2007
ANNUAL REPORT
TO OUR SHAREHOLDERS: Our goal is to develop and commercialize novel products for
the treatment of Central Nervous System (CNS) disorders. We have a three-step strategy to
achieve our goal:
First, we will seek to increase the profits from
We expect continued growth in product
the sale of our existing products to provide
sales in the next year, progress on realizing
a source of funding for the acquisition and
the value of our patents and strengthening
development of our CNS product candidates.
of our therapeutic pipeline through develop-
Second, we intend to vigorously enforce our
patent rights which may provide additional cap-
ital for investment in our product candidates.
Third, we will seek to strengthen our product
pipeline through development of our existing
ment of our existing product candidates and,
potential in-licensing of additional CNS prod-
uct candidates.
I look forward to keeping you informed of
our progress.
product candidates and through in-licensing
Sincerely,
of new product candidates which can be eval-
uated clinically without “betting the company”
on any single product.
Walter C. Herlihy, Ph.D.
President and CEO
During the past year we have made significant
July 8, 2007
progress on each of these goals. Increased
sales and profits from our products, progress
in enforcing our patent rights and the acquisi-
tion of a new product development candidate
are evidence of our success.
OUR MISSION
OUR STRATEGY
Repligen’s mission is to develop novel therapeu-
To achieve our goal we plan to make significant
tics for CNS disorders for which there is signifi-
investments in product development. Our efforts
cant unmet medical need. We intend to build a
will be partially funded from the profits from our
sustainable franchise focused on meeting the
current products and any future cash streams we
needs of patients and care providers in several
may realize from the licensing of our patents. We
CNS disorders.
plan to out-license any product candidates which
may have utility in therapeutic categories other
than CNS. Cash provided by these activities will
make us less dependent on the sale of equity to
fund our operations. In addition, our commercial
products business enables us to gain valuable
expertise in manufacturing and marketing prior
to the commercialization of our CNS product
candidates. We believe that a clear focus on a
single therapeutic category will enable us to
benefit from synergies in research, product
development and commercialization.
CORPORATE MILESTONES
This year we achieved important milestones toward
building a self-sustaining, integrated biopharmaceutical company.
1.0
MARKETED PRODUCTS
Our revenues grew to $14.1 million consisting primarily of sales of our Protein A products.
We completed the construction of a multi-thousand liter fermentation facility
which increases our capacity to manufacture our Protein A products.
2.0
INTELLECTUAL PROPERTY
We received Summary Judgement in our favor in the ongoing litigation against ImClone Systems, Inc.
based on the manufacture and sale of Erbitux®. The trial is currently scheduled for September 2007.
A trial date of April 2008 is currently scheduled for our lawsuit against Bristol-Myers Squibb for
infringement of our patent covering the use of CTLA4-Ig to treat rheumatoid arthritis.
3.0
PRODUCT PIPELINE
We completed a positive Phase 2 clinical trial to evaluate the use of secretin to improve the
diagnostic quality of an MRI image of the pancreas. We also received Orphan Drug Designation for this
use which qualifies us for seven years of marketing exclusivity if we are the first to the market.
Completed enrollment in a Phase 2a clinical trial of an oral formulation
of uridine to treat bipolar depression.
We licensed rights to intellectual property covering compounds which may have utility
in treating Friedreich’s ataxia.
OUR ASSETS
Over the past year our marketed products have continued to provide a growing stream of revenue and profits,
allowing us to invest in our patents and the development of our pipeline without the financial risks normally
associated with a clinical stage biotechnology company.
PRODUCT PIPELINE
MARKETED PRODUCTS
PRECLINICAL
PHASE I
PHASE II
PHASE III
MARKET
Protein A
Antibody Purification
SecreFlo®
GI Diagnosis
INTELLECTUAL PROPERTY
Erbitux®
Colon, Head and Neck Cancer
Orencia®
Rheumatoid Arthritis
PRODUCT PIPELINE
Secretin
Pancreatic MRI
Uridine
Bipolar Depression
Other Neurology
Transcription Activators
Friedreich’s Ataxia
Erbitux ® and Orencia® are registered trademarks of ImClone Systems, Inc. and Bristol-Myers Squibb, respectively.
15
10
5
0
0
-2
-4
-6
-8
30
20
10
0
TOTAL REVENUE
(dollars in millions)
OPERATING LOSS
(dollars in millions)
CASH & INVESTMENTS
(dollars in millions)
14.1
$15
10
5
0
$0
(2)
(4)
(6)
(8)
(1.8)
$30
20
10
0
22.6
2005
2006
2007
2005
2006
2007
2005
2006
2007
REPLIGEN CORPORATION
1.0 MARKETED PRODUCTS
2.0 INTELLECTUAL PROPERTY
MARKETED PRODUCTS
“Enhancer” Patent
Repligen is the world’s leading supplier of recombinant
Protein A, a consumable used in the production of the vast
majority of monoclonal antibodies. Protein A’s unique and
broadly applicable properties provide a powerful purification
tool resulting in lower costs for manufacturers. There are
currently 18 monoclonal antibodies that have received reg-
ulatory approval with more than 150 products in develop-
ment. Monoclonal antibodies are the largest and fastest
growing class of drug in the biopharmaceutical industry
with revenues forecast to exceed $30 billion in 2010. Last
year we recorded $11.1 million from sales of our Protein A
P.2
products and we anticipate demand will continue to grow
along with the growth of the monoclonal antibody market.
INTELLECTUAL PROPERTY
Repligen has a long history of scientific innovation which
has been recognized by the receipt of many patents. We
have rights to patents on two products: Erbitux®, approved
for treatment of colorectal and head and neck cancer and
Orencia® (CTLA4-Ig), approved for treatment of rheuma-
toid arthritis.
Repligen and MIT own rights to a U.S. patent, which covers
certain genetic elements that increase protein production in
a mammalian cell. Repligen and MIT filed an action against
ImClone for infringement of this patent based on ImClone’s
manufacture and sale of Erbitux®. In the complaint we
allege that the cell line that ImClone uses to produce
Erbitux® employs a key technology that is claimed in the
patent. The Court issued a ruling on Summary Judgement
in our favor and rejected ImClone’s previously asserted
defense of patent exhaustion, eliminating this argument
as a potential defense for ImClone at trial. Recently, the
Court imposed sanctions on ImClone for misconduct by
its attorneys. The trial is currently set for September 2007.
ImClone has reported approximately $1.5 billion in sales
to date of Erbitux® in the U.S.
CTLA4-Ig Patent
In the 1990s our collaborators at the University of Michigan
and the U.S. Navy demonstrated that CTLA4-Ig, one of
the immune system’s natural “off switches,” could be used
to treat certain autoimmune diseases in animal models.
Repligen owns the exclusive rights to a U.S. patent that
covers a method of treating rheumatoid arthritis with
CTLA4-Ig that will remain in force until 2021. CTLA4-Ig’s
mechanism of action is different from current therapies for
2007 ANNUAL REPORT
3.0 PRODUCT PIPELINE
arthritis and may provide a treatment for patients refractory
showed highly significant increases in physician confidence
to existing therapies.
In 2005, Bristol-Myers Squibb received FDA approval to
market CTLA4-Ig for treatment of rheumatoid arthritis,
under the brand name Orencia®. Subsequently, we filed
a lawsuit against Bristol for infringement of our patent.
Our goal is to license our patent to Bristol in exchange for
royalties whether through a court action or a negotiated
to identify structural abnormalities, the number of pancre-
atic duct segments visualized and improvements in the
overall image quality. Detailed assessment of the pancre-
atic ducts is important in the diagnosis and treatment of
acute and chronic pancreatitis. There may be more than
100,000 MRI images in the U.S. each year that could bene-
fit from the use of secretin.
settlement. Analysts expect the annual sales of Orencia®
The Office of Orphan Products Development of the FDA
to reach $1 billion within five years. A trial date is currently
granted us orphan drug designation for the use of secretin
set for April 2008.
PRODUCT PIPELINE
Secretin for Imaging of the Pancreas
The literature supports the use of secretin with abdominal
MRI imaging to improve visualization of the pancreas and
with MRI imaging, which qualifies us for seven years of
marketing exclusivity in the U.S. if we are the first to
receive marketing approval. We are in the process of defin-
P.3
ing the registration path with the FDA. We are also con-
ducting a pilot study to evaluate the use of secretin in
abdominal imaging to assess the function of the pancreas.
to increase diagnostic sensitivity. The use of MRI is attrac-
Uridine for Bipolar Depression
tive for patient care as it can obviate the need for more
Uridine is a biological compound essential for the synthesis
risky invasive procedures. We have completed a positive
of DNA, RNA and numerous other factors essential for
Phase 2 clinical trial to evaluate the use of secretin with
cell metabolism. Uridine is synthesized by the power plant
MRI to improve imaging of the pancreas. The study showed
of the human cell known as the mitochondria. Research
improved sensitivity to detect structural abnormalities of
indicates that mitochondrial dysfunction is involved in bipo-
the pancreatic duct of approximately 20% with no loss
lar disorder, which suggests that uridine may be useful in
in specificity, consistent with prior data. The study also
this disease.
REPLIGEN CORPORATION
We are conducting a Phase 2 clinical trial of uridine in bipo-
no treatment for Friedreich’s ataxia, which affects approxi-
lar disorder to assess the impact on the depressive symp-
mately one in every 50,000 people in the U.S.
toms of the disease. We have completed enrollment in this
study in which approximately 80 patients received uridine
or a placebo for 6 weeks and we expect to have trial results
in the fall. Bipolar disorder is an illness marked by extreme
changes in mood, energy and behavior in which a person
can alternate between states of mania and depression. More
than 2 million adults in the U.S. have bipolar disorder. The
Stanley Medical Research Institute, the largest nonprofit
provider of funding for research on schizophrenia and bipo-
Research conducted in tissue samples from patients as
well as in mice indicates that these compounds increase
production of the protein frataxin, which suggests potential
utility in slowing or stopping progression of the disease.
Preliminary data also suggests that these compounds
may have utility in treating other disorders such as spinal
muscular atrophy and Huntington’s disease. We are work-
ing to identify a drug candidate for the clinic.
lar disorder in the U.S., has provided support for this study.
Finances and Business Strategy
P.4
Transcription Activators for Friedreich’s Ataxia
Consistent with our goal for last year to expand our pipe-
line, we licensed rights to intellectual property covering
compounds which may have utility in treating Friedreich’s
ataxia. Friedreich’s ataxia is caused by a single gene defect
Profits from our products are used to partially fund the
development of our patents and our pipeline. For fiscal
year 2007 we reported an operating loss of $1.8 million
and ended the year with $22.6 million in cash and invest-
ments and no debt.
that results in inadequate production of the protein frataxin.
Our sound financial condition enables us to maintain owner-
Low levels of frataxin lead to degeneration of both the
ship of our pipeline candidates through “proof-of-principle”
nerves controlling muscle movements in the arms and
clinical trials at which point we may seek a partner for fur-
legs and the nerve tissue in the spinal cord. Symptoms of
ther development and marketing. We believe our diverse
Friedreich’s ataxia typically emerge between the ages of
asset base and sound business strategy provide us a
5 and 15 and often progress to severe disability, incapac-
unique opportunity to develop products for unmet medical
itation or loss of life in early adulthood. There is currently
needs to the benefit of both patients and shareholders.
REPLIGEN CORPORATION
Index to Business and Financial Information for the Year Ended March 31, 2007
Selected Financial Data
Business
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
F.2
F.3
F.8
F.1
Market for Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
F.16
Stock Price Performance Graph
F.17
Statements of Operations
F.17
Balance Sheets
F.18
Statements of Cash Flows
F.19
Statements of Stockholders’ Equity
F.20
Notes to Financial Statements
F.21
Report of Independent Registered Public Accounting Firm F.34
Management’s Annual Report on Internal Control Over Financial Reporting
F.35
Attestation Report of the Independent Registered Public Accounting Firm F.36
2007 ANNUAL REPORT
SELECTED FINANCIAL DATA
The following selected financial data are derived from the audited financial statements of Repligen. The
selected financial data set forth below should be read in conjunction with our financial statements and the
related notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” included elsewhere in this annual report and our Annual Report on Form 10-K for the years ended
March 31, 2007, 2006, 2005, 2004 and 2003.
Revenue:
Product revenue
Other revenue
Total revenue
Operating expenses:
Cost of product revenue
Research and development
Selling, general and administrative
Impairment of long-lived asset
Total operating expenses
Income (loss) from operations
Interest expense
Investment income
Other income
Net income (loss)
Earnings Per Share:
Basic and diluted
Years ended March 31,
2007
2006
2005
2004
2003
(In thousands except per share amounts)
$ 13,074
1,000
$ 12,529
382
$
14,074
12,911
3,615
5,924
6,360
—
15,899
(1,825)
(11)
947
—
3,551
5,163
5,417
—
14,131
(1,220)
(3)
750
1,170
9,360
—
9,360
3,888
5,037
4,597
—
$
6,843
71
6,914
3,248
6,484
4,710
2,413
$
7,743
29
7,772
3,480
5,227
4,159
—
13,522
(4,162)
16,855
(9,941)
12,866
(5,094)
—
428
750
—
390
—
—
557
—
$
(889) $
697
$
(2,984) $
(9,551) $
(4,537)
$
(0.03) $
0.02
$
(0.10) $
(0.32) $
(0.17)
F.2
Weighted average shares outstanding:
Basic
Diluted
30,379
30,379
30,125
30,691
30,062
30,062
29,686
29,686
26,813
26,813
Balance Sheet Data:
Cash and marketable securities*
Working capital
Total assets
Long-term obligations
Accumulated deficit
Stockholders’ equity
As of March 31,
2007
2006
2005
2004
2003
(In thousands)
$ 22,627
22,394
29,076
200
(157,683)
25,538
$ 23,408
18,575
28,599
231
(156,794)
25,433
$ 23,523
15,673
27,607
120
(157,491)
24,290
$ 24,269
13,684
29,615
86
(154,507)
27,164
$ 18,709
15,602
26,793
2
(144,956)
24,550
* Excludes restricted cash of $200,000 restricted as part of our headquarters lease arrangement for all years presented.
REPLIGEN CORPORATION
BUSINESS
The following discussion of our business contains
forward-looking statements that involve risks and
uncertainties. When used in this report, the words
“intend,” “anticipate,” “believe,” “estimate,” “plan”
and “expect” and similar expressions as they relate
to us are included to identify forward-looking state-
ments. Our actual results could differ materially from
those anticipated in these forward-looking state-
ments and are a result of certain factors, including
those set forth under “Risk Factors” in our Annual
Report on Form 10-K.
Our Company
Repligen Corporation (“Repligen,” the “Company”
or “we”) is developing novel therapeutics for the
treatment of diseases of the central nervous system.
We also own intellectual property on two biological
therapies which may provide future revenues to sup-
port our product development efforts in neurological
diseases. We also are a leading manufacturer of
Protein A which is used in the production of many
therapeutic monoclonal antibodies.
Our business strategy is to maintain full commercial
rights to our product candidates through “proof of
principle” clinical studies after which we may seek
corporate partners for further development and mar-
keting. We partially fund the development of our
proprietary therapeutic product candidates with the
profits derived from the sales of our commercial
products. This will enable us to independently
advance our products with less financial risk.
We were incorporated in May 1981, under the laws
of the State of Delaware. Our principle execu-
tive offices are at 41 Seyon Street, Waltham,
Massachusetts 02453 and our telephone number is
(781) 250-0111.
Currently Marketed Products
We currently sell two products: Protein A, which is
used in the production of monoclonal antibodies, and
SecreFlo®, a synthetic form of the hormone secretin,
which is used as an aid in the diagnosis of certain
diseases of the pancreas.
Protein A Products for Antibody Manufacturing
Protein A is widely used in the purification of thera-
peutic monoclonal antibodies. Most therapeutic
monoclonal antibodies are manufactured by the fer-
mentation of mammalian cells that express the
monoclonal antibody. The monoclonal antibody is
typically produced by a process in which an impure
fermentation broth containing the desired monoclo-
nal antibody is passed over a solid support to which
Protein A has been chemically attached or “immobi-
lized.” The immobilized Protein A binds the monoclo-
nal antibody while other impurities are washed away.
The monoclonal antibody is then recovered from the
support in a substantially purified form.
We manufacture and market several products based
on recombinant forms of Protein A. Our primary
customers incorporate our Protein A products into
their proprietary monoclonal antibody purification
systems that they sell directly to the biotechnology
and pharmaceutical industry. In February 2005, we
announced an amended and expanded Supply
Agreement (“the Agreement”) with GE Healthcare
(“GEHC”), the leading supplier of purification prod-
ucts to the biopharmaceutical industry and the larg-
est consumer of Protein A. The Agreement calls for
Repligen to be the primary supplier of Protein A to
GEHC through 2010. During 2006, we completed
the scaleup and production of a modified form of
Protein A for GEHC, which may provide additional
value to the producers of monoclonal antibodies. In
addition, we have a long-term supply agreement with
Applied Biosystems that provides that Repligen will
be the preferred provider of recombinant Protein A
to Applied Biosystems until 2011. The majority of our
product sales for the last three years have been sales
of Protein A products.
Sales of therapeutic monoclonal antibodies have
increased from $300 million in 1997 to approximately
$20 billion in 2006. This growth is based on the
increasing use of therapeutic antibodies, including
Erbitux® for colon cancer, Synagis® for RSV infection
and Remicade® for Crohn’s disease and arthritis.
