-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TQh8eWCiPDGrjgYFt971aKUVAzdlQH+7p1tr85qrgOyP1lRA+zWxiFJU3z5KUwX0 ouWByvvJAQxo4EraS/kEdg== 0000891554-01-503269.txt : 20010702 0000891554-01-503269.hdr.sgml : 20010702 ACCESSION NUMBER: 0000891554-01-503269 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010629 FILER: COMPANY DATA: COMPANY CONFORMED NAME: REPLIGEN CORP CENTRAL INDEX KEY: 0000730272 STANDARD INDUSTRIAL CLASSIFICATION: BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836] IRS NUMBER: 042729386 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-14656 FILM NUMBER: 1670876 BUSINESS ADDRESS: STREET 1: 117 FOURTH AVE CITY: NEEDHAM STATE: MA ZIP: 02494 BUSINESS PHONE: 7814499560 MAIL ADDRESS: STREET 1: 117 FOURTH AVE CITY: NEEDHAM STATE: MA ZIP: 02494 10-K 1 d26103_10-k.txt ANNUAL REPORT 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, 2001 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.) 117 Fourth Avenue, Needham, Massachusetts 02494 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (781) 449-9560 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 (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 |_| State the aggregate market value of the voting common equity held by non-affiliates of the Registrant. The aggregate market value, computed by reference to the closing sale price of such stock quoted on NASDAQ on June 15, 2001 was approximately $49,785,492. Indicate the number of shares outstanding of each of the registrant's classes of common stock as of June 15, 2001: 26,633,950. 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, 2001. Portions of such Proxy Statement are incorporated by reference in Part III of this Form 10-K. Item 1. BUSINESS Any statements which are not historical facts contained in this Annual Report on Form 10-K, including, without, limitation, projections or statements concerning use and success of technology, progress of product development, programs or clinical trials, completion, timing and benefits of development programs, liquidity, suitability of products for specific applications, product performance, advantages or significance of technology, benefits and results of acquisitions, collaborations and strategic and other alliances, and improvements to operating and other results, are forward-looking statements that involve risks and uncertainties, including but not limited to those relating to product demand, pricing, market acceptance, the effect of economic conditions, intellectual property rights and litigation, the results of governmental proceedings, competitive products, risks in timing and success of clinical trials and product development, the results of financing efforts, the ability to exploit technologies, the ability to complete transactions, and other risks identified under the caption "Certain Factors That May Affect Future Results" and elsewhere in this Annual Report, as well as in our other Securities and Exchange Commission filings. Our actual results may differ significantly from the results discussed in the forward-looking statements. The Company Repligen Corporation ("Repligen") develops new drugs for autism, immune system diseases and mitochondrial disease. Our lead therapeutic products are secretin for autism, CTLA4-Ig for stem cell transplantation and uridine for mitochondrial disease. We also manufacture and market products based on Protein A for the purification of antibodies, and we own commercial rights to two products based on synthetic forms of secretin for the diagnosis of pancreatic function. Repligen was incorporated in March 1981, under the laws of the State of Delaware. Our principal executive officers are at 117 Fourth Avenue, Needham, Massachusetts 02494 and our telephone number is (781) 449-9560. Secretin for Autism Autism is a developmental disorder characterized by poor communication, impaired social interaction and repetitive behavior. Many autistic individuals also have gastrointestinal dysfunction. Secretin is a hormone produced in the small intestine which regulates the function of the pancreas as part of the process of digestion. A form of secretin derived from pigs is approved by the United States Food and Drug Administration ("FDA") for use in diagnosing problems with pancreatic function. Anecdotal reports indicate that secretin may have beneficial effects in some autistic children, including improvements in the social deficit which is the defining feature of autism. We have completed an FDA-approved Phase 2 clinical trial on a human, synthetic form of secretin in order to evaluate its potential benefits on the gastrointestinal, social, communicative and behavioral symptoms of autism. This trial was a randomized, double-blind, placebo-controlled study which enrolled 126 autistic children aged 3 to 6 at multiple sites in the United States. All of the children had gastrointestinal symptoms and moderate to severe symptoms of autism. Each patient received 3 doses of secretin or a placebo at 3 week intervals. Patients were assessed before the first dose and two weeks after the third dose with multiple standardized tests including clinical and parental evaluations, a daily diary of gastrointestinal and autistic symptoms and video taping of structured play sessions. Results from the trial indicated that parents of secretin-treated children rated their child's symptoms to be improved compared to children who received a placebo, a result that was 2 statistically significant. We also identified two biological parameters which defined a group of patients whose symptoms were highly variable over time. When these patients were removed from the analysis, the beneficial effect of secretin was also observed in two types of evaluations carried out by a trained psychologist. This trial also evaluated the safety of secretin. There was no statistically significant increase in the side-effects (adverse events) observed in secretin-treated patients versus patients who received a placebo. We have also initiated a research effort to better understand the biology of secretin and its mechanism of action in autistic patients. We intend to analyze multiple biological parameters in the multiple blood, urine and stool samples that were collected from these patients to search for additional biological markers which may be correlated with the response to secretin. We are also investigating the neurobiology of secretin in animals to better understand its mechanism of action. According to the American Society for Autism, there are approximately 500,000 individuals affected by autism in the United States. There are currently no FDA-approved drugs for the treatment of autism and no drug therapy which has been reported to improve the social or communicative deficits of autism. In February 2000, we were issued a U.S. patent for the use of secretin in the treatment of autism which will expire in 2018. We are currently prosecuting additional patent applications in the United States, Europe and Japan. CTLA4-Ig for Transplantation and Immune Disorders We are also developing a product named "CTLA4-Ig," based on a natural regulator of the immune system. CTLA4-Ig has been shown in animal models to selectively block unwanted immune responses in organ transplantation and several autoimmune diseases. We are conducting our initial clinical testing of CTLA4-Ig in patients receiving a stem cell (bone marrow) transplant, which is a potential cure for several cancers of the immune system, including leukemia, myeloma and lymphoma. A stem cell transplant is also a potential treatment for certain metabolic diseases, autoimmune diseases and sickle cell anemia. Despite the clinical potential of stem cell transplantation, its use is limited by a severe and potentially life-threatening complication - graft versus host disease ("GVHD"), in which the newly transplanted immune system attacks the tissues of the recipient. To minimize this complication, most stem cell transplants require a search for a genetically "matched" donor which only partially eliminates GVHD and which can delay treatment for months and cost $25,000 or more. In June 1999, the results of a Phase 1 clinical trial of our CTLA4-Ig in stem cell transplantation were published in the New England Journal of Medicine. The trial involved eleven patients who received a graft from a family member who was only partially genetically matched with the patient. The results demonstrated that pre-treatment of stem cells (bone marrow) from a genetically "mismatched" family member with CTLA4-Ig prior to transplantation resulted in a lower incidence of GVHD than expected based on prior experience. We intend to further evaluate CTLA4-Ig for stem cell transplantations in which the donor and recipient are genetically "mismatched" in an FDA-approved Phase 2 clinical trial. In the last five years, a new technique has been developed to reduce the morbidity and mortality of stem cell transplantation. In this "mini-transplant" procedure, the patient receives substantially less radiation treatment prior to the transplant. While this can reduce side effects and the time spent in intensive care, the problem of GVHD remains. We intend to evaluate the 3 use of CTLA4-Ig to prevent the development of GVHD in patients receiving a "mini-transplant" in a second Phase 2 clinical trial. Reduction of the severity of GVHD in this setting may enable stem cell transplantation to be applied to a broader range of cancer patients and to other diseases for which the current morbidity associated with the transplant is unacceptable. Repligen has obtained an exclusive license to the patent rights of the University of Michigan which pertain to CTLA4-Ig and is prosecuting patents filed by the University related to compositions of matter and methods of use of CTLA4-Ig. We also believe that the University of Michigan and Repligen are entitled to rights to certain U.S. patents on compositions and uses of CTLA4 which have been issued to Bristol-Myers Squibb Company. (For more information on our intellectual property rights to CTLA4-Ig, please see "Legal Proceedings.") Uridine for Mitochondrial Disorders Mitochondria are small structures present in every cell which serve to produce energy for cellular processes. Defects in the genes which encode mitochondrial proteins are responsible for mitochondrial