SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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, Bldg. 1, Suite 100
Waltham, MA 02453
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (781) 250-0111
------------------------------------------------------------------
(Former name, former address and former fiscal year, if
changed since last report.)
Indicate by check mark 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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X|
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of August 12, 2003.
Common Stock, par value $.01 per share 29,859,173
Class Number of Shares
REPLIGEN CORPORATION
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements (Unaudited)
Balance Sheets as of June 30, 2003 and March 31, 2003 3
Statements of Operations for the Three Months Ended
June 30, 2003 and 2002 4
Statements of Cash Flows for the Three Months
Ended June 30, 2003 and 2002 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
Item 4. Controls and Procedures 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 17
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K 18
Signature 19
Exhibit Index 20
Certification 27
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
REPLIGEN CORPORATION
BALANCE SHEETS
ASSETS June 30, March 31,
2003 2003
---- ----
Current assets:
Cash and cash equivalents $ 15,249,180 $ 6,108,004
Marketable securities 12,837,198 9,417,224
Accounts receivable, net 899,940 907,501
Inventories 698,009 889,924
Prepaid expenses and other current assets 370,094 522,569
------------- -------------
Total current assets 30,054,421 17,845,222
------------- -------------
Property, plant and equipment, at cost:
Leasehold improvements 2,589,150 2,585,152
Equipment 1,406,785 1,317,086
Furniture and fixtures 368,020 360,003
------------- -------------
4,363,955 4,262,241
Less: accumulated depreciation and amortization (2,108,663) (2,013,828)
------------- -------------
2,255,292 2,248,413
Long-term marketable securities 1,108,260 3,183,727
Restricted cash 200,000 200,000
Other assets 3,188,362 3,315,894
------------- -------------
Total assets $ 36,806,335 $ 29,793,256
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 376,382 $ 968,551
Accrued expenses 1,974,483 1,274,837
Unearned revenue 22,838 --
------------- -------------
Total current liabilities 2,373,703 2,243,388
------------- -------------
Stockholders' equity:
Preferred stock, $.01 par value -
authorized, 5,000,000 shares,-- outstanding, none -- --
Common stock, $.01 par value-
authorized, 40,000,000 shares, -- outstanding,
29,857,073 shares at June 30, 2003 and 27,338,973
shares at March 31, 2003 298,571 273,390
Additional paid-in capital 181,187,160 169,232,975
Deferred compensation (68,750) --
Accumulated deficit (146,984,349) (144,956,497)
------------- -------------
Total stockholders' equity 34,432,632 24,549,868
------------- -------------
Total liabilities and stockholders' equity $ 36,806,335 $ 26,793,256
============= =============
See accompanying notes.
3
REPLIGEN CORPORATION
STATEMENTS OF OPERATIONS
Three months ended
June 30,
2003 2002
----------------------------
Revenue
Product revenue $ 2,042,528 $ 1,619,442
Licensing and research revenue 18,433 --
------------ ------------
Total revenue 2,060,961 1,619,442
Cost of revenue 855,590 669,646
------------ ------------
Gross profit 1,205,371 949,796
Operating expenses:
Research and development 1,428,674 1,227,257
Selling, general and administrative 1,902,677 882,257
------------ ------------
Total operating expenses 3,331,351 2,109,514
Loss from operations (2,125,980) (1,159,718)
------------ ------------
Investment and interest income 98,128 168,579
------------ ------------
Net loss $ (2,027,852) $ (991,139)
============ ============
Basic and diluted net loss per share $ (.07) $ (.04)
============ ============
Basic and diluted weighted average common
shares outstanding 28,987,443 26,642,750
============ ============
See accompanying notes.