There are more than 150 additional monoclonal anti-
bodies in various stages of clinical testing which may
lead to additional growth of the antibody market and,
in turn, increased demand for Protein A.
SecreFlo® for Pancreatic Diagnosis
In October 1999, we licensed exclusive commercial
rights to a diagnostic product based on a synthetic
form of porcine ( pig - derived ) secretin, which
we market as SecreFlo ®, from ChiRhoClin, Inc.
(“ChiRhoClin”), a private company. ChiRhoClin is our
sole supplier of SecreFlo®. SecreFlo® is approved by
the U.S. Food and Drug Administration (“FDA”) as
an aid in the diagnosis of chronic pancreatitis and
gastrinoma (a form of cancer) and as an aid during
endoscopic retrograde cholangiopancreatography
(“ERCP”), a gastrointestinal procedure. In 2004, we
terminated our agreement with ChiRhoClin for breach
and filed an arbitration proceeding against ChiRhoClin
for their alleged failure to meet certain obligations
related to product and clinical development. In May
2005, we announced the settlement of the arbitra-
tion proceeding through an agreement by which we
will continue to sell SecreFlo®. We estimate that
sales of SecreFlo® will continue through March 2009,
when our product supply will cease.
2007 ANNUAL REPORT
F.3
F.4
BUSINESS (continued)
Intellectual Property on Monoclonal Antibody
and Antibody Fusion Products
Erbitux ®
Erbitux® is a monoclonal antibody developed by
ImClone Systems Incorporated (“ImClone”) which
was approved by the FDA in February 2004 for the
treatment of certain forms of colon cancer and in
March 2006 for the treatment of head and neck can-
cer. We believe that Erbitux® is manufactured with a
cell line created by a company whose assets were
subsequently acquired by Repligen. This cell line
contains certain patented genetic technologies
(“DNA enhancers”) which increase the productivity
of a cell line. This patent is assigned to MIT and
exclusively licensed to Repligen. ImClone previously
announced that it had manufactured approximately
$1 billion of Erbitux® as of February 2004. ImClone
has reported that nearly all of this pre-approval stock-
pile of Erbitux® was exhausted by the end of Decem-
ber 2005. In May 2004, Repligen and MIT jointly
filed a lawsuit against ImClone in U.S. District Court
for Massachusetts alleging that ImClone has
infringed our patent rights in its production of
Erbitux®. Our patent expired in May 2004 and we
have applied for a 5-year term extension for the pat-
ent, or until May 2009.
CTLA4-Ig
CTLA4 is a key regulator of the activity of the immune
system. CTLA4 “turns off” the immune system after
it has successfully cleared a bacterial or viral infec-
tion by blocking the activation of T-cells, the immune
cells responsible for initiating an immune response.
In the 1990’s, our collaborators at the University of
Michigan and the U.S. Navy demonstrated in animal
models that a fusion protein consisting of fragments
of CTLA4 and an antibody (“CTLA4-Ig”) could be
used to block organ transplant rejection and to treat
certain autoimmune diseases. Additional animal and
human studies by many other groups have confirmed
that CTLA4-Ig may be useful in treating diseases
such as rheumatoid arthritis, multiple sclerosis, lupus,
psoriasis and organ transplant rejection. CTLA4-Ig’s
mechanism of action is different from the current
therapies for autoimmune disease or organ trans-
plant rejection, thus it may provide a treatment for
patients who are refractory to existing therapies.
In December 2005, the FDA approved Bristol-Myers
Squibb Corporation’s (“Bristol”) application to mar-
ket CTLA4-Ig, under the brand name Orencia®, for
treatment of rheumatoid arthritis. Bristol started
commercial sales of Orencia® in February 2006.
In January 2006, Repligen and the University of
Michigan jointly filed a lawsuit against Bristol in
the United States District Court for the Eastern
District of Texas for infringement of U.S. Patent No.
6,685,941. The patent, entitled “Methods of Treating
Autoimmune Disease via CTLA4-Ig,” covers meth-
ods of using CTLA4-Ig to treat rheumatoid arthritis,
as well as other therapeutic methods. The patent
is in force until 2021. Repligen has exclusive rights
to this patent from its owners, the University of
Michigan and the U.S. Navy.
Development Stage Products for
Neuropsychiatric Disorders
Secretin for MRI
Secretin is a well-known hormone produced in the
small intestine that regulates the function of the
pancreas as part of the process of digestion. We are
currently evaluating secretin for improvement of MRI
imaging of the pancreas.
Several reports published in the literature support
the use of secretin with abdominal MRI imaging to
improve visualization of pancreaticobiliary structures
and to increase diagnostic sensitivity relative to
unenhanced abdominal MRI. MRI technology images
stationary water thus the use of secretin during MRI
harnesses the natural biologic properties of secretin,
which signals the release of water-rich fluids into the
ducts of the pancreas. Improvement in the detection
and delineation of normal and abnormal structures
with MRI is attractive for patient care as it can obvi-
ate the need for more risky invasive procedures.
In June 2006, we initiated a Phase 2 clinical trial to
evaluate the use of RG1068, synthetic human secre-
tin, as an agent to improve the detection of structural
abnormalities of the pancreatic ducts during MRI
imaging of the pancreas. This was a multi-center,
baseline controlled, single dose study in which
80 patients with a history of pancreatitis receive a
secretin-enhanced MRI and an unenhanced MRI of
the pancreas.
In May 2007, we announced positive results from
this Phase 2 clinical trial to evaluate the use of
RG1068, synthetic human secretin, to improve
the assessment of pancreatic duct structures by
MRI. The study showed an improvement in sensi-
tivity of detection of structural abnormalities of
the pancreatic duct of approximately 20% with no
loss in specificity, consistent with prior data and
expectations. In addition, the study showed highly
significant increases in the following three assess-
ments: physician confidence in their ability to
identify structural abnormalities, the number of
pancreatic duct segments visualized and improve-
ment in the overall quality of the MRI images.
Detailed visual assessment of the pancreatic ducts
and identification of structural abnormalities is impor-
tant in the assessment, diagnosis and treatment
of diseases such as acute and chronic pancreatitis.
We believe these results establish the basis for dis-
cussions with the FDA regarding a clinical plan to
REPLIGEN CORPORATION
BUSINESS (continued)
receive marketing approval for secretin for MRI imag-
ing of the pancreas.
Uridine for Bipolar Depression
Uridine is a biological compound essential for the
synthesis of DNA and RNA, the basic hereditary
material found in all cells, and numerous other fac-
tors essential for cell metabolism. Uridine is syn-
thesized by the power plant of the human cell known
as the mitochondria. The rationale for uridine therapy
in CNS disorders is supported by pre-clinical and
clinical research. Researchers at McLean Hospital
previously demonstrated that uridine is active in a
well-validated animal model of depression. Recent
reports indicate that certain genes that encode
for mitochondrial proteins are significantly down-
regulated in the brains of bipolar patients. This new
insight suggests that the symptoms of bipolar dis-
order may be linked to dysregulation of energy
metabolism of the brain.
Bipolar disorder, also known as manic depression, is
marked by extreme changes in mood, energy and
behavior in which a person can alternate between
mania (highs) and depression (lows). Bipolar disor-
der affects more than 2 million adults in the United
States. Current drug therapy for bipolar disorder
includes the use of lithium and anti-depressants.
However, side effects are frequent and troublesome,
and patients do not respond fully, leading to frequent
recurrences of mania and depression.
In March 2006, we initiated a Phase 2 clinical trial of
RG2417, an oral formulation of uridine, in patients
with bipolar depression. This Phase 2 study is a
multi-center, dose escalating study in which 80
patients will receive either RG2417 or a placebo for
six weeks. Patients will be evaluated for the safety
and effectiveness of RG2417 on the symptoms of
bipolar depression. This study is being conducted
under a development agreement with the Stanley
Medical Research Institute, under which Repligen
will receive approximately $1,200,000 in funding.
The Stanley Medical Research Institute is the largest
nonprofit provider of funding for research on schizo-
phrenia and bipolar disorder in the United States. We
have completed patient enrollment in this study and
we anticipate release of top line data later in 2007.
Repligen previously completed a six-week Phase 1
clinical trial of a prodrug of uridine (RG2133) in
patients with bipolar disorder or major depression.
The results demonstrated that administration of
RG2133 in this patient population appeared to be
safe, did not induce mania, and provided early evi-
dence of a clinical effect of the drug. The trial evalu-
ated 19 patients and was carried out by investigators
at McLean Hospital, the largest psychiatric clinical
care, teaching and research affiliate of Harvard
Medical School.
Transcription Enhancers for Friedreich’s Ataxia
Symptoms of Friedreich’s ataxia typically emerge
between the ages of five and 15 and often progress
to severe disability, incapacitation or loss of life in
early adulthood. Friedreich’s ataxia is caused by a
single gene defect that results in inadequate produc-
tion of the protein frataxin. The protein frataxin
appears to be essential for the proper functioning of
the mitochondria, the power plant of both neural and
muscle cells. Low levels of frataxin lead to degenera-
tion of both the nerves controlling muscle move-
ments in the arms and legs and the nerve tissue in
the spinal cord. Approximately one in every 50,000
people in the United States has Friedreich’s ataxia.
In April 2007, we announced that we entered into
an exclusive commercial license with The Scripps
Research Institute for intellectual property covering
compounds which may have utility in treating
Friedreich’s ataxia. Friedreich’s ataxia is an inherited
neurodegenerative disease in which low levels of
the protein frataxin result in progressive damage to
the nervous system and loss of muscle function.
Research in tissues derived from patients as well
as in mice indicates that the licensed compounds
increase production of the protein frataxin, which
suggests potential utility of these compounds in
slowing or stopping progression of the disease. There
is currently no treatment for Friedreich’s ataxia.
Data supporting the ability of the licensed com-
pounds to increase production of the protein frataxin
was published in Nature Chemical Biology (August
20, 2006 ). This research was lead by Dr. Joel
Gottesfeld, professor of molecular biology at The
Scripps Research Institute, and supported in part by
the Friedreich’s Ataxia Research Alliance (FARA).
These compounds are the only ones to date that
have demonstrated utility in increasing both the level
of the frataxin protein in tissue samples from patients
with Friedreich’s ataxia as well as frataxin gene activ-
ity in animal models. Preliminary data also suggests
that these compounds may have utility in treating
other disorders such as Spinal Muscular Atrophy and
Huntington’s disease.
Repligen’s Business Strategy
Our business strategy is to maintain full commercial
rights to our product candidates through “proof
of principle” clinical studies after which we may
seek corporate partners for further development and
marketing. We partially fund the development of our
proprietary therapeutic product candidates with the
profits derived from the sales of our commercial
products. This will enable us to independently
advance our product candidates while reducing our
financial risks.
2007 ANNUAL REPORT
F.5
F.6
BUSINESS (continued)
Sales and Marketing
We sell our Protein A products primarily through
value-added resellers including GEHC and Applied
Biosystems, Inc., as well as through distributors
in certain foreign markets. We market SecreFlo®
directly to gastroenterologists in the United States.
Significant Customers and
Geographic Reporting
Customers for our Protein A products include chro-
matography companies, diagnostics companies,
biopharmaceutical companies and laborator y
researchers. During fiscal years 2007 and 2006, the
customers that accounted for more than 10% of our
total revenue were GEHC and Applied Biosystems,
Inc. During fiscal year 2005, the customers that
accounted for more than 10% of our total revenue
were GEHC, Applied Biosystems, Inc. and Cardinal
Healthcare.
Of our fiscal 2007 product revenue, 47% is attrib-
utable to U.S. customers and 53% is attributable to
foreign customers, of which 72% is attributable
to two customers. Of our fiscal 2006 revenue, 48%
is attributable to U.S. customers and 52% is attribut-
able to foreign customers, of which 75% is attrib-
utable to two customers. Of our fiscal 2005 revenue,
43% is attributable to U.S. customers and 56% is
attributable to foreign customers, of which 77%
is attributable to three customers.
Employees
As of June 6, 2007, we had 45 employees. Of those
employees, 32 were engaged in research, develop-
ment and manufacturing and 13 in administrative and
marketing functions. Sixteen of our employees hold
doctorates or other advanced degrees. Each of our
employees has signed a confidentiality agreement.
None of our employees are covered by collective
bargaining agreements.
Patents, Licenses and Proprietary Rights
Our policy is to seek patent protection for our thera-
peutic product candidates. We pursue patent protec-
tion in the United States and file corresponding
patent applications in relevant foreign jurisdictions.
We believe that patents are an important element in
the protection of our competitive and proprietary
position, but other elements, including trade secrets,
orphan drug status and know-how, may also be
important. We own or have exclusive rights to more
than 15 issued U.S. patents and corresponding for-
eign equivalents. The terms of such patents expire at
various times between 2009 and 2021. No patent
material to our business expires before 2009. In addi-
tion, we have rights to more than 20 U.S. pending
patent applications and corresponding foreign appli-
cations. The invalidation of key patents owned or
licensed by us or the failure of patents to issue on
pending patent applications could create increased
competition, with potential adverse effects on our
business prospects. For each of our license agree-
ments where we license the rights to patents or pat-
ent applications, the license will terminate on the day
that the last to expire patent covered by each such
license agreement expires.
We also rely upon trade secret protection for our
confidential and proprietary information. Our policy
is to require each of our employees, consultants,
business partners and significant scientific collabo-
rators to execute confidentiality agreements upon
the commencement of an employment, consulting
or business relationship with us. These agreements
generally provide that all confidential information
developed or made known to the individual during
the course of the individual’s relationship with us
is to be kept confidential and not disclosed to third
parties except in specific circumstances. In the case
of employees and consultants, the agreements gen-
erally provide that all inventions conceived by the
individual in the course of rendering services to
Repligen shall be our exclusive property.
CTLA4-Ig
We are the exclusive licensee of all CTL A4 -Ig
patent rights owned by the University of Michigan
(“Michigan”). In February 2004, U.S. Patent No.
6,685,941 (“the ‘941 patent”) issued, to which we
own the exclusive rights through license agreements
with Michigan and the U.S. Navy. The ‘941 patent
has claims that cover the use of CTLA4-Ig to treat
rheumatoid arthritis, multiple sclerosis and certain
other autoimmune disorders and is assigned to the
University of Michigan and the U.S. Navy. The ‘941
patent expires in 2021.
Uridine
In November 2000 and December 2000, Repligen
entered into two license agreements (the “UCSD
Uridine License Agreements”) with the University of
California, San Diego (“UCSD”) for certain patent
applications pertaining to the use of uridine and uri-
dine derivatives for the treatment of mitochondrial
disease and purine autism. On June 21, 2001, Pro-
Neuron, Inc. filed a complaint (the “Pro-Neuron
Complaint”) against the Regents of the University
of California (the “Regents”) and Repligen in the
Superior Court of California, County of San Diego
seeking to void the UCSD Uridine License Agree-
ment relating to treatment of mitochondrial disease
entered into between Repligen and the UCSD. Pro-
Neuron, Inc. subsequently amended the complaint
to include the UCSD Uridine License Agreement
related to purine autism and claims for misappropria-
tion of trade secrets.
REPLIGEN CORPORATION
BUSINESS (continued)
In June 2003, Repligen agreed to restructure the
UCSD License Agreements to exclude the field of
acylated pyrimidines, including triacetyluridine.
In April 2004, a U.S. patent was issued to Repligen
and University of California, which claims methods
of treating certain developmental disorders, includ-
ing certain forms of autism, with uridine compo-
sitions which expires in October 2020. Foreign
equivalents of this patent are pending. A patent with
similar claims has recently issued in Australia.
Protein A
We own a U.S. patent covering recombinant Protein
A, which expires in September 2009, as well as sig-
nificant know-how in the manufacture of high-purity
Protein A. We also own a U.S. patent covering modi-
fied forms of Protein A, which was non-exclusively
licensed to Amersham Biosciences (now GEHC) in
1998 as part of a ten-year agreement, which was
amended and extended in 2005 until 2010, covering
the supply of Protein A to GEHC.
In addition to its utility in monoclonal antibody manu-
facturing, Protein A may also be useful in human
therapy based on its activity as a B- cell toxin.
Repligen has exclusively licensed rights from UCSD
to a U.S. patent application which claims a variety of
potential therapeutic uses of Protein A. Foreign equiv-
alents of this patent application are also pending.
Legal Proceedings
ImClone Systems
In July 2006, Repligen reported that the United
States District Court for the District of Massachu-
setts issued a Summary Judgment ruling in favor
of Repligen and the Massachusetts Institute of
Technology (“MIT”) and rejected ImClone Systems
Incorporated’s (“ImClone”) defense of patent exhaus-
tion in the ongoing patent infringement lawsuit over
the production of Erbitux ®. In their complaint,
Repligen and MIT allege that ImClone’s production
of Erbitux® infringes U.S. patent 4,663,281 which
covers certain genetic elements that increase pro-
tein production in a mammalian cell. This patent is
assigned to MIT and exclusively licensed to Repligen.
ImClone had previously reported that it produced
approximately $1 billion worth of Erbitux® prior to the
expiration of the patent-in-suit in 2004 and that
Bristol-Myers Squibb, ImClone’s commercial partner,
has paid ImClone $900 million in up-front and mile-
stone payments as well as a 39% royalty on the net
sales of Erbitux® in the United States.
