<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
----------------- -----------------
Commission file number 0-14656
REPLIGEN CORPORATION
<TABLE>
<S> <C>
Delaware 04-2729386
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One Kendall Square
Cambridge, Massachusetts 02139
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (617) 225-6000
</TABLE>
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes /x/ No / /
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of February 2, 1996:
<TABLE>
<S> <C>
Common Stock, par value $.01 per share 15,358,938
Class Number of Shares
</TABLE>
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
REPLIGEN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------- ---------------------------
December 31, December 31, December 31, December 31,
1995 1994 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Research and development $ 1,674,850 $ 2,427,509 $ 7,534,479 $ 8,419,510
Product 169,289 538,061 1,543,026 1,813,008
Investment income 161,394 512,807 624,111 1,105,347
Other 98,833 100,655 258,184 487,082
------------ ------------ ------------ -------------
2,104,366 3,579,032 9,959,800 11,824,947
------------ ------------ ------------ -------------
Cost and Expenses:
Research and development 2,863,923 7,528,755 10,194,582 23,732,771
Selling, general and
administrative 1,426,515 1,549,458 4,469,977 4,560,677
Cost of goods 113,828 269,660 1,103,505 1,033,858
Interest and other 2,125 63,105 66,601 247,782
Restructuring charge -- -- -- 975,000
------------ ------------ ------------ -------------
4,406,391 9,410,978 15,834,665 30,550,088
------------ ------------ ------------ -------------
Net loss ($ 2,302,025) ($ 5,831,946) ($ 5,874,865) ($18,725,141)
============ ============ ============ =============
Net loss per common share
outstanding ($ 0.15) ($ 0.38) ($ 0.38) ($ 1.22)
============ ============ ============ =============
Weighted average common shares
outstanding 15,358,938 15,357,030 15,358,555 15,355,844
============ ============ ============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 3
REPLIGEN CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
(Unaudited)
<TABLE>
<CAPTION>
December 31, March 31,
1995 1995
------------ -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 8,710,617 $13,821,387
Marketable securities 1,364,224 1,480,712
Accounts receivable 249,909 1,686,902
Amounts due from affiliates 1,926 962,361
Inventories 1,222,528 1,213,379
Prepaid expenses 851,224 1,039,197
Note receivable from affiliate -- 4,620,000
----------- -----------
Total current assets 12,400,428 24,823,938
Property, plant and equipment, at cost:
Leasehold improvements 12,256,628 11,801,854
Equipment 7,616,906 7,625,094
Furniture and fixtures 842,017 869,590
----------- -----------
20,715,551 20,296,538
Less: accumulated depreciation 16,303,503 15,312,326
----------- -----------
and amortization 4,412,048 4,984,212
Restricted cash -- 1,000,000
Other assets, net 1,293,891 521,803
----------- -----------
$ 18,106,367 $31,329,953
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
REPLIGEN CORPORATION
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
December 31, March 31,
1995 1995
------------- -------------
<S> <C> <C>
Current liabilities:
Accounts payable $ 997,448 $ 1,221,277
Accrued expenses and other 6,988,677 9,709,292
Unearned income -- 203,000
Term loan payable to a bank -- 4,620,000
------------- -------------
Total current liabilities 7,986,125 15,753,569
Commitments and contingencies (Notes 7 and 8)
Stockholders' equity:
Preferred stock, $.01 par value --
authorized -- 5,000,000 shares --
outstanding -- none -- --
Common stock, $.01 par value --
authorized -- 30,000,000 shares --
outstanding -- 15,358,938 and 15,357,030
shares at December 31, 1995 and
March 31, 1995, respectively 153,590 153,570
Additional paid-in capital 127,361,631 126,942,925
Accumulated deficit (117,394,979) (111,520,111)
------------- -------------
Total stockholders' equity 10,120,242 15,576,384
------------- -------------
$ 18,106,367 $ 31,329,953
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
REPLIGEN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended December 31,
------------------------------
1995 1994
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(5,874,865) $(18,725,141)
Adjustments to reconcile net loss