disease which affects multiple organs, particularly the nervous system, heart, liver and lungs. Inborn forms of mitochondrial disease affect approximately 20,000 people in the United States and result in symptoms, including seizures, skeletal and heart muscle weakness and neurological and cognitive defects. It has recently been recognized that a second function of mitochondria is to produce uridine, an essential precursor for the synthesis of RNA and DNA as well as other cellular functions. This insight led researchers at The University of California, San Diego ("UCSD") to evaluate synthetic uridine as a therapy for mitochondrial disease. In Phase 1 clinical trials carried out by UCSD, daily oral administration of uridine or an analog of uridine was evaluated in 14 patients. This study indicated that the therapy is well tolerated in patients with mitochondrial disease including a few who have received it for more than two years. Several patients also had marked improvements in their symptoms, including a reduction in the number of seizures, improved muscle strength and improvements in kidney function. Repligen is currently preparing for a placebo-controlled Phase 2 clinical trial to extend these observations. In December 2000, Repligen exclusively licensed the rights to patent applications from UCSD for the treatment of mitochondrial disease with uridine or analogs of uridine. Protein A Products for Antibody Manufacturing Protein A is a naturally occurring protein used in the purification of antibodies. Virtually all therapeutic monoclonal antibodies are manufactured by a process in which an impure mixture 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 forms of recombinant Protein A. Our primary customers incorporate our product into their proprietary antibody purification systems which they sell directly to the biotechnology and pharmaceutical industry. We also manufacture an immobilized Protein A product which is marketed by Amersham Pharmacia Biotech. Substantially all of our product sales for the last three years have been sales of Protein A. 4 In the past four years, the sales of therapeutic antibody products have increased from $300 million in 1997 to approximately $2 billion in 2000. This growth is based on the growth of new therapeutic antibody products, including Rituxin(R) for lymphoma, Herceptin(TM) for breast cancer, Synagis(TM) for RSV infection, Remicade(TM) for Crohn's disease and arthritis and Enbrel(TM) for 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 the demand for Protein A. We own a patent in the U.S. covering the protein A gene and the manufacture of recombinant Protein A which expires in 2009. Similar patents have been issued to us in certain European countries and Japan which expire in 2002. Secretin Diagnostic Products In October 1999, we acquired the commercial rights to two diagnostic products based on synthetic forms of porcine (pig-derived) and human secretin from ChiRhoClin, Inc., a private company. Both of these products have been evaluated in clinical trials for their safety and efficacy in diagnosing pancreatic function and gastrinoma. A New Drug Application for each product has been filed with the FDA. In March 2000, the FDA issued an "approvable letter" for the use of synthetic porcine secretin in the diagnosis of pancreatic function. The FDA issued a second "approvable letter" issued in November 2000 which contained questions concerning the manufacture and quality control of the synthetic porcine substance. Final approval to market this synthetic porcine product will be based on a satisfactory response by ChiRhoClin to questions raised by the FDA. We intend to market these diagnostic products directly to gastroenterologists in the U.S. The FDA has granted both products Orphan Drug Status which means that they will each have a seven year period of exclusivity following final approval of the NDA. Repligen's Business Strategy Our primary objective is to develop drugs based on naturally-occurring peptides, proteins and nucleotides. By harnessing the natural actions of these compounds, it may be possible to modify a disease process in a specific way and with a minimum of toxicity. We intend to maintain the commercial rights to our lead product candidates through "proof of efficacy" clinical trials. After demonstration of a product candidate's therapeutic potential, we may seek a biotechnology or pharmaceutical partner for further clinical development or commercialization of our product candidates. We seek to control our operating losses by out-sourcing certain aspects of clinical product development and manufacturing. In addition, we seek to offset some of the expenses associated with product development with profits from the sales of Protein A products and, pending FDA approval, secretin diagnostic products. We intend to seek additional current product opportunities to increase our current product revenues as we increase expenditures on clinical development of our therapeutic products. Sales and Marketing We sell our rProtein A(TM) products primarily through value-added resellers including Amersham Pharmacia Biotech, AB ("APBiotech"), PE Biosystems, Inc. and Millipore Corporation, and through distributors in certain foreign markets. Pending approval by the FDA, 5 we intend to market our secretin diagnostic products directly to gastroenterologists in the United States. Customers Customers for our Protein A products include chromatography companies, diagnostics companies, biopharmaceutical companies and laboratory researchers. During fiscal 2001, customers that accounted for more than 10% of our total revenues were APBiotech and PE Biosystems Inc. Employees As of June 15, 2001, we had 40 employees. Of the 40 employees, 26 were engaged in research, development and manufacturing and 14 in administrative and marketing functions. Doctorates or other advanced degrees are held by 15 of our employees. Each of our employees has signed a confidentiality agreement. Our employees are not covered by a collective bargaining agreement. Patents, Licenses and Proprietary Rights Our policy is to seek patent protection for our significant proprietary products. 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, are also important. We own or have exclusive rights to more than 15 U.S. patents and corresponding foreign equivalents. In addition, we have rights to more than 20 U.S. pending patent 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. In March 1999, we acquired the rights to certain patent applications claiming the therapeutic use of secretin to treat autism and other pervasive developmental disorders. In February 2000, we received a U.S. patent covering the use of secretin in the treatment of autism or the symptoms of autism which will expire in 2018. Additional related patent applications are currently being prosecuted in the United States and key foreign markets. As part of our program to develop drugs directed to the immune cell receptors known as CD28, B7 and CTLA4 (costimulatory factors), we licensed the rights to certain patent applications from the University of Michigan in 1992. In September 1995, we assigned these patent rights to Genetics Institute, Inc. In January 1996, Genetics Institute, Inc. returned the rights to CTLA4-Ig to us. In November 1999, we executed an agreement with Genetics Institute and the University of Michigan which confirmed the prior transfer of certain CTLA4-Ig related rights from Genetics Institute to the University of Michigan and the exclusive license of those rights to us. We have an unrestricted right to sub-license our CTLA4-Ig rights. (For more information on our intellectual property rights to CTLA4-Ig, please see "Legal Proceedings.") We have licensed two patent applications from the University of California, San Diego (UCSD) covering novel methods for the treatment of mitochondrial disease and for the treatment of autism in patients with abnormal metabolism. Under the terms of the license agreement, Repligen receives exclusive commercial rights to both inventions and will pay UCSD an up-front fee, clinical development milestones and royalties on product sales. Repligen will also support two research projects at UCSD. One patent application covers the use of analogs of uridine, a naturally 6 occurring component of RNA and DNA, for the treatment of diseases characterized by defects in the function of mitochondria. A second patent application covers the use of uridine and a form of uridine, triacetyl uridine ("TAU"), for the correction of defects in purine metabolism which produce the symptoms of autism or pervasive developmental disorder. We own U.S. and European patents covering recombinant Protein A which expire in 2009 and 2002 respectively. We also own rights to modified forms of Protein A which were licensed to APBiotech in December 1998 as part of a ten year agreement covering the supply of recombinant Protein A to APBiotech. We also rely upon trade secret protection for our confidential and proprietary information. Our policy is to require each of our employees, consultants and significant scientific collaborators to execute confidentiality agreements upon the commencement of an employment or consulting 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. Competition Our Protein A products compete on the basis of quality, performance, cost effectiveness, and application suitability with numerous established technologies for protein purification. Additional products using new technologies which 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 in which we are involved 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 is intense, resulting in considerable competition in obtaining qualified research personnel, submitting patent filings for protection of intellectual property rights and establishing corporate strategic alliances. We can not be certain that research, discoveries and commercial developments by others will not render any of our programs or potential products noncompetitive. Manufacturing We manufacture Protein A products from recombinant strains of bacteria. We manufacture a modified form of Protein A for AP Biotech 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 Protein A are conducted at our facilities in Needham, Massachusetts. (For more information about our manufacturing facilities, please see "Description of Property.") We maintain an active quality 7 assurance effort to support the regulatory requirements of our customers. Our secretin diagnostic product is purchased from ChiRhoClin, Inc. who manufactures it through third party contractors. Government Regulation The development of drug candidates, such as secretin or CTLA4-Ig, by us or our collaborative partners 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, involves the expenditure of substantial capital resources and 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. Certain Factors That May Affect Future Results Additional risks and uncertainties that we are unaware of or that we currently deem immaterial also may become important factors that affect Repligen. 