<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, 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 May 7,
1998 was 22,197,486 shares.
Page 1 of 12
<PAGE>
MEDAREX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31,
------------------------- -------------------------
1997 1998
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,723,447 $ 5,671,814
Marketable securities 21,720,568 14,579,061
Note receivable 15,000,000 15,000,000
Trade accounts receivable, less allowance for doubtful
accounts of $5,000 24,562 43,985
Inventory 43,575 52,436
Prepaid expenses and
other current assets 1,042,354 1,564,159
------------ ------------
Total current assets 44,554,506 36,911,455
Property and equipment:
Machinery and equipment 3,190,857 3,705,717
Furniture and fixtures 209,933 255,695
Leasehold improvements 2,030,459 2,030,459
------------ ------------
5,431,249 5,991,871
Less accumulated depreciation and amortization (2,573,262) (2,873,498)
------------ ------------
2,857,987 3,118,373
Investments in, and advances to affiliate 414,777 414,777
Segregated cash 315,000 675,000
Patents rights and other assets 552,994 542,245
------------ ------------
Total assets $ 48,695,264 $ 41,661,850
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 382,311 $ 289,243
Accrued liabilities 8,100,774 5,197,808
GenPharm acquisition liability 34,423,987 34,365,193
------------ ------------
Total current liabilities 42,907,072 39,852,244
Long-term obligations 107,225 87,018
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 22,188,986 shares issued and outstanding,
respectively 219,222 221,890
Capital in excess of par value 92,142,138 93,335,424
Accumulated other comprehensive income 188,250 103,687
Accumulated deficit (86,868,643) (91,938,413)
------------ ------------
Total stockholders' equity 5,680,967 1,722,588
------------ ------------
Total liabilities and stockholders' equity $ 48,695,264 $ 41,661,850
============ ============
</TABLE>
See notes to these unaudited consolidated financial statements
Page 2 of 12
<PAGE>
MEDAREX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31, March 31,
1997 1998
------------------------ -----------------------
<S> <C> <C>
Sales $ 50,163 $ 59,213
Grants, contract and license revenues 400,177 1,254,345
------------ ------------
Total revenues 450,340 1,313,558
Costs and expenses:
Cost of sales 38,485 131,351
Research and development 2,530,380 5,287,577
General and administrative 810,323 1,059,254
Acquisition of in-process technology 10,662,952 --
------------ ------------
Operating loss (13,591,800) (5,164,624)
Interest and dividend income 390,817 695,071
Interest expense 5,651 600,218
------------ ------------
Net loss $(13,206,634) $ (5,069,771)
============ ============
Basic and diluted net loss per share ($ 0.74) ($ 0.23)
============ ============
Weighted-average number of common
shares outstanding during the period 17,963,137 22,163,875
</TABLE>
See notes to these unaudited consolidated financial statements.
Page 3 of 12
<PAGE>
MEDAREX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
---------
1997 1998
---- ----
<S> <C> <C>
Operating activities:
Net loss $(13,206,634) $ (5,069,771)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 110,335 210,412
Amortization 111,941 100,573
Non cash interest expense -- 595,206
Write-off of in-process technology 10,662,952 --
Changes in operating assets and liabilities, net of acquisition:
Increase in trade accounts receivable, net (10,270) (19,423)
Increase in inventory (44,731) (8,861)
Decrease (increase) in prepaid expenses and other
current assets 314,762 (521,805)
Decrease in trade accounts payable (288,587) (93,068)
Decrease in accrued liabilities (359,217) (1,705,308)
Decrease in GenPharm acquisition liability -- (654,000)
------------ ------------
Net cash used in operating activities (2,709,449) (7,166,045)
Investing activities:
Purchase of property and equipment (31,471) (560,622)
Cash portion of Houston Bioechnology, Incorporated
acquisition, net of cash acquired (1,284,327) --
Increase in other assets (1,818) (360,000)
Sale of marketable securities 5,445,746 7,056,944
------------ ------------
Net cash provided by investing activities 4,128,130 6,136,322
Financing activities:
Cash received from sales of securities, net 132,512 8,455
Principle payments under debt obligations (13,763) (30,365)
------------ ------------
Net cash (used in) provided by financing activities 118,749 (21,910)
------------ ------------
Net increase (decrease) in cash and cash equivalents 1,537,430 (1,051,633)
Cash and cash equivalents at beginning of period 4,958,065 6,723,447
------------ ------------
Cash and cash equivalents at end of period $ 6,495,495 $ 5,671,814
============ ============
Supplemental disclosures of cash flow information
Cash paid during period for:
Income taxes $ -- $ 983,000
============ ============
Interest $ 5,651 $ 5,012
============ ============
</TABLE>
See notes to these unaudited consolidated financial statements
Page 4 of 12
<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-month periods ended March 31, are as follows:
<TABLE>
<CAPTION>
1997 1998
--------------------- ---------------------
<S> <C> <C>
Net loss $(13,591,800) $(5,164,624)
Unrealized loss on securities (4,663) (84,563)
---------------------------------------------
Total comprehensive loss $(13,596,463) $(5,249,187)
</TABLE>
Page 5 of 12
<PAGE>
5. 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.
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 quarter ended March 31, 1997.
The results of operations for the HBI acquisition were included in the March
31, 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 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, $1,187,500 of the stock bonus was paid through the
issuance of 250,000 shares of the Company's Common Stock.
Page 6 of 12
<PAGE>
7. ACQUISITIONS (CON'T)
The pro-forma unaudited results of operations for the quarter ended March
31, 1997 assuming the acquisitions of HBI and GenPharm took place at the
beginning of quarter presented, are as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1997
<S> <C> <C>
Total revenue $ 1,777,627
Net loss (2,620,251)
Basic net loss per share $ (0.12)
</TABLE>
The pro-forma information for the three months ended March 31, 1997 does
not include cross license settlement income of $22,500,000, related litigation
fees and expenses of $4,726,933 or the write-off of in-process technology of
$10,662,952 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 February 11, 1998, the Company announced that it signed an antibody
development agreement with Schering AG, Germany, ("Schering"). Under this new
research collaboration and license agreement, Medarex will use its patented
HuMAb-MouseTM technology to produce fully human antibodies to a proprietary
antigen for Schering. Medarex could receive research and development payments,
a license fee and milestone payments of up to approximately $9 million plus
royalty payments on future product sales by Schering.
