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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 0-14656
REPLIGEN CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 04-2729386
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
117 FOURTH AVENUE, NEEDHAM, MASSACHUSETTS 02494
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (781) 449-9560
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 Par Value
(Title of Class)
Indicate by checkmark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
State the aggregate market value of the voting 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 23, 1999 was
approximately $49,799,579.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of June 23, 1999: 21,866,285
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,
1999. Portions of such Proxy Statement are incorporated by reference in Part III
of this Form 10-K.
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ITEM 1: BUSINESS
Any statements which are not historical facts contained in this Annual
Report on Form 10-K, including without limitation projections or statements
concerning use and success of technology, progress of programs or clinical
trials, completion, timing and benefits of development programs, liquidity,
suitability of products for specific applications, product performance,
advantages or significance of technology, benefits and results of acquisitions,
collaborations and strategic and other alliances, and improvements to operating
and other results, are forward-looking statements that involve risks and
uncertainties, including but not limited to those relating to product demand,
pricing, market acceptance, the effect of economic conditions, intellectual
property rights and litigation, the results of governmental proceedings,
competitive products, risks in timing and success of clinical trials and product
development, the results of financing efforts, the ability to exploit
technologies, the ability to complete transactions, and other risks identified
under the caption "Certain Factors That May Affect Future Results" and elsewhere
in this Annual Report, as well as in our other Securities and Exchange
Commission filings. Our actual results may differ significantly from the results
discussed in the forward-looking statements.
THE COMPANY
Repligen Corporation ("Repligen") develops new drugs for autism, organ
transplantation and cancer. Our lead therapeutic products are secretin for
autism and CTLA4-Ig for organ transplantation. Repligen also develops,
manufactures and markets products based on Protein A for the purification of
antibodies. Repligen was incorporated in March 1981, under the laws of the State
of Delaware. Its principal executive officers are at 117 Fourth Avenue, Needham,
Massachusetts 02494 and its telephone number is (781) 449-9560.
SECRETIN FOR AUTISM
Autism is a developmental disorder characterized by poor communication,
impaired social interaction and repetitive behavior. Many autistic individuals
also have irregular sleep patterns and gastrointestinal dysfunction. Secretin is
a hormone produced in the small intestine which regulates the function of the
pancreas as part of the process of digestion. A form of secretin derived from
pigs is approved by the FDA for use in diagnosing problems with pancreatic
function. Recent anecdotal reports indicate that secretin may have beneficial
effects in autism, including improvements in sleep, digestive function, speech
and social behavior. Following media reports of the potential benefits of
secretin, more than 2,000 autistic children have been treated with the
pig-derived hormone.
In March 1999, we acquired the exclusive rights to patent applications for
the use of secretin in the treatment of autism. We intend to manufacture a
human, synthetic form of secretin and, pending FDA approval, to evaluate it in
clinical trials in order to confirm the benefits of secretin in treating autism
and to determine the most effective dosing schedule. According to the American
Society for Autism there are approximately 500,000 individuals affected by
autism in the United States. There are currently no FDA approved drugs for the
treatment of autism.
CTLA4-IG FOR ORGAN TRANSPLANTATION
We are also developing a product named "CTLA4-Ig," which has been shown in
animal models to selectively block unwanted immune responses in organ
transplantation and autoimmune diseases. Initial clinical testing of CTLA4-Ig
has been carried out in patients receiving a bone marrow transplant, which is a
potential cure for several diseases of the immune system including leukemia,
myeloma, lymphoma and sickle cell anemia.
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Despite the clinical success of bone marrow transplants, a significant
number of patients experience a severe and potentially life-threatening
complication--graft versus host disease (GVHD) in which the newly transplanted
immune system attacks the tissues of the recipient. To minimize this
complication, most bone marrow transplants require a search for a genetically
"matched" donor. This only partially eliminates graft versus host disease, and
also can delay treatment for months and cost $25,000 or more.
An alternative source of donors would be a parent or sibling who is only
partially matched with the patient. However, past experience indicates that this
source of bone marrow also produces a high incidence of severe and potentially
life-threatening graft versus host disease.
In December 1998, investigators from the Dana-Farber Cancer Institute in
Boston reported the results of a Phase 1 clinical trial of CTLA4-Ig involving
eleven patients. In this trial, bone marrow from patients' family members who
were only partially genetically matched with the patient were treated with
CTLA4-IG prior to the bone marrow transplant. The results demonstrated that
treatment of bone marrow from a genetically "mismatched" family member with
CTLA4-Ig prior to transplantation substantially reduced the incidence of graft
versus host disease. These data were subsequently published by the Dana-Farber
investigators in the New England Journal of Medicine in June 1999. We intend to
further evaluate CTLA4-Ig in "unmatched" bone marrow transplants. In July 1998,
we filed a complaint relating to certain United States patents on CTLA4 which
have been issued to Bristol-Myers Squibb Corporation (see Legal Proceedings). We
have filed our own patents related to compositions of matter and methods of use
of CTLA4-Ig.
DRUG DISCOVERY PROGRAMS
In the past five years, the pharmaceutical industry has rapidly adopted
combinatorial chemistry as a method to synthesize large libraries of chemical
compounds. Combinatorial chemical synthesis methods involve systematic variation
of three or more chemical groups on a fixed framework or scaffold. Repligen has
developed combinatorial techniques for the synthesis of libraries of chemical
compounds designed to block protein-protein interactions. These libraries
consist of compounds with size and complexity comparable to natural products
which are known to modulate important protein-protein interactions.
We have also developed a series of high throughput screening assays
including ones to detect substances that block the activity of (or "inhibit")
Vascular Endothelial Growth Factor (VEGF) and basic Fibroblast Growth Factor
(bFGF). Both VEGF and bFGF are human growth factors that have been implicated in
angiogenesis, the new blood vessel growth that is required for tumor growth. In
theory, if the activity of VEGF and bFGF could be inhibited, then tumor growth
could be inhibited because there would not be enough of a blood supply to
sustain the growth of the tumor. In initial preclinical studies, compounds that
we have identified using our screening techniques inhibited VEGF and bFGF, both
in the laboratory and in animal models. Further characterization of these
compounds is required to determine their potential utility.
PROTEIN A PRODUCTS FOR ANTIBODY MANUFACTURING
Protein A is a naturally occurring protein used in the purification of
antibodies. The use of Protein A is based on its ability to bind to specific
antibodies while not binding to other proteins or compounds. Typically, a
complex fermentation broth containing the desired antibody product is passed
over a solid support to which Protein A has been chemically attached
(immobilized). The immobilized Protein A binds the antibody product while other
components of the broth are washed away. The antibody is then recovered from the
support in a substantially purified form. Thus in a
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single step the antibody is both captured and purified. Protein A is widely used
by the biopharmaceutical industry in the purification of therapeutic antibodies.
Prior to 1997 only two monoclonal antibodies were approved for human
therapeutic use by the FDA. In the past eighteen months the FDA has approved six
new therapeutic monoclonal antibodies Rituxin for lymphoma, Synagis-TM- for RSV
infection, Remicade-TM- for Crohn's disease and Enbrel-TM- for arthritis. Total
sales of antibody products are expected to increase from $300 million in 1997 to
more than $1.0 billion in 1999. There are also more than 60 additional
monoclonal antibodies in various stages of clinical testing which may lead to
additional growth in this market. Most monoclonal antibodies are produced with
products which incorporate natural or recombinant Protein A.
We manufacture and market recombinant Protein A (rProtein A) and immobilized
rProtein A. In December 1998, we signed a Manufacturing Transfer Agreement with
Amersham Pharmacia Biotech ("AP Biotech"), a market leader in the supply of
manufacturing products to the biopharmaceutical industry. Subsequently, we
executed a Supply Agreement and a License Agreement with AP Biotech. Under the
terms of these agreements, Repligen will manufacture AP Biotech's recombinant
Protein A for AP Biotech for the next ten years. In addition, AP Biotech
licensed certain proprietary know how related to the manufacturing of
recombinant Protein A products. Repligen also granted a non-exclusive license to
AP Biotech to its patents covering recombinant Protein A.
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.
INTELLECTUAL PROPERTY AND LICENSING
We have maintained certain intellectual property rights related to our
former clinical development programs. We have and continue to seek third parties
to license that portion of our intellectual property which does not support our
current drug development or Protein A businesses.
As part of our former program to develop immunomodulatory protein drugs
directed to the immune cell receptors known as CD28, B7 and CTLA4 (costimulatory
factors), we licensed the rights to certain patent applications from the
University of Michigan. In addition, we 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. In January 1996, Genetics Institute, Inc. returned
the rights to CTLA4 to Repligen.
