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RepliGen
enhancing the production of biologic drugs
3/19/14 1:39 PM
Repligen Corporation
is focused on the development, manufacture and
sale of consumable products used to manufacture
monoclonal antibodies and other biologic drugs.
We combine over 15 years of expertise in
protein manufacturing with forward-thinking
innovation to create market-leading products
used by most of the world’s largest life sciences
and biopharmaceutical companies.
Our employees in Waltham, MA and Lund,
Sweden work together to reliably deliver critical
products used to produce biologic drugs that
are improving the lives of patients worldwide.
40433cov.indd 2
2013
highlights
• Increased product revenue by 13.5%
• Improved product gross margin from 40.3% in 2012 to 52.7%
• Ended the year with $73.8 million in cash, an increase of $23.9 million
• Expanded our U.S. manufacturing facility, more than doubling our
capacity to produce OPUS® ready-to-use chromatography columns
• Completed the development of our OPUS® 45 cm column
– the largest commercially available – securing our technology
leadership in this market
• Completed the divestiture of our therapeutic development programs
Product Revenue*
(dollars in millions)
Net Income
(dollars in millions)
Cash Balance
(dollars in millions)
$16.1
$14.2
$47.5
$41.8
$50
$40
$30
$20
$10
$0
$16.4
$20
$16
$12
$8
$4
$0
-$3.6
-$4
$80
$60
$40
$20
$0
$73.8
$50
$36
2011 2012
2013
2011 2012
2013
2011 2012
2013
* Reflects bioprocessing product revenue; does not include royalty and other revenue
Note: Due to a change in our fiscal year to a calendar year effective January 1, 2012,
chart figures for the 2011 twelve-month period ended December 31 are pro forma.
dear shareholders,
Pictured left to right:
William J. Kelly
Chief Accounting Officer
Walter C. Herlihy, Ph.D.
President and Chief Executive Officer
James R. Rusche, Ph.D.
Senior Vice President,
Research and Development
I’m pleased to report that 2013 was an exceptional year for Repligen.
We met or exceeded our financial performance goals, delivering significant
revenue growth, exceptional margin expansion and record earnings. We
also established Repligen as a focused bioprocessing company following
our strategic decision in 2012 to exit therapeutic drug development and
fully divest our clinical assets.
Repligen is a leading developer and manufacturer of high value consumable
bioprocessing products used in the production of monoclonal antibodies
and other biologic drugs. Thus, as the biopharmaceutical market continues to
expand and manufacturers increasingly adopt new technologies to stream-
line production and reduce costs, new opportunities are being presented
for Repligen. Based on our established expertise in protein manufacturing
and our leading market and technology positions we expect to fully
participate in the continued growth of this dynamic market.
2
40433txt.indd 6
3/19/14 1:30 PM
Bioprocessing product revenue for the year reached $47.5
In August 2012, we announced our decision to divest our thera-
million, an increase of approximately 13.5% over 2012. Our
peutic drug development programs. In January 2013, we out-
total revenue for 2013, which includes royalty and other
licensed our spinal muscular atrophy program, led by RG3039,
revenue, reached $68.2 million, an increase of 9.5% over 2012.
to Pfizer Inc. (“Pfizer”). Under the terms of this agreement, we
Product gross margin for 2013 reached 52.7%, a significant
December 2012 and are eligible to receive up to $65 in potential
increase from 40.3% for the previous year. This improvement
milestone payments, of which we received $1 million in 2013.
was the result of a restructuring of operations in our Swedish
These graduated milestone payments are contingent on Pfizer
facility in mid-2012 coupled with greater production volumes
achieving certain clinical, regulatory and commercial goals.
received a $5 million upfront payment that we recognized in
in 2013 that resulted in improved capacity utilization. We
performance
In January 2014, we announced that Bio-
Marin Pharmaceuticals
Inc. (“BioMarin”)
had acquired our HDAC inhibitor program
for which the leading clinical indication is
Friedreich’s ataxia. Under the terms of this
agreement, we received a $2 million upfront
have also benefited from manufacturing process improve-
payment that will be recognized in the first quarter of 2014
ments that have increased our product yields and from the
and are eligible to receive up to $160 million in contingent
initiation of a competitive sourcing program that resulted
milestone payments. Both the Pfizer and BioMarin agreements
in lower costs for several key raw materials. The combina-
include potential royalty payments on future sales of therapeutic
tion of higher product sales and improved gross margins
products originating from these portfolios.
in 2013 resulted in an increase in the gross profit derived
from bioprocessing products, from $16.9 million in 2012
We are pleased that two high quality partners skilled in drug
to $25 million in 2013; an increase of $8.1 million or 48%.
development are carrying these programs forward, allowing
Repligen to be fully focused on building our bioprocessing
Our growth in revenue combined with improved margins and
business.
lower operating expenses resulted in an increase in operating
income to $22.9 million for 2013. This compares to operating
income of $11.1 million for 2012, which included an upfront
payment of $5 million from the out-licensing of one of our
therapeutic programs. Our net income reached $16.1 million
in 2013, or $0.50 per diluted share, driven by increased biopro-
cessing sales and profits, licensing fees and increased royalty
payments from Bristol-Myers Squibb on U.S. sales of Orencia®
under a royalty obligation that expired on December 31, 2013.
We ended the year with $73.8 million in cash, an increase of
$24 million from December 31, 2012. Our strong cash position
and lack of debt enables us to pursue additional strategic
acquisitions to broaden the product offerings within our
bioprocessing business.
40433txt.indd 7
3
3/19/14 1:30 PM
market acceptance, and there is a rich pipeline of over 350
mAbs in development. Pending clinical success and regulatory
clearance, we expect additional mAbs to be commercialized
over the next several years for a variety of cancers and
immunological conditions as well as new disease categories.
The momentum of the biologic drugs market provides sus-
tainable growth opportunities for Repligen given the role we
play in enabling the production of many of these important
therapeutics.
The basic process of manufacturing all biologic drugs in-
volves two fundamental steps: fermentation and purification.
First, cells that are constructed to produce a specific biologic
product are grown in a fermentor. The fermentation harvest
then undergoes a series of steps referred to as chromatography,
which purifies the desired biologic for end use. To enable this
process, Repligen manufactures and sells three types of products:
cell culture growth factors used in fermentation, Protein A
affinity ligands used to make purification media for mAbs and
other chromatography products including our OPUS® line of
The growth of our business is driven by the continued
expansion of the worldwide market for biologic drugs,
pre-packed columns.
including monoclonal antibodies (mAbs). This market continues
to enjoy double-digit growth and is currently valued at over
In fermentation, our leading growth factor product, LONG®
$100 billion.
R3 IGF-1, is used to stimulate cells to grow more rapidly
opportunity
and to higher densities. Currently this product
is used in the manufacture of several marketed
biologic drugs. We have established an internal
research effort to develop data that our sales
force can use to demonstrate the technical
advantages of our IGF-1 product over insulin,
The global market for monoclonal antibodies – the largest sector
the current market leader. Separately, we are documenting
of the biologic drug market and the one in which we primarily
the use of IGF-1 and our other growth factor products in
participate – has averaged approximately 14% growth over the
emerging areas such as growing cells for “regenerative medi-
past five years. This market, which includes antibody fusion
cine” in which the cell is the final product.
proteins, exceeded $70 billion in 2013. Six of the 10 best-selling
therapeutics in 2012 were monoclonal antibodies, including
The Protein A products that we manufacture on behalf of lead-
blockbuster drugs such as Enbrel® for arthritis and Avastin® for
ing life sciences companies currently account for the majority of
the treatment of colon, lung and other cancers, each of which
our bioprocessing revenue. We are the market and technology
recorded sales of more than $7 billion in 2013.
leader in the manufacture of Protein A affinity ligands, a critical
Several recently launched biologic drugs such as Roche’s Kadcyla®,
sciences partners produce and sell to their biopharmaceutical
an antibody-drug conjugate for breast cancer, have seen rapid
customers for the purification of monoclonal antibodies.
component of Protein A chromatographic media that our life
4
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Our leadership position is based on over 15 years of protein
manufacturing expertise. Nearly all monoclonal antibodies on
the market or in development are purified using Protein A
media due to its unmatched ability to efficiently bind to and
separate monoclonal antibodies from the crude fermentation
growth
harvest. We expect that the continued expansion of the
products such as orphan drugs. As a result, in March 2014,
monoclonal antibody market will drive increased demand for
we launched a new 45 cm diameter OPUS® column, which
Protein A affinity ligands.
has the highest capacity of any pre-packed column on the
market. We anticipate significant additional growth for OPUS®
Our chromatography product group is highlighted by our
in 2014 as we expand the product line and bolster our sales
OPUS® chromatography columns, which we sell direct to
and marketing efforts. Through innovation and responsiveness
biopharmaceutical manufacturers, pre-packed with purification
to our customers, we have established Repligen as a technology
media. OPUS® provides customers with significant cost and
leader in pre-packed, ready-to-use chromatography columns
time savings by eliminating in-house packing and quality control
based on the breadth and flexibility of our offering, and
of traditional columns. In 2012, we introduced a line of OPUS®
we are confident that OPUS® has a promising future in
ready-to-use columns, designed to support the manufacture of
biomanufacturing facilities around the world.
biologic drugs at a small scale.
During 2013, the OPUS® product line experienced rapid
completed an expansion of our U.S. manufacturing facility in
growth as customers began adopting OPUS® in their pilot
2013 which will enable us to meet anticipated increases in
plants for the production of antibodies and other biologic
demand while maintaining or exceeding our customers’ quality
To support the growth of OPUS® and other products, we
products for use in clinical trials. In response to their requests,
expectations.
we developed larger OPUS® columns suitable for purifying
larger volumes of clinical trial product or niche commercial
Our growth in 2014 and in the years ahead will stem from
the opportunities I described – market expansion; the intro-
duction of new manufacturing technologies; and increased
direct sales efforts to support the adoption of our proprie-
tary growth factor and OPUS® products. We anticipate that
additional products will come from our internal development
efforts and potentially, through acquisitions. Our success will
also depend on the continuing efforts of all of our employees
to reliably deliver on the high levels of quality, service and
technical expertise that our customers have come to rely on
to meet their bioproduction needs.
Sincerely,
Walter C. Herlihy, Ph.D.
President and Chief Executive Officer
40433txt.indd 9
5
3/19/14 1:30 PM
our
products
product 1
.........fermentation...........................................................................
........
.........purification.......................................................................................................................................................................................................................................................
growth factors
Our growth factors are used during fermentation
to stimulate cells to grow more rapidly and to
higher densities. This results in higher yields of the
desired biologic or cellular product.
protein A
We manufacture Protein A affinity ligands
enabling our partners to produce Protein A
media which is essential in the purification
of most monoclonal antibody drugs.
6
40433txt.indd 10
3/19/14 1:30 PM
.........purification.......................................................................................................................................................................................................................................................
........................
chromatography products
Our OPUS® line of chromatography columns offers
unparalleled choice and flexibility in the growing market
for ready-to-use purification columns. We also sell our
own Protein A media to end users for specific applications.
40433txt.indd 11
7
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RepliGen
2013
Form 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
‘ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2013
OR
For the transition period from
to
Commission File Number 000-14656
REPLIGEN CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
41 Seyon Street, Bldg. 1, Suite 100
Waltham, MA
(Address of principal executive offices)
04-2729386
(I.R.S. Employer
Identification No.)
02453
(Zip Code)
Registrant’s telephone number, including area code: (781) 250-0111
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, $0.01 Par Value Per Share
Name of Exchange on Which Registered
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ‘ No È.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ‘ No È.
Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes È No ‘.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for
such shorter period that the registrant was required to submit and post such files). Yes È No ‘.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. È
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
(Check one):
Large accelerated filer ‘
Accelerated filer È
Non-accelerated filer ‘
(Do not check if a smaller
reporting company)
Smaller reporting company ‘
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ‘ No È.
The aggregate market value of the voting and non-voting common equity held by non-affiliates as of June 28, 2013, the last business day of
the registrant’s most recently completed second fiscal quarter, was $262,149,000.
The number of shares of the registrant’s common stock outstanding as of February 12, 2014 was 31,935,541.
Documents Incorporated By Reference
The registrant intends to file a proxy statement pursuant to Regulation 14A within 120 days of the end of the fiscal year ended
December 31, 2013. Portions of such proxy statement are incorporated by reference into Part III of this Annual Report on Form 10-K.
Table of Contents
PART I
Item 1.
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2.
Item 3.
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 4. Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 6.
Selected Consolidated Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations . . .
Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 8.
Item 9.
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . .
Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART III
PART IV
Item 15. Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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Item 1.
BUSINESS
PART I
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 statements. Our
actual results could differ materially from those anticipated in these forward-looking statements and are a result
of certain factors, including those set forth under “Risk Factors” and elsewhere in this Annual Report on
Form 10-K.
Overview
Repligen Corporation (“Repligen,” the “Company” or “we”) is a life sciences company that develops,
manufactures and markets high-value, consumable bioprocessing products for life sciences and
biopharmaceutical companies worldwide. We are a world-leading manufacturer of both native and recombinant
forms of Protein A, critical reagents used in biomanufacturing to purify monoclonal antibodies, a type of biologic
drug. We also supply several growth factor products used to increase cell culture productivity during the
bioproduction process. In the expanding area of flexible biomanufacturing technologies, we have developed and
currently market a series of OPUS® (Open-Platform, User-Specified) chromatography columns for use in
clinical-scale manufacturing. These pre-packed, “plug-and-play” columns are uniquely customizable to our
customers’ media and size requirements. We generally manufacture and sell Protein A and growth factors to life
sciences companies under long-term supply agreements and sell our chromatography columns, as well as media
and quality test kits, directly to biopharmaceutical companies or contract manufacturing organizations. We refer
to these activities as our bioprocessing business.
On December 20, 2011, we significantly increased the size of our bioprocessing business through a strategic
acquisition. We acquired certain assets and assumed certain liabilities of Novozymes Biopharma Sweden, AB
(“Novozymes”) in Lund, Sweden, including the manufacture and supply of cell culture ingredients for use in
industrial cell culture, stem and therapeutic cell culture as well as Protein A affinity ligands for use in
biopharmaceutical manufacturing (the “Novozymes Biopharma Business” and the acquisition of the Novozymes
Biopharma Business, the “Novozymes Acquisition”) for a total purchase price of 20,310,000 Euros
(~$26,400,000). As a result of the Novozymes Acquisition, we doubled the size of our bioprocessing business.
We have out-licensed certain intellectual property to Bristol-Myers Squibb Company, or Bristol, from
which we received royalties on Bristol’s net sales in the United States through 2013 of their product Orencia®.
On April 7, 2008, we entered into a settlement agreement with Bristol in connection with a patent infringement
lawsuit that we filed against Bristol. Under the terms of the settlement agreement, Bristol was obligated to pay us
royalties on its U.S. net sales of Orencia® for any clinical indication at a rate of 1.8% for the first $500,000,000
of annual sales, 2.0% for the next $500,000,000 of annual sales and 4% of annual sales in excess of $1 billion.
Under the terms of the agreement, we will not receive any future royalties on Bristol’s sales of Orencia® made
after December 31, 2013. We expect that the loss of these royalty payments will materially and adversely affect
our revenue and operating results.
Historically, Repligen also conducted activities aimed at developing proprietary therapeutic drug candidates,
often with a potential of entering into a collaboration with a larger commercial stage pharmaceutical or
biotechnology company in respect of these programs. As part of our strategic decision in 2012 to focus our
efforts on our core bioprocessing business, we reduced our efforts on our clinical development programs and
increased our efforts to find collaboration partners to pursue the development and, if successful, the
commercialization of these drug programs. The current status of our therapeutic drug development portfolio is:
•
On December 28, 2012, we out-licensed our spinal muscular atrophy program, or SMA program, led
by RG3039, a small molecule drug candidate in clinical development for SMA, to Pfizer Inc., or Pfizer.
1
•
•
Pursuant to the license agreement, Pfizer assumed the majority of the costs associated with completing
the required clinical trials for this program as well as obtaining U.S. Food and Drug Administration
(“FDA”) approval of the respective new drug application (“NDA”). Under the license agreement, we
were obligated to conduct additional activities in support of this program, which included completing
the second cohort of the initial Phase I trial for RG3039 and supporting the transition of the program to
Pfizer. We completed this second cohort during the quarter ended March 31, 2013 and substantially all
of our remaining clinical obligations during the quarter ended June 30, 2013. As of September 30,
2013, we had completed all of our obligations under the license agreement.
On January 21, 2014, we out-licensed our histone deacetylase inhibitor (“HDACi”) portfolio, which
includes the Friedreich’s ataxia program, to BioMarin Pharmaceuticals Inc., or BioMarin. Under the
terms of the agreement, Repligen received an upfront payment of $2 million in January 2014 from
BioMarin and we have the potential to receive up to $160 million in future milestone payments for the
development, regulatory approval and commercial sale of portfolio compounds included in the
agreement. In addition, Repligen is eligible to receive royalties on sales of qualified products
developed.
Our clinical development portfolio also includes RG1068, a synthetic human hormone developed as a
novel imaging agent for the improved detection of pancreatic duct abnormalities in combination with
magnetic resonance imaging in patients with pancreatitis and potentially other pancreatic diseases. We
submitted an NDA to the FDA and a marketing authorization application to the European Medicines
Agency in the first quarter of 2012. In the second quarter of 2012, we received a complete response
letter from the FDA, indicating the need for additional clinical efficacy and safety trial data. We have
also received from the FDA the requirements for an additional registration study. We believe this
information may be a factor in the decision by third-parties that may wish to pursue a development or
commercialization agreement with us for RG1068. We expect that any additional development
activities in the future will be supported by sponsors or other third parties.
Corporate Background
We were incorporated in May 1981, under the laws of the State of Delaware. Our principal executive offices
are located at 41 Seyon Street, Waltham, Massachusetts 02453 and our telephone number is (781) 250-0111. We
conduct manufacturing in Waltham and at our facility in Lund, Sweden.
Change in Fiscal Year
In 2011 we changed our fiscal year end from March 31 to December 31. This Annual Report on Form 10-K
reports our financial results for the twelve-month period ending on December 31, 2013. This report also includes
our financial results for the twelve-month period ending on December 31, 2012, and the nine-month periods
ending on December 31, 2011 and December 31, 2010.
Currently Marketed Products
We currently sell various commercial bioprocessing products based on Protein A and growth factors, as well
as a line of pre-packed chromatography columns and quality test kits, which are used in the production of
monoclonal antibodies and other biopharmaceutical products.
Our Products for the Manufacturing of Biologic Drugs
Repligen is a leading developer and manufacturer of certain consumable bioprocessing products used in the
production of monoclonal antibodies and other biologic drugs. The Company manufactures multiple forms of
Protein A ligand, a critical component of Protein A media that is used in the downstream purification process for
monoclonal antibodies, on behalf of several major life sciences companies. We also manufacture and sell growth
2
factors, used to increase cell growth and productivity during upstream fermentation, and chromatography
products. Our chromatography products include OPUS pre-packed columns for biologics purification, proprietary
Protein A media and quality test kits. These products are sold to life sciences companies, contract manufacturing
organizations and biopharmaceutical companies for use in the biologic drug production. Demand for our
bioprocessing products has grown in concert with the expanding global market for biologics, particularly
monoclonal antibodies, and also as a result of new product offerings through our acquisition of the Novozymes
Biopharma business in December 2011.
In 2012, the global biologics market was valued at approximately $175 billion and is expected to grow at a
rate in the high single digits annually. Market research indicates that the monoclonal antibody segment
comprised over 40% of the overall biologics market in 2012 and is growing more rapidly than the overall market.
Six of the ten worldwide best-selling drugs in 2012 were monoclonal antibodies, including blockbuster products
such as Enbrel® and Remicade® for the treatment of rheumatoid arthritis and other inflammatory disorders,
Rituxan® for non-Hodgkin’s lymphoma and Herceptin® for the treatment of breast cancer. There are more than
35 approved monoclonal antibody products and over 350 product candidates currently in clinical development,
most of which are manufactured using Protein A.
Repligen has been a leading manufacturer of Protein A for over fifteen years and manufactures multiple
forms of Protein A for major life sciences companies including GE Healthcare and EMD Millipore under long-
term supply agreements which extend to dates between 2016 and 2021. To be useful in the monoclonal antibody
manufacturing process, Protein A is chemically bound to proprietary microscopic beads that are manufactured by
life sciences companies, such as those mentioned above. These beads provide the rigid support required to use
Protein A ligands. The combination of Protein A ligands bound to the beads is known as Protein A
chromatographic media, which is packed by end-users into cylindrical columns and used to purify monoclonal
antibodies. For example, after a fermentation process that produces monoclonal antibodies, the broth containing
the monoclonal of interest, as well as numerous fermentation by-products and contaminants, is pumped through a
column filled with Protein A chromatographic media. The Protein A media selectively binds to or “captures” the
monoclonal antibody. Protein A has a high affinity for the monoclonal antibody and as a result, the antibody
remains bound to the Protein A media while impurities flow through the column and are discarded. Once the
impurities are removed, a change in pH conditions releases the purified antibody from the Protein A media. As a
result, the monoclonal antibody product is highly purified and concentrated from a single purification step.
Further purification steps are usually necessary to increase purity to a level greater than 98%. Over the past three
years, the majority of our product sales have been sales of Protein A products.
Most biopharmaceuticals are produced through mammalian cell fermentation. In order to spur increased cell
growth, manufacturers add growth factors and nutrients to the fermentor. As part of the Novozymes Acquisition,
the Company acquired four cell culture growth factor products. Among those products is LONG®R3 IGF-I, a
growth factor that is more biologically potent than insulin, and that has been shown to significantly increase
recombinant protein production in fermentation applications. LONG®R3 IGF-I is currently used in the
manufacture of several commercial biopharmaceutical products and is sold under a distribution agreement with
Sigma-Aldrich Corporation (“Sigma”) which extends to 2021. Sigma has distribution rights for industrial cell
culture applications while Repligen sells the product for use in stem cell and other cell-based therapies. In
addition, we acquired long epidermal growth factor (LONG®EGF) and transforming growth factor alpha
(LONG®TGF-a) supplements for serum-free or low serum culture in cell-based therapy applications, as well as
recombinant transferrin (rTransferrin) which has been developed as an iron supplement for cell culture. There
may be applications for these growth factors in stem cell and other cell-based therapies.
We also sell a number of products used in purification and quality control applications to contract
manufacturers and biopharmaceutical companies. These products include: OPUS pre-packed, disposable
chromatography columns, proprietary Protein A chromatography media and quality test kits. Our pre-packed
chromatography columns are sold in a variety of sizes with the customer’s choice of media. This product line’s
smaller sizes consist of proprietary technology that we acquired from BioFlash Partners, LLC (“BioFlash”) in
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January 2010 while the larger sizes encompass products and technology that we developed as a result of our
internal research and development efforts. The OPUS brand stands for “Open Platform, User Specified.” OPUS
columns have the potential to improve manufacturing efficiencies and lower costs by reducing labor and time
spent on column packing, validation, set-up and cleaning. In addition, because OPUS columns are “plug-and-
play” we believe they offer customers significantly greater manufacturing efficiency and flexibility when used
with other flexible, disposable technologies. In early 2012, we introduced new, process-scale OPUS
chromatography columns with diameters of 20cm and 30cm. These new products are well suited for the
production of a broad range of clinical trial material and niche commercial products such as orphan biologics.
Our proprietary Protein A chromatography media is used by contract manufacturers and biopharmaceutical
companies in a variety of applications, including in the purification of some currently marketed biotherapeutics.
Customers use our Protein A and Growth Factor ELISA test kits to ensure that there are minimal levels of
residual Protein A and growth factor, respectively, in the final bulk drug product.
Research and Development
Historically, our research activities have been focused on both the development of proprietary therapeutic
drug candidates and the development of new and improved bioprocessing products. As part of our strategic
decision in 2012 to focus the Company’s efforts on our core bioprocessing business, we reduced our research
efforts on our clinical development programs and increased our efforts to find collaboration partners to finish
their development and, if successful, commercialize these therapeutic drug candidates. We intend to focus the
majority of our future research and development efforts on developing new bioprocessing products. Specifically,
we plan to focus these efforts on our growth factor and chromatography product offerings because we believe
those markets may offer a higher rate of growth than the bulk Protein A market. As a result, we expect research
and development expenses to decrease slightly in 2014 as compared to 2013.
HDAC Agreement with BioMarin
On January 21, 2014, we out-licensed our HDACi portfolio, which includes the Friedreich’s ataxia program,
to BioMarin Pharmaceuticals Inc. Friedreich’s ataxia is an inherited disease that causes progressive damage to
the nervous system resulting in symptoms ranging from impaired walking and speech problems to heart disease.
Under the terms of the agreement, Repligen received an upfront payment of $2 million in January 2014 from
BioMarin and we have the potential to receive up to $160 million in future milestone payments for the
development, regulatory approval and commercial sale of portfolio compounds included in the agreement. In
addition, Repligen is eligible to receive royalties on sales of qualified products developed.
SMA Agreement with Pfizer
On December 28, 2012, we entered into an exclusive worldwide licensing agreement (the “License
Agreement”) with Pfizer to advance the SMA program, which is led by RG3039 and also includes backup
compounds and enabling technologies. Under the terms of the License Agreement, we received $5 million from
Pfizer as an upfront payment on January 22, 2013 and a $1 million milestone payment on September 4, 2013. We
are entitled to receive up to $64 million in potential future milestone payments, a portion of which may be owed
to third parties. These potential payments are approximately equally divided between milestones related to
clinical development and initial commercial sales in specific geographies. In addition, we are entitled to receive
royalties on any future sales of RG3039 or any SMA compounds developed under the License Agreement. The
License Agreement also provides for tiered and increasing royalty rates which begin in the high single-digits for
RG-3039 or lesser amounts for any backup compounds developed under the License Agreement. Our receipt of
these royalties is subject to an obligation under an existing in-license agreement and other customary offsets and
deductions. Royalties are payable, on a country-by-country basis, for a duration based upon the later of
(a) expiration of the licensed patent(s) or (b) a predetermined time after the first commercial sale of the first such
product in such country.
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Pursuant to this License Agreement, Pfizer has assumed full responsibility for the SMA program moving
forward, including the conduct of the clinical trials necessary for any product approvals. Pfizer may terminate the
license agreement at any time for convenience.
Orencia® (CTLA4-Ig) Royalties
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 infection 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 treat certain autoimmune diseases. This research finding resulted in the
granting of U.S. patent No. 6,685,941 (“the ‘941 Patent”) covering the treatment of certain autoimmune disorders
including rheumatoid arthritis with CTLA4-Ig. CTLA4-Ig’s mechanism of action is different from the current
therapies for autoimmune disease or organ transplant rejection, thus, it may provide a treatment for patients who
are refractory to existing therapies.
In December 2005, the FDA approved Bristol’s application to market CTLA4-Ig, under the brand name
Orencia®, for treatment of rheumatoid arthritis. 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 the ‘941 Patent. In April 2008, Repligen and the University of Michigan entered into a settlement
agreement with Bristol pursuant to which, Bristol made an initial payment of $5 million to us and agreed to pay
us royalties on the U.S. net sales of Orencia® for any clinical indication at a rate of 1.8% for the first
$500 million of annual sales, 2.0% for the next $500 million and 4.0% of annual sales in excess of $1 billion for
each year from January 1, 2008 until December 31, 2013. These royalty payments have ceased.