8 WE MAY BE DEPENDENT ON OUR COLLABORATIVE PARTNERS TO DEVELOP, CONDUCT CLINICAL TRIALS FOR, AND MANUFACTURE, MARKET AND SELL OUR PRINCIPAL PRODUCTS. We conduct some of our development activities, and may conduct most of our commercialization activities, through collaborations. Our collaborations are heavily dependent on the efforts and activities of our collaborative partners. Our existing and any future collaborations may not be scientifically 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. 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; and o the availability of government and third party payor reimbursement of our products. 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 bioprocessing 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. 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 expect to increase our spending significantly as we continue to expand our research and development programs and commercialization 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. 9 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 our bioprocessing 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 bioprocessing 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 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. 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 program delays. 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 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 10 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. 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 EFFECT 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 manufacturer 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 the 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 AND MAINTAIN 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; and o operate without infringing the proprietary rights of third parties. We can not 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 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 11 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. 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. In addition, patents blocking our manufacture, use or sale of our products could be issued to third parties in the United States or foreign countries. The issuance of blocking patents or an adverse outcome in an interference or opposition proceeding, could subject us to significant liabilities to third parties and require us to license disputed rights from third parties on unfavorable terms, if at all, or cease using the technology. WE MAY BECOME 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 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 enforce our patent rights. 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 12 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. 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 will 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. We believe our products could be manufactured at other facilities; however, there are a limited number of manufacturers that operate under the FDA's regulations for good manufacturing practices which are capable of manufacturing for us. Timing for the initiation of new manufacturers is uncertain, and, if we are unable to arrange for third party manufacturing of our products, 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: o we may not be able to meet commercial demands for our products; 13 o we may not be able to initiate or continue clinical trials of products that are 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 TECHNICAL AND SCIENTIFIC PERSONNEL, THEN WE WILL HAVE TROUBLE DEVELOPING 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 scientific, management and marketing personnel. Potential employees with an expertise in the field of 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 and scientific backgrounds could materially adversely affect our product development efforts and our business. 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, may be 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. Item 2. DESCRIPTION OF PROPERTY Our executive office, research and manufacturing facilities are located at 117 Fourth Avenue in Needham, Massachusetts. We occupy approximately 15,000 square feet under a six-year sublease, which expires on April 30, 2002. We believe that suitable additional or alternate space will be available at commercially reasonable terms when our lease expires. Item 3. LEGAL PROCEEDINGS Repligen and the University of Michigan (the "University") believe that the University is entitled to rights to certain United States patents owned by Bristol-Myers Squibb Company ("BMS"), which patents cover claims for composition and methods of use for CTLA4. On August 31, 2000, Repligen and the University filed a complaint against BMS at the United States District Court for the District of Michigan in Detroit, Michigan seeking correction of inventorship on these patents. A correction of inventorship would result in the University being designated as a co-assignee on any corrected BMS patent. Repligen would then have rights to such technology 14 pursuant to a 2000 License Agreement with the University, a 1995 Asset Acquisition Agreement with Genetics Institute and other related agreements. Repligen's failure to obtain shared ownership rights in the BMS patents may restrict Repligen's ability to commercialize CTLA4-Ig. Repligen and the University have also filed patents related to compositions of matter and methods of use of CTLA4-Ig. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of our security holders of the Company through solicitation of proxies or otherwise, during the last quarter of the fiscal year ended March 31, 2001. PART II Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS 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 quotations 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 2001 High Low ---------------- ---- --- Fourth Quarter $5.875 $2.031 Third Quarter 8.688 3.000 Second Quarter 8.875 5.313 First Quarter 9.688 4.000 Fiscal Year 2000 ---------------- Fourth Quarter $18.000 $2.875 Third Quarter 4.875 2.688 Second Quarter 3.188 2.375 First Quarter 3.469 2.563 Stockholders and Dividends As of June 15, 2001 there were approximately 929 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. ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA The following selected financial data are derived from, and are qualified in their entirety by reference to, the consolidated financial statements of Repligen as of and for the years ended March 31, 2001, 2000, 1999, 1998 and 1997 which have been audited by Arthur Andersen LLP, independent public accountants. The selected financial data set forth below should be read in conjunction with the consolidated financial statements of Repligen 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, 2000, 1999, 1998 and 1997. 15
Years Ended March 31, -------------------------------------------------------- 2001 2000 1999 1998 1997 -------- -------- -------- -------- -------- (In thousands, except per share amounts) Operating Statement Data: Revenues: Product $ 2,083 $ 2,041 $ 1,010 $ 1,114 $ 1,554 Research and development 172 863 1,268 917 1,180 Other 91 74 100 129 799 -------- -------- -------- -------- -------- Total revenues $ 2,346 $ 2,978 $ 2,378 $ 2,160 $ 3,533 -------- -------- -------- -------- -------- Costs and expenses: Research and development 5,786 3,754 2,882 1,420 1,927 Selling, general & administrative 2,493 2,480 1,563 1,281 1,940 Cost of product sales 1,400 1,107 689 480 537 Restructuring (credit) charge -- -- -- -- (111) -------- -------- -------- -------- -------- Total costs and expenses 9,679 7,341 5,134 3,181 4,293 -------- -------- -------- -------- -------- Loss from operations (7,333) (4,363) (2,756) (1,021) (760) -------- -------- -------- -------- -------- Investment income 2,054 547 212 225 269 Net loss $ (5,279) $ (3,816) $ (2,544) $ (796) $ (491) ======== ======== ======== ======== ======== Net loss per common share $ (0.20) $ (0.18) $ (0.14) $ (0.05) $ (0.03) ======== ======== ======== ======== ======== Weighted average common shares outstanding 26,548 21,538 18,018 16,502 15,678 ======== ======== ======== ======== ======== (In thousands) As of March 31, 2001 2000 1999 1998 1997 -------- -------- -------- -------- -------- Balance Sheet Data: Cash and investments $ 29,930 $ 34,033 $ 3,251 $ 4,726 $ 3,538 Working capital 24,398 34,473 3,860 5,377 3,990 Total assets 32,148 36,287 5,224 6,513 5,621 Accumulated deficit (135,959) (130,680) (126,864) (124,320) (123,533) Stockholders' equity 30,891 35,090 4,592 6,124 4,919