to net cash used in operating activities -
Depreciation and amortization 1,126,356 1,917,875
Equity in net loss of an affiliate 227,636 52,925
Net proceeds frOm sales of property, plant and equipment 133,389 --
Changes in assets and liabilities -
Accounts receivable 1,436,993 1,286,223
Amounts due from affiliates 960,435 3,808,318
Inventories (9,149) (70,878)
Prepaid expenses 187,973 98,802
Accounts payable (223,829) (105,117)
Accrued expenses and other (2,720,615) 190,879
Unearned income (203,000) (214,315)
----------- ------------
Net cash used in operating activities (4,958,676) (11,760,429)
----------- ------------
Cash flows from investing activities:
Decrease in marketable securities 116,488 1,008,538
Purchases of property, plant and equipment (687,581) (404,946)
Decrease in other assets 273 728,800
----------- ------------
Net cash (used in) provided by investing activities (570,820) 1,332,392
----------- ------------
Cash flows from financing activities:
Proceeds from sales of common stock
and issuance of warrants, net of
issuance costs and commissions 418,726 363,374
Proceeds from leasing activities -- 361,673
Proceeds from note receivable due from affiliate 4,620,000 --
Payment of term loan to a bank (4,620,000) --
----------- ------------
Net cash provided by financing activities 418,726 725,047
----------- ------------
Net decrease in cash and cash equivalents (5,110,770) (9,702,990)
Cash and cash equivalents, beginning of period 13,821,387 27,655,061
----------- ------------
Cash and cash equivalents, end of period $ 8,710,617 $ 17,952,071
=========== ============
Supplemental disclosure of cash flow information:
Cash paid for interest $ 280,042 $ 199,388
=========== ============
Supplemental disclosure of non-cash financing activities:
Restricted cash released to lessor of certain equipment $ 1,000,000 $ --
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
REPLIGEN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The financial statements included herein have been prepared by Repligen
Corporation (the "Company" or "Repligen") without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such
rules and regulations. The Company believes, however, that the
disclosures made are adequate to ensure that the information presented
is not misleading. It is suggested that these financial statements be
read in conjunction with the audited financial statements and notes
thereto included in the Company's 1995 Form 10-K, filed with the
Securities and Exchange Commission.
This financial information includes all adjustments (consisting of
normal, recurring adjustments) which the Company considers necessary
for a fair presentation of such information. The results of operations
for the interim periods presented are not necessarily indicative of
results to be expected for the entire year.
The Company has incurred significant operating losses since inception
and has undergone major restructurings of its operations. Accordingly,
the Company has determined to focus its remaining resources on its core
research and development activities. As part of its strategy, and in
order to ensure that sufficient funds are available to support these
activities, the Company is seeking to divest its manufacturing
operations, restructure its long-term debts and reduce its overhead.
See discussion under Item 2 - "Recent Developments". If this strategy
cannot be successfully implemented, management believes that Repligen
will have funds to continue operations through no later than September
30, 1996. In that case, without additional significant financing in the
first half of calendar 1996 from either an offering by the Company of
its securities, from a third party funding, or the merger of the
Company with or the acquisition of the Company by an entity capable of
assisting Repligen to fund its operations, the Company will be forced
to significantly curtail or cease operations or seek bankruptcy
protection.
2. NET LOSS PER COMMON SHARE
Primary net loss per common share has been computed by dividing net
loss by the weighted average number of shares outstanding during the
period. Common stock equivalents have not been included for any period
as the effect would be antidilutive. Fully diluted net loss per common
share has not been presented for any period as the amounts would not
differ from primary net loss per common share.
