UNITED STATES
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, 2004
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________
Commission file number: 0-14656
REPLIGEN CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 04-2729386
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
41 Seyon Street Building #1, Suite 100, Waltham, Massachusetts 02453
(Address of Principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (781) 250-0111
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 Par Value Per Share
Series A Junior Participating Preferred Stock Purchase Rights
(Title of Class)
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes |X| No |_|.
The aggregate market value of the voting and non-voting common equity held by
non-affiliates as of September 30, 2003, the last business day of the
registrant's most recently completed second fiscal quarter, was approximately
$152,535,151.
The number of shares of outstanding of the registrant's common stock as of
June 10, 2004 was 30,039,485.
DOCUMENTS INCORPORATED BY REFERENCE
The Company intends to file a definitive proxy statement pursuant to Regulation
14A within 120 days of the end of the fiscal year ended March 31, 2004. Portions
of such proxy statement are incorporated by reference in Part III of this Form
10-K.
Item 1. BUSINESS.
The following discussion of our business contains forward-looking statements
that involve risks and uncertainties. When used in this report, the words
"intend," "anticipate," "believe," "estimate," "plan" and "expect" and similar
expressions as they relate to us are included to identify forward-looking
statements. Our actual results could differ materially from those anticipated in
these forward-looking statements and are a result of certain factors, including
those set forth under "Certain Factors that May Affect Future Results" and
elsewhere in this annual report on Form 10-K.
The Company
We are developing novel biological products for profound neuropsychiatric
disorders and autoimmune diseases. Our therapeutic product candidates are
secretin for schizophrenia and anxiety disorders, uridine for bipolar disorder
and CTLA4-Ig and Protein A for autoimmune diseases. Each of these products
represents a novel approach to therapy which may provide better outcomes for
patients than existing drugs.
Our business strategy is to maintain full commercial rights to our product
candidates through "proof of principle" clinical studies after which we may seek
corporate partners for further development and marketing. We partially fund the
development of our proprietary therapeutic product candidates with the profits
derived from the sales of our specialty pharmaceutical products. This will
enable us to independently advance our product candidates while at the same time
minimize our operating losses.
We were incorporated in May 1981, under the laws of the State of Delaware.
Our principle executive offices are at 41 Seyon Street, Waltham, Massachusetts
02453 and our telephone number is (781) 250-0111.
Neuropsychiatric Disorders
Schizophrenia is a serious, disabling and chronic mental disorder that
affects 2 million people in the United States. Schizophrenia is characterized by
thought disorders such as delusions or hallucinations, as well as social
withdrawal, lack of initiative, and blunting of emotional expression. Current
antipsychotic drugs are effective in reducing thought disorders in some patients
but have limited effects on the social withdrawal symptoms. The total cost for
the care and treatment of patients with schizophrenia in the United States in
2000 was $40 billion.
Secretin is a hormone produced in the small intestine that regulates the
function of the pancreas as part of the process of digestion. More recently,
secretin and its receptor have been found in the central nervous system,
suggesting a possible role as a neurotransmitter. We are conducting a
double-blind, placebo-controlled Phase 2 clinical trial to evaluate synthetic
human secretin, or as we sometimes refer to it, RG1068, in schizophrenic
patients who have symptoms that are refractory to existing drugs. The trial is
designed to extend clinical results published by investigators at the University
of North Carolina who conducted a double-blind, placebo-controlled study of a
single dose of secretin in 22 patients with schizophrenia in which several
subjects in the secretin-treated group were judged by the investigators to be
"much improved" on the Clinical Global Impression scale during the first week.
The Phase 2 trial will evaluate the potential of multiple doses of RG1068 to
treat the symptoms of schizophrenia, including both thought disorders and social
interaction deficits in patients who are often resistant to treatment with
existing antipsychotic therapy.
Anxiety disorders including Obsessive Compulsive Disorder, Post Traumatic
Stress Syndrome and Generalized Anxiety Disorder affect more than 20 million
people in the United States each year. We have demonstrated that one of the
targets of secretin in the brain is the amygdala, a region which is recognized
as the center of the fear and anxiety response. In a recent publication, we
demonstrated in collaboration with academic researchers that secretin is active
in an animal model of anxiety. We are currently planning a Phase 1 trial of
secretin in Obsessive Compulsive Disorder which we intend to initiate later this
year.
Bipolar disorder, also known as manic depression, is marked by extreme
changes in mood energy and behavior in which a person can alternate between
mania (highs) and depression (lows). Bipolar disorder affects
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more than 2 million adults in the United States. Current drug therapy for
bipolar disorder includes the use of lithium or valproic acid. However side
effects are frequent and troublesome, and patients don't respond fully, leading
to frequent recurrences of mania and depression.
Uridine is a naturally occurring molecule essential for the synthesis of
DNA, RNA and many aspects of protein, lipid and carbohydrate synthesis and
metabolism. We are evaluating the potential of uridine for bipolar disorder
depression and major depression. Preclinical studies conducted by academic
researchers have demonstrated that uridine is active in an established animal
model of depression. We have completed a Phase 1 trial of a prodrug of uridine
in patients with bipolar disorder or major depression and intend to initiate a
placebo-controlled Phase 2 trial of a pharmaceutical composition of uridine in
patients with bipolar disorder later this year.
Autoimmune Disease
In an autoimmune disease, the immune system mistakenly attacks the tissues
and organs of a person's own body. Autoimmune diseases such as rheumatoid
arthritis, multiple sclerosis, lupus, psoriasis and Crohn's disease afflict
millions of people in the United States and are often chronic, requiring
lifelong care and monitoring. Traditional treatment options were limited to
broadly acting immunosuppressive drugs which may suppress the autoimmune attack
but also suppress the ability of the immune system to fight infection, resulting
in potentially serious side effects. Recently, new therapies that target
specific components of the immune system have shown promise. However, many
patients experience no improvement or only a partial remission of symptoms. We
are developing two drug candidates, CTLA4-Ig and Protein A, which target
complimentary components of the immune system.
CTLA4 is a key regulator of the activity of the immune system which "turns
off" the immune system after it has successfully cleared a bacterial or viral
infection by blocking the activation of T-cells, the immune cells responsible
for activating an immune response. Animal and human studies have suggested that
a soluble form of CTLA4 ("CTLA4-Ig") may be useful in treating diseases such as
rheumatoid arthritis, multiple sclerosis, lupus, psoriasis and organ transplant.
In some animal models, the specific immunosuppressive effects of CTLA4-Ig have
been shown to persist after discontinuation of the drug. Thus, CTLA4-Ig may
provide a unique and potentially safer treatment for autoimmune disease than
current therapies. We are developing a form of CTLA4-Ig which may have wide
application in diseases characterized by over-activation of the immune system.
Initial clinical trials of CTLA4-Ig in normal volunteers and in patients with
Idiopathic Thrombocytopenic Purpura ("ITP") have shown that CTLA4-Ig is well
tolerated. We are currently conducting a Phase 1 trial of CTLA4-Ig in patients
with multiple sclerosis in collaboration with the Immune Tolerance Network, a
research consortium of the National Institutes of Health.
B-cells are specialized cells of the immune system which produce
antibodies that target viruses, bacteria and other foreign substances.
Antibodies directed toward healthy tissue have been implicated in several
autoimmune diseases and there is evidence that depleting B-cells may reduce the
symptoms of disease. Protein A is a naturally occurring protein which binds to
antibodies including those expressed on the surface of B-cells. Academic
researchers have recently shown in animals that Protein A can selectively
deplete a class of B-cells that is implicated in several autoimmune diseases. We
are investigating whether these findings can be extended to animal models of
autoimmune disease and cancers of B-cells ("lymphomas"). Pending successful
completion of preclinical studies, we intend to initiate a Phase 1 clinical
trial of a recombinant form of Protein A in 2005.
Protein A Products for Antibody Manufacturing
Protein A is widely used in the purification of therapeutic antibodies.
Most therapeutic monoclonal antibodies are manufactured by a process in which an
impure fermentation product containing the desired antibody product is passed
over a solid support to which Protein A has been chemically attached
("immobilized"). The immobilized Protein A binds the antibody product while
other impurities are washed away. The antibody is then recovered from the
support in a substantially purified form.
We manufacture and market several products based on recombinant Protein A
("rProtein A"). Our primary customers incorporate our rProtein A products into
their proprietary antibody purification systems that they sell
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directly to the biotechnology and pharmaceutical industry. The majority of our
product sales for the last three years have been sales of rProtein A products.
Sales of therapeutic antibodies have increased from $300 million in 1997
to approximately $6.0 billion in 2003. This growth is based on the increasing
use of therapeutic antibodies, including Rituxan(R) for lymphoma, Herceptin(TM)
for breast cancer, Synagis(TM) for RSV infection and Remicade(TM) for Crohn's
disease and arthritis. There are more than 100 additional monoclonal antibodies
in various stages of clinical testing which may lead to additional growth of the
antibody market and in turn, the demand for rProtein A.
SecreFlo(TM)
In October 1999, we licensed exclusive commercial rights to a diagnostic
product based on a synthetic form of porcine (pig-derived) secretin, which we
market as SecreFlo(TM), from ChiRhoClin, Inc. ("ChiRhoClin"), a private company.
ChiRhoClin is our sole supplier of SecreFlo(TM). SecreFlo(TM) is approved by the
U.S. Food and Drug Administration ("FDA") for diagnosing chronic pancreatitis,
gastrinoma (a form of cancer) and as an aid during endoscopic retrograde
cholangiopancreatography ("ERCP"), a gastrointestinal procedure. The FDA has
granted SecreFlo(TM) Orphan Drug Designation, which means it is the only form of
secretin marketed for these indications in the United States until 2009. (For
more information about recent developments regarding SecreFlo(TM), please see
"Patents, Licenses and Proprietary Rights - SecreFlo(TM).")
Repligen's Business Strategy
Our business strategy is to retain full commercial rights to our product
candidates until we demonstrate "proof of principle" in controlled clinical
trials, after which we may elect to complete product development or seek a
development and marketing partner. In order to cost effectively advance our
portfolio of product candidates, we seek to manufacture clinical trial materials
through outside contract vendors and to partially fund the development of our
proprietary therapeutic product candidates with the profits derived from the
sales of our specialty pharmaceutical products: rProtein A and SecreFlo(TM).
This will enable us to independently advance our proprietary drug development
programs while at the same time minimize our operating losses.
Sales and Marketing
We sell our rProtein A products primarily through value-added resellers
including Amersham Biosciences, Applied Biosystems, Inc. and Millipore
Corporation, and through distributors in certain foreign markets. We market
SecreFlo(TM) directly to gastroenterologists in the United States.
Customers
Customers for our rProtein A products include chromatography companies,
diagnostics companies, biopharmaceutical companies and laboratory researchers.
During fiscal 2004, the customers that accounted for more than 10% of our total
revenue were Amersham Biosciences and Cardinal Healthcare. During fiscal year
2003, we commenced selling SecreFlo(TM), a diagnostic product that is marketed
in the U.S., to hospital-based gastroenterologists.
Geographic Reporting
Of our fiscal 2004 revenue, 50% is attributable to U.S. customers and 50%
is attributable to foreign customers, of which 64% is attributable to three
customers. Of our fiscal 2003 revenue, 46% is attributable to U.S. customers and
54% is attributable to foreign customers, of which 66% is attributable to two
customers. Of our fiscal 2002 revenue, 35% is attributable to U.S. customers and
65% is attributable to foreign customers, of which 85% is attributable to three
customers.
Employees
As of June 7, 2004 we had 40 employees. Of those employees, 29 were
engaged in research, development and manufacturing and 11 in administrative and
marketing functions. Sixteen of our employees hold doctorates or
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other advanced degrees. Each of our employees has signed a confidentiality
agreement. None of our employees are covered by collective bargaining
agreements.
Patents, Licenses and Proprietary Rights
Our policy is to seek patent protection for our therapeutic product
candidates. We pursue patent protection in the United States and file
corresponding patent applications in relevant foreign jurisdictions. We believe
that patents are an important element in the protection of our competitive and
proprietary position, but other elements, including trade secrets, orphan drug
status and know-how, may also be important. We own or have exclusive rights to
more than 12 issued U.S. patents and corresponding foreign equivalents. The
terms of such patents expire at various times between 2004 and 2021. In
addition, we have rights to more than 20 U.S. pending patent applications and
corresponding foreign applications. The invalidation of key patents owned or
licensed by us or the failure of patents to issue on pending patent applications
could create increased competition, with potential adverse effects on our
business prospects. For each of our license agreements where we license the
rights to patents or patent applications, the license will terminate on the day
that the last to expire patent covered by each such license agreement expires.
We also rely upon trade secret protection for our confidential and
proprietary information. Our policy is to require each of our employees,
consultants, business partners and significant scientific collaborators to
execute confidentiality agreements upon the commencement of an employment,
consulting or business relationship with us. These agreements generally provide
that all confidential information developed or made known to the individual
during the course of the individual's relationship with us is to be kept
confidential and not disclosed to third parties except in specific
circumstances. In the case of employees and consultants, the agreements
generally provide that all inventions conceived by the individual in the course
of rendering services to Repligen shall be our exclusive property.
Therapeutic Secretin
We are currently prosecuting patent applications for the use of secretin
for the treatment of anxiety disorders and schizophrenia in the United States
and key foreign markets. In March 2003, the University of North Carolina ("UNC")
filed patent applications claiming the use of secretin for the treatment of
certain other behavioral disorders, including schizophrenia. In March 2004, we
exclusively licensed UNC's rights in this area, which is unrelated to
SecreFlo(TM).
CTLA4-Ig
We are the exclusive licensee of all CTLA4-Ig patent rights owned by the
University of Michigan ("Michigan"). In 1992, we licensed the rights to certain
CTLA4 related patent applications from Michigan. In 1995, we assigned these
patent rights to Genetics Institute, Inc. In 1996, Genetics Institute, Inc.
returned to us the entirety of those rights which relate to CTLA4-Ig. In 1999,
we executed an agreement with Genetics Institute and Michigan which ratified
Michigan's grant of an exclusive license of the CTLA4-Ig rights to us. In
February 2004, a U.S. Patent (the "CTLA4-Ig Use Patent") issued, to which we own
the exclusive rights through license agreements with Michigan and the U.S. Navy.
The CTLA4-Ig Use Patent has claims that cover the use of CTLA4-Ig to treat
rheumatoid arthritis, multiple sclerosis, and certain other autoimmune disorders
and is assigned to Michigan and the U.S. Navy. The CTLA4-Ig Use Patent expires
in 2021. In September 2002, we were granted a U.S. Patent which claims the
specific CTLA4-Ig product form that we are developing. (For more information on
our intellectual property rights to CTLA4-Ig, please see "Legal Proceedings.")
Uridine
In November 2000 and December 2000, Repligen entered into two License
Agreements (the "UCSD Uridine License Agreements") with the University of
California, San Diego ("UCSD") for certain patent applications pertaining to the
use of uridine and uridine derivatives for the treatment of mitochondrial
disease and purine autism. On June 21, 2001, Pro-Neuron, Inc. filed a complaint
(the "Pro-Neuron Complaint") against the Regents of the University of California
(the "Regents") and Repligen in the Superior Court of California, County of
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San Diego seeking to void the UCSD Uridine License Agreement relating to
treatment of mitochondrial disease entered into between Repligen and the UCSD.
