false2019FY0000730272--12-31MAP3YP3YP3Y2019 revenue for process analytics products includes revenue related to C Technologies from May 31, 2019 through December 31, 2019. 2017 revenue for filtration, chromatography and other products includes revenue related to Spectrum from August 1, 2017 through December 31, 2017. Construction in progress as of December 31, 2019 primarily includes $4.2 million for the buildout of our Waltham and Marlborough, Massachusetts facilities, $1.1 million of other manufacturing improvements in Waltham and Marlboro and $0.6 million in manufacturing improvements at our Rancho Dominguez, California facility. Construction in progress as of December 31, 2018 includes $7.3 million for the buildout of our Marlborough facility, $2.1 million in capitalized internal-use software development costs and $2.1 million for a casting machine, among other projects.Represents the number of vested options as of December 31, 2019 plus the number of unvested options expected to vest as of December 31, 2019 based on the unvested outstanding options at December 31, 2019 adjusted for estimated forfeiture rates of 8% for awards granted to non-executive level employees and 3% for awards granted to executive level employees.Represents the number of vested stock units as of December 31, 2019 plus the number of unvested stock units expected to vest as of December 31, 2019 based on the unvested outstanding stock units at December 31, 2019 adjusted for estimated forfeiture rates of 8% for awards granted to non-executive level employees and 3% for awards granted to executive level employees. 0000730272 2019-01-01 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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM
10-K
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number
000-14656
 
REPLIGEN CORPORATION
(Exact name of registrant as specified in its charter)
 
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)
Registrant’s telephone number, including area code: (781)
 250-0111
 
Securities registered pursuant to Section 12(b) of the Act:
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
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  
.
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  
.
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  
    No  
.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).    Yes  
    No  
.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule
12b-2
of the Exchange Act.
Large accelerated filer
 
 
Accelerated filer
 
             
Non-accelerated
filer
 
 
Smaller reporting company
 
             
 
 
Emerging growth company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    Yes  
    No  
.
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Act).    Yes  
    No  ☒.
The aggregate market value of the voting and
non-voting
common equity held by
non-affiliates
as of June 28, 2019, the last business day of the registrant’s most recently completed second fiscal quarter, was $3,599,784,849.
The number of shares of the registrant’s common stock outstanding as of February 18, 2020 was 52,083,563.
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, 2019. Portions of such proxy statement are incorporated by reference into Part III of this Annual Report on Form
10-K.
 
 
 

Table of Contents
 
 
PAGE
 
 
 
 
1
 
 
 
 
 
 
 
 
PART I
 
 
 
 
Item 1.
 
 
 
2
 
Item 1A.
 
 
 
13
 
Item 1B.
 
 
 
29
 
Item 2.
 
 
 
30
 
Item 3.
 
 
 
30
 
Item 4.
 
 
 
30
 
 
 
 
 
 
 
 
PART II
 
 
 
 
Item 5.
 
 
 
31
 
Item 6.
 
 
 
33
 
Item 7.
 
 
 
35
 
Item 7A.
 
 
 
51
 
Item 8.
 
 
 
52
 
Item 9.
 
 
 
52
 
Item 9A.
 
 
 
52
 
Item 9B.
 
 
 
56
 
 
 
 
 
 
 
 
57
 
 
 
 
 
 
 
 
PART IV
 
 
 
 
 
 
 
 
 
 
 
Item 15.
 
 
 
58
 
 
 
 
 
 
 
 
Item 16.
 
 
 
60
 
 
 
 
 
 
 
 
61
 
 
FORWARD-LOOKING STATEMENTS
This Annual Report on Form
10-K
(“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 Form
10-K
do not constitute guarantees of future performance. Investors are cautioned that express or implied statements in this 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, 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
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 Form
10-K,
except as required by law.
1

PART I
ITEM 1.
BUSINESS
 
The following discussion of our business contains forward-looking statements that involve risks and uncertainties. When used in this report, the words “intend,” “anticipate,” “believe,” “estimate,” “plan” and “expect” and similar expressions as they relate to us are included to identify forward-looking 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
(“Form
10-K”).
References throughout this Form
10-K
to “Repligen Corporation”, “Repligen”, “we”, “us”, “our”, or the “Company” refer to Repligen Corporation and its subsidiaries, taken as a whole, unless the context otherwise indicates.
Overview
Repligen Corporation is a global life sciences company that develops and commercializes highly innovative bioprocessing technologies and systems that increase efficiencies and flexibility in the process of manufacturing biological drugs.
As the overall market for biologics continues to grow and expand, our customers – primarily large biopharmaceutical companies and contract development and manufacturing organizations – face critical production cost, capacity, quality and time pressures. Built to address these concerns, our products are helping to set new standards for the way biologics are manufactured. We are committed to inspiring advances in bioprocessing as a trusted partner in the production of critical biologic drugs – including monoclonal antibodies (“mAb”), recombinant proteins, vaccines and gene therapies – that are improving human health worldwide.
We currently operate as one bioprocessing business, with a comprehensive suite of products to serve both upstream and downstream processes in biological drug manufacturing. Building on over 35 years of industry expertise, we have developed a broad and diversified product portfolio that reflects our passion for innovation and the customer-first culture that drives our entire organization. We continue to capitalize on opportunities to maximize the value of our product platform through both organic growth initiatives (internal innovation and commercial leverage) and targeted acquisitions.
Our Products
Our bioprocessing business is comprised of four main franchises, three of which we sell directly to
end-users
(Chromatography, Filtration and Process Analytics) and one that we sell through supply agreements (Proteins).
Direct-to-Customer
Products
Since 2012, we have significantly expanded our
direct-to-customer
presence through our Chromatography, Filtration and Process Analytics franchises, each of which includes novel and differentiated technologies. We have diversified and grown our
direct-to-customer
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.
To support our sales growth goals for these products, we make ongoing investments in our commercial organization, our research and development (“R&D”) team and our manufacturing capacity. Our commercial and R&D teams work together to develop and launch new products and applications that address specific biomanufacturing challenges, and to build new markets for acquired technologies. We have six key manufacturing sites across the United States, Sweden and Germany, with additional capacity being added by the end of 2020 in the Netherlands. We regularly evaluate and invest in capacity as needed to ensure timely deliveries and to stay ahead of increased customer demand for our products.
2

A substantial piece of our revenue comes from consumable and/or single-campaign
(“single-use”)
products as compared to associated equipment. The customization, scalability and
plug-and-play
convenience of consumable and/or
single-use
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.
Chromatography
Our Chromatography franchise includes a number of products used in downstream purification, development, manufacturing and quality control of biological drugs. The main driver of growth in this portfolio is our OPUS
®
Column product line.
Additional chromatography products include our affinity capture resins, such as CaptivA
®
Protein A Resins, that are used in a small number of commercial drug processes and our ELISA test kits, used by quality control departments to detect and measure the presence of leached Protein A and/or growth factor in the final product.
OPUS
Pre-Packed
Columns
Our Chromatography franchise features a wide range of OPUS columns, which we deliver to our customers sealed and
pre-packed
with their choice of resin. These are
single-use
or
multiple-use
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
pre-packed
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
5-80R
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
therapies (“C&GT”).
In addition to our larger scale OPUS columns, our portfolio includes our smaller-scale OPUS columns, including specifically RoboColumn
®
, MiniChrom
and ValiChrom
columns for process development and validation. These columns are used in high-throughput process development screening, viral clearance validation studies and scale down validation of chromatography processes.
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
5-80R
range and any of over 300 resin choices in our small-scale OPUS columns.
Other Chromatography
Our Chromatography portfolio also includes ELISA kits, which are analytical test kits to quantitate the proteins and growth factors, and chromatography resins, including our CaptivA brand.
Filtration
XCell ATF
Cell Retention Systems
Our Filtration products offer a number of advantages to manufacturers of biologic drugs and are used in development, clinical and commercial-scale production. We first moved into Filtration technology with our
3

acquisition of XCell Alternating Tangential Flow (“ATF”) assets from Refine Technology (“Refine”) in 2014. XCell ATF systems are used primarily in upstream perfusion (continuous) cell culture processing.
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
two-
and three-times higher than those achieved by standard
fed-batch
culture. By continuously removing waste products from the fermenter, the XCell ATF systems routinely increases cell densities to
two-
or three-times the levels achieved by standard
fed-batch
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
single-use
formats of the original stainless steel XCell ATF devices to address increasing industry demand for
single-use
sterile systems with
“plug-and-play”
technology. The XCell ATF device is now available to customers in both its original configuration (steel housing and
single-use
filters) in all sizes (2, 4, 6 and 10), and/or as a
single-use
device (disposable housing/filter combination) in most sizes (2, 6, and 10). The availability of XCell ATF technology in a
single-use
format eliminates the time intensive workflow associated with autoclaving, leading to an 80% reduction in implementation speed. The
single-use
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,
single-use
bioreactors, to create novel perfusion-enabled bioreactors.
TangenX
Flat Sheet Cassettes
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
single-use
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
single-use
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
pre-sanitized
and ready to be equilibrated and used for tangential flow, ultrafiltration and diafiltration applications. Use of SIUS TFF cassettes eliminates
non-value
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.
Spectrum
®
Hollow Fibers
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
single-use
assemblies. KrosFlo family of TFF systems for product concentration is fully scalable from 2 milliliters to 5,000 liters – from
lab-scale
to commercial manufacturing. Designed for purification and formulation applications, KrosFlo Systems enable robust downstream ultrafiltration and microfiltration.
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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
single-use
TFDF flow paths. When used for cell culture clarification,
single-use
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
hold-up
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
bench-top
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
single-use
offerings.
With the acquisition of Spectrum, we substantially increased our direct sales presence in Europe and Asia, and we diversified our end markets to include all biologic classes, including mAb, vaccines, recombinant proteins and gene therapies.
Other Filtration
In 2018, we introduced our Konduit monitor to automate concentration and buffer exchange. We have broadened the application for Konduit monitor to include use with both HF TFF from Spectrum and our TangenX flat sheet TFF systems. We also self-manufacture HF filters that are used in our XCell ATF, KrosFlo TFF and KrosFlo TFDF systems.
Process Analytics Products
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
end-users
to make
at-line
or
in-line
absorbance measurements allowing for the determination of protein concentration in filtration, chromatography formulation and fill-finish applications.
SoloVPE
®
Device
Our SoloVPE Slope Spectroscopy
®
system is the industry standard for offline and
at-line
absorbance measurements for protein concentration determination in process development, manufacturing and quality control settings.
FlowVPE
®
Device
Our FlowVPE Slope Spectroscopy system enhances the power of Slope Spectroscopy and provides
in-line
protein concentration measurement for filtration, chromatography and fill-finish applications. A key benefit of this
in-line
solution is the ability to monitor a manufacturing process in real time. We are developing a next-generation FlowVPE to incorporate
GMP-compliant
software for production-scale biologics manufacturing.
Use of VPE Slope Spectroscopy delivers multiple process benefits for our biopharmaceutical manufacturing customers, compared to traditional
UV-Vis
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,
built-in
data quality for improved reporting and validation, and ease of use.
5

