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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 December 31, 2003
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________________ to ____________________
Commission File Number 0-14656
REPLIGEN CORPORATION
(exact name of registrant as specified in its charter)
Delaware 04-2729386
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
41 Seyon Street, 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 February 10, 2004.
Common Stock, par value $.01 per share 30,018,099
-------------------------------------- ----------
Class Number of Shares
REPLIGEN CORPORATION
INDEX
PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements (Unaudited)
Balance Sheets as of December 31, 2003 and March 31, 2003 3
Statements of Operations for the Three Months and Nine Months
Ended December 31, 2003 and 2002 4
Statements of Cash Flows for the Nine Months
Ended December 31, 2003 and 2002 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
Item 4. Controls and Procedures 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds
None
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 17
Signature 18
Exhibit Index 18
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
REPLIGEN CORPORATION
BALANCE SHEETS
ASSETS
December 31, 2003 March 31, 2003
----------------- --------------
Current assets:
Cash $ 2,369,818 $ 6,108,004
Marketable securities 9,176,872 9,417,224
Accounts receivable, net 789,822 907,501
Inventories 1,013,821 889,924
Prepaid expenses and other current assets 469,327 522,569
------------- -------------
Total current assets 13,819,660 17,845,222
------------- -------------
Property, plant and equipment, at cost:
Leasehold improvements 2,812,969 2,585,152
Equipment 1,408,113 1,317,086
Furniture and fixtures 371,479 360,003
------------- -------------
4,592,561 4,262,241
Less: accumulated depreciation and
amortization (2,308,286) (2,013,828)
------------- -------------
Net fixed assets 2,284,275 2,248,413
Long-term marketable securities 13,912,784 3,183,727
Restricted cash 200,000 200,000
Other assets 2,933,296 3,315,894
------------- -------------
Total assets $ 33,150,015 $ 26,793,256
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 735,577 $ 968,551
Accrued expenses 2,071,742 1,274,837
------------- -------------
Total current liabilities 2,807,319 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,
29,938,383 shares at December 31, 2003 and
27,338,973 shares at March 31, 2003 299,384 273,390
Additional paid-in capital 181,333,728 169,232,975
Deferred compensation (39,015) --
Accumulated deficit (151,251,401) (144,956,497)
------------- -------------
Total stockholders' equity 30,342,696 24,549,868
------------- -------------
Total liabilities and stockholders' equity $ 33,150,015 $ 26,793,256
============= =============
See accompanying notes.
3
REPLIGEN CORPORATION
STATEMENTS OF OPERATIONS
Three months ended December 31, Nine months ended December 31,
2003 2002 2003 2002
---------------------------------------------------------------------------
Revenue
Product revenue $ 1,303,864 $ 2,417,030 $ 4,729,787 $ 5,723,962
Research revenue 16,982 -- 70,975 --
------------ ------------ ------------ ------------
Total revenue 1,320,846 2,417,030 4,800,762 5,723,962
Cost of revenue 782,233 1,140,908 2,378,293 2,472,351
------------ ------------ ------------ ------------
Gross profit 538,613 1,276,122 2,422,469 3,251,611
Operating expenses:
Research and development 1,850,476 1,363,059 5,180,540 3,844,537
Selling, general and administrative 915,764 819,399 3,829,558 2,711,390
------------ ------------ ------------ ------------
Total operating expenses 2,766,240 2,182,458 9,010,098 6,555,927
Loss from operations (2,227,627) (906,336) (6,587,629) (3,304,316)
------------ ------------ ------------ ------------
Investment income 100,721 140,483 292,725 464,676
------------ ------------ ------------ ------------
Net loss $ (2,126,906) $ (765,853) $ (6,294,904) $ (2,839,640)
============ ============ ============ ============
Basic and diluted net loss per share $ (.07) $ (.03) $ (.21) $ (.11)
============ ============ ============ ============
Basic and diluted weighted average
common shares outstanding 29,878,190 27,316,021 29,575,121 26,979,385
============ ============ ============ ============
See accompanying notes.
