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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended March 31, 1995
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: 0-21700
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.)
One Kendall Square, Cambridge, Massachusetts 02139
............................................ .................................
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 617-225-6000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
............................................ ................................
None None
Securities registered pursuant to Section 12(g) of the Act:
Common stock, $0.01 per share
(Title of Class)
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 checkmark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
2
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. The approximate aggregate market value, computed by reference
to the closing sale price of such stock quoted on NASDAQ on June 15, 1995 was
approximately $ 35,517,544.
Indicate the number of shares outstanding of each of the registrant's classes
of common stock as of June 15, 1995: 15,358,938.
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PART I
Item 1: BUSINESS
Repligen Corporation is a biopharmaceutical company engaged in the
research, development and manufacture of therapeutic products for human health
care. The Company has active programs in three therapeutic areas: cancer,
cardiovascular conditions and immunology.
Repligen was incorporated in May 1981. The Company's principal executive
offices are located at One Kendall Square, Cambridge, Massachusetts 02139, and
its telephone number is (617) 225-6000. As used herein, "Repligen" or the
"Company" refers to Repligen Corporation and its wholly-owned subsidiaries,
RGEN Corporation, Amira, Inc. and Repligen Development Corporation.
Repligen's strategy for the commercialization of its product candidates is
to initially target specific medical indications with defined clinical
endpoints using novel therapeutics that have more than one potential clinical
application. This enables the Company to pursue multiple indications
concurrently with each product candidate. The Company believes this approach
may increase the probability of commercial success. The Company has assembled
an experienced team of senior medical, regulatory, process development,
manufacturing and marketing personnel from both the biotechnology and
pharmaceutical industries to manage its clinical programs and to commercialize
any resulting products.
Repligen's Research and Development Programs
The following table lists the potential therapeutic indications or
applications for, and current status of, Repligen's products in research or
development and is qualified in its entirety by reference to the more detailed
descriptions elsewhere in this report.
Program Indication/Application Status
- ----------------- ------------------------------------------------- ----------------------
rPF4 Heparin neutralization -- cardiac catheterization Phase II (completed)
Heparin neutralization -- cardiopulmonary bypass
graft surgery (CABG) Phase I/II
Kaposi's sarcoma (intralesional) Phase II (completed)
Kaposi's sarcoma (systemic-IV) Phase I/II
Colon cancer Phase I/II (completed)
Malignant melanoma/renal cell carcinoma Phase I/II (completed)
Glioma (brain cancer) Phase I/II
m60.1/h60.1 Chronic lung inflammation Phase I (completed)
Healthy volunteer study (inflammation) Phase I (completed)
Thorocoabdominal aortic aneurysm Phase I/II
Cardiopulmonary bypass surgery (CPB) Phase I
Immune Modulation Transplantation, autoimmune disease, gene therapy Preclinical
Chemokine Myeloprotection, inflammation Preclinical
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rPF4 Program
Platelet factor-4 ("PF4") is a naturally-occurring protein which Repligen
has produced using recombinant DNA technology. Repligen is conducting
multiple clinical trials for recombinant PF4 ("rPF4") which the Company
believes may be useful as (i) a neutralizing agent to reverse the
anticoagulant effects of heparin and (ii) a therapy in the treatment of
certain solid tumor cancers.
Heparin Neutralization. The Company believes that rPF4 may restore
natural coagulation which is disrupted by heparin in anticoagulated patients
undergoing cardiovascular surgical procedures such as coronary artery bypass
graft surgery. Heparin is an anticoagulant used to prevent blood from
clotting during these cardiovascular procedures. In certain acute settings,
the effects of heparin are reversed chemically with the generic drug
protamine, which is widely used but has been associated with some serious side
effects. These side effects, while usually mild to moderate, are occasionally
serious, such as a loss of blood pressure (systemic hypotension), respiratory
distress (pulmonary hypertension) or allergic reactions (anaphylaxis). Over
500,000 patients in the United States undergo open heart surgery and are
treated with protamine each year. The Company believes that rPF4 may reverse
the anticoagulant effects of heparin both more quickly than protamine and
without its potential side effects. Repligen has a United States patent on
the use of rPF4 or purified PF4 to neutralize heparin.
Preclinical trials conducted in rats indicated that rPF4 reversed heparin
without causing the systemic hypotension often associated with protamine.
Repligen subsequently conducted further studies in monkeys and baboons which
confirmed that rPF4 reverses heparin and is safe and effective in those
animals. Because a baboon's cardiovascular system closely resembles that of a
human, Repligen was able to conduct in vivo studies of the reversal of heparin
in the baboon's blood following simulated cardiopulmonary bypass that provided
further support that rPF4 would be safe in human bypass operations.
Subsequent ex vivo studies of human blood removed from a cardiopulmonary
bypass circuit demonstrated that rPF4 neutralized heparin effectively
following exposure to typical bypass conditions.
In March 1993, the Company began a Phase I clinical trial of rPF4 in
cardiac catherization patients to evaluate its safety. The results of the
study were reported at the annual meeting of the American Heart Association in
November 1993 and demonstrated that rPF4 safely reversed the anticoagulant
effects of heparin in this patient population. Results of the study were
published in the journal "Circulation" in April 1995. In November 1993, the
Company initiated a double-blind, multi-center Phase II clinical trial to
evaluate the efficacy of rPF4 for the reversal of the anticoagulant effects of
heparin in cardiac catherization patients in comparison to protamine. As of
March 31, 1995, the preliminary results of this study indicate that rPF4 is at
least as safe as protamine. These safety data support continued clinical
development of rPF4 for use in coronary artery bypass graft surgery. The
Company initiated a Phase I/II clinical study for the use of rPF4 in
cardiopulmonary bypass graft surgery patients in May 1994. This trial is
expected to be completed in the second half of 1995.
Thus far, all of the Company's clinical trials for PF4 have been conducted
using a recombinant form of PF4 manufactured by Repligen in quantities
sufficient for preclinical and clinical research. In order to produce rPF4 in
sufficient quantities and at necessary cost levels for commercial
introduction, the Company changed its manufacturing process for rPF4 which had
limited the availability of rPF4 for use in clinical studies. Repligen and
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the United States Food and Drug Administration (the "FDA") have agreed on
additional clinical studies to support this process change for a new PF4
product form. During the first quarter of 1995, the Company filed an
Investigational New Drug ("IND") application for RG1001, the new PF4 product
form, and initiated a safety study in healthy volunteers and a bioequivalency
study in patients undergoing CABG with RG1001. These trials are expected to
be completed in the second half of 1995.
Cancer. Repligen believes that rPF4's ability to inhibit the process of
new blood vessel growth (angiogenesis) represents a novel approach to
inhibiting the growth of solid tumors and that rPF4 may be an effective
therapy for a variety of cancers. Solid tumor development is a complex
process that requires the establishment and expansion of a blood vessel
network through angiogenesis. As a tumor grows beyond microscopic size,
passive diffusion from neighboring tissue is no longer sufficient to meet the
nutritional demands of the tumor, and direct access to capillaries or blood
vessels becomes necessary. While the exact process of angiogenesis is not
fully understood, it is believed that new blood vessels form in response to
growth factors that stimulate endothelial cells (blood vessel lining cells).
Angiogenic growth factors are released by neighboring tissues that need
additional blood supply or by cancer cells. Once stimulated by these growth
factors, the endothelial cells proliferate and migrate to form the framework
for new capillaries and blood vessels. The inhibition of angiogenesis could
be effective in suppressing the growth and development of solid tumors.
Cancer is treated primarily with surgery, chemotherapy and radiation
therapy. These treatments often fail to prevent disease progression and
spread of cancer and may have serious side effects. By inhibiting the process
of angiogenesis, rPF4 offers a new approach to the treatment of cancer which
could be effective in treating a broad spectrum of cancers, since virtually
all tumors require angiogenesis in order to survive and grow.
In preclinical testing using several animal cancer models, Repligen has
shown that the administration of rPF4 significantly inhibits the growth of
solid tumors by a mechanism that is consistent with its anti-angiogenic
activity. Repligen believes that rPF4 may also be useful in retarding the
progression of Kaposi's sarcoma ("KS"), an AIDS-associated cancer which
produces tumors in the skin and internal organs and affects approximately
18,000 persons in the United States. In June 1992, the Company began Phase I
clinical trials of rPF4 for treatment of skin lesions of KS patients by
intralesional injection. No significant adverse reactions attributable to
rPF4 were reported during this safety study. In July 1993, Repligen began a
Phase II clinical trial of intralesional injection in KS patients. Interim
results of this study were reported at the conference of the American Society
of Clinical Oncology held in May 1994. Evidence of biologic activity, and no
significant adverse reactions to rPF4 were reported. A Phase I/II study to
evaluate the subcutaneous administration of rPF4 in KS patients was canceled
because it was duplicative to the aforementioned Phase II study. A Phase I/II
clinical study of systemic (intravenous) administration of rPF4 to KS patients
is in progress and is expected to be completed in the second half of 1995.
The Company has conducted several Phase I/II clinical studies of systemic
administration of rPF4 in patients with refractory solid tumors, including
patients with colon carcinoma, renal cell carcinoma, and malignant melanoma.
These studies demonstrated that systemic administration of the product was not
associated with clinically significant adverse events. Due to the current
limitation on clinical material and based on what Repligen has learned in the
Phase I and Phase I/II studies being conducted with respect to Kaposi's
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sarcoma, colon cancer and malignant melanoma/renal cell carcinoma, Repligen
now believes that it can focus on and pursue the clinical development of local
administration of rPF4 for brain tumors. A Phase I/II clinical study of
locally administered rPF4 in malignant glioma (brain cancer) has recently been
initiated. In this study, patients with recurrent disease undergo tumor
removal and a catheter is implanted into the site of the tumor bed. rPF4 is
then administered directly into the tumor bed. This study is expected to be
completed by the end of 1995. Repligen has been awarded two United States
patents, including a patent related to the systemic administration of rPF4 to
inhibit tumor growth, and has an exclusive license under four other U.S.
patents related to rPF4 and derivatives thereof which may have angiogenic
inhibitory activity.
