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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
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 02494
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES (ZIP CODE)
Registrant's telephone number, including area code: (781) 449-9560
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 Par Value
(Title of Class)
Indicate by checkmark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes ____ No _X_
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 June 22, 1998 was
approximately $27,002,678.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of June 22, 1998: 18,001,785
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,
1998. Portions of such Proxy Statement are incorporated by reference in Part III
of this Form 10-K.
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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") develops enabling
technology for the discovery of new drugs including ultra-rapid methods for the
synthesis of chemical compound libraries, and high throughput screening assays
based on defined biological targets. The Company's technology is designed to
identify compounds capable of blocking or stabilizing pharmaceutically important
interactions between proteins and other macromolecules. To date, this type of
interaction has only been accessible with complex natural products or protein
pharmaceuticals both of which are difficult to develop, administer to patients
and manufacture. The Company's goal is to develop organically synthesized drugs
which can mimic the action of these natural products and proteins.
In selected therapeutic areas, Repligen is applying its technology to the
discovery of proprietary drug leads. The primary proprietary drug discovery
program at the Company is the development of novel inhibitors of angiogenesis or
new blood vessel growth which is essential for solid tumor growth and in certain
ocular diseases. This program is based on proprietary, high throughput screening
assays designed to detect inhibitors of the growth factors which drive
angiogenesis and proprietary libraries of compounds designed to mimic the
natural cell surface ligands of these growth factors. In initial preclinical
studies, a compound identified from these libraries inhibited angiogenic growth
factors IN VITRO AND IN VIVO at non-toxic doses.
Repligen also develops, manufactures and markets products for the production
of protein pharmaceuticals (biopharmaceuticals) by affinity chromatography. The
Company currently markets a line of products for the production of monoclonal
antibodies intended for human clinical use based on a recombinant form of
Protein A, a naturally occurring affinity ligand. The Company believes that its
chemical libraries may be the source of additional affinity ligands for
biopharmaceutical manufacturing.
Repligen Corporation was incorporated in March, 1981, under the laws of the
State of Delaware. Its principal executive offices are at 117 Fourth Avenue,
Needham, Massachusetts 02494 and its telephone number is (781) 449-9560.
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DRUG DISCOVERY TECHNOLOGY--BACKGROUND
Pharmaceutical companies use a drug discovery process which starts with the
identification of a "Biological Target" which is implicated in a disease. The
target is then formatted into a test (a "High Throughput Screening Assay") which
can be used to determine if any of 100,000 to 1,000,000 individual chemical
compounds (a "Chemical Compound Library") shows activity against the Biological
Target. Compounds from the library which are identified by the screening assay
(a "New Drug Lead") may be the basis for chemical analoging to improve their
potency, specificity and pharmacology prior to evaluation in animal disease
models and ultimately human clinical trials. The new drug lead discovery phase
of this process is summarized below:
[CHART]
Recent advances in human and bacterial genetics (genomics) have identified
hundreds of potential Biological Targets for drug discovery. 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
high throughput screening technologies.
Enzymes and cellular receptors which naturally bind a small molecule are two
classes of Biological Targets well established in the pharmaceutical industry.
For many of these types of targets the process outlined above is a relatively
efficient approach to identifying a new drug lead. A third class of Biological
Targets consists of the interaction of a protein and a second macromolecule such
as a carbohydrate, a nucleic acid (DNA or RNA) or another protein. For most of
these targets, it remains a formidable challenge to identify New Drug Leads
which are organically synthesized small molecules.
To date, drugs which target protein-macromolecular interactions have been
identified by isolating active compounds from mixtures derived from extracts of
plants or microorganisms. For example, * Taxol-TM-, a major drug for the
treatment of certain cancers, was identified in extracts of the bark of the
pacific yew tree and Cylcosporin A, a leading drug for organ transplant
recipients, was identified in a fungal extract. Despite the fact that natural
products are often more difficult to develop, manufacture and administer to
patients than an organically synthesized drug, no chemically synthesized drugs
have been identified which mimic the activity of these two important natural
products. In addition, there are no synthetic compounds or natural products
available for many interesting biological targets which involve
protein-macromolecule interactions. Repligen believes that the development of
technology to extend the application of high throughput screening of chemical
libraries to the identification of New Drug Leads which modulate protein-
macromolecule interactions will have broad application within the pharmaceutical
industry.
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*Taxol-TM- is a registered trademark of Bristol-Myers Squibb Co.
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COMBINATORIAL CHEMISTRY
In the past five years, the pharmaceutical industry has rapidly adopted
combinatorial chemistry as a method to synthesize libraries 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 500,000 compounds have been
constructed. The primary application of this technology has been the creation of
chemical libraries of small compounds suitable for Biological Targets which are
enzymes or receptors which bind a small molecule. These compounds are generally
not suitable for identifying drugs which can act on protein-macromolecular
targets.
Repligen is currently developing ultra-efficient techniques for the
synthesis of libraries of chemical compounds for targets involving
protein-macromolecule interactions. These techniques rely upon a set of chemical
reactions known as multi-component condensations (MCCs) in which three or four
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 MCCs 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.
Repligen has focused the development of its MCC technology on the creation
of compounds with size and complexity comparable to natural products which are
known to modulate important protein-macromolecule interactions. Like many
natural products, these "complex" organic compounds contain 4 to 7 different
chemical substituents which can interact with the target and are typically 2-3
times larger than either traditional drugs or the products of existing
combinatorial chemical technology. The Company believes that these libraries of
"complex structures" may be better sources of leads for biological targets
involving protein-macromolecule interactions which are difficult to access with
existing technology.
HIGH THROUGHPUT SCREENING ASSAYS
Repligen has developed a series of high throughput screening assays for the
identification of New Drug Leads in its own libraries or those of its partners.
Most of these assays detect compounds which inhibit protein-protein and
protein-carbohydrate interactions. The Company has applied for patents covering
its growth factor and chemokine 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 Vascular Endothelial Growth Factor (VEGF) and basic Fibroblast Growth
Factor (bFGF) 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 and macular degeneration. 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.
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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 breast, brain 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. One of the chemokine assays is the basis
for the Company's drug discovery collaboration with Glaxo Wellcome.
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.
Published data on animal models of transplantation and autoimmune disease,
indicate that drugs which block the activity of these costimulatory factors may
suppress unwanted immune responses characteristic of transplantation and certain
forms of multiple sclerosis, rheumatoid arthritis and diabetes. In addition,
published data 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 has constructed high throughput screening assays based on
recombinant proteins and cell lines to detect molecules capable of modulating
the activity of these costimulatory molecules.