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<PAGE> 7
3. CASH EQUIVALENTS AND MARKETABLE SECURITIES
The Company considers all highly liquid investments with original
maturities of three months or less at the time of acquisition to be
cash equivalents. Included in cash equivalents at December 31, 1995 are
$5,354,000 of money market funds, $2,000,000 of commercial paper and
$1,000,000 of bank time deposits. Investments with a maturity period of
greater than three months are classified as marketable securities and
consist of $1,000,000 of government agency bonds and notes and $364,000
of collateralized mortgage obligations at December 31, 1995. These
securities are reported at amortized cost, which approximates fair
market value at December 31, 1995.
4. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or
market and consist of the following:
<TABLE>
<CAPTION>
December 31, March 31,
1995 1995
---------- ----------
<S> <C> <C>
Raw materials and work-in-process $ 51,202 $ 240,044
Finished goods 1,171,326 973,335
---------- ----------
Total $1,222,528 $1,213,379
========== ==========
</TABLE>
Work in process and finished goods inventories consist of material,
labor and manufacturing overhead.
5. ELI LILLY AND COMPANY AGREEMENT
Effective October 8, 1995, the collaboration and licensing agreement
between Eli Lilly and Company ("Lilly") and Repligen for the joint
development of products utilizing antibodies, antibody fragments and
engineered polypeptides that bind to CD11b (the "CD11b Program") was
terminated. The Company recognized revenues of approximately $167,000,
$2,613,000, $1,609,000 and $4,691,000 for research and development
performed during the three and nine month periods ended December 31,
1995 and 1994, respectively. Under the terms of the agreement, the
entire CD11b Program, including preclinical and clinical data packages
for product candidates m60.1 and h60.1, were returned to the Company.
6. REPLIGEN CLINICAL PARTNERS, L.P.
The Company has granted Repligen Clinical Partners, L.P. (the
"Partnership") an exclusive license to all technology and know-how
related to the manufacture, use and sale of recombinant platelet
factor-4 ("rPF4") in the United States, Canada and Europe (the
"Technology"). The Company believes that rPF4 may be useful as (i) a
neutralizing
7
<PAGE> 8
agent to reverse the anticoagulant effects of heparin and (ii) a
therapy in the treatment of certain solid tumor cancers. Under the
terms of the agreements between the Partnership and its limited
partners and the Company, the limited partners are entitled to various
milestone payments and other royalties in the event that products
derived from the Technology are successfully carried to market. The
Company also has certain rights to purchase the limited partner
interests. A wholly-owned subsidiary of the Company, Repligen
Development Corporation, serves as the General Partner of the
Partnership.
Under the terms of a Product Development Agreement between the
Partnership and the Company (the "Development Agreement"), the Company
performs research and development activities and regulatory work and
services in connection with the Technology on behalf of the Partnership
(the "Research and Development Program"). The Partnership reimburses
the Company for the research and development expenses incurred by the
Company under the Development Agreement and pays the Company a
management fee under the Development Agreement equal to 10% of such
expenses.
The Company anticipates that the Partnership will need in excess of $50
million to complete the Research and Development Program and commence
sales of products derived from the Technology. At December 31, 1995,
the Partnership had working capital of $743,000 which it is utilizing
for the continuation of the clinical development of the Technology. The
Company estimates that these funds will be exhausted by the end of
March or early April 1996. To date, the Company has not identified a
joint venture partner or collaborator to fund the Research and
Development Program. In addition, the Company does not currently have
sufficient resources to fund the Research and Development Program on
its own nor does it believe that an offering of securities by it or the
Partnership sufficient in aggregate amount to fund the remainder of the
Research and Development Program is currently feasible. Although the
Company continues to believe in the viability of the Technology, the
estimated cost of bringing products derived from the Technology to
market and the Company's own limited financial resources have made the
continued support of the Research and Development Program by the
Company economically impractical. Under the terms of the Development
Agreement, if the Company declines any request for funds by the
Partnership, the Research and Development Program will terminate. No
such request has yet been made. The Company understands that the
Partnership is considering its alternatives and intends to explore all
available options. The Company has pledged its full cooperation and
support to the Partnership in this endeavor.