Pro-Neuron subsequently amended the complaint to include the UCSD Uridine
License Agreement related to purine autism and claims for misappropriation of
trade secrets.
In June 2003, Repligen agreed to restructure the UCSD License Agreements
to exclude the field of acylated pyrimidines, including triacetyluridine, which
we sometimes refer to as RG2133. (For more information on our intellectual
property rights to uridine and related compounds for the treatment of
mitochondrial disease, please see "Legal Proceedings.")
In April 2004, a U.S. patent was issued to Repligen, which claims methods
of treating certain developmental disorders, including certain forms of autism,
with uridine compositions which expires in October 2020.
Protein A
We own a U.S. patent covering recombinant Protein A, which expires in
2009, as well as significant know-how in the manufacture of high-purity rProtein
A. We also own a U.S. patent covering modified forms of rProtein A, which was
non-exclusively licensed to Amersham Biosciences in 1998 as part of a ten year
agreement covering the supply of rProtein A to Amersham Biosciences.
In addition to its utility in antibody manufacture, Protein A may also be
useful in human therapy based on its activity as a B-cell toxin. Repligen has
exclusively licensed rights from the University of California, San Diego to a
patent application which claims a variety of potential therapeutic uses of
Protein A. Foreign equivalents of this patent application are also pending.
SecreFlo(TM)
In October 1999, we licensed exclusive commercial rights to a diagnostic
product based on a synthetic form of porcine (pig-derived) secretin, which we
market as SecreFlo(TM), from ChiRhoClin. ChiRhoClin is our sole supplier of
SecreFlo(TM). SecreFlo(TM) is approved by the U.S. Food and Drug Administration
("FDA") for diagnosing chronic pancreatitis, gastrinoma (a form of cancer) and
as an aid during endoscopic retrograde cholangiopancreatography ("ERCP"), a
gastrointestinal procedure. The FDA has granted SecreFlo(TM) Orphan Drug
Designation, which means it is the only form of secretin marketed for these
indications in the United States until 2009.
In February 2004, we terminated our Licensing Agreement with ChiRhoClin
for breach. We believe we have the right, in accordance with the terms of the
Licensing Agreement, to recover certain payments made to ChiRhoClin, totaling
approximately $5 million, from ChiRhoClin's share of royalties on sales of
SecreFlo(TM). We believe that ChiRhoClin is obligated to continue to supply
SecreFlo(TM) and that we retain the right to sell SecreFlo(TM) until such
payments have been recovered.
On June 8, 2004, we received a letter of termination from ChiRhoClin
disputing our termination of the license agreement for SecreFlo(TM) and
indicating that due to alleged material breaches by us, ChiRhoClin terminated
the Licensing Agreement. In accordance with its purported termination,
ChiRhoClin requested that we stop marketing the product immediately, and we
believe it is probable that ChiRhoClin will attempt to no longer supply us with
this product. (For more information on the ensuing arbitration proceeding,
please see "Legal Proceedings.")
Research and Development
For the past three years, we have devoted substantially all of our
resources on the research and development of therapeutic product candidates and
our specialty pharmaceutical products and product candidates discussed herein.
We spent $6,484,000 in fiscal 2004, $5,227,000 in fiscal 2003, and $5,361,000 in
fiscal 2002 on company-sponsored research and development activities.
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Competition
Our rProtein A and SecreFlo(TM) products compete on the basis of quality,
performance, cost effectiveness, and application suitability with numerous
established technologies. Additional products using new technologies that may be
competitive with our products may also be introduced. Many of the companies
selling or developing competitive products have financial, manufacturing and
distribution resources significantly greater than ours.
The field of drug development is characterized by rapid technological
change. New developments are expected to continue at a rapid pace in both
industry and academia. There are many companies, both public and private,
including large pharmaceutical companies, chemical companies and specialized
biotechnology companies, engaged in developing products competitive with
products that we have under development. Many of these companies have greater
capital, human resources, research and development, manufacturing and marketing
experience than we do. They may succeed in developing products that are more
effective or less costly than any that we may develop. These competitors may
also prove to be more successful than we are in production and marketing. In
addition, academic, government and industry-based research groups compete
intensely with us in recruiting qualified research personnel, in submitting
patent filings for protection of intellectual property rights and in
establishing corporate strategic alliances. We cannot be certain that research,
discoveries and commercial developments by others will not render any of our
programs or potential products noncompetitive.
Manufacturing
We currently rely, and will continue to rely, for at least the next few
years, on contract manufacturers to produce synthetic human secretin, uridine,
Protein A and CTLA4-Ig for use in our clinical trials. Our product candidates
will need to be manufactured in a facility by processes that comply with the
FDA's good manufacturing practices and other similar regulations. It may take a
substantial period of time to begin manufacturing our products in compliance
with such regulations. If we are unable to establish and maintain relationships
with third parties for manufacturing sufficient quantities of our product
candidates and their components that meet our planned time and cost parameters,
the development and timing of our clinical trials may be adversely affected.
Protein A for Antibody Manufacturing
We manufacture rProtein A products from recombinant strains of bacteria.
We manufacture rProtein A for Amersham Biosciences under a ten year supply
agreement which was initiated in December 1998. Certain fermentation and
recovery operations are carried out by third parties. The purification,
immobilization, packaging and quality control testing of rProtein A are
conducted at our facilities. We maintain an active quality assurance effort to
support the regulatory requirements of our customers. We purchase raw materials
from more than one commercially established company and believe that the
necessary raw materials are currently commercially available in sufficient
quantities necessary to meet demand.
SecreFlo(TM) (synthetic porcine secretin)
SecreFlo(TM), our secretin diagnostic product, is purchased from
ChiRhoClin who contracts with third parties for the synthesis of the drug
substance and the drug product. This company is our sole supplier for this
product. If this company is unwilling or unable to supply product, our revenues
and future cash flows will be negatively impacted, offset by a decrease in costs
associated with this product. (For more information about the arbitration
proceeding with ChiRhoClin, please see "Legal Proceedings").
Therapeutic Product Candidates
We rely upon contractors for both the procurement of raw materials and for
manufacturing the finished product. We purchase raw materials from more than one
commercially established company. Our necessary raw materials are currently
commercially available in quantities far in excess of the scale required to
complete all of our future planned Phase 2 and Phase 3 clinical trials.
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Government Regulation
The development of drug candidates, such as secretin, uridine, CTLA4-Ig
and Protein A are subject to regulation in the United States by the FDA and
abroad by foreign equivalents. Product development and approval within the FDA
regulatory framework usually takes a significant number of years and involves
the expenditure of substantial capital resources. Timelines for development are
uncertain.
Before clinical testing in the United States of any drug candidate may
begin, FDA requirements for preclinical efficacy and safety must be completed.
Required toxicity testing typically involves characterization of the drug
candidate in several animal species. Safety and efficacy data are submitted to
the FDA as part of an Investigational New Drug Application ("IND") and are
reviewed by the FDA prior to the commencement of human clinical trials.
Clinical trials involve the administration of the drug to human volunteers
or patients under the supervision of a qualified investigator, usually a
physician, with an FDA-approved protocol. Human clinical trials are typically
conducted in three sequential phases:
o Phase 1 clinical trials represent the initial administration of the
investigational drug to a small group of human subjects to test for safety
(adverse effects), dose tolerance, absorption, biodistribution,
metabolism, excretion and clinical pharmacology and, if possible, to gain
early evidence regarding efficacy.
o Phase 2 clinical trials typically involve a small sample of the actual
intended patient population and seek to assess the efficacy of the drug
for specific targeted indications, to determine dose tolerance and the
optimal dose range, and to gather additional information relating to
safety and potential adverse effects.
o Once an investigational drug is found to have some efficacy and an
acceptable safety profile in the targeted patient population, Phase 3
clinical trials are initiated to establish further clinical safety and
efficacy of the investigational drug in a broader sample of the general
patient population at multiple study sites in order to determine the
overall risk-benefit ratio of the drug and to provide an adequate basis
for product approval. The Phase 3 clinical development program consists of
expanded, large-scale studies of patients with the target disease or
disorder, to obtain definitive statistical evidence of the efficacy and
safety of the proposed product.
All data obtained from a comprehensive development program are submitted
in a New Drug Application ("NDA") to the FDA and the corresponding agencies in
other countries for review and approval. The NDA includes information pertaining
to clinical studies and the manufacture of the new drug. Review of an NDA by the
FDA can be a time-consuming process, and the FDA may request that we submit
additional data or carry out additional studies.
Available Information
We maintain a website with the address www.repligen.com. We are not
including the information contained on our website as a part of, or
incorporating it by reference into, this annual report on Form 10-K. We make
available free of charge through our website our annual reports on Form 10-K,
quarterly reports on Form 10-Q and current reports on Form 8-K, and amendments
to these reports, as soon as reasonably practicable after we electronically file
such materials with, or furnish such materials to, the Securities and Exchange
Commission.
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CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
Investors should carefully consider the risk factors described below
before making an investment decision.
If any of the events described in the following risk factors occur, our
business, financial condition or results of operations could be materially
harmed. In that case the trading price of our common stock could decline, and
Investors may lose all or part of their investment. Additional risks and
uncertainties that we are unaware of or that we currently deem immaterial also
may become important factors that affect Repligen.
This annual report on Form 10-K contains forward looking statements that
involve risks and uncertainties. Our actual results could differ materially from
those anticipated in these forward looking statements as a result of certain
factors, including the risks faced by us described below and elsewhere in this
annual report on Form 10-K.
We are dependent on others to develop, conduct clinical trials for, manufacture,
market and sell our principal products.
We conduct some of our development activities, and conduct most of our
commercialization activities, through collaborations. These collaborations
include academic researchers as well as contracts with vendors. Our
collaborations are heavily dependent on the efforts and activities of our
collaborative partners. Our existing and any future collaborations may not be
technically or commercially successful.
For example, if any of our collaborative partners were to breach or
terminate an agreement with us, reduce its funding or otherwise fail to conduct
the collaboration successfully, we may need to devote additional internal
resources to the program that is the subject of the collaboration, scale back or
terminate the program or seek an alternative partner, any of which could lead to
delays in development and/or commercialization of our products.
If our clinical trials are not successful, we will not be able to develop and
commercialize any related products.
In order to obtain regulatory approvals for the commercial sale of our
future products, we and our collaborative partners will be required to complete
extensive clinical trials in humans to demonstrate the safety and efficacy of
the products. We have limited experience in conducting clinical trials.
The submission of an IND may not result in FDA authorization to commence
clinical trials. If clinical trials begin, we or our collaborative partners may
not complete testing successfully within any specific time period, if at all,
with respect to any of our products. Furthermore, we, our collaborative
partners, or the FDA, may suspend clinical trials at any time on various
grounds, including a finding that the subjects or patients are being exposed to
unacceptable health risks. Clinical trials, if completed, may not show any
potential product to be safe or effective. Thus, the FDA and other regulatory
authorities may not approve any of our potential products for any indication.
The rate of completion of clinical trials is dependent in part upon the
rate of enrollment of patients. Patient enrollment is a function of many
factors, including the size of the patient population, the proximity of patients
to clinical sites, the eligibility criteria for the study, and the existence of
competitive clinical trials. Delays in planned patient enrollment may result in
increased costs and delays in completion of clinical trials.
We may not obtain regulatory approvals; the approval process is costly and
lengthy.
We must obtain regulatory approval for our ongoing development activities
and before marketing or selling any of our future products. We may not receive
regulatory approvals to conduct clinical trials of our products or to
manufacture or market our products. In addition, regulatory agencies may not
grant such approvals on a timely basis or may revoke previously granted
approvals.
The process of obtaining FDA and other required regulatory approvals is
lengthy and expensive. The time required for FDA and other clearances or
approvals is uncertain and typically takes a number of years, depending on the
complexity and novelty of the product. Our analysis of data obtained from
preclinical and clinical activities is
9
subject to confirmation and interpretation by regulatory authorities, which
could delay, limit or prevent regulatory approval. Any delay in obtaining or
failure to obtain required clearance or approvals could materially adversely
affect our ability to generate revenues from the affected product. We have only
limited experience in filing and prosecuting applications necessary to gain
regulatory approvals.
We also are subject to numerous foreign regulatory requirements governing
the design and conduct of the clinical trials and the manufacturing and
marketing of our future products. The approval procedure varies among countries.
The time required to obtain foreign approvals often differs from that required
to obtain FDA approvals. Moreover, approval by the FDA does not ensure approval
by regulatory authorities in other countries (or vice versa).
All of the foregoing regulatory risks also are applicable to development,
manufacturing and marketing undertaken by our collaborative partners or other
third parties.
Even if we obtain marketing approval, our products will be subject to ongoing
regulatory review which will be expensive and may affect our ability to
successfully commercialize our products.
Even if we receive regulatory approval of a product, such approval may be
subject to limitations on the indicated uses for which the product may be
marketed, which may limit the size of the market for the product or contain
requirements for costly post-marketing follow-up studies. The manufacturers of
our products for which we have obtained marketing approval will be subject to
continued review and periodic inspections by the FDA and other regulatory
authorities. The subsequent discovery of previously unknown problems with the
product, clinical trial subjects, or with a manufacturer or facility may result
in restrictions on the product or manufacturer, including withdrawal of the
product from the market.
If we fail to comply with applicable regulatory requirements, we may be
subject to fines, suspension or withdrawal of regulatory approvals, product
recalls, seizure of products, operating restrictions, and criminal prosecution.
If we are unable to obtain, maintain and enforce patents for our products, we
will not be able to succeed commercially.
We must obtain and maintain patent and trade secret protection for our
products and processes in order to protect them from unauthorized use and to
produce a financial return consistent with the significant time and expense
required to bring our products to market. Our success will depend, in part, on
our ability to:
o obtain and maintain patent protection for our products and
manufacturing processes;
o preserve our trade secrets;
o operate without infringing the proprietary rights of third parties;
and
o secure licenses from others on acceptable terms.
We cannot be sure that any patent applications relating to our products
that we will file in the future or that any currently pending applications will
issue on a timely basis, if ever. Since patent applications in the United States
filed prior to November 2000 are maintained in secrecy until patents issue and
since publication of discoveries in the scientific or patent literature often
lag behind actual discoveries, we cannot be certain that we were the first to
make the inventions covered by each of our pending patent applications or that
we were the first to file patent applications for such inventions. Even if
patents are issued, the degree of protection afforded by such patents will
depend upon the:
o scope of the patent claims;
o validity and enforceability of the claims obtained in such patents;
and
10
o our willingness and financial ability to enforce and/or defend them.
The patent position of biotechnology and pharmaceutical firms is often highly
uncertain and usually involves complex legal and scientific questions. Moreover,
no consistent policy has emerged in the United States and in many other
countries regarding the breadth of claims allowed in biotechnology patents.
Patents which may be granted to us in certain foreign countries may be subject
to opposition proceedings brought by third parties or result in suits by us
which may be costly and result in adverse consequences for us.
In some cases, litigation or other proceedings may be necessary to assert
claims of infringement, to enforce patents issued to us or our licensors, to
protect trade secrets, know-how or other intellectual property rights we own, or
to determine the scope and validity of the proprietary rights of third parties.
Such litigation could result in substantial cost to us and diversion of our
resources. An adverse outcome in any such litigation or proceeding could have a
material adverse effect on our business, financial condition and results of
operations.
If our competitors prepare and file patent applications in the United
States that claim technology also claimed by us, we may be required to
participate in interference proceedings declared by the U.S. Patent and
Trademark Office to determine priority of invention, which would result in
substantial costs to us.
