<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For quarter ended September 30, 1996 Commission File No. 0-19312
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MEDAREX, INC.
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(Exact name of registrant as specified in its charter.)
New Jersey 22-2822175
- ---------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1545 Route 22 East, Annandale, New Jersey 08801
- ----------------------------------------- -----
(Address or principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (908) 713-6001
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Indicate by check mark whether 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 X No
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The number of shares of common stock, $.01 par value, outstanding as of November
5, 1996 was 17,592,992 shares.
Page 1 of 10
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MEDAREX, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30
---------------- ----------------
1995 1996
(Unaudited)
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 3,540,759 $ 20,013,274
Marketable securities 12,187,936 13,720,034
Trade accounts receivable, less allowance for doubtful
accounts of $5,000 59,576 22,114
Inventory 49,494 38,573
Prepaid expenses 383,126 269,008
Other current assets 153,230 640,697
---------------- ----------------
Total current assets 16,374,121 34,703,700
Property and equipment:
Machinery and equipment 1,941,348 2,249,576
Furniture and fixtures 145,524 160,279
Leasehold improvements 557,996 557,996
---------------- ----------------
2,644,868 2,967,851
Less accumulated depreciation and amortization (1,399,221) (1,746,653)
---------------- ----------------
1,245,647 1,221,198
Investments in, and advances to affiliate 324,484 414,777
Segregated cash 1,260,000 1,260,000
Patents and other assets, net 35,791 612,457
---------------- ----------------
Total assets $ 19,240,043 $ 38,212,132
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Trade accounts payable $ 143,527 $ 135,364
Accrued liabilities 1,105,408 961,752
Accrued offering costs 100,000 126,832
Deferred contract revenue 476,191 -
---------------- ----------------
Total current liabilities 1,825,126 1,223,948
Long-term debt and other long-term obligations 39,833 116,090
Commitments and contigencies - -
Stockholders' equity:
Preferred stock, $1.00 par value, 2,000,000 shares authorized;
none issued and outstanding - -
Common stock, $.01 par value; 40,000,000 shares authorized;
11,858,626 and 17,588,242 shares issued and outstanding,
respectively 118,587 175,883
Capital in excess of par value 41,814,203 65,804,521
Unrealized gain on securities 65,064 188,630
Accumulated deficit (24,622,770) (29,296,940)
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Total stockholders' equity 17,375,084 36,872,094
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Total liabilities and stockholders' equity $ 19,240,043 $ 38,212,132
================ ================
</TABLE>
See notes to these unaudited financial statements.
Page 2 of 10
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MEDAREX, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30, September 30, September 30,
1995 1996 1995 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Sales $ 253,429 $ 210,468 $ 112,063 $ 81,150
Contract and license revenues 980,952 1,551,191 485,714 75,000
------------- ------------- ------------- -------------
Total revenues 1,234,381 1,761,659 597,777 156,150
Costs and expenses:
Cost of sales 94,008 99,839 31,947 36,599
Research and development 4,805,344 5,559,690 1,715,149 1,998,981
General and administrative 1,691,483 1,862,846 558,875 660,700
------------- ------------- ------------- -------------
Operating loss (5,356,454) (5,760,716) (1,708,194) (2,540,130)
Interest and dividend income 379,598 1,090,551 136,418 505,581
Interest expense (6,010) (4,006) (1,135) (1,222)
------------- ------------- ------------- -------------
Net loss $ (4,982,866) $ (4,674,171) $ (1,572,911) $ (2,035,771)
============= ============= ============= =============
Net loss per share ($0.55) ($0.32) ($0.16) ($0.12)
============= ============= ============= =============
Weighted-average number of common
shares outstanding during the period 9,023,590 14,515,314 9,613,626 17,085,364
</TABLE>
See notes to these unaudited financial statements.