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The following Management's Discussion and Analysis of Financial Condition and Results of Operations 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. Repligen's 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 report. 16 Results of Operations Fiscal Year Ended March 31, 2001 Compared with Fiscal Year Ended March 31, 2000 Revenues Total revenues for fiscal 2001 were $2,346,000, compared to $2,978,000 in fiscal 2000, a decrease of $632,000 or 21%. This decrease in revenue is a result of the discontinuance of research collaborations and grants programs that occurred during fiscal 2000 as we focus our efforts on our own proprietary drug programs. Product revenues for fiscal 2001 were $2,083,000, compared to $2,041, 000 in fiscal 2000, an increase of $42,000 or 2%. Product sales under our supply agreement with AP Biotech increased during fiscal 2001 partially offset by a decrease in sales of our Protein A product as a result of the timing of large production scale orders. Research and development revenues for fiscal 2001 were $172,000 compared to $863,000 in fiscal 2000, a decrease of $691,000 or 80%. During fiscal 2000, we received non-recurring licensing payments and completed our SBIR grants for NIH and NSF. Cost and Expenses Total costs and expenses for fiscal 2001 were $9,679,000 compared to $7,341,000 in fiscal 2001, an increase of $2,338,000 or 32%. Research and development expenses for fiscal 2001 were $5,786,000 compared to $3,754,000 in fiscal 2000, an increase of $2,032,000 or 54%. This increase is largely due to increased clinical and manufacturing costs related to development activities for secretin, CTLA4-Ig and uridine. Selling, general and administrative expenses for fiscal 2001 were $2,493,000 compared to $2,480,000 in fiscal 2000, an increase of $13,000 or .5%. This increase was attributable to increases in payroll and related expenses, non-cash charges related to the issuance of warrants, and increased shareholder communication expenses as a result of an expanded shareholder base. These increases were partially offset by a decrease in financial advisory costs that were incurred during fiscal 2000. Cost of products sold for fiscal 2001 was $1,400,000, compared to $1,107,000 in fiscal 2000, an increase of $293,000 or 26%. Cost of product sales in fiscal 2001 was 67% of product revenues versus 54% of product revenues for fiscal 2000. These increases are a result of increased personnel costs and production costs. Investment income Investment income for fiscal 2001 was $2,054,000, compared to $547,000 in fiscal 2000, an increase of $1,507,000 or 276%. The increase in investment income is due to higher average cash, cash equivalent and marketable securities balances as result of the common stock financings that took place during March 2000. Fiscal Year Ended March 31, 2000 Compared with Fiscal Year Ended March 31, 1999 Revenues Total revenues for fiscal 2000 were $2,978,000 compared to $2,378,000 in fiscal 1999, an increase of $601,000 or 25%. This increase was largely attributable to increased product sales of recombinant Protein A offset by decreased research and development revenue. 17 Product revenues for fiscal 2000 were $2,041,000 compared to $1,010,000 in fiscal 1999, an increase of $1,031,000 or 102%. The increase in the product sales volume is attributed to the initiation of product shipments to APBiotech under a supply agreement executed in May 1999 and strong demand from monoclonal antibody producers for Protein A products. Research and development revenues for fiscal 2000 were $863,000 compared to $1,268,000 in fiscal 1999, a decrease of $405,000 or 32%. The decrease in research and development revenues of $405,000 or 32% from fiscal 1999 levels is primarily attributable to the discontinuance of certain research collaborations and grant programs. Costs and Expenses Total expenses for fiscal 2000 were $7,341,000, compared to $5,134,000 in fiscal 1999, an increase of $2,207,000 or 43%. Research and development expenses for fiscal 2000 were $3,754,000, compared to $2,882,000 in fiscal 1999, an increase of $872,000, or 30%. Research and development costs for fiscal 2000 include a $1,000,000 payment to ChiRhoClin pursuant to our license agreement with them. Fiscal 1999 research and development costs include $1,035,000 in costs associated with the acquisition of rights to certain patent applications covering the use of secretin in the treatment of autism. In addition, the increase in research and development expenses in 2000 reflects increased costs associated with our drug development programs for secretin and CTLA4-Ig. Selling, general and administrative expenses for fiscal 2000 were $2,480,000, compared to $1,563,000 in fiscal 1999, an increase of $917,000 or 59%. Included in selling, general and administrative expenses for fiscal 2000 were one time charges associated with a financial advisory agreement with Paramount Capital of $493,000, including a non-cash charge of $188,000 associated with the issuance of warrants to purchase common stock. Cost of product sales for fiscal 2000 totaled $1,107,000, compared to $689,000 in fiscal 1999, which represents an increase of $418,000 or 61% over the prior fiscal year. Costs of product sales in fiscal 2000 were 54% of product revenues versus 68% of product revenues for fiscal 1999. The increase in costs of product sales and decrease in cost of revenues as a percentage of sales is due primarily to increased Protein A product sales. In addition, during fiscal 2000, we incurred additional expenses associated with the start-up of the manufacture of Protein A for AP Biotech and the write off of inventory resulting from the introduction of a new Protein A product that took place during fiscal 1999. Investment income Investment income for fiscal 2000 was $547,000, compared to $212,000 for fiscal 1999, an increase of $335,000 or 158%. The increase in investment income is due to higher average cash, cash equivalent and marketable securities balances as a result of the private placement that took place in May 1999. Liquidity and Capital Resources We have financed our operations primarily through sales of equity securities and revenues derived from product sales, collaborative research agreements, government grants, and payments on licensing and royalty agreements. At March 31, 2001 we had cash, cash equivalents, and marketable securities of $29,930,000, compared to $34,033,000 at March 31, 2000. 18 Repligen's operating activities in 2001 used cash of approximately $4,620,000, consisting of the net loss from operations for the year, an increase in inventory and a decrease in accrued expenses. These cash uses were offset by noncash charges for depreciation and amortization and stock and warrant issuances and an increase in accounts payable. During fiscal 2001, we purchased $185,000 of capital equipment, consisting of laboratory and office equipment. We received cash of $677,000 from the proceeds of stock option and warrant exercises. We expect to incur significantly higher costs in fiscal 2002 as a result of expanded research and development costs associated with the expansion of activities associated with clinical trials of our proprietary drug candidates. In addition, under terms of our secretin diagnostic agreement with ChiRhoClin, if the FDA approves an NDA, we will be required to pay ChiRhoClin future milestones in cash and through issuance of our common stock as well as royalties on sales. 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. 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 marketable securities. New Accounting Standards In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. As amended in June 1999, the statement is effective for all fiscal quarters of all fiscal years beginning after June 15, 2000. In June 2000, the FASB issued statement No. 138, which is a significant amendment to SFAS NO. 133. SFAS No. 133 and its amendments establish accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities. The Emerging Issues Task Force (EITF) has also issued a number of derivative-related tentative and final consensuses. We do not expect the adoption of these statements to have a material impact on our consolidated financial position or results of operations. In March 2000, the FASB issued Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensation--An Interpretation of APB Opinion No. 25. The Interpretation clarifies the application of Accounting Principles Board Opinion (APB) No. 25 in certain situations, as defined. Interpretation No. 44 is effective July 1, 2000; however, it covers certain events occurring during the period after December 15, 1998 but before the effective date, the effects of applying this Interpretation No. 44 would be recognized on a prospective basis from the effective date. Accordingly, upon initial application of the final Interpretation No. 44, no adjustments would be made to the financial statements for periods before the effective date and no expense would be recognized for any additional compensation cost measured that is attributable to periods before the effective date. The adoption of this statement had no material impact on our financial statements. In September 2000, the EITF issued 00-19, Accounting for Derivative Financial Instruments Indexed to and Potentially Settled in a Company's Own Stock, which requires freestanding contracts that are settled in a company's own stock, including common stock warrants, to be designated as an equity instrument, asset or a liability. Under the provisions of EITF 00-19, a contract designated as an asset or a liability must be carried at fair value, with any 19 changes in fair value recorded in the results of operations. A contract designated as an equity instrument must be included within equity and no fair value adjustments are required. We do not expect the adoption of this statement to have a material impact on our consolidated financial position or results of operations. Item 8. FINANCIAL STATEMENTS All financial statements required to be filed hereunder are filed as an exhibit hereto, are listed under item 14 (a) (1) and are incorporated herein by reference. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information regarding our directors and executive officers will be set forth under the captions "Election of Directors," "Occupations of Directors and Executive Officers," "Biographical Information," "Information Regarding the Board of Directors and its Committees" and "Section 16 (a) Beneficial Ownership Reporting Compliance" in our definitive proxy statement for our annual meeting of stockholders to be held on September 13, 2001 which will be filed with the SEC within 120 days of March 31, 2001 and is incorporated herein by reference. Item 11. EXECUTIVE COMPENSATION Information required by this Item will be set forth under the captions "Summary of Executive Compensation" and "Compensation of Directors" in our definitive proxy statement for our annual meeting of stockholders to be held on September 13, 2001 which will be filed with the SEC within 120 days of March 31, 2001 and is incorporated herein by reference. