REPLIGEN CORP - Annual Report: 2019 (Form 10-K)

☒	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

Delaware		04-2729386
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
41 Seyon Street, Bldg. 1, Suite 100 Waltham, MA		02453
(Address of principal executive offices)		(Zip Code)

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, par value $0.01 per share		RGEN		The Nasdaq Global Select Market

Large accelerated filer		☒		Accelerated filer		☐
Non-accelerated filer		☐		Smaller reporting company		☐
				Emerging growth company		☐

This Annual Report on Form (“Form 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 Form do not constitute guarantees of future performance. Investors are cautioned that express or implied statements in this Form 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, research and development, selling, general and administrative expenditures, intellectual property 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 Form and our other filings with the Securities and Exchange Commission. We assume no obligation to update any forward-looking information contained in this Form except as required by law.

 

Our bioprocessing business is comprised of four main franchises, three of which we sell directly to (Chromatography, Filtration and Process Analytics) and one that we sell through supply agreements (Proteins).

Since 2012, we have significantly expanded our presence through our Chromatography, Filtration and Process Analytics franchises, each of which includes novel and differentiated technologies. We have diversified and grown our product offering through internal innovation and through strategic, accretive acquisitions of assets or businesses that leverage existing product lines and/or expand our customer and geographic scope.

A substantial piece of our revenue comes from consumable and/or single-campaign products as compared to associated equipment. The customization, scalability and convenience of consumable and/or products, and in many cases the closed nature of our technologies, make them ideal for use in biologics manufacturing processes where contamination risk is a critical concern of our customers.

Our Chromatography franchise features a wide range of OPUS columns, which we deliver to our customers sealed and with their choice of resin. These are or disposable columns that replace the use of customer-packed glass columns used in downstream purification processes. By designing OPUS columns to be a technologically advanced and flexible option for the purification of biologics from process development through clinical and commercial-scale manufacturing, Repligen has become a leader in the column (“PPC”) market. Our biomanufacturing customers value the significant cost savings that OPUS columns deliver by reducing set up time, labor, equipment and facility costs – in addition to delivering product consistency and “plug and play” convenience.

We launched our first production-scale OPUS columns in 2012 and have since added larger diameter options that scale up to use with 2,000 liter bioreactors. Our OPUS 80R column is the largest available PPC on the market for use in late-stage clinical or commercial purification processes. We have also introduced next-generation features such as a resin recovery port on our larger columns, which allows our customers to remove and reuse the recovered resin in other applications. We believe the OPUS product line is the most flexible and platformable PPC product offered in the marketplace today, and is serving the purification needs of customers manufacturing monoclonal antibodies (“mAb”) and other biologics such as cell and gene

We maintain customer-facing centers in both the United States and Europe for OPUS columns, and offer our customers an unmatched ability to pack any of over 100 resins in our OPUS range and any of over 300 resin choices in our small-scale OPUS columns.

XCell ATF is a cell retention technology. The system is comprised of an advanced hollow fiber (“HF”) filtration device, a low shear pump and a controller. The XCell ATF system is connected to a bioreactor and enables the cell culture to be run continuously, with cells being retained in the bioreactor, fresh nutrients (cell culture media) being fed into the reactor continuously and clarified biological product and cell waste being removed continuously. The cells are maintained in a consistent nutrient-rich environment and can reach cell densities and three-times higher than those achieved by standard culture. By continuously removing waste products from the fermenter, the XCell ATF systems routinely increases cell densities to or three-times the levels achieved by standard culture. As a result, product yield is increased, which improves facility utilization and can reduce the size of a bioreactor required to manufacture a given volume of biologic drug product. XCell ATF systems are available in a wide range of sizes that can easily scale from laboratory use through full production with bioreactors as large as 5,000 liters.

Through internal innovation, we developed and launched formats of the original stainless steel XCell ATF devices to address increasing industry demand for sterile systems with technology. The XCell ATF device is now available to customers in both its original configuration (steel housing and filters) in all sizes (2, 4, 6 and 10), and/or as a device (disposable housing/filter combination) in most sizes (2, 6, and 10). The availability of XCell ATF technology in a format eliminates the time intensive workflow associated with autoclaving, leading to an 80% reduction in implementation speed. The format also enables our customers to accelerate evaluations of the product with a lower initial overall cost of ownership.