Included in the accompanying statements of operations for the three and
nine month periods ended December 31, 1995 and 1994 are research and
development revenues of approximately $951,000, $2,297,000, $819,000
and $3,729,000, respectively, recognized by the Company under the
Development Agreement. These amounts exclude for the three and nine
month periods ended December 31, 1995 and 1994 approximately $98,000,
$271,000, $105,000 and $445,000, respectively, recognized by the
Company and included in other revenue, representing the 10%
management fee payable under the Development Agreement. These amounts
also
8
<PAGE> 9
exclude $1,641,000 of research and development expenses which were
incurred by the Company during fiscal 1995 that could have been
charged to the Partnership but were instead absorbed by the Company
to preserve the Partnership's funds. The Company currently expects
some revenues from the Partnership in respect of services performed
or to be performed by it for the Partnership during the fourth
quarter of fiscal 1996, although at a reduced rate from fiscal 1995.
Thereafter, the Company does not anticipate deriving any further
revenue from the Partnership.
In connection with the initial capitalization of the Partnership, the
Company issued warrants to purchase common stock of Repligen to the
limited partners of the Partnership (the "Original Warrants"). In June
1994, the Company completed an exchange pursuant to which a majority of
the holders of the Original Warrants exchanged their Original Warrants
for new warrants (the "Exchange Warrants"). Subsequently, in March
1995, the Company offered to modify a majority of the remaining
Original Warrants and the Exchange Warrants. Each holder of an
outstanding warrant who was not then in default under its obligations
to the Partnership was free to accept or reject such modifications. As
of February 5, 1996, 623 1/2 of the 712 nondefaulted limited
partnership units had accepted the modifications. Accordingly, as of
that date, there were issued and outstanding Original Warrants to
purchase 75,400 shares of the Company's common stock, modified Original
Warrants to purchase 163,850 shares of the Company's common stock,
Exchange Warrants to purchase 198,650 shares of the Company's common
stock and modified Exchange Warrants to purchase 1,722,500 shares of
common stock.
7. RESTRUCTURING CHARGE
During fiscal 1995, the Company substantially restructured its
operations in an effort to reduce its current rate of expenditures and
preserve its available cash and investment balances. In the second
quarter of fiscal 1995, the Company recorded a charge of $975,000 to
cover severance costs and related benefits, as well as certain rental
losses associated with the sublease of certain facilities. During the
fourth quarter of fiscal 1995, the Company recorded a charge of
$10,325,000 to cover severance costs and related benefits, rental
losses associated with the sublease of certain facilities, the
write-off of certain leasehold improvements, equipment and intangible
assets that will no longer be utilized and to reserve for future
operating lease payments for equipment that will also no longer be
utilized. The total restructuring charge of $11,300,000 included cash
related expenditures of $6,545,000 and a non-cash charge of $4,755,000.
The cash related expenditures consisted of $2,035,000 of severance and
related benefits for approximately 140 terminated employees, $3,250,000
of future operating lease payments for assets no longer being utilized,
$940,000 of rental losses associated with the sublease of surplus lab
and office space, and $320,000 of contract termination fees. The
non-cash charge was related to the write-off of leasehold improvements,
equipment and other intangibles no longer being utilized. As of
December 31, 1995, approximately
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<PAGE> 10
$2,352,000 of the severance costs, benefit costs and contract
termination fees have been paid. As of December 31, 1995,
approximately $1,505,000 of the equipment and facility lease payments
have been paid. The balance is scheduled to be paid through fiscal
1998; however, the Company is currently in default under the terms of
three equipment leases. In September 1995, the lessors terminated an
escrow agreement, released $1,000,000 in funds from the escrow account
and applied these funds to the Company's future liabilities and
obligations under the equipment leases. In January 1996, the lessors
accelerated all future payments under these leases (the aggregate
balance of all future rental payments under these leases was
($2,569,000 at December 31, 1995, of which $2,277,000 is included in
accrued expenses at December 31, 1995). The aggregate amount claimed
due by the equipment lessors, including penalties, default interest
and value attributable to the underlying equipment, is approximately
$3.7 million. The Company is currently negotiating with the equipment
lessors and certain of the facility lessors for early lease
terminations and a reduction in lease obligations. See discussion
under Item 2 - "Recent Developments".
