Back to GetFilings.com
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, 2003
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.)
41 Seyon Street Building #1 , Suite 100, Waltham, Massachusetts 02453
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (781) 250-0111
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 Per Share
Series A Junior Participating Preferred Stock Purchase Rights
(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 |_|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes |_| No |X|.
The aggregate market value of the voting and non-voting common equity held by
non-affiliates as of September 30, 2002, the last business day of the
registrant's most recently completed second fiscal quarter, was approximately
$49,890,000.
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, 2003. Portions
of such proxy statement are incorporated by reference in Part III of this Form
10-K.
Item 1. BUSINESS
Statements in this annual report on Form 10-K, as well as oral statements
that may be made by Repligen or by officers, directors or employees of Repligen
acting on Repligen's behalf, that are not historical facts constitute
"forward-looking statements" which are made pursuant to the safe harbor
provisions of Section 21E of the Securities Exchange Act of 1934. The
forward-looking statements in this annual report on Form 10-K do not constitute
guarantees of future performance. Investors are cautioned that statements which
are not strictly historical statements contained in this annual report on Form
10-K, including, without limitation, current or future financial performance,
management's plans and objectives for future operations, clinical trials and
results, product plans and performance, management's assessment of market
factors, as well as statements regarding the strategy and plans of the company
and its strategic partners, constitute forward-looking statements. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that could cause the actual results of the Company to be
materially different from the historical results or from any results expressed
or implied by such forward-looking statements. The Company's future operating
results are subject to risks and uncertainties and are dependent upon many
factors, including, without limitation, the risks identified under the caption
"Certain Factors That May Affect Future Results" and elsewhere in this annual
report, as well as in our other Securities and Exchange Commission filings.
The Company
Our goal is to become the leader in the development of new products for
profound pediatric developmental disorders. Our therapeutic product candidates
are secretin for autism and schizophrenia, CTLA4-Ig for autoimmune disorders and
uridine for neurologic and metabolic diseases. These products are synthetic
forms of naturally-occurring substances which may correct improperly regulated
biological processes with minimal toxicity or side-effects. Our product
candidates have the potential to produce
- 2 -
clinical benefits not attainable with any existing drug in diseases for which
there are few alternative therapies or treatments.
Our business strategy is to partially fund the development of our
proprietary therapeutic products with the profits derived from the sales of our
specialty pharmaceutical products: Protein A and SecreFlo(TM). We may also form
partnerships with pharmaceutical companies to develop or market some of our
product candidates. This will enable us to advance our proprietary drug
development programs while at the same time minimizing our operating losses.
We were incorporated in March 1981, under the laws of the State of
Delaware. Our principal executive offices are at 41 Seyon Street, Waltham,
Massachusetts 02453 and our telephone number is (781) 250-0111.
Secretin
Autism is a profound developmental disorder characterized by deficits in
social interaction; impaired communications; and repetitive behaviors. A recent
study by the Centers for Disease Control found a prevalence rate for autism in
children in the United States of 1 in 300, a rate greater than leukemia, cystic
fibrosis and multiple sclerosis combined. There are currently no drugs approved
by the FDA for the treatment of autism.
Secretin is a hormone produced in the small intestine that regulates the
function of the pancreas as part of the process of digestion. More recently,
secretin and its receptor have been found in the central nervous system,
suggesting a possible role as a neurotransmitter. Anecdotal reports indicated
that secretin may have beneficial effects in some autistic children, including
improvements in social interaction and communication which are the core symptoms
of the disease. We have completed a FDA-approved Phase 2 clinical trial of
RG1068, synthetic human secretin, in order to evaluate its potential benefits on
the social, communicative and behavioral symptoms of autism. This trial was a
randomized, double-blind, placebo-controlled study which evaluated 126 autistic
- 3 -
children aged three to six at multiple sites in the United States. All of the
children had gastrointestinal symptoms and moderate to severe symptoms of
autism. Each patient received three doses of RG1068 or a placebo at three week
intervals. Patients were assessed before the first dose and two weeks after the
third dose with several standardized tests to evaluate symptom changes.
Results from the trial demonstrated that three and four year old patients
treated with RG1068 showed greater improvements than those treated with a
placebo in social interaction as measured by the Autism Diagnostic Observation
Schedule, a standardized clinical assessment. In an assessment of overall
improvement, Clinical Global Impression of Change, there was significant
improvement in the entire RG1068 treated group versus the placebo group. This
trial also evaluated the safety of RG1068. There were no serious adverse events
in the trial and no clinically significant adverse event trends were observed in
RG1068-treated patients versus patients who received a placebo.
We are currently conducting two randomized, placebo-controlled,
double-blind Phase 3 clinical trials to evaluate the impact of RG1068 on the
social interaction deficits of autism in children 2.7 to 4.9 years of age. Each
child will receive six doses of RG1068 or a placebo over 18 weeks and will be
evaluated with the social interaction scale of the Autism Diagnostic Observation
Schedule and with the Clinical Global Impression of Change scale. We have also
received FDA approval to conduct an open label extension of the ongoing Phase 3
clinical trials of RG1068 in children with autism. In the extension phase of the
study, all patients who complete the Phase 3 trials will be offered the option
of treatment with RG1068 once every three weeks for 1 year. The goal of the
Phase 3 Extension Study is to provide patients access to RG1068 and to collect
additional, longer-term safety data.
Schizophrenia is a serious, disabling and chronic mental disorder that
affects 2 million people in the United States. Schizophrenia is characterized by
thought disorders such as delusions or hallucinations, as well as social
withdrawal, lack of initiative, and
- 4 -
blunting of emotional expression. Current antipsychotic drugs are effective in
reducing thought disorders but have limited effects on the social withdrawal
symptoms. The total cost for the care and treatment of patients with
schizophrenia in the United States in 2000 was $40 billion.
We plan to conduct a double-blind, placebo controlled Phase 2 clinical
trial to evaluate RG1068 in schizophrenic patients who have significant social
withdrawal symptoms. The trial is designed to extend clinical results published
by investigators at the University of North Carolina at Chapel Hill who
conducted a double-blind, placebo-controlled study of a single dose of secretin
in 22 patients with schizophrenia. Patients in this study had been ill for an
average of 20 years and had severe symptoms despite at least 3 trials of
antipsychotic drugs. The secretin-treated group showed a significant improvement
in the Clinical Global Impression of Improvement Scale during the first week.
Pending approval by the FDA, the Phase 2 trial will evaluate the potential of
multiple doses of RG1068 to treat the "negative" symptoms of schizophrenia, such
as social interaction and communication deficits, which are often resistant to
treatment with existing antipsychotic therapy. The trial will be conducted at
several centers in the United States.
We have also initiated a research effort to better understand the biology
of secretin and its mechanism of action in patients. Initial results in rats
indicate that a single intravenous dose of secretin can activate neurons in
several brain regions including a region called the amygdala. Literature reports
indicate that the amygdala is one of several brain regions affected in patients
with autism and that it is an important part of neural circuits that facilitate
social interaction.
In collaboration with researchers from the Brain Imaging Center at McLean
Hospital, we conducted a clinical trial designed to assess the neurological
activity of RG1068 by functional magnetic resonance imaging ("fMRI"). The study
was a double-blind, placebo-controlled clinical trial in 12 healthy men. Each
subject was presented with a series of pictures of faces with either a neutral,
happy or fearful facial expression
- 5 -
to establish a baseline response. Following an injection of either RG1068 or a
placebo, the subjects were again presented with the series of facial
expressions. Throughout the experiment, the activation of the amygdala was
recorded with fMRI. There was a significant activation of the right amygdala by
RG1068 when the subjects viewed pictures of a fearful face compared to both the
placebo group and the baseline response to the pictures in the RG1068 group.
Failure to activate the amygdala when viewing fearful faces is a characteristic
of people with autism and patients with amygdala damage.
In February 2000, we were issued a broad U.S. patent covering the use of
secretin in the treatment of autism. We are currently prosecuting additional
patent applications for therapeutic uses of secretin in the United States,
Europe and Japan.
CTLA4
In autoimmune disease the immune system mistakenly attacks itself,
targeting the tissues and organs of a person's own body. Autoimmune diseases
such as rheumatoid arthritis, multiple sclerosis, lupus, psoriasis and Crohn's
disease afflict millions of people in the United States and are often chronic,
require lifelong care and monitoring, even when the person may look or feel
well. Current treatment options are limited to broadly acting immunosuppresive
drugs which may suppress the autoimmune attack but also suppress the ability of
the immune system to fight infection resulting in potentially serious side
effects.
CTLA4 is a key regulator of the activity of the immune system which "turns
off" the immune system after it has successfully cleared a bacterial or viral
infection. Animal and human studies have suggested that a soluable form of CTLA4
(CTLA4-Ig) may be useful in treating diseases such as rheumatoid arthritis,
multiple sclerosis, psoriasis and organ transplant. In some models, the specific
immunosuppresive effects of CTLA4-Ig have been shown to persist after
discontinuation of the drug, thus CTLA4-Ig may provide a unique and potentially
safer treatment for autoimmune disease than current therapies. Repligen is
developing a form of CTLA4-Ig which may have wide
- 6 -
application in diseases characterized by over-activation of the immune system.
Initial clinical trials of CTLA4-Ig in normal volunteers and in patients with
Idiopathic Thrombocytopenic Purpura (ITP) has shown that CTLA4-Ig is well
tolerated.
In September 2002, we were granted a U.S. patent covering the composition
of the specific form of CTLA4-Ig which we are developing. Repligen has also
obtained an exclusive license to the patent rights of the University of Michigan
that pertain to CTLA4-Ig. The University is prosecuting patents related to
therapeutic uses of CTLA4-Ig for auto-immune diseases and organ transplantation.
We also believe that the University of Michigan and Repligen are entitled to
rights to certain U.S. patents on compositions and therapeutic uses of CTLA4-Ig
which have been issued to the Bristol-Myers Squibb Company. (For more
information on our intellectual property rights to CTLA4-Ig, please see "Legal
Proceedings.")
Uridine
Uridine is a naturally occurring molecule essential for the synthesis of
DNA, RNA and many aspects of protein, lipid and carbohydrate synthesis and
metabolism. Children lacking the ability to synthesize uridine display a variety
of neurological, muscular and developmental disorders. We are evaluating the
potential of uridine (or analogs of uridine) for several pediatric neurological
disorders for which there is unmet medical need.
Bipolar disorder, also known as manic depression, is marked by extreme
changes in mood energy and behavior in which a person can alternate between
mania (highs) and depression (lows). Bipolar disorder affects more than 2
million adults in the United States. Unipolar major depression is characterized
by a sustained loss of interest in one's activities, low energy, poor
concentration, changes in appetite and sleep, and often suicidical urges. There
are approximately 20 million adults in the United States that experience major
depression.
- 7 -
Preclinical animal studies conducted by researchers at McLean Hospital
have demonstrated that uridine is active in a widely accepted model of
depression. RG2133 is a derivative of uridine which enables uridine to be
delivered to the blood via oral dosing. We are currently conducting a Phase 1/2
trial of RG2133 in patients with bipolar disorder or depression. In addition to
standard clinical evaluations of safety and efficacy, the trial will evaluate
potential changes in brain chemistry by Magnetic Resonance Imaging.
"Purine autism" is a form of autism in which patients appear to have a
defect in the way they metabolize purines, which are essential components of
RNA, DNA and other essential biological factors. Research at Repligen has
confirmed that approximately 15-20% of patients with autistic symptoms have
evidence of this metabolic abnormality. Several patients with "purine autism"
have been treated by others with daily, oral dosing of uridine. We plan to
initiate a clinical trial of RG2133 in "purine autism" later this year.
Protein A Products for Antibody Manufacturing
- 8 -
Protein A is a naturally occurring protein used in the purification of
antibodies. Most therapeutic monoclonal antibodies are manufactured by a process
in which an impure mixture containing the desired antibody product is passed
over a solid support to which Protein A has been chemically attached
(immobilized). The immobilized Protein A binds the antibody product while other
impurities are washed away. The antibody is then recovered from the support in a
substantially purified form.
We manufacture and market several products based on recombinant Protein A
("Protein A"). Our primary customers incorporate our Protein A products into
their proprietary antibody purification systems that they sell directly to the
biotechnology and pharmaceutical industry. We also manufacture an immobilized
Protein A product that is marketed by Amersham Biosciences ("Amersham").
Substantially all of our product sales for the last three years have been sales
of Protein A products.
Sales of therapeutic antibody products have increased from $300 million in
1997 to approximately $5.0 billion in 2002. This growth is based on the
increasing use of therapeutic antibody products, including Rituxan(R) for
lymphoma, Herceptin(TM) for breast cancer, Synagis(TM) for RSV infection,
Remicade(TM) for Crohn's disease and arthritis and Enbrel(TM) for arthritis.
There are more than 100 additional monoclonal antibodies in various stages of
clinical testing which may lead to additional growth of the antibody market and
in turn, the demand for Protein A. We own a U.S. patent covering the Protein A
gene and the manufacture of recombinant Protein A which expires in 2009.
Secretin Diagnostic Products
In October 1999, we licensed exclusive commercial rights to two diagnostic
products based on synthetic forms of porcine (pig) and human secretin from a
private company. Both of these products have been evaluated in clinical trials
for their safety and efficacy in diagnosing chronic pancreatitis, gastrinoma, a
form of cancer, and as an aid during endoscopic retrograde
cholangiopancreatography ("ERCP"), a gastrointestinal procedure. In April 2002,
the FDA approved the use of secretin for injection
- 9 -
("SecreFlo(TM)") to aid in the diagnosis of pancreatic exocrine dysfunction or
chronic pancreatitis and diagnosis of gastrinoma. In November 2002, the FDA
approved the use of SecreFlo(TM) to aid in ERCP. The FDA has granted
SecreFlo(TM) Orphan Drug Designation, which means it is the only form of
secretin marketed for these indications in the United States until 2009. In
October 2002, we commenced selling SecreFlo(TM). We market SecreFlo(TM) in the
U.S. directly to hospital-based gastroenterologists by our gastroenterology
sales specialists
Repligen's Business Strategy
Our business strategy is to partially fund the development of our
proprietary therapeutic products with the profits derived from the sales of our
Specialty Pharmaceutical products: Protein A and SecreFlo(TM). This will enable
us to independently advance our proprietary drug development programs while at
the same time minimizing our operating losses. We may also seek corporate
partners for development or marketing of our therapeutic product candidates.
Sales and Marketing
We sell our Protein A products primarily through value-added resellers
including Amersham, Applied Biosystems, Inc. and Millipore Corporation, and
through distributors in certain foreign markets. We market SecreFlo (TM)
directly to gastroenterologists in the United States.
Customers
Customers for our Protein A products include chromatography companies,
diagnostics companies, biopharmaceutical companies and laboratory researchers.
During fiscal 2003, customers that accounted for more than 10% of our total
revenues were Amersham and Applied Biosystems Inc.