HEPARANASE
Heparanse is an enzyme which degrades carbohydrate (glycosaminoglycan)
components of the extracellular matrix, a process which is essential for
movement of cells from the vasculature into tissues. This type of cell migration
appears to be essential for tumor cell invasion and metastasis. It is also
believed to be an important step of the movement of white blood cells
(leukocytes) into tissues, an early step in the initiation of an immune or
inflammatory response. Repligen has developed a screening assay to detect small
molecule compounds which block the activity of heparanase which it intends to
use to screen its compound libraries. Inhibitors of heparanase may be applicable
to cancer and a variety of inflammatory diseases.
DRUG DISCOVERY PROGRAMS
The Company is currently seeking to develop proprietary lead compounds by
utilizing its screening assays to identify active compounds in its combinatorial
chemical libraries. Its current focus is the development of inhibitors of the
angiogenic growth factors VEGF and bFGF. To date, the Company has screened
approximately 50,000 compounds from its internal libraries which were
specifically designed to mimic the natural, cell surface ligand of VEGF and
bFGF. Several families of lead compounds were identified and have subsequently
been tested in additional assays for potency
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and specificity. Selected compounds have been active in blocking the
proliferation of endothelial (blood vessel) cells IN VITRO and blocking the
intracellular (kinase) signaling pathway triggered by VEGF. A lead compound has
demonstrated activity in an animal model of ocular angiogenesis. The Company
intends to synthesize additional sets of compounds with structures related to
its lead compounds and evaluate them for improvements in potency and
pharmacology as well as in additional models of ocular and tumor angiogenesis.
The Company is also employing its screening assays and chemical libraries in
collaborative arrangements with Pfizer Inc. ("Pfizer"), Glaxo Wellcome plc
("Glaxo"), Cambridge NeuroScience, Inc. ("CNS"), Tularik, Inc. ("Tularik") and T
Cell Sciences, Inc. ("T Cell"). The following table summarizes the status of
both proprietary and collaborative drug discovery projects:
CURRENT STATUS OF DRUG DISCOVERY PROGRAMS
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BIOLOGICAL TARGET PARTNER APPLICATION STATUS
- ----------------------------- --------- ----------------------------- -----------------------------
VEGF / bFGF Repligen Cancer/Ocular Disease Lead Identified
Heparanase Repligen Tumor Metastasis Assay Development
Growth Factor Pfizer Proliferative Disease Lead Identified
Immunomodulator Pfizer Immune Enhancement Screening
Chemokine Glaxo Cardiovascular Screening
Neuregulin CNS Breast, Brain Cancer Lead Evaluation
Multiple Targets Tularik Multiple Screening
T Cell Activation T Cell Immune Regulation Screening
AFFINITY PRODUCTS FOR BIOPHARMACEUTICAL MANUFACTURING
The manufacture of protein pharmaceuticals (biopharmaceuticals) such as
insulin, tissue plasminogen activator and monoclonal antibodies such as *
ReoPro-TM- is a complex task which typically involves fermentation of a
bacterium or mammalian cell to synthesize the protein followed by the recovery
and purification of the product through a series of filtration and
chromatographic steps. Two principal challenges in biopharmaceutical
manufacturing are the recovery of the product from a large volume of
fermentation broth and the purification of the product from a complex feedstream
to >99% purity.
Affinity chromatography is a protein purification technique based on the
specific ("lock and key") interaction of a compound (an "affinity ligand") with
the protein of interest. Typically, the fermentation broth is passed over a
solid support containing the affinity ligand which binds only to the protein
product and not to other components of the feedstream. Thus in a single step the
product is captured from a dilute feedstream and substantially purified. The two
affinity ligands most widely used in the manufacture of biopharmaceuticals are
based on two naturally occurring products: Protein A for the production of
monoclonal antibodies and the carbohydrate heparin which is used in the
production of certain growth factors and coagulation factors.
Protein A is a naturally occurring affinity ligand for certain classes of
antibodies. Repligen manufactures and markets a recombinant form of Protein A
("rProtein A-TM-") and immobilized rProtein A-TM- in sufficient quantity and
quality to be used in the commercial production of antibodies intended for human
clinical use. The Company believes that there are approximately 75 monoclonal
antibodies in various stages of human clinical testing worldwide. In contrast,
only 4 to 8 monoclonal antibodies have been approved for marketing by the United
States Food and Drug Administration
- ------------------------
*ReoPro-TM- is a registered tradmark of Centocor, Inc.
6
("FDA") or comparable foreign regulatory agencies. Additional antibody product
approvals may yield significant growth in the Protein A market.
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.
With the exception of antibodies and a few other factors, there are
currently no suitable affinity ligands for most biopharmaceuticals. The Company
believes that its "complex structure" chemical libraries may be sources of novel
chemical affinity ligands. Successful application of the Company's technology to
the development of new affinity ligands may enable biopharmaceuticals to be
applied to applications not currently feasible due to their high cost of
manufacture. The use of transgenic plants and animals has dramatically lowered
the costs of protein expression; however, there is currently no technology to
lower the cost of protein recovery and purification. The availability of new
affinity ligands may significantly improve the efficiency of manufacturing and
enable biopharmaceuticals to penetrate new, cost-sensitive markets.
INTELLECTUAL PROPERTY AND LICENSING
Repligen has maintained certain intellectual property rights related to its
former clinical development programs. The Company has and continues to seek
third parties to license its intellectual property which does not support its
current drug discovery or affinity products businesses.
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 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.
As part of the Company's former program to inhibit acute inflammation it
acquired certain patent rights covering the use of antibodies to CD11b to block
acute inflammation and a U.S. patent covering the use of antibodies to CD11a,
CD11b, CD11c and CD18 to block acute inflammation associated with reperfusion or
the resupply of blood to anoxic tissue. In December 1995 the Company licensed
its rights to CD11a and CD18 to Genentech, Inc. in exchange for a milestone
payment and royalties on the sales of products developed by Genentech under this
patent.
In 1993 the Company licensed its technology for the production of the HIV
envelope protein gp160 to Calypte Biomedical Corporation in exchange for a
licensing fee and royalties on the sales of diagnostic products developed under
the license. Calypte received approval from the FDA in September of 1997 to
market a HIV diagnostic test kit for use with urine samples.
REPLIGEN'S BUSINESS STRATEGY
Repligen's primary objective is to develop or acquire high throughput
screening and chemical synthesis technologies to apply to the discovery of drug
leads for those Biological Targets in which a protein binds to another protein,
a carbohydrate or a nucleic acid. The Company intends to apply its drug
discovery technologies to selected proprietary targets such as angiogenesis
where it believes its
7
technology may give it a competitive advantage. If any lead compounds result
from these activities, the Company may 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 addition to its proprietary programs, Repligen will seek to form
additional drug discovery partnerships in order to maximize the return on its
technology base. The primary goal of these partnerships will be to apply the
Company's technology to a broad range of Biological Targets to increase the
opportunity of identifying New Drug Leads. In these partnerships the Company
will seek milestone and royalty revenues based on successful product development
by a partner. The Company will also seek to expand its revenues from
bioprocessing affinity reagents through sales and marketing efforts,
partnerships 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 manufacturing capacity and regulatory
infrastructure. Profits from drug discovery partnerships and product sales will
be applied to further the development of proprietary drug candidates.