The ‘941 Patent is owned by the University of Michigan and exclusively licensed to Repligen. In
consideration of this exclusive license, Repligen agreed to pay the University of Michigan 15% of all royalty
income received from Bristol, after deducting legal expenses. There are no annual or other fees associated with
this agreement. As of December 31, 2013, we have paid approximately $10,065,000 to the University of
Michigan under this agreement.
Sales and Marketing
We sell our bioprocessing products through our direct sales force, to partners such as GE Healthcare,
EMD Millipore, Sigma Aldrich and to distributors in certain foreign markets.
Segment and Geographic Areas
We have one reportable segment. Segment and geographical information is contained in Note 2, the notes to
our consolidated financial statements.
Significant Customers and Geographic Reporting
Customers for our bioprocessing products include major life science companies, contract manufacturing
organizations, biopharmaceutical companies, diagnostics companies and laboratory researchers. For the fiscal
years ended December 31, 2013 and 2012, the nine-month fiscal year ended December 31, 2011 and the nine-
month period ended December 31, 2010, total revenues from sales to customers in the United States were
approximately 51%, 46%, 48%, and 48%, respectively, of total revenues. During the same periods, total revenues
generated through sales to customers in Sweden were 35%, 42%, 44% and 45%, respectively, of total revenues.
During the same periods, total revenues generated through sales to customers in the United Kingdom were 12%,
9%, 3% and 4%, respectively, of total revenues. For the fiscal years ended December 31, 2013 and 2012, the
nine-month fiscal year ended December 31, 2011 and the nine-month period ended December 31, 2010, royalty
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revenue from Bristol represented 27%, 24%, 37% and 37% of total revenues, respectively. Our largest
bioprocessing customer accounted for 35%, 42%, 44% and 45% of total revenues in the fiscal years ended
December 31, 2013 and 2012, the nine-month fiscal year ended December 31, 2011 and the nine-month period
ended December 31, 2010, respectively.
Employees
As of February 17, 2014, we had 116 employees. Of those employees, 94 were engaged in research,
development and manufacturing and 22 were in administrative and marketing functions. Each of our employees
has signed a confidentiality agreement. None of our U.S. employees are covered by collective bargaining
agreements. We have two collective bargaining agreements that cover our 58 employees in Sweden, comprising
approximately 50% of our total workforce. The current collective bargaining agreements expire on March 1,
2016. The Company considers its employee relations to be satisfactory.
Patents, Licenses and Proprietary Rights
Repligen considers patents to be an important element in the protection of our competitive and proprietary
position and actively, and selectively, pursues patent protection in the United States and in major countries
abroad. As further described below, Repligen owns or has exclusive rights to a number of U.S. patents and U.S.
pending patent applications as well as corresponding foreign patents and patent applications. The expiration 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.
Other forms of market protection, including trade secrets and know-how, are also considered important
elements of our proprietary strategy. Our policy is to require each of our employees, consultants, business
partners and major customers to execute confidentiality agreements upon the commencement of an employment,
consulting, business relationship, or product related audit with us. These agreements provide that all confidential
information developed or made known to the other party during the course of the relationship with us is to be
kept confidential and not disclosed to third parties except in specific circumstances. In the case of employees and
consultants, the agreements generally provide that all inventions conceived by the individual in the course of
rendering services to Repligen shall be our exclusive property.
Protein A
We have developed proprietary technology, trade secrets, and know-how relating to the manufacture of
recombinant Protein A at a scale and quality standard which is consistent with the requirements of the
biopharmaceutical industry. In addition, in April 2010, we were granted U.S. Patent No. 7,691,608 B2, “Nucleic
Acids Encoding Recombinant Protein A,” which claims a recombinant gene that encodes a Protein A molecule
with an amino acid sequence identical to that of the natural Protein A molecule, which has long been
commercialized for bioprocessing applications. This U.S. patent, with the term extension that was granted, will
remain in effect until 2028. Foreign equivalents of this patent are being prosecuted outside of the United States.
OPUS
In January 2012, Repligen filed a provisional patent application with the U.S. Patent and Trademark Office
(“USPTO”) which covers certain unique features of our OPUS pre-packed columns. Pending claims that relate to
these unique features cover the ease and flexibility of column packing, bed height and cleaning that is improved
over existing column designs. In January 2013, we filed an international patent cooperation treaty (“PCT”)
application as well as a utility application with the USPTO on the basis of the provisional application.
CTLA4-Ig
The ‘941 patent, covering the use of CTLA4-Ig to treat specific autoimmune disorders including rheumatoid
arthritis and multiple sclerosis was issued in February 2004. The patent is assigned to the University of Michigan
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and the U.S. Navy and is exclusively licensed to Repligen. In April 2008, Repligen granted Bristol an exclusive
sublicense to this patent, pursuant to which Bristol paid us royalties on its U.S. net sales of its rheumatoid
arthritis drug, Orencia® through December 31, 2013. These royalty payments have ceased.
Spinal Muscular Atrophy
In 2009, Repligen entered into an exclusive license agreement with a non-profit organization, FSMA, for
worldwide rights to patent applications related to compositions and methods for the treatment of spinal muscular
atrophy. FSMA had funded the development of these compounds and identified a novel enzyme target (“DcpS”)
that these compounds inhibit. In 2011, we were granted U.S. Patent Nos. 7,888,366 and 7,985,755, both entitled
“2,4 Diaminoquinazolines for Spinal Muscular Atrophy,” with allowed composition claims that cover both the
genus and the species of the chemical structures of the lead clinical candidates. Pursuant to the License
Agreement, we licensed all of our intellectual property related to SMA to Pfizer and Pfizer has assumed
responsibility for maintaining existing intellectual property and prosecuting new intellectual property relating to
this program.
Histone Deacetylase Inhibitors
Repligen has entered into an exclusive license agreement with The Scripps Research Institute for worldwide
rights to a patent application claiming compounds and methods for treating Friedreich’s ataxia with inhibitors of
histone deacetylase. We have extended this original work and filed additional patent applications which claim
both methods and compositions for treating Friedreich’s ataxia. We licensed all of our intellectual property
related to HDAC to BioMarin and BioMarin has assumed responsibility for maintaining existing intellectual
property and prosecuting new intellectual property relating to this program.
Competition
Our bioprocessing products compete on the basis of quality, performance, cost effectiveness, and
application suitability with numerous established technologies. Additional products using new technologies that
may be competitive with our products may also be introduced. Many of the companies selling or developing
competitive products have greater financial and human resources, research and development, manufacturing and
marketing experience than we do. They may succeed in developing products that are more effective or less costly
than any that we may develop. These competitors may also prove to be more successful in their production,
marketing and commercialization activities. We cannot be certain that the research, development and
commercialization efforts of our competitors will not render any of our existing or potential products obsolete.
Manufacturing
We manufacture seven forms of commercial scale Protein A including “native” Protein A for life sciences
companies including GE Healthcare and EMD Millipore under long-term supply agreements which expire
between 2016 and 2021. Native Protein A is manufactured in Sweden, while the recombinant forms are
manufactured in both Waltham and Sweden. We currently manufacture our growth factor products in Sweden
and assemble and pack our OPUS chromatography columns in Waltham.
We generally purchase raw materials from more than one commercially established company and believe
that the necessary raw materials are currently commercially available in sufficient quantities necessary to meet
market demand. We utilize our own facilities in Waltham and Sweden as well as third party contract
manufacturing organizations to carry out certain fermentation and recovery operations, while the purification,
immobilization, packaging and quality control testing of our bioprocessing products are conducted at our
facilities. Our U.S. facility, located in Waltham, Massachusetts and our Sweden facility, located in Lund, are
both ISO 9001 certified and maintain formal quality systems to maintain process control, traceability, and
product conformance. Our Sweden facility, located in Lund, is also cGMP certified. We practice continuous
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improvement initiatives based on routine internal audits as well as external feedback and audits performed by our
partners and customers. In addition, we maintain a business continuity management system which focuses on key
areas such as contingency planning, security stocks and off-site storage of raw materials and finished goods to
ensure continuous supply of our products.
Available Information
We maintain a website with the address www.repligen.com. We are not including the information contained
on our website as a part of, or incorporating it by reference into, this Annual Report on Form 10-K. We make
available free of charge through our website our annual reports on Form 10-K, quarterly reports on Form 10-Q
and current reports on Form 8-K, and amendments to these reports, as soon as reasonably practicable after we
electronically file such materials with, or furnish such materials to, the Securities and Exchange Commission.
Our Code of Business Conduct and Ethics is also available free of charge through our website.
In addition, the public may read and copy any materials that we file with the Securities and Exchange
Commission at the Securities and Exchange Commission’s Public Reference Room at 100 F Street, NE,
Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by
calling the Securities and Exchange Commission at 1-800-SEC-0330. Also, our filings with the Securities and
Exchange Commission may be accessed through the Securities and Exchange Commission’s Electronic Data
Gathering, Analysis and Retrieval (EDGAR) system at www.sec.gov.
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Item 1A. RISK FACTORS
Investors should carefully consider the risk factors described below before making an investment decision.
If any of the events described in the following risk factors occur, our business, financial condition or results
of operations could be materially harmed. In that case the trading price of our common stock could decline, and
investors may lose all or part of their investment. Additional risks and uncertainties that we are unaware of or
that we currently deem immaterial may also become important factors that affect Repligen.
This Annual Report on Form 10-K contains forward looking statements that involve risks and uncertainties.
Our actual results could differ materially from those anticipated in these forward looking statements as a result of
certain factors, including the risks faced by us described below and elsewhere in this Annual Report on Form 10-K.
We face competition from numerous competitors, most of whom have far greater resources than we have,
which may make it more difficult for us to achieve significant market penetration.
The bioprocessing market is intensely competitive, subject to rapid change and significantly affected by new
product introductions and other market activities of industry participants.
Many of our competitors are large, well-capitalized companies with significantly more market share and
resources than we have. As a consequence, they are able to spend more aggressively on product development,
marketing, sales and other product initiatives than we can. Many of these competitors have:
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significantly greater name recognition;
larger and more established distribution networks;
additional lines of products and the ability to bundle products to offer higher discounts or other
incentives to gain a competitive advantage;
greater experience in conducting research and development, manufacturing, clinical trials, marketing,
obtaining regulatory approval and entering into collaboration or other strategic partnership
arrangements; and
greater financial and human resources for product development, sales and marketing and patent
litigation.
Our current competitors or other companies may at any time develop additional products that compete with
our products. If an existing or future competitor develops products that compete with or are superior to our
products, our revenue may decline. In addition, some of our competitors may compete by lowering the price of
their products. If prices were to fall, we may not be able to improve our gross margins or sales growth
sufficiently to maintain and grow our profitability.
We depend on, and expect to continue to depend on, a limited number of customers for a high percentage
of our revenues.
As a result, the loss of, or a significant reduction in orders from, any of these customers would significantly
reduce our revenues and harm our results of operations. If a large customer purchases fewer of our products,
defers orders or fails to place additional orders with us, our revenue could decline, and our operating results may
not meet market expectations. In addition, if those customers order our products, but fail to pay on time or at all,
our liquidity and operating results could be materially and adversely affected.
As we evolve from a company involved in research and development to a company with a strategic focus
on our bioprocessing business, we may encounter difficulties in expanding our operations successfully.
In connection with the Company’s decision to focus our efforts on the growth of our core bioprocessing
business, we will continue to seek development and commercialization partnerships for our remaining portfolio
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of therapeutic and diagnostic assets. Our future financial performance will depend, in part, on our ability to
successfully negotiate and consummate these partnerships. We may not be able to accomplish these tasks, and
our failure to accomplish any of them could prevent us from monetizing our clinical stage assets. There is also no
guarantee that we will successfully expand our bioprocessing business as a result of this change in strategic focus
and the Company’s financial performance will likely suffer if we are unable to do so.
If intangible assets that we recorded in connection with the Novozymes Acquisition become impaired, we
could have to take significant charges against earnings.
In connection with the accounting for the Novozymes Acquisition, we recorded a significant amount of
intangible assets, including developed technology and customer relationships relating to the growth factor
products. Under U.S. GAAP, we must assess, at least annually and potentially more frequently, whether the value
of intangible assets has been impaired. Intangible assets will be assessed for impairment in the event of an
impairment indicator. Any reduction or impairment of the value of intangible assets will result in a charge against
earnings, which could materially adversely affect our results of operations and shareholders’ equity in future
periods.
Our exposure to political, economic and other risks that arise from operating a multinational business has
increased dramatically since the consummation of the Novozymes Acquisition.
Our operations and sales outside of the United States have increased and may continue to increase as a result
of the Novozymes Acquisition. Risks related to these increased foreign operations include:
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changes in general economic and political conditions in countries where we operate, particularly as a
result of ongoing economic instability within the European Union;
being subject to complex and restrictive employment and labor laws and regulations, as well as union
and works council restrictions;
fluctuations in foreign currency exchange rates;
changes in tax laws or rulings in the United States or other foreign jurisdictions that may have an
adverse impact on our effective tax rate;
being subject to burdensome foreign laws and regulations, including regulations that may place an
increased tax burden on our operations;
being subject to longer payment cycles from customers and experiencing greater difficulties in timely
accounts receivable collections; and
required compliance with a variety of foreign laws and regulations.
Our business success depends in part on our ability to anticipate and effectively manage these and other
risks to which our exposure has increased following the Novozymes Acquisition. We cannot assure you that
these and other related factors will not materially adversely affect our international operations or business as a
whole since the consummation of the Novozymes Acquisition.
We may be unable to manage efficiently having become a larger and more geographically diverse
organization since the consummation of the Novozymes Acquisition.
Since the acquisition of the Novozymes Biopharma Business, we have faced challenges inherent in
efficiently managing an increased number of employees over large geographic distances, including the need to
implement appropriate systems, policies, benefits and compliance programs. Our inability to manage
successfully the geographically more diverse (including from a cultural perspective) and substantially larger
combined organization could materially adversely affect our operating results and, as a result, the market price of
our common stock.
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The environmental risks of our business have increased dramatically since the Novozymes Acquisition.
Our manufacturing business involves the controlled use of hazardous materials and chemicals and is
therefore subject to numerous environmental and safety laws and regulations and to periodic inspections for
possible violations of these laws and regulations. In addition to these hazardous materials and chemicals, our
facility in Sweden, also uses Staphylococcus aureus and toxins produced by Staphylococcus aureus in some of its
manufacturing processes. Staphylococcus aureus and the toxins it produces, particularly enterotoxins, can cause
severe illness in humans. The costs of compliance with environmental and safety laws and regulations are
significant and have increased since we completed the acquisition of the Novozymes Biopharma Business. Any
violations, even if inadvertent or accidental, of current or future environmental, safety laws or regulations and the
cost of compliance with any resulting order or fine could adversely affect our operations.
Our acquisitions expose us to risks that could adversely affect our business, and we may not achieve the
anticipated benefits of acquisitions of businesses or technologies.
In addition to the Novozymes Acquisition and as a part of our growth strategy, we may make selected
acquisitions of complementary products and/or businesses. Any acquisition involves numerous risks and
operational, financial, and managerial challenges, including the following, any of which could adversely affect
our business, financial condition, or results of operations:
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difficulties in integrating new operations, technologies, products, and personnel;
lack of synergies or the inability to realize expected synergies and cost-savings;
difficulties in managing geographically dispersed operations;
underperformance of any acquired technology, product, or business relative to our expectations and the
price we paid;
negative near-term impacts on financial results after an acquisition, including acquisition-related
earnings charges;
the potential loss of key employees, customers, and strategic partners of acquired companies;
claims by terminated employees and shareholders of acquired companies or other third parties related
to the transaction;
the assumption or incurrence of additional debt obligations or expenses, or use of substantial portions
of our cash;
the issuance of equity securities to finance or as consideration for any acquisitions would dilute the
ownership of our stockholders;
the issuance of equity securities to finance or as consideration for any acquisitions may not be an
option of if the price of our common stock is low or volatile which could preclude us from completing
any such acquisitions;
any collaboration, strategic alliance and licensing arrangement may require us to relinquish valuable
rights to our technologies or product candidates, or grant licenses on terms that are not favorable to us;
diversion of management’s attention and company resources from existing operations of the business;
inconsistencies in standards, controls, procedures, and policies;
the impairment of intangible assets as a result of technological advancements, or worse-than-expected
performance of acquired companies; and
assumption of, or exposure to, historical liabilities of the acquired business, including unknown
contingent or similar liabilities that are difficult to identify or accurately quantify.
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In addition, the successful integration of acquired businesses requires significant efforts and expense across
all operational areas, including sales and marketing, research and development, manufacturing, finance, legal,
and information technologies. There can be no assurance that any of the acquisitions we may make will be
successful or will be, or will remain, profitable. Our failure to successfully address the foregoing risks may
prevent us from achieving the anticipated benefits from any acquisition in a reasonable time frame, or at all.
Our royalty agreement with Bristol-Myers Squibb on sales of Orencia expired on December 31, 2013.
Our royalty agreement with Bristol provided for us to receive payments from Bristol based on their net sales
of their Orencia® product in the United States through December 31, 2013. As a result, we no longer receive
royalty payments under this agreement as of December 31, 2013. If we are unable to replace these royalty
payments with an alternative source of revenue and related income, our operating results will decline and, as a
result, we may experience a decline in the price of our common stock.
We have limited sales and marketing capabilities.
We have a small sales force and, historically, we have generated most of our revenues through sales of
bioprocessing products to a limited number of life sciences companies, such as GE Healthcare, EMD Millipore,
Sigma-Aldrich, Life Technologies and through other individual distributors. However, we expect a significant
amount of our future revenue growth to come from bioprocessing products that we sell directly to end-users such
as biopharmaceutical companies and contract manufacturing organizations. This may require us to invest
additional resources in our sales and marketing capabilities. We may not be able to attract and retain additional
sales and marketing professionals, and the cost of building the sales and marketing function may not generate our
anticipated revenue growth. In addition, our sales and marketing efforts may be unsuccessful. Our failure to
manage these risks may have a negative impact on our financial condition, or results of operations and may cause
our stock price to decline.
If we are unable to obtain or maintain our intellectual property, we may not be able to succeed
commercially.
We endeavor to obtain and maintain patent and trade secret protection for our products and processes when
available in order to protect them from unauthorized use and to produce a financial return consistent with the
significant time and expense required to bring our products to market. Our success will depend, in part, on our
ability to:
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obtain and maintain patent protection for our products and manufacturing processes;
preserve our trade secrets;
operate without infringing the proprietary rights of third parties; and
secure any necessary licenses from others on acceptable terms.
We cannot be sure that any patent applications relating to our products that we will file in the future or that
any currently pending applications will issue on a timely basis, if ever. Since patent applications in the
United States filed prior to November 2000 are maintained in secrecy until patents issue and since publication of
discoveries in the scientific or patent literature often lag behind actual discoveries, we cannot be certain that we
were the first to make the inventions covered by each of our pending patent applications or that we were the first
to file patent applications for such inventions. Even if patents are issued, the degree of protection afforded by
such patents will depend upon the:
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scope of the patent claims;
validity and enforceability of the claims obtained in such patents; and
our willingness and financial ability to enforce and/or defend them.
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The patent position of life sciences companies is often highly uncertain and usually involves complex legal
and scientific questions. Patents which may be granted to us in certain foreign countries may be subject to
opposition proceedings brought by third parties or result in suits by us, which may be costly and result in adverse
consequences for us.
In some cases, litigation or other proceedings may be necessary to assert claims of infringement, to enforce
patents issued to us or our licensors, to protect trade secrets, know-how or other intellectual property rights we
own or to determine the scope and validity of the proprietary rights of third parties. Such litigation could result in
substantial cost to us and diversion of our resources. An adverse outcome in any such litigation or proceeding
could have a material adverse effect on our business, financial condition and results of operations.
If our competitors prepare and file patent applications in the United States that claim technology also
claimed by us, we may be required to participate in interference proceedings declared by the U.S. Patent and
Trademark Office to determine priority of invention, which would result in substantial costs to us.
Since some of our U.S. patents covering recombinant Protein A have expired, we may face increased
competition, which could harm our results of operations, financial condition, cash flow and future
prospects.
Other companies could begin manufacturing and selling recombinant Protein A in the U.S. and may directly
compete with us on certain Protein A products. This may induce us to sell Protein A at lower prices and may
erode our market share which could adversely affect our results of operations, financial condition, cash flow and
future prospects.
Our freedom to develop our products may be challenged by others, and we may have to engage in
litigation to determine the scope and validity of competitors’ patents and proprietary rights, which, if we
do not prevail, could harm our business, results of operations, financial condition, cash flow and future
prospects.
There has been substantial litigation and other proceedings regarding the complex patent and other
intellectual property rights in the life sciences industry. We have been a party to, and in the future may become a
party to, patent litigation or other proceedings regarding intellectual property rights.
Other types of situations in which we may become involved in patent litigation or other intellectual property
proceedings include:
• We may initiate litigation or other proceedings against third parties to seek to invalidate the patents
held by such third parties or to obtain a judgment that our products or services do not infringe such
third parties’ patents.
• We may initiate litigation or other proceedings against third parties to seek to enforce our patents
against infringement.
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If our competitors file patent applications that claim technology also claimed by us, we may participate
in interference or opposition proceedings to determine the priority of invention.
If third parties initiate litigation claiming that our processes or products infringe their patent or other
intellectual property rights, we will need to defend against such claims.
The cost to us of any patent litigation or other proceeding, even if resolved in our favor, could be
substantial. Some of our competitors may be able to sustain the cost of such litigation or proceedings more
effectively than we can because of their substantially greater financial resources. If a patent litigation or other
intellectual property proceeding is resolved in a way that is unfavorable to us, we or our collaborative or strategic
partners may be enjoined from manufacturing or selling our products and services without a license from the
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other party and be held liable for significant damages. The failure to obtain any required license on commercially
acceptable terms or at all may harm our business, results of operations, financial condition, cash flow and future
prospects.
Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could
have a material adverse effect on our ability to compete in the marketplace. Patent litigation and other
proceedings may also absorb significant management time, attention and resources.
We may become involved in litigation or other proceedings with collaborative partners, which may be time
consuming, costly and could result in delays in our development and commercialization efforts.
In connection with the Company’s decision to focus its efforts on the growth of its core bioprocessing
business, we will seek development and commercialization partnerships for our remaining portfolio of clinical
stage assets. Any disputes with such partners, such as Pfizer or BioMarin, that lead to litigation or similar
proceedings may result in us incurring legal expenses, as well as facing potential legal liability. Such disputes,
litigation or other proceedings are also time consuming and may cause delays in our development and
commercialization efforts. If we fail to resolve these disputes quickly and with terms that are no less favorable to
us than the current terms of the arrangements, our business, results of operations, financial condition, cash flow
and future prospects may be harmed.
If we are unable to continue to hire and retain skilled personnel, then we will have trouble developing and
marketing our products.
Our success depends largely upon the continued service of our management and scientific staff and our
ability to attract retain and motivate highly skilled technical, scientific, management and marketing personnel.
We also face significant competition in the hiring and retention of such personnel from other companies, research
and academic institutions, government and other organizations who have superior funding and resources. The
loss of key personnel or our inability to hire and retain skilled personnel could materially adversely affect our
product development efforts and our business.
The market may not be receptive to our new bioprocessing products upon their introduction.
We expect a portion of our future revenue growth to come from introducing new bioprocessing products,
such as a larger size version of our OPUS disposable chromatography products which we began selling in 2012.
The commercial success of these new products as well as the products acquired in the Novozymes Acquisition
will depend upon their acceptance by the life science and biopharmaceutical industries. Many of the
bioprocessing products that we are developing are based upon new technologies or approaches. As a result, there
can be no assurance that these new products, even if successfully developed and introduced, will be accepted by
customers. If customers do not adopt our new products and technologies, our results of operations may suffer
and, as a result, the market price of our common stock may decline.
If our products do not perform as expected or the reliability of the technology on which our products are
based is questioned, we could experience lost revenue, delayed or reduced market acceptance of our
products, increased costs and damage to our reputation.
Our success depends on the market’s confidence that we can provide reliable, high-quality bioprocessing
products. We believe that customers in our target markets are likely to be particularly sensitive to product defects
and errors. Our reputation and the public image of our products and technologies may be impaired if our products
fail to perform as expected. Although our products are tested prior to shipment, defects or errors could
nonetheless occur in our products. Furthermore, the Protein A that we manufacture is subsequently incorporated
into products that are sold by other life sciences companies and we have no control over the manufacture and
production of those products.
14
In the future, if our products experience, or are perceived to experience, a material defect or error, this could
result in loss or delay of revenues, delayed market acceptance, damaged reputation, diversion of development
resources, legal claims, increased insurance costs or increased service and warranty costs, any of which could
harm our business. Such defects or errors could also narrow the scope of the use of our products, which could
hinder our success in the market. Even after any underlying concerns or problems are resolved, any lingering
concerns in our target market regarding our technology or any manufacturing defects or performance errors in
our products could continue to result in lost revenue, delayed market acceptance, damaged reputation, increased
service and warranty costs and claims against us.
If we are unable to manufacture our products in sufficient quantities and in a timely manner, our
operating results will be harmed, our ability to generate revenue could be diminished and our gross
margin may be negatively impacted.
Our revenues and other operating results will depend in large part on our ability to manufacture and
assemble our products in sufficient quantities and in a timely manner. Any interruptions we experience in the
manufacturing or shipping of our products could delay our ability to recognize revenues in a particular quarter.
Manufacturing problems can and do arise, and as demand for our products increases, any such problems could
have an increasingly significant impact on our operating results. While we have not generally experienced
problems with or delays in our production capabilities that resulted in delays in our ability to ship finished
products, there can be no assurance that we will not encounter such problems in the future. We may not be able
to quickly ship products and recognize anticipated revenues for a given period if we experience significant delays
in the manufacturing process. In addition, we must maintain sufficient production capacity in order to meet
anticipated customer demand, which carries fixed costs that we may not be able to offset if orders slow, which
would adversely affect our operating margins. If we are unable to manufacture our products consistently, in
sufficient quantities, and on a timely basis, our bioprocessing revenue, gross margins and our other operating
results will be materially and adversely affected.
Our operating results may fluctuate significantly, our customers’ future purchases are difficult to predict
and any failure to meet financial expectations may result in a decline in our stock price.
Our quarterly operating results may fluctuate in the future as a result of many factors such as the impact of
seasonal spending patterns, changes in overall spending levels in the life sciences industry, the inability of some
of our customers to consummate anticipated purchases of our products due to changes in end-user demand, and
other unpredictable factors that may affect ordering patterns. Because our revenue and operating results are
difficult to predict, we believe that period-to-period comparisons of our results of operations are not a good
indicator of our future performance. Additionally, if revenue declines in a quarter, whether due to a delay in
recognizing expected revenue, adverse economic conditions or otherwise our results of operations will be harmed
because many of our expenses are relatively fixed. In particular, a large portion of our manufacturing costs, our
research and development, sales and marketing and general and administrative expenses are not significantly
affected by variations in revenue. If our quarterly operating results fail to meet investor expectations, the price of
our common stock may decline.
We may be unsuccessful in negotiating and consummating development and commercialization
partnerships for our remaining portfolio of therapeutic and diagnostic assets on acceptable terms, if at all.
