<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, 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 October
31, 1997 was 20,659,475 shares.
Page 1 of 13
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<TABLE>
<CAPTION>
MEDAREX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, September 30,
-------------- --------------
1996 1997
(Unaudited)
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 4,958,065 $ 1,748,251
Marketable securities 26,505,269 19,383,209
Trade accounts receivable, less allowance for doubtful
accounts of $5,000 22,677 37,246
Inventory 46,232 44,139
Prepaid expenses 245,787 741,560
Other current assets 766,214 892,146
-------------- --------------
Total current assets 32,544,244 22,846,551
Property and equipment:
Machinery and equipment 2,374,996 2,663,832
Furniture and fixtures 164,316 180,240
Leasehold improvements 557,996 1,191,707
-------------- --------------
3,097,308 4,035,779
Less accumulated depreciation and amortization (1,866,470) (2,486,310)
-------------- --------------
1,230,838 1,549,469
Investments in, and advances to affiliate 414,777 414,777
Segregated cash 1,260,000 1,260,000
Patents rights and other assets 594,223 563,744
-------------- --------------
Total assets $ 36,044,082 $ 26,634,541
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Trade accounts payable $ 170,588 $ 171,871
Accrued liabilities 1,114,598 2,189,874
------------ ------------
Total current liabilities 1,285,186 2,361,745
Long-term obligations 110,404 117,985
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 16,743 345,466
Accumulated deficit (31,491,263) (50,586,058)
-------------- --------------
Total stockholders' equity 34,648,492 24,154,811
-------------- --------------
Total liabilities and stockholders' equity $ 36,044,082 $ 26,634,541
============== ==============
</TABLE>
See notes to these unaudited consolidated financial statements.
Page 2 of 13
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<TABLE>
<CAPTION>
MEDAREX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Nine Months Ended Three Months Ended
September 30, September 30, September 30, September 30,
1996 1997 1996 1997
-------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Sales $ 210,468 $ 160,827 $ 81,150 $ 54,467
Grants, contract and license revenues 1,551,191 1,787,966 75,000 966,346
-------------- ------------- -------------- --------------
Total revenues 1,761,659 1,948,793 156,150 1,020,813
Costs and expenses:
Cost of sales 99,839 116,173 36,599 38,576
Research and development 5,559,690 8,994,772 1,998,981 3,348,493
General and administrative 1,862,846 2,417,460 660,700 725,567
Acquisition of in-process technology - 10,750,465 - -
-------------- ------------- -------------- --------------
Operating loss (5,760,716) (20,330,077) (2,540,130) (3,091,823)
Interest and dividend income 1,086,545 1,235,281 504,359 429,762
-------------- ------------- -------------- --------------
Net loss $ (4,674,171) $(19,094,796) $ (2,035,771) $ (2,662,061)
============== ============= ============== ==============
Net loss per share ($0.32) ($1.04) ($0.12) ($0.14)
============== ============= ============== ==============
Weighted-average number of common
shares outstanding during the period 14,515,314 18,429,432 17,085,364 18,659,475
</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 Nine Months Ended
September 30,
-------------
1996 1997
---- ----
<S> <C> <C>
Operating activities:
Net loss $ (4,674,171) $(19,094,796)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 267,383 440,126
Amortization 115,883 225,169
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 37,462 (14,569)
Decrease in inventory 10,921 2,093
Increase in prepaid expenses and other
current assets (373,350) (617,624)
Decrease in trade accounts payable (8,163) (286,899)
Decrease in accrued liabilities (136,051) (101,874)
Decrease in deferred contract revenue (476,191) --
------------ ------------
Net cash used in operating activities (5,236,277) (8,698,124)
Investing activities:
Purchase of property and equipment (322,983) (696,557)
Cash portion of Houston Biotechnology Incorporated
acquisition, net of cash acquired -- (1,371,839)
Decrease in other assets -- 7,407
Increase in advances to affiliate (90,293) --
Proceeds from sale of equipment -- 5,000
Purchase of marketable securities (1,408,532) --
Sales of marketable securities -- 7,450,783
------------ ------------
Net cash (used in) provided by investing activities (1,821,808) 5,394,794
Financing activities:
Cash received from sales of securities, net 23,435,114 153,835
Proceeds from long term debt 110,160 15,365
Principal payments under debt obligations (14,674) (75,684)
------------ ------------
Net cash provided by financing activities 23,530,600 93,516
------------ ------------
Net increase (decrease) in cash and cash equivalents 16,472,515 (3,209,814)
Cash and cash equivalents at beginning of period 3,540,759 4,958,065
------------ ------------
Cash and cash equivalents at end of period $ 20,013,274 $ 1,748,251
============ ============
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 $ 19,470
============ ============
</TABLE>
See notes to these unaudited consolidated financial statements.