Repligen and MIT allege that the cell line that
ImClone uses to produce Erbitux® employs key tech-
nology that is claimed in the patent-in-suit. Repligen
and MIT also allege that the cell line was created
under contract for the National Cancer Institute
(“NCI”) by a predecessor to Repligen and subse-
quently transferred from the NCI to ImClone for use
in research and development only. In its ruling, the
Court found that neither the transfer to the NCI by
Repligen’s predecessor nor the subsequent transfer
to ImClone by the NCI exhausted the proprietary
rights of Repligen and MIT. The Court’s ruling has
eliminated these arguments as a potential defense
for ImClone at trial. Repligen and MIT intend to seek
damages adequate to compensate Repligen and MIT
for ImClone’s unlicensed use of the patented tech-
nology and a multiplier of any such damage award
based on ImClone’s willful infringement. The out-
come of this case is undeterminable at this time.
Bristol-Myers Squibb Company (“Bristol”)
In January 2006, Repligen Corporation and the
University of Michigan jointly filed a complaint
against Bristol in the United States District Court
for the Eastern District of Texas for infringement of
U.S. Patent No. 6,685,941 (“the ‘941 patent”) for
the commercial sale of Orencia®. The ‘941 patent,
entitled “Methods of Treating Autoimmune Disease
via CTLA4-Ig,” covers methods of using CTLA4-Ig
to treat rheumatoid arthritis, as well as other thera-
peutic methods. Repligen has exclusive rights to this
patent from its owners, the University of Michigan
and the U.S. Navy. In February 2006, Bristol answered
the complaint and counterclaimed seeking a declara-
tory judgment that the ‘941 patent is invalid and
unenforceable and that Bristol does not infringe the
patent. On November 16, 2006, the Court held a
scheduling conference. Jury selection for the trial in
this matter is scheduled to commence on April 7,
2008. The outcome of this case is undeterminable at
this time.
Other
From time to time, we may be subject to other legal
proceedings and claims in the ordinary course of
business. We are not currently aware of any such
proceedings or claims that we believe will have,
individually or in the aggregate, a material adverse
effect on our business, financial condition or results
of operations.
F.7
2007 ANNUAL REPORT
F.8
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This annual report contains forward-looking state-
ments which are made pursuant to the safe harbor
provisions of Section 27A of the Securities Act of
1933, and Section 21E of the Securities Exchange
Act of 1934. The forward-looking statements in this
annual report do not constitute guarantees of future
performance. Investors are cautioned that statements
in this annual report that are not strictly historical
statements, including, without limitation, statements
regarding current or future financial performance,
potential impairment of future earnings, manage-
ment’s strategy, plans and objectives for future oper-
ations and product candidate acquisition, clinical trials
and results, litigation strategy, product research and
development, research and development expendi-
tures, intellectual property, development and manu-
facturing plans, availability of materials and product
and adequacy of capital resources and financing
plans constitute forward-looking statements. Such
forward-looking statements are subject to a number
of risks and uncertainties that could cause actual
results to differ materially from those anticipated,
including, without limitation, the risks identified under
the caption “Risk Factors” and other risks detailed in
our Annual Report on Form 10-K and our other filings
with the Securities and Exchange Commission. We
assume no obligation to update any forward-looking
information contained in this annual report.
Overview
We are a biopharmaceutical company focused on
the development of novel therapeutics for diseases
that affect the central nervous system. A number
of drug development programs are currently being
conducted to evaluate our drug candidates in dis-
eases such as bipolar disorder and neurodegenera-
tion. In addition, we sell two commercial products,
Protein A for monoclonal antibody purification and
SecreFlo® for assessment of pancreatic disorders. In
fiscal 2007, we experienced growth in sales and
profits from our commercial products business. Our
business strategy is to deploy the profits from our
current commercial products and any revenue that
we may receive from our patents to enable us to
invest in the development of our product candidates
in the treatment area of neurological diseases while
reducing our financial risk.
Critical Accounting Policies and Estimates
While our significant accounting polices are more
fully described in notes to our financial statements,
we have identified the policies and estimates below
as critical to our business operations and the under-
standing of our results of operations. The impact
and any associated risks related to these policies on
our business operations is discussed throughout
“Management’s Discussion and Analysis of Finan-
cial Condition” and “Results of Operations” where
such policies affect our reported and expected finan-
cial results.
Revenue Recognition
We apply Staff Accounting Bulletin No. 104, “Rev-
enue Recognition” (“SAB No. 104”) to our revenue
arrangements. We generate product revenues from
the sale of our Protein A products to customers in
the pharmaceutical and process chromatography
industries and from the sale of SecreFlo® to hospital-
based gastroenterologists. In accordance with SAB
No. 104, we recognize revenue related to product
sales upon delivery of the product to the customer
as long as there is persuasive evidence of an arrange-
ment, the sales price is fixed or determinable and
collection of the related receivable is reasonably
assured. Determination of whether these criteria
have been met are based on management’s judg-
ments primarily regarding the fixed nature of the
fee charged for product delivered, and the collect-
ibility of those fees. We have a few longstanding
customers who comprise the majority of our revenue
and have excellent payment history. We have had
no significant write-offs of uncollectible invoices
in the periods presented. Should changes in condi-
tions cause management to determine that these
criteria are not met for certain future transactions,
revenue recognized for any reporting period could be
adversely affected.
At the time of sale, we also evaluate the need to
accrue for warranty and sales returns. The supply
agreements we have with our customers and related
purchase orders identify the terms and conditions of
each sale and the price of the goods ordered. Due
to the nature of our sales arrangements, inventory
produced for sale is tested for quality specifications
prior to shipment. Since the product is manufactured
to order and in compliance with required specifica-
tions prior to shipment, the likelihood of sales return,
warranty or other issues is largely diminished. Sales
returns and warranty issues are infrequent and have
had nominal impact on our financial statements his-
torically. Should changes in conditions cause man-
agement to determine that warranty, returns or other
sale-related reserves are necessary for certain future
transactions, revenue recognized for any reporting
period could be adversely affected.
During the fiscal years ended March 31, 2007 and
March 31, 2006, we recognized $ 825,000 and
$310,000, respectively, of revenue from a sponsored
research and development project under an agree-
ment with the Stanley Medical Research Institute
(“SMRI”). Research revenue is recognized on a cost
plus fixed-fee basis when the expense has been
REPLIGEN CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
incurred and services have been performed. Deter-
mination of which costs incurred qualify for reim-
bursement under the terms of our contractual
agreement and the timing of when such costs
were incurred involves the judgment of manage-
ment. Our calculations are based upon the agreed-
upon terms as stated in our arrangement. However,
should our estimated calculations change or be chal-
lenged by SMRI, research revenue may be adjusted
in subsequent periods. Our calculations have not
historically changed or been challenged and we
do not anticipate any subsequent change in our rev-
enue related to this sponsored research and develop-
ment project.
Additionally, during fiscal years 2007 and 2006, the
Company earned and recognized approximately
$175,000 and $72,000, respectively, in royalty reve-
nue from ChiRhoClin. Revenues earned from
ChiRhoClin royalties are recorded in the periods
when they are earned based on royalty reports sent
by ChiRhoClin to the Company.
There have been no material changes to our initial
estimates related to revenue recognition in any
periods presented in the accompanying financial
statements.
Inventories
Inventories relate to our Protein A business. We
value inventory at cost or, if lower, fair market value.
We determine cost using the first-in, first-out
method. We review our inventories at least quarterly
and record a provision for excess and obsolete inven-
tory based on our estimates of expected sales
volume, production capacity and expiration dates of
raw materials, work-in-process and finished goods.
Expected sales volumes are determined based on
supply forecasts provided by our key customers for
the next three to twelve months. We write down
inventory that has become obsolete, inventory that
has a cost basis in excess of its expected net realiz-
able value, and inventory in excess of expected
requirements to cost of goods sold. Manufacturing
of Protein A finished goods is done to order and
tested for quality specifications prior to shipment.
A change in the estimated timing or amount of
demand for our products could result in additional
provisions for excess inventory quantities on hand.
Any significant unanticipated changes in demand or
unexpected quality failures could have a significant
impact on the value of our inventory and reported
operating results. During all periods presented in
the accompanying financial statements, there has
been no material adjustments related to a revised
estimate of inventory valuations.
Accrued Liabilities
We prepare our financial statements in accordance
with accounting principles generally accepted in the
United States. These principles require that we esti-
mate accrued liabilities. This process involves iden-
tifying services, which have been performed on our
behalf, and estimating the level of service performed
and the associated cost incurred for such service
as of each balance sheet date. Examples of esti-
mated accrued expenses include: 1) Fees paid to
our contract manufacturers in conjunction with the
production of clinical materials. These expenses are
normally determined through a contract or purchase
order issued by the Company; 2) Service fees paid
to organizations for their performance in conducting
our clinical trials. These expenses are determined
by contracts in place for those services and com-
munications with project managers on costs which
have been incurred as of each reporting date; and
3) Professional and consulting fees incurred with law
firms, audit and accounting service providers and
other third-party consultants. These expenses are
determined by either requesting those service pro-
viders to estimate unbilled services at each reporting
date for services incurred, or tracking costs incurred
by service providers under fixed-fee arrangements.
We have processes in place to estimate the appro-
priate amounts to record for accrued liabilities,
which principally involve the applicable personnel
reviewing the services provided. In the event that
we do not identify certain costs which have begun to
be incurred or we under- or over-estimate the level
of services performed or the costs of such services,
our reported expenses for that period may be too
low or too high. The date on which certain services
commence, the level of services performed on or
before a given date, and the cost of such services
are often judgmental. We make these judgments
based upon the facts and circumstances known to
us at the date of the financial statements.
A change in the estimated cost or volume of services
provided could result in additional accrued liabilities.
Any significant unanticipated changes in such esti-
mates could have a significant impact on our
accrued liabilities and reported operating results.
There has been no material adjustments to our
accrued liabilities in any of the periods presented in
the accompanying financial statements.
Stock-Based Compensation
Effective April 1, 2006, we adopted the fair value
recognition provisions of Statement of Financial
Accounting Standards No. 123R, “Share-Based
Payment—An Amendment of FASB Statements No.
123 and 95,” or SFAS No. 123R, using the modified
prospective transition method. Under this transition
2007 ANNUAL REPORT
F.9
F.10
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
method, compensation cost recognized in the state-
ment of operations for the year ended March 31,
2007 includes: (a) compensation cost for all share-
based payments granted prior to, but not yet vested
as of April 1, 2006, based on the grant-date fair value
estimated in accordance with the original provisions
of SFAS No. 123 and (b) compensation cost for all
share-based payments granted, modified or settled
subsequent to April 1, 2006, based on the grant-date
fair value estimated in accordance with the provi-
sions of SFAS No. 123R. In accordance with the
modified prospective transition method, results for
prior periods have not been restated.
Effective with the adoption of SFAS No. 123R, we
have elected to use the Black-Scholes option-pricing
model to calculate the fair value of share-based
awards on the grant date.
The expected term of options granted represents the
period of time for which the options are expected to
be outstanding and is derived from our historical
stock option exercise experience and option expira-
tion data. For option grants made subsequent to the
adoption of SFAS No. 123R, the expected life of
stock options granted is based on the simplified
method allowable under SAB No. 107. Accordingly,
the expected term is presumed to be the midpoint
between the vesting date and the end of the con-
tractual term. In addition, for purposes of estimating
the expected term, we have aggregated all individual
option awards into one group as we do not expect
substantial differences in exercise behavior among
its employees. The expected volatility is a measure
of the amount by which our stock price is expected
to fluctuate during the expected term of options
granted. We determined the expected volatility solely
based upon the historical volatility of our Common
Stock over a period commensurate with the option’s
expected term. We do not believe that the future
volatility of our Common Stock over an option’s
expected term is likely to differ significantly from
the past. The risk-free interest rate is the implied
yield available on U.S. Treasury zero-coupon issues
with a remaining term equal to the option’s expected
term on the grant date. We have never declared
or paid any cash dividends on any of our capital
stock and do not expect to do so in the foreseeable
future. Accordingly, we use an expected dividend
yield of zero to calculate the grant-date fair value of
a stock option.
Forfeitures represent only the unvested portion of
a surrendered option. SFAS No. 123R requires for-
feitures to be estimated at the time of grant and
revised, if necessary, in subsequent periods if actual
forfeitures differ from those estimates. Prior to the
adoption of SFAS No. 123R, we accounted for for-
feitures upon occurrence as permitted under SFAS
No. 123. Based on an analysis of historical data,
we have calculated an 8% annual forfeiture rate for
non-director-level employees, a 3% annual forfeiture
rate for director-level employees, and a 0% forfeiture
rate for non-employee members of the Board of
Directors, which we believe is a reasonable assump-
tion to estimate forfeitures. However, the estimation
of forfeitures requires significant judgment, and to
the extent actual results or updated estimates differ
from our current estimates, such amounts will be
recorded as a cumulative adjustment in the period
estimates are revised.
Prior to April 1, 2006, we applied the pro forma dis-
closure requirements under SFAS No. 123 and
accounted for our stock-based employee compensa-
tion plans using the intrinsic value method under the
recognition and measurement provisions of Account-
ing Principles Board Opinion No. 25, “Accounting
for Stock Issued to Employees,” (“APB No. 25”) and
related interpretations. Accordingly, no stock-based
employee compensation cost was recognized in the
statement of operations for the year ended March
31, 2006, as all stock options granted under our
existing stock plans had an exercise price equal to
the market value of the underlying Common Stock
on the date of grant.
For the year ended March 31, 2007, we recorded
stock-based compensation expense of approximately
$ 837,000 for stock options granted under the
Amended and Restated 2001 Repligen Corporation
Stock Plan. Basic and diluted earnings per share
amounts for the year ended March 31, 2007 were
decreased by $0.03, as a result of the adoption of
SFAS No. 123R.
As of March 31, 2007, there was $1,275,000 of total
unrecognized compensation cost related to unvested
share-based awards. This cost is expected to be
recognized over a weighted average remaining requi-
site service period of 2.86 years. The Company
expects approximately 671,000 of unvested out-
standing options to vest over the next five years.
We recognize compensation expense on a straight-
line basis over the requisite service period based
upon options that are ultimately expected to vest,
and accordingly, such compensation expense has
been adjusted by an amount of estimated forfeitures.
Results of Operations
The following discussion of the financial condition
and results of operations should be read in conjunc-
tion with the accompanying financial statements and
the related footnotes thereto.
REPLIGEN CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
Revenues: Total revenues for fiscal 2007, 2006 and 2005 were $14,074,000, $12,911,000 and $9,360,000.
Revenues for the years ending March 31, 2007, 2006 and 2005 were primarily comprised of sales of our
commercial products, Protein A and SecreFlo®. During the fiscal year ended March 31, 2007, 2006 and 2005,
sales of our commercial products were:
Protein A
SecreFlo®
Other product revenue
Product revenue
Year ended March 31
% Change
2007
2006
2005
2007 vs. 2006
2006 vs. 2005
(In thousands, except percentages)
$ 11,127
1,947
—
$ 10,540
1,989
—
$ 7,134
2,189
37
6%
(2)%
$ 13,074
$ 12,529
$ 9,360
4%
48%
(9)%
34%
Substantially all of our products based on recombi-
nant Protein A are sold to customers who incorpo-
rate our manufactured products into their proprietary
antibody purification systems to be sold directly to
the pharmaceutical industry. Monoclonal antibodies
are a well-established class of drug with applications
in rheumatoid arthritis, asthma, Crohn’s disease and
a variety of cancers. Sales of Protein A are therefore
impacted by the timing of large-scale production
orders and on the regulatory approvals for such
antibodies, which may result in significant quarterly
fluctuations.
During fiscal 2007, Protein A sales increased by
$587,000 or 6% over fiscal 2006. We shipped 13%
less volume of Protein A in fiscal 2007 compared to
fiscal 2006. The decrease in volume, however, did
not reduce revenue compared to fiscal 2006, as the
mix of products sold had more favorable pricing
resulting in a 19% positive impact on total revenue.
The Company sells different Protein A products at
different price points. The mix of products sold var-
ies and impacts the fluctuations in total sales reve-
nue from year to year.
During fiscal 2006, Protein A sales increased by
$3,406,000 or 48%, primarily as a result of a rise in
the demand for our Protein A products. The increase
in sales volume of Protein A resulted in an increase
in revenues of 49%. This increase was slightly off-
set by a decrease in the total sales price of those
products, which had an unfavorable impact of 1% on
total revenues.
We anticipate that sales of Protein A will grow in
the future and will continue to be subject to quar-
terly fluctuations due to timing of large-scale produc-
tion orders.
Sales of SecreFlo® decreased $42,000 or 2% in fis-
cal 2007 primarily as a result of direct competition
with ChiRhoClin, our sole supplier of SecreFlo®, and
reduced sales and marketing efforts. Decreases in
sales volume impacted sales by 1% of the prior
year’s total. To remain competitive with ChiRhoClin,
we reduced sales prices, which resulted in an unfa-
vorable impact of 1% on SecreFlo® revenues.
Sales of SecreFlo® decreased $200,000 or 9% in
fiscal 2006 primarily as a result of direct competition
with our sole supplier of SecreFlo®, the reduction of
sales price to remain competitive and as a result of
a reduction in sales and marketing efforts. Compe-
tition with our sole supplier of SecreFlo® decreased
the volume of SecreFlo® vials sold, unfavorably
impacting revenue by 3%. To remain competitive,
we reduced sales prices, which caused an unfavor-
able impact of 6% on SecreFlo® revenues.
