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UNITED STATES
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 September 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 November 12, 2003.
Common Stock, par value $.01 per share 29,866,883
Class Number of Shares
REPLIGEN CORPORATION
INDEX
PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements (Unaudited)
Balance Sheets as of September 30, 2003 and March 31, 2003 3
Statements of Operations for the Three Months and Six Months Ended
September 30, 2003 and 2002 4
Statements of Cash Flows for the Six Months
Ended September 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 16
Item 4. Controls and Procedures 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities and Use of Proceeds 18
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K 19
Signature 20
Exhibit Index 21
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
REPLIGEN CORPORATION
BALANCE SHEETS
ASSETS
September 30, 2003 March 31, 2003
------------------ --------------
Current assets:
Cash $ 3,365,718 $ 6,108,004
Marketable securities 11,263,641 9,417,224
Accounts receivable, net 1,008,819 907,501
Inventories 760,849 889,924
Prepaid expenses and other current assets 280,132 522,569
------------- -------------
Total current assets 16,679,159 17,845,222
------------- -------------
Property, plant and equipment, at cost:
Leasehold improvements 2,626,506 2,585,152
Equipment 1,408,113 1,317,086
Furniture and fixtures 369,995 360,003
------------- -------------
4,404,614 4,262,241
Less: accumulated depreciation and amortization (2,205,912) (2,013,828)
------------- -------------
2,198,702 2,248,413
Long-term marketable securities 12,924,837 3,183,727
Restricted cash 200,000 200,000
Other assets 3,060,829 3,315,894
------------- -------------
Total assets $ 35,063,527 $ 26,793,256
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 622,618 $ 968,551
Accrued expenses 2,086,882 1,274,837
Unearned revenue 26,964 --
------------- -------------
Total current liabilities 2,736,464 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,
29,864,133 shares at September 30, 2003 and
27,338,973 shares at March 31, 2003 298,641 273,390
Additional paid-in capital 181,201,042 169,232,975
Deferred compensation (48,125) --
Accumulated deficit (149,124,495) (144,956,497)
------------- -------------
Total stockholders' equity 32,327,063 24,549,868
------------- -------------
Total liabilities and stockholders' equity $ 35,063,527 $ 26,793,256
============= =============
See accompanying notes.
3
REPLIGEN CORPORATION
STATEMENTS OF OPERATIONS
Three months ended September 30, Six months ended September 30,
2003 2002 2003 2002
------------------------------------------------------------------
Revenue
Product revenue $ 1,383,395 $ 1,687,490 $ 3,425,923 $ 3,306,932
Research revenue 35,560 -- 53,993 --
------------ ------------ ------------ ------------
Total revenue 1,418,955 1,687,400 3,479,916 3,306,932
Cost of revenue 740,470 661,797 1,596,059 1,331,443
------------ ------------ ------------ ------------
Gross profit 678,485 1,025,693 1,883,857 1,975,489
Operating expenses:
Research and development 1,901,389 1,254,221 3,330,064 2,481,478
Selling, general and administrative 1,011,117 1,009,734 2,913,794 1,891,991
------------ ------------ ------------ ------------
Total operating expenses 2,912,506 2,263,955 6,243,858 4,373,469
Loss from operations (2,234,021) (1,238,262) (4,360,001) (2,397,980)
------------ ------------ ------------ ------------
Investment and interest income 93,875 155,614 192,003 324,193
------------ ------------ ------------ ------------
Net loss $ (2,140,146) $ (1,082,648) $ (4,167,998) $ (2,073,787)
============ ============ ============ ============
Basic and diluted net loss per share $ (.07) $ (.04) $ (.14) $ (.08)
============ ============ ============ ============
Basic and diluted weighted average
common shares outstanding 29,859,529 26,642,750 29,423,486 26,642,750
============ ============ ============ ============
See accompanying notes.
