<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 March 31, 1997 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
--------------
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 April
30, 1997 was 18,659,111 shares.
Page 1 to 10
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MEDAREX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March31,
------------- -----------
1996 1997
(Unaudited)
ASSETS
- ------
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 4,958,065 $ 6,495,495
Marketable securities 26,505,269 21,054,860
Trade accounts receivable, less allowance for doubtful
accounts of $5,000 22,677 32,947
Inventory 46,232 90,963
Prepaid expenses 245,787 202,942
Other current assets 766,214 498,378
----------- -----------
Total current assets 32,544,244 28,375,585
Property and equipment:
Machinery and equipment 2,374,996 2,583,089
Furniture and fixtures 164,316 172,380
Leasehold improvements 557,996 633,167
----------- -----------
3,097,308 3,388,636
Less accumulated depreciation and amortization (1,866,470) (2,077,952)
----------- -----------
1,230,838 1,310,684
Investments in, and advances to affiliate 414,777 414,777
Segregated cash 1,260,000 1,260,000
Patents rights and other assets 594,223 594,473
----------- -----------
Total assets $36,044,082 $31,955,519
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Trade accounts payable $ 170,588 $ 170,183
Accrued liabilities 1,114,598 2,000,431
---------- ----------
Total current liabilities 1,285,186 2,170,614
Long-term obligations 110,404 96,641
Commitments - -
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;
17,592,992 and 18,655,511 shares issued and outstanding,
respectively 175,931 186,556
Capital in excess of par value 65,947,081 74,187,524
Unrealized gain on securities 16,743 12,080
Accumulated deficit (31,491,263) (44,697,896)
------------ -----------
Total stockholders' equity 34,648,492 29,688,264
------------ -------------
Total liabilities and stockholders' equity $ 36,044,082 $ 31,955,519
============ =============
</TABLE>
See notes to these unaudited consolidated financial statements.
Page 2 of 10
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MEDAREX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31, March 31,
1996 1997
----------- ------------
<S> <C> <C>
Sales $ 79,492 $ 50,163
Grants, contract and license revenues 285,714 400,177
----------- ------------
Total revenues 365,206 450,340
Costs and expenses:
Cost of sales 31,849 38,485
Research and development 1,671,966 2,530,380
General and administrative 562,185 810,323
Acquisition of in-process technology - 10,662,952
---------- -----------
Operating loss (1,900,794) (13,591,800)
Interest and dividend income 214,909 385,166
----------- ------------
Net loss $(1,685,885) $(13,206,634)
=========== ============
Net loss per share ($0.14) ($0.74)
=========== ============
Weighted-average number of common
shares outstanding during the period 11,859,107 17,963,137
</TABLE>
See notes to these unaudited consolidated financial statements.
Page 3 of 10
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MEDAREX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
---------
1996 1997
------------ ------------
<S> <C> <C>
Operating activities:
Net loss $(1,685,885) $(13,206,634)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 94,409 110,335
Amortization 35,108 111,941
Write-off of in-process technology - 10,662,952
Changes in operating assets and liabilities, net of acquisition:
Decrease (increase) in trade accounts receivable, net 14,391 (10,270)
Decrease (increase) in inventory 6,175 (44,731)
Decrease in prepaid expenses and other
current assets 42,972 314,762
Increase (decrease) in trade accounts payable 23,960 (288,587)
Decrease in accrued liabilities (410,321) (359,217)
Decrease in deferred contract revenue (285,715) -
------------ ------------
Net cash used in operating activities (2,164,906) (2,709,449)
Investing activities:
Purchase of property and equipment (38,632) (31,471)
Cash portion of Houston Bioechnology Inc. acquisition,
net of cash acquired - (1,284,327)
Increase in other assets - (1,818)
Sale of marketable securities 1,628,184 5,445,746
------------ ------------
Net cash provided by investing activities 1,589,552 4,128,130
Financing activities:
Cash received from sales of securities, net (4,672) 132,512
Principal payments under debt obligations (5,274) (13,763)
Net cash (used in) provided by ----------- ------------
financing activities (9,946) 118,749
----------- ------------
Net increase (decrease) in cash and
cash equivalents (585,300) 1,537,430
Cash and cash equivalents at beginning of period 3,540,759 4,958,065
----------- ------------
Cash and cash equivalents at end of period $ 2,955,459 $ 6,495,495
=========== ============
Supplemental disclosures of cash flow information
Cash paid during period for:
Income taxes $ - $ -
=========== ============
Interest $ 1,452 $ 5,651
=========== ============
</TABLE>
See notes to these unaudited consolidated financial statements.