OEM Products (Proteins)
Our OEM products are represented by our Protein A affinity ligands, which are a critical component of Protein A chromatography resins used in downstream purification of mAb, and cell culture growth factor products, which are a key component of cell culture media used in upstream bioprocessing to increase cell density and improve product yield.
Proteins – Ligands
We are a leading provider of Protein A affinity ligands to life sciences companies. Protein A ligands are an essential “binding” component of Protein A affinity chromatography resins used in the purification of virtually all monoclonal antibody-based drugs on the market or in development. We manufacture multiple forms of Protein A ligands under long-term supply agreements with major life sciences companies including GE Healthcare (“GE”), MilliporeSigma and Purolite Life Sciences (“Purolite”), who in turn sell their Protein A chromatography resins to end users (mAb manufacturers). We have two manufacturing sites supporting overall global demand for our Protein A ligands: one in Lund, Sweden and another in Waltham, Massachusetts.
Protein A chromatography resins are considered the industry standard for purification of antibody-based therapeutics due to the ability of the Protein A ligand to very selectively bind to or “capture” antibodies from crude protein mixtures. Protein A resins are packed into the first chromatography column of typically three columns used in a mAb purification process. As a result of Protein A’s high affinity for antibodies, the mAb product is highly purified and concentrated within this first capture step before moving to polishing steps.
In June 2018, we entered into an agreement with Navigo Proteins GmbH (“Navigo”) for the exclusive
co-development
of multiple affinity ligands for which Repligen holds commercialization rights. We are manufacturing and have agreed to supply the first of these ligands,
NGL-Impact
®
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
NGL-Impact
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.
Proteins – Growth Factors
Most biopharmaceuticals are produced through an upstream mammalian cell culture process. In order to stimulate increased cell growth and maximize overall yield from a bioreactor, manufacturers often add growth factors, such as insulin, to their cell culture media. Our cell culture growth factor additives include LONG
®
R
3
IGF 1 (“LR3”), our insulin-like growth factor that has been shown to be up to 100 times more biologically potent than insulin (the industry standard), thereby increasing recombinant protein production in cell culture fermentation applications. LR3 is currently sold through a distribution partnership with MilliporeSigma.
Corporate Information
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
www.repligen.com
and our telephone number is (781)
 250-0111.
Our Market Opportunity
Bioprocessing Addressable Market
The global addressable market for bioprocessing products is estimated to be over $10 billion of which we estimate Repligen’s addressable market to be approximately $2.8 billion at year end 2019. This market includes
6

products used to manufacture therapeutic antibodies, recombinant proteins and vaccines, as well as gene therapies – a rapidly emerging class of biologics.
Monoclonal Antibody Market
Antibody-based biologics alone accounted for over $130 billion of global biopharma revenue in 2018 and represented a majority of the top 10 best-selling drugs across the pharmaceutical industry. Industry sources project the mAb market to grow approximately 10% annually through 2022 driven by new approvals and expanded clinical uses for marketed antibodies as well as the emergence of biosimilar versions of originator mAbs.
In 2019, 12 mAbs/fusion proteins (nine originator and three biosimilars) were approved by the U.S. Food and Drug Administration (“FDA”) to treat a diverse range of diseases. Indicative of the increased rate of approvals by the FDA since the first therapeutic antibody was brought to market in 1986, over 53% of the 112 U.S.-marketed mAbs were approved in the latest five-year period from 2015 through 2019, versus 18% in the prior five-year period from 2010 through 2014. In addition, R&D remains robust, with more than 550 mAbs at various stages of clinical development addressing a wide range of medical conditions.
In addition to investments in the discovery and development of novel biologic drugs, there has been substantial investment in
follow-on
products (biosimilars) by generic and specialty pharmaceutical as well as large biopharmaceutical companies. Development of
follow-on
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
follow-on
biologics manufacturing, Repligen products are well-positioned to enable greater manufacturing flexibility, production yields and lower costs through improved process efficiencies.
Cell and Gene Therapy Market
C&GT have emerged in the past few years to become a rapidly growing area of biological drug development, with over 1,000 clinical trials underway in 2019 according to industry sources. Eight cell therapies and two gene therapies have been approved by the FDA as of the end of 2019. Statements by the FDA are supported by industry reports that estimate annual revenue growth of 20% to 30% for the C&GT market over the next five years. This scientifically advanced therapeutic approach has unique manufacturing challenges that many of our products can help address. We believe we are well positioned to participate in gene therapy production, particularly in the manufacture of plasmids and viral vectors.
Direct Product Growth
Many of the products we manufacture are in the early stages of their adoption cycle, and, together with the expansion of our commercial organization and strategic acquisitions, have contributed to product revenue growth from $60.4 million in 2014, to $270.1 million in 2019. While all product lines have grown over this period, our diversification strategy has resulted in a significant increase in direct product sales as a percent of total product revenue, from 28% in 2014. By year end 2019, 76% of total bioprocessing revenue was attributable to direct product sales; 44% from our Filtration product line, 24% from our Chromatography product line, 6% from our Process Analytics product line and a small percentage from other sources including sales of hospital products that we obtained through our acquisition of Spectrum.
Customers use our products to produce initial quantities of drug for clinical studies, and then
scale-up
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
7

commercial approval. As a result, products that become part of the manufacturing specifications of a late-stage clinical or commercial process can be very sensitive given the costs and uncertainties associated with displacing them.
The Biologics Manufacturing Process
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
fed-batch.
With
fed-batch
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
10-14
days prior to the culture health being impacted due to the accumulation of waste
by-products.
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
by-products
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
fed-batch
culture. The biologic of interest being removed continuously is already clarified, thus the harvest clarification step required for
fed-batch
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
fed-batch
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
single-use
technologies as well as other products that yield increased flexibility and efficiency.
Our Strategy
We are focused on the development, production and commercialization of differentiated, technology-leading solutions or products that address specific pressure points in the biologics manufacturing process and deliver substantial value to our customers. Our products are designed to increase our customers’ product yield, and we are committed to supporting our customers with strong customer service and applications expertise.
We intend to build on our recent history of developing market-leading solutions and delivering strong financial performance through the following strategies:
 
Continued innovation
. We plan to capitalize on our internal technological expertise to develop products that address unmet needs in upstream and downstream bioprocessing. We intend to invest further in our Proteins franchise while developing platform and derivative products to support our Filtration, Chromatography and Process Analytics franchises. We plan to strengthen our existing product lines
 
8

  with complementary products and technologies that are designed to allow us to provide customers with a more efficient manufacturing process on one or more measures including flexibility, convenience, time savings, cost reduction and product yield.
 
 
Platforming our products.
A key strategy for accelerating market adoption of our products is delivery of enabling technologies that become the standard, or “platform,” technology in markets where we compete. We focus our efforts on winning early-stage technology evaluations through direct interaction with the key biomanufacturing decision makers in process development labs. This strategy is designed to establish early adoption of our enabling technologies at key accounts, with opportunity for customers to scale up as the molecule advances to later stages of development and potential commercialization. We believe this approach can accelerate the implementation of our products as platform products, thereby strengthening our competitive advantage and contributing to long-term growth.
 
 
Targeted acquisitions
. We intend to continue to selectively pursue acquisitions of innovative technologies and products. We intend to leverage our balance sheet to acquire technologies and products that improve our overall financial performance by improving our competitiveness in filtration, chromatography or process analytics or by moving us into adjacent markets with common commercial call points.
 
 
Geographical expansion
. We intend to expand our global commercial presence by continuing to selectively build out our global sales, marketing, field applications and services infrastructure.
 
 
Operational efficiency
. We seek to expand operating margins through capacity utilization and process optimization strategies designed to increase our manufacturing yields. We plan to invest in systems to support our global operations, optimizing resources across our global footprint to maximize productivity.
 
Research and Development
Our research activities are focused on developing new high-value bioprocessing products across all of our franchises. We strive to continue to introduce truly differentiated products that address specific pain points in the biologics manufacturing process. Our commitment to innovation is core to the Repligen culture and our success as a company, with 6% to 8% of revenue focused on new product development and market expansion for existing products.
Sales and Marketing
Our sales and marketing strategy supports our objective of strengthening our position as a leading provider of products and services, addressing upstream, downstream and quality control needs of bioprocessing customers in the biopharmaceutical industry.
Direct-to-Customer
Team
To support our sales goals for our
direct-to-consumer
products, we have invested in our commercial organization. Since 2014, we have significantly expanded our global commercial organization from less than 10, to a
134-person
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. 
Our bioprocess account managers are supported in each region by bioprocess sales specialists with expertise in Filtration, Chromatography or Process Analytics, and by technically trained field applications specialists and
9

field service providers, who can work closely with customers on product demonstrations, implementation and support. We believe that this model helps drive further adoption at our key accounts and also open up new sales opportunities within each region.
OEM Agreements
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-house
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.
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.
The following table represents the Company’s total revenue by geographic area (based on the location of the customer):
                         
 
For the Years Ended December 31,
 
 
2019
 
 
2018
 
 
2017
 
Revenue by customers’ geographic locations:
   
     
     