4
REPLIGEN CORPORATION
STATEMENTS OF CASH FLOWS
Six Months Ended September 30,
2003 2002
Cash flows from operating activities:
Net loss $ (4,167,998) $(2,073,787)
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 34,375 --
Depreciation and amortization 447,149 362,097
Changes in assets and liabilities:
Accounts receivable (101,318) 12,293
Inventories 129,075 15,088
Prepaid expenses and other current assets 242,437 (22,567)
Other assets -- (1,250,000)
Accounts payable (345,933) (873,101)
Accrued expenses 788,895 (334,826)
Unearned revenue 26,964 --
------------ -----------
Net cash (used in) operating activities (2,894,054) (4,164,803)
------------ -----------
Cash flows from investing activities:
Purchases of marketable securities (18,843,561) (1,026,172)
Redemptions of marketable securities 7,256,034 7,121,989
Purchases of property, plant and equipment (119,223) (942,663)
------------ -----------
Net cash (used in) provided by
investing activities (11,706,750) 5,153,154
------------ -----------
Cash flows from financing activities:
Exercise of stock options 33,483 --
Proceeds from issuance of common stock, net
of issuance cost 11,825,035 --
------------ -----------
Net cash provided by financing activities 11,858,518 --
------------ -----------
Net (decrease) increase in cash (2,742,286) 988,351
Cash and cash equivalents, beginning of period 6,108,004 8,696,194
------------ -----------
Cash and cash equivalents, end of period $ 3,365,718 $ 9,684,545
============ ===========
Supplemental disclosure of non cash activities:
Non cash purchases of property, plant and
equipment 23,150 --
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.
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 SecreFloTM, the first synthetic version of the
hormone secretin, to hospital-based gastroenterologists. In accordance with SAB
No. 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.
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
6
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 as the additional common
shares from warrants and stock options would lower our diluted net loss per
share. Accordingly, basic and diluted net loss per share is the same. At
September 30, 2003, there were outstanding options to purchase 2,197,790 shares
of our common stock at a weighted average exercise price of $2.64 per share and
warrants to purchase 379,946 shares of our common stock at a weighted average
exercise price of $4.84 per share not included in the calculation of earnings
per share. At September 30, 2002, there were outstanding options to purchase
1,839,900 shares of our common stock at a weighted average exercise price of
$2.55 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. 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 because we do not have such
financial instruments.
In November 2002, the FASB's Emerging Issues Task Force ("EITF") published
Issue No. 00-21, "Accounting for Revenue Arrangements with Multiple
Deliverables," or EITF Issue No. 00-21, which addresses how to determine whether
a revenue arrangement involving multiple deliverables contains more than one
unit of accounting for the purposes of revenue recognition and how the revenue
arrangement consideration should be measured and allocated to the separate units
of accounting. EITF Issue No. 00-21 applies to arrangements that we enter into
after June 30, 2003. We do not expect EITF Issue No. 00-21 to have a material
impact on our financial condition or results of operations because we typically
do not have revenue contracts providing for multiple deliverables.
5. 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
option 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.
7
If compensation expense for our stock option plan had been determined in a
manner consistent with SFAS No. 123, the pro forma net loss and net loss per
share would have been as follows:
Three months ended Three months ended Six months ended Six months ended
September 30, September 30, September 30, September 30,
2003 2002 2003 2002
Net Loss as reported ........... $(2,140,146) $(1,082,648) $(4,167,998) $(2,073,787)
Add: Stock-based employee
compensation expense
included in reported net
loss ........................ 20,625 -- 34,375 --
Deduct: Stock-based employee
compensation expense
determined under fair value
based method for all employee
awards ...................... (226,918) (150,017) (420,480) (298,004)
Pro forma net loss ............. $(2,346,439) $(1,232,665) $(4,554,103) $(2,371,791)
=========== =========== =========== ===========
Basic and diluted net
loss per share:
As reported .................... $ (.07) $ (.04) $ (.14) $ (.08)
Pro forma ...................... $ (.08) $ (.05) $ (.15) $ (.09)
6. Cash, Cash Equivalents and Marketable Securities
We apply SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." At September 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. As of September 30, 2003 we do not have
any cash equivalents. 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 September 30, 2003 and 2002.