Funding for the Company's rPF4 program is being provided primarily by the
Partnership. The Company granted the Partnership an exclusive, royalty-free
license to certain patent rights and other technology owned or controlled by
Repligen relating to rPF4 for human therapeutic use in the United States,
Canada and Europe (the "Territory"), subject to Repligen's right to repurchase
such patent rights and technology pursuant to terms which were agreed upon in
connection with the formation of the Partnership. Partnership funding is not
available to pay for Kaposi's sarcoma research, although marketing rights to
rPF4 for KS have been granted to the Partnership. See "Certain Contracts -
Product Development Agreement" and "Purchase Agreement."
Inflammation Inhibition Program
CD11b. The Company's inflammation inhibition program, initiated in
November 1990, is based on the use of monoclonal antibodies to CD11b, proteins
that appear on the surface of certain white blood cells called neutrophils, to
inhibit neutrophil-mediated inflammation and tissue damage. The Company has
initially targeted acute inflammatory conditions such as interstitial
pulmonary fibrosis (chronic lung inflammation) and thorocoabdominal aortic
aneurysm. The Company believes that these diseases may serve as models for
more complex diseases such as trauma, adult respiratory distress syndrome or
related disorders in which over-activation of the neutrophil may lead to
disease manifestations. The Company's rights with respect to the technology
employed in this program are derived from licenses to issued patents.
White blood cells, specifically neutrophils, normally protect the body
from bacteria. Once activated by a bacterial infection, neutrophils bind to
receptors on the endothelial cells that line the blood vessels. The
neutrophils then leave the vessel and congregate in the tissue at the
infection site where they eliminate bacteria by producing cytotoxic products.
In the absence of a bacterial infection, neutrophils can cause injury
following reperfusion, an event in which blood flow to tissue is interrupted
and subsequently restored. Restricted blood flow causes a lack of oxygen for
tissue adjacent to the restriction site, and neutrophil activation signals are
inappropriately produced. When blood flow is restored, the site is flooded
with activated neutrophils capable of damaging healthy tissue, resulting in
reperfusion injury. The activated neutrophils also can create secondary blood
stoppage by binding with each other and preventing complete blood flow
restoration.
Animal studies have demonstrated that antibody blocking of CD11b prevents
the neutrophils from binding to the blood vessel wall and entering otherwise
healthy tissue. Monoclonal antibodies to CD11b have demonstrated in animal
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models an ability to prevent tissue damage caused by the inappropriate white
blood cell activity that occurs during tissue reperfusion.
In June 1993, the Company began a Phase I clinical trial of its lead
anti-inflammation product candidate, a murine monoclonal antibody fragment
called m60.1, in patients with chronic lung inflammation. Repligen believes
that m60.1 may be used as a therapeutic to inhibit the acute inflammatory
response associated with organ transplantation, heart attack, adult
respiratory distress syndrome and trauma-induced shock. In September 1993,
the Company began a Phase I clinical trial in healthy volunteers. In November
1994, Repligen commenced a Phase I/II trial of m60.1 in thorocoabdominal
aortic aneurysm patients. During 1995, clinical trials with a humanized form
of the monoclonal antibody called h60.1 will begin.
In the United States, interstitial pulmonary fibrosis affects
approximately 14,000 patients annually. Nearly 90,000 patients are treated for
abdominal aortic aneurysms each year and adult respiratory distress syndrome
affects approximately 160,000 individuals annually.
In May 1992, the Company entered into a research, collaboration and
license agreement with Eli Lilly and Company ("Lilly") pursuant to which the
Company and Lilly agreed to develop, test and market antibody-based
anti-inflammatory therapeutics that have been under development at the
Company, and in particular antibodies and antibody fragments that bind to
CD11b. In June 1995, the Company and Lilly announced an extension of their
collaboration and licensing agreement through November 1996. Under the terms
of the new development and licensing agreement, Lilly will acquire
responsibility for commercial manufacturing of the products developed during
the collaboration. Repligen will receive significantly higher royalties on
sales of any products developed under the agreement and may receive certain
additional milestone payments, as set forth in the agreement.
Immune Modulation Program
Repligen's immune modulation program focuses on the manipulation of
costimulatory factors, molecules on the surface of certain immune system
cells, to suppress or activate an immune response. Repligen and its
collaborators identified B7-2, an important costimulatory factor. The Company
believes that potential product candidates could block the activity of B7-2
and thus suppress unwanted immune responses following transplantation and
could treat autoimmune diseases such as certain forms of multiple sclerosis,
rheumatoid arthritis and diabetes. The Company expects the first clinical
application for specific immune suppression will be to study the prevention of
graft rejection in transplant patients. The currently available treatments
are powerful drugs which prevent rejection but cause overall immune
suppression, leaving recipients dangerously vulnerable to infection. The
Company is also seeking other ways to manipulate the costimulatory pathway to
activate an immune response, including a technology to activate production of
T cells for cell replacement and a technology for gene therapy.
In July 1993, Repligen secured exclusive, worldwide rights under four
pending patent applications covering novel B7 costimulatory molecules and
their methods of use. Under the terms of an agreement with Dana-Farber Cancer
Institute ("Dana-Farber"), Repligen has exclusive rights, in therapeutic and
prophylactic fields, to one B7-1 patent application owned by Dana-Farber and
exclusive rights under three patent applications on B7-2 and related molecules
that are co-owned by Dana-Farber and Repligen. Dana-Farber will receive
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royalties from Repligen on net sales of products commercialized under the
agreement. Repligen and Dana-Farber have jointly filed patent applications on
B7-2 and related molecules.
Chemokine Program
Repligen is studying the family of proteins collectively called
chemokines. These proteins include PF4, interleukin 8 ("IL-8"), neutrophil
activating protein-2 ("NAP-2") and others, all of which are believed to play
important roles in directing and controlling the functions of various cell
types. The Company has identified key portions of several chemokines which
are responsible for neutrophil activation, movement of neutrophils into
tissues, inhibition of angiogenesis and stopping the growth of blood-forming
cells. Using this information, the Company has been successful in creating
novel molecules with enhanced activities which are desirable and with
decreased undesirable activities. The novel molecules may have therapeutic
utility in protecting blood-forming cells from the toxic effects of anti-
cancer drugs, and the protein structure/function information will assist the
Company in developing small organic molecules with specific therapeutic
applications. Repligen has also cloned two receptors for IL-8, an important
attractor and activator of certain white blood cells implicated in
inappropriate immune and inflammatory processes. The Company is seeking to
develop antagonists to the IL-8 receptor. Such antagonists may have a
beneficial effect in a variety of acute and chronic inflammatory disorders,
including asthma and rheumatoid arthritis.
To search for IL-8 receptor antagonists, Repligen used the cloned
receptors to develop a drug screening assay that is now being used to screen
libraries of chemical compounds. Preclinical data indicate that IL-8 and
related molecules may have direct utility in the treatment of asthma. The
Company plans to study the effects of IL-8 on asthma symptoms in animal models
of this disease.
Terminated Programs
Small Molecule (AM285) Program. Repligen had been developing small
molecules as novel therapeutics for cancer, viral diseases and other medical
conditions. These therapeutic agents are designed to regulate the means by
which energy is utilized within cells during tumor growth or viral infection.
In order for these diseases to progress, affected cells require more efficient
energy utilization than is needed for normal cell activity. Repligen believes
that regulating the use of energy in affected cells, therefore, will inhibit
tumor growth and viral replication. The energy that fuels a highly
specialized cell's metabolism is provided in part by the action of an enzyme
called creatine kinase ("CK"). A number of small molecules that regulate CK
have been synthesized and shown to inhibit viral replication and cancer cell
growth in preclinical animal models. From this group of compounds, AM285 had
been selected as Repligen's lead small molecule product candidate. In June
1994, the Company was awarded two United States patents related to the use of
AM285 and related small molecules as therapeutics for cancer and viral
diseases.
In July 1994, the Company elected to discontinue this program in order to
focus its limited financial resources on other programs. The Company is
actively seeking a partner to license this technology.
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HIV Vaccine Program. In June 1993, the Company initiated a Phase I human
clinical trial of its lead AIDS product candidate, RP400c, a peptide-based
therapeutic vaccine that may slow or block the progression of viral infection
in individuals who are HIV- infected. The selected vaccine candidate is a
subunit vaccine based on the V3 loop, a small segment of the HIV envelope
protein, that Repligen discovered was the principal neutralizing determinant
of the virus. The therapeutic vaccine program is based upon the Company's
discovery that antibodies capable of neutralizing the virus can be produced in
response to the V3 loop. In July 1994, the Company elected to discontinue
this program in order to focus its limited financial resources on other
programs.
Commercial Products
Recombinant Protein A. Protein A is a naturally occurring molecule in
bacteria which has the ability to bind tightly to certain classes of
antibodies. The Company has developed and produces recombinant Protein A
("rProtein A") in sufficient quantity and of sufficient quality to be used in
the commercial production of purified antibodies.
The development, manufacture and marketing of rProtein A has been funded
and conducted by Repligen without the assistance of a commercial partner.
Repligen sells rProtein A directly and through distributors, including Itochu
Techno Chemical, Ltd. (Japan), Kem-En-Tec (Denmark), Pelichem A.G.
(Switzerland), Atlas Bioscan Ltd. (United Kingdom), Tarom Applied Technology
(Israel) and Inter Medico (Canada).
In August 1991, the United States Patent and Trademark Office (the "PTO")
ruled in favor of Repligen in an interference proceeding with Pharmacia AB
involving competing patent applications for rProtein A. A cross-licensing
agreement between the Company and Pharmacia AB with respect to rProtein A
remains in effect. Repligen has now been awarded patents covering rProtein A
in the United States, Europe and Canada. In addition, the Company has been
awarded patents in the United States covering a modified version of Protein A.
Diagnostic Reagents. Repligen is selling reagents that are used in
diagnostic test kits. These test kits are used to detect the presence of
antibodies circulating in the blood stream. The Company does not intend to
become a kit manufacturer.
Certain Contracts
Lilly Agreement. On May 15, 1992, the Company and Lilly entered into a
Research, Collaboration and License agreement (the "Lilly Agreement"), whereby
the Company granted Lilly the exclusive license to use and sell products
utilizing antibodies, antibody fragments and engineered polypeptides that bind
to CD11b. Lilly received exclusive, worldwide marketing and sales rights for
products resulting from the collaboration. Repligen retained manufacturing
rights for any products produced under the Lilly Agreement. Marketing and
sales rights for certain other products resulting from the collaboration will
be available to Repligen.