Page 7 of 12
<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 $20.3 million in cash, cash equivalents and
marketable securities and approximately $0.7 million in a segregated cash
account as of March 31, 1998. Operating activities consumed $7.2 million of
cash for the three-month period ended March 31, 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.
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. The initial term of the lease is five
years and three months, and the Company has elected to renew the lease for
another five years. On January 8, 1998, the Company signed a lease for
laboratory and office space in San Jose, California. The minimum combined lease
commitments for both facilities range between $1,400,000 and $2,100,000 and the
aggregate future minimum lease commitments over the remainder of the lease terms
are approximately $11,000,000. This lease runs through December 2001. As of
March 31, 1998, the Company had commitments for approximately $675,000 of
capital expenditures.
Page 8 of 12
<PAGE>
Liquidity and Capital Resources (con't)
- ---------------------------------------
On October 21, 1997, the Company consummated the acquisition of GenPharm,
resulting in GenPharm becoming a wholly owned subsidiary of the Company (the
"Merger"). Pursuant to the Merger, the Company will issue shares of its Common
Stock having a value of up to $62,725,000, subject to adjustment (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. The Company will issue additional shares
of its Common Stock (the "Additional Shares") in 1998 (and possibly to some
extent in 1999) having a then current fair market value sufficient to satisfy
the balance of the Purchase Price, as adjusted. Since the number of Additional
Shares to be issued in connection with the Merger will be determined at future
dates based on the then fair market value of the Company's Common Stock and the
amount of the Purchase Price as adjusted, the maximum number of Additional
Shares to be issued in connection with the Merger cannot be determined at this
time. A significant decrease in the fair market value of the Company's Common
Stock would result in a significant increase in the number of shares issuable in
connection with the Merger. Similarly, a significant increase in the fair
market value or a significant reduction in the Purchase Price would result in a
significant decrease in the number of shares issuable in connection with the
Merger.
On February 12, 1998 at a Special Meeting of Shareholders, the shareholders
ratified the GenPharm Merger and approved the issuance of Additional Shares of
the Company's Common Stock as payment of a portion of the Purchase Price in
connection with the Merger.
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 12
<PAGE>
Results of Operations
- ---------------------
Three months ended March 31, 1997 and 1998
- ------------------------------------------
Revenue for the three-month period ended March 31, 1998 increased by $863,218,
a 191.7% increase from the three-month period ended March 31, 1997. The
increase relates principally to payments pursuant to license agreements with
Centocor, Inc. ("Centocor") and Schering AG, Germany ("Schering") and Merck KGaA
("E. Merck").
Cost of sales increased by $92,866 during the first three months of 1998, a
241.3% increase as compared to the first three months of 1997. The increase is
principally due to manufacturing expenses incurred in producing larger
quantities of MDX-447 for proposed new human clinical trials for E. Merck.
Research and development expenses increased $2,757,197 during the first three
months of 1998, a 109.0% increase from the first three months of 1997. The
increase is principally due to a heightened level of human clinical trial
activity resulting in increases in personnel, supply expenses and payments to
outside contractors providing clinical trial services. 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 $248,931 for the first three
months of 1998, a 30.7% increase from the first three months of 1997. The
increase is primarily attributable to higher personnel costs, consulting and
legal expenses.
Acquisition of in-process technology charges of $10,662,952 for the period
ended March 31, 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 $304,254 for the first three months
of 1998, a 77.9% increase from the same period in 1997, reflecting accrued
interest on the $15,000,000 note receivable.
Interest expense increased by $594,567 for the first three months of 1998.
The increase is attributable to the amortization of a discount associated with
the accounting treatment of the value of the Company's Common Stock owed to
GenPharm shareholders before the end of 1998 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. 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.
Page 10 of 12
<PAGE>
Part II - Other Information
ITEM 4. Submission of Matters to a Vote of Security Holders
At a Special Meeting of Stockholders held on February 12, 1998, the Company's
shareholders approved a proposal to ratify the merger (the "Merger") of Medarex
Acquisition Corp., a wholly owned subsidiary of the Company ("Merger Sub"), with
and into GenPharm International, Inc. ("GenPharm"), pursuant to the terms of the
Amended and Restated Plan of Reorganization dated as of May 5, 1997 (the "Merger
Agreement"), among the Company, Merger Sub and GenPharm relating to the
acquisition of GenPharm by the Company and to approve the issuance of additional
shares of the Company's common stock, $.0l par value, as payment of the purchase
price in connection with the Merger in accordance with the terms of the Merger
Agreement. Out of the 21,922,186 eligible votes, 12,737,734 votes were cast at
the meeting either by proxies solicited in accordance with Schedule 14A or by
securities holders voting in person. There were 9,184,452 broker non-votes
which are not included in the following table as they were not treated as being
present at the meeting. The tabulation of votes for the proposal is set forth
in Item No. 1 below.
Item No. 1
----------
The ratification of the GenPharm Merger and the approval of the issuance of
the Additional Shares as payment of the balance of the Purchase Price in
connection with the GenPharm Merger.
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
12,410,929 288,358 38,447
</TABLE>
ITEM 5. Other Information
On February 11, 1998, the Company announced that it signed an antibody
development agreement with Schering AG, Germany, ("Schering"). Under this new
research collaboration and license agreement, the Company will use its patented
HuMAb-MouseTM technology to produce fully human antibodies to a proprietary
antigen for Schering. The Company could receive research and development
payments, a license fee and milestone payments of up to approximately $9 million
plus royalty payments on future product sales by Schering.
ITEM 6. Exhibits and reports on Form 8-K
(a) Exhibit 10.80
Research and Commercialization Agreement dated February 11, 1998 between
the Company and Schering AG (confidential treatment has been requested with
respect to specified portions of this exhibit).
(b) Reports on Form 8-K:
(1) Form 8-K filed on March 31, 1998
re: filing of certain material contracts
Page 11 of 12
<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: May 13, 1998 By /s/ Michael A. Appelbaum
------------------------
Michael A. Appelbaum
Executive Vice President
Finance and Administration
(Principal Financial and
Accounting Officer)
Page 12 of 12
<PAGE>
Exhibit 10.80
RESEARCH AND COMMERCIALIZATION AGREEMENT
THIS RESEARCH AND COMMERCIALIZATION AGREEMENT (the "Agreement"),
effective as of February 9, 1998 (the "Effective Date"), is entered by and
between GenPharm International, Inc., a wholly owned subsidiary of Medarex,
Inc., and Medarex, Inc., a New Jersey corporation, with a principal place of
business at 1545 Route 22 East, Annandale, New Jersey 08801 (together
"Medarex"), and Schering AG, with a principal place of business at
Mullerestrasse, 178 Berlin, Germany D-13342 ("Schering").