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 47% of the
Company's revenues in fiscal 1998. 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 38% of the Company's total revenues in fiscal 1998. During
fiscal 1998 the Company received a milestone payment from one of its
collaborations. As a result of this extraordinary payment, one customer
accounted for more than 10% of the Company's total revenues in fiscal 1998.
While the Company has an ongoing relationship with this customer, the customer
is not obligated to make any additional milestone payments to the Company and
the Company believes the loss of this customer would not have a material adverse
effect on the Company's business.
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
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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.
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.
9
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 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 effect on the Company. In addition, the Company believes that its future
success will depend in large part upon its ability to
10
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 29, 1998, the Company had 24 employees. Of the 24 employees, 17
were engaged in research and development and manufacturing and 7 in
administrative and marketing functions. Doctorates or other advanced degrees are
held by 11 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. 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.
ITEM 3: LEGAL PROCEEDINGS
Not applicable.
11
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, 1998.
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 President, Chief Executive
45 Officer and Director
James R. Rusche Vice President, Research and
43 Development
Daniel P. Witt Vice President, Business
49 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.
12
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 closing prices for the Common Stock as reported by Nasdaq:
HIGH LOW
--------- ---------
FISCAL YEAR 1997:
First Quarter......................................................... $ 1.484 $ .938
Second Quarter........................................................ 1.313 .500
Third Quarter......................................................... 1.484 1.063
Fourth Quarter........................................................ 1.750 1.125
FISCAL YEAR 1998:
First Quarter......................................................... $ 1.500 $ 1.000
Second Quarter........................................................ 1.375 .969
Third Quarter......................................................... 1.118 .719
Fourth Quarter........................................................ 1.250 .969
On June 22, 1998, the reported closing price of the Common Stock as reported
by Nasdaq was $1.50 per share.
STOCKHOLDERS AND DIVIDENDS
As of June 22, 1998, there were approximately 1,085 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
Pursuant to the Stock and Warrant Purchase Agreement dated as of December
31, 1997 (the "Purchase Agreement") among the Company and Biotechnology Value
Fund, L.P., certain of its affiliates, and Four Partners, L.P. (collectively,
the "Purchasers"), the Purchasers invested an aggregate of $2 million in
exchange for 2,000,000 shares of the Company's Common Stock (the "Common
Shares"), and warrants to purchase at any time prior to December 31, 2004 an
aggregate of 750,000 shares of Common Stock at a price per share of $1.50.
The sale of the Common Shares and Warrants was made in reliance upon the
exemption from registration under section 4 (2) of the Securities Act as
transactions not involving any public offering. The Company has reason to
believe that the Purchasers were "accredited investors" (as such term is defined
in Regulation D of the Securities Act), were familiar with and had access to
information concerning the operations and financial conditions of the Company,
and were acquiring the securities for investment and not with a view to the
distribution thereof. No underwriter was engaged in connection with the
foregoing issuance of securities. The Company intends to file a registration
statement with the SEC on Form S-3 on or before June 30, 1998 for the resale of
the Common Shares.
13
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,
-----------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
(IN THOUSANDS , EXCEPT PER SHARE AMOUNTS)
OPERATING STATEMENT DATA:
Revenues:
Research and development........................ $ 917 $ 1,180 $ 7,949 $ 10,988 $ 19,392
Product......................................... 1,114 1,554 1,874 3,885 4,947
Investment and other............................ 354 1,068 1,036 2,069 2,494
--------- --------- --------- --------- ---------
2,385 3,802 10,859 16,942 26,833
--------- --------- --------- --------- ---------
Costs and expenses:
Research and development........................ 1,420 1,378 11,980 31,012 35,919
Cost of product sales........................... 480 537 1,516 1,535 3,933
Selling, general and administrative............. 1,281 1,940 4,925 4,673 6,206
Restructuring charge (credit)..................... -- (111) 3,567 11,300 --
Charge for acquired research and development.... -- 549 334 -- --
Interest........................................ -- -- 58 372 312
--------- --------- --------- --------- ---------
Total costs and expenses........................ 3,181 4,293 22,380 48,892 46,370
--------- --------- --------- --------- ---------
Net loss........................................ $ (796) $ (491) $ (11,521) $ (31,950) $ (19,537)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net loss per common share....................... $ (0.05) $ (0.03) $ (0.75) $ (2.08) $ (1.53)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average common shares outstanding........ 16,502 15,678 15,370 15,356 12,788
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and investments............................ $ 4,726 $ 3,538 $ 7,222 $ 15,302 $ 29,215
Working capital................................. 5,377 3,990 4,154 9,070 32,517
Total assets.................................... 6,513 5,621 9,231 31,330 59,611
Long-term debt.................................. -- -- -- -- --
Accumulated deficit............................. (124,320) (123,524) (123,042) (111,520) (79,570)
Stockholders' equity............................ 6,124 4,919 4,809 15,576 46,737
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, 1998, its accumulated deficit was
$124,320,000. 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. The Company
believes it has adequate cash reserves at March 31, 1998 to finance its
operations for at least the next twenty-four months.
14
RESULTS OF OPERATIONS
FISCAL YEAR ENDED MARCH 31, 1998 COMPARED WITH FISCAL YEAR ENDED MARCH 31, 1997
REVENUES. Total revenues for fiscal 1998 were $2,385,000 as compared to
$3,802,000 in fiscal 1997, a decrease of $1,417,000. Research and development
revenues for fiscal 1998 totaled $917,000, including revenues relating to drug
discovery collaboration arrangements with pharmaceutical partners, licensing
revenue, receipt of a milestone payment, and revenue generated from two Phase I
Small Business Innovation Research (SBIR) grants from the National Institutes of
Health. The reduction in research and development revenues of $263,000 or 22%
from fiscal 1997 levels is primarily attributable to the termination of its
collaborations with Eli Lilly and Company ("Lilly") and Repligen Clinical
Partners, L.P. (the "Partnership").
Product revenues for fiscal 1998 were $1,114,000 compared to $1,554,000 in
fiscal 1997. The decrease in the product sales volume is largely attributed to
the timing of large production scale orders of Protein A offset by an increase
in sales of reagent products.
Investment income decreased by $44,000 from fiscal 1997 levels due primarily
to lower average funds available for investment during fiscal 1998. Other
revenues for the fiscal 1998 period decreased by approximately $660,000 from the
comparable fiscal 1997 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 as part
of the restructuring.
