SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 1997 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 02194 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (781)-449-9560 ----------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ____ No ____. Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of January 31, 1998. Common Stock, par value $.01 per share 18,001,785 -------------------------------------- ---------------- Class Number of Shares
REPLIGEN CORPORATION Form 10-Q for the Quarter Ending December 31, 1997 INDEX PAGE PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets as of December 31, 1997 and March 31, 1997 3 Condensed Consolidated Statements of Operations for the Three and Nine Months Ended December 31, 1997 and 1996 4 Condensed Consolidated Statement of Cash Flows for the Nine Months Ended December 31, 1997 and 1996 5 Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 PART II. OTHER INFORMATION Item 1. Legal Proceedings None Item 2. Changes in Securities 9 Item 3. Defaults Upon Senior Securities None Item 4. Submissions of Matters to a Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K 10 (a) Exhibits 4.1 Form of Warrant 10.1 Stock and Warrant Purchase Agreement 27.1 Financial Data Schedule (b) Reports on Form 8-K 2
Signature 11 Exhibit Index 12 PART I. FINANCIAL INFORMATION ITEM I. FINANCIAL STATEMENTS 3
REPLIGEN CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) ASSETS December 31, 1997 March 31, 1997 ----------------- -------------- Current assets: Cash and cash equivalents $ 4,919,340 $ 3,465,881 Marketable securities -- 72,353 Accounts receivable 364,927 534,929 Inventories 528,379 452,241 Prepaid expenses and other current assets 132,929 165,720 ------------- ------------- Total current assets 5,945,575 4,691,124 Property, plant and equipment, at cost: Equipment 770,512 724,564 Furniture and fixtures 31,807 28,820 Leasehold improvements 442,528 386,199 1,244,847 1,139,583 Less: accumulated depreciation and amortization 532,048 349,112 ------------- ------------- 712,799 790,471 Restricted cash -- 50,087 Other assets, net 88,909 88,909 ------------- ------------- $ 6,747,283 $ 5,620,591 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 64,660 $ 168,269 Accrued expenses 245,722 399,988 Unearned income -- 133,313 ------------- ------------- Total current liabilities 310,382 701,570 Commitments and contingencies Stockholders' equity: Preferred stock, $.01 par value -- authorized -- 5,000,000 shares -- outstanding - none -- -- Common stock, $.01 par value -- authorized -- 30,000,000 shares-- outstanding - 18,001,785 shares at December 31, 1997 and 16,001,785 at March 31, 1997 180,017 160,017 Additional paid-in capital 130,264,048 128,309,048 Deferred compensation (3,535) (26,447) Accumulated deficit (124,003,629) (123,523,597) ------------- ------------- Total stockholders' equity 6,436,901 4,919,021 $ 6,747,283 $ 5,620,591 ============= ============= See accompanying notes to condensed consolidated financial statements. 4
REPLIGEN CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) <TABLE> <CAPTION> Three Months Ended Nine Months Ended ------------------ ----------------- December 31, December 31, December 31, December 31, 1997 1996 1997 1996 ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> Revenues: Research and development $ 377,957 $ 440,180 $ 802,326 $ 890,641 Product 316,146 503,049 855,532 1,123,827 Investment income 44,862 98,744 159,968 206,543 Other 14,472 24,593 114,447 667,180 ------------ ------------ ------------ ------------ 753,437 1,066,566 1,932,273 2,888,191 ------------ ------------ ------------ ------------ Costs and expenses: Research and development 348,860 240,139 1,063,061 934,599 Selling, general and 300,609 353,775 922,818 1,540,137 administrative Cost of goods sold 198,607 211,538 426,425 363,187 Charge for purchased research & development -- 365,285 -- 365,285 ------------ ------------ ------------ ------------ 848,076 1,170,737 2,412,304 3,203,208 Net loss $ (94,639) $ (104,171) $ (480,031) $ (315,017) ============ ============ ============ ============ Basic loss per common share $ (.01) $ (.01) $ (0.03) $ (0.02) ============ ============ ============ ============ Weighted average common shares outstanding 16,023,763 15,605,846 16,009,084 15,603,639 ============ ============ ============ ============ </TABLE> See accompanying notes to condensed consolidated financial statements. 5
REPLIGEN CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended December 31, ------------------------- 1997 1996 ----------- ----------- Cash flows from operating activities: Net loss $ (480,031) $ (315,017) Adjustments to reconcile net loss to net cash used in operating activities - Depreciation and amortization 182,935 128,709 Compensation charge from stock options 22,912 32,395 Charge for purchased research & development -- 365,285 Changes in assets and liabilities - Accounts receivable 170,002 (242,720) Amounts due from affiliates -- 42,284 Inventories (76,138) 256,784 Prepaid expenses and other current assets 32,791 35,187 Accounts payable (103,609) (292,254) Accrued expenses (154,266) (3,388,055) Unearned income (133,313) 78,316 ----------- ----------- Net cash used in operating activities (538,717) (3,299,086) ----------- ----------- Cash flows from investing activities: Decrease in marketable securities 72,353 137,704 Purchases of property, plant and equipment, net (105,264) (367,020) Decrease in other assets -- 5,900 Decrease (increase) in restricted cash 50,087 (104,466) ----------- ----------- Net cash provided by (used in) investing activities 17,176 (327,882) ----------- ----------- Cash flows from financing activities: Net proceeds from the issuance of common stock and warrants, net of issuance costs 1,975,000 -- ----------- ----------- Net cash provided by financing activities 1,975,000 -- ----------- ----------- Net increase (decrease) in cash and cash equivalents 1,453,459 (3,626,968) Cash and cash equivalents, beginning of period 3,465,881 6,944,140 ----------- =========== Cash and cash equivalents, end of period $ 4,919,340 $ 3,317,172 =========== =========== See accompanying notes to condensed consolidated financial statements. 6