8. COMMITMENTS
In September 1995, the Company adopted an Incentive and Retention
Program (the "Program") to retain employees essential to the operations
of the Company. Under the terms of the Program, the Company made two
payments of benefits of $320,000 on October 31, 1995 and $610,000 on
December 31, 1995. The payment of $320,000 was accrued in the second
quarter of fiscal 1996 and the payment of $610,000 was expensed in the
quarter ended December 31, 1995.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Recent Developments
Repligen Clinical Partners, L.P. -
The Company has granted Repligen Clinical Partners, L.P. (the
"Partnership") an exclusive license to all technology and know-how
related to the manufacture, use and sale of recombinant platelet
factor-4 ("rPF4") in the United States, Canada and Europe (the
"Technology"). The Company believes that rPF4 may be useful as (i) a
neutralizing agent to reverse the anticoagulant effects of heparin and
(ii) a therapy in the treatment of certain solid tumor cancers. Under
the terms of the agreements between the Partnership and its limited
partners and the Company, the limited partners are entitled to various
milestone payments and other royalties in the event that products
derived from the Technology are successfully carried to market. The
Company also has certain rights to purchase the limited partner
interests. A wholly-owned subsidiary of the Company, Repligen
Development Corporation, serves as the General Partner of the
Partnership.
Under the terms of a Product Development Agreement between the
Partnership and the Company (the "Development Agreement"), the Company
performs research and development activities and regulatory work and
services in connection with the Technology on behalf of the Partnership
(the "Research and Development Program"). The Partnership reimburses
the Company for the research and development expenses incurred by the
Company under the Development Agreement and pays the Company a
management fee under the Development Agreement equal to 10% of such
expenses.
The Company anticipates that the Partnership will need in excess of $50
million to complete the Research and Development Program and commence
sales of products derived from the Technology. At December 31, 1995,
the Partnership had working capital of $743,000 which it is utilizing
for the continuation of the clinical development of the Technology. The
Company estimates that these funds will be exhausted by the end of
March or early April 1996. To date, the Company has not identified a
joint venture partner or collaborator to fund the Research and
Development Program. In addition, the Company does not currently have
sufficient resources to fund the Research and Development Program on
its own nor does it believe that an offering of securities by it or the
Partnership sufficient in aggregate amount to fund the remainder of the
Research and Development Program is currently feasible. Although the
Company continues to believe in the viability of the Technology, the
estimated cost of bringing products derived from the Technology to
market and the Company's own limited financial resources have made the
continued support of the Research and Development Program by the
Company economically impractical. Under the terms of the Development
Agreement, if the Company declines any request for funds by the
Partnership, the Research and Development Program will terminate. No
such request
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<PAGE> 12
has yet been made. The Company understands that the Partnership is
considering its alternatives and intends to explore all available
options. The Company has pledged its full cooperation and support to
the Partnership in this endeavor.
Restructuring -
The Company has determined to focus its remaining resources on its core
research and development activities. As part of its strategy, and in
order to ensure that sufficient funds are available to support these
activities, the Company is seeking to divest its manufacturing
operations, restructure its long-term debts and reduce its overhead.
See Note 7 to notes to Consolidated Financial Statements -
"Restructuring Charge".
The Company has executed a letter of intent with Genzyme Corporation's
General Division ("Genzyme") for the sale of Repligen's process
development and contract manufacturing division, known as "Allegro
Biologics" (the "Genzyme Transaction"). As part of the Genzyme
Transaction, Genzyme has offered immediate employment to certain of
Repligen's employees and will assume the Company's recombinant Protein
A (Protein A(TM)) business. Genzyme will also contract to perform the
Company's future process development and manufacturing requirements in
connection with its on-going clinical programs under terms to be
negotiated. The Genzyme Transaction is subject to the conclusion of a
definitive asset purchase agreement and other conditions of closing.
