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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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For
the transition period from ____________ to _____________
Commission file number: 0-21700
REPLIGEN CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 04-2729386
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
117 Fourth Avenue, Needham, Massachusetts 02194
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617)-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. [X] Yes [ ] No
Indicate by checkmark 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. [ ] Yes [X] No
State the aggregate market value of the voting stock 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 April 30, 1997 was approximately
$24,012,316.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of April 30, 1997: 16,008,211
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, 1997. Portions
of such Proxy Statement are incorporated by reference in Part III of this Form
10-K.
PART I
Item 1: BUSINESS
Forward Looking Statements
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, 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 product and
technology 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 the Company's other Securities and Exchange
Commission filings. The Company's actual results may differ significantly from
the results discussed in the forward-looking statements.
The Company
Repligen Corporation ("Repligen" or the "Company") redirected its focus
in March of 1996 from the clinical development of biological products to the
development of enabling technology for the discovery of new drugs. The Company
is developing technology to increase the efficiency of the process by which new
drug candidates are identified. These technologies include rapid methods for the
synthesis of chemical compound libraries, novel detection technology for
identifying active compounds in drug screening and specific screening assays
based on defined biological targets. In selected therapeutic areas, Repligen is
applying its technology to the discovery of proprietary drug leads capable of
blocking biologically important protein-protein and protein-carbohydrate
interactions.
Repligen also manufactures and markets a line of products for the
production of monoclonal antibodies intended for human clinical use. These
products are based on a recombinant form of Protein A for which Repligen holds
patents in the United States and major foreign markets. In addition, the Company
is seeking to license to third parties certain intellectual property and other
assets of the Company pertaining to its earlier research and clinical
development programs.
Repligen Corporation was incorporated in March, 1981, under the laws of
the State of Delaware. Its principal executive officers are at 117 Fourth
Avenue, Needham, Massachusetts 02194 and its telephone number is (617) 449-9560.
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Drug Discovery Technology - Background
Practically all major pharmaceutical companies engaged in drug
discovery use a process which starts with the identification of a new
"biological target" which is implicated in a disease. The target is then
formatted into a test (known as a High Throughput Screening Assay), which can be
used to determine if any of 100,000 to 1,000,000 individual chemical compounds
(known as a Chemical Compound Library) shows activity against the biological
target. This process is summarized below:
[GRAPHIC] Chemical Compound Library
[GRAPHIC] Biological Target New Drug Lead
[GRAPHIC] High Throughput Screening Assay
Recent advances in human and bacterial genetics (genomics) have
identified hundreds of potential new biological targets for drug development.
However, the traditional process used to identify drug candidates for a new
biological target is inadequate to exploit this new resource. As a result, the
pharmaceutical industry has and will likely continue to make substantial
investments in its drug discovery infrastructure. In addition to genomics, two
principal areas of investment by pharmaceutical companies are the construction
of libraries of compounds through combinatorial chemistry and the development of
more efficient high throughput screening technologies.
Repligen is developing multiple technologies to improve the efficiency
of the drug discovery process including rapid methods for chemical library
synthesis, screening assays based on specific biological targets and new high
throughput screening technologies.
Combinatorial Chemistry
In the past several years, the pharmaceutical industry has adopted
combinatorial chemistry as a method to rapidly synthesize sets of chemical
compounds. Combinatorial chemical synthesis methods involve systematic variation
of three or more chemical groups on a fixed framework or scaffold. For a
scaffold in which three positions can each be substituted with twenty different
chemical groups, it is possible to synthesize 8,000 (20 x 20 x 20) compounds
with the same series of chemical reactions. By repeating this process with
multiple scaffolds, libraries containing more than 300,000 compounds have been
constructed. Despite the power of this approach, it currently requires
significant labor and investment in chemical methodology and robotics to
synthesize a relatively small library of 100,000 compounds. Thus, many
organizations employing combinatorial chemistry have created libraries of
compounds with maximal chemical diversity in order to use it with a large number
of biological targets.
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Repligen is currently developing what it believes may be
ultra-efficient techniques for synthesis of libraries of individual compounds.
These techniques rely upon a set of chemical reactions known as multi-component
condensations (MCCs) in which three or more components combine in a single step
to form the desired product while consuming the starting materials. Libraries of
compounds can be synthesized far more rapidly with MCC's than alternative
methods since the synthesis step involves simple mixing of reactant solutions
instead of the multiple chemical steps and manipulations required by other
methods.
The ability to synthesize compound libraries quickly and inexpensively
will enable the Company to create customized collections of compounds
specifically designed for each biological target or class of target. By
incorporating all of the available information for a target (such as its natural
ligand or substrate), these custom libraries can be richer sources of active
leads than generic libraries designed for use with multiple targets. Lead
compounds can then be the basis for the design of second and third generation
libraries in which the activity of the lead compound is optimized in a rapid,
iterative process.
A second potential advantage of the efficiency of MCCs is the potential
to more readily construct "complex" structures in which 4 to 6 different
chemical substituents can be combinatorially varied. For many biologically
important targets involving protein-protein or protein-carbohydrate
interactions, it can be difficult to find new drug leads in simple combinatorial
libraries of structure containing only three substituents. In order to create
libraries suitable for these targets, Repligen is employing two sequential MCCs
to produce "complex" structures. The Company believes that libraries of
"complex" structures may be better sources of leads for certain classes of
biological targets which were previously only accessible with natural products.
Detection Technology for Drug Screening
The Company believes that each year pharmaceutical and biotechnology
companies carry out more than 200,000,000 individual high throughput screening
assays as a part of their drug discovery efforts. A significant number of these
assays involve measurement of whether a chemical compound can block the binding
of a biological target to its natural ligand. This has created a large and
increasing demand for simple, one-step assay procedures. To date, the only
practical one-step procedure to measure binding or its inhibition requires the
use of expensive and cumbersome radioactive reagents.
The Company is currently exploring a novel, alternative approach to the
detection of active compounds in binding assays which may lead to a one-step,
non-radioactive method for detection of lead compounds. If such a system can be
developed by the Company, it may be a viable product for sale to the
pharmaceutical industry and may be applicable to increasing the efficiency of
the Company's internal drug discovery programs which are based on
protein-protein or protein-carbohydrate binding assays.
4
High Throughput Screening Assays
Growth Factor Screening Assays
Many clinically important proteins involved in cell signaling and
activation bind to a type of carbohydrate on the surface of the target cell
known as a glycosaminoglycan. The Company believes that this interaction is
important for optimal biological action of these proteins and represents a novel
and advantageous point for pharmaceutical intervention. Repligen has developed a
series of high throughput binding assays for two classes of
glycosaminoglycan-binding proteins: growth factors and chemokines. Two of the
Company's growth factor assays can detect inhibitors of glycosaminoglycan
binding to basic Fibroblast Growth Factor (bFGF) and Vascular Endothelial Growth
Factor (VEGF) both of which have been implicated in the new blood vessel growth
which is required for tumor growth and in the progression of certain ocular
diseases such as diabetic retinopathy. The Company has employed its
combinatorial chemical technology to construct libraries of compounds customized
to contain chemical functional groups similar to those found in
glycosaminoglycans. Screening of these libraries in the growth factor assays has
identified several lead compounds which are currently undergoing additional
testing.
In collaboration with Cambridge NeuroScience, Inc. ("CNS"), the Company
has also constructed a high throughput screening assay capable of detecting
compounds which block the interaction of the growth factor neuregulin with
glycosaminoglycans. Neuregulin is believed to be an important factor in some
forms of brain, breast and other cancers. The Company has screened a
glycosaminoglycan-like library in the neuregulin assay. Several active compounds
have been detected which are currently undergoing additional biological
characterization. Repligen and CNS will jointly own compounds which result from
this collaboration, if any.
Chemokine Screening Assays
Chemokines are a second class of glycosaminoglycan-binding factors
which mediate the recruitment and activation of leukocytes or white blood cells.
Inhibition of the activity of chemokines may be therapeutically useful in a
variety of diseases characterized by excessive leukocyte activity including
arthritis, psoriasis, inflammatory bowel disease and atherogenesis. Repligen's
high throughput screens are designed to detect inhibitors of
chemokine-glycosaminoglycan interaction which it believes is essential for
proper leukocyte activation by the chemokine.
Immunoregulatory Protein Screening Assays
Repligen's immune modulation program is based on modifying the activity
of costimulatory factors (CD28, B7, CTLA4), molecules on the surface of certain
immune system cells, to selectively suppress or activate an immune response.
Based on data obtained by Repligen and others in animal models of
transplantation and autoimmune disease, the Company believes that drugs which
modulate the activity of these costimulatory factors may suppress unwanted
immune responses characteristic of transplantation and certain forms of multiple
sclerosis, rheumatoid
5
arthritis and diabetes. These animal model experiments indicate that it may be
possible to selectively suppress the undesired immune response without creating
a general state of immunosuppression. The currently available treatments to
prevent, for example, transplant rejection are powerful drugs which cause
overall immune suppression, leaving recipients vulnerable to infection. In
addition, data published by others indicate that costimulatory factors can be
manipulated in animal tumor models to enhance the immune response to a tumor
resulting in slower tumor growth. Repligen is constructing high throughput
screening assays based on recombinant proteins and cell lines to detect
molecules capable of suppressing or activating these costimulatory molecules.