4
REPLIGEN CORPORATION
STATEMENTS OF CASH FLOWS
Nine months ended Nine months ended
December 31, 2003 December 31, 2002
Cash flows from operating activities:
Net loss $ (6,294,904) $(2,839,640)
Adjustment to reconcile net loss to net cash used in operating
activities:
Fair value of common stock warrants issued for services 52,300 --
Amortization of deferred compensation 56,365 --
Depreciation and amortization 677,056 580,405
Changes in assets and liabilities:
Accounts receivable 117,679 557,064
Inventories (123,897) (118,969)
Prepaid expenses and other current assets 53,242 (54,641)
Accounts payable (232,974) (704,097)
Accrued expenses 618,732 (262,153)
------------ -----------
Net cash (used in) operating activities (5,076,401) (2,842,031)
------------ -----------
Cash flows from investing activities:
Purchases of marketable securities (20,460,151) 7,421,946
Redemptions of marketable securities 9,971,446 (5,266,466)
Increase in other assets (1,250,000)
Decrease in restricted cash 300,000
Purchases of property, plant and equipment (152,147) (1,034,227)
------------ -----------
Net cash (used in) provided by investing activities (10,640,852) 171,253
------------ -----------
Cash flows from financing activities:
Exercise of stock options 154,032 --
Proceeds from issuance of common stock, net of issuance cost 11,825,035 --
------------ -----------
Net cash provided by financing activities 11,979,067 --
------------ -----------
Net (decrease) in cash (3,738,186) (2,670,778)
Cash and cash equivalents, beginning of period 6,108,004 8,696,194
------------ -----------
Cash and cash equivalents, end of period $ 2,369,818 $ 6,025,416
============ ===========
Supplemental disclosure of non cash activities:
Non cash purchases of property and equipment $ 178,173 $ --
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. 104, "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) to hospital-based
gastroenterologists. In accordance with SAB No. 104, 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.
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
6
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 December 31, 2003, there were outstanding options to
purchase 2,128,800 shares of the Company's common stock at a weighted average
exercise price of $3.06 per share and warrants to purchase 379,946 shares of the
Company's common stock at a weighted average exercise price of $4.84 per share
not included in the calculation of earnings per share.
4. 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.
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 Nine months ended Nine months ended
December 31, 2003 December 31, 2002 December 31, 2003 December 31, 2002
Net Loss as reported $(2,126,906) $(765,853) $(6,294,904) $(2,839,640)
Add:
Stock-based employee
compensation expense
included in reported net 21,990 -- 56,365 --
loss
Deduct:
Stock-based employee
compensation expense
determined under fair
value based method for all
employee awards ................... (307,838) (146,803) (711,244) (436,395)
----------- --------- ----------- -----------
Pro forma net loss ................... $(2,412,754) $(912,656) $(6,949,783) $(3,276,035)
=========== ========= =========== ===========
Basic and diluted net loss
per share:
As reported .......................... $ (.07) $ (.03) $ (.21) $ (.11)
Pro forma ............................ $ (.08) $ (.03) $ (.23) $ (.12)
5. Cash, Cash Equivalents and Marketable Securities
We apply SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." At December 31, 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
7
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
December 31, 2003 and 2002.
Cash and marketable securities consist of the following:
December 31, 2003 March 31, 2003
Cash and cash equivalents
Cash $ 1,369,972 $6,108,004
Cash equivalents 999,846 --
----------- ----------
$ 2,369,818 $6,108,004
=========== ==========
Marketable securities
Corporate and other debt securities $ 8,185,958 $8,701,765
U.S. Government and agency securities 990,914 715,459
----------- ----------
(Average remaining maturity, 4.42 months at December 31, 2003) $ 9,176,872 $9,417,224
=========== ==========
Long-term marketable securities
Corporate and other debt securities $ 9,815,271 $2,082,463
U.S. Government and agency securities 4,097,513 1,101,264
----------- ----------
(Average remaining maturity, 17.3 months at December 31, 2003) $13,912,784 $3,183,727
=========== ==========
Restricted cash of $200,000 is related to our facility lease obligation.
6. Inventories
Inventories are stated at the lower of cost (first in, first out) or
market and consist of the following:
December 31, 2003 March 31, 2003
Raw materials $ 104,005 $114,130
Work-in-process 343,889 303,631
Finished goods 565,927 472,163
---------- --------
Total $1,013,821 $889,924
========== ========
Raw materials, work in process and finished goods inventories consist of
material, labor, outside processing costs and manufacturing overhead.