- 10 -
During fiscal year 2003, we commenced selling SecreFlo(TM), a diagnostic
product that is marketed in the U.S., to hospital based gastroenterologists.
Geographic Reporting
Of our fiscal 2003 revenue, 46% is attributable to U.S. customers and 54%
is attributable to foreign customers, of which 66% is attributable to two
customers. Of our fiscal 2002 revenue, 35% is attributable to U.S. customers and
65% is attributable to foreign customers, of which 85% is attributable to three
customers. Of our fiscal 2001 revenue, 56% is attributable to U.S. customers and
44% is attributable to foreign customers, of which 71% is attributable to four
customers.
Employees
As of May 15, 2003, we had 44 employees. Of those employees, 33 were
engaged in research, development and manufacturing and 11 in administrative and
marketing functions. Sixteen of our employees hold doctorates or other advanced
degrees. Each of our employees has signed a confidentiality agreement. None of
our employees are covered by collective bargaining agreements.
Patents, Licenses and Proprietary Rights
Our policy is to seek patent protection for our significant proprietary
products. We pursue patent protection in the United States and file
corresponding patent applications in relevant foreign jurisdictions. We believe
that patents are an important element in the protection of our competitive and
proprietary position, but other elements, including trade secrets, orphan drug
status and know-how, are also important. We own or have exclusive rights to more
than 12 U.S. patents and corresponding foreign equivalents. The initial terms of
such patents expire at various times between 2003 and 2019. In addition, we have
rights to more than 20 U.S. pending patent applications and corresponding
foreign applications. The invalidation of key patents owned or licensed by
- 11 -
us or the failure of patents to issue on pending patent applications could
create increased competition, with potential adverse effects on our business
prospects. For each of our license agreements where we license the rights to
patents or patent applications, the license shall terminate on the day that the
last to expire patent covered by each such license agreement expires.
Secretin for Autism
In March 1999, we acquired the rights to certain patent applications
claiming the therapeutic use of secretin to treat autism and other pervasive
developmental disorders. In February 2000, we received a U.S. patent covering
the use of secretin in the treatment of autism or the symptoms of autism which
will expire in 2018. In March 2001, we received a U.S. patent covering the
transdermal delivery of secretin for the treatment of autism, which will expire
in 2018. Additional related patent applications are currently being prosecuted
in the United States and key foreign markets.
CTLA4-Ig for Immune Disorders
In September 2002, we received a U.S. Patent and Trademark Office for the
specific CTLA4-Ig composition that we are developing. We also licensed the
rights to certain patent applications from the University of Michigan in 1992.
In September 1995, we assigned these patent rights to Genetics Institute, Inc.
In January 1996, Genetics Institute, Inc. returned the rights to CTLA4-Ig to us.
In November 1999, we executed an agreement with Genetics Institute and the
University of Michigan that confirmed the prior transfer of certain CTLA4-Ig
related rights from Genetics Institute to the University of Michigan and the
exclusive license of those rights to us. We have an unrestricted right to
sub-license our CTLA4-Ig rights. (For more information on our intellectual
property rights to CTLA4-Ig, please see "Legal Proceedings.")
Uridine
- 12 -
In November 2000 and December 2000, Repligen entered into two License
Agreements (the "UCSD License Agreements") with the University of California,
San Diego ("UCSD") for certain patents applications pertaining to the use of
uridine and uridine derivatives for the treatment of mitochondrial disease and
purine autism. On June 21, 2001, Pro-Neuron, Inc. filed a complaint (the
"Pro-Neuron Complaint") against the Regents of the University of California (the
"Regents") and Repligen in the Superior Court of California, County of San Diego
seeking to void the UCSD License Agreement relating to treatment of
mitochondrial disease entered into between Repligen and the UCSD. Pro-Neuron
subsequently amended the complaint to include the UCSD License Agreement related
to purine autism and claims for misappropriation of trade secrets.
In November and December of 2000, we licensed from the University of
California, San Diego ("UCSD") rights to U.S. patent applications covering the
use of uridine for the treatment of mitochondrial disease and for the treatment
of "purine autism". In June 2003, Repligen agreed to restructure the UCSD
License Agreements to exclude the field of acylated pyrimidines, including
RG2133. Repligen will discontinue its clinical trial of RG2133 in mitochondrial
disease and will continue its clinical trials of RG2133 in bipolar
disorder/major depression and purine autism for up to two years. If uridine
demonstrates efficacy in these diseases, we may seek an alternative form of
uridine for further development which is not an acylated pyrimidines. (For more
information on our intellectual property rights to uridine and related compounds
for the treatment of mitochondrial disease, please see "Legal Proceedings.")
Protein A for Antibody Manufacturing
We own a U.S. patent covering recombinant Protein A which expires in 2009.
We also own rights to modified forms of Protein A which were licensed to
Amersham in December 1998 as part of a ten year agreement covering the supply of
recombinant Protein A to Amersham.
Secretin Diagnostic Products
- 13 -
In October 1999, we licensed exclusive commercial rights to two diagnostic
products based on synthetic forms of porcine (pig-derived) and human secretin
from a private company. Both of these products have been evaluated in clinical
trials for their safety and efficacy in diagnosing chronic pancreatitis,
gastrinoma, and as an aid during endoscopic retrograde cholangio pancreatography
("ERCP"), a gastrointestinal diagnostic procedure. In April 2002, the FDA
approved the use of secretin for injection ("SecreFlo(TM)") to aid in the
diagnosis of pancreatic exocrine dysfunction or chronic pancreatitis and
diagnosis of gastrinoma, a form of cancer. In November 2002, the FDA approved
the use of SecreFlo(TM) as an aid during ERCP. The FDA has granted SecreFlo(TM)
Orphan Drug Designation, which means that it is the only form of secretin
marketed for the approved indications in the United States until 2009. In
October 2002, we commenced selling SecreFlo(TM). We market this diagnostic
product in the U.S. to hospital-based gastroenterologists by our
gastroenterology sales specialists.
We also rely upon trade secret protection for our confidential and
proprietary information. Our policy is to require each of our employees,
consultants, business partners and significant scientific collaborators to
execute confidentiality agreements upon the commencement of an employment,
consulting or business relationship with us. These agreements generally provide
that all confidential information developed or made known to the individual
during the course of the individual's relationship with us is to be kept
confidential and not disclosed to third parties except in specific
circumstances. In the case of employees and consultants, the agreements
generally provide that all inventions conceived by the individual in the course
of rendering services to Repligen shall be our exclusive property.
Research and Development
For the past three years, we have devoted substantially all of our
resources on the research and development of therapeutic product candidates for
pediatric developmental disorders and our specialty pharmaceutical products and
product candidates discussed
- 14 -
herein. We spent $5,227,000 in fiscal 2003, $5,361,000 in fiscal 2002 and
$5,786,000 in fiscal 2001 on company-sponsored research and development
activities.
Competition
Our Protein A and SecreFlo(TM) products compete on the basis of quality,
performance, cost effectiveness, and application suitability with numerous
established technologies. Additional products using new technologies which may
be competitive with our products may also be introduced. Many of the companies
selling or developing competitive products have financial, manufacturing and
distribution resources significantly greater than ours.
The field of drug development is characterized by rapid technological
change. New developments are expected to continue at a rapid pace in both
industry and academia. There are many companies, both public and private,
including large pharmaceutical companies, chemical companies and specialized
biotechnology companies, engaged in developing products competitive with
products that we have under development. Many of these companies have greater
capital, human resources, research and development, manufacturing and marketing
experience than we do. They may succeed in developing products that are more
effective or less costly than any that we may develop. These competitors may
also prove to be more successful than we are in production and marketing. In
addition, academic, government and industry-based research groups compete
intensely with us in recruiting qualified research personnel, in submitting
patent filings for protection of intellectual property rights and in
establishing corporate strategic alliances. We cannot be certain that research,
discoveries and commercial developments by others will not render any of our
programs or potential products noncompetitive.
Manufacturing
We currently rely, and will continue to rely, for at least the next few
years, on contract manufacturers to produce synthetic human secretin, uridine
and CTLA4-Ig for
- 15 -
use in our clinical trials. Our product candidates will need to be manufactured
in a facility by processes that comply with the FDA's good manufacturing
practices and other similar regulations. It may take a substantial period of
time to begin manufacturing our products in compliance with such regulations. If
we are unable to establish and maintain relationships with third parties for
manufacturing sufficient quantities of our product candidates and their
components that meet our planned time and cost parameters, the development and
timing of our clinical trials may be adversely affected. (For more information
about our manufacturing facilities, please see "Description of Property.")
Protein A for Antibody Manufacturing
We manufacture Protein A products from recombinant strains of bacteria. We
manufacture Protein A for Amersham under a ten year supply agreement which was
initiated in December 1998. Certain fermentation and recovery operations are
carried out by third parties. The purification, immobilization, packaging and
quality control testing of Protein A are conducted at our facilities. We
maintain an active quality assurance effort to support the regulatory
requirements of our customers. We purchase raw materials from more than one
commercially established firm. We believe that our necessary raw materials are
currently commercially available in sufficient quantities necessary to meet
demand.
SecreFlo(TM) (synthetic porcine secretin)
SecreFlo(TM), our secretin diagnostic product, is purchased from
ChiRhoClin, Inc. who contracts with third parties for the synthesis of the drug
substance and the drug product.
Therapeutic Product Candidates
- 16 -
We rely upon contractors for both the procurement of raw materials and for
manufacturing the finished product. We purchase raw materials from more than one
commercially established company. Our necessary raw materials are currently
commercially available in quantities far in excess of the scale required to
complete all of our future planned Phase II and Phase III clinical trials.
Government Regulation
The development of drug candidates, such as secretin, uridine or CTLA4-Ig
are subject to regulation in the United States by the FDA and abroad by foreign
equivalents. Product development and approval within the FDA regulatory
framework usually takes a significant number of years and involves the
expenditure of substantial capital resources. Timelines for development are
uncertain.
Before clinical testing in the United States of any drug candidate may
begin, FDA requirements for preclinical efficacy and safety must be completed.
Required toxicity testing typically involves characterization of the drug
candidate in several animal species. Safety and efficacy data are submitted to
the FDA as part of an Investigational New Drug Application ("IND") and are
reviewed by the FDA prior to the commencement of human clinical trials.
Clinical trials involve the administration of the drug to human volunteers
or patients under the supervision of a qualified investigator, usually a
physician, with an FDA-approved protocol. Human clinical trials are typically
conducted in three sequential phases:
o Phase 1 clinical trials represent the initial administration of the
investigational drug to a small group of human subjects to test for safety
(adverse effects), dose tolerance, absorption, biodistribution,
metabolism, excretion and clinical pharmacology and, if possible, to gain
early evidence regarding efficacy.
- 17 -
o Phase 2 clinical trials typically involve a small sample of the actual
intended patient population and seek to assess the efficacy of the drug
for specific targeted indications, to determine dose tolerance and the
optimal dose range, and to gather additional information relating to
safety and potential adverse effects.
o Once an investigational drug is found to have some efficacy and an
acceptable safety profile in the targeted patient population, Phase 3
clinical trials are initiated to establish further clinical safety and
efficacy of the investigational drug in a broader sample of the general
patient population at multiple study sites in order to determine the
overall risk-benefit ratio of the drug and to provide an adequate basis
for product approval. The Phase 3 clinical development program consists of
expanded, large-scale studies of patients with the target disease or
disorder, to obtain definitive statistical evidence of the efficacy and
safety of the proposed product.
All data obtained from a comprehensive development program are submitted
in a New Drug Application ("NDA") to the FDA and the corresponding agencies in
other countries for review and approval. The NDA includes information pertaining
to clinical studies and the manufacture of the new drug. Review of an NDA by the
FDA can be a time-consuming process, and the FDA may request that we submit
additional data or carry out additional studies.
- 18 -
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
Investors should carefully consider the risks described below before
making an investment decision.
If any of the following risks occur, our business, financial condition or
results of operations could be materially harmed. In that case the trading price
of our common stock could decline, and Investors may lose all or part of your
investment. Additional risks and uncertainties that we are unaware of or that we
currently deem immaterial also may become important factors that affect
Repligen.
This annual report on Form 10-K also contains forward looking statements
that involve risks and uncertainties. Our actual results could differ materially
from those anticipated in these forward looking statements as a result of
certain factors, including the risks faced by us described below and elsewhere
in this annual report on Form 10-K.
We may be dependent on our collaborative partners to develop, conduct clinical
trials for, and manufacture, market and sell our principal products.
We conduct some of our development activities, and conduct most of our
commercialization activities, through collaborations. Our collaborations are
heavily dependent on the efforts and activities of our collaborative partners.
Our existing and any future collaborations may not be technically or
commercially successful.
For example, if any of our collaborative partners were to breach or
terminate an agreement with us, reduce its funding or otherwise fail to conduct
the collaboration successfully, we may need to devote additional internal
resources to the program that is the subject of the collaboration, scale back or
terminate the program or seek an alternative partner, any of which could lead to
delays in development and/or commercialization of our products.
- 19 -
If our clinical trials are not successful, we will not be able to develop and
commercialize any related products.
In order to obtain regulatory approvals for the commercial sale of our
future products, we and our collaborative partners will be required to complete
extensive clinical trials in humans to demonstrate the safety and efficacy of
the products. We have limited experience in conducting clinical trials.
The submission of an IND may not result in FDA authorization to commence
clinical trials. If clinical trials begin, we or our collaborative partners may
not complete testing successfully within any specific time period, if at all,
with respect to any of our products. Furthermore, we, our collaborative
partners, or the FDA, may suspend clinical trials at any time on various
grounds, including a finding that the subjects or patients are being exposed to
unacceptable health risks. Clinical trials, if completed, may not show any
potential product to be safe or effective. Thus, the FDA and other regulatory
authorities may not approve any of our potential products for any indication.
The rate of completion of clinical trials is dependent in part upon the
rate of enrollment of patients. Patient enrollment is a function of many
factors, including the size of the patient population, the proximity of patients
to clinical sites, the eligibility criteria for the study, and the existence of
competitive clinical trials. Delays in planned patient enrollment may result in
increased costs and delays in completion of clinical trials.
We may not obtain regulatory approvals; the approval process is costly and
lengthy.
We must obtain regulatory approval for our ongoing development activities
and before marketing or selling any of our future products. We may not receive
regulatory approvals to conduct clinical trials of our products or to
manufacture or market our products. In addition, regulatory agencies may not
grant such approvals on a timely basis or may revoke previously granted
approvals.
The process of obtaining FDA and other required regulatory approvals is
lengthy and expensive. The time required for FDA and other clearances or
approvals is uncertain and typically takes a number of years, depending on the
complexity and novelty of the product. Our analysis of data obtained from
preclinical and clinical activities is subject to confirmation and
interpretation by regulatory authorities, which could delay, limit or prevent
regulatory approval. Any delay in obtaining or failure to obtain required
clearance or approvals could materially adversely affect our ability to generate
revenues from the affected product. We have only limited experience in filing
and prosecuting applications necessary to gain regulatory approvals.