The settlement in fiscal 2005 with our sole supplier
of SecreFlo® provides for a certain amount of vials
of product that we can ultimately ship. The last ship-
ment of SecreFlo® to the Company from ChiRhoClin
should be in late calendar year 2007 and is expected
to allow us to fill sales orders into fiscal year 2009.
We expect SecreFlo® revenues will decline by one
third in fiscal 2008 as we continue to reduce sales
and marketing efforts and focus our sales efforts on
key customers.
During the fiscal years 2007 and 2006, we recog-
nized $825,000 and $310,000, respectively, of reve-
nue from a sponsored research and development
project under an agreement with the Stanley Medical
Research Institute. Research revenue is recognized
for costs plus fixed-fee contracts as costs are
incurred. Additionally, during fiscal years 2007 and
2006, we earned and recognized approximately
$175,000 and $72,000, respectively, in royalty reve-
nue from ChiRhoClin. We expect that total research
and license revenues will decline moderately in fis-
cal 2008.
F.11
2007 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
Costs and Operating Expenses: Total costs and operating expenses for fiscal 2007, 2006 and 2005 were
approximately $15,899,000, $14,131,000 and $13,522,000, respectively.
Costs and operating expenses:
Cost of product revenue
Research and development
Selling, general and administrative
Total operating expenses
Year ended March 31
% Change
2007
2006
2005
2007 vs. 2006
2006 vs. 2005
$ 3,615
5,924
6,360
$ 3,551
5,163
5,417
$ 3,888
5,037
4,597
$ 15,899
$ 14,131
$ 13,522
2%
15%
17%
13%
(9)%
3%
18%
5%
The increase in cost of product revenue of $64,000
or 2% in fiscal 2007 is attributable to several factors.
These include an increase of $163,000 in consulting
costs and a $128,000 increase in occupancy and
depreciation costs. Consulting, occupancy and depre-
ciation costs increased due to the costs associated
with implementation of our fermentation facility in
fiscal 2007, as well as spending to improve our qual-
ity and redundancy systems to meet customer
expectations. Additionally, we incurred $26,000 in
stock-based compensation expense pursuant to the
adoption of SFAS No. 123R and had an increase in
labor costs of $147,000 compared to fiscal 2006.
These increases were offset by a decrease in Protein
A material costs of $267,000 related to lower vol-
ume of Protein A production in fiscal 2007 compared
to fiscal 2006 and lower costs of $39,000 related to
SecreFlo® sales.
The decrease in cost of product revenue of $337,000
or 9% in fiscal 2006 is attributable to a decrease in
royalty and amortization fees of $1,236,000 associ-
ated with SecreFlo®, partially offset by an increase of
$688,000 in direct materials and increased person-
nel costs of $189,000. This reduction in SecreFlo®
related expenses is due to the settlement agreement
in May of 2005 with ChiRhoClin. The increase in
direct material and personnel costs is a result of
growth in production volume and a small increase
in the number of employees in the manufacturing
department to support the 49% increase in volume
of Protein A.
Research and development expenses for fiscal 2007,
2006 and 2005 were approximately $ 5,924,000
$5,163,000 and $5,037,000, respectively. Research
and development costs primarily include costs of
internal personnel, external research collaborations,
clinical trials and the costs associated with the man-
ufacturing and testing of clinical materials. We cur-
rently have ongoing research and development
programs that support our product candidates of
secretin and uridine. In addition, we are involved
with a number of early stage programs that may or
may not be further developed. Due to the small size
of the Company and the fact that these various
programs share personnel and fixed costs such as
facility costs, depreciation, and supplies, we do not
track our expenses by program.
Each of our research and development programs is
subject to risks and uncertainties, including the
requirement to seek regulatory approvals that are
outside of our control. For example, our clinical trials
may be subject to delays based on our inability to
enroll patients at the rate that we expect to meet
the schedule for our planned clinical trials. Moreover,
the product candidates identified in these research
programs, particularly in our early stage programs,
must overcome significant technological, manufac-
turing and marketing challenges before they can be
successfully commercialized. For example, results
from our preclinical animal models may not be repli-
cated in our clinical trials with humans. As a result
of these risks and uncertainties, we are unable to
predict with any certainty the period in which mate-
rial net cash inflows from such projects could be
expected to commence or the completion date of
these programs.
These risks and uncertainties also prevent us from
estimating with any certainty the specific timing and
future costs of our research and development pro-
grams, although historical trends within the industry
suggest that expenses tend to increase in later
stages of development. Collaborations with com-
mercial vendors and academic researchers accounted
for 40%, 36% and 37% of our research and develop-
ment expenses in the fiscal years ended March 31,
2007, 2006 and 2005, respectively. The outsourcing
of such services provides us flexibility to discontinue
or increase spending depending on the success of
our research and development programs.
F.12
REPLIGEN CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
Research and development expenses increased by
$761,000 or 15% during fiscal 2007. This increase is
largely attributable to higher clinical trial expenses of
$959,000, as the Company enrolled the majority of
the patients in our two clinical trial programs for
Uridine for bipolar disorder and secretin for diag-
nostic imaging. Additionally, there were increased
personnel expenses of $66,000 due to slightly higher
headcount and the Company incurred stock-based
compensation expense pursuant to the adoption of
SFAS No. 123R in fiscal 2007 of $229,000. These
increases were offset by reductions in external
research expenses of $465,000. This was due to a
reduction in activities related to secretin drug manu-
facturing compared to fiscal 2006.
Research and development expenses increased by
$126,000 or 3% during fiscal 2006. This increase is
largely attributable to higher clinical trial expenses of
$192,000 as the Company had two clinical trial pro-
grams in fiscal 2006 for Uridine for bipolar disorder
and secretin for diagnostic imaging that exceeded
the clinical trial programs in fiscal 2005 which pri-
marily consisted of the secretin for schizophrenia
trial. There were increased personnel expenses of
$124,000 due to the addition of one clinical staff per-
son to support the increase in clinical trials and
increased license expenses of $59,000 due to a new
license with another company for research materials
for future clinical development. These increased
expenses were offset by decreased expenses asso-
ciated with our external research of $222,000 due to
decreased non-recurring pharmacology studies on
two of our research compounds. Clinical material
expenses were relatively unchanged from fiscal
2005 to fiscal 2006.
Future research and development expenses are
dependent on a number of variables, including the
cost and design of clinical trials and external costs
such as manufacturing of clinical materials. We
expect our research and development expenses in
fiscal 2008 to increase due to clinical trial expenses
as the Company continues studies for secretin for
diagnostic imaging, continues drug manufacturing
activities for secretin and begins the Friedreich’s
ataxia research and development program which
was recently licensed by the Company. Additionally,
there may be further increases in expenses if we
acquire additional product candidates.
Selling, general and administrative expenses (“SG&A”)
include the associated costs with selling our com-
mercial products and costs required to support our
research and development efforts including legal,
accounting, patent, shareholder services and other
administrative functions. In addition, SG&A expenses
have historically included costs associated with vari-
ous litigation matters.
During fiscal 2007, SG&A costs increased by approx-
imately $943,000 or 17%. This increase was mainly
the result of the stock-based compensation expense
recorded pursuant to the adoption of SFAS No.
123R of $582,000 and personnel expenses which
increased by $287,000 due to compensation and
benefit increases. Investor relations expenses also
increased $78,000 due to expanded outreach to
the investment community. Legal expenses were
consistent with fiscal 2006 as we continue to pros-
ecute patent infringement lawsuits against Bristol
and ImClone.
During fiscal 2006, SG&A costs increased by approx-
imately $820,000 or 18%. This increase was partly
the result of increased personnel expenses of
$291,000 due to the addition of two senior manag-
ers to support our growing business. Additionally,
professional expenses increased $271,000 related
to recruiting expenses for the new senior manage-
ment and increased external investor relations con-
sulting for the Company to expand awareness in the
investor community. Legal expenses increased by
$176,000 due to the Company filing suit against
Bristol for patent infringement and continued
expenses supporting the patent infringement suit
against ImClone.
We expect SG&A expenses to increase in fiscal
2008 due to anticipated increases in litigation
expenses for the Bristol and ImClone cases com-
bined with higher headcount and the related person-
nel expenses.
Investment Income: Investment income includes
income earned on invested cash balances. Invest-
ment income for fiscal 2007, 2006 and 2005 was
approximately $948,000, $750,000 and $428,000,
respectively. The increase of $198,000 or 21% is
attributable to higher interest rates. The increase of
$322,000 or 75% in fiscal 2006 is attributable to
higher interest rates compared to fiscal 2005. We
expect interest income to vary based on changes
in the amount of funds invested and fluctuation of
interest rates.
Other Income: During the year ended March 31,
2006, Repligen entered into a Settlement Agree-
ment with ChiRhoClin, in full settlement of their
arbitration proceedings. As a result of the settle-
ment, we determined that we were not required to
pay approximately $1,170,000 of previously accrued
but unremitted royalties to ChiRhoClin related to
SecreFlo ® sales from February 2004 to March
2005. This amount, which was accrued at March 31,
2005, was reversed at the time of settlement and
is recorded as other income in the fiscal year ended
March 31, 2006.
2007 ANNUAL REPORT
F.13
F.14
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
Liquidity and Capital Resources
We have financed our operations primarily through
sales of equity securities and revenues derived from
product sales and grants. Our revenue for the fore-
seeable future will be limited to our product revenue
related to Protein A and SecreFlo®. Revenues derived
from the sales of SecreFlo™ vials are expected only
through calendar year 2009. Given the uncertainties
related to pharmaceutical product development, we
are currently unable to reliably estimate when, if
ever, our therapeutic product candidates or our pat-
ents will generate revenue and cash flows.
At March 31, 2007, we had cash and marketable
securities of $22,627,000 compared to $23,408,000
at March 31, 2006. Deposits for leased office space
of $200,000 is classified as restricted cash and is
not included in cash and marketable securities total
for either 2007 or 2006.
Cash Flows:
Cash provided by (used in)
Operating activities
Investing activities
Financing activities
Operating Activities: In fiscal 2007, our operating
activities provided cash of $405,000 which reflects a
net loss of approximately $889,000 which includes
non-cash charges totaling approximately $1,376,000
including depreciation, amortization and stock-based
compensation charges. The remaining cash flow
from operations resulted from favorable changes in
various working capital accounts.
In fiscal 2006, our operating activities provided cash
of $415,000 as a result of our net profit of $697,000
and non-cash charges such as depreciation, amor-
tization and stock compensation charges. Sources
of cash included a decrease in accounts receivable
of approximately $176,000 due to improved cash
collections and a reduction in prepaid expenses of
approximately $134,000. Uses of cash included an
increase in inventories of approximately $832,000
which was a result of purchases related to a man-
ufacturing process conversion and a decrease in
accrued liabilities of approximately $328,000.
Year ended March 31,
2007
Increase/
(Decrease)
2006
Increase/
(Decrease)
2005
$ 405
1,775
118
$ (10)
311
(215)
(In thousands)
$ 415
1,464
333
$1,528
1,119
307
$ (1,113)
345
26
Investing Activities: In fiscal 2007, investing activi-
ties included capital spending of $1,327,000 mainly
related to the new fermentation facility in Waltham,
Massachusetts. In fiscal 2006, our purchases of prop-
erty, plant and equipment were $877,000 of which
$142,000 was financed through capital leases. Pur-
chases and redemptions of marketable securities
account for the remainder of the fluctuation during
fiscal 2007 and fiscal 2006. We generally place our
marketable security investments in high quality credit
instruments as specified in our investment policy
guidelines.
Financing Activities: In fiscal 2007, exercises of
stock options provided cash proceeds of $158,000.
In fiscal 2006, exercises of stock options provided
cash proceeds of $340,000.
Off-Balance Sheet Arrangements: We do not have
any special purpose entities or off-balance sheet
financing arrangements.
Contractual Obligations: As of March 31, 2007, we had the following fixed obligations and commitments:
Operating lease obligations
Capital lease obligations (1)
Purchase obligations (2)
Contractual obligations(3)
Total
Payments Due By Period
Total
Less than
1 Year
1–3
Years
3–5
Years
More than
5 Years
$ 2,211
125
298
324
$ 2,958
(In thousands)
$ 928
85
—
104
$834
—
—
96
$ 1,117
$930
$449
40
298
99
$886
$ —
—
—
25
$25
(1) The above amounts represent principal payments only while principal and interest are payable through a fixed monthly payment of
approximately $4,000 and a fixed annual payment of $52,000.
(2) This amount represents minimum commitments due under a third-party manufacturing agreement.
(3) These amounts include payments for license, supply and consulting agreements.
REPLIGEN CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
Capital Requirements: Our future capital require-
ments will depend on many factors, including the
following:
• the success of our clinical studies;
• the scope of and progress made in our research
and development activities;
• our ability to acquire additional product candidates;
• the success of any proposed financing efforts;
and
• the ability to sustain sales and profits of our com-
mercial products.
Absent an acquisition of another product candidate,
we believe our current cash balances are adequate
to meet our cash needs for at least the next twenty-
four months. We expect to incur an increased level
of expense in fiscal 2008 compared to those incurred
in fiscal 2007. This is due to anticipated increases in
clinical study expenses and legal fees for litigation
in process currently, as well as increased personnel
expenses. Our future capital requirements include,
but are not limited to, continued investment in our
research and development programs, capital expen-
ditures primarily associated with purchases of equip-
ment and continued investment in our intellectual
property portfolio.
We plan to continue to invest in key research and
development activities. We continue to seek to
acquire such potential assets that may offer us the
best opportunity to create value for our sharehold-
ers. In order to acquire such assets, we may need
to seek additional financing to fund these invest-
ments. This may require the issuance or sale of addi-
tional equity or debt securities. The sale of additional
equity may result in additional dilution to our stock-
holders. Should we need to secure additional financ-
ing to acquire a product, fund future investment in
research and development, or meet our future liquid-
ity 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.
Net Operating Loss Carryforwards: At March 31,
2007, we had net operating loss carryforwards of
approximately $100,130,000 and research and
development credit carryforwards of approximately
$5,270,000 to reduce future federal income taxes,
if any. The net operating loss and tax credit carry-
forwards have expired and will continue to expire
at various dates, beginning in fiscal year 2008, if
not used. Net operating loss carryforwards and avail-
able 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. We
did not record a tax provision in the fiscal year 2007
statement of operations as we did not generate tax-
able income.
Effects of Inflation: Our assets are primarily mone-
tary, consisting of cash, cash equivalents and mar-
ketable securities. Because of their liquidity, these
assets are not directly affected by inflation. Since
we intend to retain and continue to use our equip-
ment, furniture and fixtures and leasehold improve-
ments, we believe that the incremental inflation
related to replacement costs of such items will not
materially affect our operations. However, the rate
of inflation affects our expenses, such as those for
employee compensation and contract services,
which could increase our level of expenses and the
rate at which we use our resources.
Recent Accounting Pronouncements
Accounting for Uncertainty in Income Taxes: In
June 2006, the Financial Accounting Standards
Board (“FASB”) issued FASB Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes—an
Interpretation of FASB Statement No. 109” (the
“Interpretation”). The Interpretation clarifies the
accounting for uncertainty in income taxes recog-
nized in an enterprise’s financial statements in accord-
ance with FASB Statement No. 109, “Accounting for
Income Taxes.” The Interpretation prescribes a rec-
ognition threshold and measurement attribute for the
financial statement recognition and measurement of
a tax position taken or expected to be taken in a tax
return. This Interpretation also provides guidance on
derecognition, classification, interest and penalties,
accounting in interim periods, disclosure and transi-
tion. The Interpretation is effective for fiscal years
beginning after December 15, 2006. The Company
has not yet completed its evaluation of the
Interpretation, but does not currently believe that
adoption will have a material impact on its results of
operations, financial position or cash flows.
Fair Value Measurements: In September 2006, the
FASB issued FASB Statement No. 157, “Fair Value
Measurements” (“SFAS No. 157”). SFAS No. 157
establishes a common definition for fair value, cre-
ates a framework for measuring fair value, and
expands disclosure requirements about such fair
value measurements. SFAS No. 157 is effective for
our first quarter of 2008. Management does not cur-
rently believe that adoption will have a material
impact on its results of operations, financial position
or cash flows.
Fair Value Option for Financial Assets and Finan-
cial Liabilities: In February 2007, the FASB issued
FASB Statement No. 159, “The Fair Value Option
for Financial Assets and Financial Liabilities” (“SFAS
No. 159”). SFAS No. 159 provides companies with
2007 ANNUAL REPORT
F.15
F.16
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
an option to report selected financial assets and
liabilities at fair value. The objective of SFAS No. 159
is to reduce both complexity in accounting for finan-
cial instruments and the volatility in earnings caused
by measuring related assets and liabilities differ-
ently. Generally accepted accounting principles have
required different measurement attributes for dif-
ferent assets and liabilities that can create artificial
volatility in earnings. FASB has indicated it believes
that SFAS No. 159 helps to mitigate this type of
accounting-induced volatility by enabling companies
to report related assets and liabilities at fair value,
which would likely reduce the need for companies
to comply with detailed rules for hedge accounting.
SFAS No. 159 also establishes presentation and dis-
closure requirements designed to facilitate compari-
sons between companies that choose different
measurement attributes for similar types of assets
and liabilities. For example, SFAS No. 159 requires
companies to provide additional information that
will help investors and other users of financial state-
ments to more easily understand the effect of the
company’s choice to use fair value on its earnings.
