MEDAREX INC, 10-K405, 1999-03-30

MEDAREX INC
10-K405, 1999-03-30
BIOLOGICAL PRODUCTS, (NO DIAGNOSTIC SUBSTANCES)

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

FORM 10-K

ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 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 08801-0953
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (908) 713-6001

Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:

<TABLE>
<CAPTION>
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
<S> <C>
Common Stock ($0.01 par value) The Nasdaq Stock Market under symbol MEDX
</TABLE>

Indicate by check mark whether the 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 [_]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.
[X]

As of December 31, 1998, the registrant had outstanding 31,507,186 shares of
Common Stock, $0.01 par value ("Common Stock"), which is registrant's only
class of Common Stock.

The aggregate market value of registrant's Common Stock held by non-affiliates
based on the closing price of $3.38 per share on March 15, 1999 was
approximately $85,400,000.

DOCUMENTS INCORPORATED BY REFERENCE
(Specific pages incorporated are identified under the applicable item herein)

Portions of the registrant's definitive Proxy Statement for the annual meeting
of stockholders to be held on May 21, 1998 (the "Proxy Statement") are
incorporated by reference in Part III of this Report. Other documents
incorporated by reference in this report are listed in the Exhibit Index.
<PAGE>

PART I

This Annual Report for Medarex, Inc. ("Medarex" or the "Company") contains
forward-looking statements which involve risk and uncertainties. The Company's
actual results may differ significantly from the results discussed in the
forward-looking statements. Factors that might cause such a difference
include, but are not limited to, those discussed in "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business" as well as those discussed elsewhere in this
document. Actual events or results may differ materially from those discussed
in this Annual Report.

Item 1. Business

General

Medarex is an integrated monoclonal antibody-based company with antibody
discovery, development and manufacturing capabilities. Utilizing its HuMAb-
Mouse(TM) system, Medarex has the ability to make fully-human antibodies in a
transgenic mouse whose mouse genes for creating antibodies have been
inactivated and replaced by human antibody genes. The Company has entered into
ten corporate partnering arrangements based on the HuMAb-Mouse system.

In addition to its antibody discovery capabilities, the Company's broad
based technology platform has led to seven products in clinical trials and
includes: (i) bispecific antibodies that are designed to bind to both disease
targets and immune system killer cells simultaneously; (ii) immunoconjugates,
a monoclonal antibody linked to a toxin; and (iii) monoclonal antibodies.

The Company has strategic alliances with Novartis Pharma AG of Basel,
Switzerland ("Novartis"), Merck KGaA of Darmstadt, Germany ("E. Merck"),
Centeon, L.L.C. of King of Prussia, Pennsylvania ("Centeon"), Santen
Pharmaceutical Co., Ltd. of Osaka, Japan ("Santen"), Eisai Co., Ltd. of Tokyo,
Japan ("Eisai"), Centocor, Inc. of Malvern, Pennsylvania ("Centocor"),
LeukoSite, Inc. of Cambridge, Massachusetts ("LeukoSite"), Bristol-Myers
Squibb Company of Princeton, New Jersey ("Bristol-Myers"), Schering AG of
Berlin, Germany ("Schering AG"), Immunex Corporation of Seattle, Washington
("Immunex"), Fibrogen, Inc. of South San Francisco, California ("Fibrogen"),
medac GmbH of Hamburg, Germany ("medac") and E-Site Therapeutics, Inc. of New
York, New York ("E-Site"). The Company's products, their indications, clinical
status, collaborative agreements and commercial rights are outlined in the
table below.

<TABLE>
<CAPTION>
Product Indication Status Commercial Rights
------- ---------------------- ------------ ---------------------------------------
<S> <C> <C> <C>
Bispecific Antibodies
MDX-210 Cancer Phase II Medarex--Worldwide
MDX-447 Cancer Phase II Medarex--United States E. Merck--Europe
Medarex/E. Merck--Rest of World
MDX-220 Cancer Phase I/II Medarex--Worldwide
Immunoconjugates
MDX-RA Secondary Cataracts Phase III Medarex--Worldwide, Except Japan
Santen--Japan
MDX-44 Psoriasis Pre-Clinical Medarex--Worldwide
Monoclonal Antibodies
MDX-33 Autoimmune Disease Phase II Centeon--Worldwide
MDX-22 Acute Myeloid Leukemia Phase II Medarex--Worldwide
Human Monoclonal
Antibodies
MDX-CD4 Autoimmune Disease Phase I Eisai--Europe and Asia
Medarex--Rest of World
(HuMAb- Mouse Undisclosed Pre-Clinical Medarex/LeukoSite--Worldwide
antibodies)
(HuMAb- Mouse Undisclosed Pre-Clinical Centocor--Worldwide
antibodies)
(HuMAb- Mouse Undisclosed Pre-Clinical Fibrogen--Worldwide
antibodies)
(HuMAb- Mouse Hodgkin's Disease Pre-Clinical Medarex--North America medac--Europe
antibodies) Medarex/medac--Rest of World
(HuMAb- Mouse Undisclosed Pre-Clinical E-Site--Worldwide
antibodies)
(HuMAb- Mouse Undisclosed Pre-Clinical Novartis--Worldwide
antibodies)
(HuMAb- Mouse Undisclosed Pre-Clinical Bristol-Myers--Worldwide
antibodies)
(HuMAb- Mouse Undisclosed Pre-Clinical Schering AG--Worldwide
antibodies)
(HuMAb- Mouse Undisclosed Pre-Clinical Immunex--Worldwide
antibodies)
</TABLE>

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Fully Human Monoclonal Antibodies-HuMAb-Mouse(TM)

Through the acquisition of GenPharm International, Inc. ("GenPharm") in 1997
(the "Merger"), the Company acquired the ability to create fully human
monoclonal antibodies through its patented HuMAb-Mouse technology. The HuMAb-
Mouse is a transgenic mouse engineered so that its mouse genes for creating
antibodies have been inactivated and have been replaced by human antibody
genes. The Company has combined mice having different genetic backgrounds by
cross-breeding and other techniques and has demonstrated that the resulting
transgenic mice and their offspring are capable of generating a wide range of
human sequence antibodies to various antigens, including human antigens.
Generally, within 10-14 weeks of selection of a target antigen, GenPharm's
proprietary technology can develop hybridomas (immortalized monoclonal
antibody secreting cells) that produce clones to multiple epitopes on each
antigen.

The Company believes that its HuMAb-Mouse is essentially a combinatorial
biology technology, which permits rapid screening of multiple antibodies for
"hits" to many different biological targets. This combinatorial biology
provides Medarex with a drug discovery capability that leverages the Company's
monoclonal antibody manufacturing and clinical development capabilities and is
complimentary to its existing portfolio of monoclonal antibody therapeutic
agents. The acquisition of GenPharm's transgenic mouse technologies has
provided Medarex with monoclonal antibody drug discovery and development
capabilities that range from concept through the clinic and which can be
utilized across multiple targets and partners. See "Risk Factors".

The Company is currently offering a range of HuMAb-Mouse services,
including: access to the HuMAb-Mouse, custom creation of monoclonal antibodies
and the scale up and production of such antibodies in its manufacturing
facilities. Medarex entered into six new HuMAb-Mouse collaborations in 1998,
and while no assurance can be given, management believes that it will enter
into several partnerships relating to the HuMAb-Mouse technology during 1999.
See "Risk Factors".

The Company is developing MDX-CD4, a HuMAb-Mouse fully human antibody, for
the treatment of rheumatoid arthritis and other autoimmune disorders. MDX-CD4
binds to human CD4, which is present on the surface of certain T-cells in the
human immune system. By binding to such T-cells, MDX-CD4 is designed to
inactivate or reduce the ability of these cells to mediate the persistent
inflammation characteristics of such autoimmune diseases. The Company
commenced Phase I clinical trials of MDX-CD4 in 1998. This development project
is being carried out in conjunction with Eisai.

Bispecific Antibodies--Triggering the Immune System

The Company's bispecific technology provides a dual binding capability for
monoclonal antibodies and is essentially a target-trigger combination in which
one portion of the product binds to a trigger molecule on immune system killer
cells and the other binds to the tumor cell or infectious agent to be
eliminated. After joining the killer cell and the tumor cell or pathogen, the
bispecific triggers the killer cell's destruction of the target. Based on
clinical trial results to date, management believes that its bispecifics have
the potential to cause the destruction of tumors and pathogens that ordinarily
might escape detection by the body's immune system. The trigger portion of the
Company's bispecific products may be linked to a variety of different
targeting mechanisms, such as recombinant proteins, single chain antibodies
and antibody fragments. For this reason, the Company believes that its
bispecifics may be designed for the treatment of a wide range of cancers,
viruses, bacteria and parasites. The Company has patented the trigger
molecules and has obtained licenses to a number of targeting mechanisms.

The Company's bispecific products include: (i) MDX-210, a bispecific for the
treatment of cancers overexpressing an antigen known as HER-2, has recently
completed a series of Phase II clinical trials for the treatments of prostate,
colon and kidney cancers; (ii) MDX-447, a bispecific for the treatment of
cancers overexpressing an antigen known as the epidermal growth factor
receptor ("EGF-R"), is currently in Phase II clinical trials for the treatment
of head and neck cancer. This product was developed in collaboration with E.
Merck. The Company has exclusive commercialization rights in the United
States, E. Merck has exclusive rights

2
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in Europe, and the companies share the rights in the rest of the world. In
1998, E. Merck purchased an option from the Company for the exclusive right to
negotiate for additional territorial rights for MDX-447; and (iii) MDX-220, a
bispecific therapeutic for tumors including colon and prostate cancer that
express an antigen known as TAG-72. MDX-220 is in Phase I/II clinical trials
and the Company has retained worldwide rights to this product.

Immunoconjugates--Delivering Active Agents

MDX-RA is an immunotoxin used to prevent secondary cataracts. This
immunotoxin is a type of monoclonal antibody linked to ricin, a plant-derived
toxin, which is injected into the eye during primary cataract surgery after
the insertion of a new intraocular lens. This immunotoxin is used to destroy
residual lens epithelial cells, which, if left to grow, could cause
opacification of the new intraocular lens resulting in the need for secondary
cataract surgery. In 1995 there were approximately 2.2 million/1/ primary
cataract surgeries and approximately 0.8 million/1/ secondary cataract
surgeries. A Phase I/II placebo-controlled clinical trial has been completed
and the results demonstrate that MDX-RA inhibits the development of
opacification of new intraocular lenses following primary cataract surgery. A
Phase III placebo controlled clinical trial of MDX-RA began in December 1997.
In November of 1998, the Phase III trial was suspended by the trial's safety
committee after 565 patients had been treated. The reason for the suspension
was the occurrence of serious adverse events ("SAE's") in seven (7) patients
receiving a placebo and six (6) patients treated with MDX-RA. The Company is
currently analyzing the SAE's and product formulation to try to determine the
cause of the SAE's.

MDX-44, for the treatment of psoriasis and other dermatological conditions,
is in pre-clinical development. Like MDX-RA, MDX-44 is an immunoconjugate
consisting of an antibody linked to ricin. The Company expects to start
clinical trials in 1999.

Monoclonal Antibodies--Blocking the Immune System

The Company is developing a therapeutic product, MDX-33, for the treatment
of ITP, an autoimmune condition in which patients' platelets are destroyed by
their own immune systems. Conventional treatments include steroids, removal of
the spleen and high doses of intravenous IgG. The Company believes that
intravenous IgG creates an antibody blockade by overwhelming Fc receptors on
immune system killer cells with extremely large quantities of antibodies, thus
minimizing the effects of the auto-antibodies. MDX-33 is designed to reduce
the number of Fc receptors, and the Company believes that MDX-33 may achieve
the same therapeutic results as large doses of IgG. MDX-33, which is currently
in Phase II clinical trials, is the subject of a worldwide collaboration with
Centeon.

The Company's product, MDX-22, for Acute Myeloid Leukemia ("AML"), is
currently in Phase II clinical trials. Results of these trials indicate that
this product continues to promote long term disease free survival for patients
with AML.

GenPharm Acquisition

On October 21, 1997, the Company acquired all of the assets and liabilities
of 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 Company agreed to pay GenPharm
shareholders up to $62,725,000 (the "Purchase Price"), subject to adjustments
payable in shares of Medarex Common Stock. The acquired assets and liabilities
assumed were recorded at their estimated fair market values at the date of
acquisition, including tangible assets acquired of $27,346,000 (primarily cash
and marketable securities of $12,000,000 and a note receivable from Cell
Genesys, Inc. of $15,000,000), liabilities assumed of $2,448,000, in-process
research and development of $29,931,000 and transaction costs and other costs
of $2,092,000. The

- --------
/1 /Source: The Office of Clinical Standards and Quality Control Coverage and
Analysis Group of the Health Care Financing Administration (HCFA)
Statistics for 1995.

3
<PAGE>

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 of
$29,931,000 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, Medarex paid a stock bonus to certain employees of GenPharm in an
amount of $2,275,000 by issuing 394,942 shares of Common Stock valued at $5.76
per share.

As payment of $17,794,000 of the Purchase Price, in 1997 Medarex issued 3.25
million shares of its Common Stock (valued at $5.475 per share) to GenPharm's
shareholders. On August 4, 1998, certain of the former GenPharm shareholders
assigned their rights (the "Rights") to receive $25,123,000 of the remaining
balance of the Purchase Price to BCC Acquisition I LLC ("BCC"), a limited
liability company formed between The Bay City Capital Fund I, L.P., an
affiliate of Bay City Capital LLC and various affiliates of BCC. As part of
this transaction, the Company issued 3,721,877 shares of Common Stock and
warrants to purchase 454,796 shares of Common Stock at an exercise price of
$10.00 per share exercisable over a period of seven (7) years to BCC in
exchange for such Rights (the "Rights Exchange"). On September 1, 1998, the
Company prepaid the remaining balance of the Purchase Price owed to the
GenPharm shareholders ($19,290,000) by issuing 3,829,315 shares of Common
Stock, valued at $5.04 per share.

Technology Overview

Monoclonal Antibodies

One of the body's natural defenses against disease is the creation of
antibodies by the immune system. Based on immune responses over one's lifetime
either to infections or vaccinations, adults typically have a large number of
antibodies (exceeding 10/20/) present in their bodies. These antibodies are
proteins that seek out, recognize and bind to a particular site on cells,
viruses and other organisms (each, an "antigen") in a highly specific manner,
one that can be likened to a key fitting into a lock. Each antibody detects
and binds to a particular antigen. It is this specificity that makes
antibodies potentially useful in various therapeutic applications.

A monoclonal antibody is a type of antibody produced from a single cell
known as a hybridoma. The growth of a hybridoma allows the continuous
production of a single type of monoclonal antibody over an indefinite period
of time. All antibodies produced by the same hybridoma are identical; they
bind to the same antigen in exactly the same way. The advent of monoclonal
antibodies in 1975 created interest among scientists and physicians who
believed that this new development could be used to treat cancer and other
illnesses by directing therapy to tumor cells as well as viruses, bacteria and
parasites. Since that time, scientists have attempted to design therapeutic
products based upon monoclonal antibodies, and researchers have produced a
number of these monoclonal antibodies that bind to tumors or pathogens.

Therapeutic Uses of Monoclonal Antibodies

There are three main approaches to the use of monoclonal antibodies to treat
disease, and the Company has assembled proprietary technology and expertise in
each area. This technology and expertise will also be made available to its
partners for the HuMAb-Mouse. These approaches are:

Triggering the Immune System--One goal of monoclonal antibody development
is to direct the immune system to attack a target, such as a tumor cell.
The Company believes that its bispecific antibody technology represents an
efficient method of recruiting killer cells and antigen presenting cells to
destroy tumors or infectious agents. The Company's MDX-210 , MDX-447 and
MDX-220 products are designed to employ this bispecific technology, which
is covered by numerous patents issued or assigned to the Company.

Blocking Immune Functions--Monoclonal antibodies can be used in vivo to
interfere with an immune activity that causes, for example, organ
transplant rejection or autoimmune disease. The Company's MDX-CD4 and MDX-
33 products are designed to act in this manner.

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Delivering Active Agents--Monoclonal antibodies can be used effectively for
their "targeting" abilities, i.e., their ability in vivo to locate and bind
to a particular target, such as a tumor. By linking a toxin or radioisotope
to the antibody, the target can be destroyed by the "toxic payload"
attached to the antibody. The Company's MDX-RA and MDX-44 products function
in this manner.

Bispecific Technology

Triggering the Immune System--Bispecific Technology. To create a therapeutic
effect by triggering the immune system, an antibody must not only bind itself
to a tumor cell or pathogen but must also stimulate a response by other
components of the immune system to kill the tumor cell or pathogen. Typically,
this occurs when the antibodies attract the attention of killer cells--white
blood cells such as macrophages, monocytes and neutrophils (collectively,
"macrophages"). Macrophages are natural immune cells of the body whose normal
role is the elimination of foreign pathogens such as viruses and bacteria. To
signal a macrophage to kill a particular target, an antibody must not only
attach to its target, but must also bind itself to a trigger molecule on the
surface of the macrophage. This trigger molecule is known as an Fc receptor.
Fcg receptors are involved in clearance of antibody bound pathogens and target
cells. Three different classes of human Fcg receptors which bind human
immunoglobulin (IgG) have been defined, utilizing antibody subtypes that are
specific for each. The type I Fcg receptor is highly expressed on monocytes
and macrophages and binds IgG with high affinity. The type I Fcg receptor is
the only Fcg receptor that binds IgG and has been demonstrated to mediate
killing of tumor cell targets in vitro by all cells on which it is found in
the body. Throughout this document, unless otherwise indicated, the use of the
word "Fc receptor" refers only to the type I Fcg receptor. It is only when the
antibody binds simultaneously both to its target and to an Fc receptor on a
macrophage that the macrophage responds by destroying the target.

The Fc receptor is found on large numbers of killer cells such as
macrophages and monocytes and can be activated on neutrophils and dendritic
cells. The Fc receptor is a trigger molecule that can initiate an
immunological chain reaction leading to various activities, including specific
target cell killing, phagocytosis, release of cytokines and antigen
presentation. These activities involve not only the Fc receptor-bearing killer
cells, but also through their actions, helper T cells, cytotoxic (killer) T
cells, B cells and antibody production. Phagocytosis involves internalizing
the pathogen and breaking it down into fragments, which are then transported
to the surface of the killer cell and "presented" to helper T cells and B
cells. This process, known as antigen presentation, can lead to the production
of cytotoxic T cells and antibodies specific to the pathogen. Conventional
vaccines typically employ this process to induce protective immunity against a
wide variety of diseases.