Our decision to focus on the growth of the Company’s core bioprocessing business will result in the
Company seeking development or commercialization partners for our remaining portfolio of therapeutic and
diagnostic assets. The consummation and performance of any such future development and commercialization
transactions will involve risks, such as:
•
•
diversion of managerial resources from day-to-day operations;
exposure to litigation from the counterparties to any such transaction or other third parties;
15
•
•
•
misjudgment with respect to value;
higher than expected transaction costs; or
an inability to successfully consummate any such transaction or collaboration.
Our future revenues pursuant to our license agreement with Pfizer regarding the SMA program depends
significantly on Pfizer’s development and commercialization activities, over which we have no control. If
Pfizer is unable or determines not to further develop or commercialize the SMA program, or experiences
significant delays in doing so, we may see a delay in receiving any potential milestone or royalty payments
or fail to receive any additional financial benefits from the program.
We entered into a license agreement with Pfizer on December 28, 2012, related to the SMA program, which
is led by RG3039 and also includes backup compounds and enabling technologies. We are dependent on Pfizer
for the future success of this development program. We have no control over the conduct and timing of
development efforts with respect to the SMA program. Although we have had discussions with Pfizer regarding
their current plans and intentions for the development of the SMA program, they may revise their plan in their
sole discretion. Pfizer’s failure to devote sufficient financial and other resources to the development plan may
result in the delayed or unsuccessful development of the program, which could lead to the non-payment or delay
in payment of milestones under the license agreement and may preclude or delay commercialization of any
product under the SMA program and any royalties we could receive on future commercial sales. Because the
license we granted to Pfizer is exclusive, our future financial results may be harmed if Pfizer does not
commercialize the SMA program successfully or on a timely basis or if Pfizer elects to terminate the license
agreement prior to the achievement of any milestones or the payment of any royalties to us.
Our future revenues pursuant to our asset purchase agreement with BioMarin regarding the HDAC
program depends significantly on BioMarin’s development and commercialization activities, over which
we have no control. If BioMarin is unable or determines not to further develop or commercialize the
HDAC program, or experiences significant delays in doing so, we may see a delay in receiving any
potential milestone or royalty payments or fail to receive any additional financial benefits from the
program.
We entered into an asset purchase agreement with BioMarin on January 21, 2014, related to the histone
deacetylase inhibitor (“HDACi”) portfolio, which includes the Friedreich’s ataxia program. We are dependent on
BioMarin for the future success of this development program. We have no control over the conduct and timing of
development efforts with respect to the HDAC program. Although we have had discussions with BioMarin
regarding their current plans and intentions for the development of the HDAC program, they may revise their
plan in their sole discretion. BioMarin’s failure to devote sufficient financial and other resources to the
development plan may result in the delayed or unsuccessful development of the program, which could lead to the
non-payment or delay in payment of milestones under the asset purchase agreement and may preclude or delay
commercialization of any product under the HDAC program and any royalties we could receive on future
commercial sales. Our future financial results may be harmed if BioMarin does not commercialize the HDAC
program successfully or on a timely basis prior to the achievement of any milestones or the payment of any
royalties to us.
Healthcare reform measures could adversely affect our business.
The efforts of governmental and third-party payors to contain or reduce the costs of health care may
adversely affect the business and financial condition of pharmaceutical and biotechnology companies, including
us. Specifically, in both the United States and some foreign jurisdictions, there have been a number of legislative
and regulatory proposals to change the health care system in ways that could affect our ability to sell our
products profitably. The U.S. Congress passed the America Affordable Health Choices Act of 2009 and the
Patient Protection and Affordable Care Act and is considering a number of proposals that are intended to reduce
16
or limit the growth of health care costs and which could significantly transform the market for pharmaceuticals
products. We expect further federal and state proposals and health care reforms to continue to be proposed by
legislators, which could limit the prices that can be charged for the products we develop and may limit our
commercial opportunity. In the United States, the Medicare Prescription Drug, Improvement, and Modernization
Act of 2003, also called the Medicare Modernization Act (the “MMA”) changed the way Medicare covers and
pays for pharmaceutical products. These cost reduction initiatives and other provisions of this legislation could
decrease the coverage and price that we receive for any approved products and could seriously harm our
business. While the MMA applies only to drug benefits for Medicare beneficiaries, private payors often follow
Medicare coverage policy and payment limitations in setting their own reimbursement rates, and any reduction in
reimbursement that results from the MMA may result in a similar reduction in payments from private payors.
The continuing efforts of government and other third-party payors to contain or reduce the costs of health care
through various means may limit our commercial opportunities. In addition, the pendency or approval of such
proposals could result in a decrease in the price of Repligen’s common stock or limit our ability to raise capital or
to enter into collaborations or license rights to our products.
We compete with life science, pharmaceutical and biotechnology companies who are capable of developing
new approaches that could make our products and technology obsolete.
The market for therapeutic and commercial products is intensely competitive, rapidly evolving and subject
to rapid technological change. Life science, pharmaceutical and biotechnology companies may have substantially
greater financial, manufacturing, marketing, and research and development resources than we have. New
approaches by these competitors may make our products and technologies obsolete or noncompetitive.
We may be exposed to liabilities under the Foreign Corrupt Practices Act, and any determination that we
violated the Foreign Corrupt Practices Act could have a material adverse effect on our business.
We are subject to the Foreign Corrupt Practice Act (the “FCPA”) and other laws that prohibit improper
payments or offers of payments to foreign governments and their officials and political parties by U.S. persons and
issuers as defined by the statute for the purpose of obtaining or retaining business. We have operations, agreements
with third parties and make sales in jurisdictions outside of the U.S., which may experience corruption. Our
activities in jurisdictions outside of the U.S. create the risk of unauthorized payments or offers of payments by one
of our employees, consultants, sales agents or distributors, because these parties are not always subject to our
control. These risks have increased following the Novozymes Acquisition. It is our policy to implement safeguards
to discourage these practices by our employees. However, our existing safeguards and any future improvements
may prove to be less than effective, and the employees, consultants, sales agents or distributors of our Company
may engage in conduct for which we might be held responsible. Violations of the FCPA may result in severe
criminal or civil sanctions, and we may be subject to other liabilities, which could negatively affect our business,
operating results and financial condition. In addition, the government may seek to hold us liable for successor
liability FCPA violations committed by any companies in which we invest or that we acquire.
Our stock price could be volatile, which could cause shareholders to lose part or all of their investment.
The market price of our common stock, like that of the common stock of many other companies with similar
market capitalizations, is highly volatile. In addition, the stock market has experienced extreme price and volume
fluctuations. This volatility has significantly affected the market prices of securities of many life sciences,
biotechnology and pharmaceutical companies for reasons frequently unrelated to or disproportionate to the
operating performance of the specific companies. These broad market fluctuations may adversely affect the
market price of our common stock.
Our growth potential is changing as we evolve from an organization that was heavily involved in research
and development to an organization with a strategic focus on our bioprocessing business.
In connection with the Company’s decision to focus its efforts on the growth of its core bioprocessing
business, the Company has terminated its therapeutic product development activities. The core bioprocessing
17
business on which the Company now focuses will provide growth opportunities that are different than those of a
research and development oriented biotechnology company. As a result, the price of the Company’s common
stock may behave differently than it has historically and, during the shift in our business, may behave in a
manner not expected by securities analysts and investors. If the Company’s future business focused on
bioprocessing generates results that fall below the revised expectations of securities analysts and investors, the
trading price of the Company’s common stock could decline.
As a result of these risks, we may not be able to achieve the expected benefits of any such transaction or
deliver the value thereof to our shareholders. If we are unsuccessful in consummating any such transaction, we
may be required to reevaluate our business only after we have incurred substantial expenses and devoted
significant management time and resources.
Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of
us, even one that may be beneficial to our stockholders, more difficult and may prevent attempts by our
stockholders to replace or remove our current management.
Provisions in our certificate of incorporation and by-laws may delay or prevent an acquisition of us or a
change in our management. These provisions include the ability of our board of directors to issue preferred stock
without stockholder approval. In addition, because we are incorporated in Delaware, we are governed by the
provisions of Section 203 of the Delaware General Corporation Law, which limits the ability of stockholders
owning in excess of 15% of our outstanding voting stock to merge or combine with us. Although we believe
these provisions collectively provide for an opportunity to obtain greater value for stockholders by requiring
potential acquirers to negotiate with our board of directors, they would apply even if an offer rejected by our
board were considered beneficial by some stockholders. In addition, these provisions may frustrate or prevent
any attempts by our stockholders to replace or remove our current management by making it more difficult for
stockholders to replace members of our board of directors, which is responsible for appointing the members of
our management.
Changes in accounting standards and subjective assumptions, estimates, and judgments by management
related to complex accounting matters could significantly affect our financial results or financial condition.
Generally accepted accounting principles and related accounting pronouncements, implementation
guidelines, and interpretations with regard to a wide range of matters that are relevant to our business, such as
revenue recognition, asset impairment and fair value determinations, inventories, business combinations and
intangible asset valuations, and litigation, are highly complex and involve many subjective assumptions,
estimates, and judgments. Changes in these rules or their interpretation or changes in underlying assumptions,
estimates, or judgments could significantly change our reported or expected financial performance or financial
condition.
The Company’s results of operations could be negatively affected by potential fluctuations in foreign
currency exchange rates.
The Company conducts a large portion of its business in international markets. For the fiscal year ended
December 31, 2013, 32% of the Company’s revenue and 37% of its costs and expenses were denominated in
foreign currencies, primarily the Swedish Kroner. The Company is exposed to the risk of an increase or decrease
in the value of the foreign currencies relative to the U.S. Dollar, which would increase the value of our expenses
and decrease the value of our revenue when measured in U.S. Dollars. As a result, our results of operation may
be influenced by the effects of future exchange rate fluctuations and such effects may have an adverse impact on
our common stock price.
18
Our ability to use net operating loss and tax credit carryforwards and certain built-in losses to reduce
future tax payments is limited by provisions of the Internal Revenue Code, and it is possible that certain
transactions or a combination of certain transactions may result in material additional limitations on our
ability to use our net operating loss and tax credit carryforwards.
Section 382 and 383 of the Internal Revenue Code of 1986, as amended, contain rules that limit the ability
of a company that undergoes an ownership change, which is generally any change in ownership of more than
50% of its stock over a three-year period, to utilize its net operating loss and tax credit carryforwards and certain
built-in losses recognized in years after the ownership change. These rules generally operate by focusing on
ownership changes involving stockholders owning directly or indirectly 5% or more of the stock of a company
and any change in ownership arising from a new issuance of stock by the company. Generally, if an ownership
change occurs, the yearly taxable income limitation on the use of net operating loss and tax credit carryforwards
and certain built-in losses is equal to the product of the applicable long term tax exempt rate and the value of the
company’s stock immediately before the ownership change. We may be unable to offset our taxable income with
losses, or our tax liability with credits, before such losses and credits expire and therefore would incur larger
federal income tax liability. We have completed a number of financings since our inception which may have
resulted in a change in control as defined by Section 382, or could result in a change in control in the future.
If we identify a material weakness in our internal control over financial reporting, our ability to meet our
reporting obligations and the trading price of our stock could be negatively affected.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial
reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim
financial statements will not be prevented or detected on a timely basis. Accordingly, a material weakness
increases the risk that the financial information we report contains material errors.
We regularly review and update our internal controls, disclosure controls and procedures, and corporate
governance policies. In addition, we are required under the Sarbanes-Oxley Act of 2002 to report annually on our
internal control over financial reporting. Any system of internal controls, however well designed and operated, is
based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives
of the system are met. For example, in 2012 we updated our internal controls to include our operations in
Sweden. If we, or our independent registered public accounting firm, determine that our internal controls over
financial reporting are not effective, or we discover areas that need improvement in the future, these
shortcomings could have an adverse effect on our business and financial results, and the price of our common
stock could be negatively affected.
If we cannot conclude that we have effective internal control over our financial reporting, or if our
independent registered public accounting firm is unable to provide an unqualified opinion regarding the
effectiveness of our internal control over financial reporting, investors could lose confidence in the reliability of
our financial statements, which could lead to a decline in our stock price. Failure to comply with reporting
requirements could also subject us to sanctions and/or investigations by the SEC, The NASDAQ Stock Market or
other regulatory authorities.
Item 1B. UNRESOLVED STAFF COMMENTS
None.
Item 2.
PROPERTIES
We currently lease and occupy approximately 56,000 square feet of space located in Waltham,
Massachusetts which serves as our corporate headquarters. We also conduct manufacturing, research and
development, marketing and administrative operations at this facility. This lease expires on May 31, 2023. In
addition, we lease approximately 10,000 square feet of space at a second location in Waltham for expanded
19
manufacturing and administrative operations. This lease expired on December 31, 2012 and we now rent on a
month-to-month basis. We also lease four adjacent buildings in Lund, Sweden totaling approximately 45,000
square feet of space used primarily for manufacturing and administrative operations. The lease for three buildings
totaling approximately 41,000 square feet expires on June 30, 2017 while the lease for the fourth building with
approximately 4,000 square feet of space expires on September 30, 2019.
During the fiscal year ended December 31, 2013, we incurred total rental costs for all facilities of
approximately $2,437,000.
Item 3.
LEGAL PROCEEDINGS
From time to time, we may be subject to 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.
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
20
PART II
Item 5. 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 quarterly high
and low sales prices for our common stock are shown in the following tables.
First Quarter
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
First Quarter
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31, 2013
High
$ 7.31
$ 9.65
$11.44
$14.05
Low
$5.73
$6.65
$8.25
$9.89
Year Ended December 31, 2012
High
$6.00
$7.29
$6.36
$6.80
Low
$3.40
$3.72
$3.78
$4.90
Stockholders and Dividends
As of February 14, 2014, there were approximately 559 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. 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.
Equity Compensation Plan Information
See Part III, Item 12 for information regarding securities authorized for issuance under our equity
compensation plans.
21
Issuer Purchases of Equity Securities
In June 2008, the Board of Directors authorized a program to repurchase up to 1.25 million shares of our
common stock to be repurchased at the discretion of management from time to time in the open market or
through privately negotiated transactions. The repurchase program has no set expiration date and may be
suspended or discontinued at any time. We did not repurchase any shares of common stock during the year ended
December 31, 2013. In prior years, we repurchased a total of 592,827 shares, leaving 657,173 shares remaining
under this authorization.
The graph below matches Repligen Corporation’s cumulative 69-month total shareholder return on common
stock with the cumulative total returns of the NASDAQ Composite index, the NASDAQ Pharmaceutical index,
and the NASDAQ Biotechnology index. The graph tracks the performance of a $100 investment in our common
stock and in each index (with the reinvestment of all dividends) from March 31, 2008 to December 31, 2013.
COMPARISON OF 69 MONTH CUMULATIVE TOTAL RETURN*
Among Repligen Corporation, the NASDAQ Composite Index, the NASDAQ Pharmaceutical Index,
and the NASDAQ Biotechnology Index
$350
$300
$250
$200
$150
$100
$50
$0
3/31/08
3/31/09
3/31/10
3/31/11
12/31/11
12/31/12
12/31/13
Repligen Corporation
NASDAQ Composite
NASDAQ Pharmaceutical
NASDAQ Biotechnology
*$100 invested on 3/31/08 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.
The information contained in the performance graph shall not be deemed to be “soliciting material” or to be
“filed” with the Securities and Exchange Commission, and such information shall not be incorporated by
reference into any future filing under the Securities Act or Exchange Act, except to the extent that Repligen
specifically incorporates it by reference into such filing.
22
Item 6.
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data are derived from the audited financial statements of
Repligen, except for the consolidated financial data at December 31, 2010 and for the nine months then ended
which are derived from unaudited financial statements. 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, our
Annual Report on Form 10-K for the fiscal year ended December 31, 2012, our Transition Report on Form 10-K
for the nine months ended December 31, 2011 and our Annual Reports on Form 10-K for the fiscal years ended
March 31, 2011, and 2010.
Revenue:
Years Ended
December 31,
Nine Months Ended
December 31,
Years Ended March 31,
2013
2012 (1)
2011
2010
2011
2010
(In thousands except per share amounts)
Product revenue . . . . . . . . . . . . . . . . . . $ 47,482 $ 41,834 $ 13,215 $ 11,811 $ 14,961 $ 10,305
10,666
Royalty and other revenue . . . . . . . . . .
20,971
Total revenue . . . . . . . . . . . . . . . .
20,687
68,169
20,433
62,267
9,574
21,385
12,330
27,291
10,235
23,450
Operating expenses:
Cost of product revenue . . . . . . . . . . . .
Cost of royalty and other revenue . . . .
Research and development . . . . . . . . . .
Selling, general and administrative . . .
Contingent consideration – fair value
22,481
2,682
7,341
12,701
24,957
2,213
10,490
13,227
5,157
1,315
9,462
9,050
4,187
1,161
8,745
5,580
5,580
1,537
12,529
8,019
adjustments . . . . . . . . . . . . . . . . . . . .
Gain on bargain purchase . . . . . . . . . . .
Total operating expenses . . . . . . .
Income (loss) from operations . . . . . . . . . . .
Investment income . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . .
Other income (expense) . . . . . . . . . . . . . . . .
Income (loss) before income taxes . . . . . . . .
Income tax (benefit) provision . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . $ 16,093 $ 14,156 $
91
—
45,296
22,873
301
(50)
(110)
23,014
6,921
611
(314)
51,184
11,083
219
(57)
26
11,271
(2,885)
—
(427)
24,557
(1,107)
161
(28)
(623)
(1,597)
16
(1,613) $
—
—
19,673
1,712
287
(12)
—
1,987
—
1,987 $
—
—
27,665
(374)
357
(26)
—
(43)
—
(43) $
4,159
1,347
14,160
7,072
—
—
26,738
(5,767)
870
(2)
—
(4,899)
(835)
(4,064)
Earnings (loss) per share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . $
0.51 $
0.46 $
(0.05) $
0.06 $
(0.00) $
(0.13)
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . $
0.50 $
0.45 $
(0.05) $
0.06 $
(0.00) $
(0.13)
Weighted average shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . .
31,667
Diluted . . . . . . . . . . . . . . . . . . . . . . . . .
32,407
30,914
31,253
30,774
30,774
30,778
30,949
30,782
30,782
30,752
30,752
As of December 31,
As of March 31,
2013
2012
2011
2010
2011
2010
(In thousands)
Balance Sheet Data:
Cash and marketable securities (2)
Working capital
. . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term obligations . . . . . . . . . . . . . . . . .
Accumulated deficit . . . . . . . . . . . . . . . . . . .
Stockholders’ equity . . . . . . . . . . . . . . . . . . .
. . . . . . . $ 73,842 $ 49,970 $ 36,025 $ 60,285 $ 61,503 $ 59,146
55,024
39,431
71,420
76,057
2,606
642
(117,921)
(119,307)
66,120
65,987
51,221
72,294
584
(117,965)
67,087
55,563
73,099
617
(115,934)
68,882
55,457
97,010
2,133
(105,151)
84,125
75,049
118,645
3,458
(89,057)
103,886
Includes the full year impact of the Novozymes Acquisition on December 20, 2011.
(1)
(2) Excludes restricted cash of $200 related to our headquarters’ lease arrangement for all years presented.
23
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Annual Report on Form 10-K 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 “Exchange Act”). The forward-looking statements in this Annual Report
on Form 10-K do not constitute guarantees of future performance. Investors are cautioned that statements in this
Annual Report on Form 10-K that are not strictly historical statements, including, without limitation, statements
regarding current or future financial performance, potential impairment of future earnings, management’s
strategy, plans and objectives for future operations or acquisitions, product development and sales, litigation
strategy, product candidate research and development, selling, general and administrative 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 under the caption “Risk Factors” and other risks
detailed in this 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 on Form 10-K, except as required by law.
Overview
We are a life sciences company that develops, manufactures and markets high-value, consumable
bioprocessing products for life sciences companies and biopharmaceutical manufacturing companies worldwide.
We are a world-leading manufacturer of both native and recombinant forms of Protein A, critical reagents used in
biomanufacturing to separate and purify monoclonal antibodies, a type of biologic drug. We also supply several
growth factor products used to increase cell culture productivity during the biomanufacturing process. In the
expanding area of flexible biomanufacturing technologies, we have developed and currently market a series of
OPUS (Open-Platform, User-Specified) chromatography columns for use in clinical-scale manufacturing. These
pre-packed, “plug-and-play” columns are uniquely customizable to our customers’ media and size requirements.
We generally manufacture and sell Protein A and growth factors to life sciences companies under long-term
supply agreements and sell our chromatography columns, as well as media and quality test kits, directly to
biopharmaceutical companies or contract manufacturing organizations. We refer to these activities as our
bioprocessing business.
On December 20, 2011, we significantly increased the size of our bioprocessing business through a strategic
acquisition. We acquired certain assets and assumed certain liabilities of Novozymes Biopharma Sweden, AB
(“Novozymes”) in Lund, Sweden, including the manufacture and supply of cell culture ingredients and Protein A
affinity ligands for use in industrial cell culture, stem and therapeutic cell culture and biopharmaceutical
manufacturing (the “Novozymes Biopharma Business” and the acquisition of the Novozymes Biopharma
Business, the “Novozymes Acquisition”) for a total purchase price of 20,310,000 Euros (~$26,400,000). As a
result of the Novozymes Acquisition, we doubled the size of our bioprocessing business.
We have out-licensed certain intellectual property to Bristol-Myers Squibb Company, or Bristol, from
which we receive royalties on Bristol’s net sales in the United States through 2013 of their product Orencia®. On
April 7, 2008, we entered into a settlement agreement with Bristol in connection with a patent infringement
lawsuit we filed against Bristol. Under the terms of the agreement, Bristol was obligated to pay us royalties on its
U.S. net sales of Orencia® for any clinical indication at a rate of 1.8% for the first $500,000,000 of annual sales,
2.0% for the next $500,000,000 of annual sales and 4% of annual sales in excess of $1 billion. Under the terms of
the agreement, we will not receive any future royalties on Bristol’s sales of Orencia® made after December 31,
2013. We expect that the loss of these royalty payments will materially and adversely affect our revenue and
operating results.
Historically, Repligen also conducted activities aimed at developing proprietary therapeutic drug candidates,
often with a potential of entering into a collaboration with a larger commercial stage pharmaceutical or
24
biotechnology company in respect of these programs. As part of our strategic decision in 2012 to focus our
efforts on our core bioprocessing business, we reduced our efforts on our clinical development programs and
increased our efforts to find collaboration partners to pursue the development and, if successful, the
commercialization of these drug programs. The current status of our therapeutic drug development portfolio is:
•
•
•
On December 28, 2012, we out-licensed our spinal muscular atrophy program, or SMA program, led
by RG3039, a small molecule drug candidate in clinical development for SMA, to Pfizer Inc., or Pfizer.
Pursuant to the license agreement, Pfizer will assume the majority of the costs associated with
completing the required clinical trials for this program as well as obtaining U.S. Food and Drug
Administration (“FDA”) approval of the respective new drug application (“NDA”). Under the license
agreement, we are obligated to conduct additional activities in support of this program, which include
completing the second cohort of the initial Phase I trial for RG3039 and supporting the transition of the
program to Pfizer. We completed this second cohort during the quarter ended March 31, 2013 and
substantially all of our remaining clinical obligations during the quarter ended June 30, 2013. As of
September 30, 2013, we had completed all of our obligations under the license agreement.
On January 21, 2014, we out-licensed our histone deacetylase inhibitor (“HDACi”) portfolio, which
includes the Friedreich’s ataxia program, to BioMarin Pharmaceuticals Inc., or BioMarin. Under the
terms of the agreement, Repligen received an upfront payment of $2 million in January 2014 from
BioMarin and we have the potential to receive up to $160 million in future milestone payments for the
development, regulatory approval and commercial sale of portfolio compounds included in the
agreement. In addition, Repligen is eligible to receive royalties on sales of qualified products
developed.
Our clinical development portfolio also includes RG1068, a synthetic human hormone developed as a
novel imaging agent for the improved detection of pancreatic duct abnormalities in combination with
magnetic resonance imaging in patients with pancreatitis and potentially other pancreatic diseases. We
submitted an NDA to the FDA and a marketing authorization application to the European Medicines
Agency in the first quarter of 2012. In the second quarter of 2012, we received a complete response
letter from the FDA, indicating the need for additional clinical efficacy and safety trial data. We have
also received from the FDA the requirements for an additional registration study. We believe this
information may be a factor in the decision by third-parties that may wish to pursue a development or
commercialization agreement with us for RG1068. We expect that any additional development
activities that we may pursue in the future will be largely supported by sponsors or other third parties.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
While our significant accounting policies are more fully described in the notes to our financial statements,
we have identified the policies and estimates below as being critical to our business operations and the
understanding of our results of operations. The impact of and any associated risks related to these policies on our
business operations are discussed throughout “Management’s Discussion and Analysis of Financial Condition,”
including in the “Results of Operations” section, where such policies affect our reported and expected financial
results.
Revenue recognition
Product Sales
We generate revenue from the sale of products, licensing transactions and research and development
collaborations. Our product revenues are from the sale of bioprocessing products to customers in the life science
and biopharmaceutical industries. We recognize 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 determinable
and collection of the related receivable is reasonably 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 the product
25
delivered and the collectability of those fees. We have a few longstanding customers who comprise the majority
of revenue and have excellent payment histories and therefore we do not require collateral. We have had no
significant write-offs of uncollectible invoices in the periods presented.
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 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 our
financial statements historically.
Orencia Royalty
In April 2008, we settled our outstanding litigation with Bristol and began recognizing royalty revenue from
that settlement in fiscal year 2009 for Bristol’s net sales in the United States of Orencia®, which is used in the
treatment of rheumatoid arthritis. Pursuant to the settlement with Bristol, we recognized royalty revenue of
$17,881,000 and $14,753,000 for the fiscal years ended December 31, 2013 and 2012, respectively, and
$8,769,000 for the nine-month fiscal year ended December 31, 2011. Revenue earned from Bristol royalties was
recorded in the periods when it was earned based on royalty reports sent by Bristol to us. We have no continuing
obligations to Bristol as a result of this settlement. Our royalty agreement with Bristol provides that we will
receive such royalty payments on sales of Orencia® by Bristol through December 31, 2013. These royalty
payments have ceased.
Pfizer License Agreement
In December 2012, we entered into an exclusive worldwide licensing agreement (the “License Agreement”)
with Pfizer to advance the SMA program, which is led by RG3039 and also includes backup compounds and
enabling technologies. Pursuant to the terms of the License Agreement, we received $5 million from Pfizer as an
upfront payment on January 22, 2013 and a $1 million milestone payment on September 4, 2013. We are entitled
to receive up to $64 million in potential future payments, a portion of which may be owed to third parties. These
potential payments are approximately equally divided between milestones related to clinical development and
initial commercial sales in specific geographies. In addition, we are entitled to receive royalties on any future
sales of RG3039 or any SMA compounds developed under the License Agreement. The royalty rates are tiered
and begin in the high single-digits for RG-3039 or lesser amounts for any backup compounds developed under
the License Agreement. Our receipt of these royalties is subject to an obligation under an existing in-license
agreement and other customary offsets and deductions. There are no refund provisions in this agreement.
Activities under this agreement were evaluated in accordance with ASC 605-25 to determine if they
represented a multiple element revenue arrangement. We identified the following deliverables in the Pfizer
agreement:
•
•
•
•
An exclusive license to research, develop, manufacture, commercialize and use RG3039 and backup
compounds for the treatment of SMA and other disorders (the “License”);
Research and development services designed to transition the SMA program to Pfizer pursuant to a
transition plan (the “Transition Services”) ;
The completion of the second cohort of a phase I clinical trial that was underway at the time the
License Agreement was signed; and
An inventory of RG3039, that could be used in clinical development, specifically to complete the phase
I clinical trial, referenced immediately above (the “Clinical Trial Material”).