It also requires entities to display the fair value of
those assets and liabilities for which the company
has chosen to use fair value on the face of the bal-
ance sheet. SFAS No. 159 does not eliminate disclo-
sure requirements included in other accounting
standards, including requirements for disclosures
about fair value measurements included in FASB
Statement No. 157, “Fair Value Measurements”
(“SFAS No. 157”), and FASB Statement No. 107,
“Disclosures about Fair Value of Financial
Instruments” (“SFAS No. 107”). SFAS No. 159 is
effective as of the beginning of a company’s first fis-
cal year beginning after November 15, 2007. Early
adoption is permitted as of the beginning of the pre-
vious fiscal year provided that the company makes
that choice in the first 120 days of that fiscal year and
also elects to apply the provisions of SFAS No. 157.
The Company has not yet completed its evaluation
of the Interpretation, but does not currently believe
that adoption will have a material impact on its results
of operations, financial position or cash flows.
Quantitative and Qualitative Disclosures about
Market Risk
Interest Rate Risk: We have investments in com-
mercial paper, U.S. Government and agency secu-
rities as well as corporate bonds and other debt
securities. As a result, we are exposed to potential
loss from market risks that may occur as a result of
changes in interest rates, changes in credit quality of
the issuer or otherwise.
We generally place our marketable security invest-
ments in high quality credit instruments, as specified
in our investment policy guidelines. A hypothetical
100 basis point decrease in interest rates would
result in an approximate $55,000 decrease in the fair
value of our investments as of March 31, 2007.
However, the conservative nature of our investments
mitigates our interest rate exposure, and our invest-
ment policy limits the amount of our credit exposure
to any one issue, issuer (with the exception of U.S.
Treasury obligations) and type of instrument. We
do not expect any material loss from our market-
able security investments due to interest rate fluctu-
ations and therefore believe that our potential interest
rate exposure is limited. We intend to hold these
investments to maturity, in accordance with our busi-
ness plans.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock is traded on the Nasdaq Global
Market under the symbol “RGEN.” The following
table sets forth for the periods indicated the high and
low closing prices for the common stock as reported
by Nasdaq.
Fiscal Year
2007
Fiscal Year
2006
High
Low
High
Low
$3.82
$3.40
$3.41
$3.30
$2.58
$2.27
$2.70
$2.80
$2.45
$4.00
$4.00
$4.99
$1.67
$1.99
$2.80
$3.43
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Stockholders and Dividends
As of June 1, 2007, there were approximately 790
stockholders of record of our common stock. We
have not paid any dividends since our inception and
do not intend to pay any dividends on our common
stock in the foreseeable future. We anticipate that we
will retain all earnings, if any, to support our operations
and our proprietary drug development programs. Any
future determination as to the payment of dividends
will be at the sole discretion of our Board of Directors
and will depend on our financial condition, results of
operations, capital requirements and other factors
our Board of Directors deems relevant.
REPLIGEN CORPORATION
160
140
120
100
80
60
40
20
0
STOCK PRICE PERFORMANCE GRAPH
The following graph compares the yearly percent-
age change in the cumulative total stockholder return
(change in stock price plus reinvested dividends)
on Repligen’s common stock with the cumulative
total return for the Nasdaq Stock Market Index
(U.S.) (the “Nasdaq Composite Index”) and the
Nasdaq Pharmaceutical Stock Index (the “Nasdaq
Pharmaceutical Index”). The comparisons in the graph
are required by the SEC and are not intended to fore-
cast or be indicative of possible future performance of
Repligen’s common stock.
100
124.50
80.93
71.19
108.56
109.31
129.50
119.86
106.60
80.78
98.47
98.64
136.19
110.83
84.24
45.32
$160
140
120
100
80
60
40
20
0
* Assumes $100 invested on March 31, 2002 in each of Repligen
Corporation’s Common Stock, the securities comprising the Nasdaq
Composite Index and the securities comprising the Nasdaq
Pharmaceutical Index.
3/02
3/03
3/04
3/05
3/06
3/07
Repligen Corporation
NASDAQ Composite
NASDAQ Phamarceutical
STATEMENTS OF OPERATIONS
Revenue:
Product revenue
Other revenue
Total revenue
Operating expenses (1):
Cost of product revenue
Research and development
Selling, general and administrative
Total operating expenses
Loss from operations
Investment income
Interest expense
Other income
Net income (loss)
Basic and diluted (loss) earnings per share
Weighted average shares outstanding:
Basic
Diluted
(1) Includes non-cash stock-based compensation as follows:
Cost of product revenue
Research and development
Selling, general and administrative
See accompanying notes.
2007 ANNUAL REPORT
Years ended March 31,
F.17
2007
2006
2005
$ 13,073,894
1,000,345
$ 12,529,404
382,000
$ 9,360,309
—
14,074,239
12,911,404
9,360,309
3,614,837
5,924,439
6,360,292
3,550,861
5,163,098
5,417,339
3,887,802
5,036,766
4,597,085
15,899,568
13,521,653
14,131,298
$ (1,825,329) $ (1,219,894) $ (4,161,344)
427,770
—
750,000
750,156
(3,010)
1,169,608
947,547
(11,481)
—
$
$
(889,263) $
696,860
$ (2,983,574)
(0.03) $
0.02
$
(0.10)
30,379,350
30,125,041
30,061,812
30,379,350
30,690,941
30,061,812
$
$
$
25,655
228,597
582,280
$
$
$
20,650
— $
$
— $
—
23,603
—
BALANCE SHEETS
Assets
Current assets:
Cash and cash equivalents
Marketable securities
Accounts receivable, less reserve of $10,000 for 2007 and 2006
Inventories
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment, at cost:
Leasehold improvements
Equipment
Furniture and fixtures
Less-accumulated depreciation and amortization
Long-term marketable securities
Restricted cash
Total assets
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable
Accrued liabilities
F.18
Total current liabilities
Long-term liabilities
Total liabilities
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized,
no shares issued or outstanding
Common stock, $.01 par value authorized, 40,000,000 shares
outstanding, 30,477,635 shares at March 31, 2007 and
30,377,635 shares at March 31, 2006
Additional paid-in capital
Deferred compensation
Accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity
See accompanying notes.
As of March 31,
2007
2006
$
7,726,505
14,900,840
1,143,694
1,514,571
445,415
$
5,428,477
13,447,600
593,725
1,465,592
575,038
25,731,025
21,510,432
3,212,916
2,353,667
191,356
5,757,939
(2,613,081)
3,144,858
—
200,000
2,475,169
1,769,367
186,874
4,431,410
(2,074,049)
2,357,361
4,531,548
200,000
$ 29,075,883
$ 28,599,341
$
1,161,504
2,175,739
3,337,243
200,342
3,537,585
$
1,066,445
1,869,349
2,935,794
230,518
3,166,312
—
—
304,776
182,916,856
—
(157,683,334)
303,776
181,985,274
(61,950)
(156,794,071)
25,538,298
25,433,029
$ 29,075,883
$ 28,599,341
REPLIGEN CORPORATION
STATEMENTS OF CASH FLOWS
Cash flows from operating activities:
Net (loss) income:
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:
Issuance of common stock for service
Depreciation and amortization
Stock-based compensation expense
Loss on disposal of assets
Bad debt reserve
Changes in assets and liabilities:
Accounts receivable
Inventories
Prepaid expenses and other current assets
Accounts payable
Accrued liabilities
Long-term liabilities
Net cash (used in) provided by operating activities
Cash flows from investing activities:
Purchases of marketable securities
Redemptions of marketable securities
Purchases of property, plant and equipment
Years ended March 31,
2007
2006
2005
$
(889,263) $
696,860
$ (2,983,574)
—
539,032
836,532
—
—
(549,969)
(48,979)
106,827
95,059
346,419
(30,176)
405,482
85,750
398,434
20,650
18,369
(5,000)
175,507
(832,278)
133,906
49,487
(327,805)
1,504
—
756,258
23,603
(20,000)
—
228,017
246,067
(252,633)
302,667
577,203
9,787
415,385
(1,112,605)
$(13,973,896)
17,075,000
(1,326,529)
(11,383,595)
13,583,000
(735,495)
(16,904,423)
17,301,991
(52,658)
Net cash provided by investing activities
1,774,575
1,463,910
344,910
Cash flows from financing activities:
Exercise of stock options
Principal payments under capital lease obligation
Net cash provided by financing activities
158,000
(40,029)
117,971
340,111
(7,609)
332,502
30,501
(4,802)
25,699
F.19
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of period
2,298,028
$ 5,428,477
2,211,796
$ 3,216,681
(741,996)
$ 3,958,677
Cash and cash equivalents, end of period
$ 7,726,505
$ 5,428,477
$ 3,216,681
Supplemental disclosure of noncash activities:
Purchase of Capital Lease Equipment
Reclassification of Deferred Compensation
Recording of Deferred Compensation
Disposal of fully depreciated equipment
See accompanying notes.
$
$
$
$
— $
133,261
$
33,605
61,950
$
— $
— $
82,600
— $
109,339
$
$
—
—
283,505
2007 ANNUAL REPORT
STATEMENTS OF STOCKHOLDERS’ EQUITY
Common Stock
Number of
Shares
Amount
Additional
Paid-in Capital
Deferred
Compen-
sation
Accumulated
Deficit
Stockholders’
Equity
Balance at March 31, 2004 30,036,085 $ 300,361 $ 181,394,602 $ (23,603) $ (154,507,357) $ 27,164,003
Exercise of stock options
Compensation expense
related to issuance of
stock options
Amortization of deferred
compensation
Net loss
58,350
583
29,918
—
—
—
—
30,501
55,125
55,125
— 23,603
—
—
—
(2,983,574)
23,603
(2,983,574)
—
—
—
—
—
—
Balance at March 31, 2005 30,094,435 $ 300,944 $ 181,479,645 $
— $ (157,490,931) $ 24,289,658
Issuance of common stock
for services
Deferred compensation
related to employee
stock options
Amortization of deferred
compensation
Exercise of stock options
Net income
25,000
250
85,500
—
20,000
200
82,600
(82,600)
—
—
—
238,200
—
—
2,382
—
— 20,650
—
—
337,529
—
—
—
696,860
85,750
200
20,650
339,911
696,860
Balance at March 31, 2006 30,377,635 $ 303,776 $ 181,985,274 $ (61,950) $ (156,794,071) $ 25,433,029
Reclassification of deferred
compensation
Share-based compensa-
tion expense
Repurchase and retirement
of treasury stock
Exercise of stock options
Net loss
—
—
—
—
(10,000)
110,000
—
(100)
1,100
—
(61,950)
61,950
836,532
100
156,900
—
—
—
—
—
—
—
—
—
(889,263)
—
836,532
—
158,000
(889,263)
Balance, March 31, 2007
30,477,635 $ 304,776 $ 182,916,856 $
— $ (157,683,334) $ 25,538,298
See accompanying notes.
F.20
REPLIGEN CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. Organization and Nature of Business
Repligen Corporation (“Repligen” or the “Company”)
is a biopharmaceutical company focused on the
development of novel therapeutics for the treatment
of diseases of the central nervous system. A number
of drug development programs are currently being
conducted to evaluate the Company’s naturally
occurring drug candidates in diseases such as bipo-
lar disorder and neurodegeneration. In addition,
Repligen sells two commercial products, Protein A
for monoclonal antibody purification and SecreFlo®
for assessment of pancreatic disorders.
The Company’s business strategy is to deploy the
profits from its commercial products and any reve-
nue that it may receive from its patents to enable the
Company to invest in the development of product
candidates in the treatment area of neuropsychiatric
diseases.
The Company is subject to a number of risks typi-
cally associated with companies in the biotechnol-
ogy industry. Principally those risks are associated
with the Company’s dependence on collaborative
arrangements, development by the Company or its
competitors of new technological innovations,
dependence on key personnel, protection of proprie-
tary technology, compliance with the U.S. Food and
Drug Administration and other governmental regula-
tions and approval requirements, as well as the abil-
ity to grow the Company’s business and obtain
adequate funding to finance this growth.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity
with U.S. 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 state-
ments and the reported amounts of revenues and
expenses during the reporting period. Actual results
could differ from those estimates.
Revenue Recognition
The Company applies Staff Accounting Bulletin No.
104, “Revenue Recognition” (“SAB No. 104”) to its
revenue arrangements.
The Company generates product revenues from the
sale of Protein A products to customers in the phar-
maceutical and process chromatography industries
and from the sale of SecreFlo® to hospital-based
gastroenterologists. In accordance with SAB No.
104, the Company recognizes revenue related to
product sales upon delivery of the product to the
customer as long as there is persuasive evidence of
an arrangement, the sales price is fixed or determin-
able and collection of the related receivable is rea-
sonably assured. Determination of whether these
criteria have been met are based on management’s
judgments primarily regarding the fixed nature of the
fee charged for product delivered, and the collect-
ibility of those fees. The Company has a few long-
standing customers who comprise the majority of
product revenue and have excellent payment history.
The Company has had no significant write-offs of
uncollectible invoices in the periods presented.
Should changes in conditions cause management to
determine that these criteria are not met for certain
future transactions, revenue recognized for any
reporting period could be adversely affected.
At the time of sale, the Company also evaluates the
need to accrue for warranty and sales returns. The
supply agreements the Company has with its cus-
tomers and related purchase orders identify the
terms and conditions of each sale and the price of
the goods ordered. Due to the nature of the sales
arrangements, inventory produced for sale is tested
for quality specifications prior to shipment. Since the
product is manufactured to order and in compliance
with required specifications prior to shipment, the
likelihood of sales return, warranty or other issues is
largely diminished. Sales returns and warranty issues
are infrequent and have had nominal impact on the
Company’s financial statements historically. Should
changes in conditions cause management to deter-
mine that warranty, returns or other sale-related
reserves are necessary for certain future transac-
tions, revenue recognized for any reporting period
could be adversely affected.
During the fiscal year ended March 31, 2007, the
Company recognized $825,000 of revenue from a
sponsored research and development project under
an agreement with the Stanley Medical Research
Institute (“SMRI”). Research revenue is recognized
on a cost plus fixed-fee basis when the expense has
been incurred and services have been performed.
Determination of which costs incurred qualify for
reimbursement under the terms of the contractual
agreement and the timing of when such costs were
incurred involves the judgment of management. The
Company believes its calculations are based upon
the agreed-upon terms as stated in the arrangement.
However, should the estimated calculations change
or be challenged by SMRI, research revenue may be
adjusted in subsequent periods. The calculations
have not historically changed or been challenged and
the Company does not anticipate any subsequent
change in its revenue related to this sponsored
research and development project.
2007 ANNUAL REPORT
F.21
F.22
NOTES TO FINANCIAL STATEMENTS (continued)
Additionally, during fiscal year 2007, the Company
earned and recognized approximately $175,000 in
royalty revenue from ChiRhoClin, Inc. Revenues
earned from ChiRhoClin royalties are recorded in the
periods when they are earned based on royalty
reports sent by ChiRhoClin to the Company.
There have been no material changes to the Com-
pany’s initial estimates related to revenue recogni-
tion in any periods presented in the accompanying
financial statements.
Risks and Uncertainties
The Company evaluates its operations periodically to
determine if any risks and uncertainties exist that
could impact its operations in the near term. The
Company does not believe that there are any signifi-
cant risks which have not already been disclosed in
the financial statements. However, the Company
does rely on a single supplier for SecreFlo® materi-
als. Although alternate sources of supply exist for
these items, loss of certain suppliers could tempo-
rarily disrupt operations. The Company attempts to
mitigate these risks by working closely with key sup-
pliers, identifying alternate sources and developing
contingency plans.
Comprehensive Income
The Company applies Statement of Financial Account-
ing Standards (“SFAS”) No. 130, “Reporting Compre-
hensive 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 enter-
prise during a period from transactions and other
events and circumstances from nonowner sources.
The Company’s comprehensive income (loss) is
equal to its reported net income (loss) for all periods
presented.
Cash Equivalents and Marketable Securities
The Company applies SFAS No. 115, “Accounting for
Certain Investments in Debt and Equity Securities.”
At March 31, 2007, the majority of the Company’s
cash equivalents and marketable securities are
classified as held-to-maturity investments as the
Company has the positive intent and ability to hold to
maturity. As a result, these investments are recorded
at amortized cost. Marketable securities are invest-
ments with original maturities of greater than 90
days. Long-term marketable securities are invest-
ment grade securities with maturities of greater than
one year.
At March 31, 2007, marketable securities also include
investment grade auction rate securities, which pro-
vide higher yields than money market and other cash
equivalent investments. Auction rate securities have
long-term underlying maturities, but have interest
rates that are reset every 90 days or less, at which
time the securities can typically be purchased or
sold, which creates a highly liquid market for these
securities. The Company does not intend to hold
these securities to maturity, but rather to use the
securities to provide liquidity as necessary. Auction
rate securities are classified as available-for-sale and
reported at fair value. Due to the reset feature and
their carrying value equaling their fair value, there are
no unrealized gains or losses from these short-term
investments.
Cash equivalents and marketable securities consist of the following at March 31, 2007 and 2006:
Cash and cash equivalents
Marketable securities:
U.S. Government and agency securities
Auction Rate Securities
Corporate and other debt securities
Long-term marketable securities:
U.S. Government and agency securities
Corporate and other debt securities
As of March 31,
Unrealized Holding Loss
Year ended March 31,
2007
2006
2007
2006
$ 7,726,505
$ 5,428,477
$
— $
—
3,460,665
475,000
10,965,175
8,048,129
1,075,000
4,324,471
(8,273)
—
(9,877)
(64,571)
—
—
$ 14,900,840
$ 13,447,600
$ (18,150)
$ (64,571)
—
—
1,900,000
2,631,548
—
—
(25,328)
(38,915)
$
— $ 4,531,548
$
— $ (64,243)
Restricted cash of $200,000 is related to the Company’s facility lease obligation.