The Company believes that only one antibody at a time can bind at the normal
binding site of an Fc receptor, and normally all Fc receptors are fully
occupied by circulating antibodies (most of which are not attached to any
pathogen). Monoclonal antibodies that are given to a patient for the treatment
of a disease, may therefore compete with the vast number of normal antibodies
present in the body, many of which are capable of attaching themselves to a
triggering Fc receptor. The Company believes that this "antibody-blockade" has
impeded monoclonal antibodies from being therapeutically effective.
Furthermore, many of the monoclonal antibodies that have been used for therapy
are rapidly cleared from the body because they appear as foreign substances to
the immune system, and thus have only a short time in which to attach to Fc
receptors. Finally many of the earliest murine (i.e., mouse derived)
monoclonals interacted poorly, if at all, with human Fc receptors. Human and
humanized antibodies were designed to overcome the deficiencies of murine
antibodies. They are capable of binding to and triggering Fc receptors, but
that binding may be inefficient because the monoclonals must compete with the
antibody-blockade.

Medarex's bispecifics typically consist of two antibody fragments, each of
which is specific for a different site, that are fused into one "bispecific"
antibody. The "trigger" fragment, which is a humanized antibody fragment
proprietary to Medarex, is specific for the Fc receptor, and consequently is
capable of binding to and triggering a macrophage. The "target" fragment,
which has in the past been licensed to Medarex by third parties and may now be
created using the HuMAb-Mouse system, is specific for a particular antigen on
a tumor cell or pathogen, depending on the target fragment utilized. The
Company's bispecifics, therefore, are designed to bind

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to a specific type of tumor cell or pathogen and to a killer cell, triggering
the destruction of the target by the killer cell. See "Risk Factors".

Based on clinical trial results, the Company believes that its bispecific
technology differs from conventional antibody technology in that it involves
an approach that circumvents antibody-blockade. Medarex's bispecific products
can attach directly to Fc receptors without competition from natural
antibodies because they bind at a site that is separate from the normal
binding site. Data from clinical trials has shown that a large percentage of
the patient's monocytes can be "armed" with thousands of bispecifics within
minutes after the infusion of a few milligrams of the product. When the
targeting component of the bispecific binds to a tumor or pathogen, the killer
cell may be triggered to destroy the target and to commence the process of
antigen presentation. The bispecific products may thus combine the potential
for cell killing (cytotoxicity) with antigen presentation (in a sense,
vaccinating the patients against their own disease). By their potential
ability to combine targeted cell killing with antigen presentation,
bispecifics are designed to be more efficient than monoclonal antibodies and
to have a more comprehensive and enduring effect than other therapeutic agents
designed only to destroy tumor cells or pathogens. See "Risk Factors".

The Company believes its anti-tumor therapeutic products may also be
employed as therapeutic vaccines. Based on clinical trial results, management
believes that these products may cause the presentation of tumor-associated
antigens that are different from the originally targeted antigen. This same
approach may be employed in developing therapeutic vaccines for infectious
diseases, and it may also be used to induce the presentation of antigens that
are normally difficult to present when conventional adjuvants are used. See
"Risk Factors."

The Company announced in December 1997 a potential new approach to using
monoclonal antibodies for the treatment of infectious diseases. In new
scientific studies, a team of academic and Medarex scientists demonstrated
that antibodies that bind to the IgA receptor recruit neutrophils to attack
infectious fungi and tumor cells. Since neutrophils, the most populous white
blood cells in the body, are the main natural defense against invading fungi,
these findings may lead to the development of products for the treatment of
infectious diseases. Like Medarex's existing bispecifics that recruit killer
cells via other receptors, IgA receptor bispecifics are a target-trigger
combination that are designed to enhance and direct the body's own immune
system. One arm of the bispecific attaches to the disease target while the
other binds to the IgA receptor on neutrophils and other killer white blood
cells. Medarex has applied for patent protection on this additional trigger
technology.

Other Monoclonal Antibody Technology

Blocking the Immune System--Monoclonal Antibodies. The first monoclonal
antibody product approved by the FDA for therapeutic use was OKT-3, which was
designed to block the immune system's T cells from rejecting transplanted
organs. More recently, the FDA approved the sale of ReoPro(R) (ReoPro(R) is a
registered trademark of Centocor, Inc.), an antibody fragment designed to
block the GPIIBIIIA receptor on platelets. These monoclonal antibody products
do not rely on activating the immune system; instead, they seek to bind to a
particular receptor or cell in a way that will hinder the immune system from
carrying out an undesired action. Such products may consist of antibody
fragments, which principally contain the antigen binding region of the
antibody, or fully intact monoclonal antibodies.

Technology for Human and Humanized Antibodies

Beginning in the 1980's, a number of mouse monoclonal antibodies were
employed in clinical trials of patients with cancer, infectious diseases and
other life threatening conditions. Some of these trials did not show
significant levels of therapeutic activity as a result of the monoclonal
antibody treatment, and researchers subsequently discovered that: (1) many
mouse monoclonal antibodies are not capable of efficiently activating the
human immune system, (2) mouse antibodies are recognized as foreign by the
human body, typically resulting in rapid clearance, especially upon re-
treatment, and (3) some people may develop an allergic reaction to the mouse
proteins contained in the antibodies.

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Because monoclonal antibodies continue to have considerable promise as
therapeutic agents, several techniques have been developed to eliminate or
reduce these problems associated with the murine (mouse-derived) nature of the
antibodies. The Company believes that its HuMAb-Mouse provides a rapid and
effective method of creating completely human monoclonal antibodies. See "Risk
Factors".

Humanized Antibodies. A number of companies and academic research
institutions have developed techniques for creating humanized monoclonal
antibodies. The goal of these approaches has been to remove approximately 90%
of the mouse antibody and replace those parts with the equivalent portions of
human antibodies. The remaining portions of the antibody (i.e., those that are
important for binding to the desired antigen), continue to be murine. This
process of humanizing an antibody takes several months to complete after the
initial mouse monoclonal antibody has been created. The humanization process
may also cause a decrease in the affinity of the antibody (i.e., the strength
of its binding to the antigen). Various entities have publicly announced that
they hold patents covering the humanization of monoclonal antibodies; these
entities include Protein Design Laboratories, Inc., Genentech, Inc. and the
Medical Research Council.

Phage Display Technology. One approach to creating human monoclonal
antibodies has been the establishment of "phage libraries," essentially large
pools of potential binding sites for a particular antigen that have been
synthesized. According to the scientific literature, a number of phage-derived
monoclonal antibodies have been created that are completely human. It is not
clear, however, whether these synthetic libraries will be able to duplicate
the diversity of antibodies available through the immunization of mice.
Additionally, phage-derived antibodies may have low binding affinity and
require further engineering. Several companies and academic institutions have
developed phage libraries for the creation of monoclonal antibodies, and at
least two companies have announced that they have received patents that may
apply to the creation of phage-derived monoclonal antibodies. Licenses for
these patents may require license fees and substantial royalties.

HuMAb-Mouse -- Fully Human Antibodies. The Company, through its acquisition
of GenPharm, has acquired the ability to make fully human monoclonal
antibodies in transgenic mice, thus avoiding the need to humanize murine
monoclonal antibodies. The Company has created essentially "humanized" mice, a
"HuMAb-Mouse" -- that is, the mouse genes for creating antibodies have been
inactivated and have been replaced by human antibody genes. As a result, these
transgenic mice produce completely human monoclonal antibodies when they are
immunized. The creation of these new monoclonal antibodies takes approximately
the same amount of time as the immunization of normal, wild-mice, i.e.,
approximately three to six months, and the monoclonal antibodies derived from
the HuMAb-Mouse have binding constants as high as or higher than antibodies
obtained from normal mice, reaching in some cases, 10-/11/ and 10-/12/. The
antibodies from the HuMAb-Mouse technology are 100% human and do not require
any humanization or maturation engineering. The Company is not aware of any
licenses required to create these human antibodies except under patents owned
or licensed by the Company. See "Risk Factors".

Medarex is currently in discussions with numerous potential partners for its
HuMAb-Mouse technology and several potential partners for its therapeutic
products. While no assurance can be given, management believes that it will
enter into several partnerships relating to the HuMAb-Mouse technology in
1999. See "Risk Factors".

Medarex's Platforms and Products

Proprietary Products

The following discussion outlines the Company's products and current
development status.

The HuMAb-Mouse Products.

Monoclonal antibodies represent the single largest category of biotechnology
products in clinical trials, according to a 1996 survey by the Pharmaceutical
Research and Manufacturers of America as reported in

7
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Biotechnology Medicines in Development. Medarex believes that monoclonal
antibodies will continue to be an important technology for pharmaceutical
product development and that fully human monoclonal antibodies, such as those
obtained via its HuMAb-Mouse, will play a significant role in this
development. Medarex's GenPharm subsidiary is currently offering to such
potential partners a range of services, including access to the HuMAb-Mouse,
custom creation of monoclonal antibodies, and the scale up and production of
such antibodies in its manufacturing facilities. The Company entered into six
new partnerships based on the HuMAb-Mouse technology in 1998 and, while no
assurance can be given, management believes that it will enter into several
more partnerships relating to the HuMAb-Mouse technology in 1999, resulting in
the receipt of license fees, milestone payments and royalties. See "Risk
Factors".

Monoclonal antibodies created by the HuMAb-Mouse are not only fully human
but do not fall under the claims of patents relating either to humanizing
mouse antibodies or to producing human antibodies via "phage" or similar
mechanisms. Medarex's GenPharm subsidiary has been issued numerous patents for
its HuMAb-Mouse. A number of these patents are the subject of a Cross
Licensing Agreement with Cell Genesys, Inc., Abgenix, Inc., Xenotech, L.P. and
Japan Tobacco, Inc. (the "Xenotech Group") pursuant to which the Xenotech
Group paid to GenPharm $15 million in 1997 and an additional $23.6 million in
1998.

HuMAb-Mouse Partnering Strategy. The ability of the HuMAb-Mouse to rapidly
generate 100% human monoclonal antibodies to a wide range of antigens is a
potentially attractive product development tool for many pharmaceutical and
biotechnology companies. The Company is offering these potential partners a
flexible "menu" of ways to access the HuMAb-Mouse technology, including:

. The option to use the HuMAb-Mouse at a company's facilities.

. The creation of the antibodies by Medarex.

. Accessing the Company's expertise in the scale-up and production of
monoclonal antibodies.

. Accessing the Company's proprietary bispecific and antibody engineering
technology.

At present, the Company has ten partners for its HuMAb-Mouse technology
representing a spectrum of potential collaborations. In conjunction with these
partnerships the Company may receive license fees, research fees, milestone
payments and product royalties. See "--Corporate Collaborations" and "Risk
Factors".

Monoclonal Antibody Production and Scale-Up. Once a monoclonal antibody has
been created, it must be produced in substantial quantities under the FDA's
Good Manufacturing Practices (cGMP) requirements. Medarex has considerable
experience in producing antibodies for clinical trials under such rigorous
conditions, and it is currently doing so in a 53,000 sq. ft. facility for its
antibody-based products now in clinical trials. Management believes that the
capacity of Medarex's production facility is sufficiently large to allow
Medarex to produce additional monoclonal antibodies for itself and for its
partners. See "Risk Factors".

Cancer Products.

Each of the Company's bispecific therapeutic products for cancer targets a
different antigen. MDX-210, MDX-447 and MDX-220 are all antigen-specific
products and may be useful in the treatment of the various forms of cancer in
which their specific antigen targets are highly expressed.

MDX-210: HER-2 Overexpressing Tumors

The Company is developing MDX-210, a bispecific product designed to treat
tumors that overexpress the antigen HER-2. MDX-210 combines the Company's
proprietary trigger antibody fragment with a targeting antibody fragment
specific for the HER-2 antigen. Researchers have discovered that HER-2 is
overexpressed in prostate, colon, renal, breast, ovarian and other cancers. In
May 1995, the Company entered into a collaborative agreement with Novartis
providing for the development and commercialization of MDX-210. In February of
1999, Medarex reacquired the worldwide rights for MDX-210 after Novartis chose
not to participate in the further development of the product. The targeting
component used in this product is licensed to the Company by Chiron
Corporation.

8
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In 1998, the Company announced results of a Phase II clinical trial of MDX-
210 in patients with hormone refractory prostate cancers. 89% of the patients
experienced a reduction in the rate at which their PSA levels were rising and
65% of the patients experienced a reduction in PSA levels. PSA is a
biochemical marker associated with disease progression and death. In some
cases, PSA levels have been reduced for over 300 days. Additionally, over a
quarter of the patients evaluated for quality of life reported a significant
reduction in average pain levels following treatment.

The Company's MDX-210 bispecific currently undergoing clinical trials
consists of a humanized trigger component and a murine target component. The
Company is currently creating a "second generation" version of this product
employing the HuMAb-Mouse technology. While no assurance can be given, the
Company expects MDX-210 to enter Phase III clinical trials in 1999. See "Risk
Factors".

MDX-447: Head and Neck and other EGF-R Expressing Cancers.

MDX-447 is a bispecific product for the treatment of cancers that
overexpress the antigen EGF-R. The trigger and target components of MDX-447
are both humanized. This development project is being conducted pursuant to a
collaborative arrangement with E. Merck. MDX-447 is designed to induce tumor
cell killing by simultaneously binding to a protein known as EGF-R found on
the surface of various types of tumors and to Fc receptors on macrophages and
other white blood cells. EGF-R has been found to be overexpressed in a
significant percentage of head and neck, breast, brain, non-small cell lung
and bladder tumors. The EGF-R targeting component was contributed to the
collaboration by E. Merck.

A Phase II clinical trial of MDX-447 to treat head and neck cancers that
overexpress EGF-R is underway at the Memorial Sloan-Kettering Cancer Center,
Hershey Medical Center and several other centers. MDX-447 demonstrated that it
was immunologically active at all doses in a Phase I/II clinical trial.

MDX-220: Colon and Prostate

The Company is developing a bispecific therapeutic product, designated MDX-
220, that targets TAG-72, an antigen found to be overexpressed in a
significant percentage of colon, prostate and certain other tumors. The
targeting component for this product, known as CC-49, has been licensed from
the National Cancer Institute. The Company commenced a Phase I/II clinical
trial of this product for hormone refractory prostate and colorectal cancer in
1998. See "Risk Factors."

MDX-22: Acute Myeloid Leukemia (AML)

MDX-22, a monoclonal antibody therapeutic product, is being developed for
the treatment of AML, a usually fatal form of leukemia. Some cancers,
including AML, spread to the bone marrow and become extremely difficult to
treat successfully. If the marrow is subjected to high doses of conventional
therapies such as chemotherapy or radiation, the marrow's vital stem cells,
necessary and responsible for immune cell regeneration, will often be
eliminated, and the patient may suffer a life-threatening immune deficiency.
Yet, if the cancer cells in the bone marrow are left untreated, the cancer is
likely to recur.

9
<PAGE>

MDX-22 activates the complement cascade which consists of a series of
protein factors and enzymes that can attack certain diseased cells. MDX-22 has
been tested in clinical trials under an investigator-sponsored IND at
Dartmouth Medical and other institutions since 1983. The treatment involves
removing a patient's bone marrow and purging it of cancer cells by exposing it
to MDX-22. After the patient has received high levels of conventional
chemotherapy and, in certain circumstances, radiation therapy, the purged bone
marrow is reintroduced to the body in an effort to re-establish the patient's
immune system. The use of the patient's own marrow eliminates the difficulty
of finding an appropriately matched donor and the complications frequently
associated with use of donated marrow, such as graft-versus-host disease.

Phase II clinical trials of MDX-22 are in progress. The results from the
first 138 patients indicated a significant improvement in the proportion of
patients surviving long-term when compared to conventional chemotherapeutic
regimens in the absence of bone marrow transplantation. In 1990 the Company
was granted orphan drug designation for MDX-22 for the treatment of AML.

Tumor Vaccines

Results of recent clinical trials have suggested that Medarex's bispecifics
have stimulated antigen presentation and an endogenous anti-tumor response in
some of the patients. Recent studies in transgenic mice that express the human
Fc receptor have also shown that antigen presentation via the Fc receptor can
induce an immune response to the antigen. Several tumor-associated antigens
have been identified, and the Company is now making genetically constructed
bispecific fusion proteins which may be employed as therapeutic vaccines for
cancer patients.

Autoimmune Disease Products

MDX-33: Idiopathic Thrombocytopenia Purpura ("ITP")

MDX-33 is a monoclonal antibody therapeutic product under development for
the treatment of ITP, an autoimmune condition in which patients' platelets are
destroyed by their own immune systems. Conventional treatment includes
steroids, removal of the spleen and high doses of intravenous IgG. The Company
believes that intravenous IgG creates an antibody blockade by overwhelming the
Fc receptors with extremely large quantities of antibodies, thus minimizing
the effects of the auto-antibodies.

MDX-33 may diminish the ability of various killer cells to phagocytose and
destroy platelets by binding to Fc receptors in such a way as to temporarily
remove many of the Fc receptors from the surface of the macrophage. By
reducing the number of Fc receptors, MDX-33 is designed to achieve the same
therapeutic result as provided by large quantities of intravenous IgG, and
might eliminate or reduce the need for the human blood-derived products in the
treatment of ITP. The Company is developing MDX-33 in collaboration with
Centeon for autoimmune hematological disorders. A Phase II trial with MDX-33
in ITP commenced in 1998.

MDX-CD4: Rheumatoid Arthritis

The Company is developing MDX-CD4, a fully human monoclonal antibody, for
the treatment of rheumatoid arthritis and other autoimmune disorders. This
development project is being carried out as part of a collaboration with
Eisai, a leading Japanese pharmaceutical firm. MDX-CD4 binds to human CD4,
which is present on the surface of certain T-cells in the human immune system.
By binding to such T-cells, MDX-CD4 is designed to inactivate or reduce the
ability of these cells to mediate the persistent inflammation characteristic
of such autoimmune diseases. The Company commenced a Phase I clinical trial in
rheumatoid arthritis in January of 1999. See "Risk Factors."