We also are subject to numerous foreign regulatory requirements governing
the design and conduct of the clinical trials and the manufacturing and
marketing of our future products. The approval procedure varies among countries.
The time required to obtain foreign approvals often differs from that required
to obtain FDA approvals. Moreover, approval by the FDA does not ensure approval
by regulatory authorities in other countries.
All of the foregoing regulatory risks also are applicable to development,
manufacturing and marketing undertaken by our collaborative partners or other
third parties.
- 20 -
Even if we obtain marketing approval, our products will be subject to ongoing
regulatory review which will be expensive and may effect our ability to
successfully commercialize our products.
Even if we receive regulatory approval of a product, such approval may be
subject to limitations on the indicated uses for which the product may be
marketed, which may limit the size of the market for the product or contain
requirements for costly post-marketing follow-up studies. The manufacturers of
our products for which we have obtained marketing approval will be subject to
continued review and periodic inspections by the FDA and other regulatory
authorities. The subsequent discovery of previously unknown problems with the
product, clinical trial subjects, or with a manufacturer or facility may result
in restrictions on the product or manufacturer, including withdrawal of the
product from the market.
If we fail to comply with applicable regulatory requirements, we may be
subject to fines, suspension or withdrawal of regulatory approvals, product
recalls, seizure of products, operating restrictions, and criminal prosecution.
If we are unable to obtain and maintain patents for our products, we will not be
able to succeed commercially.
We must obtain and maintain patent and trade secret protection for our
products and processes in order to protect them from unauthorized use and to
produce a financial return consistent with the significant time and expense
required to bring our products to market. Our success will depend, in part, on
our ability to:
o obtain and maintain patent protection for our products and
manufacturing processes;
o preserve our trade secrets; and
o operate without infringing the proprietary rights of third parties.
We can not be sure that any patent applications relating to our products
that we will file in the future or that any currently pending applications will
issue on a timely basis, if ever. Since patent applications in the United States
are maintained in secrecy until patents issue and since publication of
discoveries in the scientific or patent literature often lag behind actual
discoveries, we cannot be certain that we were the first to make the inventions
covered by each of our pending patent applications or that we were the first to
file patent applications for such inventions. Even if patents are issued, the
degree of protection afforded by such patents will depend upon the:
o scope of the patent claims;
o validity and enforceability of the claims obtained in such patents;
and
o our willingness and financial ability to enforce and/or defend them.
The patent position of biotechnology and pharmaceutical firms is often
highly uncertain and usually involves complex legal and scientific questions.
Moreover, no consistent policy has emerged in the United States and in many
other countries regarding the breadth of claims allowed in biotechnology
patents. Patents which may be granted to us in certain foreign
- 21 -
countries may be subject to opposition proceedings brought by third parties or
result in suits by us which may be costly and result in adverse consequences for
us.
If our competitors prepare and file patent applications in the United
States that claim technology also claimed by us, we may be required to
participate in interference proceedings declared by the U.S. Patent and
Trademark Office to determine priority of invention, which would result in
substantial costs to us.
In addition, patents blocking our manufacture, use or sale of our products
could be issued to third parties in the United States or foreign countries. The
issuance of blocking patents or an adverse outcome in an interference or
opposition proceeding, could subject us to significant liabilities to third
parties and require us to license disputed rights from third parties on
unfavorable terms, if at all, or cease using the technology.
We are currently and may in the future be involved in expensive patent
litigation or other intellectual property proceedings which could result in
liability for damages or stop our development and commercialization efforts.
There has been substantial litigation and other proceedings regarding the
complex patent and other intellectual property rights in the pharmaceutical and
biotechnology industries. We are a party to, and in the future may become a
party to, patent litigation or other proceedings regarding intellectual property
rights.
Other types of situations in which we may become involved in patent
litigation or other intellectual property proceedings include:
o We may initiate litigation or other proceedings against third
parties to enforce our patent rights.
o We may initiate litigation or other proceedings against third
parties to seek to invalidate the patents held by such third parties
or to obtain a judgment that our products or services do not
infringe such third parties' patents.
o If our competitors file patent applications that claim technology
also claimed by us, we may participate in interference or opposition
proceedings to determine the priority of invention.
o If third parties initiate litigation claiming that our processes or
products infringe their patent or other intellectual property
rights, we will need to defend against such claims.
The cost to us of any patent litigation or other proceeding, even if
resolved in our favor, could be substantial. Some of our competitors may be able
to sustain the cost of such litigation or proceedings more effectively than we
can because of their substantially greater financial resources. If a patent
litigation or other intellectual property proceeding is resolved unfavorably to
us, we or our collaborative partners may be enjoined from manufacturing or
selling our products and services without a license from the other party and be
held liable for significant
- 22 -
damages. We may not be able to obtain any required license on commercially
acceptable terms or at all.
Uncertainties resulting from the initiation and continuation of patent
litigation or other proceedings could have a material adverse effect on our
ability to compete in the marketplace. Patent litigation and other proceedings
may also absorb significant management time.
We may become involved in litigation or other proceedings with collaborative
partners, which may be time consuming, costly and could result in delays in our
development and commercialization efforts.
We conduct some of our development activities, and conduct most of our
commercialization activities, through collaborations with collaborative
partners. Therefore, any disputes with such partners that leads to litigation or
similar proceedings may result in us incurring legal expenses, as well as facing
potential legal liability. Such disputes, litigation or other proceedings are
also time consuming and may cause delays in our development and
commercialization efforts.
We have limited sales and marketing experience and capabilities.
We have limited sales, marketing and distribution experience and
capabilities. We may, in some instances, rely significantly on sales, marketing
and distribution arrangements with our collaborative partners and other third
parties. In these instances, our future revenues will be materially dependent
upon the success of the efforts of these third parties.
If in the future we determine to perform sales, marketing and distribution
functions ourselves, we would face a number of additional risks, including:
o we may not be able to attract and build a significant marketing
staff or sales force;
o the cost of establishing a marketing staff or sales force may not be
justifiable in light of any product revenues; and
o our direct sales and marketing efforts may not be successful.
We have limited manufacturing capabilities and will be dependent on third party
manufacturers.
We have limited manufacturing experience and no commercial or pilot scale
manufacturing facilities for the production of pharmaceuticals. In order to
continue to develop pharmaceutical products, apply for regulatory approvals and,
ultimately, commercialize any products, we will need to develop, contract for,
or otherwise arrange for the necessary manufacturing capabilities.
We currently rely upon third parties to produce material for preclinical
and clinical testing purposes and expect to continue to do so in the future. We
also expect to rely upon third parties, including our collaborative partners, to
produce materials required for the commercial production of certain of our
products if we succeed in obtaining necessary regulatory approvals. We believe
that there is no proprietary aspect to the manufacture of our products. However,
there are only a
- 23 -
limited number of manufacturers that operate under the FDA's regulations for
good manufacturing practices which are capable of and/or approved to manufacture
our product. Timing for the initiation of new manufacturers is uncertain, and,
if we are unable to arrange for third party manufacturing of our products on a
timely basis, or to do so on commercially reasonable terms, we may not be able
to complete development of our products or market them.
We currently rely upon third parties for fermentation relating to our
Protein A products. We rely on a single supplier for our SecreFlo(TM) product.
We believe that there is no proprietary aspect to the manufacture of our
products. However, timing for the initiation of new manufacturers is uncertain,
and, if we are unable to arrange for third party manufacturing of our products
on a timely basis, or to do so on commercially reasonable terms, we may not be
able to complete development of our products or market them.
To the extent that we enter into manufacturing arrangements with third
parties, we are dependent upon these third parties to perform their obligations
in a timely manner. If such third party suppliers fail to perform their
obligations, we may be adversely affected in a number of ways, including:
o we may not be able to meet commercial demands for our products;
o we may not be able to initiate or continue clinical trials of
products that are under development;
o we may be delayed in completing our clinical trials of products
under development; and
o we may be delayed in submitting applications for regulatory
approvals for our products.
The manufacture of products by us and our collaborative partners and
suppliers is subject to regulation by the FDA and comparable agencies in foreign
countries. Delay in complying or failure to comply with such manufacturing
requirements could materially adversely affect the marketing of our products.
If we are unable to continue to hire and retain skilled personnel, then we will
have trouble developing and marketing our 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 technical, scientific, management, regulatory compliance and marketing
personnel. Potential employees with an expertise in the field of molecular
biology, biochemistry, regulatory affairs and/or clinical development of new
drug and biopharmaceutical manufacturing are not generally available in the
market and are difficult to attract and retain. We also face significant
competition for such personnel from other companies, research and academic
institutions, government and other organizations who have superior funding and
resources to be able to attract such personnel. The loss of key personnel or our
inability to hire and retain personnel who have technical, scientific or
regulatory compliance backgrounds could materially adversely affect our product
development efforts and our business.
- 24 -
The market may not be receptive to our products upon their introduction.
The commercial success of our products that are approved for marketing
will depend upon their acceptance by the medical community and third party
payors as being clinically useful, cost effective and safe. All of the products
that we are developing are based upon new technologies or therapeutic
approaches. As a result, it is hard to predict market acceptance of our
products.
Other factors that we believe will materially affect market acceptance of
our products and services include:
o the timing of receipt of marketing approvals and the countries in
which such approvals are obtained;
o the safety, efficacy and ease of administration of our products;
o the success of physician education programs; and
o the availability of government and third party payor reimbursement
of our products.
We compete with larger, better financed and more mature pharmaceutical and
biotechnology companies who are capable of developing new approaches that could
make our products and technology obsolete.
The market for therapeutic and specialty pharmaceutical products is
intensely competitive, rapidly evolving and subject to rapid technological
change. Pharmaceutical and mature biotechnology companies have substantially
greater financial, manufacturing, marketing, research and development resources
than we have. New approaches to the treatment of our targeted diseases by these
competitors may make our products and technologies obsolete or noncompetitive.
We have incurred substantial losses, we expect to continue to incur losses and
we will not be successful until we reverse this trend.
We have incurred losses in each year since our founding in 1981. We expect
to continue to incur operating losses for the foreseeable future.
While we generate revenue from product sales, this revenue is not
sufficient to cover the costs of our clinical trials and drug development
programs. We expect to increase our spending significantly as we continue to
expand our research and development programs and commercialization activities.
As a result, we will need to generate significant revenues in order to achieve
profitability. We cannot be certain whether or when this will occur because of
the significant uncertainties that affect our business.
If we do not obtain additional capital for our drug development programs, we
will be unable to develop or discover new drugs.
We need additional long-term financing to develop our drug development
programs through the clinical trial process as required by the FDA and our
specialty pharmaceutical products business. We also need additional long-term
financing to support future operations and capital expenditures, including
capital for additional personnel and facilities. If we spend more money than
currently
- 25 -
expected for our drug development programs and our specialty pharmaceutical
products business, we will need to raise additional capital by selling debt or
equity securities, by entering into strategic relationships or through other
arrangements. We may be unable to raise any additional amounts on reasonable
terms or 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.
Our stock price could be volatile, which could cause you to lose part or all of
your investment.
The market price of our common stock, like that of the common stock of
many other development stage biotechnology companies, may be highly volatile. In
addition, the stock market has experienced extreme price and volume
fluctuations. This volatility has significantly affected the market prices of
securities of many biotechnology and pharmaceutical companies for reasons
frequently unrelated to or disproportionate to the operating performance of the
specific companies. These broad market fluctuations may adversely affect the
market price of our common stock.
Anti-takeover provisions may deter a third party from acquiring us, limiting our
stockholders' ability to profit from such a transaction.
Our Board of Directors has the authority to issue up to 5,000,000 shares
of preferred stock, of which 40,000 have been reserved for issuance in
connection with our stockholder rights plan, and to determine the price, rights,
preferences and privileges of those shares without any further vote or action by
our stockholders. We also adopted a "poison pill" stockholder rights plan that
will dilute the stock ownership of acquirers of our common stock upon the
occurrence of certain events. This stockholder rights plan could have the effect
of making it more difficult for a third party to acquire a majority of our
outstanding voting stock.
We are subject to the anti-takeover provisions of Section 203 of the
Delaware General Corporation Law, which prohibits us from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person becomes an
interested stockholder, unless the business combination is approved in a
prescribed manner. This provision could have the effect of delaying or
preventing a change of control of the Company. Section 203 and the stockholder
rights plan may have the effect of deterring hostile takeovers or delaying or
preventing changes in our management, including transactions in which
stockholders might otherwise receive a premium for their shares over then
current market prices.
Item 2. PROPERTIES
The Company leases approximately 25,000 square feet of space, of which
approximately 10,000 square feet is manufacturing and laboratory space. Our
lease expires in January 2013, with options to extend for two five-year periods.
During fiscal 2003, we incurred aggregate rental costs for our facility,
excluding maintenance and utilities, of approximately $372,000.
Item 3. LEGAL PROCEEDINGS
In November 2000 and December 2000, Repligen entered into two License
Agreements (the "UCSD License Agreements") with the University of California,
San Diego ("UCSD") related to certain patent applications pertaining to the use
of uridine and uridine derivatives for the treatment of mitochondrial disease
and purine autism. On June 21, 2001, Pro-Neuron, Inc. filed a complaint (the
"Pro-Neuron Complaint") against the Regents of the University of California (the
"Regents") and Repligen in the Superior Court of California, County of San Diego
seeking to void the license agreement related to
- 26 -
treatment of mitochondrial disease entered into between Repligen and UCSD.
Pro-Neuron subsequently sought to void the license agreement related to purine
autism, and asserted claims for misappropriation of trade secrets.
On June 4, 2003, Repligen, the Regents and Pro-Neuron entered into a
binding term sheet for settlement (the "Settlement") under which the Pro-Neuron
complaint will be dismissed upon execution of definitive agreements between the
parties. Under the terms of the Settlement, Repligen will receive $750,000.
Repligen and the Regents agreed to restructure the UCSD License Agreements to
exclude the field of acylated pyrimidines, including triacetyluridine ("TAU").
Repligen will discontinue its clinical trial of TAU in mitochondrial disease and
will continue its clinical trials of TAU in bipolar disorder/major depression
and purine autism for up to two years. Repligen will assign to Pro-Neuron any
inventions from these trials, for which it has rights, involving the use of
acylated pyrimidines, but will retain the rights to any inventions for all other
chemical entities. Repligen may still direct future clinical trials and product
development efforts to prodrugs or derivatives of uridine which are not acylated
pyrimidines.