7. 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.
8. 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
8
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:
Three months ended Nine months ended
December 31, December 31,
2003 2002 2003 2002
---- ---- ---- ----
US 15% 60% 50% 48%
Europe 85% 39% 48% 50%
Other 0% 1% 2% 2%
--- --- --- ---
Total 100% 100% 100% 100%
During the three months ended December 31, 2003 there was one customer who
accounted for approximately 55% of revenues. During the nine months ended
December 31, 2003 two customers accounted for approximately 37% and 13% of the
Company's revenues. During the three months ended December 31, 2002, there were
two customers each accounting for approximately 34% of the Company's revenues.
During the nine months ended December 31, 2002, two customers accounted for
approximately 38% and 30% of the Company's revenues. Four customers accounted
for 11%, 15%, 17% and 26% of the Company's accounts receivable at December 31,
2002, respectively. Four customers accounted for 11%, 12%, 18% and 45% of the
Company's accounts receivable at December 31, 2003.
9. Other Assets
In April 2002, the United States Food and Drug Administration granted
approval to market SecreFlo(TM) (synthetic porcine 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 1999
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 $382,596 for the three and nine-month periods
ended December 31, 2003. (See Management's Discussion and Analysis of Financial
Condition and Result of Operations- Recent Developments concerning this
license.)
9
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 and immune disorders, with emphasis on products with potential
applications for children. Our therapeutic product candidates are secretin for
autism, schizophrenia and anxiety disorders, CTLA4-Ig and Protein A for
autoimmune disorders and uridine for neuropsychiatric 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 existing drugs 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. This will enable us to independently advance
our proprietary drug development programs while at the same time minimizing our
operating losses. We may also seek corporate partners for development or
marketing of our therapeutic product candidates.
Recent Developments
In January 2004, we announced results from our Phase 3 clinical trial in
autism of RG1068, synthetic human secretin. The goal was to improve the core
symptoms of autism: deficits in social interaction. Improvement was measured
with two tools: the Autism Diagnostic Observation Schedule, administered by a
psychologist and the parental Clinical Global Impression of Change. The study
failed to show a greater improvement in the patients receiving secretin compared
to patients receiving placebo. We continue to analyze the data from the study
and will discuss the results with the Food and Drug Administration.
In February 2004, we announced that the United States Patent and Trademark
Office issued a patent covering the use of CTLA4-Ig for the treatment of
rheumatoid arthritis. The patent, which will remain in force until 2021, 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. We own the exclusive rights to this patent through license
agreements with The University of Michigan (the "University") and the United
States Navy. This 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-Myers Squibb Company.
In February 2004, we terminated the September 1999 License Agreement with
ChiRhoClin, our supplier of SecreFlo(TM), based on ChiRhoClin's failure to meet
their obligations including best efforts to obtain FDA approval of secretin for
post-ERCP pancreatitis. According to the terms of the License Agreement, upon
termination, we have the right to recover certain payments made to ChiRhoClin
from ChiRhoClin's future royalties on sales of SecreFlo(TM). To date, we have
made license payments to ChiRhoClin of $2,250,000 in cash and 696,223 shares of
stock, which were valued at $2,576,025 when issued. The License Agreement
provides that upon termination, ChiRhoClin is obligated to continue the supply
of SecreFlo(TM) to enable us to continue to market and sell the diagnostic
secretin products without interruption or restriction until these payments have
been recovered by withholding ChiRhoClin's share of royalties. Since ChiRhoClin
currently is Repligen's sole supplier of SecreFlo(TM), ChiRhoClin's failure to
continue to supply Repligen
10
may restrict our ability to continue to sell SecreFlo(TM) and to recover these
payments. Separately, we are developing RG1068, synthetic human secretin, for
autism, schizophrenia, and anxiety disorders. RG1068 is a proprietary product
and is not affected by termination of this agreement.
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. 104, "Revenue Recognition" ("SAB
No. 104") 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) to hospital-based
gastroenterologists. In accordance with SAB No. 104, 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.
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.