4
REPLIGEN CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
As of June 30,
2003 2002
------------ ------------
Cash flows from operating activities:
Net loss $ (2,027,852) $ (991,139)
Adjustment to reconcile net loss to net cash
used in operating activities:
Issuance of common stock warrants for
payment for services 52,300 --
Amortization of deferred compensation 13,750 --
Depreciation and amortization 222,367 161,594
Changes in assets and liabilities:
Accounts receivable 7,561 469,216
Inventories 191,915 (112,162)
Prepaid expenses and other current assets 152,475 30,244
Other assets -- (1,250,000)
Accounts payable (687,110) (286,368)
Accrued expenses 699,646 (138,742)
Unearned revenue 22,838 --
------------ ------------
Net cash (used in) provided by operating
activities (1,352,110) (2,117,357)
------------ ------------
Cash flows from investing activities:
Purchases of marketable securities (5,883,024) (1,079,774)
Redemptions of marketable securities 4,538,517 4,101,545
Purchases of property, plant and equipment (6,773) (845,063)
------------ ------------
Net cash (used in) provided by investing
activities (1,351,280) 2,176,708
------------ ------------
Cash flows from financing activities:
Exercise of stock options 19,531 --
Proceeds from issuance of common stock
and warrants, net of issuance cost 11,825,035 --
------------ ------------
Net cash provided by (used in) financing
activities 11,844,566 --
------------ ------------
Net increase in cash 9,141,176 59,351
Cash and cash equivalents, beginning of period 6,108,004 8,696,194
------------ ------------
Cash and cash equivalents, end of period $ 15,249,180 $ 8,755,545
============ ============
Supplemental disclosure of non cash activities:
Non cash purchases of property and equipment $ 94,941 $ --
Common stock issued for payment of license $ -- $ 2,576,025
See accompanying notes.
5
REPLIGEN CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The financial statements included herein have been prepared by Repligen
Corporation (the "Company," "Repligen" or "we"), in accordance with accounting
principles generally accepted in the United States and pursuant to the rules and
regulations of the Securities and Exchange Commission for quarterly reports on
Form 10-Q and do not include all of the information and footnote disclosures
required by accounting principles generally accepted in the United States. These
financial statements should be read in conjunction with the audited financial
statements and accompanying notes thereto included in our Form 10-K for the year
ended March 31, 2003
In the opinion of management, the accompanying unaudited financial
statements include all adjustments, consisting of only normal, recurring
adjustments, necessary for a fair presentation of the financial position,
results of operations and cash flows. The results of operations for the interim
periods presented are not necessarily indicative of results to be expected for
the entire year.
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.
We have reclassified certain prior-year information to conform to the
current year's presentation.
2. Revenue Recognition
We apply Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition"
to our revenue arrangements. We generate product revenues from the sale of our
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, we recognize 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 any 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, we recognize research and development milestones as they are
achieved, assuming such milestone is deemed to be substantive.
6
3. Net Loss Per Share
We apply Statement of Financial Accounting Standard ("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 the periods presented in the accompanying financial statements
do not include the potential common shares from warrants and stock options
because to do so would have been antidilutive for the periods presented.
Accordingly, basic and diluted net loss per share is the same. At June 30, 2003,
there were outstanding options to purchase 2,125,950 shares of our common stock
at a weighted average exercise price of $2.58 per share and warrants to purchase
429,946 shares of our common stock at a weighted average exercise price of $5.11
per share not included in the calculation of earnings per share. At June 30,
2002, there were outstanding options to purchase 1,846,900 shares of our common
stock at a weighted average exercise price of $2.69 per share and warrants to
purchase 404,946 shares of our common stock at a weighted average exercise price
of $5.24 per share not included in the calculation of earnings per share.
4. Impairment of Long-Lived Assets
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 our licensing agreement with ChiRhoClin, Inc. 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 and
no events have occurred since that time that would give rise to an impairment
loss. We believe that our assumptions and estimates are reasonable. However,
actual results could differ from these estimates.
5. Recent Accounting Pronouncements
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. We do not
expect that the adoption of this Statement will have a significant impact on our
financial position or results of operations.
7
6. Stock Based Compensation
We account for stock-based compensation under SFAS No. 123 "Accounting for
Stock-Based Compensation." We continue to apply APB No. 25 for employee stock
options awards and elected the disclosure-only alternative for the same under
SFAS No. 123.
We have computed the pro forma disclosures required under SFAS Nos. 123
and 148 for all stock options granted to employees using the Black-Scholes
option-pricing model prescribed by SFAS No. 123.
If compensation expense for our stock option plan had been determined
consistent with SFAS No. 123, the pro forma net loss and net loss per share
would have been as follows:
Three months ended June 30,
2003 2002
----------- -----------
Net Loss as reported ................................................. $(2,027,852) $ (991,139)
Add: Stock-based employee compensation expense included in
reported net loss ................................................. 13,750 --
Deduct: Stock-based employee compensation expense determined
under fair value based method for all employee awards ............ (181,292) (142,937)
------------ ------------
Pro forma net loss ................................................... $(2,195,394) $(1,134,076)
=========== ===========
Basic and diluted net loss per share:
As reported .......................................................... $ (.07) $ (.04)
Pro forma ............................................................ $ (.07) $ (.04)
7. Cash, Cash Equivalents and Marketable Securities
We apply SFAS No. 115, "Accounting for Certain Investments in Debt and
equity Securities." At June 30, 2003, our cash equivalents and marketable
securities are classified as held-to-maturity, as we have the positive intent
and ability to hold to maturity. As a result, these investments are recorded at
amortized cost. Cash equivalents are short-term, highly liquid instruments with
original maturities of 90 days or less. 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. We have not realized any gains or losses on our marketable securities for
the three-month periods ending June 30, 2003 and 2002.
