<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, 1997 Commission File No. 0-19312
------------- ---------------------------
MEDAREX, INC.
-------------
(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 August
11, 1997 was 18,659,475 shares.
Page 1 of 13
<PAGE>
MEDAREX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
----------------- -----------------
1996 1997
(Unaudited)
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 4,958,065 $ 1,377,537
Marketable securities 26,505,269 23,100,410
Trade accounts receivable, less allowance for doubtful
accounts of $5,000 22,677 26,029
Inventory 46,232 78,723
Prepaid expenses 245,787 443,949
Other current assets 766,214 388,483
------------ ------------
Total current assets 32,544,244 25,415,131
Property and equipment:
Machinery and equipment 2,374,996 2,596,227
Furniture and fixtures 164,316 178,120
Leasehold improvements 557,996 704,375
------------ ------------
3,097,308 3,478,722
Less accumulated depreciation and amortization (1,866,470) (2,321,311)
------------ ------------
1,230,838 1,157,411
Investments in, and advances to affiliate 414,777 414,777
Segregated cash 1,260,000 1,260,000
Patents rights and other assets 594,223 574,493
------------ ------------
Total assets $ 36,044,082 $ 28,821,812
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Trade accounts payable $ 170,588 $ 122,053
Accrued liabilities 1,114,598 2,022,288
------------ ------------
Total current liabilities 1,285,186 2,144,341
Long-term obligations 110,404 85,917
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 18,659,475 shares issued and outstanding,
respectively 175,931 186,595
Capital in excess of par value 65,947,081 74,208,808
Unrealized gain on securities 16,743 120,148
Accumulated deficit (31,491,263) (47,923,997)
------------ ------------
Total stockholders' equity 34,648,492 26,591,554
------------ ------------
Total liabilities and stockholders' equity $ 36,044,082 $ 28,821,812
============ ============
</TABLE>
See notes to these unaudited consolidated financial statements.
Page 2 of 13
<PAGE>
MEDAREX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30, June 30, June 30,
1996 1997 1996 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales $ 129,318 $ 106,360 $ 49,826 $ 56,197
Grants, contract and license revenues 1,476,191 821,620 1,190,477 421,443
------------ ------------ ------------ ------------
Total revenues 1,605,509 927,980 1,240,303 477,640
Costs and expenses:
Cost of sales 63,240 77,597 31,391 39,112
Research and development 3,560,709 5,646,279 1,888,743 3,115,899
General and administrative 1,202,147 1,691,893 639,962 881,570
Acquisition of in-process technology - 10,750,465 - 87,513
------------ ------------ ------------ ------------
Operating loss (3,220,587) (17,238,254) (1,319,793) (3,646,454)
Interest and dividend income 582,186 805,519 367,277 420,353
------------ ------------ ------------ ------------
Net loss $ (2,638,401) $(16,432,735) $ (952,516) $ (3,226,101)
============ ============ ============ ============
Net loss per share ($ 0.20) ($ 0.90) ($ 0.07) ($ 0.17)
============ ============ ============ ============
Weighted-average number of common
shares outstanding during the period 13,216,168 18,312,504 14,573,228 18,658,032
</TABLE>
See notes to these unaudited consolidated financial statements.
Page 3 of 13
<PAGE>
MEDAREX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
--------
1996 1997
---- ----
<S> <C> <C>
Operating activities:
Net loss $ (2,638,401) $(16,432,735)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 185,009 259,441
Amortization 70,215 230,106
Issue of common stock for technology 612,500 -
Gain on sale of equipment - (215)
Write-off of in-process technology - 10,750,465
Changes in operating assets and liabilities, net of acquisition:
Decrease (increase) in trade accounts receivable, net 31,360 (3,352)
Decrease (increase) in inventory 3,624 (32,491)
Increase (decrease) in prepaid expenses and other
current assets (586,371) 183,650
Increase (decrease) in trade accounts payable 113,222 (336,717)
Increase (decrease) in accrued liabilities 813,483 (339,591)
Decrease in deferred contract revenue (476,191) -
------------- -------------
Net cash used in operating activities (1,871,550) (5,721,439)
Investing activities:
Purchase of property and equipment (118,546) (139,500)
Cash portion of Houston Biotechnology Incorporated
acquisition, net of cash acquired - (1,371,839)
Decrease (increase) in other assets (612,500) 7,407
Increase in advances to affiliate (90,293) -
Proceeds from sale of equipment - 5,000
Purchase of marketable securities (11,747,411) -
Sale of marketable securities - 3,508,264
------------- -------------
Net cash (used in) provided by investing activities (12,568,750) 2,009,332
Financing activities:
Cash received from sales of securities, net 23,151,033 153,835
Principal payments under debt obligations (10,722) (22,256)
------------- -------------
Net cash provided by financing activities 23,140,311 131,579
------------- -------------
Net increase (decrease) in cash and cash equivalents 8,700,011 (3,580,528)
Cash and cash equivalents at beginning of period 3,540,759 4,958,065
------------- -------------
Cash and cash equivalents at end of period $ 12,240,770 $ 1,377,537
============= =============
Non-cash 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 $ 2,784 $ 12,429
============= =============
</TABLE>
See notes to these unaudited consolidated financial statements.