26
Two criteria must be met in order for a deliverable to be considered a separate unit of accounting. The first
criterion requires that the delivered item or items have value to the customer on a stand-alone basis. The second
criterion, which relates to evaluating a general right of return, is not applicable because such a provision does not
exist in the License Agreement. The deliverables outlined above were deemed to have stand-alone value and to
meet the criteria to be accounted for as separate units of accounting. Factors considered in this determination
included, among other things, whether any other vendors sell the items separately and if Pfizer could use the
delivered item for its intended purpose without the receipt of the remaining deliverables. If multiple deliverables
included in an arrangement are separable into different units of accounting, the multiple-element arrangements
guidance addresses how to allocate the arrangement consideration to those units of accounting. The amount of
allocable arrangement consideration is limited to amounts that are fixed or determinable. Arrangement
consideration is allocated at the inception of the arrangement to the identified units of accounting based on their
relative selling price.
We identified the arrangement consideration to allocate among the units of accounting as the $5.0 million
non-refundable up-front payment and excluded the potential milestone payments provided for in the License
Agreement from the arrangement consideration as they were not considered fixed or determinable at the time the
License Agreement was signed. Because we had not sold these items on a standalone basis previously, we had no
vendor-specific objective evidence of selling price. Furthermore, we did not have detailed third-party evidence of
selling price, and as a result we used our best estimate of selling price for each item. In determining these prices,
we considered what we would be willing to sell the items for on a standalone basis, what the market would bear
for such items and what another party might charge for these items.
The up-front arrangement consideration allocated to the License was recognized upon delivery of the
License as the risks and rewards associated with the License transferred at that time. We used a discounted cash
flow analysis to determine the value of the license. Key assumptions in the analysis included: the estimated
market size for a compound targeted at SMA, the estimated remaining costs of development and time to
commercialization, and the probability of successfully developing and commercializing the program. Based on
this analysis, we allocated $4,876,000 to the value of the license and recognized this amount as revenue in the
fiscal year ended December 31, 2012.
The remaining $124,000 of value was allocated based on the following:
•
•
•
The estimated selling price of the Transition Services was approximately $600,000 resulting in
consideration allocation of approximately $76,000. We were able to derive a price for these services, in
part because they are similar to services provided by a contract research organization. We based the
selling price of the Transition Services on internal full-time equivalent personnel costs and external
costs that we expect to incur to transition the program to Pfizer. We applied a mark-up on the internal
full-time equivalent personnel costs consistent with that of contract research organizations.
The estimated selling price of the completion of the second cohort of the clinical trial was
approximately $275,000 resulting in consideration allocation of approximately $35,000. This estimated
selling price is based on the estimated, remaining costs to complete this cohort. Since the costs are
pursuant to an arrangement negotiated with a third-party clinical site, we believe that the external cost
estimate included in the agreement represents the best estimate of selling price for this unit of
accounting.
The estimated selling price of the Clinical Trial Material was approximately $105,000 resulting in
consideration allocation of approximately $13,000. The estimated selling price is based upon the cost
of procuring such material from the contract manufacturing organization that made the material. Since
these costs were incurred pursuant to an arrangement negotiated with a third-party contract
manufacturing organization, we believes that the costs included in the agreement represents the best
estimate of selling price for this unit of accounting.
We believe that a change in the key assumptions used to determine best estimate of selling price for each of
the deliverables would not have a significant effect on the allocation of arrangement consideration.
27
We recognized the revenues related to the transfer of Clinical Trial Material in 2013, upon transfer of title
and risk of loss to Pfizer. We also recognized revenues related to the Transition Services and the completion of
the second cohort in 2013.
Future milestone payments, if any, under the License Agreement will be recognized under the provisions of
ASC 605-28, which was adopted by Repligen on January 1, 2011. ASC 605-28 allows an entity to make an
accounting policy election to recognize a payment that is contingent upon the achievement of a substantive
milestone in its entirety in the period in which the milestone is achieved. A milestone is considered substantive
if:
•
•
•
It can only be achieved based in whole or in part on either (1) the Company’s performance or (2) on the
occurrence of a specific outcome resulting from the Company’s performance;
There is substantive uncertainty at the date an arrangement is entered into that the event will be
achieved; and
It would result in additional payments being due to the entity.
In addition to the $5 million up-front and the $1 million milestone payments already received, we are also
eligible to receive $64 million in potential milestone payments from Pfizer comprised of:
•
•
Up to $29 million related to the achievement of specified clinical milestone events; and
Up to $35 million related to the achievement of specified commercial sales events, specifically the first
commercial sale in specific territories.
We believe that the $29 million of remaining specified clinical milestone payments are substantive.
Any milestones earned upon specified commercial sales events or future royalty payments, under the
License Agreement will be recognized as revenue when they are earned.
Research and Development Agreements
For the fiscal year ended December 31, 2013, we recognized $1,589,000 of revenue from sponsored
research and development projects under agreements with the National Institutes of Health / Scripps Research
Institute, the Muscular Dystrophy Association, GoFar and the European Friedrich’s Ataxia Consortium for
Translational Studies. In the fiscal year ended December 31, 2012, we recognized $803,000 of revenue from
sponsored research and development projects under agreements with the National Institutes of Health / Scripps
Research Institute, the European Friedrich’s Ataxia Consortium for Translational Studies, GoFar, and the
Friedreich’s Ataxia Research Alliance. For the nine-month fiscal year ended December 31, 2011, we recognized
approximately $1,466,000 of revenue from sponsored research and development projects under agreements with
the Muscular Dystrophy Association, the National Institutes of Health / Scripps Research Institute, the European
Friedrich’s Ataxia Consortium for Translational Studies, Go Friedreich’s Ataxia Research (“GoFar”), and the
Friedreich’s Ataxia Research Alliance.
Research revenue is recognized when the expense has been incurred and services have been performed.
Determination of which incurred costs qualify for reimbursement under the terms of our contractual agreements
and the timing of when such costs were incurred involves the judgment of management. Our calculations are
based upon the agreed-upon terms as stated in the arrangements. However, should the estimated calculations
change or be challenged by other parties to the agreements, research revenue may be adjusted in subsequent
periods. The calculations have not historically changed or been challenged, and we do not anticipate any
significant subsequent change in revenue related to sponsored research and development projects.
There have been no material changes to our initial estimates related to revenue recognition in any periods
presented in the accompanying consolidated financial statements.
28
Inventories
Inventories relate to our bioprocessing business. We value inventory at cost or, if lower, fair market value,
using the first-in, first-out method. We review our inventory at least quarterly and record a provision for excess
and obsolete inventory based on our estimates of expected sales volume, production capacity and expiration dates
of raw materials, work-in-process and finished products. Expected sales volumes are determined based on supply
forecasts provided by key customers for the next three to 12 months. We write down inventory that has become
obsolete, inventory that has a cost basis in excess of its expected net realizable value, and inventory in excess of
expected requirements to cost of product revenue. Manufacturing of bioprocessing 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 operating results. During all
periods presented in the accompanying consolidated financial statements, there have been no material
adjustments related to a revised estimate of inventory valuations.
Business combinations
Amounts paid for acquisitions are allocated to the assets acquired and liabilities assumed, if any, based on
their fair values at the dates of acquisition. The fair value of identifiable intangible assets is based on detailed
valuations that use information and assumptions determined by management. Any excess of purchase price over
the fair value of the net tangible and intangible assets acquired is allocated to goodwill. The fair value of
contingent consideration includes estimates and judgments made by management regarding the probability that
future contingent payments will be made, the extent of royalties to be earned in excess of the defined minimum
royalties, etc. Management updates these estimates and the related fair value of contingent consideration at each
reporting period. Changes in the fair value of contingent consideration are recorded in our Statement of
Operations.
We use the income approach to determine the fair value of certain identifiable intangible assets including
customer relationships and developed technology. This approach determines fair value by estimating after-tax
cash flows attributable to these assets over their respective useful lives and then discounting these after-tax cash
flows back to a present value. We base our assumptions on estimates of future cash flows, expected growth rates,
expected trends in technology, etc. We base the discount rates used to arrive at a present value as of the date of
acquisition on the time value of money and certain industry-specific risk factors. We believe the estimated
purchased customer relationships and developed technology amounts so determined represent the fair value at the
date of acquisition and do not exceed the amount a third party would pay for the assets.
Intangible assets and goodwill
Intangible Assets
We amortize our intangible assets that have finite lives using the straight-line method. Amortization is
recorded over the estimated useful lives ranging from 8 to 8.5 years. We review our intangible assets subject to
amortization to determine if any adverse conditions exist or a change in circumstances has occurred that would
indicate impairment or a change in the remaining useful life. If the carrying value of an asset exceeds its
undiscounted cash flows, we will write-down the carrying value of the intangible asset to its fair value in the
period identified. In assessing fair value, we must make assumptions regarding estimated future cash flows and
discount rates. If these estimates or related assumptions change in the future, we may be required to record
impairment charges. We generally calculate fair value as the present value of estimated future cash flows to be
generated by the asset using a risk-adjusted discount rate. If the estimate of an intangible asset’s remaining useful
life is changed, we will amortize the remaining carrying value of the intangible asset prospectively over the
revised remaining useful life.
29
Goodwill
We test goodwill for impairment on an annual basis and between annual tests if events and circumstances
indicate it is more likely than not that the fair value of a reporting unit is less than its carrying value. Events that
would indicate impairment and trigger an interim impairment assessment include, but are not limited to current
economic and market conditions, including a decline in market capitalization, a significant adverse change in
legal factors, business climate or operational performance of the business, and an adverse action or assessment by
a regulator. Our annual impairment test date is the last day of our fiscal fourth quarter, December 31, 2013.
Accrued liabilities
We estimate accrued liabilities by identifying services performed on our behalf, estimating the level of
service performed and determining the associated cost incurred for such service as of each balance sheet date.
For example, we would accrue for 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 tracking costs
incurred by service providers under fixed fee arrangements.
We have processes in place to estimate the appropriate 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 that have begun to be incurred or we under or over-estimate 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 often require the exercise of judgment. We make 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 estimates could have a significant impact on our accrued liabilities
and reported operating results. There have been no material adjustments to our accrued liabilities in any of the
periods presented in the accompanying financial statements.
Stock-based compensation
We 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 expiration data. 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 our 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 based upon the historical volatility of our common stock over a
period commensurate with the option’s expected term. 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.
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. Forfeitures represent only the unvested portion of a surrendered option.
Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures
differ from those estimates. Based on an analysis of historical data, we have calculated an 8% annual forfeiture
30
rate for non-executive level employees, a 3% annual forfeiture rate for executive level employees, and a 0%
forfeiture rate for non-employee members of the Board of Directors, which we believe is a reasonable
assumption 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.
For the fiscal years ended December 31, 2013 and 2012, we recorded stock-based compensation expense of
approximately $1,060,000 and $1,024,000, respectively. For the nine-month fiscal year ended December 31,
2011 and the nine-month period ended December 31, 2010, we recorded stock-based compensation expense of
approximately $730,000 and $748,000, respectively, for stock options granted under the Second Amended and
Restated 2001 Repligen Corporation Stock Plan (the “2001 Plan”).
As of December 31, 2013, there was $1,908,109 of total unrecognized compensation cost related to
unvested share-based awards. This cost is expected to be recognized over a weighted average remaining requisite
service period of 3.19 years. We expect 687,293 unvested options to vest over the next five years.
Income Taxes
Prior to the end of 2012, our U.S. net operating losses (“NOL’s”) and the majority of our other deferred tax
assets were fully offset by a valuation allowance primarily because we were in a cumulative loss position and did
not have sufficient history of income to conclude that it was more likely than not that we would be able to realize
the tax benefits of those deferred tax assets. As of December 31, 2012 we had incurred three-year cumulative pre-
tax income and concluded that it was more likely than not that we would generate sufficient taxable income in 2013
based on our 2013 projections to realize the tax benefit of a portion of our deferred tax assets. As such, we reversed
$3,021,000 of the deferred tax asset valuation allowance in the U.S in the fourth quarter of 2012. The amount was
recorded as a benefit for income taxes in the consolidated statement of operations. During the year ended December
31, 2013, the Company utilized $8.9 million of Net Operating Losses. As a result of the fact that we no longer
receive royalty payments on Bristol’s sales of Orencia, as of December 31, 2013, we concluded that realization of
deferred tax assets beyond December 31, 2013 is not more likely than not, and as such, as of December 31, 2013 we
maintain a valuation allowance against the majority of our remaining deferred tax assets.
RESULTS OF OPERATIONS
On December 15, 2011, we changed our fiscal year end from March 31 to December 31. As a result of this
change, we filed a Transition Report on Form 10-K covering the nine-month transition period ending
December 31, 2011. “Fiscal 2013” refers to the twelve month period from January 1, 2013 through December 31,
2013. “Fiscal 2012” refers to the twelve month period from January 1, 2012 through December 31, 2012. “Fiscal
2011” refers to the nine-month transition period from April 1, 2011 through December 31, 2011.
The following discussion of the financial condition and results of operations should be read in conjunction
with the accompanying consolidated financial statements and the related footnotes thereto.
Revenues
Total revenues for fiscal years 2013, 2012, and 2011 were comprised of the following:
Bioprocessing product revenue . . . . . . . . . . . . . . . . . .
Royalty and other revenue . . . . . . . . . . . . . . . . . . . . . .
$47,482
20,687
$41,834
20,433
$13,215
10,235
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$68,169
$62,267
$23,450
14%
1%
9%
217%
100%
166%
Years ended December 31,
% Change
2013
2012
2011
2013 vs. 2012
2012 vs. 2011
(in thousands, except percentages)
31
The majority of our bioprocessing products are sold to customers who incorporate our products into their
proprietary antibody purification processes for monoclonal antibodies. These customers then sell their products
directly to the pharmaceutical industry. Sales of our bioprocessing products can therefore be impacted by the
timing of large-scale production orders and the regulatory approvals for such antibodies, which may result in
significant quarterly fluctuations.
For fiscal 2013, bioprocessing product sales increased by $5,648,000 or 14% as compared to fiscal 2012 due
largely to increased volume in our growth factor, affinity ligand and OPUS products offset by slightly lower
pricing in some of our more mature products.
For fiscal 2012, bioprocessing product sales increased by $28,619,000 or 217% as compared to fiscal 2011
driven predominantly by the acquisition of the Novozymes business which contributed $23,425,000 in revenue,
the longer fiscal period in fiscal 2012 and increased demand from certain key customers. We sell our various
bioprocessing products at different price points. The mix of products sold varies and impacts the fluctuations in
total product revenue and cost of product revenues from period to period.
Pursuant to the settlement with Bristol, we recognized royalty revenue of $17,881,000 for fiscal 2013, as
well as $14,753,000 and $8,769,000 for fiscal 2012 and 2011, respectively. The increase from 2012 to 2013 was
due to Bristol’s increased U.S. sales of Orencia. The increase from 2011 to 2012 was primarily due a shorter
nine-month period in 2011 as compared to a full year in 2012 as well as Bristol’s increased U.S. sales of Orencia.
As this royalty arrangement with Bristol expired on December 31, 2013, we will not recognize any further
royalty revenue from Bristol.
We recognized $1,217,000 and $4,876,000 of revenue for fiscal 2013 and 2012, respectively, from the out-
license of our Spinal Muscular Atrophy program to Pfizer on December 28, 2012. In fiscal 2013, we also
recognized $1,589,000 of revenue from sponsored research and development projects under agreements with the
National Institutes of Health / Scripps Research Institute, the Muscular Dystrophy Association, GoFar and the
European Friedrich’s Ataxia Consortium for Translational Studies. In fiscal 2012, we also recognized $803,000
of revenue from sponsored research and development projects under agreements with the National Institutes of
Health / Scripps Research Institute, the European Friedrich’s Ataxia Consortium for Translational Studies,
GoFar, and the Friedreich’s Ataxia Research Alliance. For fiscal 2011, we recognized approximately $1,466,000
of revenue from sponsored research and development projects under agreements with the Muscular Dystrophy
Association, the National Institutes of Health / Scripps Research Institute, the European Friedrich’s Ataxia
Consortium for Translational Studies, GoFar, and the Friedreich’s Ataxia Research Alliance. Going forward we
do not expect to recognize any research and license revenue unless we are successful in out-licensing or receiving
incremental funding for our therapeutic development programs.
Costs and operating expenses
Total costs and operating expenses for fiscal years 2013, 2012, and 2011 were comprised of the following:
Years ended
December 31,
% Change
2013
2012
2011
2013 vs. 2012
2012 vs. 2011
Cost of product revenue . . . . . . . . . . . . . . . . . . . . . . . .
Cost of royalty and other revenue . . . . . . . . . . . . . . . .
Research and development . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . . . . . . . .
Contingent consideration – fair value adjustments . . .
Gain on bargain purchase . . . . . . . . . . . . . . . . . . . . . . .
$22,481
2,682
7,341
12,701
91
—
(in thousands, except percentages)
(10)%
21%
(30)%
(4)%
(85)%
100%
$ 5,157
1,315
9,462
9,050
—
(427)
$24,957
2,213
10,490
13,227
611
(314)
Total costs and operating expenses . . . . . . . . . . .
$45,296
$51,184
$24,557
(12)%
32
384%
68%
11%
46%
100%
26%
108%
For fiscal 2013, cost of product revenue decreased $2,476,000 or 10% as compared to fiscal 2012. This
decrease is primarily due to increased manufacturing efficiencies and favorable product mix, particularly in our
Sweden facility.
For fiscal 2012, cost of product revenue increased $19,800,000 or 384% as compared to fiscal 2011. This
increase is primarily due to a 217% increase in bioprocessing product sales driven by the Novozymes acquisition
and overall higher production costs at our newly acquired Sweden facility. Additionally, fiscal 2011 is a nine-
month period compared to a full year for fiscal 2012.
Gross margins were 53%, 40%, and 61% for fiscal 2013, 2012, and 2011, respectively. During the current
year, the Company recognized the benefits of an extensive cost reduction initiative in both the Sweden and
Waltham facilities that began in fiscal 2012. The lower gross margin in 2012 was primarily the result of
operating the Novozymes manufacturing facility in its first year post-acquisition and related integration costs.
We anticipate that gross margins in the year ending December 31, 2014 will remain relatively consistent with
gross margins in fiscal 2013.
Pursuant to the settlement with Bristol, we must remit 15% of royalty revenue received through the
expiration of the agreement in December 2013 to the University of Michigan. For the fiscal years 2013, 2012,
and 2011, cost of royalty revenue was $2,682,000, $2,213,000, and $1,315,000, respectively. These increases are
directly related to the increases in Bristol royalty revenues noted above. As this royalty arrangement with Bristol
expired on December 31, 2013, we do not expect to incur any further cost of royalty revenue to the University of
Michigan.
Research and development costs represent bioprocessing product and therapeutic drug development costs
and primarily include costs of internal personnel, supplies, external pharmacology and toxicology research,
clinical trials and the costs associated with the manufacturing and testing of clinical materials. In August, 2012,
we announced a strategic focus on our Bioprocessing business and a simultaneous effort to find partners, out-
licensing opportunities or other funding arrangements with external parties to reduce or eliminate the net
expenditures on research and development activities for our therapeutic programs. In January 2013, we
announced that we entered into an outlicensing agreement with Pfizer, Inc. for our Spinal Muscular Atrophy
program, under an arrangement that would provide $5.0 million up front and up to $65.0 million in future
milestones, plus royalties. In January 2014, we announced that we entered into an outlicensing agreement with
BioMarin Pharmaceutical Inc. for our Friedreich’s ataxia portfolio, under an arrangement that would provide
$2.0 million up front and up to $160.0 million in future milestones, plus royalties.
In June 2012, we received a complete response letter from the NDA on our NDA for SecreFlo for pancreatic
imaging indicating that additional clinical data would be required to support potential approval in the United
States. We simultaneously withdrew our MAA for SecreFlo from consideration by the EMA. We believe that
SecreFlo, if approved, would provide a safe and effective means to non-invasively image the pancreas with MRI
and will meet an important unmet medical need for patients with pancreatitis. However, given the shift in
strategic focus towards Bioprocessing product sales, we do not anticipate incurring material expenditures under
this program unless we are able to out-license or fund the development of this program through partners.
Due to the small size of the Company and the fact that these various programs share personnel and fixed
costs, we do not track all of our expenses or allocate any fixed costs by program, and therefore, have not
provided an estimate of historical costs incurred by project.
Each of our therapeutic 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, manufacturing and marketing challenges before
33
they can be successfully commercialized. For example, results from our preclinical animal models may not be
replicated 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 material net cash inflows from such projects could be expected to
commence or the completion dates of these programs.
These risks and uncertainties generally prevent us from estimating with any certainty the specific timing and
future costs of our research and development programs, although historical trends within the industry suggest that
gross expenses tend to increase in later stages of development. Arrangements with commercial vendors and
academic researchers accounted for 22%, 30%, and 47% of our research and development expenses for fiscal
2013, 2012, and 2011, respectively. The outsourcing of such services provides us flexibility to discontinue or
increase spending depending on the success of our research and development programs.
For fiscal 2013, research and development expenses decreased by $3,149,000 or 30% as compared to fiscal
2012. This decrease is directly related to our decision in 2012 to cease therapeutic drug development activities.
We expect our research and development expenses in the year ending December 31, 2014, which relate primarily
to bioprocessing product development, to decrease slightly.
For fiscal 2012, research and development expenses increased by $1,028,000 or 11% as compared to fiscal
2011. This increase is comprised primarily of a $551,000 increase in bioprocessing process development costs
due to the Novozymes acquisition and $245,000 of severance and related expenses associated with the shift
towards bioprocessing and a longer fiscal period in 2012 versus 2011.
Selling, general and administrative (“SG&A”) expenses include the costs associated with selling our
commercial products and costs required to support our research and development efforts, including legal,
accounting, patent, shareholder services, amortization of intangible assets and other administrative functions.
For fiscal 2013, SG&A costs decreased by $526,000 or 4% as compared to fiscal 2012. This decrease is
primarily due to the termination of our Secretin commercialization efforts from the prior year and lower
acquisition-related deal and closing costs associated with the Novozymes Acquisition. We expect SG&A
expenses to increase in the year ending December 31, 2014 as we look to expand our customer-facing activities
to drive sales of our bioprocessing products.
For fiscal 2012, SG&A costs increased by $4,177,000 or 46% as compared to fiscal 2011. This increase is
primarily comprised of an incremental $1,500,000 in SG&A from our newly acquired Swedish subsidiary,
approximately $2,400,000 which represents an additional quarter of our traditional U.S. operations as fiscal 2012
was a longer fiscal period than fiscal 2011, and other miscellaneous expenses.
For fiscal 2012 and 2011, we recorded a $314,000 and $427,000 gain on bargain purchase, respectively,
related to the Novozymes Acquisition on December 20, 2011.
Investment income
Investment income includes income earned on invested cash balances. Investment income for fiscal 2013,
2012, and 2011 was $301,000, $219,000, and $161,000, respectively. The increase of $82,000 or 37% for fiscal
2013 compared to fiscal 2012 was due to slightly higher interest rates and a higher invested amount as we
transferred $10,000,000 from our operating account to our investments in 2013. The increase of $58,000 or 36%
for fiscal 2012 compared to fiscal 2011 was due to slightly higher interest rates after an unusually low fiscal 2011
and a longer period in fiscal 2012. We expect interest income to vary based on changes in the amount of funds
invested and fluctuation of interest rates.
Provision for income taxes
The provision for income taxes for the year ended December 31, 2013 totaled $6,921,000. Our current tax
provision of $4,124,000 primarily relates to a foreign tax provision of $2,426,000 and state taxes of $1,373,000,
34
as well as $800,000 related to an uncertain tax position for historic research and development credits that may
not be upheld under an ongoing audit. Our deferred tax provision relates primarily to the utilization of net
operating loss carryforwards.
The fiscal years ended March 31, 2007 through March 31, 2011 as well as the nine-month fiscal year ended
December 31, 2011 and the years ended December 31, 2012 and 2013 are subject to examination by the federal
and state taxing authorities. Currently, a corporate excise tax audit is underway in the Commonwealth of
Massachusetts (“the Commonwealth”) for the fiscal years ended March 31, 2008 through 2011, and the nine-
month period ended December 31, 2011. While no formal assessments have been made to date, for the years
ended March 31, 2008 and 2009, two matters have been identified by the Commonwealth in these audits that
could result in future assessments. First, the Commonwealth has indicated that it is seeking to disallow up to
$713,000 in Research and Development Credits that were generated between 1993 and 2007, and taken as a
benefits in 2008 and 2009. Including potential penalties, if any, this assessment could increase to $856,000.
In addition, the Commonwealth has indicated it may apportion to Massachusetts, and therefore tax, certain,
although not all, payments received by the Company in connection with our intellectual property settlements with
ImClone and Bristol Myers Squibb in 2007 and 2008, respectively. The Commonwealth believes that the full $40
million ImClone payment and the initial $5 million Bristol payment received under these settlements are
litigation awards as opposed to royalty payments received for the use of intellectual property, as we contend, and
therefore are taxable in Massachusetts. However, the Commonwealth agrees with our position that all subsequent
Bristol payments received under the settlement are in fact royalty payments and therefore not subject to tax in the
Commonwealth. The Company believes the Commonwealth intends to assess up to $1,383,000, or $1,659,000
including potential penalties, in connection with these transactions.
On October 29, 2013, we met with the Commonwealth in an attempt to remediate these matters and we were
not successful. With respect to the R&D credit, the issue for the Company is that the documentation requested by
the Commonwealth would be up to twenty years old and simply no longer exists to the standard we now believe
the Commonwealth will require. In consideration of these facts, we now believe the matter has met the “more
likely than not” standard for recognition. The Company performed an evaluation of the available documentation,
the likelihood of similar matters in other open audit periods, the impact of interest and penalties and other
relevant factors and recorded a provision of $800,000 related to this matter for the year ended December 31,
2013.
Conversely, with respect to the apportionment issue, the Company asserts that according to the settlement
agreements with ImClone and Bristol, all amounts received were in fact payments in exchange for licenses
granted to those entities. The Company further believes the Commonwealth is inconsistent in its approach, taxing
some, but not all of the payments received. As such, we continue to believe strongly in the legal merits of our
position and therefore do not believe this matter meets the more likely than not standard. Accordingly, no further
provision has been made for this matter.
In the year ended December 31, 2012, we recorded a tax benefit of $2,885,000 that is comprised of the
reversal of $3,021,000 of the valuation allowance on our deferred tax assets offset by a provision for a state tax
liability. In the fourth quarter of 2012, we entered into a cumulative pre-tax income position and concluded that it
was more likely than not that we will generate sufficient taxable income in 2013 based on our 2013 projections to
realize the tax benefit of a portion of our deferred tax assets.
In the nine-month fiscal year ended December 31, 2011, we recorded a tax provision of $16,000 that is
comprised of a $48,000 provision for a deferred tax liability related to goodwill amortization and a $32,000
benefit for a deferred tax asset related to a net operating loss for Repligen Sweden AB.
35
Liquidity and capital resources
We have financed our operations primarily through sales of equity securities, revenues derived from product
sales, and research grants, as well as proceeds and royalties from license arrangements and a litigation settlement.