Drug Discovery Programs
The Company is currently employing its screening assays in
collaborative arrangements with Pfizer Inc. ("Pfizer"), Glaxo Wellcome plc
("Glaxo") and Cambridge NeuroScience Inc. ("CNS") in drug discovery projects in
the areas of cardiovascular disease, cancer and immune regulation.
The Company will also seek to develop proprietary lead compounds by
utilizing its screening assays to identify active compounds in its combinatorial
chemical libraries. The following table summarizes the status of both
collaborative and proprietary drug discovery projects utilizing Repligen's high
throughput screening assays:
Current Status of Drug Discovery Programs
-----------------------------------------
Biological Target Partner Application Status
- - ----------------- ------- ----------- ------
Growth Factor Pfizer Cancer Lead Evaluation
Immunomodulation Pfizer Immune Enhancement Screening
Chemokine Glaxo Cardiovascular Screening
Neuregulin CNS Brain, Breast Cancer Lead Evaluation
Angiogenic Growth Factor Repligen Cancer/Retinopathy Screening
Immunomodulation Repligen Immune Suppression Assay Development
Products for Bioprocessing
Protein A is a naturally occurring molecule which has the ability to
bind tightly to certain classes of antibodies. The Company manufactures and
markets recombinant Protein A ("rProtein A") and immobilized Protein A in
sufficient quantity and quality to be used in the commercial production of
antibodies intended for human clinical use. Repligen sells rProtein A(TM)
directly and through distributors, including Itochu Techno Chemical, Ltd.
(Japan), Kem-En-Tec (Denmark), and Pelichem A.G. (Switzerland).
The Company believes that there are approximately 75 monoclonal
antibodies in various stages of human clinical testing worldwide. In contrast,
only 4 to 6 monoclonal antibodies have been approved for marketing by the United
States Food and Drug Administration ("FDA") or comparable foreign regulatory
agencies.
6
Significant growth in the Protein A market will be dependent upon additional
antibody product approvals.
Repligen owns a patent in the U.S. covering the manufacture of
recombinant Protein A which expires in 2009. Similar patents have been issued in
certain European countries and Japan which expire in 2002. Repligen has granted
a non-exclusive, royalty bearing license to Pharmacia Biotech AB, a subsidiary
of Pharmacia & Upjohn, Inc., to its patents covering recombinant Protein A.
Repligen has received a second U.S. patent on a modified form of
Protein A ("Cys-Protein A") which it believes may deliver superior performance
in antibody purification at equivalent costs. No licenses have been granted to
the Cys-Protein A patent.
In November 1996, Repligen established a new manufacturing suite
specifically designed for high volume, efficient manufacture of rProtein A(TM)
using procedures derived from the Good Manufacturing Practices guidelines
established by the FDA. The Company believes that this facility will lower its
cost of manufacture and enable it to be competitive in the Protein A
marketplace.
Intellectual Property and Licensing
Repligen has maintained certain intellectual property rights related to
its former clinical development programs. The Company intends to seek third
parties to license its intellectual property which does not support the
Company's current drug discovery or bioprocessing activities.
The Company's former program for the inhibition of acute inflammation
is based on the use of monoclonal antibodies to CD11b, a protein on the surface
of certain white blood cells called neutrophils, to inhibit neutrophil-mediated
inflammation and tissue damage. As part of this program Repligen had exclusively
licensed certain patents issued from the University of Michigan covering the use
of antibodies to CD11b to block acute inflammation. The Company also licensed
from Pharmacia & Upjohn, Inc. an issued U.S. patent covering the use of
antibodies to CD11a, CD11b, CD11c or CD18 to block the acute inflammation
associated with reperfusion or the resupply of blood to an anoxic tissue. In
December 1995, the Company sublicensed its rights to the Pharmacia & Upjohn
patent for CD11a and CD18 to Genentech, Inc. Under the terms of the sublicense
the Company is eligible to receive a milestone payment and royalties on products
developed by Genentech under this patent. Repligen will seek a sublicensee for
the University of Michigan's CD11b patent and its rights to CD11b from the
Pharmacia & Upjohn patent.
As part of its former program to develop immunomodulatory protein drugs
directed to the immune cell receptors known as CD28, B7 and CTLA4 (costimulatory
factors), Repligen licensed the rights to certain patent applications from the
University of Michigan. In addition, the Company independently filed additional
patent applications based on internal and collaborative research findings. In
September 1995, Repligen assigned these patent rights to Genetics Institute,
Inc. and received a fee of $2,000,000. The Company retained the right to
independently use the
7
intellectual property and reagents for the discovery of small molecules which
block or activate these costimulatory factors (see above). In January 1996,
Genetics Institute, Inc. returned all the rights to a specific product
candidate, CTLA4-IgG. Repligen has the right to sublicense its rights to
CTLA4-IgG and intends to seek a licensee to develop this product candidate.
The protein interleukin 8 ("IL-8") has the dual properties of mediating
certain inflammatory responses and blocking the proliferation of the myeloid
progenitor cells. In its former program, Repligen developed modified versions
("mutants") of IL-8 which lack the inflammatory neutrophil activating property
of the parent molecule, but which retain the ability to suppress the
proliferation of the progenitor cells. These novel molecules may have
therapeutic utility in protecting these progenitor cells from the toxic effects
of anti-cancer drugs. The Company has received notice of allowance of a patent
application covering the composition of the mutant proteins from the U.S. Patent
and Trademark Office. The Company may seek a strategic partner to develop its
IL-8 technology.
Repligen's Business Strategy
Repligen's primary objective is to develop or acquire a series of
technologies for drug discovery which will enable it to develop new drug leads
for those biological targets in which a protein binds to another protein, a
carbohydrate or a nucleic acid. All of the Company's current high throughput
screening assays are based on protein-protein or protein-carbohydrate binding
assays. The Company intends to apply its drug discovery technologies to selected
proprietary targets where it believes its technology may give it a competitive
advantage. If any lead compounds result from these activities, the Company will
carry out additional optimization of the lead compound through chemical
modification and characterize its biological activity in cell-based assays and
animal models of disease. As appropriate, the Company will seek a biotechnology
or pharmaceutical partner for clinical development and commercialization of its
product candidates.
In the near term, the Company will seek to form additional drug
discovery partnerships in order to further develop its technology base. If
successful, the Company may seek future milestone and royalty revenues based on
successful product development by a partner instead of current revenue.
The Company will seek to expand its sales and marketing efforts and new
product introductions. It may also endeavor to develop or acquire additional
products for the manufacture of pharmaceutical products which can utilize the
Company's existing rProtein A(TM) manufacturing capacity and regulatory
infrastructure.
The Company will also seek to sublicense to third parties its
intellectual property pertaining to its earlier development programs on
CTLA4-IgG, CD11b and mutants of IL-8. Successful licensing of these assets may
generate current revenue, equity or potential future milestone and royalty
revenues based on successful product development by the licensee.
8
Sales and Marketing
The Company currently sells its rProtein A(TM) products directly to
end-users and through distributors in certain foreign markets. While the Company
has expanded its sales and marketing activities, there can be no assurance that
the Company will be able to further expand its sales and distribution
capabilities for the research market without undue delays or expenditures or
that it will be successful in maintaining market acceptance for its products.
Customers
Sales for the Company's bioprocessing products are distributed between
chromatography companies and process development and manufacturing groups at
biotechnology and pharmaceutical companies and accounted for 41% of the
Company's revenues in fiscal 1997. Research and development revenue is derived
from the Company's drug discovery collaborations with Glaxo, Pfizer and CNS and
grant awards from the National Institutes of Health. Research and development
revenue accounted for 31% of the Company's total revenues in fiscal 1997. No
single customer accounted for more than 10% of the Company's total revenues in
fiscal 1997.
Competition
The Company's Protein A products compete on the basis of quality,
performance, cost effectiveness, and application suitability with numerous
established technologies for protein purification including ion exchange
chromatography. Additional competitive products using new technologies which may
be competitive to the Company's products may also be introduced. Many of the
companies selling or developing competitive products have financial,
manufacturing and distribution resources significantly greater than those of the
Company.
The field of drug discovery in which the Company is 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 under development by the Company.
Many of these companies have greater capital, human resources and research and
development, manufacturing and marketing experience than the Company and may
succeed in developing products that are more effective or less costly than any
that may be developed by the Company and may also prove to be more successful
than the Company 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.
There can be no assurance that research, discoveries and commercial developments
by others will not render any of the Company's programs or potential products
noncompetitive.
9
Manufacturing
The Company manufactures its rProtein A(TM) product line from a
recombinant strain of E. coli. Certain fermentation and recovery operations are
carried out by a third party under a supply agreement. The purification,
immobilization, packaging and quality control testing of rProtein A(TM) are
conducted at the Company's facilities in Needham, Massachusetts. See
"Properties." The Company maintains an active quality assurance effort to
support the regulatory requirements of its customers.
Government Regulation
Government regulations play a significant role in the research,
development, production and commercialization of pharmaceutical, chemical and
biochemical products. While the Company's rProtein A(TM) products do not require
FDA approval for sale, many of the Company's customers are required to obtain
the approval of the FDA and similar health authorities in foreign countries for
the clinical testing and commercial sale of biopharmaceuticals for human use.
FDA regulations apply not only to health care products, but also to the process
and production facilities used to produce such products. These regulations are
called FDA current Good Manufacturing Practices ("cGMP"). The Company is often
required to adopt aspects of cGMP regulations to support its customer's use of
its products. In support of its customers' requirements to comply with FDA
regulations regarding the use of its products, the Company strives to maintain
production and documentation procedures for them that parallel certain parts of
the FDA cGMP requirements.