Cash and marketable securities consist of the following:
September 30, March 31,
2003 2003
---- ----
Cash $ 3,365,718 $6,108,004
=========== ==========
Marketable securities
Corporate and other debt securities $10,022,771 $8,701,765
U.S. Government and agency securities 1,240,870 715,459
----------- ----------
(Average remaining maturity, 4.5 months at September 30, 2003) $11,263,641 $9,417,224
=========== ==========
Long-term marketable securities
Corporate and other debt securities $ 8,809,793 $2,082,463
U.S. Government and agency securities 4,115,044 1,101,264
----------- ----------
(Average remaining maturity, 19.75 months
at September 30, 2003) $12,924,837 $3,183,727
=========== ==========
8
Restricted cash of $200,000 is related to our facility lease obligation.
7. Inventories
Inventories are stated at the lower of cost (first in, first out) or
market and consist of the following:
September 30, March 31,
2003 2003
---- ----
Raw materials $ 95,515 $114,130
Work-in-process 326,125 303,631
Finished goods 339,209 472,163
-------- --------
Total $760,849 $889,924
======== ========
Raw materials, work in process and finished goods inventories consist of
material, labor, outside processing costs and manufacturing overhead.
8. 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.
9. 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. When deciding on how to allocate resources and assess performance, the
chief operating decision maker, or decision-making group, 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 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:
9
Three months ended Six months ended
September 30, September 30,
2003 2002 2003 2002
---- ---- ---- ----
US 64% 55% 59% 40%
Europe 34% 42% 39% 58%
Other 2% 3% 2% 2%
--- --- --- ---
Total 100% 100% 100% 100%
During the three months ended September 30, 2003 there were three
customers who accounted for approximately 31%, 22% and 10% of revenues,
respectively. During the three months ended September 30, 2002, there were two
customers who accounted for approximately 39% and 36% of revenues. During the
six months ended September 30, 2003 there were two customers who accounted for
approximately 31% and 19% of revenues. During the six months ended September 30,
2002, there were two customers who accounted for approximately 39% and 26% of
revenues. Two customers accounted for 48% and 34% of our accounts receivable at
September 30, 2003. Two customers accounted for 72% and 13% of our accounts
receivable at September 30, 2002, respectively.
10. 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 or ERCP. Under the terms of our licensing agreement
with ChiRhoClin, Inc., 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 and $255,064 for the three and six-month periods ended September 30,
2003. In addition, under the terms of the licensing agreement with ChiRhoClin,
if the FDA approves the new drug application for human secretin diagnostic or
approves the reformulation of SecreFlo(TM), 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.
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 intangible assets related to our licensing
agreement with ChiRhoClin 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.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
We are engaged in the development of novel therapeutics for profound
neuropsychiatric disorders, with particular emphasis on applications for
children. Our therapeutic product candidates are secretin for autism and
schizophrenia, CTLA4-Ig for autoimmune disorders and uridine for neurologic
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
No. 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
11
SecreFlo(TM), the first synthetic version of the hormone secretin, to
hospital-based gastroenterologists. In accordance with SAB No. 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 the related receivable is probable.
Additionally, we generate non-product revenues from sponsored research and
development projects under a Small Business Innovation Research ("SBIR") grant.
License and research revenue 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
our Statements of Operations included in Item 1 above 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. 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 and $255,064 for the three and six-month periods ended September 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 September 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.
12
Results of Operations
Three months ended September 30, 2003 vs. September 30, 2002
Total revenue
Total revenue for the three-month periods ended September 30, 2003 and
September 30, 2002, was approximately $1,419,000 and $1,687,000, respectively, a
decrease of $268,000 or 16%. During the three-month period ended September 30,
2003, product sales were impacted by manufacturing problems experienced by one
of our significant customers of Protein A products. In addition, a delay in the
delivery of a new lot of SecreFloTM from the manufacturer to us impacted sales
at the end of the quarter. A lot of SecreFloTM is currently undergoing quality
control testing. If this lot of material meets all release specifications,
shipments of SecreFloTM would be expected to resume in December.