As part of our former program to inhibit acute inflammation we acquired
certain patent rights covering the use of antibodies to block acute inflammation
associated with reperfusion or the resupply of blood to tissue which has been
deprived of oxygen. In December 1995 we licensed certain of our rights under
these patents to Genentech, Inc. in exchange for a milestone payment
and royalties on the sales of products developed by Genentech under this patent.
REPLIGEN'S BUSINESS STRATEGY
Repligen's primary objective is to develop drugs based on naturally
occurring proteins and peptides. By harnessing the natural actions of these
compounds, it may be possible to modify a disease process in a specific way and
with a minimum of toxicity. Repligen intends to maintain the rights to its lead
product candidates, secretin and CTLA4-Ig, through "proof of concept" clinical
trials. After demonstration of a product candidate's therapeutic potential, we
may seek a biotechnology or pharmaceutical partner for further clinical
development or commercialization of its product candidates. Repligen seeks to
offset some of the expenses associated with product
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development with Protein A sales, research grants and licensing revenues to
reduce its losses and financial risks.
SALES AND MARKETING
We currently sell our rProtein A-TM- products primarily through value-added
resellers and through distributors in certain foreign markets.
CUSTOMERS
Customers for our Protein A products include chromatography companies and
process development and manufacturing groups at biotechnology and pharmaceutical
companies. We also enter into drug discovery collaborations with pharmaceutical
companies. During fiscal 1999, customers that accounted for more than 10% of our
total revenues included Neocrin Co., Amersham Pharmacia Biotech, and the
National Cancer Institute.
EMPLOYEES
As of June 15, 1999, we 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 12 of
our employees. Each of our employees has signed a confidentiality agreement. The
Company's employees are not covered by a collective bargaining agreement.
COMPETITION
Our 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 products using new technologies which may be competitive to our
products may also be introduced. Many of the companies selling or developing
competitive products have financial, manufacturing and distribution resources
significantly greater than ours.
The field of drug development in which we are involved is characterized by
rapid technological change. New developments are expected to continue at a rapid
pace in both industry and academia. There are many companies, both public and
private, including large pharmaceutical companies, chemical companies and
specialized biotechnology companies, engaged in developing products competitive
with products that we have under development. Many of these companies have
greater capital, human resources and research and development, manufacturing and
marketing experience than we do. They may succeed in developing products that
are more effective or less costly than any that we may develop. These
competitors may also prove to be more successful than we are in production and
marketing. In addition, academic, government and industry-based research is
intense, resulting in considerable competition in obtaining qualified research
personnel, submitting patent filings for protection of intellectual property
rights and establishing corporate strategic alliances. There can be no assurance
that research, discoveries and commercial developments by others will not render
any of our programs or potential products noncompetitive.
MANUFACTURING
We manufacture our rProtein A-TM- 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
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at our facilities in Needham, Massachusetts. See "Properties." We maintain an
active quality assurance effort to support the regulatory requirements of our
customers.
GOVERNMENT REGULATION
The development of drug candidates such as secretin or CTLA4-Ig by Repligen
or its collaborative partners are subject to regulation in the United States by
the FDA and abroad by foreign equivalents. Product development and approval
within the FDA regulatory framework usually takes a significant number of years,
involves the expenditure of substantial capital resources and timelines for
development are uncertain.
Before clinical testing in the United States of any drug candidate may
begin, FDA requirements for preclinical efficacy and safety must be completed.
Required toxicity testing typically involves characterization of the drug
candidate in several animal species. Safety and efficacy data are submitted to
the FDA as part of an IND and are reviewed by the FDA prior to the commencement
of human clinical trials.
Clinical trials involve the administration of the drug to human volunteers
or patients under the supervision of a qualified investigator, usually a
physician, with a FDA-reviewed protocol. Human clinical trials are typically
conducted in three sequential phases:
Phase I clinical trials represent the initial administration of the
investigational drug to a small group of human subjects to test for safety
(adverse effects), dose tolerance, absorption, biodistribution, metabolism,
excretion and clinical pharmacology and, if possible, to gain early evidence
regarding efficacy.
Phase II clinical trials typically involve a small sample of the actual
intended patient population and seek to assess the efficacy of the drug for
specific targeted indications, to determine dose tolerance and the optimal dose
range and to gather additional information relating to safety and potential
adverse effects.
Once an investigational drug is found to have some efficacy and an
acceptable safety profile in the targeted patient population, Phase III clinical
trials are initiated to establish further clinical safety and efficacy of the
investigational drug in a broader sample of the general patient population at
multiple study sites in order to determine the overall risk-benefit ratio of the
drug and to provide an adequate basis for product approval. The Phase III
clinical development program consists of expanded, large-scale studies of
patients with the target disease or disorder, to obtain definitive statistical
evidence of the efficacy and safety of the proposed product.
All data obtained from a comprehensive development program are submitted in
a new drug application ("NDA") to the FDA and the corresponding agencies in
other countries for review and approval. The NDA includes information pertaining
to clinical studies and the preparation of the new drug. Review of an NDA by the
FDA can be a time-consuming process and the FDA may request the Company to
submit additional data or carry out additional studies.
PATENTS, LICENSES AND PROPRIETARY RIGHTS
Our policy is to seek patent protection for our significant proprietary
products. We pursue patent protection in the United States and file
corresponding patent applications in relevant foreign jurisdictions. We believe
that patent protection is an important element in the protection of its
competitive and proprietary position, but other elements, including trade
secrets and know-how, are of at least equal importance. Repligen owns or has
exclusive rights to more than 15 U.S. patents and corresponding foreign
equivalents. In addition, we have 9 U.S. patent applications pending. The
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invalidation of key patents owned by us or the failure of patents to issue on
pending patent applications could create increased competition, with potential
adverse effects on our business prospects.
We also rely upon trade secret protection for our confidential and
proprietary information. Our policy is to require each of our employees,
consultants and significant scientific collaborators to execute confidentiality
agreements upon the commencement of an employment or consulting relationship
with us. These agreements generally provide that all confidential information
developed or made known to the individual during the course of the individual's
relationship with us is to be kept confidential and not disclosed to third
parties except in specific circumstances. In the case of employees and
consultants, the agreements generally provide that all inventions conceived by
the individual in the course of rendering services to Repligen shall be our
exclusive property.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
ADDITIONAL RISKS AND UNCERTAINTIES THAT WE ARE UNAWARE OF OR THAT WE
CURRENTLY DEEM IMMATERIAL ALSO MAY BECOME IMPORTANT FACTORS THAT AFFECT
REPLIGEN.
IF WE DO NOT OBTAIN ADDITIONAL CAPITAL, WE WILL BE UNABLE TO DEVELOP OR DISCOVER
NEW DRUGS.
We need additional long-term financing to develop our drug development
programs through the clinical trial process as required by the FDA and our
bioprocessing products business. We also need additional long-term financing to
support future operations and capital expenditures, including capital for
additional personnel and facilities. If we spend more money than currently
expected for our drug development programs and our bioprocessing products
business, we will need to raise additional capital by selling debt or equity
securities, by entering into strategic relationships or through other
arrangements. We may be unable to raise any additional amounts on reasonable
terms when they are needed due to the volatile nature of the biotechnology
marketplace. If we are unable to raise this additional capital, we may have to
delay or postpone critical clinical studies or abandon other development
programs.
BECAUSE OUR OPERATING RESULTS FLUCTUATE FROM QUARTER TO QUARTER, SO DOES OUR
STOCK PRICE, WHICH MEANS INVESTORS MAY HAVE TO SELL THEIR STOCK AT A LOSS IF
THEY ARE UNABLE TO WAIT FOR A REBOUND.
Our quarterly and annual operating revenues and expenses may fluctuate due
to a number of factors including:
- the timing and size of increased research and development expenses;
- expenses associated with clinical development of our products; or
- the timing and size of product orders.
Our product development activities often focus on unproven technologies and
undeveloped markets. As a result, we may experience difficulty in forecasting
operating expenditures, and we cannot know when or whether our efforts will
result in commercially successful products. The expenses or losses associated
with these product development activities could materially adversely affect our
operating results.
IF WE ARE UNABLE TO CONTINUE TO HIRE AND RETAIN SKILLED TECHNICAL AND SCIENTIFIC
PERSONNEL, THEN WE WILL HAVE TROUBLE DEVELOPING PRODUCTS.
Our success depends largely upon the continued service of our management and
scientific staff and our ability to attract, retain and motivate highly skilled
scientific, management and marketing personnel. Potential employees with an
expertise in the field of biochemistry, regulatory affairs
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and/or clinical development of new drug and biopharmaceutical manufacturing are
not generally available in the market and are difficult to attract and retain.
We also face significant competition for such personnel from other companies,
research and academic institutions, government and other organizations who have
superior funding and resources to be able to attract such personnel. The loss of
key personnel or our inability to hire and retain personnel who have technical
and scientific backgrounds could materially adversely affect our product
development efforts and our business.