Repligen is the exclusive licensee of all CTLA4 patent rights owned by the
University of Michigan ("the University"). Repligen and the University believe
that the University has a rightful claim to ownership of certain CTLA4 related
patents of Bristol-Myers Squibb Company ("Bristol"). Repligen and the University
filed a complaint against Bristol in the United States District Court for the
Eastern District of Michigan in August 2000 seeking a correction of
inventorship. The lawsuit asserts that a scientist from the University made
inventive contributions as part of a collaboration with Bristol scientists and
is a rightful inventor on the patents issued to Bristol. On April 2, 2003, a
bench trial of this matter commenced before the Honorable George C. Steeh. The
submission of evidence to the court concluded on May 5, 2003. A correction of
inventorship would result in the University and Repligen having rights to some
or all of Bristol's patents on CTLA4-Ig. Repligen's failure to obtain ownership
rights in the Bristol patents may restrict Repligen's ability to commercialize
CTLA4-Ig. Repligen and the University have also filed patents related to
compositions of matter and methods of use of CTLA4-Ig. In September 2002,
Repligen was issued a U.S. patent covering the composition of the CTLA4-Ig
product form that it is developing.
On March 14, 2003, ChiRhoClin, Inc. ("ChiRhoClin") filed an arbitration
proceeding against Repligen with the American Arbitration Association in New
York. ChiRhoClin alleges that reimbursement of certain marketing expenses to
Repligen breaches the license agreement between the parties by lowering the
amount of royalties paid to ChiRhoClin. ChiRhoClin claims damages of
approximately $800,000. Repligen believes that ChiRhoClin's arbitration claims
have no merit and will vigorously defend its rights. This arbitration is at an
early stage and has been stayed pending the outcome of settlement discussions
between the parties.
- 27 -
From time to time, we may be subject to other legal proceedings and claims
in the ordinary course of business. We are not currently aware of any such
proceedings or claims that we believe will have, individually or in the
aggregate, a material adverse effect on our business, financial condition or
results of operations.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the security holders of the Company
through the solicitation of proxies or otherwise, during the last quarter of the
fiscal year ended March 31, 2003.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
Our common stock is traded over-the-counter on the Nasdaq National Market
under the symbol "RGEN." The following table sets forth for the periods
indicated the high and low bid information for the common stock as reported by
Nasdaq. These quotations reflect inter-dealer prices, without retail markup,
markdown or commission and may not necessarily reflect actual transactions.
Fiscal Year 2003 High Low
---------------- ---- ---
Fourth Quarter $5.00 $2.73
Third Quarter $3.73 $2.25
Second Quarter $2.95 $2.05
First Quarter $4.22 $2.10
Fiscal Year 2002
----------------
Fourth Quarter $4.50 $2.29
Third Quarter $3.13 $1.85
Second Quarter $3.04 $1.81
First Quarter $3.57 $1.28
- 28 -
Stockholders and Dividends
As of May 15, 2003 there were approximately 883 stockholders of record of
our common stock. We have not paid any dividends since our inception and do not
intend to pay any dividends on our common stock in the foreseeable future. We
anticipate that we will retain all earnings, if any, to support our operations
and our proprietary drug development programs. Any future determination as to
the payment of dividends will be at the sole discretion of our board of
directors and will depend on our financial condition, results of operations,
capital requirements and other factors our board of directors deems relevant.
Securities Authorized for Issuance under Equity Compensation Plans
Equity Compensation Plan Information
Number of Number of securities
securities to be remaining available for
issued upon future issuance under
exercise of Weighted-average equity compensation
outstanding exercise price of plans (excluding
options, warrants outstanding options, securities reflected
Plan category and rights warrants and rights in column (a))
- ------------- ---------- ------------------- --------------
(a) (b) (c)
Equity compensation plans
approval by security holders .......... 1,940,050 $2.55 1,300,769
Equity compensation plans not
approved by security holders .......... -- $ -- --
--------- ----- ---------
Total 1,940,050 $2.55 1,300,769
========= ===== =========
Item 6. SELECTED FINANCIAL DATA
The following selected financial data are derived from the audited
financial statements of Repligen as of and for the years ended March 31, 2003,
2002, 2001, 2000 and 1999. The financial statements for the year ended March 31,
2003 have been audited by Ernst & Young LLP. The financial statements for the
years ended 1999 through 2002
- 29 -
were audited by Arthur Andersen LLP, which has ceased operations. The selected
financial data set forth below should be read in conjunction with our financial
statements and the related notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this report and our report on Form 10-K for the years ended March 31, 2002,
2001, 2000 and 1999.
- 30 -
Years Ended March 31,
-------------------------------------------------------------
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
(In thousands, except per share amounts)
Operating Statement Data:
Revenues
Product revenue .......................... $ 7,743 $ 4,302 $ 2,084 $ 2,041 $ 1,010
Licensing and research revenue ........... 29 -- 171 863 1,268
--------- --------- --------- --------- ---------
Total revenue ......................... 7,772 4,302 2,255 2,904 2,278
Cost of revenue ............................ 3,480 1,993 1,400 1,107 689
--------- --------- --------- --------- ---------
Gross margin .......................... 4,292 2,309 855 1,797 1,589
Operating expenses
Research and development ................. 5,227 5,361 5,787 3,754 1,847
Selling, general and administrative ...... 4,159 2,526 2,401 2,406 1,463
Charge for purchased R&D ................. -- -- -- -- 1,035
--------- --------- --------- --------- ---------
Total operating expenses .............. 9,386 7,887 8,188 6,160 4,345
--------- --------- --------- --------- ---------
Loss from operations ....................... (5,094) (5,578) (7,333) (4,363) (2,756)
--------- --------- --------- --------- ---------
Investment income .......................... 557 1,117 2,054 547 212
--------- --------- --------- --------- ---------
Net loss ................................... $ (4,537) $ (4,461) $ (5,279) $ (3,816) $ (2,544)
========= ========= ========= ========= =========
Net loss per common share .................. $ (0.17) $ (0.17) $ (0.20) $ (0.18) $ (0.14)
========= ========= ========= ========= =========
Weighted average common shares outstanding . 26,813 26,640 26,548 21,538 18,018
(In thousands)
As of March 31,
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
Balance Sheet Data:
Cash and marketable securities ............. $ 18,909 $ 25,250 $ 30,298 $ 34,033 $ 3,263
Working capital ............................ 15,602 20,577 24,398 34,473 3,860
Total assets ............................... 26,793 29,111 32,148 36,287 5,224
Accumulated deficit ........................ (144,956) (140,419) (135,959) (130,680) (126,964)
Stockholders' equity ....................... 24,550 26,445 30,891 35,090 4,592
- 31 -
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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. Our actual
results could differ materially from those anticipated in these forward-looking
statements and are a result of certain factors, including those set forth under
"Certain Factors that may Affect Future Results" and elsewhere in this report.
Overview
We are engaged in the development of new products for profound pediatric
developmental disorders. Our therapeutic product candidates are secretin for
autism and schizophrenia, CTLA4-Ig for autoimmune disorders and uridine for
neurologic and metabolic diseases. These products are synthetic forms of
naturally-occurring substances which may correct improperly regulated biological
processes with minimal toxicity or side-effects. Our product candidates have the
potential to produce clinical benefits not attainable with any existing drug in
diseases for which there are few alternative therapies or treatments.
Our business strategy is to partially fund the development of our
proprietary therapeutic products with the profits derived from the sales of our
specialty pharmaceutical products: Protein A and SecreFlo(TM). This will enable
us to independently advance our proprietary drug development programs while at
the same time minimizing our operating losses. We may also seek corporate
partners for development or marketing of our therapeutic product candidates.
Recent Accounting Pronouncements
In July 2002, the FASB issued SFAS 146, "Accounting for Costs Associated
with Exit or Disposal Activities". SFAS 146 requires companies to recognize
costs associated with exit or disposal activities when they are incurred rather
than at the date of a commitment to an exit or disposal plan and nullifies
Emerging Issues Task Force Issue No. 94-3. "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit and Activity (including
Certain Costs Incurred in a Restructuring)". SFAS 146 is to be applied
prospectively to exit or disposal activities initiated after December 31, 2002.
The Company does not believe the adoption of this standard will have a
significant impact on its financial position or results of operations.
In December 2002, the FASB issued Statement of Financial Accounting
Standards (SFAS) No. 148, Accounting for Stock-Based Compensation -- Transition
and Disclosure, which amends SFAS 123, Accounting for Stock-Based Compensation.
In response to a growing number of companies announcing plans to record expenses
for the fair value of stock options, SFAS 148 provides alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, SFAS 148
- 32 -
amends the disclosure requirements of FAS 123 to require more prominent and more
frequent disclosures in financial statements about the effects of stock-based
compensation. The amendments to Statement 123 in paragraphs 2(a)-2(e) of this
Statement is effective for our fiscal year ending March 31, 2003. The Company
believes that adoption of this statement did not have a significant impact on
its financial position or results of operations.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." This
Statement establishes standards for how an issuer classifies and measures in its
statement of financial position certain financial instruments with
characteristics of both liabilities and equity. It requires that an issuer
classify a financial instrument that is within its scope as a liability (or an
asset in some circumstances) because that financial instrument embodies an
obligation of the issuer. This Statement is effective for financial instruments
entered into or modified after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003, except for
mandatorily redeemable financial instruments of nonpublic entities. The Company
does not expect that the adoption of this standard will have a significant
impact on its financial position or results of operations.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Securities and Exchange Commission requires that reporting companies
discuss their most "critical accounting policies" in management's discussion and
analysis of financial condition and results of operations. The SEC indicated
that a "critical accounting policy" is one that is important to the portrayal of
a company's financial condition and operating results and requires management's
most difficult, subjective or complex judgments, often as a result of the need
to make estimates about the effect of matters that are inherently uncertain.
We have identified the policies and estimates below as critical to our
business operations and the understanding of our results of operations. The
impact and any associated risks related to these policies on our business
operations is discussed throughout Management's Discussion and Analysis of
Financial Condition and Results of Operations where such policies affect our
reported and expected financial results. For a detailed discussion on the
application of these and other accounting policies, see Note 2 in the Notes to
the Consolidated Financial Statements of this report. The preparation of
financial statements in conformity with accounting principles generally accepted
in the United States requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Revenue Recognition
The Company applies Staff Accounting Bulletin No. 101, "Revenue
Recognition" (SAB 101) to its revenue arrangements. The Company generates
product revenues from the sale of its Protein A products to customers in the
pharmaceutical and process chromatography industries, and from the sale of
SecreFlo(TM), the first synthetic version of the hormone secretin, to
hospital-based gastroenterologists. In accordance with SAB 101, the Company
recognizes revenue related to product sales upon shipment of
- 33 -
the product to the customer as long as there is persuasive evidence of an
arrangement, the fee is fixed or determinable and collection of the related
receivable is probable.
License and research revenue derived from collaborative arrangements is
recognized as earned under cost plus fixed-fee contracts, or on a straight-line
basis over the term of contract, which approximates when work is performed and
costs are incurred. Research expenses in the accompanying statements of
operations include funded and unfunded expenses. In addition, under certain
contracts, the Company recognizes research and development milestones as they
are achieved assuming the milestone is deemed to be substantive.
Impairment Analysis of Long-lived Assets
During 2002, under the terms of a 1999 licensing agreement with
ChiRhoClin, Inc. (CRC) we made a milestone payment to CRC that consisted of
$1,250,000 in cash and 696,223 shares of our common stock. We have recorded the
fair value of the shares issued, $2,576,025, and the cash paid of $1,250,000, as
a long-term intangible asset. (See Note 6 of our consolidated financial
statements for further discussion). Beginning in April 2002, we began to
amortize this intangible asset to cost of revenue over the remaining term of the
license, approximately seven years. In October 2002, we commenced commercial
shipment of SecreFlo(TM), our synthetic version of the hormone secretin. We
amortized $510,132 during the year ended March 31, 2003. At March 31, 2003, in
accordance with the provisions of SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets," we performed an impairment analysis of this
intangible asset in order to determine if an impairment loss existed and should
be recognized. The impairment analysis consisted of an evaluation of the
expected cash flows from the sale of SecreFlo(TM) over the term of the license
and also included various assumptions and estimates concerning selling price,
cost and volume of unit sales. We concluded that there was no impairment loss as
of March 31, 2003. We believe that our assumptions and estimates are reasonable,
however, actual results could differ from these estimates.
Clinical Trial Estimates
Our clinical development trials related to our proprietary drug products
are primarily performed by outside parties. It is not unusual at the end of each
accounting period to estimate both the total cost of the trials and the percent
completed as of that accounting date. We then need to adjust our estimates when
final invoices are received. To date, these adjustments have not been material
to our financial statements, and we believe that the estimates that we made as
of March 31, 2003 are reflective of the actual expenses incurred as of that
date. However, readers should be cautioned that the possibility exists that the
timing or cost of certain trials might be longer or shorter or cost more or less
than we have estimated and that the associated financial adjustments would be
reflected in future periods.
Results of Operations
Fiscal Year Ended March 31, 2003 Compared with Fiscal Year Ended March 31, 2002
Total revenue
- 34 -
Total revenue for the fiscal year 2003 was $7,772,000 as compared to
$4,302,000 in fiscal 2002, resulting in an increase of $3,470,000 or 81%. During
fiscal year 2003 we commenced selling SecreFlo(TM), a diagnostic product that is
marketed in the U.S. to hospital based gastroenterologists. In addition, this
increase in product sales is attributable to increased demand from value-added
resellers who incorporate our Protein A products into their proprietary antibody
purification systems, which they sell to the biotechnology and pharmaceutical
industry.
Cost of revenue
Cost of revenue for fiscal 2003 and 2002, was approximately $3,480,000 and
$1,993,000, respectively, reflecting an increase of $1,487,000 or 75%. This
increase is due primarily to increased costs associated with the increase in
volume of product shipments and costs associated with our recently launched
SecreFloTM. Gross profit in fiscal 2003 and 2002 was $4,292,000 or 55% and
$2,309,000 or 54%, respectively. This increase in gross profit is due primarily
to a change from period to period in the mix of Protein A product sales and the
commencement of SecreFlo(TM) sales.
Operating expenses
Total operating expenses for fiscal 2003 and 2002 were approximately
$9,386,000 and $7,887,000, respectively, resulting in an increase of $1,499,000
or 19% during 2003.
Research and development expenses for fiscal 2003 and 2002 were
approximately $5,227,000 and $5,361,000, respectively, a decrease of $134,000 or
2%. This decrease is largely attributable to a decrease in clinical material
expenses partially offset by an increase in personnel costs and clinical trial
expenses incurred during fiscal 2003.
Selling, general and administrative expenses (SG&A) for fiscal 2003 and
2002 were approximately $4,159,000 and $2,526,000, respectively, resulting in an
increase of $1,633,000 or 65%. This increase is largely attributable to
increased staffing, investor relations and litigation expenses partially offset
by a reimbursement by CRC of premarketing and launch expenses associated with
the launch of SecreFlo(TM). We anticipate that SG&A expenses will increase as
our litigation activities continue and an expected increase in marketing
expenses as we expand our commercial operations.