Cost of revenue
Cost of revenue for the three-month periods ended September 30, 2003 and
September 30, 2002, were approximately $741,000 and $662,000, respectively, an
increase of $79,000 or 12%. Gross profit for the three-month periods ended
September 30, 2003 and 2002 were $678,000 or 48% of total revenue and $1,025,000
or 61% of total revenue, respectively. This increase in costs and decrease in
gross profitability is attributable to a change in product mix of Protein A and
sales of SecreFlo(TM).
Operating expenses
Total operating expenses for the three-month periods ended September 30,
2003 and September 30, 2002, were approximately $2,912,000 and $2,264,000,
respectively, an increase of $648,000 or 29%.
Research and development expenses for the three-month periods ended
September 30, 2003 and September 30, 2002, were approximately $1,901,000 and
$1,254,000, respectively, an increase of $647,000 or 52%. This increase is
largely attributable to an increase in clinical material expense, clinical trial
expense and personnel costs during the three-month period ended September 30,
2003.
Selling, general and administrative expenses for the three-month periods
ended September 30, 2003 and September 30, 2002, were approximately $1,011,000
and $1,010,000 respectively.
Investment and interest income
Investment income for the three-month periods ended September 30, 2003 and
September 30, 2002, were approximately $94,000 and $156,000, respectively, a
decrease of $62,000 or 40%. This decrease is attributable to lower interest rate
yields for investments during the three months ended September 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.
Six months ended September 30, 2003 vs. September 30, 2002
Total revenue
Total revenue for the six-month periods ended September 30, 2003 and
September 30, 2002, was approximately $3,480,000 and $3,307,000 respectively, an
increase of $173,000 or 5%. This increase in total revenue is attributable to
the sales of SecreFlo(TM), which we did not sell during the
13
corresponding six-month period in fiscal 2003, offset by the decreased demand
for our Protein A products. Our revenues are subject to quarterly fluctuations,
based on the timing of large scale production orders of Protein A and sales of
SecreFlo(TM).
Cost of revenue
Cost of revenue for the six-month periods ended September 30, 2003 and
September 30, 2002, were approximately $1,596,000 and $1,331,000, respectively,
an increase of $265,000 or 20%. Gross profit for the six-month periods ended
September 30, 2003 and 2002 were $1,884,000 or 54% of total revenue and
$1,976,000 or 60% of total revenue, respectively. This increase in costs and
decrease in gross profit is due primarily to the launch of SecreFloTM during
fiscal 2004 and the changes in product mix for our Protein A products.
Operating expenses
Total operating expenses for the six-month periods ended September 30,
2003 and September 30, 2002, were approximately $6,244,000 and $4,374,000,
respectively, an increase of $1,870,000 or 43%.
Research and development expenses for the six-month periods ended
September 30, 2003 and September 30, 2002, were approximately $3,330,000 and
$2,482,000, respectively, an increase of $848,000 or 34%. This increase is
largely attributable to an increase in clinical material, research and trial
expenses, as well as personnel costs during the six-month period ended September
30, 2003.
Selling, general and administrative expenses for the six-month periods
ended September 30, 2003 and September 30, 2002, were approximately $2,914,000
and $1,892,000 respectively, an increase of $1,022,000 or 54%. This increase is
largely attributable to marketing expenses for our SecreFlo(TM) product and
increased costs for professional services including those associated with
litigation.
Investment and interest income
Investment income for the six-month periods ended September 30, 2003 and
September 30, 2002, were approximately $192,000 and $324,000, respectively, a
decrease of $132,000 or 41%. This decrease is attributable to lower interest
rate yields for investments during the six months ended September 30, 2003 as
compared to the corresponding six-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 and marketable securities at September 30, 2003
totaled $27,754,000, an increase of $8,845,000 from $18,909,000 at March 31,
2003.
14
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
expenses of the transaction.