WE COMPETE WITH LARGER, BETTER FINANCED AND MORE MATURE PHARMACEUTICAL AND
BIOTECHNOLOGY COMPANIES WHO ARE CAPABLE OF DEVELOPING NEW APPROACHES THAT COULD
MAKE OUR PRODUCTS AND TECHNOLOGY OBSOLETE.
The market for therapeutic and bioprocessing products is intensely
competitive, rapidly evolving and subject to rapid technological change.
Pharmaceutical and mature biotechnology companies have substantially greater
financial, manufacturing, marketing, research and development resources than we
have. New approaches to the treatment of our targeted diseases by these
competitors may make our products and technologies obsolete or noncompetitive.
IF WE ARE UNABLE TO OBTAIN AND MAINTAIN PATENTS FOR OUR PRODUCTS, WE WILL NOT BE
ABLE TO SUCCEED COMMERCIALLY.
We must obtain patent and trade secret protection for our products and
processes in order to protect them from unauthorized use and to produce a
financial return consistent with the significant time and expense required to
bring our products to market. Our success will depend, in part, on our ability
to:
- obtain patent protection for our products and manufacturing processes;
- preserve our trade secrets; and
- operate without infringing the proprietary rights of third parties.
We cannot be certain that any patent applications relating to our products
will be filed in the future or that any currently pending applications will
issue on a timely basis, if ever. Since patent applications in the United States
are maintained in secrecy until patents issue and since publication of
discoveries in the scientific or patent literature often lag behind actual
discoveries, we cannot be certain that we were the first to make the inventions
covered by each of our pending patent applications or that we were the first to
file patent applications for such inventions. Even if patents are issued, the
degree of protection afforded by such patents will depend upon the:
- scope of the patent claims;
- validity and enforceability of the claims obtained in such patents; and
- our willingness and financial ability to enforce and/or defend them.
The patent position of biotechnology and pharmaceutical firms is often
highly uncertain and usually involves complex legal and scientific questions.
Moreover, no consistent policy has emerged in the United States and in many
other countries regarding the breadth of claims allowed in biotechnology
patents. Patents which may be granted to us in certain foreign countries may be
subject to opposition proceedings brought by third parties or result in suits by
Repligen which may be costly and result in adverse consequences for Repligen.
If our competitors prepare and file patent applications in the United States
that claim technology also claimed by us, we may be required to participate in
interference proceedings declared by the U.S. Patent and Trademark Office to
determine priority of invention, which would result in substantial costs to us.
For instance, in July 1998, we filed a complaint to assert our
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ownership rights of United States patents issued to Bristol-Myers Squibb
Corporation relating to the use of and manufacture of CTLA4-Ig. We believe that
one of our licensees is a co-inventor of these patents and we are seeking to
obtain co-inventor rights of these patents. We may incur substantial costs
defending these and other infringement or patent interference proceedings, which
proceedings may result in adverse consequences for Repligen.
In addition, patents blocking our manufacture, use or sale of our products
could be issued to third parties in the United States or foreign countries. The
issuance of blocking patents or an adverse outcome in an interference or
opposition proceeding, could subject us to significant liabilities to third
parties and require us to license disputed rights from third parties on
unfavorable terms, if at all, or cease using the technology.
ANY FAILURE OF COMPUTER SYSTEMS AND SOFTWARE PROGRAMS CAUSED BY YEAR 2000 COULD
NEGATIVELY IMPACT OUR BUSINESS.
Many existing computer systems and software products do not properly
recognize dates after December 31, 1999. This "Year 2000" problem could result
in miscalculations, data corruption, system failures or disruptions of
operations. We are subject to potential Year 2000 problems affecting our
computers' systems, our internal systems and the systems of our vendors and
scientific collaborators, any of which could have a material adverse affect on
our business operating results and financial conditions.
Based on our assessments to date, we believe that our internal systems are
substantially Year 2000 compliant although there can be no assurance that Year
2000 errors or defects will not be discovered in our internal software systems
and, if such errors or defects are discovered, there can be no assurance that
the costs of making such systems Year 2000 compliant will not be material.
Year 2000 errors or defects in the internal systems maintained by our
vendors or clinical trial collaborators could require us to incur significant
delays in our product development programs and unanticipated expenses to remedy
any problems or replace affected vendors.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's executive office, research and manufacturing facilities are
located at 117 Fourth Avenue in Needham, Massachusetts. The Company occupies
approximately 13,000 square feet under a six-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
On July 17, 1998, Repligen filed a complaint at the United States District
Court for the District of Massachusetts in Boston, Massachusetts. The complaint
relates to a United States patent issued in 1995 to Bristol-Myers Squibb
Corporation claiming a method of treating immune system diseases with CTLA4-Ig.
In December 1998, related patents were issued to Bristol-Myers claiming the
composition of CTLA4-Ig. Thereafter, the complaint was amended to include a
patent claiming the composition of CTLA4-Ig. In the amended complaint, we seek
to assert our ownership rights in, and to obtain co-inventor rights of, the
Bristol-Myers patents and we also seek unspecified monetary damages. If we are
successful in our claims, a licensor of such intellectual property rights to
Repligen will be named as a co-inventor of the Bristol-Myers patents that will
give Repligen and Bristol-Myers shared rights to the patents. The outcome of
litigation may not conclude in a result beneficial to Repligen. Repligen's
failure to obtain shared ownership rights in the patents may restrict Repligen's
ability to commercialize CTLA4-Ig for certain applications.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders of the Company
through solicitation of proxies or otherwise, during the last quarter of the
fiscal year ended March 31, 1999.
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......................................... 47 President, Chief Executive Officer and Director
James R. Rusche........................................... 45 Vice President, Research and Development
Daniel P. Witt............................................ 51 Vice President, Business Development
WALTER C. HERLIHY, PH.D. joined the Company in March 1996 as President,
Chief Executive Officer and Director in connection with the Company's merger
with Glycan Pharmaceuticals, Inc. From July 1993 to March 1996, Dr. Herlihy was
the President and CEO of Glycan Pharmaceuticals, Inc. From October 1981 to June
1993, he held numerous research positions at Repligen, most recently as Senior
Vice President, Research and Development. Dr. Herlihy holds an A.B. degree in
chemistry from Cornell University and a Ph.D. in chemistry from MIT.
JAMES R. RUSCHE, PH.D. joined the Company in March 1996 as Vice President,
Research and Development in connection with the Company's merger with Glycan
Pharmaceuticals, Inc. From July 1994 to March 1996, Dr. Rusche was Vice
President, Research and Development of Glycan Pharmaceuticals, Inc. From
February 1985 to June 1994, he held numerous research positions at Repligen,
most recently as Vice President, Discovery Research. Dr. Rusche holds a B.S.
degree in microbiology from the University of Wisconsin, LaCrosse and a Ph.D. in
immunology from the University of Florida.
DANIEL P. WITT, PH.D. joined the Company in March 1996 as Vice President,
Business Development in connection with the Company's merger with Glycan
Pharmaceuticals, Inc. From October 1993 to March 1996, Dr. Witt was Vice
President, Business Development of Glycan Pharmaceuticals, Inc. From April 1983
to September 1993, he held numerous research positions at Repligen, most
recently as Vice President, Technology Acquisition. Dr. Witt holds a B.A. degree
in chemistry from Gettysberg College and a Ph.D. in biochemistry from the
University of Vermont.
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 1999:
First Quarter.......................................................................... $ 3.000 $ 1.188
Second Quarter......................................................................... 1.656 1.219
Third Quarter.......................................................................... 1.781 1.000
Fourth Quarter......................................................................... 3.063 1.250
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ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS (CONTINUED)
HIGH LOW
--------- ---------
FISCAL YEAR 1998:
First Quarter......................................................... $ 1.500 $ 1.000
Second Quarter........................................................ 1.375 .969
Third Quarter......................................................... 1.118 .719
Fourth Quarter........................................................ 1.250 .969
STOCKHOLDERS AND DIVIDENDS
As of June 24, 1999 there were approximately 1,072 stockholders of record of
the Company's Common Stock, excluding stockholders whose shares were held in
nominee name. The Company has not paid any dividends since its inception and
does not intend to pay any dividends on its Common Stock in the foreseeable
future.
RECENT SALES OF SECURITIES
On March 1, 1999 the Company issued a warrant exercisable at any time prior
to March 1, 2004 for up to 100,000 shares of common stock of the Company with an
exercise price of $1.63 per share. The warrant was issued as partial
consideration for legal services to be rendered by Mintz, Levin, Cohn, Ferris,
Glovsky and Popeo, P.C. ("Mintz Levin") in connection with the litigation
described in Item 3 herein.