In September 2018, we entered into a collaboration agreement with industry leader Sartorius Stedim Biotech (“SSB”) to integrate our XCell ATF controller technology into SSB’s BIOSTAT STR large-scale, bioreactors, to create novel perfusion-enabled bioreactors.

In December 2016, we acquired TangenX Technology Corporation (“TangenX”), balancing our upstream XCell ATF systems with a portfolio of flat-sheet tangential flow filtration (“TFF”) cassettes used in downstream biologic drug concentration and formulation processes. The TangenX product portfolio includes our SIUS brand, providing customers with a high-performance, cost saving alternative to reusable TFF cassettes.

TFF is a rapid and efficient method for the concentration and formulation of biomolecules that is widely used in many applications in biopharmaceutical development and manufacturing. SIUS cassettes are the only purpose built TFF cassettes on the market. The cassette features a high performing membrane and unique cartridge construction that enables a lower price point. Each disposable cassette is delivered and ready to be equilibrated and used for tangential flow, ultrafiltration and diafiltration applications. Use of SIUS TFF cassettes eliminates added steps of cleaning, testing between uses, storage and flushing required in reusable TFF products, providing cost and time savings. The cassettes are interchangeable with filter hardware from multiple manufacturers, simplifying customer trial and adoption of SIUS products.

We acquired Spectrum Life Sciences LLC (“Spectrum”) and its subsidiaries in August 2017 to strengthen our filtration business with the addition of a leading portfolio of HF filtration solutions, including fully integrated KrosFlo TFF Systems with Konduit sensing and ProConnex Flow Path assemblies. KrosFlo family of TFF systems for product concentration is fully scalable from 2 milliliters to 5,000 liters – from to commercial manufacturing. Designed for purification and formulation applications, KrosFlo Systems enable robust downstream ultrafiltration and microfiltration.

We also gained the Spectra/Por portfolio of laboratory and process dialysis products and in 2019, we launched the SpectraFlo Dynamic Dialysis Systems. Also, in 2019 we introduced the KrosFlo TFDF (Tangential Flow Depth Filtration) Systems, which we believe have the potential to disrupt and displace traditional harvest clarification operations. The KrosFlo TFDF system includes control hardware, novel high throughput tubular depth filters and ProConnex TFDF flow paths. When used for cell culture clarification, KrosFlo TFDF technology delivers unprecedented high flux (>1,000 LMH), high capacity, low turbidity, and minimal dilution, making the technology a high-performance alternative to traditional centrifugation and depth filtration approaches to harvest clarification. TFDF technology also provides benefits such as low volume, high recovery, small footprint, simple set up and disposal, scalability and reduced process time.

The Spectrum product line of HF filters is used in through commercial-scale processes, primarily for the filtration, purification and concentration of biologics and diagnostic products. Our KrosFlo filtration systems and equipment offer both standard and customized solutions to bioprocessing customers, with particular strength in consumable and offerings.

In May 2019, we consummated our acquisition of C Technologies, Inc. (“C Technologies”) and added a fourth franchise, Process Analytics, to our bioprocessing business. Our Process Analytics products complement and support our Filtration, Chromatography and Proteins franchises as they allow to make or absorbance measurements allowing for the determination of protein concentration in filtration, chromatography formulation and fill-finish applications.

Our SoloVPE Slope Spectroscopy system is the industry standard for offline and absorbance measurements for protein concentration determination in process development, manufacturing and quality control settings.

Our FlowVPE Slope Spectroscopy system enhances the power of Slope Spectroscopy and provides protein concentration measurement for filtration, chromatography and fill-finish applications. A key benefit of this solution is the ability to monitor a manufacturing process in real time. We are developing a next-generation FlowVPE to incorporate software for production-scale biologics manufacturing.

Use of VPE Slope Spectroscopy delivers multiple process benefits for our biopharmaceutical manufacturing customers, compared to traditional approaches. Key benefits include: the elimination of manual dilutions and sample transfers from process development/manufacturing to labs, rapid time to results (minutes versus hours), improved precision, data quality for improved reporting and validation, and ease of use.