We are currently and may in the future be involved in expensive patent
litigation or other intellectual property proceedings which could result in
liability for damages or stop our development and commercialization efforts.
There has been substantial litigation and other proceedings regarding the
complex patent and other intellectual property rights in the pharmaceutical and
biotechnology industries. We are a party to, and in the future may become a
party to, patent litigation or other proceedings regarding intellectual property
rights.
Other types of situations in which we may become involved in patent
litigation or other intellectual property proceedings include:
o We may initiate litigation or other proceedings against third
parties to seek to invalidate the patents held by such third parties
or to obtain a judgment that our products or services do not
infringe such third parties' patents.
o If our competitors file patent applications that claim technology
also claimed by us, we may participate in interference or opposition
proceedings to determine the priority of invention.
o If third parties initiate litigation claiming that our processes or
products infringe their patent or other intellectual property
rights, we will need to defend against such claims.
The cost to us of any patent litigation or other proceeding, even if
resolved in our favor, could be substantial. Some of our competitors may be able
to sustain the cost of such litigation or proceedings more effectively than we
can because of their substantially greater financial resources. If a patent
litigation or other intellectual property proceeding is resolved unfavorably to
us, we or our collaborative partners may be enjoined from manufacturing or
selling our products and services without a license from the other party and be
held liable for significant damages. We may not be able to obtain any required
license on commercially acceptable terms or at all.
Uncertainties resulting from the initiation and continuation of patent
litigation or other proceedings could have a material adverse effect on our
ability to compete in the marketplace. Patent litigation and other proceedings
may also absorb significant management time, attention and resources.
We may become involved in litigation or other proceedings with collaborative
partners, which may be time consuming, costly and could result in delays in our
development and commercialization efforts.
11
We conduct some of our development activities, and conduct most of our
commercialization activities, through collaborations with collaborative
partners. Therefore, any disputes with such partners that leads to litigation or
similar proceedings may result in us incurring legal expenses, as well as facing
potential legal liability. Such disputes, litigation or other proceedings are
also time consuming and may cause delays in our development and
commercialization efforts.
We have limited sales and marketing experience and capabilities.
We have limited sales, marketing and distribution experience and
capabilities. We may, in some instances, rely significantly on sales, marketing
and distribution arrangements with our collaborative partners and other third
parties. In these instances, our future revenues will be materially dependent
upon the success of the efforts of these third parties.
If in the future we determine to perform sales, marketing and distribution
functions ourselves, we would face a number of additional risks, including:
o we may not be able to attract and build a significant marketing
staff or sales force;
o the cost of establishing a marketing staff or sales force may not be
justifiable in light of any product revenues; and
o our direct sales and marketing efforts may not be successful.
We have limited manufacturing capabilities and will be dependent on third party
manufacturers.
We have limited manufacturing experience and no commercial or pilot scale
manufacturing facilities for the production of pharmaceuticals. In order to
continue to develop pharmaceutical products, apply for regulatory approvals and,
ultimately, commercialize any products, we may need to develop, contract for, or
otherwise arrange for the necessary manufacturing capabilities.
We currently rely upon third parties to produce material for preclinical
and clinical testing purposes and expect to continue to do so in the future. We
also expect to rely upon third parties, including our collaborative partners, to
produce materials required for the commercial production of certain of our
products if we succeed in obtaining necessary regulatory approvals. We believe
that there is no proprietary aspect to the manufacture of our products. However,
there are only a limited number of manufacturers that operate under the FDA's
regulations for good manufacturing practices which are capable of and/or
approved to manufacture our product. Timing for the initiation of new
manufacturers is uncertain, and, if we are unable to arrange for third party
manufacturing of our products on a timely basis, or to do so on commercially
reasonable terms, we may not be able to complete development of our products or
market them.
We rely on a single supplier (ChiRhoClin) for our SecreFlo(TM) product. If
this supplier is unwilling or unable to supply product as a result, our revenues
and future cash flows will be negatively impacted, offset by a decrease in costs
associated with this product. (For more information about the arbitration
proceeding regarding SecreFlo(TM), please see "Legal Proceedings.") We currently
rely upon third parties for fermentation relating to our rProtein A products.
We believe that there is no proprietary aspect to the manufacture of our
products. However, timing for the initiation of new manufacturers is uncertain,
and, if we are unable to arrange for third party manufacturing of our products
on a timely basis, or to do so on commercially reasonable terms, we may not be
able to complete development of our products or market them. To the extent that
we enter into manufacturing arrangements with third parties, we are dependent
upon these third parties to perform their obligations in a timely manner. If
such third party suppliers fail to perform their obligations, we may be
adversely affected in a number of ways, including:
12
o we may not be able to meet commercial demands for our products;
o we may not be able to initiate or continue clinical trials of
products that are under development;
o we may be delayed in completing our clinical trials of products
under development; and
o we may be delayed in submitting applications for regulatory
approvals for our products.
The manufacture of products by us and our collaborative partners and
suppliers is subject to regulation by the FDA and comparable agencies in foreign
countries. Delay in complying or failure to comply with such manufacturing
requirements could materially adversely affect the marketing of our products.
If we are unable to continue to hire and retain skilled personnel, then we will
have trouble developing and marketing our products.
Our success depends largely upon the continued service of our management
and scientific staff and our ability to attract, retain and motivate highly
skilled technical, scientific, management, regulatory compliance and marketing
personnel. Potential employees with an expertise in the field of molecular
biology, biochemistry, regulatory affairs and/or clinical development of new
drug and biopharmaceutical manufacturing are not generally available in the
market and are difficult to attract and retain. We also face significant
competition for such personnel from other companies, research and academic
institutions, government and other organizations who have superior funding and
resources to be able to attract such personnel. The loss of key personnel or our
inability to hire and retain personnel who have technical, scientific or
regulatory compliance backgrounds could materially adversely affect our product
development efforts and our business.
The market may not be receptive to our products upon their introduction.
The commercial success of our products that are approved for marketing
will depend upon their acceptance by the medical community and third party
payors as being clinically useful, cost effective and safe. All of the products
that we are developing are based upon new technologies or therapeutic
approaches. As a result, it is hard to predict market acceptance of our
products.
Other factors that we believe will materially affect market acceptance of
our products and services include:
o the timing of receipt of marketing approvals and the countries in
which such approvals are obtained;
o the safety, efficacy and ease of administration of our products;
o the success of physician education programs;
o the availability of government and third party payor reimbursement
of our products; and
o competition from products which may offer better safety, efficacy or
lower cost.
We compete with larger, better financed and more mature pharmaceutical and
biotechnology companies who are capable of developing new approaches that could
make our products and technology obsolete.
The market for therapeutic and specialty pharmaceutical products is
intensely competitive, rapidly evolving and subject to rapid technological
change. Pharmaceutical and mature biotechnology companies have substantially
greater financial, manufacturing, marketing, research and development resources
than we have. New approaches to the treatment of our targeted diseases by these
competitors may make our products and technologies obsolete or noncompetitive.
13
We have incurred substantial losses, we expect to continue to incur losses and
we will not be successful until we reverse this trend.
We have incurred losses in each year since our founding in 1981. We expect
to continue to incur operating losses for the foreseeable future.
While we generate revenue from product sales, this revenue is not
sufficient to cover the costs of our clinical trials and drug development
programs. We plan to continue to invest in key research and development
activities. As a result, we will need to generate significant revenues in order
to achieve profitability. We cannot be certain whether or when this will occur
because of the significant uncertainties that affect our business.
If we do not obtain additional capital for our drug development programs, we
will be unable to develop or discover new drugs.
We need additional long-term financing to develop our drug development
programs through the clinical trial process as required by the FDA and to
develop our specialty pharmaceutical products business. We also need additional
long-term financing to support future operations and capital expenditures,
including capital for additional personnel and facilities. If we spend more
money than currently expected for our drug development programs and our
specialty pharmaceutical products business, we will need to raise additional
capital by selling debt or equity securities, by entering into strategic
relationships or through other arrangements. We may be unable to raise any
additional amounts on reasonable terms or when they are needed due to the
volatile nature of the biotechnology marketplace. If we are unable to raise this
additional capital, we may have to delay or postpone critical clinical studies
or abandon other development programs.
Our stock price could be volatile, which could cause you to lose part or all of
your investment.
The market price of our common stock, like that of the common stock of
many other development stage biotechnology companies, is highly volatile. In
addition, the stock market has experienced extreme price and volume
fluctuations. This volatility has significantly affected the market prices of
securities of many biotechnology and pharmaceutical companies for reasons
frequently unrelated to or disproportionate to the operating performance of the
specific companies. These broad market fluctuations may adversely affect the
market price of our common stock.
Anti-takeover provisions may deter a third party from acquiring us, limiting our
stockholders' ability to profit from such a transaction.
Our Board of Directors has the authority to issue up to 5,000,000 shares
of preferred stock, of which 40,000 have been reserved for issuance in
connection with our stockholder rights plan, and to determine the price, rights,
preferences and privileges of those shares without any further vote or action by
our stockholders. We also adopted a "poison pill" stockholder rights plan that
will dilute the stock ownership of acquirers of our common stock upon the
occurrence of certain events. This stockholder rights plan could have the effect
of making it more difficult for a third party to acquire a majority of our
outstanding voting stock.
We are subject to the anti-takeover provisions of Section 203 of the
Delaware General Corporation Law, which prohibits us from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person becomes an
interested stockholder, unless the business combination is approved in a
prescribed manner. This provision could have the effect of delaying or
preventing a change of control of the Company. Section 203 and the stockholder
rights plan may have the effect of deterring hostile takeovers or delaying or
preventing changes in our management, including transactions in which
stockholders might otherwise receive a premium for their shares over then
current market prices.
Item 2. PROPERTIES.
The Company leases approximately 25,000 square feet of space, of which
approximately 10,000 square feet is manufacturing and laboratory space. Our
lease expires in January 2013, with options to extend for two five-year
14
periods. During fiscal 2004, we incurred aggregate rental costs for our
facility, excluding maintenance, taxes and utilities, of approximately $389,000.
Our space is adequate for our current use and for the foreseeable future.
Item 3. LEGAL PROCEEDINGS.
Bristol-Myers Squibb Company
Repligen is the exclusive licensee of all CTLA4-Ig patent rights owned by
the University of Michigan ("Michigan"). Repligen and Michigan believe that
Michigan has a rightful claim to ownership of certain patents assigned to
Bristol-Myers Squibb Company ("Bristol") which relate to compositions and uses
of CTLA4, arising out of the inventive contributions by one of the Michigan
scientists.
Repligen and Michigan filed a complaint against Bristol in the United
States District Court for the Eastern District of Michigan (the "District
Court") in August 2002 seeking a correction of inventorship. The suit asserts
that Dr. Craig Thompson, the scientist from Michigan, made inventive
contributions as part of a collaboration with Bristol scientists and is
therefore a rightful inventor on patents issued to Bristol. The District Court
found that Repligen and Michigan had not proven by clear, convincing, and
corroborative evidence that Dr. Thompson is a sole or joint inventor of any of
the patents in suit.
In October 2003, we filed an appeal to the ruling of the District Court
with the United States Court of Appeals for the Federal Circuit. Both Repligen
and Bristol have submitted written briefs to the Federal Circuit and oral
arguments have been scheduled for July 9, 2004. The Federal Circuit may decide
to uphold the District Court's decision, overturn the District Court's decision
or remand it back to the District Court for further consideration. Our failure
to obtain ownership rights to these Bristol patents may restrict our ability to
commercialize CTLA4-Ig. (Please see "Patents, Licenses and Proprietary Rights"
for further information regarding our CTLA4 intellectual property, which is not
the subject of this litigation.)
ImClone Systems Incorporated
Repligen Corporation and The Massachusetts Institute of Technology ("MIT")
have filed an action for patent infringement against ImClone Systems
Incorporated for infringement of a U.S. Patent (the "Erbitux Patent") based on
ImClone's manufacture and sale of the recently approved cancer drug Erbitux(R).
The technology, which was developed and patented by MIT, covers certain genetic
elements, DNA enhancers, that increase protein production in a mammalian cell.
Repligen is the exclusive licensee of MIT for this patent. Repligen and MIT
believe that Damon Biotech, a predecessor of Repligen, developed the cell line
which is used to manufacture Erbitux(R) in 1990 for the National Cancer
Institute and uses the technology which is the basis of the Erbitux Patent.
Repligen and MIT have also filed an application for patent term extension for
the Erbitux Patent, which if granted will extend the term of the patent to May
2009.
ChiRhoClin, Inc.
In February 2004, we terminated the September 1999 Licensing Agreement
with ChiRhoClin, our sole supplier of SecreFlo(TM), based on ChiRhoClin's
failure to meet its obligations including, among others, an obligation to use
best efforts to obtain FDA approval of secretin for post-ERCP pancreatitis.
Repligen believes that, in accordance with the terms of the Licensing Agreement,
ChiRhoClin is obligated to continue to supply product after the February 2004
termination and Repligen believes it has the right to recover certain payments
made to ChiRhoClin, totaling approximately $5 million, from ChiRhoClin's share
of royalties on sales of SecreFlo(TM) until such payments have been recovered.
On April 9, 2004, Repligen filed an arbitration demand against ChiRhoClin
with the American Arbitration Association in New York, New York. In this
arbitration demand, we allege that ChiRhoClin breached several of its
obligations under the September 1999 Licensing Agreement including failure to
use best efforts to obtain various FDA approvals and to manufacture and supply
SecreFlo(TM) in a timely manner. We also allege that ChiRhoClin's
15
conduct constitutes unfair and deceptive business practices under Massachusetts
law. On May 26, 2004, Repligen filed an amended arbitration demand, adding a
claim of defamation based on certain statements that ChiRhoClin made to the FDA
and in the press. We seek to recover approximately $5 million in payments made
to ChiRhoClin and additional damages to be determined.
On June 8, 2004, Repligen received a letter from ChiRhoClin disputing our
February 2004 termination and indicated that due to alleged material breaches by
us, ChiRhoClin terminated this Licensing Agreement. In accordance with its
purported termination, ChiRhoClin has requested that Repligen stop marketing the
product immediately, and we believe it is probable that ChiRhoClin will attempt
to no longer supply us with this product. We believe that ChiRhoClin's
allegations are without merit and intend to vigorously protect our rights.
Pro-Neuron, Inc.
Repligen was named as a codefendant with the Regents of the University of
California (the "Regents") in an action filed by Pro-Neuron, Inc. ("Pro-Neuron")
on June 21, 2001 in the Superior Court of California, County of San Diego. The
complaint alleged claims of breach of contract and breach of implied covenant of
good faith and fair dealing against the Regents and intentional interference
with contractual relations against Repligen in connection with the Regents'
licensing to Repligen of certain rights to patent applications filed by the
Regents. Pro-Neuron subsequently amended its complaint to allege
misappropriation of trade secrets and unfair competition against Repligen and
the Regents.