The issuance of the warrant was made in reliance upon the exemption from
registration under Section 4 (2) of the Securities Act as a transaction not
involving a public offering. The Company has reason to believe that Mintz Levin
was familiar with and had access to information concerning the operations and
financial condition of the Company, and was 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.
On March 9, 1999, the Company acquired all rights to certain patent
applications relating to the use of secretin in the prevention or treatment of
autism. The rights were acquired from the joint owners, Victoria A. Beck, a
United States resident ("Beck"), and Autism Research Institute, a not-for-profit
organization incorporated in the State of California ("ARI"). As partial
consideration for the patent applications, the Company issued a warrant
exercisable at any time prior to March 9, 2004 for up to 350,000 shares of
common stock of the Company with an exercise price of $1.59 per share, and
issued 262,500 shares of common stock of the Company.
The issuance of the warrant and the issuance of the common stock was made in
reliance upon the exemption from registration under Section 4 (2) of the
Securities Act as transactions not involving a public offering. The Company has
reason to believe that Beck and ARI were familiar with and had access to
information concerning the operations and financial condition 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 filed a registration statement
with the SEC on Form S-3 on June 15, 1999 for a resale of the common stock.
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
11
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 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 stock 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 condition 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 filed a registration statement
with the SEC on Form S-3 on June 29, 1998 for the resale of the common stock.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data are derived from, and are qualified in
their entirety by reference to, the consolidated financial statements of
Repligen as of and for the years ended March 31, 1995, 1996, 1997, 1998 and 1999
which consolidated financial statements have been audited by Arthur Andersen
LLP, independent public accountants. The selected financial data set forth below
should be read in conjunction with the consolidated financial statements of
Repligen and the related notes thereto and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included elsewhere in this
report.
YEARS ENDED MARCH 31,
-----------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
OPERATING STATEMENT DATA:
Revenues:
Research and development....................... $ 1,268 $ 917 $ 1,180 $ 7,949 $ 10,988
Product........................................ 1,010 1,114 1,554 1,874 3,885
Investment and other........................... 312 354 1,068 1,036 2,069
--------- --------- --------- --------- ---------
2,590 2,385 3,802 10,859 16,942
--------- --------- --------- --------- ---------
Costs and expenses:
Research and development....................... 1,847 1,420 1,378 11,980 31,012
Charge for purchased patent rights............. 1,035 -- -- -- --
Selling, general & administrative.............. 1,563 1,281 1,940 4,925 4,673
Cost of product sales.......................... 689 480 537 1,516 1,535
Charge for acquired research & development..... -- -- 549 334 --
Restructuring (credit) charge.................. -- -- (111) 3,567 11,300
Interest....................................... -- -- -- 58 372
--------- --------- --------- --------- ---------
Total costs and expenses..................... 5,134 3,181 4,293 22,380 48,892
--------- --------- --------- --------- ---------
Net loss......................................... $ (2,544) $ (796) $ (491) $ (11,521) $ (31,950)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net loss per common share........................ $ (0.14) $ (0.05) $ (0.03) $ (0.75) $ (2.08)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average common shares outstanding....... 18,018 16,502 15,678 15,370 15,356
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
12
YEARS ENDED MARCH 31,
-----------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and investments........................... $ 3,251 $ 4,726 $ 3,538 $ 7,222 $ 15,302
Working capital................................ 3,860 5,377 3,990 4,154 9,070
Total assets................................... 5,224 6,513 5,621 9,231 31,330
Accumulated deficit............................ (126,864) (124,320) (123,533) (123,042) (111,520)
Stockholders' equity........................... 4,592 6,124 4,919 4,809 15,576
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
THE FOLLOWING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS
AND UNCERTAINTIES. WHEN USED IN THIS REPORT, THE WORDS "INTEND," "ANTICIPATE,"
"BELIEVE," "ESTIMATE," "PLAN" AND "EXPECT" AND SIMILAR EXPRESSIONS AS THEY
RELATE TO US ARE INCLUDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. REPLIGEN'S
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE
FORWARD-LOOKING STATEMENTS AND ARE A RESULT OF CERTAIN FACTORS, INCLUDING THOSE
SET FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS REPORT.
Our revenues consist primarily of two categories. Product revenues are
derived primarily from sales of our Protein A products. Research and development
revenue is revenue relating to drug discovery collaboration arrangements with
pharmaceutical partners, licensing revenue, and revenue generated from a Phase
II Small Business Innovation Research (SBIR) grant from the National Institute
of Health.
RESULTS OF OPERATIONS
FISCAL YEAR ENDED MARCH 31, 1999 COMPARED WITH FISCAL YEAR ENDED MARCH 31, 1998
REVENUES. Total revenues for fiscal 1999 were $2,590,000 as compared to
$2,385,000 in fiscal 1998, an increase of $205,000. Research and development
revenues for fiscal 1999 totaled $1,268,000, including revenues relating to drug
discovery collaboration arrangements with pharmaceutical partners, licensing
revenue, and revenue generated from a Phase II Small Business Innovation
Research (SBIR) grant from the National Institutes of Health. The increase in
research and development revenues of $351,000 or 38% from fiscal 1998 levels is
primarily attributable to licensing payments relating to intellectual property
rights licensed to Neocrin, Co. During fiscal 1999 this licensing payment
accounted for more than 10% of total revenues. Research and development revenue
accounted for 49% of our total revenues in fiscal 1999.
Product revenues for fiscal 1999 were $1,010,000 compared to $1,114,000 in
fiscal 1998. The decrease in the product sales volume is attributed to a
decrease in sales of reagent products offset by the increase in sales of Protein
A. Sales of Protein A products accounted for 39% of our revenues in fiscal 1999.
Investment income for fiscal 1999 was $212,000, a decrease of $13,000 from
$225,000 for fiscal 1998. This decrease in investment income was due primarily
to the sale of non-investment securities held by Repligen offset by higher
average funds available for investment during fiscal 1999. Other revenues for
the fiscal 1999 period decreased by approximately $29,000 from the comparable
fiscal 1998 period, due in large part, to the one-time sale of equipment and
furnishings by Repligen.
13
EXPENSES. During fiscal 1999, total expenses were $5,134,000, significantly
higher than fiscal 1998 expenses of $3,181,000. Higher level of expenses in
fiscal 1999 was largely due to the $1,035,000 charge associated with Repligen's
acquisition of the rights to certain patent applications for the use of secretin
in the treatment of autism. Research and development expenses for fiscal 1999,
totaled $1,847,000, an increase of $427,000, or 30%, from fiscal 1998 levels due
to an increase in both personnel and laboratory expenses associated with the
expansion of Repligen's research and development program. Repligen anticipates
that research and development expenses will continue to increase significantly
as Repligen increases its investment in its drug development programs during
fiscal 2000.
Cost of product sales for fiscal 1999 totaled $689,000, an increase of
$209,000 from the prior fiscal year. Cost of product sales in fiscal 1999 were
68% of product revenues versus 43% of product revenues for fiscal 1998. This
increase is largely attributable to a write off of certain obsolete raw
materials and work in process resulting from the introduction of a new Protein A
product in fiscal 1999.
Selling, general and administrative expenses for fiscal 1999 were
$1,563,000, an increase from fiscal 1998 of $282,000. This increase is
attributable to a noncash charge associated with the issuance of warrants for
legal services related to Repligen's complaint filed against Bristol-Myers
Squibb. In addition, Repligen incurred increased expenses relating to legal and
shareholder services as Repligen sought additional financing.
In March 1999, Repligen acquired all rights to certain patent applications
covering the use of secretin in the treatment of autism. The rights were
acquired pursuant to a patent purchase agreement. In addition, Repligen agreed
to make certain milestone payments upon (a) Repligen's filing of a new drug
application with the United States Food and Drug Administration for a clinical
indication covered by the intellectual property rights transferred by the patent
purchase agreement and (b) the approval by the FDA of a product covered by the
intellectual property rights transferred to Repligen pursuant to the patent
purchase agreement. Finally, Repligen agreed to pay certain royalty payments if
Repligen is able to derive sales and/or licensing revenues from the intellectual
property rights acquired pursuant to the patent purchase agreement. Under terms
of the patent purchase agreement, Repligen may be required to repurchase up to a
maximum of 100,000 shares of common stock issued in connection with the patent
purchase agreement at a price of $1.59 per share. This obligation to repurchase
the common stock expires in June 1999. Approximately $1,035,000 was charged to
the accompanying 1999 statement of operations as the cost of the purchased
patent rights.
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, compared to $1,180,000 in fiscal
1997. The research and development revenues for fiscal year 1998 include
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 Institute 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
and Repligen Clinical Partners, L.P.
Product revenues for fiscal 1998 were $1,114,000 compared to $1,554,000 in
fiscal 1997. The decrease of $440,000 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.