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information required by this Item will be set forth under the captions "Principal Holders of Voting Securities" and "Stock Ownership of Executive Officers and Directors" in our definitive proxy statement for our annual meeting of stockholders to be held on September 13, 2001 which will be filed with the SEC within 120 days of March 31, 2001 and is incorporated herein by reference. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information required by this Item will be set forth under the caption "Certain Relationships and Related Transactions" in our definitive proxy statement for our annual meeting of stockholders to be held on September 13, 2001 which will be filed with the SEC within 120 days of March 31, 2001 and is incorporated herein by reference. 20 PART IV Item 14. 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 Public Accountants.................................. F-2 Consolidated Balance Sheets as of March 31, 2001 and 2000................. F-3 Consolidated Statements of Operations for the Years Ended March 31, 2001, 2000, and 1999............................................ F-4 Consolidated Statements of Stockholders' Equity for the Years Ended March 31, 2001, 2000, and 1999...................................... F-5 Consolidated Statements of Cash Flows for the Years Ended March 31, 2001, 2000, and 1999 ..................................................... F-6 Notes to Consolidated Financial Statements................................ F-7 (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: No current reports on Form 8-K were filed during the last quarter of our fiscal year ended March 31, 2001. 21 EXHIBIT INDEX ------------- Exhibit Number Document Description - ------ -------------------- 3.1 Restated Certificate of Incorporation, dated June 30, 1992 and amended September 30, 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 By-laws (filed as Exhibit 3.4 to Repligen Corporation's Form S-1 Registration Statement No. 33-3959 and incorporated herein by reference). 4.1 Specimen Stock Certificate (filed as Exhibit 4.2 to Repligen Corporation's Form S-1 Registration Statement No. 33-3959 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 Common Stock Purchase Warrant dated July 24, 2000 (filed as Exhibit 4.1 to Repligen Corporation's Form 10-Q for the quarter ended September 30, 2000 and incorporated herein by reference). 4.6 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). 10.1* Consulting Agreement, dated October 1, 1981, between Dr. Paul Schimmel and Repligen Corporation (filed as Exhibit 10.14 to Repligen Corporation's Form S-1 Registration Statement No. 33-3959 and incorporated herein by reference). 10.2* Consulting Agreement, dated November 1, 1981, between Dr. Alexander Rich and Repligen Corporation (filed as Exhibit 10.15 to Repligen Corporation's Form S-1 Registration Statement No. 33-3959 and incorporated herein by reference). 10.3* Employment Agreement, dated March 14, 1996, between Repligen Corporation and Walter C. Herlihy (filed as Exhibit 10.43 to Repligen Corporation's Annual Report on Form 10-K for the year ended March 31, 1996 and incorporated herein by reference). 10.4* Employment Agreement, dated March 14, 1996, between Repligen Corporation and James R. Rusche (filed as Exhibit 10.44 to Repligen Corporation's Annual Report on Form 10-K for the year ended March 31, 1996 and incorporated herein by reference). 22 10.5* Employment Agreement, dated March 14, 1996, between Repligen Corporation and Daniel P. Witt (filed as Exhibit 10.45 to Repligen Corporation's Annual Report on Form 10-K for the year ended March 31, 1996 and incorporated herein by reference). 10.6 Sublease Agreement dated as of May 1, 1996 between T Cell Sciences, Inc. and Repligen Corporation (filed as Exhibit 10.46 to Repligen Corporation's Annual Report on Form 10-K for the year ended March 31, 1996 and incorporated herein by reference). #10.7 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). #10.8 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). #10.9 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). 10.11 Licensing Agreement 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). 10.12 Finders Agreement by and between Repligen Corporation and Paramount Capital, Inc. dated as of March 2, 2000 (filed as Exhibit 4.2 to Repligen Corporation's Form 8-K filed March 21, 2000 and incorporated herein by reference). 10.13 Patent Purchase Agreement dated as of May 9, 2000 by and between Tolerance Therapeutics LLC and Repligen Corporation (filed as Exhibit 10.1 to Repligen Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000 and incorporated herein by reference). 10.14 License Agreement 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). 21+ Subsidiaries of the Registrant. 23+ Consent of Arthur Andersen LLP. - ----------- # 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 2001 annual meeting, the Registrant will furnish that person without charge a copy of any exhibits listed above. Requests should be addressed to Repligen Corporation, 117 Fourth Avenue, Needham, MA 02494. 23 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 President and Chief Executive Officer (Principal executive, financial and accounting officer) Date: June 29, 2001 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 June 29, 2001 - -------------------------- Directors Alexander Rich, M.D. /s/ Paul Schimmel Co-Chairman of the Board of June 29, 2001 - -------------------------- Directors Paul Schimmel, Ph.D. /s/ Walter C. Herlihy President, Chief Executive Officer June 29, 2001 - -------------------------- and Director (Principal executive, Walter C. Herlihy financial and accounting officer) /s/ Robert J. Hennessey Director June 29, 2001 - -------------------------- Robert J. Hennessey /s/ G. William Miller Director June 29, 2001 - -------------------------- G. William Miller 24 INDEX TO FINANCIAL STATEMENTS Page ---- Report of Independent Public Accountants F-2 Balance Sheets as of March 31, 2001 and 2000 F-3 Statements of Operations for the Years Ended March 31, 2001, 2000 and 1999 F-4 Statement of Stockholders' Equity for the Years Ended March 31, 2001, 2000 and 1999 F-5 Statements of Cash Flows for the Years Ended March 31, 2001, 2000 and 1999 F-6 Notes to Financial Statements F-7 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Repligen Corporation: We have audited the accompanying balance sheets of Repligen Corporation (a Delaware corporation) as of March 31, 2001 and 2000 and the related statements of operations, stockholders' equity and cash flows for each of the three years in the period ended March 31, 2001. 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, 2001 and 2000 and the results of its operations and its cash flows for each of the three years in the period ended March 31, 2001, in conformity with accounting principles generally accepted in the United States. ARTHUR ANDERSEN LLP Boston, Massachusetts May 21, 2001 F-2 REPLIGEN CORPORATION BALANCE SHEETS
ASSETS As of March 31, 2001 2000 ------------------------------- Current assets: Cash and cash equivalents $ 16,163,625 $ 25,226,546 Marketable securities 7,773,427 8,806,367 Accounts receivable, less reserves of $25,000 812,481 847,838 Inventories 634,723 547,448 Prepaid expenses and other current assets 270,252 241,654 ------------- ------------- Total current assets 25,654,508 35,669,853 ------------- ------------- Property, plant and equipment, at cost: Equipment 1,103,527 1,092,831 Leasehold improvements 331,501 473,289 Furniture and fixtures 473,288 157,475 ------------- ------------- 1,908,316 1,723,595 Less -- accumulated depreciation and amortization 1,464,195 1,187,343 ------------- ------------- 444,121 536,252 ------------- ------------- Long-term marketable securities 5,992,478 -- Other assets, net 56,882 81,382 ------------- ------------- $ 32,147,989 $ 36,287,487 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 529,914 $ 425,565 Accrued expenses 726,910 771,520 ------------- ------------- Total current liabilities 1,256,824 1,197,085 ------------- ------------- Commitments and Contingencies (Note 4 & 5) Stockholders' equity: Preferred stock, $0.01 par value, authorized, 5,000,000 shares, issued and outstanding, none -- -- Common stock, $0.01 par value, authorized, 40,000,000 shares, issued and outstanding, 26,628,950 shares and 26,315,979 shares at March 31, 2001 and 2000, respectively 266,289 263,159 Additional paid-in capital 166,583,684 165,507,184 Accumulated deficit (135,958,808) (130,679,941) ------------- ------------- Total stockholders' equity 30,891,165 35,090,402 ------------- ------------- $ 32,147,989 $ 36,287,487 ============= =============
The accompanying notes are an integral part of these financial statements. F-3 REPLIGEN CORPORATION STATEMENTS OF OPERATIONS
Years Ended March 31, 2001 2000 1999 -------------------------------------------------- Revenues: Product $ 2,083,529 $ 2,040,828 $ 1,009,655 Research and development 171,615 863,035 1,268,036 Other 91,554 73,969 99,711 ------------ ------------ ------------ Total revenues 2,346,698 2,977,832 2,377,402 ------------ ------------ ------------ Costs and expenses: Research and development 5,786,392 3,753,908 2,882,124 Selling, general and administrative 2,493,014 2,480,398 1,562,750 Cost of product sales 1,399,849 1,106,642 688,618 ------------ ------------ ------------ Total costs and expenses 9,679,255 7,340,948 5,133,492 ------------ ------------ ------------ Loss from operations (7,332,557) (4,363,116) (2,756,090) ------------ ------------ ------------ Investment income 2,053,690 546,733 212,157 ------------ ------------ ------------ Net loss $ (5,278,867) $ (3,816,383) $ (2,543,933) ============ ============ ============ Basic and diluted net loss per share $ (0.20) $ (0.18) $ (0.14) ============ ============ ============ Basic and diluted weighted average shares outstanding 26,547,238 21,537,584 18,017,650 ============ ============ ============
The accompanying notes are an integral part of these financial statements. F-4 REPLIGEN CORPORATION STATEMENTS OF STOCKHOLDERS' EQUITY