Our revenue for the foreseeable future will primarily be limited to our bioprocessing product revenue. Given the
uncertainties related to pharmaceutical product development, we are currently unable to reliably estimate when,
if ever, our therapeutic product candidates will generate revenue and cash flows.
At December 31, 2013, we had cash and marketable securities of $73,842,000 compared to $49,970,000 at
December 31, 2012. A deposit for leased office space of $200,000 is classified as restricted cash and is not
included in cash and marketable securities total for December 31, 2013 or December 31, 2012.
Cash flows
(In thousands)
Cash provided by (used in)
Operating activities . . . . . . . . . . . . . . . . . . . . .
Investing activities . . . . . . . . . . . . . . . . . . . . .
Financing activities . . . . . . . . . . . . . . . . . . . . .
Operating activities
Year ended
December 31,
2013
$ 25,930
(17,906)
2,522
Increase /
(Decrease)
$ 12,490
(20,747)
1,363
Year ended
December 31,
2012
$13,440
2,841
1,159
Increase /
(Decrease)
$11,129
7,852
1,490
Nine months
ended
December 31,
2011
$ 2,311
(5,011)
(331)
For fiscal 2013, our operating activities provided cash of $25,930,000 reflecting net income of $16,093,000
and non-cash charges totaling $7,055,000 including depreciation, amortization, stock-based compensation
charges, deferred tax asset valuation allowance changes and the revaluation of contingent consideration.
Decreases in royalties and other receivables and in prepaid expenses and increases in accrued and long term
liabilities provided an additional $2,457,000 and $2,458,000 of cash. Increases in accounts receivable and
inventories as well as a decrease in accounts payable consumed $1,400,000 and $734,000 of cash.
For fiscal 2012, our operating activities provided cash of $13,440,000 reflecting net income of $14,156,000
and non-cash charges totaling $2,383,000 including depreciation, amortization, stock-based compensation
charges, deferred tax asset valuation allowance changes, the revaluation of contingent consideration and the gain
on bargain purchase. Decreases in inventory and increases in accounts payable and accrued liabilities provided an
additional $2,734,000 and $3,086,000 of cash. These increases were offset by an increase of $5,924,000 in
royalties and other receivables associated primarily with the up-front payment pursuant to the Pfizer license
agreement.
Investing activities
We place our marketable security investments in high quality credit instruments as specified in our
investment policy guidelines. For fiscal 2013, our investing activities consumed $17,906,000 of cash, which is
comprised of $13,272,000 of net purchases of marketable securities and $4,635,000 of fixed asset additions as we
completed the expansion of our Waltham facility. For fiscal 2012, our investing activities provided $2,841,000 of
cash, which is primarily capital expenditures of $1,264,000, offset by net redemptions of marketable securities of
$4,105,000. For fiscal 2011, our investing activities consumed $5,011,000 of cash, which is primarily due to the
Novozymes Acquisition for $26,884,000 and capital expenditures of $575,000, offset by net redemptions of
marketable securities of $22,449,000. We expect capital expenditures to decrease in 2014 as compared to 2013.
Financing activities
Exercises of stock options provided cash receipts of $2,450,000 and $1,159,000 in fiscal 2013 and 2012,
respectively. In fiscal 2013, an excess tax benefit related to stock option exercises provided $72,000. In fiscal
2011, there were no stock option exercises while the repurchase of common stock consumed $331,000.
36
Off-balance sheet arrangements
We do not have any special purpose entities or off-balance sheet financing arrangements.
Contractual obligations
As of December 31, 2013, we had the following fixed obligations and commitments:
(In thousands)
Operating lease obligations . . . . . . . . . . . . . . . . . . . . .
Purchase obligations (1)
. . . . . . . . . . . . . . . . . . . . . . .
Contingent consideration (2) . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments Due By Period
Total
$14,116
2,326
1,615
$18,057
Less than 1
Year
$2,273
2,326
1,162
$5,761
1 – 3 Years
3 – 5 Years
More than 5
Years
$4,547
—
210
$4,757
$2,773
—
243
$3,016
$4,523
—
—
$4,523
(1) Primarily represents purchase orders for the procurement of raw material for manufacturing.
(2) Represents the current estimated fair value of contingent consideration amounts relating to acquisitions.
These amounts are recorded in accrued expenses and long term liabilities on our consolidated balance
sheets.
Capital requirements
Our future capital requirements will depend on many factors, including the following:
•
•
•
•
•
•
•
•
•
the expansion of our bioprocessing business;
the ability to sustain sales and profits of our bioprocessing products;
the ability to replace the Orencia royalty revenue that we ceased receiving at the end of 2013;
the resources required to successfully integrate the Novozymes Biopharma Business and recognize
expected synergies;
our ability to realize value from our outlicensed early stage CNS programs or to establish one or more
partnerships for development and commercialization of RG1068;
the scope of and progress made in our research and development activities;
our ability to acquire additional bioprocessing products;
the extent of any share repurchase activity; and
the success of any proposed financing efforts.
Absent acquisitions of additional products, product candidates or intellectual property, we believe our
current cash balances are adequate to meet our cash needs for at least the next 24 months. We expect operating
expenses in the year ending December 31, 2014 to decrease as we will no longer have the cost of royalty revenue
related to Orencia and as we continue to improve gross margins through process improvement initiatives. We
expect to incur continued spending related to the development and expansion of our bioprocessing product lines
for the foreseeable future. Our future capital requirements may include, but are not limited to, purchases of
property, plant and equipment, the acquisition of additional bioprocessing products and technologies to
complement our existing manufacturing capabilities, and continued investment in our intellectual property
portfolio.
We plan to continue to invest in our bioprocessing business and in key research and development activities
associated with our efforts to identify and consummate development and commercialization partnerships. We
actively evaluate various strategic transactions on an ongoing basis, including monetizing existing assets and
37
licensing or acquiring complementary products, technologies or businesses that would complement our existing
portfolio of development programs. We continue to seek to acquire such potential assets that may offer us the
best opportunity to create value for our shareholders. In order to acquire such assets, we may need to seek
additional financing to fund these investments. This may require the issuance or sale of additional equity or debt
securities. The sale of additional equity may result in additional dilution to our stockholders. Should we need to
secure additional financing to acquire a product, fund future investment in research and development, or meet our
future liquidity requirements, we may not be able to secure such financing, or obtain such financing on favorable
terms because of the volatile nature of the biotechnology marketplace.
Net operating loss carryforwards
At December 31, 2013, we had net operating loss carryforwards of approximately $37,633,000 and business
tax credits carryforwards of approximately $1,520,000 available to reduce future federal income taxes, if any.
The net operating loss and business tax credits carryforwards will continue to expire at various dates through
December 2031. Net operating loss carryforwards and available tax credits are subject to review and possible
adjustment by the Internal Revenue Service and may be limited in the event of certain changes in the ownership
interest of significant stockholders.
Foreign earnings
At December 31, 2013, we have not provided for U.S. income taxes or foreign withholding taxes on outside
basis differences of foreign subsidiaries of approximately $8,405,000 as we have the ability and intend to
indefinitely reinvest the undistributed earnings of Repligen Sweden and there are no needs for such earnings in
the U.S. that would contradict our plan to indefinitely reinvest.
Effects of inflation
Our assets are primarily monetary, consisting of cash, cash equivalents and marketable securities. Because
of their liquidity, these assets are not directly affected by inflation. Since we intend to retain and continue to use
our equipment, furniture and fixtures and leasehold improvements, 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.
38
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest rate risk
We have investments in commercial paper, U.S. Government and agency securities 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 investments 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 $297,000 decrease in the fair value of our investments as of December 31, 2013. We believe,
however, that the conservative nature of our investments mitigates our interest rate exposure, and our investment
policy limits the amount of our credit exposure to any one issue, issuer (with the exception of U.S. agency
obligations) and type of instrument. We do not expect any material loss from our marketable security
investments and therefore believe that our potential interest rate exposure is limited.
Foreign exchange risk
Transactions by our subsidiary, Repligen Sweden, may be denominated in Swedish kronor, British pound
sterling, U.S. dollars, or in Euros while the entity’s functional currency is the Swedish krona. Exchange gains or
losses resulting from the translation between the transactional currency and the functional currency of Repligen
Sweden are included in our consolidated statements of operations. The functional currency of the Company is
U.S. dollars. Fluctuations in exchange rates may adversely affect our results of operations, financial position and
cash flows. We currently do not seek to hedge this exposure to fluctuations in exchange rates.
Although a majority of our contracts are denominated in U.S. dollars, 32% and 28% of total revenues during
fiscal 2013 and 2012, respectively, were denominated in foreign currencies while 37% and 39% of our costs and
expenses during fiscal 2013 and 2012, respectively, were denominated in foreign currencies, primarily operating
expenses associated with cost of revenue, sales and marketing and general and administrative. In addition, 36%
and 37% of our consolidated tangible assets were subject to foreign currency exchange fluctuations as of each of
December 31, 2013 and 2012, respectively, while 43% and 48% of our consolidated liabilities were exposed to
foreign currency exchange fluctuations as of each of December 31, 2013 and 2012, respectively.
Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements and supplementary data required by Item 8 are set forth at the pages indicated in
Item 15(a) below and are incorporated herein by reference.
Item 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
Item 9A. CONTROLS AND PROCEDURES
(a) Disclosure Controls and Procedures.
The Company’s management, with the participation of our principal executive officer and principal
financial officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined
in Rules 13a-15(e) or 15d-15(e) under the Exchange Act and as required by paragraph (b) of Rules 13a-15 or
15d-15 under the Exchange Act) as of the end of the period covered by this report. Based on such evaluation, our
principal executive officer and principal financial officer have concluded that, as of the end of such period, the
Company’s disclosure controls and procedures were effective at the reasonable assurance level.
39
(b) Report of Management on Internal Control Over Financial Reporting.
Management of the Company is responsible for establishing and maintaining adequate internal control 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 provide 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 reasonable 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 management
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.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of
December 31, 2013. In making this assessment, management used the criteria established in Internal Control—
Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission
(1992 framework) (COSO).
Subject to the foregoing, based on this assessment, our management concluded that, as of December 31,
2013, our internal control over financial reporting is effective based on those criteria. Ernst & Young LLP, the
independent registered public accounting firm that audited our financial statements included in this Annual
Report on Form 10-K, has issued an attestation report on our internal control over financial reporting as of
December 31, 2013.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
40
(c) Attestation Report of the Independent Registered Public Accounting Firm.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Repligen Corporation:
We have audited Repligen Corporation’s (the “Company”) internal control over financial reporting as of
December 31, 2013, based on criteria established in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (1992 framework) (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 included in the
accompanying Report of Management on Internal Control Over Financial Reporting. Our responsibility is to
express an opinion on 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 Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether effective internal control over financial reporting was maintained in all material respects. Our
audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, testing and evaluating the design and operating effectiveness of internal control based
on the assessed risk, 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 assurance
regarding the reliability of financial reporting and the preparation of financial statements for external 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 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 management and directors of the company; and (3) 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
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the 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, Repligen Corporation maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2013, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated balance sheets as of December 31, 2013 and December 31, 2012, and the related
consolidated statements of operations and comprehensive income (loss), stockholders’ equity, and cash flows for
the years ended December 31, 2013 and 2012, and the nine months ended December 31, 2011 of Repligen
Corporation and our report dated March 14, 2014 expressed an unqualified opinion thereon.
Boston, Massachusetts
March 14, 2014
/s/ Ernst & Young LLP
41
(d) Changes in Internal Control Over Financial Reporting.
There have not been any changes in the Company’s internal control over financial reporting (as such term is
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended December 31, 2013
that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over
financial reporting.
Item 9B. OTHER INFORMATION
None.
42
PART III
Pursuant to General Instructions G to Form 10-K, the information required for Part III, Items 10, 11, 12, 13
and 14, is incorporated herein by reference from the Company’s proxy statement for the 2014 Annual Meeting of
Stockholders.
43
PART IV
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following documents are filed as part of this Annual Report on Form 10-K:
(a) (1) Financial Statements:
The financial statements required by this item are submitted in a separate section beginning on page 36 of
this Report, as follows:
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets as of December 31, 2013 and December 31, 2012 . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations and Comprehensive Income (Loss) for the Years Ended
Page
53
54
December 31, 2013 and 2012 and the Nine Months Ended December 31, 2011 and 2010 (unaudited) . . .
55
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2013 and 2012 and
the Nine Months Ended December 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
56
Consolidated Statements of Cash Flows for the Years Ended December 31, 2013 and 2012 and the Nine
Months Ended December 31, 2011 and 2010 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
57
58
(a) (2) Financial Statement Schedules:
None.
44
(a) (3) Exhibits:
The Exhibits which are filed as part of this Annual Report or which are incorporated by reference are set
forth in the Exhibit Index hereto.
EXHIBIT INDEX
Exhibit
Number
3.1
3.2
3.3
3.4
4.1
10.1*
10.2*
10.3*
10.4*
10.5*
10.6*
10.7*
10.8*
Document Description
Restated Certificate of Incorporation dated June 30, 1992 and amended September 17, 1999 (filed
as Exhibit 3.1 to Repligen Corporation’s Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999 and incorporated herein by reference) (SEC File No. 000-14656).
Amended and Restated Bylaws (filed as Exhibit 3.2 to Repligen Corporation’s Quarterly Report on
Form 10-Q for the quarter ended September 30, 2003 and incorporated herein by reference) (SEC
File No. 000-14656).
Amendment No. 1 to the Amended and Restated Bylaws (filed as Exhibit 3.1 to Repligen
Corporation’s Current Report on Form 8-K filed on December 20, 2011 and incorporated herein by
reference).
Amendment No. 2 to the Amended and Restated Bylaws (filed as Exhibit 3.1 to Repligen
Corporation’s Current Report on Form 8-K filed on May 25, 2012 and incorporated herein by
reference).
Specimen Stock Certificate (filed as Exhibit 4.1 to Repligen Corporation’s Annual Report on
Form 10-K for the year ended March 31, 2002 and incorporated herein by reference) (SEC File
No. 000-14656).
Consulting Agreement, dated November 1, 1981, between Dr. Alexander Rich and Repligen
Corporation. (filed as Exhibit 10.2 to Repligen Corporation’s Annual Report on Form 10-K for the
year ended March 31, 2002 and incorporated herein by reference) (SEC File No. 000-14656).
Employment Agreement, dated March 14, 1996, between Repligen Corporation and Walter
C. Herlihy (filed as Exhibit 10.3 to Repligen Corporation’s Annual Report on Form 10-K for the
year ended March 31, 2002 and incorporated herein by reference) (SEC File No. 000-14656).
Employment Agreement, dated March 14, 1996, between Repligen Corporation and James
R. Rusche (filed as Exhibit 10.4 to Repligen Corporation’s Annual Report on Form 10-K for the
year ended March 31, 2002 and incorporated herein by reference) (SEC File No. 000-14656).
Employment Agreement, dated March 14, 1996, between Repligen Corporation and Daniel P. Witt
(filed as Exhibit 10.5 to Repligen Corporation’s Annual Report on Form 10-K for the year ended
March 31, 2002 and incorporated herein by reference) (SEC File No. 000-14656).
Employment Offer Letter dated February 29, 2008 by and between Repligen Corporation and
William Kelly (filed as Exhibit 10.20 to Repligen Corporation’s Annual Report on Form 10-K for
the year ended March 31, 2008 and incorporated herein by reference).
Repligen Executive Incentive Compensation Plan (filed as Exhibit 10.1 to Repligen Corporation’s
Current Report on form 8-K filed on December 14, 2005 and incorporated herein by reference).
The Amended 1992 Repligen Corporation Stock Option Plan, as amended (filed as Exhibit 4.2 to
Repligen Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2000
and incorporated herein by reference) (SEC File No. 000-14656).
The Second Amended and Restated 2001 Repligen Corporation Stock Plan (filed as Exhibit 10.1 to
Repligen Corporation’s Current Report on Form 8-K filed on September 18, 2008 and incorporated
herein by reference).
45
Exhibit
Number
10.8.1*
10.8.2*
10.9
10.10#
10.11#
10.12
10.13#
10.14#
10.15#
10.16
10.17
10.18
10.19#
Document Description
The Amended and Restated 2001 Repligen Corporation Stock Option Plan, Form of Incentive Stock
Option Agreement (filed as Exhibit 10.14 to Repligen Corporation’s Annual Report on Form 10-K
for the year ended March 31, 2005 and incorporated herein by reference).
The Amended and Restated 2001 Repligen Corporation Stock Plan, Form of Restricted Stock
Agreement (filed as Exhibit 10.1 to Repligen Corporation’s Current Report on Form 8-K filed on
January 9, 2006 and incorporated herein by reference).
Common Stock Purchase Warrant dated April 6, 2007 (filed as Exhibit 4.1 to Repligen
Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007 and incorporated
herein by reference).
Manufacturing Transfer Agreement dated as of December 17, 1998 among the Company and
Amersham Pharmacia Biotech AB (filed as Exhibit 10.1 to Repligen Corporation’s Quarterly
Report on Form 10-Q for the quarter ended December 31, 1998 and incorporated herein by
reference) (SEC File No. 000-14656).
License Agreement dated as of July 24, 2000 with University of Michigan (filed as Exhibit 10.1 to
Repligen Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2000
and incorporated herein by reference) (SEC File No. 000-14656).
Lease Between Repligen Corporation as Tenant and West Seyon LLC as Landlord, 35 Seyon Street,
Waltham, MA (filed as Exhibit 10.1 to Repligen Corporation’s Quarterly Report on Form 10-Q for
the quarter ended December 31, 2001 and incorporated herein by reference) (SEC File No. 000-
14656).
License Agreement by and between The Scripps Research Institute and Repligen Corporation dated
April 6, 2007 (filed as Exhibit 10.18 to Repligen Corporation’s Annual Report on Form 10-K for
the year ended March 31, 2007 and incorporated herein by reference).
Settlement and Release Agreement dated April 7, 2008 by and among Repligen Corporation, The
Regents of the University of Michigan and Bristol-Myers Squibb Company (filed as Exhibit 10.1 to
Repligen Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2008 and
incorporated herein by reference).
Strategic Supplier Alliance Agreement dated January 28, 2010 by and between Repligen
Corporation and GE Healthcare Bio-Sciences AB (filed as Exhibit 10.17 to Repligen Corporation’s
Annual Report on Form 10-K for the year ended March 31, 2010 and incorporated herein by
reference).
First Amendment to Lease, dated July 5, 2011, by and between Repligen Corporation and
TC Saracen, LLC (filed as Exhibit 10.1 to Repligen’s Current Report on Form 8-K filed on July 8,
2011 and incorporated herein by reference).
Asset Transfer Agreement by and among Repligen Corporation, Repligen Sweden AB, Novozymes
Biopharma DK A/S and Novozymes Biopharma Sweden AB, dated October 27, 2011 (filed as
Exhibit 2.1 to Repligen Corporation’s Current Report on Form 8-K filed on October 28, 2011 and
incorporated herein by reference).
Lease Between Repligen Sweden AB (as successor-in-interest to Novozymes Biopharma Sweden
AB) as Tenant and i-parken i Lund AB as Landlord, St. Lars Vag 47, 220 09 Lund, Sweden (filed as
Exhibit 10.18 to Repligen Corporation’s Transition Report on Form 10-K for the year ended
December 31, 2011 and incorporated herein by reference).
Amendment No. 1 to Strategic Supplier Alliance Agreement, by and between GE Healthcare Bio-
Sciences AB and Repligen Corporation, dated as of October 27, 2011 (filed as Exhibit 10.19 to
Repligen Corporation’s Transition Report on Form 10-K for the year ended December 31, 2011 and
incorporated herein by reference).
46
Exhibit
Number
10.20#
10.21#
10.22*
10.23*
10.24#
10.25#
Document Description
Strategic Supplier Alliance Agreement – Contract Manufacturing, by and between GE Healthcare
Bio-Sciences AB and Repligen Sweden AB (as successor-in-interest to Novozymes Biopharma
Sweden AB), dated as of July 7, 2011 (filed as Exhibit 10.20 to Repligen Corporation’s Transition
Report on Form 10-K for the year ended December 31, 2011 and incorporated herein by reference).
Amendment to Strategic Supply Alliance Agreement, by and between GE Healthcare Bio-Sciences
AB and Repligen Sweden AB (as successor-in-interest to Novozymes Biopharma Sweden AB),
dated as of October 27, 2011 (filed as Exhibit 10.21 to Repligen Corporation’s Transition Report on
Form 10-K for the year ended December 31, 2011 and incorporated herein by reference).
Repligen Corporation 2012 Stock Option and Incentive Plan (filed as Exhibit 10.1 to Repligen
Corporation’s Current Report on Form 8-K filed on May 25, 2012 and incorporated herein by
reference).
Repligen Corporation Non-Employee Directors’ Deferred Compensation Plan (filed as Exhibit 10.2
to Repligen Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 and
incorporated herein by reference).
License Agreement, dated as of December 28, 2012, by and between Pfizer Inc. and Repligen
Corporation (filed as Exhibit 10.25 to Repligen Corporation’s Annual Report on Form 10-K for the
year ended December 31, 2012 and incorporated herein by reference).
Separation Agreement, dated September 10, 2013, by and between the Company and Jonathan
Lieber (filed as Exhibit 10.1 to Repligen Corporation’s Current Report on Form 8-K filed on
September 13, 2013 and incorporated herein by reference).
10.26*+
Employment Offer Letter dated December 2, 2008 by and between Repligen Corporation and
Howard Benjamin.
21.1+
23.1+
24.1+
31.1+
31.2+
32.1+
101
Subsidiaries of the Registrant.
Consent of Ernst & Young LLP.
Power of Attorney (included on signature page).
Rule 13a-14(a)/15d-14(a) Certification.
Rule 13a-14(a)/15d-14(a) Certification.
Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
The following materials from Repligen Corporation on Form 10-K for the fiscal year ended
December 31, 2013, formatted in Extensive Business Reporting Language (XBRL): (i)
Consolidated Statements of Operations and Comprehensive Income (Loss), (ii) Consolidated
Balance Sheets, (iii) Consolidated Statement of Stockholders’ Equity, (iv) Consolidated Statements
of Cash Flows, and (v) Notes to Consolidated Financial Statements, tagged as blocks of text.
# Confidential treatment obtained as to certain portions.
* Management contract or compensatory plan or arrangement.
+ Filed herewith.
The exhibits listed above are not contained in the copy of the Annual Report on Form 10-K distributed to
stockholders. Upon the request of any stockholder entitled to vote at the 2014 annual meeting, the Registrant will
furnish that person without charge a copy of any exhibits listed above. Requests should be addressed to
Repligen Corporation, 41 Seyon Street, Waltham, MA 02453.
47
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: March 14, 2014
By:
/s/ WALTER C. HERLIHY
Walter C. Herlihy
President and Chief Executive Officer
REPLIGEN CORPORATION
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below hereby
makes, constitutes and appoints Walter C. Herlihy and William J. Kelly with full power to act without the other,
his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities to sign any or all amendments to this Form 10-K, and to file
the same with all exhibits thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agents, and each of them, full power and authority
to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as
fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agents of any of them, or any substitute or substitutes, lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ WALTER HERLIHY
Walter C. Herlihy, Ph.D.
President, Chief Executive Officer
and Director
(Principal executive officer)
March 14, 2014
/s/ WILLIAM J. KELLY
William J. Kelly
Chief Accounting Officer
(Principal accounting officer)
March 14, 2014
/s/ KAREN DAWES
Chairperson of the Board
March 14, 2014
Karen Dawes
/s/ GLENN L. COOPER
Glenn L. Cooper, M.D.
/s/
JOHN G. COX
John G. Cox
/s/ ALFRED L. GOLDBERG
Alfred L. Goldberg, Ph.D.
Director
Director
Director
March 14, 2014
March 14, 2014
March 14, 2014
/s/ MICHAEL A. GRIFFITH
Director
March 14, 2014
Michael A. Griffith
/s/ THOMAS F. RYAN, JR.
Director
March 14, 2014
Thomas F. Ryan, Jr.
48
Exhibit
Number
3.1
3.2
3.3
3.4
4.1
10.1*
10.2*
10.3*
10.4*
10.5*
10.6*
10.7*
10.8*
EXHIBIT INDEX
Document Description
Restated Certificate of Incorporation dated June 30, 1992 and amended September 17, 1999 (filed
as Exhibit 3.1 to Repligen Corporation’s Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999 and incorporated herein by reference) (SEC File No. 000-14656).
Amended and Restated Bylaws (filed as Exhibit 3.2 to Repligen Corporation’s Quarterly Report on
Form 10-Q for the quarter ended September 30, 2003 and incorporated herein by reference) (SEC
File No. 000-14656).
Amendment No. 1 to the Amended and Restated Bylaws (filed as Exhibit 3.1 to Repligen
Corporation’s Current Report on Form 8-K filed on December 20, 2011 and incorporated herein by
reference).
Amendment No. 2 to the Amended and Restated Bylaws (filed as Exhibit 3.1 to Repligen
Corporation’s Current Report on Form 8-K filed on May 25, 2012 and incorporated herein by
reference).
Specimen Stock Certificate (filed as Exhibit 4.1 to Repligen Corporation’s Annual Report on
Form 10-K for the year ended March 31, 2002 and incorporated herein by reference) (SEC File
No. 000-14656).
Consulting Agreement, dated November 1, 1981, between Dr. Alexander Rich and Repligen
Corporation. (filed as Exhibit 10.2 to Repligen Corporation’s Annual Report on Form 10-K for the
year ended March 31, 2002 and incorporated herein by reference) (SEC File No. 000-14656).
Employment Agreement, dated March 14, 1996, between Repligen Corporation and Walter
C. Herlihy (filed as Exhibit 10.3 to Repligen Corporation’s Annual Report on Form 10-K for the
year ended March 31, 2002 and incorporated herein by reference) (SEC File No. 000-14656).
Employment Agreement, dated March 14, 1996, between Repligen Corporation and James
R. Rusche (filed as Exhibit 10.4 to Repligen Corporation’s Annual Report on Form 10-K for the
year ended March 31, 2002 and incorporated herein by reference) (SEC File No. 000-14656).
Employment Agreement, dated March 14, 1996, between Repligen Corporation and Daniel P. Witt
(filed as Exhibit 10.5 to Repligen Corporation’s Annual Report on Form 10-K for the year ended
March 31, 2002 and incorporated herein by reference) (SEC File No. 000-14656).
Employment Offer Letter dated February 29, 2008 by and between Repligen Corporation and
William Kelly (filed as Exhibit 10.20 to Repligen Corporation’s Annual Report on Form 10-K for
the year ended March 31, 2008 and incorporated herein by reference).
Repligen Executive Incentive Compensation Plan (filed as Exhibit 10.1 to Repligen Corporation’s
Current Report on form 8-K filed on December 14, 2005 and incorporated herein by reference).
The Amended 1992 Repligen Corporation Stock Option Plan, as amended (filed as Exhibit 4.2 to
Repligen Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2000
and incorporated herein by reference) (SEC File No. 000-14656).
The Second Amended and Restated 2001 Repligen Corporation Stock Plan (filed as Exhibit 10.1 to
Repligen Corporation’s Current Report on Form 8-K filed on September 18, 2008 and incorporated
herein by reference).