Investment income
Investment income for fiscal 2003 and 2002, was approximately $557,000 and
$1,117,000, respectively, a decrease of $560,000 or 50% in 2003. This decrease
is attributable to lower average funds available for investment and lower
interest rates during fiscal 2003 as compared to fiscal 2002. We expect interest
income to vary based on changes in the amount of funds invested and fluctuation
of interest rates.
Fiscal Year Ended March 31, 2002 Compared with Fiscal Year Ended March 31, 2001
Total revenue
- 35 -
Total revenue for fiscal 2002 were $4,302,000 compared to $2,255,000 in
fiscal 2001, an increase of $2,047,000 or 91%. This increase in revenue is a
result of increased Protein A sales driven predominantly by the rapid market
growth and success of antibody therapeutic drugs.
Product revenue for fiscal 2002 was $4,302,000 compared to $2,083,000 in
fiscal 2001, an increase of $2,219,000 or 107%. This increase is due to
increased product shipments to Amersham and increased demand from several
monoclonal antibody producers during the year.
Licensing and research revenue for fiscal 2002 was $0 compared to $172,000
in fiscal 2001, a decrease of $172,000 or 100%. During fiscal 2001, we received
non-recurring licensing payments from certain intellectual property pertaining
to our former programs.
Cost of revenue
Cost of revenue for fiscal 2002 was $1,993,000, compared to $1,400,000 in
fiscal 2001, an increase of $593,000 or 42%. This increase is largely
attributable to an increase in Protein A sales and to the mix of product sales
partially offset by manufacturing efficiencies. Gross profit in fiscal 2002 was
$2,309,000 or 54% versus 855,000 or 41% of product revenue for fiscal 2001. This
increase is a result of changes in product mix and improvements in manufacturing
efficiencies.
Operating expenses
Total operating expenses for fiscal 2002 were $7,887,000 compared to
$8,188,000 in fiscal 2001, a decrease of $301,000 or 4%.
Research and development expenses for fiscal 2002 were $5,361,000 compared
to $5,786,000 in fiscal 2001, a decrease of $425,000 or 7%. This decrease is
largely due to decreased clinical trial costs, pharmacology-toxicology testing,
and manufacturing costs related to development activities for our product
candidates.
Selling, general and administrative expenses for fiscal 2002 were
$2,526,000 compared to $2,402,000 in fiscal 2001, an increase of $124,000 or 5%.
This increase was attributable to increases in payroll and related expenses, and
litigation expense. These increases were partially offset by a decrease in
non-cash charges related to the issuance of warrants that were incurred during
fiscal 2001.
Investment income
Investment income for fiscal 2002 was $1,117,000, compared to $2,054,000
in fiscal 2001, a decrease of $937,000 or 46%. This decrease is attributable to
lower average funds available for investment and lower interest rates during
fiscal 2002 compared to fiscal 2001.
Liquidity and Capital Resources
We have financed our operations primarily through sales of equity
securities and revenues derived from product sales, collaborative research
agreements, government grants, and payments received from licensing and royalty
agreements.
- 36 -
At March 31, 2003 we had cash and marketable securities of $18,909,000,
compared to $25,250,000 at March 31, 2002. Our operating activities in 2003 used
cash of approximately $5,258,000, consisting of the net loss from operations for
the year of $4,537,000 and a decrease in accounts payable of $439,000. These
uses of cash were offset by non-cash charges of $802,000 for depreciation and
amortization and a decrease in accounts receivable of $67,000, a decrease in
inventory of $26,000, a decrease in prepaid expenses of $100,000 and an increase
in accrued expenses of $16,000. During fiscal 2003, we purchased $1,084,000 of
capital equipment, consisting of laboratory and office equipment.
In May 2003, a certain investor purchased approximately $12.5 million of
our common stock through a private placement of 2,500,000 shares. Repligen
received net proceeds of approximately $11.8 million after deducting the
estimated expenses of the transaction.
We have leased, pursuant to a ten-year lease agreement, a new corporate
headquarters in Waltham, Massachusetts. We anticipate that this new facility
will increase operating efficiencies and manufacturing capacity to meet the
growing demand for our Protein A products, and to better meet corporate goals
and objectives. We relocated to this facility in May 2002. In connection with
this lease agreement, a letter of credit in the amount of $500,000 was issued to
our landlord. In October 2002, this letter of credit was reduced to $200,000.
The letter of credit is collateralized by a certificate of deposit held by the
bank that issued the letter of credit. The certificate of deposit is included as
restricted cash in the accompanying balance sheet as of March 31, 2003.
During April 2002 and as required by the terms of our license agreement
with ChiRhoClin, we paid a milestone payment of $1,250,000 in connection with
the FDA's approval of SecreFlo(TM), our synthetic porcine secretin product. Also
pursuant to such license agreement, we issued to ChiRhoClin approximately,
696,000 shares of our common stock in fiscal 2003. We have not granted
registration rights to ChiRhoClin with respect to the shares issued under the
license agreement. In addition, under the terms of the licensing agreement with
ChiRhoClin, if the FDA approves the NDA for human secretin diagnostic, we will
be required to pay ChiRhoClin future milestones in cash. We will also be
required to pay royalties on sales of both synthetic porcine and human products.
We expect to incur significantly higher costs in fiscal 2004 as a result
of the expansion of research and development costs associated with the clinical
trials of our proprietary drug candidates and the commercialization of our
diagnostic product, SecreFlo(TM). We believe that we have sufficient resources
to satisfy our working capital and capital expenditure requirements for the next
twenty-four months. Should we need to secure additional financing to meet our
future liquidity requirements, we may not be able to secure such financing, or
obtain such financing on favorable terms because of the volatile nature of the
biotechnology marketplace.
At March 31, 2003, we had net operating loss carryforwards of
approximately $122,438,000 and research and development credit carryforwards of
approximately $7,161,000 to reduce future federal income taxes, if any. The net
operating loss and tax credit carryforwards will expire at various dates,
beginning in 2004, if not used. Net operating loss carryforwards and available
tax credits are subject to review and possible adjustment by the Internal
Revenue
- 37 -
Service and may be limited in the event of certain changes in the ownership
interest of significant stockholders.
We do not currently use derivative financial instruments. We generally
place our marketable security investments in high quality credit instruments, as
specified in our investment policy guidelines. Our investment policy also limits
the amount of credit exposure to any one issue, issuer, and type of investment.
We do not expect any material loss from our investment in marketable securities.
We believe that inflation has not had a material effect on our operations.
- 38 -
Item 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
We have investments in commercial paper, U.S. Government and agency
securities as well as corporate bonds and other debt securities; as a result, we
are exposed to potential loss from market risks that may occur as a result of
changes in interest rates and the change in credit quality of the issuer.
We generally place our marketable security investments in high quality
credit instruments, as specified in our investment policy guidelines. Our
investment policy also limits the amount of credit exposure to any one issue,
issuer, and type of investment. We intend to hold these investments to maturity,
as the intention is to hold these assets in accordance with our business plans.
As of March 31, 2003, we did not have any financing arrangements that were
not reflected in our balance sheet.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENT DATA
All financial statements required to be filed hereunder are filed as an
exhibit hereto, are listed under Item 16 (a) (1) and are incorporated herein by
reference.
- 39 -
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Repligen engaged the services of Ernst & Young LLP as its new independent
auditors to replace Arthur Andersen LLP, effective June 12, 2002. For additional
information, see Repligen's Current Report on Form 8-K filed June 19, 2002 (as
amended by the Form 8-K/A filed on June 28, 2002).
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding our directors and executive officers will be set
forth under the captions "Election of Directors," "Occupations of Directors and
Executive Officers," "Biographical Information," "Information Regarding the
Board of Directors and its Committees" and "Section 16 (a) Beneficial Ownership
Reporting Compliance" in our definitive proxy statement for our annual meeting
of stockholders to be held on September 10, 2003, which will be filed with the
SEC within 120 days of March 31, 2003 and is incorporated herein by reference.
Item 11. EXECUTIVE COMPENSATION
Information required by this Item will be set forth under the captions
"Summary of Executive Compensation" and "Compensation of Directors" in our
definitive proxy statement for our annual meeting of stockholders to be held on
September 10, 2003, which will be filed with the SEC within 120 days of March
31, 2003 and is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- 40 -
Information required by this Item will be set forth under the captions
"Principal Holders of Voting Securities" and "Stock Ownership of Executive
Officers and Directors" in our definitive proxy statement for our annual meeting
of stockholders to be held on September 10, 2003 which will be filed with the
SEC within 120 days of March 31, 2003 and is incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this Item will be set forth under the caption
"Certain Relationships and Related Transactions" in our definitive proxy
statement for our annual meeting of stockholders to be held on September 10,
2003 which will be filed with the SEC within 120 days of March 31, 2003 and is
incorporated herein by reference.
Item 14. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Based on an evaluation of our disclosure controls and procedures as of a
date (the "Evaluation Date") within 90 days of the filing of this Annual Report
on Form 10-K, the President, Chief Executive Officer and Principal Financial
Officer, Walter C. Herlihy, has concluded that, as of the Evaluation Date, the
disclosure controls and procedures are effective.
Changes in Internal Controls
There were no significant changes in our internal controls or in other
factors that could significantly affect these controls subsequent to the
Evaluation Date.
- 41 -
PART IV
Item 16. 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 Auditors ............................................ F-2
Consolidated Balance Sheets as of March 31, 2003 and 2002 ................. F-4
Consolidated Statements of Operations for the Years Ended
March 31, 2003, 2002, and 2001 ............................................ F-5
Consolidated Statements of Stockholders' Equity for the Years Ended
March 31, 2003, 2002, and 2001 ............................................ F-6
Consolidated Statements of Cash Flows for the Years Ended March 31,
2003, 2002, and 2001 ...................................................... F-7
Notes to Consolidated Financial Statements ................................ F-8
(a) (2) Financial Statement Schedules:
None
(a) (3) Exhibits:
The Exhibits which are filed as part of this Annual Report or which are
incorporated by reference are set forth in the Exhibit Index hereto.
(b) Reports on Form 8-K:
On March 4, 2003, we filed a current report on Form 8-K (including items 5
and 7) reporting that the Board of Directors had adopted a Shareholder
Rights Plan as of March 3, 2003.
- 42 -
EXHIBIT INDEX
Exhibit Number Document Description
- -------------- --------------------
3.1 Restated Certificate of Incorporation dated June 30, 1992
and amended September 30, 1999 (filed as Exhibit 4.1 to
Repligen Corporation's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1999 and incorporated herein by
reference).
3.2+ By-laws (filed as Exhibit 3.2 to Repligen Corporation's
annual report on Form 10-K for the year ended March 31, 2002
and incorporated herein by reference)
4.1+ Specimen Stock Certificate filed as Exhibit 4.1 to Repligen
Corporation's annual report on Form 10-K for the year ended
March 31, 2002 and incorporated herein by reference)
4.2 Form of Warrant Agreement (filed as Exhibit 4.1 to Repligen
Corporation's Form 10-Q for the quarter ended September 30,
1999 and incorporated herein by reference).
4.3 Form of Common Stock Purchase Warrant (filed as Exhibit 4.3
to Repligen Corporation's Form S-3 Registration Statement
No. 333-36280 and incorporated herein by reference).
4.4 Stock Purchase Agreement dated as of March 7, 2000, by and
among Repligen Corporation and the investors listed on
Schedule I thereto (filed as Exhibit 4.1 to Repligen
Corporation's Form 8-K filed March 21, 2000 and incorporated
herein by reference).
4.5 Common Stock Purchase Warrant dated July 24, 2000 (filed as
Exhibit 4.1 to Repligen Corporation's Quarterly Report on
Form 10-Q for the quarter ended September 30, 2000 and
incorporated herein by reference).
4.6* The 2001 Repligen Corporation Stock Option Plan, adopted by
the Stockholders on September 13, 2001 (filed as Appendix B
to Repligen Corporation's Definitive Proxy Statement on
Schedule 14A dated July 19, 2001 and incorporated herein by
reference).
4.7* The Amended 1992 Repligen Corporation Stock Option Plan, as
amended (filed as Exhibit 4.2 to Repligen Corporation's Form
10-Q for the quarter ended September 30, 2000 and
incorporated herein by reference).
4.8 Rights Agreement, dated as of March 3, 2003, between
Repligen Corporation and American Stock Transfer & Trust
Company (filed as Exhibit 4.1 to Repligen Corporation's Form
8-K filed March 4, 2003 and incorporated
- 43 -
herein by reference).
4.9 Stock Purchase Agreement dated as of May 1, 2003, by and
among Repligen Corporation and the investors listed on
Schedule I thereto (filed as Exhibit 4 to Repligen's
Corporation's Current Report on Form 8-K filed May 2, 2003
and incorporated herein by reference.
10.1+* Consulting Agreement, dated October 1, 1981, between Dr.
Paul Schimmel and Repligen Corporation. (filed as Exhibit
10.1 to Repligen Corporation's annual report on Form 10-K
for the year ended March 31, 2002 and incorporated herein by
reference).
10.2+* Consulting Agreement, dated November 1, 1981, between Dr.
Alexander Rich and Repligen Corporation. (filed as Exhibit
10.2 to Repligen Corporation's annual report on Form 10-K
for the year ended March 31, 2002 and incorporated herein by
reference).
10.3+* Employment Agreement, dated March 14, 1996, between Repligen
Corporation and Walter C. Herlihy. (filed as Exhibit 10.3 to
Repligen Corporation's annual report on Form 10-K for the
year ended March 31, 2002 and incorporated herein by
reference).
10.4+* Employment Agreement, dated March 14, 1996, between Repligen
Corporation and James R. Rusche. (filed as Exhibit 10.4 to
Repligen Corporation's annual report on Form 10-K for the
year ended March 31, 2002 and incorporated herein by
reference).
10.5+* Employment Agreement, dated March 14, 1996, between Repligen
Corporation and Daniel P. Witt. (filed as Exhibit 10.5 to
Repligen Corporation's annual report on Form 10-K for the
year ended March 31, 2002 and incorporated herein by
reference).
#10.6 Patent Purchase Agreement dated as of March 9, 1999 among
the Company and Autism Research Institute and Victoria Beck
(filed as Exhibit 2.1 to Repligen Corporation's Form 8-K/A
filed June 15, 1999 and incorporated herein by reference).
#10.7 Manufacturing Transfer Agreement dated as of December 31,
1998 among the Company and Amersham Pharmacia Biotech AB
(filed as Exhibit 10.1 to Repligen Corporation's Quarterly
Report on Form 10-Q for the quarter ended December 31, 1998
and incorporated herein by reference).
- 44 -
#10.8 Supply Agreement dated as of May 26, 1999 by and between
Repligen Corporation and Amersham Pharmacia Biotech AB
(filed as Exhibit 10.1 to Repligen Corporation's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1999 and
incorporated herein by reference).