Impairment Analysis of Long-lived Assets
During 2002, under the terms of a 1999 licensing agreement with
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 and $382,596 for the three
11
and nine-month periods ended December 31, 2003. At March 31, 2003, in accordance
with the provisions of SFAS No. 144, "Accounting for the Impairment or Disposal
of Long-Lived Assets," we performed an impairment analysis of this intangible
asset in order to determine if an impairment loss existed and should be
recognized. The impairment analysis consisted of an evaluation of the expected
cash flows from the sale of SecreFlo(TM) over the term of the license and also
included various assumptions and estimates concerning selling price, cost and
volume of unit sales. We concluded that there was no impairment loss as of March
31, 2003. To date, 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 December 31, 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 December 31, 2003 vs. December 31, 2002
Total revenue
Total revenue for the three-month periods ended December 31, 2003 and
December 31, 2002, was approximately $1,321,000 and $2,417,000 respectively, a
decrease of $1,096,000 or 45%. During the three-month period ended December 31,
2003, product sales were impacted by manufacturing problems experienced by one
of our significant customers of Protein A products.
Cost of revenue
Cost of revenue for the three-month periods ended December 31, 2003 and
December 31, 2002, were approximately $782,000 and $1,141,000, respectively, a
decrease of $359,000 or 31%. Gross profit for the three-month periods ended
December 31, 2003 and 2002 were $539,000 or 41% of total revenue and $1,276,000
or 53% of total revenue, respectively. This decrease in costs and decrease in
gross profit is attributable to lower sales, a change in product mix of Protein
A and SecreFlo(TM) and the write-off of inventory past its expiration date.
Operating expenses
Total operating expenses for the three-month periods ended December 31,
2003 and December 31, 2002, were approximately $2,766,000 and $2,182,000
respectively, an increase of $584,000 or 27%.
12
Research and development expenses for the three-month periods ended
December 31, 2003 and December 31, 2002, were approximately $1,850,000 and
$1,363,000 respectively, an increase of $487,000 or 36%. This increase is
largely attributable to an increase in clinical trial expense and personnel
costs during the three-month period ended December 31, 2003.
Selling, general and administrative expenses for the three-month periods
ended December 31, 2003 and December 31, 2002, were approximately $916,000 and
$819,000 respectively, an increase of $97,000 or 12%. This increase is largely
attributable to the reimbursement by ChiRhoClin of premarketing and launch
expenses associated with the launch of Secreflo(TM) in the prior fiscal year.
Investment income
Investment income for the three-month periods ended December 31, 2003 and
December 31, 2002, were approximately $100,000 and $140,000, respectively, a
decrease of $40,000 or 29%. This decrease is attributable to lower interest rate
yields for investments during the three months ended December 31, 2003 as
compared to the corresponding three-month period ended December 31, 2002. We
expect investment income to vary based on changes in the amount of funds
invested and fluctuation of interest rates.
Nine months ended December 31, 2003 vs. December 31, 2002
Total revenue
Total revenue for the nine-month periods ended December 31, 2003 and
December 31, 2002, was approximately $4,801,000 and $5,724,000 respectively, a
decrease of $923,000 or 16%. During the nine-month period ended December 31,
2003, product sales were impacted by manufacturing problems experienced by one
of our significant customers of 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 nine-month periods ended December 31, 2003 and
December 31, 2002, were approximately $2,378,000 and $2,472,000, respectively, a
decrease of $94,000 or 4%. Gross profit for the nine-month periods ended
December 31, 2003 and 2002 were $2,423,000 or 50% of total revenue and
$3,252,000 or 57% of total revenue, respectively. This decrease in costs and
decrease in gross profit is attributable to lower sales, increased staffing and
depreciation costs associated with our facility in fiscal year 2004.
Operating expenses
Total operating expenses for the nine-month periods ended December 31,
2003 and December 31, 2002, were approximately $9,011,000 and $6,556,000
respectively, an increase of $2,455,000 or 37%.
Research and development expenses for the nine-month periods ended
December 31, 2003 and December 31, 2002, were approximately $5,181,000 and
$3,845,000 respectively, an increase of $1,336,000 or 35%. This increase is
largely attributable to an increase in clinical material,
13
research and trial expenses, as well as personnel costs during the nine-month
period ended December 31, 2003.