The Company is simultaneously negotiating with its equipment lessors
and one of its facility lessors to restructure and work-out its
long-term debts. The Company is presently in default under three
operating equipment lease agreements and expects to default under a
facility lease for a facility which is no longer used by the Company.
In September 1995, certain of the equipment lessors terminated an
escrow agreement, released $1 million in funds from the escrow account
and applied these funds to the Company's future liabilities and
obligations under the equipment leases. In January 1996, the equipment
lessors accelerated all future payments under these leases. The
aggregate amount claimed due by the equipment lessors as of the date of
this report, including penalties, default interest and value
attributable to the underlying equipment is approximately
$3.7 million. The Company has accrued the sum of $2,277,000 on
account of the equipment leases which amount is reflected in the
restructuring charge. See Note 7 to notes to Consolidated Financial
Statements "Restructuring Charge". The consummation of the Genzyme
Transaction is conditioned upon the Company coming to terms with its
equipment lessors, as certain of the equipment subject to the
equipment leases is required to be conveyed by Repligen to Genzyme as
part of the transaction.
There can be no assurance that the Company will come to terms with its
long-term creditors or consummate the Genzyme Transaction. If the
Company is unable to resolve its creditor disputes and/or close the
Genzyme Transaction, the Company estimates that it will have funds to
continue operations through no later than September 30, 1996. In that
case, without additional financing during the first half of calendar
1996 from either an offering by Repligen of its securities, from
third party funding, or the merger of Repligen with or acquisition of
Repligen by an entity capable of assisting Repligen to fund its
operations, Repligen will be forced to significantly curtail or cease
operations or seek bankruptcy protection. Management believes that its
chances of raising additional financing are not probable absent a
restructuring of its long-term debts and divesture of its
manufacturing operations for value.
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<PAGE> 13
If the Company is able to successfully implement its restructuring
strategy and close the Genzyme Transaction, it estimates that it will
have funds sufficient to continue operations through on or about June
30, 1997. In any case, the Company will aggressively seek to
out-license its technologies and pursue other strategic alternatives,
such as merger or acquisition candidates and other joint venture or
collaborative relationships. Additionally, the Company may seek, to the
extent commercially practicable, to raise additional equity financing
to reinvigorate its core research and development activities.
Results of Operations
Revenues -
Total revenues for the three and nine month periods ended December 31,
1995 were $2,104,000 and $9,960,000 as compared to $3,579,000 and
$11,825,000 in the comparable fiscal 1995 periods.
Research and development revenues for the three and nine month periods
ended December 31, 1995 were $1,675,000 and $7,535,000 compared to
$2,428,000 and $8,420,000 in the comparable fiscal 1995 periods. The
decrease of $753,000 and $885,000, for the three and nine month periods
ended December 31, 1995, respectively, from the comparable fiscal 1995
periods is due to the reduction in revenue from Lilly for the
anti-inflammation program, offset in part by a $525,000 license fee
paid by Genentech, Inc. in December 1995 for the exclusive sublicense
to make and sell antibody fragments, engineered polypeptides and other
small molecules that bind to CD18 and CD11a. Total revenue derived from
the Partnership for the three and nine month periods ended December 31,
1995 were $951,000 and $2,297,000, compared to $819,000 and $3,729,000
in the comparable fiscal 1995 periods. The decrease in revenues from
the Partnership was caused by a decrease in the need for process
development, pre-clinical research and manufacturing activity as both
products under development have entered phase I/II clinical trials and
is also due to lack of resources of the Partnership, limiting the
Partnership's ability to fund the rPF4 program. In October 1995, costs
related to the exchange offer to the Partnership were fully amortized,
offsetting in part, the decline in Partnership revenues for the three
month period ended December 31, 1995. In September 1995, following an
internal portfolio review, Lilly terminated its collaboration and
licensing agreement with the Company respecting the joint development
of the CD11b Program. Under the terms of the Agreement, the entire
CD11b Program,
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<PAGE> 14
including preclinical and clinical data packages for product
candidates m60.1 and h60.1, were returned to the Company. See Note 5
to notes to Consolidated Financial Statements.