10.9 Licensing Agreement by and between ChiRhoClin, Inc. and
Repligen Corporation (filed as Exhibit 10.1 to Repligen
Corporation's Quarterly Report on Form 10-Q for the quarter
ended December 31, 1999 and incorporated herein by
reference).
10.10 License Agreement with University of Michigan (filed as
Exhibit 10.1 to Repligen Corporation's Quarterly Report on
Form 10-Q for the quarter ended September 30, 2000 and
incorporated herein by reference).
10.11 Lease Between Repligen Corporation as Tenant and West Seyon
LLC as Landlord, 35 Seyon Street, Waltham, MA (filed as
Exhibit 10.1 to Repligen Corporation's Quarterly Report on
Form 10-Q for the quarter ended December 31, 2001 and
incorporated herein by reference).
21+ Subsidiaries of Registrant.
23.1+ Consent of Ernst & Young LLP.
23.2+ Notice Regarding Consent of Arthur Andersen LLP.
99+ Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
- ----------
# Confidential treatment obtained as to certain portions.
* Management contract or compensatory plan or arrangement
- 45 -
+ 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 2003 annual meeting, the Registrant will furnish that
person without charge a copy of any exhibits listed above. Requests should be
addressed to Repligen Corporation, 41 Seyon Street, Waltham, MA 02453.
- 46 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
REPLIGEN CORPORATION
By: /s/ Walter C. Herlihy
----------------------------------------
Walter C. Herlihy
President and Chief Executive Officer
(Principal executive, accounting and
financial officer)
Date: June 27, 2003
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby makes, constitutes and appoints Walter C. Herlihy with full power
to act without the other, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities to sign any or all amendments to this Form
10-K, and to file the same with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agents of any of them, or any substitute or substitutes,
lawfully do or cause to be done by virtue hereof.
- 47 -
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 27, 2003
- -------------------------
Alexander Rich, M.D.
/s/ Paul Schimmel Co-Chairman of the Board of Directors June 27, 2003
- -------------------------
Paul Schimmel, Ph.D.
/s/ Walter C. Herlihy President, Chief Executive Officer and Director June 27, 2003
- ------------------------- (Principal executive, accounting and financial officer)
Walter C. Herlihy
/s/ Robert J. Hennessey Director June 27, 2003
- -------------------------
Robert J. Hennessey
/s/ G. William Miller Director June 27, 2003
- -------------------------
G. William Miller
- 48 -
CERTIFICATION
I, Walter Herlihy, certify that:
1. I have reviewed this annual report on Form 10-K of Repligen Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) Presented in this annual report our conclusions about the effectiveness
of disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were any significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: June 27, 2003
/s/ Walter C. Herlihy
-----------------------------------------
Chief Executive Officer and President,
Principal Executive, Accounting, and Financial Officer
- 49 -
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Auditors F-2
Balance Sheets as of March 31, 2003 and 2002 F-4
Statements of Operations for the Years
Ended March 31, 2003, 2002 and 2001 F-5
Statements of Stockholders' Equity for the Years
Ended March 31, 2003, 2002 and 2001 F-6
Statements of Cash Flows for the Years
Ended March 31, 2003, 2002 and 2001 F-7
Notes to Financial Statements F-8
F-1
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders of
Repligen Corporation
We have audited the accompanying balance sheet of Repligen Corporation as
of March 31, 2003, and the related statements of operations, stockholders'
equity, and cash flows for the year then ended. 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 audit. The financial
statements of Repligen Corporation as of March 31, 2002 and the years ended
March 31, 2002 and 2001 were audited by other auditors who have ceased
operations and whose report dated May 13, 2002, expressed an unqualified opinion
on those statements.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides 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, 2003, and the results of its operations, stockholders' equity, and
cash flows for the year then ended, in conformity with accounting principles
generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
May 21, 2003,
except with respect to
the matter discussed in
Note 12, as to which the
date is June 4, 2003
F-2
This is a copy of a report previously issued by Andersen and Andersen has not
reissued this report.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of Repligen Corporation:
We have audited the accompanying balance sheets of Repligen Corporation (a
Delaware corporation) as of March 31, 2002 and 2001, and the related statements
of operations, stockholders' equity and cash flows for each of the three years
in the period ended March 31, 2002. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Repligen Corporation as of
March 31, 2002 and 2001, and the results of its operations and its cash flows
for each of the three years in the period ended March 31, 2002, in conformity
with accounting principles generally accepted in the United States.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Boston, Massachusetts
May 13, 2002
F-3
REPLIGEN CORPORATION
BALANCE SHEETS
As of March 31,
2003 2002
------------------------------
Assets
Current assets:
Cash $ 6,108,004 $ 8,696,194
Marketable securities 9,417,224 12,143,170
Accounts receivable, less reserves of $50,000 and $25,000 in
2003 and 2002, respectively 907,501 865,861
Inventories 889,924 916,091
Prepaid expenses and other current assets 522,569 622,309
------------- -------------
Total current assets 17,845,222 23,243,625
------------- -------------
Property, plant and equipment, at cost:
Leasehold improvements 2,585,152 1,657,416
Equipment 1,317,086 1,169,080
Furniture and fixtures 360,003 352,174
------------- -------------
4,262,241 3,178,670
Less - accumulated depreciation and amortization (2,013,828) (1,721,732)
------------- -------------
2,248,413 1,456,938
------------- -------------
Long-term marketable securities 3,183,727 3,910,852
Restricted cash 200,000 500,000
Other assets, net (Note 6) 3,315,894 --
------------- -------------
Total Assets $ 26,793,256 $ 29,111,415
============= =============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 968,551 $ 1,407,955
Accrued expenses 1,274,837 1,258,804
------------- -------------
Total current liabilities 2,243,388 2,666,759
------------- -------------
Commitments and contingencies (Notes 5,10)
Stockholders' equity:
Preferred stock, $0.01 par value, 5,000,000 shares
authorized, no shares issued or outstanding -- --
Common stock, $0.01 par value, 40,000,000 shares
authorized, 27,338,973 and 26,642,750 shares issued and
outstanding, in 2003 and 2002, respectively 273,390 266,427
Additional paid-in capital 169,232,975 166,597,654
Accumulated deficit (144,956,497) (140,419,425)
------------- -------------
Total stockholders' equity 24,549,868 26,444,656
------------- -------------
Total liabilities and stockholders' equity $ 26,793,256 $ 29,111,415
============= =============
See accompanying notes.
F-4
REPLIGEN CORPORATION
STATEMENTS OF OPERATIONS
Years Ended March 31,
2003 2002 2001
--------------------------------------------
Revenue:
Product revenue $ 7,742,667 $ 4,301,565 $ 2,083,529
Licensing and research revenue 29,114 -- 171,615
------------ ------------ ------------
Total revenue 7,771,781 4,301,565 2,255,144
Cost of revenue 3,480,441 1,992,734 1,399,849
------------ ------------ ------------
Gross profit 4,291,340 2,308,831 855,295
Operating expenses:
Research and development 5,226,524 5,360,720 5,786,392
Selling, general and administrative 4,159,220 2,525,827 2,401,460
------------ ------------ ------------
Total operating expenses 9,385,744 7,886,547 8,187,852
------------ ------------ ------------
Loss from operations (5,094,404) (5,577,716) (7,332,557)
------------ ------------ ------------
Investment income 557,332 1,117,099 2,053,690
------------ ------------ ------------
Net loss $ (4,537,072) $ (4,460,617) $ (5,278,867)
============ ============ ============
Basic and diluted net loss per share $ (0.17) $ (0.17) $ (0.20)
============ ============ ============
Basic and diluted weighted average
shares outstanding 26,812,981 26,639,525 26,547,238
============ ============ ============
See accompanying notes.
F-5
REPLIGEN CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock
------------
Additional Total
Number of Paid- Accumulated Stockholders'
Shares Amount in Capital Deficit Equity
------ ------ ---------- ------- ------
- ------------------------------------------------------------------------------------------------------------
Balance at March 31, 2000 26,315,979 $ 263,159 $ 165,507,184 ($130,679,941) $ 35,090,402
- ------------------------------------------------------------------------------------------------------------
Issuance of common stock for
patent acquisition 30,000 300 183,450 -- 183,750
Issuance of warrants for services -- -- 218,735 -- 218,735
Exercise of stock options 34,200 342 24,354 -- 24,696
Exercise of warrants 248,771 2,488 649,961 -- 652,449
Net loss -- -- -- (5,278,867) (5,278,867)
- ------------------------------------------------------------------------------------------------------------
Balance at March 31, 2001 26,628,950 266,289 166,583,684 (135,958,808) 30,891,165
- ------------------------------------------------------------------------------------------------------------
Exercise of stock options 13,800 138 13,970 -- 14,108
Net loss -- -- -- (4,460,617) (4,460,617)
- ------------------------------------------------------------------------------------------------------------
Balance at March 31, 2002 26,642,750 266,427 166,597,654 (140,419,425) 26,444,656
- ------------------------------------------------------------------------------------------------------------
Issuance of common stock for
payment of license 696,223 6,963 2,569,063 -- 2,576,026
Compensation expense related to
issuance of stock options to
employees 66,258 66,258
Net loss -- -- -- (4,537,072) (4,537,072)
- ------------------------------------------------------------------------------------------------------------
Balance at March 31, 2003 27,338,973 $ 273,390 $ 169,232,975 ($144,956,497) $ 24,549,868
- ------------------------------------------------------------------------------------------------------------
See accompanying notes.
F-6
REPLIGEN CORPORATION
STATEMENTS OF CASH FLOWS
Years Ended March 31,
2003 2002 2001
--------------------------------------------
Cash flows from operating activities:
Net loss $ (4,537,072) $ (4,460,617) $ (5,278,867)
Adjustments to reconcile net loss to net cash
used in operating activities --
Depreciation and amortization 802,228 257,537 276,852
Common stock warrants issued for payment for
services -- -- 218,735
Compensation expense related to issuance of
stock options to employees 66,258 -- --
Bad debt reserve 25,000 -- --
Common stock issued for payment of patent
acquisition -- -- 183,750
Changes in assets and liabilities:
Accounts receivable (66,640) (422,101) 404,078
Inventories 26,167 (281,368) (87,276)
Prepaid expenses and other current assets 99,740 (352,057) (28,598)
Other assets (1,250,000) 56,882 24,500
Accounts payable (439,404) 19,306 104,350
Accrued expenses 16,033 428,246 (44,610)
------------ ------------ ------------
Net cash used in operating activities (5,257,690) (4,754,172) (4,227,086)
------------ ------------ ------------
Cash flows from investing activities:
Purchases of marketable securities (8,329,507) (22,801,063) (50,328,259)
Redemptions of marketable securities 11,782,578 20,881,667 45,000,000
Decrease/(Increase) in restricted cash 300,000 (500,000) --
Purchases of property, plant and equipment (1,083,571) (307,971) (184,721)
------------ ------------ ------------
Net cash provided by (used in) investing
activities 2,669,500 (2,727,367) (5,512,980)
------------ ------------ ------------
Cash flows from financing activities:
Exercise of warrants -- -- 652,449
Exercise of stock options -- 14,108 24,696
------------ ------------ ------------
Net cash provided by financing activities -- 14,108 677,145
------------ ------------ ------------
Net decrease in cash and cash equivalents (2,588,190) (7,467,431) (9,062,921)
Cash, beginning of year 8,696,194 16,163,625 25,226,546
------------ ------------ ------------
Cash, end of year $ 6,108,004 $ 8,696,194 $ 16,163,625
============ ============ ============
Supplemental disclosure of noncash activities:
Common stock issued for payment of license $ 2,576,025 $ -- $ --
Purchases of leasehold improvements $ -- $ 962,383 $ --
See accompanying notes.
F-7
REPLIGEN CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. Organization and Nature of Business
Repligen Corporation ("Repligen," "Company," "we," "us" or "our") is
engaged in the development of new products for profound pediatric developmental
disorders. Our therapeutic product candidates are secretin for autism and
schizophrenia, CTLA4-Ig for autoimmune disorders and uridine for neurologic and
metabolic diseases. These products are synthetic forms of naturally-occurring
substances which may correct improperly regulated biological processes with
minimal toxicity or side-effects. Our product candidates have the potential to
produce clinical benefits not attainable with any existing drug in diseases for
which there are few alternative therapies or treatments.
Our business strategy is to partially fund the development of our
proprietary therapeutic products with the profits derived from the sales of our
specialty pharmaceutical products: Protein A and SecreFlo(TM). This will enable
us to independently advance our proprietary drug development programs while at
the same time minimizing our operating losses. We may also seek corporate
partners for development or marketing of our therapeutic product candidates.
The Company is subject to a number of risks typically associated with
companies in the biotechnology industry. Principally those risks associated with
the Company's dependence on collaborative arrangements, development by the
Company or its competitors of new technological innovations, dependence on key
personnel, protection of proprietary technology, compliance with the U.S. Food
and Drug Administration and other governmental regulations and approval
requirements, as well as the ability to grow the Company's business and
obtaining adequate funding to fund this growth.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Reclassifications
The Company has reclassified certain prior-year information to conform to
the current year's presentation.
Revenue Recognition
F-8
The Company applies Staff Accounting Bulletin No. 101, "Revenue
Recognition" (SAB 101) to its revenue arrangements. The Company generates
product revenues from the sale of its Protein A products to customers in the
pharmaceutical and process chromatography industries, and from the sale of
SecreFlo(TM), the first synthetic version of the hormone secretin, to
hospital-based gastroenterologists. In accordance with SAB 101, the Company
recognizes revenue related to product sales upon shipment of the product to the
customer as long as there is persuasive evidence of an arrangement, the fee is
fixed or determinable and collection of the related receivable is probable.
License and research revenue derived from collaborative arrangements is
recognized as earned under cost plus fixed-fee contracts, or on a straight-line
basis over the term of contract, which approximates when work is performed and
costs are incurred. Research expenses in the accompanying statements of
operations include funded and unfunded expenses. In addition, under certain
contracts, the Company recognizes research and development milestones as they
are achieved assuming the milestone is deemed to be substantive.
Comprehensive Income
The Company applies Statement of Financial Accounting Standards (SFAS) No.
130, "Reporting Comprehensive Income." SFAS No. 130 requires disclosure of all
components of comprehensive income on an annual and interim basis. Comprehensive
income is defined as the change in equity of a business enterprise during a
period from transactions and other events and circumstances from nonowner
sources. The Company's comprehensive loss is equal to its reported net loss for
all periods presented.
Cash & Marketable Securities
The Company applies SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." At March 31, 2003, the Company's cash equivalents
and marketable securities are classified as held-to-maturity investments as the
Company has the positive intent and ability to hold to maturity. As a result,
these investments are recorded at amortized cost. Marketable securities are
investments with original maturities of greater than 90 days. Long-term
marketable securities are investment grade securities with maturities of greater
than one year. The Company recognized a realized gain of $5,558 during the year
ended March 31, 2002 on sales of its marketable securities.