10.8.1*
The Amended and Restated 2001 Repligen Corporation Stock Option Plan, Form of Incentive Stock
Option Agreement (filed as Exhibit 10.14 to Repligen Corporation’s Annual Report on Form 10-K
for the year ended March 31, 2005 and incorporated herein by reference).
49
Exhibit
Number
10.8.2*
10.9
10.10#
10.11#
10.12
10.13#
10.14#
10.15#
10.16
10.17
10.18
10.19#
Document Description
The Amended and Restated 2001 Repligen Corporation Stock Plan, Form of Restricted Stock
Agreement (filed as Exhibit 10.1 to Repligen Corporation’s Current Report on Form 8-K filed on
January 9, 2006 and incorporated herein by reference).
Common Stock Purchase Warrant dated April 6, 2007 (filed as Exhibit 4.1 to Repligen
Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007 and incorporated
herein by reference).
Manufacturing Transfer Agreement dated as of December 17, 1998 among the Company and
Amersham Pharmacia Biotech AB (filed as Exhibit 10.1 to Repligen Corporation’s Quarterly
Report on Form 10-Q for the quarter ended December 31, 1998 and incorporated herein by
reference) (SEC File No. 000-14656).
License Agreement dated as of July 24, 2000 with University of Michigan (filed as Exhibit 10.1 to
Repligen Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2000
and incorporated herein by reference) (SEC File No. 000-14656).
Lease Between Repligen Corporation as Tenant and West Seyon LLC as Landlord, 35 Seyon Street,
Waltham, MA (filed as Exhibit 10.1 to Repligen Corporation’s Quarterly Report on Form 10-Q for
the quarter ended December 31, 2001 and incorporated herein by reference) (SEC File No. 000-
14656).
License Agreement by and between The Scripps Research Institute and Repligen Corporation dated
April 6, 2007 (filed as Exhibit 10.18 to Repligen Corporation’s Annual Report on Form 10-K for
the year ended March 31, 2007 and incorporated herein by reference).
Settlement and Release Agreement dated April 7, 2008 by and among Repligen Corporation, The
Regents of the University of Michigan and Bristol-Myers Squibb Company (filed as Exhibit 10.1 to
Repligen Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2008 and
incorporated herein by reference).
Strategic Supplier Alliance Agreement dated January 28, 2010 by and between Repligen
Corporation and GE Healthcare Bio-Sciences AB (filed as Exhibit 10.17 to Repligen Corporation’s
Annual Report on Form 10-K for the year ended March 31, 2010 and incorporated herein by
reference).
First Amendment to Lease, dated July 5, 2011, by and between Repligen Corporation and TC
Saracen, LLC (filed as Exhibit 10.1 to Repligen’s Current Report on Form 8-K filed on July 8, 2011
and incorporated herein by reference).
Asset Transfer Agreement by and among Repligen Corporation, Repligen Sweden AB, Novozymes
Biopharma DK A/S and Novozymes Biopharma Sweden AB, dated October 27, 2011 (filed as
Exhibit 2.1 to Repligen Corporation’s Current Report on Form 8-K filed on October 28, 2011 and
incorporated herein by reference).
Lease Between Repligen Sweden AB (as successor-in-interest to Novozymes Biopharma Sweden
AB) as Tenant and i-parken i Lund AB as Landlord, St. Lars Vag 47, 220 09 Lund, Sweden (filed as
Exhibit 10.18 to Repligen Corporation’s Transition Report on Form 10-K for the year ended
December 31, 2011 and incorporated herein by reference).
Amendment No. 1 to Strategic Supplier Alliance Agreement, by and between GE Healthcare Bio-
Sciences AB and Repligen Corporation, dated as of October 27, 2011 (filed as Exhibit 10.19 to
Repligen Corporation’s Transition Report on Form 10-K for the year ended December 31, 2011 and
incorporated herein by reference).
50
Exhibit
Number
10.20#
10.21#
10.22*
10.23*
10.24#
10.25#
Document Description
Strategic Supplier Alliance Agreement – Contract Manufacturing, by and between GE Healthcare
Bio-Sciences AB and Repligen Sweden AB (as successor-in-interest to Novozymes Biopharma
Sweden AB), dated as of July 7, 2011 (filed as Exhibit 10.20 to Repligen Corporation’s Transition
Report on Form 10-K for the year ended December 31, 2011 and incorporated herein by reference).
Amendment to Strategic Supply Alliance Agreement, by and between GE Healthcare Bio-Sciences
AB and Repligen Sweden AB (as successor-in-interest to Novozymes Biopharma Sweden AB),
dated as of October 27, 2011 (filed as Exhibit 10.21 to Repligen Corporation’s Transition Report on
Form 10-K for the year ended December 31, 2011 and incorporated herein by reference).
Repligen Corporation 2012 Stock Option and Incentive Plan (filed as Exhibit 10.1 to Repligen
Corporation’s Current Report on Form 8-K filed on May 25, 2012 and incorporated herein by
reference).
Repligen Corporation Non-Employee Directors’ Deferred Compensation Plan (filed as Exhibit 10.2
to Repligen Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 and
incorporated herein by reference).
License Agreement, dated as of December 28, 2012, by and between Pfizer Inc. and Repligen
Corporation (filed as Exhibit 10.25 to Repligen Corporation’s Annual Report on Form 10-K for the
year ended December 31, 2012 and incorporated herein by reference).
Separation Agreement, dated September 10, 2013, by and between the Company and Jonathan
Lieber (filed as Exhibit 10.1 to Repligen Corporation’s Current Report on Form 8-K filed on
September 13, 2013 and incorporated herein by reference).
10.26*+
Employment Offer Letter dated December 2, 2008 by and between Repligen Corporation and
Howard Benjamin.
21.1+
23.1+
24.1+
31.1+
31.2+
32.1+
101
Subsidiaries of the Registrant.
Consent of Ernst & Young LLP.
Power of Attorney (included on signature page).
Rule 13a-14(a)/15d-14(a) Certification.
Rule 13a-14(a)/15d-14(a) Certification.
Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
The following materials from Repligen Corporation on Form 10-K for the fiscal year ended
December 31, 2013, formatted in Extensive Business Reporting Language (XBRL): (i)
Consolidated Statements of Operations and Comprehensive Income (Loss), (ii) Consolidated
Balance Sheets, (iii) Consolidated Statement of Stockholders’ Equity, (iv) Consolidated Statements
of Cash Flows, and (v) Notes to Consolidated Financial Statements, tagged as blocks of text.
# Confidential treatment obtained as to certain portions.
* Management contract or compensatory plan or arrangement.
+ Filed herewith.
51
INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets as of December 31, 2013 and December 31, 2012 . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations and Comprehensive Income (Loss) for the Years Ended
December 31, 2013 and 2012, and for the Nine Months Ended December 31, 2011 and 2010
(unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2013 and 2012, and
Page
53
54
55
for the Nine Months Ended December 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
56
Consolidated Statements of Cash Flows for the Years Ended December 31, 2013 and 2012, and for the
Nine Months Ended December 31, 2011 and 2010 (unaudited)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
57
58
52
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Repligen Corporation:
We have audited the accompanying consolidated balance sheets of Repligen Corporation as of
December 31, 2013 and December 31, 2012, and the related consolidated statements of operations and
comprehensive income (loss), stockholders’ equity, and cash flows for the years ended December 31, 2013 and
2012 and the nine months ended December 31, 2011. 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 Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the
consolidated financial position of Repligen Corporation at December 31, 2013 and December 31, 2012, and the
consolidated results of its operations and its cash flows for the years ended December 31, 2013 and 2012 and the
nine months ended December 31, 2011, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), Repligen Corporation’s internal control over financial reporting as of December 31, 2013, based
on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (1992 framework) and our report dated March 14, 2014 expressed
an unqualified opinion thereon.
/s/ Ernst & Young LLP
Boston, Massachusetts
March 14, 2014
53
REPLIGEN CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 2013 December 31, 2012
Assets
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, less reserve for doubtful accounts of $10,000 . . .
Royalties and other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax asset, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . .
$ 39,829,653
21,793,550
4,946,132
6,730,818
11,798,638
1,984
1,249,824
$ 29,209,821
10,845,195
4,158,758
9,130,515
11,143,695
416,580
1,304,887
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
86,350,599
66,209,451
Property, plant and equipment, at cost:
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,973,615
13,684,954
2,116,017
21,647
5,200,271
12,802,978
1,937,238
338,814
Total property, plant and equipment, at cost . . . . . . . . . . . . . . . . . .
Less: Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . .
24,796,233
(12,287,010)
20,279,301
(10,326,840)
Property, plant and equipment, net
. . . . . . . . . . . . . . . . . . . . . . . . .
Long-term deferred tax asset, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12,509,223
184,848
12,218,602
6,187,632
994,000
200,000
9,952,461
2,557,384
9,914,855
7,182,012
994,000
200,000
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$118,644,904
$ 97,010,163
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1,721,459
9,579,712
$
2,454,238
8,297,990
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments and contingencies (Note 5)
Stockholders’ equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized, no shares
11,301,171
3,457,631
10,752,228
2,133,339
issued or outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
Common stock, $.01 par value, 40,000,000 shares authorized, 31,925,741
shares at December 31, 2013 and 31,195,041 shares at December 31,
2012 issued and outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
319,257
190,625,937
1,998,330
(89,057,422)
311,950
187,051,253
1,911,970
(105,150,577)
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
103,886,102
84,124,596
Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$118,644,904
$ 97,010,163
The accompanying notes are an integral part of these consolidated financial statements.
54
REPLIGEN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
Years ended December 31,
Nine Months ended December 31,
2013
2012
2011
2010
(unaudited)
Revenue:
Product revenue . . . . . . . . . . . . . . . . . . . . . . . . .
Royalty and other revenue . . . . . . . . . . . . . . . . .
$47,482,382
20,687,241
$41,834,188
20,432,348
$13,215,053
10,235,194
$11,810,869
9,573,770
Total revenue . . . . . . . . . . . . . . . . . . . . . . .
68,169,623
62,266,536
23,450,247
21,384,639
Operating expenses:
Cost of product revenue . . . . . . . . . . . . . . . . . .
Cost of royalty and other revenue . . . . . . . . . . .
Research and development
. . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . . .
Contingent consideration – fair value
adjustments . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on bargain purchase . . . . . . . . . . . . . . . . .
22,481,122
2,682,177
7,340,698
12,701,195
24,957,243
2,213,004
10,489,811
13,226,732
5,157,135
1,315,315
9,461,960
9,050,382
4,186,670
1,160,775
8,744,548
5,580,215
91,191
—
610,877
(314,244)
—
(427,478)
—
—
Total operating expenses . . . . . . . . . . . . . .
45,296,383
51,183,423
24,557,314
19,672,208
Income (loss) from operations . . . . . . . . . . . . . . . . .
Investment income . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . .
Other income (expense)
22,873,240
301,078
(49,849)
(110,648)
Income (loss) before income taxes . . . . . . . . . . . . . .
Income tax (benefit) provision . . . . . . . . . . . . .
23,013,821
6,920,666
11,083,113
218,604
(56,714)
26,403
11,271,406
(2,884,631)
(1,107,067)
161,053
(27,773)
(623,094)
(1,596,881)
15,744
1,712,431
287,430
(12,683)
—
1,987,178
—
Net income (loss)
. . . . . . . . . . . . . . . . . . . . . . . . . . .
$16,093,155
$14,156,037
$ (1,612,625)
$ 1,987,178
Earnings (loss) per share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
0.51
0.50
$
$
0.46
0.45
$
$
(0.05)
(0.05)
$
$
0.06
0.06
Weighted average shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
31,667,015
30,914,424
30,774,467
30,778,430
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
32,406,641
31,253,434
30,774,467
30,949,264
Other comprehensive income (loss):
Unrealized gain (loss) on investments . . . . . . .
Foreign currency translation gain . . . . . . . . . . .
(19,411)
105,771
7,792
1,790,551
6,338
107,289
—
—
Comprehensive income (loss) . . . . . . . . . . . . . . . . . .
$16,179,515
$15,954,380
$ (1,498,998)
$ 1,987,178
The accompanying notes are an integral part of these consolidated financial statements.
55
REPLIGEN CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Common Stock
Number of
Shares
Amount
Additional
Paid-in Capital
Accumulated
Other
Comprehensive
Income
Accumulated
Deficit
Stockholders’
Equity
Balance, March 31, 2011 . . . . . . . . . 30,812,257 $308,123 $184,743,195
$
— $(117,964,614) $ 67,086,704
Net loss . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gain on investments . . . .
Foreign currency translation
adjustment . . . . . . . . . . . . . . . . . . .
Share-based compensation
expense . . . . . . . . . . . . . . . . . . . . .
Repurchase and retirement of
treasury stock . . . . . . . . . . . . . . . .
Exercise of stock options . . . . . . . . .
(100,000)
2,500
(1,000)
25
(1,612,625)
(1,612,625)
6,338
6,338
107,289
107,289
730,136
(330,867)
25
730,136
(600,492)
270,625
Balance, December 31, 2011 . . . . . . 30,714,757 $307,148 $184,872,839
$ 113,627
$(119,306,614) $ 65,987,000
Net income . . . . . . . . . . . . . . . . . . . .
Unrealized gain on investments . . . .
Foreign currency translation
adjustment . . . . . . . . . . . . . . . . . . .
Share-based compensation
expense . . . . . . . . . . . . . . . . . . . . .
Exercise of stock options . . . . . . . . .
480,284
4,802
1,024,152
1,154,262
14,156,037
7,792
1,790,551
14,156,037
7,792
1,790,551
1,024,152
1,159,064
Balance, December 31, 2012 . . . . . . 31,195,041 $311,950 $187,051,253
$1,911,970
$(105,150,577) $ 84,124,596
Net income . . . . . . . . . . . . . . . . . . . .
Unrealized loss on investments . . . .
Foreign currency translation
adjustment . . . . . . . . . . . . . . . . . . .
Share-based compensation
expense . . . . . . . . . . . . . . . . . . . . .
Exercise of stock options . . . . . . . . .
730,700
7,307
1,059,806
2,514,878
(19,411)
105,771
16,093,155
16,093,155
(19,411)
105,771
1,059,806
2,522,185
Balance, December 31, 2013 . . . . . . 31,925,741 $319,257 $190,625,937
$1,998,330
$ (89,057,422) $103,886,102
The accompanying notes are an integral part of these consolidated financial statements.
56
REPLIGEN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31,
Nine Months ended December 31,
Cash flows from operating activities:
Net income (loss):
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,093,155 $ 14,156,037 $ (1,612,625)
2013
2012
2011
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . .
Deferred tax expense (benefit) . . . . . . . . . . . . . . . . .
Gain on bargain purchase . . . . . . . . . . . . . . . . . . . . .
Loss on revaluation of contingent consideration . . .
Loss on disposal of assets . . . . . . . . . . . . . . . . . . . .
Changes in assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . .
Royalties and other receivables . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . .
3,113,892
1,059,806
2,787,967
—
91,191
1,836
(773,954)
2,399,697
(625,895)
57,604
(733,728)
1,256,736
1,201,660
3,508,592
1,024,152
(3,143,268)
(314,244)
604,133
—
(1,211,343)
(5,923,675)
2,734,239
30,266
1,001,546
2,083,964
(1,110,791)
1,274,597
730,136
15,744
(427,478)
28,182
2,826
3,551,969
(694,238)
(870,252)
(190,007)
247,222
243,182
11,487
2010
(unaudited)
$ 1,987,178
1,274,247
748,235
—
—
—
—
(601,141)
(450,600)
263,570
(708,311)
(291,824)
(408,224)
(25,447)
Net cash provided by operating activities . . . . . . . . . . . . . . . .
25,929,967
13,439,608
2,310,745
1,787,683
Cash flows from investing activities:
Purchases of marketable securities . . . . . . . . . . . . . .
Sales of marketable securities . . . . . . . . . . . . . . . . .
Redemptions of marketable securities . . . . . . . . . . .
Acquisition of assets of BioFlash Partners, LLC . . .
Acquisition of assets and liabilities of
Novozymes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . .
Purchases of property, plant and equipment
(42,480,331)
(39,109,959)
—
29,208,818
—
—
43,214,487
—
(49,465,924)
26,290,378
45,624,819
—
(58,095,140)
—
54,225,000
(300,000)
—
(4,634,776)
— (26,884,428)
(575,455)
(1,263,647)
—
(317,982)
Net cash provided by (used in) investing activities . . . . . . . . .
(17,906,289)
2,840,881
(5,010,610)
(4,488,122)
Cash flows from financing activities:
Exercise of stock options . . . . . . . . . . . . . . . . . . . . .
Excess tax benefit on exercise of stock options . . . .
Repurchase and retirement of treasury stock . . . . . .
Principal payments under capital lease
obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,450,220
71,964
—
1,159,064
—
—
25
—
(330,867)
—
—
—
Net cash provided by (used in) financing activities . . . . . . . . .
2,522,184
1,159,064
(330,842)
25,758
—
—
(56,850)
(31,092)
Effect of exchange rate changes on cash and cash
equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
73,970
602,523
(5,092)
—
Net increase (decrease) in cash and cash equivalents . . . . . . .
Cash and cash equivalents, beginning of period . . . . . . . . . . .
10,619,832
29,209,821
18,042,076
11,167,745
(3,035,799)
14,203,544
(2,731,531)
12,526,040
Cash and cash equivalents, end of period . . . . . . . . . . . . . . . . $ 39,829,653 $ 29,209,821 $ 11,167,745
$ 9,794,509
Supplemental disclosure of non-cash investing activities:
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,264,000 $
140,000 $
—
Contingent consideration transferred in the Novozymes
Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
— $
— $ 1,610,560
$
$
—
—
The accompanying notes are an integral part of these consolidated financial statements.
57
REPLIGEN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information for the nine months ended December 31, 2010 is unaudited)
1. Organization and Nature of Business
Repligen Corporation (“Repligen” or the “Company”) is a life sciences company that develops,
manufactures and markets high-value, consumable bioprocessing products for life sciences companies and
biopharmaceutical manufacturing companies worldwide. The Company is a world-leading manufacturer of both
native and recombinant forms of Protein A, critical reagents used in biomanufacturing to separate and purify
monoclonal antibodies, a type of biologic drug. Repligen also supplies several growth factor products used to
increase cell culture productivity during the biomanufacturing process. In the expanding area of flexible
biomanufacturing technologies, the Company has developed and currently markets a series of OPUS (Open-
Platform, User-Specified) chromatography columns for use in clinical-scale manufacturing. The Company
generally manufactures and sells Protein A and growth factors to life sciences companies under long-term supply
agreements and sells its chromatography columns, as well as media and quality test kits, directly to
biopharmaceutical companies or contract manufacturing organizations. Repligen refers to these activities as its
bioprocessing business. The Company manufactures its products in production facilities in the United States and
Sweden.
Historically, Repligen also conducted activities aimed at developing proprietary therapeutic drug candidates,
often with a potential of entering into a collaboration with a larger commercial stage pharmaceutical or
biotechnology company in respect of these programs. In addition, the Company has out-licensed certain
intellectual property to Bristol-Myers Squibb Company, from which Repligen received royalties on Bristol’s net
sales in the United States of their product Orencia®. On April 7, 2008, we entered into a settlement agreement
with Bristol in connection with a patent infringement lawsuit that we filed against Bristol. Under the terms of the
settlement agreement, Bristol was obligated to pay us royalties on its U.S. net sales of Orencia® for any clinical
indication at a rate of 1.8% for the first $500,000,000 of annual sales, 2.0% for the next $500,000,000 of annual
sales and 4% of annual sales in excess of $1 billion. Under the terms of the agreement, we will not receive any
future royalties on Bristol’s sales of Orencia® made after December 31, 2013. As part of Repligen’s strategic
decision in 2012 to focus the Company’s efforts on its core bioprocessing business, the Company reduced efforts
on its clinical development programs and increased its efforts to find collaboration partners to finish their
development and, if successful, commercialize these therapeutic drug candidates.
The Company is subject to a number of risks typically associated with companies in the biotechnology
industry. These risks principally include the Company’s dependence on key customers, development by the
Company or its competitors of new technological innovations, dependence on key personnel, protection of
proprietary technology, compliance with the FDA and other governmental regulations and approval
requirements, as well as the ability 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 accounting principles generally accepted in the
United States (“GAAP”) requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
58
Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned
subsidiary, Repligen Sweden AB. All significant intercompany accounts and transactions have been eliminated in
consolidation.
Foreign Currency
The Company translates the assets and liabilities of its foreign subsidiary at rates in effect at the end of the
reporting period. Revenues and expenses are translated at average rates in effect during the reporting period.
Translation adjustments are included in accumulated other comprehensive income.
Revenue Recognition
Product Sales
The Company generates revenue from the sale of products, licensing transactions and research and
development collaborations. The Company’s product revenues are from the sale of bioprocessing products to
customers in the life science and biopharmaceutical industries. Revenue related to product sales is recognized
upon delivery of the product to the customer as long as there is persuasive evidence of an arrangement, 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 judgments primarily regarding the fixed nature
of the fee charged for the product delivered and the collectability of those fees. The Company has a few
longstanding customers who comprise the majority of revenue and have excellent payment histories and
therefore the Company does not require collateral. The Company has had no significant write-offs of
uncollectible invoices in the periods presented.
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 customers and the 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.
Orencia Royalty
In April 2008, the Company settled its outstanding litigation with Bristol and began recognizing royalty
revenue in fiscal year 2009 for Bristol’s net sales in the United States of Orencia®, which is used in the treatment
of rheumatoid arthritis. Pursuant to the settlement with Bristol (see Note 9), the Company recognized royalty
revenue of $17,881,000 and $14,753,000 for the fiscal years ended December 31, 2013 and 2012, respectively,
and $8,769,000 for the nine-month fiscal year ended December 31, 2011. Revenue earned from Bristol royalties
is recorded in the periods when it is earned based on royalty reports sent by Bristol to the Company. The
Company has no continuing obligations to Bristol as a result of this settlement. The Company’s royalty
agreement with Bristol provides that the Company will receive such royalty payments from Bristol through
December 31, 2013.
Therapeutics Licensing Agreements
Activities under licensing agreements are evaluated in accordance with ASC 605-25 to determine if they
represent a multiple element revenue arrangement. The Company identifies the deliverables included within the
agreement and evaluates which deliverables represent separate units of accounting. The Company accounts for
those components as separate units of accounting if the following two criteria are met:
•
The delivered item or items have value to the customer on a stand-alone basis.
59
•
If there is a general right of return relative to the delivered items, delivery or performance of the
undelivered items is considered probable and within our control.
Factors considered in this determination include, among other things, whether any other vendors sell the
items separately and if the licensee could use the delivered item for its intended purpose without the receipt of
the remaining deliverables. If multiple deliverables included in an arrangement are separable into different units
of accounting, the Company allocates the arrangement consideration to those units of accounting. The amount of
allocable arrangement consideration is limited to amounts that are fixed or determinable. Arrangement
consideration is allocated at the inception of the arrangement to the identified units of accounting based on their
relative selling price. Revenue is recognized for each unit of accounting when the appropriate revenue
recognition criteria are met.
Future milestone payments, if any, under a license agreement will be recognized under the provisions of
ASC 605-28, which the Company adopted on January 1, 2011. The Company has elected to recognize a payment
that is contingent upon the achievement of a substantive milestone in its entirety in the period in which the
milestone is achieved. A milestone is substantive if:
•
•
•
It can only be achieved based in whole or in part on either (1) the Company’s performance or (2) on the
occurrence of a specific outcome resulting from the Company’s performance;
There is substantive uncertainty at the date an arrangement is entered into that the event will be
achieved; and
It would result in additional payments being due to the entity.
The Company believes that the clinical milestone payments pursuant to the license agreement with Pfizer,
Inc. (“Pfizer”), as described in Note 10, are substantive and thus will be recognized when achieved. The
commercial milestone payments and royalty payments received under license agreements, if any, will be
recognized as revenue when they are earned.
Research and Development Agreements
For the fiscal year ended December 31, 2013, the Company recognized $1,589,000 of revenue from
sponsored research and development projects under agreements with the National Institutes of Health / Scripps
Research Institute, the Muscular Dystrophy Association, GoFar and the European Friedrich’s Ataxia Consortium
for Translational Studies.
In the fiscal year ended December 31, 2012, the Company recognized $803,000 of revenue from sponsored
research and development projects under agreements with the National Institutes of Health / Scripps Research
Institute, the European Friedrich’s Ataxia Consortium for Translational Studies, GoFar, and the Friedreich’s
Ataxia Research Alliance.
For the nine-month fiscal year ended December 31, 2011, the Company recognized $1,466,000 of revenue
from sponsored research and development projects under agreements with the Muscular Dystrophy Association,
the National Institutes of Health / Scripps Research Institute, the European Friedrich’s Ataxia Consortium for
Translational Studies, Go Friedreich’s Ataxia Research (“GoFar”), and the Friedreich’s Ataxia Research
Alliance. For the nine-month period ended December 31, 2010, the Company recognized $1,102,000 of revenue
from sponsored research and development projects under agreements with the Muscular Dystrophy Association,
the National Institutes of Health / Scripps Research Institute, GoFar, and the Friedreich’s Ataxia Research
Alliance. For the nine months ended December 31, 2010, the Company also recognized approximately $733,000
in one-time grants under the Qualifying Therapeutic Discovery Project Program, which was created in March
2010 as part of the Patient Protection and Affordability Care Act.
60
Research revenue is recognized when the expense has been incurred and services have been performed.
Determination of which costs incurred qualify for reimbursement under the terms of the Company’s contractual
agreements and the timing of when such costs were incurred involves the judgment of management. The
Company’s calculations are based upon the agreed-upon terms as stated in the arrangements. However, should
the estimated calculations change or be challenged by other parties to the agreements, 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 sponsored research and
development projects.
There have been no material changes to the Company’s initial estimates related to revenue recognition in
any periods presented in the accompanying consolidated 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 significant risks
which have not already been disclosed in the consolidated financial statements. A loss of certain suppliers could
temporarily disrupt operations, although alternate sources of supply exist for these items. The Company has
mitigated these risks by working closely with key suppliers, identifying alternate sources and developing
contingency plans.
Cash, Cash Equivalents and Marketable Securities
At December 31, 2013 and December 31, 2012, the Company’s investments included money market funds
as well as short-term and long-term marketable securities. Marketable securities are investments with original
maturities of greater than 90 days. Long-term marketable securities are securities with maturities of greater than
one year. The average remaining contractual maturity of marketable securities at December 31, 2013 is
approximately 10.5 months.
Investments in debt securities consisted of the following at December 31, 2013:
December 31, 2013
Gross
Unrealized
Gain
Gross
Unrealized
Loss
Amortized
Cost
Fair Value
Marketable securities:
U.S. Government and agency securities . . . . . . . . . . . .
Corporate and other debt securities . . . . . . . . . . . . . . . .
$ 8,165,464
13,626,690
$ 435
3,636
$ (630) $ 8,165,269
13,628,281
(2,045)
Long-term marketable securities:
U.S. Government and agency securities . . . . . . . . . . . .
Corporate and other debt securities . . . . . . . . . . . . . . . .