MDX-44: Psoriasis

MDX-44, for the treatment of psoriasis and other dermatological conditions
is in pre-clinical development. MDX-44 is an immunoconjugate consisting of an
antibody linked to ricin, a plant-derived toxin.

10
<PAGE>

Infectious Disease Products

Anti-Fungal Bispecific Antibody: Candida

The Company is developing a bispecific antibody therapeutic product for the
treatment of Candidiasis, which is a broad range of clinically important
fungal infections. The product will be composed of the Company's trigger
molecule and a targeting antibody to Candida, now being developed through the
use of the HuMAb-Mouse technology.

Ophthalmological Products.

MDX-RA: Secondary Cataracts

MDX-RA is a monoclonal antibody conjugated to a plant derived toxin known as
ricin and is designed to be used during primary cataract surgery to prevent
the occurrence of secondary cataracts. A Phase I/II placebo-controlled
clinical trial has been completed which indicated MDX-RA inhibits the
development of opacification of new intraocular lenses following primary
cataract surgery caused by the overgrowth of residual lens epithelial cells. A
Phase III placebo controlled clinical trial of MDX-RA began in December of
1997. In November of 1998, the Phase III trial was suspended by the trial's
safety committee after 565 patients had been treated. The reason for the
suspension was the occurrence of serious adverse events (SAE's) in seven (7)
placebo treated patients and six (6) patients given active drug. The Company
is currently analyzing the SAE's and product formulation to try to determine
the cause of the SAE's.

The Company has a strategic alliance with Santen for the development of MDX-
RA. Pursuant to the collaboration, Santen has obtained the exclusive marketing
rights of MDX-RA in Japan. The Company has reached an understanding with
Santen regarding certain modifications to the Santen License whereby the
Company will obtain, among other things, revisions in the manufacturing and
royalty provisions as well as an option, subject to certain rights of Santen,
to reacquire commercial rights to the MDX-RA product for the Japanese market.
In return, the Company allowed Santen to issue a contingent note in the amount
of $1,000,000 due in January of 2000 for the milestone payment which was due
in January 1998 relating to the initiation of Phase III clinical trials of
MDX-RA in the United States.

Market Overview

Cancer. The Company has targeted the following cancer indications for
treatment with its therapeutic products.

Prostate Cancer. The American Cancer Society ("ACS"/2/) estimated that
approximately 179,000 new cases of prostate cancer would be diagnosed in the
United States in 1999. Current treatment options include surgery, radiation
and/or hormones and anti-cancer drugs. Prostate cancer is the second leading
cause of cancer death in men, resulting in an estimated 37,000 deaths in 1999
in the United States.

Colon Cancer. The ACS estimated that approximately 129,000 new cases of
colon cancer would be diagnosed in the United States in 1999. Five-year
survival, if detected early, is 91%. After the cancer has spread locally, the
survival rate decreases to 66%, and patients with distant metastases have less
than a 9% chance of survival.

Gastric, Lung, Head and Neck, Kidney and Bladder Cancer. The ACS estimated
that approximately 22,000 new cases of gastric cancer, 172,000 of lung cancer
(of which non-small cell lung cancer is a subset), 40,000 of head and neck
cancers, 30,000 of kidney cancers and 54,000 of bladder cancers would be
diagnosed in the United States in 1999. The five-year survival rate for
gastric cancer is 21%, lung cancer is 14%, head and neck cancer is 56%, kidney
cancer is 61% and bladder cancer is 82%.

- --------
/2 /American Cancer Society Facts and Figures-1999.

11
<PAGE>

Ovarian Cancer. The ACS estimated that approximately 25,000 new cases of
ovarian cancer would be diagnosed in the United States in 1999. Current
treatments include surgical removal of one or both ovaries, the uterus and the
fallopian tubes as well as radiation and drug therapy. According to the ACS,
ovarian cancer is the leading cause of death for cancers of the female
reproductive system, and the overall five-year survival rate is 50%.

Breast Cancer. The ACS estimated that approximately 175,000 new cases of
breast cancer would be diagnosed in the United States in 1999. Current
treatments have extended the five-year survival rate for localized breast
cancer to 97%. If the breast cancer has spread regionally, however, the five-
year survival rate is 77% and for persons with distant metastases, the five-
year survival rate is 22%, according to the ACS.

Leukemia. The ACS estimated that approximately 10,100 AML patients would be
diagnosed in the United States in 1999. The disease spreads rapidly and median
survival with conventional therapy is approximately one year. AML is a cancer
affecting certain white blood cells.

Infectious and Autoimmune Diseases. The Company has targeted the following
infectious and autoimmune diseases for treatment with its therapeutic
products.

Idiopathic Thrombocytopenia Purpura. According to Department of Health and
Human Services, there were approximately 150,000 primary, secondary and other
unspecified thrombocytopenias in the United States in 1992. ITP is an
autoimmune condition in which a patient's platelets are destroyed by the
patient's own immune system.

Rheumatoid Arthritis. In 1990, there were approximately 2.1 million/3/
people in the United States suffering from Rheumatoid Arthritis ("RA"). RA is
a debilitating disease marked by progressive erosion of bone and cartilage in
the joints and decalcifications of joint bones. Researchers theorize that RA
is either an inflammatory or immune response to certain antigens in the body.

Ophthalmic Diseases.

Cataracts. The American Academy of Ophthalmology estimates that there were
approximately 2,200,000 primary cataract surgeries reimbursed by Medicare and
approximately 830,000 secondary cataract surgeries reimbursed by Medicare in
the United States during 1996. Secondary cataracts are the result of lens
epithelial cells growing over and opacifying an intraocular lens implanted
during primary cataract surgery. Secondary cataracts represent the second
largest Medicare reimbursement expense, after primary cataract surgery.

Corporate Collaborations

Medarex is actively pursuing the establishment of strategic alliances with
major biotechnology and pharmaceutical companies for the development and
commercialization of its technology. See "Risk Factors."

Merck KGaA. Under the terms of the E. Merck collaboration (the
"Collaboration"), E. Merck's EGF-R targeting mechanism has been combined with
the Company's trigger mechanism to form MDX-447, a bispecific product for the
treatment of head, neck and other EGF-R overexpressing cancers. In 1994, E.
Merck purchased 450,000 shares of Common Stock at $7.00 per share for an
aggregate purchase price of $3.15 million in lieu of research and development
funding. In 1998, E. Merck provided $1.2 million through the purchase of
192,000 shares of common stock at a price of $6.25 per share which included a
20% premium to fund further clinical trials. Upon the achievement of certain
milestones, E. Merck may provide the Company with up to $25 million (the
"Additional Funding") to fund Phase III clinical trials. E. Merck has the
option, upon the commencement

- --------
/3 /Source: "Rheumatoid Arthritis", Arthritis Foundation, National Arthritis
Data Workgroup, Atlanta, Georgia-1990

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of the Additional Funding, to purchase 1.0 million shares of the Company's
Common Stock at a price of $12.50 per share for an aggregate purchase price of
$12.5 million to satisfy half of its Additional Funding obligation. E. Merck
has certain additional rights to purchase the Company's Common Stock at a
price of $15.00 per share to obtain an ownership interest of up to 10% of the
Company's Common Stock on a fully diluted basis. After E. Merck's funding of
$29 million of the Collaboration, the parties will share future development
costs equally. There can be no assurance that the applicable milestones will
be achieved or that additional funding will be received from E. Merck. See
"Risk Factors."

The Company has the exclusive commercialization rights in the United States,
subject to royalties payable to E. Merck, for the EGF-R bispecific and any
other bispecific developed by this Collaboration. E. Merck has exclusive
commercialization rights in Europe, subject to royalties payable to the
Company, and the two companies jointly hold commercialization rights for the
rest of the world. In 1998, E. Merck purchased an option for $1.5 million plus
agreed to pay certain clinical trial costs from the Company for the exclusive
right to negotiate for additional territorial rights for MDX-447.

Novartis. In May 1995, the Company entered into a collaborative arrangement
with Ciba-Geigy, Limited (now Novartis) to develop and market MDX-210, a
bispecific product designed to treat tumors that overexpress the antigen HER-
2. The collaboration provided for the joint development of MDX-210 by the two
companies. Under the terms of the arrangement, the Company sold 899,880 shares
of Common Stock to Novartis for an aggregate purchase price of $4,000,000. The
Company also granted Novartis worldwide exclusive rights to MDX-210 subject to
Novartis' election to purchase additional equity in the amount of $4,000,000,
make milestone and research payments of up to $31 million and to pay royalties
on product sales. In such event, Novartis would be responsible for all Phase
III clinical trial and market launch costs of MDX-210. In February 1999, the
Company reacquired the worldwide rights to MDX-210 after Novartis notified the
Company that it would not participate in the further development of MDX-210.

Centeon. On April 26, 1996, the Company announced a collaborative
arrangement with Centeon to jointly develop MDX-33, a humanized monoclonal
antibody for the treatment of a variety of autoimmune hematological disorders.
Under the terms of the agreement, Centeon will finance product development
through Phase II clinical trials up to a maximum of $20 million. Upon
successful completion of previous clinical trials, Centeon will also fund
Phase III clinical, regulatory approvals and commercial launch costs. In
addition, Centeon paid Medarex a $1 million up-front fee and will pay
approximately $1 million in research and development funding for manufacturing
improvements. Subject to the terms of the agreement, Centeon will pay Medarex
approximately $10 million for the achievement of specific milestones. Upon
commercialization, Centeon will have exclusive worldwide marketing rights to
MDX-33 for autoimmune hematological disorders, and Medarex will be entitled to
royalty payments and may also manufacture the product for Centeon. There can
be no assurance that the additional funding will be received from Centeon.

Santen. Effective December 29, 1995, the Company's HBI subsidiary and Santen
entered into a Co-development and License Agreement (the "Santen License")
covering the marketing in Japan of MDX-RA. To maintain exclusive marketing
rights, Santen is required to provide $3,000,000 over the next three years to
support the development of MDX-RA. Santen may elect not to make any payment,
but in such event, the license may be made non-exclusive or terminated by the
Company. Santen is obligated to seek regulatory approval for the product in
Japan and is responsible for the development cost associated with these
efforts. Upon the commencement of commercial sales by Santen in Japan, Santen
will pay the Company earned royalties based on net sales. Commencing six
months after approval of MDX-RA by Japanese regulatory authorities, Santen is
required to pay minimum royalties. The Company retains all other marketing
rights and Santen is required to purchase MDX-RA from the Company. Amounts
paid by Santen to the Company, except those amounts related to the purchase of
MDX-RA, are subject to a 10% withholding tax imposed by the Japanese
government. In 1998, the Company reached an understanding with Santen
regarding certain modifications to the Santen License whereby the Company will
obtain, among other things, revisions in the manufacturing and royalty
provisions as well as an option, subject to certain rights of Santen, to
reacquire commercial rights to the MDX-RA product for

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the Japanese market. In return, the Company allowed Santen to issue a
contingent note in the amount of $1,000,000 due in January 2000 for the
milestone payment which was originally due in January 1998 relating to the
initiation of Phase III clinical trials of MDX-RA in the United States. The
Company receives U.S. income tax credits equal to the amounts withheld, but
the Company is not currently able to utilize such credits. In November of
1998, the Phase III trial was suspended by the trial's safety committee after
565 patients had been treated. The reason for the suspension was the
occurrence of serious adverse events (SAE's) in seven (7) placebo treated
patients and six (6) patients given active drug. The Company is currently
analyzing the SAE's and product formulation to try to determine the cause of
the SAE's. As a result of the suspension of the Phase III clinical trial of
MDX-RA, the Company and Santen are discussing Santen's continuing role and
there can be no assurances that additional financing will be received from
Santen.

Eisai. In May 1993, the Company's GenPharm subsidiary entered into a
collaborative agreement with Eisai, a leading Japanese healthcare company, to
fund the development and initial manufacturing of a human antibody product to
a specific antigen (the "Eisai Agreement"). The Eisai Agreement and subsequent
amendments provide for $12 million of research payments to GenPharm, as well
as a further $18.5 million of milestone and other payments. To date, GenPharm
has received research and milestone payments totaling $13.6 million. GenPharm
filed an IND with the FDA in 1998 for the first of the HuMAb-Mouse products
developed through this collaboration and commenced a Phase I clinical trial in
rheumatoid arthritis in January, 1999. Eisai has exclusive marketing rights
for Japan and for countries in Asia and Europe. GenPharm has retained
marketing rights for North America and the remaining parts of the world.
GenPharm will receive royalty payments on Eisai sales as well as payments for
providing bulk product to Eisai.

Centocor. In February 1997, GenPharm entered into a Research and
Commercialization Agreement (the "Centocor Agreement") with Centocor. The
collaboration is focused on developing completely human antibodies to four
unnamed antigens. The Centocor Agreement provides for research payments to be
paid to GenPharm, as well as equity investments totaling $4 million which was
paid in 1998. In addition, GenPharm received $4 million in January of 1999 for
the exercise of Centocor's option for commercial rights to such antibodies and
could receive up to an additional $48 million upon the achievement of various
clinical milestones with respect to these antibodies. In turn, Centocor will
have worldwide marketing and manufacturing rights to any resulting antibodies
for which they have exercised their option for commercial rights, subject to
the payment of royalties to GenPharm.

LeukoSite. In January 1995, GenPharm entered into a collaboration with
LeukoSite to produce human antibodies from GenPharm's HuMAb-Mouse against
specified antigens (the "LeukoSite Agreement"). The term of the LeukoSite
Agreement and the research program to be conducted thereunder (the "Research
Program") were extended pursuant to certain amendments executed in 1996. Each
party was responsible for their own costs of work to be performed and
materials to be supplied under the Research Program. The companies were to
share worldwide commercial rights for human antibodies which result from the
collaboration. The first human antibodies from the collaboration are in the
preclinical phase. In February 1999, the Company and LeukoSite expanded their
collaboration to allow LeukoSite the ability to utilize the HuMAb-Mouse system
as part of their discovery research program. In exchange, the Company received
certain additional rights to an anti IL-8 antibody being jointly developed by
the Company and LeukoSite and could receive milestone payments and royalties
on commercial sales of products developed and commercialized by LeukoSite
using the HuMAb-Mouse technology.

Between February 1998 and January 1999, GenPharm entered into seven new
HuMAb-Mouse Licensing arrangements. These arrangements were with Novartis,
Bristol-Myers, Schering AG, Fibrogen, medac, E-Site, and in January of 1999,
Immunex.

Schering AG. In February 1998, the Company entered into a collaboration with
Schering AG in which Medarex will use its HuMAb-Mouse technology to produce
fully human antibodies to a proprietary antigen for Schering AG. Medarex could
receive research and development payments, a license fee, milestone payments
and royalty payments on future product sales by Schering AG.

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E-Site. In May 1998, the Company entered into an antibody development
agreement with E-Site, a privately held biotechnology company. Under this new
research collaboration and license agreement, E-Site will employ Medarex's
HuMAb-Mouse technology to produce a fully human antibody for use as part of a
platform technology that has the potential to treat numerous infectious
diseases. Medarex could receive license fees, milestone payments and pre-
clinical and clinical manufacturing payments plus royalty payments on future
product sales by E-Site. In addition, Medarex and E-Site will collaborate to
develop a second human antibody that will be shared by both companies.

Bristol-Myers. In June 1998, the Company entered into a research agreement
with Bristol-Myers involving Medarex's HuMAb-Mouse technology. Bristol-Myers
will use the HuMAb-Mouse to create human antibodies to multiple antigens for
use in their drug discovery programs. The agreement includes the option for
Bristol-Myers to commercialize these antibodies with terms that could result
in license fees and milestone payments, plus royalties to Medarex.

Fibrogen. In July 1998, the Company and FibroGen, a privately held
biotechnology company, entered into an antibody development agreement for
potential anti-fibrotic therapies. Medarex could receive research and
development payments, license fees and milestone payments plus royalty
payments on future product sales by FibroGen. The agreement calls for Medarex
to use its HuMAb-Mouse technology to produce fully human antibodies against
FibroGen's proprietary targets for exclusive use by FibroGen and its
licensees. 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.

medac. In September 1998, the Company entered into an antibody development
agreement with medac, a privately held company. Under this research
collaboration and license agreement, Medarex will use its technology to
produce a new Bispecific antibody to treat Hodgkin's Lymphoma. Medarex will
employ its HuMAb-Mouse technology to generate a fully human monoclonal
antibody to CD30, a potential cancer antigen for which medac claims
proprietary rights.

Novartis. In November, the Company and Novartis entered into a global
licensing arrangement involving Medarex's HuMAb-Mouse technology. Under the
terms of the agreement, Novartis obtains the rights to use the HuMAb-Mouse
technology throughout the entire Novartis organization for an unlimited number
of targets for up to ten years. Under the terms of the arrangement, Novartis
made an initial equity investment in Medarex common stock of $2 million at a
premium to the market price on the day of the transaction. An additional $1
million equity investment will be made on the first anniversary of the
agreement. A further $3 million in equity purchases may be made after the
initial five year term of the agreement. In addition, the Company could
receive license fees, milestone payments and royalties on sales of products
made utilizing the HuMAb-Mouse technology.

Immunex. In January 1999, the Company and Immunex entered into a license
arrangement involving Medarex's HuMAb-Mouse technology. Through this license,
Immunex obtained the rights to use the HuMAb-Mouse technology throughout the
entire Immunex organization for an unlimited number of targets for up to ten
years. Under the terms of the agreement, the Company will receive technology
access fees, and could receive research payments, license fees and milestone
payments, as well as royalties on commercial sales.

In March 1999, the Company and BankInvest Biomedical Development Venture
Fund (BankInvest VF") announced the formation of a new Danish company to
develop and commercialize a portfolio of fully human antibodies derived from
the Company's HuMAb-Mouse technology. This new company, Genmab, has received
initial funding of approximately $5.5 million with BankInvest VF as lead
investor with A/S Dansk Erhvervsinvestering and others, as co-investors.
Genmab will be jointly owned by the Company and these investors. Genmab will
take advantage of Denmark's high quality medical and research institutions to
conduct clinical trials of human antibody products. Genmab will also have the
opportunity to contract with Medarex for product development resources,
including its manufacturing and antibody development expertise. Genmab will
focus primarily on developing several products to treat inflammatory
conditions, such as rheumatoid arthritis and

15
<PAGE>

psoriasis, and has received a license to certain of the Company's rights to
MDX-CD4, a fully human antibody in Phase I/II clinical trials for the
treatment of rheumatoid arthritis.