Average of remaining maturity of approximately 5 months at March 31, 2007. Assumes auction rate maturity set at date of
next auction.
REPLIGEN CORPORATION
NOTES TO FINANCIAL STATEMENTS (continued)
Fair Value of Financial Instruments
The carrying amounts of the Company’s financial
instruments which represent cash, marketable secu-
rities, and accounts receivable generally approximate
fair value due to the short-term nature of these
instruments.
Concentrations of Credit Risk and
Significant Customers
Financial instruments that subject the Company to
significant concentrations of credit risk primarily con-
sist of cash and cash equivalents, marketable securi-
ties and accounts receivable. The Company’s cash
equivalents and marketable securities are invested in
financial instruments with high credit ratings and by
policy limits the amount of its credit exposure to any
one issue, issuer, (with the exception of U.S. Treasury
obligations) and type of instrument. At March 31,
2007, the Company has no items such as those
associated with foreign exchange contracts, options
contracts or other foreign hedging arrangements.
Concentration of credit risk with respect to accounts
receivable is limited to customers to whom the
Company makes significant sales. The Company
maintains reserves for the potential write-off of
accounts receivable. To date, the Company has not
written off any significant accounts. To control credit
risk, the Company performs regular credit evalua-
tions of its customers’ financial condition.
Revenue from significant customers as a percentage
of the Company’s total revenue is as follows:
Customer A
Customer B
Customer C
Years ended
March 31,
2007
2006
2005
49% 49% 54%
*% 10%
23% 26% 13%
*%
Inventories
Inventories relate to the Company’s Protein A busi-
ness. The Company values inventory at cost or, if
lower, fair market value. Repligen determines cost
using the first-in, first-out method. The Company
reviews its inventories at least quarterly and records
a provision for excess and obsolete inventory based
on its estimates of expected sales volume, produc-
tion capacity and expiration dates of raw materials,
work-in-process and finished goods. Expected sales
volumes are determined based on supply forecasts
provided by key customers for the next three to
twelve months. The Company writes down inven-
tory that has become obsolete, inventory that has a
cost basis in excess of its expected net realizable
value, and inventory in excess of expected require-
ments to cost of goods sold. Manufacturing of
Protein A finished goods is done to order and tested
for quality specifications prior to shipment.
A change in the estimated timing or amount of
demand for our products could result in additional
provisions for excess inventory quantities on hand.
Any significant unanticipated changes in demand or
unexpected quality failures could have a significant
impact on the value of inventory and reported oper-
ating results. During all periods presented in the
accompanying financial statements, there has been
no material adjustments related to a revised estimate
of inventory valuations.
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, 2007 and 2006 consist of
the following:
F.23
As of March 31,
2007
2006
$ 733,112
616,519
164,940
$ 600,948
596,386
268,258
$ 1,514,571
$ 1,465,592
* Represents less than 10% of total revenue for the period.
Significant accounts receivable balances as a per-
centage of the Company’s total trade accounts
receivable balances are as follows:
Raw materials
Work-in-process
Finished goods
Total
Customer A
Customer B
Customer C
Customer D
As of
March 31,
2007
2006
15% 25%
*% 13%
*% 11%
47% 25%
* Did not represent 10% of total accounts receivable at March 31,
2007.
Depreciation and Amortization
Depreciation and amortization are calculated using
the straight-line method over the estimated useful
life of the asset as follows:
Description
Estimated Useful Life
Leasehold improvements
Shorter of term of the lease
or estimated useful life
Equipment
Furniture and fixtures
3–5 years
5 years
2007 ANNUAL REPORT
F.24
NOTES TO FINANCIAL STATEMENTS (continued)
The Company recorded depreciation and amortiza-
tion of property, plant and equipment expense of
$539,032, $398,434 and $363,738 in 2007, 2006
and 2005, respectively. Depreciation of assets under
capital leases is included in depreciation and amor-
tization. The amount of depreciation recorded for
assets under capital lease agreements for fiscal
years 2007, 2006 and 2005 was $41,850, $16,268
and $4,721, respectively.
Earnings Per Share
The Company applies the provisions of Statement of
Financial Accounting Standard (“SFAS”) No. 128,
“Presenting Earnings Per Share.” Basic earnings per
share for the periods ended March 31, 2007, 2006
and 2005 were computed on the basis of the
weighted average number of shares of common
stock outstanding during the period. Diluted earnings
per share is computed on the basis of the weighted
average number of shares of common stock plus the
effect of dilutive potential common shares outstand-
ing during the period using the treasury stock method
in accordance with SFAS No. 128. Dilutive potential
common shares include outstanding stock options.
Basic and diluted weighted average shares outstand-
ing were as follows:
Twelve Months ended March 31,
2007
2006
2005
Weighted aver-
age common
shares
outstanding
Dilutive com-
mon stock
options
Weighted aver-
age common
shares out-
standing,
assuming
dilution
30,379,350
30,125,041
30,061,812
—
565,900
—
30,379,350
30,690,941
30,061,812
Diluted weighted average shares outstanding for
2007 does not include the potential common shares
for stock options because to do so would be anti-
dilutive. Accordingly, basic and diluted net loss per
share is the same. The number of potential common
shares excluded from the calculation of diluted earn-
ings per share during the year ended March 31, 2007
was 2,292,750.
For the year ended March 31, 2006, options to pur-
chase 955,400 shares were excluded from the
calculation of diluted earnings per share because
the exercise prices of the stock options were
greater than or equal to the average price of the
common shares.
Diluted weighted average shares outstanding for
2005 do not include the potential common shares
from warrants and stock options because to do so
would have been antidilutive. Accordingly, basic and
diluted net loss per share is the same. The number
of potential common shares excluded from the cal-
culation of diluted earnings per share during the year
ended March 31, 2005 was 2,166,900.
Segment Reporting
The Company applies SFAS No. 131, “Disclosures
about Segments of an Enterprise and Related Infor-
mation.” 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 geo-
graphic areas. The chief operating decision maker,
or decision-making group, in making decisions how
to allocate resources and assess performance, iden-
tifies operating segments as components of an
enterprise about which separate discrete financial
information is available for evaluation. To date, the
Company has viewed its operations and manages its
business as one operating segment. As a result, the
financial information disclosed herein represents all
of the material financial information related to the
Company’s principal operating segment.
The following table represents the Company’s reve-
nue by geographic area (based on the location of the
customer):
Europe
United States
Other
Total
Year ended March 31,
2007
2006
2005
52% 51% 56%
47% 48% 43%
1% 1% 1%
100% 100% 100%
The following table represents the Company’s prod-
uct revenue by product type:
Year ended March 31,
2007
2006
2005
Protein A
SecreFlo®
Other product revenue
$ 11,127
1,947
—
$ 10,540
1,989
—
$ 7,134
2,189
37
Product revenue
$ 13,074
$ 12,529
$ 9,360
As of March 31, 2007 and 2006, all of the Company’s
assets are located in the United States.
REPLIGEN CORPORATION
NOTES TO FINANCIAL STATEMENTS (continued)
Recent Accounting Pronouncements
Accounting for Uncertainty in Income Taxes: In
June 2006, the Financial Accounting Standards
Board (FASB) issued FASB Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes—an
Interpretation of FASB Statement No. 109” (the
“Interpretation”). The Interpretation clarifies the
accounting for uncertainty in income taxes recog-
nized in an enterprise’s financial statements in accor-
dance with FASB Statement No. 109, “Accounting
for Income Taxes.” The Interpretation prescribes a
recognition threshold and measurement attribute for
the financial statement recognition and measure-
ment of a tax position taken or expected to be taken
in a tax return. This Interpretation also provides guid-
ance on derecognition, classification, interest and
penalties, accounting in interim periods, disclosure
and transition. The Interpretation is effective for fis-
cal years beginning after December 15, 2006. The
Company has not yet completed its evaluation of the
Interpretation, but does not currently believe that
adoption will have a material impact on its results of
operations, financial position or cash flows.
Fair Value Measurements: In September 2006, the
FASB issued FASB Statement No. 157, “Fair Value
Measurements” (“SFAS No. 157”). SFAS No. 157
establishes a common definition for fair value, cre-
ates a framework for measuring fair value, and
expands disclosure requirements about such fair
value measurements. SFAS No. 157 is effective for
our first quarter of 2008. Management does not cur-
rently believe that adoption will have a material
impact on its results of operations, financial position
or cash flows.
Fair Value Option for Financial Assets and Finan-
cial Liabilities: In February 2007, the FASB issued
FASB Statement No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities” (“SFAS No.
159”). SFAS No. 159 provides companies with an
option to report selected financial assets and liabili-
ties at fair value. The objective of SFAS No. 159 is to
reduce both complexity in accounting for financial
instruments and the volatility in earnings caused by
measuring related assets and liabilities differently.
Generally accepted accounting principles have
required different measurement attributes for differ-
ent assets and liabilities that can create artificial vola-
tility in earnings. FASB has indicated it believes that
SFAS No. 159 helps to mitigate this type of account-
ing-induced volatility by enabling companies to report
related assets and liabilities at fair value, which would
likely reduce the need for companies to comply with
detailed rules for hedge accounting. SFAS No. 159
also establishes presentation and disclosure require-
ments designed to facilitate comparisons between
companies that choose different measurement attri-
butes for similar types of assets and liabilities. For
example, SFAS No. 159 requires companies to pro-
vide additional information that will help investors
and other users of financial statements to more
easily understand the effect of the company’s choice
to use fair value on its earnings. It also requires enti-
ties to display the fair value of those assets and liabil-
ities for which the company has chosen to use fair
value on the face of the balance sheet. SFAS No.
159 does not eliminate disclosure requirements
included in other accounting standards, including
requirements for disclosures about fair value mea-
surements included in FASB Statement No. 157,
“Fair Value Measurements” (“SFAS No. 157”), and
FASB Statement No. 107, “Disclosures about Fair
Value of Financial Instruments” (“SFAS No. 107”).
SFAS No. 159 is effective as of the beginning of a
company’s first fiscal year beginning after November
15, 2007. Early adoption is permitted as of the begin-
ning of the previous fiscal year provided that the
company makes that choice in the first 120 days
of that fiscal year and also elects to apply the provi-
sions of SFAS No. 157. The Company has not yet
completed its evaluation of the Interpretation, but
does not currently believe that adoption will have a
material impact on its results of operations, financial
position or cash flows.
Stock-Based Compensation
In December 2004, the Financial Accounting
Standards Board (“FASB”) issued SFAS No. 123R,
“Share-Based Payment—An Amendment of FASB
Statements No. 123 and 95,” (“SFAS No. 123R”),
which requires all companies to measure compensa-
tion cost for all share-based payments, including
employee stock options, at fair value. Generally, the
approach in SFAS No. 123R is similar to the approach
described in SFAS No. 123, “Accounting for Stock-
Based Compensation,” (“SFAS No. 123”). However,
SFAS No. 123R requires all share-based payments to
employees, including grants of employee stock
options, to be recognized in the financial statements
based on their fair value over the requisite service
period. Pro forma disclosure is no longer an alterna-
tive. In March 2005, the SEC issued Staff Accounting
Bulletin (“SAB”) No. 107 (“SAB No. 107”), which
expressed the views of the SEC regarding the interac-
tion between SFAS No. 123R and certain rules and
regulations of the SEC. SAB No. 107 provides guid-
ance related to the valuation of share-based payment
arrangements for public companies, including assump-
tions such as expected volatility and expected term.
2007 ANNUAL REPORT
F.25
NOTES TO FINANCIAL STATEMENTS (continued)
Prior to the adoption of SFAS No. 123R, the Com-
pany applied SFAS No. 123, “Accounting for Stock-
Based Compensation,” amended by SFAS No. 148,
“Accounting for Stock-Based Compensation—Tran-
sition and Disclosure,” which allowed companies
to apply the existing accounting rules under APB
Opinion No. 25. Pursuant to APB Opinion No. 25, the
Company accounted for its stock-based awards to
employees using the intrinsic-value method, under
which compensation expense was measured on
the date of grant as the difference between the fair
value of the Company’s common stock and the
option exercise price multiplied by the number of
options granted. Generally, the Company granted
stock options with exercise prices equal to the esti-
mated fair value of its common stock; however, to
the extent that the fair value of the common stock
exceeded the exercise price of stock options granted
to employees on the date of grant, the Company
recorded deferred compensation and amortized the
expense over the vesting schedule of the options,
generally four years. During the years ended
March 31, 2006 and 2005, in accordance with APB
Opinion No. 25, the Company recorded deferred
stock-based compensation resulting from the grant
of employee stock options with an exercise price
less than the fair value of common stock. As of
March 31, 2006, the Company had $ 61,950 of
deferred stock-based compensation remaining to be
amortized. Upon the adoption of SFAS No. 123R on
April 1, 2006, the deferred stock-based compensa-
tion balance was netted against additional paid-in
capital on the consolidated balance sheet and state-
ment of stockholders’ equity.
The following table illustrates the effect on net
income and net income per share if the Company
had applied the fair value recognition provisions of
SFAS No. 123 to options granted under the Plans for
the fiscal years ended March 31, 2005 and 2006.
Since stock-based compensation expense for the fis-
cal years ended March 31, 2007 was calculated
under the provisions of SFAS No. 123R, there is no
disclosure of pro forma net income and net income
per share for that period. For purposes of the pro
forma disclosure for the fiscal years ended March
31, 2005 and 2006 set forth in the table below, the
value of the options is estimated using a Black-
Scholes option pricing model and amortized on a
straight-line basis to expense over the options’ vest-
ing periods.
Net income (loss) as
reported
Add: Stock-based employee
compensation cost
included in reported net
income (loss)
Deduct: Stock-based
employee compensation
cost that would have
been included in the
determination of net loss
as reported if the fair
value method had been
applied to all awards
Year ended March 31,
2006
2005
$ 696,860
$(2,983,574)
20,650
8,042
(745,043)
(980,240)
Pro forma net (loss)
$ (27,533)
$(3,955,772)
Basic and diluted net
income (loss) per com-
mon share, as reported
Basic and diluted net
income (loss) per com-
mon share, as pro forma
$ 0.02
$ (0.10)
$ — $ (0.13)
Effective April 1, 2006, the Company adopted the
fair value recognition provisions of SFAS No. 123R,
using the modified prospective transition method.
Under this transition method, compensation cost
recognized in the statement of operations for the fis-
cal year ended March 31, 2007 includes: (a) compen-
sation cost for all share-based payments granted
prior to, but not yet vested as of April 1, 2006, based
on the grant-date fair value estimated in accordance
with the original provisions of SFAS No. 123 adjusted
for estimated forfeitures and (b) compensation cost
for all share-based payments granted, modified or
settled subsequent to April 1, 2006, based on the
grant-date fair value estimated in accordance with
the provisions of SFAS No. 123R. In accordance with
the modified prospective transition method, results
for prior periods have not been restated.
For the fiscal year ended March 31, 2007, the Com-
pany recorded stock-based compensation expense
of approximately $837,000 for stock options granted
under the Amended and Restated 2001 Repligen
Corporation Stock Plan. Basic and diluted earnings
per share amounts for the fiscal year ended March
31, 2007 were decreased by $0.03 as a result of the
adoption of SFAS No. 123R.
F.26
REPLIGEN CORPORATION
NOTES TO FINANCIAL STATEMENTS (continued)
The Company currently has the following stock-
based employee compensation plans which are sub-
ject to the provisions of SFAS No. 123R: the 1992
Repligen Corporation Stock Option Plan, as amended,
and the Amended and Restated 2001 Repligen
Corporation Stock Plan (collectively, the “Plans”).
The 1992 Repligen Corporation Stock Option Plan
expired on September 14, 2001, though this had
no impact on outstanding option grants. Options
granted prior to the date of termination remain out-
standing and may be exercised in accordance with
their terms.
The Plans allow for the granting of incentive and non-
qualified options and restricted stock and other
equity awards to purchase shares of common stock.
Historically, incentive options granted to employees
under the Plans generally vested over a four to five-
year period, with 20%–25% vesting on the first anni-
versary of the date of grant and the remainder vesting
in equal yearly installments thereafter. Nonqualified
options issued to non-employee directors and con-
sultants under the Plans generally vest over one year.
Options granted under the Plans have a maximum
term of ten years from the date of grant and gener-
ally, the exercise price of the stock options equals
the fair market value of the Company’s common
stock on the date of grant. At March 31, 2007,
options to purchase 1,424,250 shares were outstand-
ing under the Amended and Restated 2001 Repligen
Corporation Plan and 868,500 were outstanding
under the 1992 Repligen Corporation Stock Option
Plan. At March 31, 2007, 420,109 shares were avail-
able for future grant under the Amended and
Restated 2001 Repligen Corporation Stock Plan.