In addition to the regulatory framework for clinical trials and product
approvals, the Company is subject to regulation under federal, state and local
law, including requirements regarding occupational safety, laboratory practices,
environmental protection and hazardous substance control, and may be subject to
other present and possible future local, state, federal and foreign regulation.
The Company is also subject to various laws and regulations relating to
safe working conditions, laboratory and manufacturing practices, the
experimental use of animals, and the use and disposal of hazardous or
potentially hazardous substances, including radioactive compounds, used in
connection with the Company's research. Compliance with laws and regulations
relating to the protection of the environment has not had a material effect on
capital expenditures or the competitive position of the Company. However, the
extent of government regulation which might result from any legislative or
administrative action cannot be accurately predicted.
Patents, Licenses and Proprietary Rights
The Company's policy is to seek patent protection for certain of its
proprietary products. The Company pursues patent protection in the United States
and files corresponding patent applications in certain foreign jurisdictions.
The Company believes that patent protection is an important element in the
protection of its competitive and proprietary position, but other elements,
including trade secrets and customer service, are of at least equal importance.
The Company owns or has exclusive rights to more than 12
10
U.S. patents and corresponding foreign equivalents. In addition, the Company has
8 U.S. patent applications pending. The invalidation of key patents owned by
the Company or the failure of patents to issue on pending patent applications
could create increased competition, with potential adverse effects on the
Company and its business prospects.
The Company also relies upon trade secret protection for its
confidential and proprietary information. There can be no assurance that others
will not independently develop substantially equivalent proprietary information
or techniques, gain access to the Company's trade secrets or disclose such
technology, or that the Company can effectively protect its trade secrets. The
unauthorized disclosure of the Company's trade secrets could have a material
adverse effect on the Company's business.
The Company's policy is to require each of its employees, consultants
and significant scientific collaborators to execute confidentiality agreements
upon the commencement of an employment or consulting relationship with the
Company. These agreements generally provide that all confidential information
developed or made known to the individual during the course of the individual's
relationship with the Company 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 the Company shall be the
exclusive property of the Company. There can be no assurance, however, that
these agreements will provide meaningful protection or adequate remedies for the
Company's trade secrets in the event of unauthorized use or disclosure of such
information.
Certain Factors That May Affect Future Results
Additional Financing Requirements. The Company believes additional
long-term financing will be required for the development of its drug discovery
programs and bioprocessing products business and to support its future
operations and capital expenditures. The Company from time to time may raise
additional capital through equity or debt financing or by entering into
corporate partnering arrangements; however, there can be no assurances that this
funding will be made available or that terms acceptable to the Company will be
reached.
Potential Fluctuations in Operating Results. The Company's operating
results may vary significantly from quarter to quarter or year to year,
depending on factors such as the timing of increased research and development
and sales and marketing expenses, the timing and size of product orders, the
introduction of new products by the Company and the capital resources of the
Company's customers. The Company's current and planned expense levels are based
in part on its expectations as to future revenue. Consequently, revenue or
profits may vary significantly from quarter to quarter or year to year and
revenue or profits in any period will not necessarily be predictive of results
in subsequent periods. There can be no assurance that the Company will achieve
or maintain profitability or that its revenue growth can be sustained in the
future.
Dependence on Key Personnel. The Company is highly dependent on the
members of its management and scientific staff, the loss of whom could have a
material adverse
11
effect on the Company. In addition, the Company believes that its future success
will depend in large part upon its ability to attract and retain highly skilled
scientific, managerial and marketing personnel. The Company faces significant
competition for such personnel from other companies, research and academic
institutions, government entities and other organizations. There can be no
assurance that the Company will be successful in hiring or retaining the
personnel it requires for continued growth. The failure to hire and retain such
personnel could materially adversely affect the Company's prospects.
The Company's success will depend, in part, on attracting and
maintaining key employees, successful integration of recent acquisitions,
continued support from current customers, development of new customers and
successful enforcement of the Company's patent and proprietary rights.
Intense Competition and Risk of Technological Obsolescence. The Company
encounters, and expects to continue to encounter, intense competition in the
sale of its current and future products. There can be no assurance that
developments by others will not render the Company's products or technologies
obsolete or non-competitive. Many of the Company's competitors and potential
competitors have substantially greater resources, manufacturing and marketing
capabilities, research and development staff and production facilities than
those of the Company.
Employees
As of May 15, 1997, the Company had 20 employees. Of the 20 employees,
13 were engaged in research and development and manufacturing and 7 in
administrative and marketing functions. Doctorates or other advanced degrees are
held by 10 of the Company's employees. Each of the Company's employees has
signed a confidentiality agreement. The Company's employees are not covered by a
collective bargaining agreement.
Item 2: DESCRIPTION OF PROPERTY
The Company's executive offices, research and manufacturing facilities
are located at 117 Fourth Avenue in Needham, Massachusetts. The Company occupies
approximately 13,000 square feet under a four year sublease. In May 1996 the
Company's lease at One Kendall Square, Cambridge, Massachusetts expired and the
Company terminated all of its operations at this facility. The 10,500 square
feet of laboratory space located at 83 Rogers Street, Cambridge, Massachusetts
has been subleased by the Company for the remaining term of the lease. In
conjunction with the acquisition of Glycan Pharmaceuticals, Inc., the Company
assumed a lease for approximately 2,000 square feet of office and laboratory
space at 100 Inman Street, Cambridge, Massachusetts which terminated on
September 30, 1996.
Item 3: LEGAL PROCEEDINGS
Not applicable.
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Item 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders of the Company
through solicitation of proxies or otherwise, during the last quarter of the
fiscal year ended March 31, 1997.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the names, ages and positions of the
executive officers of the Company:
Name Age Positions
---- --- ---------
Walter C. Herlihy 45 President, Chief Executive Officer and Director
James R. Rusche 43 Vice President, Research and Development
Daniel P. Witt 49 Vice President, Business Development
Walter C. Herlihy, Ph.D. joined the Company in March 1996 as President, Chief
Executive Officer and Director in connection with the Company's merger with
Glycan Pharmaceuticals, Inc. From July 1993 to March 1996, Dr. Herlihy was the
President and CEO of Glycan Pharmaceuticals, Inc. From October 1981 to June
1993, he held numerous research positions at Repligen, most recently as Senior
Vice President, Research and Development. Dr. Herlihy holds an A.B. degree in
chemistry from Cornell University and a Ph.D. in chemistry from MIT.
James R. Rusche, Ph.D. joined the Company in March 1996 as Vice President,
Research and Development in connection with the Company's merger with Glycan
Pharmaceuticals, Inc. From July 1994 to March 1996, Dr. Rusche was Vice
President, Research and Development of Glycan Pharmaceuticals, Inc. From
February 1985 to June 1994, he held numerous research positions at Repligen,
most recently as Vice President, Discovery Research. Dr. Rusche holds a B.S.
degree in microbiology from the University of Wisconsin, LaCrosse and a Ph.D. in
immunology from the University of Florida.
Daniel P. Witt, Ph.D. joined the Company in March 1996 as Vice President,
Business Development in connection with the Company's merger with Glycan
Pharmaceuticals, Inc. From October 1993 to March 1996, Dr. Witt was Vice
President, Business Development of Glycan Pharmaceuticals, Inc. From April 1983
to September 1993, he held numerous research positions at Repligen, most
recently as Vice President, Technology Acquisition. Dr. Witt holds a B.A. degree
in chemistry from Gettysberg College and a Ph.D. in biochemistry from the
University of Vermont.
13
PART II
Item 5: MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
Market Information
The Company's Common Stock is traded on the Nasdaq National Market
under the symbol "RGEN". The following table sets forth for the periods
indicated the high and low sale prices for the Common Stock as reported by
Nasdaq:
Fiscal Year 1996: High Low
---------------- ---- ----
First Quarter............ $3.000 $1.250
Second Quarter....... 2.125 1.188
Third Quarter.......... 1.938 .875
Fourth Quarter....... 1.688 .938
Fiscal Year 1997:
-----------------
First Quarter............ $1.500 $ .938
Second Quarter....... 1.375 .500
Third Quarter.......... 1.500 1.063
Fourth Quarter....... 1.750 1.125
On April 30, 1997, the reported closing price of the Common Stock as
reported by Nasdaq was $1.50 per share.
Stockholders and Dividends
As of April 30, 1997, there were approximately 1,029 stockholders of
record of the Company's common stock, excluding stockholders whose shares were
held in nominee name. The Company has not paid any dividends since its inception
and does not intend to pay any dividends on its Common Stock in the foreseeable
future.
Recent Sales of Securities
On March 31, 1997 the Company issued 105,000 shares of its Common Stock in
exchange for all of the outstanding common shares of ProsCure, Inc., a
subsidiary of Glycan Pharmaceuticals, Inc., the Company's wholly owned
subsidiary. The Company believes that the offer and sale of the shares were
exempt from registration requirements of the Securities Act of 1993, as amended,
pursuant to Rule 505 of Regulation D thereunder, based upon the reliance upon
the representations and warranties of the recipients. The Company intends to
file a registration statement with the SEC on Form S-3 on or before June 30,
1997 for the resale of these shares.