REPLIGEN CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Basis of Presentation The condensed consolidated financial statements included herein have been prepared by Repligen Corporation (the "Company" or "Repligen"), pursuant to the rules and regulations of the Securities and Exchange Commission for quarterly reports on Form 10-Q and do not include all of the information and footnote disclosures required by generally accepted accounting principles. These financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company's Form 10-K for the year ending March 31, 1997. In the opinion of management, the accompanying unaudited financial statements include all adjustments consisting of only normal, recurring adjustments necessary to present fairly, the consolidated financial position, results of operations and cash flows. The results of operations for the interim periods presented are not necessarily indicative of results to be expected for the entire year. The preparation of financial statements in conformity with 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 have been made in prior year condensed consolidated financial statements to conform with the current year's presentations. 2. Basic Loss Per Common Share Basic loss per common share has been computed by dividing net loss by the weighted average number of shares outstanding during the period. At December 31, 1997, there are 559,000 options outstanding, with a weighted average exercise price of $1.36 and 2,832,000 warrants outstanding, with a weighted average exercise price of $3.97. These common stock equivalents have not been included for any period as the impact would be antidilutive. In February 1997 the Financial Accounting Standard Board issued SFAS No. 128 Earnings Per Share, which requires a new method of calculating earnings per share (EPS). The Company is required to use this method beginning with the financial statements for period ended December 31, 1998. The reported EPS will be unchanged from amounts presented in prior periods' interim reports. 3. Cash Equivalents and Marketable Securities The Company considers all highly liquid investments with a maturity of three months or less at the time of acquisition to be cash equivalents. Included in cash equivalents at December 31, 1997 are approximately $1,600,000 of cash, $525,000 of money market funds and approximately $2,800,000 investment in commercial paper. Investments with a maturity period of greater than three months are classified as marketable securities. 8
4. Inventories Inventories are stated at the lower of cost (first-in, first-out) or market and consist of the following: December 31, March 31, 1997 1997 --------- --------- Raw materials and work-in-process $ 343,000 $ 298,000 Finished goods 185,000 154,000 --------- --------- Total $ 528,000 $ 452,000 ========= ========= Work in process and finished goods inventories consist of material, labor, outside processing and manufacturing overhead. 5. Stockholders' Equity On December 31, 1997, the Company completed a $2.0 million private placement of its securities. The Company received net proceeds of $1.975 million for the issuance of 2,000,000 shares of Common Stock (the "Common Shares") and warrants to purchase an aggregate of 750,000 shares of Common Stock. 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Cautionary Statement Regarding Forward-Looking Statements Statements in this Quarterly Report on Form 10-Q under this caption, "Management's Discussion and Analysis of Financial Condition and Results of Operations," as well as oral statements that may be made by the Company or by officers, directors or employees of the Company acting on the Company's behalf, that are not historical facts constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1996. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that could cause the actual results of the Company to be materially different from the historical results or from any results expressed or implied by such forward-looking statements. Certain Factors That May Affect Future Results The Company's future operating results are subject to risks and uncertainties and are dependent upon many factors, including, without limitation, the Company's ability to (i) meet its working capital and future liquidity needs, (ii) successfully implement its restructuring and strategic growth strategies, (iii) understand, anticipate and respond to rapidly changing technologies and market trends, (iv) develop, manufacture and deliver high quality, technologically advanced products on a timely basis to withstand competition from competitors which