Page 3 of 10
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MEDAREX, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
-------------
1995 1996
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<S> <C> <C>
Operating activities:
Net loss $ (4,982,866) $ (4,647,171)
Adjustments to reconcile net loss to net cash
from operating activities:
Depreciation 312,980 267,383
Amortization 105,378 115,883
Changes in operating assets and liabilities:
Decrease in trade accounts receivable, net 2,247 37,462
Decrease in inventory 14,290 10,921
Increase in prepaid expenses and other
current assets (76,955) (373,350)
Decrease in trade accounts payable (95,962) (8,163)
Decrease in accrued liabilities (47,286) (136,051)
Increase (decrease) in deferred contract revenue 161,905 (476,191)
---------------- -----------------
Net cash used in operating activities (4,606,269) (5,236,277)
Investing activities:
Purchase of property and equipment (186,905) (322,983)
Increase in advances to affiliate - (90,293)
Purchase of marketable securities - (1,408,532)
Sale of marketable securities 2,747,503 -
---------------- -----------------
Net cash provided by (used in) investing activities 2,560,598 (1,821,808)
Financing activities:
Cash received from sales of securities, net 2,848,642 23,435,114
Proceeds from long term debt 110,160
Principle payments under debt obligation (13,161) (14,674)
---------------- -----------------
Net cash provided by financing activities 2,835,481 23,530,600
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Net increase in cash and cash equivalents 789,810 16,472,515
Cash and cash equivalents at beginning of period 4,308,262 3,540,759
---------------- -----------------
Cash and cash equivalents at end of period $ 5,098,072 $ 20,013,274
================ =================
Non-cash investing and financing activities:
Non-cash acquisition of patent rights $ - $ 612,500
================ =================
Supplemental disclosures of cash flow information
Cash paid during period for:
Income taxes $ - $ -
================ =================
Interest $ 6,010 $ 2,784
================ =================
</TABLE>
See notes to these unaudited financial statements.
Page 4 of 10
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MEDAREX, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION AND BASIS OF PRESENTATION
The unaudited financial statements have been prepared from the books and
records of Medarex, Inc. (the "Company") in accordance with generally accepted
accounting principles for interim financial information. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Interim results are not
necessarily indicative of the results that may be expected for the year. For
further information, refer to the financial statements and footnotes thereto
included in the Company's annual report on Form 10-K for the year ended December
31, 1995.
Through March, 1996, the Company was in the development stage. The Company
has started receiving and expects to continue to receive revenue from research
and development agreements. As a result, the Company is no longer considered to
be in the development stage. Included in accumulated deficit is $26,308,655
accumulated during the development stage.
2. NET LOSS PER COMMON SHARE
Net loss per common share is based on net loss for the relevant period
divided by the weighted average number of shares issued and outstanding during
the period. Stock options and common stock issuable upon conversion of warrants
are not reflected as their effect would be antidilutive for both primary and
fully diluted earnings per share computations.
3. MARKETABLE SECURITIES
Marketable securities consist of fixed income investments with a maturity
of greater than three months and other highly liquid investments which can be
readily purchased or sold using established markets. Such securities are
carried at market which approximates cost in 1995 and 1996.
4. INVENTORY
Inventory consists primarily of antibodies to be sold to the research
community and is stated at the lower of cost or market with cost determined on a
first-in-first-out basis.
Page 5 of 10
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5. CONTINGENCIES
In connection with the merger of Essex Medical Products, Inc. and the
Company, Medarex issued promissory notes to Essex Chemical Corporation ("Essex")
in the principal amount of $100,000, which have been subsequently repaid, and
committed to pay 20% of the Company's net after tax income until a total of
$1,000,000 has been paid. At the Company's option, this obligation may be
satisfied by the payment of shares of the Company's Common Stock having a fair
market value equal to the amount owed, provided such shares are registered for
sale with the Securities and Exchange Commission. Amounts up to $1,000,000 will
be payable to Essex, based solely on the earnings of the Company, by March 31 of
each year, to the extent of 20% of net after tax earnings of the Company
realized during the preceding fiscal year.
Page 6 of 10
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ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Liquidity and Capital Resources
- -------------------------------
The Company had approximately $33.7 million in cash, cash equivalents and
marketable securities and approximately $1.3 million in a segregated cash
account as of September 30, 1996. Operating activities consumed $5,236,277 of
cash for the nine month period ended September 30, 1996.
To date, the Company's sources of cash have been the proceeds from the sale
of its securities through public and private placements, sales of its products
for research purposes and technology transfer and license fees.
The Company's current sources of liquidity are its cash, cash equivalents
and marketable securities, interest and dividends earned on such cash, cash
equivalents and marketable securities, sales of its products for research
purposes and contract and licensing revenues. Management believes that under
existing operating plans its current sources of liquidity will be sufficient to
meet anticipated cash requirements for at least the next 3 years.
The Company leases approximately 45,000 square feet of laboratory, clinical
trial production and office space in a modern facility on a research campus in
Annandale, New Jersey, that was developed by Exxon Research and Engineering
Company as its corporate research headquarters. Management believes that this
facility is well suited for clinical-grade production of Bispecific and
monoclonal antibodies as it has in place most utilities required for clinical-
grade production of such antibodies, including a production unit designed to
meet cGMP standards. As of September 30, 1996, the Company had commitments for
approximately $125,000 of capital expenditures.