In June 2018, we entered into an agreement with Navigo Proteins GmbH (“Navigo”) for the exclusive of multiple affinity ligands for which Repligen holds commercialization rights. We are manufacturing and have agreed to supply the first of these ligands, A, exclusively to Purolite, who will pair our high-performance ligand with Purolite’s agarose jetting base bead technology used in their Jetted A50 Protein A resin product. We also signed a long-term supply agreement with Purolite for A and potential additional affinity ligands that may advance from our Navigo collaboration. The Navigo and Purolite agreements are supportive of our strategy to secure and reinforce our Proteins franchise.

We are a Delaware corporation with global headquarters in Waltham, Massachusetts. We were incorporated in 1981 and became a publicly traded company in 1986. Our common stock is listed on The Nasdaq Global Market under the symbol “RGEN”. We have over 761 employees and operate globally with offices and manufacturing sites located at multiple locations in the United States, Europe and Asia. Our principal executive offices are located at 41 Seyon Street, Waltham, Massachusetts 02453, our website is and our telephone number is (781)

In addition to investments in the discovery and development of novel biologic drugs, there has been substantial investment in products (biosimilars) by generic and specialty pharmaceutical as well as large biopharmaceutical companies. Development of products has accelerated as the first major mAbs have come off patent in the European Union and United States. Due to the high cost of biologic drugs, many countries in the developing and emerging markets have been aggressively investing in biomanufacturing capabilities to supply lower cost biosimilars for the local markets. For both originator and biologics manufacturing, Repligen products are well-positioned to enable greater manufacturing flexibility, production yields and lower costs through improved process efficiencies.

Customers use our products to produce initial quantities of drug for clinical studies, and then to larger volumes as the drug progresses to commercial production following regulatory approval. Detailed specifications for a drug’s manufacturing process are included in applications that must be approved by regulators, such as the FDA, and the European Medicines Agency (“EMA”), throughout the clinical trial process and prior to final

Manufacturing biologic drugs requires three fundamental steps. First, upstream manufacturing involves the production of the biologic by living cells that are grown in a bioreactor (seed bioreactors, scaling up to a production bioreactor) under controlled conditions. These living cell “factories” are highly sensitive to the condition under which they grow, including the culture process and the composition of the cell culture media and the growth factors used to stimulate increased cell growth and protein production, or titre. Methods of production vary within the industry with the standard approach being With culture, nutrients (cell culture media) are added to a production bioreactor only at the beginning of the culture or at defined feeding times to stimulate cell growth and production of the biologic drug of interest. The cells typically live and produce a biologic for days prior to the culture health being impacted due to the accumulation of waste At the end of the culture time, the contents of the bioreactor then go through a harvest clarification step. The industry is increasingly adopting the perfusion (or continuous) method of cell culture. With perfusion cell culture, a cell retention device, like the XCell ATF system, is used to retain cells in the reactor. Fresh nutrients (cell culture media) can be circulated into the reactor continuously while clarified biological product and waste are simultaneously and continuously removed from the reactor. Perfusion cultures can be run for up to 100 days, 30 days being typical, and the cell factories can be grown to a higher concentration and remain alive and producing biologic for significantly more time than with a culture. The biologic of interest being removed continuously is already clarified, thus the harvest clarification step required for cell culture, is not required for perfusion cell culture. The elimination of this step provides efficiency and cost savings in manufacturing. Some manufacturers are embracing a hybrid approach combining both and perfusion methods. The second step is downstream processing where the biologic made during cell culture must be isolated and purified, typically through various filtration and chromatography steps. Each downstream purification process is unique but requires multiple chromatography and filtration steps to render the biologic of interest over 99% pure. Finally, the purified biologic drug is concentrated, formulated and then packaged into its final injectable form.

Biologics are generally high value therapies. Given the inherent complexities of the process and the final drug product, we have observed that manufacturers are seeking and investing in innovative technologies that address pain points in the production process in order to improve yields and improve throughput. Manufacturers are also seeking technologies that reduce costs as the biologic drug moves through clinical stages and into commercial processes by adopting technologies as well as other products that yield increased flexibility and efficiency.

