<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, 1998 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 November
9, 1998 was 31,577,522 shares.
Page 1 of 14
<PAGE>
MEDAREX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
December 31, September 30,
---------------- -----------------
1997 1998
(Unaudited)
ASSETS
- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,723 $ 6,735
Marketable securities 21,721 22,897
Note receivable 15,000 -
Trade accounts receivable, less allowance for doubtful
accounts of $5 25 24
Other receivable - 7,500
Inventory 44 723
Prepaid expenses and
other current assets 1,042 1,694
---------------------------------------
Total current assets 44,555 39,573
Property and equipment:
Machinery and equipment 3,191 4,310
Furniture and fixtures 210 272
Leasehold improvements 2,030 2,248
---------------------------------------
5,431 6,830
Less accumulated depreciation and (2,573) (3,451)
amortization
---------------------------------------
2,858 3,379
Investments in, and advances to affiliates 415 515
Segregated cash 315 675
Patent rights and other assets 552 521
---------------------------------------
Total assets $ 48,695 44,663
=======================================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ---------------------------------------------
Current liabilities:
Trade accounts payable $ 382 $ 343
Accrued liabilities 8,101 3,735
GenPharm acquisition liability 34,424 -
--------------- ------------
Total current liabilities 42,907 4,078
Long-term obligations 107 71
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;
21,922,186 and 31,066,013 shares issued and outstanding,
respectively 219 311
Capital in excess of par value 92,142 142,759
Accumulated other comprehensive income 188 82
Accumulated deficit (86,868) (102,638)
---------------------------------------
Total stockholders' equity 5,681 40,514
---------------------------------------
Total liabilities and stockholders' equity $ 48,695 $ 44,663
=======================================
</TABLE>
See notes to these unaudited consolidated financial statements.
Page 2 of 14
<PAGE>
MEDAREX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except share data)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30, September 30, September 30,
1997 1998 1997 1998
--------------- ----------------- ------------- ----------------
<S> <C> <C> <C> <C>
Sales $ 161 $ 574 $ 55 $ 53
Grants, contract and license revenues 1,788 4,086 966 1,203
--------------- ----------------- ------------- ----------------
Total revenues 1,949 4,660 1,021 1,256
Costs and expenses:
Cost of sales 116 472 39 25
Research and development 8,995 16,106 3,349 5,156
General and administrative 2,418 3,619 725 1,415
Acquisition of in-process technology 10,750 - - -
--------------- ----------------- ------------- ----------------
Operating loss (20,330) (15,537) (3,092) (5,340)
Interest and dividend income 1,255 1,640 441 440
Interest expense (20) (1,531) (11) (322)
--------------- ----------------- ------------- ----------------
Pre tax loss (19,095) (15,428) (2,662) (5,222)
Provision for income taxes - (342) - (342)
--------------- ----------------- ------------- ----------------
Net loss $ (19,095) $ (15,770) $ (2,662) $ (5,564)
=============== ================= ============= ================
Basic and diluted net loss per share ($1.04) ($0.67) ($0.14) ($0.22)
=============== ================= ============= ================
Weighted-average number of common
shares outstanding during the
period - basic and diluted 18,429,432 23,405,584 18,659,475 25,815,038
</TABLE>
See notes to these unaudited consolidated
financial statements.