EXPENSES. During fiscal 1998, total expenses of $3,181,000 were
significantly lower than fiscal 1997 expenses of $4,293,000. Higher level of
expenses in fiscal 1997 was primarily a result in expenditures associated with
the Company's former facility in Cambridge. Research and development expenses
for fiscal 1998, totaling $1,420,000, increased by $41,000, or 3%, from fiscal
1997 levels. The Company anticipates that research and development expenses will
continue to increase significantly as the Company increases its investment in
internal drug discovery programs during fiscal 1999.
Cost of product sales for fiscal 1998 decreased by $57,000 from the prior
fiscal year. Cost of product sales in fiscal 1998 were 43% of product revenues
versus 35% of product revenues for fiscal 1997. The decrease is the result of a
change in product mix between fiscal years 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 1998 were
$1,281,000, a decrease from fiscal 1997 of $659,000. This decrease is a result
of the Company's restructuring efforts that took place during fiscal 1997 and
1996. As a result of the Company's relocation to smaller office and laboratory
space, the Company has realized savings in rent and related facility costs. In
addition, this decrease in expenses is a result the reduction of administrative
personnel and related expenses that took place during fiscal 1997.
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 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 value of the assets acquired
of approximately $549,000, charged to 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
15
$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 $62,000 in
fiscal 1997 and $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.
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 and 1997. 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 an approximately 97,000 square facility in
Cambridge, Massachusetts to approximately 13,000 square feet of subleased office
and laboratory space in Needham, Massachusetts. This move resulted in
substantial savings in rent and related facility costs. If the move had been
effective as of April 1, 1996, rent expense during the year ended March 31, 1997
would have been lower by approximately $381,000.
16
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.
Cost of product sales for fiscal 1997 decreased by $979,000 from the prior
fiscal year. Cost of product sales 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 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company's total cash, cash equivalents and marketable securities
increased to $4,726,000 at March 31, 1998 from $3,538,000 at March 31, 1997. The
increase reflects $2,000,000 of proceeds (before expenses) resulting from the
sale of Common Stock and Warrants through a private placement that took place on
December 31, 1997 and a reduction of accounts receivable and prepaid expenses of
$331,000. This increase in cash was offset by the net losses incurred in the
year ended March 31, 1998 of approximately $796,000, an increase in inventory of
$219,000 resulting from increased manufacturing and the development and
production of new Protein A products during fiscal 1998, and the reduction of
accounts payable and accrued expenses of $181,000. Working capital increased to
$5,635,000 at December 31, 1997 from $3,990,000 at March 31, 1997.
Capital expenditures for fiscal 1998 and 1997 were $114,000 and $429,000,
respectively. The capital expenditures in both fiscal 1998 and fiscal 1997
reflect leasehold improvements and the purchase of research and development
equipment.
During the fiscal year ended March 31, 1998, the Company entered into a
$450,000 note receivable with a licensee for past due licensing fees. As the
Company has historically recorded licensing fees under this agreement on a cash
basis, the Company has not recorded this note receivable as an asset. The note
requires full payment of principal and interest in August 1998. The Company will
continue to record this license fee on a cash basis.
17
The Company has entered into agreements with a number of collaborative
partners and licensees. Under the terms of these agreements, the Company may be
eligible to receive research support, additional milestones or royalty revenue
if these collaborations continue to clinical evaluation and commercialization.
The Company can not be assured of the continuation of these collaborations and
any future payments.
The Company has funded operations primarily with cash derived from the sales
of its equity securities, revenue derived from research and development
contracts, product sales and investment income. While the Company anticipates
that its cost of operations will increase in fiscal 1999 as it continues to
expand its investment in proprietary product development, the Company believes
it has sufficient cash equivalents and marketable securities to satisfy its
working capital and capital expenditure requirements for the next twenty-four
months. Should the Company need to secure additional financing to meet its
future liquidity requirements, there can be no assurances that the Company will
be able to secure such financing, or that such financing, if available, will be
on terms favorable to the Company.
The Company has completed an assessment of its exposure to the "Year 2000"
computer problem. Based on this assessment, the Company believes that no
critical software systems of the Company will be impacted by this situation.
Systems currently used by the Company are already "Year 2000" compliant.
Although the Company believes that it is taking appropriate precautions against
disruption of its system due to the "Year 2000" problem, there can be no
assurance that the Company's suppliers and customers will not be adversely
affected by the "Year 2000" problem. Nonetheless, the Company believes that the
"Year 2000" issue will not have a material impact on the Company's business
operations or financial condition.
On February 23, 1998, Nasdaq initiated new requirements for listing on the
Nasdaq National Market. Currently, the Company believes it is in compliance with
all of the new requirements. There can be no assurance, however, that the
Company will be able to continue to satisfy all the requirements issued by
Nasdaq or that the Company's Common Stock will continue to be listed on the
Nasdaq National Market. Should it occur, the delisting of the Company's Common
Stock from the Nasdaq National Market could have a material adverse effect on
the Company's business, results of operations and financial condition.
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 September 10, 1998 which will be filed with the
Securities and Exchange Commission within 120 days of March 31, 1998 and is
incorporated herein by reference.
18
Information regarding the Company's executive officers is contained in Part
I 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 September 10, 1998 which will
be filed with the Securities and Exchange Commission within 120 days of March
31, 1998 and is incorporated herein by reference.
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 September 10, 1998 which will be filed with the Securities and
Exchange Commission within 120 days of March 31, 1998 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
September 10, 1998 which will be filed with the Securities and Exchange
Commission within 120 days of March 31, 1998 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, 1998 and 1997...................................... F-3
Consolidated Statements of Operations for the Years Ended March 31, 1998, 1997 and 1996........ F-4
Consolidated Statements of Stockholders' Equity for the Years Ended March 31, 1998, 1997, and
1996......................................................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended March 31, 1998, 1997 and 1996........ F-6
Notes to Consolidated Financial Statements..................................................... F-7
(a) (2) Exhibits:
The Exhibits which are filed as part of this Annual Report or which are
incorporated by reference are set forth in the Exhibit Index hereto.
(b) Reports on Form 8-K:
No Current Reports on Form 8-K were filed by the Company during the last quarter
of the period covered by this report.
19
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.
4.3 + Form of Modified Limited Partner Warrant, dated as of February 28, 1992.
4.4 * Form of Amended and Restated Limited Partner Warrant (filed as Exhibit 4.13 to Repligen Corporation's Form S-4
Registration Statement No. 33-76830 and incorporated herein by reference).
4.5 * Form of Amended and Restated Class B Limited Partner Warrant (filed as Exhibit 4.14 to Repligen Corporation's
Form S-4 Registration Statement No. 33-76830 and incorporated herein by reference).
