<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For quarter ended June 30, 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 August
10, 1998 was 25,923,913 shares.
Page 1 of 15
<PAGE>
MEDAREX, INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
------
Current assets
Cash and cash equivalents $ 6,723 $ 2,685
Marketable securities 21,721 12,408
Note receivable 15,000 15,000
Trade accounts receivable, less allowance for doubtful
accounts of $5 thousand 25 27
Other receivable - 7,100
Inventory 44 41
Prepaid expenses and
other current assets 1,042 2,167
-------- ---------
Total current assets 44,555 39,428
Property and equipment
Machinery and equipment 3,191 4,193
Furniture and fixtures 210 278
Leasehold improvements 2,030 2,179
-------- ---------
5,431 6,650
Less accumulated depreciation and amortization (2,573) (3,143)
-------- ---------
2,858 3,507
Investments in, and advances to affiliates 415 515
Segregated cash 315 675
Patent rights and other assets 552 531
-------- ---------
Total assets $ 48,695 $ 44,656
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
Current liabilities
Trade accounts payable $ 382 $ 964
Accrued liabilities 8,101 4,963
GenPharm acquisition liability 34,424 42,071
-------- ---------
Total current liabilities 42,907 47,998
Long-term obligations 107 77
Commitments - -
Stockholders' equity (deficit):
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 22,202,036 shares issued and outstanding,
respectively 219 222
Capital in excess of par value 92,142 93,358
Accumulated other comprehensive income 188 76
Accumulated deficit (86,868) (97,075)
-------- ---------
Total stockholders' equity (deficit) 5,681 (3,419)
-------- ---------
Total liabilities and stockholders' equity (deficit) $ 48,695 $ 44,656
======== =========
</TABLE>
See notes to these unaudited consolidated financial statements.
Page 2 of 15
<PAGE>
MEDAREX, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30, June 30, June 30,
1997 1998 1997 1998
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Sales $ 106 $ 521 $ 56 $ 462
Grants, contract and license revenues 822 2,883 422 1,629
------------ ------------ ------------ ------------
Total revenues 928 3,404 478 2,091
Costs and expenses:
Cost of sales 78 447 39 315
Research and development 5,646 10,950 3,116 5,663
General and administrative 1,692 2,204 882 1,146
Acquisition of in-process technology 10,750 - 87 -
------------ ------------ ------------ ------------
Operating loss (17,238) (10,197) (3,646) (5,033)
Interest and dividend income 813 1,200 422 505
Interest expense 8 1,209 2 608
------------ ------------ ------------ ------------
Net loss $ (16,433) $ (10,206) $ (3,226) $ (5,136)
============ ============ ============ ============
Basic and diluted net loss per share ($0.90) ($0.46) ($0.17) ($0.23)
============ ============ ============ ============
Weighted-average number of common
shares outstanding during the period
- basic and diluted 18,312,504 22,180,890 18,658,032 22,197,718
</TABLE>
See notes to these unaudited consolidated financial statements.
Page 3 of 15
<PAGE>
MEDAREX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
-------
1997 1998
---- ----
<S> <C> <C>
Operating activities:
Net loss $ (16,433) $ (10,206)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 259 380
Amortization 230 210
Gain on sale of equipment - -
Non cash interest expense - 1,201
Write-off of in-process technology 10,750 -
Changes in operating assets and liabilities, net of acquisition:
Increase in trade accounts receivable, net (3) (2)
Decrease (increase) in inventory (32) 3
Decrease (increase) in prepaid expenses and other 184 (1,125)
current assets
Increase (decrease) in trade accounts payable (337) 582
Decrease in accrued liabilities (339) (1,917)
Increase in GenPharm acquisition liability - (654)
----------- -----------
Net cash used in operating activities (5,721) (11,528)
Investing activities:
Purchase of property and equipment (139) (1,218)
Cash portion of Houston Bioechnology, Incorporated
acquisition, net of cash acquired (1,372) -
Decrease (increase) in other assets 7 (360)
Increase in advances to affiliate - (100)
Proceeds from sale of equipment 5 -
Sale of marketable securities 3,508 9,201
----------- -----------
Net cash provided by investing activities 2,009 7,523
Financing activities:
Cash received from sales of securities, net 154 31
Principal payments under debt obligations (22) (64)
----------- -----------
Net cash (used in) provided by financing activities 132 (33)
----------- -----------
Net decrease in cash and cash equivalents (3,580) (4,038)
Cash and cash equivalents at beginning of period 4,958 6,723
----------- -----------
Cash and cash equivalents at end of period $ 1,378 $ 2,685
=========== ===========
Supplemental disclosures of cash flow information
Cash paid during period for:
Income taxes $ - $ 983
=========== ===========
Interest $ 6 $ 8
=========== ===========
</TABLE>
See notes to these unaudited consolidated financial statements.
Page 4 of 15
<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 six-month periods ended June 30, are as follows:
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
(In thousands) 1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net loss $(3,226) $(5,136) $(16,433) $(10,206)
Unrealized gain (loss) on securities 107 (28) 103 (112)
----------------------------- ----------------------------------
Total comprehensive loss $(3,119) $(5,164) $(16,330) $(10,318)
</TABLE>
Page 5 of 15
<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 six months ended June 30, 1997.