The Company uses the Black-Scholes option pricing model to calculate the fair value on the grant date of
stock-based compensation for stock options granted under the Plans. The fair value of stock options granted
during the fiscal years ended March 31, 2007 and March 31, 2006 were calculated using the following esti-
mated weighted average assumptions:
Year ended March 31,
2007
2006
2005
Expected term (years)
Volatility
Risk-free interest rate
Expected dividend yield
6.5
7
77.24%–91.86% 90.79%–94.41% 94.17%–95.38%
4.44%– 5.07% 3.83%– 4.58% 3.76%– 4.29%
—
—
—
7
F.27
Expected Term: The expected term of options
granted represents the period of time for which the
options are expected to be outstanding and is derived
from the Company’s historical stock option exercise
experience and option expiration data. For option
grants made subsequent to the adoption of SFAS
No. 123R, the expected life of stock options granted
is based on the simplified method allowable under
SAB No. 107. Accordingly, the expected term is pre-
sumed to be the midpoint between the vesting date
and the end of the contractual term. In addition, for
purposes of estimating the expected term, the
Company has aggregated all individual option awards
into one group as the Company does not expect sub-
stantial differences in exercise behavior among its
employees.
stock over a period commensurate with the option’s
expected term. The Company does not believe that
the future volatility of its common stock over an
option’s expected term is likely to differ significantly
from the past.
Risk-Free Interest Rate: The risk-free interest rate
is the implied yield available on U.S. Treasury zero-
coupon issues with a remaining term equal to the
option’s expected term on the grant date.
Expected Dividend Yield: The Company has never
declared or paid any cash dividends on any of its
capital stock and does not expect to do so in the
foreseeable future. Accordingly, the Company uses
an expected dividend yield of zero to calculate the
grant-date fair value of a stock option.
Expected Volatility: The expected volatility is a
measure of the amount by which the Company’s
stock price is expected to fluctuate during the
expected term of options granted. The Company
determines the expected volatility solely based upon
the historical volatility of the Company’s common
The Company recognizes compensation expense on
a straight-line basis over the requisite service period
based upon options that are ultimately expected to
vest, and accordingly, such compensation expense
has been adjusted by an amount of estimated for-
feitures. Forfeitures represent only the unvested
2007 ANNUAL REPORT
NOTES TO FINANCIAL STATEMENTS (continued)
portion of a surrendered option. SFAS No. 123R
requires forfeitures to be estimated at the time
of grant and revised, if necessary, in subsequent
periods if actual forfeitures differ from those esti-
mates. Prior to the adoption of SFAS No. 123R,
the Company accounted for forfeitures upon occur-
rence as permitted under SFAS No. 123. Based on
an analysis of historical data, the Company has calcu-
lated an 8% annual forfeiture rate for non-director-
level employees, a 3% annual forfeiture rate for
director-level employees, and a 0% forfeiture rate for
non-employee members of the Board of Directors,
which it believes is a reasonable assumption to esti-
mate forfeitures. However, the estimation of forfei-
tures requires significant judgment, and to the extent
actual results or updated estimates differ from the
Company’s current estimates, such amounts will be
recorded as a cumulative adjustment in the period
estimates are revised.
Information regarding option activity for the year ended March 31, 2007 under the Plans is summarized below:
Options
Outstanding
(In thousands)
Weighted Average
Exercise Price
Per Share
Weighted Average
Remaining
Contractual Term
(In years)
Aggregate
Intrinsic Value
(In thousands)
Options outstanding at March 31, 2004
Granted
Exercised
Forfeited/Cancelled
Options outstanding at March 31, 2005
Granted
Exercised
Forfeited/Cancelled
Options outstanding at March 31, 2006
Granted
Exercised
Forfeited/Cancelled
F.28
Options outstanding at March 31, 2007
Options exercisable at March 31, 2007
Vested and expected to vest at
March 31, 2007(1)
2,051
340
(58)
(191)
2,142
629
(238)
(130)
2,403
210
(110)
(210)
2,293
1,564
2,235
$3.01
2.56
0.52
3.07
3.00
3.04
1.36
3.13
3.17
2.98
1.43
3.03
$3.25
$3.28
$2.63
—
—
—
—
—
—
—
—
—
—
—
—
5.39
4.13
5.29
—
—
—
—
—
—
—
—
—
—
—
—
$1,485
$1,209
$1,468
(1) This represents the number of vested options as of March 31, 2007 plus the number of unvested options expected to vest as of March
31, 2007 based on the unvested outstanding options at March 31, 2007 adjusted for the estimated forfeiture rate of 8% for awards
granted to non-director level employees and 3% for awards granted to director level employees.
The aggregate intrinsic value in the table above rep-
resents the total pre-tax intrinsic value (the differ-
ence between the closing price of the common stock
on March 30, 2007 of $3.16 and the exercise price of
each in-the-money option) that would have been
received by the option holders had all option holders
exercised their options on March 30, 2007.
The weighted average grant date fair value of options
granted during the fiscal year ended March 31, 2007
was $2.31. The total fair value of stock options
that vested during the fiscal year ended March 31,
2007 and 2006 was approximately $869,000 and
$871,000, respectively. The total intrinsic value of
options exercised during the years ended March 31,
2007, 2006 and 2005 was $189,800, $852,152 and
$95,563, respectively, determined as of the date
of exercise. The Company received $158,000,
$340,111 and $30,501 from stock option exercises
during the years ended March 31, 2007, 2006 and
2005, respectively.
As of March 31, 2007, there was $1,275,000 of total
unrecognized compensation cost related to unvested
share-based awards. This cost is expected to be rec-
ognized over a weighted average remaining requisite
service period of 2.86 years. The Company expects
approximately 671,000 of unvested outstanding
options to vest over the next five years.
REPLIGEN CORPORATION
NOTES TO FINANCIAL STATEMENTS (continued)
The range of exercise prices for options outstanding and exercisable as of March 31, 2007 are as follows:
Range of
Exercise Prices
$0.00–$1.24
$1.25–$2.49
$2.50–$3.73
$3.74–$4.98
$4.99–$6.22
$6.23–$7.47
$7.48–$8.56
Outstanding as of
March 31, 2007
Exercisable as of
March 31, 2007
Weighted Average
Remaining
Contractual Life
in Years
Weighted Average
Exercise Price
Number
of Shares
Weighted Average
Exercise Price
2.99
3.72
6.64
8.54
5.98
3.47
4.69
5.39
$1.01
1.64
3.04
4.19
5.53
7.19
7.93
$3.25
17,000
687,900
480,200
39,700
119,999
5,000
214,000
1,563,799
$1.01
1.59
3.03
4.23
5.54
7.19
7.93
$3.28
Number
of Shares
17,000
858,000
868,250
134,500
196,000
5,000
214,000
2,292,750
3. Income Taxes
The Company accounts for income taxes under SFAS
No. 109, “Accounting for Income Taxes.” The Com-
pany did not record a tax provision for the years
ended March 31, 2007, 2006 and 2005 as the
Company did not generate taxable income.
At March 31, 2007, the Company had net operating
loss carryforwards for income tax purposes of
approximately $100,130,000. The Company also had
available tax credit carryforwards of approximately
$5,270,000 at March 31, 2007 to reduce future fed-
eral income taxes, if any. Federal and state net oper-
ating losses of approximately $9,004,000, $7,689,000
and $7,390,000 expired in fiscal 2007, 2006 and
2005, respectively. The net operating loss and tax
credit carryforwards will continue to expire at various
dates. Net operating loss carryforwards and avail-
able 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 own-
ership interest of significant stockholders.
Deferred tax assets consist of the following:
Temporary differences
Operating loss
carryforwards
Tax credit carryforwards
Valuation allowance
As of March 31,
2007
2006
$ 6,580,000
$ 7,420,000
40,060,000
5,270,000
42,520,000
5,590,000
51,910,000
(51,910,000)
55,530,000
(55,530,000)
$
— $
—
A full valuation allowance has been provided, as it
is uncertain if the Company will realize its deferred
tax assets.
A reconciliation of the federal statutory rate to the effective income tax rate from operations for fiscal years
ended March 31, 2007, 2006 and 2005 is as follows:
Tax at U.S. statutory rate
State taxes, net of federal benefit
Permanent differences, net of
federal benefit
Change in valuation allowance
Years ended March 31,
Years ended March 31,
2007
2006
2005
2007
2006
2005
$ (302,350)
—
$ (237,000)
—
$ (1,014,000)
—
34.00%
0.00%
34.00%
0.00%
34.00%
0.00%
152,887
(149,463)
(5,000)
(242,000)
6,000
1,008,000
(17.00)%
(0.20)%
0.08%
(17.00)% (34.08)% (33.80)%
Income tax expense
$
— $
— $
—
0.00%
0.00%
0.00%
4. Stockholders’ Equity
Common Stock and Warrants
At March 31, 2007, the Company has reserved
2,712,859 shares of common stock for incentive and
nonqualified stock option plans.
Shareholder Rights Plan
In March 2003, the Company adopted a Shareholder
Rights Agreement (the “Rights Agreement”). Under
the Rights Agreement, the Company distributed
certain rights to acquire shares of the Company’s
2007 ANNUAL REPORT
F.29
F.30
NOTES TO FINANCIAL STATEMENTS (continued)
Series A junior participating preferred stock (the
“Rights”) as a dividend for each share of common
stock held of record as of March 17, 2003. Each
share of common stock issued after the March 17,
2003 record date has an attached Right. Under cer-
tain conditions involving an acquisition by any person
or group of 15% or more of the common stock, each
Right permits the holder (other than the 15% holder)
to purchase common stock having a value equal to
twice the exercise price of the Right, upon payment
of the exercise price of the Right. In addition, in the
event of certain business combinations after an
acquisition by a person or group of 15% or more of
the common stock (20% in the case of a certain
stockholder), each Right entitles the holder (other
than the 15% holder) to receive, upon payment of
the exercise price, common stock having a value
equal to twice the exercise price of the Right. The
Rights have no voting privileges and, unless and until
they become exercisable, are attached to, and auto-
matically trade with, the Company’s common stock.
The Rights will terminate upon the earlier of the date
of their redemption or March 2013.
5. Commitments and Contingencies
Lease Commitments
In 2001, the Company entered into a ten-year lease
agreement for its corporate headquarters in Waltham,
Massachusetts. In connection with this lease agree-
ment, the Company issued a letter of credit in the
amount of $200,000 to its landlord. The letter of
credit is collateralized by a certificate of deposit held
by the bank that issued the letter of credit. The cer-
tificate of deposit is classified as restricted cash in
the accompanying balance sheet as of March 31,
2007 and 2006. The Company signed a lease in April
2007 for 2,500 square feet of space in Waltham,
Massachusetts for off-site storage of materials. The
lease expires in March 2012.
In fiscal 2006, the Company entered into a capital
lease agreement to provide the Company with man-
ufacturing equipment. Repligen received approx-
imately $171,000 in equipment financing over a
five-year period. In fiscal 2005, the Company entered
into two capital lease agreements to provide the
Company with two pieces of office equipment.
Repligen received approximately $33,000 in equip-
ment financing. The lease terms are three and five
years beginning in June and October of 2004, respec-
tively. Capital lease obligations are recorded in
accrued liabilities and long-term liabilities in the
Company’s balance sheets.
Obligations under non-cancelable operating leases
and capital equipment leases, including the facility
lease discussed above, as of March 31, 2007 are
approximately as follows:
Years ending March 31,
2008
2009
2010
2011
Thereafter
Operating
Lease
Capital
Lease
$ 449,000
455,000
473,000
473,000
361,000
$ 48,870
48,870
45,209
—
—
Minimum lease payments
$ 2,211,000
$ 142,949
Less amount representing
interest
Present value of future
lease payment
Less current portion
Noncurrent obligation under
capital leases
(17,648)
125,301
(48,870)
$ 76,431
Rent expense charged to operations under operating
leases was approximately $389,000 for each of the
years ended March 31, 2007, 2006 and 2005. As of
March 31, 2007 and 2006, the Company had deferred
rent liability of $119,000 and $120,000, respectively,
related to the Waltham facility.
Licensing and Research Agreements
The Company licenses certain technologies that are,
or may be, incorporated into its technology under
several agreements and also has entered into several
clinical research agreements which require the
Company to fund certain research projects. Generally,
the license agreements require the Company to pay
annual maintenance fees and royalties on product
sales once a product has been established using the
technologies. The Company has recorded research
and development expense associated with license
agreements of $87,000, $114,000 and $55,000, for
the years ended March 31, 2007, 2006 and 2005,
respectively.
Supply Agreements
The Company has entered into an agreement with a
manufacturer for certain components of its Protein A
product. The Company has remaining purchase obli-
gations of approximately $298,000 associated with
this agreement for the year ended March 31, 2008.
The Company relies on a sole manufacturer for its
SecreFlo® product. This reliance exposes it to a num-
ber of risks, including reduced control over manufac-
turing capacity, delivery times, inadequate inventory
levels which could lead to product shortage or
charges for excess or obsolete inventory.
REPLIGEN CORPORATION
NOTES TO FINANCIAL STATEMENTS (continued)
6. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of
the following:
Prepaid insurance
Equipment and services
Interest receivable
Clinical and research expenses
Other
As of March 31,
2007
2006
$ 124,376
71,656
167,483
47,636
34,264
$ 115,591
221,565
188,751
32,829
16,302
$ 445,415
$ 575,038
7. Accrued Liabilities
The Company prepares its financial statements in
accordance with accounting principles generally
accepted in the United States. These principles
require that the Company estimate accrued liabilities.
This process involves identifying services, which
have been performed on the Company’s behalf, and
estimating the level of service performed and the
associated cost incurred for such service as of each
balance sheet date. Examples of estimated accrued
expenses include: 1) Fees paid to contract manufac-
turers in conjunction with the production of clinical
materials. These expenses are normally determined
through a contract or purchase order issued by the
Company; 2) Service fees paid to organizations for
their performance in conducting clinical trials. These
expenses are determined by contracts in place for
those services and communications with project
managers on costs which have been incurred as of
each reporting date; 3) Professional and consulting
fees incurred with law firms, audit and accounting
service providers and other third-party consultants.
These expenses are determined by either requesting
those service providers to estimate unbilled services
at each reporting date for services incurred, or track-
ing costs incurred by service providers under fixed-
fee arrangements. The Company has processes in
place to estimate the appropriate amounts to record
for accrued liabilities, which principally involve the
applicable personnel reviewing the services pro-
vided. In the event that the Company does not iden-
tify certain costs which have begun to be incurred or
the Company under- or over-estimates the level of
services performed or the costs of such services,
the reported expenses for that period may be too
low or too high. The date on which certain services
commence, the level of services performed on or
before a given date, and the cost of such services
are often judgmental. The Company makes these
judgments based upon the facts and circumstances
known at the date of the financial statements.
A change in the estimated cost or volume of services
provided could result in additional accrued liabilities.
Any significant unanticipated changes in such esti-
mates could have a significant impact on our accrued
liabilities and reported operating results. There has
been no material adjustments to our accrued liabili-
ties in any of the periods presented in the accompa-
nying financial statements.
Accrued liabilities consist of the following:
Royalty expenses
Payroll & payroll-related costs
Research & development
As of March 31,
2007
2006
$
56,529
557,100
$
—
474,923
costs
602,615
436,016
Professional and consulting
costs
Other accrued expenses
Unearned revenue
Other current liabilities
400,474
122,836
127,170
309,015
320,694
62,767
38,599
536,350
$ 2,175,739
$ 1,869,349
In February 2004, the Company terminated its
Licensing Agreement with ChiRhoClin. On May 9,
2005, Repligen entered into a Settlement Agreement
with ChiRhoClin, Inc., in full settlement of their arbi-
tration proceedings described below. Repligen deter-
mined that it was not required to pay approximately
$1,170,000 of unremitted and accrued royalties to
ChiRhoClin. This was recorded as other income in
the quarter ended June 30, 2005. Under the terms
of the Agreement, Repligen also received a payment
of $750,000 and will be entitled to continue to mar-
ket SecreFlo® for the next few years under a royalty
structure more favorable to Repligen than under the
Licensing Agreement. ChiRhoClin is obligated to
deliver a certain amount of SecreFlo® to Repligen
over the next few years. This payment of $750,000
was recorded as “Accrued Liabilities” at the time of
settlement. The adoption of EITF 02-16, Accounting
by a Customer (Including a Reseller) for Certain
Consideration Received from a Vendor (“EITF 02-16”)
has resulted in the Company reducing cost of goods
sold as future inventory purchased from ChiRhoClin
is sold. Other current liabilities as of March 31, 2007
includes $269,052 related to ChiRhoClin settlement
which will be relieved as a reduction to cost of good
sold as future inventory purchased from ChiRhoClin
is sold.
8. Employee Benefit Plan
The Repligen Corporation 401(k) Savings and
Retirement Plan (the “401(k) Plan”) is a qualified
defined contribution plan in accordance with Section
2007 ANNUAL REPORT
F.31
F.32
NOTES TO FINANCIAL STATEMENTS (continued)
401(k) of the Internal Revenue Code. All employees
over the age of 21 who have completed four months
of service are eligible to make pre-tax contributions
up to a specified percentage of their compensation.
Under the 401(k) Plan, the Company may, but is not
obligated to match a portion of the employees’ con-
tributions up to a defined maximum. The match is
calculated on a calendar year basis. The Company
matched $ 31,353, $27,278 and $ 34,245 for the
fiscal years ended March 31, 2007, 2006 and 2005,
respectively. Forfeitures of previous participants par-
tially funded contributions for fiscal year 2007. For-
feitures of previous participants completely funded
contributions for fiscal years 2006 and 2005 and as a
result had no impact on the Company’s operations.
9. Related Party Transaction
Repligen paid Drs. Schimmel and Rich, the Co-
Chairmen of the Board of Directors, $49,200 and
$43,200, respectively, during each of the fiscal years
ended March 31, 2007, 2006 and 2005 pursuant to
consulting agreements, which have similar terms.