Page 4 of 13
<PAGE>
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 13
<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. 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 of approximately $7,600,000 consisted of
1,026,245 shares of Medarex common stock (valued at $7.375). The Company also
assumed approximately 830,000 Houston options and warrants (valued at
approximately $550,000) and assumed certain liabilities in excess of assets
acquired (valued at approximately $1,080,000). The transaction was treated as a
purchase for accounting purposes and the Company charged $10,750,465 (based on
an independent valuation) to operations during the first six months of 1997
which reflected the write-off of the in-process technology acquired. The pro
forma unaudited results of operations for the six months ended June 30, 1996 and
1997, assuming the consummation of the purchase on January 1, 1996, are as
follows:
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1996 1997
------------ ------------
<S> <C> <C>
Total revenue $2,252,390 $1,152,980
Net loss (3,105,644) (16,674,381)
Net loss per share $(0.22) $(0.90)
</TABLE>
7. RECENT DEVELOPMENTS
On May 6, 1997, the Company announced that it has signed a definitive
agreement to acquire GenPharm International, Inc. ("GenPharm"), for up to
$62,725,000 in Medarex Common Stock (the "Merger"). In addition, in connection
with the acquisition, Medarex has agreed to pay a stock bonus to certain
employees of GenPharm in an amount up to $2,275,000 payable in shares of
Medarex Common Stock. Through this acquisition, Medarex will expand its business
and technology base to include GenPharm's patented HuMab-MouseTM, an antibody
discovery platform that complements Medarex's patented Bispecific antibody
technology. In addition, Medarex expects to receive cash of up to $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 "Third Party
Payments"). It is anticipated that a significant portion of the purchase price
will be written off as in-process technology.
Page 6 of 13
<PAGE>
7. RECENT DEVELOPMENTS (con't)
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 Third Party Payments. In the event any of
the Third Party 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 Third Party Payment and (2) December 31, 1999.
GenPharm, a privately held biopharmaceutical company, is engaged 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.
Medarex has filed a Registration Statement on Form S-4 covering the shares of
Medarex Common Stock to be issued in connection with the Merger.
These consolidated financial statements do not reflect the impact of this
agreement.
Page 7 of 13
<PAGE>
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 represents
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 $24.5 million in cash, cash equivalents and
marketable securities and approximately $1.3 million in a segregated cash
account as of June 30, 1997. Operating activities consumed $5.7 million of cash
for the six month period ended June 30, 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 June 30, 1997, the Company had
commitments for approximately $2.4 million 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.
Page 8 of 13
<PAGE>
Results of Operations
- ---------------------
Six months ended June 30, 1996 and 1997
- ---------------------------------------
Revenue for the six month period ended June 30, 1997 decreased by $678,000,
a 42% decrease from the six month period ended June 30, 1996. The decrease is
principally due to the collaborative agreement with Centeon, L.L.C. ("Centeon")
which generated an upfront fee of $1.0 million and Novartis, Inc. ("Novartis")
revenues of $471,000 in the second quarter of 1996. The decrease was partially
offset by $340,000 of revenue from Santen Pharmaceuticals Co., Ltd. ("Santen"),
Centeon revenues of $295,000 and $187,000 in Small Business Innovation Research
("SBIR") grants.
Cost of sales increased $14,000 during the first six months of 1997, a 23%
increase from the comparable period in 1996. The increase reflects higher
depreciation and supply expenses.
Research and development expenses increased $2.1 million during the first
six months of 1997, a 59% increase from the first six months of 1996. The
increase is principally due to higher personnel costs, sponsored research at
Medarex Europe and clinical trial expenses.
General and administrative expenses increased by $490,000 for the first six
months of 1997, a 41% increase from the first six months of 1996. The increase
is primarily attributable to Houston Biotechnology, Incorporated ("HBI")
administrative expenses since February 28, 1997 and the Company's higher travel
costs, professional fees, shareholder relation expenses and bank fees.
Acquisition of in-process technology charges of $10.8 million reflect the
February 28, 1997 acquisition of HBI.
Interest and dividend income increased by $223,000 for the first six months
of 1997, a 38% increase from the same period in 1996, reflecting a higher
average cash balance.
Three months ended June 30, 1996 and 1997
- -----------------------------------------
Revenue for the three month period ended June 30, 1997 decreased by
$763,000, a 62% decrease from the three month period ended June 30, 1996. The
decrease is principally due to the collaboration with Centeon which generated an
upfront fee of $1.0 million and Novartis revenues of $190,000 in the second
quarter of 1996. The decrease was partially offset by $220,000 of revenue from
Santen, $109,000 in SBIR grants and $97,000 from Centeon.