Upon exhaustion of its current cash reserves, the Company's continued
operations will depend on its ability to raise additional funds through equity
or debt financing and/or enter into licensing or joint development agreements,
including collaborative research and development arrangements with large
pharmaceutical companies pursuant to which certain costs associated with the
regulatory approval process for certain of its products would be borne by the
licensees or joint developers. There can be no assurance that these sales or
financing activities will be successful.
Results of Operations
- ---------------------
Nine months ended September 30, 1995 and 1996
- ---------------------------------------------
Revenue for the nine month period ended September 30, 1996 increased by
$527,278, a 42.7% increase from the nine month period ended September 30, 1995.
The increase is principally due to contract and license revenue of $1,000,000,
generated from a collaborative agreement entered into on April 26, 1996 with
Centeon LLC, partially offset by a decrease in other contract revenues and a
$42,961 decrease in research reagent sales volume.
Cost of sales increased by $5,831 during the first nine months of 1996, a
6.2% increase from the comparable period in 1995.
Page 7 of 10
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Research and development expenses increased $754,346 during the first nine
months of 1996, a 15.7% increase from the first nine months of 1995. The
increase is principally due to activity associated with human clinical trials in
our two lead oncology bispecific products, MDX-210 and MDX-447.
General and administrative expenses increased by $171,363 for the first
nine months of 1996, a 10.1% increase from the first nine months of 1995.
Increases in personnel costs, partially offset by lower depreciation expense and
rent expense contributed to this increase.
Interest and dividend income increased by $710,953 for the first nine
months of 1996, a 187.3% increase from the same period in 1995, reflecting a
higher average cash balance, primarily as the result of proceeds received from
the exercise of the Company's public Redeemable Warrants pursuant to a Warrant
Reduction Offer which expired on May 15, 1996.
Three months ended September 30, 1995 and 1996
- ----------------------------------------------
Revenue for the three month period ended September 30, 1996 decreased by
$441,627, a 73.9% decrease from the three month period ended September 30, 1995,
reflecting a $410,714 decrease in contract and license revenue for the third
quarter and, a $30,913 decrease in sales volume of research reagents.
Cost of sales increased $4,652 during the three month period ending
September 30, 1996, a 14.6% increase from the same period of 1995.
Research and development expenses increased $283,832 during the three month
period ended September 30, 1996, a 16.5% increase from the same period of 1995.
The increase is principally due to increased activity associated with human
clinical trials resulting in higher personnel costs and laboratory expenses.
General and administrative expenses increased $101,825 for the period ended
September 30, 1996, a 18.2% increase from the same period of 1995. The increase
is primarily attributable to higher personnel costs and bank fees associated
with investment activities.
Interest and dividend income increased $369,163 for the three months ended
September 30, 1996, a 270.6% increase from the same period of 1995, reflecting a
higher average cash balance, primarily as the result of proceeds received from
the exercise of the Company's public Redeemable Warrants pursuant to a Warrant
Reduction Offer.
The Company has incurred and will continue to incur significant costs in
the area of research and development, including pre-clinical and clinical trials
as its products move through the various stages of development. Administrative
costs are also expected to increase with the increase of administrative
activities and the creation of a marketing organization. The Company expects
its operating losses to increase at an accelerated rate over the next several
years as the Company expands its clinical trials and product development
efforts.
Page 8 of 10
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Part II - Other Information
ITEM 6. Exhibits and reports on Form 8-K
(a) Exhibits: None
(b) Reports on Form 8-K: None
Page 9 of 10
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Signatures
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MEDAREX, INC.
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(Registrant)
Date: November 7, 1996 By /s/ Michael A. Appelbaum
------------------------
Michael A. Appelbaum
Senior Vice President
Finance and Administration
(Principal Financial and
Accounting Officer)
Page 10 of 10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements for the nine months ended September 30, 1996 and is
qualified in its entirety by reference in such statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 20,013,274
<SECURITIES> 13,720,034
<RECEIVABLES> 27,114
<ALLOWANCES> (5,000)
<INVENTORY> 38,573
<CURRENT-ASSETS> 34,703,700
<PP&E> 2,967,851
<DEPRECIATION> (1,746,653)
<TOTAL-ASSETS> 38,212,132
<CURRENT-LIABILITIES> 1,223,948
<BONDS> 0
0
0
<COMMON> 175,883
<OTHER-SE> 65,804,521
<TOTAL-LIABILITY-AND-EQUITY> 38,212,132
<SALES> 210,468
<TOTAL-REVENUES> 1,761,659
<CGS> 99,839
<TOTAL-COSTS> 7,522,375
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,006
<INCOME-PRETAX> (4,674,171)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,674,171)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,674,171)
<EPS-PRIMARY> (0.32)
<EPS-DILUTED> 0
</TABLE>