BACKGROUND
A. Medarex is the sole and exclusive owner of certain transgenic
Mice useful for the preparation of fully human monoclonal antibodies;
B. Schering desires to have Medarex conduct research with the Mice
to evaluate their utility for the development of fully human monoclonal
antibodies to a certain Antigen (as defined below) for use as a human
therapeutic product, and Medarex is willing to conduct such Research, on the
terms and conditions herein; and
C. Schering wishes to acquire from Medarex an option to acquire a
commercial license for the use of monoclonal antibodies with specificity for the
Antigen to commercialize Products (as defined below), on the terms and
conditions herein.
NOW, THEREFORE, Medarex and Schering agree as follows:
1. DEFINITIONS
1.1 "Affiliate" means any corporation or other entity which is
---------
directly or indirectly controlling, controlled by or under the common control
with Schering. For the purpose of this Agreement, "control" shall mean the
direct or indirect ownership of fifty percent (50%) or more of the outstanding
shares or other voting rights of the subject entity to elect directors, or if
not meeting the preceding, any entity owned or controlled by or owning or
controlling at the maximum control or ownership right permitted in the country
where such entity exists.
1.2 "Antibody" shall mean any human monoclonal antibody with
--------
binding affinity for an Antigen derived from cells obtained from one or more of
the Mice pursuant to this Agreement.
1.3 "Antigen" shall mean *****, as described in the Research Plan
-------
***** REPRESENTS CONFIDENTIAL PORTION WHICH HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SEC. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
<PAGE>
1.4 "Biological License Application" or "BLA" shall mean Biological
------------------------------
License Application as defined in the U.S. Food, Drug and Cosmetic Act and the
regulations promulgated thereunder, and any corresponding foreign application,
registration or certification.
1.5 "Confidential Information" shall mean (i) any proprietary or
------------------------
confidential information or material in tangible form disclosed hereunder that
is marked as "Confidential" at the time it is delivered to the receiving party,
or (ii) proprietary or confidential information disclosed orally hereunder which
is identified as confidential or proprietary when disclosed and such disclosure
of confidential information is confirmed in writing within thirty (30) days by
the disclosing party, except that to the extent that it can be established by
the receiving party by competent proof that such Confidential Information:
(i) was already known to the receiving party, other than
under an obligation of confidentiality, at the time of disclosure;
(ii) was generally available to the public or otherwise part
of the public domain at the time of its disclosure to the receiving party;
(iii) became generally available to the public or otherwise
part of the public domain after its disclosure and other than through any act or
omission of the receiving party in breach of this Agreement;
(iv) was independently developed by the receiving party as
demonstrated by documented evidence prepared contemporaneously with such
independent development; or
(v) was subsequently lawfully disclosed to the receiving
party by a person other than a party hereto.
1.6 "Control" or "Controlled" shall mean possession of the ability
------- ----------
to grant the licenses or sublicenses as provided for herein without violating
the terms of any agreement or other arrangement with any third party.
1.7 "Evaluation Period" shall mean the period commencing on the
-----------------
Effective Date and ending three (3) months after the end of the Research Period,
unless Schering terminates the Research Program or Agreement pursuant to Section
13.4.1, in which case the Evaluation Period shall end as of the effective date
of such termination.
1.8 "IND" shall mean an Investigational New Drug application, as
---
defined in the U.S. Food, Drug and Cosmetic Act and the regulations promulgated
thereunder for initiating clinical trials in the United States, or any
corresponding foreign application, registration or certification.
-2-
<PAGE>
1.9 "Medarex Technology" shall mean the Patent Rights and Know How.
------------------
1.9.1 "Know How" shall mean the Confidential Information and
--------
Mice and Mice Materials owned or Controlled by Medarex and transferred to
Schering by Medarex necessary or useful for the exercise of the Patent Rights,
including, without limitation, technical data, protocols and methods and
processes. For the avoidance of doubt, the Know How does not include any
subject matter within the scope of the Patent Rights.
1.9.2 "Patent Rights" shall mean all United States and foreign
-------------
patents (including all reissues, extensions, substitutions, confirmations,
re-registrations, re-examinations, revalidations and patents of addition) and
patent applications (including, without limitation, all continuations,
continuations-in-part and divisions thereof) owned or Controlled by Medarex, in
each case, which claims an Antibody, or an invention which is necessary or
useful for the use of the Antibodies or a hybridoma cell line transferred to
Schering hereunder, or to make, use or sell Products.
1.10 "Mice" shall mean immunizable transgenic mice covered by the
----
Patent Rights containing unrearranged human immunoglobulin genes.
1.11 "Mice Materials" shall mean any parts or derivatives of the Mice
prepared by Medarex in connection with the Research Program, including without
limitation, cells, hybridomas, Antibodies, genes, DNA sequences or other
biological materials derived directly or indirectly from the Mice.
1.12 "NDA" means an application for approval to market a
---
pharmaceutical product in the United States filed with the United States Food
and Drug Administration ("FDA"), or a similar application with an equivalent
regulatory authority in another country.
1.13 "Net Sales" shall mean *****.
---------
***** REPRESENTS CONFIDENTIAL PORTION WHICH HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SEC. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
-3-
<PAGE>
*****
1.14 "Phase I", "Phase II" and "Phase III" shall mean Phase I (or
------- -------- ---------
Phase I/II), Phase II, and Phase III clinical trials, respectively, in each
case as prescribed by the U.S. Food and Drug Administration or a corresponding
foreign entity.
1.15 "Pivotal Trial" means a clinical trial that is designed to
-------------
provide data sufficient for the purpose of obtaining regulatory approval from
the U.S. Food and Drug Administration or a corresponding foreign entity, and
which when completed will have demonstrated that the Product (i) is safe and
efficacious, (ii) has an established dose, (iii) has an established route of
administration, and (iv) has a treatment schedule in the target population.
1.16 "Product" shall mean any product for the treatment of human
-------
disease containing an Antibody or a portion thereof. A Product used for several
indications is considered to be a single Product.
1.17 "Research" shall mean the activities conducted by Medarex in the
--------
Research Period in connection with the preparation of Antibodies.
