Repligen Corporation — Q1 2012 Form 10-Q
Business context and reporting period: Unaudited results cover the three months ended March 31, 2012, compared with the three months ended March 31, 2011. Repligen supplies bioprocessing products, earns royalties from Bristol-Myers Squibb’s Orencia sales, and develops drug candidates. The December 2011 acquisition of Novozymes Biopharma Sweden expanded the bioprocessing business and manufacturing capacity, and materially affects the year-over-year comparison.
Key financial results
| Metric | Q1 2012 | Q1 2011 |
|---|---|---|
| Total revenue | $12.824 million | $5.906 million |
| Product revenue | $9.343 million | $3.151 million |
| Royalty and other revenue | $3.482 million | $2.756 million |
| Operating income (loss) | $1.167 million | ($2.087 million) |
| Net income (loss) | $1.226 million | ($2.031 million) |
| Diluted EPS | $0.04 | ($0.07) |
| Cash provided by operating activities | $1.734 million | $1.444 million |
Revenue increased 117% year over year; product revenue rose 197%, largely reflecting the Novozymes acquisition and higher orders from Repligen’s largest bioprocessing customer. Bristol royalties were $3.081 million, up from $2.512 million. Derived total gross margin (revenue less product and royalty costs) was approximately 57%, versus 70% a year earlier; management cautioned that 2012 margins could be lower because a significant share of products is manufactured at the higher-cost Swedish facility. Operating margin was approximately 9%, versus a loss in the prior-year quarter.
Financial position and cash flows
At March 31, 2012, cash and cash equivalents were $12.793 million, short- and long-term marketable securities totaled $25.094 million, and restricted cash was $0.200 million. The company reported $37.887 million of cash and marketable securities, excluding restricted cash. Working capital was $41.951 million, up from $39.431 million at December 31, 2011; current assets were $50.742 million and current liabilities $8.791 million. No borrowings or debt balance is reported on the balance sheet.
Operating cash flow increased to $1.734 million from $1.444 million. Accounts receivable growth was a significant operating cash use. Investing activities used $0.386 million, primarily net purchases of securities and $0.157 million in capital expenditures; financing provided $0.114 million from option exercises. Total liabilities included $17.763 million of operating lease obligations, $4.789 million of purchase obligations, and $0.705 million of minimum contingent consideration.
Changes, outlook, and risks
- Operating expenses rose 46% to $11.657 million. Product costs increased with acquired operations and higher sales. R&D expense fell 26% to $2.808 million, partly because the RG2417 program had been discontinued and certain prior-period development costs did not recur. SG&A rose 51% to $3.675 million, including acquisition-related costs and a one-time $0.380 million in legal and audit fees.
- A $0.314 million bargain-purchase gain was recognized for a Novozymes working-capital adjustment. The acquisition purchase-price allocation remained preliminary; contingent payments could total up to approximately €4 million, subject to earn-outs and milestones.
- Management expected R&D spending in each remaining 2012 quarter to be consistent with Q1, SG&A to be moderately lower, and full-year expenses to be moderately below annualized spending for the nine months ended December 31, 2011. These expectations included delaying some RG1068 pre-commercialization work.
- Management believed existing cash balances were adequate for at least 24 months, absent acquisitions. Future capital needs depend on business expansion, clinical development, integration, royalties, and strategic transactions; additional financing might be needed and could dilute shareholders or be unavailable on acceptable terms.
- The FDA cancelled the planned advisory committee meeting for RG1068 and Repligen expected a complete response letter on the June 21, 2012 PDUFA date requesting additional clinical data. The scope, cost, timing, and outcome of any further trials were unknown. The filing also described ongoing Phase 1 programs for Friedreich’s ataxia and spinal muscular atrophy.
- Orencia royalties accounted for 24% of Q1 revenue and are scheduled to end after December 31, 2013; the largest bioprocessing customer accounted for 43% of revenue. Product orders can fluctuate with customer manufacturing schedules and drug approvals. Other risks include foreign-exchange exposure and possible inventory valuation changes if demand shifts.
The company reported no known legal proceedings expected to have a material adverse effect. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting. The filing’s statements are interim results and are not necessarily indicative of full-year performance.
Important facts for investors to verify
- Whether the FDA required additional RG1068 clinical data, and the resulting development cost, schedule, and financing implications.
- Whether acquired Novozymes operations and higher-cost Swedish manufacturing affect margins, integration, and the preliminary purchase-price allocation.
- Revenue concentration and customer order trends, including the largest customer’s share and the expected expiration of Bristol royalties in 2013.
- Cash conversion and liquidity after working-capital movements, lease and purchase commitments, acquisition-related payments, and any new strategic investments.
- Whether stated 2012 expense expectations and management’s 24-month liquidity assessment remain supportable as clinical and commercial plans evolve.