On June 4, 2003, Repligen, the Regents and Pro-Neuron entered into a
binding term sheet for settlement ("Settlement") under which the Pro-Neuron
complaint will be dismissed upon execution of definitive agreements between the
parties. Under the terms of the Settlement, Repligen will receive $750,000 upon
execution of the definitive agreements in exchange for which Repligen and the
Regents agreed to restructure the UCSD License Agreements to exclude the field
of acylated pyrimidines, including triacetyluridine, which we sometimes refer to
as RG2133. Repligen discontinued its clinical trial of RG2133 in mitochondrial
disease and has the right to continue its clinical trials of RG2133 in bipolar
disorder/major depression and purine autism for up to two years. Repligen will
assign to Pro-Neuron any inventions from these trials, for which it has rights,
involving the use of acylated pyrimidines, but will retain the rights to any
inventions for all other chemical entities. As of May 31, 2004, the definitive
agreements are under discussion between the parties.
From time to time, we may be subject to other legal proceedings and claims
in the ordinary course of business. We are not currently aware of any such
proceedings or claims that we believe will have, individually or in the
aggregate, a material adverse effect on our business, financial condition or
results of operations.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the security holders of the Company
through the solicitation of proxies or otherwise, during the last quarter of the
fiscal year ended March 31, 2004.
16
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER REPURCHASE OF EQUITY SECURITIES.
Market Information
Our common stock is traded over-the-counter on the Nasdaq National Market
under the symbol "RGEN." The following table sets forth for the periods
indicated the high and low bid information for the common stock as reported by
Nasdaq. These quotations reflect inter-dealer prices, without retail markup,
markdown or commission and may not necessarily reflect actual transactions.
Fiscal Year 2004 Fiscal Year 2003
High Low High Low
---------------------------------------------------
First Quarter $6.96 $3.91 $4.22 $2.10
Second Quarter $8.47 $4.56 $2.95 $2.05
Third Quarter $6.10 $3.84 $3.73 $2.25
Fourth Quarter $4.58 $2.15 $5.00 $2.73
Stockholders and Dividends
As of June 10, 2004 there were approximately 865 stockholders of record
of our common stock. We have not paid any dividends since our inception and do
not intend to pay any dividends on our common stock in the foreseeable future.
We anticipate that we will retain all earnings, if any, to support our
operations and our proprietary drug development programs. Any future
determination as to the payment of dividends will be at the sole discretion of
our board of directors and will depend on our financial condition, results of
operations, capital requirements and other factors our board of directors deems
relevant.
Recent Sales of Unregistered Securities
On March 31, 2004, pursuant to a licensing agreement, Repligen issued
17,986 shares of Repligen common stock to the University of North Carolina
("UNC") and The Stanley Medical Research Institute ("Stanley"), in partial
consideration for the assignment by UNC and Stanley to Repligen of a U.S. patent
application claiming the use of secretin for treatment of certain behavioral
disorders, including schizophrenia. There were no underwriters involved in the
transaction. Based on representations from UNC and Stanley that each was
acquiring the shares for investment purposes only, without a view to selling or
distributing the shares, Repligen issued the shares without registration and
effected the private placement in reliance of Rule 4(2) of the Securities Act of
1933.
Item 6. SELECTED FINANCIAL DATA
The following selected financial data are derived from the audited
financial statements of Repligen as of and for the years ended March 31, 2004,
2003, 2002, 2001 and 2000. The financial statements for the years ended March
31, 2004 and 2003 have been audited by Ernst & Young LLP. The financial
statements for the years ended 2000 through 2002 were audited by Arthur Andersen
LLP, which has ceased operations. The selected financial data set forth below
should be read in conjunction with our financial statements and the related
notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this report and our report on
Form 10-K for the years ended March 31, 2003, 2002, 2001 and 2000.
17
Years Ended March 31,
2004 2003 2002 2001 2000
---- ---- ---- ---- ----
(In thousands, except per share amounts)
Operating Statement Data:
Revenues
Product revenue .................................. $ 6,843 $ 7,743 $ 4,302 $ 2,084 $ 2,041
Licensing and research revenue ................... 71 29 -- 171 863
-------- -------- -------- -------- --------
Total revenue ................................. 6,914 7,772 4,302 2,255 2,904
Cost of revenue .................................... 3,248 3,480 1,993 1,400 1,107
-------- -------- -------- -------- --------
Gross margin .................................. 3,666 4,292 2,309 855 1,797
Operating expenses
Research and development ......................... 6,484 5,227 5,361 5,787 3,754
Selling, general and administrative .............. 4,710 4,159 2,526 2,401 2,406
Impairment of long term asset .................... 2,413 -- -- -- --
-------- -------- -------- -------- --------
Total operating expenses ...................... 13,607 9,386 7,887 8,188 6,160
-------- -------- -------- -------- --------
Loss from operations ............................... (9,941) (5,094) (5,578) (7,333) (4,363)
-------- -------- -------- -------- --------
Investment income .................................. 390 557 1,117 2,054 547
-------- -------- -------- -------- --------
Net loss ........................................... $ (9,551) $ (4,537) $ (4,461) $ (5,279) $ (3,816)
======== ======== ======== ======== ========
Net loss per common share .......................... $ (0.32) $ (0.17) $ (0.17) $ (0.20) $ (0.18)
======== ======== ======== ======== ========
Weighted average common shares outstanding ......... 29,686 26,813 26,640 26,548 21,538
As of March 31
(In thousands)
2004 2003 2002 2001 2000
---- ---- ---- ---- ----
Balance Sheet Data:
Cash and marketable securities $ 24,863 $ 18,909 $ 25,250 $ 30,298 $ 34,033
Working capital 13,684 15,602 20,577 24,398 34,473
Total assets 29,615 26,793 29,111 32,148 36,287
Accumulated deficit (154,507) (144,956) (140,419) (135,959) (130,680)
Stockholders' equity 27,164 24,550 26,445 30,891 35,090
18
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
This annual report on Form 10-K contains forward-looking statements which
are made pursuant to the safe harbor provisions of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. The forward-looking statements in this annual report on Form 10-K do
not constitute guarantees of future performance. Investors are cautioned that
statements in this annual report on Form 10-K that are not strictly historical
statements, including, without limitation, statements regarding current or
future financial performance, potential impairment of future earnings,
management's strategy, plans and objectives for future operations, clinical
trials and results, litigation strategy, product research and development, R&D
expenditures, intellectual property, development and manufacturing plans,
availability of materials and product and adequacy of capital resources and
financing plans constitute forward-looking statements. Such forward-looking
statements are subject to a number of risks and uncertainties that could cause
actual results to differ materially from those anticipated, including, without
limitation, the risks identified under the caption "Certain Factors That May
Affect Future Results" and other risks detailed in this annual report on Form
10-K and our other filings with the Securities and Exchange Commission. We
assume no obligation to update any forward-looking information contained in this
annual report on Form 10-K.
Overview
We are developing novel biological products for profound neuropsychiatric
disorders and autoimmune diseases. Our therapeutic product candidates are
secretin for schizophrenia and anxiety disorders, uridine for bipolar disorder
and CTLA4-Ig and Protein A for autoimmune diseases. Each of these products
represents a novel approach to therapy which may provide better outcomes for
patients than existing drugs.
Our business strategy is to maintain full commercial rights to our product
candidates through "proof of principle" clinical studies after which we may seek
corporate partners for further development and marketing. We partially fund the
development of our proprietary therapeutic product candidates with the profits
derived from the sales of our specialty pharmaceutical products. This will
enable us to independently advance our product candidates while at the same time
minimize our operating losses.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Securities and Exchange Commission requires that reporting companies
discuss their most "critical accounting policies and estimates" in management's
discussion and analysis of financial condition and results of operations. The
SEC indicated that "critical accounting policies and estimates" are those
policies and estimates important to the portrayal of a company's financial
condition and operating results and requires management's most difficult,
subjective or complex judgments, often as a result of the need to make estimates
about the effect of matters that are inherently uncertain.
We have identified the policies and estimates below as critical to our
business operations and the understanding of our results of operations. The
impact and any associated risks related to these policies on our business
operations is discussed throughout Management's Discussion and Analysis of
Financial Condition and Results of Operations where such policies affect our
reported and expected financial results. The notes to the financial statements
included in this report on Form 10-K include a summary of the significant
accounting policies and methods used in the preparation of our financial
statements.
Revenue Recognition
We apply Staff Accounting Bulletin No. 104, "Revenue Recognition" ("SAB
No. 104") to our revenue arrangements. We generate product revenues from the
sale of our rProtein A products to customers in the pharmaceutical and process
chromatography industries, and from the sale of SecreFlo(TM) to hospital-based
gastroenterologists. In accordance with SAB No. 104, we recognize revenue
related to product sales upon shipment of the product to the customer as long as
there is persuasive evidence of a sale, the sales price is fixed or determinable
and collection of the related receivable is probable.
Additionally, during fiscal 2004 and 2003 we generated non-product
revenues from sponsored research and development projects under a Small Business
Innovation Research ("SBIR") Phase I grant. Research revenue is
19
recognized as earned under cost plus fixed-fee contracts, or on a straight-line
basis over the term of contract, which approximates when work is performed and
costs are incurred. Research expenses in the accompanying statements of
operations include funded and unfunded expenses.
Impairment Analysis of Long-lived Assets
During 2002, under the terms of our September 1999 Licensing Agreement
with ChiRhoClin, Inc. we made a milestone payment to ChiRhoClin that consisted
of $1,250,000 in cash and 696,223 shares of our common stock. We have recorded
the fair value of the shares issued, $2,576,025, and the cash paid of
$1,250,000, as a long-term intangible asset. (See Note 3 of our consolidated
financial statements for further discussion). Beginning in April 2002, we began
to amortize this intangible asset to cost of revenue over the remaining term of
the license, approximately seven years. In October 2002, we commenced commercial
shipment of SecreFlo(TM), our synthetic version of the porcine hormone secretin.
We amortized $510,130 and $510,132 during the years ended March 31, 2004 and
2003.
At March 31, 2004, in accordance with the provisions of SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets," we performed
an impairment analysis of this intangible asset in order to determine if an
impairment loss existed and should be recognized. The impairment analysis
consisted of an evaluation of the expected cash flows from the sale of
SecreFlo(TM) over the term of the expected life of SecreFlo(TM) and also
included various assumptions and estimates concerning selling price, cost and
volume of unit sales. On June 8, 2004, we received a letter of termination from
ChiRhoClin disputing our termination of the Licensing Agreement for SecreFlo(TM)
and indicating that due to alleged material breaches by us, ChiRhoClin
terminated the Licensing Agreement. In accordance with its purported
termination, ChiRhoClin requested that we stop marketing the product
immediately, and we believe it is probable that ChiRhoClin will attempt to no
longer supply us with this product. Although it is our belief that ChiRhoClin is
obligated to continue to supply product after our February 2004 termination,
based on ChiRhoClin's notice of termination, we believe it is probable that
sales of SecreFlo(TM) will be limited to current inventory on hand. Accordingly
we have recorded an impairment charge of $2,413,244 in our results of operations
for the year ended March 31, 2004. (For more information on our arbitration
proceeding with ChiRhoClin, please see "Legal Proceedings.")
Use of Estimates
We prepare our financial statements in accordance with accounting
principles generally accepted in the United States. These principles require
that we make estimates and use assumptions that affect the reporting of our
assets and our liabilities as well as the disclosures that we make regarding
assets and liabilities and income and expense that are contingent upon uncertain
factors as of the reporting date. The actual payments, and thus our actual
results, could differ from our estimates.
Results of Operations
Fiscal Year Ended March 31, 2004 Compared with Fiscal Year Ended March 31, 2003
Total revenue
Total revenue for the fiscal 2004 was $6,914,000 compared to $7,772,000 in
fiscal 2003, a decrease of $858,000 or 11%. During fiscal year 2004, product
sales of rProtein A decreased to $4,976,000 from sales of $6,738,000 in fiscal
2003. Sales of rProtein A were negatively impacted by manufacturing problems
experienced by one of our significant customers and the timing of regulatory
approvals received for monoclonal antibodies that use rProtein A in their
manufacturing process. Sales of SecreFlo(TM) increased to $1,867,000 in fiscal
2004 from sales of $1,005,000 during fiscal 2003. We began selling SecreFlo(TM)
during the second half of fiscal 2003.
Our revenues are subject to significant quarterly fluctuations based on
the timing of large-scale production orders of rProtein A.
20
Cost of revenue
Cost of revenue for fiscal 2004 and 2003 was approximately $3,248,000 and
$3,480,000, respectively, reflecting a decrease of $232,000 or 7%. Gross profit
in fiscal 2004 and 2003 was $3,666,000 or 53% and $4,292,000 or 55%,
respectively. This decrease in costs and decrease in gross profit is
attributable to lower sales and change in product mix of rProtein A and
SecreFlo(TM). Although we terminated our Licensing Agreement with our
SecreFlo(TM) supplier in February 2004, royalty costs associated with sales of
SecreFlo(TM) have been recorded in cost of revenue for all of fiscal 2004.
Operating expenses
Total operating expenses for fiscal 2004 and 2003 were approximately
$13,607,000 and $9,386,000, respectively, an increase of $4,221,000 or 45%
during 2004.
Research and development expenses for fiscal 2004 and 2003 were
approximately $6,484,000 and $5,227,000, respectively, an increase of $1,257,000
or 24%. During fiscal 2004 research and development expenses included increased
manufacturing costs of clinical materials of $331,000. Costs associated with the
evaluation of our therapeutic candidates in clinical trials increased by
$250,000 in fiscal 2004. Personnel and related costs increased $347,000 and
licensing costs also increased $242,000, as we expanded our clinical development
during fiscal 2004.
Selling, general and administrative expenses (SG&A) for fiscal 2004 and
2003 were approximately $4,710,000 and $4,159,000 respectively, an increase of
$551,000 or 13%. Costs for professional and administrative fees, including
patent, legal and insurance premiums, increased $296,000 during fiscal 2004. In
addition, marketing and distribution expenses increased $288,000 during fiscal
2004 as a result of a full year of sales of SecreFlo(TM) and the reimbursement
of premarketing and launch expenses during fiscal 2003.
During fiscal 2004, we recognized a non-cash charge associated with the
termination of the SecreFlo(TM) license agreement. This charge records an
impairment loss related to the license fee, included as a long term asset in the
accompanying balance sheet of approximately $2,413,000, recognizing the
potential loss of future sales of SecreFlo(TM) once current inventory is
depleted.
Investment income
Investment income for fiscal 2004 and 2003 was approximately $390,000 and
$557,000, respectively, a decrease of $167,000 or 30% in 2004. This decrease is
attributable to lower interest rates during fiscal 2004 as compared to fiscal
2003. We expect interest income to vary based on changes in the amount of funds
invested and fluctuation of interest rates.
Fiscal Year Ended March 31, 2003 Compared with Fiscal Year Ended March 31, 2002
Total revenue
Total revenue for the fiscal 2003 was $7,772,000 as compared to $4,302,000
in fiscal 2002, an increase of $3,470,000 or 81%. During fiscal year 2003 we
commenced selling SecreFlo(TM), a diagnostic product that is marketed in the
U.S. to hospital-based gastroenterologists. Sales of SecreFlo(TM) were
$1,005,000 for the six months of sales during the year ended March 31, 2003. In
addition, rProtein A sales increased to $6,738,000 for fiscal year 2003 from
$4,302,000 in fiscal 2002. This increase in rProtein A sales is attributable to
increased demand from value-added resellers who incorporate our rProtein A
products into their proprietary antibody purification systems, which they sell
to the biotechnology and pharmaceutical industry.