Cost of sales increased by $8,000 during the three months ending 1997, a
25% increase as compared to the first three months of 1996. The increase
reflects higher supply and rent expenses.
Research and development expenses increased $1.2 million during the three
months ending June 30, 1997, a 65% increase from the same period of 1996. The
increase is primarily attributable to increased activity associated with human
clinical trials and converting the laboratory to Phase III manufacturing, which
resulted in higher personnel costs, clinical trial expenses, rent expenses and
supplies. Additionally, sponsored research increased with the creation of
Medarex Europe in late 1996.
General and administrative expenses increased by $242,000 for the three
month period ending June 30, 1997, a 38% increase from the same period of 1996.
The increase is primarily attributable to HBI administrative expenses and the
Company's higher personnel costs, shareholder relations expenses, insurance
expense and bank fees.
Page 9 of 13
<PAGE>
Interest and dividend income increased by $53,000 for the three months
ended June 30, 1997, a 15% 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 10 of 13
<PAGE>
Part II - Other Information
ITEM 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Stockholders held on May 15, 1997, the Company elected
three Class I Directors each to serve for a term to expire in 2000, voted to
approve the adoption of the Medarex 1997 Stock Option Plan and voted to confirm
the appointment of Ernst & Young LLP as independent auditors for the 1997 fiscal
year. Out of the 18,655,511 eligible votes, 12,843,833 votes were cast at the
meeting either by proxies solicited in accordance with Schedule 14A or by
securities holders voting in person. There were 5,814,678 broker non-votes which
are not included in the following table as they were not treated as being
present at the meeting. In the case of directors, abstentions are treated as
votes withheld and are included in the table. The tabulation of votes for each
nominee is set forth under Item No. 1 below, the adoption of the Medarex 1997
Stock Option Plan is set forth under Item No. 2 below and the appointment of
Ernst & Young LLP as independent auditors for the 1997 fiscal year is set forth
in Item No. 3 below:
Item No. 1
- ----------
Nominees for Directors
- ----------------------
Directors Votes For Votes Withheld
--------------------- ---------------- --------------------
Charles R. Schaller 12,763,848 76,985
Donald L. Drakeman 12,767,361 73,472
Robert Iggulden 12,761,591 79,242
The following persons are incumbent directors whose terms of office continue
after the Annual Meeting:
Terms Expiring in 1998 Terms Expiring in 1999
---------------------- ----------------------
Julius A. Vida Michael A. Appelbaum
Irwin Lerner Michael W. Fanger
W. Leigh Thompson
Item No. 2
- ----------
Adoption of the Medarex 1997 Stock Option Plan:
FOR AGAINST ABSTAIN
--- ------- -------
11,825,240 976,255 39,288
Item No. 3
- ----------
Appointment of Ernst & Young LLP as Independent Auditors for the 1997 fiscal
year:
FOR AGAINST ABSTAIN
--- ------- -------
12,773,284 45,190 22,359
Page 11 of 13
<PAGE>
Part II - Other Information (con't)
ITEM 6. Exhibits and reports on Form 8-K
(a) Exhibit: None
(b) Reports on Form 8-K
(1) Form 8-K filed on May 12, 1997
re: execution of Definitive Agreement and Plan of Merger for
Acquisition of GenPharm International, Inc.
(2) For 8-K filed on June 17, 1997
re: execution of Amended and Restated Agreement and Plan of
Merger for Acquisition of GenPharm International, Inc.
Page 12 of 13
<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.
-------------
(Registrant)
Date: August 11, 1997 By /s/ Michael A. Appelbaum
------------------------
Michael A. Appelbaum
Senior Vice President
Finance and Administration
(Principal Financial and
Accounting Officer)
Page 13 of 13
<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, 1997 and is
qualified in its entirety by reference in such statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,377,537
<SECURITIES> 23,100,410
<RECEIVABLES> 31,029
<ALLOWANCES> (5,000)
<INVENTORY> 78,723
<CURRENT-ASSETS> 25,415,131
<PP&E> 3,478,722
<DEPRECIATION> (2,321,311)
<TOTAL-ASSETS> 28,821,812
<CURRENT-LIABILITIES> 2,144,341
<BONDS> 0
0
0
<COMMON> 186,595
<OTHER-SE> 74,208,808
<TOTAL-LIABILITY-AND-EQUITY> 28,821,812
<SALES> 106,360
<TOTAL-REVENUES> 927,980
<CGS> 77,597
<TOTAL-COSTS> 7,415,769
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (16,432,735)
<INCOME-TAX> 0
<INCOME-CONTINUING> (16,432,735)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (16,432,735)
<EPS-PRIMARY> (0.90)
<EPS-DILUTED> (0.90)
</TABLE>