Page 3 of 14
<PAGE>
MEDAREX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
-----------------------
1997 1998
-------- --------
<S> <C> <C>
Operating activities:
Net loss $(19,095) $(15,770)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 440 573
Amortization 225 336
Non cash interest expense - 1,521
Write-off of in-process technology 10,750 -
Changes in operating assets and liabilities, net of acquisition:
(Increase) decrease in trade accounts receivable, net (14) 1
Decrease (increase) in inventory 2 (679)
Increase in prepaid expenses and other
current assets (617) (652)
Decrease in trade accounts payable (287) (39)
Decrease in accrued liabilities (102) (1,935)
-------- --------
Net cash used in operating activities (8,698) (16,644)
Investing activities:
Purchase of property and equipment (696) (1,399)
Cash portion of Houston Biotechnology, Incorporated
acquisition, net of cash acquired (1,372) -
Decrease in note receivable - 15,000
Decrease (increase) in other assets 7 (360)
Increase in advances to affiliate - (100)
Proceeds from sale of equipment 5 -
Purchase of marketable securities - (20,757)
Sale of marketable securities 7,451 19,475
-------- --------
Net cash provided by investing activities 5,395 11,859
Financing activities:
Cash received from sales of securities, net 154 4,992
Proceeds from long term debt 15 -
Principal payments under debt obligations (76) (195)
-------- --------
Net cash provided by financing activities 93 4,797
-------- --------
Net decrease (increase) in cash and cash equivalents (3,210) 12
Cash and cash equivalents at beginning of period 4,958 6,723
-------- --------
Cash and cash equivalents at end of period $ 1,748 $ 6,735
======== ========
Supplemental disclosures of cash flow information
Cash paid during period for:
Income taxes $ - $ 983
======== ========
Interest $ 19 $ 10
======== ========
See notes to these unaudited consolidated financial statements.
</TABLE>
Page 4 of 14
<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, 1997.
2. NET LOSS PER COMMON SHARE
During the fourth quarter of 1997, the Company adopted Statement of
Financial Accounting Standards No. 128 "Earnings Per Share" (SFAS 128), which
specifies the method of computation, presentation and disclosure for earnings
per share ("EPS"). SFAS 128 requires the presentation of two EPS amounts, basic
and diluted. Basic earnings per share excludes any dilutive effects of options,
warrants and convertible securities. Diluted earnings per share is very similar
to the previously reported fully diluted earnings per share. Basic net loss per
share is based upon the weighted average Common Stock outstanding during each
period.
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. REPORTING COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS 130). SFAS
130 establishes new rules for the reporting and display of comprehensive income
and its components. The adoption of SFAS 130 had no impact on the Company's
results of operations or stockholders' equity. SFAS 130 requires unrealized
gains or losses on the Company's available-for-sale securities, which prior to
adoption were reported separately in stockholders' equity to be included in
other comprehensive income. The components of comprehensive income (loss) for
the three and nine-month periods ended September 30, are as follows:
<TABLE>
<CAPTION>
Nine months ended September 30, Three months ended September 30,
(In thousands) 1997 1998 1997 1998
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net Loss $(19,095) $(15,770) $(2,662) $(5,564)
Unrealized gain (loss) on securities 329 (106) 225 6
--------- --------- -------- --------
Total comprehensive loss $(18,766) $(15,876) $(2,437) $(5,558)
</TABLE>
Page 5 of 14
<PAGE>
5. INVENTORY
Inventory consists primarily of antibodies to be sold to the research
community and to licensees pursuant to licensing arrangements for use in human
clinical testing of the Company's products and is stated at the lower of cost or
market with cost determined on a first-in-first-out basis.
6. Contingencies
In connection with the merger of the Company and Essex Medical Products,
Inc., the Company 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.
7. ACQUISITIONS
On February 28, 1997, the Company completed its acquisition of Houston
Biotechnology, Incorporated ("HBI"), a biotechnology company located in Houston,
Texas, involved in the development of monoclonal antibody and other
biopharmaceutical products to prevent secondary cataracts and to treat glaucoma,
disorders that impair or destroy human vision. The transaction was treated as a
purchase for accounting purposes, and accordingly, the assets and liabilities
assumed have been recorded at their estimated fair market values at the date of
acquisition. Since technological feasibility of the in-process research and
development costs have not yet been established and the technology had no
alternative future use at the acquisition date, the in-process research and
development costs were immediately written-off and included in the results of
operations as a non-recurring charge for the nine months ended September 30,
1997.
The results of operations for the HBI acquisition were included in the
September 30, 1997 statement of operations from the date of acquisition.