 

 

 

 

 

 

To support our sales goals for our products, we have invested in our commercial organization. Since 2014, we have significantly expanded our global commercial organization from less than 10, to a commercial team as of December 31, 2019. This includes 82 people in field positions (sales, field applications and field service), and 52 people in internal positions (marketing and customer service). We also have 22 employees in product management who support our commercial organization as well. Geographically, 81 members of our commercial team are located in North America, 23 in Europe and 30 in Asia-Pacific regions. Since 2018, we have substantially expanded our direct sales team in Asia, where we also work effectively with key distributors to serve our expanding customer base. 

For our Proteins franchise, we are committed to be a partner of choice for our customers with distributor and supply agreements in place with large life sciences companies such as GE, MilliporeSigma and Purolite. The GE Protein A supply agreement relating to our Lund, Sweden facility ran, pursuant to its terms, through 2019 and we expect GE to transfer a portion of their ligand manufacturing in 2020. The GE Protein A supply agreement relating to our Waltham, Massachusetts facility runs, pursuant to its terms, through 2021. Our Protein A supply agreement with MilliporeSigma runs, pursuant to its terms, through 2023, and in 2018 we amended our Protein A supply agreement with Purolite that runs, pursuant to its terms, to August 2026 with an option for renewal through 2028. Our dual manufacturing capability provides strong business continuity and reduces overall supply risk for our OEM customers.

 

As of December 31, 2019, we had 761employees, an increase of 213 since December 31, 2018. This includes 134 employees in our commercial organization (82 field and 52 internal), 77 in engineering and R&D, 274 in manufacturing, 98 in quality, 61 in supply chain roles, 22 in product management and 86 in administrative functions. Each of our employees has signed a confidentiality agreement. None of our U.S. employees are covered by collective bargaining agreements. We have one collective bargaining agreement with two unions that covers our 63 employees in Sweden, comprising approximately 8% of our total workforce. We renewed these collective bargaining agreements during 2017, and these collective bargaining agreements expire on March 31, 2020. We consider our employee relations to be satisfactory.

For our Filtration franchise, we are focusing on ATF, TFDF and TFF HF systems and filters. We continually seek to improve upon these technologies and have multiple new patent filings including those covering pumps and controllers, methods of harvesting, products, and filters. Our patent for ATF and associated methods to use such a device in perfusion, acquired from Refine, expires in 2020, and we are proactively developing technology in an effort to mitigate any effects resulting from the expiration of this patent.

We prioritize our “housemark” trademarks, (i.e., Repligen, Spectrum and TangenX), and ensure they are sufficiently protected and registered in key countries or regions globally, such as the United States, Canada, Europe and China. We also have product trademarks, including OPUS, XCell ATF, TFDF, KrosFlo, SIUS, ProConnex, Spectra/Por, SoloVPE and FlowVPE, that provide valuable company recognition and goodwill with our customers.

We manufacture seven commercial forms of Protein A, including “native” Protein A for life sciences companies, including GE, MilliporeSigma and Purolite, under long-term supply agreements which expire between 2020 and 2026. Native Protein A is manufactured in Lund, Sweden, while the recombinant forms are manufactured in both Waltham, Massachusetts and Lund, Sweden. We currently manufacture our growth factor products in Lund, Sweden. Our OPUS chromatography columns and ELISA test kit products are manufactured in Waltham, Massachusetts. Our OPUScolumns are manufactured in Ravensburg, Germany, and our XCell ATF systems, XCell ATF devices and SIUS TFF products are manufactured in our facility in Marlborough, Massachusetts. Our TFDF, KrosFlo, Spectra/Pro, Konduit and ProConnex lines of products are manufactured in Rancho Dominguez, California. Our operating room products are manufactured in Irving, Texas and our SoloVPE/VPM and FlowVPE/VPX Slope Spectroscopy variable pathlength products are manufactured in Bridgewater, New Jersey.

We utilize our own facilities in Waltham, Massachusetts and Lund, 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 facilities located in Waltham, Massachusetts; Lund, Sweden; Ravensburg, Germany; Bridgewater, New Jersey; and Rancho Dominguez, California are ISO 9001:2015 certified and maintain formal quality systems to maintain process control, traceability, and product conformance. Additionally, our facility in Irving, Texas is ISO 13485:2012 certified. We practice continuous 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 storage of raw materials and finished goods to ensure continuous supply of our products.