21
Cost of revenue
Cost of revenue for fiscal 2003 and 2002, was approximately $3,480,000 and
$1,993,000, respectively, reflecting an increase of $1,487,000 or 75%. This
increase is due primarily to increased costs associated with the increase in
volume of product shipments and costs associated with the launch of
SecreFlo(TM). Gross profit in fiscal 2003 and 2002 was $4,292,000 or 55% and
$2,309,000 or 54%, respectively. This increase in gross profit is due primarily
to a change from period to period in the mix of rProtein A product sales and the
commencement of SecreFlo(TM) sales.
Operating expenses
Total operating expenses for fiscal 2003 and 2002 were approximately
$9,386,000 and $7,887,000, respectively, an increase of $1,499,000 or 19% during
2003.
Research and development expenses for fiscal 2003 and 2002 were
approximately $5,227,000 and $5,361,000, respectively, a decrease of $134,000 or
2%. This decrease was largely attributable to a decrease in clinical material
expenses of $1,128,000 partially offset by an increase in personnel costs of
$262,000, external research expenses of $256,000 and clinical trial expenses of
$435,000 incurred during fiscal 2003.
Selling, general and administrative expenses (SG&A) for fiscal 2003 and
2002 were approximately $4,159,000 and $2,526,000, respectively, an increase of
$1,633,000 or 65%. This increase is largely attributable to litigation expenses
of $966,000 and increased personnel costs of $156,000. In addition, costs for
professional and administrative fees, including recruiting, consulting, investor
relations and insurance premiums, increased $337,000. We also incurred one time
costs in fiscal 2003 associated with the move to our new facility of $107,000.
Investment income
Investment income for fiscal 2003 and 2002 was approximately $557,000 and
$1,117,000, respectively, a decrease of $560,000 or 50% in 2003. This decrease
is attributable to lower average funds available for investment and lower
interest rates during fiscal 2003 as compared to fiscal 2002.
Liquidity and Capital Resources
We have financed our operations primarily through sales of equity
securities and revenues derived from product sales and government grants. Our
revenue for the foreseeable future will be limited to our product revenue
related to rProtein A and SecreFlo(TM). Given the uncertainties related to
pharmaceutical product development, we are currently unable to reliably estimate
when, if ever, our therapeutic product candidates will generate revenue and cash
flows.
We rely on a single supplier, ChiRhoClin, Inc., for our SecreFlo(TM)
product. In February 2004, we terminated our Licensing Agreement with ChiRhoClin
for breach. We believe we have the right, in accordance with the terms of the
Licensing Agreement, to recover certain payments made to ChiRhoClin, totaling
approximately $5 million, from ChiRhoClin's share of royalties on sales of
SecreFlo(TM) and that ChiRhoClin is obligated to continue to supply SecreFlo(TM)
and that we retain the right to sell SecreFlo(TM) until such payments have been
recovered. If this supplier is unwilling or unable to supply product as a
result, our revenues and future cash flows will be negatively impacted offset by
a decrease in costs associated with this product. (For more information about
the arbitration proceeding regarding SecreFlo(TM), please see "Legal
Proceedings.")
At March 31, 2004 we had cash and marketable securities of $24,863,000
compared to $18,909,000, at March 31, 2003. Our operating activities in 2004
used cash of approximately $5,718,000, consisting of the net loss
22
from operations for the year of $9,551,000, a decrease in accounts payable of
$254,000 and an increase in accounts receivable of $50,000. These uses of cash
were offset by non-cash charges of $887,000 for depreciation and amortization,
an impairment charge of $2,413,000 and $185,000 associated with issuance of
warrants, common stock and stock options. In addition, uses of cash included a
decrease in inventory of $11,000, a decrease in prepaid expenses of $194,000 and
an increase in accrued expenses of $462,000. During fiscal 2004, we purchased
$308,000 of capital equipment, consisting of equipment and leasehold
improvements.
On May 1, 2003, we issued and sold 2,500,000 shares of our common stock to
The Riverview Group, LLC for an aggregate consideration of $12,500,000. Repligen
received net proceeds of approximately $11.8 million after deducting the
expenses of the transaction. These proceeds will be used to continue the
development of our proprietary product programs.
We plan to continue to invest in key research and development activities.
We expect to continue to incur operating losses for the immediate future. We
expect to incur a similar level of expenses in fiscal 2005 as those incurred in
fiscal 2004, net of the impairment charge of $2,413,000 recorded in fiscal 2004.
Our future capital requirements include, but are not limited to, continued
investment in our research and development programs, capital expenditures
primarily associated with purchases of equipment and continued investment in our
intellectual property estate. During fiscal 2004 42% of our research and
development expenses were outsourced to third parties. The outsourcing of such
services provides us flexibility to discontinue or increase spending depending
on the success of our research and development programs. While we are generally
able to forecast our overall spending, we are unable to predict with certainty
costs associated with our existing legal proceedings.
Off-Balance Sheet Arrangements
We do not have any special purpose entities or off-balance sheet financing
arrangements.
As of March 31, 2004, we had the following fixed obligations and
commitments:
Payments Due By Period
Less than More than
Total 1 Year 1-3 Years 4-5 Years 5 Years
----- ------ --------- --------- -------
(In thousands)
Operating lease obligations $3,166 $394 $ 780 $ 814 $1,178
Purchase obligations 135 135 -- -- --
Contractual obligations 694 186 241 227 40
------------------------------------------------------------------
Total $3,995 $715 $1,021 $1,041 $1,218
Our future capital requirements will depend on many factors, including the
following:
o the success of our clinical studies;
o the scope of and progress made in our research and development
activities;
o the success of any proposed financing efforts; and
o the ability to sustain sales of our specialty pharmaceutical
products.
We believe that we have sufficient resources to satisfy our working
capital and capital expenditure requirements for the next twenty-four months.
Should we need to secure additional financing to meet our future liquidity
requirements, we may not be able to secure such financing, or obtain such
financing on favorable terms because of the volatile nature of the biotechnology
marketplace.
At March 31, 2004, we had net operating loss carryforwards of
approximately $129,180,000 and research and development credit carryforwards of
approximately $7,010,000 to reduce future federal income taxes, if any. The net
operating loss and tax credit carryforwards will expire at various dates,
beginning in 2005, if not used. Net operating loss carryforwards and available
tax credits are subject to review and possible adjustment by the Internal
Revenue Service and may be limited in the event of certain changes in the
ownership interest of significant stockholders.
23
We do not currently use derivative financial instruments. We generally
place our marketable security investments in high quality credit instruments, as
specified in our investment policy guidelines. Our investment policy also limits
the amount of credit exposure to any one issue, issuer, and type of investment.
We do not expect any material loss from our investment in marketable securities.
We believe that inflation has not had a material effect on our operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We have investments in commercial paper, U.S. Government and agency
securities as well as corporate bonds and other debt securities. As a result, we
are exposed to potential loss from market risks that may occur as a result of
changes in interest rates, changes in credit quality of the issuer or otherwise.
We generally place our marketable security investments in high quality
credit instruments, as specified in our investment policy guidelines. Our
investment policy also limits the amount of credit exposure to any one issue,
issuer (with the exception of U.S. treasury obligations), and type of
investment. We intend to hold these investments to maturity, in accordance with
our business plans.
As of March 31, 2004, we did not have any debt arrangements that were not
reflected in our balance sheet.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
Financial statements and supplementary data required by Item 8 are set
forth at the pages indicated in Item 15(a) below.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Repligen engaged the services of Ernst & Young LLP as its new independent
auditors to replace Arthur Andersen LLP, effective June 12, 2002. For additional
information, see Repligen's Current Report on Form 8-K filed June 19, 2002 (as
amended by the Form 8-K/A filed on June 28, 2002).
Item 9A. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures. As of March 31, 2004,
Repligen, under the supervision and with the participation of Repligen's
management, including Walter C. Herlihy, Repligen's Chief Executive Officer and
President (Principal executive, accounting, and financial officer), evaluated
the effectiveness of Repligen's disclosure controls and procedures pursuant to
Rule 13a-15(b) promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). Based upon that evaluation, Repligen's Chief Executive
Officer and President (Principal executive, accounting, and financial officer)
concluded that, as of March 31, 2004, Repligen's disclosure controls and
procedures are effective in ensuring that material information relating to
Repligen required to be disclosed by Repligen in the reports that it files or
submits under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission's
rules and forms, including ensuring that such material information is
accumulated and communicated to Repligen's management, including Repligen's
Chief Executive Officer and President (Principal executive, accounting, and
financial officer), as appropriate to allow timely decisions regarding required
disclosure. During the period covered by this report, there have been no changes
in Repligen's internal control over financial reporting that have materially
affected, or are reasonably likely to materially affect, Repligen's internal
control over financial reporting.
24
Item 9B. OTHER INFORMATION
The Company's policy governing transactions in its securities by its
directors, officers and employees permits its officers, directors and employees
to enter into trading plans in accordance with Rule 10B5-1 under the Securities
Exchange Act of 1934, as amended. The Company has been advised that each of the
following officers has entered into a trading plan during the fourth quarter of
fiscal 2004 in accordance with Rule 10b5-1 and the Company's policy governing
transactions in its securities: Walter Herlihy, President and CEO, James Rusche,
Senior Vice President and Barbara Burnim Day, Vice President. The Company
undertakes no obligation to update or revise the information provided herein,
including for revision or termination of an established trading plan.
PART III
Pursuant to General Instructions G (3) to Form 10-K, the information
required for Part III, Items 10, 11,12, 13 and 14, is incorporated herein by
reference from the Company's proxy statement for the Annual Meeting of
Stockholders to be held on September 21, 2004.
PART IV
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The following documents are filed as part of this Annual Report on Form
10-K:
(a) (1) Financial Statements:
The consolidated financial statements required by this item are submitted
in a separate section beginning on page F-2 of this Report, as follows:
Page
- --------------------------------------------------------------------------------
Report of Independent Auditors........................................... F-2
Consolidated Balance Sheets as of March 31, 2004 and 2003................ F-4
Consolidated Statements of Operations for the Years Ended
March 31, 2004, 2003 and 2002............................................ F-5
Consolidated Statements of Stockholders' Equity for the
Years Ended March 31, 2004, 2003 and 2002 ............................... F-6
Consolidated Statements of Cash Flows for the Years Ended
March 31, 2004, 2003 and 2002 ........................................... F-7
Notes to Consolidated Financial Statements............................... F-8
(a) (2) Financial Statement Schedules:
None
(a) (3) Exhibits:
The Exhibits which are filed as part of this Annual Report or which are
incorporated by reference are set forth in the Exhibit Index hereto.
(b) Reports on Form 8-K:
On January 5, 2004, we filed a current report on Form 8-K (including items
5 and 7) reporting the results of our Phase III clinical trial for
secretin in autism.
On February 12, 2004, we filed a current report on Form 8-K furnishing our
third quarter and fiscal year earnings for the fiscal year ended March 31,
2004 on Item 12.
25
EXHIBIT INDEX
Exhibit Number Document Description
- -------------- --------------------
3.1 Restated Certificate of Incorporation dated June 30, 1992 and
amended September 17, 1999 (filed as Exhibit 4.1 to Repligen
Corporation's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1999 and incorporated herein by
reference).
3.2 Certificate of Designation of Series A Junior Participating
Preferred Stock dated March 4, 2003 (filed as Exhibit A of
Exhibit 1 to Repligen Corporation's Registration Statement on
Form 8-A filed March 4, 2003 and incorporated herein by
reference).
3.3 By-laws (filed as Exhibit 3.2 to Repligen Corporation's
Quarterly Report on Form 10-Q for the quarter ended September
30, 2003 and incorporated herein by reference).
4.1 Specimen Stock Certificate filed as Exhibit 4.1 to Repligen
Corporation's annual report on Form 10-K for the year ended
March 31, 2002 and incorporated herein by reference) 4.2 Form
of Warrant Agreement (filed as Exhibit 4.1 to Repligen
Corporation's Form 10-Q for the quarter ended September 30,
1999 and incorporated herein by reference).
4.3 Form of Common Stock Purchase Warrant (filed as Exhibit 4.3 to
Repligen Corporation's Form S-3 Registration Statement No.
333-36280 and incorporated herein by reference).
4.4 Stock Purchase Agreement dated as of March 7, 2000, by and
among Repligen Corporation and the investors listed on
Schedule I thereto (filed as Exhibit 4.1 to Repligen
Corporation's Form 8-K filed March 21, 2000 and incorporated
herein by reference).
4.5* The Amended 1992 Repligen Corporation Stock Option Plan, as
amended (filed as Exhibit 4.2 to Repligen Corporation's Form
10-Q for the quarter ended September 30, 2000 and incorporated
herein by reference).
4.6 Rights Agreement, dated as of March 3, 2003, between Repligen
Corporation and American Stock Transfer & Trust Company (filed
as Exhibit 4.1 to Repligen Corporation's Form 8-K filed March
4, 2003 and incorporated herein by reference).
4.7 Common Stock Purchase Warrant dated June 25, 2003 (filed as
Exhibit 4.1 to Repligen Corporation's Quarterly Report on Form
10-Q for the quarter ended June 30, 2003 and incorporated
herein by reference).
4.8* The Amended and Restated 2001 Repligen Corporation Stock
Option Plan, adopted by the Stockholders on September 10, 2003
(filed as Appendix B to Repligen Corporation's Definitive
Proxy Statement on Schedule 14A dated July 22, 2003 and
incorporated herein by reference).
10.1* Consulting Agreement, dated October 1, 1981, between Dr. Paul
Schimmel and Repligen Corporation. (filed as Exhibit 10.1 to
Repligen Corporation's annual report on Form 10-K for the year
ended March 31, 2002 and incorporated herein by reference).
10.2* Consulting Agreement, dated November 1, 1981, between Dr.
Alexander Rich and Repligen Corporation. (filed as Exhibit
10.2 to Repligen Corporation's annual report on Form 10-K for
the year ended March 31, 2002 and incorporated herein by
reference).
10.3* Employment Agreement, dated March 14, 1996, between Repligen
Corporation and Walter C. Herlihy. (filed as Exhibit 10.3 to
Repligen Corporation's annual report on Form 10-K for the year
ended March 31, 2002 and incorporated herein by reference).
26
10.4* Employment Agreement, dated March 14, 1996, between Repligen
Corporation and James R. Rusche. (filed as Exhibit 10.4 to
Repligen Corporation's annual report on Form 10-K for the year
ended March 31, 2002 and incorporated herein by reference).
10.5* Employment Agreement, dated March 14, 1996, between Repligen
Corporation and Daniel P. Witt. (filed as Exhibit 10.5 to
Repligen Corporation's annual report on Form 10-K for the year
ended March 31, 2002 and incorporated herein by reference).
#10.6 Patent Purchase Agreement dated as of March 9, 1999 among the
Company and Autism Research Institute and Victoria Beck (filed
as Exhibit 2.1 to Repligen Corporation's Form 8-K/A filed June
15, 1999 and incorporated herein by reference).
#10.7 Manufacturing Transfer Agreement dated as of December 31, 1998
among the Company and Amersham Pharmacia Biotech AB (filed as
Exhibit 10.1 to Repligen Corporation's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1998 and
incorporated herein by reference).
#10.8 Supply Agreement dated as of May 26, 1999 by and between
Repligen Corporation and Amersham Pharmacia Biotech AB (filed
as Exhibit 10.1 to Repligen Corporation's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1999 and incorporated
herein by reference).