The results of operations for the HBI acquisition were included in the June
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 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 15
<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. 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 (see Note 8). In June, 1998 the Company
recorded an additional $7.1 million net receivable and a corresponding $7.1
million net liability to the GenPharm shareholders. This represents the notice
of issuance of a patent that will result in a milestone payment to the Company
in the fourth quarter of 1998.
The pro-forma unaudited results of operations for the six months ended June
30, 1997 assuming the acquisitions of HBI and GenPharm took place at the
beginning of the period presented, are as follows:
Six Months Ended
(In thousands except per share data) June 30, 1997
----------------
Total revenue $ 2,915
Net loss (6,098)
Basic net loss per share $ (0.27)
The pro-forma information for the six months ended June 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 June 11, 1998, the Company announced that 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 and various affiliates, made an offer to purchase
rights (the "Rights") to receive shares of the Company's Common Stock totaling
approximately $44.4 million (the "Offer").
The Rights are held by former shareholders of GenPharm International, Inc.
("GenPharm"), as a result of the Company's acquisition of GenPharm in October
1997 for a total Purchase Price (the "Purchase Price") of up to $62.7 million in
stock, (or, in certain circumstances at the Company's option in cash) (See Note
7). Approximately $17.8 million of $62.7 million Purchase Price had been paid
prior to the Offer.
On August 5, 1998 the Company announced that Rights to receive
approximately $25.1 million of its Common Stock had been validly tendered and
accepted for purchase by BCC. BCC purchased the Rights and exchanged them for
3,721,877 shares of the Company's Common Stock plus warrants to purchase
approximately 454,796 shares, exercisable at $10 per share over a seven year
term. The transactions closed on August 4, 1998. Through these transactions, BCC
acquired 15.8% of the Company's shares, assuming exercise of the warrants in
full. In addition, in connection with the Offer Fred Craves, Ph.D., a principal
of Bay City Capital LLC, joined the Medarex Board of Directors.
As a result of the Offer, the former GenPharm shareholders who did not
tender their Rights are entitled to receive $19,289,830, representing the
balance of the Purchase Price. The Company expects to make this payment by
December 31, 1998, in stock or, under certain circumstances at the Company's
option in cash.
Page 7 of 15
<PAGE>
8. RECENT DEVELOPMENTS (CON'T)
On July 29, 1998 the Company announced that it entered into an antibody
development agreement with FibroGen, Inc. ("FibroGen") for potential anti-
fibrotic therapies. The Company could receive research and development
payments, license fees and milestone payments exceeding $30 million plus royalty
payments on future product sales by FibroGen.
The agreement calls for the Company to use its patented HuMAb-MouseTM
technology to produce fully human antibodies against FibroGen's proprietary
targets. FibroGen's targets include connective tissue growth factor (CTGF) and
its processed fragments, bone morphogenic protein 1 and tolloids, key proteins
implicated in fibrotic disease.
Page 8 of 15
<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 $15.1 million in cash, cash equivalents
and marketable securities and approximately $0.7 million in a segregated cash
account as of June 30, 1998. Operating activities consumed $11.5 million of cash
for the six-month period ended June 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 the $15 million note due September 30,
1998 and patent milestone payment of $7 million due in the fourth quarter of
1998. Although the Company believes that these payments will be received (and
the Company has received timely payments of sums due from the parties obligated
to make such payments), no assurance can be given that the Company will receive
such payments.
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 $10,500,000. This lease runs through December 2001. As of June
30, 1998, the Company had commitments for approximately $367,000 of capital
expenditures.
Page 9 of 15
<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. 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. See Note 8 "Recent Developments." 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, approximately $19.3
million. 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.
Results of Operations
- ---------------------
Six months ended June 30, 1997 and 1998
- ---------------------------------------
Revenue for the six-month period ended June 30, 1998 increased by $2,476,000,
a 267% increase from the six-month period ended June 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") and Merck KGaA ("E. Merck").
Cost of sales increased by $369,000 during the first six months of 1998, a
473% increase as compared to the first six 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 for E. Merck.
Page 10 of 15
<PAGE>
Results of Operations
- ---------------------
Six months ended June 30, 1997 and 1998 (con't)
- -----------------------------------------------
Research and development expenses increased $5,304,000 during the first six
months of 1998, a 94% increase from the first six 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, supply expenses 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 $512,000 for the first six
months of 1998, a 30% increase from the first six months of 1997. The increase
is primarily attributable to higher personnel costs, consulting and travel
expenses.
Acquisition of in-process technology charges of $10,750,000 for the period
ended June 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 $387,000 for the first six months of
1998, a 48% increase from the same period in 1997. The increase reflects
accrued interest 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 $1,201,000 for the first six months of 1998.
The increase is attributable to the amortization of a discount associated with
the accounting treatment of the value of the liablity due to GenPharm
shareholders before the end of 1998 pursuant to the acquisition of GenPharm by
the Company in October 1997.
