Repligen Corporation — Q2 FY2012 Form 10-Q
Reporting period: Three months ended June 30, 2011; comparative quarter ended June 30, 2010. Balance-sheet comparisons are against March 31, 2011. Repligen operates in biopharmaceutical drug development and bioprocessing products, and receives royalties from Bristol-Myers Squibb (Bristol) on U.S. Orencia sales.
Financial results and liquidity
| Metric | Q2 2011 | Q2 2010 | Change / context |
|---|---|---|---|
| Total revenue | $7.654 million | $7.010 million | Up 9% |
| Product revenue | $4.358 million | $4.269 million | Up 2% |
| Royalty and other revenue | $3.295 million | $2.741 million | Up 20%; includes Bristol royalties and sponsored research revenue |
| Operating expenses | $7.775 million | $6.121 million | Up 27% |
| Operating income (loss) | ($0.122 million) | $0.889 million | Operating margin approximately -1.6% versus 12.7% |
| Net income (loss) | ($55,597) | $988,053 | EPS ($0.00) versus $0.03 |
| Cash used in operating activities | $2.711 million | $0.461 million | Higher working-capital outflows |
Combined cash, cash equivalents and marketable securities were $58.625 million at June 30, 2011, down from $61.503 million at March 31. Current assets were $52.222 million and current liabilities $3.716 million; working capital was $48.506 million. Total liabilities were $4.292 million, with no debt reported. Investing activities used $4.026 million, primarily reflecting purchases of marketable securities; cash and cash equivalents ended the quarter at $7.467 million.
Material changes and business developments
- Revenue growth was led by Bristol royalties, which rose to approximately $2.772 million from $2.478 million. Bioprocessing product sales increased modestly.
- Research and development expense increased 31% to $3.517 million. The company cited higher RG1068 manufacturing and NDA-submission costs, and RG3039 spinal muscular atrophy costs, including a $500,000 milestone payment following an FDA IND filing. Spending on RG2417 declined after the program was discontinued in March 2011.
- Selling, general and administrative expense rose 28% to $2.289 million, primarily due to RG1068 commercialization preparation and increased bioprocessing sales and marketing activity.
- On July 5, 2011, after quarter-end, Repligen amended its headquarters lease to expand the premises and extend the term by 11 years, expected to run through approximately May 2023. The landlord may provide up to $1.77 million for tenant improvements. The new lease was not included in June 30 commitments; minimum rent is expected to be approximately $997,000 annually for the first six years, then approximately $1.126 million annually.
Outlook, risks and contingencies
No specific revenue or earnings guidance is provided. Management said quarterly bioprocessing orders can fluctuate and may not indicate a trend. It expects foreseeable revenue to come from bioprocessing products, Bristol royalties and research grants; timing of revenue from therapeutic candidates is uncertain. Management believed existing cash and investments were adequate for foreseeable needs absent acquisitions, while noting additional financing could be needed for acquisitions or future liquidity and may not be available on favorable terms.
- Key uncertainties include clinical-trial outcomes, regulatory approvals, commercialization and market acceptance, manufacturing capacity and reliance on third parties, competition, intellectual-property protection, and the ability to sustain product sales and Bristol royalties.
- Revenue is concentrated: Bristol royalties accounted for 36% of quarterly revenue; the largest bioprocessing customer accounted for 42%. Bristol’s payment represented 52% of accounts receivable at quarter-end.
- Future milestone and license obligations include up to approximately $4.3 million under the Scripps agreement and potential total obligations of approximately $16 million under the FSMA agreement if milestones and other conditions are met. These are contingent, not stated as currently payable in full.
- Investments had approximately $8,000 of unrealized losses; management attributed these to temporary market changes and reported no other-than-temporary impairment. A hypothetical 100-basis-point rate increase was estimated to reduce investment fair value by approximately $362,000.
- The company reported no material legal proceedings, no off-balance-sheet arrangements, and effective disclosure controls. It reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether Bristol royalty receipts and the concentrated bioprocessing customer relationship remain stable.
- RG1068’s regulatory and launch status, and the associated development and commercialization costs.
- RG3039 clinical progress and whether further milestone or trial spending is required; also the implications of discontinued RG2417 spending.
- Cash burn and working-capital trends, particularly receivables, inventory and accrued-liability movements.
- The expanded lease’s commencement, tenant-improvement allowance, and future rent commitments, as well as any financing needs if acquisitions proceed.