Cash, cash equivalents and marketable securities consist of the following:
June 30, March 31,
2003 2003
---- ----
Cash and cash equivalents
Cash $12,999,890 $ 6,108,004
Commercial paper and corporate bonds 2,249,290 --
----------- -----------
Total cash and cash equivalents $15,249,180 $ 6,108,004
=========== ===========
Marketable securities
U.S. Government and agency securities $ 1,243,755 $ 715,459
Corporate and other debt securities 11,593,443 8,701,765
----------- -----------
(Average remaining maturity, 6 months at June 30, 2003) $12,837,198 $ 9,417,224
=========== ===========
Long-term marketable securities
U.S. Government and agency securities $ 600,340 $ 1,101,264
Corporate and other debt securities 507,920 2,082,463
----------- -----------
(Average remaining maturity, 13 months $ 1,108,260 $ 3,183,727
at June 30, 2003) =========== ===========
Restricted cash of $200,000 is related to our facility lease obligation.
8
8. Inventories
Inventories are stated at the lower of cost (first in, first out) or
market and consists of the following:
June 30, March 31,
2003 2003
--------- ---------
Raw materials $ 111,123 $ 114,130
Work-in-process 144,350 303,631
Finished goods 442,536 472,163
--------- ---------
Total $ 698,009 $ 889,924
========= =========
Raw materials, work in process and finished goods inventories consist of
material, labor, outside processing costs and manufacturing overhead.
9. Comprehensive Income
We apply 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. Our comprehensive loss is equal to our
reported net loss for all periods presented.
10. Segment Reporting
We apply SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information." SFAS No. 131 establishes standards for reporting
information regarding operating segments in annual financial statements and
requires selected information for those segments to be presented in interim
financial reports issued to stockholders. SFAS No. 131 also establishes
standards for related disclosures about products and services and geographic
areas. 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, we have viewed our operations
and manage our business as principally one operating segment. As a
9
result, the financial information disclosed herein represents all of the
material financial information related to our principal operating segment.
The following table represents percentage of total revenue classified by
geographic area:
Three months ended June 30,
2003 2002
---- ----
US 55% 25%
Europe 42% 74%
Other 3% 1%
--- ---
Total 100% 100%
During the three months ended June 30, 2003 two customers each accounted
for approximately 31% and 16% of revenues, respectively. During the three months
ended June 30, 2002 two customers accounted for approximately 54% and 20% of
revenues, respectively. At June 30, 2003, two customers accounted for 34% and
27%, respectively, of accounts receivable. At June 30, 2002, two customers
accounted for 57% and 14%, respectively of accounts receivable.
11. Other Assets
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 our licensing agreement
with ChiRhoClin, Inc. (ChiRhoClin), we made a milestone payment to ChiRhoClin
during April 2002 of $1,250,000 in cash. We also issued 696,223 shares of our
unregistered common stock to ChiRhoClin in October 2002 related to the same
milestone. During the quarter ended June 30, 2002, we 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 is being amortized to cost of
revenue over the remaining term of the license, approximately seven years. We
amortized $127,532 during the quarter ended June 30, 2003. In addition, under
the terms of the licensing agreement with ChiRhoClin, if the FDA approves the
new drug application ("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.
12. Private Placement
On May 1, 2003, we issued and sold 2,500,000 shares of our common stock to
The Riverview Group, LLC for aggregate consideration of $12,500,000. As a part
of the transaction, we filed a registration statement on Form S-3 with the
Securities and Exchange Commission on June 13, 2003, covering the resale of the
shares of common stock issued in connection with this private placement. We
received net proceeds of approximately $11.8 million after deducting the
estimated expenses of the transaction.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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.
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 the Notes to 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
We apply Staff Accounting Bulletin No. 101, "Revenue Recognition" ("SAB
101") to our revenue arrangements. We generate product revenues from the sale of
our 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, we recognize revenue related to
product sales
11
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 statements of operations in Item 1
include funded and unfunded expenses. In addition, under certain contracts, we
recognize research and development milestones as they are achieved, assuming
such 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. (ChiRhoClin) we made a milestone payment to ChiRhoClin 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. 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 $127,532 during the quarter ended June 30, 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 and no events have occurred since that time that would give
rise to an impairment loss. 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 June 30, 2003 are reflective of the actual expenses incurred as of that date.