4.6 * Form of Amended and Restated Fund Warrant (filed as Exhibit 4.15 to Repligen Corporation's Form S-4 Registration
Statement No. 33-76830 and incorporated herein by reference).
4.7 * Form of Stock Purchase Warrant (filed as Exhibit 4.1 to Repligen Corporation's Quarterly Report on Form 10-Q for
the quarter ended December 31, 1997 and incorporated herein by reference).
10. Material Contracts
10.1 * Consulting Agreement, dated October 1, 1981, between Dr. Paul Schimmel and Repligen Corporation (filed as Exhibit
10.14 to Repligen Corporation's Form S-1 Registration Statement No. 33-3959 and incorporated herein by
reference).
10.2 * Consulting Agreement, dated November 1, 1981, between Dr. Alexander Rich and Repligen Corporation (filed as
Exhibit 10.15 to Repligen Corporation's Form S-1 Registration Statement No. 33-3959 and incorporated herein by
reference).
10.3 * The 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).
10.4 * 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).
20
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------------------
10.5 * Employment Agreement, dated March 14, 1996, between Repligen Corporation and Walter C. Herlihy (filed as Exhibit
10.43 to Repligen Corporation's Annual Report on Form 10-K for the year ended March 31, 1996 and incorporated
herein by reference).
10.6 * 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).
10.7 * 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).
10.8 * 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).
10.9 * 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).
10.10 * 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).
10.11 * 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, 1997 and incorporated herein by reference).
10.12 * Stock and Warrant Purchase Agreement dated as of December 31, 1997 among the Company and Biotechnology Value
Fund, L.P., certain of its affiliates, and Four Partners, L.P. and Repligen Corporation (filed as Exhibit 10.1 to
Repligen Corporation's Quarterly Report on Form 10-Q for the quarter ended December 31, 1997 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 1998 annual meeting, the Registrant will furnish that
person without charge a copy of any exhibits listed above. Requests should be
addressed to Repligen Corporation, 117 Fourth Avenue, Needham, MA 02494.
21
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: June 25, 1998
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
- ------------------------------ --------------------------- -------------------
/s/ ALEXANDER RICH Co-Chairman of the Board of
- ------------------------------ Directors June 25, 1998
Alexander Rich, M.D.
/s/ PAUL SCHIMMEL Co-Chairman of the Board of
- ------------------------------ Directors June 25, 1998
Paul Schimmel, Ph.D.
President, Chief Executive
/s/ WALTER C. HERLIHY Officer and Director
- ------------------------------ (Principal Financial and June 25, 1998
Walter C. Herlihy Accounting Officer)
/s/ G. WILLIAM MILLER Director
- ------------------------------ June 25, 1998
G. William Miller
22
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
-----------
Report of Independent Public Accountants F-2
Consolidated Balance Sheets as of March 31, 1998 and 1997 F-3
Consolidated Statements of Operations for the Years Ended March 31, 1998, 1997 F-4
and 1996
Consolidated Statements of Stockholders' Equity for the Years Ended March 31, F-5
1998, 1997 and 1996
Consolidated Statements of Cash Flows for the Years Ended March 31, 1998, 1997 F-6
and 1996
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, 1998 and
1997, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended March 31,
1998. 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, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended March 31,
1998, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
May 12, 1998
F-2
REPLIGEN CORPORATION
CONSOLIDATED BALANCE SHEETS
YEARS ENDED MARCH 31,
-------------------------
ASSETS 1998 1997
- ----------------------------------------------------------------------- ----------- ------------
Current assets:
Cash and cash equivalents $ 4,725,544 $ 3,465,881
Marketable securities -- 72,353
Accounts receivable, less reserves of $25,000 and $65,000, at March
31,1998 and 1997 respectively 212,857 534,929
Inventories 670,818 452,241
Prepaid expenses and other current assets 156,228 65,720
----------- ------------
Total current assets 5,765,447 4,691,124
Property, plant and equipment, at cost:
Equipment 770,512 724,564
Furniture and fixtures 40,563 28,820
Leasehold improvements 442,528 386,199
----------- ------------
1,253,603 1,139,583
Less--accumulated depreciation and amortization 594,719 349,112
----------- ------------
658,884 790,471
Restricted cash -- 50,087
Other assets, net 88,472 88,909
----------- ------------
$ 6,512,803 $ 5,620,591
----------- ------------
----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable $ 100,719 $ 168,269
Accrued expenses and other 254,312 399,988
Unearned income 33,332 133,313
----------- ------------
Total current liabilities 388,363 701,570
Commitments and contingencies (Notes 8 and 10)
Stockholders' equity:
Preferred stock, $.01 par value--authorized--5,000,000 shares--issued
and outstanding--none -- --
Common stock, $.01 par value--authorized--30,000,000 shares--issued and
outstanding--18,001,785 shares and 16,008,211 shares at March 31,
1998 and 1997, respectively 180,017 160,082
Additional paid-in capital 130,264,048 128,318,430
Deferred compensation -- (26,447)
Accumulated deficit (124,319,625) (123,533,044)
----------- ------------
Total stockholders' equity 6,124,440 4,919,021
----------- ------------
$ 6,512,803 $ 5,620,591
----------- ------------
----------- ------------
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
REPLIGEN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31,
---------------------------------
1998 1997 1996
--------- --------- -----------
Revenues:
Research and development $ 916,726 $1,179,980 $ 5,424,304
Product 1,114,452 1,553,598 1,873,687
Investment income 224,913 268,645 737,536
Other 128,885 799,319 298,350
Sale of intellectual property rights -- -- 2,525,000
--------- --------- -----------
2,384,976 3,801,542 10,858,877
--------- --------- -----------
Costs and expenses:
Research and development 1,419,825 1,378,391 11,980,574
Selling, general and administrative 1,281,090 1,939,881 4,925,345
Cost of product sales 480,089 536,685 1,515,637
Restructuring charge (credit) -- (111,000) 3,567,000
Charge for purchased in-process research & development -- 548,978 333,811
Interest -- -- 58,050
--------- --------- -----------
3,181,004 4,292,935 22,380,417
--------- --------- -----------
Net loss $(796,028) $(491,393) $(11,521,540)
--------- --------- -----------
--------- --------- -----------
Basic and diluted net loss per share $ (0.05) $ (0.03) $ (0.75)
--------- --------- -----------
--------- --------- -----------
Basic and diluted weighted average shares outstanding 16,501,785 15,677,998 15,370,252
--------- --------- -----------
--------- --------- -----------
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
REPLIGEN CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
COMMON
NUMBER OF STOCK ADDITIONAL