Our operating activities used approximately $2,894,000 of cash for the
six-month period ended September 30, 2003, consisting of a net loss from
operations of approximately $4,168,000 and a decrease in accounts payable of
$346,000. These uses of cash were offset by non-cash charges of $447,000 for
depreciation and amortization, a decrease in inventories of $129,000, a decrease
in prepaid expenses of $242,000, and an increase in accrued expenses of
$789,000.
Our cash was reduced by capital expenditures of $119,000 for the six-month
period ended September 30, 2003. Our investing activities used cash of
approximately $11,707,000 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.
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
September 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 SecreFloTM, 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 decreased to $13,943,000 at September 30, 2003 from
$15,602,000 at March 31, 2003 primarily as a result of higher research and
development spending.
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
15
not historical facts constitute "forward-looking statements" which are made
pursuant to the safe 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, product
research and development, manufacturing plans and performance, delays in
manufacturing by us or our partners, timing of customer orders, the anticipated
growth in the monoclonal antibody market and projected growth in product sales,
costs of operations, sufficient funds to meet management objectives and
availability of financing and effects of accounting pronouncements 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 September 30, 2003, we did not have any debt arrangements that were
not reflected in our balance sheet.
16
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 Executive 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
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 Corporation ("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
(the "District Court") 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. The District Court
found that Repligen and the University had not proven by clear, convincing, and
corroborative evidence that Dr. Thompson is a sole or joint inventor of any of
the patents in suit.
In October 2003, Repligen filed a Notice of Appeal with the United States
Court of Appeals for the Federal Circuit to the ruling of the District Court. It
is anticipated that both Repligen and Bristol will file written briefs to the
United States Court of Appeals for the Federal Circuit that, may be followed by
oral arguments in 2004. The Federal Circuit may decide to uphold the District
Court's decision, overturn the District Court's decision or remand it back to
the District Court for further consideration. Repligen's failure to obtain
ownership rights to the Bristol patents may restrict Repligen's ability to
commercialize CTLA4-Ig.
Separately, in September 2003, Repligen announced it had received a Notice
of Allowance from the United States Patent and Trademark Office for a patent
covering the use of CTLA4-Ig for the treatment of rheumatoid arthritis. The
patent, which will remain in force until 2020, also covers a method of treating
multiple sclerosis, systemic lupus erythematosis and scleroderma with CTLA4-Ig
and the use of CTLA4-Ig in combination with other immunosuppressants. Repligen
owns the exclusive rights to this patent through a license agreement with The
University of Michigan (the "University") and through a Cooperative Research and
Development Agreement with the United States Navy. This allowed patent is
independent from the patents on CTLA4-Ig which are the subject of a lawsuit that
Repligen and the University are prosecuting against Bristol.
17
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 September 10, 2003, Repligen's By-laws were amended by a requisite vote
of stockholders to provide that the size of the Board of Directors of the
Company could be fixed by a resolution of the Board of Directors, and that
vacancies on the Board of Directors could be filled by resolution of the Board
of Directors until the next annual meeting of stockholders. Previously, the size
of the Board of Directors could only be changed by the stockholders, and any
vacancies on the Board of Directors could only be filled by a resolution of the
stockholders.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company's Annual Meeting of Stockholders (the "Annual Meeting") was
held on September 10, 2003. At the Annual Meeting, the stockholders of the
Company considered and acted upon proposals to: (i) elect a Board of Directors
for the ensuing year (ii) to increase the size of the Board of Directors to
eight members (iii) to elect Thomas F. Ryan, Jr. to fill one of the vacancies on
the Board of Directors if Proposal 2 is approved by the Stockholders (iv) to
amend the Company's by-laws to allow the Board of Directors to set the size of
the Company's Board of Directors and to appoint Directors to fill any vacancy
until the next Annual Meeting (v) to amend the 2001 Repligen Corporation Stock
Option Plan, to increase both the number of options the company automatically
grants per year and the aggregate number of options granted to its non-employee
directors (vi) to amend and restate the 2001 Repligen Corporation Stock Option
Plan, to allow shares of restricted stock to be awarded under such plan; and
(vii) to ratify the selection of Ernst & Young LLP as the independent auditors
of Repligen for the fiscal year ending March 31, 2004.