1.18 "Research Period" shall mean the period from the Effective Date
---------------
until the earlier of (i) *****, or if extended pursuant to Section 2.6, *****,
and (ii) the termination of the Research Program or the Agreement.
1.19 "Research Plan" shall mean the plan for the conduct of the
-------------
Research attached hereto as Exhibit A, as may be amended by the written
agreement of the parties.
1.20 "Sublicensee" shall mean a third party (except an Affiliate) to
-----------
whom Schering has granted a license or sublicense to make, have made, import,
use, sell, offer for sale or otherwise exploit Products in the Territory. As
used in this Agreement, "Sublicensee" shall also include any third party (except
an Affiliate) to whom Schering has granted the right to distribute a Product.
***** REPRESENTS CONFIDENTIAL PORTION WHICH HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SEC. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
-4-
<PAGE>
1.21 "Territory" shall mean all countries of the world.
---------
2. RESEARCH
2.1 Research.
--------
2.1.1 Immunization. Subject to the terms and conditions set
------------
forth herein, Medarex will immunize Mice with the Antigen during the Research
Period to produce Antibodies for evaluation by Schering for commercial
development pursuant to the Research Plan. Medarex shall immunize ***** Mice
with the Antigen provided by Schering and isolate Antibodies from such Mice.
2.1.2 Reasonable Efforts. Medarex shall use reasonable
------------------
efforts to conduct the Research Program in a professional manner and agrees to
commit the personnel, facilities and other resources necessary to perform the
immunizations; provided, however, it does not warrant that the Research shall
result in the preparation of any Antibody suitable for development as a Product.
2.2 Research Support. Schering shall pay to Medarex a research support
----------------
payment of ***** for the conduct of the Research. The first payment shall be
due on the Effective Date, and subsequent payments shall be due on the quarterly
anniversary thereof during the Research Period, including any extension thereof
pursuant to Section 2.6.
2.3 Delivery of Antigens. Schering shall deliver to Medarex a mutually
--------------------
agreed quantity of the Antigen in a substantially pure form for the immunization
of the Mice. Medarex shall only use the Antigen provided by Schering to conduct
immunizations of the Mice, and shall not conduct other activities with or any
analysis of the Antigen.
2.4 Delivery of Antibodies. Upon the preparation of an Antibody for
----------------------
the Antigen, Medarex shall deliver to Schering the amount of milligrams of such
Antibody for evaluation by Schering as specified in the Research Plan.
2.5 Research License. Medarex hereby grants to Schering and its
----------------
Affiliates ***** license to use the Antibodies prepared by Medarex during the
Research Period solely for research and evaluation purposes.
2.6 Term. The Research shall commence on the Effective Date and
----
terminate *****; provided, with notice to Medarex at least thirty (30) days
prior to *****, Schering may extend the term of the Research until *****.
***** REPRESENTS CONFIDENTIAL PORTION WHICH HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SEC. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
-5-
<PAGE>
2.7 Ownership
---------
2.7.1 Mice. Title to the Mice and, subject to Sections 3.1 and
----
3.2, Mice Materials shall at all times remain with Medarex.
2.7.2. Intellectual Property. *****
---------------------
3. OPTION; COMMERCIAL LICENSE
3.1 Option.
------
3.1.1 Option. During the Evaluation Period, Schering shall
------
have an option to obtain an exclusive (even as to Medarex), worldwide commercial
license as set forth in Section 3.2 solely to develop Antibodies for use in the
development and commercialization of Products. Schering may exercise such option
by notice to Medarex during the foregoing period specifying ***** to be covered
by the commercial license, and concurrently paying to Medarex the applicable
license fee due pursuant to Section 4.1. Medarex shall not license, sell,
transfer or use in any manner any Antibodies arising out of the Research to any
third party except Schering. At Schering's request, Medarex shall destroy any
Antibodies, and related Mice Materials prepared by Medarex in the Research.
3.1.2 Extension. *****
---------
3.2 Commercial License. Effective upon Schering's election to
------------------
acquire a commercial license, subject to the terms and conditions of this
Agreement (including without limitation, the timely payment of the license fee
due pursuant to Section 4.1) Medarex shall grant to Schering the following
licenses:
3.2.1 an exclusive (even as to Medarex), worldwide,
non-transferable (except as set forth in Section 14.3), royalty bearing license
under the Medarex Technology with the right to sublicense, to use hybridomas
delivered by Medarex to Schering to make or have made Antibodies, and
***** REPRESENTS CONFIDENTIAL PORTION WHICH HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SEC. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
-6-
<PAGE>
3.2.2 an exclusive (even as to Medarex), worldwide, non-
transferable (except as set forth in Section 14.3), royalty bearing license
under the Medarex Technology, with the right to sublicense, to use Antibodies to
make, have made, import, have imported, use, offer for sale and sell Products.
3.3 Delivery of Hybridomas. If Schering acquires a commercial license
----------------------
for a particular Antibody, Medarex shall deliver to Schering a hybridoma cell
line producing such Antibody.
3.4 Retained Rights; No Further Rights. Only the license granted
----------------------------------
pursuant to the express terms of this Agreement shall be of any legal force or
effect. No other license rights shall be granted or created by implication,
estoppel or otherwise. It is understood and agreed that Medarex shall retain
rights to make, have made, import, use, offer for sale, sell and otherwise
commercialize the Mice itself which have not been used for the Research or
immunized with any Antigens or with third parties for any uses.
4. CONSIDERATION
4.1 Commercial License Fee. If Schering wishes to acquire a commercial
----------------------
license from Medarex pursuant to Section 3.2 above, concurrently with
Schering's notice to Medarex of its exercise of its option, upon delivery
of Mice Materials to Schering pursuant to Section 3.3, Schering shall pay
to Medarex a commercial license fee of *****.
4.9 Milestone Payments. Within thirty (30) days following the
------------------
occurrence of the relevant events specified below with respect to each Product
which contains an Antibody, Schering shall pay to Medarex the following amounts:
Milestones Amounts
---------- -------
***** *****
Milestones shall be paid once per Product. *****.