14
Item 6: SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data are derived from the consolidated
financial statements of the Company 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 the
Company and the related notes thereto and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included elsewhere in this
report.
Years Ended March 31,
------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(In thousands, except per share amounts)
Operating Statement Data:
Revenues:
Research and development $ 1,180 $ 7,949 $ 10,988 $ 19,392 $ 21,444
Product 1,554 1,874 3,885 4,947 2,113
Investment and other 1,068 1,036 2,069 2,494 3,765
-------- -------- --------- -------- ---------
3,802 10,859 16,942 26,833 27,322
-------- -------- --------- -------- ---------
Costs and expenses:
Research and development 1,378 11,980 31,012 35,919 30,705
Cost of goods sold 537 1,516 1,535 3,933 1,194
Selling, general and
administrative 1,940 4,925 4,673 6,206 6,710
Restructuring charge (credit) (111) 3,567 11,300 -- --
Charge for acquired
research and development 549 334 -- -- --
Interest -- 58 372 312 --
-------- -------- --------- -------- ---------
Total costs and expenses 4,293 22,380 48,892 46,370 38,609
-------- -------- --------- -------- ---------
Net loss $ (491) $ (11,521) $ (31,950) $(19,537) $ (11,287)
======= ========= ========= ======== =========
Net loss per common share $ (0.03) $ (0.75) $ (2.08) $ (1.53) $ (0.93)
======= ========= ========= ======== =========
Weighted average common shares
outstanding 15,678 15,370 15,356 12,788 12,085
======= ========= ========= ======== =========
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(In thousands)
-----------------------------------------------------------------------------------
Balance Sheet Data:
Cash and investments $ 3,538 $ 7,222 $ 15,302 $ 29,215 $ 40,090
Working capital 3,990 4,154 9,070 32,517 31,026
Total assets 5,621 9,231 31,330 59,611 63,483
Long-term debt -- -- -- -- 4,620
Accumulated deficit (123,533) (123,042) (111,520) (79,570) (60,033)
Stockholders' equity 4,919 4,809 15,576 46,737 48,877
15
Item 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Repligen is a biopharmaceutical company engaged in the research and
development of technologies for drug discovery. The Company also devotes a
portion of its resources to proprietary drug discovery projects. In addition,
the Company receives income from the sale of products that are manufactured by
the Company and from its investments. The Company has incurred operating losses
since its inception in 1981. As of March 31, 1997, its accumulated deficit was
$123,533,000. During fiscal 1996, the Company completed a major downsizing and
restructuring of its activities, including the termination of certain research
programs, which significantly reduced its level of operating expenses and its
cash burn rate. These actions were completed in an effort to stabilize
Repligen's financial condition and preserve its cash resources. As a result of
the reduction of operating expenses and restructuring of its activities, the
Company believes it has adequate cash reserves at March 31, 1997 to finance its
operations at their current levels for at least the next twenty-four months.
Results of operations
Fiscal Year Ended March 31, 1997 Compared with Fiscal Year Ended March 31, 1996
Revenues. Total revenues for fiscal 1997 were $3,802,000 as compared to
$10,859,000 in fiscal 1996, a decrease of $7,057,000. Research and development
revenues for fiscal 1997, totaling $1,180,000, decreased by $6,769,000 or 85%
from fiscal 1996 levels. This decrease reflects reduced revenues from its
collaborations with Eli Lilly and Company ("Lilly") and Repligen Clinical
Partners, L.P. (" the Partnership"). Lilly terminated its collaboration and
licensing agreement with the Company in September 1995, with respect to the
joint development of the CD11b program. Under the terms of the agreement, the
entire CD11b program, including preclinical and clinical data packages for
product candidates, were returned to the Company. Revenues recognized under the
Lilly agreement totaled $2,613,000 in fiscal 1996. The decrease in funding from
the Partnership reflects a decrease in billings based on the lack of resources
of the Partnership and the Company's termination of its arrangement with the
Partnership regarding the development and marketing of the rPF4 program in April
1996. Research and development revenues recognized under the rPF4 program
totaled $190,000 and $2,693,000 in fiscal 1997 and fiscal 1996, respectively. In
addition, during fiscal 1996, a one-time $2,000,000 fee was paid by Genetics
Institute, Inc. for the assignment of intellectual property and the transfer of
certain reagents associated with the Company's immune modulation technology and
a one-time $525,000 license fee was paid by Genentech, Inc. to sublicense the
Company's patent rights for CD11a and CD18.
Product revenues for fiscal 1997 were $1,554,000 compared to $1,874,000
in fiscal 1996. The decrease of $320,000 or 17% was due to the discontinuance by
Repligen of contract manufacturing and sales of diagnostic reagents that took
place during fiscal year 1996. During fiscal year 1996 contract service revenues
and sales of diagnostic reagents of $758,000 were generated by the Company. This
reduction was offset by an increase in product sales volume of the Company's
rProtein A(TM) and reagent products in fiscal year 1997.
16
Investment income decreased by $469,000 from fiscal 1996 levels due
primarily to lower average funds available for investment in fiscal 1997. Other
revenues for the fiscal 1997 period increased by $501,000 from the comparable
fiscal 1996 period primarily due to the one-time sale of equipment and
furnishings by the Company for $317,000 and the one-time sale of non-investment
securities held by the Company for approximately $300,000, offset by the
decrease in management fees received from the Partnership.
Expenses. During fiscal 1997, total expenses of $4,293,000 were
significantly lower than fiscal 1996 expenses of $22,380,000. This decrease
resulted from the Company's restructuring in 1996. During the fourth quarter of
fiscal 1996, the Company substantially downsized and consolidated its operations
in order to stabilize the Company's financial condition and preserve its cash
reserves. In fiscal 1996, the Company recorded a charge of $3,567,000 to cover
severance costs and related benefits, the settlement of equipment and facility
lease obligations and the write-off of certain leasehold improvements and
equipment no longer being utilized, reduced in part by cash received from the
sale of assets and the reversal of certain accruals no longer required due to
the downsizing. The total restructuring charge of $3,567,000 included cash
related expenditures of $1,246,000 and a non-cash charge of $2,321,000. The
non-cash charge related to the write-off of leasehold improvements and equipment
no longer being utilized, offset by the reversal of accruals no longer required.
(See Note 11 of Notes to Consolidated Financial Statements. ) In May 1996, the
Company relocated its operations from Cambridge, Massachusetts to approximately
13,000 square feet of subleased office and laboratory space in Needham,
Massachusetts. This move has resulted in substantial savings in rent and related
facility costs. If the move had been effective as of April 1, 1996, facility
related expenses during the year ended March 31, 1997 would have been lower by
approximately $381,000.
Research and development expenses for fiscal 1997, totaling $1,378,000,
decreased by $10,602,000, or 88%, from fiscal 1996 levels. The decrease in
expenses reflects a reduction in research and development headcount and related
expenses, decreased development activities, lower expenditures for clinical
trials and the Company's efforts to reduce costs. The Company anticipates that
expenses will remain at the current level until additional research and
development funding has been obtained.
Cost of goods sold for fiscal 1997 decreased by $979,000 from the prior
fiscal year. Cost of goods sold in fiscal 1997 were 35% of product revenues
versus 81% of product revenues for fiscal 1996. The decrease is the result of a
change in product mix between fiscal years and is attributable to lower margins
experienced on contract service revenues in fiscal 1996 and the result of the
realization of inventory in fiscal 1997 that had previously been reserved for in
fiscal 1996.
Selling, general and administrative expenses for fiscal 1997 were
$1,940,000, a decrease from fiscal 1996 of $2,985,000. This decrease resulted
from the reduction of administrative personnel and related expenses as part of
the Company's cost reduction efforts. Interest expense for fiscal 1996 reflects
interest incurred by the Company through May 1995 when its term loan with a bank
was paid in full.
In the year ended March 31, 1997, the Company acquired, in exchange for
the Company's common stock, all of the outstanding shares of ProsCure, Inc., a
subsidiary of Glycan Pharmaceuticals, Inc. ("Glycan"). ProsCure has licensed the
rights to certain drug
17
discovery technologies and lead compounds for application to the field of cancer
from Glycan, a wholly owned subsidiary of the Company. Since the technology
acquired will require further development by the Company, this acquisition was
accounted for as a purchase, with the excess of the purchase price and
acquisition costs over the fair valued of the assets acquired, charged to
operations of approximately $549,000.
In the year ended March 31, 1996, the Company issued 243,600 shares of
its common stock for all of the common stock of Glycan Pharmaceuticals, Inc.
("Glycan"). The acquisition was accounted for as a purchase, with the excess of
the purchase price and acquisition costs over the fair value of the assets
acquired of approximately $334,000 charged to operations as the cost of acquired
research and development.
Fiscal Year Ended March 31, 1996 Compared with Fiscal Year Ended March 31, 1995
Revenues. Total revenues for fiscal 1996 were $10,859,000 as compared
to $16,942,000 in fiscal 1995, a decrease of $6,083,000. Research and
development revenues for fiscal 1996, totaling $7,949,000, decreased by
$3,040,000 or 28% from fiscal 1995 levels. This decrease reflects reduced
product development funding from Lilly with respect to the Company's
inflammation inhibition (CD11b) program and from the Partnership with respect to
rPF4, offset in part by a $2,000,000 fee paid by Genetics Institute, Inc. in
September 1995 for the assignment of intellectual property and the transfer of
certain reagents associated with the Company's immune modulation technology and
a $525,000 license fee paid by Genentech, Inc. in December 1995 for the
exclusive sublicense to make and sell antibody fragments, engineered peptides
and other small molecules that bind to CD18 and CD11a. The decrease in funding
from Lilly in fiscal 1996 was due to the termination of the CD11b program. Lilly
terminated its collaboration and licensing agreement with the Company in
September 1995, with respect to the joint development of the CD11b program.