#10.9 Licensing Agreement dated as of October 1, 1999 by and between
ChiRhoClin, Inc. and Repligen Corporation (filed as Exhibit
10.1 to Repligen Corporation's Quarterly Report on Form 10-Q
for the quarter ended December 31, 1999 and incorporated
herein by reference).
#10.10 License Agreement dated as of July 24, 2000 with University of
Michigan (filed as Exhibit 10.1 to Repligen Corporation's
Quarterly Report on Form 10-Q for the quarter ended September
30, 2000 and incorporated herein by reference).
10.11 Lease Between Repligen Corporation as Tenant and West Seyon
LLC as Landlord, 35 Seyon Street, Waltham, MA (filed as
Exhibit 10.1 to Repligen Corporation's Quarterly Report on
Form 10-Q for the quarter ended December 31, 2001 and
incorporated herein by reference).
23.1+ Consent of Ernst & Young LLP.
23.2+ Notice regarding Consent of Arthur Andersen LLP
24.1+ Power of Attorney (included on signature page)
31.1+ Rule 13a-14(a)/15d-14(a) Certification
32.1.+ Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
- ----------
# Confidential treatment obtained as to certain portions.
* Management contract or compensatory plan or arrangement
+ Filed herewith.
The exhibits listed above are not contained in the copy of the annual report on
Form 10-K distributed to stockholders. Upon the request of any stockholder
entitled to vote at the 2004 annual meeting, the Registrant will furnish that
person without charge a copy of any exhibits listed above. Requests should be
addressed to Repligen Corporation, 41 Seyon Street, Waltham, MA 02453.
27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
REPLIGEN CORPORATION
By: /s/ Walter C. Herlihy
-------------------------------------
Walter C. Herlihy
Chief Executive Officer and President
(Principal executive, accounting, and
financial officer)
Date: June 14, 2004
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby makes, constitutes and appoints Walter C. Herlihy with full power
to act without the other, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities to sign any or all amendments to this Form
10-K, and to file the same with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agents of any of them, or any substitute or substitutes,
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Alexander Rich Co-Chairman of the Board of Directors June 14, 2004
- -------------------------
Alexander Rich, M.D.
/s/ Paul Schimmel Co-Chairman of the Board of Directors June 14, 2004
- -------------------------
Paul Schimmel, Ph.D.
/s/ Walter Herlihy President, Chief Executive June 14, 2004
- ------------------------- Officer and Director
Walter C. Herlihy (Principal executive, accounting, and
financial officer)
/s/ Robert J. Hennessey Director June 14, 2004
- -------------------------
Robert J. Hennessey
/s/ G. William Miller Director June 14, 2004
- -------------------------
G. William Miller
/s/ Thomas F. Ryan, Jr. Director June 14, 2004
- -------------------------
Thomas F. Ryan, Jr.
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Auditors ..................................................................F-2
Balance Sheets as of March 31, 2004 and 2003 ...................................................F-4
Statements of Operations for the Years Ended March 31, 2004, 2003 and 2002.......................F-5
Statements of Stockholders' Equity for the Years Ended March 31, 2004, 2003 and 2002.............F-6
Statements of Cash Flows for the Years Ended March 31, 2004, 2003 and 2002.......................F-7
Notes to Financial Statements ...................................................................F-8
F-1
REPORT OF REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of
Repligen Corporation
We have audited the accompanying balance sheets of Repligen Corporation as
of March 31, 2004 and 2003, and the related statements of operations,
stockholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. The financial statements of Repligen Corporation as of March 31,
2002 and for the year then ended were audited by other auditors who have ceased
operations and whose report dated May 13, 2002, expressed an unqualified opinion
on those statements.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Repligen Corporation as of
March 31, 2004 and 2003, and the results of its operations, stockholders'
equity, and cash flows for the years then ended, in conformity with U.S.
generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
May 27, 2004,
Except for
Note 12, as to which the date is June 8, 2004
F-2
This is a copy of a report previously issued by Andersen and Andersen has not
reissued this report.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of Repligen Corporation:
We have audited the accompanying balance sheets of Repligen Corporation (a
Delaware corporation) as of March 31, 2002 and 2001, and the related statements
of operations, stockholders' equity and cash flows for each of the three years
in the period ended March 31, 2002. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Repligen Corporation as of
March 31, 2002 and 2001, and the results of its operations and its cash flows
for each of the three years in the period ended March 31, 2002, in conformity
with accounting principles generally accepted in the United States.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
May 13, 2002
F-3
REPLIGEN CORPORATION
BALANCE SHEETS
As of March 31,
2004 2003
------------- -------------
Assets
Current assets:
Cash and cash equivalents ........................................................... $ 3,958,677 $ 6,108,004
Marketable securities ............................................................... 9,996,070 9,417,224
Accounts receivable, less reserves of $35,000 and $50,000 in 2004 and
2003, respectively ................................................................ 972,249 907,501
Inventories ......................................................................... 879,381 889,924
Prepaid expenses and other current assets ........................................... 328,229 522,569
------------- -------------
Total current assets ............................................................ 16,134,606 17,845,222
------------- -------------
Property, plant and equipment, at cost:
Leasehold improvements .............................................................. 2,311,982 2,112,005
Equipment ........................................................................... 1,356,915 1,264,293
Furniture and fixtures .............................................................. 200,339 185,165
------------- -------------
3,869,236 3,561,463
Less - accumulated depreciation and amortization ................................ (1,689,625) (1,313,050)
------------- -------------
2,179,611 2,248,413
------------- -------------
Long-term marketable securities ........................................................ 10,708,133 3,183,727
Restricted cash ........................................................................ 200,000 200,000
Other assets, net (Note 3) ............................................................. 392,520 3,315,894
------------- -------------
Total assets ........................................................................... $ 29,614,870 $ 26,793,256
============= =============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable .................................................................... $ 714,291 $ 968,551
Accrued expenses .................................................................... 1,736,576 1,274,837
------------- -------------
Total current liabilities ....................................................... 2,450,867 2,243,388
------------- -------------
Commitments and contingencies (Notes 6, 10)
Stockholders' equity:
Preferred stock, $0.01 par value, 5,000,000 shares authorized, no shares
issued or outstanding ............................................................... -- --
Common stock, $0.01 par value, 40,000,000 shares authorized, 30,036,085
and 27,338,973 shares issued and outstanding, in 2004 and 2003,
respectively ........................................................................ 300,361 273,390
Additional paid-in capital ............................................................. 181,394,602 169,232,975
Deferred compensation .................................................................. (23,603) --
Accumulated deficit .................................................................... (154,507,357) (144,956,497)
------------- -------------
Total stockholders' equity ...................................................... 27,164,003 24,549,868
------------- -------------
Total liabilities and stockholders' equity ............................................. $ 29,614,870 $ 26,793,256
============= =============
See accompanying notes.
F-4
REPLIGEN CORPORATION
STATEMENTS OF OPERATIONS
Years Ended March 31,
2004 2003 2002
------------ ------------ ------------
Revenue:
Product revenue .................................. $ 6,843,366 $ 7,742,667 $ 4,301,565
Research revenue ................................. 70,975 29,114 --
------------ ------------ ------------
Total revenue ............................... 6,914,341 7,771,781 4,301,565
Cost of revenue .................................. 3,248,377 3,480,441 1,992,734
------------ ------------ ------------
Gross profit ................................ 3,665,964 4,291,340 2,308,831
Operating expenses:
Research and development ......................... 6,483,925 5,226,524 5,360,720
Selling, general and administrative .............. 4,709,703 4,159,220 2,525,827
Impairment of long lived asset ................... 2,413,244 -- --
------------ ------------ ------------
Total operating expenses .................... 13,606,872 9,385,744 7,886,547
------------ ------------ ------------
Loss from operations ............................. (9,940,908) (5,094,404) (5,577,716)
Investment income ..................................... 390,048 557,332 1,117,099
------------ ------------ ------------
Net loss .............................................. $ (9,550,860) $ (4,537,072) $ (4,460,617)
============ ============ ============
Basic and diluted net loss per share .................. $ (.32) $ (0.17) $ (0.17)
============ ============ ============
Basic and diluted weighted average shares
outstanding ........................................ 29,686,373 26,812,981 26,639,525
============ ============ ============
See accompanying notes.
F-5
REPLIGEN CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
Common
Stock
Number of Additional Deferred Accumulated Stockholders'
Shares Amount Paid-in Capital Compensation Deficit Equity
------ ------ --------------- ------------ ------- ------
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 2001 ............. 26,628,950 $266,289 $166,583,684 $ -- $(135,958,808) $ 30,891,165
- -----------------------------------------------------------------------------------------------------------------------------------
Exercise of stock options ............. 13,800 138 13,970 -- 14,108
Net loss .............................. -- -- -- (4,460,617) (4,460,617)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 2002 ............. 26,642,750 266,427 166,597,654 -- (140,419,425) 26,444,656
- -----------------------------------------------------------------------------------------------------------------------------------
Issuance of common stock
for payment of license ............. 696,223 6,963 2,569,063 -- -- 2,576,026
Compensation expense
related to issuance of
stock options ...................... -- -- 66,258 -- -- 66,258
Net loss .............................. -- -- -- -- (4,537,072) (4,537,072)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 2003 ............. 27,338,973 273,390 169,232,975 -- (144,956,497) 24,549,868
- -----------------------------------------------------------------------------------------------------------------------------------
Sale of common stock, net
of issuance costs of
$674,965 ........................... 2,500,000 25,000 11,800,035 -- -- 11,825,035
Issuance of common stock
for payment of license ............. 17,986 180 49,820 -- -- 50,000
Issuance of warrants .................. -- -- 52,300 -- 52,300
Exercise of stock options
and warrants ....................... 179,126 1,791 153,241 -- -- 155,032
Recording of deferred
compensation related to
stock options granted
to employees and
non-employees ...................... -- -- 106,231 (106,231) -- --
Amortization of deferred
compensation ....................... -- -- -- 82,628 -- 82,628
Net loss .............................. -- -- -- -- (9,550,860) (9,550,860)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 2004 ............. 30,036,085 $300,361 $181,394,602 $( 23,603) $(154,507,357) $ 27,164,003
- -----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes.
F-6
REPLIGEN CORPORATION
STATEMENTS OF CASH FLOWS
Years Ended March 31,
2004 2003 2002
------------ ------------ ------------
Cash flows from operating activities:
Net loss ...................................................... $ (9,550,860) $ (4,537,072) $ (4,460,617)
Adjustments to reconcile net loss to net cash
used in operating activities --
Issuance of common stock for license ...................... 50,000 -- --
Depreciation and amortization ............................. 886,705 802,228 257,537
Impairment of long lived asset ............................ 2,413,244 -- --
Common stock warrants issued for payment
for services ............................................ 52,300 -- --
Stock based compensation expense .......................... 82,628 66,258 --
Bad debt reserve .......................................... (15,000) 25,000 --
Changes in assets and liabilities:
Accounts receivable ....................................... (49,748) (66,640) (422,101)
Inventories ............................................... 10,543 26,167 (281,368)
Prepaid expenses and other current assets ................. 194,340 99,740 (352,057)
Other assets .............................................. -- (1,250,000) 56,882
Accounts payable .......................................... (254,260) (439,404) 19,306
Accrued expenses .......................................... 461,739 16,033 428,246
------------ ------------ ------------
Net cash used in operating activities ................... (5,718,369) (5,257,690) (4,754,172)
------------ ------------ ------------
Cash flows from investing activities:
Purchases of marketable securities ........................ (20,960,151) (8,329,507) (22,801,063)
Redemptions of marketable securities ...................... 12,856,899 11,782,578 20,881,667
Decrease/(increase) in restricted cash .................... -- 300,000 (500,000)
Purchases of property, plant and equipment ................ (307,773) (1,083,571) (307,971)
------------ ------------ ------------
Net cash provided by (used in) investing
activities ........................................... (8,411,025) 2,669,500 (2,727,367)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from issuance of common stock .................... 11,825,035 -- --
Exercise of stock options ................................. 155,032 -- 14,108
------------ ------------ ------------
Net cash provided by financing activities ............... 11,980,067 -- 14,108
------------ ------------ ------------
Net decrease in cash and cash equivalents ........................ (2,149,327) (2,588,190) (7,467,431)
Cash, beginning of year .......................................... 6,108,004 8,696,194 16,163,625
------------ ------------ ------------
Cash, end of year ................................................ $ 3,958,677 $ 6,108,004 $ 8,696,194
============ ============ ============
Supplemental disclosure of noncash activities:
Common stock issued for payment of license ....................... $ -- $ 2,576,025 $ --
Purchases of leasehold improvements .............................. $ -- $ -- $ 962,383
Recording of deferred compensation ............................... $ 106,231 $ -- $ --
See accompanying notes.
F-7
REPLIGEN CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. Organization and Nature of Business
Repligen Corporation ("Repligen" or "Company") is developing novel
biological products for profound neuropsychiatric disorders and autoimmune
diseases. Repligen's therapeutic product candidates are secretin for
schizophrenia and anxiety disorders, uridine for bipolar disorder, and CTLA4-Ig
and Protein A for autoimmune diseases. Each of these products represents a novel
approach to therapy which may provide better outcomes for patients than existing
drugs.
Repligen's business strategy is to maintain full commercial rights to its
product candidates through "proof of principle" clinical studies after which
Repligen may seek corporate partners for development and marketing. The Company
partially funds the development of its proprietary therapeutic products with the
profits derived from the sales of its specialty pharmaceutical products:
rProtein A and SecreFlo(TM). This will enable the Company to independently
advance its product candidates while at the same time minimizing its operating
losses.
The Company is subject to a number of risks typically associated with
companies in the biotechnology industry. Principally those risks associated with
the Company's dependence on collaborative arrangements, development by the
Company or its competitors of new technological innovations, dependence on key
personnel, protection of proprietary technology, compliance with the U.S. Food
and Drug Administration and other governmental regulations and approval
requirements, as well as the ability to grow the Company's business and
obtaining adequate funding to fund this growth.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with US generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications
The Company has reclassified certain prior-year information to conform to
the current year's presentation.
Revenue Recognition
The Company applies Staff Accounting Bulletin No. 104, "Revenue
Recognition" ("SAB No. 104") to its revenue arrangements. The Company generates
product revenues from the sale of its Protein A products to customers in the
pharmaceutical and process chromatography industries, and from the sale of
SecreFlo(TM) to hospital-based gastroenterologists. In accordance with SAB No.
104, the Company recognizes revenue related to product sales upon shipment of
the product to the customer as long as there is persuasive evidence of a sale,
the price is fixed or determinable and collection of the related receivable is
probable.
Additionally, during fiscal 2004 and 2003 the Company generated
non-product revenues from sponsored research and development projects under a
Small Business Innovation Research ("SBIR") Phase I grant. Research revenue is
recognized as earned under cost plus fixed-fee contracts, or on a straight-line
basis over the term of contract, which approximates when work is performed and
costs are incurred. Research expenses in the accompanying statements of
operations include funded and unfunded expenses.
F-8
Comprehensive Income
The Company applies Statement of Financial Accounting Standards (SFAS) No.
130, "Reporting Comprehensive Income." SFAS No. 130 requires disclosure of all
components of comprehensive income on an annual and interim basis. Comprehensive
income is defined as the change in equity of a business enterprise during a
period from transactions and other events and circumstances from nonowner
sources. The Company's comprehensive loss is equal to its reported net loss for
all periods presented.