On October 21, 1997, the Company acquired all of the assets and liabilities
of GenPharm International, Inc. ("GenPharm"), a privately held biopharmaceutical
company located in Palo Alto, California, engaged in the development of
transgenic mice for the creation of fully human monoclonal antibodies (the
"GenPharm Merger"). The Company agreed to pay GenPharm shareholders up to
$62,725,000 (the "Purchase Price"), payable in shares of the Company's Common
Stock. The Purchase Price was subsequently reduced by approximately $500,000
pursuant to certain adjustments provided for in the GenPharm Merger. The
transaction was treated as a purchase for accounting purposes and since the
technological feasibility of the in-process research and development costs have
not yet been established and the technology had no alternative future use at the
acquisition date, the in-process research and development costs were immediately
written off and included in the results of operations as a non-recurring charge
for the year ended December 31, 1997. In addition, in connection with the
GenPharm Merger, the Company agreed to pay a stock bonus to certain employees of
GenPharm in an amount up to $2,275,000 payable in Common Stock. In January 1998
and September 1998, $1,187,500 and $1,085,000, respectively, of the stock
bonuses were paid through the issuance of 250,000 and 215,278 shares of the
Company's Common Stock, respectively.
Page 6 of 14
<PAGE>
7. ACQUISITIONS (CON'T)
During 1997 the Company issued 3,250,000 shares of its Common Stock as
payment of $17,793,750 of the Purchase Price. In June, 1998 the Company recorded
an additional $7.5 million receivable and a corresponding $7.5 million
liability which represents the notice of issuance of a patent that will result
in a milestone payment to the Company in the fourth quarter of 1998. On August
4, 1998, certain of the former GenPharm shareholders assigned their rights to
receive $25,122,670 of the remaining balance of the purchase price to BCC
Acquisition I LLC ("BCC"), a limited liability company formed between The Bay
City Capital Fund I, L.P., an affiliate of Bay City Capital LLC and various
affiliates of BCC. As part of this transaction, the Company issued 3,721,877
shares of Common Stock and Warrants to purchase 454,726 shares of common stock
at an exercise price of $10.00 per share exercisable over a period of seven (7)
years to BCC in exchange for such rights. On September 1, 1998, the Company
prepaid the remaining balance of the purchase price owed to the GenPharm
shareholders ($19,289,830) by issuing 3,829,315 shares of Common Stock, valued
at $5.04 per share.
The pro-forma unaudited results of operations for the nine months ended
September 30, 1997 assuming the acquisitions of HBI and GenPharm took place at
the beginning of the period presented, are as follows:
Nine Months Ended
(In thousands except per share data) September 30, 1997
--------------------
Total revenue $ 4,561
Net loss (8,585)
Basic net loss per share $ (0.47)
The pro-forma information for the nine months ended September 30, 1997 does
not include cross license settlement income of $22,500,000, related litigation
fees and expenses of $4,727,000 or the write-off of in-process technology of
$10,750,000 which are not expected to recur in the future. The pro-forma
unaudited financial results are not necessarily indicative of the results of
operations that would have occurred had the HBI and GenPharm acquisitions taken
place at the beginning of the periods presented nor are they intended to be
indicative of results that may occur in the future.
8. RECENT DEVELOPMENTS
On August 27, 1998, the Company received a $1.2 million milestone payment
from Merck KGaA of Darmstadt, Germany, in exchange for 192,000 shares of the
Company's Common stock (the "Merck Shares"). The milestone payment was
triggered by clinical development progress of MDX-447, an anti-cancer treatment
developed jointly with Merck KGaA. MDX-447 is entering Phase II trials of the
treatment of head and neck cancer.
On September 30, 1998, Centocor, Inc. exercised its option to obtain
exclusive commercial licenses to fully human antibodies to four antigens created
by the Company's HuMAb-Mouse technology by purchasing 900,340 shares of the
Company's Common Stock (the "Centocor Shares") for an aggregate purchase price
of $4 million.
On November 9, 1998, the Company announced a global licensing arrangement
with Novartis Pharma AG ("Novartis") involving Medarex's HuMAb-Mouse technology.
Under the terms of the agreement, Novartis obtains the rights to use the HuMAb-
Mouse technology throughout the entire Novartis organization for an unlimited
number of targets for up to ten years.