Number of Common Total Common Stock $.01 Additional Accumulated Stockholders' Shares Par Value Paid-in Capital Deficit Equity - ------------------------------------------------------------------------------------------------------------------------------------ Balance, March 31, 1998 18,001,785 $180,017 $130,264,048 ($124,319,625) $6,124,440 - ------------------------------------------------------------------------------------------------------------------------------------ Issuance of common stock and warrants 262,500 2,625 1,008,559 -- 1,011,184 Net loss -- -- -- (2,543,933) (2,543,933) - ------------------------------------------------------------------------------------------------------------------------------------ Balance, March 31, 1999 18,264,285 182,642 131,272,607 (126,863,558) 4,591,691 - ------------------------------------------------------------------------------------------------------------------------------------ Issuance of common stock and warrants 6,198,927 61,989 29,772,917 -- 29,834,906 Issuance of warrants -- -- 188,265 -- 188,265 Exercise of stock options 64,458 645 147,293 -- 147,938 Exercise of warrants 1,788,309 17,883 4,126,102 -- 4,143,985 Net loss -- -- -- (3,816,383) (3,816,383) - ------------------------------------------------------------------------------------------------------------------------------------ Balance, March 31, 2000 26,315,979 263,159 165,507,184 (130,679,941) 35,090,402 - ------------------------------------------------------------------------------------------------------------------------------------ Issuance of common stock for patent acquisition 30,000 300 183,450 -- 183,750 Issuance of warrants -- -- 218,735 -- 218,735 Exercise of stock options 34,200 342 24,354 -- 24,696 Exercise of warrants 248,771 2,488 649,961 -- 652,449 Net loss -- -- -- (5,278,867) (5,278,867) - ------------------------------------------------------------------------------------------------------------------------------------ Balance, March 31, 2001 26,628,950 $266,289 $166,583,684 ($135,958,808) $30,891,165 - ------------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements. F-5 REPLIGEN CORPORATION STATEMENTS OF CASH FLOWS
Years Ended March 31, 2001 2000 1999 --------------------------------------------------- Cash flows from operating activities: Net loss $ (5,278,867) $ (3,816,383) $ (2,543,933) Adjustments to reconcile net loss to net cash used in operating activities -- Depreciation and amortization 276,852 324,409 268,217 Issuance of stock options and warrants for services 218,735 188,265 126,270 Non cash expense related to common stock issued for patent acquisition 183,750 -- 884,914 Changes in assets and liabilities Accounts receivable 35,357 (418,118) (216,863) Inventories (87,276) 82,882 40,488 Prepaid expenses and other current assets (28,598) (60,037) (25,389) Accounts payable 104,350 156,857 167,989 Accrued expenses and other (44,610) 457,594 59,614 Unearned income -- (49,969) 16,637 ------------ ------------ ------------ Net cash used in operating activities (4,620,307) (3,134,500) (1,222,056) ------------ ------------ ------------ Cash flows from investing activities: Purchases of marketable securities (49,959,538) (8,806,367) -- Redemptions of marketable securities 45,000,000 -- -- Purchases of property, plant and equipment (184,721) (217,256) (252,737) Decrease in other assets 24,500 7,090 -- ------------ ------------ ------------ Net cash used in investing activities (5,119,759) (9,016,533) (252,737) ------------ ------------ ------------ Cash flows from financing activities: Exercise of warrants 652,449 4,143,984 -- Exercise of stock options 24,696 147,938 -- Issuance of common stock and warrants -- 29,834,906 -- ------------ ------------ ------------ Net cash provided by financing activities 677,145 34,126,828 -- ------------ ------------ ------------ Net (decrease) increase in cash and cash equivalents (9,062,921) 21,975,795 (1,474,793) Cash and cash equivalents, beginning of year 25,226,546 3,250,751 4,725,544 ------------ ------------ ------------ Cash and cash equivalents, end of year $ 16,163,625 $ 25,226,546 $ 3,250,751 ============ ============ ============
The accompanying notes are an integral part of these financial statements. F-6 REPLIGEN CORPORATION NOTES TO FINANCIAL STATEMENTS 1. Summary of Significant Accounting Policies Repligen Corporation ("Repligen" or the "Company") develops innovative therapeutic products for debilitating pediatric diseases including autism, leukemia, metabolic and immune system diseases based on naturally-occurring peptides and proteins. Lead therapeutic products are secretin for autism, CTLA4-Ig for stem cell transplantation and uridine for mitochondrial disease. Repligen manufactures and markets products based on Protein A for the purification of antibodies, and owns commercial rights to two products based on synthetic forms of secretin for the diagnosis of pancreatic function. In addition, the Company has licensed to third parties certain intellectual property pertaining to its former programs on biological products. The accompanying financial statements reflect the application of certain accounting policies described in this note and elsewhere in the accompanying notes to the financial statements. Use of Estimates The preparation of financial statements in conformity with 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 recognizes revenue related to product sales upon shipment of the product. Research and development revenue derived from collaborative arrangements is recognized as earned under cost plus fixed-fee contracts, or on a straight-line basis over development contracts, which approximates when work is performed and costs are incurred. Research and development expenses in the accompanying statements of operations include funded and unfunded expenses. In addition, under certain contracts, the Company recognizes research and development revenues as milestones are achieved. Licensing and royalties from the Company's licensed technologies are recognized as earned. Unearned income represents amounts received prior to recognition of revenue. The Company applies Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition. SAB No. 101 requires companies to recognize certain upfront nonrefundable fees and milestone payments over the life of the related alliance when such fees are received in conjunction with alliances that have multiple elements. The adoption of SAB No. 101 had no significant impact on the Company's financial statements. F-7 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 reported net loss for all periods presented. Cash, Cash Equivalents & Investments The Company applies SFAS No. 115, Accounting for Certain Instruments in Debt and Equity Securities. At March 31, 2001, 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. Cash equivalents are short-term, highly liquid investments with original maturities of less than three months. Marketable securities are investments with original maturities of greater than three months. Long-term marketable securities are investment grade securities with maturities of greater than one year. Cash and cash equivalents and marketable securities consist of the following at March 31, 2001 and 2000 were as follows: March 31, 2001 2000 --------------------------- Cash and cash equivalents Cash $ 222,766 $ 50,946 Commercial paper and corporate bonds 489,719 17,031,292 U.S. Government and agency securities -- 7,342,874 Money market accounts 15,451,140 801,434 ----------- ----------- Total cash and cash equivalents $16,163,625 $25,226,546 =========== =========== Marketable securities U.S. Government and agency securities $ -- $ 2,951,823 Corporate and other debt securities 7,773,427 5,854,544 ----------- ----------- (Average maturity of 7.2 months) $ 7,773,427 $ 8,806,367 =========== =========== Long -term marketable securities Corporate and other debt securities $ 5,992,478 $ -- =========== =========== (Average maturity of 16 months) 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, 2001 and 2000 consist of the following: Year Ended March 31, 2001 2000 ---------------------- Raw materials and work-in-process ........ $459,288 $371,405 Finished goods ........................... 175,435 176,043 -------- -------- Total ................................. $634,723 $547,448 ======== ======== F-8 Depreciation and Amortization The Company provides for depreciation and amortization by charges to operations in amounts estimated to allocate the cost of fixed assets over their estimated useful lives, on a straight-line basis, as follows: Description Estimated Useful Life ----------- --------------------- Equipment 3-5 years Leasehold improvements Shorter of term of the lease or estimated useful life Furniture and fixtures 5-7 years 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 2001, 2000 and 1999 exclude the potential common shares from warrants and stock options because to do so would have been antidilutive for the years presented. Accordingly, basic and diluted net loss per share is the same. The number of potential common shares prior to application of the treasury stock method at March 31, 2001, 2000 and 1999 was 1,904,387, 2,484,953 and 4,498,249 shares, respectively. Fair Value of Financial Instruments In accordance with SFAS No. 107, Disclosure About Fair Value of Financial Instruments, the carrying amounts of the Company's cash and cash equivalents, marketable securities, accounts receivable and accounts payable 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 consist primarily 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. Concentration of credit risk with respect to accounts receivable is limited to customers to whom the Company makes significant sales. The Company does not believe significant risk exists at March 31, 2001. To control credit risk, the Company performs regular credit evaluations of its customers' financial conditions and maintains allowances for potential credit losses. Revenues from significant customers as a percentage of the Company's total revenues are as follows: Year Ended March 31, 2001 2000 1999 ---------------------------- Customer A 42% 14% 12% Customer B 19% 16% 1% Customer C 5% 16% --% Customer D --% 9% 16% Customer E --% 3% 3% Customer F 5% 3% 13% F-9 Significant accounts receivable balances as a percentage of the Company's total trade accounts receivable balances are as follows: Year Ended March 31, 2001 2000 -------------------- Customer A 53% --% Customer B 26% 32% Customer C 10% --% 