 
North America
   
51
%    
48
%    
43
%
Europe
   
37
%    
40
%    
46
%
APAC
   
12
%    
12
%    
11
%
Other
   
0
%    
0
%    
0
%
                         
Total revenue
   
100
%    
100
%    
100
%
                         
 
GE, one of our largest bioprocessing customers, accounted for 12%, 15% and 21% of total revenues in the years ended December 31, 2019, 2018 and 2017, respectively. Another customer, MilliporeSigma, accounted for 13%, 15% and 18% of total revenues in the years ended December 31, 2019, 2018 and 2017, respectively.
Employees
As of December 31, 2019, we had 761
employees, 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.
Intellectual Property
We are committed to protecting our intellectual property through a combination of patent, copyright, trade secret and trademark laws, as well as confidentiality agreements. As further described below, we own or have exclusive
10

rights to a number of U.S. patents and U.S. pending patent applications as well as corresponding foreign patents and patent applications.
Chromatography
Our issued patents cover certain unique methods and features of our OPUS PPC, including methods of making and loading these chromatography columns as well as the column structure. We continually seek to improve upon this technology and have multiple new patent filings including those covering gamma irradiation sterilization, packing methods, and methods of removing air using specialized tubing and valve systems.
Filtration
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,
single-use
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 currently have 52 patents granted (which expire over the next 20 years) and 106 patents pending in countries including Australia, Canada, China, France, Germany, India, Japan, Korea, Sweden, United Kingdom and the United States.
Our policy is to require each of our employees, consultants, business partners, potential collaborators 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 and must be assigned to Repligen.
Process Analytics
Through our 2019 acquisition of C Technologies, we hold issued patents to Slope Spectroscopy instruments and related methods. These include patents to an “Interactive Variable Pathlength Device” that are set to expire in the United States beginning in April 2028. We also hold pending patents to methods of making Slope Spectroscopy standards and methods for using an interactive variable pathlength device.
Protein A
We currently hold a patent for “Nucleic Acids Encoding Recombinant Protein A,” which claims an isolated nucleic acid molecule that encodes a Protein A molecule with an amino acid sequence identical to that of the natural Protein A, which has long been commercialized for bioprocessing applications. This patent will remain in effect until June 2028. We also have two pending patents covering affinity ligands through our collaboration with Navigo.
Trademarks
We vigilantly protect our products and services’ branding by maintaining trademark registrations globally for the Repligen trademark and our key product brands. We have a comprehensive branding policy that includes trademark usage guidelines to ensure Repligen trademarks are used in a manner that provides the maximum protection.
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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,
NGL-Impact,
SoloVPE and FlowVPE, that provide valuable company recognition and goodwill with our customers.
Our ability to compete effectively in the marketplace is dependent in part on our ability to protect our intellectual property rights, which includes protecting the trademarks we use in connection with our products and services. We rely on several registered and unregistered trademarks to protect our brand. 
Licensing Agreements
We have entered into multiple licensing and collaboration relationships with third-party business partners in an effort to fully exploit our technology and advance our bioprocessing business strategy.
Competition
Our bioprocessing products compete on the basis of value proposition, performance, quality, 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, which in some cases include GE and MilliporeSigma, two of our largest customers, have greater financial and human resources, R&D, manufacturing and marketing experience than we do. They may undertake their own development of products that are substantially similar to or compete with our products and 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 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 OPUS
columns are manufactured in Ravensburg, Germany, and our XCell ATF systems, XCell ATF
single-use
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
off-site
storage of raw materials and finished goods to ensure continuous supply of our products.
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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 Form
10-K.
We make available free of charge through our website our Form
10-Ks,
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 (“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
www.sec.gov
.
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
(“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 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:
  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 collaborations or other strategic partnership arrangements; and
  greater financial and human resources for product development, sales and marketing and patent litigation.
Our current and future competitors, including certain of our customers, may at any time develop additional products that compete with our products. If any company 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.
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Despite our increasingly diversified client base, we have historically depended on a limited number of customers for a high percentage of our revenues.
The loss of, or a significant reduction in orders from, any of our large customers, including following any termination or failure to renew a long-term supply contract, 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 for any reason, including for business continuity purposes, our revenue could decline, and our operating results may not meet market expectations. Under long-term supply agreements with GE Healthcare (“GE”), we have supplied Protein A ligands to GE from our manufacturing facilities in Lund, Sweden and Waltham, Massachusetts (the “Lund Agreement” and “Waltham Agreement,” respectively). The Lund Agreement terminated pursuant to its terms in December 2019 and was not renewed. The Waltham Agreement runs, pursuant to its terms, through December 2021.
In addition, if our customers order our products, but fail to pay on time or at all, our liquidity and operating results could be materially and adversely affected. Furthermore, if any of our current or future products compete with those of any of our largest customers, these customers may place fewer orders with us or cease placing orders with us, which would negatively affect our revenues and operating results.
If we are unable to expand our product portfolio, our ability to generate revenue could be adversely affected.
We are increasingly seeking to develop and commercialize our portfolio of products. Our future financial performance will depend, in part, on our ability to successfully develop and acquire additional bioprocessing products. There is no guarantee that we will be able to successfully acquire or develop additional bioprocessing products, and the Company’s financial performance will likely suffer if we are unable to do so.
If intangible assets and goodwill that we recorded in connection with our acquisitions become impaired, we may have to take significant charges against earnings.
In connection with the accounting for our completed acquisitions, we recorded a significant amount of intangible assets, including developed technology and customer relationships relating to the acquired product lines, and goodwill. Under U.S. GAAP, we must assess, at least annually and potentially more frequently, whether the value of intangible assets and goodwill has been impaired. Intangible assets and goodwill will be assessed for impairment in the event of an impairment indicator. Any reduction or impairment of the value of intangible assets and goodwill 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 and may continue to increase.
We operate on a global basis with offices or activities in Japan, South Korea, China, India, Europe and North America. Our operations and sales outside of the United States have increased as a result of our strategic acquisitions and the continued expansion of our commercial organization. Risks related to these increased foreign operations include:
  fluctuations in foreign currency exchange rates, which may affect the costs incurred in international operations and could harm our results of operations and financial condition;
  changes in general economic and political conditions in countries where we operate, particularly as a result of ongoing economic instability within foreign jurisdictions;
  the occurrence of a trade war, or other governmental action related to tariffs or trade agreements;
  being subject to complex and restrictive employment and labor laws and regulations, as well as union and works council restrictions;
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  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, such as data privacy requirements, real estate and property laws, anti-competition regulations, import and trade restrictions, export requirements, U.S. laws such as the Foreign Corrupt Practices Act of 1977 and the U.S. Department of Commerce’s Export Administration Regulations, and other U.S. federal laws and regulations established by the office of Foreign Asset Control, local laws such as the U.K. Bribery Act of 2010 or other local laws that prohibit corrupt payments to governmental officials or certain payments or remunerations to customers.
Our business success depends in part on our ability to anticipate and effectively manage these and other related factors. We cannot assure you that these and other related factors will not materially adversely affect our international operations or business as a whole.
In addition, a deterioration in diplomatic relations between the United States and any country where we conduct business could adversely affect our future operations and lead to a decline in profitability. In 2018 and 2019, the United States imposed tariffs on goods imported from China and certain other countries, which has resulted in retaliatory tariffs by China and other countries. Additional tariffs or further retaliatory trade measures taken by China or other countries in response, could affect the demand for our products and services, impact the competitive position of our products, prevent us from being able to sell products in certain countries or otherwise adversely impact our results of operations.
We are subject to export and import control laws and regulations that could impair our ability to compete in international markets or subject us to liability if we violate such laws and regulations.
We are subject to U.S. export controls and sanctions regulations that restrict the shipment or provision of certain products and services to certain countries, governments, and persons. While we take precautions to prevent our products and services from being exported in violation of these laws, we cannot guarantee that the precautions we take will prevent violations of export control and sanctions laws. We believe that, in the past, we and our subsidiaries may have exported certain products without a required export license in apparent violation of U.S. export control laws. As a result, we have submitted to the U.S. Department of Commerce’s Bureau of Industry and Security various notices of voluntary self-disclosure concerning potential violations. If we are found to be in violation of U.S. sanctions or export control laws, it could result in substantial fines and penalties for us and for the individuals working for us. We may also be adversely affected through other penalties, reputational harm, loss of access to certain markets, or otherwise.
Complying with export control and sanctions regulations may be time consuming and may result in the delay or loss of sales opportunities or impose other costs. Any change in export or import regulations, economic sanctions or related legislation, or change in the countries, governments, persons or technologies targeted by such regulations, could result in our decreased ability to export or sell certain products to existing or potential customers in affected jurisdictions.
We may be unable to efficiently manage our growth as a larger and more geographically diverse organization.
Our strategic acquisitions, the continued expansion of our commercial sales operations, and our organic growth have increased the scope and complexity of our business. As a result, we will face challenges inherent in
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efficiently managing a more complex business with 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.
Our business is subject to a number of environmental risks.
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. Any violations, even if inadvertent or accidental, of current or future environmental and 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.
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:
  difficulties in integrating new operations, technologies, products, and personnel;
  problems maintaining uniform procedures, controls and policies with respect to our financial accounting systems;
  lack of synergies or the inability to realize expected synergies and cost-savings;
  difficulties in managing geographically dispersed operations, including risks associated with entering foreign markets in which we have no or limited prior experience;
  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 that dilute the ownership of our stockholders;
  the issuance of equity securities to finance or as consideration for any acquisitions may not be an option 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;
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  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;
  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; and
  risks associated with acquiring intellectual property, including potential disputes regarding acquired companies’ intellectual property.
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.
Servicing our debt will require a significant amount of cash, and we may not have sufficient cash flow from our business to make payments on our debt.
In 2019, we incurred significant indebtedness in the amount of $287.5 million in aggregate principal with additional accrued interest under our 0.375% Convertible Senior Notes due 2024 (the “2019 Notes”). Our ability to make scheduled payments of the principal of, to pay interest on, or to refinance our indebtedness, including the 2019 Notes, depends on our future performance, which is subject to economic, financial, competitive and other factors that may be beyond our control. Our business may not generate cash flow from operations in the future sufficient to service our debt and make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time. In addition, in the event of a fundamental change or a default under the 2019 Notes, the holders and/or the trustee under the indentures governing the 2019 Notes may accelerate the payment obligations or trigger the holders’ repurchase rights under the 2019 Notes. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations, including the 2019 Notes.
If a make-whole fundamental change, such as an acquisition of our company, occurs prior to the maturity of the 2019 Notes, under certain circumstances, the conversion rate for the 2019 Notes will increase such that additional shares of our common stock will be issued upon conversion of the 2019 Notes in connection with such make-whole fundamental change. The increase in the conversion rate will be determined based on the date on which the make-whole fundamental change occurs or becomes effective and the price paid (or deemed paid) per share of our common stock in such transaction. Upon conversion of the 2019 Notes, unless we elect to deliver solely shares of our common stock to settle such conversion (other than paying cash in lieu of delivering any fractional share), we will be required to make cash payments in respect of the 2019 Notes being converted. We may not have enough available cash or be able to obtain financing at the time we are required to make repurchases of 2019 Notes surrendered therefor or notes being converted. Our failure to repurchase 2019 Notes at a time when the repurchase is required by the indenture or to pay any cash payable on future conversions of the 2019 Notes as required by the indenture would constitute a default under the indenture. If the repayment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and repurchase the 2019 Notes or make cash payments upon conversions thereof.
In addition, our significant indebtedness, combined with our other financial obligations and contractual commitments, could have other important consequences. For example, it could:
  make us more vulnerable to adverse changes in general U.S. and worldwide economic, industry and competitive conditions and adverse changes in government regulation;
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  limit our flexibility in planning for, or reacting to, changes in our business and our industry;
  place us at a disadvantage compared to our competitors who have less debt; and
  limit our ability to borrow additional amounts for working capital and other general corporate purposes, including to fund possible acquisitions of, or investments in, complementary businesses, products, services and technologies.
Any of these factors could materially and adversely affect our business, financial condition and results of operations. In addition, if we incur additional indebtedness, the risks related to our business and our ability to service or repay our indebtedness would increase.
Future strategic transactions or acquisitions may require us to seek additional financing, which we may not be able to secure on favorable terms, if at all.
We plan to continue a strategy of growth and development for our bioprocessing business, and we actively evaluate various strategic transactions on an ongoing basis, including licensing or acquiring complementary products, technologies or businesses that would complement our existing portfolio of development programs. In order to complete such strategic transactions, we may need to seek additional financing to fund these investments and acquisitions. Should we need to do so, 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. In addition, future acquisitions may require the issuance or sale of additional equity or debt securities, which may result in additional dilution to our stockholders.
We rely on a limited number of suppliers or, for certain of our products, one supplier, and we may not be able to find replacements or immediately transition to alternative suppliers, which could have a material adverse effect on our financial condition, results of operations and reputation.
There are only a limited number of suppliers of materials for certain of our products. An interruption in operations of the business related to these products could occur if we encounter delays or difficulties in securing the required materials, or if we cannot then obtain an acceptable substitute. Any such interruption could significantly affect the business related to these products and our financial condition, results of operations and reputation.
For example, we believe that only a small number of suppliers are currently qualified to supply materials for the XCell Alternating Tangential Filtration (“ATF”)
systems. The use of materials furnished by these replacement suppliers would require us to alter our operations related to the XCell ATF systems. Transitioning to a new supplier for our products would be time consuming and expensive, may result in interruptions in our operations, could affect the performance specifications of our product lines or could require that we revalidate the materials. There can be no assurance that we will be able to secure alternative materials and bring such materials online and revalidate them without experiencing interruptions in our workflow. If we should encounter delays or difficulties in securing, reconfiguring or revalidating the materials required for our products, our business related to these products and our financial condition, results of operations and reputation could be adversely affected.
As we evolve from a company dependent on others to commercialize our products to a company selling directly to end users, we may encounter difficulties in expanding our product portfolio and our commercial marketing capabilities.
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
end-users,
including biopharmaceutical companies and contract manufacturing organizations. This has required and will continue to require us to invest additional resources in
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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 trade secrets and, to a lesser extent with respect to the products that currently account for a majority of our revenue, patent protection when available in order to protect our products and processes 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:
  preserve our trade secrets and
know-how;
  operate without infringing the proprietary rights of third parties;
  obtain and maintain patent protection for our products and manufacturing processes; and
  secure any necessary licenses from others on acceptable terms.
We consider trade secrets,
know-how
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:
  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.
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.
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While one of our U.S. patents covering recombinant Protein A had its term adjusted to expire in 2028, our other U.S. patents covering recombinant Protein A have expired, and as a result, 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 native or some of the commercial forms of recombinant Protein A in the United States 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.
  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 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 sought development and commercialization partnerships for our remaining portfolio of clinical stage assets. Any disputes with such partners 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.
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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, including line extensions and new features for our OPUS
®
disposable chromatography columns, our XCell ATF system, our SIUS
tangential flow filtration (“TFF”) cassettes, our Spectrum
®
hollow fiber modules TFF line of cassettes and our growth factors. The commercial success of all of our products 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.
Our products are subject to quality control requirements.
Whether a product is produced by us or purchased from outside suppliers, it is subjected to quality control procedures, including the verification of porosity and with certain products, the complete validation for good manufacturing practices, U.S. Food and Drug Administration, CE and ISO 2001 compliance, prior to final packaging. Quality control is performed by a staff of technicians utilizing calibrated equipment. In the event we, or our manufacturers, produce products that fail to comply with required quality standards, it may incur delays in fulfilling orders, write-downs, damage to our reputation and damages resulting from product liability claims.
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. 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.
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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 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.
Securities or industry analysts may not publish favorable research or reports about our business or may publish no information, which could cause our stock price or trading volume to decline.
The trading market for our common stock is influenced by the research and reports that industry or securities analysts publish about us and our business. We do not have any control over these analysts and we cannot provide any assurance that analysts will cover us or provide favorable coverage. If any of the analysts who cover us issue an adverse opinion regarding our stock price, our business or stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports covering us, we could lose visibility in the market, which in turn could cause our stock price or trading volume to decline.
Health care 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 ours. 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. For example, in March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (together, the “Affordable Care Act”), was passed, which
22