Selling, general and administrative expenses for the nine-month periods
ended December 31, 2003 and December 31, 2002, were approximately $3,830,000 and
$2,711,000 respectively, an increase of $1,119,000 or 41%. 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 income
Investment income for the nine-month periods ended December 31, 2003 and
December 31, 2002, was approximately $293,000 and $465,000 respectively, a
decrease of $172,000 or 37%. This decrease is attributable to lower interest
rate yields for investments during the nine months ended December 31, 2003 as
compared to the corresponding nine-month period ended December 31, 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 December 31, 2003
totaled $25,659,000, an increase of $6,750,000 from $18,909,000 at March 31,
2003.
On May 1, 2003, we issued and sold 2,500,000 shares of our common stock to
The Riverview Group, LLC for an 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 $5,076,000 of cash for the
nine-month period ended December 31, 2003, consisting of a net loss from
operations of approximately $6,295,000 and a decrease in accounts payable of
$233,000 and an increase in inventories of $124,000. These uses of cash were
offset by non-cash charges of $677,000 for depreciation and amortization,
$53,000 for issuance of common stock warrants and $56,000 for amortization of
deferred compensation, as well as a decrease in accounts receivable of $118,000
a decrease in prepaid expenses of $53,000, and an increase in accrued expenses
of $619,000.
Our cash was reduced by capital expenditures of $152,000 for the
nine-month period ended December 31, 2003. Our investing activities used cash of
approximately $10,489,000 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 (with the exception of U.S.
treasury obligations) 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.
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The certificate of deposit is included as restricted cash in the accompanying
balance sheet as of December 31, 2003.
During April 2002 and as required by the terms of our 1999 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, which was valued
at $2,576,025 when issued. In February 2004, we exercised our right to terminate
this License Agreement. According to the terms of the License Agreement, upon
termination, we have the right to recover certain payments made to ChiRhoClin
from royalties on future sales of SecreFlo(TM). ChiRhoClin is obligated to
continue to supply us, in order to allow us to market and sell SecreFlo(TM)
without interruption or restriction until these payments have been recovered.
Since ChiRhoClin currently is Repligen's sole supplier of SecreFlo(TM),
ChiRhoClin's failure to meet its obligations to supply product may restrict our
ability to continue to sell SecreFlo(TM) and recover these license payments.
Working capital decreased to $11,012,000 at December 31, 2003 from
$15,602,000 at March 31, 2003 primarily as a result of higher research and
development spending and investments in long-term marketable securities.
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 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, intellectual property
and development, manufacturing plans and performance, delays in manufacturing by
us or our partners, timing of customer orders, the anticipated growth in our
target markets, including, without limitation, the market for autoimmune disease
treatment and 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
15
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 U.S. treasury obligations), and type of
investment. We intend to hold these investments to maturity, in accordance with
our business plans.
As of December 31, 2003, we did not have any debt arrangements that were
not reflected in our balance sheet.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Based on an evaluation of our disclosure controls and procedures (as
defined in Rule 13a-15(e) or 15d-15 (e)) 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. Repligen and the University believe that the
University has a rightful claim to ownership of certain patents of Bristol-Myers
Squibb Company ("Bristol") which relate to compositions and uses of CTLA4,
arising out of the inventive contributions by one of the
16
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") in August 2002 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. (Please see Management's Discussion and
Analysis of Financial Condition and Results of Operations-Recent Developments
for further information regarding our CTLA4 patent, which is not the subject of
this litigation.)
In December 2003, Repligen filed a written brief with the United States
Court of Appeals for the Federal Circuit appealing the ruling of the District
Court. Bristol will also file a written brief 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.
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 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 as Exhibit 3.2 to
Repligen Corporation's Quarterly Report on Form 10-Q for
the quarter ended September 30, 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 November 12, 2003,
furnishing Repligen's earnings release for the second quarter
ended September 30, 2003.
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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
Date: February 11, 2004 By: /s/ Walter C. Herlihy
----------------------------------------------
Chief Executive Officer and President,
(Principal Executive, Financial and Accounting
Officer)
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 Amended and Restated By-laws (filed as Exhibit 3.2 to
Repligen Corporation's Quarterly Report on Form 10-Q for
the quarter ended September 30, 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.
18