14
Investment income decreased by $44,000 from $269,000 for fiscal 1997 to
$225,000 for fiscal 1998 and was due primarily to lower average funds available
for investment during fiscal 1998. Other revenues for the fiscal 1998 of
$129,000 decreased by approximately $660,000 from the comparable fiscal 1997
other revenue of $799,000 and was primarily due to a restructuring of Repligen,
pursuant to which Repligen made a one-time sale of equipment and furnishings for
$317,000 and the one-time sale of non-investment securities 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, a decrease of
$1,112,000 or 26% from fiscal 1997. The higher level of expenses in fiscal 1997
was primarily a result of expenditures associated with Repligen's former
facility in Cambridge, Massachusetts. Research and development expenses for
fiscal 1998, totaling $1,420,000, compared to $1,378,000 in fiscal 1997, an
increase of $42,000, or 3%, from fiscal 1997.
Cost of product sales decreased $57,000 from $537,000 in fiscal 1997 to
$480,000 in fiscal 1998. Cost of product sales in fiscal 1998 were 43% of
product revenues versus 35% of product revenues for fiscal 1997. The decrease in
the cost of product sales is the result of a change in the product mix between
fiscal years and the result of the realization of inventory in fiscal 1997 that
had been reserved for in fiscal 1996.
Selling, general and administrative expenses for fiscal 1998 were
$1,281,000, compared to $1,949,000 in fiscal 1997, a decrease from fiscal 1997
of $659,000. This decrease is a result of Repligen's restructuring efforts that
took place during fiscal 1997 and 1996. As a result of Repligen's relocation to
smaller office and laboratory space, Repligen realized savings in rent and
related facility costs. In addition, this decrease in expenses is a result of
the reduction of administrative personnel and related expenses that took place
during fiscal 1997.
In the year ended March 31, 1997, Repligen acquired, in exchange for
Repligen's common stock, all of the outstanding shares of ProsCure, Inc., a
subsidiary of Glycan Pharmaceuticals, Inc. 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 Repligen. Since the
technology acquired will require further development by Repligen, 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.
LIQUIDITY AND CAPITAL RESOURCES
Repligen's total cash, cash equivalents and marketable securities decreased
to $3,251,000 at March 31, 1999 from $4,726,000 at March 31, 1998. This decrease
is primarily attributable to the operating loss incurred in the year ended March
31, 1999 of approximately $1,509,000. In addition, this decrease is attributable
to an increase in accounts receivable and prepaid expenses of $242,000,
partially offset by an increase of accounts payable and accrued expenses of
$228,000. Working capital decreased by $1,517,000 to $3,860,000 at March 31,
1999 from $5,377,000 at March 31, 1998 due to cash outlays to fund operating
losses, the purchase of equipment, furniture and fixtures and leasehold
improvements, and an increase in accounts receivable outstanding at the end of
fiscal year 1999 offset by an increase accounts payable and accrued expenses.
Capital expenditures for fiscal 1999 and 1998 were $252,000 and $114,000,
respectively. The capital expenditures in both fiscal 1999 and fiscal 1998
reflect leasehold improvements and the purchase of research and development and
manufacturing equipment.
Repligen entered into agreements with a number of collaborative partners and
licenses. Under the terms of these agreements, Repligen may be eligible to
receive research support, additional
15
milestones or royalty revenue if these collaborations continue to clinical
evaluation and commercialization. Repligen can not be assured to the
continuation of these collaborations or any future payments.
Repligen 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. In April and May 1999, certain investors
entered into binding common stock purchase agreements to purchase from Repligen
an aggregate of 3,600,000 shares of common stock of Repligen for an aggregate
purchase price of $9,000,000 in a private placement transaction. The
transactions closed during June 1989 and Repligen filed a registration statement
to effect the registration for resale of the 3,600,000 shares purchased by the
investors pursuant to the common stock purchase agreements.
While Repligen anticipates that the cost of operations will increase in
fiscal 2000 as it continues to expand its investment in proprietary product
development, Repligen believes that the private placement financing yielding an
aggregate of $9,000,000 in gross proceeds to Repligen (before related
transactional expenses) will provide sufficient funding to satisfy its working
capital and capital expenditure requirements for the next twenty-four months.
Should Repligen need to secure additional financing to meet its future liquidity
requirements, Repligen may not be able to secure such financing, or if Repligen
does secure, such financing, Repligen may not be able to obtain favorable terms
because of the volatile nature of the biotechnology workplace.
YEAR 2000
Repligen has undertaken an initial review of its information technology
computer systems and it believes that the Year 2000 problem does not pose
significant operational problems to its information technology systems. The
majority of Repligen's software and computer equipment has been purchased within
the last five years from third-party vendors who have already provided upgrades
intended to bring their products into Year 2000 compliance. Repligen has begun
to address the small number of internal systems that are not yet Year 2000
compliant, and expects full compliance by the end of 1999. Repligen currently
believes that the costs of addressing these issues should not exceed $50,000 and
will not have a material adverse impact on Repligen's financial position.
Repligen has recently begun interviewing various third parties, including
vendors and suppliers of Repligen, to determine their exposure to Year 2000
issues, their anticipated risks and responses to those risks. To date, the third
parties that have been contacted have indicated that their hardware or software
is or will be Year 2000 compliant in a time frame that meets Repligen's
requirements. Even with the vendor compliance however, Repligen intends to
continue to assess its exposure to Year 2000 noncompliance on the part of any of
its material vendors. Repligen cannot be certain that the vendor's systems will
be Year 2000 compliant in a time frame satisfactory to us.
Repligen does not have a contingency plan in the event Year 2000 compliance
cannot be achieved in a timely manner. A contingency plan will be developed
immediately upon completion of Repligen's Year 2000 compliance assessment.
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.
16
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 and executive officers will be
set forth under the captions "Election of Directors", "Occupations of Directors
and Executive Officers", "Biographical Information", "Information Regarding the
Board of Directors and its Committees" and "Compliance with Section 16 (a) of
the Securities Exchange Act of 1934" in the Company's definitive proxy statement
which will be filed with the SEC within 120 days of March 31, 1999 and is
incorporated herein by reference.
Information regarding the Company's executive officers is also contained in
Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item will be set forth under the caption
"Summary of Executive Compensation" and "Compensation of Directors" in the
Company's definitive proxy statement which will be filed with the SEC within 120
days of March 31, 1999 and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this Item will be set forth under the caption "Stock
Ownership of Principal Stockholders and Management" and "Stock Price Performance
Graph" in the Company's definitive proxy statement which will be filed with the
SEC within 120 days of March 31, 1999 and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this Item will be set forth under the caption
"Certain Relationships and Related Transactions" in the Company's definitive
proxy statement which will be filed with the SEC within 120 days of March 31,
1999 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, 1999 and 1998............................................................. F-3
Consolidated Statements of Operations for the Years Ended March 31, 1999, 1998 and 1997............................... F-4
Consolidated Statements of Stockholders' Equity for the Years Ended March 31, 1999, 1998, and 1997.................... F-5
Consolidated Statements of Cash Flows for the Years Ended March 31, 1999, 1998 and 1997............................... F-6
Notes to Consolidated Financial Statements............................................................................ F-7
17
(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:
On March 24, 1999 the Company filed a current report on Form 8-K, as amended by
a Form 8-K/A filed June 15, 1999 reporting the acquisition of certain patent
applications covering the use of secretin in the treatment of autism. The
Company obtained confidential treatment for portions of certain exhibits filed
therewith.
18
EXHIBIT INDEX
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- ------------- ---------------------------------------------------------------------------------------------------------------
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 File No. 0-14656 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).
4.1 * Specimen Stock Certificate (filed as Exhibit 4.2 to Repligen Corporation's Form S-1 Registration Statement No.
33-3959 and incorporated herein by reference).
4.2 * Form of Limited Partner Warrant, dated as of February 28, 1992 (filed as Exhibit 4.2 to Repligen Corporation's
Annual Report on Form 10-K for the year ended March 31, 1998 and incorporated herein by reference).
4.3 * Form of Modified Limited Partner Warrant, dated as of February 28, 1992 (filed as Exhibit 4.3 to Repligen
Corporation's Annual Report on Form 10-K for the year ended March 31, 1998 and incorporated herein by
reference).
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).
10.1 * 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 File No. 0-14656 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).
19
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).
#10.13 * Manufacturing Transfer Agreement dated as of December 17, 1998 among the Company and Amersham Pharmacia Biotech
AB (filed as Exhibit 10.1 to Repligen Corporation's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1998 and incorporated herein by reference).
10.14 + Common Stock Purchase Warrant issued to Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. by Repligen
Corporation dated as of March 1, 1999.