Cash & Marketable Securities
The Company applies SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." At March 31, 2004, all of the Company's cash
equivalents and marketable securities are classified as held-to-maturity
investments as the Company has the positive intent and ability to hold to
maturity. As a result, these investments are recorded at amortized cost.
Marketable securities are investments with original maturities of greater than
90 days. Long-term marketable securities are investment grade securities with
maturities of greater than one year. Cash and marketable securities consist of
the following at March 31, 2004 and 2003:
Unrealized Holding Gain (Loss)
As of March 31, Years Ended March 31,
----------------------------- ------------------------------
2004 2003 2004 2003
----------- ---------- ------- -------
Cash and cash equivalents .......................... $ 3,958,677 $6,108,004 -- --
----------- ---------- ------- -------
Marketable securities
U.S. Government and agency securities .............. 1,522,371 715,459 5,054 252
Corporate and other debt securities ................ 8,473,699 8,701,765 1,763 23,774
----------- ---------- ------- -------
(Average of remaining maturity of
approximately 5 months at March 31, 2004) ....... $ 9,996,070 $9,417,224 $ 6,817 $24,026
=========== ========== ======= =======
Long-term marketable securities
U.S. Government and agency securities .............. $ 3,560,532 $1,101,264 $ 8,928 $ 2,598
Corporate and other debt securities ................ 7,147,601 2,082,463 32,178 3,628
----------- ---------- ------- -------
(Average of remaining maturity of
approximately 16 months at March 31, 2004) ..... $10,708,133 $3,183,727 $41,106 $ 6,226
=========== ========== ======= =======
Restricted cash of $200,000 is related to the Company's facility lease
obligation. (See Note 6.)
Fair Value of Financial Instruments
The carrying amounts of the Company's financial instruments which
represent cash, marketable securities, accounts receivable and accounts payable
generally approximate fair value due to the short-term nature of these
instruments.
Concentrations of Credit Risk and Significant Customers
Financial instruments that subject the Company to significant
concentrations of credit risk primarily consist of cash and cash equivalents,
marketable securities and accounts receivable. The Company's cash equivalents
and marketable securities are invested in financial instruments with high credit
ratings. At March 31, 2004, the Company has no items such as those associated
with foreign exchange contracts, options contracts or other foreign hedging
arrangements.
Concentration of credit risk with respect to accounts receivable is
limited to customers to whom the Company makes significant sales. The Company
maintains reserves for the potential write-off of accounts receivable. To date,
the Company has not written off any significant accounts. To control credit
risk, the Company performs regular credit evaluations of its customers'
financial condition.
F-9
Revenue from significant customers as a percentage of the Company's total
revenue is as follows:
Years Ended March 31,
2004 2003 2002
---- ---- ----
Customer A................................. 43% 43% 56%
Customer B................................. 11% *% --
Customer C ................................ *% 23% 23%
* Did not represent a significant percentage of total revenue at March 31,
2004.
Significant accounts receivable balances as a percentage of the Company's
total trade accounts receivable balances are as follows:
As of March 31,
2004 2003
---- ----
Customer A......................................... 59% 65%
Customer B......................................... *% 10%
* Did not represent a significant percentage of total trade accounts
receivable at March 31, 2004.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market. Work-in-process and finished goods inventories consist of material,
labor, outside processing costs and manufacturing overhead. Inventories at March
31, 2004 and 2003 consist of the following:
As of March 31,
2004 2003
---------- -----------
Raw materials.................................. $ 85,334 $ 114,130
Work-in process................................ 213,752 303,631
Finished goods................................. 580,295 472,163
---------- -----------
Total..................................... $ 879,381 $ 889,924
========== ===========
Depreciation and Amortization
Depreciation and amortization are calculated using the straight-line
method over the estimated useful life of the asset as follows:
Description Estimated Useful Life
----------- ---------------------
Leasehold improvements Shorter of term of the lease or estimated useful life
Equipment 3-5 years
Furniture and fixtures 5 years
The Company recorded depreciation expense and amortization of $376,575,
$292,096 and $257,537 in 2004, 2003 and 2002, respectively.
Earnings Per Share
The Company applies SFAS No. 128, "Earnings per Share." SFAS No. 128
establishes standards for computing and presenting earnings per share. Basic net
loss per share represents net loss divided by the weighted average number of
common shares outstanding during the period. The dilutive effect of potential
common shares, consisting of outstanding stock options and warrants, is
determined using the treasury stock method in accordance with SFAS No. 128.
Diluted weighted average shares outstanding for 2004, 2003 and 2002 do not
include the potential common shares from warrants and stock options because to
do so would have been antidilutive.
F-10
Accordingly, basic and diluted net loss per share is the same. The number of
potential common shares excluded from the calculation of diluted earnings per
share during the years ended March 31, 2004, 2003 and 2002 was 2,305,746,
2,344,996, and 2,106,846, shares, respectively.
Segment Reporting
The Company applies SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 establishes standards for
reporting information regarding operating segments in annual financial
statements and requires selected information for those segments to be presented
in interim financial reports issued to stockholders. SFAS No. 131 also
establishes standards for related disclosures about products and services and
geographic areas. The chief operating decision maker, or decision-making group,
in making decisions how to allocate resources and assess performance, identifies
operating segments as components of an enterprise about which separate discrete
financial information is available for evaluation. To date, the Company has
viewed its operations and manages its business as one operating segment. As a
result, the financial information disclosed herein represents all of the
material financial information related to the Company's principal operating
segment.
The following table represents the Company's revenue by geographic area
(based on the location of the customer):
Year Ended March 31,
2004 2003 2002
----- ----- -----
Europe.......... 48% 53% 63%
United States... 50% 46% 35%
Other........... 2% 1% 2%
----- ----- -----
Total.. 100% 100% 100%
===== ===== =====
As of March 31, 2004 and 2003, all of the Company's assets are located in
the United States.
Stock Based Compensation
The Company accounts for its stock-based compensation under SFAS No. 123
"Accounting for Stock-Based Compensation." The Company continues to apply APB
No. 25 for employee stock options awards and elected the disclosure-only
alternative for the same under SFAS No. 123. The Company follows the disclosure
provisions of Statement of Financial Accounting Standards No. 148 (SFAS 148),
"Accounting for Stock-Based Compensation - Transition and Disclosure, and
amendment of FASB Statement No. 123." SFAS 148 requires prominent disclosures in
both annual and interim financial statements regarding the method of accounting
for stock-based employee compensation and the effect of the method used to
report results.
The Company has computed the pro forma disclosures required under SFAS
Nos. 123 and 148 for all stock options granted to employees using the
Black-Scholes option-pricing model prescribed by SFAS No. 123. The assumptions
used and the weighted average information for the years ended March 31, 2004,
2003 and 2002 are as follows:
Years Ended March 31,
2004 2003 2002
---------- ---------- ----------
Risk-free interest rates............................... 1.31%-3.84% 1.16%-5.02% 4.31%-5.06%
Expected dividend yield................................ -- -- --
Expected lives......................................... 7 years 7 years 7 years
Expected volatility.................................... 90% 91% 101%
Weighted average grant date fair value of options
granted during the period........................... $4.75 $2.57 $2.21
Weighted average remaining contractual life of options
outstanding......................................... 5.4 years 5.9 years 6.1 years
F-11
If compensation expense for the Company's stock option plans had been
determined consistent with SFAS No. 123, the pro forma net loss and net loss per
share would have been as follows:
Years Ended March 31,
2004 2003 2002
------------ ----------- -----------
Net loss as reported ............................................. $ (9,550,860) $(4,537,072) $(4,460,617)
Add: Stock-based employee compensation expense
included in reported net loss ................................. 79,523 66,258 --
Deduct: Stock-based employee compensation expense
determined under fair value based method for all
employee awards ............................................... (1,010,952) (687,908) (745,797)
------------ ----------- -----------
Pro forma net loss ............................................... $(10,482,289) $(5,158,722) $(5,206,414)
============ =========== ===========
Basic and diluted net loss per share:
As reported ...................................................... $ (.32) $ (.17) $ (.17)
Pro forma ........................................................ $ (.35) $ (.19) $ (.20)
3. Long-Lived Assets
In October 1999, Repligen licensed exclusive commercial rights to a
diagnostic product based on a synthetic form of porcine (pig-derived) secretin
from ChiRhoClin, Inc. This product, SecreFlo(TM), is approved by the FDA for
diagnosing chronic pancreatitis, gastrinoma (a form of cancer) and as an aid
during endoscopic retrograde cholangiopancreatography ("ERCP"), a
gastrointestinal procedure. Under the terms of its licensing agreement, upon
approval by the FDA, Repligen made a milestone payment during April 2002 of
$1,250,000 in cash. The Company also issued 696,223 shares of its unregistered
common stock to ChiRhoClin in October 2002 related to the same milestone. During
the quarter ended June 30, 2002, the Company recorded the fair value of these
shares, $2,576,025, and the cash of $1,250,000, as a long-lived intangible
asset. Beginning in April 2002, this amount will be amortized to cost of revenue
over the expected life of SecreFlo(TM), approximately seven years. The Company
amortized $510,130 and $510,132 for the years ended March 31, 2004 and 2003
respectively. (See Note 12.)
4. Income Taxes
The Company accounts for income taxes under SFAS No. 109, "Accounting for
Income Taxes." At March 31, 2004, the Company had net operating loss
carryforwards for income tax purposes of approximately $129,180,000. The Company
also had available tax credit carryforwards of approximately $7,010,000 at March
31, 2004 to reduce future federal income taxes, if any. The net operating loss
and tax credit carryforwards will expire at various dates, beginning in 2005.
Net operating loss carryforwards and available tax credits are subject to review
and possible adjustment by the Internal Revenue Service and may be limited in
the event of certain changes in the ownership interest of significant
stockholders.
Deferred tax assets consist of the following: As of March 31,
2004 2003
------------ ------------
Temporary differences .................. $ 5,730,000 $ 6,216,000
Operating loss carryforwards ........... 51,680,000 48,975,000
Tax credit carryforwards ............... 7,010,000 7,161,000
------------ ------------
64,420,000 62,352,000
Valuation allowance .................... (64,420,000) (62,352,000)
------------ ------------
$ -- $ --
============ ============
A full valuation allowance has been provided, as it is uncertain if the
Company will realize its deferred tax assets.
F-12
5. Stockholders' Equity
(a) Common Stock & Warrants
On March 1, 2004, pursuant to a licensing agreement, Repligen issued
17,986 shares of Repligen common stock to the University of North Carolina
("UNC") and The Stanley Medical Research Institute ("Stanley"), in partial
consideration for the assignment by UNC and Stanley to Repligen of a U.S. patent
application claiming the use of secretin for treatment of certain behavioral
disorders, including schizophrenia.
On June 25, 2003, Repligen engaged Rodman & Renshaw, Inc. ("Rodman") as a
non-exclusive financial adviser until May 31, 2004. In exchange and as
consideration for Rodman's financial services, Repligen issued a warrant to
purchase up to an aggregate of 25,000 shares of common stock. Each warrant is
exercisable at $5.31 per share at any time prior to June 2005. The Company
recorded the value of these warrants, as determined using Black-Scholes option
pricing model as selling, general and administrative expense. As of March 31,
2004, these warrants remain outstanding.
On May 1, 2003, Repligen issued and sold 2,500,000 shares of common stock
to The Riverview Group, LLC for an aggregate consideration of $12,500,000.
Repligen received net proceeds of approximately $11.8 million after deducting
the costs of the transaction.
On October 4, 2002, Repligen Corporation issued 696,223 shares of common
stock to ChiRhoClin, Inc. ("ChiRhoClin") in connection with the FDA's approval
of SecreFlo(TM), its secretin for injection product. The issuance of the shares
was a milestone payment in consideration of ChiRhoClin's success in obtaining
FDA approval to market secretin for injection. In 1999, Repligen entered into a
Licensing Agreement with ChiRhoClin for exclusive commercial rights to two
diagnostic products based on synthetic forms of secretin.
On March 9, 2000, Repligen sold an aggregate of 2,598,927 shares of common
stock to investors at $8.625 per share for an aggregate consideration of $22.4
million in a private placement. Repligen engaged Paramount Capital, Inc.
("Paramount") to act as placement agent for this transaction. For this
transaction, Repligen paid Paramount approximately $1.57 million for its
services, plus related transactional expenses, and issued to Paramount warrants
to purchase up to 129,946 shares of common stock at $9.49 per share, exercisable
through March 2005. As of March 31, 2004, this warrant remains outstanding.
In connection with a financial advisory agreement in May 2000, the Company
issued warrants to purchase an aggregate of 100,000 shares of common stock. Each
warrant is exercisable at $2.75 per share at any time prior to July 15, 2004. As
of March 31, 2004, these warrants remain outstanding.
At March 31, 2004, common stock reserved for issuance is as follows:
Reserved for Shares
Incentive and nonqualified stock option plans 3,139,409
Warrants granted for payment of services 254,946
---------
3,394,355
=========
(b) Stock Options
The Company's 2001 stock option plan authorizes the grant of either
incentive stock options or nonqualified stock options. Incentive stock options
are granted to employees at the fair market value at the date of grant.
Nonqualified stock options are granted to employees or nonemployees. The options
generally vest over four or five years and expire no more than 10 years from the
date of grant. As of March 31, 2004, the Company had 1,088,609 options available
for future grant.
A summary of stock option activity under the 2001 stock option plan is as
follows:
F-13
Years Ended March 31,
2004 Weighted 2003 Weighted 2002 Weighted
Range of Average Range of Average Range of Average
Number Exercise Price per Number of Exercise Price per Number of Exercise Price per
of Shares Prices Share Shares Prices Share Shares Prices Share
--------- ---------- --------- --------- ------------ --------- --------- ---------- ---------
Outstanding at
beginning of
period.......... 1,940,050 $.01-$8.56 $2.55 1,701,900 $ .50-$12.45 $2.64 1,479,441 $.50-$12.45 $2.64
Granted............ 347,500 $.01-$7.56 5.68 281,650 $ .01-$3.47 2.88 276,900 $2.35-$2.60 2.60
Exercised.......... (101,410) $.01-$3.24 1.53 -- -- -- (13,800) $ .50-$1.53 1.01
Cancelled.......... (135,340) $.01-$8.56 4.22 (43,500) $2.29-$12.45 8.36 (40,641) $1.03-$7.19 2.62
--------- ----- --------- ----- --------- -----
Outstanding at end
of period....... 2,050,800 $.01-$8.56 $3.01 1,940,050 $ .01-$8.56 $2.55 1,701,900 $.50-$12.45 $2.64
--------- ----- --------- ----- --------- -----
Exercisable at end
of period....... 1,373,200 $.50-$8.56 $2.19 1,360,130 $ .01-$8.56 $2.10 1,115,900 $.50-$12.45 $2.25
========= ===== ========= ===== ========= =====
As of March 31, 2004
Options Outstanding Options Exercisable
Weighted
Average Weighted Weighted
Remaining Average Average
Number Contractual Exercise Price Number Exercise Price
Outstanding Life Per Share Outstanding Per Share
----------- ----------- -------------- ----------- --------------
$.01-$1.37.............. 370,000 2.85 $1.10 346,000 $1.15
$1.41-$1.63.............. 567,000 3.88 $1.43 567,000 $1.43
$2.29-$3.00.............. 438,800 5.37 $2.65 297,600 $2.67
$3.13-$6.13.............. 446,000 8.32 $4.47 68,600 $3.70
$7.19-$8.56.............. 229,000 7.60 $7.88 94,000 $8.04
--------- ---- ----- --------- -----
2,050,800 5.39 $3.01 1,373,200 $2.19
========= ==== ===== ========= =====
(c) Shareholder Rights Plan
In March 2003, the Company adopted a Shareholder Rights Agreement (the
"Rights Agreement"). Under the Rights Agreement, the Company distributed certain
rights to acquire shares of the Company's Series A junior participating
preferred stock (the "Rights") as a dividend for each share of Common Stock held
of record as of March 17, 2003. Each share of Common Stock issued after the
March 17, 2003 record date has an attached Right. Under certain conditions
involving an acquisition by any person or group of 15% or more of the Common
Stock, each Right permits the holder (other than the 15% holder) to purchase
Common Stock having a value equal to twice the exercise price of the Right, upon
payment of the exercise price of the Right. In addition, in the event of certain
business combinations after an acquisition by a person or group of 15% or more
of the Common Stock (20% in the case of a certain stockholder), each Right
entitles the holder (other than the 15% holder) to receive, upon payment of the
exercise price, Common Stock having a value equal to twice the exercise price of
the Right. The Rights have no voting privileges and, unless and until they
become exercisable, are attached to, and automatically trade with, the Company's
Common Stock. The Rights will terminate upon the earlier of the date of their
redemption or March 2013.