Contract and License Revenues

In 1996, 61% of the Company's total revenue was derived from Centeon. Such
revenues were derived from a collaborative arrangement with Centeon dated
April 26, 1996. Included in revenue was $1,150,000 representing an up-front
payment of $1,000,000 and $150,000 of research and development payments. In
addition, 25% of the Company's total revenues was derived from Novartis. This
revenue was the result of an arrangement made on June 28, 1995 where the
Company sold 899,888 shares of Common Stock to Novartis at $4.445 per share,
for an aggregate purchase price of $4,000,000. The purchase price represented
a premium of approximately $1,140,000 over the then fair market value of the
Company's Common Stock. This premium represents consideration paid for
research activities performed by the Company and was amortized into income as
the clinical trial and research activities were performed. As of December 31,
1995, $667,000 had been recognized as contract revenues and $476,000 was
recognized as contract revenue in 1996.

In 1997, 26% or $865,000 of the Company's revenues were derived from Santen
for research funding, 23% or $743,000 were from Centeon for research funding
and milestone payments and 12% or $377,000 were from Eisai for research
funding.

In 1998, 20% or $1,339,000 of the Company's total revenue was derived from
Centeon for research funding, 13% or $900,000 were from Santen for research
funding, 11% or $750,000 from Eisai for a milestone payment and 24% from Merck
KGaA including $1,112,000 for producing MDX-447 for proposed new human
clinical trials, $492,000 for research funding and $240,000 premium paid for
the Company's Common Stock over the fair market value.

No other single source accounted for more than 10% of the Company's total
revenues for 1996, 1997 and 1998.

Research Collaborations

Dartmouth Medical. The Company has obtained from Dartmouth Medical the
exclusive worldwide rights (on a royalty-free basis) to the trigger component
of its bispecific products. The Company also actively pursues opportunities to
evaluate and possibly acquire from other companies and academic institutions
targeting mechanisms that may be used in bispecific therapeutic products.

Chiron Corporation. The Company has a license agreement with Chiron
Corporation pursuant to which the Company obtained a license to two targeting
molecules to HER-2 expressing tumors. The Company's obligation to pay
royalties expires on the 10th anniversary of the first sale of licensed
products thereunder. Additional targeting molecules have been licensed to the
Company and others are currently under evaluation.

Immuno-Designed Molecules, S.A. Under the terms of a certain Financing
Agreement dated December 1, 1993 ("Financing Agreement") and amended on
January 17, 1995 and further amended on December 19, 1996, by and among the
Company, Immuno-Designed Molecules, S.A. ("IDM"), a biotechnology company
based in France, and G. Musuri S.A., an investment and consulting company
based in Spain, the Company has acquired an option to purchase the exclusive
United States rights to a cellular therapy known as macrophage activated
killer cells (MAK(TM)/4/) when used in conjunction with bispecifics or other
protein-based targeting devices (Targeted Immuno-therapy) from IDM.

MAK technology is designed to increase the therapeutic capacity of a
patient's own white blood cells. MAKs have numerous potential applications,
including possible use as cancer therapeutics in conjunction with the
Company's bispecifics.

- --------
/4 /MAK(TM) is a trademark of IDM.

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MAK therapy was well tolerated in Phase I clinical trials conducted by IDM
in Europe for the treatment of cancer and is currently being used in a Phase
II trial in Europe for the treatment of ovarian and bladder cancer. IDM is
currently developing additional protocols for Phase II clinical trials to be
conducted in Europe.

Under the terms of the amended option agreement, Medarex's option will not
expire until three months after the receipt of final data from two separate
clinical trials one of which Medarex will fund up to $200,000 and the second
of which Medarex and IDM will jointly fund. The trials will be conducted
utilizing the combination of MAK and bispecifics. The Company can exercise its
option for $600,000. The Company has also appointed a representative to the
IDM Board of Directors.

Payment of the option fee may be made at the Company's option in cash or by
the delivery of the Company's registered Common Stock having a fair market
value equal to the amount of the option fee or any combination thereof and
will be made in six equal monthly installments following the exercise of the
option by the Company. The Company is also required to pay to IDM royalties on
the sales of any of the Company's products based on the IDM technology.

Utrecht University. Medarex Europe B.V. ("Medarex Europe"), a wholly-owned
subsidiary of the Company, has established an alliance with Utrecht
University, the largest research university in the Netherlands. New research
will be conducted with Medarex's core technology and with the HuMAb-Mouse
technology and will expand into related areas of immunotherapy.

Marketing, Manufacturing and Facilities

The Company's products fall into two groups: those intended to be marketed
and sold by the Company and those expected to be marketed by licensees or
distributors. The Company currently intends to market itself or in combination
with a partner its MDX-210 product for Her-2 expressing tumors and its MDX-447
product for EGF-R expressing cancers in the United States. The advanced stages
of these diseases are treated primarily at Comprehensive Cancer Centers, 21
institutions specifically recognized by the National Cancer Institute with an
especially broad approach to the treatment of cancer. The Company believes
that a small sales force can successfully introduce and detail its products in
this concentrated marketplace. Currently, the Company has no such sales force.
The Company intends to develop its internal sales capacity as its first
products progress toward commercialization.

Medarex acknowledges that the successful manufacturing and marketing of some
of its products is beyond the capabilities of all but the largest
pharmaceutical organizations. For this reason, the Company plans to license to
major pharmaceutical companies individual products serving very large markets
or those that will be widely distributed geographically, if the products are
approved by the FDA.

The Company's product licensing strategy is to require its licensees to fund
the Company's later stage development work on the licensed products. In
addition to receiving royalties on sales, the Company may retain manufacturing
and co-marketing or co-promotion rights to these products.

Additionally, as a result of the GenPharm Merger, the Company assumed the
lease of GenPharm's facilities located in Palo Alto, California. The lease
expired on December 31, 1997. In January 1998, the Company secured

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a four year lease on approximately 10,000 square feet of a modern facility
located in San Jose, California, owned by Becton Dickinson Corporation. This
space includes an animal facility to house GenPharm's HuMAb-Mouse, research
and development laboratories and administrative offices.

The combined minimum annual lease commitments for both facilities range
between approximately $1,400,000 to $2,200,000, and the aggregate future
minimum lease commitments over the remainder of the lease terms are
approximately $9,554,000.

The Company believes that its existing facilities are adequate for the
production of materials for clinical trials of its products and for providing
the services it offers in connection with its HuMAb-Mouse technology. However,
the Company does not currently have the capability to manufacture its products
under development in large commercial quantities and has no experience in
commercial-scale manufacturing.

Research Reagent Products

Since 1988, the Company has sold certain of its research reagents to
universities, hospitals and research institutes for use in laboratory
research. These research products are sold through advertisements in
scientific journals and through distributors. The Company plans to continue
these sales of research reagents as an adjunct to its continuing emphasis on
its research and development of therapeutic products.

Competition

The areas of product development on which the Company has focused are
intensely competitive. The Company's competitors include major pharmaceutical
and chemical companies, specialized biotechnology firms, universities and
research institutions. In addition, many specialized biotechnology firms have
formed collaborations with large, established companies to support research,
development and commercialization of products that may be competitive with
those of the Company. Medarex depends upon its proprietary core technology,
including its patented trigger molecule and HuMAb-Mouse, to compete in the
therapeutic product market. The Company's competitive position also depends on
its ability to attract and retain qualified personnel, develop effective
proprietary products, implement production and marketing plans, obtain patent
protection and secure sufficient capital resources.

Technologies other than those involving bispecifics can also be applied to
the treatment of the diseases that the Company's products are designed to
treat. For example, immunoconjugates, monoclonal antibodies linked to toxins
or radioactive isotopes, are being developed by others. In addition, the
application of recombinant DNA technology to develop potential products
consisting of proteins (cytokines) that occur normally in the body in small
amounts has been underway for some time. Included in this group are
Interleukin-2, interferons alpha, beta and gamma, tumor necrosis factor
("TNF"), colony stimulating factors and a number of other biological response
modifiers.

Continuing development of conventional chemotherapies and other drugs by
large pharmaceutical companies carries with it the potential for discovery of
an agent active against various solid tumor cancers, AML, ITP, rheumatoid
arthritis and secondary cataracts, the markets upon which the Company has
focused. The development of new treatment methods, whether based on monoclonal
antibodies or on other technologies, could render the Company's technology and
products under development uncompetitive or obsolete. In particular, the
Company is aware that Genentech, Inc. has developed a monoclonal antibody-
based product that targets HER-2 that may be competitive with MDX-210. The
Company is also aware that ImClone Systems, Inc. has published reports
indicating that it is developing monoclonal antibody-based products targeting
EGF-R that may be competitive with MDX-447. ITP is currently being treated
with WinRho SDFTM sold by Nabi(R), IVIgG and steroids all of which have had
limited success. Rheumatoid arthritis is currently being treated with a number
of compounds and a number of monoclonal antibodies, including antibodies
against TNF and CD4. Anti TNF and Anti CD4 antibodies are being developed by a
number of companies including Centocor, Inc., Idec Pharmaceuticals, SmithKline
Beecham and others.

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Significant competitors in the development and marketing of ophthalmic
pharmaceuticals include companies such as: Alcon Laboratories, Inc. (a
division of Nestle, S.A.), Allergen Inc., Merck & Co., Novartis Vision
Ophthalmics (a division of Novartis), Chiron Vision (a division of Bausch &
Lomb, Inc.), Pharmacia & Upjohn, Inc., along with other smaller companies.

With respect to the prevention of secondary cataract, the Company is not
aware of any commercial competitor with a competing product on the market.
Prizm Pharmaceuticals, Inc. ("Prizm") has announced plans to develop a
macromolecular protein-toxin conjugate (fibroblast growth factor-asporin
conjugate). Prizm has been informed that if they commercialize such conjugate,
it would infringe certain of the Company's patent rights. Pharmacia & Upjohn,
Inc. has a research-stage project related to the reduction of secondary
cataract. Efforts of other competitors with respect to secondary cataract have
been primarily directed toward enhanced surgical techniques, alternative
intraocular lens designs and certain pharmacologic approaches. However, there
can be no assurance that methods of preventing primary cataract or that other
methods of preventing secondary cataract will not be developed, or that such
methods would not prove to be more cost effective than MDX-RA.

The Company's principal competitor for the HuMAb-Mouse technology is
Abgenix, Inc. ("Abgenix"). As a result of certain Cross Licensing Agreement
with the Company, Abgenix offers to potential partners the use of its
transgenic mice known as Xenomice(TM)/5/, that, according to Abgenix, are
capable of generating human monoclonal antibodies.

Numerous companies have expertise in the realm of humanization technology,
such as Genentech, Inc., Protein Design Labs, Inc. and others and with phage
display technology such as Cambridge Antibody Technology PLC, Dyax Corp. and
MorphoSys GmbH.

Patents, Trademarks, Trade Secrets and Licenses

General. Proprietary protection for the Company's products, processes and
know-how is important to the Company's business. The Company's policy is to
file patent applications to protect technology, inventions, and improvements
that are considered important to the development of its business. The Company
also relies upon trade secrets, know-how, and continuing technological
innovation to develop and maintain its competitive position. The Company plans
to aggressively prosecute and defend its patents and proprietary technology.
The Company has obtained patents from the United States patent office, the
European patent office and the patent offices of Australia, Canada, Japan, New
Zealand and Israel, covering the Company's bispecific products. These patents
have expiration dates from 2007-2015. Additional patent applications are
pending throughout the world. The Company has also obtained a number of
patents from the United States patent office covering the Company's HuMAb-
Mouse technology, and in September 1997, the European patent office issued a
patent covering the Company's HuMAb-Mouse technology. These patents have
expiration dates from 2011-2015. Additional patent applications are pending
throughout the world.

The Company is prosecuting its applications with the United States Patent
and Trademark Office, but the Company does not know whether any of its
applications will result in the issuance of any patents or trademarks or, if
any patents are issued, whether any issued patent or trademark will provide
significant proprietary protection or will be circumvented or invalidated. The
Company intends to file additional patent and trademark applications, when
appropriate, relating to improvements in its technologies and other specific
products.

The patent positions of biopharmaceutical and biotechnology firms, including
Medarex, are generally uncertain and involve complex legal and factual
questions. No assurance can be given regarding the breadth or enforceability
of claims allowed in these types of patents.

Competitors or potential competitors have filed applications for, or have
been issued, patents and may obtain additional patents and proprietary rights
relating to materials or processes competitive with those of the

- --------
/5 /Xenomice is a trademark of Abgenix.

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<PAGE>

Company. Accordingly, there can be no assurance that the Company's patent
applications will result in patents being issued or that, if issued, the
patents will afford protection against competitors with similar technology;
nor can there be any assurance that others will not obtain patents which the
Company would need to license or circumvent.

The Company also relies upon unpatented trade secrets, and no assurance can
be given that others will not independently develop substantially equivalent
proprietary information and techniques, or otherwise gain access to the
Company's trade secrets or disclose such technology, or that the Company can
meaningfully protect its rights to its unpatented trade secrets.

Medarex typically requires its employees, consultants, outside scientific
collaborators and sponsored researchers to execute confidentiality agreements
upon the commencement of employment or consulting relationships with the
Company. These agreements provide that all confidential information developed
or made known to the individual during the course of the relationship is to be
kept confidential and not disclosed to third parties except in specific
circumstances. In the case of employees, the agreements provide that all
inventions conceived by the individual shall be the exclusive property of the
Company. There can be no assurance, however, that these agreements will
provide meaningful protection for the Company's trade secrets in the event of
unauthorized use or disclosure of such information.

Agreements with the Trustees of Dartmouth College ("Dartmouth"). Pursuant to
a joint venture agreement with Dartmouth ("the Joint Venture"), the Company
was formed to develop and commercialize certain technology originally
developed over several years by the Company's founders and other scientists at
Dartmouth Medical. Under the Joint Venture, the Company holds the rights to
this technology together with any modifications or improvements to this
technology made either by the Company or at Dartmouth Medical. The Company
also has several agreements with Dartmouth which provide Medarex with rights
to numerous trigger and targeting mechanisms. The duration of these agreements
with Dartmouth is perpetual. In particular, the Company has received from
Dartmouth assignments of several trigger mechanisms as well as certain
targeting mechanisms for AML and other tumors. In return for the rights
granted by Dartmouth to the Company in 1987, Dartmouth received 420,000 shares
of Common Stock.

Regulatory Issues

General. The production, distribution and marketing of the Company's
products and its research and development activities are subject to regulation
for safety, efficacy and quality by numerous governmental authorities in the
United States and other countries. In the United States, drugs and biologics
are subject to extensive rigorous federal regulation including the requirement
of approval by the FDA before marketing may begin and, to a lesser extent,
state regulation. The Federal Food, Drug, and Cosmetic Act and the Public
Health Service Act both, as amended, and the regulations promulgated
thereunder, and other federal and state statutes, and regulations govern,
among other things, the testing, manufacture, safety, efficacy, labeling,
distribution, storage, record keeping, approval, advertising and promotion of
the Company's products. Product development and approval within this
regulatory scheme, if successful, will take a number of years and involve the
expenditure of substantial resources.

The Company's products and activities in the United States are regulated by
the FDA in accordance with the Federal Food, Drug and Cosmetic Act, the Public
Health Service Act, and other laws. The standard process required by the FDA
before a therapeutic drug or biological agent may be marketed in the United
States includes (i) preclinical laboratory and animal tests; (ii) submission
to the FDA of an application for an IND, which must become effective before
human clinical trails may commence; (iii) preliminary human clinical studies
to evaluate the drug and its manner of use; and (iv) adequate and well-
controlled human clinical trials to establish the safety and effectiveness of
the drug (and, in the case of a biologic, its potency as well) for its
intended indication. See "Research, Development and the Clinical Trials
Process". If the product is regulated as a drug, the FDA Center for Drug
Evaluation and Research ("CDER") will require the submission and approval of a
New Drug Application ("NDA") before commercial marketing may begin. If the
product is regulated as a biologic, the

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FDA Center for Biologics Evaluation and Research ("CBER") will require the
submission and approval of a Biologic License Application ("BLA") before
commercial marketing may begin. As part of the NDA or BLA processes, the
manufacturer is required to accumulate, and submit to the FDA for review and
approval, a significant amount of data concerning the safety and effectiveness
(and, in the case of a biologic, potency) from laboratory/animal testing and
clinical studies, manufacturing, product stability and other studies. Each
domestic and foreign biopharmaceutical manufacturing establishment including
contract manufacturers for the Company must also be registered with the FDA
and pass an inspection by the FDA prior to approval for commercial
distribution.

If other companies are responsible for any portion of the manufacturing
process for the Company's products, the Company's ability to manufacture and
market such products will be dependent on those companies' ability to properly
carry out the portion of the manufacturing process they are expected to
perform. The Company's ability to continue to manufacture and market such
products will be dependent on those companies' continuing ability to perform
the parts of the manufacturing process for which they are responsible. There
can be no assurance that the Company, or any other companies involved in the
manufacture of the Company's products, will be able to obtain or maintain the
necessary FDA approvals or capacity to supply and manufacture such products.
If these other companies are unable to perform, then the Company will have to
find new companies to perform these functions, as well as possibly perform new
clinical studies with the final products manufactured by these new companies.
There can be no assurance that the manufacturing services of these other
companies could be replaced.

Domestic and foreign manufacturing establishments are subject to inspections
by the FDA and by other federal agencies and by state and local agencies, and
must comply with cGMP regulations as appropriate for production. If violations
of applicable requirements are noted by the FDA or other agencies during an
inspection, distribution of clinical materials for investigational use or
production lots for commercial use may be halted and, possibly, other
sanctions imposed. Commercial marketing of the Company's products may occur
only after approval of NDAs or BLAs following the submission of a complete
application. The NDA or BLA internal review process frequently takes two to
four years to complete, or longer. There can be no assurance of FDA approval
at the end of such time, or ever. The FDA may require the Company to perform
additional studies to gain approval which may take several years to complete.