Product revenues for the three and nine month periods ended December
31, 1995 were $169,000 and $1,543,000, respectively, compared to
$538,000 and $1,813,000 in the comparable fiscal 1995 periods. Fiscal
1996 three and nine month periods product revenues decreased from the
similar fiscal 1995 periods due primarily to the lower sales volume of
the Company's rProtein A(TM) and diagnostic reagent products, offset in
part by the recognition of contract service revenues of $29,000 and
$549,000, respectively, generated by the Company's Allegro Biologics
division.
Investment income decreased in fiscal 1996 over the comparable three
and nine month periods primarily because of lower average funds
available for investment offset in part by higher interest rates.
Other revenues for the three and nine month periods ended December 31,
1995 decreased from the comparable fiscal 1995 periods primarily
because of a decrease in management fees received from the Partnership.
Expenses -
During fiscal 1995, the Company substantially restructured its
operations in an effort to reduce its current rate of expenditures and
preserve its available cash and investment balances. The restructurings
were done in order to reorganize certain business operations and to
permit its senior management team to focus on the clinical development
of the Company's two lead product candidates. In the second quarter,
the Company recorded a charge of $975,000 to cover severance costs and
related benefits, as well as certain rental losses associated with the
sublease of certain facilities. During the fourth quarter, the Company
recorded a charge of $10,325,000 to cover severance costs and related
benefits, rental losses associated with the sublease of certain
facilities, the write-off of certain leasehold improvements, equipment
and intangible assets which will no longer be utilized and to reserve
for future operating lease payments for equipment which will also no
longer be utilized.
Total expenses for the three and nine month periods ended December 31,
1995 were $4,406,000 and $15,835,000, respectively, compared to
$9,411,000 and $30,550,000 in the comparable fiscal 1995 periods. This
decrease in the three and nine month periods ended December 31, 1995
reflects lower operating costs as a result of the fiscal 1995
restructuring efforts.
Research and development expenses for the three and nine month periods
ended December 31, 1995 were $2,864,000 and $10,195,000, respectively,
compared to $7,529,000 and $23,733,000 in the comparable fiscal 1995
periods. The decreased
14
<PAGE> 15
expenses in the three and nine month periods of fiscal 1996 from the
comparable periods in fiscal 1995 reflect the Company's efforts to
reduce costs and to focus its resources on the clinical development
of its two lead product candidates and offset partly by the salaries
and benefits in the fiscal 1995 periods relating to employees who
were terminated in July 1994 and February 1995.
Selling, general and administrative expenses for the three and nine
month periods ended December 31, 1995 were $1,427,000 and $4,470,000,
a decrease of $123,000 and $91,000, respectively, from the comparable
fiscal 1995 periods. These decreases in selling, general and
administrative expenses are net of an expense of $610,000 and
$930,000, for the three and nine month periods ended December 31, 1995,
respectively, for the Company's Incentive and Retention Program offset
partly by the salaries and benefits in the fiscal 1995 period relating
to employees who were terminated in July 1994 and February 1995. See
Note 8 to notes to Consolidated Financial Statements - "Commitments".
Cost of goods sold for the three and nine month periods ended December
31, 1995 were $114,000 and $1,104,000, respectively. Cost of goods sold
for the three and nine month periods were 67% and 72% of product
revenues, respectively, versus 50% and 57% of product revenues in the
comparable fiscal 1995 periods. The increase in cost of sales as a
percentage of revenue is primarily a result of the change in sales mix
between fiscal years and the addition of contract service revenues in
fiscal 1996.