Under the terms of the agreement, the entire CD11b program, including
preclinical and clinical data packages for product candidates m60.1 and h60.1,
were returned to the Company. Revenues recognized under the Lilly agreement
totaled $2,613,000 in fiscal 1996. The decrease in funding from the Partnership
reflects a decrease in billings based on lower levels of research activity and a
decrease in the need for process development and manufacturing activity and a
lack of resources of the Partnership, limiting the Partnership's ability to fund
the rPF4 program. Research and development revenues recognized under the rPF4
program totaled $2,693,000 in fiscal 1996.
Product revenues for fiscal 1996 were $1,874,000 compared to $3,885,000
in fiscal 1995. The decrease of $2,011,000 or 52% was due to a reduction in
product sales volume of the Company's rProtein A(TM) and diagnostic reagent
products by $590,000, sales of product to Hoffmann-LaRoche and Abbott
Laboratories totaling $2,049,000 in fiscal 1995 which were not realized in
fiscal 1996, offset in part by the recognition of contract service revenues of
$549,000 generated by the Company.
Investment income decreased by $687,000 from fiscal 1995 levels due
primarily to lower average funds available for investment in fiscal 1996. Other
revenues for the fiscal 1996 period decreased by $346,000 from fiscal 1995 due
primarily to a decrease in management fees received from the Partnership.
18
Expenses. During fiscal 1996, the Company substantially downsized and
consolidated its operations in order to stabilize the Company's financial
condition and preserve its cash reserves. During the fourth quarter, the Company
recorded a charge of $3,567,000 to cover severance costs and related benefits,
the settlement of equipment and facility lease obligations and the write-off of
certain leasehold improvements and equipment no longer being utilized, reduced
in part by cash received from the sale of assets and the reversal of certain
accruals no longer required due to the downsizing. The total restructuring
charge of $3,567,000 included cash related expenditures of $1,246,000 and a
non-cash charge of $2,321,000. The non-cash charge related to the write-off of
leasehold improvements and equipment no longer being utilized, offset by the
reversal of accruals no longer required. (See Note 11 of Notes to Consolidated
Financial Statements.)
Research and development expenses for fiscal 1996, totaling
$11,980,000, decreased by $19,032,000, or 61%, from fiscal 1995 levels. The
decrease in expenses reflects a reduction in research and development headcount
and related expenses, decreased development activities, lower expenditures for
clinical trials and the Company's efforts to reduce costs.
Cost of goods sold for fiscal 1996 decreased by $20,000 from the prior
fiscal year. Cost of goods sold in fiscal 1996 were 80% of product revenues
versus 40% of product revenues for fiscal 1995. The increase in this percentage
is the result of a change in product mix between fiscal years and is
attributable to lower margins experienced on contract service revenues in fiscal
1996 and the write-off of products no longer being sold.
Selling, general and administrative expenses for fiscal 1996, totaling
$4,925,000, increased $251,000 from fiscal 1995 due primarily to increases in
legal expenses and employee retention costs offset in part by a decrease in
administrative personnel and related expenses as part of the Company's cost
reduction efforts.
Interest expense for fiscal 1996 reflects interest incurred by the
Company through May 1995 when its term loan with a bank was paid in full and the
decrease from the comparable fiscal 1995 period reflects a full twelve months of
interest incurred in fiscal 1995.
In the year ended March 31, 1996, the Company issued 243,600 shares of
its common stock for all of the common stock of Glycan Pharmaceuticals, Inc.
("Glycan"). The acquisition was accounted for as a purchase, with the excess of
the purchase price and acquisition costs over the fair value of the assets
acquired of approximately $334,000 charged to operations as the cost of acquired
research and development.
Liquidity and Capital Resources
The Company's total cash, cash equivalents and marketable securities
decreased to $3,538,000 at March 31, 1997 from $7,222,000 at March 31, 1996.
This decrease is primarily due to the reductions in payables and accruals of
$3,699,000. Working capital decreased to $3,990,000 at March 31, 1997 from
$4,154,000 at March 31, 1996.
Capital expenditures for fiscal 1997 and 1996 were $429,000 and
$463,000, respectively. The capital expenditures in fiscal 1997 primarily
reflect the leasehold
19
improvements for the newly leased space and the purchase of research and
development equipment.
The Company has funded operations primarily with cash derived from the
sales of its equity securities, revenue derived from research and development
contracts, product sales, investment income and the sale of the Company's share
of a joint venture. The Company believes it has sufficient cash equivalents and
marketable securities to satisfy working capital and capital expenditure
requirements for the next twenty-four months. Should the Company need to secure
additional financing to meet its future liquidity requirements, there can be no
assurances that the Company will be able to secure such financing, or that such
financing, if available, will be on terms favorable to the Company. Management
believes that the Company's current operations are not materially impacted by
the effects of inflation.
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 the Company's directors will be set forth under
the captions "Elections of Directors" and "The Board of Directors and its
Committees" in the Company's definitive proxy statement for its annual meeting
of stockholders to be held on July 24, 1997 which will be filed with the
Securities and Exchange Commission within 120 days of March 31, 1997 and is
incorporated herein by reference.
Information regarding the Company's executive officers is contained in
Part 1 of this report.
Item 11. EXECUTIVE COMPENSATION
Information regarding the Company's directors will be set forth under
the caption "Executive Compensation" in the Company's definitive proxy statement
for its annual meeting of stockholders to be held on July 24, 1997 which will be
filed with the Securities and Exchange Commission within 120 days of March 31,
1997 and is incorporated herein by reference.
20
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding the Company's directors will be set forth under
the caption "Security Ownership Of Certain Beneficial Owners And Management" in
the Company's definitive proxy statement for its annual meeting of stockholders
to be held on July 24, 1997 which will be filed with the Securities and Exchange
Commission within 120 days of March 31, 1997 and is incorporated herein by
reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding the Company's directors will be set forth under
the caption "Certain Relationships And Related Transactions" in the Company's
definitive proxy statement for its annual meeting of stockholders to be held on
July 24, 1997 which will be filed with the Securities and Exchange Commission
within 120 days of March 31, 1997 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 Accountants............................................F-2
Consolidated Balance Sheets as of March 31, 1997 and 1996....................F-3
Consolidated Statements of Operations for Years Ended
March 31, 1997, 1996, 1995.................................................F-4
Consolidated Statements of Stockholders' Equity for Years Ended
March 31, 1997, 1996, 1995.................................................F-5
Consolidated Statements of Cash Flows for Years Ended
March 31, 1997, 1996, 1995.................................................F-6
Notes to Consolidated Financial Statements...................................F-7
(a) (2) Index to Financial Statement Schedules:
---------------------------------------
1. Schedule II - Valuation and Qualifying Accounts
2. Other financial statement schedules are omitted as the required
information is either presented in the financial statements or related notes
thereto.
(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.
21
(b) Reports on Form 8-K:
--------------------
No Current Reports on Form 8-K were filed by the Company
during the last quarter of the period covered by this
report.
EXHIBIT INDEX
-------------
Exhibit
Number Document Description
- - ------ --------------------
3. Articles of Incorporation and By-Laws
3.1* Restated Certificate of Incorporation, dated June 30, 1992 and filed
July 13, 1992 (filed as Exhibit 4.12 to Repligen Corporation's Annual
Report on Form 10-K for the year ended March 31, 1993 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. Instruments Defining the Rights of Security Holders
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* Form of Limited Partner Warrant, dated as of February 28, 1992 (filed
as Exhibit 4.9 to Repligen Corporation's Annual Report on Form 10-K for
the year ended March 31, 1992 and incorporated herein by reference).
4.3* Form of Class B Limited Partner Warrant, dated as of February 28, 1992
(filed as Exhibit 4.10 to Repligen Corporation's Annual Report on Form
10-K for the year ended March 31, 1992 and incorporated herein by
reference).
4.4* Form of Incentive Warrant, dated as of February 28, 1992 (filed as
Exhibit 4.11 to Repligen Corporation's Annual Report on Form 10-K for
the year ended March 31, 1992 and incorporated herein by reference).
4.5* Form of Fund Warrant, dated as of February 28, 1992 (filed as Exhibit
4.12 to Repligen Corporation's Annual Report on Form 10-K for the year
ended March 31, 1992 and incorporated herein by reference).
4.6* The 1992 Repligen Corporation Stock Option Plan (filed as Exhibit 4.12
to Repligen Corporation's Annual Report on Form 10-K for the year ended
March 31, 1993 and incorporated herein by reference).
4.7* The Amended 1992 Repligen Corporation Stock Option Plan, adopted by the
stockholders on September 10, 1996 (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).
22
10. Material Contracts
10.1* License Agreement, dated December 2, 1980, between the Trustees of
Leland Stanford Junior University and Repligen Corporation (filed as
Exhibit 10.1 to Repligen Corporation's Form S-1 Registration Statement
No. 33-3959 and incorporated herein by reference).
10.2* 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).
10.3* 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).