We maintain a website with the address . We are not including the information contained on our website as a part of, or incorporating it by reference into, this Form We make available free of charge through our website our Form Quarterly Reports on Form and Current Reports on Form 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 (“SEC”). Our Code of Business Conduct and Ethics is also available free of charge through our website.

Our filings with the SEC may be accessed through the SEC’s Electronic Data Gathering, Analysis and Retrieval (“EDGAR”) system at .

Prior to 2016, we generated most of our revenues through sales of bioprocessing products to a limited number of life sciences companies, such as GE, MilliporeSigma and other individual distributors. However, due in part to our recent strategic acquisitions, an increasing amount of our revenue is attributable to our commercialization of bioprocessing products that we sell directly to including biopharmaceutical companies and contract manufacturing organizations. This has required and will continue to require us to invest additional resources in

We consider trade secrets, and other forms of market protection to be among the most important elements of our proprietary position, in particular, as it relates to the products that currently account for a majority of our revenue. We also own or have exclusive rights to a number of U.S. patents and U.S. pending patent applications as well as corresponding foreign patents and patent applications. We continue to actively and selectively pursue patent protection and seek to expand our patent estate, particularly for our products currently in development, and we cannot be sure that any patent applications that we will file in the future or that any currently pending applications will issue on a timely basis, if ever. 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:

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, 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.

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 demand, and other unpredictable factors that may affect ordering patterns. Because our revenue and operating results are difficult to predict, we believe that our past results of operations are not necessarily 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. Further, our gross margins are dependent on product mix. A shift in sales mix away from our higher margin products to lower margin products will adversely affect our gross margins. If our quarterly operating results fail to meet investor expectations, the price of our common stock may decline.

Corporate tax reform, base-erosion efforts and tax transparency continue to be high priorities in many tax jurisdictions where we have business operations. As a result, policies regarding corporate income and other taxes in numerous jurisdictions are under heightened scrutiny and tax reform legislation is being proposed or enacted in a number of jurisdictions. For example, the Tax Cuts and Jobs Act (the “2017 Tax Reform Act”), adopting broad U.S. corporate income tax reform will, among other things, reduce the U.S. corporate income tax rate, but will impose base-erosion prevention measures on earnings of subsidiaries of U.S. entities as well as the transition tax on mandatory deemed repatriation of accumulated earnings of U.S. controlled foreign corporations. There is no assurance that our actual income tax liability will not be materially different than what is reflected in our income tax provisions and accruals.

In addition, many countries are beginning to implement legislation and other guidance to align their international tax rules with the Organisation for Economic and Development’s Base Erosion and Profit Shifting recommendations and action plan that aim to standardize and modernize global corporate tax policy, including changes to cross-border tax, transfer pricing documentation rules, and nexus-based tax incentive practices. Because of the heightened scrutiny of corporate taxation policies, prior decisions by tax authorities regarding treatments and positions of corporate income taxes could be subject to enforcement activities, and legislative investigation and inquiry, which could also result in changes in tax policies or prior tax rulings. Any such changes in policies or rulings may also result in the taxes we previously paid being subject to change.

Provisions in our certificate of incorporation and 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. Additionally, certain of our contracts with third parties allow for termination upon specified change of control transactions. Anti-takeover 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, and anti-takeover or change of control contract termination rights may frustrate or prevent any attempts by a third party to acquire or attempt to acquire the Company.

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 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 losses is equal to the product of the applicable long-term, rate and the value of the

attacks, social engineering and other means to affect service reliability and threaten the confidentiality, integrity and availability of information. Cyber-attacks also could include phishing attempts or fraud to cause payments or information to be transmitted to an unintended recipient. A material cyber-attack or security breach could cause interruptions in our operations and could result in a material disruption of our business operations, damage to our reputation or a loss of revenues.

currency fluctuations, and/or otherwise adversely affect trading agreements or similar cross-border arrangements (whether economic, tax, fiscal, legal, regulatory or otherwise).