Under the Prescription Drug User Fee Act, the Company must pay FDA certain
fees for reviewing a BLA or NDA or supplement thereto, for each commercial
manufacturing establishment it controls, and for each product it manufactures.
These fees can be significant; the NDA or BLA review fee can, by itself,
exceed $270,000, although certain deferrals, waivers and reductions may be
available. While user fees can be significant, they are not a significant
expense in the overall cost of product development and the regulatory process.
In addition, under that law and FDA regulations, each NDA or BLA submitted for
FDA approval is reviewed usually within the 45 to 60 days following submission
of the application for administrative completeness and reviewability. FDA can
refuse to file any NDA or BLA that it deems incomplete or not easily
reviewable. If FDA refuses to file an application, FDA will retain 25% percent
of the user fee as a penalty. The Company may then resubmit the application,
after incorporating the additional information or changes demanded by FDA, or
request that the application be filed for substantive review over protest. In
either case, the Company will be required to pay a new NDA or BLA review fee.
There can be no assurances that any application submitted by the Company will
be filed by FDA, and if filed will be approved.

Moreover, the Company is, or may become, subject to various federal, state
and local laws, regulations and recommendations relating to safe working
conditions, laboratory and manufacturing practices, the experimental use of
animals and the use, storage, handling and disposal of waste and hazardous
substances, including radioactive and toxic materials and infectious disease
agents used in conjunction with the Company's research work. Certain of the
Company's products and technology are subject to export controls which may
affect operations, technology transfer and employment of non U.S. citizens and
consultants. The failure to comply with various federal, state and local laws
governing these matters could adversely affect the Company.

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Certain issues that have potential impact on future marketing of Medarex
products are summarized in the following paragraphs.

Research, Development and the Clinical Trials Process. The production of
therapeutic products generally involves research, development and human
clinical trials.

Research refers to the discovery or identification of potential product
candidates, initial work on new applications of technology and other
associated discovery research.

Development involves the further evaluation of biological functions, testing
in pre-clinical models, improvement of laboratory scale production methods,
and the performance of other work necessary to optimize product performance
prior to the commencement of clinical testing in humans.

Before a therapeutic product may be sold in the United States and other
countries, clinical trials of the product must be conducted and the results
submitted to the appropriate regulatory agencies for approval. In the United
States, these clinical trial programs generally involve a three-phase process.
Typically, Phase I studies are conducted in healthy volunteers or, on
occasion, in patients afflicted with the target disease, to determine the
early side effect profile and the pattern of drug pharmacokinetics
distribution and metabolism. In Phase II, studies are conducted in groups of
patients afflicted with the target disease to determine preliminary efficacy,
optimal dosages and expanded evidence of the safety profile. In Phase III,
large-scale clinical trials are conducted in patients with the target disease
to provide sufficient data for the statistical proof of efficacy and safety
required by federal regulatory agencies. Such Phase III trials must be well-
controlled, and success of such trials often depends on the ability of the
Company to ensure the required level of control is maintained. Maintenance of
such control is very difficult, and there can be no assurance that the Company
will be able to do so. The clinical trial process may take three to six years
or more to complete and there can be no assurance that the data collected will
demonstrate the product to be safe or effective or, in the case of a
biological product, potent as well, or will support FDA approval of the
product.

In the case of drugs for cancer and certain other diseases, the initial
human testing may be done in patients rather than in healthy volunteers.
Because these patients are already afflicted with the target disease, it is
possible that such studies will provide results traditionally obtained in
Phase II studies. These studies are referred to as "Phase I/II" studies.
Notwithstanding the foregoing, even if patients are used in initial human
testing and a "Phase I/II" study carried out, the sponsor is still responsible
for obtaining all the data usually obtained in both Phase I and Phase II
studies.

The Company also will be subject to widely varying foreign regulations
governing clinical trials and pharmaceutical sales. Whether or not FDA
approval has been obtained, approval of a product by the comparable regulatory
authorities of foreign countries must be obtained prior to the commencement of
marketing of the product in these countries. The approval process varies from
country to country and the time may be longer or shorter than that required
for FDA approval. The Company intends, to the extent possible, to rely on
foreign licensees to obtain regulatory approval for marketing the Company's
products in foreign countries. There is no assurance that such approvals will
be obtained. In addition, under current law, there are significant
restrictions on the export of products not approved by the FDA depending the
country involved and the status of the product in that country. There can be
no assurance that the Company will be able to obtain the approvals necessary
to export its products to other countries for commercial distribution.

Regulatory approval to market a biologic or a new drug ordinarily takes a
number of years and involves the expenditure of substantial resources.
Approval time depends on a number of factors, including the period of review
at the FDA, the number of questions posed by the FDA during the review, how
long it takes the Company to respond to the FDA question, the severity of the
disease in question, the availability of alternative treatments, the
availability of clinical investigators and eligible patients, the rate of
enrollment of patients in clinical trials and the risks and benefits
demonstrated in the clinical trials.

Currently, the Company has one product in Phase III clinical trials, MDX-RA
for the prevention of secondary cataract. None of the Company's products has
been approved by the FDA for sale and approval.

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The Company has experienced operating losses in each year since its
inception and expects its operating expenses to increase at an accelerating
rate over the next several years as the Company expands and accelerates its
clinical trials and product development efforts.

Orphan Drug Designation. The Orphan Drug Act provides incentives to
manufacturers to undertake development and marketing of products to treat
relatively rare diseases or conditions. Biological products targeted for
affected patients populations in the United States of fewer than 200,000
persons per year may be eligible for new drugs and orphan drug designations.
Medarex seeks orphan drug designation for all qualified products as they enter
clinical trials. The FDA granted requests for orphan drug designation for MDX-
22 for the treatment of AML in 1990. A request for orphan drug designation for
MDX-210 for the treatment of ovarian cancer was granted in October 1993. There
can be no assurance that orphan drug designation will be accorded to other
products developed by the Company. Orphan drug designation does not convey any
advantage in, or shorten the duration of, the regulatory process. However, the
Orphan Drug Act offers, among other things, the opportunity to receive funding
for qualified clinical trials via a grant approval process. The sponsor who
obtains the first marketing approval for a designated orphan drug for a given
indication is eligible to receive seven years of United States marketing
exclusivity for that drug for that indication subject to certain limitations.
However, other drugs with different chemical structures for the same
indication may be approved by the FDA despite orphan drug exclusivity held by
Medarex. There can be no assurance that the Company will obtain marketing
approval for any of its orphan drug products. There can be no assurance that
the benefits of the existing statute will remain in effect, or that the
Company will be able to maintain exclusivity for its products, if obtained at
all. There also can be no assurances with respect to the scope of the
Company's orphan exclusivity, if any, or that the Company's BLA or NDA, if
any, will not be precluded from approval by the orphan exclusivity held by
another entity.

Treatment IND Status. The Company may also submit treatment protocols and
INDs. The FDA may allow such protocols or products for patients with life-
threatening and severely debilitating diseases especially where no
satisfactory alternative therapy exists. The purpose of these regulations is
to facilitate the availability of new products to desperately ill patients
before general marketing begins and to allow for collection of additional
safety and limited effectiveness data. Medarex may be able to recover some of
the costs of production manufacture, research, development and handling prior
to market approval if the Company is allowed to charge patients for the
product used in such studies. Notwithstanding the foregoing, there are
specific conditions which must be met before a sponsor may charge
reimbursement costs for an IND product, including notifying the FDA in writing
in advance. The FDA may notify the sponsor that it is not authorized to charge
for the products. No assurance can be given that the Company will be able to
recover any of its costs prior to market approval.

Drug and Biologics for Serious Or Life-Threatening Illnesses. The Federal
Food, Drug and Cosmetic Act and FDA regulations provide certain mechanisms for
an accelerated approval for products intended for treating serious or life-
threatening conditions, which have been studied for safety and effectiveness,
and which demonstrate the potential to address unmet medical needs for such
conditions. The procedures permit early consultation and commitment from the
FDA regarding pre-clinical and clinical studies necessary to gain marketing
approval. Provisions of this regulatory framework also permit, in certain
cases, NDAs or BLAs to be approved on the basis of Phase II clinical study
results or on the basis of valid surrogate markers of product effectiveness,
thus accelerating the normal approval process. The Company believes that
certain of its products might qualify for this accelerated regulatory
procedure although there can be no assurance the FDA will agree.
Notwithstanding the foregoing, approval may be denied by the FDA or Phase III
studies may be required. The FDA may also require the Company's agreement to
perform post-approval Phase IV studies, as a condition of such early approval.

Employees

As of December 31, 1998, the Company had 89 full-time employees, 35% of whom
hold advanced degrees. None of the Company's employees is covered by a
collective bargaining agreement. The Company has entered into employment
contracts with certain of its executive officers. The Company considers
relations with its

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employees to be satisfactory. In the next 12 months, the Company anticipates
hiring up to 22 additional employees skilled in clinical testing, regulatory
processes and manufacturing.

Risk Factors

This Annual Report contains forward-looking statements within the meaning of
Sections 27A and 21E of the Securities Exchange Act of 1934, as amended,
including statements regarding Medarex's expectations, beliefs, intentions, or
strategies regarding the future. Forward-looking statements include, without
limitation, statements in "Risk Factors", "Business" and elsewhere in this
Annual Report regarding, among other things, uncertainties relating to the
technological approach; history of operating losses and anticipation of future
losses; uncertainty of product development; need for additional capital and
uncertainty of change; uncertainty of patent and proprietary rights;
management of growth, and risks of acquiring new technologies; uncertainties
related to clinical trials; government regulation and uncertainty of obtaining
regulatory approval; dependence on key personnel; dependence on research
collaborators and scientific advisors; uncertainty of health care reform
measures and third-party reimbursement and risk of product liability. All
forward-looking statements included in this Annual Report are based on
information available to the Company, as of the date hereof, and the Company
does not assume any obligation to update any such forward-looking statements.
It is important to note that the Company's actual results may differ
materially from the results discussed in the forward-looking statements. Among
the factors that could cause actual results to differ materially are the
factors detailed in "Risk Factors" below. Accordingly, in addition to the
other information in this Annual Report, the following factors should be
considered carefully. References to the products, business, financial results
or financial condition of Medarex should be considered to refer to Medarex and
its subsidiaries unless the context otherwise requires.

Early Stage of Product Development. The Company's therapeutic products are
under development and no revenues have been generated from the sale thereof.
In addition, the Company has generated only minimal revenues from the sales or
licensing of its research products. As of the date of this Annual Report, the
Company has only one product in Phase III clinical trials, enrollment in which
has been suspended, and none of the products under development by the Company
has been approved by the FDA or foreign agency for sale. If the Company's
products in preclinical studies advance to the clinical stage, there can be no
assurance that any positive therapeutic effects of these products will be
demonstrated in clinical trials or that toxic side effects will not occur.
With respect to those products which the Company currently has in various
phases of clinical studies, there can be no assurance that these products will
prove to be effective or that significant toxic side effects will not occur
negating the therapeutic utility, if any, of the product. Furthermore, any
products which are successfully developed will be subject to various FDA and
foreign agency regulatory requirements including, but not limited to, FDA and
foreign agency approval prior to their commercial distribution. Such approval
may take two to four years, or more, following submission of the requisite
marketing application, if it is complete, and may never be obtained.
Generally, only a small percentage of new therapeutic products developed in
the laboratory is eventually approved by the FDA or foreign agency for
commercial sale. No assurance can be given that the Company will succeed in
the development and marketing of any therapeutic products.

In addition, the Company's HuMAb-Mouse business includes the application of
transgenic animal technology to the development of human antibody products for
therapeutic uses. To the Company's knowledge, no other entity has completed
the development of any therapeutic product derived from transgenic animals,
and the Company cannot predict if any such products will be developed in the
future. All of GenPharm's potential therapeutic products will require
significant additional development, testing and regulatory approval, and
additional capital will be required prior to their commercialization.
Development of products based on transgenic animal technology is subject to a
number of significant technological risks, and the time period required for
any such development is lengthy and highly uncertain. Potential products that
appear to be promising at an early stage of development may not reach the
market for many reasons. These include the possibility that the Company will
be unsuccessful in using transgenic animal technology to develop proposed
products or that potential products will be unsafe or ineffective, fail to
receive necessary regulatory approvals and clearances on a timely basis or at
all, be difficult to manufacture on a commercially viable scale, be
uneconomical to market, be

24
<PAGE>

precluded from commercialization by proprietary rights of third parties or be
rendered obsolete or less desirable by equivalent or superior products
developed and introduced by other parties.

History of Operating Losses and Accumulated Deficit. The Company has
experienced operating losses in each year since its inception and, as of
December 31, 1998, had an accumulated deficit of approximately $109,000,000.
The Company believes its operating losses will increase over the next several
years as the Company expands and accelerates its clinical trials and product
development efforts. In prior years, a significant portion of the Company's
revenues was generated from collaborative development agreements. The Company
currently has 13 such revenue-producing agreements, and its operating results
may be adversely affected if certain milestones required by such agreements
are not achieved by the Company or its collaborators. No assurance can be
given that the Company or its collaborators will be able to meet such
milestones. The Company's ability to achieve a profitable level of operations
is dependent in large part on the Company or its collaborators obtaining
regulatory approvals for their products for the Company, entering into
agreements for product development and commercialization and making the
transition to a pharmaceutical manufacturing and marketing company. There can
be no assurance that the Company or its collaborators will ever achieve
product approvals or that the Company will achieve a profitable level of
operations.

Additional Financing Requirements and Access to Capital Funding. The
operation of the Company's business requires substantial capital resources. It
is anticipated that the Company's current sources of liquidity will be
sufficient to meet the capital requirements of the Company for a period of at
least 18 months from the date of this Annual Report. The acceleration of the
development of the Company's products will result in an increase in the rate
at which the Company uses capital and in the Company's rate of losses. During
such period and thereafter, the Company will continue to spend substantial
funds to complete research and development of its products. The Company is
likely to require additional funds for these purposes. If additional funds are
raised through the issuance of equity, further dilution to stockholders may
result. The Company has no established bank lines of credit or other
arrangements through which it can obtain financing. No assurance can be given
that additional funds will be available for the Company to finance its
development on acceptable terms, if at all. If adequate funds are not
available from operations or additional sources of financing, the Company's
business will be materially adversely affected.

Dependence on Strategic Alliances. The Company has entered into strategic
alliances relating to the research and development and sales, marketing and
co-promotion of several of the Company's potential products. Under these
arrangements, the Company has granted to its corporate partners license rights
in and to certain of the Company's potential products in exchange for the
payment of license fees and commitments for additional funding in the form of
additional equity purchases, research and development payments and milestone
fees. Most of these payments are subject to the Company's achieving certain
milestones or to the satisfaction of the Company's collaborators with testing
results of the related product. In particular, the Company has entered into
strategic alliances with E. Merck, Centeon, Santen and Eisai to develop and
market the Company's MDX-447, MDX-33, MDX-RA and MDX-CD4, respectively, and
with Centocor, Novartis, Bristol-Myers Squibb, E-Site, LeukoSite, medac,
Fibrogen, Schering AG and Immunex to develop human antibodies to specific
antigens using the Company's HuMAb-Mouse technology. The Company relies on the
payments made under these strategic alliances to further the development of
these products and its operating results may be adversely affected if it is
unable to meet certain milestones required by such agreement. Should these
arrangements be terminated, the Company may be required to seek additional
funding from other sources in order to develop and market these products. If
such funding is not available, its research and product development efforts
would be adversely affected. No assurance can be given that additional funds
will be available on acceptable terms, if at all. If adequate funds are not
available, the Company's business will be materially adversely affected.

In addition, the Company granted to its collaborative partners certain
rights to commercialize the products covered by these collaborative
agreements. In some cases, the Company is relying on its collaborative
partners to conduct clinical trials, to compile and analyze the data received
from such trials, to obtain regulatory approvals and, if approved, to
manufacture and market these licensed products. The Company cannot assure that
these

25
<PAGE>

collaborative partners will be successful in conducting these trials or in
obtaining regulatory approval and marketing these licensed products.

Suspension or termination of certain of the Company's current collaborative
research agreements could have a material adverse effect on the Company's
operations and could significantly delay the development of the affected
products. Continued funding and participation by collaborative partners will
depend not only on the timely achievement of research and development
objectives by the Company and the successful achievement of clinical trial
goals, neither of which can be assured, but also on each collaborative
partner's own financial, competitive, marketing and strategic considerations.
Such considerations include, among other things, the commitment of management
of the collaborative partners to the continued development of the licensed
products, the relationships among the individuals responsible for the
implementation and maintenance of the collaborative efforts, the relative
advantages of alternative products being marketed or developed by the
collaborators or by others, including their relative patent and proprietary
technology positions, and their ability to manufacture potential products
successfully. One or more of the collaborative partners may without notice
suspend or terminate research agreements with the Company.

In addition, certain collaborative partners have developed and may be
developing competitive products that may result in delay or a relatively
smaller resource commitment to product launch and support efforts than might
otherwise be obtained if the potentially competitive product were not under
development or being marketed.

Government Regulation. The research and development activities of the
Company as well as the investigation, manufacture, labeling, distribution,
advertising, promotion and sale of therapeutic products are subject to
extensive regulation, including pre-market approval, by the FDA, and by state
and foreign agencies. The process of obtaining FDA and other approvals is
costly and time-consuming, and there can be no assurance that any product that
the Company may develop will be deemed to be safe and effective by the FDA or
foreign agencies and granted marketing approval. Even if marketing approvals
are obtained, a product and its manufacturer are subject to continuing review,
and later discovery of previously unknown problems with a product or its
manufacturer may result in the FDA imposition of restrictions on or actions
against the product or its manufacturer, including prohibitions against
manufacture, distribution and sale of products, withdrawal of products from
the market, criminal prosecution of a company and its officers and employees
and other enforcement actions. Delays in obtaining regulatory approvals may
adversely affect the marketing of any products developed by the Company and
the ability of the Company to receive product revenues and royalties. In light
of the limited regulatory history of bispecific therapeutics based on the
Company's technology, there can be no assurance that regulatory approvals for
the Company's products will be obtained without lengthy delays, or at all. In
addition, the Company cannot predict the extent to which changes to existing
governmental regulations might have an adverse effect on the Company. The
Orphan Drug Act provides incentives to manufacturers to undertake development
and marketing of products to treat relatively rare diseases or conditions.
Biological products targeted for affected patient populations in the United
States of fewer than 200,000 persons may be eligible for orphan drug
designation. In 1990, the Company received an orphan drug designation for MDX-
22 for the treatment of Acute Myeloid Leukemia ("AML"). In October 1993, the
Company received an orphan drug designation for MDX-210 for the treatment of
ovarian cancer. Orphan drug designation does not convey and advantage in, or
shorten the duration of, the regulatory process. However, the Orphan Drug Act
offers, among other things, the opportunity to receive funding for qualified
clinical trials via a grant approval process. The sponsor who obtains the
first marketing approval for a designated orphan drug for a given indication
is eligible to receive seven years of United States marketing exclusivity
subject to certain limitations. The Company does not know if it will ever
receive FDA approval to market MDX-22 or MDX-210, or if it will be the first
sponsor to receive FDA approval to market these products. Thus, the Company
does not know if it will receive orphan drug marketing exclusivity or that is
rights to market MDX-22 or MDX-210 will be preempted by orphan drug
exclusivity held by another company.