The agreement provides for potential HuMAb-Mouse technology access fees,
license fees and milestone payments which could exceed $50 million, exclusive of
royalties. Novartis made initial payments of $2 million, in the form of an
equity purchase. An additional $1 million equity investment will be made on the
first anniversary of the agreement. A further $3 million in equity purchase may
be made after the initial five year term of the agreement.
Page 7 of 14
<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
The Company's projections, estimates, expectations or beliefs concerning among
other things, financial items that relate to management's future plans or
objectives or to the Company'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 the Company's periodic reports and registration
statements filed with the Securities and Exchange Commission.
Liquidity and Capital Resources
- -------------------------------
The Company had approximately $29.6 million in cash, cash equivalents and
marketable securities and approximately $0.7 million in a segregated cash
account as of September 30, 1998. Operating activities consumed $16.6 million
of cash for the nine-month period ended September 30, 1998.
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. This assumption
is based on the collection of a patent milestone payment of $7.5 million due in
the fourth quarter of 1998. Although the Company believes that this payment
will be received (and the Company has previously received timely payments of
sums due from the party obligated to make such payments), no assurance can be
given that the Company will receive such payment. Failure to receive such
payment could have a material adverse effect on the Company's financial
condition.
Page 8 of 14
<PAGE>
Liquidity and Capital Resources (con't)
- ---------------------------------------
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. This lease runs through September 30,
2003. On January 8, 1998, the Company signed a lease for laboratory and office
space in San Jose, California. This lease runs through December 2001. The
minimum combined lease commitments for both facilities range between $1,400,000
and $2,100,000 per year and the aggregate future minimum lease commitments over
the remainder of the lease terms are approximately $10,000,000. As of September
30, 1998, the Company had commitments for approximately $160,000 of capital
expenditures.
On October 21, 1997, the Company consummated the acquisition of GenPharm
International, Inc. ("GenPharm"), resulting in GenPharm becoming a wholly owned
subsidiary of the Company (the "Merger"). Pursuant to the Merger, the Company
issued shares of its Common Stock having a value of $62,206,250 in payment of
the purchase price as adjusted in accordance with the terms of the Merger (the
"Purchase Price"), in exchange for all of the outstanding shares of GenPharm
capital stock. The transaction was treated as a purchase for accounting
purposes.
During 1997 the Company issued 3,250,000 shares of its Common Stock as
payment of $17,793,750 of the Purchase Price. On August 4, 1998, the Company
issued 3,721,877 shares of its Common Stock as payment of an additional
$25,122,670 of the Purchase Price. On September 1, 1998, the Company prepaid the
remaining balance of the purchase price owed to the GenPharm shareholders
($19,289,830) by issuing approximately 3,829,315 shares of its Common Stock,
valued at $5.04 per share.
On August 27, 1998, the Company received a $1.2 million milestone payment
from Merck KGaA of Darmstadt, Germany, in exchange for 192,000 shares of the
Company's Common stock (the "Merck Shares"). The milestone payment was
triggered by clinical development progress of MDX-447, an anti-cancer treatment
developed jointly with Merck KGaA. MDX-447 is entering Phase II trials of the
treatment of head and neck cancer.
On September 30, 1998, Centocor, Inc. exercised its option to obtain
exclusive commercial licenses to fully human antibodies to four antigens created
by the Company's HuMAb-Mouse technology by purchasing 900,340 shares of the
Company's Common Stock (the "Centocor Shares") for an aggregate purchase price
of $4 million.
On November 9, 1998, the Company announced a global licensing arrangement
with Novartis Pharma AG ("Novartis") involving the Company's HuMAb-Mouse
technology. Under the terms of the agreement, Novartis obtains the rights to use
the HuMAb-Mouse technology throughout the entire Novartis organization for an
unlimited number of targets for up to ten years.
Page 9 of 14
<PAGE>
Liquidity and Capital Resources (con't)
- ---------------------------------------
The agreement provides for potential HuMAb-Mouse technology access fees,
license fees and milestone payments which could exceed $50 million, exclusive of
royalties. Novartis made an initial payment of $2 million, in the form of an
equity purchase. An additional $1 million equity investment will be made on the
first anniversary of the agreement. A further $3 million in equity purchase may
be made after the initial five year term of the agreement.