substantially changes the way health care is financed by both governmental and private insurers and significantly impacts the U.S. life sciences industry. The Affordable Care Act and other federal and state proposals and health care reforms 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. Efforts by the government and other third-party payors to contain or reduce the costs of health care through various means may limit our commercial opportunities and result in a decrease in the price of our common stock or limit our ability to raise capital.
Recent federal government efforts have been aimed at amending or repealing all or portions of existing health care reform legislation, including the Affordable Care Act. Changes in existing health care reform measures may result in uncertainty with respect to legislation, regulation and government policy that could significantly impact our business and the life sciences industry.
The enactment of legislation implementing changes in taxation of international business activities, the adoption of other corporate tax reform policies, or changes in tax legislation or policies, or interpretations thereof, could materially impact our financial position and results of operations.
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
non-U.S.
subsidiaries of U.S. entities as well as the transition tax on mandatory deemed repatriation of accumulated
non-U.S.
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
Co-operation
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.
Due to the large scale of our international business activities, any substantial changes in international corporate tax policies, enforcement activities or legislative initiatives may materially adversely affect our business, the amount of taxes we are required to pay and our financial condition and results of operations generally.
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. We compete with several medium and small companies in each of our product categories as well as several large companies, including GE, Danaher Corporation (Pall), Thermo Fisher
23

Scientific Inc., MilliporeSigma and Sartorius. These competitors, as well as other life science, pharmaceutical and biotechnology companies may have greater financial, manufacturing, marketing, and research and development resources than we have, as well as stronger name recognition, longer operating histories and benefits derived from greater economies of scale. These factors, among others, may enable our competitors to market their products at lower prices or on terms more advantageous to customers than what we can offer. Competition may result in price reductions, reduced gross margins and loss of market share, any of which could have a material adverse effect on our business, financial condition and results of operations. Additionally, new approaches by these competitors may make our products and technologies obsolete or noncompetitive.
We may become subject to litigation, which could result in substantial costs and divert management’s attention and resources from our business.
From time to time, we may become involved in litigation or other legal proceedings relating to claims arising from the ordinary course of business. Litigation is subject to inherent risks and uncertainties that may cause actual results to differ materially from our expectations. If we receive an adverse judgment in any litigation, we could be required to pay substantial damages. With or without merit, litigation can be complex, can extend for a protracted period of time, can be very expensive and the expense can be unpredictable. Litigation initiated by us could also result in counter-claims against us, which could increase the costs associated with the litigation and result in our payment of damages or other judgments against us. In addition, litigation, and any related publicity, may divert the efforts and attention of some of our management and key personnel, which could adversely affect our business.
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 of 1977 (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 and agreements with third parties and make sales in jurisdictions outside of the United States, which may experience corruption. Our activities in jurisdictions outside of the United States 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 our recent acquisitions of overseas operations and facilities. 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.
24

Anti-takeover provisions in our charter documents, certain of our contracts with third parties, 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. 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.
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, leases, 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.
Our results of operations could be negatively affected by potential fluctuations in foreign currency exchange rates.
We conduct a large portion of our business in international markets. For the fiscal year ended December 31, 2019, 29% of our revenues and 17% of our costs and expenses were denominated in foreign currencies, primarily the Swedish krona, the British pound sterling, and the Euro. We are exposed to the risk of an increase or decrease in the value of the foreign currencies relative to the U.S. Dollar, which could 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.
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
25