Governmental Reforms. Health care reform is an area of increasing national
and international attention and a priority of many elected officials. Several
proposals to modify the current health care system in the United States to
improve access and control costs are currently being considered by both
federal and state governments.

26
<PAGE>

Any such reform measures could adversely affect the amount of reimbursement
available from governmental or private payers or could affect the ability to
set prices for newly approved therapeutic products. Similar proposals are
being considered by governmental officials in other significant pharmaceutical
markets, including Europe. It is uncertain what proposals will be adopted or
what actions governmental or private payers for health care goods and services
may take in response to proposed or actual legislation in the United States or
other important markets. The Company cannot predict the outcome of heath care
reform proposals or the effect any such reforms may have on the Company's
business. Any such proposals, if adopted, could have a material adverse effect
on the revenue from and marketing of the Company's products.

No Assurance of Adequate Reimbursement. The success of the Company's
products in the United States and other significant markets will depend in
part upon the extent to which a consumer will be able to obtain reimbursement
for the cost of such products from government health administration
authorities, private health insurers and other organizations. Uncertainty
exists as to the reimbursement status of any newly approved therapeutic
product. There also can be no assurance that adequate third party
reimbursement by private insurers will be available for such products. Even if
approved for marketing, there can be no assurance that patients will have
sufficient resources to pay for the therapy or that governmental or private
payers will provide reimbursement for such therapy. There can be no assurance
that the Company's products will be considered cost-effective, that
reimbursement will be available or, if available, that the payer's
reimbursement policies will not adversely affect the Company's ability to sell
its products on a profitable basis.

Technological Change and Competition. The biotechnology industry is subject
to rapid and significant technological change. Competitors of the Company
engaged in all areas of biotechnology in the United States and abroad are
numerous and include, among others, major pharmaceutical and chemical
companies, specialized biotechnology firms, universities and other research
institutions. There can be no assurance that the Company's competitors will
not succeed in developing technologies and products that are more effective
than any which are being developed by the Company or which would render the
Company's technology and products obsolete or non-competitive. Many of these
competitors have substantially greater financial and technical resources and
production and marketing capabilities than the Company. In addition, many of
the Company's competitors have significantly greater experience than the
Company in undertaking preclinical testing and clinical trials of new or
improved therapeutic products and obtaining FDA and other regulatory approvals
of products for use in health care. Accordingly, the Company's competitors may
succeed in obtaining FDA and other regulatory approval for products more
rapidly than the Company.

Patents and Proprietary Rights. Certain of the processes by which the
Company is able to produce its products are proprietary; some of these
technologies are legally owned by the Company and some are legally owned by
others and licensed, either on an exclusive or a non-exclusive basis, to the
Company. The Company believes that patent protection of materials or processes
it develops and any products that may result from the Company's and licensors'
research and development efforts are important to the possible
commercialization of the Company's products. The patent position of
biotechnology firms generally is highly uncertain and involves complex legal
and factual questions. In 1987, the United States Patent and Trademark Office
announced that it would allow patents on animals, and in early 1988, it issued
the first patent on an animal. In late 1991, the corresponding patent was
issued by the European Patent Office and is now in opposition. The Company has
received several United States patents relating to transgenic mice and several
other animal patents have also issued in the United States to various parties.
However, there is currently uncertainty as to whether and to what extent
foreign jurisdictions will permit patents on animals and their uses. Also,
various bills modifying the enforceability of animal patents have been
introduced at various times in the United States Congress, although none have
passed. To date, no consistent policy has emerged regarding the breadth of
claims allowed in biotechnology patents. Accordingly, there can be no
assurance that patent applications relating to the Company's products or
technology will result in patents being issued or that, if issued, the patents
will afford protection against competitors with similar technology. It is
possible that patents issued to the Company will be successfully challenged.
In addition, companies that obtain patents claiming products or processes that
are necessary for or useful to the development of the Company's products or
otherwise covering aspects of the Company's

27
<PAGE>

technology can bring legal actions against the Company claiming infringement.
The Company is aware that certain patents have been issued which may relate to
certain of its products. While the Company does not believe that these patents
apply to its specific technology, the Company cannot predict whether such
patents will be found to cover the products or, if so, whether the Company
will be able to obtain licenses to such patented technology on commercially
reasonable terms. Litigations to establish the validity of patents, to defend
against infringement claims or to assert infringement claims against others,
if required, can be lengthy and expensive. There can be no assurance that the
Company will have the financial resources necessary to enforce any patent
rights it may hold. The Company may be required to obtain licenses from others
to develop, manufacture or market its products. There can be no assurance that
the Company will be able to obtain such licenses on commercially reasonable
terms or that the patents underlying the licenses will be valid and
enforceable.

The Company also relies upon unpatented proprietary technology, and no
assurance can be given that others will not independently develop
substantially equivalent proprietary information or techniques or otherwise
gain access to the Company's proprietary technology or disclose such
technology or that the Company can meaningfully protect its rights in such
unpatented proprietary technology.

The Company attempts and will continue to attempt to protect its proprietary
materials and processes by relying on trade secret laws and nondisclosure and
confidentiality agreements and exclusive licensing arrangements with its
employees and certain other persons who have access to its proprietary
materials or processes or who have licensing or research arrangements
exclusive to the Company, including the Company's Scientific Founders (as
defined herein). Despite these protections, no assurance can be given that
others will not independently develop or obtain access to such materials or
processes or that the Company's competitive position will not be adversely
affected thereby. The Company does not have confidentiality agreements with
the Company's Scientific Advisors (as defined herein). To the extent members
of the Company's Scientific Advisory Board have consulting arrangements with
or are employed by a competitor of the Company, the Company could be
materially adversely affected by the disclosure of the Company's confidential
information by such Scientific Advisors.

Dilution. As of the date of this Annual Report, there were outstanding (a)
3,370,723 shares of Medarex Common Stock reserved for issuance pursuant to
options and warrants exercisable by 85 individuals who are present or former
employees, officers, directors and consultants of Medarex, at a weighted
average exercise price of $4.17 per share; (b) 100,000 shares of Medarex
Common Stock issuable upon the exercise of certain additional warrants at a
weighted average exercise price of $4.50 per share; (c) 25,000 shares of
Medarex Common Stock issuable upon the exercise of certain warrants assumed by
the Company in connection with its acquisition of GenPharm at an exercise
price of $6.00 per share, and (d) 454,796 shares of Medarex Common Stock
issuable upon the exercise of certain warrants issued by the Company in
connection with the Rights Exchange at an exercise price of $10.00 per share.

The exercise of all or a portion of the outstanding options and warrants may
result in a significant increase in the number of shares of Medarex Common
Stock that will be subject to trading on The Nasdaq National Market, and the
issuance and sale of the shares of Medarex Common Stock upon the exercise
thereof may have an adverse effect on the price of the Medarex Common Stock.
See "Possible Volatility of Securities Prices" and "Description of
Securities."

In addition, certain of the Company's corporate partners have rights to
purchase additional shares of Common Stock upon the achievement of certain
research and development milestones at prices ranging from the market price of
such stock on the date of issuance thereof to $15.00 per share. The maximum
number of such additional shares cannot be determined at this time but could
be greater than 10% of the Company's outstanding shares of Common Stock on a
fully diluted basis on the date such rights are exercised.

Future Sales of Common Stock. As of the date of this Annual Report, the
Company has 31,507,186 shares of Common Stock outstanding, of which 3,345,672
are "restricted securities" as that term is defined in Rule 144 under the
Securities Act. Under certain circumstances, these restricted securities may
be sold without

28
<PAGE>

registration pursuant to such rule. The Company is unable to predict the
effect that sales made under Rule 144 or otherwise may have on the then
prevailing market price of the Common Stock. The sale of a significant number
of additional securities, or even the possibility thereof, may depress the
market price of such securities.

The Company has also filed registration statements on Form S-3 under the
Securities Act relating to 4,246,673 shares of Common Stock which may be
offered by BCC (4,176,673) and certain of the Company's corporate partners
(70,000 shares). Such shares of Common Stock are freely tradable without
restriction or further registration under the Securities Act, except for
shares, if any, held by the Company's "affiliates", which shares will be
subject to resale limitations of Rule 144.

In addition, the Company has filed or intends to file registration
statements on Form S-8 under the Securities Act to register 3,177,450 shares
of Common Stock issuable under its stock option plans. Shares issued under
such plans, other than shares issued to affiliates, will be freely tradable in
the public market.

Possible Volatility of Securities Prices. There has been significant
volatility in the market prices of securities of biotechnology companies,
including those of the Company. Various factors and events, including
announcements by the Company or its competitors concerning testing results,
the achievement of or failure to achieve certain milestones, patents,
regulatory approvals, proprietary rights, arrangements with collaborative
partners, technological innovations or new commercial products, as well as
public concern about the safety of biotechnology in general, may have a
significant impact on the Company's business. The trading prices of the
Company's securities are subject to wide fluctuations in response to these
factors, as well as to the sale or attempted sale of a large amount of Common
Stock into the market.

Manufacturing and Marketing. The Company has not yet commercially introduced
any products, except for sales of research products to scientists. To be
successful, the Company's therapeutic products must be manufactured in
commercial quantities in compliance with regulatory requirements and at
acceptable costs. While the Company believes its current facilities are
adequate for the production of its proposed products for clinical trials, such
facilities are not yet adequate for the production quantity of any products
for commercial sale. In order to manufacture its products for such purposes,
the Company will have to enhance its existing facilities and obtain requisite
consents or acquire new facilities, which will require additional funds and
inspection and a form of approval by the FDA and other regulatory agencies.
The Company has no experience in large-scale manufacturing, and no assurance
can be given that the Company will be able to make the transition to
commercial production successfully or achieve profitability. Although the
Company intends to market certain of its products through a direct sales
force, if and when regulatory approval is obtained, it currently has no
marketing or sales staff. To the extent that the Company determines not to, or
is unable to, arrange third party distribution for its products, significant
additional expenditures, management resources and time will be required to
develop a sales force. There can be no assurance that the Company will be able
to establish such a sales force or be successful in gaining market acceptance
for its products.

Product Liability. The clinical investigation, marketing and sale of human
health care products entail an inherent risk of allegations of product
liability, and there can be no assurance that product liability claims will
not be asserted against the Company. The Company currently has product
liability insurance coverage in the amount of $10,000,000 for use of its
investigational products during human clinical studies. The Company expects to
seek to obtain product liability insurance if and when its products are
commercialized; however, there can be no assurance that adequate insurance
coverage will be available at acceptable costs, if at all, or that a product
liability claim would not materially adversely affect the business or
financial condition of the Company. Some medical centers will not participate
in FDA-approved clinical studies unless a company has adequate product
liability insurance.

Dependence on Key Personnel and Attraction of Key Employees and
Consultants. The Company's success is dependent on certain key management and
scientific personnel. Competition for qualified employees among biotechnology
companies is intense, and the loss of key personnel, or the inability to
attract and retain the additional highly skilled employees required for the
expansion of the Company's activities, could adversely

29
<PAGE>

affect its business. In the near future, the Company will also need to hire
additional personnel skilled in the clinical testing and regulatory process as
it develops products with commercial potential. There can be no assurance that
the Company will be able to attract or retain such personnel. The Company has
obtained insurance on the lives of each of Donald L. Drakeman, President and
Chief Executive Officer, and Michael A. Appelbaum, Executive Vice President--
Finance and Administration, Secretary, Treasurer and Chief Financial Officer
and President and Chief Operating Officer of GenPharm, of which the Company is
the sole beneficiary in the amount of $2,000,000 for Dr. Drakeman and
$1,000,000 for Mr. Appelbaum. Dr. Drakeman and Mr. Appelbaum are subject to
certain restrictions set forth in their respective employment agreements. The
Company has experienced and expects to continue to experience a period of
significant growth in the number of new employees necessary to support the
Company's business operations. The Company's need to manage growth effectively
will also require it to continue to implement and improve its operational,
financial and management information systems and to train, motivate and manage
its employees. The Company's failure to manage growth effectively would have a
material adverse effect on the Company's results of operations and its ability
to execute business strategy.

Conflicts of Interest. The Company relies on members of its Scientific
Advisory Board (the "Scientific Advisors"), which includes distinguished
scientists with a wide range of experience in the research and development of
biopharmaceutical products, to assist the Company in formulating its research
and development strategy. All of the members of the Scientific Advisory Board
are employed other than by the Company and may have commitments to or
consulting or advisory contracts with other entities that may limit their
availability to the Company.

Dividends. The Company has not paid any cash dividends, and it is unlikely
that it will pay any dividends in the foreseeable future. Earnings, if any,
will be retained in the business for further development and expansion. The
Company cannot predict if it will ever be in the position to pay cash
dividends.

Year 2000 Implications. Many currently installed computer systems and
software products are coded to accept only two-digit entries in the date code
field and cannot reliably distinguish dates beginning on January 1, 2000 from
dates prior to the year 2000. Many companies' software and computer systems
may need to be upgraded or replaced in order to correctly process dates
beginning in 2000 and to comply with the "Year 2000" requirements. The Company
has reviewed its internal programs and has determined that there are no
significant Year 2000 issues with its systems or services. However, although
the Company believes that its systems are Year 2000 compliant, the Company
utilizes third-party equipment and software that may not be Year 2000
compliant. Failure of such third-party equipment or software to properly
process dates for the year 2000 and thereafter could require the Company to
incur unanticipated expenses to remedy any problems, which could have a
material adverse effect on its business, results of operations and financial
condition.

Item 2. Properties

Additionally, the Company leases for GenPharm a facility located in San
Jose, California. In January, 1998 the Company secured approximately 10,000
square feet of a modern facility owned by Becton Dickinson Corporation. This
space includes an animal facility to house GenPharm's HuMAb-Mice, research and
development laboratories and administrative offices. This lease expires on
December 31, 2001.

30
<PAGE>

As a result of the HBI acquisition, on February 28, 1997 the Company assumed
the lease of HBI's facilities located in The Woodlands, Texas. The lease
expired on February 28, 1999 and included approximately 20,000 square feet of
space, including approximately 16,000 square feet of research and development
laboratories and manufacturing facilities. The Company subleased this space to
other companies.

The Company is currently producing materials for its clinical trials in its
existing facilities.

Item 3. Legal Proceedings

There are no legal proceedings pending against the Company.

Item 4. Submission of Matters to a Vote of Security Holders

There were no matters submitted to a vote of security holders during the
last quarter of the fiscal year ended December 31, 1998 through the
solicitation of proxies or otherwise.

31
<PAGE>

PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

The Company's Common Stock is traded in the over-the-counter market and
included in the Nasdaq National Market under the symbol MEDX. On March 17,
1999 there were approximately 680 holders of record (which includes individual
holders) and as of May 21, 1998, the date of the last shareholders' meeting,
there were over 8,145 beneficial shareholders of the Company's Common Stock.

The following table sets forth for the periods indicated the high and low
sales prices for the Common Stock for the fiscal years ended December 31, 1997
and 1998 as reported by the Nasdaq National Market.

<TABLE>
<CAPTION>
Common Stock
------------
Fiscal Year High Low
----------- ------ -----
<S> <C> <C>
1997
First Quarter................................................. $10.00 $6.63
Second Quarter................................................ $ 8.75 $5.88
Third Quarter................................................. $ 6.81 $4.13
Fourth Quarter................................................ $ 7.06 $4.75
1998
First Quarter................................................. $ 6.25 $4.38
Second Quarter................................................ $ 8.25 $4.75
Third Quarter................................................. $ 7.06 $2.75
Fourth Quarter................................................ $ 5.13 $2.75
</TABLE>

The Board of Directors will review the Company's dividend policy from time
to time to determine the feasibility and desirability of paying dividends,
after giving consideration to the Company's earnings, financial condition,
capital requirements and other factors as the Board of Directors deems
relevant. The Company has not paid any dividends on its Common Stock and does
not anticipate paying dividends in the foreseeable future. The Company intends
to retain any earnings to finance its growth.

32
<PAGE>

Item 6. Selected Financial Data

<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------- -------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues:
Sales..................... $ 378 $ 312 $ 255 $ 221 $ 1,349
Grants, contract and
license revenues......... 200 1,467 1,626 3,011 5,443
-------- -------- -------- -------- ---------
Total revenues......... 578 1,778 1,881 3,232 6,792
Costs and expenses:
Cost of sales............. 91 123 132 150 1,218
Research and development.. 5,905 6,442 7,596 14,100 23,122
General and
administrative........... 2,154 2,275 2,558 3,644 5,065
Stock bonus to GenPharm
employees................ -- -- -- 2,275 --
Acquisition of in-process
technology............... -- -- -- 40,316 --
-------- -------- -------- -------- ---------
Total costs and
expenses.............. 8,150 8,840 10,286 60,485 29,405
Operating loss....... (7,573) (7,062) (8,405) (57,254) (22,613)
Interest and dividend
income................ 348 561 1,542 1,903 1,956
Interest expense....... (11) (8) (5) (27) (1,539)
-------- -------- -------- -------- ---------
Loss before provision
for income taxes.... (7,236) (6,509) (6,868) (55,377) (22,196)
Provision for income
taxes................. -- -- -- -- (341)
-------- -------- -------- -------- ---------
Net loss............. $ (7,236) $ (6,509) $ (6,868) $(55,377) $ (22,537)
======== ======== ======== ======== =========
Basic and diluted net loss
per share(1).............. $ (1.00) $ (0.69) $ (0.45) $ (2.93) $ (0.89)
Weighted average common
shares outstanding(1)..... 7,269 9,457 15,289 18,871 25,390
<CAPTION>
December 31,
-------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------- -------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and
marketable securities..... $ 9,434 $ 15,729 $ 31,463 $ 28,444 $ 34,664
Working capital............ 8,017 14,549 31,259 1,647 29,581
Total assets............... 13,017 19,240 36,044 48,695 42,235
Long-term obligations...... 60 40 110 107 62
Cash dividends declared per
common share.............. -- -- -- -- --
Accumulated deficit........ (18,113) (24,623) (31,491) (86,869) (109,405)
Total stockholders'
equity.................... 11,097 17,375 34,648 5,681 35,229
</TABLE>
- --------
(1) Computed on the basis described for net loss per share in Note 2 to the
Consolidated Financial Statements.