Under the terms of the agreement, Lilly paid the Company $3,250,000 for
past research and development and $500,000 for the grant of the license. In
addition, subject to Lilly's right to terminate the agreement upon six months
notice, Lilly will pay the Company certain amounts for research and
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development pertaining to CD11b performed by the Company through February
1995. If the Company attains certain milestones, Lilly is obligated to make
additional payments to the Company. The Company also will receive royalties
from Lilly based on sales of any products developed under the agreement. In
conjunction with this agreement, Lilly paid the Company $4,000,000 for the
purchase of 283,286 shares of the Company's common stock. During the fiscal
year ended March 31, 1995, the Company recognized $6,262,000 of revenue
(approximately 37% of the Company's total revenue) pursuant to the Lilly
Agreement.
In June 1995, the Company and Lilly announced an extension of their
collaboration and licensing agreement through November 1996. Under the terms
of the new development and licensing agreement, Lilly will acquire
responsibility for commercial manufacturing of the products developed during
the collaboration. Repligen will receive significantly higher royalties on
sales of any products developed under the agreement and may receive certain
additional milestone payments, as set forth in the agreement.
Product Development Agreement. In February 1992, the Partnership sold 900
units of limited partnership interest with aggregate gross proceeds to the
Partnership of approximately $45 million. A wholly-owned subsidiary of the
Company, Repligen Development Corporation, serves as the general partner of
the Partnership (the "General Partner"). Each unit of limited partnership
interest was sold for $50,000 and entitled the investor to receive 2,900
warrants to purchase shares of the Company's common stock.
In connection with the organization of the Partnership, the Company and
the Partnership entered into a certain Product Development Agreement, dated
February 28, 1992 (the "Product Development Agreement"). Pursuant to the
terms of the Product Development Agreement, the Company granted to the
Partnership an exclusive, royalty-free license to certain patent rights and
other technology owned or controlled by the Company relating to the
manufacture, use and sale of rPF4-related products covered by such agreement
(the "Products"). The license granted to the Partnership is limited to
Background Technology (as defined in the Product Development Agreement)
necessary or materially useful for the development and commercialization of
Products for human therapeutic use in the Territory (the "Field of Activity").
The Product Development Agreement requires the Company, to the extent
permitted by Partnership funds, to use its best efforts to perform the
research and development necessary to engage in the Field of Activity (the
"Research Program") and seek to obtain approval from the FDA for the sale of
products that may be developed utilizing the licensed technology. The
Partnership is required to reimburse the Company for its research and
development expenses on behalf of the Partnership, plus a management fee of
ten percent (10%) of such expenses. If at any time the Partnership's funds
(or any additional funds provided by the Company) shall have been expended and
no FDA marketing approval shall have been received for the sale by or on
behalf of the Partnership of any Product in the Field of Activity, the General
Partner will determine the amount of additional funds required by the
Partnership in the upcoming year, and the Company will have the right to
contribute such funds to the Partnership. Any such contribution will not
result in dilution of the limited partners' interest in the Partnership.
During the fiscal year ended March 31, 1995, the Company recorded revenue from
the Partnership in the aggregate of $4,902,000, consisting of (i) research and
development expenditure reimbursement of $4,352,000 and (ii) management fees
of $550,000 pursuant to the Product Development Agreement.
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The Company has agreed to use its best efforts to manufacture and market
the Products in the Field of Activity directly or through third parties in the
Territory (the "Marketing Program"). The Company will have the right but not
the obligation to bring patent infringement actions against third parties that
infringe any of the Partnership's rights with respect to the Technology. The
Company will pay all expenses incurred in connection with such infringement
action, subject to a limited right of reimbursement by the Partnership.
Prior to the end of each quarter of each year, commencing on June 30,
1992, the General Partner will review the progress of the Research Program and
the Marketing Program during the preceding three-month period to determine
whether the continuation of all or any part thereof is in the best interests
of the limited partners of the Partnership. If at any time the Board of
Directors of the General Partner determines that the Research Program is
infeasible or uneconomic and should be discontinued with respect to all
Products, or if the Board of Directors of the General Partner determines not
to contribute the additional funds to the Partnership which are determined by
the General Partner to be required when all Partnership funds have been
expended and no FDA marketing approval has been received for the sale of any
Product in the Field of Activity, the Product Development Agreement and the
Purchase Option (as defined below under "Purchase Agreement") will terminate.
In order for the Company to fulfill its obligations under the Product
Development Agreement, the Partnership granted to Repligen an exclusive
royalty-bearing right and license (the "Interim License") to make, use, modify
and improve the Technology within the Field of Activity. Upon the first
marketing approval of rPF4 by the FDA, the Partnership will receive a payment
equal to twenty percent (20%) of the aggregate capital contributions of all
limited partners payable at the Company's option in cash or in Common Stock
(the "Milestone Payment"). During the term of the Interim License, the
Partnership will receive royalty payments within 60 days after the end of each
calendar quarter based on sales by Repligen, initially equal to 12.85% of Net
Revenues on any sales of rPF4 (the "Interim License Payments"). Such payments
may be reduced if sales in Europe are made through sublicensees or other third
parties. "Net Revenues" is defined as the proceeds from sales in the
Territory of rPF4 or any product used, or having regulatory approval for use,
in lieu of rPF4, or obviating the use of rPF4 (a "Competitive Product")
received by the Company, any affiliate of the Company or any licensee or
sublicensee of the Company (excluding sales to any Affiliate, licensee or
sublicensee for resale), less certain trade discounts, allowances, taxes and
commissions. The Interim License will terminate if Repligen does not exercise
the Purchase Option, but royalties on sales of competitive products will be
payable until the fifth anniversary of the expiration or termination of the
Purchase Option.
Purchase Agreement. Also in connection with the organization of the
Partnership, the Company and the Partnership entered into a certain Purchase
Agreement, dated February 28, 1992 (the "Purchase Agreement"). Under the
terms of the Purchase Agreement, each of the limited partners of the
Partnership granted the Company an irrevocable option (the "Purchase Option")
to purchase its interest in the Partnership. The Purchase Option is
exercisable only if all interests are to be purchased and such option is
exercised by sending a notice to all limited partners on a date during the
forty-five day period commencing on the date which is the earlier of (i) the
date which is the later of the last day of the first month in which the
Partnership shall have received Interim License Payments equal to fifteen
percent (15%) of the limited partners' capital contributions (excluding the
Milestone Payment) and the last day of the twenty-fourth month period after
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the date of the Company's first commercial sale of any Product within the
Field of Activity and (ii) the last day of the forty-eighth month after the
date of such first commercial sale.
The Purchase Option will terminate upon the occurrence of any of the
following termination events: (i) the bankruptcy of the Company, (ii) the
cessation of operations by the Company, (iii) the seizure or attachment of all
or a substantial part of the Company's assets or (iv) the termination of the
Product Development Agreement. In addition, the Purchase Option will
terminate upon the earlier of (i) the Company's notice to the Partnership and
the limited partners that it does not intend to exercise the Purchase Option
or (ii) the expiration unexercised of the Purchase Option. Upon any such
termination, the Partnership will be free to license or sell the Technology.
If the Company exercises the Purchase Option, the Company will pay to each
limited partner an advance payment of $40,000 per interest plus certain
royalty payments, both of which are payable in the manner described below.
If, however, a limited partner elects pursuant to the Purchase Agreement to
receive one fixed payment of Common Stock in full satisfaction of his right to
receive the payments described in the preceding sentence, the Company shall
pay to such limited partner 2,750 shares of Common Stock per Unit (the "Fixed
Share Payment") subject to appropriate adjustments in the event of stock
splits, stock dividends, recapitalizations, mergers and similar appropriate
adjustments, less the amount which the Class B Limited Partner of the
Partnership will be entitled to receive, as described below. The Fixed Share
Payment for each Class A Limited Partnership Interest will be reduced by the
number of shares (the "Fixed Share Class B Threshold Amount") equal to the
quotient the numerator of which is (x) five percent (5%) of the amount which
all distributions with respect to such interest plus the value of the
aggregate Fixed Share Payment have exceeded $50,000 (unless Payout (as defined
in subparagraph 4.1.1 of the Partnership Agreement) has occurred under the
Partnership Agreement, in which case five percent (5%) of the value of the
aggregate Fixed Share Payment shall be the numerator) and the denominator of
which is (y) the average closing price per share of the Common Stock for the
15 trading days immediately preceding the fifth trading day prior to the
purchase date. The advance payment may be paid, at the Company's option, in
(i) cash or (ii) Common Stock in an amount equal to the number of shares of
Common Stock obtained by dividing $40,000 by ninety-five percent (95%) of the
average closing price per share of Common Stock for the 15 trading days
immediately preceding the fifth trading day prior to the date the Purchase
Option is exercised (subject to adjustments as aforesaid).
Under the terms of the Purchase Agreement, the Company agreed that it
will, on or prior to the date that it exercises the Purchase Option, register
under the Securities Act of 1933, as amended, all shares of Common Stock to be
delivered to Investors under the Purchase Agreement. Shares of Common Stock
may be used to make the advance payment only if they are then listed on a
national securities exchange or quoted on the Nasdaq National Market System.
In addition to the advance payment described above, but subject to the
limitations stated below, each Class A Limited Partner that has not elected to
receive the Fixed Share Payment will receive quarterly payments equal to such
Class A Limited Partner's pro rata portion (based on the ratio that such Class
A Limited Partner's capital contribution to the Partnership bears to the
aggregate capital contributions of (i) all limited partners or (ii) after the
Class B Threshold Date (as defined below), all Class A Limited Partners) of
twelve percent and 85/100 percent (12.85%) of revenues on sales of Products
in the Field of Activity; provided that such payments may be reduced if such
13
sales in Europe are made through sublicensees or other third parties. After
each Class A Limited Partner has received payments pursuant to the Purchase
Agreement aggregating seven hundred percent (700%) of its capital
contribution, such royalties will be reduced to seventy-five percent (75%) of
the amounts stated above, and after each such Class A Limited Partner has
received payment pursuant to the Purchase Agreement aggregating one thousand
percent (1,000%) of its capital contribution, such royalties will be reduced
to thirty-three and one-third percent (33 1/3%) of the amount stated above.