Three months ended June 30, 1997 and 1998
- -----------------------------------------
Revenue for the three-month period ended June 30, 1998 increased by
$1,613,000, a 337% increase from the three-month period ended June 30, 1997.
The increase relates principally to payments pursuant to license agreements with
Eisai, Centeon, Schering and E. Merck.
Cost of sales increased by $276,000 during the quarter ended June 30, 1998, a
708% increase as compared to the second quarter 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 $2,547,000 during the quarter
ended June 30, 1998, an 82% 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, supply expenses, personnel costs and patent 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.
Page 11 of 15
<PAGE>
Three months ended June 30, 1997 and 1998 (con't)
- -------------------------------------------------
General and administrative expenses increased by $264,000 for the three-
month period ending June 30, 1998, a 30% increase from the same period in 1997.
The increase is primarily attributable to higher personnel costs, consulting and
travel expenses.
Acquisition of in-process technology charges of $87,000 for the period
ended June 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 $83,000 for the three-months
ending June 30, 1998, a 20% increase from the same period in 1997. The increase
reflects accrued interest on the Cell Genesys note receivable, partially offset
by a lower average cash balance.
Interest expense increased by $606,000 for the three-months ending June 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 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 12 of 15
<PAGE>
Part II Other Information
ITEM 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Shareholders held on May 21, 1998, the Company
elected three Class III Directors each to serve for a term to expire in
2001 and voted to confirm the appointment of Ernst & Young LLP as
independent auditors for the 1998 fiscal year. Out of the 22,188,986
eligible votes, 18,034,904 were cast at the meeting either by proxies
solicited in accordance with Schedule 14A or by securities holders
voting in person. There were 4,154,082 broker non-votes which are not
included in the following table as they were not treated as being
present at the meeting. In the case of directors, abstentions are
treated as votes withheld and are included in the table. The tabulation
of votes for each nominee is set forth under Item No. 1 below, and the
appointment of Ernst & Young LLP as independent auditors for the 1998
fiscal year is set forth in Item No. 2 below:
Item No. 1
----------
Nominees for Directors
----------------------
Directors Votes For Votes Withheld
--------- --------- --------------
Irwin Lerner 17,899,518 135,386
Dr. Julius Vida 17,901,473 133,431
Dr. W. Leigh Thompson, Jr. 17,908,209 126,695
The following persons are incumbent directors whose terms of office
continue after the Annual
Meeting:
Class II Terms Expiring in 1999 Class I Terms Expiring in 2000
------------------------------- ------------------------------
Michael A. Appelbaum Charles R. Schaller
Michael W. Fanger Donald L.Drakeman
Fred Craves Robert Iggulden
Item No. 2
----------
Appointment of Ernst & Young LLP as Independent Auditors for the 1998
fiscal year:
FOR AGAINST ABSTAIN
--- ------- -------
17,950,529 71,773 12,604
Page 13 of 15
<PAGE>
Part II - Other Information (con't)
ITEM 5. Other Information
Effective June 29, 1998, the Securities and Exchange Commission
adopted changes to Rule 14a-4(c)(1) of the Proxy Rules which now
limits a registrant's use of its discretionary proxy voting authority
at annual meetings with respect to matters raised at the meeting
(without discussion in the proxy statement), only to those matters
where a proponent had failed to notify the registrant of the matter at
least 45 days prior to the date on which the registrant first mailed
the prior year's proxy statement (or date specified by an advance
notice provision in the registrant's charter or by laws). Such 45-day
deadline for the Company's annual meeting next year will be April 5,
1999.
ITEM 6. Exhibits and reports on Form 8-K
(a) Reports on Form 8-K:
(1) Form 8-K filed on June 15, 1998 re: Offer to Purchase Rights of
GenPharm International, Inc. Shareholders to receive the
Company's Common Stock
Page 14 of 15
<PAGE>
Signatures
----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MEDAREX, INC.
-------------
(Registrant)
Date: August 10, 1998 By /s/ Michael A. Appelbaum
---------------------------
Michael A. Appelbaum
Executive Vice President
Finance and Administration
(Principal Financial and
Accounting Officer)
Page 15 of 15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements for the six months ended June 30, 1998 and is qualified in
its entirety by reference in such statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 2,685
<SECURITIES> 12,408
<RECEIVABLES> 32
<ALLOWANCES> (5)
<INVENTORY> 41
<CURRENT-ASSETS> 39,428
<PP&E> 6,650
<DEPRECIATION> (3,143)
<TOTAL-ASSETS> 44,656
<CURRENT-LIABILITIES> 47,998
<BONDS> 0
0
0
<COMMON> 222
<OTHER-SE> 93,358
<TOTAL-LIABILITY-AND-EQUITY> 44,656
<SALES> 521
<TOTAL-REVENUES> 3,404
<CGS> 447
<TOTAL-COSTS> 13,601
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,209)
<INCOME-PRETAX> (10,206)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,206)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,206)
<EPS-PRIMARY> (0.46)
<EPS-DILUTED> 0
</TABLE>