Various foreign countries also have, or are developing, laws governing the collection, use, disclosure, security, and cross-border transmission of personal information. The legislative and regulatory landscape for privacy and data protection continues to evolve, and there has been an increasing amount of focus on privacy and data protection issues with the potential to affect our business. For example, privacy requirements in the European Union (“EU”) govern the transfer of personal information from the European Economic Area to the United States. While we continue to address the implications of changes to the EU data privacy regulations, the area remains an evolving landscape with new regulations coming into effect and continued legal challenges and our efforts to comply with the evolving data protection rules may be unsuccessful. Failure to comply with laws regarding data protection would expose us to risk of enforcement actions taken by data protection authorities in the EU and the potential for significant penalties if we are found to be Similarly, failure to comply with federal and state laws in the United States regarding privacy and security of personal information could expose us to penalties under such laws. Even if we are not determined to have violated these laws, government investigations into these issues typically require the expenditure of significant resources and generate negative publicity, which could harm our business.

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Plan Category		Number of securities to be issued upon exercise of outstanding options, warrants and rights				Weighted- average exercise price of outstanding options, warrants and rights				Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
		(a)				(b)				(c)
Equity compensation plans approved by security holders			1,692,543	(1)		$	30.81	(2)			2,555,281

(1)	Includes 957,559 shares of common stock issuable upon the exercise of outstanding options and 734,984 shares of common stock issuable upon the vesting of stock units, which include restricted stock units and performance stock units. No shares of restricted stock are outstanding.

(2)	Since stock units do not have any exercise price, such units are not included in the weighted average exercise price calculation.

 

 

 

 

 

 

 

 

 

The following selected consolidated financial data are derived from the audited consolidated financial statements of Repligen. The selected financial data set forth below should be read in conjunction with our consolidated 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 on Form (“Form and in our Form for the years ended December 31, 2019, 2018, 2017, 2016 and 2015.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Information pertaining to fiscal year 2017 was included in the Company’s Annual Report on Form (“Form for the year ended December 31, 2018 on pages 30 through 43 under Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which was filed with the SEC on March 1, 2019.

Our Chromatography products feature chromatography columns under our OPUS brand. OPUS columns, which we deliver to our customers with their choice of chromatography resin, are single-campaign disposable columns that replace the use of traditional (more permanent) glass columns used in downstream purification and quality control of biological drugs. By designing OPUS columns as an advanced and flexible option for the purification of biologics from process development through clinical-scale and some commercial manufacturing, Repligen has become a leader in columns (“PPC”).

Our Filtration products offer a number of advantages to manufacturers of biologic drugs at volumes that span from pilot studies to clinical and commercial-scale production. XCell ATF systems are alternating tangential flow (“ATF”) and used primarily in upstream perfusion (continuous manufacturing) processes to increase cell concentration and significantly improve biologic product yield from a bioreactor. To address increasing industry demand for technology, we developed and launched formats of the original stainless steel XCell ATF device. In December 2016, we acquired TangenX Technology Corporation (“TangenX”), balancing our upstream XCell ATF offering with a downstream portfolio of TangenX Flat Sheet Cassettes used in biologic drug purification and formulation processes. The TangenX portfolio includes the SIUS TFF cassettes, providing customers with a high-performance, alternative to reusable TFF cassettes. We acquired Spectrum Life Sciences LLC (“Spectrum”) and its subsidiaries in August 2017 to strengthen our filtration business with the addition of a leading portfolio of Spectrum Hollow Fibers. Spectrum brands include the KrosFlo TFF systems with Konduit monitor and ProConnex flow-path assemblies. We also gained the Spectra/Por portfolio of laboratory and process dialysis products and in 2019, we launched the SpectraFlo Dynamic Dialysis Systems, and the KrosFlo TFDF (Tangential Flow Depth Filtration) Systems, which we believe has the potential to disrupt and displace transitional harvest clarification operations. With the acquisition of Spectrum, we substantially increased our direct sales presence in Europe and Asia, and we diversified our end markets beyond monoclonal antibodies (“mAb”) to include vaccines, recombinant proteins and gene therapies.