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.
YEAR 2000 IMPLICATIONS. Many currently installed computer systems and
software products are coded to accept only two-digit entries in the date code
field and cannot reliably distinguish dates beginning on January 1, 2000 from
dates prior to the year 2000. Many companies' software and computer systems may
need to be upgraded or replaced in order to correctly process dates beginning in
2000 and to comply with the "Year 2000" requirements. The Company has reviewed
its internal programs and has determined that there are no significant Year 2000
issues with its systems or services. In addition, the Company has gathered
information about the Year 2000 compliance status of its significant suppliers
and subcontractors and continues to monitor their compliance. However, although
the Company believes that its systems are Year 2000 compliant, the equipment and
software of its suppliers and subcontractors may not be Year 2000 compliant.
Failure of such third-party equipment or software to properly process dates for
the year 2000 and thereafter could require the Company to incur unanticipated
expenses to remedy any problems, which could have a material adverse effect on
its business, results of operations and financial condition.
Results of Operations
- ---------------------
Nine months ended September 30, 1997 and 1998
- ---------------------------------------------
Revenue for the nine-month period ended September 30, 1998 increased by
$2,711,000, a 139% increase from the nine-month period ended September 30, 1997.
The increase relates principally to payments pursuant to license agreements with
Eisai Co., Ltd. ("Eisai"), Centocor, Inc. ("Centocor"), Centeon L.L.C.
("Centeon"), Schering AG, Germany ("Schering"), Merck KGaA, FibroGen, Inc.
("FibroGen") and Medac Hamburg ("Medac").
Cost of sales increased by $356,000 during the first nine months of 1998, a
307% increase as compared to the first nine months of 1997. The increase is
principally due to manufacturing expenses incurred in producing larger
quantities of MDX-447, one of the Company's Bispecific antibody products, for
proposed new human clinical trials to be conducted in conjunction with Merck
KGaA, the Company's corporate partner for MDX-447.
Research and development expenses increased $7,111,000 during the first
nine months of 1998, a 79% increase from the first nine months of 1997. The
increase is principally due to a heightened level of human clinical trial
activity resulting in increases in payments to outside contractors providing
clinical trial services, personnel costs and supply expenses. In addition,
research and development expenses have increased as a result of the research and
development efforts of GenPharm, acquired by the Company in October 1997.
General and administrative expenses increased by $1,201,000 for the first
nine months of 1998, a 50% increase from the first nine months of 1997. The
increase is primarily attributable to higher legal fees (incurred in connection
with the GenPharm Merger), personnel costs, consulting and shareholder relations
expenses.
Page 10 of 14
<PAGE>
Nine Months ended September 30, 1997 and 1998 (cont'd)
- ------------------------------------------------------
Acquisition of in-process technology charges of $10,750,000 for the period
ended September 30, 1997 reflects a one-time non-recurring charge resulting from
the February 28, 1997 acquisition of Houston Biotechnology, Incorporated
("HBI").
Interest and dividend income increased by $385,000 for the first nine
months of 1998, a 31% increase from the same period in 1997. The increase
reflects accrued interest earned on a note receivable from Cell Genesys Inc.
("Cell Genesys") of $15,000,000, partially offset by a lower average cash
balance.
Interest expense increased by $1,511,000 for the first nine months of 1998.
The increase is attributable to the amortization of a discount associated with
the accounting treatment of the value of the liability due to GenPharm
shareholders pursuant to the acquisition of GenPharm by the Company in October
1997. This liability was settled on various dates through September 1, 1998.
Three months ended September 30, 1997 and 1998
- ----------------------------------------------
Revenue for the three-month period ended September 30, 1998 increased by
$235,000, a 23% increase from the three-month period ended September 30, 1997.
The increase relates principally to payments pursuant to license agreements with
Merck KGaA, Schering, FibroGen and Medac.