Beginning with the first day (the "Class B Threshold Date") of the calendar
quarter following the calendar quarter by the end of which each Class A
Limited Partner will have received distributions pursuant to the Partnership
Agreement and the Purchase Agreement in an aggregate amount equal to or
greater than $50,000 for each Unit (or $25,000 for each half Unit) owned by
such Class A Limited Partner, the Class A Limited Partners will receive only
ninety-five percent (95%) of the above royalties. Such royalties will
terminate on the last day of the calendar quarter in which the eleventh
anniversary of the Purchase Date occurs (the "Cut-Off Date"). Under the terms
of the registration statement filed in March 1994 (see "1994 Exchange Offer")
the holders of Limited Partner Warrants and Class B Warrants had the option to
exchange their existing warrants for new warrants with an exercise price
reduced from $22.73 to $9.00. In addition, the initial royalty rate will be
reduced from 12.85% to 9.00% and the warrant exercise period will be extended
for one year, until March 31, 2000. Acceptance of this offer constituted an
agreement to amend the Purchase Agreement. In March 1995, Repligen offered to
modify the Existing Warrants and Exchange Warrants for those Limited Partners
who made all their installment payments (see "1995 Warrant Modification
Offer").
If the Company exercises the Purchase Option, the Class B Limited Partner
will receive (i) a number of shares of Common Stock equal to 5,500 multiplied
by the percentage of Class A Limited Partnership Interests being purchased
with Fixed Share Payments, (ii) the number of additional shares of Common
Stock equal to the Fixed Share Class B Threshold Amount (as defined above)
multiplied by the number of Class A Limited Partnership Interests being
purchased with Fixed Share Payments and (iii) an amount equal to the following
amounts multiplied by the percentage of Class A Limited Partnership Interests
not being purchased with Fixed Share Payments: A) an advance payment of
$80,000, payable in cash or stock in the same manner as described above for
Class A Limited Partners not receiving Fixed Share Payments, and (B) quarterly
payments equal to (x) prior to the Class B Threshold Date, the Class B Limited
Partner's pro rata portion (based on the ratio that the Class B Limited
Partner's capital contribution bears to the aggregate capital contributions of
all limited partners) of the royalties described in the preceding paragraph
and (y) beginning with the Class B Threshold Date and ending with the Cut-Off
Date, five percent (5%) of all such royalties.
The Purchase Agreement provides that, at any time after the Company has
purchased the interests, the Company will have the right to make offers to pay
cash or other consideration in satisfaction of its outstanding royalty payment
obligations under the Purchase Agreement. If at any time Class A Limited
Partners holding at least sixty-six and two-thirds percent (66 2/3%) in value
of the interests of all former Class A Limited Partners who are receiving
royalty payments ("Class A Royalty Payment Recipients") shall have accepted
the terms of any such offer, the Company will have the right, for 60 days
after the date on which such Class A Royalty Payment Recipients have indicated
acceptance, to prepay its obligations to all such Class A Royalty Payment
Recipients. Such prepayment will be on the terms of the most recent offer
accepted by such Class A Royalty Payment Recipients.
14
The Company also agreed to use its best efforts to manufacture Products
and to sell the Products for use in the Field of Activity or, if the Company
determines that such manufacture and sale is not commercially practicable, it
will use its best efforts to license or sell the Technology to a third party.
The Company is not permitted to assign, delegate or transfer its rights
under the Purchase Agreement (with certain exceptions) without the prior
written consent of (i) sixty-six and two-thirds percent (66 2/3%) of the Class
A Limited Partners from whom the Company has purchased the Class A Interests
for which the Company shall not have made all payments required to be made
pursuant to the Purchase Agreement and (ii) the Class B Limited Partner, which
consent shall not be unreasonably withheld. The Partnership Agreement
provides for the allocation among the limited partners of any proceeds
resulting from the assignment, delegation or transfer of the Company's rights
under the Purchase Agreement. The limited partners are not permitted to
assign, transfer, or sell their rights under the Purchase Agreement without
the prior written consent of the Company, which consent may be withheld in the
Company's absolute discretion, except that (i) the Limited Partners may assign
the Common Stock delivered to them pursuant to the Purchase Agreement and
(ii) the Class B Limited Partner may assign its rights to any present or
former officer(s) or director(s) of PaineWebber Development Corporation.
1994 Exchange Offer. In June 1994, Repligen completed an exchange offer
pursuant to which the Company offered to the holders (the "warrantholders") of
Limited Partner Warrants and Class B Warrants the opportunity to exchange
their existing warrants (the "Existing Warrants") for newly issued warrants
(the "Exchange Warrants"). Warrantholders holding warrants to purchase
approximately 2,069,150 shares of Repligen's common stock accepted the
exchange offer. The principal effects of acceptance of the exchange offer are
(i) the exercise price under the Exchange Warrants is $9.00 per share instead
of $22.73 per share under the Existing Warrants but will increase to $14.00
per share 90 days after the Company notifies the warrantholders that the
closing price of Repligen's common stock is equal to or exceeds $18.00 per
share for any 20 out of 30 consecutive trading days; (ii) an extension by one
year in the exercise period of the Exchange Warrants to March 31, 2000,
instead of March 31, 1999 for the Existing Warrants; and (iii) a reduction in
the royalty rate during the Royalty Period, as defined, to 9.00% of net
revenue from any sales of rPF4 instead of 12.85% of such net revenues as
currently provided for in the Purchase Agreement. Acceptance of the exchange
offer resulted in pro rata reductions in certain other royalties and amended
the Purchase Agreement between Repligen and each exchanging warrantholder.
The Company believes that the reduction in royalties payable under the
Purchase Agreement will facilitate its ability to fund rPF4 development costs
through the negotiation of joint venture or other collaboration arrangements
relating to rPF4 with third parties.
1995 Warrant Modification Offer. In March 1995, Repligen offered to
modify the Existing Warrants and Exchange Warrants as follows for those
Limited Partners who made all their installment payments:
Existing Warrants:
* Existing Warrants were modified to reduce the exercise price from
$22.73 per share to $9.00 per share;
* the exercise period was extended by one year to March 31, 2000; and
15
* the exercise price will increase to $14.00 per share 90 days after
Repligen notifies holders of Existing Warrants that the closing price
of Repligen's common stock is equal to or exceeds $18.00 per share for
20 out of 30 consecutive trading days.
Exchange Warrants:
* Exchange Warrants were modified to reduce the exercise price from
$9.00 per share to $2.50 per share for 1,000 shares and $3.50 per
share for 1,900 shares for each full Unit;
* the exercise period was extended by one year to March 31, 2001; and
* the exercise price will increase to $8.00 per share 90 days after
Repligen notifies holders of Exchange Warrants that the closing price
of Repligen's common stock is equal to or exceeds $12.00 per share for
20 out of 30 consecutive trading days.
Each holder of an outstanding warrant who made the fourth installment
payment is free to accept or reject these modifications. As of June 9, 1995,
601 of the 811 non-defaulted Class A Units had accepted the modifications.
Included in the operating loss for fiscal years 1995, 1994 and 1993 is
$1,150,000, $1,345,000 and $854,000, respectively, of amortization of the
aggregate value of the Existing Warrants and Exchange Warrants. The remaining
unamortized value of all warrants outstanding will be amortized in full during
the Company's fiscal year ending March 31, 1996. There will not be a
corresponding reduction in the respective royalty rates as a result of these
modifications.
Dana-Farber Agreement. In July 1993, Repligen secured exclusive,
worldwide rights under pending patent applications covering novel B7
costimulatory molecules from Dana-Farber. Under the terms of the agreement
with Dana-Farber, Repligen has exclusive rights to B7-1 patent applications
owned by Dana-Farber in therapeutic and prophylactic fields. Repligen and
Dana-Farber have jointly filed patent applications on B7-2 and related
molecules. Dana-Farber will receive royalties from Repligen on net sales of
products commercialized under the agreement.
Patents, Licenses and Proprietary Rights
The Company seeks to protect its products and technologies under United
States and international patent laws and other intellectual property laws. As
of March 31, 1995, Repligen has been awarded approximately 75 patents in the
United States and foreign countries. In addition, the Company has licenses
and rights to obtain licenses (many of which are, or, if options are
exercised, will be, exclusive licenses) under patents and patent applications
which have been filed by its institutional collaborators.
In April 1993, the United States Patent and Trademark Office (the "PTO")
issued Repligen a patent covering the use of PF4 and rPF4 to neutralize
heparin. In February 1994, the PTO issued Repligen a patent for the systemic
administration of rPF4 to inhibit tumor growth in patients with metastatic
cancer. Patent applications have been filed by Repligen for these uses in
Canada, Europe and Japan and certain other uses of rPF4 in the United States,
Canada, Europe and Japan. See "Description of the Business of the Company -
rPF4 Program". In June 1994, the Company was awarded two United States
16
patents covering the use of AM285 and other related small molecules, one for
the treatment of viral infections and the other for inhibition of tumor
growth.
In November 1990, the Company entered into an exclusive, worldwide license
agreement with the University of Michigan under two issued U.S. patents and
corresponding foreign patent applications covering the use of monoclonal
antibodies capable of blocking CD11b to inhibit inflammation. In January
1991, the Company entered into an exclusive, worldwide license agreement with
the Fred Hutchinson Cancer Research Center for a hybridoma cell line
designated as 60.1 that secretes a monoclonal antibody capable of specifically
binding to the CD11b antigen. In July 1991, the Company obtained from Boston
University exclusive, royalty-bearing worldwide rights to certain patent
applications and technology related to Interleukin-8 receptor polypeptides.
In September 1991, Kabi Pharmacia AB licensed to the Company on an exclusive
basis a U.S. patent relating to the use of anti-CD11b and anti-CD18 antibodies
in reperfusion therapy. In May 1992, Repligen obtained from the University of
Michigan exclusive, royalty-bearing worldwide rights to certain patent
applications covering methods of immune modulation involving the B7/CD28
pathway. In September 1992, Rockefeller University licensed to the Company on
an exclusive, worldwide basis certain patent applications related to a
synthetic multiple antigen peptide system which could be used to develop AIDS
vaccines. One of the patent applications licensed from Rockefeller University
was issued a United States patent in July 1993. In April 1995, Repligen
notified Rockefeller University it was terminating the license agreement. In
September 1992, Repligen's wholly-owned subsidiary, Amira, Inc., obtained from
the University of Connecticut exclusive, royalty-bearing rights under an
issued United States patent covering the use of cyclocreatine to treat
ischemia in muscle tissue. In July 1993, Repligen secured exclusive,
worldwide rights under pending patent applications covering novel B7
costimulatory molecules from Dana-Farber. In July 1993, the Company secured
exclusive worldwide rights from Bristol-Myers Squibb under an issued U.S.
patent and pending foreign patent applications relating to the use of PF4 to
inhibit the growth and proliferation of neoplastic cells.