Page 4 of 10
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MEDAREX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION AND BASIS OF PRESENTATION
The unaudited financial statements have been prepared from the books and
records of Medarex, Inc. and Subsidiaries (the "Company") in accordance with the
instruction to Form 10-Q and, accordingly, 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, 1996.
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.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share, which is required to be adopted on December 31,
1997. At that time, the Company will be required to change the method currently
used to compute earnings per share and to restate all prior periods. The impact
of Statement 128 on the calculation of primary and fully diluted earnings per
share is not expected to be material.
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, which are
classified as available-for-sale, are carried at market with unrealized gains
and losses reported as a separate component of stockholders' equity.
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.
6. ACQUISITION
On February 28, 1997, the Company completed its acquisition of Houston
Biotechnology Incorporated ("Houston"), a Texas biotechnology company that is
developing monoclonal antibody and other biopharmaceutical products to prevent
secondary cataracts and to treat glaucoma, disorders that impair or destroy
human vision. The purchase price consisted of 1,026,245 shares of Medarex
common stock (valued at $7.375), options and warrants, the assumption of certain
liabilities in excess of assets acquired and transaction costs. The transaction
was treated as a purchase for accounting purposes and the Company charged
$10,662,952 (based on an independent valuation) to operations during the first
quarter of 1997 which reflected the write-off of the in-process technology
acquired.
7. SUBSEQUENT EVENT
On May 6, 1997, the Company announced that it has signed a definitive
agreement to acquire GenPharm International, Inc. ("GenPharm"), for up to $65
million in Medarex common stock. Through this acquisition, Medarex will expand
its business and technology base to include GenPharm's patented HuMab-Mouse/TM/,
an antibody discovery platform that complements Medarex's patented Bispecific
antibody technology. In addition, Medarex expects to receive cash of $33 million
by the end of 1998 through a combination of GenPharm's cash on hand and certain
patent license fees and related payments from third parties (the "Contingent
Payments"). It is anticipated that a significant portion of the purchase price
will be written off as in-process technology.
Pursuant to the terms of the Merger, the holders of GenPharm capital stock
will receive shares of Medarex Common Stock in a three-stage closing. At the
initial closing, expected to occur in the third quarter of 1997, Medarex will
issue up to 3.5 million shares of Medarex Common Stock following the approval of
the transaction by GenPharm's shareholders and the completion of certain other
legal and regulatory requirements. The shares issued in 1997 will be subject to
contractual "lock-up" restrictions on transfer. Additional shares will be
issued by the end of 1998 for the balance of the purchase price but only to the
extent that GenPharm has received the patent license fees and related payments
mentioned above. In the event any of the Contingent Payments have not been
received by December 15, 1998 a final closing will occur no later than the
earlier of (1) 30 days following the receipt of the last Contingent Payment and
(2) December 31, 1999.
GenPharm International, Inc., a privately held biopharmaceutical company,
has specialized in the development of transgenic mice for the creation of fully
human monoclonal antibodies. The transgenic mice have had human antibody genes
inserted and have had certain mouse antibody genes inactivated.
Consummation of the Merger is subject to the satisfaction of certain
conditions, including approval of GenPharm's stockholders, registration under
the Securities Act of 1933, as amended, of the shares of Medarex Common Stock to
be issued in the Merger and listing of the shares of Medarex Common Stock on the
Nasdaq National Market. It is expected that the consummation of the Merger will
occur as soon as practicable after the satisfaction of all such conditions.
These consolidated financial statements do not reflect the impact of this
agreement.
Page 6 of 10
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ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
This Quarterly Report on Form 10-Q contains "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, which represent
Medarex's projections, estimates, expectations or beliefs concerning among other
things, financial items that relate to management's future plans or objectives
or to Medarex's future economic and financial performance. Forward-looking
statements involve known and unknown risks and uncertainties and are indicated
by words such as "anticipates", "expects", "believes", "plans", "could" and
similar words and phrases. These risks and uncertainties include, but are not
limited to, the Company's early stage of product development, history of
operating losses and accumulated deficit, additional financing requirements and
access to capital funding, dependence on strategic alliances, government
regulation of the biopharmaceutical industry and other risks that may be
detailed from time to time in Medarex's periodic reports and registration
statements filed with the Securities and Exchange Commission.