Cash and marketable securities consist of the following at March 31, 2003
and 2002:
Unrealized Holding
Gain (Loss)
Years Ended March 31, Years Ended March 31,
2003 2002 2003 2002
-----------------------------------------------------
Cash $ 6,108,004 $ 8,696,194 -- --
----------- ----------- ----------- -----------
Marketable securities
U.S. Government and agency securities $ 715,459 $ 1,414,994 $ 252 $ (774)
Corporate and other debt securities $ 8,701,765 $10,728,176 $ 23,774 $ 51,610
----------- ----------- ----------- -----------
(Average of remaining maturity of
approximately 4 months at March 31, 2003) $ 9,417,224 $12,143,170 $ 24,026 $ 50,836
=========== =========== =========== ===========
F-9
Long-term marketable securities
U.S. Government and agency securities $ 1,101,265 $ -- $ 2,598 $ --
Corporate and other debt securities $ 2,082,463 $ 3,910,852 $ 3,628 $ (9,334)
----------- ----------- ----------- -----------
(Average of remaining maturity of
approximately 14 months at March 31, 2003) $ 3,183,727 $ 3,910,852 $ 6,226 $ (9,334)
=========== =========== =========== ===========
Restricted cash of $200,000 is related to the Company's facility lease
obligation (see note 5).
Fair Value of Financial Instruments
The carrying amounts of the Company's financial instruments which
represent cash and cash equivalents, marketable securities, accounts receivable
and accounts payable generally approximate fair value due to the short-term
nature of these instruments.
Concentrations of Credit Risk and Significant Customers
Financial instruments that subject the Company to significant
concentrations of credit risk primarily consist of cash and cash equivalents,
marketable securities and accounts receivable. The Company's cash equivalents
and marketable securities are invested in financial instruments with high credit
ratings. At March 31, 2003, the Company has no items such as those associated
with foreign exchange contracts, options contracts or other foreign hedging
arrangements.
Concentration of credit risk with respect to accounts receivable is
limited to customers to whom the Company makes significant sales. The Company
maintains reserves for the potential write-off of accounts receivable. To date,
the Company has not written off any significant accounts. To control credit
risk, the Company performs regular credit evaluations of its customers'
financial condition and maintains allowances for potential credit losses.
Revenue from significant customers as a percentage of the Company's total
revenue is as follows:
Years Ended March 31,
2003 2002 2001
-----------------------------
Customer A 43% 56% 42%
Customer B 23% 23% 19%
Significant accounts receivable balances as a percentage of the Company's
total trade accounts receivable balances are as follows:
As of March 31,
2003 2002
-----------------
Customer A 65% 69%
Customer B --% 24%
Customer C 10% --
F-10
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, 2003 and 2002 consist of the following:
As of March 31,
2003 2002
---- ----
Raw materials ...... $114,130 $182,117
Work-in process .... 303,631 470,823
Finished goods ..... 472,163 263,151
-------- --------
Total ........... $889,924 $916,091
======== ========
Depreciation and Amortization
Depreciation and amortization are calculated using the straight-line
method over the estimated useful life of the asset as follows:
Description Estimated Useful Life
----------- ---------------------
Leasehold improvements Shorter of term of the lease or estimated useful life
Equipment 3-5 years
Furniture and fixtures 5-7 years
The Company recorded depreciation expense and amortization of $292,096,
$257,537 and $276,852 in 2003, 2002 and 2001, respectively.
Earnings Per Share
The Company applies SFAS No. 128, "Earnings per Share." SFAS No. 128
establishes standards for computing and presenting earnings per share. Basic net
loss per share represents net loss divided by the weighted average number of
common shares outstanding during the period. The dilutive effect of potential
common shares, consisting of outstanding stock options and warrants, is
determined using the treasury stock method in accordance with SFAS No. 128.
Diluted weighted average shares outstanding for 2003, 2002 and 2001 do not
include the potential common shares from warrants and stock options because to
do so would have been antidilutive. Accordingly, basic and diluted net loss per
share is the same. The number of potential common shares excluded from the
calculation of diluted earnings per share during the years ended March 31, 2003,
2002 and 2001 was 2,344,996, 2,106,846, and 1,904,387 shares, respectively.
Segment Reporting
The Company applies SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 establishes standards for
reporting information regarding operating segments in annual financial
statements and requires selected information for those segments to be presented
in interim financial reports issued to stockholders. SFAS No. 131 also
F-11
establishes standards for related disclosures about products and services and
geographic areas. The chief operating decision maker, or decision-making group,
in making decisions how to allocate resources and assess performance, identifies
operating segments as components of an enterprise about which separate discrete
financial information is available for evaluation. To date, the Company has
viewed its operations and manages its business as one operating segment. As a
result, the financial information disclosed herein represents all of the
material financial information related to the Company's principal operating
segment.
The following table represents the Company's revenue by geographic area
(based on the location of the customer):
Year Ended March 31,
2003 2002 2001
---- ---- ----
Europe 53% 63% 42%
United States 46% 35% 56%
Other 1% 2% 2%
---- ---- ----
Total 100% 100% 100%
==== ==== ====
As of March 31, 2003 and 2002, all of the Company's assets are located in
the United States.
Recent Accounting Pronouncements
In July 2002, the FASB issued SFAS 146, "Accounting for Cost Associated
with Exit or Disposal Activities". SFAS 146 requires companies to recognize
costs associated with exit or disposal activities when they are incurred rather
than at the date of a commitment to an exit or disposal plan and nullifies
Emerging Issues Task Force Issue No. 94-3 "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit and Activity (including
Certain Costs Incurred in a Restructuring)". SFAS 146 is to be applied
prospectively to exit or disposal activities initiated after December 31, 2002.
The Company does not believe the adoption of this standard will have a
significant impact on the Company's financial position or results of operations.
In December 2002, the FASB issued Statement of Financial Accounting
Standards (SFAS) No. 148, "Accounting for Stock-Based Compensation -- Transition
and Disclosure", which amends SFAS 123, "Accounting for Stock-Based
Compensation". In response to a growing number of companies announcing plans to
record expenses for the fair value of stock options, SFAS 148 provides
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In addition, SFAS
148 amends the disclosure requirements of FAS 123 to require more prominent and
more frequent disclosures in financial statements about the effects of
stock-based compensation. The amendments to Statement 123 in paragraphs
2(a)-2(e) of this Statement were effective for the current fiscal year. The
Company believes that the adoption of this statement has not resulted in a
significant impact on its financial position or results of operations.
F-12
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." This
Statement establishes standards for how an issuer classifies and measures in its
statement of financial position certain financial instruments with
characteristics of both liabilities and equity. It requires that an issuer
classify a financial instrument that is within its scope as a liability (or an
asset in some circumstances) because that financial instrument embodies an
obligation of the issuer. This Statement is effective for financial instruments
entered into or modified after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003, except for
mandatorily redeemable financial instruments of nonpublic entities. The Company
does not expect that the adoption of this standard will have a significant
impact on its financial position or results of operation.
Stock Based Compensation
The Company accounts for its stock-based compensation under SFAS No. 123
"Accounting for Stock-Based Compensation." The Company continues to apply APB
No. 25 for employee stock options awards and elected the disclosure-only
alternative for the same under SFAS No. 123.
The Company has computed the pro forma disclosures required under SFAS
Nos. 123 and 148 for all stock options granted to employees in 2003, 2002 and
2001 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, 2003, 2002 and 2001 are as follows:
Years Ended March 31,
2003 2002 2001
---------------------------------------------
Risk-free interest rates 1.16%-5.02% 4.31%-5.06% 5.28%-6.33%
Expected dividend yield -- -- --
Expected lives 7 years 7 years 7 years
Expected volatility 91% 101% 108%
Weighted average grant date fair value of options
granted during the period $2.57 $2.21 $5.78
Weighted average remaining contractual life of
options outstanding 5.9 years 6.1 years 6.6 years
If compensation expense for the Company's stock option plans had been
determined consistent with SFAS No. 123, the pro forma net loss and net loss per
share would have been as follows:
F-13
Years Ended March 31,
2003 2002 2001
---- ---- ----
Net Loss as reported $(4,537,072) $(4,460,617) $(5,278,867)
Add: Stock-based employee compensation expense included
in reported net loss 66,258 -- --
Deduct: Stock-based employee compensation
expense determined under fair value based
method for all employee awards (687,908) (745,797) (402,444)
----------- ----------- -----------
Pro forma net loss $(5,158,722) $(5,206,414) $(5,681,311)
=========== =========== ===========
Basic and diluted net loss per share:
As reported (.17) (.17) (.20)
Pro forma $ (.19) $ (.20) $ (.21)
Impairment of Long-Lived Assets
Effective April 1, 2002, the Company adopted Financial Accounting
Standards Board (FASB) SFAS No. 144, "Accounting for the Impairment or Disposal
of Long-Lived Assets," which supersedes SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
This new statement also supersedes certain aspects of Accounting Principles
Board Opinion No. 30 (APB 30), "Reporting the Results of Operations-Reporting
the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transaction," with regard to reporting the
effects of a disposal of a segment of a business and requires expected future
operating losses from discontinued operations to be reported in the period
incurred (rather than as of the measurement dates as formerly required by APB
30). The provisions of this statement are required to be applied for fiscal
years beginning after December 15, 2001 and interim periods within those fiscal
years. At March 31, 2003, in accordance with the provisions of SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets," we performed
an impairment analysis of this intangible asset in order to determine if an
impairment loss existed and should be recognized. The impairment analysis
consisted of an evaluation of the expected cash flows from the sale of
SecreFlo(TM) over the term of the license and also included various assumptions
and estimates concerning selling price, cost and volume of unit sales. We
concluded that there was no impairment loss as of March 31, 2003. We believe
that our assumptions and estimates are reasonable, however, actual results could
differ from these estimates.
3. Income Taxes
The Company accounts for income taxes under SFAS No. 109, "Accounting for
Income Taxes." At March 31, 2003, the Company had net operating loss
carryforwards for income tax purposes of approximately $122,438,000. The Company
also had available tax credit carryforwards of approximately $7,161,000 at March
31, 2003 to reduce future federal income taxes, if any. The net operating loss
and tax credit carryforwards will expire at various dates, beginning in 2004.
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.
Deferred tax assets consist of the following:
Years Ended March 31,
2003 2002
---- ----
Temporary differences ................ $ 6,216,000 $ 5,375,000
Operating loss carryforwards ......... 48,975,000 45,708,000
Tax credit carryforwards ............. 7,161,000 7,192,000
------------ ------------
62,352,000 58,275,000
Valuation allowance .................. (62,352,000) (58,275,000)
------------ ------------
$ -- $ --
============ ============
F-14
A full valuation allowance has been provided, as it is uncertain if the
Company will realize its deferred tax asset.
4. Stockholders' Equity
(a) Common Stock & Warrants
On October 4, 2002, Repligen Corporation issued 696,223 shares of common
stock to ChiRhoClin, Inc. ("CRC") in connection with the FDA's approval of
SecreFloTM, its secretin for injection product. The issuance of the shares was a
milestone payment in consideration of CRC's success in obtaining FDA approval to
market secretin for injection. Pursuant to the Licensing Agreement, CRC has
granted Repligen exclusive worldwide rights to market SecreFlo(TM), secretin for
injection.
On July 24, 2000, Repligen issued to a third party a warrant to purchase
50,000 shares of common stock at $7.125 per share exercisable through July 2003
in partial consideration for a licensing agreement entered into with such third
party. The Company recorded the value of this warrant, as determined using
Black-Scholes option pricing model, as research and development expense. As of
March 31, 2003 the warrant was still outstanding and no warrants had been
exercised.
On May 10, 2000, pursuant to a patent purchase agreement, Repligen issued
to Tolerance Therapeutics LLC ("Tolerance"), in partial consideration for the
assignment by Tolerance to Repligen of a U.S. patent application claiming the
use of CTLA4-Ig in treatment of diseases of the immune system, 30,000 shares of
Repligen common stock. The Company recorded the value of these shares as
research and development expense. During fiscal 2002, the Company elected not to
make its final payment and as a result its interest in these assets was returned
to Tolerance.
On March 9, 2000, Repligen sold an aggregate of 2,598,927 shares of common
stock to investors at $8.625 per share for an aggregate consideration of $22.4
million in a private placement. Repligen engaged Paramount Capital, Inc.
("Paramount") to act as placement agent for this transaction. For this
transaction, Repligen paid Paramount approximately $1.57 million for its
services, plus related transactional expenses, and issued to Paramount warrants
to purchase up to 129,946 shares of common stock at $9.49 per share, exercisable
through March 2005. As of March 31, 2003, this warrant remains outstanding.
In connection with a financial advisory agreement in May 2000, the Company
issued warrants to purchase an aggregate of 100,000 shares of common stock. Each
warrant is exercisable at $2.75 per share at any time prior to July 15, 2004. As
of March 31, 2003, these warrants remain outstanding.
F-15
Also pursuant to a patent purchase agreement executed in 1999 the Company
issued a warrant to purchase 350,000 shares of common stock with an exercise
price of $1.59 per share which expires in March 2004. As of March 31, 2003,
225,000 of the common shares underlying the warrant have been issued and 125,000
shares remain eligible to be exercised.
At March 31, 2003, common stock reserved for issuance is as follows:
Reserved for Shares
Incentive and nonqualified stock option plans 3,240,819
Warrants granted in connection with the Patent Purchase Agreement 125,000
Warrants granted in connection with the Licensing Agreement 50,000
Warrants granted for payment of services 229,946
---------
3,645,765
=========
(b) Stock Options
The Company's 2001 stock option plan authorizes 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, 2003, the Company had 1,300,769 options available
for future grant.