10.4* License Agreement, dated November 14, 1990, between the Regents of the
University of Michigan and Repligen Corporation (filed as Exhibit 10.27
to Repligen Corporation's Annual Report on Form 10-K for the year ended
March 31, 1991 and incorporated herein by reference).
10.5* Product Development Agreement, dated as of February 2, 1992, between
Repligen Corporation and Repligen Clinical Partners, L.P. (filed as
Exhibit 10.29 to Repligen Corporation's Annual Report on Form 10-K for
the year ended March 31, 1992 and incorporated herein by reference).
10.6* Purchase Agreement, dated February 2, 1992, between Repligen
Corporation and each of the Limited Partners from time to time of
Repligen Clinical Partners, L.P. (filed as Exhibit 10.30 to Repligen
Corporation's Annual Report on Form 10-K for the year ended March 31,
1992 and incorporated herein by reference).
10.7* License Agreement, dated as of September 1, 1991, by and between
Repligen Corporation and Kabi Pharmacia AB (filed as Exhibit 10.37 to
Repligen Corporation's Annual Report on Form 10-K for the year ended
March 31, 1992 and incorporated herein by reference).
10.8* Plan of Reorganization and Agreement of Merger, dated March 14, 1996,
between Repligen Corporation and Glycan Pharmaceuticals, Inc. (omitting
schedules and exhibits) (filed as Exhibit 10.42 to Repligen
Corporation's Annual Report on Form 10-K for the year ended March 31,
1996 and incorporated herein by reference).
10.9* 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).
23
10.10* 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).
10.11* 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).
10.12* 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).
10.13* Stock Exchange Agreement dated as of December 18, 1996 between
ProsCure, Inc. Shareholders and Repligen Corporation (filed as Exhibit
10.1 to Repligen Corporation's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1996 and incorporated herein by reference).
10.14* Warrant Exchange Agreement dated as of December 18, 1996 between
ProsCure, Inc. Warrant holders and Repligen Corporation (filed as
Exhibit 10.2 to Repligen Corporation's Quarterly Report on Form 10-Q
for the quarter ended December 31, 1996 and incorporated herein by
reference).
21+ Subsidiaries of Repligen Corporation.
23+ Consent of Arthur Andersen LLP
27+ Financial Data Schedule
- - -----------
* Previously filed with the Securities and Exchange Commission and
Incorporated herein by reference.
+ 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 1997 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 02194.
24
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
Date: May 22, 1997
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby makes, constitutes and appoints Walter C. Herlihy and Daniel P.
Witt, and each of them, 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 attorneys-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 attorneys-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 by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature Title Date
- - --------- ----- ----
Co-Chairman of the Board of Directors May 22,1997
/s/ Alexander Rich
Alexander Rich, M.D.
Co-Chairman of the Board of Directors May 22, 1997
/s/ Paul Schimmel
Paul Schimmel, Ph.D.
President, Chief Executive Officer and Director May 22, 1997
/s/ Walter C. Herlihy (Principal Financial and Accounting Officer)
Walter C. Herlihy
Director May 22, 1997
/s/ G. William Miller
G. William Miller
25
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Public Accountants F-2
Consolidated Balance Sheets at March 31, 1997 and 1996 F-3
Consolidated Statements of Operations for Years
Ended March 31, 1997, 1996 and 1995 F-4
Consolidated Statements of Stockholders' Equity for Years
Ended March 31, 1997, 1996 and 1995 F-5
Consolidated Statements of Cash Flows for Years
Ended March 31, 1997, 1996 and 1995 F-6
Notes to Consolidated Financial Statements F-7
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Repligen Corporation:
We have audited the accompanying consolidated balance sheets of
Repligen Corporation (a Delaware corporation) and subsidiaries as of March 31,
1997 and 1996, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended March 31, 1997. 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 generally accepted auditing
standards. 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
and subsidiaries as of March 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
March 31, 1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
May 13, 1997
F-2
REPLIGEN CORPORATION
CONSOLIDATED BALANCE SHEETS
Years Ended March 31,
---------------------------------------
1997 1996
----------- -------------
ASSETS
Current assets:
Cash and cash equivalents $3,465,881 $6,944,140
Marketable securities 72,353 278,115
Accounts receivable, less reserves
of $65,000 and $152,000, respectively 534,929 421,254
Amounts due from affiliate -- 42,284
Inventories 452,241 701,224
Prepaid expenses and other current assets 165,720 188,554
----------- -------------
Total current assets 4,691,124 8,575,571
Property, plant and equipment, at cost:
Equipment 724,564 688,091
Furniture and fixtures 28,820 20,422
Leasehold improvements 386,199 2,000
----------- -------------
1,139,583 710,513
Less -- accumulated depreciation and amortization 349,112 176,946
----------- -------------
790,471 533,567
Restricted cash 50,087 --
Other assets, net 88,909 121,389
----------- -------------
$ 5,620,591 $ 9,230,527
=========== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 168,269 $ 546,129
Accrued expenses and other 399,988 3,720,881
Unearned income 133,313 154,998
----------- -------------
Total current liabilities 701,570 4,422,008
Commitments and contingencies (Notes 8 and 10)
Stockholders' equity:
Preferred stock, $.01 par value -- authorized --
5,000,000 shares -- outstanding -- none -- --
Common stock, $.01 par value -- authorized --
30,000,000 shares -- outstanding -- 16,008,211
shares and 15,602,542 shares
at March 31, 1997 and 1996, respectively 160,082 156,025
Additional paid-in capital 128,318,430 127,694,145
Deferred compensation (26,447) --
Accumulated deficit (123,533,044) (123,041,651)
----------- -------------
Total stockholders' equity 4,919,021 4,808,519
----------- -------------
$ 5,620,591 $ 9,230,527
============ =============
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
REPLIGEN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended March 31,
------------------------------------------------
1997 1996 1995
---------- ---------- -----------
Revenues:
Research and development $1,179,980 $5,424,304 $10,988,567
Product 1,553,598 1,873,687 3,884,642
Investment income 268,645 737,536 1,424,558
Other 799,319 298,350 644,548
Sale of intellectual property rights -- 2,525,000 --
---------- ---------- -----------
3,801,542 10,858,877 16,942,315
---------- ---------- -----------
Costs and expenses:
Research and development 1,378,391 11,980,574 31,011,893
Selling, general and administrative1,939,881 4,925,345 4,673,580
Cost of goods sold 536,685 1,515,637 1,535,026
Restructuring charge (credit) (111,000) 3,567,000 11,300,000
Charge for purchased research &
development 548,978 333,811 --
Interest -- 58,050 372,133
---------- ---------- -----------
4,292,935 22,380,417 48,892,632
---------- ---------- -----------
Net loss $ (491,393) $(11,521,540) $(31,950,317)
========== ========== ===========
Net loss per common share $ (0.03) $ (0.75) $ (2.08)
========== ========== ===========
Weighted average common
shares outstanding 15,677,998 15,370,252 15,356,136
========== ========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
REPLIGEN CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Additional
Number of Paid-in Deferred Accumulated Stockholders'
Shares Par Value Capital Compensation Deficit Equity
- - ------------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1994 15,302,675 $ 153,027 $126,153,487 $ -- $ (79,569,794) $ 46,736,720
Net loss -- -- -- -- (31,950,317) (31,950,317)
Contribution of common stock
to ESOP 54,355 543 373,140 -- -- 373,683
Issuance of warrants in
connection with Repligen
Clinical Partners, L.P., net of
exchange warrants costs
of $733,613 -- -- 416,298 -- -- 416,298
---------- --------- ------------ ---------- ------------- ------------
Balance, March 31, 1995 15,357,030 153,570 126,942,925 -- (111,520,111) 15,576,384
Net loss -- -- -- -- (11,521,540) (11,521,540)
Issuance of common stock
in connection with the
acquisition of Glycan
Pharmaceuticals, Inc. 243,600 2,436 332,514 -- -- 334,950
Exercise of stock options 1,912 19 2,978 -- -- 2,997
Issuance of warrants in connection
with Repligen Clinical
Partners, L.P. -- -- 415,728 -- -- 415,728
---------- --------- ------------ ---------- ------------- ------------
Balance, March 31, 1996 15,602,542 156,025 127,694,145 -- (123,041,651) 4,808,519
Net loss (491,393) (491,393)
Issuance of common stock in
connection with the
acquisition of Proscure, Inc. 405,669 4,057 544,921 548,978
Compensation relating to issuance
of stock options -- -- 79,364 (26,447) -- 52,917
---------- --------- ------------ ---------- ------------- ------------
Balance, March 31, 1997 16,008,211 $ 160,082 $128,318,430 $ (26,447) $(123,533,044) $ 4,919,021
========== ========= ============ ========== ============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
REPLIGEN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended March 31,
--------------------------------------------
1997 1996 1995
-------- ----------- ------------
Cash flows from operating activities:
Net loss (491,393) (11,521,540) $(31,950,317)
Adjustments to reconcile net loss to net cash
used in operating activities --
Depreciation and amortization 172,399 1,438,356 2,602,182
Issuance of stock options for services 52,904 -- --
Contribution of common stock to ESOP -- -- 373,683
Equity in net loss of an affiliate 20,504 65,766
Research and development charge 548,978 333,811 --
Restructuring (credit) charge, non-cash portion (111,000) 2,321,000 4,754,593
Changes in assets and liabilities, net of acquisition of Glycan
Pharmaceuticals, Inc.