Cost of sales decreased by $14,000 during the quarter ended September 30,
1998, a 36% decrease as compared to the third quarter of 1997. The decrease is
principally due to lower rent allocation and personnel costs.
Research and development expenses increased $1,807,000 during the quarter
ended September 30, 1998, a 54% increase from the same period in 1997. The
increase is principally due to a heightened level of human clinical trial
activity resulting in increases in payments to outside contractors providing
clinical trial services and personnel costs. In addition, research and
development expenses have increased as a result of the research and development
efforts of GenPharm, acquired by the Company in October 1997.
General and administrative expenses increased by $690,000 for the three-
month period ending September 30, 1998, a 95% increase from the same period in
1997. The increase is primarily attributable to higher legal fees (incurred in
connection with the GenPharm Merger), shareholder relations expenses, personnel
costs and consulting.
Interest and dividend income remained comparable for the three-months
ending September 30, 1998 and 1997. The increase is attributable to accrued
interest on the Cell Genesys note partially offset by a lower average daily cash
balance.
Interest expense increased by $311,000 for the three-months ending
September 30, 1998. The increase is attributable to the amortization of a
discount associated with the accounting treatment of the value of the liability
due to GenPharm shareholders pursuant to the acquisition of GenPharm by the
Company in October 1997.
In 1997, the Financial Accounting Standards Board issued Statement No. 131,
"Disclosures About Segments of an Enterprise and Related Information" (SFAS 131)
which is required to be adopted for the Company's year ending December 31, 1998.
SFAS 131 establishes standards for reporting information about operating
segments in annual financial statements and requires that those enterprise
report selected information about operating segments in interim financial
reports to shareholders. It also establishes standards for related disclosures
about products and services, geographic areas and major customers.
Page 11 of 14
<PAGE>
Three Months ended September 30, 1997 and 1998 (cont'd)
- -------------------------------------------------------
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.
Part II Other Information
ITEM 6. Exhibits and reports on Form 8-K
(a) Reports on Form 8-K:
(1) Form 8-K filed on July 20, 1998 re: extension of BCC Acquisition I LLC
rights offering.
(2) Form 8-K filed on July 31, 1998 re: preliminary results of BCC Acquisition
I LLC rights offering.
(3) Form 8-K filed on August 10, 1998 re: completion of BCC Acquisition I LLC
rights offering.
(4) Form 8-K filed on September 2, 1998 re: prepayment of balance of GenPharm
International Inc. acquisition purchase price.
(5) Form 8-K filed on September 23, 1998 re: receipt of $1.2 million milestone
payment from Merck KGaA.
(6) Form 8-K filed on October 8, 1998 re: receipt of $15 million payment from
Cell Genesys, Inc.
(7) Form 8-K filed on November 12, 1998 re: Novartis Pharma AG. licenses
agreement.
(b) Exhibits
27.1 Financial Data Schedule
Page 12 of 14
<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: November 12, 1998 By
_____________________________
Michael A. Appelbaum
Executive Vice President
Finance and Administration
(Principal Financial and
Accounting Officer)
Page 13 of 14
<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, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-12-1998
<PERIOD-END> SEP-30-1998
<CASH> 6,735
<SECURITIES> 22,897
<RECEIVABLES> 29
<ALLOWANCES> (5)
<INVENTORY> 723
<CURRENT-ASSETS> 39,573
<PP&E> 6,830
<DEPRECIATION> (3,451)
<TOTAL-ASSETS> 44,663
<CURRENT-LIABILITIES> 4,078
<BONDS> 0
0
0
<COMMON> 311
<OTHER-SE> 40,203
<TOTAL-LIABILITY-AND-EQUITY> 44,663
<SALES> 574
<TOTAL-REVENUES> 4,660
<CGS> 472
<TOTAL-COSTS> 20,197
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,531
<INCOME-PRETAX> (15,428)
<INCOME-TAX> (342)
<INCOME-CONTINUING> (15,770)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,770)
<EPS-PRIMARY> (0.67)
<EPS-DILUTED> (0.67)
</TABLE>