We are a leading supplier of Protein A affinity ligands to life sciences companies. Protein A affinity ligands are an essential “binding” component of Protein A chromatography resins used in the purification of virtually all drugs on the market or in development. We manufacture multiple forms of Protein A affinity ligands under long-term supply agreements with major life sciences companies who in turn sell their Protein A chromatography resins to end users (mAb manufacturers).

Customers use our products to produce initial quantities of drug for clinical studies and then to larger volumes as the drug progresses to commercial production following regulatory approval. Detailed specifications

C Technologies sells instruments, consumables and accessories that are designed to allow bioprocessing technicians to measure the protein concentration of a liquid sample using C Technologies’ Slope Spectroscopy method, which eliminates the need for manual sample dilution. C Technologies’ lead product, the SoloVPE Device, was launched in 2008 for and protein concentration measurements conducted in quality control, process development and manufacturing labs in the production of biological therapeutics. C Technologies’ FlowVPE Device, an extension of the SoloVPE technology, was designed to allow end users to make protein concentration measurements in filtration, chromatography and fill-finish applications, designed to allow for real-time process monitoring.

The C Technologies Acquisition was accounted for as a purchase of a business under Accounting Standard Codification No. (“ASC”) 805, The cash paid for the C Technologies Acquisition was $195.0 million, $186.0 million of which will be consideration transferred pursuant to ASC 805, and $9.0 million of which will be compensation expense for future employment, and 779,221 of unregistered common shares totaling $53.9 million (based on a per share price of $69.22), for a total purchase price of $239.9 million.

We generate revenue from the sale of bioprocessing products, equipment devices, and related consumables used with these equipment devices to customers in the life science and biopharmaceutical industries. Under ASC 606, “revenue is recognized when, or as, obligations under the terms of a contract are satisfied, which occurs when control of the promised products or services is transferred to customers. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products or services to a customer (“transaction price”). To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing the expected value method or the most likely amount method, depending on the facts and circumstances relative to the contract. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract

 

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 cash flows attributable to these assets over their respective useful lives and then discounting these 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, developed technologies, trademark / tradename, patents, and in process research and development 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.

See Note 2, to our consolidated financial statements included in this report for more information.

 

 

 

 

For 2019, product revenue increased by $76.2 million, or 39%, as compared to 2018. The increase is due to the continued adoption of our products by our key bioprocessing customers, particularly our chromatography and filtration products. Sales of our bioprocessing products are impacted by the timing of orders, development efforts at our customers or and regulatory approvals for biologics that incorporate our products, which may result in significant quarterly fluctuations. Such quarterly fluctuations are expected, but they may not be predictive of future revenue or otherwise indicate a trend. Additionally, there was a $16.4 million increase in the 2019 revenue compared to the 2018 revenue due to revenues generated by C Technologies.

 

Gross margins were 56%, 55%, and 53% for 2019, 2018 and 2017, respectively. The gross margin in 2019 includes $1.5 million of amortization on an inventory recorded in purchase accounting related to the C Technologies Acquisition. The increase in gross margins is a result of higher product revenue mentioned above offset by an increase in costs associated with additional manufacturing headcount in 2019, as compared to 2018. Gross margins may fluctuate in future quarters based on expected production volume and product mix. During 2018, gross margins increased compared to 2017 primarily due to higher product revenue.

During 2019, 2018 and 2017, research and development (“R&D”) expenses were related to bioprocessing products, including personnel, supplies and other research expenses. Due to the 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 historical costs incurred by project. In addition to the legacy product research and development, the current XCell ATF technology incurs expenses related to product development, sterilization, validation testing, and other research related expenses.

 

The amortization of the debt issuance costs on the 2016 Notes was $2.8 million for 2019, compared to $4.5 million for 2018. The decrease in this amortization is a result of the settlement of the 2016 Notes and subsequent of the remaining debt issuance costs in July 2019. Amortization of debt issuance costs on the 2019 Notes was $4.7 million in 2019. There were no comparable amounts in 2018 as the 2019 Notes were issued in July 2019.

Changes in other (expenses) income during 2019, compared to 2018, are primarily attributable to foreign currency losses related to amounts due from krona-based customers and cash balance denominated in U.S. dollars and British pounds held by Repligen Sweden AB. In addition, $0.5 million was included in other (expenses) income in 2019, which represents a bridge loan commitment fee incurred as part of the C Technologies Acquisition.