However, investors 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
Three months ended June 30, 2003 vs. June 30, 2002
Total revenue
Total revenue for the three-month periods ended June 30, 2003 and June 3,
2002, were approximately $2,061,000 and $1,619,000, respectively, an increase of
$442,000 or 27%. During
12
the three-month period ended June 30, 2003, we continued selling SecreFlo(TM), a
diagnostic product that is marketed in the U.S., to hospital based
gastroenterologists. This increase in total revenue 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 and the sales of Secreflo(TM) which
we did not sell during the corresponding three-month period in fiscal 2003.
Cost of revenue
Cost of revenue for the three-month periods ended June 30, 2003 and June
30, 2002, were approximately $856,000 and $670,000, respectively, an increase of
$186,000 or 28%. This increase is due primarily to increased costs associated
with the increase in volume of product shipments and costs associated with our
recently launched SecreFlo(TM). Gross profit for the three-month periods ended
June 30, 2003 and 2002 were $1,205,000 or 59% of total revenue and $949,000 or
59% of total revenue, respectively.
Operating expenses
Total operating expenses for the three-month periods ended June 30, 2003
and June 30, 2002, were approximately $3,331,000 and $2,109,000, respectively,
an increase of $1,222,000 or 58%.
Research and development expenses for the three-month periods ended June
30, 2003 and June 30, 2002, were approximately $1,428,000 and $1,227,000,
respectively, an increase of $201,000 or 16%. This increase is largely
attributable to an increase in personnel costs and clinical trial expenses
during the three-month period ended June 30, 2003.
Selling, general and administrative expenses (SG&A) for the three-month
periods ended June 30, 2003 and June 30, 2002, were approximately $1,903,000 and
$882,000 respectively, an increase of $1,021,000 or 116%. This increase is
largely attributable to litigation expenses and marketing expenses for our
Secreflo(TM) product.
Investment and interest income
Investment income for the three-month periods ended June 30, 2003 and June
30, 2002, were approximately $98,000 and $169,000, respectively, a decrease of
$71,000 or 42%. This decrease is attributable to lower interest rates during the
three months ended June 30, 2003 as compared to the corresponding three-month
period in 2002. We expect investment income to vary based on changes in the
amount of funds invested and fluctuation of interest rates.
Liquidity and capital resources
We have financed our operations primarily through private placements of
our common stock and revenues derived from product sales, collaborative research
agreements, government grants, and payments received pursuant to licensing and
royalty agreements. Total cash, cash equivalents and marketable securities at
June 30, 2003 totaled $29,395,000, an increase of $10,486,000 from $18,909,000
at March 31, 2003.
Our operating activities used approximately $1,352,000 of cash for the
three-month period ended June 30, 2003, consisting of a net loss from operations
of approximately
13
$2,028,000 and a decrease in accounts payable of $687,000. These uses of cash
were offset by non-cash charges of $222,000 for depreciation and amortization, a
decrease in inventories of $192,000, a decrease in prepaid expenses of $152,000,
and an increase in accrued expenses of $700,000. Our cash was reduced by capital
expenditures of $7,000 for the three-month period ended June 30, 2003.
Our investing activities used cash of approximately $1,351,000 primarily
for purchases of marketable securities. 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.
On May 1, 2003, we issued and sold 2,500,000 shares of our common stock to
The Riverview Group, LLC for aggregate consideration of $12,500,000. Repligen
received net proceeds of approximately $11.8 million after deducting the
estimated expenses of the transaction.
In connection with our 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
June 30, 2003.
During April 2002 and as required by the terms of our license agreement
with ChiRhoClin, we made a milestone payment of $1,250,000 in cash in connection
with the FDA's approval of SecreFlo(TM), our secretin for injection porcine
product. Also pursuant to such license agreement, we issued to ChiRhoClin
696,223 shares of our common stock in October 2002. We have not granted
registration rights to ChiRhoClin with respect to the shares pursuant to the
license agreement. In addition, under the terms of our license agreement with
ChiRhoClin, if the FDA approves the new drug application for the human synthetic
secretin diagnostic product, we will be required to make additional milestones
payments in cash to ChiRhoClin. We are required to pay royalties on sales of
both synthetic porcine and human secretin diagnostic products.