may have greater financial, information gathering and marketing resources than the Company, (v) obtain and protect licensing and intellectual property rights necessary for the Company's technology and product development on terms favorable to the Company, (vi) recruit and retain highly talented professionals in a competitive job market. Each of these factors, and others, are discussed from time to time in the filings made by the Company with the Securities and Exchange Commission. The Company Repligen Corporation is developing a new class of synthetic drugs designed to block important protein-carbohydrate and protein-protein interactions. Although clinical experience with complex natural products and monoclonal antibodies has shown that many of these interactions are important in disease, it has not been possible to identify easily synthesized organic compounds for these types of targets. Repligen is developing technologies to discover drugs which can block protein-macromolecule interactions including methods for the rapid synthesis of chemical compound libraries with "natural product-like" complexity and high throughput screening assays based on specific biological targets. In a proprietary program these technologies are being applied to the discovery of small molecule inhibitors for several growth factors responsible for angiogenesis or new blood vessel growth. Compounds which inhibit angiogenic growth factors may have application in certain ocular diseases (including diabetic retinopathy or macular degeneration) and oncology. The Company's high throughput screening assays can identify inhibitors of the interaction of these growth factors with cell surface carbohydrates by screening customized combinatorial chemical libraries. The Company also has ongoing collaborations with Pfizer Inc., Glaxo Wellcome and Cambridge NeuroScience based on its drug discovery technologies. 9
Repligen also manufactures and markets a line of products for the production of monoclonal antibodies intended for human clinical use. These products are based on recombinant Protein A for which Repligen holds patents in the United States and major foreign markets. In addition, the Company has out-licensed certain intellectual property pertaining to its former programs on biological products. Results of Operations Revenues Total revenues for the three month periods ended December 31, 1997 and 1996 were $753,000 and $1,067,000, respectively, a decrease of approximately 29%. Year to date total revenues decreased approximately 33% to $1,932,000 at December 31, 1997 from $2,888,000 at December 31, 1996. This decrease is largely attributable to the one-time sales of securities and equipment for approximately $505,000 reported as "Other Income" in the nine month period ended December 31, 1996. Research and development revenues for the three month period ended December 31, 1997 were $378,000 compared to $440,000 in the comparable fiscal 1997 period. In the first nine months of fiscal 1998, the Company recorded research and development revenues totaling $802,000 consisting primarily of approximately $620,000 from contracted research and development programs and $182,000 from licensing revenues. In the first nine months of fiscal 1997, the Company recorded research and development revenues totaling $891,000 consisting primarily of $662,000 from contracted research and development programs and $229,000 from licensing revenues. Product revenues for the three months ended December 31, 1997 and 1996 were $316,000 and $503,000, respectively, and were $856,000 and $1,124,000 for the nine months ended December 31, 1997 and 1996, respectively. This decrease is attributed to the timing of large production scale orders of Protein A. Investment income decreased in fiscal 1998 over the comparable three and nine month periods in fiscal 1997 primarily due to lower average funds available for investment. Other revenues for the three and nine month periods ended December 31, 1997 decreased from the comparable fiscal 1997 periods primarily due to the Company's one-time sales of equipment and furnishings of approximately $205,000 and non-investment securities of approximately $300,000 during fiscal 1997. Expenses Total expenses for the three month periods ended December 31, 1997 and 1996 decreased 28% to $848,000 from $1,171,000. This decrease is largely attributable to the $365,000 charge for purchased research and development that occurred in the quarter ended December 31,1997 relating to the acquisition of Proscure, Inc. For the nine months ended December 31, 1997 and 1996, expenses were $2,412,000 and $3,203,000, respectively. Research and development expenses for the three months ended December 31, 1997 and 1996 were $349,000 and $240,000, respectively, an increase of 45%. For the nine months ended 10