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. While our most recent Section 382 analysis did not show any current exposure, future transactions or combinations of future transactions may result in a change in control under Section 382 in the future.
If we fail to maintain an effective system of internal controls, we may not be able to accurately report financial results or prevent fraud. 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.
Effective internal controls are necessary to provide reliable financial reports and to assist in the effective prevention of fraud. Any inability to provide reliable financial reports or prevent fraud could harm our business. 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. If we, or our independent registered public accounting firm, determine that our internal controls over financial reporting are not effective, discover areas that need improvement in the future or discover a material weakness, these shortcomings could have an adverse effect on our business and financial results, and the price of our common 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.
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. We have previously implemented several significant ERP modules and expect to implement additional ERP modules in the future. The implementation of the ERP system represents a change in our internal control over financial reporting. Although we continue to monitor and assess our internal controls in the new ERP system environment as changes are made and new modules are implemented, and we have taken additional steps to modify and enhance the design and effectiveness of our internal control over financial reporting, there is a risk that deficiencies may occur that could constitute significant deficiencies or in the aggregate a material weakness.
If we fail to remedy any deficiencies or maintain the adequacy of our internal controls, we could be subject to regulatory scrutiny, civil or criminal penalties or shareholder litigation. In addition, failure to maintain adequate internal controls could result in financial statements that do not accurately reflect our operating results or financial condition.
Our internal computer systems, or those of our customers, collaborators or other contractors, may be subject to cyber-attacks or security breaches, which could result in a material disruption of our product development programs.
Despite the implementation of security measures, our internal computer systems and those of our customers, collaborators and other contractors are vulnerable to damage from computer viruses and unauthorized access. Cyber-attacks are increasing in their frequency, sophistication and intensity, and have become increasingly difficult to detect. Cyber-attacks could include the deployment of harmful malware, ransomware,
26

denial-of-service
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
 e-mail
 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.
In the ordinary course of our business, we collect and store sensitive data, including, among other things, personally identifiable information about our employees, intellectual property, and proprietary business information. Any cyber-attack or security breach that leads to unauthorized access, use or disclosure of personal or proprietary information could harm our reputation, cause us not to comply with federal and/or state breach notification laws and foreign law equivalents and otherwise subject us to liability under laws and regulations that protect the privacy and security of personal information. In addition, we could be subject to risks caused by misappropriation, misuse, leakage, falsification or intentional or accidental release or loss of information maintained in the information systems and networks of our company and our vendors, including personal information of our employees, and company and vendor confidential data. In addition, outside parties may attempt to penetrate our systems or those of our vendors or fraudulently induce our personnel or the personnel of our vendors to disclose sensitive information in order to gain access to our data and/or systems. Like other companies, we have on occasion experienced, and will continue to experience, data security incidents involving access to company data threats to our data and systems, including malicious codes and viruses, phishing, business email compromise attacks, or other cyber-attacks. The number and complexity of these threats continue to increase over time. If a material breach of our information technology systems or those of our vendors occurs, the market perception of the effectiveness of our security measures could be harmed and our reputation and credibility could be damaged.
We could be required to expend significant amounts of money and other resources to respond to these threats or breaches and to repair or replace information systems or networks and could suffer financial loss or the loss of valuable confidential information. In addition, we could be subject to regulatory actions and/or claims made by individuals and groups in private litigation involving privacy issues related to data collection and use practices and other data privacy laws and regulations, including claims for misuse or inappropriate disclosure of data, as well as unfair or deceptive practices. Although we develop and maintain systems and controls designed to prevent these events from occurring, and we have a process to identify and mitigate threats, the development and maintenance of these systems, controls and processes is costly and requires ongoing monitoring and updating as technologies change and efforts to overcome security measures become increasingly sophisticated. Moreover, despite our efforts, the possibility of these events occurring cannot be eliminated entirely and there can be no assurance that any measures we take will prevent cyber-attacks or security breaches that could adversely affect our business.
Legal, political and economic uncertainty surrounding the planned exit of the United Kingdom from the European Union is a source of instability and uncertainty.
In June 2016, a majority of the eligible members of the electorate in the United Kingdom voted to withdraw from the European Union in a national referendum, commonly referred to as “Brexit.” The United Kingdom and the European Union agreed to a withdrawal agreement (the “Withdrawal Agreement”). The Withdrawal Agreement was approved by the U.K. Parliament and the United Kingdom formally left the European Union on January 31, 2020. Under the Withdrawal Agreement, the United Kingdom is subject to a transition period until December 31, 2020 (the “Transition Period”), during which European Union rules will continue to apply.
Negotiations between the United Kingdom and the European Union are expected to continue in relation to the customs and trading relationship between the United Kingdom and the European Union following the expiry of the Transition Period.
The uncertainty concerning the United Kingdom’s legal, political and economic relationship with the European Union after the Transition Period may be a source of instability in the international markets, create significant
27

currency fluctuations, and/or otherwise adversely affect trading agreements or similar cross-border
co-operation
arrangements (whether economic, tax, fiscal, legal, regulatory or otherwise).
These developments, or the perception that any of them could occur, have had, and may continue to have, a significant adverse effect on global economic conditions and the stability of global financial markets, and could significantly reduce global market liquidity and limit the ability of key market participants to operate in certain financial markets. In particular, it could also lead to a period of considerable uncertainty in relation to the U.K. financial and banking markets, as well as on the regulatory process in Europe. Asset valuations, currency exchange rates and credit ratings may also be subject to increased market volatility.
If the United Kingdom and the EU are unable to negotiate acceptable trading and customs terms or if other EU Member States pursue withdrawal, barrier-free access between the United Kingdom and other EU Member States or among the European Economic Area (“E.E.A.”) overall could be diminished or eliminated. The long-term effects of Brexit will depend on any agreements (or lack thereof) between the United Kingdom and the EU and, in particular, any arrangements for the United Kingdom to retain access to EU markets after the Transition Period. Such a withdrawal from the EU is unprecedented, and it is unclear how the U.K. access to the European single market for goods, capital, services and labor within the EU, or single market, and the wider commercial, legal and regulatory environment, will impact our U.K. operations.
We may also face new regulatory costs and challenges that could have an adverse effect on our operations and development programs. For example, the United Kingdom could lose the benefits of global trade agreements negotiated by the EU on behalf of its members, which may result in increased trade barriers that could make our doing business in the EU and the E.E.A. more difficult. There may continue to be economic uncertainty surrounding the consequences of Brexit, which could adversely affect our financial condition, results of operations, cash flows and market price of our common stock.
Natural disasters, geopolitical unrest, war, terrorism, public health issues or other catastrophic events could disrupt the supply, delivery or demand of products, which could negatively affect our operations and performance.
We are subject to the risk of disruption by earthquakes, floods and other natural disasters, fire, power shortages, geopolitical unrest, war, terrorist attacks and other hostile acts, public health issues, epidemics or pandemics and other events beyond our control and the control of the third parties on which we depend. Any of these catastrophic events, whether in the United States or abroad, may have a strong negative impact on the global economy, our employees, facilities, partners, suppliers, distributors or customers, and could decrease demand for our products, create delays and inefficiencies in our supply chain and make it difficult or impossible for us to deliver products to our customers.
For example, in December 2019 an outbreak of a novel strain of coronavirus originated in Wuhan, China, and has since spread to a number of other countries in which we or our suppliers operate, including the United States. This outbreak has resulted in the extended shutdown of certain businesses in the Wuhan region, which may in turn result in disruptions to our and our customer’s supply chain and business operations. These could include disruptions from the temporary closure of third-party supplier and manufacturer facilities, interruptions in product supply, or restrictions on the export or shipment of our products. Global health concerns, such as coronavirus, could also result in social, economic, and labor instability in the countries in which we or our customers and suppliers operate. These uncertainties could have a material adverse effect on our business and our results of operation and financial condition.
In addition, a catastrophic event that results in the destruction or disruption of our data centers or our critical business or information technology systems would severely affect our ability to conduct normal business operations and, as a result, our operating results would be adversely affected.
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Changes in laws and regulations governing the privacy and protection of data and personal information could adversely affect our business.
We are subject to data privacy and protection laws and regulations that apply to the collection, transmission, storage and use of proprietary information and personally-identifying information, which among other things, imposes certain requirements relating to the privacy, security and transmission of certain individually identifiable information. In addition, numerous other federal and state laws, including state security breach notification laws, state health information privacy laws and federal and state consumer protection laws, govern the collection, use, disclosure and security of personal information. These laws continue to change and evolve, and are increasing in breadth and impact. For example, the California Consumer Privacy Act grants consumers new rights with respect to their personal data, and provides for a private right of action for security breaches. This law and others like it are as yet untested and may subject the Company to increased regulatory scrutiny, litigation, and overall risk.
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
non-compliant.
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.
Certain of our products are used by customers in the production of gene therapies, which represent a relatively new and still-developing mode of treatment. Unforeseen adverse events, negative clinical outcomes, or increased regulatory scrutiny of gene therapy and its financial cost may damage public perception of the safety, utility, or efficacy of gene therapies and may harm our customers’ ability to conduct their business. Such events may negatively impact our revenues and have an adverse effect on our performance.
Gene therapy remains a relatively new and developing treatment method, with only a few gene therapies approved to date by regulatory authorities. Public perception may be influenced by claims that gene therapy is unsafe or ineffective, and gene therapy may not gain the acceptance of the public or the medical community. In addition, ethical, social, legal, and financial concerns about gene therapy and genetic testing could result in additional regulations or limitations or even prohibitions on certain gene therapies or gene-therapy-related products. More restrictive regulations or negative public perception could reduce certain of our customers’ use of our products, which could negatively affect our revenue and performance.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
None.
29

ITEM 2.
PROPERTIES
Our material office and manufacturing leases are detailed below:
                 
Location
 
Square Feet
 
 
Principal Use
 
Lease Expiration
Waltham, Massachusetts
   
108,135
(1)
 
 
Corporate headquarters, manufacturing, research and development, marketing and administrative offices
 
April 1, 2030
Rancho Dominguez, California
   
68,908
   
Manufacturing, research and development, marketing and administrative operations
 
November 30, 2025
(2)
Marlborough, Massachusetts
   
63,761
   
Manufacturing operations
 
November 30, 2028
Lund, Sweden
   
45,381
   
Manufacturing and administrative operations
 
December 31, 2021
Bridgewater, New Jersey
(3)
   
33,669
   
Manufacturing and administrative operations
 
January 14, 2029
 
(1) In 2019, we expanded our facility in Waltham, Massachusetts by approximately 33,000 square feet to accommodate additional office space and manufacturing.
(2) In 2018, we expanded our facility in Rancho Dominguez, California by approximately 15,000 square feet. The lease for the expanded portion of the facility expires on November 30, 2025.
(3) On May 31, 2019, we acquired C Technologies, an analytics company located in Bridgewater, New Jersey.
During the year ended December 31, 2019, we incurred total rental costs for all facilities of $6.0 million.
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.
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PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information for Common Stock
Our common stock is traded on the Nasdaq Global Select Market under the symbol “RGEN.”
Stockholders and Dividends
As of February 18, 2020, there were 338 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
The following table sets forth information as of December 31, 2019 regarding shares of common stock that may be issued under the Company’s equity compensation plans, consisting of the Second Amended and Restated 2001 Repligen Corporation Stock Plan, the Amended and Restated 2012 Stock Option and Incentive Plan and the 2018 Stock Option and Incentive Plan.
                         