***** REPRESENTS CONFIDENTIAL PORTION WHICH HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SEC. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
-7-
<PAGE>
*****
4.3 Royalties.
---------
4.3.1 Royalty on Net Sales. In partial consideration for the
--------------------
commercial license, Schering shall pay to Medarex a royalty on annual Net Sales
of Products, on a Product-by-Product basis, as follows:
*****
4.3.2 Royalty Term. The royalties due pursuant to this
------------
Section 4.3 shall be payable on a Product-by-Product and country-by-country
basis until: *****
4.3.3 Minimum Royalty Obligation. *****
--------------------------
5. PAYMENTS
5.1 Payment Method. All amounts due Medarex hereunder shall be paid
--------------
in U.S. dollars by wire transfer in immediately available funds to an account
designated by Medarex.
5.2 Currency; Foreign Payments. If any currency conversion shall be
--------------------------
required in connection with the payment of any royalties hereunder, such
conversion shall be made by using the exchange rate for the purchase of U.S.
dollars reported by the Chase Manhattan Bank on the last business day of the
calendar quarter to which such royalty payments relate. If at any time legal
restrictions prevent the prompt remittance of any royalties owed on Net Sales in
any jurisdiction, Schering may notify Medarex and make such payments by
depositing the amount thereof in local currency in a bank account or other
depository in such country in the name of Medarex, and Schering shall have no
further obligations under this Agreement with respect thereto.
***** REPRESENTS CONFIDENTIAL PORTION WHICH HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SEC. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
-8-
<PAGE>
5.3 Taxes. Any tax paid or required to be withheld by Schering on
-----
account of royalties payable to Medarex under this Agreement shall be deducted
from the amount of royalties otherwise due. Schering shall secure and send to
Medarex proof of any such taxes withheld and paid by Schering for the benefit of
Medarex and shall, at Medarex's request, provide reasonable assistance in
recovering said taxes, if possible, and shall reasonably assist Medarex to
obtain the benefit of any applicable tax treaty.
6. REPORTS AND RECORDS
6.1 Payment of Royalties.
--------------------
6.1.1 Royalty Report. Schering shall provide a royalty report
--------------
and, if applicable, a royalty payment to Medarex on a quarterly calendar basis.
The report relating to Net Sales within the U.S. shall be provided within *****
after the end of the calendar quarter to which such report and payment apply and
the report relating to Net Sales for countries other than the U.S. shall be
provided within ***** after the end of the calendar quarter to which such report
and payment apply.
6.1.2 Records Retention. Schering shall keep and requires its
-----------------
Affiliates and Sublicensees to keep, for a period of not less than seven (7)
years, complete and accurate records of all Net Sales of Products. Medarex shall
have the right, at its sole expense, through a certified public accountant
reasonably acceptable to Schering, and following reasonable notice, to examine
records of Net Sales during regular business hours during the royalty term,
provided, however, that such examination shall not (i) be of records for more
- -------- -------
than the *****, (ii) take place more often than once a year, and (iii) cover any
records which date prior to the date of the last examination, and provided
further that, such accountants shall report to Medarex only as to the accuracy
of the royalty statements and payments and the amount of any underpayment or the
accuracy of statements. Copies of such reports shall be supplied to Schering. In
the event the report demonstrates that Schering has underpaid royalties,
Schering shall promptly pay such amounts to Medarex. In addition, if the amount
of underpayment of royalty due pursuant to this Agreement in any quarter is
lower than the amount due by ***** or more, then Schering shall also pay the
costs of such audit *****.
6.1.3 Form of Payment. All payments to Medarex hereunder shall
---------------
be made in United States Dollars, for such Medarex's account, by wire transfer
to a bank in the United States designated in writing by Medarex; provided that
where payments in respect of Net Sales are based on Net Sales in non-U.S.
currencies, the amount of Net Sales and any deductions used to calculate Net
Sales, if any, shall be converted monthly to United States Dollars at the
average of the average daily "bid" and "asked" exchange rates as provided by
Reuters (or a different independent wire service providing international spot
exchange rates agreed to by the Parties) for the applicable month.
***** REPRESENTS CONFIDENTIAL PORTION WHICH HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SEC. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
-9-
<PAGE>
6.2 Reports on Net Sales Exclusions. In the event that Schering or
-------------------------------
its Affiliates or Sublicensees distributes Products to any entity for research
or clinical testing purposes, or indigent or other public support programs, and
determines that such distributions shall be excluded from the computation of Net
Sales, then Schering shall provide an annual written report on February 15 of
each calendar year describing such distribution of all such Products, the
purpose for which such Products were distributed, and the quantities of Products
so distributed in the preceding calendar year.
7. ANTIBODY SUPPLY
If Schering wishes to have Medarex manufacture Antibodies for use in
Products for commercial sale it may notify Medarex, and in such case Schering
and Medarex shall negotiate in good faith the terms of a supply agreement.
8. CONFIDENTIALITY
8.1 Confidential Information. Except as expressly provided herein, the
------------------------
parties agree that, for the term of this Agreement and for five (5) years
thereafter, the receiving party shall keep completely confidential and shall not
publish or otherwise disclose and shall not use for any purpose except for the
purposes contemplated by this Agreement any Confidential Information furnished
to it by the disclosing party hereto pursuant to this Agreement, except that to
the extent that it can be established by the receiving party by competent proof
that such Confidential Information:
(i) was already known to the receiving
party, other than under an obligation of confidentiality, at the time of
disclosure,
(ii) was generally available to the public
or otherwise part of the public domain at the time of its disclosure to the
receiving party;
(iii) became generally available to the
public or otherwise part of the public domain after its disclosure and other
than through any act or omission of the receiving party in breach of this
Agreement;
(iv) was independently developed by the
receiving party as demonstrated by documented evidence prepared
contemporaneously with such independent development; or
(v) was subsequently lawfully disclosed to
the receiving party by a person other than a party hereto.
8.2 Permitted Use and Disclosures. Each party hereto may use or
-----------------------------
disclose information disclosed to it by the other party to the extent such use
or disclosure is reasonably necessary in complying with applicable governmental
regulations or otherwise submitting information to tax or other governmental
authorities, conducting clinical trials, or making a permitted sublicense or
-10-
<PAGE>
otherwise exercising its rights hereunder provided that if a party is required
to make any such disclosure of another party's confidential information, other
than pursuant to a confidentiality agreement, it will give reasonable advance
notice to the latter party of such disclosure and, save to the extent
inappropriate in the case of patent applications, will use its reasonable
efforts to secure confidential treatment of such information prior to its
disclosure (whether through protective orders or otherwise).