These agreements are automatically extended for
successive one-year terms unless terminated by
either party to the agreement at least 90 days prior
to the next anniversary date. Dr. Schimmel’s agree-
ment continues until September 30, 2007 and Dr.
Rich’s agreement continues until October 31, 2007.
Dr. Schimmel will retire from the Board as of the
next annual meeting in September 2007. Dr. Rich
has advised Repligen that he has no present inten-
tion of terminating his agreement. Drs. Schimmel
and Rich receive no separate cash compensation for
attendance at meetings or otherwise as directors.
10. Legal Proceedings
ImClone Systems
In July 2006, Repligen reported that the United
States District Court for the District of Massachu-
setts issued a Summary Judgment ruling in favor
of Repligen and the Massachusetts Institute of
Technology (“MIT”) and rejected ImClone Systems
Incorporated’s (“ImClone”) defense of patent exhaus-
tion in the ongoing patent infringement lawsuit over
the production of Erbitux ®. In their complaint,
Repligen and MIT allege that ImClone’s production
of Erbitux® infringes U.S. patent 4,663,281 which
covers certain genetic elements that increase pro-
tein production in a mammalian cell. This patent is
assigned to MIT and exclusively licensed to Repligen.
ImClone had previously reported that it produced
approximately $1 billion worth of Erbitux® prior to
the expiration of the patent-in-suit in 2004 and that
Bristol-Myers Squibb, ImClone’s commercial partner,
has paid ImClone $900 million in up-front and mile-
stone payments as well as a 39% royalty on the net
sales of Erbitux® in the United States.
Repligen and MIT allege that the cell line that
ImClone uses to produce Erbitux® employs key tech-
nology that is claimed in the patent-in-suit. Repligen
and MIT also allege that the cell line was created
under contract for the National Cancer Institute
(“NCI”) by a predecessor to Repligen and subse-
quently transferred from the NCI to ImClone for use
in research and development only. In its ruling, the
Court found that neither the transfer to the NCI by
Repligen’s predecessor nor the subsequent transfer
to ImClone by the NCI exhausted the proprietary
rights of Repligen and MIT. The Court’s ruling has
eliminated these arguments as a potential defense
for ImClone at trial. Repligen and MIT intend to seek
damages adequate to compensate Repligen and MIT
for ImClone’s unlicensed use of the patented tech-
nology and a multiplier of any such damage award
based on ImClone’s willful infringement.
Bristol-Myers Squibb Company (“Bristol”)
In January 2006, Repligen Corporation and the
University of Michigan jointly filed a complaint
against Bristol in the United States District Court
for the Eastern District of Texas for infringement of
U.S. Patent No. 6,685,941 (“the ‘941 patent”) for
the commercial sale of Orencia®. The ‘941 patent,
entitled “Methods of Treating Autoimmune Disease
via CTLA4-Ig,” covers methods of using CTLA4-Ig
to treat rheumatoid arthritis, as well as other thera-
peutic methods. Repligen has exclusive rights to
this patent from its owners, the University of
Michigan and the U.S. Navy. In February 2006,
Bristol answered the complaint and counterclaimed
seeking a declaratory judgment that the ‘941 patent
is invalid and unenforceable and that Bristol does
not infringe the patent. On November 16, 2006, the
Court held a scheduling conference. Jury selection
for the trial in this matter is scheduled to commence
on April 7, 2008. The outcome of this case is unde-
terminable at this time.
From time to time, we may be subject to legal pro-
ceedings and claims, in the ordinary course of
business. We are not currently aware of any such
proceedings or claims that we believe will have,
individually or in the aggregate, a material adverse
effect on the business, financial condition or results
of operations.
11. Subsequent Event
On April 6, 2007, Repligen Corporation entered into
an exclusive worldwide commercial license agree-
ment with The Scripps Research Institute (“Scripps”).
Pursuant to the Agreement, the Company obtained a
license to use, commercialize and sublicense certain
patented technology and improvements thereon,
owned or licensed by Scripps, relating to compounds
which may have utility in treating Friedreich’s ataxia,
an inherited neurodegenerative disease. Research in
REPLIGEN CORPORATION
NOTES TO FINANCIAL STATEMENTS (continued)
tissues derived from patients, as well as, in mice,
indicates that the licensed compounds increase
production of the protein frataxin, which suggests
potential utility of these compounds in slowing or
stopping progression of the disease. There is cur-
rently no treatment for Friedreich’s ataxia.
Pursuant to the Agreement, the Company agreed to
pay Scripps an initial license fee of $300,000, certain
royalty and sublicense fees and, in the event the
Company achieves specified developmental and
commercial milestones, certain additional milestone
payments. In addition, the Company issued Scripps
87,464 shares of the Company’s common stock
(the “Shares”) representing $ 300,000 as of the
Effective Date. If the value of the Shares does not
equal at least $300,000 on the one-year anniversary
of the Effective Date, the Company shall make a
cash payment to Scripps equal to the difference
between the actual total value of the Shares on the
one-year anniversary of the Effective Date and the
Effective Date. The Company issued the Shares in
reliance on the exemption from registration provided
by Section 4(2) of the Securities Act of 1933, as
amended. The Shares were issued exclusively to
Scripps as an “accredited investor” (as such term
is defined in Rule 501(a) of Regulation D) without
general solicitation or advertising and did not involve
a public offering.
The Agreement expires or may be terminated
(i) when all of the royalty obligations under the
Agreement expire; (ii) at any time by mutual written
consent; (iii) by Scripps if the Company (a) fails to
make payments under the Agreement, (b) fails to
achieve certain developmental and commercial
objectives, (c) becomes insolvent, (d) is convicted of
a felony relating the manufacture, use or sale of the
licensed technology or (e) defaults in its performance
under the Agreement; or (iv) by the Company upon
90 days written notice.
12. Selected Quarterly Financial Data (Unaudited)
The following table contains Statements of Operations information for each quarter of fiscal 2007 and 2006.
The Company believes that the following information reflects all normal recurring adjustments necessary for a
fair presentation of the information for the periods presented. The operating results for any quarter are not
necessarily indicative of results for any future period.
Revenue:
Product revenue
Research revenue
Total revenue
Operating expenses:
Cost of revenue
Research and development
Selling, general and administrative
Total operating expenses
Income (loss) from operations
Investment income
Interest expense
Other income
Net income (loss)
Earning per share:
Basic
Diluted
Q4
FY07
Q3
FY07
Q2
FY07
Q1
FY07
Q4
FY06
Q3
FY06
Q2
FY06
Q1
FY06
(In thousands, except per share amounts)
$ 3,397
302
$ 3,633
249
$ 2,680
185
$ 3,364
264
$ 2,842
42
$ 2,958
30
$ 2,716
84
$ 4,013
226
3,699
3,882
2,865
3,628
2,884
2,988
2,800
4,239
902
1,452
1,696
4,050
(351)
247
(3)
—
805
1,674
1,660
4,139
(257)
240
(3)
—
915
1,583
1,463
3,961
(1,096)
236
(3)
—
993
1,215
1,541
3,749
(121)
225
(3)
—
889
1,412
1,597
3,898
(1,014)
198
(3)
—
817
1,236
1,341
3,394
(406)
204
—
—
872
1,325
1,283
3,480
(680)
212
—
—
973
1,190
1,196
3,359
880
136
—
1,170
$ (107)
$
(20)
$ (863)
$ 101
$ (819)
$ (202)
$ (468)
$ 2,186
$ (0.00)
$ (0.00)
$ (0.03)
$ (0.00)
$ (0.03)
$ (0.01)
$ (0.02)
$ 0.07
$ (0.00)
$ (0.00)
$ (0.03)
$ (0.00)
$ (0.03)
$ (0.01)
$ (0.02)
$ 0.07
Weighted average shares outstanding:
Basic
30,420
30,376
30,364
30,358
30,202
30,105
30,098
30,094
Diluted
30,420
30,376
30,364
30,828
30,202
30,105
30,098
30,399
13. Valuation and Qualifying Accounts
Allowance for Doubtful Accounts:
2005
2006
2007
Balance at
Beginning
of Period
$35,000
$15,000
$10,000
Reversal
Without
Utilization
Balance at
End of
Period
Additions
—
—
—
$15,000
$20,000
$ 5,000
$10,000
$ — $10,000
2007 ANNUAL REPORT
F.33
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Repligen Corporation
We have audited the accompanying balance sheets
of Repligen Corporation as of March 31, 2007 and
2006, and the related statements of operations,
stockholders’ equity, and cash flows for each of the
three years in the period ended March 31, 2007.
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 the
standards of the Public Company Accounting Over-
sight Board (United States). Those standards require
that we plan and perform the audit to obtain reason-
able assurance about whether the financial state-
ments are free of material misstatement. An audit
includes examining, on a test basis, evidence support-
ing 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 over-
all financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
March 31, 2007 and 2006, and the results of its oper-
ations, and its cash flows for each of the three years
in the period ended March 31, 2007, in conformity
with U.S. generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial
statements, on April 1, 2006, the Company adopted
the provisions of Statement of Financial Accounting
Standards No. 123R, Share-Based Payment.
We have also audited, in accordance with the stand-
ards of the Public Company Accounting Oversight
Board (United States), the effectiveness of Repligen
Corporation’s internal control over financial reporting
as of March 31, 2007, based on criteria established
in Internal Control—Integrated Framework issued by
the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated June 6,
2007 expressed an unqualified opinion thereon.
ERNST & YOUNG LLP
In our opinion, the financial statements referred
to above present fairly, in all material respects, the
financial position of Repligen Corporation as of
Boston, Massachusetts
June 6, 2007
F.34
REPLIGEN CORPORATION
MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of the Company is responsible for
establishing and maintaining adequate internal con-
trol over financial reporting. Internal control over
financial reporting is defined in Rule 13a-15(f) and
15d-15(f) under the Exchange Act as a process
designed by, or under the supervision of, the
Company’s principal executive and principal financial
officers and effected by the Company’s board of
directors, management and other personnel to pro-
vide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial
statements for external purposes in accordance with
U.S. generally accepted accounting principles and
includes those policies and procedures that:
• pertain to the maintenance of records that in rea-
sonable detail accurately and fairly reflect the
transactions and dispositions of the assets of the
company;
• provide reasonable assurance that transactions are
recorded as necessary to permit preparation of
financial statements in accordance with generally
accepted accounting principles, and that receipts
and expenditures of the company are being made
only in accordance with authorizations of manage-
ment and directors of the company; and
• provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use
or disposition of the company’s assets that could
have a material effect on the financial statements.
Because of its inherent limitations, internal control
over financial reporting may not prevent or detect mis-
statements. Projections of any evaluation of effec-
tiveness to future periods are subject to the risks
that controls may become inadequate because of
changes in conditions, or that the degree of compli-
ance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the
Company’s internal control over financial reporting
as of March 31, 2007. In making this assessment,
management used the criteria established in Internal
Control—Integrated Framework, issued by the Com-
mittee of Sponsoring Organizations of the Treadway
Commission (COSO). Based on this assessment,
our management concluded that, as of March 31,
2007, our internal control over financial reporting is
effective based on those criteria. Our management’s
assessment of the effectiveness of our internal con-
trol over financial reporting as of March 31, 2007 has
been audited by Ernst & Young LLP, an independent
registered public accounting firm, as stated in their
report appearing in Item 9A of this Form 10-K.
REPLIGEN CORPORATION
June 6, 2007
F.35
2007 ANNUAL REPORT
ATTESTATION REPORT OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Repligen Corporation
We have audited management’s assessment,
included in the accompanying Report of Manage-
ment on Internal Control Over Financial Reporting,
that the Company maintained effective internal con-
trol over financial reporting as of March 31, 2007,
based on criteria established in Internal Control-
Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commis-
sion (the COSO criteria). Repligen Corporation’s
management is responsible for maintaining effective
internal control over financial reporting and for its
assessment of the effectiveness of internal control
over financial reporting. Our responsibility is to
express an opinion on management’s assessment
and an opinion on the effectiveness of the Company’s
internal control over financial reporting based on
our audit.
We conducted our audit in accordance with the
standards of the Public Company Accounting Over-
sight Board (United States). Those standards require
that we plan and perform the audit to obtain reason-
able assurance about whether effective internal con-
trol over financial reporting was maintained in all
material respects. Our audit included obtaining
an understanding of internal control over financial
reporting, evaluation of management’s assessment,
testing and evaluating the design and operating
effectiveness of internal control and performing such
other procedures, as we considered necessary in the
circumstances. We believe that our audit provides a
reasonable basis for our opinion.
A company’s internal control over financial reporting
is a process designed to provide reasonable assur-
ance regarding the reliability of financial reporting
and the preparation of financial statements for exter-
nal purposes in accordance with generally accepted
accounting principles. A company’s internal control
over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of
records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of
the assets of the Company; (2) provide reasonable
assurance that transactions are recorded as neces-
sary to permit preparation of financial statements
in accordance with generally accepted accounting
principles, and the receipts and expenditures of the
company are being made only in accordance with
authorizations of management and directors of the
Company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthor-
ized acquisition, use, or disposition of the company’s
assets that could have a material effect on the finan-
cial statements.
Because of its inherent limitations, internal control
over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to
risk that controls may become inadequate because
of changes in conditions, or that the degree of
compliance with the policies or procedures may
deteriorate.
In our opinion, management’s assessment that the
Company maintained effective internal control over
financial reporting as of March 31, 2007, is fairly
stated, in all material respects, based on the COSO
criteria. Also, in our opinion, the Company main-
tained, in all material respects, effective internal con-
trol over financial reporting as of March 31, 2007,
based on the COSO criteria.
We also have audited, in accordance with the stand-
ards the Public Company Accounting Oversight
Board (United States), the balance sheets of Repligen
Corporation as of March 31, 2007 and 2006, and the
related statements of operations, shareholders’
equity, and cash flows for each of the three years in
the period ended March 31, 2007 and our report
dated June 6, 2007, expressed an unqualified opin-
ion thereon.
ERNST & YOUNG LLP
Boston, Massachusetts
June 6, 2007
F.36
REPLIGEN CORPORATION
CORPORATE INFORMATION
BOARD OF DIRECTORS
TRANSFER AGENT AND REGISTRAR
ANNUAL MEETING
American Stock Transfer
& Trust Company
59 Maiden Lane
Plaza Level
New York, NY 10038
(877) 777-0800, select option 1
www.amstock.com
Investor Relations E-mail:
(Shareholder Inquiries)
info@amstock.com
The Transfer Agent is responsible
for handling shareholder questions
regarding lost certificates, address
changes and changes of ownership
or name in which shares are held.
GENERAL COUNSEL
Goodwin Procter LLP
Exchange Place
53 State Street
Boston, MA 02109
INDEPENDENT ACCOUNTANTS
Ernst and Young, LLP
200 Clarendon Street
Boston, MA 02116
The Annual Meeting of
Stockholders will be held on
Friday, September 14, 2007
at 10:00 AM at
Repligen’s corporate offices,
41 Seyon Street
Building #1, Suite 100
Waltham, MA 02453
MARKET FOR REPLIGEN
CORPORATION STOCK
Nasdaq Global Market
Common Stock: RGEN
INVESTOR INFORMATION
Copies of our annual reports on
Form 10-K, proxy statements,
quarterly reports on Form 10-Q,
and current reports on Form 8-K
are available to stockholders upon
request without charge. Please visit
our website at www.repligen.com
or send requests to:
Repligen Corporation
41 Seyon Street
Building #1, Suite 100
Waltham, MA 02453
ATTN: Investor Relations
Phone: (781) 419-1823
Fax: (781) 250-0115
E-mail: investors@repligen.com
Karen A. Dawes
Principal
Knowledgeable Decisions, LLC
Robert J. Hennessey
Former Chief Executive Officer
Penwest Pharmaceuticals Co.
Walter C. Herlihy, Ph.D.
President and
Chief Executive Officer
Repligen Corporation
Alexander Rich, M.D., Co-Chairman
Sedgwick Professor of Biophysics
Department of Biology
Massachusetts Institute of Technology
Thomas F. Ryan, Jr.
Retired/Private Investor
Paul Schimmel, Ph.D., Co-Chairman
Ernest and Jean Hahn Professor of
Molecular Biology & Chemistry
The Skaggs Institute for
Chemical Biology
The Scripps Research Institute
CORPORATE OFFICERS
Walter C. Herlihy, Ph.D.
President and
Chief Executive Officer
Daniel W. Muehl
Chief Financial Officer
James R. Rusche, Ph.D.
Sr. Vice President,
Research and Development
Daniel P. Witt, Ph.D.
Vice President, Operations
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This annual report contains forward-looking statements which are made pursuant to the safe harbor provisions of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The forward-
looking statements in this annual report do not constitute guarantees of future performance. Investors are cautioned that state-
ments in this annual report that are not strictly historical statements, including, without limitation, statements regarding current or
future financial performance, regulatory approvals, management’s strategy, plans and objectives for future operations and product
candidate acquisition, clinical trials and results, litigation strategy, results of litigation, product research and development, product
efficacy, R&D expenditures, intellectual property, development and manufacturing plans, availability of materials and product and
adequacy of capital resources and financing plans constitute forward-looking statements. Such forward-looking statements are
subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated, including,
without limitation, the risks identified in our annual report on Form 10-K and our other filings with the Securities and Exchange
Commission. We assume no obligation to update any forward-looking information contained in this annual report.
41 Seyon Street
Building #1, Suite 100
Waltham, MA 02453
(781) 250-0111
info@repligen.com
www.repligen.com