Page 4 of 13
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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 13
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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 OF HOUSTON BIOTECHNOLOGY INCORPORATED
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 nine months ended September 30,
1996 and 1997, assuming the consummation of the purchase took place on January
1, 1996, are as follows:
Nine Months Ended
September 30,
1996 1997
-------------------- --------------------
Total revenue $2,771,200 $2,175,679
Net loss (5,307,364) (19,336,462)
Net loss per share $(0.34) $(1.04)
7. SUBSEQUENT EVENT
On October 21, 1997, the Company acquired GenPharm International, Inc.
("GenPharm"), a privately held biopharmaceutical company engaged in the
development of transgenic mice for the creation of fully human monoclonal
antibodies. Medarex will pay GenPharm shareholders up to $62,725,000. In
addition, Medarex will pay a stock bonus to certain employees of GenPharm
in an amount up to $2,275,000 payable in common stock. As payment of a portion
of the purchase price of the acquisition, Medarex will issue approximately 3.5
million shares of common stock to GenPharm's shareholders in 1997. These shares
will be subject to certain "lock-up" restrictions until the end of 1998.
However, these shares can be sold through an offering managed by a placement
agent of Medarex's choice prior to December 31, 1997. At the end of 1998,
Medarex will issue additional shares of common stock, or cash at its option to
cover any remaining balance of the purchase price. Certain of the additional
shares will only be due to the extent that GenPharm has received certain patent
license fees and related payments due from third parties. It is anticipated that
a significant portion of the purchase price will be written off as in-process
technology.
6 of 13
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7. SUBSEQUENT EVENT (CON'T)
As part of the acquisition, 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 the certain patent license fees and related payments from third
parties.
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
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 $21.1 million in cash, cash equivalents
and marketable securities and approximately $1.3 million in a segregated cash
account as of September 30, 1997. Operating activities consumed $8.7 million of
cash for the nine month period ended September 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 18 months.
The Company leases 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 September 30, 1997, the Company had
commitments for approximately $1.8 million of capital expenditures.
On October 21, 1997, the Company acquired GenPharm International, Inc.
("GenPharm"), a privately held biopharmaceutical company engaged in the
development of transgenic mice for the creation of fully human monoclonal
antibodies. Medarex will pay GenPharm shareholders up to $62,725,000. In
addition, Medarex will pay a stock bonus to certain employees of GenPharm
in an amount up to $2,275,000 payable in common stock. As payment of a portion
of the purchase price of the acquisition, Medarex will issue approximately 3.5
million shares of common stock to GenPharm's shareholders in 1997. These shares
will be subject to certain "lock-up" restrictions until the end of 1998.
However, these shares can be sold through an offering managed by a placement
agent of Medarex's choice prior to December 31, 1997. At the end of 1998,
Medarex will issue additional shares of common stock, or cash at its option to
cover any remaining balance of the purchase price. Certain of the additional
shares will only be due to the extent that GenPharm has received certain patent
license fees and related payments due from third parties. It is anticipated that
a significant portion of the purchase price will be written off as in-process
technology.
As part of the GenPharm acquisition, 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 the certain patent license fees and related payments from third
parties.
Page 8 of 13
<PAGE>
Liquidity and Capital Resources(con't)
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 9 of 13
<PAGE>
Results of Operations
- ----------------------
Nine months ended September 30, 1996 and 1997
- ---------------------------------------------
Revenues for the nine month period ended September 30, 1997 increased by
$187,000, an 11% increase from the nine month period ended September 30, 1996.
The increase is principally due to $640,000 of revenue received from Santen
Pharmaceuticals Co., Ltd. ("Santen"), $695,000 of revenue from Centeon, L.L.C.,
("Centeon") and $187,000 in Small Business Innovation Research ("SBIR") grants.
1996 revenues include the collaborative agreement with Centeon which generated
an upfront fee of $1.0 million, Centeon research funding of $75,000, as well as
revenues of $476,000 received from Novartis Inc. ("Novartis").
Cost of sales increased $16,000 during the first nine months of 1997, a
16% increase from the comparable period in 1996. The increase reflects higher
depreciation and supply expenses.