8.3 Public Disclosure. Except as otherwise required by law, neither party
-----------------
shall issue a press release or make any other public disclosure of the terms of
this Agreement without the prior approval of such press release or public
disclosure. Each party shall submit any such press release or public disclosure
to the other party, and the receiving party shall promptly review such press
release or public disclosure, but in no event within fifteen (15) days to
review and approve any such press release or public disclosure, which approval
shall not be unreasonably withheld. If the receiving party does not respond
within such fifteen (15) day period, the press release or public disclosure
shall be deemed approved. In addition, if a public disclosure is required by
law, including without limitation in a filing with the Securities and Exchange
Commission, the disclosing party shall provide copies of the disclosure
reasonably in advance of such filing or other disclosure for the nondisclosing
party's prior review and comment.
8.4 Confidential Terms. Except as expressly provided herein, each party
------------------
agrees not to disclose any terms of this Agreement to any third party without
the consent of the other party, provided, disclosures may be made as required by
securities or other applicable laws, or to actual or prospective investors or
corporate partners, or to a party's accountants, attorneys and other
professional advisors.
9. DILIGENCE
Schering agrees to use reasonable efforts to diligently develop and
commercialize the Products and obtain such approvals as may be necessary for
the sale of such Products in the United States and other markets worldwide.
Schering's efforts shall be comparable to those efforts Schering makes with
respect to its other products of comparable value, stage of development and
patent protection. Schering shall notify Medarex within thirty (30) days after
the first commercial sale of each Product.
10. REPRESENTATIONS AND WARRANTIES
10.1 Medarex. Medarex, Inc. represents and warrants that: (i) it is a
-------
corporation duly organized validly existing and in good standing under the laws
of the State of New Jersey; (ii) the execution, delivery and performance of this
Agreement have been duly authorized by all necessary corporate action on the
part of Medarex, Inc.; (iii) it is the sole and exclusive owner of all right,
title and interest in the Mice; and (iv) it has the right to grant the rights
and licenses granted herein.
10.2 Schering. Schering represents and warrants that: (i) it is a
--------
corporation duly organized validly existing and in good standing under the laws
of Germany; and (ii) the execution, delivery and
-11-
<PAGE>
performance of this Agreement have been duly authorized by all necessary
corporate action on the part of Schering.
10.3 Disclaimer of Warranties. THE MICE MATERIALS ARE PROVIDED "AS
------------------------
IS", AND EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, MEDAREX AND
ITS RESPECTIVE AFFILIATES MAKE NO REPRESENTATIONS AND EXTEND NO WARRANTIES OR
CONDITIONS OF ANY KIND, EITHER EXPRESS OR IMPLIED, WITH RESPECT TO THE MICE,
ANTIBODIES, PRODUCTS OR MEDAREX TECHNOLOGY, INCLUDING, BUT NOT LIMITED TO,
WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, VALIDITY OF THE
PATENT RIGHTS LICENSED HEREUNDER, OR NONINFRINGEMENT OF THE INTELLECTUAL
PROPERTY RIGHTS OF THIRD PARTIES.
10.4 Disclaimer. Nothing in this Agreement is or shall be construed
----------
as:
(a) A warranty or representation by Medarex as to the
validity or scope of any claim or patent within the
Patent Rights;
(b) A warranty or representation that anything made, used,
sold or otherwise disposed of under any license granted
in this Agreement is or will be free from infringement
of any patent rights or other intellectual property
right of any third party;
(c) An obligation to bring or prosecute actions or suits
against third parties for infringement of any of the
Patent Rights or the use of any Know-How; or
(d) Granting by implication, estoppel, or otherwise any
licenses or rights under patents or other rights of
Medarex or third parties, regardless of whether such
patents or other rights are dominant or subordinate to
any intellectual property rights within the Medarex
Technology.
11. INTELLECTUAL PROPERTY
11.1 Patent Rights.
-------------
*****
11.2 Failure to Prosecute.
--------------------
*****
*****REPRESENTS CONFIDENTIAL PORTION WHICH HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SEC. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
-12-
<PAGE>
*****
11.3 Cooperation. *****
-----------
11.4 Infringement Claims. If the manufacture, importation, sale or
-------------------
use of the Product pursuant to this Agreement results in any claim, suit or
proceeding alleging patent infringement against Medarex or Schering, such party
shall promptly notify the other party hereto, and if the notified party has an
obligation to indemnify the other party pursuant to Section 13.1 or 13.2, such
party shall have the right to control the defense of such claim, suite or
proceeding. The defendant shall keep each other party hereto reasonably informed
of all material developments in connection with any such claim, suit or
proceeding.
12. DISPUTE RESOLUTION
12.1 Mediation. If a dispute arises out of or relates to this
---------
Agreement, or the breach thereof, and if said dispute cannot be settled through
negotiation, the parties agree first to try in good faith to settle the dispute
by mediation under the Commercial Mediation Rules of the American Arbitration
Association, before resorting to litigation, or some other dispute resolution
procedure.
12.2 Venue. The exclusive venue of any dispute arising out of or in
-----
connection with the performance of or any breach of this Agreement, shall be the
state courts or U.S. district court located in or for New Jersey, and the
parties hereby irrevocably consent to the personal jurisdiction of such courts.
13. INDEMNIFICATION
13.1 Medarex. Medarex shall indemnify, defend and hold harmless
-------
Schering and its directors, officers, employees and agents (each a "Schering
Indemnitee") from and against any and all liabilities, damages, losses, costs or
expenses (including attorneys' and professional fees and other expenses of
litigation and/or arbitration) (a "Liability") resulting from a claim, suit or
proceeding made or brought by a third party against an Schering Indemnitee
arising from or occurring as a result of any reach of the representations and
warranties set forth in Section 10.1, except to the extent caused by the
negligence or willful misconduct of Schering.
13.2 Schering. Schering shall indemnify, defend and hold harmless
--------
Medarex and its directors, officers, employees and agents (each a "Medarex
Indemnitee") from and against any and
***** REPRESENTS CONFIDENTIAL PORTION WHICH HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SEC. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
-13-
<PAGE>
all liabilities, damages, losses, costs or expenses (including attorneys
and professional fees and other expenses of litigation and/or arbitration) (a
"Liability") resulting from a claim, suit or proceeding made or brought by a
third party against a Medarex Indemnitee, arising from or occurring as a result
of (i) any breach of the representations and warranties set fort in Section
10.2, (ii) the use of the Antigen by Medarex, to conduct the Research, (iii) the
practice by Schering of any right granted herein, or (iv) any development
testing, manufacture, importation, use, offer for sale, sale or other
distribution of any Product by Schering or its Affiliates Sublicensees
(including, without limitation, product liability claims), except in each case
to the extent caused by the negligence or willful misconduct of Medarex.