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.
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, 2019. 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
5-year
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 December 31, 2014 to December 31, 2019.
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COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Repligen Corporation, the NASDAQ Composite Index,
the NASDAQ Pharmaceutical Index and the NASDAQ Biotechnology Index
 
 
 
*$100 invested on 12/31/14 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 SEC, and such information shall not be incorporated by reference into any future filing under the Securities Act of 1933, as amended (the “Securities Act”) or the Securities Exchange Act of 1934, as amended (the “Exchange Act”), except to the extent that Repligen specifically incorporates it by reference into such filing.
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ITEM 6.
SELECTED CONSOLIDATED FINANCIAL DATA
 
 
 
 
 
 
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
10-K
(“Form
10-K”),
and in our Form
10-K’s
for the years ended December 31, 2019, 2018, 2017, 2016 and 2015.
                                         
 
For the Years Ended December 31,
 
 
2019
 
 
2018
(1)
 
 
2017
(2)
 
 
2016
 
 
2015
(3)
 
 
(Amounts in thousands, except per share data)
 
Revenue:
   
     
     
     
     
 
Product revenue
  $
270,097
    $
193,891
    $
141,089
    $
104,441
    $
83,537
 
Royalty and other revenue
   
148
     
141
     
147
     
100
     
—  
 
                                         
Total revenue
   
270,245
     
194,032
     
141,236
     
104,541
     
83,537
 
Operating costs and expenses:
   
     
     
     
     
 
Cost of product revenue
   
119,099
     
86,531
     
67,050
     
47,117
     
35,251
 
Research and development
   
19,450
     
15,821
     
8,672
     
7,355
     
5,740
 
Selling, general and administrative
   
95,613
     
65,692
     
51,509
     
30,853
     
24,699
 
Contingent consideration – fair value adjustments
   
—  
     
—  
     
—  
     
3,242
     
4,083
 
                                         
Total operating costs and expenses
   
234,162
     
168,044
     
127,231
     
88,567
     
69,773
 
                                         
Income from operations
   
36,083
     
25,988
     
14,005
     
15,974
     
13,764
 
Other expenses, net
   
(9,932
)    
(4,552
)    
(6,757
)    
(4,282
)    
(341
)
                                         
Income before income taxes
   
26,151
     
21,436
     
7,248
     
11,692
     
13,423
 
Income tax provision (benefit)
   
4,740
     
4,819
     
(21,105
)    
11
     
4,078
 
                                         
Net income
  $
21,411
    $
16,617
    $
28,353
    $
11,681
    $
9,345
 
                                         
Earnings per share:
   
     
     
     
     
 
Basic
  $
0.44
    $
0.38
    $
0.74
    $
0.35
    $
0.28
 
                                         
Diluted
  $
0.44
    $
0.37
    $
0.72
    $
0.34
    $
0.28
 
                                         
Weighted average shares outstanding:
   
     
     
     
     
 
Basic
   
48,343
     
43,767
     
38,234
     
33,573
     
32,882
 
                                         
Diluted
   
49,206
     
45,471
     
39,150
     
34,099
     
33,577
 
                                         
       
 
As of December 31,
 
 
2019
 
 
2018
 
 
2017
 
 
2016
 
 
2015
 
 
(Amounts in thousands)
 
Cash, cash equivalents and marketable securities
(4)
  $
528,392
    $
193,822
    $
173,759
    $
141,780
    $
73,407
 
Working capital
   
593,515
     
145,897
     
217,571
     
163,078
     
84,471
 
Total assets
(5)
   
1,400,113
     
774,621
     
743,519
     
288,913
     
146,237
 
Long-term obligations
(5,6)
   
292,032
     
29,211
     
126,760
     
99,074
     
4,708
 
Accumulated earnings (deficit)
   
5,843
     
(15,568
)    
(31,508
)    
(59,861
)    
(71,542
)
Total stockholders’ equity
   
1,059,768
     
615,568
     
591,548
     
168,764
     
122,748
 
 
 
 
 
 
 
 
(1) Includes the full year impact of the acquisition of Spectrum Lifesciences, LLC on August 1, 2017
 
 
 
 
 
 
(2) Includes the full year impact of the acquisition of Atoll GmbH on April 1, 2016 and the acquisition of TangenX
Technology Corporation on December 14, 2016.
 
 
 
 
 
 
(3) Includes the full year impact of the acquisition of Refine Technology on June 2, 2014.
 
 
 
 
 
 
33

(4) During 2019, the Company increased cash through public offerings of common stock on May 3, 2019 and July 19, 2019, which totaled aggregate net proceeds of $320.7 million. In addition, on July 19, 2019, the Company issued $287.5 million aggregate principal amount of 0.375% Convertible Senior Notes (the “2019 Notes”) due 2024 for net proceeds of $278.5 million. The Company utilized approximately $115 million of the proceeds from the issuance of the 2019 Notes to settle its outstanding 2.125% Convertible Senior Notes due 2021 (the “2016 Notes”).
 
 
 
 
 
 
(5) As a result of the adoption of new accounting guidance on January 1, 2019, we recognized lease assets and liabilities for operating leases with terms of more than twelve months. Prior period amounts were not adjusted and continue to be reported in accordance with historic accounting policies around leases. See Note 4,
“Leases,”
included in Item 15(a)(1) of Part IV, Exhibits and Financial Statement Schedules – Financial Statements, for additional information.
 
 
 
 
 
 
(6) Long-term obligations include the $232.8 million carrying value of the 2019 Notes as of December 31, 2019. See Note 11,
“Convertible Senior Notes,”
included in Item 15(a)(1) of Part IV, Exhibits and Financial Statement Schedules – Financial Statements, for additional information.
 
 
 
 
 
 
34

ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
 
 
 
 
 
Information pertaining to fiscal year 2017 was included in the Company’s Annual Report on Form
10-K
(“Form
 10-K”)
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.
Repligen and its subsidiaries, collectively doing business as Repligen Corporation (“Repligen”, “we”, “our”, or “the Company”) is a global life sciences company that develops and commercializes highly innovated bioprocessing technology and systems that increase efficiencies and flexibility in the process of manufacturing biological drugs. As the overall market for biologics continues to grow and expand, our customers – primarily large biopharmaceutical companies and contract development and manufacturing organizations – face critical production cost, capacity, quality and time pressures. Built to address these concerns, our products helping set new standards for the way biologics are manufactured. We are committed to inspiring advances in bioprocessing as a trusted partner in the production of critical biologic drugs – including monoclonal antibodies, recombinant proteins, vaccines and gene therapies – that are improving human health worldwide.
Our Chromatography products feature
pre-packed
chromatography columns under our OPUS
®
brand. OPUS columns, which we deliver to our customers
pre-packed
with their choice of chromatography resin, are single-campaign
(“single-use”)
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
pre-packed
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
“plug-and-play”
technology, we developed and launched
single-use
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
single-use
SIUS
TFF cassettes, providing customers with a high-performance,
low-cost
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
®
single-use,
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
mAb-based
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
scale-up
to larger volumes as the drug progresses to commercial production following regulatory approval. Detailed specifications
35

for a drug’s manufacturing process are included in the applications that biopharmaceutical companies file for marketing approval with regulators, such as the U.S. Food and Drug Administration and the European Medicines Agency, throughout the clinical trial process and prior to final commercial approval. As a result, products that become part of the manufacturing specifications of a late-stage clinical or commercial process can be very sensitive given the costs and uncertainties associated with displacing them.
C Technologies, Inc. Acquisition
On April 25, 2019, we entered into a Stock Purchase Agreement (“Purchase Agreement”) with C Technologies, Inc. (“C Technologies”), a New Jersey corporation, and Craig Harrison, an individual and sole stockholder of C Technologies. The deal was consummated on May 31, 2019 (the “C Technologies Acquisition”).
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
off-line
and
at-line
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
in-line
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,
“Business Combinations.”
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.
Critical Accounting Policies and Estimates
While our significant accounting policies are more fully described in the notes to our consolidated 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. These policies require management’s most difficult, subjective or complex judgements, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. 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. Although we believe that our estimates, assumptions, and judgements are reasonable, they are based upon information presently available. Actual results may differ significantly from these estimates under different assumptions, judgments, or conditions.
Revenue recognition
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 from Contracts with Customers,”
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
36

 
will not occur. Estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of the Company’s anticipated performance and all information (historical, current and forecasted) that is reasonably available. Sales, value add, and other taxes collected on behalf of third parties are excluded from revenue.
When determining the transaction price of a contract, an adjustment is made if payment from a customer occurs either significantly before or significantly after performance, resulting in a significant financing component. Applying the practical expedient in paragraph
606-10-32-18,
the Company does not assess whether a significant financing component exists if the period between when the Company performs its obligations under the contract and when the customer pays is one year or less. None of the Company’s contracts contained a significant financing component as of December 31, 2019.
Contracts with customers may contain multiple performance obligations. For such arrangements, the transaction price is allocated to each performance obligation based on the estimated relative standalone selling prices of the promised products or services underlying each performance obligation. The Company determines standalone selling prices based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations.
The Company recognizes product revenue under the terms of each customer agreement upon transfer of control to the customer, which occurs at a point in time.
Inventories
We value inventory at cost or, if lower, net realizable 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 tangible and intangible assets acquired and liabilities assumed, if any, based on their fair values at the dates of acquisition. This purchase price allocation process requires management to make significant estimates and assumptions with respect to intangible assets and deferred revenue obligations. 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. While we use our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date as well as any contingent consideration, where applicable, our estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon
37

conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our consolidated statements of comprehensive income. 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 based on the estimated probability of achieving the earnout targets and applying a discount rate that captures the risk associated with the expected contingent payments. To the extent our estimates change in the future regarding the likelihood of achieving these targets we may need to record material adjustments to our accrued contingent consideration. Changes in the fair value of contingent consideration are recorded in our consolidated statements of comprehensive income.
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, 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.
Intangible assets and goodwill
Intangible assets
Intangible assets with a definite life are amortized over their useful lives using the straight-line method and the amortization expense is recorded within cost of product revenue and selling, general and administrative expense in the consolidated statements of comprehensive income. 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 the Company’s products or changes in the size of the market for the Company’s 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 discounted 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 definite-lived intangible assets are recoverable at December 31, 2019.
Indefinite-lived intangible assets are tested for impairment at least annually. There has been no impairment of our intangible assets for the periods presented.
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. Goodwill is tested for impairment as of December 31
st
of each year, or more frequently as warranted
38