33
<PAGE>

Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations

The Company is primarily engaged in research and development of antibody-
based therapeutics to fight cancer and other life-threatening and debilitating
diseases. The Company has developed a broad platform of patented technologies
for antibody discovery and development, including the HuMAb-Mouse system for
the creation of high affinity fully human antibodies; Bispecific antibodies,
which are designed to enhance the body's own natural immune system, and
immunotoxin technology. Through its 1997 acquisition of GenPharm
International, Inc. ("GenPharm"), the Company has expanded its business to
include the HuMAb-Mouse technology that rapidly creates fully human antibodies
in about three to six months. Not only can the Company create new proprietary
products, but this technology gives Medarex the possibility of new partnering.
The Company entered into several new partnerships relating to the HuMAb-Mouse
technology during 1998 and anticipates that it will receive license fees,
milestone payments and royalties from such partnerships. In addition, as part
of the acquisition, in 1998 the Company received $23 million in cash through a
combination of certain third party payments (a $15 million note payment plus
$525,000 in interest in September 1998 and a $7.5 million payment for patent
approval in November 1998). While no assurance can be given, Management
believes that the Company's acquisition of GenPharm and its expansion into the
HuMAb-Mouse business will provide the Company with significant additional
sources of revenue.

Results of Operations

Years ended December 31, 1996, 1997 and 1998

Revenues for 1996, 1997 and 1998 were principally derived from contract and
licensing activities. Total revenues in 1996 were $1,881,000 including
$1,626,000 in contract and license revenues, of which $1,150,000 were derived
from Centeon L.L.C. ("Centeon"), a Delaware limited liability company formed
through a joint venture of Hoechst AG and Rhone-Poulenc Rorer, Inc. and
$476,000 from Novartis Pharma AG of Basel, Switzerland ("Novartis"). Total
revenues in 1997 of $3,232,000 increased 72% over 1996 and included $865,000
of contract revenue received from Santen Pharmaceutical Co., Ltd. of Osaka,
Japan, ("Santen"), $743,000 from Centeon, $377,000 from Eisai Co., Ltd. of
Tokyo, Japan, ("Eisai") and $269,000 from Small Business Innovation Research
("SBIR") grants. Revenues in 1998 of $6,792,000 increased 110% over 1997. The
increase relates to $1,112,000 received from the sale of large quantities of
MDX-447, one of the Company's Bispecific antibody products, to Merck KGaA of
Darmstadt, Germany ("Merck KGaA"), the Company's corporate partner for MDX-
447, and increases in contract and license revenues with Merck KGaA, Eisai,
Schering AG, Germany ("Schering AG"), Centocor, Inc. ("Centocor"), Centeon,
FibroGen, Inc. ("FibroGen"), Novartis and medac GmbH, Germany ("medac").

The Company's cost of sales increased by $19,000 in 1997, a 14% increase
over 1996, and $1,067,000 in 1998, a 709% increase over 1997. The increases
were principally due to increased shipping, depreciation and raw material
costs in 1996 and 1997. In 1998, the increase was principally due to
manufacturing expenses incurred in producing large quantities of MDX-447 for
proposed new human clinical trials to be conducted in conjunction with Merck
KGaA.

Research and development expense, in 1997, increased $6,504,000, an 86%
increase from 1996. The 1997 increase was primarily attributable to increased
research and development activity as a result of the acquisition of Houston
Biotechnology Incorporated ("HBI") and GenPharm, as well as increased
activities and facility upgrades associated with human clinical trials.
Additionally, sponsored research increased with the creation of Medarex Europe
B.V. in late 1996. In 1998, research and development expense increased
$9,022,000, a 64% increase from 1997. The 1998 increase was primarily
attributable to a high level of human clinical trials, license fees related to
the targeting components used in MDX-210 and MDX-447, personnel costs and
supply expenses. Research and development costs are expected to increase at an
accelerated rate as the Company's products progress through the regulatory
approval process.

General and administrative expenses increased $1,085,000 in 1997, a 42%
increase over 1996. The increase was primarily attributable to higher
personnel costs, travel expenses and consulting expenses. In 1998, general and
administrative expenses increased $1,422,000, a 39% increase over 1997. The
increase was primarily

34
<PAGE>

attributable to higher legal fees (incurred in connection with the $7,500,000
patent payment from Xenotech, L.P.), personnel costs, consulting and
shareholder relation expenses. Except for the legal fees related to the patent
payment, these expenses are expected to increase significantly as the
Company's products are developed and it expands its operations.

Acquisition of in-process technology charges of $40,316,000 in 1997 related
to the February 28, 1997, acquisition of HBI ($10,386,000) and the October 21,
1997, acquisition of GenPharm ($29,930,000).

Interest and dividend income increased by $340,000 in 1997, a 22% increase
over 1996. In 1998, interest and dividend income increased by $53,000, a 3%
increase over 1997. These increases reflected a higher average cash balances.

In 1998, interest expense increased by $1,511,000. The increase was
attributable to the amortization of a discount of the liability due to
GenPharm shareholders pursuant to the acquisition of GenPharm by the Company
in October 1997. This liability was settled on various dates through September
1, 1998.

The Company does not believe that inflation has had a material impact on its
results of operations.

In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income.
SFAS No. 130 establishes standards for the reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements and applies to all enterprises. The Company adopted SFAS
No. 130 on January 1, 1998, and the adoption of SFAS No. 130 had no impact on
the Company's consolidated results of operations, financial position or cash
flows.

In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, which is effective for years beginning
after December 15, 1997. SFAS No. 131 establishes standards for the way that
public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports. It
also establishes standards for related disclosures about products and
services, geographic areas and major customers. The Company adopted the new
requirements retroactively in 1998 with no significant impact on the Company's
financial reporting.

Liquidity and Capital Resources

The Company has financed its operations since inception primarily through
private placements and public sales of its securities, contract and license
revenues and research product sales. Through December 31, 1998, the Company
had raised $66,200,000 from sales of securities.

The Company had $28,444,000 and $34,664,000 in cash, cash equivalents and
marketable securities as of December 31, 1997 and 1998, respectively.
Operating activities consumed $7,342,000, $11,894,000 and $20,077,000 of cash
for the years ended December 31, 1996, 1997 and 1998, respectively.

Through December 31, 1998, the Company had invested $7,042,000 in property
and equipment.

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. See "Risk Factors."

In connection with the merger of Essex Medical Products ("EMP") and Medarex,
Medarex issued promissory notes to Essex Chemical Corporation ("Essex") in the
principal amount of $100,000 and committed to pay 20% of the Company's net
after-tax income until a total of $1,000,000 has been paid, contingent upon
the occurrence of certain events. At the Company's option, this contingent
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

35
<PAGE>

$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. On June 6,
1991, the Company repaid the $100,000 of notes, plus accrued interest to
Essex.

On April 18, 1996, the Company commenced its offer to reduce temporarily the
exercise price of each of its Redeemable Warrants from $6.17 to $5.55 per
Redeemable Warrant (the "Warrant Reduction Offer"). Pursuant to the Warrant
Reduction Offer, which was completed on May 15, 1996, the holders of 3,882,022
Redeemable Warrants (approximately 97% of the maximum number of Redeemable
Warrants that could have been exercised) exercised their warrants to purchase
approximately 4,534,202 shares of Common Stock, resulting in proceeds of
$21,545,000 to the Company before deducting expenses incurred in connection
with the offering. Including exercises prior and subsequent to the Warrant
Reduction Offer, warrantholders purchased approximately 5,031,910 shares of
Common Stock resulting in total gross proceeds to the Company of approximately
$24,174,000 from the exercise of the Redeemable Warrants.

On April 26, 1996, the Company announced that it had entered into a
collaborative arrangement with Centeon to develop and market MDX-33. Subject
to the terms of the arrangement, the Company is primarily responsible for
product development, clinical testing through Phase II trials and the
manufacture of all product used in clinical trials. Centeon will be primarily
responsible for the payment of all expenses associated with Phase I and Phase
II clinical trials of MDX-33 to be conducted by the Company, up to a maximum
of $20,000,000. If such trials are successfully completed, Centeon will be
primarily responsible for Phase III clinical trials, regulatory approvals,
product commercialization and the costs associated therewith. In addition,
under the terms of the arrangement, Centeon paid to the Company an up-front
fee of $1,000,000 which was included in contract and license revenue in 1996
and will pay research and development funding of $900,000 over three years.
Centeon may also provide the Company with up to $10,000,000 of additional
funding upon the achievement of certain milestones. See "Risk Factors."

Under the terms of the arrangement, Centeon has an option (the "Option") to
purchase shares of Common Stock of the Company in an amount equal to
$2,000,000, at a premium over the market price for the Common Stock on the
Nasdaq National Market for the three day period commencing one business day
prior to the Company's public announcement that certain milestones have been
achieved. If such milestones have been achieved and Centeon does not elect to
exercise the Option, then Centeon will be required to pay $2,000,000 in cash
to the Company. See "Risk Factors--Dilution."

On February 28, 1997, the Company completed its acquisition of 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 purchase price consisted of 1,026,245 shares of Medarex
common stock (valued at $7.375 per share), the assumption of certain HBI
options and warrants, the assumption of certain liabilities in excess of
assets acquired and transaction costs. The transaction was treated as a
purchase for accounting purposes and the Company charged $10,386,000 to
operations during the first quarter of 1997 which reflected the write-off of
the in-process technology acquired. HBI's lead product, MDX-RA, is a
monoclonal antibody conjugated to a toxin known as ricin. This product is used
during primary cataract surgery to prevent the occurrence of secondary
cataracts. In November of 1998, the Phase III trial was suspended by the
trial's safety committee after 565 patients had been treated. The reason for
the suspension was the occurrence of serious adverse events ("SAE's") in seven
(7) placebo treated patients and six (6) patients given the active drug. The
Company is currently analyzing the SAE's and product formulation to try to
determine the cause of the SAE's. In addition to MDX-RA, HBI is also
developing other products including a product for the treatment of glaucoma.
The glaucoma product and the other products in the HBI portfolio other than
MDX-RA are in the preclinical or research and development stage.

On October 21, 1997, the Company consummated the acquisition of GenPharm,
resulting in GenPharm becoming a wholly-owned subsidiary of the Company (the
"Merger"). The terms of the Merger called for the Company to issue shares of
its Common Stock having a value of up to $62,725,000 (the "Purchase Price"),
in exchange for all of the outstanding shares of GenPharm capital stock. The
Purchase Price was subsequently revised by approximately $518,000 pursuant to
certain adjustments provided for in the Merger. The transaction

36
<PAGE>

was treated as a purchase for accounting purposes, and the Company charged
$29,931,000 to operations during the last quarter of 1997 which, along with
HBI, was reflected in the write-off of in-process technology acquired.

During 1997, the Company issued 3,250,000 shares of its Common Stock as
payment of $17,794,000 of the Purchase Price. On August 4, 1998, the Company
issued 3,721,877 shares of its Common Stock as payment of an additional
$25,123,000 of the Purchase Price. On September 1, 1998, the Company prepaid
the remaining balance of the Purchase Price owed to the GenPharm shareholders
($19,290,000) by issuing approximately 3,829,315 shares of its Common Stock,
valued at $5.04 per share. See "Risk Factors--Dilution".

At December 31, 1998, the Company has federal net operating loss ("NOL")
carryforwards of approximately $58,735,000. The NOL carryforwards for the
Company expire in 2002 ($45,000), 2003 ($196,000), 2004 ($524,000), 2006
($863,000), 2007 ($3,985,000), 2008 ($5,533,000), 2009 ($7,592,000), 2010
($6,395,000), 2011 ($7,028,000), 2012 ($9,599,000) and 2018 ($16,975,000). The
Company has not performed a detailed analysis to determine whether an
ownership change under Section 382 of the Internal Revenue Code of 1986, as
amended, occurred, but believes that it is very likely that such a change
occurred during 1996 or 1997. The effect of an ownership change would be the
imposition of an annual limitation on the use of NOL carryforwards
attributable to periods before change. If the change occurred in late 1997,
substantially all of the NOL carryforwards would be subject to the limitation.
The amount of the annual limitation depends upon the value of the Company
immediately before the change, changes to the Company's capital during a
specified period prior to the change, and an interest rate which is published
monthly. Due to uncertainty as to the date of an ownership change during 1996
or 1997, the Company has not determined the amount of the potential
limitation. At December 31, 1998, the Company has provided a valuation reserve
to fully offset the benefit of its net operating loss carryforwards. (See Note
5.)

The New Jersey Division of Taxation has developed a program that allows new
or expanding technology and biotechnology business to "sell" their Unused NOL
Carryover and Unused Research and Development Tax Credits to corporate
taxpayers in the state for at least 75% of the value of the benefits. The
effective date of this program is January 1, 1999. The Company, in 1999,
intends to sell its New Jersey NOL's which could generate as much as
$3,000,000 in cash during 1999.

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 expired on September 30, 1998, and on October 10, 1997, the Company
elected to renew the lease for an additional five years commencing on October
1, 1998. On January 8, 1998, the Company signed a lease for laboratory and
office space in San Jose, California. This lease runs through December 31,
2001. The minimum combined annual lease commitments for both facilities range
between approximately $1,400,000 to $2,200,000, and the aggregate future
minimum lease commitments over the remainder of the lease terms are
approximately $6,400,000. As of December 31, 1998, the Company had commitments
for approximately $87,000 of capital expenditures. See "Risk Factors."

The Company is currently producing materials for its clinical trials in its
existing facilities.

The Company's current sources of liquidity are its cash, cash equivalents
and marketable securities, interest and dividends earned on such cash, cash
equivalents and marketable securities, sales of its products for research and
contract and licensing revenues. Management believes that under existing
operating plans its current sources of liquidity will be sufficient to meet
anticipated cash requirements for at least the next 18 months. See "Risk
Factors."

37
<PAGE>

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. See "Risk Factors."

Readiness for Year 2000

Many currently installed computer systems and software products are coded to
accept only two-digit entries in the date code field and cannot reliably
distinguish dates beginning on January 1, 2000 from dates prior to the year
2000. Many companies' software and computer systems may need to be upgraded or
replaced in order to correctly process dates beginning in 2000 and to comply
with the "Year 2000" requirements. The Company has determined that there are
no significant Year 2000 issues with its systems or services. With respect to
its internal systems, the Company in conjunction with expert third-party Year
2000 consultants, has completed a review of its business systems including its
research and development, financial, communication and administrative
operations and is implementing programs to address its potential exposures to
the Year 2000 issue. Based on this review, systems identified as non-year 2000
compliant are either being replaced or corrected through software upgrades.
The Company expects to replace or correct all non-compliant systems by the end
of the third quarter of 1999. The Company estimates the cost of its Year 2000
efforts to be approximately $30,000, of which approximately $15,000 has been
incurred to date. The total cost estimate is based on management's current
assessments and is subject to change. See "Risk Factors."

In addition, the Company has gathered information about the Year 2000
compliance status from its significant suppliers and subcontractors and
continues to monitor their compliance. Although the Company believes that its
systems are Year 2000 compliant, the equipment and software of its suppliers
and subcontractors may not be Year 2000 compliant. Failure of such third-party
equipment and software to properly process dates for the year 2000 and
thereafter could require the Company to incur unanticipated expenses to remedy
any problems. The Company has alternative suppliers for most of its critical
materials. However, the Company cannot accurately predict the occurrence or
the outcome of any such problems, nor can the dollar amount of any such
problems be estimated.

The failure to identify and remedy Year 2000 problems could disrupt
important operations such as product development and ongoing clinical trials.
Such disruptions could affect the development and ultimate marketing of
potential products as well as put the Company at a competitive disadvantage to
companies that have corrected such problems. Additionally, these events could
have a material adverse effect on results of operations and financial
condition. The Company has not yet developed contingency plans to address
these potential problems with internal systems and with third parties. The
Company intends to develop preliminary plans during the next several months,
which may need to be refined, as more information becomes available.

Item 7A. Quantitative and Qualitative Disclosures about Market Risks

The Company does not use derivative financial instruments in its operations
or investment portfolio. However, the Company regularly invests excess
operating cash in deposits with major financial institutions, money market
funds, notes issued by the U.S. Government, as well as fixed income
investments and U.S. stock funds, both of which can be readily purchased or
sold using established markets. The Company believes that the market risk
arising from its holdings of these financial instruments is minimal. The
Company does not have exposure to market risks associated with changes in
interest rates as it has no variable interest rate debt outstanding. The
Company does not believe it has any material exposure to market risks
associated with interest rates.

38
<PAGE>

Item 8. Financial Statements and Supplementary Data

Report of Independent Auditors

The Board of Directors and Shareholders
Medarex, Inc.

We have audited the accompanying consolidated balance sheets of Medarex,
Inc. and Subsidiaries as of December 31, 1997 and 1998 and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Medarex, Inc.
and Subsidiaries at December 31, 1997 and 1998 and the consolidated results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted
accounting principles.