13.3 Procedure. In the event that any Indemnitee intends to claim
---------
indemnification under this Article 13 it shall promptly notify the other party
(the "Indemnitor") in writing of such alleged Liability. The Indemnitor shall
have the sole right to control the defense and settlement thereof. The
Indemnitees shall cooperate with the Indemnitor and its legal representatives in
the investigation of any action, claim or liability covered by this Article 13.
The Indemnitee shall not, except at its own cost, voluntarily make any payment
or incur any expense with respect to any claim or suit without the prior written
consent of the Indemnitor, which the Indemnitor shall not be required to give.
14. TERM AND TERMINATION
14.1 Term. The term of this Agreement shall commence on the Effective
----
Date. Unless earlier terminated as provided in this Article 14, this Agreement
shall continue in full force and effect on a country-by-country and Product-by-
Product basis until there are no remaining royalty payment obligations in a
country, at which time the Agreement shall expire in its entirety in such
country.
14.2 Termination for Cause. Either party may terminate this
---------------------
Agreement in the event the other party has materially breached or defaulted in
the performance of any of its obligations hereunder, and such default has
continued for ninety (90) days after written notice thereof was provided to the
breaching party by the nonbreaching party. Any termination shall become
effective at the end of such ninety (90) day period unless the breaching party
has cured any such breach or default prior to the expiration of the ninety (90)
day period. Notwithstanding the above, in the case of a failure to timely pay
any amounts due hereunder, the period for cure of any subsequent default
following notice thereof shall be ten (lO) days and, unless payment is made
within such period the termination shall become effective at the end of such
period.
14.3 Termination for Insolvency. If voluntary or involuntary
--------------------------
proceedings by or against a party are instituted in bankruptcy under any
insolvency law, or a receiver or custodian is appointed for such party, or
proceedings are instituted by or against such party for corporate reorganization
or the dissolution of such party, which proceedings, if involuntary, shall not
have been dismissed within sixty (60) days after the date of filing, or if such
party makes an assignment for the benefit of creditors, or substantially all of
the assets of such party are seized or attached and not released within sixty
(60) days thereafter, the other party may immediately terminate this Agreement
effective upon notice of such termination.
-14-
<PAGE>
14.4 Permissive Termination.
----------------------
14.4.1 Schering. Schering may terminate the Research Program
--------
and this Agreement with ***** written notice to Medarex.
14.4.2 Medarex. In that event that Schering fails to obtain a
-------
commercial license pursuant to Section 3.2 on or before the end of the
Evaluation Period, Medarex may terminate the Agreement with written notice to
Schering.
14.5 Effect of Termination and Expiration.
------------------------------------
(a) Accrued Rights and Obligations. Termination of
------------------------------
this Agreement for any reason shall not release any party hereto from any
liability which, at the time of such termination, has already accrued to the
other party or which is attributable to a period prior to such termination nor
preclude either party from pursuing any rights and remedies it may have
hereunder or at law or in equity with respect to any breach of this Agreement.
It is understood and agreed that monetary damages may not be a sufficient remedy
for any breach of this Agreement and that the non-breaching party may be
entitled to injunctive relief as a remedy for any such breach.
(b) Return of Confidential Information. Upon any
----------------------------------
termination or expiration of this Agreement, Schering and Medarex shall promptly
return to the other party all confidential Information of the other; provided
counsel of each party may retain one (1) copy of such Confidential Information
for archival purposes and for ensuring compliance with Article 8.
(c) Stock on Hand. In the event this Agreement is
-------------
terminated for any reason, Schering shall have the right to sell or otherwise
dispose of the stock of any Product subject to this Agreement then on hand,
subject to Articles 5 and 6 until the first anniversary of the effective date
of such termination.
(d) Return of Mice Materials. Upon any termination
------------------------
of this Agreement, Schering shall promptly return to Medarex, or destroy all
hybridomas provided by Medarex and all cells capable of producing Antibodies,
and in the event of such destruction an officer of Schering shall provide
Medarex with written certification thereof. Upon any termination or upon
completion of the Research Program, Medarex shall return to Schering any
quantities of Antigen not used in connection with the Research.
(e) Licenses. The option and license rights granted
--------
in Section 3.1 shall terminate upon any termination of this Agreement, and in
such event Schering and its Affiliates and Sublicensees shall cease all
development and commercialization of Products.
14.6 Survival. Section 2.7, the last two sentences of Section
--------
3.l.1, 3.4, 14.5 and 14.6, and Articles 5,6,8,10,11,12 and 15 of this Agreement
shall survive termination of this Agreement for any reason.
*****REPRESENTS CONFIDENTIAL PORTION WHICH HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE SEC. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.
-15-
<PAGE>
15. MISCELLANEOUS
15.1 Governing Law. This Agreement and any dispute, including
-------------
without limitation any arbitration, arising from the performance or breach
hereof shall be governed by and construed and enforced in accordance with the
laws of the state of California, without reference to conflicts of laws
principles.
15.2 Independent Contractors. The relationship of the parties hereto
-----------------------
is that of independent contractors. The parties hereto are not deemed to be
agents, partners or joint venturers of the others for any purpose as a result of
this Agreement or the transactions contemplated thereby.
15.3 Assignment. This Agreement shall not be assignable by Schering
----------
to any third party hereto without the written consent of Medarex which consent
shall not be unreasonably withheld; except Schering may assign this Agreement,
without such consent, to an entity that acquires all or substantially all of
its business or assets to which this Agreement pertains, whether by merger,
reorganization, acquisition, sale, or otherwise. Medarex may assign this
Agreement after the Research Period with prior notice to Schering. This
Agreement shall be binding upon and inure to the benefit of the parties and
their successors and assigns.
15.4 Notices. All notices, requests and other communications
-------
hereunder shall be in writing and shall be personally delivered or sent by
telecopy or other electronic facsimile transmission or by registered or
certified mail, return receipt requested, postage prepaid, in each case to the
respective address specified below, or such other address as may be specified in
writing to the other parties hereto:
If to Medarex: Medarex, Inc.