Liquidity and Capital Resources
- -------------------------------
The Company had approximately $27.6 million in cash, cash equivalents and
marketable securities and approximately $1.3 million in a segregated cash
account as of March 31, 1997. Operating activities consumed $2,709,449 of cash
for the three month period ended March 31, 1997.
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 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 24 months.
The Company has leased approximately 53,000 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 March 31, 1997, the Company had
commitments for approximately $1,950,000 of capital expenditures.
On February 28, 1997, the Company completed its acquisition of Houston
Biotechnology Incorporated ("Houston"), a Texas biotechnology company that is
developing monoclonal antibody and other biopharmaceutical products to prevent
secondary cataracts and to treat glaucoma, disorders that impair or destroy
human vision. The purchase price consisted of 1,026,245 shares of Medarex
common stock (valued at $7.375), options and warrants, the assumption of certain
liabilities in excess of assets acquired and transaction costs. The transaction
was treated as a purchase for accounting purposed and the Company charged
$10,662,952 (based on an independent valuation) to operations during the first
quarter of 1997 which reflected the write-off of the in-process technology
acquired.
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.
Page 7 of 10
<PAGE>
Results of Operations
- ---------------------
Three months ended March 31, 1996 and 1997
- ------------------------------------------
Revenue for the three month period ended March 31, 1997 increased by
$85,134, a 23.3% increase from the three month period ended March 31, 1996. The
increase is attributable to an increase of $114,463 in contract and license
revenue and is offset by a $29,329 decrease in research reagent sales volume.
Cost of sales increased by $6,636 during the first three months of 1997, a
20.8% increase as compared to the first three months of 1996.
Research and development expenses increased $858,414 during the first three
months of 1997, a 51.3% increase from the first three months of 1996. The
increase is principally due to higher personnel costs, sponsored research at
Medarex Europe, patent expenses and clinical trial expenses.
General and administrative expenses increased by $248,138 for the first
three months of 1997, a 44.1% increase from the first three months of 1996. The
increase is primarily attributable to Houston Biotechnology, Inc. administration
expense since February 28, 1997 and the Company's higher travel costs,
shareholder relations expenses, insurance expense and bank fees.
Acquisition of in-process technology charges of $10,662,952 reflect the
February 28, 1997 acquisition of Houston Biotechnology, Inc.
Interest and dividend income increased by $170,257 for the first three
months of 1997, a 79.2% increase from the same period in 1996, reflecting a
higher average cash balance.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share, which is required to be adopted on December 31,
1997. At that time, the Company will be required to change the method currently
used to compute earnings per share and to restate all prior periods. The impact
of Statement 128 on the calculation of primary and fully diluted earnings per
share is not expected to be material.
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 develop. 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) Exhibit: None
(b) Reports on Form 8-K:
(1) Form 8-K filed January 2, 1997
re: execution of Definitive Agreement and Plan of Merger for
acquisition of Houston Biotechnology, Incorporated.
(2) Form 8-K filed on March 5, 1997
re: Completion of acquisition of Houston Biotechnology,
Incorporated.
Page 9 of 10
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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: May 9, 1997 By /s/ 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 three months ended March 31, 1997 and is qualified
in its entirety by reference in such statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 6,495,495
<SECURITIES> 21,054,860
<RECEIVABLES> 37,947
<ALLOWANCES> (5,000)
<INVENTORY> 90,963
<CURRENT-ASSETS> 28,375,585
<PP&E> 3,388,636
<DEPRECIATION> (2,077,952)
<TOTAL-ASSETS> 31,955,519
<CURRENT-LIABILITIES> 2,170,614
<BONDS> 0
0
0
<COMMON> 186,556
<OTHER-SE> 74,187,524
<TOTAL-LIABILITY-AND-EQUITY> 31,955,519
<SALES> 50,163
<TOTAL-REVENUES> 450,340
<CGS> 38,485
<TOTAL-COSTS> 3,379,188
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (13,206,634)
<INCOME-TAX> 0
<INCOME-CONTINUING> (13,206,634)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,206,634)
<EPS-PRIMARY> (0.74)
<EPS-DILUTED> 0
</TABLE>