Working capital increased to $27,681,000 at June 30, 2003 from $15,602,000
at March 31, 2003 as a result of the sale of common stock to The Riverview
Group, LLC.
We expect to incur higher operating costs as a result of expanded research
and development costs associated with the activities associated with clinical
trials and material cost of our proprietary drug candidates. While we anticipate
that the cost of operations will increase as we continue to expand our
investment in proprietary product development, we believe we have sufficient
funding 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, there can be no assurances that we will
be able to secure such financing, or that such financing, if available, will be
on terms favorable to us.
Cautionary Statement Regarding Forward-Looking Statements
Statements in this Quarterly Report on Form 10-Q, as well as oral
statements that may be made by Repligen or by officers, directors or employees
of Repligen acting on its behalf, that are not historical facts constitute
"forward-looking statements" which are made pursuant to the safe
14
harbor provisions of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. The
forward-looking statements in this Quarterly Report on Form 10-Q do not
constitute guarantees of future performance. Investors are cautioned that
statements in this Quarterly Report on Form 10-Q which are not strictly
historical statements, including, without limitation, statements regarding
current or future financial performance, management's strategy, litigation,
plans and objectives for future operations, clinical trials and results and
product development and manufacturing plans and performance such as the
anticipated growth in the monoclonal antibody market and projected growth in
product sales, constitute forward-looking statements. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors that
could cause our actual results to be materially different from the historical
results or from any results expressed or implied by such forward-looking
statements, including, without limitation, risks associated with: the success of
current and future collaborative relationships, the success of our clinical
trials and our ability to develop and commercialize products, our ability to
obtain required regulatory approvals, our compliance with all Food and Drug
Administration regulations, our ability to obtain, maintain and protect
intellectual property rights for our products, the risk of current and future
litigation regarding our patent and other intellectual property rights, the risk
of litigation with collaborative partners, our limited sales and marketing
experience and capabilities, our limited manufacturing capabilities and our
dependence on third-party manufacturers and value-added resellers, our ability
to hire and retain skilled personnel, the market acceptance of our products, our
ability to compete with larger, better financed pharmaceutical and biotechnology
companies that may develop new approaches to the treatment of our targeted
diseases, our history of losses and expectation of incurring continued losses,
our ability to generate future revenues, our ability to raise additional capital
to continue our drug development programs, our volatile stock price, the effects
of our anti-takeover provisions. Further information on potential risk factors
that could affect our financial results are included in the filings made by us
from time to time with the Securities and Exchange Commission including under
the section entitled "Certain Factors That May Affect Future Results" in our
Annual Report on Form 10-K for the year ended March 31, 2003.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE 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, changes in credit quality of the issuer or otherwise.
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 (with the exception of US treasury obligations), and type of investment.
We intend to hold these investments to maturity, in accordance with our business
plans.
As of June 30, 2003, we did not have any debt arrangements that were not
reflected in our balance sheet.
15
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Based on an evaluation of our disclosure controls and procedures as of the
end of this fiscal quarter (the "Evaluation Date"), the President, Chief
Executive Officer and Principal Financial and Accounting 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 over financial
reporting or in other factors that could significantly affect such controls
subsequent to the Evaluation Date.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Pro-Neuron, Inc.
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.
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.
Bristol-Myers Squibb
Repligen is the exclusive licensee of all CTLA4-Ig 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 patents
of Bristol-Myers Squibb ("Bristol") which relate to compositions and uses of
CTLA4, arising out of the inventive contributions by one of the University's
scientists. 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 Dr. Craig Thompson,
the scientist from the University, made inventive contributions as part of a
collaboration with Bristol scientists and is therefore a rightful inventor on
patents issued to Bristol which now name only Bristol scientists as inventors.
16
The evidence phase of the trial took place between April 2 and May 5, 2003
and the parties' submission of proposed findings of fact and conclusions of law
from the trial was completed on July 17, 2003. The Court has not indicated that
oral argument will be required for it to render a decision. The Court's decision
will not be filed under seal.
There are seven patents in the suit, five of which claim compositions of
matter or methods of use of soluble forms of CTLA4 which may have use in
treatment of autoimmune disease and two of which are related to antibodies to
CTLA4 which may have use in treatment of diseases such as cancer. Repligen and
the University have asked the Court to rule that Dr. Thompson is the sole
inventor on United States patent #5,844,095 entitled "CTLA4-Ig fusion proteins"
and United States patent #5,434,131 entitled "Chimeric CTLA4 receptor and
methods for its use" and a joint inventor on the remaining five patents in suit
based on his conceptions that CTLA4 would bind B-7 and that a soluble form of
CTLA4 can act as an immunosuppressant. Repligen and the University have also
accused Bristol-Myers Squibb of engaging in fraudulent conduct to obtain certain
of the patents.