by events or changes in circumstances mentioned above. Accounting guidance also permits an optional qualitative assessment for goodwill to determine whether it is more likely than not that the carrying value of a reporting unit exceeds its fair value. If, after this qualitative assessment, we determine that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then no further quantitative testing would be necessary. A quantitative assessment is performed if the qualitative assessment results in a more likely than not determination or if a qualitative assessment is not performed. The quantitative assessment considers whether the carrying amount of a reporting unit exceeds its fair value, in which case an impairment charge is recorded to the extent the reporting unit’s carrying value exceeds its fair value.
As of December 31, 2018, the Company concluded that it operated as two reporting units and performed the 2018 goodwill impairment test using two reporting units. In 2019, the Company reorganized its reporting structure and changed the way the Chief Operating Decision Maker (“CODM”) views the Company’s operations and allocates its resources. As a result of the change in reporting structure in 2019, the CODM reviews consolidated results to assist with decision making. Accordingly, the Company operates as one reporting unit as of the goodwill impairment measurement date of December 31, 2019. The fair value of the reporting unit is determined using both an income approach and market approach. Our income approach model used for our reporting unit valuation is consistent with that used for our December 31, 2018 goodwill impairment valuation noted above except that cash flows from the entire business enterprise are used for the reporting unit valuation. Our market approach model estimates the fair value of the reporting unit based on market prices paid in actual precedent transactions of similar businesses and market multiples of guideline public companies.
As a result of our 2019 quantitative assessment, we concluded that goodwill is not impaired as of December 31, 2019.
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 consolidated financial statements.
Debt accounting
Our long-term debt balance is related to our 0.375% Convertible Senior Notes due 2024 (the “2019 Notes”), which were issued in July 2019 and are carried at their principal amount less unamortized debt discount. We account for our convertible notes as separate liability and equity components. We estimate the carrying amount of the liability component by estimating the fair value of a similar liability that does not have an associated conversion feature. The Company allocates transaction costs related to the issuance of convertible notes to the liability and equity components using the same proportions as the initial carrying value of the convertible notes.
39

The carrying value of the equity component is calculated by deducting the carrying value of the liability component from the principal amount of the convertible notes as a whole. The difference represents a debt discount that is amortized to interest expense in our consolidated statement of comprehensive income over the term of the convertible notes using the effective interest rate method. We assess the equity classification of the cash conversion feature quarterly. We allocated transaction costs related to the issuance of the 2019 Notes to the liability and equity components using the same proportions as the initial carrying value of the 2019 Notes.
Stock-based compensation
We use the Black-Scholes option pricing model to calculate the fair value of stock option 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.
The fair value of stock units, which includes restricted stock units and performance stock units, is calculated using the closing price of the Company’s common stock on the date of grant. We recognize compensation expense on awards that vest based on service conditions on a straight-line basis over the requisite service period based upon the number of options that are ultimately expected to vest, and accordingly, such compensation expense has been adjusted by an amount of estimated forfeitures. We recognize compensation expense on awards that vest based on performance conditions following our assessment of the probability that the performance condition will be achieved over the service period. 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 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 are reasonable assumptions 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 years ended December 31, 2019, 2018 and 2017, we recorded stock-based compensation expense of $12.8 million, $10.2 million and $6.7 million, respectively, for share-based awards granted under all of the Company’s stock plans.
As of December 31, 2019, there was $36.4 million 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 4.09 years. We expect 1,688,497 unvested options and stock units to vest over the next five years.
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. We account for uncertain tax positions using a “more-likely-
than-not”
threshold for recognizing and resolving uncertain tax positions. The evaluation of uncertain tax
40

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. We evaluate our tax position on a quarterly basis. We also accrue for potential interest and penalties related to unrecognized tax benefits in income tax expense.
In addition, we are subject to the continual examination of our income tax returns by the U.S. Internal Revenue Service (“IRS”) and other domestic and foreign tax authorities. We expect future examinations to focus on our intercompany transfer pricing practices as well as other matters. We regularly assess the likelihood of outcomes resulting from these examinations to determine the adequacy of our provision for income taxes and have reserved for potential adjustments that may result from such examinations. We believe such estimates to be reasonable; however, the final determination of any of these examinations could significantly impact the amounts provided for income taxes in our consolidated financial statements.
Recent accounting standards update
See Note 2,
“Summary of Significant Accounting Policies – Recent Accounting Standards Updates,”
to our consolidated financial statements included in this report for more information.
Results of Operations
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 years ended December 31, 2019, 2018, and 2017 were comprised of the following:
                                                         
 
For the Years Ended December 31,
   
2019 vs. 2018
   
2018 vs. 2017
 
 
2019
 
 
2018
 
 
2017
 
 
$ Change
 
 
% Change
 
 
$ Change
 
 
% Change
 
 
(Amounts in thousands, except for percentage data)
 
Revenue:
   
     
     
     
     
     
     
 
Product
  $
270,097
    $
193,891
    $
141,089
    $
76,206
     
39.3
%   $
52,802
     
37.4
%
Royalty and other
   
148
     
141
     
147
     
7
     
5.0
%    
(6
)    
(4.1
%)
                                                         
Total revenue
  $
270,245
    $
194,032
    $
141,236
    $
76,213
     
39.3
%   $
52,796
     
37.4
%
                                                         
 
Product revenues
Since 2016, we have been increasingly focused on selling our products directly to customers in the pharmaceutical industry and to our contract manufacturers. These direct sales have increased to approximately 76% of our product revenue during 2019. We expect that direct sales will continue to account for an increasing percentage of our product revenues, as the largest customer of our OEM products diversifies its supply chain starting in 2020. Sales of our bioprocessing products can be impacted by the timing of large-scale production orders and the regulatory approvals for such antibodies, which may result in significant quarterly fluctuations.
41

Product revenues were comprised of the following:
                         
 
For the Years Ended December 31,
 
 
2019
(1)
 
 
2018
 
 
2017
(2)
 
 
(Amounts in thousands)
 
Chromatography products
  $
64,635
    $
45,326
    $
36,309
 
Filtration products
   
119,534
     
90,586
     
49,050
 
Process analytics products
   
16,405
     
—  
     
—  
 
Proteins products
   
65,124
     
54,375
     
53,969
 
Other
   
4,399
     
3,604
     
1,761
 
                         
Total product revenue
  $
270,097
    $
193,891
    $
141,089
 
                         
 
 
(1) 2019 revenue includes process analytics revenue related to C Technologies from June 1, 2019 through December 31, 2019.
 
(2) 2017 revenue for filtration, chromatography and other products includes revenue related to Spectrum from August 1, 2017 through December 31, 2017.
 
Revenue from our chromatography products includes the sale of our OPUS chromatography columns, chromatography resins and ELISA test kits. Revenue from our filtration products includes the sale of our XCell ATF systems and consumables, KrosFlo filtration products and SIUS filtration products. Revenue from protein products includes the sale of our Protein A ligands and cell culture growth factors. Revenue from our Process Analytics products includes the sale of our SoloVPE and FlowVPE systems and consumables. Other revenue primarily consists of revenue from the sale of our operating room products to hospitals as well as freight revenue.
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
end-users
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.
For 2018, product revenue increased by $52.8 million, or 37%, as compared to 2017. The increase is due to the continued adoption of our products by our key bioprocessing customers and a full year of revenues derived from our acquisition of Spectrum in August 2017.
Royalty revenues
Royalty revenues in 2019 and 2018 relate to royalties received from a third-party systems manufacturer associated with our OPUS chromatography columns. Royalty revenues are variable and are dependent on sales generated by our partner.
42

Costs and operating expenses
Total costs and operating expenses for years ended December 31, 2019, 2018 and 2017 were comprised of the following:
                                                         
 
For the Years Ended December 31,
   
2019 vs. 2018
   
2018 vs. 2017
 
 
2019
 
 
2018
 
 
2017
 
 
$ Change
 
 
% Change
 
 
$ Change
 
 
% Change
 
 
(Amounts in thousands, except for percentage data)
 
Cost of product revenue
  $
119,099
    $
86,531
    $
67,050
    $
32,568
     
37.6
%   $
19,481
     
29.1
%
Research and development
   
19,450
     
15,821
     
8,672
     
3,629
     
22.9
%    
7,149
     
82.4
%
Selling, general and administrative
   
95,613
     
65,692
     
51,509
     
29,921
     
45.5
%    
14,183
     
27.5
%
                                                         
Total costs and operating expenses
  $
234,162
    $
168,044
    $
127,231
    $
66,118
     
39.3
%   $
40,813
     
32.1
%
                                                         
 
Cost of product revenue
For 2019 and 2018, cost of product revenue increased $32.6 million, or 38%, and $19.5 million, or 29%, respectively, as compared to 2018 and 2017, due primarily to the increase in revenue mentioned above. Gross margins may fluctuate in future quarters based on expected production volume and product mix.
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
step-up
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.
Research and development expenses
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
single-use
XCell ATF technology incurs expenses related to product development, sterilization, validation testing, and other research related expenses.
R&D expenses increased $3.6 million in 2019, or 23%, compared to 2018. The increase is primarily due to an increase in costs associated with an increase in R&D headcount, an increase in stock-based compensation expense resulting from the increased headcount and the higher share price period over period, and to the addition of $1.7 million of R&D expenses related to C Technologies, which was acquired in May 2019.
The increase in 2019 was partially offset by a $1.4 million decrease in R&D expense for investments made to expand our proteins product offering through our development agreement with Navigo Proteins GmbH (“Navigo”). The Company invested $1.0 million in 2019 compared to $2.4 million in 2018.
For 2018, R&D expenses increased by $7.1 million, or 82%, as compared to 2017. This increase is primarily driven by investments made during 2018 to expand our proteins product offerings through our development agreement with Navigo. Additionally, the increase is related to product development activities acquired as part of the Spectrum acquisition and increased activity in our various bioprocessing development projects.
We expect our R&D expenses in the year ending December 31, 2020 to increase in order to support new product development.
43