In addition, the Company has entered into a non-exclusive license
agreement with Stanford University for use of basic recombinant DNA technology
which is purportedly covered by three issued patents (the Cohen-Boyer patents)
belonging to Stanford University. In February 1992, the Company entered into
a license agreement with Texas A&M University for use of a patent covering
basic recombinant baculovirus expression vector systems ("BEVS") and methods
for the introduction and expression of heterologous genes in cultured insect
cells using BEVS. In addition, the Company has entered into a sublicense
agreement with Cambridge BioScience Corporation for the use of certain patents
pending or issued to the Harvard School of Public Health relating to gp120 and
gp160. The Company also has acquired license rights to a Kabi Pharmacia AB
patent covering methods for immobilization of Protein A for purification of
immunoglobulins.
All of the above licenses, with the exception of the Bristol-Myers Squibb
license and the Fred Hutchinson Cancer Research Center license, are subject to
the payment of royalties by Repligen.
It is not known how the PTO or a court will resolve issues that may arise
relating to the validity, scope and inventorship of patents owned by, or
licensed by, the Company. In general, the patent position of biotechnology
firms is highly uncertain and involves complex legal, scientific and factual
questions. Issues remain as to whether patent applications of the type made
17
by, or licensed by, the Company will ultimately be granted as well as to the
ultimate degree of protection or commercial benefit that will be afforded to
Repligen by any patents issuing from such applications. There can be no
assurance that any patents issued to, or licensed by, the Company will not be
infringed or circumvented by others or will provide any commercial benefit to
the Company.
The Company's products and processes might conflict with patents that have
been or may be granted to competitors, universities or others. Issues may
arise with respect to claims of others to rights in the Company's patents or
patent applications. As the biotechnology industry expands and more patents
are issued, the risk increases that the Company's processes and products may
give rise to claims that they infringe the patents of others. Such other
person could bring legal actions against Repligen or its commercial partners
claiming damages and seeking to enjoin them from manufacturing, marketing and
clinically testing the affected product or process. If any such action were
successful, in addition to any potential liability for damages, Repligen or
its commercial partners could be required to obtain a license in order to
continue to manufacture or market the affected product or to use the affected
process. No assurance can be given that Repligen or its commercial partners
could prevail in any such action or that any license required under any such
patent would be made available or, if available, would be available on
acceptable terms. Repligen expects that there may be significant litigation
in the industry regarding patent and other intellectual property rights and
that such litigation could consume substantial resources.
The Company requires all employees, members of the Scientific Advisory
Board, members of the Clinical Advisory Board, consultants and commercial
partners to agree to keep the Company's proprietary information confidential.
There can be no assurance, however, that these agreements will be honored.
Competition
Repligen is engaged in a business characterized by extensive research
efforts, rapid developments and intense competition. Competition can only be
expected to increase in the future. Repligen competes with specialized
biotechnology companies and large pharmaceutical companies, many of which have
more capital, more extensive research and development capabilities and greater
marketing and human resources than the Company.
With respect to the cancer and heparin reversal product candidates which
the Company is developing on behalf of the Partnership, Repligen is not aware
of any other efforts to develop rPF4 for therapeutic use. However, several
competitors in the pharmaceutical and biopharmaceutical industries have
substantial research programs underway in oncology utilizing a broad spectrum
of therapeutic approaches, including monoclonal antibody-, antisense-, and
gene therapy-based technologies. Repligen is aware of a compound, heparinase
I, in Phase I clinical study for post-surgical reversal of heparin. However,
several substitutes for heparin itself which may have anticoagulant
applications are currently under development which would not be reversible by
either rPF4 or protamine. There may be other angiogenesis inhibitors and
heparin neutralizers of which Repligen is unaware.
There are numerous competitors in the development of anti-inflammatory
molecules. At this time, it is impossible to determine which approach, if
any, currently being pursued will ultimately become successful, and
consequently, any one of Repligen's competitors has the potential to develop a
18
successful approach to inflammation inhibition. However, the Company believes
that its multiple approaches to the inhibition of inflammation are unique and
prosecutable by patents and may give the Company a potential competitive
advantage in this market.
Government Regulation
The Company's business activities are subject to extensive regulation for
safety and efficacy by numerous governmental authorities in the United States
and other countries. In the United States, the Company's activities are
subject to rigorous regulation by the FDA, and other Federal, state and local
agencies governing, among other things, research and development activities
and the testing, manufacturing, safety, effectiveness, labeling, storage,
record keeping, approval, advertising and promotion of the Company's current
products and any products which may be developed by the Company and its
commercial partners. Further, additional government regulation may be
established which could affect regulatory approval of the Company's products.
The standard process required by the FDA before a pharmaceutical agent may
be marketed in the United States includes (i) preclinical laboratory and
animal tests, (ii) submission to the FDA of an Investigational New Drug
("IND") application, which must become effective before human clinical trials
may commence, (iii) adequate and well-controlled human clinical trials to
establish the safety and efficacy of the drug in its intended indication, (iv)
submission to the FDA of a New Drug Application ("NDA") with respect to drugs
and a Product License Application ("PLA") with respect to biologics and (v)
FDA approval of the NDA or PLA prior to any commercial sale or shipment of the
drug or biologic. In addition to obtaining FDA approval for each product,
each domestic drug manufacturing establishment must be registered or licensed
by the FDA. Domestic manufacturing establishments are subject to inspections
by the FDA and by other Federal, state and local agencies and must comply with
FDA good manufacturing practices ("GMP") as appropriate for production.
Clinical trials are typically conducted in three sequential phases, which
may overlap. In Phase I, the initial introduction of the drug to humans, the
drug is tested for safety (adverse effects), dosage tolerance, mechanism of
action and metabolism. Phase II involves studies in a limited patient
population to (i) evaluate the effectiveness of the drug for specific targeted
indications, (ii) determine dosage tolerance and optimal dosage and (iii)
identify possible adverse effects and safety risks. When a compound is found
to be effective and to have an acceptable safety profile in Phase II
evaluations, Phase III trials are undertaken to further evaluate clinical
effectiveness and to further test for safety within an expanded patient
population at geographically dispersed clinical study sites. There can be no
assurance that Phase I, Phase II or Phase III testing will be completed
successfully within any specified time period, if at all, with respect to any
of the Company's products subject to such testing.
The process of completing clinical testing and obtaining FDA approval for
a new human drug or biologic is likely to take a number of years and require
the expenditure of substantial resources. Even after initial FDA approval has
been obtained, further studies may be required to provide additional data on
safety or to gain approval for the use of a product as a treatment for
clinical indications other than those for which the product was initially
tested. Also, the FDA may require post-marketing testing and surveillance
programs to monitor the drug's efficacy and side effects. Results of these
19
post-marketing programs may prevent or limit the further marketing of the
products.
Repligen's commercial partners are generally responsible for funding and
managing regulatory compliance necessary to commercialize their products
incorporating Repligen's products. The Company is responsible for funding and
managing regulatory compliance necessary for any products manufactured and
supplied by it. There can be no assurance that required regulatory approvals
for processes or products containing Company products will be sought or
obtained, that significant delays will not be encountered or that substantial
expenses will not be incurred.
Product Liability
The manufacturing, testing and marketing of products entails an inherent
risk of product liability. While the Company has taken and will continue to
take what it believes are adequate precautions, there can be no assurance that
it will avoid significant product liability exposure. The Company maintains
limited product liability insurance. There can be no assurance that adequate
insurance coverage will be available at acceptable costs, if at all, to cover
potential liability claims. An inability to obtain insurance at acceptable
costs or to otherwise protect against potential product liability claims could
inhibit or prevent the commercialization of products developed by the Company.
The obligation to pay any product liability claim or recall could have a
material adverse effect on the business or financial condition of the Company.
Employees
On March 31, 1995, the Company had 104 full-time employees. Of the 104
employees, 82 were engaged in research and development, operations and
production and 22 in administrative and marketing functions. Doctoral degrees
are held by 22 of the Company's full-time employees.
Item 2: DESCRIPTION OF PROPERTY
The Company's principal executive offices, primary research facilities and
microbial production pilot plant are located at One Kendall Square in
Cambridge, Massachusetts. The Company's facilities at One Kendall Square in
Cambridge currently occupies approximately 97,000 square feet containing 20
research laboratories, an animal facility, an on-site cell culture/virology
facility (including a BL-3 containment area), a pilot production facility
meeting GMP for the production of clinical materials and office space for both
scientific and administrative purposes. The Company's 44,600 square foot cell
culture and purification facility is located in Needham Heights,
Massachusetts. Approximately 25,000 square feet of this facility consisting
primarily of laboratory and office space have been subleased to T Cell
Sciences, Inc. The 10,500 square feet of laboratory space located at 83
Rogers Street, Cambridge, Massachusetts formerly occupied by Amira has been
subleased to BIODEVELOPMENT Laboratories, Inc.
The Company has available production capabilities for microbial
fermentation and purification in Cambridge. This intermediate stage
production facility has provided the Company's ability to produce clinical
grade materials in compliance with GMP. Prior to the commercial manufacture
and sale of any products currently being developed by it, the Company will
20
need to either engage a contract manufacturer or construct additional
manufacturing facilities and obtain appropriate licenses for such facilities
from regulatory authorities, including the FDA.
Item 3: LEGAL PROCEEDINGS
Not applicable.
Item 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders of the Company
through solicitation of proxies or otherwise, during the last quarter of the
fiscal year ended March 31, 1995.
21
PART II
Item 5: MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
Market Information
The Company's Common Stock is traded on the Nasdaq National Market System
under the symbol RGEN. The following table sets forth for the periods
indicated the high and low sale prices for the Common Stock as reported by
NASDAQ.