Proposal 1. Election of Directors:
The stockholders elected all of the Company's nominees for directors.
Directors Shares Voting In Favor Withhold
Robert J. Hennessey* 24,747,070 138,652
Walter C. Herlihy, Ph.D.* 24,747,070 138,652
G. William Miller* 24,747,070 148,682
Alexander Rich, M.D.* 24,747,070 138,652
Paul Schimmel, Ph.D.* 24,436,304 449,418
*Incumbent
Proposal 2. Proposal to increase the size of the Board of Directors to eight
members.
This proposal was adopted.
Shares Voting In Favor Shares Voting Against Abstain
24,587,436 254,951 43,335
Proposal 3. Elect Thomas F. Ryan, Jr. to fill one of the vacancies on the Board
of Directors.
18
The stockholders approved the election of Thomas F. Ryan, Jr.
Shares Voting In Favor Shares Voting Against Abstain
24,634,110 178,012 73,600
Proposal 4. Amendment of the Company's by-laws to allow the Board of Directors
to set the size of the Company's Board of Directors and to appoint Directors to
fill any vacancy until the next Annual Meeting.
This proposal was adopted.
Shares Voting In Favor Shares Voting Against Abstain
24,137,859 680,173 67,690
Proposal 5. Amendment of the 2001 Repligen Corporation Stock Option Plan, to
increase both the number of options the Company automatically grants per year
and the aggregate number of options granted to its non-employee directors.
This proposal was adopted.
Shares Voting In Favor Shares Voting Against Abstain Broker Non-Vote
21,974,745 2,810,691 100,285 1
Proposal 6. Amendment and restatement of the 2001 Repligen Corporation Stock
Option Plan, to allow shares of restricted stock to be awarded under such plan.
This proposal was adopted.
Shares Voting In Favor Shares Voting Against Abstain
21,930,199 2,846,976 108,547
Proposal 7. Ratification of selection of Ernst & Young LLP as the independent
auditors.
Selection of Ernst & Young LLP as the Company's independent auditors for fiscal
year 2004.
This proposal was adopted.
Shares Voting In Favor Shares Voting Against Abstain
24,764,442 66,745 54,535
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* Amended and Restated By-laws (filed herewith).
4.1 The Amended and Restated 2001 Repligen
Corporation Stock Plan, adopted by the
Stockholders on September 10, 2003 (filed as
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Appendix B to Repligen Corporation's
Definitive Proxy Statement on Schedule 14A
dated July 22, 2003 and incorporated
herein by reference).
31.1 Rule 13a-14(a)/15d-14(a) Certification.
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 July 22, 2003 reporting
the completion of the CTLA4-Ig Trial against Bristol-Myers
Squibb.
2) Current Report on Form 8-K, filed on July 31, 2003, furnishing
Repligen's earnings release for the first quarter ended June
30, 2003.
3) Current Report on Form 8-K, filed on September 17, 2003
reporting the Notice of Allowance to Repligen for a patent
covering the use of CTLA4-Ig for treatment of Rheumatoid
Arthritis.
4) Current Report on Form 8-K, filed on September 17, 2003
reporting the announcement of a ruling in the lawsuit between
Repligen and Bristol-Myers Squibb.
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: November 13, 2003 By: /s/ Walter C. Herlihy
---------------------------------------------
Chief Executive Officer and President,
(Principal Executive Financial and Accounting
Officer)
Repligen Corporation
20
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* Amended and Restated By-laws (filed herewith).
4.1 The Amended and Restated 2001 Repligen
Corporation Stock Plan, adopted by the
Stockholders on September 10, 2003 (filed as
Appendix B to Repligen Corporation's
Definitive Proxy Statement on Schedule 14A
dated July 22, 2003 and incorporated
herein by reference).
31.1 Rule 13a-14(a)/15d-14(a) Certification.
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
21