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 principally 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: Year Ended March 31, 2001 2000 1999 ------------------------------------ United States 58% 53% 68% Europe 40% 44% 28% Other 2% 3% 4% ---- ---- ---- Total 100% 100% 100% ==== ==== ==== New Accounting Standards In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. As amended in June 1999, the statement is effective for all fiscal quarters of all fiscal years beginning after June 15, 2000. In June 2000, the FASB issued SFAS No. 138, which is a significant amendment to SFAS No. 133. SFAS No. 133 and its amendments establish accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities. The Emerging Issues Task Force (EITF) has also issued a number of derivative-related tentative and final consensuses. We do not expect the adoption of these statements to have a material impact on our consolidated financial position or results of operations. In March 2000, the FASB issued Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensation--An Interpretation of APB Opinion No. 25. The Interpretation clarifies the application of Accounting Principles Board Opinion (APB) No. 25 in certain situations, as defined. Interpretation No. 44 is effective July 1, 2000; however, it covers certain events occurring during the period after December 15, 1998 but before the effective date, the effects of applying this Interpretation No. 44 would be recognized on a prospective basis from the effective date. Accordingly, upon initial application of the final Interpretation No. 44, F-10 no adjustments would be made to the financial statements for periods before the effective date and no expense would be recognized for any additional compensation cost measured that is attributable to periods before the effective date. The adoption of this statement had no material impact on our financial statements. In September 2000, the EITF issued 00-19, Accounting for Derivative Financial Instruments Indexed to and Potentially Settled in a Company's Own Stock, which requires freestanding contracts that are settled in a company's own stock, including common stock warrants, to be designated as an equity instrument, asset or a liability. Under the provisions of EITF 00-19, a contract designated as an asset or a liability must be carried at fair value, with any changes in fair value recorded in the results of operations. A contract designated as an equity instrument must be included within equity and no fair value adjustments are required. The adoption of this statement had no material impact on our financial statements. 2. Income Taxes The Company accounts for income taxes under SFAS No. 109, Accounting for Income Taxes. At March 31, 2001, the Company had net operating loss carryforwards for income tax purposes of approximately $105,654,000. The Company also had available tax credit carryforwards of approximately $4,476,000 at March 31, 2001 to reduce future federal income taxes, if any. 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. The net operating loss carryforwards and tax credit carryforwards are approximately as follows: Net Operating Loss Tax Credit Expiration Date Carryforwards Carryforwards ------------------------------------- 2002 $ 2,500,000 $ 73,000 2003 4,807,000 346,000 2004 6,642,000 408,000 2005 6,707,000 681,000 2006 7,533,000 595,000 2007-2020 77,465,000 2,373,000 ------------ ------------ Total $105,654,000 $ 4,476,000 ============ ============ The deferred tax asset consists of the following: Year Ended March 31, 2001 2000 -------------------------------- Temporary differences .................. $ 6,738,000 $ 3,416,000 Operating loss carryforwards ........... 40,307,000 40,540,000 Tax credit carryforwards ............... 4,476,000 4,585,000 ------------ ------------ 51,521,000 48,541,000 Valuation allowance .................... (51,521,000) (48,541,000) ------------ ------------ $ -- $ -- ============ ============ A full valuation allowance has been provided, as it is uncertain if the Company will realize the deferred tax asset. F-11 3. Shareholder's Equity (a) Common Stock & Warrants On July 24, 2000, Repligen issued to a third party a warrant to purchase 50,000 shares of common stock at $7.125 per share exercisable through July 2003 in partial consideration for a licensing agreement entered into with such third party. The Company recorded the value of this warrant, as determined using Black-Scholes option pricing model, as research and development expense. On May 10, 2000, pursuant to a patent purchase agreement, Repligen issued to Tolerance Therapeutics LLC ("Tolerance"), in partial consideration for the assignment by Tolerance to Repligen of a U.S. patent application claiming the use of CTLA4-Ig in treatment of diseases of the immune system, 30,000 shares of Repligen common stock. The Company recorded the value of these shares as research and development expense. On April 7, 2000, Repligen issued to each of its investor relation firm and public relations firm, in consideration for services, a warrant exercisable through July 2001 to purchase 10,000 shares of common stock of Repligen at $8.56 per share. The Company recorded the value of this warrant, as determined using Black-Scholes option pricing model, as selling, general and administrative expense. On April 7, 2000, Repligen issued a warrant to purchase 2,900 shares of common stock at $9.00 per share to an existing shareholder exercisable through July 2000. This warrant expired during fiscal 2001. The Company recorded the value of this warrant, as determined using Black-Scholes option pricing model, as selling, general and administrative expense. 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. In July 1999, Repligen engaged Paramount as a nonexclusive financial adviser for an initial period of 12 months from the date thereof. In exchange and as consideration for these financial services, Repligen paid to Paramount $100,000 in cash and issued to Paramount (and its designees) 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. Repligen also agreed to pay Paramount additional fees upon the consummation of certain equity financing transactions. The Company valued these warrants at fair value and recorded an expense of $188,285 during fiscal 2000 relating to this issuance. In March 2000, Repligen terminated the financial advisory agreement with Paramount for an additional payment of $200,000 in cash. All payments were expensed in the accompanying statement of operations as selling, general and administrative expense for the year ended March 31, 2000. Pursuant to stock purchase agreements dated April 30, 1999 and May 14, 1999, respectively, Repligen issued to certain accredited investors in a private placement an aggregate of 3,600,000 shares of common stock at $2.50 per share for an aggregate purchase price of approximately $9 million, resulting in net proceeds to Repligen of approximately $8.9 million. In March 1999, the Company entered into an agreement for legal services relating to a complaint filed against Bristol-Myers Squibb Company. Under the terms of the agreement, the Company is required to pay $50,000 in annual fees for three years, and, if successful in the F-12 litigation, a portion of any financial recovery will be paid and a warrant to purchase 100,000 shares of common stock at an exercise price of $1.63 per share will be issued. The Company will value this warrant at the time of issuance. In addition, the Company issued a fully vested warrant to legal counsel to purchase 100,000 shares of common stock at an exercise price of $1.63 per share. The Company valued this warrant at fair value, as determined using the Black-Scholes option pricing model and recorded legal expense of $126,270 during fiscal 1999 relating to this issuance. In March 2000, this warrant was exercised pursuant to the "net exercise" provision in the warrant. Repligen issued 83,184 shares of common stock upon exercise of the warrant and received no proceeds from such transaction. In March 1999, the Company acquired all rights to certain patent applications relating to the use of secretin in the treatment of autism. The rights were acquired pursuant to a Patent Purchase Agreement whereby the Company paid $150,000 in cash, issued a warrant to purchase 350,000 shares of common stock with an exercise price of $1.59 per share, and issued 262,500 shares of common stock (see Note 5). The Company valued the shares and warrant in accordance with ETIF 96-18 using the Black-Scholes option-pricing model and recorded a charge of $1,035,000. As of March 31, 2001, 225,000 of these shares of common stock underlying this warrant were exercised. Repligen received $357,750 of proceeds from this exercise. At March 31, 2001, common stock reserved for issuance is as follows: Reserved for Shares - ------------ ------ Incentive and nonqualified stock option plans 3,254,619 Warrants granted in connection with the Patent Purchase Agreement 125,000 Warrants granted in connection with Licensing Agreement 50,000 Warrants granted for payment of services 249,946 --------- 3,679,565 ========= (b) Stock Options The Company's 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, 2001, the Company had 1,775,178 shares of common stock available for grant. A summary of stock option activity under all plans is as follows:
Years Ended March 31, 2001 2000 1999 ------------------------------------------------------------------------------ Weighted Weighted Weighted Average Average Average Number of Price per Number of Price per Number of Price per Shares Share Shares Share Shares Share ---------- ---------- ---------- ---------- ---------- ---------- Outstanding at beginning of period 1,288,041 $ 1.81 1,289,291 $ 1.78 740,291 $ 2.05 Granted 258,400 6.59 169,908 2.86 568,500 1.38 Exercised (34,200) 0.72 (64,458) 2.30 -- -- Forfeited (32,800) 3.73 (106,700) 1.44 (19,500) 1.18 ---------- ---------- ---------- ---------- ---------- ---------- Outstanding at end of period 1,479,441 $ 2.64 1,288,041 $ 1.82 1,289,291 $ 1.78 ---------- ---------- ---------- ---------- ---------- ---------- Exercisable at end of period 894,941 $ 1.92 694,941 $ 1.96 529,691 $ 2.33 ========== ========== ========== ========== ========== ==========
F-13