21,792,154
4,071
(2,675)
21,793,550
11,599,415
625,882
12,225,297
466
100
566
(7,034)
(227)
11,592,847
625,755
(7,261)
12,218,602
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$34,017,451
$4,637
$(9,936) $34,012,152
At December 31, 2013, the Company’s investments included forty-two debt securities in unrealized loss
positions with a total unrealized loss of approximately $10,000 and a total fair market value of approximately
$18,981,000. All investments with gross unrealized losses have been in unrealized loss positions for less than
12 months. The unrealized losses were caused primarily by current economic and market conditions. There was
no change in the credit risk of the securities. The Company does not intend to sell any investments in an
unrealized loss position and it is not more likely than not that the Company will be required to sell the
61
investments before recovery of their amortized cost bases. There were no realized gains or losses on the
investments for the fiscal years ended December 31, 2013 and 2012, or the nine-month fiscal year ended
December 31, 2011.
Investments in debt securities consisted of the following at December 31, 2012:
December 31, 2012
Gross
Unrealized
Gain
Gross
Unrealized
Loss
Amortized
Cost
Fair Value
Marketable securities:
U.S. Government and agency securities . . . . . . . . . . . .
Corporate and other debt securities . . . . . . . . . . . . . . . .
$ 2,000,897
8,835,098
$
Long-term marketable securities:
U.S. Government and agency securities . . . . . . . . . . . .
Corporate and other debt securities . . . . . . . . . . . . . . . .
10,835,995
5,198,264
4,711,679
9,909,943
353
8,854
9,207
2,747
3,525
6,272
$
(7) $ 2,001,243
8,843,952
—
(7)
10,845,195
—
(1,360)
(1,360)
5,201,011
4,713,844
9,914,855
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$20,745,938
$15,479
$(1,367) $20,760,050
The contractual maturities of debt securities at December 31, 2013 were as follows:
Due in 1 year or less . . . . . . . . . . . . . . . . . . . . . . . .
Due in 1 to 2 years . . . . . . . . . . . . . . . . . . . . . . . . . .
$21,792,154
12,225,297
$21,793,550
12,218,602
$34,017,451
$34,012,152
Amortized
Cost
Fair Value
Fair Value Measurement
In determining the fair value of its assets and liabilities, the Company uses various valuation approaches.
The Company employs a hierarchy for inputs used in measuring fair value that maximizes the use of observable
inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available.
Observable inputs are inputs that market participants would use in pricing the asset or liability based on market
data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the
Company’s assumptions about the inputs that market participants would use in pricing the asset or liability and
are developed based on the best information available in the circumstances. The fair value hierarchy is broken
down into three levels based on the source of inputs as follows:
Level 1 — Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities
that the Company has the ability to access.
Level 2 — Valuations based on quoted prices for similar assets or liabilities in active markets, quoted prices
for identical or similar assets or liabilities in markets that are not active and models for which all
significant inputs are observable, either directly or indirectly.
Level 3 — Valuations based on inputs that are unobservable and significant to the overall fair value
measurement.
The availability of observable inputs can vary among the various types of financial assets and liabilities. To
the extent that the valuation is based on models or inputs that are less observable or unobservable in the market,
the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value
62
may fall into different levels of the fair value hierarchy. In such cases, for financial statement disclosure
purposes, the level in the fair value hierarchy within which the fair value measurement is categorized is based on
the lowest level input that is significant to the overall fair value measurement.
The Company’s fixed income investments are comprised of obligations of U.S. government agencies,
corporate debt securities and other interest bearing securities. These investments have been initially valued at the
transaction price and subsequently valued, at the end of each reporting period, utilizing third party pricing
services or other market observable data. The pricing services utilize industry standard valuation models,
including both income and market based approaches and observable market inputs to determine value. These
observable market inputs include reportable trades, benchmark yields, credit spreads, broker/dealer quotes, bids,
offers, current spot rates and other industry and economic events. The Company validates the prices provided by
third party pricing services by reviewing their pricing methods and matrices, obtaining market values from other
pricing sources, analyzing pricing data in certain instances and confirming that the relevant markets are active.
After completing its validation procedures, the Company did not adjust or override any fair value measurements
provided by the pricing services as of December 31, 2013.
The following fair value hierarchy table presents information about each major category of the Company’s
assets measured at fair value on a recurring basis as of December 31, 2013:
Fair value measurement at reporting date using:
Quoted prices in
active markets for
identical assets
(Level 1)
Significant
other observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
Assets:
Money market funds . . . . . . . . . . . . . . . . . . .
U.S. Government and agency securities . . . .
Corporate and other debt securities . . . . . . . .
$ 8,265,089
9,792,141
—
$
—
9,965,975
14,254,036
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$18,057,230
$24,220,011
$ —
—
—
$ —
Total
$ 8,265,089
19,758,116
14,254,036
$42,277,241
The Company has no other assets or liabilities for which fair value measurement is either required or has
been elected to be applied, other than the liabilities for contingent consideration recorded in connection with the
Novozymes Acquisition and the acquisition of the assets of BioFlash. The contingent consideration related to
Novozymes is valued using management’s best estimates of expected future milestone payments of amounts to
be paid to Novozymes Biopharma DK A/S, a company organized under the laws of Denmark (“Novozymes
Denmark”). The contingent consideration related to BioFlash is valued using management’s best estimates of
royalties to be paid to the former shareholders of BioFlash based on sales of the acquired assets. These valuations
are Level 3 valuations as the primary inputs are unobservable. Changes in the fair value of contingent
consideration in the year ended December 31, 2013 are primarily attributable to a 1,000,000 Euro milestone
payment made to Novozymes Denmark in March 2013 and a $55,000 minimum royalty payment made to
BioFlash in January 2013, which were previously accrued. The following table provides a roll forward of the fair
value of the contingent consideration:
Balance at December 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,899,076
—
(1,341,339)
91,191
Balance at December 31, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,648,928
There were no remeasurements to fair value during the year ended December 31, 2013 of financial assets
and liabilities that are not measured at fair value on a recurring basis.
63
Inventories
Inventories relate to the Company’s bioprocessing business. The Company values inventory at cost or, if
lower, fair market value, 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, production capacity and expiration dates of raw materials, work-in process and finished products.
Expected sales volumes are determined based on supply forecasts provided by key customers for the next 3 to 12
months. The Company writes down inventory that has become obsolete, inventory that has a cost basis in excess
of its expected net realizable value, and inventory in excess of expected requirements to cost of product revenue.
Manufacturing of bioprocessing finished goods is done to order and tested for quality specifications prior to
shipment. Reserves for excess and obsolete inventory were $183,000 and $154,000 as of December 31, 2013 and
2012, respectively.
A change in the estimated timing or amount of demand for the Company’s 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 operating
results. During all periods presented in the accompanying financial statements, there have been no material
adjustments related to a revised estimate of inventory valuations.
Work-in-process and finished products inventories consist of material, labor, outside processing costs and
manufacturing overhead. Inventories consist of the following:
Raw Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Work-in-process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finished products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 4,557,870
4,285,648
2,955,120
$ 4,064,317
4,112,478
2,966,900
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$11,798,638
$11,143,695
December 31,
2013
December 31,
2012
Accrued Liabilities
The Company estimates accrued liabilities by identifying services performed on the Company’s behalf,
estimating the level of service performed and determining the associated cost incurred for such service as of each
balance sheet date. For example, the Company would accrue for 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 tracking 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 provided. In the event that the
Company does not identify certain costs that 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 often require the exercise of judgment. The Company makes these judgments
based upon the facts and circumstances known at the date of the financial statements.
Income Taxes
Deferred taxes are determined based on the difference between the financial statement and tax basis of
assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse.
Valuation allowances are provided, if, based upon the weight of available evidence, it is more likely than not that
some or all of the deferred tax assets will not be realized. The Company accounts for uncertain tax positions
using a “more-likely-than-not” threshold for recognizing and resolving uncertain tax positions. The evaluation of
64
uncertain tax positions is based on factors including, but not limited to, changes in tax law, the measurement of
tax positions taken or expected to be taken in tax returns, the effective settlement of matters subject to audit, new
audit activity and changes in facts or circumstances related to a tax position. The Company evaluates this tax
position on a quarterly basis. The Company also accrues for potential interest and penalties, related to
unrecognized tax benefits in income tax expense.
Depreciation
Depreciation is calculated using the straight-line method over the estimated useful life of the asset as
follows:
Classification
Estimated Useful Life
Leasehold improvements . . . . .
Equipment . . . . . . . . . . . . . . . . .
Furniture and fixtures . . . . . . . .
Shorter of the term of the lease or estimated useful life
Three to eight years
Three years
For depreciation of property and equipment, the Company expensed approximately $2,092,000 and
$2,492,000 in the years ended December 31, 2013 and 2012, respectively, $1,117,000 in the nine-month fiscal
year ended December 31, 2011 and $1,141,000 the nine-month period ended December 31, 2010. These amounts
include depreciation of assets recorded under capitalized lease agreements of approximately $82,000 in the nine
months ended December 31, 2010. Assets recorded under capital leases were fully depreciated at December 31,
2011.
Earnings (Loss) Per Share
Basic earnings (loss) per share is computed by dividing net income (loss) available to common shareholders
by the weighted average number of common shares outstanding during the period. Diluted earnings per share is
computed by dividing net income available to common shareholders by the weighted-average number of
common shares and dilutive common share equivalents then outstanding. Potential common share equivalents
consist of restricted stock awards and the incremental common shares issuable upon the exercise of stock options
and warrants. Under the treasury stock method, unexercised “in-the-money” stock options are assumed to be
exercised at the beginning of the period or at issuance, if later. The assumed proceeds are then used to purchase
common shares at the average market price during the period. Share-based payment awards that entitle their
holders to receive non-forfeitable dividends before vesting are considered participating securities and are
included in the calculation of basic and diluted earnings per share.
A reconciliation of basic and diluted share amounts is as follows:
Years ended December 31,
Nine Months ended December 31,
2013
2012
2011
2010
(unaudited)
Numerator:
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . $16,093,155 $14,156,037 $ (1,612,625)
$ 1,987,178
Denominator:
Basic weighted average common shares
outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . .
31,667,015
30,914,424
30,774,467
30,778,430
Weighted average common stock equivalents
from assumed exercise of stock options and
restricted stock awards . . . . . . . . . . . . . . . . . . .
Diluted weighted average common shares
739,626
339,010
—
170,834
outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . .
32,406,641
31,253,434
30,774,467
30,949,264
Basic net income (loss) per common share . . . . . . . . . $
Diluted net income (loss) per common share . . . . . . . . $
0.51 $
0.50 $
0.46 $
0.45 $
(0.05)
(0.05)
$
$
0.06
0.06
65
At December 31, 2013, there were outstanding options to purchase 1,610,988 shares of the Company’s
common stock at a weighted average exercise price of $5.07 per share. For the fiscal year ended December 31,
2013, 187,000 shares of the Company’s common stock 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, and were therefore anti-dilutive.
At December 31, 2012, there were outstanding options to purchase 2,315,090 shares of the Company’s
common stock at a weighted average exercise price of $4.20 per share. For the fiscal year ended December 31,
2012, 1,296,700 shares of the Company’s common stock 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, and were therefore anti-dilutive.
At December 31, 2011, there were outstanding options to purchase 2,823,400 shares of the Company’s
common stock at a weighted average exercise price of $4.05 per share. Diluted weighted average shares
outstanding for the nine-month fiscal year ended December 31, 2011 do not include the impact of 2,823,400
outstanding potential common shares for stock options as they would be anti-dilutive. Accordingly, basic and
diluted net losses per share are the same for the nine-month fiscal year ended December 31, 2011.
At December 31, 2010, there were outstanding options to purchase 2,566,450 shares of the Company’s
common stock at a weighted average exercise price of $4.08 per share. For the nine-month fiscal year ended
December 31, 2010, 1,771,100 shares of the Company’s common stock 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, and were therefore anti-dilutive.
Segment Reporting
The Company views its operations, makes decisions regarding how to allocate resources 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 total revenue by geographic area (based on the location of the
customer):
Years ended December 31, Nine Months ended December 31,
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sweden . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
United Kingdom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
51%
35%
12%
2%
46%
42%
9%
3%
48%
44%
3%
5%
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100%
100%
100%
2013
2012
2011
2010
48%
45%
4%
3%
100%
The following table represents the Company’s total assets by geographic area:
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sweden . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 73,557,001
45,087,903
$58,356,697
38,653,466
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$118,644,904
$97,010,163
December 31,
2013
December 31,
2012
66
The following table represents the Company’s long-lived assets by geographic area:
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sweden . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$19,858,691
12,435,614
$16,537,804
14,262,908
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$32,294,305
$30,800,712
December 31,
2013
December 31,
2012
Concentrations of Credit Risk and Significant Customers
Financial instruments that subject the Company to significant concentrations of credit risk primarily consist
of cash and cash equivalents, marketable securities and accounts receivable. Per the Company’s investment
policy, cash equivalents and marketable securities are invested in financial instruments with high credit ratings
and credit exposure to any one issue, issuer (with the exception of U.S. treasury obligations) and type of
instrument is limited. At December 31, 2013 and 2012, the Company had no investments 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. While a reserve for the potential write-off of accounts receivable is
maintained, the Company has not written off any significant accounts to date. To control credit risk, the
Company performs regular credit evaluations of its customers’ financial condition.
Revenue from significant customers as a percentage of the Company’s total revenue is as follows:
Orencia® Royalties from Bristol . . . . . . . . . . . . . . . . . . . .
Bioprocessing Customer A . . . . . . . . . . . . . . . . . . . . . . . .
Bioprocessing Customer B . . . . . . . . . . . . . . . . . . . . . . . .
Bioprocessing Customer C . . . . . . . . . . . . . . . . . . . . . . . .
27%
35%
12%
13%
24%
42%
10%
10%
37%
44%
5%
—
2013
2012
2011
2010
37%
45%
5%
—
Years ended December 31, Nine Months ended December 31,
Significant accounts receivable balances as a percentage of the Company’s total trade accounts receivable
and royalties and other receivable balances are as follows:
Orencia® Royalties from Bristol . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bioprocessing Customer A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bioprocessing Customer C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tenant improvement allowance due from landlord . . . . . . . . . . . . . . . . . . . . .
Pfizer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
42%
17%
8%
15%
—
31%
21%
5%
—
38%
December 31, 2013 December 31, 2012
Goodwill, Other Intangible Assets and Acquisitions
Acquisitions
Total consideration transferred for acquisitions is allocated to the assets acquired and liabilities assumed, if
any, based on their fair values at the dates of acquisition. The fair value of identifiable intangible assets is based
on detailed valuations that use information and assumptions determined by management. Any excess of purchase
price over the fair value of the net tangible and intangible assets acquired is allocated to goodwill. Any excess of
the fair value of the net tangible and intangible assets acquired over the purchase price is recognized in the
statement of operations. The fair value of contingent consideration includes estimates and judgments made by
management regarding the probability that future contingent payments will be made and the extent of royalties to
67
be earned in excess of the defined minimum royalties. Management updates these estimates and the related fair
value of contingent consideration at each reporting period. Changes in the fair value of contingent consideration
are recorded in the consolidated statements of operations.
The Company uses the income approach to determine the fair value of certain identifiable intangible assets
including customer relationships and developed technology. This approach determines fair value by estimating
after-tax cash flows attributable to these assets over their respective useful lives and then discounting these after-
tax cash flows back to a present value. The Company bases its assumptions on estimates of future cash flows,
expected growth rates, expected trends in technology, etc. Discount rates used to arrive at a present value as of
the date of acquisition are based on the time value of money and certain industry-specific risk factors.
Goodwill
Goodwill is not amortized and is reviewed for impairment at least annually. There was no evidence of
impairment to goodwill at December 31, 2013. There were no goodwill impairment charges during the fiscal
years ended December 31, 2013 and 2012, the nine-month fiscal year ended December 31, 2011, or the nine-
month period ended December 31, 2010.
Intangible Assets
Intangible assets are amortized over their useful lives using the estimated economic benefit method, as
applicable, and the amortization expense is recorded within cost of product revenue and selling, general and
administrative expense in the statements of operations. Intangible assets and their related useful lives are
reviewed at least annually to determine if any adverse conditions exist that would indicate the carrying value of
these assets may not be recoverable. More frequent impairment assessments are conducted if certain conditions
exist, including a change in the competitive landscape, any internal decisions to pursue new or different
technology strategies, a loss of a significant customer, or a significant change in the marketplace, including
changes in the prices paid for our products or changes in the size of the market for our products. If impairment
indicators are present, the Company determines whether the underlying intangible asset is recoverable through
estimated future undiscounted cash flows. If the asset is not found to be recoverable, it is written down to the
estimated fair value of the asset based on the sum of the future undiscounted cash flows expected to result from
the use and disposition of the asset. If the estimate of an intangible asset’s remaining useful life is changed, the
remaining carrying amount of the intangible asset is amortized prospectively over the revised remaining useful
life. The Company continues to believe that its intangible assets are recoverable at December 31, 2013.
Intangible assets consisted of the following at December 31, 2013:
Technology – developed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,455,382
240,000
6,897,052
$ (537,589)
(117,500)
(1,749,713)
Total intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$8,592,434
$(2,404,802)
Gross Carrying
Amount
Accumulated
Amortization
Weighted
Average
Useful Life
(in years)
8
8
8
8
68
Intangible assets consisted of the following at December 31, 2012:
Technology – developed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,452,729
240,000
6,872,383
$ (360,748)
(87,500)
(934,852)
Total intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$8,565,112
$(1,383,100)
Gross Carrying
Amount
Accumulated
Amortization
Weighted
Average
Useful Life
(in years)
8
8
8
8
Amortization expense for amortized intangible assets was approximately $1,022,000 and $1,017,000 for the
years ended December 31, 2013 and 2012, respectively, $158,000 for the nine-month fiscal year ended
December 31, 2011 and $134,000 for the nine-month period ended December 31, 2010. The Company expects to
record amortization expense of approximately $1,000,000 in each of the next five years.
Stock Based Compensation
The Company measures stock-based compensation cost at the grant date based on the estimated fair value of
the award, and recognizes it as expense over the employee’s requisite service period on a straight-line basis. The
Company records the expense for share-based awards subject to performance-based milestone vesting over the
remaining service period when management determines that achievement of the milestone is probable.
Management evaluates whether the achievement of a performance-based milestone is probable as of the reporting
date. The Company has no awards that are subject to market conditions. The Company recognizes stock-based
compensation expense based upon options that are ultimately expected to vest, and accordingly, such
compensation expense has been adjusted by an amount of estimated forfeitures.
The Company uses the Black-Scholes option pricing model to calculate the fair value of share-based awards
on the grant date. The following assumptions are used in calculating the fair value of share-based awards:
Expected term—The expected term of options granted represents the period of time for which the options
are expected to be outstanding. For purposes of estimating the expected term, the Company has aggregated all
individual option awards into one group as the Company does not expect substantial differences in exercise
behavior among its employees.
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 based primarily upon the historical volatility of the Company’s common stock over a period
commensurate with the option’s expected term.
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.
Estimated forfeiture rates—The Company has applied, based on an analysis of its historical forfeitures,
annual forfeiture rates of 8% for awards granted to non-executive level employees, 3% for awards granted to
executive level employees and 0% for awards granted to non-employee members of the Board of Directors to all
unvested stock options as of December 31, 2013. The Company reevaluates this analysis periodically and adjusts
these estimated forfeiture rates as necessary. Ultimately, the Company will only recognize expense for those
shares that vest.
69
Recently Issued Accounting Pronouncements
In February 2013, the Financial Accounting Standards Board (FASB) issued ASU No. 2013-02, Comprehensive
Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (ASU
2013-02). This newly issued accounting standard requires an entity to provide information about the amounts
reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to
present, either on the face of the statement where net income is presented or in the notes, significant amounts
reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the
amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting
period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an
entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about
those amounts. This ASU is effective for reporting periods beginning after December 15, 2012. The Company adopted
this standard in 2013. The adoption of this standard did not have an impact on our financial position or results of
operations and no amounts were reclassified out of accumulated other comprehensive income during 2013.
In July 2013, the FASB issued guidance to address the diversity in practice related to the financial statement
presentation of unrecognized tax benefits as either a reduction of a deferred tax asset or a liability when a net
operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. This guidance is effective
prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013. The
adoption of this guidance is not expected to have a material impact on our consolidated financial statements.
3.
Income Taxes
Income tax data for the years ended December 31, 2013 and 2012, and the nine months ended December 31, 2011:
December 31, 2013 December 31, 2012 December 31, 2011
The components of income from operations before
income taxes are as follows:
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$12,782,598
10,231,223
$11,175,638
95,768
$(1,845,024)
248,143
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$23,013,821
$11,271,406
$(1,596,881)
The current and deferred components of the provision for
income taxes on operations are as follows:
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 4,123,752
2,796,914
$
312,630
(3,197,261)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 6,920,666
$ (2,884,631)
The jurisdictional components of the provision for
income taxes on operations are as follows:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,322,032
1,305,388
2,293,245
$ (2,915,673)
115,307
(84,265)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 6,920,666
$ (2,884,631)
$
$
$
$
—
15,744
15,744
48,000
—
(32,256)
15,744
At December 31, 2013, the Company had net operating loss carryforwards of approximately $37,633,000
and business tax credits carryforwards of approximately $1,520,000 available to reduce future federal income
taxes, if any. The cumulative U.S. federal net operating loss includes $1,580,000 related to excess tax deductions
from share-based payments, the tax benefit of which will be recognized as an increase to additional paid in
capital when the deduction reduces current taxes payable. The net operating loss and business tax credits
carryforwards will continue to expire at various dates through December 2031. The net operating loss and
business tax credit carryforwards 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.
70
The Company’s consolidated deferred tax assets (liabilities) consist of the following:
December 31, 2013 December 31, 2012
Deferred tax assets:
Temporary timing differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net operating loss carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax business credits carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,018,000
12,264,000
1,520,000
$ 4,152,000
15,041,000
2,160,000
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16,802,000
(16,571,000)
21,353,000
(18,307,000)
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities:
Goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquired intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax assets (liabilities)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
231,000
$ 3,046,000
(44,000)
—
$
(72,000)
—
187,000
$ 2,974,000
The net change in the total valuation allowance was a decrease of $1,736,000 in the year ended
December 31, 2013. The valuation allowance decreased by $10,169,000 for the year ended December 31, 2012
and increased by $73,000 for the nine months ended December 31, 2011. Prior to 2012, the Company’s U.S. net
operating losses (“NOL’s”) and other deferred tax assets were fully offset by a valuation allowance primarily
because the Company was in a cumulative loss position and did not have sufficient history of income to conclude
that it was more likely than not that the Company would be able to realize the tax benefits of those deferred tax
assets. In the fourth quarter of 2012, the Company entered into a three-year cumulative pre-tax income position
and concluded that it was more likely than not that it will generate sufficient taxable income in 2013 based on its
2013 projections to realize the tax benefit of a portion of its deferred tax assets. Thus, the Company reversed
$3,021,000 of the deferred tax asset valuation allowance in the U.S in the fourth quarter of 2012. The amount
was recorded as a benefit for income taxes in the Company’s consolidated statements of operations and
comprehensive income (loss). The Company concluded that realization of deferred tax assets beyond
December 31, 2013 is not more likely than not as a result of the fact that the Company will not receive royalty
payments from Bristol on U.S. net sales of Orencia after December 31, 2013, and as such, as of December 31,
2013 the Company maintains a valuation allowance against its remaining deferred tax assets.
The reconciliation of the federal statutory rate to the effective income tax rate for the fiscal years ended
December 31, 2013 and 2012, and the nine-month fiscal year ended December 31, 2011 is as follows:
December 31, 2013
December 31, 2012
December 31, 2011
Period Ended,
Income (loss) before income taxes . . . . . .
$23,013,821
% $11,271,406
% $(1,596,881)
%
Expected tax (recovery) at statutory
rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,824,699
34.0%
3,944,996
35.0%
(542,939)
(34.0)%
Adjustments due to:
Difference between U.S. and foreign
tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State income and franchise taxes . . . . . . .
Business tax credits . . . . . . . . . . . . . . . . . .
Transaction costs . . . . . . . . . . . . . . . . . . . .
Gain on bargain purchase . . . . . . . . . . . . .
Permanent differences . . . . . . . . . . . . . . . .
Change in valuation allowance . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,227,747)
1,121,821
(74,999)
—
—
(298,185)
(508,629)
83,706
(5.3)%
4.9%
(0.3)%
0.0%
0.0%
(1.3)%
(8,332)
357,866
(67,276)
—
(82,422)
242,629
(2.21)% (7,272,092)
0.4%
—
(19,287)
(0.1)%
52,905
3.2%
(68,926)
(0.6)%
0.0%
240,842
(0.7)% (112,427)
218,989
2.1%
246,587
(64.5)%
—
0.0%
(1.2)%
3.3%
(4.3)%
15.1%
(7.0)%
13.7%
15.4%
0.0%
Provision (benefit) for income taxes . . . . .
$ 6,920,666
30.1% $ (2,884,631)
(25.6)% $
15,744
1.0%
71
The fiscal years ended March 31, 2007 through March 31, 2011 as well as the nine-month fiscal year ended
December 31, 2011 and the years ended December 31, 2012 and 2013 are subject to examination by the federal
and state taxing authorities. Currently, a corporate excise tax audit is underway in the Commonwealth of
Massachusetts (“the Commonwealth”) for the fiscal years ended March 31, 2008 through 2011, and the nine-
month period ended December 31, 2011. While no formal assessments have been made to date, for the years
ended March 31, 2008 and 2009, two matters have been identified by the Commonwealth in these audits that
could result in future assessments. First, the Commonwealth has indicated that it is seeking to disallow up to
$713,000 in Research and Development Credits that were generated between 1993 and 2007, and taken as a
benefits in 2008 and 2009. Including potential penalties, if any, this amount could increase to $856,000.
In addition, the Commonwealth has indicated it may apportion to Massachusetts, and therefore tax, certain,
although not all, payments received by the Company in connection with our intellectual property settlements with
ImClone and Bristol Myers Squibb in 2007 and 2008, respectively. The Commonwealth believes that the full $40
million ImClone payment and the initial $5 million Bristol payment received under these settlements are
litigation awards as opposed to royalty payments received for the use of intellectual property, as we contend, and
therefore are taxable in Massachusetts. However, the Commonwealth agrees with our position that all subsequent
Bristol payments received under the settlement are in fact royalty payments and therefore not subject to tax in the
Commonwealth. The Company believes the Commonwealth intends to assess up to $1,383,000, or $1,659,000
including potential penalties, in connection with these transactions.
On October 29, 2013, the Company met with the Commonwealth in an attempt to remediate these matters
and was not successful. With respect to the R&D credit, the issue for the Company is that the documentation
requested by the Commonwealth would be up to twenty years old and simply no longer exists to the standard we
no longer believe the Commonwealth will require. In consideration of developments stemming from the October
2013 remediation, we no longer believe the R&D matter meets the “more likely than not” standard for
recognition under ASC 740. The Company performed an evaluation of the available documentation in
comparison to the recent requests by the Commonwealth, the likelihood of similar matters in other open audit
periods, the impact of interest and penalties and other relevant factors and recorded a provision of $800,000
related to this matter during the fourth quarter of 2013.
Conversely, with respect to the apportionment issue, the Company asserts that according to the settlement
agreements with ImClone and Bristol, all amounts received were in fact payments in exchange for licenses
granted to those entities. The Company further believes the Commonwealth is inconsistent in its approach, taxing
some, but not all of the payments received. As such, the Company continues to believe strongly in the legal
merits of its position and therefore believes this matter meets the more likely than not standard. Accordingly, no
provision has been made for this matter.