COMMON $.01 PAID-IN DEFERRED ACCUMULATED
SHARES PAR VALUE CAPITAL COMPENSATION DEFICIT
------------ ---------- -------------- -------------- ---------------
Balance, March 31, 1995 15,357,030 153,570 126,942,925 -- (111,520,111)
Net loss -- -- -- -- (11,521,540)
Issuance of common stock relating to
acquisition of Glycan Pharmaceuticals 243,600 2,436 332,514 -- --
Exercise of stock options 1,912 19 2,978 -- --
Issuance of warrants in connection with
Repligen Clinical Partners, L.P. -- -- 415,728 -- --
------------ ---------- -------------- ------- ---------------
Balance, March 31, 1996 15,602,542 156,025 127,694,145 -- (123,041,651)
Net loss -- -- -- -- (491,393)
Issuance of common stock in connection with
the acquisition of ProsCure, Inc. 405,669 4,057 544,921 -- --
Compensation relating to issuance of stock
options -- -- 79,364 (26,447) --
------------ ---------- -------------- ------- ---------------
Balance, March 31, 1997 16,008,211 160,082 128,318,430 (26,447) (123,533,044)
Net loss -- -- -- -- (796,028)
Retirement of common stock issued in
connection with the acquisition of
ProsCure, Inc. (6,426) (65) (9,382) -- 9,447
Issuance of common stock and warrants, net
of issusance costs 2,000,000 20,000 1,955,000 -- --
Compensation relating to issuance of stock
option -- -- 26,447 --
------------ ---------- -------------- ------- ---------------
Balance, March 31, 1998 18,001,785 $ 180,017 $ 130,264,048 $ -- $ (124,319,625)
------------ ---------- -------------- ------- ---------------
------------ ---------- -------------- ------- ---------------
TOTAL
STOCKHOLDERS'
EQUITY
--------------
Balance, March 31, 1995 15,576,384
Net loss (11,521,540)
Issuance of common stock relating to
acquisition of Glycan Pharmaceuticals 334,950
Exercise of stock options 2,997
Issuance of warrants in connection with
Repligen Clinical Partners, L.P. 415,728
--------------
Balance, March 31, 1996 4,808,519
Net loss (491,393)
Issuance of common stock in connection with
the acquisition of ProsCure, Inc. 548,978
Compensation relating to issuance of stock
options 52,917
--------------
Balance, March 31, 1997 4,919,021
Net loss (796,028)
Retirement of common stock issued in
connection with the acquisition of
ProsCure, Inc. --
Issuance of common stock and warrants, net
of issusance costs 1,975,000
Compensation relating to issuance of stock
option 26,447
--------------
Balance, March 31, 1998 $ 6,124,440
--------------
--------------
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,
----------------------------------
1998 1997 1996
--------- ---------- -----------
Cash flows from operating activities:
Net loss $(796,028) $ (491,393) $(11,521,540)
Adjustments to reconcile net loss to net cash used in
operating activities--
Depreciation and amortization 245,607 172,167 1,438,356
Issuance of stock options for services 26,447 52,917 --
Equity in net loss of an affiliate -- -- 20,504
In-process research and development charge -- 548,978 333,811
Restructuring (credit) charge, non cash portion -- (111,000) 2,321,000
Changes in assets and liabilities, net of acquisition of
Glycan Pharmaceuticals, Inc.
Accounts receivable 322,072 (113,675) 1,279,915
Amounts due from affiliates -- 42,284 920,077
Inventories (218,577) 248,983 512,155
Prepaid expenses and other current assets 9,493 22,834 866,212
Accounts payable (67,550) (377,860) (678,022)
Accrued expenses and other (145,676) (3,209,893) (4,592,680)
Unearned income (99,981) (21,685) (203,000)
--------- ---------- -----------
Net cash used in operating activities (724,193) (3,237,344) (9,303,212)
--------- ---------- -----------
Cash flows from investing activities:
Decrease in marketable securities 72,353 205,762 1,202,597
Acquisition of Glycan Pharmaceuticals, Inc. -- -- (144,836)
Purchases of property, plant and equipment, net (114,021) (429,070) (463,378)
(Increase) decrease in restricted cash 50,087 (50,087) 1,000,000
Proceeds from a note receivable from affiliate -- -- 4,620,000
Decrease in other assets 437 32,480 412,857
--------- ---------- -----------
Net cash provided by (used in) investing activities 8,856 (240,915) 6,627,240
--------- ---------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock and warrants, net
of issuance costs 1,975,000 -- 418,725
Payment of term loan to a bank -- -- (4,620,000)
--------- ---------- -----------
Net cash provided by (used in) financing activities 1,975,000 -- (4,201,275)
--------- ---------- -----------
Net increase (decrease) in cash and cash equivalents 1,259,663 (3,478,259) (6,877,247)
Cash and cash equivalents, beginning of year 3,465,881 6,944,140 13,821,387
--------- ---------- -----------
Cash and cash equivalents, end of year $4,725,544 $3,465,881 $ 6,944,140
--------- ---------- -----------
--------- ---------- -----------
Supplemental disclosure of cash flow information:
Cash paid for interest $ -- $ -- $ 58,050
--------- ---------- -----------
--------- ---------- -----------
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 ("Repligen" or the "Company") is
engaged in the development of a new class of synthetic drugs designed to block
important protein-carbohydrate and protein-protein interactions. Clinical
experience with complex natural products and monoclonal antibodies has shown
that many of these interactions are important in disease, although it has not
been possible to identify easily synthesized organic compounds for these types
of targets. Repligen is developing technologies to discover drugs which can
block protein-macromolecule interactions including methods for the rapid
synthesis of chemical compound libraries with "natural product-like" complexity
and high throughput screening assays based on specific biological targets.
Repligen also manufactures and markets a line of products for the production
of monoclonal antibodies intended for human clinical use. These products are
based on recombinant Protein A for which Repligen holds patents in the United
States and major foreign markets. In addition, the Company has licensed certain
intellectual property pertaining to its former programs on biological products.
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.
The Company has incurred significant operating losses since its inception
and underwent significant restructuring of its operations in fiscal 1996 (see
Note 12).
The Company continues to be subject to certain risks common to biotechnology
companies in similar stages of development, including extensive government
regulation, uncertainty of market acceptance, limited manufacturing, marketing
and sales experience and uncertainty in future profitability.
F-7
REPLIGEN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 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, ProsCure, Inc. and Glycan Pharmaceuticals,
Inc. All material intercompany accounts and transactions have been eliminated in
consolidation.
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.
Revenues recognized from the one-time sale of equipment and non investment
securities are also included as other revenue during the year ended March 31,
1998 and 1997. In fiscal 1997 and 1996, other revenue includes the management
fee received from Repligen Clinical Partners, L.P. The management fee revenue is
recognized as earned (see Note 11).