Capital Resources and Liquidity
The Company's total cash, cash equivalents and marketable securities
decreased to $10,075,000 at December 31, 1995 from $15,302,000 at March
31, 1995, a decrease of $5,227,000 or 34%. The decrease reflects net
operating losses during the nine month period of approximately
$5,875,000, the reduction of current liabilities of $7,768,000, the
reduction in note receivable from affiliate of $4,620,000 and the
collection of amounts due from the Partnership as a result of the
receipt from the partners of their fourth installment. Working capital
decreased to $4,414,000 at December 31, 1995 from $9,070,000 at March
31, 1995 reflecting primarily the loss during the nine months ended
December 31, 1995.
The Company has funded operations primarily with cash derived from the
sales of its equity securities, research and development contracts, out
licensing of technologies, investment income, product sales, term loan
with a bank, the sale of the Company's share of a joint venture and
leasing of certain equipment. In May 1992, the Company entered into a
research and development agreement with Lilly which provided $6,262,000
and $7,790,000 in research funding in fiscal 1995 and 1994,
respectively, and $167,000 and $2,613,000 in research funding during
the three and nine month periods ended December 31, 1995. This
agreement terminated effective October 1995.
15
<PAGE> 16
In December 1995, Genentech, Inc. paid a $525,000 license fee for the
exclusive sublicense to make, use and sell antibodies, antibody
fragments, engineered polypeptides and other small molecules that bind
to CD18 and CD11a.
The Company is receiving research and development funding and a 10%
management fee from the Partnership pursuant to the Development
Agreement. The Company recorded revenue in the three and nine month
periods ended December 31, 1995 of $951,000 and $2,297,000 compared to
$819,000 and $3,729,000 in the comparable fiscal 1995 periods. The
Company currently expects some revenues from the Partnership in respect
of services performed or to be performed by it for the Partnership
during the fourth quarter of fiscal 1996, although at a reduced rate
from fiscal 1995. Thereafter, the Company does not anticipate deriving
any further revenue from the Partnership.
There can be no assurance that the Company will come to terms with its
long-term creditors or consummate the Genzyme Transaction. If the
Company is unable to resolve its creditor disputes and/or close the
Genzyme Transaction, the Company estimates that it will have funds to
continue operations through no later than September 30, 1996. In that
case, without additional financing during the first half of calendar
1996 from either an offering by Repligen of its securities, from
third party funding, or the merger of Repligen with or acquisition of
Repligen by an entity capable of assisting Repligen to fund its
operations, Repligen will be forced to significantly curtail or cease
operations or seek bankruptcy protection. Management believes that its
chances of raising additional financing are not probable absent a
restructuring of its long-term debts and divesture of its
manufacturing operations for value.
For a further discussion of the Company's capital resources and
liquidity, see Item 2 - "Recent Developments", above.
16
<PAGE> 17
PART II. OTHER INFORMATION
Item 1. Not applicable
Item 2. Not applicable
Item 3. Defaults upon Senior Securities
The Company is presently in default in the payment of rent under
three equipment lease agreements. The equipment lessors have
accelerated all future payments under these leases. The aggregate
balance of the future rental payments under these leases
was $2,569,000 at December 31, 1995. The total amount claimed due
by the equipment lessors as of the date of this report, including
penalties, default interest and value attributable to the
underlying equipment, is approximately $3.7 million. The Company
is currently negotiating with the equipment lessors for early
lease terminations and a reduction in certain of the lease
obligations. See discussion under Part I, Item 2 - "Recent
Developments".
Item 4. Not applicable
Item 5. Not applicable.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) None
(b) None
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
REPLIGEN CORPORATION
(Registrant)
Date: February 16, 1996 By:/s/ Avery W. Catlin
-------------------
Chief Financial Officer
Signing on behalf of the Registrant
and as Principal Financial and
Accounting Officer
18
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