1545 Route 22 East
Annandale, New Jersey 08801
Attn: President
If to Schering: Schering AG
Mullerestrasse
178 Berlin
Germany D-13342
Attn: Legal Department
with a copy to: Berlex Biosciences
15049 San Pablo Avenue
Richmond, CA 94804-0099
Attn: Executive Director & General Counsel
15.5 Force Majeure. Neither party shall lose any rights hereunder or
-------------
be liable to the other party for damages or losses (except for payment
obligations) on account of failure of performance by
-16-
<PAGE>
the defaulting party if the failure is occasioned by war, strike, fire, Act of
God, earthquake, flood, lockout, embargo, governmental acts or orders or
restrictions, failure of suppliers, or any other reason where failure to perform
is beyond the reasonable control and not caused by the negligence, intentional
conduct or misconduct of the nonperforming party has exerted all reasonable
efforts to avoid or remedy such force majeure; provided, however, that in no
event shall a party be required to settle any labor dispute or disturbance.
15.6 Injunctive Relief. Schering acknowledges that limitations and
------------------
restrictions on its possession and use of Mice, Mice Materials, Antibodies,
Antigens and Confidential Information hereunder are necessary and reasonable,
and expressly agrees that monetary damages would be inadequate to compensate
Medarex for any violation. Schering agrees that any such violation would cause
irreparable injury to Medarex and agrees that without resorting to prior
mediation or arbitration, and, in addition to any other remedies that may be
available in law, in equity or otherwise, Medarex shall be entitled to obtain
temporary and permanent injunctive relief against any threatened violation of
such limitations or restrictions or the continuation of any such violation in
any court of competent jurisdiction, without the necessity of proving actual
damages or the posting an any bond.
15.7 Advice of Counsel. Medarex and Schering have each consulted
-----------------
counsel of their choice regarding this Agreement, and each acknowledges and
agrees that this Agreement shall not be deemed to have been drafted by one party
or another and will be construed accordingly.
15.8 Compliance with Laws. Each party shall furnish to the other party
--------------------
any information requested or required by that party during the term of this
Agreement or any extensions hereof to enable that party to comply with the
requirements of any U.S. or foreign federal, state and/or government agency.
15.9 Further Assurances. At any time or from time to time on and after
-------------------
the date of this Agreement, either party shall at the request of the other
party hereto (i) deliver to the requesting party any records, data or other
documents consistent with the provisions of this Agreement, (ii) execute, and
deliver or cause to be delivered, all such consents, documents or further
instruments of transfer or license, and (iii) take or cause to be taken all such
actions, as the requesting party to obtain the full benefits of this Agreement
and the transactions contemplated hereby.
15.10 Export Controls. Schering agrees that it will take all actions
----------------
necessary to insure compliance with all U.S. laws, regulations, orders or other
restrictions on exports and further will not sell, license or reexport,
directly, or indirectly, the Product(s) to any person or entity for sale in any
country or territory, if, to the knowledge of Schering based upon reasonable
inquiry, such sale, would cause the parties to be in violation of any such laws
or regulations now or hereafter in effect. Schering agrees to secure form any
recipient of Product(s) adequate manually signed written assurances prior to
shipment from the United States as are required by the U.S. Export Regulations.
-17-
<PAGE>
15.11 Severability. In the event that any provisions of this Agreement
------------
are determined to be invalid or unenforceable by a court of competent
jurisdiction, the remainder of the Agreement shall remain in full force and
effect without said provision, in such event, the parties shall in good faith
negotiate a substitute clause for any provision declared invalid or
unenforceable, which shall most nearly approximate the intent of the parties in
entering this Agreement.
15.12 Waiver. It is agreed that no waiver by either party hereto of any
------
breach or default of any of the covenants or agreements herein set forth shall
be deemed a waiver as to any subsequent and/or similar breach or default.
15.13 Complete Agreement. This Agreement with its Exhibits, constitutes
------------------
the entire agreement, both written and oral, between the parties with respect to
the subject matter hereof, and that all prior agreements respecting the subject
matter hereof, either written or oral, expressed or implied, are merged and
canceled, and are null and void and of no effect. No amendment or change hereof
or addition hereto shall be effective or binding on either of the parties
hereto unless reduced to writing and duly executed on behalf of both parties.
15.14 Use of Name. Neither party shall use the name or trademarks of
-----------
the other party without the prior written consent of such other party.
15.15 Headings. The captions to the several Sections and Articles
--------
hereof are not a part of this Agreement, but are included merely for
convenience of reference only and shall not affect its meaning or
interpretation.
15.16 Counterparts. This Agreement may be executed in two counterparts,
------------
each of which shall be deemed an original and which together shall constitute
one instrument.
IN WITNESS WHEREOF, Medarex and Schering have executed this Agreement by
their respective duly authorized representatives.
<TABLE>
<CAPTION>
MEDAREX, INC. SCHERING AG
<S> <C>
By: /s/ Michael Appelbaum By: /s/ Prof. Dr. G. Stock Dr. J.F. Kapp
-------------------------------- --------------------------- -----------------
Print Name: Michael Appelbaum Print Name: Prof. Dr. G. Stock Dr. J.F. Kapp
----------------------- ------------------ -----------------
Title: Executive Vice President Title: Feb. 10, 1998
---------------------------- ----------------------- -----------------
</TABLE>
-18-
<PAGE>
Medarex Research Plan
*****
***** REPRESENTS CONFIDENTIAL PORTION WHICH HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SEC. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
-19-
<PAGE>
*****
***** REPRESENTS CONFIDENTIAL PORTION WHICH HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SEC. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.
-20-
<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, 1998 and is qualified
in its entirety by reference in such statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 5,671,814
<SECURITIES> 14,579,061
<RECEIVABLES> 48,985
<ALLOWANCES> (5,000)
<INVENTORY> 52,436
<CURRENT-ASSETS> 36,911,455
<PP&E> 5,991,871
<DEPRECIATION> (2,873,498)
<TOTAL-ASSETS> 41,661,850
<CURRENT-LIABILITIES> 39,852,244
<BONDS> 0
0
0
<COMMON> 221,890
<OTHER-SE> 93,335,424
<TOTAL-LIABILITY-AND-EQUITY> 41,661,850
<SALES> 59,213
<TOTAL-REVENUES> 1,313,558
<CGS> 131,351
<TOTAL-COSTS> 6,478,182
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (600,218)
<INCOME-PRETAX> (5,069,771)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,069,771)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,069,771)
<EPS-PRIMARY> (0.23)
<EPS-DILUTED> 0
</TABLE>