6. Commitments and Contingencies
Operating Lease
In October 2001, the Company leased, pursuant to a ten-year lease
agreement, a new corporate headquarters in Waltham, Massachusetts. The Company
relocated to this facility in May 2002. In connection with this lease agreement,
the Company issued a letter of credit in the amount of $500,000 to its landlord.
In October 2002, this letter of credit was reduced to $200,000. The letter of
credit is collateralized by a certificate of deposit held by the bank that
issued the letter of credit. The certificate of deposit is classified as
restricted cash in the accompanying balance sheet as of March 31, 2004.
Obligations under noncancellable operating leases, including the facility
lease discussed above, as of March 31, 2004 are approximately as follows:
F-14
Years Ending March 31,
----------------------
2005................................... 379,000
2006................................... 379,000
2007................................... 385,000
2008................................... 404,000
2009................................... 410,000
Thereafter............................. 1,178,000
----------
Minimum lease payments................. $3,135,000
==========
Rent expense charged to operations under operating leases was
approximately $389,000, $372,000, and $308,000 for the years ended March 31,
2004, 2003 and 2002, respectively.
Licensing and Research Agreements
The Company licenses certain technologies that are, or may be,
incorporated into its technology under several agreements and also has entered
into several clinical research agreements which require the Company to fund
certain research projects. Generally, the license agreements require the Company
to pay annual maintenance fees and royalties on product sales once a product has
been established using the technologies. The Company has recorded research and
development expense associated with license agreements of $298,000, $56,000, and
$48,000 for the years ended March 31, 2004, 2003 and 2002, respectively.
Supply Agreements
The Company has entered into an agreement with a manufacturer for certain
components of its rProtein A product. The Company has remaining purchase
obligations of approximately $135,000 associated with this agreement for the
year ended March 31, 2005. The Company relies on a sole manufacturer for its
SecreFlo(TM) product. This reliance exposes it to a number of risks, including
reduced control over manufacturing capacity, delivery times, inadequate
inventory levels which could lead to product shortage or charges for excess or
obsolete inventory.
7. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following:
As of March 31,
--------------------------
2004 2003
---------- ----------
Prepaid insurance........... $ 148,398 $ 145,960
Clinical trial expenses..... 87,414 225,238
Equipment and services...... 84,668 89,204
Marketing expenses.......... 3,500 52,500
Other....................... 4,249 9,667
---------- ----------
$ 328,229 $ 522,569
========== ==========
8. Accrued Expenses
Accrued expenses consist of the following:
As of March 31,
--------------------------
2004 2003
----------- -----------
Research & development costs........ $ 625,720 $ 528,323
Payroll & payroll related costs..... 419,318 378,347
Professional and consulting costs... 67,334 66,689
Royalty expenses.................... 366,856 169,006
Other accrued expenses.............. 181,350 132,472
Unearned revenue.................... 75,998 --
----------- -----------
$ 1,736,576 $ 1,274,837
=========== ===========
F-15
In February 2004, the Company terminated its Licensing Agreement with
ChiRhoClin. It is the Company's position that under the terms of the Licensing
Agreement, Repligen has the right to recover certain payments made to
ChiRhoClin, totaling approximately $5 million, from ChiRhoClin's share of
royalties on sales of SecreFlo(TM) and that Repligen retains the right to sell
SecreFlo(TM) until such payments have been recovered. The Company has accrued
$366,856 in royalty expenses as of March 31, 2004.
Subsequent to the termination of the Licensing Agreement, ChiRhoClin has
invoiced the Company for milestone payments of $1,750,000. These payments are
not included as accrued expenses. (See Note 12.)
9. Employee Benefit Plan
The Repligen Corporation 401(k) Savings and Retirement Plan (the 401(k)
Plan) is a qualified defined contribution plan in accordance with Section 401(k)
of the Internal Revenue Code. All employees over the age of 21 who have
completed four months of service are eligible to make pre-tax contributions up
to a specified percentage of their compensation. Under the 401(k) Plan, the
Company may, but is not obligated to match a portion of the employees'
contributions up to a defined maximum. The match is calculated on a calendar
year basis. The Company matched $34,395, $26,066, and $13,271 for the calendar
years ended December 31, 2003, 2002, and 2001 respectively. Forfeitures of
previous participants funded this contribution and as a result had no impact on
the Company's operations.
10. Related Party Transaction
Repligen paid Drs. Schimmel and Rich, the Co-Chairman of the Board of
Directors, $49,200 and $43,200, respectively, during each of the fiscal years
ended March 31, 2004, 2003 and 2002 pursuant to consulting agreements, which
have similar terms. These agreements are automatically extended for successive
one-year terms unless terminated by either party to the agreement at least 90
days prior to the next anniversary date. Dr. Schimmel's agreement continues
until September 30, 2004 and Dr. Rich's agreement continues until October 31,
2004. Drs. Schimmel and Rich have advised Repligen that they have no present
intention of terminating their agreements. Drs. Schimmel and Rich receive no
separate cash compensation for attendance at meetings or otherwise as directors.
11. Legal Proceedings
Bristol-Myers Squibb
Repligen is the exclusive licensee of all CTLA4-Ig patent rights owned by
the University of Michigan ("Michigan"). Repligen and Michigan believe that
Michigan has a rightful claim to ownership of certain patents assigned to
Bristol-Myers Squibb Company ("Bristol") which relate to compositions and uses
of CTLA4, arising out of the inventive contributions by one of the Michigan
scientists.
Repligen and Michigan filed a complaint against Bristol in the United
States District Court for the Eastern District of Michigan (the "District
Court") in August 2002 seeking a correction of inventorship. The suit asserts
that Dr. Craig Thompson, the scientist from Michigan, made inventive
contributions as part of a collaboration with Bristol scientists and is
therefore a rightful inventor on patents issued to Bristol. The District Court
found that Repligen and Michigan had not proven by clear, convincing, and
corroborative evidence that Dr. Thompson is a sole or joint inventor of any of
the patents in suit.
In October 2003, Repligen filed an appeal to the ruling of the District
Court with the United States Court of Appeals for the Federal Circuit. Both
Repligen and Bristol have submitted written briefs to the Federal Circuit and
oral arguments have been scheduled for July 9, 2004. The Federal Circuit may
decide to uphold the District Court's decision, overturn the District Court's
decision or remand it back to the District Court for further consideration. The
F-16
Company's failure to obtain ownership rights to these Bristol patents may
restrict its ability to commercialize CTLA4-Ig.
Imclone Systems, Inc.
Repligen Corporation and The Massachusetts Institute of Technology ("MIT")
have filed an action for patent infringement against ImClone Systems, Inc. for
infringement of a U.S. Patent ("the Erbitux Patent") based on Imclone's
manufacture and sale of the recently approved cancer drug Erbitux(R). The
technology, which was developed and patented by MIT, covers certain genetic
elements, DNA enhancers, that increase protein production in a mammalian cell.
Repligen is the exclusive licensee of MIT for the Erbitux Patent. Repligen and
MIT believe that Damon Biotech, a predecessor of Repligen, developed the cell
line which is used to manufacture Erbitux(R) in 1990 for the National Cancer
Institute and uses the technology which is the basis of the Erbitux Patent.
Repligen and MIT have also filed an application for patent term extension for
the Erbitux Patent, which if granted will extend the term of the patent to May
2009.
ChiRhoClin, Inc.
In February 2004, Repligen terminated the September 1999 Licensing
Agreement with ChiRhoClin, its supplier of SecreFlo(TM), based on ChiRhoClin's
failure to meet its obligations including to use best efforts to obtain FDA
approval of secretin for post-ERCP pancreatitis. Repligen believes that, in
accordance with the terms of the Licensing Agreement, ChiRhoClin is obligated to
continue to supply product after the February 2004 termination and Repligen
believes it has the right to recover certain payments made to ChiRhoClin
totaling approximately $5 million, from ChiRhoClin's share of royalties on sales
of SecreFlo(TM) until such payments have been recovered.
On April 9, 2004, Repligen filed an arbitration demand against ChiRhoClin
with the American Arbitration Association in New York. In this arbitration
demand, the Company alleges that ChiRhoClin breached several of its obligations
under the September 1999 Licensing Agreement including failure to use best
efforts to obtain various FDA approvals and to manufacture and supply
SecreFlo(TM) in a timely manner. The Company also alleges that ChiRhoClin's
conduct constitutes unfair and deceptive business practices under Massachusetts
law. On May 26, 2004, Repligen filed an amended arbitration demand, adding a
claim of defamation based on certain statements that ChiRhoClin made to the FDA
and in the press. Repligen seeks to recover approximately $5 million in payments
made to ChiRhoClin and additional damages to be determined. (See Note 12.)
Pro-Neuron, Inc.
Repligen was named as a codefendant with the Regents of the University of
California (the "Regents") in an action filed by Plaintiff Pro-Neuron, Inc.
("Pro-Neuron") on June 21, 2001 in the Superior Court of California, County of
San Diego. The complaint alleged claims of breach of contract and breach of
implied covenant of good faith and fair dealing against the Regents and
intentional interference with contractual relations against Repligen in
connection with the Regents' licensing to Repligen of certain rights to patent
applications filed by the Regents. Pro-Neuron subsequently amended its complaint
to allege misappropriation of trade secrets and unfair competition against
Repligen and the Regents.
On June 4, 2003, Repligen, the Regents and Pro-Neuron entered into a
binding term sheet for settlement ("Settlement") under which the Pro-Neuron
complaint will be dismissed upon execution of definitive agreements between the
parties. Under the terms of the Settlement, Repligen will receive $750,000 upon
execution of the definitive agreements in exchange for which Repligen and the
Regents agreed to restructure the UCSD License Agreements to exclude the field
of acylated pyrimidines, including RG2133. Repligen discontinued its clinical
trial of RG2133 in mitochondrial disease and has the right to continue its
clinical trials of triacetyluridine ("RG2133") in bipolar disorder/major
depression and purine autism for up to two years. Repligen will assign to
Pro-Neuron any inventions from these trials, for which it has rights, involving
the use of acylated pyrimidines, but will retain the rights to any inventions
for all other chemical entities. As of May 31, 2004, the definitive agreements
are under discussion between the parties.
F-17
From time to time, the Company may be subject to other legal proceedings
and claims in the ordinary course of business. Repligen is not currently aware
of any such proceedings or claims that it believes will have, individually or in
the aggregate, a material adverse effect on the business, financial condition or
results of operations.
12. Subsequent Event
On June 8, 2004, Repligen received a letter from ChiRhoClin, Inc.
disputing the Company's termination of its 1999 Licensing Agreement for
SecreFlo(TM) and indicating that due to alleged material breaches by Repligen,
ChiRhoClin was terminating the Licensing Agreement. In connection with its
purported termination, ChiRhoClin requested that Repligen stop marketing
SecreFlo(TM) immediately. Repligen believes that ChiRhoClin's allegations are
without merit and intends on vigorously protecting its rights.
ChiRhoClin is the sole supplier of SecreFlo(TM). Repligen believes it is
probable that ChiRhoClin will attempt to no longer supply Repligen with
SecreFlo(TM). Therefore, Repligen has recorded an impairment loss related to the
license fee, historically included as a long lived asset in the accompanying
balance sheets, of approximately $2,413,000, recognizing the loss of future
sales of SecreFlo(TM) once current inventory is depleted.
13. Selected Quarterly Financial Data (Unaudited)
The following table contains Statement of Operations information for each
quarter of fiscal 2004 and 2003. The Company believes that the following
information reflects all normal recurring adjustments necessary for a fair
presentation of the information for the periods presented. The operating results
for any quarter are not necessarily indicative of results for any future period.
(in thousands, except per share amounts)
Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1
FY04 FY04 FY04 FY04 FY03 FY03 FY03 FY03
-------- -------- -------- -------- -------- -------- -------- --------
Revenue:
Product revenue ................. $ 2,113 $ 1,304 $ 1,383 $ 2,043 $ 2,018 $ 2,417 $ 1,688 $ 1,620
Research revenue ................ -- 17 36 18 29 -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Total revenue ................... 2,113 1,321 1,419 2,061 2,047 2,417 1,688 1,620
-------- -------- -------- -------- -------- -------- -------- --------
Cost of revenue .................... 870 781 741 856 1,008 1,141 662 670
-------- -------- -------- -------- -------- -------- -------- --------
Gross profit ....................... 1,243 540 678 1,205 1,039 1,276 1,026 950
-------- -------- -------- -------- -------- -------- -------- --------
Costs and expenses:
Research and development ........... 1,304 1,850 1,901 1,429 1,381 1,363 1,255 1,228
Selling, general and administrative 880 917 1,011 1,902 1,448 819 1,010 882
Impairment of long lived asset ..... 2,413 -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Total operating expenses ........... 4,597 2,767 2,912 3,331 2,829 2,182 2,265 2,110
-------- -------- -------- -------- -------- -------- -------- --------
Loss from operations ............... (3,354) (2,227) (2,234) (2,126) (1,790) (906) (1,239) (1,160)
-------- -------- -------- -------- -------- -------- -------- --------
Investment income .................. 97 101 94 98 93 140 156 169
-------- -------- -------- -------- -------- -------- -------- --------
Net loss ........................... $ (3,257) $ (2,126) $ (2,140) $ (2,028) $ (1,697) $ (766) $ (1,083) $ (991)
======== ======== ======== ======== ======== ======== ======== ========
Net loss per common share .......... $ (0.11) $ (0.07) $ (0.07) $ (0.07) $ (0.06) $ (0.03) $ (0.04) $ (0.04)
Weighted average common shares
outstanding ..................... 30,020 29,878 29,859 28,987 27,339 27,316 26,643 26,643
======== ======== ======== ======== ======== ======== ======== ========
F-18
14. Valuation and Qualifying Accounts
Balance at
Beginning of Balance at
Period Additions Deletions End of Period
------------ ---------- --------- -------------
Allowance for Doubtful Accounts:
2002................................................ $ 25,000 -- -- $ 25,000
2003................................................ $ 25,000 $ 25,000 -- $ 50,000
2004................................................ $ 50,000 -- $ 15,000 $ 35,000
F-19