
the Partnership.
8. ACCRUED EXPENSES
Accrued expenses consist of the following:
YEAR ENDED MARCH 31,
---------------------
2000 1999
--------- ---------
Professional and consulting fees............................ $235,712 $ 57,550
Manufacturing costs......................................... 179,447 2,948
Payroll and payroll-related costs........................... 166,989 120,077
Other accrued expenses...................................... 109,289 76,570
Research & development costs................................ 80,083 56,781
-------- --------
$771,520 $313,926
======== ========
F-16
9. VALUATION AND QUALIFYING ACCOUNTS
BALANCE AT
BEGINNING BALANCE AT
OF PERIOD ADDITIONS DELETIONS END OF PERIOD
---------- --------- --------- -------------
Allowance for Doubtful Accounts:
1998...................................................... 25,000 -- -- 25,000
1999...................................................... 25,000 -- -- 25,000
2000...................................................... 25,000 -- -- 25,000
10. SUBSEQUENT EVENTS (UNAUDITED)
In May 2000, the Company purchased the rights to a U.S. patent application
claiming the use of CTLA4-Ig in the treatment of diseases of the immune system
from Tolerance Therapeutics, LLC. Under terms of the agreement, the Company will
pay cash and stock for the purchase.
F-17