 

For the year ended December 31, 2018, we recorded an income tax provision of $4.8 million. The effective tax rate was 22.5% in 2018 and is based upon the estimated income from the year and the composition of the income in different jurisdictions. The effective tax rate was higher than the U.S. statutory rate of 21% due to state tax effects and the impact of the Global Intangible Income tax enacted as part of the Tax Cuts and Jobs Act (the “2017 Tax Act”) enacted in December 2017.

We provide adjusted income from operations, adjusted net income and adjusted EBITDA as supplemental measures to GAAP measures regarding our operating performance. These financial measures exclude the impact of certain acquisition related items and, therefore, have not been calculated in accordance with GAAP. A detailed explanation and a reconciliation of each financial measures to its most comparable GAAP financial measures are described below.

adjusted income from operations is measured by taking income from operations as reported in accordance with GAAP and excluding acquisition and integration costs, inventory charges, intangible amortization and contingent consideration expenses booked through our consolidated statements of comprehensive income. The following is a reconciliation of income from operations in accordance with GAAP to adjusted income from operations for the years ended December 31, 2019 and 2018:

 

 

adjusted net income is measured by taking net income as reported in accordance with GAAP and excluding acquisition and integration costs and related tax effects, inventory charges, contingent consideration expenses, intangible amortization and related tax effects, interest expense, the partial release of the valuation allowance on our deferred tax assets and the net impact of tax reform legislation booked through our consolidated statements of comprehensive income. The following is a reconciliation of net income in accordance with GAAP to adjusted net income for the years ended December 31, 2019 and 2018:

 

 

 

 

Adjusted EBITDA is measured by taking net income as reported in accordance with GAAP, excluding investment income, interest expense, taxes, depreciation and intangible amortization, and excluding acquisition and integration costs, inventory charges and contingent consideration expenses booked through our consolidated statements of comprehensive income. The following is a reconciliation of net income in accordance with GAAP to adjusted EBITDA for years ended December 31, 2019 and 2018:

 

 

 

 

For 2019, our operating activities provided cash of $67.2 million reflecting net income of $21.4 million and charges totaling $46.9 million primarily related to depreciation, amortization, interest expense, deferred taxes, loss on extinguishment of debt and stock-based compensation charges. An increase in accounts receivable consumed $7.7 million of cash and was primarily driven by the 39% increase in

For 2018, our operating activities provided cash of $32.8 million reflecting net income of $16.6 million and charges totaling $30.3 million primarily related to depreciation, amortization, interest expense, deferred tax expense and stock-based compensation charges. An increase in receivables consumed $8.7 million of cash and was primarily driven by the 37% increase in revenues. An increase in inventory levels to accommodate future revenue growth consumed $4.0 million of cash, payment of accrued liabilities consumed $1.4 million of cash and an increase in other assets used $1.8 million. This utilization of cash is partially offset by $2.3 million of cash provided by an increase in accounts payable due to the timing of payments to vendors. The remaining cash flow used in operations resulted from net unfavorable changes in various other working capital accounts.

For 2017, our operating activities provided cash of $17.5 million, reflecting net income of $28.4 million offset by net charges totaling $3.4 million comprised mainly of depreciation, amortization, stock-based compensation charges and deferred tax benefits. Increases in accounts receivable consumed $6.9 million of cash, which is based on timing of revenues billed to and payments from customers. Decreases in accounts payable and accrued liabilities consumed $1.2 million of cash due to timing of payments to vendors.

Our investing activities consumed $205.3 million of cash during 2019. We used $182.2 million in cash (net of cash received) for the C Technologies Acquisition on May 31, 2019. Capital expenditures consumed $23.2 million as we continue to increase our manufacturing capacity worldwide. Of these expenditures, $4.7 million represented capitalized costs related to our software.

For 2018, our investing activities consumed $14.0 million of cash, including $12.8 million for capital expenditures. Of those expenditures, $2.1 million represented capitalized costs related to our software. In addition, a capitalized payment for developed technology of $1.3 million was paid to Navigo in 2018 to assist in expanding our proteins product offerings through a development agreement.

We do not have any special purpose entities or sheet financing arrangements.