<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 June 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
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(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
--------------
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
___ ____
The number of shares of common stock, $.01 par value, outstanding as of August
2, 1996 was 17,024,038 shares.
<PAGE>
MEDAREX, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30
--------------- -------------
1995 1996
(Unaudited)
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 3,540,759 $ 12,240,770
Marketable securities 12,187,936 23,935,051
Trade accounts receivable, less allowance for doubtful
accounts of $5,000 59,576 28,216
Inventory 49,494 45,870
Prepaid expenses 383,126 70,874
Other current assets 153,230 1,051,853
--------------- -------------
Total current assets 16,374,121 37,372,634
Property and equipment:
Machinery and equipment 1,941,348 2,056,296
Furniture and fixtures 145,524 149,122
Leasehold improvements 557,996 557,996
--------------- -------------
2,644,868 2,763,414
Less accumulated depreciation and amortization (1,399,221) (1,637,596)
--------------- -------------
1,245,647 1,125,818
Investments in, and advances to affiliate 324,484 414,777
Segregated cash 1,260,000 1,260,000
Other assets 35,791 631,442
--------------- -------------
Total assets $ 19,240,043 $ 40,804,671
=============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Trade accounts payable $ 143,527 $ 256,749
Accrued liabilities 1,105,408 805,863
Accrued offering costs 100,000 1,213,027
Deferred contract revenue 476,191 -
--------------- -------------
Total current liabilities 1,825,126 2,275,639
Long-term portion of capitalized lease obligation 39,833 29,111
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 17,024,038 shares
issued and outstanding, respectively 118,587 170,241
Capital in excess of par value 41,814,203 65,526,082
Unrealized gain on securities 65,064 64,768
Accumulated deficit (24,622,770) (27,261,170)
--------------- -------------
Total stockholders' equity 17,375,084 38,499,921
--------------- -------------
Total liabilities and stockholders' equity $ 19,240,043 $ 40,804,671
=============== =============
</TABLE>
See notes to these unaudited financial statements.
<PAGE>
MEDAREX, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30, June 30, June 30,
1995 1996 1995 1996
---------------- ----------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Sales $ 141,366 $ 129,318 $ 71,560 $ 49,826
Contract and license revenues 495,238 1,476,191 295,238 1,190,477
---------------- ----------------- ---------------- ---------------
Total revenues 636,604 1,605,509 366,798 1,240,303
Costs and expenses:
Cost of sales 62,061 63,240 30,257 31,391
Research and development 3,090,195 3,560,709 1,611,755 1,888,743
General and administrative 1,132,608 1,202,147 562,204 639,962
---------------- ----------------- ---------------- ---------------
Operating loss (3,648,260) (3,220,587) (1,837,418) (1,319,793)
Interest and dividend income 243,180 584,970 117,286 368,609
Interest expense (4,875) (2,784) (2,087) (1,332)
---------------- ----------------- ---------------- ---------------
Net loss ($3,409,955) ($2,638,401) ($1,722,219) ($952,516)
================ ================= ================ ===============
Net loss per share ($0.39) ($0.20) ($0.20) ($0.07)
================ ================= ================ ===============
Weighted-average number of common
shares outstanding during the period 8,723,682 13,216,168 8,733,516 14,573,228
</TABLE>
See notes to these unaudited financial statements.
<PAGE>
<TABLE>
<CAPTION>
MEDAREX, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six Months Ended
June 30,
--------
1995 1996
---- ----
<S> <C> <C>
Operating activities:
Net loss $ (3,409,955) $ (2,638,401)
Adjustments to reconcile net loss to net cash
from operating activities:
Depreciation 230,232 185,009
Amortization 69,962 70,215
Issue of common stock for technology 612,500
Changes in operating assets and liabilities:
Decrease in trade accounts receivable, net 5,139 31,360
Decrease in inventory 11,915 3,624
(Increase) decrease in prepaid expenses and other
current assets 117,492 (586,371)
Increase (decrease) in trade accounts payable (87,578) 113,222
Increase (decrease) in accrued liabilities (143,403) 813,483
Increase (decrease) in deferred contract revenue 647,619 (476,191)
-------------- --------------
Net cash used in operating activities (2,558,577) (1,871,550)
Investing activities:
Purchase of property and equipment (127,119) (118,546)
Increase in segregated cash and other assets - (612,500)
Increase in advances to affiliate - (90,293)
Purchase of marketable securities - (11,747,411)
Sale of marketable securities 2,775,724 -
-------------- --------------
Net cash provided by (used in) investing activities 2,648,605 (12,568,750)
Financing activities:
Cash received from sales of securities, net 2,857,142 23,151,033
Principle payments under capital lease obligation (9,669) (10,722)
-------------- --------------
Net cash provided by financing activities 2,847,473 23,140,311
-------------- --------------
Net increase in cash and cash equivalents 2,937,501 8,700,011
Cash and cash equivalents at beginning of period 4,308,262 3,540,759
-------------- --------------
Cash and cash equivalents at end of period $ 7,245,763 $ 12,240,770
============== ==============
Noncash investing and financing activities:
Issue of common stock for technology $ - $ 612,500
============== ==============
Supplemental disclosures of cash flow information
Cash paid during period for:
Income taxes $ - $ -
============== ==============
Interest $ 4,875 $ 2,784
============== ==============
</TABLE>
See notes to these unaudited financial statements.