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 their own patent applications related to methods of use of CTLA4-Ig.
ChiRhoClin, Inc.
On March 14, 2003, ChiRhoClin, Inc. ("ChiRhoClin") filed an arbitration
proceeding against Repligen with the American Arbitration Association
(Arbitration No. 131810059003). ChiRhoClin alleged that reimbursement of certain
marketing expenses breached the license agreement between the parties by
lowering the amount of royalties paid to ChiRhoClin. ChiRhoClin claimed damages
of approximately $800,000. Repligen believes that ChiRhoClin's arbitration
claims had no merit and was prepared to vigorously defend its rights. On July
15, 2003, ChiRhoClin withdrew its arbitration claims without prejudice. The
American Arbitration Association closed its file in this matter on July 30,
2003.
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 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On May 1, 2003, we issued and sold 2,500,000 shares of our common stock to
The Riverview Group, LLC for aggregate consideration of $12,500,000 in a private
placement pursuant to a stock purchase agreement by and between The Riverview
Group, LLC and us. Rodman & Renshaw, Inc. ("Rodman") acted as the placement
agent for the transaction and we paid them approximately $625,000 for their
services. Based on representations from The Riverview Group, LLC that it was
acquiring the shares for investment purposes only, without a view to selling or
distributing the shares, and based on the fact that Repligen was issuing the
shares to only one entity, Repligen issued the shares without registration and
effected the private placement on reliance on Rule 4(2) of the Securities Act of
1933, as amended (the "Securities Act").
17
On June 25, 2003, pursuant to a Financial Advisory Agreement by and
between Repligen and Rodman, Repligen engaged Rodman as a non-exclusive
financial adviser until May 31, 2004. In exchange and as consideration for
Rodman's financial services, Repligen issued Rodman a warrant to purchase up to
an aggregate of 25,000 shares of Common Stock of Repligen (the "Warrant"). The
Warrant is exercisable at $5.31 per share at any time prior to June 25, 2005.
There were no underwriters involved in the transaction. Based on the fact that
Repligen was issuing the warrant to only one entity, Repligen issued the warrant
without registration and effected the private placement on reliance on Rule 4(2)
of the Securities Act. If Repligen requires investment banking services relating
to certain strategic transactions, Repligen and Rodman agreed to enter into a
separate agreement setting forth the terms of the engagement and Rodman's fees.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT DESCRIPTION
------- -----------
3.1 Restated Certificate of Incorporation, dated June 30,
1992 and amended September 17, 1999 (filed as Exhibit
3.1 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 Common Stock Purchase Warrant dated June 25, 2003,
issued to Rodman & Renshaw, Inc (filed herewith).
31.1 Certification Pursuant to Rule 13a-14(a)/15d-14(a) of
the Exchange Act, as Adopted Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
(b) Reports on Form 8-K
1) Current Report on Form 8-K, filed on May 1, 2003, reporting an
arbitration proceeding that has been filed against the Company
entitled; ChiRhoClin, Inc. vs. Repligen Corporation.
2) Current Report on Form 8-K, filed on May 2, 2003, reporting
Repligen's sale of 2,500,000 shares of its common stock to The
Riverview Group.
3) Current Report on Form 8-K, filed June 5, 2003 reporting the
Regents of the University of California and Pro-Neuron entered
into a binding term sheet for settlement.
4) Current Report on Form 8-K, furnished on June 5, 2003
furnishing the Company's fourth quarter and fiscal year
earnings for the fiscal year ended March 31, 2003 on Item 9.
18
SIGNATURE
Pursuant to the requirements 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
(Registrant)
Date: August 12, 2003 By: /s/ Walter C. Herlihy
------------------------------------------
Chief Executive Officer and President,
Principal Financial and Accounting Officer
19
Repligen Corporation
Exhibit Index
EXHIBIT DESCRIPTION
------- -----------
3.1 Restated Certificate of Incorporation, dated June 30,
1992 and amended September 17, 1999 (filed as Exhibit
3.1 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 Common Stock Purchase Warrant dated June 25, 2003,
issued to Rodman & Renshaw, Inc. (filed herewith).
31.1 Certification Pursuant to Rule 13a-14(a)/15d-14(a) of
the Exchange Act, as Adopted Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
20