Fiscal 1994: High Low
- --------------------------------------------------- ----------- ----------
First Quarter $ 7 3/4 $ 5 1/2
Second Quarter 7 1/4 6
Third Quarter 10 1/2 6
Fourth Quarter 8 5
Fiscal 1995: High Low
- --------------------------------------------------- ----------- ----------
First Quarter $ 6 $ 3 1/4
Second Quarter 4 1/8 2 1/8
Third Quarter 3 3/8 1 5/8
Fourth Quarter 3 1/8 1 5/8
On June 15, 1995, the reported closing price of the Common Stock as
reported by NASDAQ was $2 5/16 per share.
Stockholders
As of June 15, 1995, there were approximately 1,220 stockholders of record
of the Company's common stock.
Dividends
The Company has not paid any dividends since its inception and does not
intend to pay any dividends on its Common Stock in the foreseeable future.
22
Item 6: SELECTED CONSOLIDATED FINANCIAL DATA
Years Ended March 31,
----------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
(In thousands, except per share amounts)
Operating Statement Data:
Revenues:
Research and development: $ 10,988 $ 19,392 $ 21,444 $ 6,658 $ 6,564
Product 3,885 4,947 2,113 1,998 1,026
Investment and other 2,069 2,494 3,765 3,003 2,659
---------- ---------- ---------- ---------- ----------
16,942 26,833 27,322 11,659 10,249
---------- ---------- ---------- ---------- ----------
Costs and expenses:
Research and development 31,012 35,919 30,705 13,741 11,696
Cost of goods sold 1,535 3,933 1,194 865 344
Selling, general and administrative 4,673 6,206 6,710 4,064 3,922
Interest 372 312 -- -- 1
Restructuring charge 11,300 -- -- -- --
Charge for acquired research and development -- -- -- 5,764 --
---------- ---------- ---------- ---------- ----------
48,892 46,370 38,609 24,434 15,963
---------- ---------- ---------- ---------- ----------
Net loss $ (31,950) $(19,537) $(11,287) $(12,775) $ (5,714)
========== ========== ========== ========== ==========
Net loss per common share $ (2.08) $ (1.53) $ (0.93) $ (1.14) $ (0.63)
========== ========== ========== ========== ==========
Weighted average common shares outstanding 15,356 12,788 12,085 11,218 9,048
========== ========== ========== ========== ==========
March 31,
----------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
(In thousands)
Balance Sheet Data:
Cash and investments $ 15,302 $ 29,215 $ 40,090 $ 38,685 $ 30,089
Total assets 31,330 59,611 63,483 54,191 37,051
Long-term debt -- -- 4,620 -- --
Accumulated deficit (111,520) (79,570) (60,033) (48,745) (35,971)
Stockholders' equity 15,576 46,737 48,877 50,937 33,791
23
- ---------------
No dividends were declared or paid during any of the periods presented.
Includes long-term investment securities of $ -- , $ -- , $4,591,000, $7,329,000 and $7,526,000,
respectively.
Item 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Repligen is a biopharmaceutical company engaged in the research,
development and manufacture of therapeutic products for human health care. A
substantial portion of the Company's revenues and expenses is associated with
research and development activities conducted in collaboration with commercial
partners and Repligen Clinical Partners, L.P. (the "Partnership"). The
Company also devotes significant resources to the research and development of
proprietary products and scale-up of research and manufacturing facilities.
In addition, the Company receives income from its investments and through the
sale of products that are manufactured by the Company. The Company has
incurred cumulative operating losses since its inception in 1981. As of
March 31, 1995, its accumulated deficit was $111,520,000. The Company
anticipates that without additional financing in calendar 1995 or early 1996
from either an offering by Repligen of its securities, from a third party
funding, or the merger of Repligen with or the acquisition of Repligen by an
entity capable of funding its operations, Repligen will be forced to curtail
or cease its operations.
Results of operations
Fiscal Year Ended March 31, 1995 Versus Fiscal Year Ended March 31, 1994
Revenues. Total revenues for fiscal 1995 were $16,942,000 as compared to
$26,833,000 in fiscal 1994, a decrease of $9,891,000. Research and
development revenues for fiscal 1995 decreased by $8,403,000 or 43% from
fiscal 1994 levels. This decrease reflects reduced product development funding
from Lilly with respect to the Company's inflammation inhibition (m60.1/h60.1)
program and from the Partnership with respect to rPF4. The decrease in
funding from Lilly in fiscal 1995 was caused by a decrease in the need for
process development, preclinical research and manufacturing activity as the
product under development has entered phase I/II trials. Revenues recognized
under the Lilly agreement totaled $6,262,000 in fiscal 1995. The decrease in
funding from the Partnership reflects a decrease in billings based on lower
levels of research activity and the decision of Repligen management to fund a
greater portion of the program out of its own cash reserves in order to
preserve the funds available of the Partnership. Research and development
revenues recognized under the rPF4 program totaled $4,352,000 in fiscal 1995.
In fiscal 1995, Repligen financed approximately $1,641,000 of the program with
its own funds through absorption of such expenditures.
Product revenues for fiscal 1995 were $3,885,000 compared to $4,947,000 in
fiscal 1994. The decrease of $1,062,000 or 21% was due to reductions in
product sales volume and contract manufacturing revenues resulting from a
24
supply arrangement obtained as part of the Company's acquisition of certain
assets from Abbott Biotech, Inc. in May 1992.
Investment income increased by $44,000 from fiscal 1994 levels due to
higher interest rates, offset in part by lower average funds available for
investment in fiscal 1995. Other revenues for the fiscal 1995 period
decreased by $469,000 from the comparable fiscal 1994 period due primarily to
a decrease in management fees received from the Partnership.
Expenses. During fiscal 1995, the Company substantially restructured its
operations in an effort to reduce its current rate of expenditures and
preserve its available cash and investment balances. In the second quarter,
the Company recorded a charge of $975,000 to cover severance costs and related
benefits, as well as certain rental losses associated with the sublease of
certain facilities. During the fourth quarter, the Company recorded a charge
of $10,325,000 to cover severance costs and related benefits, rental losses
associated with the sublease of certain facilities, the write-off of certain
leasehold improvements, equipment and intangible assets which will no longer
be utilized and to reserve for future operating lease payments for equipment
which will also no longer be utilized. The restructurings were done in order
to reorganize certain business operations and the Company's senior management
team to focus on the clinical development of certain lead product candidates.
The total restructuring charge of $11,300,000 included cash related
expenditures of $6,545,000 and a non-cash charge of $4,755,000. The cash
related expenditures consist of $2,035,000 of severance and related benefits
for approximately 140 terminated employees, $3,250,000 of future operating
lease payments for assets no longer being utilized, $940,000 of rental losses
associated with the sublease of surplus lab and office space, and $320,000 of
contract termination fees. Approximately $1,076,000 of these expenses were
paid during fiscal 1995 with the majority of the balance expected to be paid
during fiscal 1996. The non-cash charge related to leasehold improvements,
equipment and other intangibles no longer being utilized. See Note 2 of Notes
to Consolidated Financial Statements.
Research and development expenses for fiscal 1995 decreased by $4,907,000,
or 14%, from fiscal 1994 levels. The decrease in expenses reflects decreased
development activities, lower expenditures for clinical trials and the
Company's efforts to reduce costs and to focus its resources on the clinical
development of its two lead product candidates. The Company continues to be
committed to its research and development agreements with the Partnership and
Lilly and to moving these product candidates through clinical trials.
Cost of goods sold for fiscal 1995 decreased by $2,398,000 from the prior
fiscal year due primarily to decreased contract manufacturing revenues in
fiscal 1995. Cost of goods sold in fiscal 1995 were 40% of product revenues
versus 79% of product revenues for fiscal 1994. The decrease in this
percentage is the result of a change in product mix between fiscal years and
is attributable to higher margins experienced on contract manufactured
products shipped in fiscal 1995 which had been partly reserved in fiscal 1994
due to uncertainty in future shipments.
Selling, general and administrative expenses for fiscal 1995 decreased
$1,533,000 from fiscal 1994 due primarily to decreases in administrative
personnel and related expenses as part of the Company's cost reduction
efforts. Interest expense for fiscal 1995 reflects interest incurred by the
Company on its term loan with a bank and the increase from the comparable
fiscal 1994 period reflects increased interest rates.
25
Fiscal Year Ended March 31, 1994 Versus Fiscal Year Ended March 31, 1993
Revenues. Total revenues for fiscal 1994 were $26,833,000 as compared to
$27,322,000 in fiscal 1993, a decrease of $489,000. Research and development
revenues for fiscal 1994 increased by $1,698,000 or 10% from fiscal 1993
levels after exclusion of a one-time payment of $3,750,000 received in May
1992 from Eli Lilly and Company (Lilly) . This increase reflects product
development funding from the Partnership with respect to rPF4 and from Lilly
with respect to the Company's inflammation inhibition program. The increase
in funding from the Partnership and Lilly for fiscal 1994 is partially offset
by the lack of any research and development revenues from a supply agreement
with Abbott Laboratories that was completed in September 1992. Revenues
recognized under this agreement totaled $1,847,000 in fiscal 1993.
Product revenues for fiscal 1994 were $4,947,000 compared to $2,113,000 in
fiscal 1993. The increase of $2,834,000 or 134% is due to changes in product
sales volume and the timing of contract manufacturing revenues resulting from
a supply arrangement obtained as part of the Company's acquisition of certain
assets from Abbott Biotech, Inc. in May 1992.
Investment income decreased by $595,000 from fiscal 1993 levels due to
lower average funds available for investment and lower interest rates. Other
revenues for the fiscal 1994 period decreased by $675,000 from the comparable
fiscal 1993 period due primarily to the sale of the Company's 40% equity share
in Repligen Sandoz Research Corporation (RSRC) for $1,000,000 which was
recorded in fiscal 1993.
Expenses. Research and development expenses for fiscal 1994 increased
$5,213,000, or 17%, from fiscal 1993 levels. The increased expenses reflect
increased development activities and greater expenditures for clinical trials.
This increase also reflects the Company's continued commitment to its research
and development agreements with the Partnership and Lilly and to moving
product candidates through clinical trials.