Selling, general and administrative expenses
Selling, general and administrative (“SG&A”) expenses include the costs associated with selling our commercial products and costs required to support our marketing efforts, including legal, accounting, patent, shareholder services, amortization of intangible assets and other administrative functions.
For 2019, SG&A costs increased by $29.9 million, or 46%, as compared to 2018. The increase is due to the addition of $10.9 million of SG&A costs from the acquisition of C Technologies in May 2019, as well as the continued expansion of our customer-facing activities to drive sales of our bioprocessing products, and to the continued buildout of our administrative infrastructure, primarily through increased headcount, to support expected future growth. In addition, during 2019, transaction fees related to the C Technologies Acquisition of $4.0 million were included in SG&A, for which there were no comparable costs for 2018. Sales commissions were higher in 2019 due to the increase in revenue. Stock compensation expense increased as compared to 2018 resulting from the increase in headcount and higher share prices period over period.
For 2018, SG&A costs increased by $14.2 million, or 28%, as compared to 2017. The increase is due to selling and administrative activities incurred following the Spectrum acquisition, as well as the continued buildout of our administrative infrastructure to support expected future growth and continued expansion of our customer-facing activities to drive sales of our bioprocessing products.
Other expenses, net
The table below provides detail regarding our other expenses, net:
                                                         
 
For the Years Ended December 31,
   
2019 vs. 2018
   
2018 vs. 2017
 
 
    2019    
 
 
    2018    
 
 
    2017    
 
 
$ Change
 
 
% Change
 
 
$ Change
 
 
% Change
 
 
(Amounts in thousands, except for percentage data)
 
Investment income
  $
5,324
    $
1,895
    $
371
    $
3,429
     
180.9
%   $
1,524
     
410.8
%
Loss on extinguishment of debt
   
(5,650
)    
—  
     
—  
     
(5,650
)    
100.0
%    
—  
     
N/A
 
Interest expense
   
(9,292
)    
(6,709
)    
(6,441
)    
(2,583
)    
38.5
%    
(268
)    
4.2
%
Other (expenses) income
   
(314
)    
262
     
(687
)    
(576
)    
(219.8
%)    
949
     
(138.1
%)
                                                         
Total other expenses, net
  $
(9,932
)   $
(4,552
)   $
(6,757
)   $
(5,380
)    
118.2.
%   $
2,205
     
(32.6
%)
                                                         
 
Investment income
Investment income includes income earned on invested cash balances. The increase of $3.4 million for 2019 and $1.5 million for 2018, as compared to 2018 and 2017 was attributable to higher average invested cash balances and higher interest rates on such invested cash balances. We expect investment income to vary based on changes in the amount of funds invested and fluctuation of interest rates.
Loss on extinguishment of debt
The $5.7 million loss on extinguishment of debt for the year ended December 31, 2019 resulted from the settlement of our outstanding 2.125% Convertible Senior Notes due 2021 (the “2016 Notes”) in the third quarter of 2019. The loss represents the difference between (i) the fair value of the liability component and (ii) the sum of the carrying value of the debt component and any unamortized debt issuance costs at the time of settlement.
Interest expense
Interest expense primarily includes interest related to our issuance of the 2016 Notes in May 2016, which were settled during the third quarter of 2019, and our issuance of 0.375% Convertible Senior Notes due 2024 (the “2019 Notes”), which were issued in July 2019. Interest expense increased $2.6 million in 2019, as compared to
44

2018. Interest calculated based on the carrying value related to the 2016 Notes was $1.3 million in 2019, compared to $2.4 million in 2018. As aforementioned, the 2016 Notes were settled during July 2019. As a result, interest was no longer accrued on the 2016 Notes subsequent to their settlement. Interest calculated based on the carrying value related to the 2019 Notes for 2019 was $0.5 million and there was no comparable amount for 2018.
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
write-off
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.
Other (expenses) income
Changes in other (expenses) income during 2019, compared to 2018, are primarily attributable to foreign currency losses related to amounts due from
non-Swedish
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.
Provision for income taxes
Income tax provision for the years ended December 31, 2019, 2018 and 2017 was as follows:
                                                         
 
For the Years Ended December 31,
   
2019 vs. 2018
   
2018 vs. 2017
 
 
    2019    
 
 
    2018    
 
 
    2017    
 
 
$ Change
 
 
% Change
 
 
$ Change
 
 
% Change
 
 
(Amounts in thousands, except for percentage data)
 
Income tax provision
  $
4,740
    $
4,819
     
$(21,105
)    
$(79
)    
(1.6
%)   $
25,924
     
(122.8
%)
Effective tax rate
   
18.1
%    
22.5
%    
(291.2
%)    
     
     
     
 
 
For the year ended December 31, 2019, we recorded an income tax provision of approximately $4.7 million. The effective tax rate was an income tax provision of 18.1% and is based upon the estimated taxable income for the year ending December 31, 2019 and the composition of the taxable income in different jurisdictions. The effective tax rate was lower than the U.S. statutory rate of 21% due primarily to windfall benefits on stock option exercises and the vesting of restricted stock units and to deductions related to debt extinguishment.
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
Low-Taxed
Income tax enacted as part of the Tax Cuts and Jobs Act (the “2017 Tax Act”) enacted in December 2017.
Non-GAAP
Financial Measures
We provide
non-GAAP
adjusted income from operations,
non-GAAP
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
non-GAAP
financial measures to its most comparable GAAP financial measures are described below.
We include this financial information because we believe these measures provide a more accurate comparison of our financial results between periods and more accurately reflect how management reviews its financial results.
45

We excluded the impact of certain acquisition related items because we believe that the resulting charges do not accurately reflect the performance of our ongoing operations for the period in which such charges are incurred.
Non-GAAP
adjusted income from operations
Non-GAAP
adjusted income from operations is measured by taking income from operations as reported in accordance with GAAP and excluding acquisition and integration costs, inventory
step-up
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
non-GAAP
adjusted income from operations for the years ended December 31, 2019 and 2018:
                 
 
For the Years Ended December 31,
 
 
        2019        
 
 
        2018        
 
 
(Amounts in thousands)
 
GAAP income from operations
  $
36,083
    $
25,988
 
Non-GAAP
adjustments to income from operations:
   
     
 
Acquisition and integration costs
   
12,508
     
2,928
 
Inventory
step-up
charges
   
1,483
     
—  
 
Intangible amortization
   
13,441
     
10,518
 
                 
Non-GAAP
adjusted income from operations
  $
63,515
    $
39,434
 
                 
 
 
Non-GAAP
adjusted net income
Non-GAAP
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
step-up
charges, contingent consideration expenses, intangible amortization and related tax effects,
non-cash
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
non-GAAP
adjusted net income for the years ended December 31, 2019 and 2018:
                                 
 
For the Years Ended December 31,
 
 
2019
   
2018
 
 
Amount
 
 
Fully Diluted
Earnings per
Share*
 
 
Amount
 
 
Fully Diluted
Earnings per
Share*
 
 
(Amounts in thousands, except per share data)
 
GAAP net income
  $
21,411
    $
0.44
    $
16,617
    $
0.37
 
Non-GAAP
adjustments to net income:
   
     
     
     
 
Acquisition and integration costs
   
13,008
     
0.26
     
2,928
     
0.06
 
Inventory
step-up
charges
   
1,483
     
0.03
     
—  
     
—  
 
Intangible amortization
   
13,441
     
0.27
     
10,518
     
0.23
 
Loss on extinguishment of debt
   
5,650
     
0.11
     
—  
     
—  
 
Non-cash
interest expense
   
7,536
     
0.15
     
4,248
     
0.09
 
Tax effect of intangible amortization and acquisition costs
   
(10,003
)    
(0.20
)    
(4,204
)    
(0.09
)
                                 
Non-GAAP
adjusted net income
  $
52,526
    $
1.07
    $
30,107
    $
0.66
 
                                 
 
 
 
* Note that earnings per share amounts may not add due to rounding.
 
 
46

Adjusted EBITDA
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
step-up
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 the Years Ended December 31,
    
 
 
 
        2019
        
 
 
        2018
        
 
 
 
(Amounts in thousands)
 
GAAP net income
  $
21,411
    $
16,617
 
Non-GAAP EBITDA adjustments to net income:
   
     
 
Investment income
   
(5,324
)    
(1,895
)
Interest expense
   
9,292
     
6,709
 
Tax provision
   
4,740
     
4,819
 
Depreciation
   
7,317
     
5,213
 
Intangible amortization
   
13,551
     
10,565
 
                 
EBITDA
   
50,987
     
42,028
 
Other non-GAAP adjustments:
   
     
 
Acquisition and integration costs
   
13,008
     
2,928
 
Loss on extinguishment of debt
   
5,650
     
—  
 
Inventory step-up charges
   
1,483
     
—  
 
                 
Adjusted EBITDA
  $
71,128
    $
44,956
 
                 
 
 
Liquidity and Capital Resources
We have financed our operations primarily through revenues derived from product sales, the issuance of the 2016 Notes in May 2016 and our 2019 Notes (defined below) in July 2019 and the issuance of common stock in our July 2019, May 2019 and July 2017 public offerings. Our revenue for the foreseeable future will primarily be limited to our bioprocessing product revenue.
At December 31, 2019, we had cash and cash equivalents of $528.4 million compared to cash and cash equivalents of $193.8 million at December 31, 2018. As a result of our acquisition of C Technologies in May 2019, we are holding $9.0 million in restricted cash for compensation expense for future employment of C Technologies employees as of December 31, 2019. There were no restrictions on cash for December 31, 2018.
We acquired C Technologies on May 31, 2019 for $239.9 million in cash and shares of our common stock. The C Technologies Acquisition was funded through payment of approximately $195.0 million in cash and 779,221 unregistered shares of the Company’s common stock totaling $53.9 million.
On May 3, 2019, the Company completed a public offering in which 3,144,531 shares of its common stock, including the underwriters’ full exercise of an option to purchase up to an additional 410,156 shares, were sold to the public at a price of $64.00 per share. The total proceeds received by the Company from this offering, net of underwriting discounts and commissions and other estimated offering expenses payable by the Company, totaled approximately $189.6 million. Proceeds from this public offering were partially used to fund the C Technologies Acquisition on May 31, 2019.