February 12, 1998
REPLIGEN CORP (RGEN)
Quarterly Report (SEC form 10-Q)
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. |