Cost of goods sold for fiscal 1994 increased $2,739,000 from the prior
fiscal year due primarily to increased contract manufacturing revenues in
fiscal 1994. Cost of goods sold in fiscal 1994 were 79% of product revenues
versus 56% of product revenues for fiscal 1993. The increase in this
percentage is the result of a change in product mix between fiscal year
periods and is attributable to lower margins experienced on contract
manufactured products.
Selling, general and administrative expenses for fiscal 1994 decreased
$503,000 from fiscal 1993 due primarily to decreases in legal expenses,
relocation and recruitment costs and certain occupancy expenses. Interest
expense for fiscal 1994 reflects interest incurred by the Company on its term
loan with a bank.
Capital Resources and Liquidity
The Company's total cash, cash equivalents and marketable securities
decreased to $15,302,000 at March 31, 1995 from $29,215,000 at March 31, 1994,
a decline of $13,913,000, or 48%. This decrease is due in part to net losses
during the period of $31,950,000, offset primarily from noncash related
charges of $7,357,000 of depreciation and restructuring related charges,
reductions in receivables of $5,894,000 and an increase in accruals of
$4,483,000 which relates primarily to deferred restructuring related costs.
26
Working capital decreased to $9,070,000 at March 31, 1995 from $32,517,000 at
March 31, 1994, reflecting primarily the loss for fiscal 1995.
The Company has funded operations primarily with cash derived from sales
of its equity securities, research and development contracts, product sales,
investment income, proceeds from a term loan with a bank, the sale of the
Company's share of a joint venture and leasing of certain equipment. In May
1992, the Company sold 283,286 shares of common stock pursuant to an agreement
with Lilly, which resulted in gross proceeds to the Company of $4,000,000.
The Company also entered into a research and development agreement with Lilly
which provided $6,262,000, $7,790,000 and $9,822,000 in research funding in
fiscal 1995, 1994 and 1993, respectively. In June 1995, the collaboration and
licensing agreement with Lilly was extended through November 1996. In
December 1992, the Company sold 320,000 shares of its common stock pursuant to
an agreement with Sandoz Pharma Ltd. which resulted in gross proceeds to the
Company of $4,000,000. The Company also sold its 40% equity interest in RSRC
to Sandoz Corporation for $1,000,000 in December 1992.
The Company is receiving research and development funding from the
Partnership pursuant to the Product Development Agreement. The Company
recognized $4,352,000, $10,762,000 and $6,832,000 of such funding as revenue
in fiscal 1995, 1994 and 1993, respectively. In 1993, the Partnership also
paid Repligen a one-time nonrefundable fee of $1,750,000 as reimbursement for
research and development related to the technology developed by Repligen prior
to the formation of the Partnership. Repligen anticipates that it will need
approximately $60,000,000 to complete the remainder of the rPF4 Research
Program, to obtain all FDA and other regulatory approvals and to commence
sales of any rPF4 Products. Although the Company's working capital and
capital requirements may change, the Company estimates that it has funds
sufficient to continue the rPF4 Research Program and its other current
operations until at least March 31, 1996, based on the receipt, as at June 9,
1995, of $10,811,000 in aggregate payments by the Limited Partners of their
fourth installment on their Investor Notes and assuming no additional payments
are made. Thus, without additional financing in calendar 1995 or early 1996
from either an offering by Repligen of its securities, from third party
funding, or the merger of Repligen with or the acquisition of Repligen by an
entity capable of funding the rPF4 Research Program, Repligen and the
Partnership will not have sufficient funding to complete the rPF4 Research
Program and Repligen will be forced to curtail or cease its operations. In the
event that Repligen is unable to continue the rPF4 Research Program on behalf
of the Partnership, it is obligated under the Purchase Agreement to use its
best efforts to license or sell the Technology to a third party. Given the
current market for biotechnology securities, Repligen does not believe that an
offering of its securities sufficient in aggregate amount to fund the
remainder of the rPF4 Research Program is currently feasible. Repligen is
currently at the preliminary stages of discussing with various pharmaceutical
companies a joint venture pursuant to which such pharmaceutical company would
fund the remaining rPF4 Research Program along with Repligen and together they
would manufacture and market any rPF4 Products. Because such discussions are
at a preliminary stage, the terms of any such joint venture are not known.
Any such third party may seek to modify the Product Development Agreement
and/or the Purchase Agreement, possibly including a reduction in the royalty
rates payable to the Limited Partners under such agreements. Any such
amendment would require the consent of the Limited Partners. In addition, any
such third party may require that the Partnership be a party to any such joint
venture agreement, which may also require the consent of the Limited Partners.
27
The General Partner periodically reviews the progress of the Partnership's
research program to determine whether the continuation of all or any part
thereof is in the best interest of the Limited Partners of the Partnership. If
at any time the Board of Directors determines that such research is infeasible
or uneconomic and should be discontinued or otherwise determines that the
program should be discontinued, or if the Board of Directors of the Company
determines not to contribute the additional funds to the Partnership which are
determined to be required when all Partnership funds have been expended and no
FDA marketing approval has been received for any product developed by the
Partnership, the Product Development Agreement will terminate. The Company
believes that rPF4 may be useful (i) as a neutralizing agent to reverse the
anticoagulant effects of heparin and (ii) as a therapy in the treatment of
certain solid tumor cancers. Repligen is committed to the rPF4 development
program and intends to finance it with third party funding and Repligen's and
the Partnership's remaining funds.
Repligen has entered into certain operating lease agreements which require
the Company to maintain certain restrictive covenants. The Company was not in
compliance with certain of these covenants at March 31, 1995 and anticipates
that it will not meet these financial covenants during 1996, resulting in all
future payments under these leases being immediately payable. As of March 31,
1995, $5,720,000 was due on these operating leases, of which $3,250,000 was
included in the accrued restructuring charge.
In March 1993, the Company entered into an unsecured term loan agreement
with a bank whereby the bank loaned the Company $4,620,000 at such bank's base
rate plus one-half of one percent. The loan matured in May 1995 and was
subsequently paid in full. In addition, the Company has a $4,000,000
unsecured demand line of credit with a bank which was unused at March 31,
1995. This line of credit expires on June 30, 1995. The applicable interest
rate on such line of credit, if used, is at such bank's base rate.
Capital expenditures for fiscal 1995 and 1994 were $556,000 and
$3,804,000, respectively. These expenditures were partially financed through
equipment operating leases that provided $363,000 and $1,127,000 of operating
lease financing in fiscal 1995 and 1994, respectively. The capital
expenditures in fiscal 1995 and 1994 primarily reflect the purchase of
research, development and manufacturing equipment.
In connection with the acquisition of Amira in November 1991, the Company
may in the future be required to pay up to an additional $5,250,000 in shares
of the Company's Common Stock upon the achievement of certain product
development milestones by Amira or upon the sale or licensing of the
technology acquired in its acquisition of Amira.
28
Item 8: FINANCIAL STATEMENTS
REPLIGEN CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Public Accountants 29
Consolidated Financial Statements:
Consolidated Balance Sheets at March 31, 1995 and 1994 30
Consolidated Statements of Operations for Years
Ended March 31, 1995, 1994 and 1993 32
Consolidated Statements of Stockholders' Equity for Years
Ended March 31, 1995, 1994 and 1993 33
Consolidated Statements of Cash Flows for Years
Ended March 31, 1995, 1994 and 1993 34
Notes to Consolidated Financial Statements 36
29
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Repligen Corporation:
We have audited the accompanying consolidated balance sheets of Repligen
Corporation (a Delaware corporation) and subsidiaries as of March 31, 1995 and
1994, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended March
31, 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Repligen Corporation and
subsidiaries as of March 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period
ended March 31, 1995, in conformity with generally accepted accounting
principles.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Boston, Massachusetts
May 17, 1995 (except with respect
to the matters discussed in Notes
12 and 13 as to which the date
is June 9, 1995)
30
REPLIGEN CORPORATION
CONSOLIDATED BALANCE SHEETS
March 31,
-------------------------------
1995 1994
-------------- --------------
ASSETS
Current assets:
Cash and cash equivalents $ 13,821,387 $ 27,655,061
Marketable securities 1,480,712 1,560,392
Accounts receivable, less reserves
of $300,000 and $205,000, respectively 1,686,902 2,626,048
Amounts due from affiliate 962,361 5,917,504
Inventories 1,213,379 1,310,335
Note receivable from affiliate 4,620,000 4,620,000
Prepaid expenses and other current assets 1,039,197 1,702,610
-------------- --------------
Total current assets 24,823,938 45,391,950
Property, plant and equipment, at cost:
Leasehold improvements 11,801,854 11,745,756
Equipment 7,625,094 7,491,980
Furniture and fixtures 869,590 865,541
-------------- --------------
20,296,538 20,103,277
Less -- accumulated depreciation and amortization 15,312,326 8,330,551
-------------- --------------
4,984,212 11,772,726
Restricted cash 1,000,000 1,000,000
Other assets, net 521,803 1,446,660
-------------- --------------
$ 31,329,953 $ 59,611,336
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,221,277 $ 2,025,858
Accrued expenses and other 9,709,292 5,226,018
Unearned income 203,000 1,002,740
Term loan payable to a bank 4,620,000 4,620,000
-------------- --------------
Total current liabilities 15,753,569 12,874,616
Commitments and contingencies (Notes 2, 9, 10 and 13)
Stockholders' equity:
Preferred stock, $.01 par value -- authorized --
5,000,000 shares -- outstanding -- none -- --
Common stock, $.01 par value -- authorized --
30,000,000 shares -- outstanding -- 15,357,030
shares and 15,302,675 shares
at March 31, 1995 and 1994, respectively 153,570 153,027
Additional paid-in capital 126,942,925 126,153,487
31
Accumulated deficit (111,520,111) (79,569,794)
-------------- --------------
Total stockholders' equity 15,576,384 46,736,720
-------------- --------------
$ 31,329,953 $ 59,611,336
============== ==============
The accompanying notes are an integral part of these consolidated financial statements.