<PAGE>
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. 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.
6. WARRANT REDUCTION OFFER
On April 18, 1996, the Company commenced its offer to reduce temporarily
the exercise price of each of its Redeemable Warrants from $6.17 to $5.55 per
Warrant (the "Warrant Reduction Offer"). Pursuant to the Warrant Reduction
Offer which expired on May 15, 1996, the holders of 3,882,022 Redeemable
Warrants (approximately 97% of the maximum number of Redeemable Warrants that
could have been exercised) exercised their warrants to purchase approximately
4,534,202 shares of Common Stock, resulting in proceeds of $21,545,222 to the
Company before deducting expenses incurred in connection with the offering.
Including exercises prior and subsequent to the Warrant Reduction Offer,
warrantholders purchased approximately 5,031,910 shares of Common Stock
resulting in total gross proceeds to the Company of approximately $24,174,401
from the exercise of the Redeemable Warrants.
7. CENTEON RESEARCH AND DEVELOPMENT AGREEMENT
On April 26, 1996, the Company announced that it had entered into a
collaborative arrangement with Centeon, L.L.C. ("Centeon"), a Delaware limited
liability company formed through a joint venture of Hoechst AG and Rhone-Poulenc
Rorer, Inc., to develop and market MDX-33. This collaboration provides for the
joint development of MDX-33 by the Company and Centeon. Subject to the terms of
the arrangement, the Company is primarily responsible for product development,
clinical testing through Phase II trials and the manufacture of all product used
in clinical trials. Centeon will be primarily responsible for the payment of
all expenses associated with Phase I and Phase II clinical trials of MDX-33 to
be conducted by the Company, up to a maximum of $20,000,000. If such trials are
successfully completed, Centeon will be primarily responsible for Phase III
clinical trials, regulatory approvals, product commercialization and the costs
associated therewith. In addition, under the terms of the arrangement, Centeon
paid to the Company an up-front fee of $1,000,000 which is included in contract
and license revenue and will pay research and development funding of $900,000
over three years. Centeon may also provide the Company with up to $10,000,000
of additional funding upon the achievement of certain milestones.
Under the terms of the arrangement, Centeon has an option (the "Option") to
purchase shares of Common Stock of the Company, par value $.01 per share (the
"Common Stock"), in an amount equal to $2,000,000, at a premium over the market
price for the Common Stock on the Nasdaq National Market for the three day
period commencing one business day prior to the Company's public announcement
that certain milestones have been achieved, subject to a maximum of 20% of the
shares of the Common Stock or voting power outstanding prior to such issuance.
If such milestones have been achieved and Centeon does not elect to exercise the
Option, then Centeon will be required to pay $2,000,000 to the Company.
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Liquidity and Capital Resources
- -------------------------------
The Company had approximately $36.2 million in cash, cash equivalents and
marketable securities and approximately $1.3 million in a segregated cash
account as of June 30, 1996. Operating activities consumed $1,871,550 of cash
for the six month period ended June 30, 1996.
On April 18, 1996, the Company commenced its offer to reduce temporarily
the exercise price of each of its Redeemable Warrants from $6.17 to $5.55 per
Warrant (the "Warrant Reduction Offer"). Pursuant to the Warrant Reduction
Offer which expired on May 15, 1996, the holders of 3,882,022 Redeemable
Warrants (approximately 97% of the maximum number of Redeemable Warrants that
could have been exercised) exercised their warrants to purchase approximately
4,534,202 shares of Common Stock, resulting in proceeds of $21,545,222 to the
Company before deducting expenses incurred in connection with the offering.
Including exercises prior and subsequent to the Warrant Reduction Offer,
warrantholders purchased approximately 5,031,910 shares of Common Stock
resulting in total gross proceeds to the Company of approximately $24,174,401
from the exercise of the Redeemable Warrants.