Research and development expenses increased $3.4 million during the
first nine months of 1997, a 62% increase from the first nine months of 1996.
The increase is principally due to increased research cost as the result of the
February 28, 1997 acquisition of Houston Biotechnology, Incorporated ("HBI"),
higher personnel costs, clinical trial expenses and sponsored research at
Medarex Europe.
General and administrative expenses increased by $555,000 for the first
nine months of 1997, a 30% increase from the first nine months of 1996. The
increase is primarily attributable to increased administrative expense as the
result of the HBI acquisition and the Company's higher travel costs,
professional fees and shareholder relation expenses.
Acquisition of in-process technology charges of $10.8 million relates to
the February 28, 1997 acquisition of HBI.
Interest and dividend income increased by $149,000 for the first nine
months of 1997, a 14% increase from the same period in 1996, reflecting a higher
average cash balance.
Three months ended September 30, 1996 and 1997
- -----------------------------------------------
Revenues for the three month period ended September 30, 1997 increased
by $865,000, a 554% increase from the three month period ended September 30,
1996. The increase is principally due to $326,000 of revenue from the
collaboration with Centeon, $300,000 from Santen and $242,000 from Northwest
Clinicals.
Cost of sales increased by $2,000 during the three months ending 1997, a
5% increase as compared to the same three months of 1996. The increase reflects
higher labor costs and shipping expenses.
Research and development expenses increased $1.3 million during the
three months ending September 30, 1997, a 68% increase from the same period of
1996. The increase is primarily attributable to increased research cost
resulting from the HBI acquisition, higher personnel costs, clinical trial
expenses and supplies as a result of increased activities associated with human
clinical trials and expenses incurred in connection with an upgrade of the
Company's clinical trials production facilities in anticipation of Phase III
clinical trials. Additionally, sponsored research increased with the creation of
Medarex Europe in late 1996.
Page 10 of 13
<PAGE>
General and administrative expenses increased by $65,000 for the three
month period ending September 30, 1997, a 10% increase from the same period of
1996. The increase is primarily attributable to higher personnel costs, travel
expenses and shareholder relations expenses.
Interest and dividend income decreased by $75,000 for the three months
ended September 30, 1997, a 15% decrease from the same period in 1996,
reflecting a lower average cash balances.
In February 1997, the Financial Accounting Standards Board ("FASB")
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.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" ("SFAS No. 130"). SFAS No. 130 establishes standards for the reporting
and display of comprehensive income and its components and applies to all
enterprises. SFAS No. 130 is effective for financial statements for fiscal years
beginning after December 15, 1997. The adoption of SFAS No. 130 will have no
impact on the Company's consolidated results of operations, financial position
or cash flows.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information" ("SFAS No. 131"). SFAS No. 131
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports issued to shareholders. It also establishes standards
for related disclosures about products and services, geographic areas, and major
customers. SFAS No. 131 is effective for financial statements for fiscal years
beginning after December 15, 1997. The adoption of SFAS 131 will have no impact
on the Company's consolidated results of operations, financial position or cash
flows.
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 continue over the next
several years as the Company expands its clinical trials and product development
efforts.
Page 11 of 13
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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: None
Page 12 of 13
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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.
-------------
(Registrant)
Date: November 4, 1997 By /s/ Michael A. Appelbaum
---------------------------
Michael A. Appelbaum
Executive 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 nine months ended September 30, 1997 and
is qualified in its entirety by reference in such statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,748,251
<SECURITIES> 19,383,209
<RECEIVABLES> 42,246
<ALLOWANCES> (5,000)
<INVENTORY> 44,139
<CURRENT-ASSETS> 22,846,551
<PP&E> 4,035,779
<DEPRECIATION> (2,486,310)
<TOTAL-ASSETS> 26,634,541
<CURRENT-LIABILITIES> 2,361,745
<BONDS> 0
0
0
<COMMON> 186,595
<OTHER-SE> 74,208,808
<TOTAL-LIABILITY-AND-EQUITY> 26,634,541
<SALES> 160,827
<TOTAL-REVENUES> 1,948,793
<CGS> 116,173
<TOTAL-COSTS> 11,528,405
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (19,094,796)
<INCOME-TAX> 0
<INCOME-CONTINUING> (19,094,796)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (19,094,796)
<EPS-PRIMARY> (1.04)
<EPS-DILUTED> (1.04)
</TABLE>