A summary of stock option activity under all plans is as follows:
Years Ended March 31,
2003 2002 2001
Range of Weighted Range of Weighted Range of Weighted
Number of Exercise Average Number of Exercise Average Number of Exercise Average
Shares Prices Price per Shares Prices Price per Shares Prices Price per
Share Share Share
------ ------ --------- ------ ------ --------- ------ ------ ---------
Outstanding
at beginning
of period 1,701,900 $.50-$12.45 $ 2.64 1,479,441 $.50-$12.45 $ 2.64 1,288,041 $.50-$12.45 $ 1.81
Granted 281,650 $.01-$3.47 2.88 276,900 $2.35-$2.60 2.60 258,400 $4.13-$8.56 6.59
Exercised -- -- -- (13,800) $.50-$1.53 1.01 (34,200) $.50-$1.37 0.72
Forfeited (43,500) $2.29-$12.45 8.36 (40,641) $1.03-$7.19 2.62 (32,800) $1.25-$7.17 3.73
--------- ---------- --------- ---------- --------- ----------
Outstanding
at end of
period 1,940,050 $.01-$8.56 $ 2.55 1,701,900 $.50-$12.45 $ 2.64 1,479,441 $.50-$12.45 $ 2.64
--------- ---------- --------- ---------- --------- ----------
Exercisable
at end of
period 1,360,130 $.01-$8.56 $ 2.10 1,115,900 $.50-$12.45 $ 2.25 894,941 $.50-$12.45 $ 1.92
========= ========== ========= ========== ========= ==========
F-16
As of March 31, 2003
Options Outstanding Options Exercisable
Weighted Weighted Weighted
Average Average Average
Number Remaining Exercise Price Number Exercise Price
Outstanding Contractual Life Per Share Outstanding Per Share
----------- ---------------- --------- ----------- ---------
$.01-$1.38 403,150 3.32 $1.10 399,150 $1.09
$1.41-$1.63 572,000 4.86 $1.43 571,400 $1.43
$2.29-$3.00 496,900 6.62 $2.64 238,780 $2.65
$3.13-$6.56 330,000 8.02 $3.78 71,600 $4.57
$7.19-$8.56 138,000 7.20 $8.15 79,200 $7.99
- ------------------------------------------------------------------------------------------------
1,940,050 5.70 $2.55 1,360,130 $2.10
--------- ---- ----- --------- -----
(c) Shareholder Rights Plan
In March 2003, the Company adopted a Rights Agreement (the "Rights
Agreement"). Under the Rights Agreement, the Company distributed certain rights
to acquire shares of the Company's Series A junior participating preferred stock
(the "Rights") as a dividend for each share of Common Stock held of record as of
March 17, 2003. Each share of Common Stock issued after the March 17, 2003
record date has an attached Right. Under certain conditions involving an
acquisition by any person or group of 15% or more of the Common Stock, each
Right permits the holder (other than the 15% holder) to purchase Common Stock
having a value equal to twice the exercise price of the Right, upon payment of
the exercise price of the Right. In addition, in the event of certain business
combinations after an acquisition by a person or group of 15% or more of the
Common Stock (20% in the case of a certain stockholder), each Right entitles the
holder (other than the 15% holder) to receive, upon payment of the exercise
price, Common Stock having a value equal to twice the exercise price of the
Right. The Rights have no voting privileges and, unless and until they become
exercisable, are attached to, and automatically trade with, the Company's Common
Stock. The Rights will terminate upon the earlier of the date of their
redemption or March 2013.
5. Commitments
In October 2001, the Company leased, pursuant to a ten-year lease
agreement, a new corporate headquarters in Waltham, Massachusetts. The Company
anticipates that this new facility will increase operating efficiencies and
manufacturing capacity to meet the growing demand for its Protein A products,
and to better meet corporate goals and objectives. The Company relocated to this
facility in May 2002. In connection with this lease agreement, the Company
issued a letter of credit in the amount of $500,000 to its landlord. In October
2002, this letter of credit was reduced to $200,000. The letter of credit is
collateralized by a certificate of deposit held by the bank that issued the
letter of credit. The certificate of deposit is classified as restricted cash in
the accompanying balance sheet as of March 31, 2003.
Obligations under noncancellable operating leases, including the new
facility lease discussed above, as of March 31, 2003 are approximately as
follows:
F-17
Years Ending March 31,
----------------------
2004 ........................... 330,000
2005 ........................... 379,000
2006 ........................... 379,000
2007 ........................... 379,000
2008 ........................... 404,000
Thereafter ..................... 1,689,000
----------
Minimum lease payments ......... $3,560,000
==========
Rent expense charged to operations under operating leases was
approximately $372,000, $308,000, and $377,000 for the years ended March 31,
2003, 2002 and 2001, respectively.
6. Certain Technologies and Product Candidates
In April 2002, the United States Food and Drug Administration granted
approval to market SecreFlo(TM) (synthetic porcine secretin), the first
synthetic version of the hormone secretin. SecreFlo(TM) has been approved for
stimulation of pancreatic secretions to aid in the diagnosis of pancreatic
exocrine dysfunction, or chronic pancreatitis, stimulation of gastrin secretion
to aid in the diagnosis of gastrinoma, a gastrointestinal tumor and to aid
during a gastrointestinal procedure called Endoscopic Retrograde
Cholangiopancreatography (ERCP). Under the terms of its licensing agreement with
ChiRhoClin, Inc. (CRC), Repligen made a milestone payment to CRC during April
2002 of $1,250,000 in cash. The Company also issued 696,223 shares of its
unregistered common stock to CRC in October 2002 related to the same milestone.
During the quarter ended June 30, 2002, the Company recorded the fair value of
these shares, $2,576,025, and the cash of $1,250,000, as a long-term intangible
asset. Beginning in April 2002, this amount will be amortized to cost of revenue
over the remaining term of the license, approximately seven years. The Company
amortized $510,132 for the year ended March 31, 2003. In addition, under the
terms of the licensing agreement with ChiRhoClin, if the FDA approves the NDA
for human secretin diagnostic, we will be required to pay ChiRhoClin future
milestones in cash. We will also be required to pay royalties on sales of both
synthetic porcine and human products.
In December 2000, the Company purchased from the University of California,
San Diego ("UCSD") a right to a U.S. patent application covering novel methods
for the treatment of mitochondrial disease. Under terms of the agreement,
Repligen received the exclusive right under the license to commercialize
products to treat mitochondrial disease and paid UCSD an up-front fee. Repligen
will also pay UCSD clinical development milestones and royalties on product
sales. The Company has expensed the purchase price as research and development
expense as the realizability of the patent is subject to the outcome of
additional research and development and the successful prosecution of the
patent. (See Note 12)
In May 2000, the Company purchased from Tolerance Therapeutics LLC the
rights to a U.S. patent application claiming the use of CTLA4-Ig in the
treatment of diseases of the immune system. Under terms of the agreement, the
Company paid cash and issued stock for the purchase. The Company has expensed
the purchase price as research and development expense as the realizability of
the patent is subject to the outcome of additional research and development and
the successful prosecution of the patent.
F-18
In October 1999, the Company acquired the commercial rights to two
diagnostic products based on synthetic forms of porcine and human secretin from
ChiRhoClin, Inc. a private company. Both of these products have been evaluated
in clinical trials for their safety and efficacy in diagnosing pancreatic
function and gastrinoma. A New Drug Application ("NDA") for each product has
been filed with the United States Food and Drug Administration ("FDA"). In April
2002, the FDA approved the use of synthetic porcine secretin ("SecreFlo(TM)") to
aid in the diagnosis of pancreatic function and the diagnosis of gastrinoma, a
form of cancer. In November 2002, the FDA approved the use of SecreFlo(TM) to
aid in a gastrointestinal procedure called ERCP. In December of 2001, the FDA
issued an "approvable letter" for a synthetic form of human secretin which
contained questions concerning the manufacture and quality control of the
product.
7. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following:
As of March 31,
------------------
2003 2002
------------------
Clinical Trial Expenses $225,238 $400,820
Marketing Expenses 52,500 2,500
Prepaid Insurance 145,960 70,708
Equipment and Services 89,204 88,399
Other 9,667 59,882
-------- --------
$522,569 $622,309
======== ========
8. Accrued Expenses
Accrued expenses consist of the following:
As of March 31,
2003 2002
----------------------
Research & development costs $ 528,323 $ 771,465
Payroll & payroll related costs 378,347 337,786
Professional and consulting costs 66,689 78,803
Other accrued expenses 301,478 70,750
---------- ----------
$1,274,837 $1,258,804
========== ==========
9. Employee Benefit Plan
The Repligen Corporation 401(k) Savings and Retirement Plan (the 401(k)
Plan) is a qualified defined contribution plan in accordance with Section 401(k)
of the Internal Revenue Code. All employees over the age of 21 who have
completed four months of service are eligible to make pre-tax contributions up
to a specified percentage of their compensation. Under the 401(k) Plan, the
Company may, but is not obligated to match a portion of the employees'
contributions up to a defined maximum. The match is calculated on a calendar
year basis. The Company matched $26,066, $13,271 and $0 for the calendar years
ended December 31, 2002, 2001, and 2000 respectively.
F-19
10. Legal Proceedings
On June 21, 2001, Pro-Neuron, Inc. filed a complaint (the "Pro-Neuron
Complaint") against the Regents of the University of California (the "Regents")
and Repligen in the Superior Court of California, County of San Diego seeking to
void the License Agreement relating to treatment of mitochondrial disease
entered into between Repligen and the University of California, San Diego
("UCSD") in December 2000 (the "UCSD License Agreement"). The Pro-Neuron
Complaint, among other things, requests that the court order the Regents to
assign all rights licensed to Repligen pursuant to the UCSD License Agreement to
Pro-Neuron. Pro-Neuron subsequently amended the complaint to include claims for
misappropriation of trade secrets. The Regents and Repligen believe that the
Pro-Neuron Complaint is without merit and intend to vigorously defend their
rights. If Pro-Neuron is successful in this action, Repligen's ability to
commercialize uridine may be limited. (See Note 12)
Repligen is the exclusive licensee of all CTLA4 patent rights owned by the
University of Michigan ("the University"). Repligen and the University believe
that the University has a rightful claim to ownership of certain CTLA4 related
patents of Bristol-Myers Squibb Company ("Bristol"). Repligen and the University
filed a complaint against Bristol in the United States District Court for the
Eastern District of Michigan in August 2000 seeking a correction of
inventorship. The suit asserts that a scientist from the University made
inventive contributions as part of a collaboration with Bristol scientists and
is a rightful inventor on the patents issued to Bristol.
In March 2002, Repligen and the University jointly filed a motion for
summary judgment on their claims and Bristol filed a motion requesting that
judgment be entered against Repligen and the University. On October 17, 2002 the
court denied both motions for summary judgment, determining there are material
facts in dispute which must be resolved at a trial. However, the court granted a
separate summary judgment motion filed by Repligen and the University denying
Bristol's ability to assert the defenses of equitable estoppel and laches in
this matter. A trial began on April 2, 2003 in the United States District Court
of Eastern Michigan. To date, no judgment has been rendered. A correction of
inventorship would result in the University and Repligen having rights to some
or all of Bristol's patents on CTLA4-Ig. Repligen's failure to obtain ownership
rights in the Bristol patents may restrict Repligen's ability to commercialize
CTLA4-Ig. Repligen and the University have also filed patents related to
compositions of matter and methods of use of CTLA4-Ig. In September 2002,
Repligen was issued a U.S. patent covering the composition of the CTLA4-Ig
product form that it is developing.
An arbitration proceeding has been filed against the Company entitled,
ChiRhoClin, Inc. vs. Repligen Corporation (Arbitration No. 131810059003) on
March 14, 2003 with the American Arbitration Association in New York on March
14, 2003. ChiRhoClin, Inc. alleges a breach of contract for non-payment of
royalties due under our licensing agreement based on a dispute regarding certain
marketing expense reimbursements taken by the Company. ChiRhoClin, Inc.'s claim
is approximately $800,000. We believe these claims have no merit and will
vigorously contest these claims. This arbitration is at an early stage and has
been stayed pending the outcome of settlement discussions between the parties.
F-20
From time to time, we may be subject to other legal proceedings and claims
in the ordinary course of business. We are not currently aware of any such
proceedings or claims that we believe will have, individually or in the
aggregate, a material adverse effect on our business, financial condition or
results of operations.
11. Subsequent Event
On May 2, 2003, a certain investor purchased approximately $12.5 million
of the Company's common stock through a private placement of 2,500,000 shares.
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. Repligen received net proceeds
of approximately $11.8 million after deducting the estimated expenses of the
transaction.
12. Settlement
On June 4, 2003 Repligen, the Regents and Pro-Neuron entered into a
binding term sheet for settlement (the "Settlement") under which the Pro-Neuron
complaint will be dismissed upon execution of definitive agreements between the
parties. Under the terms of the Settlement, Repligen will receive $750,000.
Repligen and the Regents agreed to restructure the UCSD License Agreements to
exclude the field of acylated pyrimidines, including triacetyluridine ("TAU").
Repligen will discontinue its clinical trial of TAU in mitochondrial disease and
will continue its clinical trials of TAU in bipolar disorders/major depression
and purine autism for up to two years. Repligen will assign to Pro-Neuron any
inventions from these trials, for which it has rights, involving the use of
acylated pyrimidines, but will retain the rights to any inventions for all other
chemical entities. Repligen may still direct future clinical trials and product
development efforts to prodrugs or derivatives of uridine which are not acylated
pyrimidines.
13. Selected Quarterly Financial Data (Unaudited)
The following table contains Statement of Operations information for each
quarter of fiscal 2003 and 2002. The Company believes that the following
information reflects all normal recurring adjustments necessary for a fair
presentation of the information for the periods presented. The operating results
for any quarter are not necessarily indicative of results for any future period.
F-21
(in thousands, except per share amounts)
Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1
FY03 FY03 FY03 FY03 FY02 FY02 FY02 FY02
---- ---- ---- ---- ---- ---- ---- ----
Revenue:
Product revenue $ 2,018 2,417 $ 1,688 $ 1,620 $ 1,522 $ 1,180 $ 887 $ 713
Research revenue 29 -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Total revenue 2,047 2,417 1,688 1,620 1,522 1,180 887 713
-------- -------- -------- -------- -------- -------- -------- --------
Cost of revenue 1,008 1,141 662 670 496 585 555 357
-------- -------- -------- -------- -------- -------- -------- --------
Gross profit 1,039 1,276 1,026 950 1,026 595 332 356
-------- -------- -------- -------- -------- -------- -------- --------
Costs and expenses:
Research and development 1,381 1,363 1,255 1,228 1,583 1,021 1,330 1,426
Selling, general and administrative 1,448 819 1,010 882 578 650 681 617
-------- -------- -------- -------- -------- -------- -------- --------
Total operating expenses 2,829 2,182 2,265 2,110 2,161 1,671 2,011 2,043
-------- -------- -------- -------- -------- -------- -------- --------
Loss from operations (1,790) (906) (1,239) (1,160) (1,135) (1,076) (1,679) (1,687)
-------- -------- -------- -------- -------- -------- -------- --------
Investment income 93 140 156 169 212 259 302 344
-------- -------- -------- -------- -------- -------- -------- --------
Net loss $ (1,697) $ (766) $ (1,083) $ (991) $ (923) $ (817) $ (1,377) $ (1,343)
======== ======== ======== ======== ======== ======== ======== ========
Net loss per common share $ (0.06) $ (0.03) $ (0.04) $ (0.04) $ (0.03) $ (0.03) $ (0.05) $ (0.05)
Weighted average common
shares outstanding 27,339 27,316 26,643 26,643 26,643 26,642 26,639 26,633
======== ======== ======== ======== ======== ======== ======== ========
14. Valuation and Qualifying Accounts
Balance at
Beginning of Balance at End
Period Additions Deletions of Period
------ --------- --------- ---------
Allowance for Doubtful Accounts:
2001 $25,000 -- -- $25,000
2002 $25,000 -- -- $25,000
2003 $25,000 $25,000 -- $50,000
F-22