10.15 * Patent Purchase Agreement by and among Repligen Corporation, Victoria A. Beck and Autism Research Institute,
dated as of March 9, 1999 (filed as Exhibit 2.1 to Repligen Corporation's Current Report on Form 8-K/A filed
June 15, 1999 and incorporated herein by reference).
20
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- ------------- ---------------------------------------------------------------------------------------------------------------
10.16 * Stock Purchase Agreement dated as of April 30, 1999, by and among Repligen Corporation and Wellington
Management Company, LLP, as Investment Advisor to the investors listed on Schedule I thereto (filed as Exhibit
4.1 to Repligen Corporation's Current Report on Form 8-K filed May 17, 1999 and incorporated herein by
reference).
10.17 * Stock Purchase Agreement dated as of May 14, 1999, by and among Repligen Corporation and the investors listed
on the Schedule I thereto (filed as Exhibit 4.2 to Repligen Corporation's Current Report on Form 8-K filed May
17, 1999 and incorporated herein by reference).
23 + Consent of Arthur Andersen LLP.
27 + Financial Data Schedule.
- ------------------------
# Confidential treatment obtained as to certain portions.
* 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 1999 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 29, 1999
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 below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ ALEXANDER RICH Co-Chairman of the Board of
- ------------------------------ Directors June 25, 1999
Alexander Rich, M.D.
/s/ PAUL SCHIMMEL Co-Chairman of the Board of
- ------------------------------ Directors June 25, 1999
Paul Schimmel, Ph.D.
President, Chief Executive
/s/ WALTER C. HERLIHY Officer and Director
- ------------------------------ (Principal executive, June 25, 1999
Walter C. Herlihy financial and accounting
officer)
/s/ ROBERT J. HENNESSEY Director
- ------------------------------ June 25, 1999
Robert J. Hennessey
/s/ G. WILLIAM MILLER Director
- ------------------------------ June 25, 1999
G. William Miller
22
INDEX TO FINANCIAL STATEMENTS
PAGE
-----------
Report of Independent Public Accountants........................................................... F-2
Balance Sheets as of March 31, 1999 and 1998....................................................... F-3
Statements of Operations for the Years
Ended March 31, 1999, 1998 and 1997.............................................................. F-4
Statements of Stockholders' Equity for the Years Ended March 31,
1999, 1998 and 1997.............................................................................. F-5
Statements of Cash Flows for the Years
Ended March 31, 1999, 1998 and 1997.............................................................. F-6
Notes to Financial Statements...................................................................... F-7
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Repligen Corporation:
We have audited the accompanying balance sheets of Repligen Corporation (a
Delaware corporation) as of March 31, 1999 and 1998, and the related statements
of operations, stockholders' equity and cash flows for each of the three years
in the period ended March 31, 1999. 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 as of
March 31, 1999 and 1998, and the results of its operations and its cash flows
for each of the three years in the period ended March 31, 1999, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
May 14, 1999
REPLIGEN CORPORATION
BALANCE SHEETS
AS OF MARCH 31,
-----------------------------------
ASSETS 1999 1998
- ---------------------------------------------------------------------------------------- ------------------- --------------
Current assets:
Cash and cash equivalents............................................................. $ 3,250,751 $ 4,725,544
Accounts receivable, less reserves of $25,000......................................... 429,720 212,857
Inventories........................................................................... 630,329 670,818
Prepaid expenses and other current assets............................................. 181,617 156,228
------------------- --------------
Total current assets................................................................ 4,492,417 5,765,447
Property, plant and equipment, at cost:
Equipment 944,644 770,512
Leasehold improvements................................................................ 460,319 442,528
Furniture and fixtures................................................................ 101,376 40,563
------------------- --------------
1,506,339 1,253,603
Less -- accumulated depreciation and amortization................................... 862,934 594,719
------------------- --------------
643,405 658,884
Other assets, net....................................................................... 88,472 88,472
------------------- --------------
$ 5,224,294 $ 6,512,803
------------------- --------------
------------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ----------------------------------------------------------------------------------------
Current liabilities:
Accounts payable...................................................................... $ 268,708 $ 100,719
Accrued expenses and other............................................................ 313,926 254,312
Unearned income....................................................................... 49,969 33,332
------------------- --------------
Total current liabilities........................................................... 632,603 388,363
Commitments and contingencies (Note 6)
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
-- 18,264,285 shares and 18,001,785 shares at March 31, 1999 and 1998, respectively... 182,642 180,017
Additional paid-in capital.............................................................. 131,272,607 130,264,048
Accumulated deficit..................................................................... (126,863,558) (124,319,625)
------------------- --------------
Total stockholders' equity............................................................ 4,591,691 6,124,440
------------------- --------------
$ 5,224,294 $ 6,512,803
------------------- --------------
------------------- --------------
The accompanying notes are an integral part of these financial statements.
F-3
REPLIGEN CORPORATION
STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31,
---------------------------------------------------
1999 1998 1997
------------- --------------------- -------------
Revenues:
Research and development.............................................. $ 1,268,036 $ 916,726 $ 1,179,980
Product............................................................... 1,009,655 1,114,452 1,553,598
Investment income..................................................... 212,157 224,913 268,645
Other................................................................. 99,711 128,885 799,319
------------- ----------- -------------
2,589,559 2,384,976 3,801,542
------------- ----------- -------------
Costs and expenses:
Research and development.............................................. 1,847,210 1,419,825 1,378,391
Charge for purchased patent rights (Note 7)........................... 1,034,914 -- --
Selling, general and administrative................................... 1,562,750 1,281,090 1,939,881
Cost of product sales................................................. 688,618 480,089 536,685
Charge for purchased research & development........................... -- -- 548,978
Restructuring credit.................................................. -- -- (111,000)
------------- ----------- -------------
5,133,492 3,181,004 4,292,935
------------- ----------- -------------
Net loss................................................................ $ (2,543,933) $ (796,028) $ (491,393)
------------- ----------- -------------
------------- ----------- -------------
Basic and diluted net loss per share.................................... $ (0.14) $ (0.05) $ (0.03)
------------- ----------- -------------
------------- ----------- -------------
Basic and diluted weighted average shares outstanding................... 18,017,650 16,501,785 15,677,998
------------- ----------- -------------
------------- ----------- -------------
The accompanying notes are an integral part of these financial statements.
F-4
REPLIGEN CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
COMMON STOCK ADDITIONAL
NUMBER OF $.01. PAID-IN DEFERRED ACCUMULATED
COMMON SHARES PAR VALUE CAPITAL COMPENSATION DEFICIT
---------------- --------------- -------------- -------------- ----------------
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 options................ -- -- -- 26,447 --
---------------- --------------- -------------- ------- ----------------
Balance, March 31, 1998........... 18,001,785 180,017 130,264,048 -- (124,319,625)
Issuance of common stock and
warrants........................ 262,500 2,625 1,008,559 -- --
Net loss.......................... -- -- -- -- (2,543,933)
---------------- --------------- -------------- ------- ----------------
Balance, March 31, 1999........... 18,264,285 $ 182,642 131,272,607 $ -- $ (126,863,558)
---------------- --------------- -------------- ------- ----------------
---------------- --------------- -------------- ------- ----------------
TOTAL
STOCKHOLDERS'
EQUITY
-------------
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 options................ 26,447
-------------
Balance, March 31, 1998........... 6,124,440
Issuance of common stock and
warrants........................ 1,011,184
Net loss.......................... (2,543,933)
-------------
Balance, March 31, 1999........... $ 4,591,691
-------------
-------------
The accompanying notes are an integral part of these financial statements.
F-5
REPLIGEN CORPORATION
STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31,
-----------------------------------------
1999 1998 1997
------------- ------------ ------------
Cash flows from operating activities:
Net loss...................................................................... $ (2,543,933) $ (796,028) $ (491,393)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization............................................... 268,217 245,607 172,167
Issuance of stock options and warrants for services......................... 126,270 26,447 52,917
Non cash portion of purchased patent rights charge.......................... 884,914 -- --
Non cash in-process research and development charge......................... -- -- 548,978
Restructuring credit, noncash portion....................................... -- -- (111,000)
Changes in assets and liabilities
Accounts receivable......................................................... (216,863) 322,072 (113,675)
Amounts due from affiliates................................................. -- -- 42,284
Inventories................................................................. 40,488 (218,577) 248,983
Prepaid expenses and other current assets................................... (25,389) 9,493 22,834
Accounts payable............................................................ 167,989 (67,550) (377,860)
Accrued expenses and other.................................................. 59,614 (145,676) (3,209,893)
Unearned income............................................................. 16,637 (99,981) (21,685)
------------- ------------ ------------
Net cash used in operating activities..................................... (1,222,056) (724,193) (3,237,344)
------------- ------------ ------------
Cash flows from investing activities:
Sales of marketable securities.............................................. -- 72,353 205,762
Purchases of property, plant and equipment, net............................. (252,737) (114,021) (429,070)
Decrease (increase) in restricted cash...................................... -- 50,087 (50,087)
Decrease in other assets.................................................... -- 437 32,480
------------- ------------ ------------
Net cash (used in) provided by investing activities....................... (252,737) 8,856 (240,915)
------------- ------------ ------------
Cash flows from financing activities:
Proceeds from issuance of common stock and.. warrants, net of issuance costs -- 1,975,000 --
------------- ------------ ------------
Net cash provided by financing activities................................... -- 1,975,000 --
------------- ------------ ------------
Net (decrease) increase in cash and cash equivalents.......................... (1,474,793) 1,259,663 (3,478,259)
Cash and cash equivalents, beginning of year.................................. 4,725,544 3,465,881 6,944,140
------------- ------------ ------------
Cash and cash equivalents, end of year........................................ $ 3,250,751 $ 4,725,544 $ 3,465,881
------------- ------------ ------------
------------- ------------ ------------
The accompanying notes are an integral part of these financial statements.