December 31, 1997 and 1996, research and development expenses were $1,063,000 and $935,000, respectively, an increase of 14%. This increase is largely attributable to increased investment in the Company's proprietary product development during fiscal 1998. Selling, general and administrative expenses for the three month and nine month periods ended December 31, 1997 were $301,000 and $923,000, respectively, which reflects a decrease of $53,000 and $617,000, respectively, from the comparable 1997 periods. These decreases resulted from the reduction of administrative personnel and related expenses as part of the Company's cost reduction efforts in April through June of 1996. Cost of goods sold for the three month and nine month periods ended December 31, 1997 were $199,000 and $426,000, respectively, as compared to $212,000 and $363,000 for the three and nine months ended December 31, 1996. Cost of goods sold in the three month periods ended December 31, 1997 and 1996 were 63% and 42% of product revenues, respectively. In the nine month periods ended December 31, 1997 and 1996, cost of goods sold was 50% and 32% of product sales, respectively. The increase in cost of sales as a percentage of revenue is primarily a result of the realization of inventory that had been previously reserved for in the three and nine month periods ended December 31, 1996. Liquidity and Capital Resources The Company's total cash, cash equivalents and marketable securities increased to $4,919,000 at December 31, 1997 from $3,538,000 at March 31, 1997, an increase of $1,381,000 or 39%. The increase reflects $2,000,000 of proceeds (before expenses) resulting from the sale of Common Stock and Warrants through a private placement that took place during the three months ended December 31, 1997 offset by the net losses during the nine month period ended December 31, 1997 of approximately $480,000, an increase in inventory of $76,000, the reduction of accounts payable and accrued expenses of $260,000, offset in part by the reduction in accounts receivables and prepaid expenses of $203,000. Working capital increased to $5,635,000 at December 31, 1997 from $3,990,000 at March 31, 1997. During the nine months ended December 31, 1997, the Company entered into a $450,000 note receivable with a licensee for past due licensing fees. As the Company has historically recorded licensing fees under this agreement on a cash basis, the Company has not recorded this note receivable as an asset. The note requires full payment of principal and interest in August 1998. The Company will continue to record this license fee on a cash basis. The Company has funded operations primarily with cash derived from the sales of its equity securities, revenue derived from research and development contracts, product sales and investment income. The Company believes it has sufficient cash equivalents and marketable securities to satisfy its working capital and capital expenditure requirements for the next twenty-four months. Should the Company need to secure additional financing to meet its future liquidity requirements, there can be no assurances that the Company will be able to secure such financing, or that such financing, if available, will be on terms favorable to the Company. On February 23, 1998, Nasdaq will initiate new requirements for listing on the Nasdaq National Market. Currently, the Company believes it is in compliance with all of the new requirements. There can be no assurance, however, that the Company will be able to continue to satisfy all the requirements issued by Nasdaq or that the Company's Common Stock will continue 11
to be listed on the Nasdaq National Market. Should it occur, the delisting of the Company's Common Stock from the Nasdaq National Market could have a material adverse effect on the Company's business, results of operations and financial condition. PART II. OTHER INFORMATION Item 2. CHANGES IN SECURITIES Pursuant to the Stock and Warrant Purchase Agreement dated as of December 31, 1997 (the "Purchase Agreement") among the Company and Biotechnology Value Fund, L.P., certain of its affiliates, and Four Partners, L.P.(collectively, the "Purchasers"), the Purchasers invested an aggregate of $2 million in exchange for 2,000,000 shares of the Company's Common Stock (the "Common Shares"), and warrants to purchase at any time prior to December 31, 2004 an aggregate of 750,000 shares of Common Stock at a price per share of $1.50. The sale of the Common Shares and Warrants was made in reliance upon the exemption from registration under section 4 (2) of the Securities Act as transactions not involving any public offering. The Company has reason to believe that the Purchasers were "accredited investors"(as such term is defined in Regulation D of the Securities Acts), were familiar with and had access to information concerning the operations and financial conditions of the Company, and were acquiring the securities for investment and not with a view to the distribution thereof. No underwriter was engaged in connection with the foregoing issuance of securities. Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits EXHIBIT DESCRIPTION ------- ----------- 4.1 Form of Stock Purchase Warrant 10.1 Stock & Warrant Purchase Agreement 27.1 Financial Data Schedule (b) Reports on Form 8-K Current Report dated December 31, 1997 filed with the Securities and Exchange Commission on January 2, 1998 relating to the Company's private placement of stocks and warrants. 12
SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SIGNATURE REPLIGEN CORPORATION (Registrant) Date: February 13, 1998 By: /S/ Walter C. Herlihy -------------------------------- Chief Executive Officer Signing on behalf of the Registrant and as Principal Financial and Accounting Officer 13
REPLIGEN CORPORATION AND SUBSIDIARIES EXHIBIT INDEX EXHIBIT NO. DESCRIPTION PAGE ----------- ----------- ---- 4.1 Form of Stock Purchase Warrant 15 10.1 Stock and Warrant Purchase Agreement 22 27.1 Financial Data Schedule 38 14