On April 26, 1996, the Company announced that it had entered into a
collaborative arrangement with Centeon, L.L.C. ("Centeon"), a Delaware limited
liability company formed through a joint venture of Hoechst AG and Rhone-Poulenc
Rorer, Inc., to develop and market MDX-33. This collaboration provides for the
joint development of MDX-33 by the Company and Centeon. Subject to the terms of
the arrangement, the Company is primarily responsible for product development,
clinical testing through Phase II trials and the manufacture of all product used
in clinical trials. Centeon will be primarily responsible for the payment of
all expenses associated with Phase I and Phase II clinical trials of MDX-33 to
be conducted by the Company, up to a maximum of $20,000,000. If such trials are
successfully completed, Centeon will be primarily responsible for Phase III
clinical trials, regulatory approvals, product commercialization and the costs
associated therewith. In addition, under the terms of the arrangement, Centeon
paid to the Company an up-front fee of $1,000,000 and will pay research and
development funding of $900,000 over three years. Centeon may also provide the
Company with up to $10,000,000 of additional funding upon the achievement of
certain milestones.
Under the terms of the arrangement, Centeon has an option (the "Option") to
purchase shares of Common Stock of the Company, par value $.01 per share (the
"Common Stock"), in an amount equal to $2,000,000, at a premium over the market
price for the Common Stock on the Nasdaq National Market for the three day
period commencing one business day prior to the Company's public announcement
that certain milestones have been achieved, subject to a maximum of 20% of the
shares of the Common Stock or voting power outstanding prior to such issuance.
If such milestones have been achieved and Centeon does not elect to exercise the
Option, then Centeon will be required to pay $2,000,000 to the Company.
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.
<PAGE>
Liquidity and Capital Resources (con't)
- ---------------------------------------
The Company has leased 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. By leasing this facility and spending modestly
to adapt it, management believes that the Company has preserved a considerable
amount of capital that might otherwise have been used to build a
biopharmaceutical production facility. As of June 30, 1996, the Company had
commitments for approximately $91,000 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
- ---------------------
Six months ended June 30, 1995 and 1996
- ---------------------------------------
Revenue for the six month period ended June 30, 1996 increased by $968,905,
a 152.2% increase from the six month period ended June 30, 1995. The increase
is principally due to contract and license revenue of $1,000,000, generated from
the collaborative agreement with Centeon, partially offset by a $12,048 decrease
in research reagent sales volume.
Cost of sales increased by $1,179 during the first six months of 1996, a
1.9% increase from the comparable period in 1995.
Research and development expenses increased $470,514 during the first six
months of 1996, a 15.2% increase from the first six months of 1995. The
increase is principally due to higher personnel costs and clinical trial
expenses.
General and administrative expenses increased by $69,539 for the first six
months of 1996, a 6.1% increase from the first six 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 $341,790 for the first six months
of 1996, a 140.6% increase from the same period in 1995, reflecting a higher
average cash balance, primarily as the result of proceeds received from the
Company's Warrant Reduction Offer.
<PAGE>
Three months ended June 30, 1995 and 1996
- -----------------------------------------
Revenue for the three month period ended June 30, 1996 increased by
$873,505, a 238.1% increase from the three month period ended June 30, 1995,
principally reflecting the Centeon contract and license revenue of $1,000,000,
offset by a $21,734 decrease in sales volume of research reagents.
Cost of sales increased $1,134 during the three month period ending June
30, 1996, a 3.7% increase from the same period of 1995.
Research and development expenses increased $276,988 during the three
month period ended June 30, 1996, a 17.2% 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 supply expenses.
General and administrative expenses increased $77,758 for the period ended
June 30, 1996, a 13.8% increase from the same period of 1995. The increase is
primarily attributable to higher personnel costs and shareholder relations
expense.
Interest and dividend income increased $251,323 for the three months ended
June 30, 1996, a 214.3% increase from the same period of 1995, reflecting a
higher average cash balance, primarily as the result of proceeds received from
the Company's 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>
Part II - Other Information
ITEM 6. Exhibits and reports on Form 8-K
(a) Exhibit: 27 Financial Data Schedule
(b) Reports on Form 8-K: None
<PAGE>
Signatures
----------
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: August 5, 1996 By /s/ Michael A. Appelbaum
------------------------
Michael A. Appelbaum
Senior Vice President
Finance & Administration
(Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements for the six months ended June 30, 1996 and is
qualified in its entirety by reference in such statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 12,240,770
<SECURITIES> 23,935,051
<RECEIVABLES> 33,216
<ALLOWANCES> (5,000)
<INVENTORY> 45,870
<CURRENT-ASSETS> 37,372,634
<PP&E> 2,763,414
<DEPRECIATION> (1,637,596)
<TOTAL-ASSETS> 40,804,671
<CURRENT-LIABILITIES> 2,275,639
<BONDS> 0
0
0
<COMMON> 170,241
<OTHER-SE> 65,526,082
<TOTAL-LIABILITY-AND-EQUITY> 40,804,671
<SALES> 129,318
<TOTAL-REVENUES> 1,605,509
<CGS> 63,240
<TOTAL-COSTS> 4,826,096
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,784
<INCOME-PRETAX> (2,638,401)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,638,401)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,638,401)
<EPS-PRIMARY> (0.20)
<EPS-DILUTED> 0
</TABLE>