F-6
REPLIGEN CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Repligen Corporation ("Repligen" or the "Company") is engaged in the
development of new drugs for the treatment of cancer, organ transplant and
neurological diseases. The Company's products are designed to offer patients
improved treatment options based on the modulation of newly discovered disease
mechanisms. The Company also manufactures a set of patented products based on
Protein A, which are used by the pharmaceutical industry to produce antibodies
for therapeutic use. In addition, the Company has licensed certain intellectual
property pertaining to its former programs on biological products.
The accompanying financial statements reflect the application of certain
accounting policies described in this note and elsewhere in the accompanying
notes to the financial statements.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The financial statements for the years ended March 31, 1998 and 1997 include
the accounts of the Company and its wholly owned subsidiaries, ProsCure, Inc.
and Glycan Pharmaceuticals, Inc All material intercompany accounts and
transactions were eliminated in consolidation. These subsidiaries were dissolved
during the year ended March 31, 1999.
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 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 years ended March 31,
1998 and 1997.
F-7
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
The Company considers highly liquid investments purchased with original
maturities at the date of acquisition of three months or less to be cash
equivalents. Cash equivalents consist of the following at March 31, 1999 and
1998.
YEAR ENDED MARCH 31,
--------------------------
1999 1998
------------ ------------
U.S. Government and Agency securities............................................................. $ 1,197,624 $ 498,200
Commercial paper.................................................................................. 1,136,119 3,708,580
Money markets..................................................................................... 802,755 292,624
Cash.............................................................................................. 114,253 226,140
------------ ------------
Total cash and cash equivalents................................................................. $ 3,250,751 $ 4,725,544
------------ ------------
------------ ------------
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,
1999 and 1998 consist of the following:
YEAR ENDED MARCH 31,
----------------------
1999 1998
---------- ----------
Raw materials and work-in-process..................................................................... $ 412,480 $ 388,727
Finished goods........................................................................................ 217,849 282,091
---------- ----------
Total............................................................................................... $ 630,329 $ 670,818
---------- ----------
---------- ----------
DEPRECIATION AND AMORTIZATION
The Company provides for depreciation and amortization by charges to
operations in amounts estimated to allocate the cost of fixed assets over their
estimated useful lives, on a straight-line basis, as follows:
DESCRIPTION USEFUL LIFE
- ------------------------------------------------------------------ ----------------------------------------------------------
Equipment 5 years
Leasehold improvements Shorter of term of the lease or estimated useful life
Furniture and fixtures 5-7 years
EARNINGS PER SHARE
The Company has adopted Statement of Financial Accounting Standards (SFAS)
No.128, EARNINGS PER SHARE. SFAS No. 128 establishes standards for computing and
presenting earnings per share and applies to entities with publicly held common
stock or potential common stock. Basic net loss per share represents net loss
divided by the weighted average number of common shares outstanding during the
period. The dilutive effect of potential common shares, consisting of
outstanding stock options and warrants, is determined using the treasury stock
method in accordance with SFAS No. 128. Diluted weighted average shares
outstanding for 1999, 1998 and 1997 exclude the potential common shares from
warrants and stock options because to do so would have been
F-8
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
antidilutive for the years presented. The potential common shares prior to
application of the treasury stock method at March 31, 1999, 1998 and 1997 were
4,496,341, 3,572,741 and 2,787,089 shares, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
In accordance with SFAS No. 107, DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL
INSTRUMENTS, the carrying amounts of the Company's cash and cash equivalents,
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, 1999. To
control credit risk, the Company performs regular credit evaluations of its
customers' financial condition and maintains allowances for potential credit
losses.
Revenues from significant customers as a percentage of the Company's total
revenues were as follows:
YEAR ENDED MARCH 31,
---------------------------------
1999 1998 1997
--------- --------- ---
Customer A 15% -- --
Customer B 12% -- 1%
Customer C 11% 1% --
Customer D 3% 23% 6%
SEGMENT REPORTING
The Company has adopted SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED Information, in the fiscal year ended March 31, 1999.
SFAS No. 131 establishes standards for reporting information regarding operating
segments in annual financial statements and requires selected information for
those segments to be presented in interim financial reports issued to
stockholders. SFAS No. 131 also establishes standards for related disclosures
about products and services and geographic areas. Operating segments are
identified as components of an enterprise about which separate discrete
financial information is available for evaluation by the chief operating
decision maker, or decision making group, in making decisions now to allocate
resources and assess performance. To date, the Company has viewed its operations
and manages its business as principally one operating segment. As a result, the
financial information disclosed herein, represents all of the material financial
information related to the Company's principal operating segment.
F-9
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The following table represents the Company's revenue by country:
YEAR ENDED MARCH 31,
--------------------
1999 1998
--------- ---------
US 70% 76%
Germany 11% 7%
United Kingdom 8% 10%
Other 11% 7%
1997
---------
US 77%
Germany 1%
United Kingdom 11%
Other 11%
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 130, REPORTING COMPREHENSIVE INCOME. SFAS No. 130 requires disclosure of all
components of comprehensive income on an annual and interim basis. Comprehensive
income is defined as the change in equity of a business enterprise during a
period from transactions and other events and circumstances from nonowner
sources. SFAS No. 130 is effective for fiscal years beginning after December 15,
1997. The Company adopted SFAS No. 130 effective April 1, 1998. The Company's
comprehensive loss for the years ended March 31, 1999, 1998 and 1997 was equal
to its net loss for the same periods.
American Institute of Certified Public Accountants (AICPA) Statement of
Position (SOP) 98-05, REPORTING ON THE COSTS OF START-UP ACTIVITIES, was issued
in April 1998. SOP 98-05 requires that all nongovernmental entities expense the
costs of start-up activities, including organizational costs, as those costs are
incurred. The Company has recorded and will continue to record start-up costs as
expense when incurred.
In June 1998, the FASB issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. SFAS No. 133 is effective
for all fiscal quarters of fiscal years beginning after June 15, 2000. This new
standard is not anticipated to have a significant impact on the Company's
financial statements based on its current structure and operations.
2. ACCRUED EXPENSES
Accrued expenses consisted of the following:
YEAR ENDED MARCH 31,
----------------------
1999 1998
---------- ----------
Payroll and payroll-related costs................................................. $ 112,758 $ 60,371
Professional and consulting fees.................................................. 65,050 113,000
Other accrued expenses............................................................ 136,118 80,941
---------- ----------
Total................................................................. $ 313,926 $ 254,312
---------- ----------
---------- ----------
F-10
3. INCOME TAXES
The Company accounts for income taxes under SFAS No. 109, ACCOUNTING FOR
INCOME TAXES. At March 31, 1999, the Company had net operating loss
carryforwards for income tax purposes of approximately $98,600,000. The Company
also had available tax credit carryforwards of approximately $4,690,000 at March
31, 1999 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
- -------------------------------------------------------------------------- -------------- --------------
2000...................................................................... $ 1,001,000 $ 104,000
2001...................................................................... 1,334,000 109,000
2002...................................................................... 2,500,000 73,000
2003...................................................................... 4,807,000 346,000
2004...................................................................... 6,642,000 408,000
2005-2013................................................................. 82,316,000 3,650,000
-------------- --------------
Total..................................................................... $ 98,600,000 $ 4,690,000
-------------- --------------
-------------- --------------
The deferred tax asset consists of the following:
YEAR ENDED MARCH 31,
----------------------------
1999 1998
------------- -------------
Temporary differences...................................................... $ 3,800,000 $ 3,900,000
Operating loss carryforwards............................................... 39,400,000 36,500,000
Tax credit carryforwards................................................... 4,690,000 4,840,000
------------- -------------
47,890,000 45,240,000
Valuation allowance........................................................ (47,890,000) (45,240,000)
------------- -------------
$ -- $ --
------------- -------------
------------- -------------
A full valuation allowance has been provided, as it is uncertain if the
Company will realize the deferred tax asset.