As of December 31, 2012, the Company had accumulated Federal research credits of $2,160,000, which
were not recognized for financial statement purposes as it was not more likely than not that the Company would
have sufficient earnings to realize those benefits in addition to the benefits we may derive from use of our Net
Operating Losses. However, given the uncertainty noted above at the state level in the current year regarding the
documentation of our historical research credits and their sustainability under audit, the Company recorded a
partial reserve of $1,117,000 against cumulative Federal research credits as of December 31, 2013. As the
Federal research credits were not previously recognized for financial statement purposes, the recording of this
partial reserve had no impact on net income for the year ended December 31, 2013.
72
The following is a tabular reconciliation of the total amounts of unrecognized tax benefits:
Unrecognized tax benefits at January 1, 2013 . . . . . . . . . . . . . . . . . . . . . . .
Gross increases – tax positions in prior period . . . . . . . . . . . . . . . . . .
Gross increases – tax positions in current period . . . . . . . . . . . . . . . .
$
—
1,637,936
37,249
Unrecognized tax benefits at December 31, 2013 . . . . . . . . . . . . . . . . . . . .
$1,675,185
December 31, 2013
The amount of unrecognized tax benefits at December 31, 2013 that will impact our effective tax rate are
$586,000.
For the year ended December 31, 2013, we recognized interest and penalties of $238,000. As of
December 31, 2013 we recognize interest and penalties of $238,000 in the consolidated balance sheet.
At December 31, 2013, the Company has not provided for U.S. income taxes or foreign withholding taxes
on outside basis differences of foreign subsidiaries of approximately $8,405,000 as it is the Company’s current
intention to permanently reinvest these earnings outside the U.S. It is not practical to estimate the additional taxes
that may be payable upon repatriation.
4.
Stockholders’ Equity
Common Stock and Warrants
At December 31, 2013, the Company has reserved 2,790,204 shares of common stock pursuant to the Plans,
as described below. On April 6, 2007, the Company issued warrants to an individual at Scripps to purchase up to
150,000 shares of common stock at $0.01 per share, as discussed in Note 10. The warrants have a seven-year
term and are exercisable based on performance criteria as detailed in the warrant agreement. At this time, the
Company does not believe that the performance criteria are probable of being achieved in the near future.
Stock-Based Compensation
The Company recorded stock-based compensation expense of approximately $1,060,000 and $1,024,000 for
the years ended December 31, 2013 and 2012, respectively, for share-based awards granted under the Second
Amended and Restated 2001 Repligen Corporation Stock Plan (the “2001 Plan”) and the Repligen Corporation
2012 Stock Option and Incentive Plan (the “2012 Plan,” and collectively with the 2001 Plan and the 1992
Repligen Corporation Stock Option Plan, the “Plans”). We recorded stock-based compensation expense of
approximately $730,000 for the nine-month fiscal year ended December 31, 2011, and $748,000 for the nine-
month period ended December 31, 2010 for share-based awards granted under the Plans.
The following table presents stock-based compensation expense in the Company’s consolidated statements
of operations:
Cost of product revenue . . . . . . . . . . . . . . . . . .
Research and development
. . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . .
Years ended
December 31,
Nine Months ended
December 31,
$
2013
74,000
97,000
889,000
2012
2011
$
45,000
219,000
760,000
$ 35,000
191,000
504,000
2010
(unaudited)
$ 38,000
164,000
546,000
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,060,000
$1,024,000
$730,000
$748,000
The 2012 Plan allows for the granting of incentive and nonqualified options to purchase shares of common
stock, restricted stock and other equity awards. Incentive options granted to employees under the Plans generally
73
vest over a four to five-year period, with 20%-25% vesting on the first anniversary of the date of grant and the
remainder vesting in equal yearly installments thereafter. Nonqualified options issued to non-employee directors
and consultants 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 generally, the exercise price of the stock options equals the fair
market value of the Company’s common stock on the date of grant. At December 31, 2013, options to purchase
1,610,988 shares were outstanding under the Plans. At December 31, 2013, 1,179,216 shares were available for
future grant under the 2012 Plan.
The Company uses the Black-Scholes option pricing model to calculate the fair value of share-based awards
on the grant date. The fair value of share-based awards granted during the years ended December 31, 2013 and
2012, the nine-month fiscal year ended December 31, 2011, and the nine-month period ended December 31,
2010 were calculated using the following estimated assumptions:
Expected term (years) . . . . . . . . .
Volatility . . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . .
Expected dividend yield . . . . . . .
Years ended December 31,
Nine Months ended December 31,
2013
6.5
2012
6.5
2011
6.5
2010
6.5
51.39% - 53.63% 49.76% - 53.54% 53.09% - 55.76% 57.58% - 63.60%
1.81% - 2.62%
1.09% - 2.08%
—
—
0.89% - 1.06%
—
1.25% - 2.38%
—
Information regarding option activity for the year ended December 31, 2013 under the Plans is summarized
below:
Options outstanding at December 31, 2012 . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited/cancelled . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options
Outstanding
2,315,090
567,052
(927,654)
(343,500)
Options outstanding at December 31, 2013 . . . . . . . . . . . . . .
1,610,988
Options exercisable at December 31, 2013 . . . . . . . . . . . . . .
831,078
Vested and expected to vest at December 31, 2013 (1) . . . . .
1,518,371
Weighted-
Average
Exercise
Price Per
Share
Weighted-
Average
Remaining
Contractual
Term
(in years)
Aggregate
Intrinsic
Value
$4.20
7.24
4.39
4.67
$5.07
$4.13
$4.98
6.41
4.34
6.29
$13,812,307
$ 7,905,877
$13,149,147
(1)
This represents the number of vested options as of December 31, 2013 plus the number of unvested options
expected to vest as of December 31, 2013 based on the unvested outstanding options at December 31, 2013
adjusted for estimated forfeiture rates of 8% for awards granted to non-executive level employees and 3%
for awards granted to executive level employees.
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference
between the closing price of the common stock on December 31, 2013 of $13.64 per share 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 December 31, 2013. The aggregate intrinsic value of stock options exercised during
the years ended December 31, 2013 and 2012 was approximately $3,723,000 and $1,384,000, respectively. The
aggregate intrinsic value of stock options exercised during the nine-month fiscal year ended December 31, 2011
was approximately $8,000.
The weighted average grant date fair value of options granted during the years ended December 31, 2013
and 2012 was $4.31 and $3.62, respectively. The total fair value of stock options that vested during the years
74
ended December 31, 2013 and 2012 was approximately $991,000 and $931,000, respectively. The total fair value
of stock options that vested during the nine-month fiscal year ended December 31, 2011 and the nine-month
period ended December 31, 2010 was approximately $804,000 and $817,000, respectively.
As of December 31, 2013, there was $1,908,109 of total unrecognized compensation cost related to
unvested share-based awards. This cost is expected to be recognized over a weighted average remaining requisite
service period of 3.19 years. We expect 687,293 unvested options to vest over the next five years.
5. Commitments and Contingencies
Lease Commitments
In 2001, the Company entered into a ten-year lease agreement for approximately 25,000 square feet of space
located in Waltham, Massachusetts to be used for its corporate headquarters, manufacturing, research and
development, and marketing and administrative operations. In July 2011, the Company amended this agreement
to expand the lease to cover approximately 56,000 square feet and to extend the term of the lease by eleven years,
which expires on May 31, 2023. In connection with this lease agreement, the Company issued a letter of credit in
the amount of $200,000 to the lessor. The letter of credit is collateralized by a certificate of deposit held by the
bank that issued the letter of credit. The certificate of deposit is classified as restricted cash in the accompanying
consolidated balance sheets.
In 2007, the Company entered into a five-year lease agreement for approximately 2,500 square feet of space
in Waltham, Massachusetts to provide for expanded manufacturing operations. Adjacent to this space, the
Company entered into a two-year lease in 2008 for approximately 7,350 square feet of additional space to be
used for expanded manufacturing and administrative operations. Both of these leases expired on December 31,
2012 and we are now on a month-to-month basis.
Following the completion of the Novozymes Acquisition, the Company now leases four adjacent buildings
in Lund, Sweden totaling approximately 45,000 square feet of space used primarily for biologics manufacturing
and administrative operations. The lease for three buildings totaling approximately 41,000 square feet expires on
June 30, 2017 while the lease for the fourth building with approximately 4,000 square feet of space expires on
September 30, 2019.
Obligations under non-cancelable operating leases, including the facility leases discussed above, as of
December 31, 2013 are approximately as follows:
Years Ending
December 31, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter
Operating Leases
$ 2,273,000
2,273,000
2,273,000
1,682,000
1,090,000
4,525,000
Minimum lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$14,116,000
Rent expense charged to operations under operating leases was approximately $2,437,000 and $2,183,000
for the fiscal years ended December 31, 2013 and 2012, respectively, and $528,000 and $510,000 for the nine-
month fiscal year ended December 31, 2011 and the nine-month period ended December 31, 2010, respectively.
As of December 31, 2013 and December 31, 2012, the Company had deferred rent liabilities of $2,028,000 and
$329,000, respectively, related to the escalating rent provisions for the Waltham headquarters.
75
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
recorded research and development expenses associated with license agreements of approximately $302,000 for
the year ended December 31, 2013, $55,000 for the fiscal year ended December 31, 2012, and $525,000 and
$343,000 for the nine-month fiscal year ended December 31, 2011 and the nine-month period ended
December 31, 2010, respectively.
In October 2009, the Company entered into an exclusive worldwide commercial license agreement with
Families of Spinal Muscular Atrophy (see Note 10). The initial license fee of $500,000 and a related sublicense
fee of $175,000 were charged to research and development expenses in the fiscal year ended March 31, 2010. A
related sublicense fee of $65,000 was charged to research and development expenses in the fiscal year ended
March 31, 2011. A related milestone payment of $500,000 was charged to research and development expenses in
the nine month fiscal year ended December 31, 2011. Pursuant to the License Agreement dated December 28,
2012, the Company transferred all rights and obligations related to the FSMA License Agreement to Pfizer.
Purchase Orders, Supply Agreements and Other Contractual Obligations
In the normal course of business, the Company has entered into purchase orders and other agreement with
manufacturers, distributors and others. Outstanding obligations at December 31, 2013 of approximately
$2,326,000 are expected to be completed within one year.
6.
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following:
December 31, 2013
December 31, 2012
Equipment maintenance and services . . . . . . . . . . . . . . . . . . . . .
Prepaid insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Clinical and research expenses . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
521,772
344,698
214,902
135,102
—
33,350
747,273
365,167
140,363
—
15,354
36,730
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,249,824
$1,304,887
7. Accrued Liabilities
Accrued liabilities consist of the following:
December 31, 2013
December 31, 2012
Employee compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Royalty and license fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contingent consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Professional fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
VAT liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unearned revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,166,086
2,324,711
1,897,473
1,195,248
385,478
7,591
3,341
—
599,784
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$9,579,712
$3,634,839
—
1,459,680
1,376,877
418,800
98,162
599,120
18,300
692,212
$8,297,990
76
8. Employee Benefit Plans
In the U.S., the Repligen Corporation 401(k) Savings and Retirement Plan (the “401(k) Plan”) is a qualified
defined contribution plan in accordance with Section 401(k) of the Internal Revenue Code. All U.S. employees
over the age of 21 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’ contributions
up to a defined maximum. The match is calculated on a calendar year basis. The Company matched
approximately $92,000 for the year ended December 31, 2013, $103,000 for the year ended December 31, 2012,
$102,000 for the nine-month fiscal year ended December 31, 2011, and $108,000 for the nine-month period
ended December 31, 2010.
In Sweden, the Company contributes to a government-mandated occupational pension plan that is a
qualified defined contribution plan. All employees in Sweden are eligible for this pension plan. The Company
pays premiums to a third party occupational pension specialist who administers the pension plan. These
premiums are based on various factors including each employee’s age, salary, employment history and selected
benefits in the pension plan. When an employee terminates or retires, these premium payments cease for that
employee and the Company has no further pension-related obligations for that employee. For the fiscal years
ended December 31, 2013 and 2012, the Company contributed approximately $457,000 and $532,000,
respectively, to the pension plan. For the period from the completion of the Novozymes Acquisition on
December 20, 2011 to December 31, 2011, the Company contributed approximately $10,000 to the pension plan.
9. Royalty Arrangement with Bristol Myers Squibb Company (“Bristol”)
In 2008, the Company together with the University of Michigan entered into a settlement agreement with
Bristol related to alleged patent infringement of a certain patent related to the treatment of rheumatoid arthritis.
The settlement provided for Bristol to pay royalties on the United States net sales of Orencia® for any clinical
indication at a rate of 1.8% for the first $500 million of annual net sales, 2.0% for the next $500 million of annual
net sales and 4% of annual net sales in excess of $1 billion for each year from January 1, 2008 until
December 31, 2013. These royalty payments have ceased.
Pursuant to the Bristol Settlement, the Company recognized royalty revenue of $17,881,000 and
$14,753,000 for the years ended December 31, 2013 and 2012, respectively, $8,769,000 for the nine-month fiscal
year ended December 31, 2011, and $7,739,000 for the nine-month period ended December 31, 2010.
The Company must also remit to the University of Michigan 15% of all royalty revenue received from
Bristol. Royalty expense was $2,682,000 and $2,213,000 for the years ended December 31, 2013 and 2012,
respectively, $1,315,000 for the nine-month fiscal year ended December 31, 2011 and $1,161,000 for the nine-
month period ended December 31, 2010. Royalty expense is included on the statements of operations under the
line item “Cost of royalty and other revenue.”
10. License Agreements
Pfizer
On December 28, 2012, the Company entered into an exclusive worldwide outlicensing agreement (the
“License Agreement”) with Pfizer to advance the SMA program, which is led by RG3039 and also includes
backup compounds and enabling technologies. Under the terms of the License Agreement, the Company received
a $5 million upfront payment on January 22, 2013 and a $1 million milestone payment on September 4, 2013.
The Company is entitled to receive up to $64 million in potential future milestone payments, a portion of which
may be owed to third parties. These potential payments are approximately equally divided between milestones
related to clinical development and initial commercial sales in specific geographies. In addition, the Company is
entitled to receive royalties on any future sales of RG3039 or any SMA compounds developed under the License
Agreement. The License Agreement also provides for tiered and increasing royalty rates which begin in the high
77
single-digits for RG-3039 or lesser amounts for any backup compounds developed under the License Agreement.
The Company’s receipt of these royalties is subject to an obligation under an existing in-license agreement and
other customary offsets and deductions. Royalties are payable, on a country-by-country basis, for a duration
based upon the later of (a) expiration of the licensed patent(s) or (b) a predetermined time after the first
commercial sale of the first such product in such country.
Pursuant to the License Agreement, Pfizer assumed virtually all of the costs associated with completing the
required clinical trials for the SMA program as well as obtaining FDA approval of the respective NDA. The
Company was obligated to conduct additional activities in support of this program, which included completion of
the second cohort of the ongoing Phase I trial and supporting the transition of the program to Pfizer. The
Company provided specific technology transfer services to Pfizer who has assumed full responsibility for the
SMA program moving forward, including the conduct of any registration trials necessary for any product
approvals. The Company had completed its obligation with respect to this program as of September 30, 2013.
Pfizer may terminate the license agreement at any time for convenience. There are no refund provisions in the
License Agreement.
Activities under this agreement were evaluated in accordance with ASC 605-25 to determine if they
represented a multiple element revenue arrangement. The Company identified the following deliverables in the
Pfizer agreement:
•
•
•
•
An exclusive license to research, develop, manufacture, commercialize and use RG3039 and backup
compounds for the treatment of SMA and other disorders (the “License”);
Research and development services designed to transition the SMA program to Pfizer pursuant to a
transition plan (the “Transition Services”);
The completion of the second cohort of a phase I clinical trial that was underway at the time the
License Agreement was signed; and
An inventory of RG3039, that could be used in clinical development, specifically to complete the phase
I clinical trial, referenced immediately above (the “Clinical Trial Material”).
The deliverables outlined above were deemed to have stand-alone value and to meet the criteria to be
accounted for as separate units of accounting. Factors considered in this determination included, among other
things, whether any other vendors sell the items separately or whether or not Pfizer had the ability to resell and if
Pfizer could use the delivered item for its intended purpose without the receipt of the remaining deliverables. The
amount of allocable arrangement consideration is limited to amounts that are fixed or determinable. Arrangement
consideration is allocated at the inception of the arrangement to the identified units of accounting based on their
relative selling price.
The Company identified the arrangement consideration to allocate among the units of accounting as the
$5.0 million non-refundable up-front payment and excluded the potential milestone payments provided for in the
License Agreement from the arrangement consideration as they were not considered fixed or determinable at the
time the License Agreement was signed. Because Repligen had not sold these items on a standalone basis
previously, there was no vendor-specific objective evidence of selling price. Furthermore, the Company did not
have detailed third-party evidence of selling price, and as a result used a best estimate of selling price for each
item. In determining these prices, the Company considered what it would be willing to sell the items for on a
standalone basis, what the market would bear for such items and what another party might charge for these items.
The Company used a discounted cash flow analysis to determine the value of the license. Key assumptions
in the analysis included: the estimated market size for a compound targeted at SMA, the estimated remaining
costs of development and time to commercialization, and the probability of successfully developing and
commercializing the program. A change in the key assumptions used to determine best estimate of selling price
for each of the deliverables would not have a significant effect on the allocation of arrangement consideration.
78
Based on this analysis, the Company allocated $4,876,000 to the value of the license and recognized this
amount as revenue in the year ended December 31, 2012 upon delivery as the risks and rewards associated with
the License transferred at that time.
The remaining $124,000 of value was allocated based on the following:
•
•
•
The estimated selling price of the Transition Services was approximately $600,000 resulting in
consideration allocation of approximately $76,000. Repligen was able to derive a price for these
services, in part because they are similar to services provided by a contract research organization. The
selling price of the Transition Services was based on the Company’s internal FTE costs and external
costs that it expects to incur to transition the program to Pfizer. The Company applied a mark-up on the
internal FTE costs consistent with that of contract research organizations.
The estimated selling price of the completion of the second cohort of the clinical trial was
approximately $275,000 resulting in consideration allocation of approximately $35,000. This estimated
selling price is based on the estimated, remaining costs to complete this cohort. Since the costs are
pursuant to an arrangement negotiated with a third-party (the clinical site), the Company believes that
the external cost estimate included in the agreement represents the best estimate of selling price for this
unit of accounting.
The estimated selling price of the Clinical Trial Material was approximately $105,000 resulting in
consideration allocation of approximately $13,000. The estimated selling price is based upon the cost
of procuring such material from the contract manufacturing organization that made the material. Since
these costs were incurred pursuant to an arrangement negotiated with a third-party (the contract
manufacturing organization), the Company believes that the costs included in the agreement represents
the best estimate of selling price for this unit of accounting.
The Company recognized the revenues related to the transfer of Clinical Trial Material upon transfer of title
and risk of loss to Pfizer. The Company recognized revenues related to the Transition Services and the
completion of the second cohort ratably over the first six months of 2013.
In addition to the $5 million up-front payment and the $1,000,000 milestone already received, the Company
is also eligible to receive $64 million in potential milestone payments comprised of: (i) up to $29 million related
to the achievement of specified clinical milestone events; and (ii) up to $35 million related to the achievement of
specified commercial sales events, specifically first commercial sale in specific territories.
Any future royalty payments, under the License Agreement will be recognized as revenue when they are
earned.
The Scripps Research Institute
On April 6, 2007, the Company entered into an exclusive worldwide commercial license agreement
(“Scripps License Agreement”) with The Scripps Research Institute (“Scripps”). Pursuant to the License
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 that may have utility in treating
Friedreich’s ataxia, an inherited neurodegenerative disease.
Pursuant to the Scripps License Agreement, the Company agreed to pay Scripps an initial license fee of
$300,000, certain royalty and sublicense fees and, in the event that the Company achieved specified
developmental and commercial milestones, certain additional milestone payments. Total future milestone
payments, if all milestones had been achieved, would have been approximately $4,300,000. In addition, the
Company issued Scripps and certain of its designees 87,464 shares of the Company’s common stock, which had
a value of $300,000 on the date of issuance.
79
In connection with the Scripps License Agreement, the Company issued warrants to an individual at Scripps
to purchase up to 150,000 shares of common stock. The warrants have a seven-year term and are exercisable
based on performance criteria as detailed in the warrant agreement governing such warrants. No expense has
been recorded related to these warrants through December 31, 2013, as none of the performance criteria have
been achieved. At this time, the Company does not believe that the performance criteria are probable of being
achieved.
11. Subsequent Event
On January 21, 2014, the Company entered into an agreement to sell its histone deacetylase inhibitor
(HDACi) portfolio to BioMarin Pharmaceutical Inc. The HDACi portfolio includes multiple orally bioavailable
small molecule compounds as well as enabling technologies. Under the terms of the agreement, the Company
will receive an upfront payment of $2 million from BioMarin and it has the potential to receive up to $160
million in future milestone payments for the development, regulatory approval and commercial sale of portfolio
compounds included in the agreement. In addition, Company is eligible to receive royalties on sales of
therapeutic products originating from the HDACi portfolio. Potential applications of the HDACi portfolio
include Friedreich’s ataxia and other neurological disorders. Pursuant to this agreement, the Company transferred
all rights and obligations related to the Scripps License Agreement to BioMarin Pharmaceutical Inc.
80
12. Selected Quarterly Financial Data (Unaudited)
The following table contains consolidated statements of operations information for each of the previous
eight quarters. 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.
December 31,
2013
September 30,
2013
June 30,
2013
March 31,
2013
December 31,
2012
September 30,
2012
June 30,
2012
March 31,
2012
(in thousands, except per share amounts)
$10,350
$12,184
$13,014 $11,934
$ 9,710
$11,123
$11,659 $ 9,342
5,032
15,382
6,638
4,495
4,522
18,822
17,509
16,456
9,104
18,814
3,981
3,865
3,482
15,104
15,524
12,824
Revenue:
Product revenue . . . .
Royalty and other
revenue . . . . . . . . .
Total revenue . . . . . . . . . .
Operating expenses:
Cost of product
revenue . . . . . . . . .
4,627
5,659
5,298
6,897
5,920
6,419
7,345
5,273
Cost of royalty and
other revenue . . . .
738
724
643
577
620
594
537
462
Research and
development . . . . .
1,422
1,430
2,306
2,183
2,343
2,433
2,906
2,808
Selling, general and
administrative . . .
3,367
2,902
3,124
3,308
3,253
3,126
3,418
3,428
Contingent
consideration –
fair value
adjustments . . . . .
Gain on bargain
purchase . . . . . . . .
Total operating
45
—
65
—
35
(54)
—
—
267
—
344
—
—
—
—
(314)
expenses . . . . . . . . . . . .
10,199
10,780
11,406
12,911
12,403
12,916
14,206
11,657
Income from
operations . . . . . . . . . . .
Investment income . . . . . .
Interest income
(expense) . . . . . . . . . . .
Other income
(expense) . . . . . . . . . . .
Income before income
5,183
98
(12)
(54)
8,042
76
6,103
65
3,545
62
6,411
62
2,188
95
1,318
29
1,167
31
(12)
(12)
(14)
37
(122)
29
(14)
(41)
7
(27)
(22)
(500)
458
109
taxes . . . . . . . . . . . . . . .
5,215
8,143
6,034
3,622
6,418
1,790
1,778
1,285
Income tax provision
(benefit) . . . . . . . . . . . .
1,887
2,255
1,495
1,284
(3,135)
(16)
208
59
Net income . . . . . . . . . . . .
$ 3,328
$ 5,888
$ 4,539 $ 2,338
$ 9,553
$ 1,806
$ 1,570 $ 1,226
Earnings per share:
Basic . . . . . . . . . . . .
Diluted . . . . . . . . . . .
Weighted average shares
outstanding:
$
$
0.10
0.10
$
$
0.18
0.18
$
$
0.14 $
0.07
0.14 $
0.07
$
$
0.31
0.30
$
$
0.06
0.06
$
$
0.05 $ 0.04
0.05 $ 0.04
Basic . . . . . . . . . . . .
31,916
31,858
31,644
31,241
31,132
30,948
30,845
30,730
Diluted . . . . . . . . . . .
32,708
32,552
32,317
31,855
31,600
31,256
31,149
31,010
81
Repligen corporate information
BoARd oF diReCToRS
exeCuTiVe MANAGeMeNT
Walter C. Herlihy, Ph.d.
President and
Chief Executive Officer
William J. Kelly
Chief Accounting Officer
James R. Rusche, Ph.d.
Senior Vice President,
Research and development
daniel P. Witt, Ph.d.
Senior Vice President,
Global operations
Howard Benjamin, Ph.d.
Vice President,
Business development
Gustav Silfversparre
Vice President,
operations
Stephen Tingley
Vice President,
Bioprocessing Sales
and Marketing
Karen A. dawes
Chairperson,
Board of directors
President,
Knowledgeable decisions, LLC
Glenn L. Cooper, M.d.
Chairman,
Lascaux Media, LLC
John G. Cox
executive Vice President,
Pharmaceutical operations
& Technology,
Biogen idec inc.
Alfred L. Goldberg, Ph.d.
Professor of Cell Biology,
Harvard Medical School
Michael A. Griffith
executive Vice President,
inVentive Health
Walter C. Herlihy, Ph.d.
President and
Chief Executive Officer,
Repligen Corporation
Thomas F. Ryan, Jr.
Private investor
Alexander Rich, M.d.
Chairman emeritus,
Sedgwick Professor of
Biophysics,
department of Biology,
Massachusetts institute
of Technology
disclaimer: This Annual Report contains forward-looking statements
within the meaning of the federal securities laws. When used, the words
“anticipate,” “assume,” “believe,” “estimate,” “expect,” “project,” “result,”
“should,” “will” and similar expressions that do not relate solely to historical
matters identify forward-looking statements. Forward-looking statements
are subject to risks and uncertainties, both known and unknown, and often
beyond our control, and are not guarantees of future performance insofar as
actual events or results may vary materially from those anticipated. Factors
that may cause such a variance include, among others, those discussed in this
Annual Report and from time to time in our filings with the Securities and
exchange Commission. We expressly disclaim any responsibility to update
forward-looking statements except as required by law.
Concept and design: Hull Creative Group, inc www.hullcreative.com
Photography: Bill Truslow www.truslowphoto.com
Transfer Agent and Registrar
American Stock Transfer
& Trust Company, LLC
59 Maiden Lane
Plaza Level
New York, NY 10038
Phone: 877.777.0800, option 1
Shareholder inquiries:
info@amstock.com
The Transfer Agent is responsible for
handling shareholder questions regarding
lost certificates, address changes and
change of ownership or name in which
shares are held.
Corporate Counsel
Goodwin Procter LLP
exchange Place
53 State Street
Boston, MA 02109
independent Accountants
ernst & Young LLP
200 Clarendon Street
Boston, MA 02116
Annual Meeting
The Annual Meeting of Stockholders will be
held on Thursday, May 15, 2014, at 11:00 a.m.
at the offices of Goodwin Procter:
exchange Place
53 State Street
Boston, MA 02109
Market for Repligen Corporate 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: 781.250.0111
Fax: 781.250.0115
investors@repligen.com
3/19/14 1:39 PM
RepliGen
Repligen Corporation
41 Seyon Street
Building 1, Suite 100
Waltham, MA 02453
Phone: 781.250.0111
Toll-free: 800.622.2259
Fax: 781.250.0115
www.repligen.com
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