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
REPLIGEN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER SHARE
The Company has adopted Statement of Financial Accounting Standards (SFAS)
No.128, EARNINGS PER SHARE, effective December 15, 1997. SFAS No. 128
establishes standards for computing and presenting earnings per share and
applies to entities with publicly held common stock or potential common stock.
The Company has applied the provisions of SFAS No. 128, retroactively to all
periods presented. Basic net loss per share represents net loss divided by the
weighted average number of common shares outstanding during the period. The
dilutive effect of potential common shares, consisting of outstanding stock
options and warrants, is determined using the treasury stock method in
accordance with SFAS No. 128. Diluted weighted average shares outstanding for
1998, 1997 and 1996 exclude the potential common shares from warrants and stock
options because to do so would have been antidilutive for the years presented.
The potential common shares prior to application of the treasury stock method in
1998, 1997 and 1996 were 3,354,450, 2,568,798 and 3,132,996 shares,
respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, requires
disclosure about the fair value of financial instruments. The carrying amounts
of the Company's cash and cash equivalents, accounts receivable and accounts
payable approximate fair value due to the short-term nature of these
instruments.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that subject the Company to significant concentrations
of credit risk consist primarily of cash and cash equivalents and accounts
receivable. The Company's cash equivalents are invested in financial instruments
with high credit ratings. Concentration of credit risk with respect to accounts
receivable is limited to customers to whom the Company makes significant sales.
The Company does not believe significant risk exists at March 31, 1998. To
control credit risk, the Company performs regular credit evaluations of its
customers' financial condition and maintains allowances for potential credit
losses.
3. CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES
The Company accounts for investments in accordance with SFAS No. 115,
ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES. Under SFAS No.
115, investments for which the Company has the positive intent and ability to
hold to maturity, consisting of cash equivalents and marketable securities, are
reported at amortized cost, which approximates fair market value. These
securities include cash, cash equivalents and corporate bonds with maturities of
less than one year. The
F-9
REPLIGEN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES (CONTINUED)
estimated fair market value of marketable securities is based primarily on
market quotations. Cash, cash equivalents and marketable securities consist of
the following:
YEAR ENDED MARCH 31,
--------------------------
1998 1997
------------ ------------
Cash and cash equivalents
Cash.............................................................................................. $ 225,940 $ 190,174
Money markets..................................................................................... 292,624 542,139
Commercial paper.................................................................................. 3,708,580 2,733,568
U.S. Government and Agency securities............................................................. 498,200 --
------------ ------------
Total cash and cash equivalents............................................................... $ 4,725,344 $ 3,465,881
------------ ------------
------------ ------------
Marketable securities
Equity securities................................................................................. $ -- $ 60,000
U.S. Government and Agency securities............................................................. -- 12,353
------------ ------------
Total Marketable securities................................................................... $ -- $ 72,353
------------ ------------
------------ ------------
4. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market.
Work-in-process and finished goods inventories consist of material, labor,
outside processing costs and manufacturing overhead. Inventories at March 31,
1998 and 1997 consist of the following:
YEAR ENDED MARCH 31,
----------------------
1998 1997
---------- ----------
Raw materials and work-in-process..................................................................... $ 388,727 $ 298,287
Finished goods........................................................................................ 282,091 153,954
---------- ----------
Total............................................................................................. $ 670,818 $ 452,241
---------- ----------
---------- ----------
5. ACCRUED EXPENSES
Accrued expenses consisted of the following:
YEAR ENDED MARCH 31,
----------------------
1998 1997
---------- ----------
Payroll and payroll-related costs..................................................................... $ 60,371 $ 128,399
Professional and consulting fees...................................................................... 113,000 188,589
Other accrued expenses................................................................................ 80,941 83,000
---------- ----------
Total............................................................................................. $ 254,312 $ 399,988
---------- ----------
---------- ----------
6. INCOME TAXES
The Company accounts for income taxes under SFAS No. 109, ACCOUNTING FOR
INCOME TAXES. At March 31, 1998, the Company had net operating loss
carryforwards for income tax purposes of
F-10
REPLIGEN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES (CONTINUED)
approximately $91,300,000. The Company also had available tax credit
carryforwards of approximately $4,800,000 at March 31, 1998 to reduce future
federal income taxes, if any. Net operating loss carryforwards and available tax
credits are subject to review and possible adjustment by the Internal Revenue
Service and may be limited in the event of certain changes in the ownership
interest of significant stockholders.
The net operating loss carryforwards and tax credit carryforwards are
approximately as follows:
NET OPERATING
LOSS TAX CREDIT
EXPIRATION DATE CARRYFORWARDS CARRYFORWARDS
- -------------------------------------------------------------------------- -------------- --------------
1999...................................................................... $ 400,000 $ 32,000
2000...................................................................... 1,000,000 104,000
2001...................................................................... 1,300,000 109,000
2002...................................................................... 2,500,000 73,000
2003...................................................................... 4,800,000 346,000
2004-2013................................................................. 81,300,000 4,136,000
-------------- --------------
Total..................................................................... $ 91,300,000 $ 4,800,000
-------------- --------------
-------------- --------------
The deferred tax asset consists of the following:
YEAR ENDED MARCH 31,
----------------------------
1998 1997
------------- -------------
Temporary differences....................................................... $ 3,900,000 $ 5,500,000
Operating loss carryforwards................................................ 36,500,000 35,048,000
Tax credit carryforwards.................................................... 4,840,000 4,800,000
------------- -------------
45,240,000 45,348,000
Valuation allowance......................................................... (45,240,000) (45,348,000)
------------- -------------
$ -- $ --
------------- -------------
------------- -------------
A full valuation allowance has been provided, as it is uncertain if the
Company will realize the deferred tax asset.
7. COMMON STOCK
On December 31, 1997, the Company completed a $2.0 million private placement
of its securities. The Company received net proceeds of $1.975 million for the
issuance of 2,000,000 shares of common stock and warrants to purchase an
aggregate of 750,000 shares of common stock at a price of $1.50 per share.
In connection with the initial capitalization of the Repligen Clinical
Partners, L.P. ("the Partnership"), the Company issued warrants to purchase
common stock of Repligen to the limited partners of the Partnership (the
"Original Warrants"). In June 1994, Repligen completed an exchange pursuant to
which a majority of the holders of Original Warrants exchanged their Original
Warrants for new warrants (the "Exchange Warrants"). Subsequently, in March
1995, Repligen offered to modify the majority of the remaining Original Warrants
and the Exchange Warrants. Each holder of an
F-11
REPLIGEN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. COMMON STOCK (CONTINUED)
outstanding warrant who was not in default under its obligations to the
Partnership was free to accept or reject such modifications.
As of March 31, 1998, 620 of the 711.5 nondefaulted 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 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.