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 ----------- ----------- -------------- ----------- -------------- $.05-$1.00 89,541 5.16 $ 0.60 89,541 $ 0.60 $1.03-$1.63 897,500 6.35 $ 1.38 619,400 $ 1.36 $2.75-$2.91 160,000 5.05 $ 2.76 113,600 $ 2.75 $3.00-$4.13 128,900 8.90 $ 3.77 32,400 $ 3.05 $6.13-$7.19 55,500 7.38 $ 6.60 15,000 $ 6.56 $7.64-$12.45 148,000 7.83 $ 8.97 25,000 $ 12.45 - ------------------------------------------------------------------------------------------------------- 1,479,441 6.55 $ 2.64 894,941 $ 1.92 ========= ========= ========= ========= =========
The Company accounts for its stock-based compensation under SFAS No. 123 Accounting for Stock-Based Compensation. The Company has adopted the disclosure-only alternative for employee grants and, accordingly, will continue to account for stock-based compensation for employees under APB Opinion No. 25. The Company has computed the pro forma disclosures required under SFAS No. 123 for all stock options granted to employees in 2001, 2000 and 1999 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, 2001, 2000 and 1999 are as follows:
Year ended March 31, 2001 2000 1999 ----------------------------------------------- Risk-free interest rates 5.28%-6.33% 5.08%-6.03% 4.54%-5.61% Expected dividend yield -- -- -- Expected lives 7 years 7 years 10 years Expected volatility 108% 70% 93% Weighted average grant date fair value of options granted during the period $6.59 $2.86 $1.38 Weighted average remaining contractual life of options outstanding 6.6 years 7.0 years 7.7 years
If compensation expense for the Company's stock option plan had been determined consistent with SFAS No. 123, the pro forma net loss and net loss per share would have been as follows: Year Ended March 31 Net loss- 2001 2000 1999 ------------------------------------------------ As reported. ($5,278,867) ($3,816,383) ($2,543,933) Pro forma ($5,681,311) ($4,103,293) ($2,768,827) Basic and diluted net loss per share- As reported $ (0.20) $ (0.18) $ (0.14) Pro forma $ (0.21) $ (0.19) $ (0.15) F-14 4. Commitments and Contingencies The Company leases their facilities. Obligations under noncancellable operating leases as of March 31, 2001 is approximately as follows: Year Ending March 31, --------------------- 2002...................... $181,000 2003...................... 13,000 -------- Total minimum lease payments $194,000 -------- Rent expense charged to operations under operating leases was approximately $377,000, $296,000 and $281,000 for the years ended March 31, 2001, 2000 and 1999, respectively. 5. Certain Technologies and Product Candidates In December 2000, the Company purchased from the University of California, San Diego (UCSD) a right to a U.S. patent application covering novel methods for the treatment of mitochondrial disease. Under terms of the agreement, Repligen received the exclusive right under the license to commercialize products to treat mitochondrial disease and paid UCSD an up-front fee. Repligen will also pay UCSD clinical development milestones and royalties on product sales. The Company has expensed the purchase price as research and development expense as the realizability of the patent is subject to the outcome of additional research and development and the successful prosecution of the patent. In May 2000, the Company purchased from Tolerance Therapeutics LLC the rights to a U.S. patent application claiming the use of CTLA4-Ig in the treatment of diseases of the immune system. Under terms of the agreement, the Company paid cash and issued stock for the purchase. The Company has expensed the purchase price as research and development expense as the realizability of the patent is subject to the outcome of additional research and development and the successful prosecution of the patent. In October 1999, the Company acquired the commercial rights to two diagnostic products based on synthetic forms of porcine and human secretin from ChiRhoClin, Inc. a private company. Both of these products have been evaluated in clinical trials for their safety and efficacy in diagnosing pancreatic function and gastrinoma. A New Drug Application (NDA) for each product has been filed with the United States Food and Drug Administration (FDA). In March 2000, the FDA issued an "approvable letter" for the use of synthetic porcine secretin in the diagnosis of pancreatic function. A second "approvable letter" was issued in November 2000, which contained numerous questions concerning the manufacture and quality control of the synthetic porcine product. Final approval to market this product will be based on a satisfactory response to questions raised by the FDA by ChiRhoClin. Under terms of the licensing agreement, Repligen paid $1,000,000 upon execution of the agreement and, if the NDAs are approved, the Company will be required to pay future royalties and milestones in cash and to issue common stock. This $1,000,000 payment is included in research and development expense in the accompanying statement of operations for the year ended March 31, 2000. The Company expensed the $1 million payment during fiscal 2000, as the Company believes that the net realizable value of such license fee is uncertain until such time as the NDA approval is obtained. In March 1999, the Company acquired all rights to certain patent applications relating to the use of secretin in the treatment of autism. The rights were acquired pursuant to a patent purchase agreement. In addition, the Company has agreed to make minimum annual royalty payments of $500,000 and certain milestone payments upon (a) the Company's filing of a new drug application with the FDA for a clinical indication covered by the intellectual property rights transferred by the purchase agreement and (b) upon the approval by the FDA of a product F-15 covered by the intellectual property rights transferred to the Company pursuant to the purchase agreement. These milestone payments, in the aggregate sum of $700,000, will be largely credited against certain royalty payments in the event the Company is able to derive sales and/or license revenues from the intellectual property rights acquired pursuant to the purchase agreement. In order for the Company to commercialize secretin as a treatment for autism, the Company will need to expend a substantial amount in research and development, preclinical testing and clinical trials, regulatory clearances and manufacturing, distribution and marketing arrangements, the outcome of which is uncertain. The cost and time to complete the development of the technology is significant and difficult to estimate given the uncertainties of research and development and regulatory process. Accordingly, the net realizable value of the patent rights acquired is uncertain. Approximately $1,035,000 was charged to the accompanying 1999 statement of operations as a research and development expense. 6. Accrued Expenses Accrued expenses consist of the following: Year Ended March 31, 2001 2000 ------------------------ Research & development costs $321,850 $ 80,083 Payroll & payroll related cost 255,811 166,989 Professional and consulting costs 71,795 235,712 Other accrued expenses 74,864 109,289 Manufacturing costs 2,590 179,447 -------- -------- $726,910 $771,520 ======== ======== 7. Selected Quarterly Financial Data (Unaudited) The following table contains Statement of Operations information for each quarter of fiscal 2000 and 2001. The Company believes that the following information reflects all normal recurring adjustments necessary for a fair presentation of the information for the period presented. The operating results for any quarter are not necessarily indicative of results for any future period. F-16
Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 FY01 FY01 FY01 FY01 FY00 FY00 FY00 FY00 ------- ------- ------- ------- ------- ------- ------- ------- Revenues: Product $ 588 $ 615 $ 324 $ 556 $ 671 $ 558 $ 579 $ 233 Research and development 12 3 127 30 92 160 232 379 Other -- 2 15 75 14 14 15 31 ------- ------- ------- ------- ------- ------- ------- ------- Total revenues 600 620 466 661 777 732 826 643 ------- ------- ------- ------- ------- ------- ------- ------- Costs and expenses: Research and development 1,580 1,781 1,343 1,083 668 1,865 733 488 Selling, general and administrative 536 568 658 731 844 443 767 426 Cost of products sold 448 393 229 330 332 292 287 196 ------- ------- ------- ------- ------- ------- ------- ------- Total costs and expenses 2,564 2,742 2,230 2,144 1,844 2,600 1,787 1,110 ------- ------- ------- ------- ------- ------- ------- ------- Loss from operations (1,964) (2,122) (1,764) (1,483) (1,067) (1,868) (961) (467) ------- ------- ------- ------- ------- ------- ------- ------- Investment income 450 539 552 513 213 131 156 47 ------- ------- ------- ------- ------- ------- ------- ------- Net loss $(1,514) $(1,583) $(1,212) $ (970) $ (854) $(1,737) $ (805) $ (420) ======= ======= ======= ======= ======= ======= ======= ======= Net loss per common share $ (0.06) $ (0.06) $ (0.05) $ (0.04) $ (0.04) $ (0.08) $ (0.04) $ (0.02) Weighted average common shares outstanding 26,599 26,576 26,560 26,456 23,295 22,194 21,868 18,745 ======= ======= ======= ======= ======= ======= ======= =======
8. Valuation and Qualifying Accounts
Balance at Beginning of Balance at End Period Additions Deletions of Period ------ --------- --------- --------- Allowance for Doubtful Accounts: 1999 $25,000 -- -- $25,000 2000 $25,000 -- -- $25,000 2001 $25,000 -- -- $25,000
F-17 EX-21 2 d26103_ex-21.txt SUBSIDIARIES OF THE REGISTRANT Exhibit 21 Subsidiaries of the Registrant State of Incorporation - ------------------------------ ---------------------- Repligen Development Corporation Delaware EX-23 3 d26103_ex-23.txt CONSENT OF ARTHUR ANDERSEN LLP EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to incorporation by reference in this Form 10-K of our report dated May 21, 2001 included in Registration Statement Nos. 33-62796, 333-30383, 333-57951, 333-76005, 333-79611, 333-95641, 333-31728, 333-35056 and 333-36280. It should be noted that we have not audited any financial statements of the company subsequent to March 31, 2001 or performed any audit procedures subsequent to the date of our report. /S/ Arthur Andersen LLP --------------------------- ARTHUR ANDERSEN LLP Boston, Massachusetts June 26, 2001 -----END PRIVACY-ENHANCED MESSAGE-----