4. COMMON STOCK
In March 1999, the Company entered into an agreement for legal services
relating to a complaint filed against Bristol-Myers Squibb. Under the terms of
the agreement, the Company is required to pay $50,000 in annual fees and if
successful in the litigation, a portion of any financial recovery will be paid
and warrants to purchase 100,000 shares of common stock will be issued. In
addition, the Company issued a fully vested warrant to purchase 100,000 shares
of common stock at an exercise price of $1.63 per share. The Company valued
these warrants at fair value and recorded legal expense of $126,270 relating to
this issuance.
In March 1999, the Company acquired all rights to certain patent
applications relating to the use of secretin in the treatment of autism. The
rights were acquired pursuant to a Patent Purchase Agreement (the "Purchase
Agreement") whereby, the Company paid $150,000 in cash, issued a warrant to
purchase 350,000 shares of common stock of the Company with an exercise price of
$1.59
F-11
4. COMMON STOCK (CONTINUED)
per share, and issued 262,500 shares of common stock of the Company (See Note
7). The Company valued the shares and warrants issued at fair market value.
In December 1997, the Company completed a $2.0 million private placement of
its securities. The Company received net proceeds of $1.975 million for the
issuance of 2,000,000 shares of common stock and warrants to purchase an
aggregate of 750,000 shares of common stock at a price of $1.50 per share.
In 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 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, 1999, 620 of the 711.5 nondefaulted limited partnership
units had accepted the modifications. Accordingly, as of that date, there were
issued and outstanding 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 2000 and 2001.
At March 31, 1999, 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................................. 2,007,050
Warrants granted in connection with the private placement with BVF and affiliates................................. 750,000
Warrants granted in connection with the Patent Purchase Agreement................................................. 350,000
Warrants granted for payment of services.......................................................................... 100,000
----------
6,560,327
----------
----------
5. 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, 1999, the Company had 2,063,986 shares of common
stock available for grant.
F-12
5. STOCK OPTION PLANS (CONTINUED)
A summary of stock option activity under all plans is as follows:
YEARS ENDED MARCH 31,
------------------------------------------------------------------------
1999 1998 1997
----------------------- ---------------------- -----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NO. OF PRICE NO. OF PRICE NO. OF PRICE
SHARES PER SHARE SHARES PER SHARE SHARES PER SHARE
---------- ----------- --------- ----------- ---------- -----------
Outstanding at beginning of period..................... 740,291 $ 2.05 704,639 $ 2.20 953,046 $ 3.16
Granted.............................................. 568,500 1.38 117,500 1.41 180,500 .93
Exercised............................................ -- -- -- -- -- --
Forfeited............................................ (19,500) 1.18 (81,848) 2.45 (428,907) 3.66
---------- ----- --------- ----- ---------- -----
Outstanding at end of period........................... 1,289,291 $ 1.78 740,291 $ 2.05 704,639 $ 2.20
---------- ----- --------- ----- ---------- -----
Exercisable at end of period........................... 529,691 $ 2.33 461,713 $ 2.43 367,236 $ 5.33
---------- ----- --------- ----- ---------- -----
---------- ----- --------- ----- ---------- -----
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------- -------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
REMAINING EXERCSE EXERCISE
NUMBER CONTRACTUAL PRICE NUMBER PRICE PER
RANGE OF EXERCISE PRICE OUTSTANDING LIFE PER SHARE OUTSTANDING SHARE
- ------------------------------------------------------------- ------------ ------------- ----------- ------------ -----------
$.05-$.50.................................................... 89,541 7.05 $ .45 89,541 $ .45
$.88-$1.00................................................... 30,000 7.88 .94 30,000 .94
$1.03-$1.50.................................................. 919,000 8.41 1.36 193,400 1.30
$1.53-$1.63.................................................. 47,000 8.42 1.59 13,000 1.63
$2.75-$2.75.................................................. 158,750 5.36 2.77 158,750 2.77
$3.13-$3.13.................................................. 10,000 5.55 3.13 10,000 3.13
$6.56-$12.45................................................. 45,000 3.26 10.10 45,000 10.10
------------ ----- ----------- ------------ -----
1,289,291 7.74 $ 1.78 529,691 $ 2.33
------------ ----- ----------- ------------ -----
The Company accounts for its stock-based compensation under SFAS No. 123
ACCOUNTING FOR STOCK BASED COMPENSATION. The Company has adopted the
disclosure-only alternative for employee grants and, accordingly, will continue
to account for stock based compensation for employees under APB Opinion No. 25.
The Company has computed the pro forma disclosures required under SFAS No.
123 for all stock options granted to employees in 1999, 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, 1999,
1998 and 1997 are as follows:
YEAR ENDED MARCH 31,
----------------------------------
1999 1998 1997
---------- ---------- ----------
Risk-free interest rates................................................................ 5.12% 6.76% 6.44%
Expected dividend yield................................................................. -- -- --
Expected lives.......................................................................... 10 years 10 years 10 years
Expected volatility..................................................................... 93% 56% 106%
Weighted-average grant date fair value of options granted during the period............. $ 1.12 $ 1.41 $ .87
Weighted-average remaining contractual life of options outstanding...................... 7.7 years 8.4 years 8.9 years
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5. 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,
---------------------------------------
1999 1998 1997
------------- ----------- -----------
Net loss-As reported............................................................... ($ 2,543,933) ($ 796,028) ($ 491,393)
Pro forma.......................................................................... ($ 2,768,827) ($ 908,353) ($ 573,077)
Basic and diluted net loss per share-As reported................................... $ (.14) $ (.05) ($ .03)
Pro forma.......................................................................... $ (.15) $ (.06) ($ .04)
6. COMMITMENTS
The Company leases their facilities. Obligations under noncancellable
operating leases as of March 31, 1999 are approximately as follows:
YEAR ENDING MARCH 31,
- ------------------------------------------------------------------------------------
2000................................................................................ 281,000
2001................................................................................ 158,000
2002................................................................................ 74,000
----------
Total minimum lease payments........................................................ $ 513,000
----------
----------
Rent expense charged to operations under operating leases was approximately
$281,000, $281,000, and $717,000 for the years ended March 31, 1999, 1998 and
1997, respectively.
7. PURCHASED PATENT RIGHTS
In March 1999, the Company acquired all rights to certain patent
applications relating to the use of secretin in the treatment of autism. The
rights were acquired pursuant to a Patent Purchase Agreement. In addition, the
Company has agreed to make minimum annual royalty payments of $500,000 and
certain milestone payments upon (a) the Company's filing of a new drug
application with the United States Food and Drug Administration ("FDA") for a
clinical indication covered by the intellectual property rights transferred by
the Purchase Agreement and (b) upon the approval by the FDA of a product covered
by the intellectual property rights transferred to the Company pursuant to the
Purchase Agreement. These milestone payments, in the aggregate sum of $700,000,
will be largely credited against certain royalty payments in the event the
Company is able to derive sales and/or license revenues from the intellectual
property rights acquired pursuant to the Purchase Agreement. Under terms of this
agreement, the Company may be required to repurchase up to a maximum of 100,000
shares of common stock issued in connection with the Purchase Agreement at a
price of $1.59 per share. This obligation to repurchase the common stock expires
in June 1999.
In order for the Company to commercialize secretin as a treatment for
autism, the Company will need to expend a substantial amount in research and
development, preclinical testing and clinical trials, regulatory clearances and
manufacturing, distribution and marketing arrangements. The outcome of which is
uncertain. The cost and time to complete the development of the technology is
significant and difficult to estimate given the uncertainties of research and
development and regulatory process. Accordingly, the net realizable value of the
patent rights acquired is uncertain. Approximately $1,035,000 was charged to the
accompanying 1999 statement of operations as the cost of the purchased patent
rights.
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8. PURCHASED RESEARCH & DEVELOPMENT
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 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 to the fiscal
1997 operating results.
9. 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 and
$190,000 of such funding as revenue in fiscal 1998 and 1997, respectively. Other
revenues for the years ended March 31, 1997 included $25,000 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.
Although the Company was allocated a loss of approximately $1,000 and $2,400 for
the year 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.
10. SUBSEQUENT EVENTS (UNAUDITED)
In April and May 1999, certain private investors agreed to invest
approximately $9.0 million in the Company through a private placement of
3,600,000 shares of its common stock. As a condition of closing, the Company
agreed to file a registration statement with the Securities and Exchange
Commission covering the resale of the shares issued in connection with this
private placement. The financing is expected to close by June 30, 1999. Repligen
expects to receive net proceeds of approximately $8.8 million after deducting
the estimated expenses of the transaction.
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