32
REPLIGEN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended March 31,
-----------------------------------------------
1995 1994 1993
-------------- -------------- --------------
Revenues:
Research and development $10,988,567 $19,391,977 $ 21,444,153
Product 3,884,642 4,946,893 2,113,252
Investment income 1,424,558 1,380,672 1,976,019
Other 644,548 1,113,152 1,788,457
-------------- -------------- --------------
16,942,315 26,832,694 27,321,881
-------------- -------------- --------------
Costs and expenses:
Research and development 31,011,893 35,918,605 30,705,537
Cost of goods sold 1,535,026 3,932,732 1,193,698
Selling, general and administrative 4,673,580 6,206,511 6,709,895
Interest 372,133 312,007 --
Restructuring charge 11,300,000 -- --
-------------- -------------- --------------
48,892,632 46,369,855 38,609,130
-------------- -------------- --------------
Net loss $(31,950,317) $(19,537,161) $(11,287,249)
============== ============== ==============
Net loss per common share $ (2.08) $ (1.53) $ (0.93)
============== ============== ==============
Weighted average common shares outstanding 15,356,136 12,788,406 12,084,937
============== ============== ==============
The accompanying notes are an integral part of these consolidated financial statements.
33
REPLIGEN CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock
---------------------------------
Number of Additional Accumulated
Shares Par Value Paid-in Capital Deficit
--------------- --------------- --------------- ---------------
Balance, March 31, 1992 11,751,277 $117,513 $99,565,199 $(48,745,384)
Net loss -- -- --
(11,287,249)
Exercise of stock options 14,454 145 103,296 --
Contribution of common stock
to ESOP 31,058 310 294,741 --
Sale of common stock, net of
issuance costs of $25,707 603,286 6,033 7,968,260 --
Issuance of warrants in
connection with
Repligen Clinical Partners, L.P. -- -- 853,925 --
--------------- --------------- --------------- ---------------
Balance, March 31, 1993 12,400,075 124,001 108,785,421 (60,032,633)
Net loss -- -- -- (19,537,161)
Exercise of stock options 27,600 276 138,714 --
Sale of common stock, net of
issuance costs of $302,034 and
underwriters' commissions 2,875,000 28,750 15,884,216 --
Issuance of warrants in
connection with
Repligen Clinical Partners, L.P. -- -- 1,345,136 --
--------------- --------------- --------------- ---------------
Balance, March 31, 1994 15,302,675 153,027 126,153,487 (79,569,794)
Net loss -- -- -- (31,950,317)
Contribution of common stock
to ESOP 54,355 543 373,140 --
Issuance of warrants in
connection with
Repligen Clinical Partners, L.P.,
net of exchange warrants costs
of $733,613 -- -- 416,298 --
--------------- --------------- --------------- ---------------
Balance, March 31, 1995 15,357,030 $153,570 $126,942,925 $(111,520,111)
=============== =============== =============== ===============
The accompanying notes are an integral part of these consolidated financial statements.
34
REPLIGEN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended March 31,
---------------------------------------------------
1995 1994 1993
--------------- --------------- ---------------
Cash flows from operating activities:
Net loss $(31,950,317) $(19,537,161) $(11,287,249)
Adjustments to reconcile net loss to net cash used in
operating activities --
Depreciation and amortization 2,602,182 2,362,587 1,726,443
Contribution of common stock to ESOP 373,683 -- 295,051
Equity in earnings of joint venture -- -- (47,115)
Equity in net loss of an affiliate 65,766 138,709 112,199
Restructuring charge associated with the
write-off of leasehold improvements,
equipment and other intangibles 4,754,593 -- --
Changes in assets and liabilities
Accounts receivable 939,146 (1,510,362) 132,895
Amounts due from affiliates 4,955,143 (4,845,753) 1,521,008
Inventories 96,956 601,088 (1,498,874)
Prepaid expenses and other current assets 663,413 (286,918) 414,866
Accounts payable (804,581) (2,024,345) 3,523,368
Accrued expenses and other 4,483,274 745,825 1,753,271
Unearned income (799,740) (453,432) 1,456,172
--------------- --------------- ---------------
Net cash used in operating activities (14,620,482) (24,809,762) (1,897,965)
--------------- --------------- ---------------
Cash flows from investing activities:
Decrease (increase) in marketable securities 79,680 3,382,349 (4,942,736)
Decrease in investment securities -- 4,591,063 2,738,321
Increase in restricted cash -- -- (1,000,000)
Purchase of Abbott Biotech, Inc. assets --
Property, plant and equipment -- -- (5,455,346)
Intangible assets -- -- (600,000)
Purchases of property, plant and equipment, net (556,174) (3,804,404) (12,138,320)
Decrease (increase) in other assets 484,091 (199,633) 552,600
--------------- --------------- ---------------
Net cash (used in) provided by investing activities 7,597 3,969,375 (20,845,481)
--------------- --------------- ---------------
Cash flows from financing activities:
Proceeds from sales of common stock and issuance of
warrants, net of issuance costs and commissions 416,298 16,812,092 8,931,659
Proceeds from long-term debt -- -- 4,620,000
Proceeds from leasing transactions 362,913 1,126,951 8,392,798
--------------- --------------- ---------------
Net cash provided by financing activities 779,211 17,939,043 21,944,457
--------------- --------------- ---------------
35
Net decrease in cash and cash equivalents (13,833,674) (2,901,344) (798,989)
Cash and cash equivalents, beginning of year 27,655,061 30,556,405 31,355,394
--------------- --------------- ---------------
Cash and cash equivalents, end of year $ 13,821,387 $ 27,655,061 $ 30,556,405
=============== =============== ===============
Supplemental disclosure of cash flow information:
Cash paid for interest $ 372,133 $ 312,007 $ --
=============== =============== ===============
The accompanying notes are an integral part of these consolidated financial statements.
36
REPLIGEN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Operations and Significant Accounting Policies
Repligen Corporation (the "Company") is a biopharmaceutical company
engaged in the research, development and manufacture of therapeutic products
for human health care. The Company's product development programs are
primarily focused on three therapeutic areas: cancer, cardiovascular
conditions and immunology.
The Company has incurred significant operating losses since inception and
is currently undergoing a major restructuring of its operations (see Note 2).
The Company anticipates that without additional financing in calendar 1995 or
early 1996 from either an offering by the Company of its securities, from a
third party funding, or the merger of the Company with or the acquisition of
the Company by an entity capable of funding its operations, the Company will
be forced to curtail or cease its operations.
The accompanying consolidated financial statements reflect the application
of certain accounting policies described in this note and elsewhere in the
accompanying notes to consolidated financial statements.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All material intercompany accounts and
transactions have been eliminated in consolidation.
Revenue Recognition
Substantially all of the Company's research and development revenues are
derived from collaborative arrangements. Research and development revenue is
recognized as earned under cost plus fixed-fee contracts, or on a
straight-line basis over the development contract, which approximates when
work is performed and costs are incurred. In addition, under certain
contracts, the Company recognizes research and development revenues as
milestones are achieved. Unearned income represents amounts received prior to
recognition of revenue. Research and development expenses in the accompanying
consolidated statements of operations include funded and unfunded expenses.
See Note 12 for a discussion of research and development agreements.
The Company recognizes revenue related to product sales upon shipment of
the product.
Other revenue includes the management fee received from Repligen Clinical
Partners, L.P. The management fee revenue is recognized as earned. Also
included in other revenue for the year ended March 31, 1993 are $1,000,000 of
the proceeds from the Company's sale of its interest in Repligen Sandoz
Research Corporation ("RSRC") and a $260,000 dividend declared by RSRC.
37
Depreciation and Amortization
The Company provides for depreciation and amortization by charges to
operations in amounts estimated to allocate the cost of fixed assets over
their estimated useful lives, on a straight-line basis, as follows:
Description Life
- ---------------------- -----------------------------------------------------
Equipment 5 years
Furniture and fixtures 5-7 years
Leasehold improvements Shorter of term of the lease or estimated useful life
Marketable Securities
The Company adopted Statement of Financial Accounting Standards No. 115
"Accounting for Certain Investments in Debt and Equity Securities" ("SFAS
No.115") effective March 31, 1994. Under SFAS No. 115, securities that the
Company has the positive intent and ability to hold to maturity are classified
as "held-to-maturity." These securities include cash, cash equivalents and
corporate bonds with maturities of less than one year. The held-to-maturity
securities are reported at amortized cost, which approximates fair market
value at March 31, 1995 and 1994. Securities purchased to be held for
indefinite periods of time, and not intended at the time of purchase to be
held until maturity, are classified as "available-for-sale" securities. These
securities consist of collateralized mortgage obligations with average
maturities in excess of 10 years. The Company also carries these investments
at amortized cost, which approximates fair market value at March 31, 1995 and
1994. The estimated fair market value of marketable securities is based
primarily on market quotations.
Net Loss Per Common Share
Primary net loss per common share has been computed by dividing net loss
by the weighted average number of shares outstanding during the period.
Common stock equivalents have not been included for any period, as the amounts
would be antidilutive. Fully diluted net loss per common share has not been
presented for any period, as the amounts would not differ from primary net
loss per common share.
Post-retirement Benefits
The Company has no obligation for post-retirement benefits.
Reclassifications
The Company has reclassified certain prior year information to conform
with the current year's presentation.
38
2. Restructuring Charge
During fiscal 1995, the Company substantially restructured its operations
in an effort to reduce its current rate of expenditures and preserve its
available cash and investment balances. In the second quarter, the Company
recorded a charge of $975,000 to cover severance costs and related benefits,
as well as certain rental losses associated with the sublease of certain
facilities. During the fourth quarter, the Company recorded a charge of
$10,325,000 to cover severance costs and related benefits, certain rental
losses associated with the sublease of certain facilities, the write-off of
certain leasehold improvements, equipment and other intangible assets that
will no longer be utilized and to reserve for future operating lease payments
for equipment that will also no longer be utilized. The restructurings were
done in order to reorganize certain business operations and its senior
management team to focus on the clinical development of certain lead product
candidates. The detail of the total restructuring charge is as follows:
Amount (000s)
-------------
Severance and related benefits for
approximately 140 terminated employees $ 2,035
Reserve for future operating lease payments
for assets no longer being utilized 3,250
Reserve for rental losses associated with
the sublease of surplus lab and office space 940
Contract termination fees 320
-------------
Cash related expenditures 6,545
Write-off of leasehold improvements, equipment
and other intangibles no longer being utilized 4,755
-------------
$11,300
=============
39
As of March 31, 1995, approximately $1,076,000 of the severance costs,
benefit costs and contract termination fees have been paid. The balance is