Accounts receivable (113,675) 1,279,915 939,146
Amounts due from affiliates 42,284 920,077 4,955,143
Inventories 248,983 512,155 96,956
Prepaid expenses and other current assets 22,834 866,212 663,413
Accounts payable (377,860) (678,022) (804,581)
Accrued expenses and other (3,209,893) (4,592,680) 4,483,274
Unearned income (21,685) (203,000) (799,740)
---------- ---------- ---------
Net cash used in operating activities (3,237,124) (9,303,212) (14,620,482)
---------- ---------- ---------
Cash flows from investing activities:
Decrease in marketable securities 205,762 1,202,597 79,680
Acquisition of Glycan Pharmaceuticals, Inc. -- (144,836) --
Purchases of property, plant and equipment, net (429,070) (463,378) (556,174)
(Increase) decrease in restricted cash (50,087) 1,000,000 --
Proceeds form a note receivable from affiliate -- 4,620,000 --
Decrease in other assets 32,480 412,857 484,091
---------- ---------- ---------
Net cash (used in) provided by investing activities (241,135) 6,627,240 7,597
---------- ---------- ---------
Cash flows from financing activities:
Proceeds from sales of common stock and issuance of
warrants, net of issuance costs and commissions -- 418,725 416,298
Payment of term loan to a bank -- (4,620,000) --
Proceeds from leasing transactions -- -- 362,913
---------- ---------- ---------
Net cash (used in) provided by
financing activities -- (4,201,275) 779,211
---------- ---------- ---------
Net decrease in cash and cash equivalents (3,478,259) (6,877,247) (13,833,674)
Cash and cash equivalents, beginning of year 6,944,140 13,821,387 27,655,061
Cash and cash equivalents, end of year $3,465,881 $6,944,140 $13,821,387
========== ========== ==========
Supplemental disclosure of cash flow information:
Cash paid for interest $ -- $ 58,050 $ 372,133
========== ========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
REPLIGEN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Operations
Repligen Corporation and subsidiaries (the "Company") is a
biopharmaceutical company engaged in the development of enabling technologies
for discovery of new drugs. The Company's technology is designed to increase the
efficiency of the process by which new drug candidates are identified. Repligen
also manufactures and markets a line of bioprocessing products used in the
commercial production of antibodies.
The Company has incurred significant operating losses since inception
and underwent significant restructuring of its operations in fiscal 1996 and
1995 (see Note 11).
During fiscal 1997, the Company issued 405,669 shares of its common
stock for all of the outstanding stock of ProsCure, Inc. ("ProsCure). The
acquisition was accounted for as a purchase, with the excess of the purchase
price and acquisition costs over the fair value of the assets acquired of
approximately $549,000 charged to operations as the cost of acquired research
and development in process. The Company acquired assets having a fair value of
approximately $170,000, consisting primarily of cash and receivables. Results of
operations for ProsCure are included in the consolidated financial statements of
the Company, since March 14, 1996, as ProsCure is a subsidiary of Glycan
Pharmaceuticals, Inc. Unaudited pro forma information with respect to ProsCure's
pre-acquisition operating results has not been presented as it is not material.
On March 14, 1996, the Company issued 243,600 shares of its common
stock for all of the common stock of Glycan Pharmaceuticals, Inc. ("Glycan").
The acquisition was accounted for as a purchase, with the excess of the purchase
price and acquisition costs over the fair value of the assets acquired of
approximately $334,000 charged to operations as the cost of acquired research
and development in process. The Company acquired assets having a fair value of
approximately $296,000, consisting primarily of cash and equipment, and assumed
liabilities of approximately $295,000. Results of operations for Glycan are
included in the consolidated financial statements of the Company since the date
of acquisition. Unaudited pro forma information with respect to Glycan's
pre-acquisition operating results has not been presented as it is not material.
2. Significant Accounting Policies
The accompanying consolidated financial statements reflect the
application of certain accounting policies described in this note and elsewhere
in the accompanying notes to consolidated financial statements.
Use of Estimates in the Preparation of Financial Statements
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
F-7
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All material intercompany accounts
and transactions have been eliminated in consolidation.
Reclassifications
Reclassifications have been made in consolidated financial statements
to conform with the current year's presentation.
Revenue Recognition
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 the development contract, which approximates when
work is performed and costs are incurred. In addition, under certain contracts,
the Company recognizes research and development revenues as milestones are
achieved. Unearned income represents amounts received prior to recognition of
revenue. Research and development expenses in the accompanying consolidated
statements of operations include funded and unfunded expenses.
The Company recognizes revenue related to product sales upon shipment
of the product.
Other revenue includes the management fee received from Repligen
Clinical Partners, L.P. The management fee revenue is recognized as earned (see
Note 10). In fiscal 1997, revenues recognized from the one-time sale of
equipment and non-investment securities are also included as other revenue.
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 Life
- - ----------- ----
Equipment 5 years
Furniture and fixtures 5-7 years
Leasehold improvements Shorter of term of the lease or estimated useful life
F-8
Net Loss Per Common Share
Net loss per common share has been computed by dividing net loss by the
weighted average number of shares outstanding during the period. Common stock
equivalents have not been included for any period, as the amounts would be
antidilutive.
In February 1997 the Financial Accounting Standard Board issued SFAS
No. 128 Earnings Per Share, which requires a new method of calculating earnings
per share (EPS). The Company will be required to use this method for fiscal
1998. The Company anticipates that reported EPS will be unchanged from amounts
presented in the statement of operations.
Disclosure of Fair Value of Financial Instruments and Concentration of Credit
Risk
SFAS No. 107, "Disclosure About Fair Value of Financial Instruments",
requires disclosure about fair value of financial instruments. Financial
instruments which potentially expose the Company to concentrations of credit
risk consist mainly of cash and cash equivalents, accounts receivable and
accounts payable. The Company does not believe that significant credit risk
exists at March 31, 1997. The estimated fair value of these financial
instruments approximates their carrying value.
3. Cash Equivalents and Marketable Securities
The Company considers all highly liquid investments with original
maturities of three months or less at the time of acquisition to be cash
equivalents. Included in cash equivalents at March 31, 1997 are approximately
$542,000 of money market funds and $2,730,000 of commercial paper. Cash
equivalents at March 31, 1996 include $5,498,000 of money market funds and
$3,000,000 of bank time deposits. Investments with a maturity period of greater
than three months are classified as marketable securities and consist of
approximately $13,000 and $278,000 of collateralized mortgage obligations at
March 31, 1997 and March 31, 1996, respectively.
The Company applies Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS
No. 115"). Under SFAS No. 115, securities that the Company has the positive
intent and ability to hold to maturity are classified as "held-to-maturity."
These securities include cash, cash equivalents and corporate bonds with
maturities of less than one year. The held-to-maturity securities are reported
at amortized cost, which approximates fair market value at March 31, 1997 and
1996. Securities purchased to be held for indefinite periods of time, and not
intended at the time of purchase to be held until maturity, are classified as
"available-for-sale" securities. These securities consist of collateralized
mortgage obligations with average maturities in excess of 10 years. The Company
also carries these investments at amortized cost, which approximates fair market
value at March 31, 1997 and 1996. The estimated fair market value of marketable
securities is based primarily on market quotations.
F-9
4. Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market and consist of the following:
Year Ended March 31,
---------------------------------
1997 1996
-------- --------
Raw materials and work-in-process......... $298,287 $ 1,955
Finished goods............................ 153,954 699,269
-------- --------
Total.................................. $452,241 $701,224
======== ========
Work-in-process and finished goods inventories consist of material,
labor, outside processing and manufacturing overhead.
5. Accrued Expenses and Other
Accrued expenses and other consisted of the following:
Year Ended March 31,
---------------------------------
1997 1996
--------- -----------
Restructuring charges........................ $ -- $ 2,594,478
Payroll and payroll-related costs............ 128,399 78,958
Professional and consulting fees............. 83,000 677,818
Other accrued expenses....................... 188,589 369,627
--------- -----------
Total..................................... $ 399,988 $ 3,720,881
========= ===========
6. Income Taxes
The Company accounts for income taxes under SFAS No. 109, "Accounting
for Income Taxes." At March 31, 1997, the Company had net operating loss
carryforwards for income tax purposes of approximately $91,500,000. The Company
also had available tax credit carryforwards of approximately $4,800,000 at March
31, 1997 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.
F-10
8. Commitments
The Company leases their facilities. Obligations under noncancellable
operating leases as of March 31, 1997 are approximately as follows:
Year Ending March 31,
---------------------
1998 $ 275,000
1999 281,000
2000 281,000
2001 158,000
2002 74,000
----------
Total minimum lease payments $1,069,000
==========
Rent expense charged to operations under operating leases was
approximately $832,000, $2,932,000, and $5,926,000 for the years ended March 31,
1997, 1996 and 1995, respectively.
9. Stock Option Plans
The Company has three stock option plans. The plans authorize the grant
of either incentive stock options or non qualified stock options. Incentive
stock options are granted to employees at the fair market value at the date of
grant. Non-qualified stock options are granted to employees or non-employees.
The options generally vest over four or five years and expire no more than 10
years from the date of grant.