At March 31, 1998, common stock reserved for issuance was as follows:
RESERVED FOR SHARES
- ------------------------------------------------------------------------------------------------------------------ ----------
Incentive and nonqualified stock option plans..................................................................... 3,353,277
Warrants granted in connection with the Repligen Clinical Partners, L.P. offering................................. 2,082,450
Warrants granted in connection with the private placement with BVF and affiliates................................. 750,000
----------
6,185,727
----------
----------
8. COMMITMENTS
The Company leases their facilities. Obligations under noncancellable
operating leases as of March 31, 1998 are approximately as follows:
YEAR ENDING MARCH 31,
- ----------------------------------------------------------------------------------------------
1999.......................................................................................... $ 281,000
2000.......................................................................................... 281,000
2001.......................................................................................... 158,000
2002.......................................................................................... 74,000
----------
Total minimum lease payments.................................................................. $ 794,000
----------
----------
Rent expense charged to operations under operating leases was approximately
$399,000, $832,000 and $2,932,000 for the years ended March 31, 1998, 1997 and
1996, respectively.
9. STOCK OPTION PLANS
The Company has three stock option plans. The plans authorize the grant of
either incentive stock options or nonqualified stock options. Incentive stock
options are granted to employees at the fair market value at the date of grant.
Nonqualified stock options are granted to employees or nonemployees. The options
generally vest over four or five years and expire no more than 10 years from the
date of grant. As of March 31, 1998, the Company had available for grant options
to purchase 2,831,277 shares of common stock.
F-12
REPLIGEN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. STOCK OPTION PLANS (CONTINUED)
A summary of stock option activity under all plans is as follows:
YEARS ENDED MARCH 31,
--------------------------------------------------------------------------
1998 1997 1996
----------------------- ----------------------- ------------------------
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..................... 486,348 $ 0.50-12.45 953,046 $ 0.05-19.25 1,291,730 $ 0.05-19.25
Granted............................................ 117,500 1.00-1.50 180,500 .50- 1.37 454,550 1.25-2.44
Exercised.......................................... -- -- -- -- (1,912) 1.57
Forfeited.......................................... 81,848 1.25-2.75 (647,198) .05-19.25 (791,322) 1.50-19.25
--------- ------------ --------- ------------ ---------- ------------
Outstanding at end of period........................... 522,000 $ 0.50-12.45 486,348 $ 0.50-12.45 953,046 $ 0.05-19.25
--------- ------------ --------- ------------ ---------- ------------
Exercisable at end of period........................... 243,422 $ 0.50-12.45 148,945 $ 0.50-12.45 343,129 $ 0.05-19.25
--------- ------------ --------- ------------ ---------- ------------
--------- ------------ --------- ------------ ---------- ------------
The Company accounts for its stock-based compensation under SFAS No. 123
ACCOUNTING FOR STOCK BASED COMPENSATION. The Company has adopted the
disclosure-only alternative for employee grants and, accordingly, will continue
to account for stock based compensation for employees under APB Opinion No. 25.
The Company has computed the pro forma disclosures required under SFAS No.
123 for all stock options granted in 1998 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 ended March 31, 1998 and 1997 are as
follows:
YEAR ENDED MARCH 31,
----------------------
1998 1997
---------- ----------
Risk-free interest rates............................................................................. 6.76% 6.44%
Expected dividend yield.............................................................................. -- --
Expected lives....................................................................................... 10 years 10 years
Expected volatility.................................................................................. 56% 106%
Weighted-average grant date fair value of options granted during the period.......................... $1.41 $1.45
Weighted-average exercise price...................................................................... $1.28 $1.44
Weighted-average remaining contractual life of options outstanding................................... 8.4 years 8.9 years
Weighted-average exercise price of options exercisable at March 31, 1998 and 1997, respectively...... $1.23 $1.84
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REPLIGEN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. STOCK OPTION PLANS (CONTINUED)
If compensation expense for the Company's stock option plan had been
determined consistent with SFAS No. 123 pro forma net loss and net loss per
share would have been as follows:
YEAR ENDED MARCH 31,
------------------------
1998 1997
----------- -----------
Net loss--
As reported..................................................................... $ (796,028) $ (491,393)
Pro forma....................................................................... $ (908,353) $ (573,077)
Basic and diluted net loss per share--
As reported..................................................................... $ (.05) $ (.03)
Pro forma....................................................................... $ (.06) $ (.04)
10. SIGNIFICANT CUSTOMERS
Revenues from significant customers as a percentage of the Company's total
revenues were as follows:
YEAR ENDED MARCH 31,
---------------------------------------
1998 1997 1996
----------- ------ -----------
Customer A...................................................................... -- 2% 24%
*Customer B...................................................................... 1% 6% 28%
Customer C...................................................................... 23% 6% --
- ------------------------
* Denotes related party
11. RELATED PARTIES
In February 1992, Repligen Clinical Partners, L.P. (the "Partnership")
completed a private placement of 900 limited partnership units, with net
proceeds of approximately $40,300,000 in cash and notes receivable, to be
received by the Partnership over a three-year period. In connection with the
formation of the Partnership, the Company granted to the Partnership an
exclusive license to all technology and know-how related to the manufacture, use
and sale of recombinant platelet factor-4 ("rPF4") in the United States, Canada
and Europe. A wholly owned subsidiary of the Company is the General Partner of
the Partnership.
The Company has received research and development funding from the
Partnership pursuant to a Product Development Agreement, whereby the Company
performed research and development work and charged the Partnership for actual
costs incurred plus a 10% management fee. The Company recognized $12,000,
$190,000 and $2,693,000 of such funding as revenue in fiscal 1998, 1997 and
1996, respectively. Other revenues for the years ended March 31, 1997 and 1996
included $25,000 and $311,000, 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 as its share of the losses from the Partnership in the accompanying
consolidated statements of operations for the years ended March 31, 1996.
Although the Company was
F-14
REPLIGEN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. RELATED PARTIES (CONTINUED)
allocated a loss of approximately $1,000 and $2,400 for the years ended March
31, 1998 and 1997, respectively, the Company had previously written down all of
its original investment.
In April 1996, the Company terminated its arrangements with the Partnership
regarding the development and marketing of the rPF4 program. Under the terms of
the various agreements between the parties, the rights to the rPF4 technologies
remain with the Partnership.
12. RESTRUCTURING OF OPERATIONS
During fiscal 1996, the Company completed a significant 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 (i) severance costs and related benefits
($333,000), (ii) the settlement of operating equipment lease and facility lease
obligations ($1,991,000), (iii) the write-off of certain leasehold improvements
and equipment no longer being utilized ($3,854,000), net of cash received from
the sale of assets ($1,250,000) and (iv) the reversal of certain accruals no
longer required ($1,533,000).
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 in fiscal 1997, the Company
reversed accruals of approximately $111,000 no longer required.
F-15