A summary of stock option activity under all plans is as follows:
Years Ended March 31,
---------------------------------------------------------------------------------------------
1997 1996 1995
---- ---- ----
Option Option Option
No. of Price No. of Price No. of Price
Shares Per Share Shares Per Share Shares Per Share
------ --------- ------ --------- ------ ---------
Outstanding at
beginning of
period 953,046 $0.05-19.25 1,291,730 $0.05-19.25 2,045,905 $0.05-19.25
Granted 180,500 .50- 1.37 454,550 1.25-2.44 1,524,056 2.06-5.25
Exercised -- -- (1,912) 1.57 -- --
Forfeited (647,198) .05-19.25 (791,322) 1.50-19.25 (2,278,231) 2.59-19.25
-------- --------- -------- ---------- ---------- ----------
Outstanding at
end of period 486,348 $0.50-12.45 953,046 $0.05-19.25 1,291,730 $0.05-19.25
-------- ========= ======== ========== ========== ==========
Exercisable at
end of period 148,945 $0.50-12.45 343,129 $0.05-19.25 137,395 $0.05-19.25
======== ========= ======== ========== ========== ==========
The Company accounts for its stock-based compensation under SFAS No. 123. The
Company has adopted the disclosure-only alternative under SFAS No. 123 and will
continue to account for stock based compensation under APB Opinion No. 25.
F-11
The Company has computed the pro forma disclosures required under SFAS No. 123
for all stock options granted in 1996 and 1997 using the Black-Scholes option
pricing model prescribed by SFAS No. 123. The assumptions used and the weighted
average information for the years ending March 31, 1997 and 1996 are as follows:
Years ended March 31,
------------------------------
1997 1996
Risk-free interest rates 6.44% 6.57%
Expected dividend yield -- --
Expected lives 10 years 10 years
Expected volatility 106% 106%
Weighted-average grant date fair value of options
granted during the period $1.45 $ .96
Weighted-average exercise price $1.44 $3.16
Weighted-average remaining contractual life of
options outstanding 8.9 years 7.4 years
Weighted-average exercise price of options
exercisable at March 31, 1997 and
1996, respectively $1.84 $5.33
Had compensation cost for the Company's stock option plan been
determined consistent with SFAS No. 123 pro forma net loss and net loss per
share would have been:
Years Ending March 31,
-----------------------
1997 1996
Net loss-
As reported........................................ ($491,393) $(11,521,540)
Pro forma.......................................... ($573,077) ($11,602,291)
Net loss per share-
As reported........................................ $ (.03) $ (.75)
Pro forma.......................................... $ (.04) $ (.76)
10. Research and Development Agreements and Significant Customers
During fiscal 1997, the Company had no customer that represented 10% of
fiscal 1997 revenues. During 1996 and 1995, the Company had two significant
customers comprising 49% and 66% of total revenues, respectively.
Eli Lilly and Company
In May 1992, the Company entered into a Research, Collaboration and
License Agreement with Eli Lilly and Company ("Lilly"), whereby the Company
granted Lilly an exclusive license to make, use and sell products utilizing
antibodies, antibody fragments and engineered polypeptides that bind to CD11b
(the "Products"). In addition, the Company recognized revenues of approximately
$2,613,000 and $6,262,000 for research and development performed in fiscal 1996
and 1995 respectively. In September 1995, Lilly terminated its collaboration and
licensing
F-12
agreement with the Company with respect to the joint development of
the CD11b Program and the rights to the Program were returned to Repligen.
Repligen Clinical Partners, L.P.
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 $190,000,
$2,693,000, and $4,352,000 of such funding as revenue in fiscal 1997, 1996 and
1995, respectively. During fiscal 1995, the Company incurred an additional
$1,641,000 of research and development costs which could have been charged to
the Partnership, but which was absorbed by the Company in an effort to preserve
the funds of the Partnership. Included in other revenues for the years ended
March 31, 1997, 1996 and 1995 are approximately $25,000, $311,000, and $550,000,
respectively, representing the 10% management fee under the Product Development
Agreement. Profits and losses are allocated 1% to the General Partner and 99% to
the Limited Partners. The Company accounts for its investment on the equity
method and has recorded losses of approximately $21,000 and $66,000 as its share
of the losses from the Partnership in the accompanying consolidated statements
of operations for the years ended March 31, 1996 and 1995, respectively.
Although the Company was allocated a loss of $2,400 for the year ended March 31,
1997, the Company had previously written down all of its original investment. As
of March 31, 1997 and 1996, the Partnership owed the Company approximately
$55,000 and $42,000, respectively, for amounts due under the Product Development
Agreement.
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. The Company will assist the
Partnership in exploring alternatives to maximize the value of the rPF4 program
for the benefit of the Partnership.
In connection with the initial capitalization of the Partnership, the
Company issued warrants to purchase common stock of Repligen to the limited
partners of the Partnership (the "Original Warrants").
As of March 31, 1997, 620 of the 711.5 non-defaulted limited
partnership units had accepted the modifications. Accordingly, as of that date,
there were issued and outstanding Original Warrants to purchase 75,400 shares of
the Company's common
F-13
stock at $22.73 per share, modified Original Warrants to
purchase 163,850 shares of the Company's common stock at $9.00 per share,
Exchange Warrants to purchase 189,950 shares of the Company's common stock at
$9.00 per share and modified Exchange Warrants to purchase 1,653,250 shares of
the Company's common stock at $2.50 and $3.50 per share. These warrants expire
between 1999 and 2001.
11. Restructuring of Operations
During fiscal 1996, the Company completed a major downsizing and
consolidation of its operations in an effort to stabilize its financial
condition and preserve its cash resources. The restructuring included a
substantial reduction in the Company's work force, the termination of several
research programs and the closing of its Cambridge research and manufacturing
facility. During the fourth quarter of fiscal 1996, the Company recorded a
charge of $3,567,000 to cover severance costs and related benefits, the
settlement of operating equipment lease and facility lease obligations, the
write-off of certain leasehold improvements and equipment no longer being
utilized, reduced in part by cash received from the sale of assets and the
reversal of certain accruals no longer required.
In fiscal 1997, under the terms of negotiated settlement arrangements,
the Company paid approximately $3,300,000 in settlement fees to the facility
landlord and equipment lessors, which included the purchase price of certain
leased equipment from the equipment lessors. In May 1996, certain equipment
originally on lease as well as certain surplus Company owned equipment was sold
at public auction for approximately $1,250,000. The obligation for the
settlement payments to the lessors and the landlord, net of funds received from
the sale of equipment, was reflected in the restructuring accrual at March 31,
1996. During fiscal 1997, the Company made payments of approximately $2,483,000
for amounts accrued in fiscal 1996. In addition, the Company reversed accruals
of approximately $111,000 no longer required .
During fiscal 1995, the Company also substantially restructured its
operations in an effort to reduce its rate of expenditures and preserve its
available cash and investment balances. During fiscal 1995, the Company recorded
charges of $11,300,000 to cover severance costs and related benefits, certain
rental losses associated with the sublease of certain facilities, the write-off
of certain leasehold improvements, equipment and other intangible assets that
were no longer utilized and to reserve for future operating lease payments for
equipment that was longer utilized. The details of the restructuring charges are
as follows:
F-14
Years Ended March 31,
--------------------------------------
Amounts (in 000s) 1996 1995
------------------ -------------------
Severance and related benefits for terminated employees $ 333 $ 2,035
Reserve for future operating lease payments
for assets no longer being utilized 1,991 3,250
Reserve for rental losses associated with
the sublease of surplus lab and office space -- 940
Contract termination fees -- 320
Legal fees 172 --
Less -- cash received from the sale of surplus equipment (1,250) --
------- -------
Cash related expenditures 1,246 6,545
Write-off of leasehold improvements, equipment
and other intangibles no longer being utilized 3,854 4,755
Less -- reversal of accruals no longer required due to changes
in operations (1,533) --
------- -------
Non-cash related expenditures 2,321 4,755
------- -------
$3,567 $11,300
======= =======
The accrued restructuring activity is as follows:
Years Ended March 31,
Amounts (in 000s) 1996 1995
------------------ -------------------
Balance, beginning of year $5,469 $
--
Payments (4,300) (1,076)
Provision 2,496 6,545
Write-off of leasehold improvements, equipment
and other intangibles no longer being utilized, net of
auction proceeds (2,604) --
Less -- reversal of accruals no longer required 1,533 --
------- -------
Balance, end of year $2,594 $ 5,469
======= =======
F-15
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To Repligen Corporation:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements included in this Form 10-K, and have issued
our report thereon dated May 13, 1997. Our audit was made for the purpose of
forming an opinion on those statements taken as a whole. The schedule listed in
Item 14(a)(2) is the responsibility of the Company's management and is presented
for purposes of complying with the Securities and Exchange Commission's rules
and is not part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
May 13, 1997
F-16
SCHEDULE II
REPLIGEN CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Balance at Balance
Beginning at End
Item of Period Addition Deduction of Period
- - ------------------------ ------------- ----------- ---------- -----------
Allowance for Doubtful
Accounts
1997 $152,000 $ -- $ 87,000 $ 65,000
1996 $300,000 $102,000 $250,000 $152,000
1995 $205,000 $ 95,000 $ -- $300,000
F-17
EXHIBIT 21
SUBSIDIARIES OF REPLIGEN CORPORATION
RGEN Corporation
Amira, Inc.
Repligen Development Corporation
Glycan Pharmaceuticals, Inc.
ProsCure, Inc.
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our reports included in this Form 10-K, into the previously
filed Registration Statement File on Form S-8, No. 33-62796.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
May 29, 1997