Ernst & Young LLP

Princeton, New Jersey
February 10, 1999,
except for Note 14 as
to which the date is
February 25, 1999

39
<PAGE>

MEDAREX, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)

<TABLE>
<CAPTION>
December 31,
-------------------
1997 1998
-------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 6,723 $ 4,411
Marketable securities.................................... 21,721 30,253
Note receivable.......................................... 15,000 --
Trade accounts receivable, less allowance for doubtful
accounts of $5.......................................... 25 16
Inventory................................................ 44 49
Prepaid expenses and other current assets................ 1,042 1,796
-------- ---------
Total current assets.................................. 44,555 36,525
Property and equipment:
Machinery and equipment................................. 3,191 4,439
Furniture and fixtures.................................. 210 282
Leasehold improvements.................................. 2,030 2,321
-------- ---------
5,431 7,042
Less accumulated depreciation and amortization.......... (2,573) (3,703)
-------- ---------
2,858 3,339
Investments in, and advances to affiliates............... 415 561
Segregated cash.......................................... 315 1,300
Patent rights and other assets........................... 552 510
-------- ---------
Total assets.......................................... $ 48,695 $ 42,235
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable................................... $ 382 $ 394
Accrued liabilities...................................... 8,101 4,867
Deferred contract revenue................................ -- 1,683
GenPharm acquisition liability........................... 34,424 --
-------- ---------
Total current liabilities............................. 42,907 6,944
Long-term obligations..................................... 107 62
Commitments and contingencies............................. -- --
Stockholders' equity:
Preferred stock, $1.00 par value, 2,000,000 shares
authorized; None issued and outstanding................. -- --
Common stock, $.01 par value; 40,000,000 shares
authorized; 21,922,186 and 31,507,186 shares issued and
outstanding, in 1997 and 1998, respectively............. 219 315
Capital in excess of par value........................... 92,142 144,252
Accumulated other comprehensive income................... 188 67
Accumulated deficit...................................... (86,868) (109,405)
-------- ---------
Total stockholders' equity............................ 5,681 35,229
-------- ---------
Total liabilities and stockholders' equity............ $ 48,695 $ 42,235
======== =========
</TABLE>

See notes to consolidated financial statements

40
<PAGE>

MEDAREX, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share data)

<TABLE>
<CAPTION>
For the Year Ended December 31,
---------------------------------
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Sales....................................... $ 255 $ 221 $ 1,349
Grants, contract and license revenues....... 1,626 3,011 5,443
--------- ---------- ----------
Total revenues.......................... 1,881 3,232 6,792
Costs and expenses:
Cost of sales.............................. 132 150 1,218
Research and development................... 7,596 14,100 23,122
General and administrative................. 2,558 3,644 5,065
Bonus to GenPharm International, Inc.
employees................................. -- 2,275 --
Acquisitions of in-process technology...... -- 40,316 --
--------- ---------- ----------
Operating loss.......................... (8,405) (57,253) (22,613)
Interest and dividend income................ 1,542 1,903 1,956
Interest expense............................ (5) (27) (1,539)
--------- ---------- ----------
Loss before provision for income taxes.. (6,868) (55,377) (22,196)
Provision for income taxes.................. -- -- (341)
--------- ---------- ----------
Net loss................................ $ (6,868) $ (55,377) $ (22,537)
========= ========== ==========
Basic and diluted net loss per share........ $ (0.45) $ (2.93) $ (0.89)
========= ========== ==========
</TABLE>

See notes to consolidated financial statements

41
<PAGE>

MEDAREX, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands)

<TABLE>
<CAPTION>
Common Stock Accumulated
----------------- Capital other Total
Number in excess comprehensive Accumulated Stockholders'
of Shares Amount of par value income (loss) deficit equity
---------- ------ ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Beginning at January 1,
1996................... 11,858,626 $119 $ 41,814 $ 65 $ (24,623) $17,375
---------- ---- -------- ---- --------- -------
Issuance of common stock
in exchange for patent
rights................. 70,000 1 607 608
Issuance of common stock
for exercise of
options................ 71,250 303 303
Issuance of common stock
for exercise of
warrants............... 5,593,116 56 23,223 23,279
Net loss................ (6,868) (6,868)
Other comprehensive
income:
Unrealized loss on
securities............ (49) (49)
-------
Comprehensive loss..... (6,917)
---------- ---- -------- ---- --------- -------
Balance at December 31,
1996................... 17,592,992 176 65,947 16 (31,491) 34,648
---------- ---- -------- ---- --------- -------
Issuance of common
stock, options and
warrants in exchange
for Houston
Biotechnology
Incorporated stock..... 1,026,245 10 8,108 8,118
Issuance of common
stock, options and
warrants as payment of
a portion of the
purchase price for
GenPharm International,
Inc. stock............. 3,250,000 33 17,793 17,826
Issuance of common stock
for exercise of
options................ 32,469 145 145
Issuance of common stock
for exercise of
warrants............... 20,480 55 55
Options issued to non-
employees.............. 94 94
Net loss................ (55,377) (55,377)
Other comprehensive
income:
Unrealized gain on
securities............ 172 172
-------
Comprehensive loss..... (55,205)
---------- ---- -------- ---- --------- -------
Balance at December 31,
1997................... 21,922,186 219 92,142 188 (86,868) 5,681
---------- ---- -------- ---- --------- -------
Issuance of common
stock, as payment of a
portion of the purchase
price for GenPharm
International, Inc.
stock.................. 7,551,192 76 43,369 43,445
Issuance of common stock
for exercise of
options................ 35,017 41 41
Issuance of common stock
in private placements.. 1,603,849 16 6,712 6,728
Issuance of common stock
for bonus to GenPharm
International, Inc.
employees.............. 394,942 4 1,988 1,992
Net loss................ (22,537) (22,537)
Other comprehensive
income:
Unrealized loss on
securities............ (121) (121)
-------
Comprehensive loss..... (22,658)
---------- ---- -------- ---- --------- -------
Balance at December 31,
1998................... 31,507,186 $315 $144,252 $ 67 $(109,405) $35,229
========== ==== ======== ==== ========= =======
</TABLE>

See notes to consolidated statements

42
<PAGE>

MEDAREX, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

<TABLE>
<CAPTION>
For the Year Ended
December 31,
----------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Operating activities:
Net loss........................................ $ (6,868) $(55,377) $(22,537)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation.................................. 361 538 698
Amortization.................................. 160 225 475
Cash received from patent issuance............ -- -- 7,500
Equity received for contract revenue.......... -- -- (100)
Non-cash interest expense..................... -- -- 1,521
Write-off of in-process technology............ -- 40,316 --
Stock bonus to GenPharm International, Inc.
employees.................................... -- 2,275 --
Value of stock options to non-employees....... -- 68 34
Changes in operating assets and liabilities, net
of acquisition:
Decrease (increase) in trade accounts
receivable, net................................ 37 (2) 9
Decrease (increase) in inventory................ 3 3 (5)
Decrease (increase) in prepaid expenses and
other current assets........................... (476) 156 (788)
Increase (decrease) in trade accounts payable... 27 (311) 12
Increase (decrease) in accrued liabilities...... (111) 215 (1,079)
Increase (decrease) in deferred contract
revenue........................................ (476) -- 1,683
-------- -------- --------
Net cash used in operating activities.......... (7,343) (11,894) (12,577)
Investing activities:
Purchase of property and equipment.............. (342) (1,957) (1,611)
Purchase of Houston Biotechnology Incorporated,
net of cash acquired........................... -- (1,007) --
Purchase of GenPharm International, Inc., net of
cash acquired.................................. -- 6,054 --
Decrease in note receivable..................... -- -- 15,000
Increase in advances to affiliates.............. (90) -- (46)
Proceeds from sale of equipment................. -- 5 --
Decrease (increase) in segregated cash and other
assets......................................... -- 952 (985)
Purchase of marketable securities............... (14,366) -- (37,628)
Sales of marketable securities.................. -- 9,507 28,975
-------- -------- --------
Net cash (used in) provided by investing
activities.................................... (14,798) 13,554 3,705
Financing activities:
Cash received from sales of stock, net.......... 23,578 192 6,770
Increase in long-term obligations............... -- 15 --
Principal payments under debt obligations....... (20) (102) (210)
-------- -------- --------
Net cash provided by financing activities...... 23,558 105 6,560
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents................................... 1,417 1,765 (2,312)
Cash and cash equivalents at beginning of
period......................................... 3,541 4,958 6,723
-------- -------- --------
Cash and cash equivalents at end of period...... $ 4,958 $ 6,723 $ 4,411
======== ======== ========
Non-cash investing and financing activities:
Issue of common stock for technology............ $ 613 $ -- $ --
Acquisition of equipment under financing
agreement...................................... 110 -- --
======== ======== ========
Supplemental disclosures of cash flow information
Cash paid during period for:
Income taxes................................... $ -- $ -- $ 1,009
======== ======== ========
Interest....................................... $ 5 $ 19 $ 18
======== ======== ========
</TABLE>

See notes to consolidated financial statements

43
<PAGE>

MEDAREX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)

1. Nature of Operations

Medarex, Inc. ("Medarex" or the "Company"), incorporated in July 1987, is a
biotechnology company developing therapeutic products for cancer, autoimmune
disease, prevention of secondary cataracts and other life-threatening and
debilitating diseases based on proprietary technology in the field of
immunology. The Company has three wholly-owned subsidiaries. Medarex Europe
B.V. which was incorporated in the Netherlands on October 31, 1996, Houston
Biotechnology Incorporated ("HBI") which was acquired on February 28, 1997
(See Note 12) and GenPharm International, Inc. ("GenPharm") which was acquired
on October 21, 1997 (See Note 12). The Company's therapeutic products are
currently under development and will need approval of the U.S. Food and Drug
Administration ("FDA") prior to commercial distribution. The Company's
operations constitute one business segment. All significant intercompany
balances and transactions have been eliminated in consolidation.

2. Significant Accounting Policies

Cash Equivalents

The Company considers all highly liquid investments with a maturity of three
months or less to be cash equivalents. The Company invests its cash in
deposits with major financial institutions, money market funds and notes
issued by the U. S. government.

Marketable Securities

Marketable securities consist of fixed income investments with a maturity of
greater than three months and U.S. stock funds both of 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.

Inventory

Inventory consists primarily of antibodies to be sold to the research
community and to Merck KGaA, the Company's partner on MDX-447, and is stated
at the lower of cost or market with cost determined on a first-in, first-out
basis.

Property and Equipment

Property and equipment is stated at cost. Depreciation is provided over
three to five years using the straight-line method. Leasehold improvements are
amortized over the estimated useful lives of the assets or the related lease
terms, whichever is shorter.

Revenue Recognition

The Company sells antibodies primarily to research institutions in the
United States and overseas. Revenue from these sales is recognized when the
products are shipped. Research and development contract revenues are
recognized as the services are performed and as milestones are attained and
collection is assured. Amounts received in advance of services to be performed
are recorded as deferred revenue.

Research and Development

Research and development costs are expensed as incurred.

44
<PAGE>

MEDAREX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)

Use of Estimates

The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

Stock Based Compensation

The Company has adopted Statement of Financial Accounting Standards ("SFAS")
No. 123, Accounting for Stock-Based Compensation. In accordance with the
provisions of SFAS No. 123, the Company applies Accounting Principles Board
Opinion 25 and related interpretations in accounting for its stock option
plans and, accordingly, does not recognize compensation expense for stock
options granted at fair market value. Note 8 to the consolidated financial
statements contains a summary of the pro-forma effects to reported net loss
and loss per share for 1996, 1997 and 1998 as if the Company had elected to
recognize compensation expense based on the fair value of the options granted
at grant date as prescribed by SFAS No. 123.

Net Loss Per Share

Basic and diluted earnings per share is calculated in accordance with
Financial Accounting Standards Board ("FASB") SFAS No. 128, Earnings per
Share. Shares used in computing loss per share were 15,289,000, 18,871,000 and
25,390,000 in 1996, 1997 and 1998, respectively. All earnings per share
amounts for all periods have been presented, and where appropriate, restated
to conform to the requirements of SFAS No. 128.

Impact of Recently Issued Accounting Standards

As of January 1, 1998, the Company adopted SFAS No. 130, Reporting
Comprehensive Income. SFAS No. 130 establishes new rules for the reporting and
display of comprehensive income and its components; however, the adoption of
this Statement had no impact on the Company's net loss or stockholders'
equity. SFAS No. 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. Prior year financial statements have been reclassified to conform to
the requirements of SFAS No. 130. All of the Company's amounts in accumulated
other comprehensive income are attributable to unrealized gains and losses on
available-for-sale securities.

Reclassifications

Certain December 31, 1996 balances have been reclassified to conform with
the December 31, 1997 and 1998 presentation.

45
<PAGE>

MEDAREX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)

3. Marketable Securities

Marketable securities consist of the following as of December 31:

<TABLE>
<CAPTION>
1997 1998
----------------------------- ------------------------------
Unrealized Estimated Unrealized Estimated
Cost Gain Fair Value Cost Gain (loss) Fair Value
------- ---------- ---------- ------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
US Treasury
Obligations............ $ 4,971 $ 35 $ 5,006 $15,951 $(21) $15,930
US Corporate Debt Secu-
rities................. 3,641 153 3,794 14,184 88 14,272
US Stock Funds.......... 12,921 -- 12,921 51 -- 51
------- ---- ------- ------- ---- -------
$21,533 $188 $21,721 $30,186 $ 67 $30,253
======= ==== ======= ======= ==== =======
</TABLE>

4. Leases

The Company leases laboratory, production and office space in Annandale, New
Jersey and San Jose, California. The initial term of the Annandale lease,
which commenced on July 15, 1993, expired on September 30, 1998. On October
10, 1997, the Company elected to renew this lease for an additional five-year
term commencing on October 1, 1998. The San Jose lease was signed on January
8, 1998 and runs through December 2001. The Company incurred rent expense of
$1,820 in 1996, $2,063 in 1997 and $2,096 in 1998.

The Company has secured a bank letter of credit pursuant to the requirements
of its Annandale, New Jersey lease. This letter of credit in the amount of
$1,300 is fully cash collateralized and the cash is categorized as segregated
cash in the balance sheet.

Future minimum lease commitments are as follows:

<TABLE>
<S> <C>
1999.................................. $2,150
2000.................................. 2,128
2001.................................. 2,128
2002.................................. 1,758
2003.................................. 1,390
Remainder............................. --
------
$9,554
======
</TABLE>

5. Taxes

Income tax expense is determined using the liability method.

Due to operating losses, the Company had no provision for federal income
taxes in 1996 or 1997. In 1998, the Company recorded a federal income tax
provision of $341, which related to GenPharm and represented taxes paid which
were in excess of the amount of the liability provision at the date of
acquisition.

The components of the net deferred tax asset consists of the following as of
December 31:

<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Deferred Tax Assets:
Net operating loss carryforward....................... $ 18,480 $ 26,732
R&D capitalized for tax purposes...................... 4,661 4,148
Research credit....................................... 1,802 3,435
Other................................................. 1,031 112
Deferred tax asset valuation reserve.................. (25,974) (34,427)
-------- --------
Net Deferred Tax Asset................................. -- --
======== ========
</TABLE>

46
<PAGE>

MEDAREX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)

At December 31, 1998, the Company had federal net operating loss ("NOL")
carryforwards of approximately $58,735. The NOL carryforwards for the Company
expire in 2002 ($45), 2003 ($196), 2004 ($524), 2006 ($863), 2007 ($3,985),
2008 ($5,533), 2009 ($7,592), 2010 ($6,395), 2011 ($7,028), 2012 ($9,599) and
2018 ($16,975). The Company has not performed a detailed analysis to determine
whether an ownership change under Section 382 of the Internal Revenue Code
occurred, but believes that it is very likely that such a change occurred
during 1996 or 1997. The effect of an ownership change would be the imposition
of an annual limitation on the use of NOL carryforwards attributable to
periods before change. The amount of the annual limitation depends upon the
value of the Company immediately before the change, changes to the Company's
capital during a specified period prior to the change, and a published
interest rate. Due to uncertainty as to the existence and date of an ownership
change during 1996 or 1997, the Company has not determined the amount of the
potential limitation.

The Company had federal research tax credit carryforwards at December 31,
1998 of approximately $1,728 which expire between 2005 and 2018. If an
ownership change under Section 382 occurred during 1996 or 1997, the use of
these carryforwards also would be subject to limitation.

At December 31, 1998, the Company has state NOL and research credit
carryforwards of approximately $59,040 and $1,235, respectively, that expire
between 1999 and 2005.

As a result of the acquisition of HBI (See Note 12), the Company had
additional federal NOL carryforwards at December 31, 1998 of approximately
$7,481. The NOL carryforwards expire as follows: 2001 ($145), 2002 ($900),
2003 ($1,038), 2005 ($295), 2006 ($783), 2007 ($666), 2008 ($781), 2009
($114), 2013 ($74), and 2018 ($2,685). Also related to this acquisition, the
Company had research credit carryforwards of approximately $672 which expire
between 2005 and 2010. The use of the NOL and credit carryforwards is subject
to an annual limitation under Section 382. The Company has not determined the
amount of the limitation.

As a result of the acquisition of GenPharm (See Note 12), the Company had
additional federal NOL and research credit carryforwards at December 31, 1998
of approximately $2,048 and $219, respectively, which expire in 2018.

At December 31, 1998 the deferred tax assets related to the federal and
state NOL and credit carryforwards, and other temporary differences have been
fully offset by a valuation reserve.

6. Accrued Liabilities

Accrued liabilities consist of the following as of December 31:

<TABLE>
<CAPTION>
1997 1998
------ ------
<S> <C> <C>
Accrued license fee......................................... $ -- $1,540
Accrued compensation........................................ 802 1,011
Accrued clinical trials expense............................. 932 981
Accrued professional fees................................... 1,032 263
Accrued acquisition......................................... 1,192 334
Accrued rent................................................ 412 23
Accrued stock bonus......................................... 2,275 --
Other....................................................... 1,456 715
------ ------
$8,101 $4,867
====== ======
</TABLE>

47
<PAGE>

MEDAREX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)

7. Stockholders' Equity

On February 28, 1997, the Company completed its acquisition of HBI. The
purchase price consisted of 1,026,245 shares of Medarex common stock (valued
at $7.375 per share), the assumption of HBI's outstanding options and
warrants, the assumption of certain liabilities in excess of assets acquired
and transaction costs.

On October 21, 1997, the Company consummated the acquisition of GenPharm
(the "Merger") resulting in GenPharm becoming a wholly-owned subsidiary of the
Company. Pursuant to the Merger, the Company was obligated to issue shares of
its Common Stock having a value of up to $62,725 (the "Purchase Price"),
subject to adjustment, in exchange for all of the outstanding shares of
GenPharm capital stock. During 1997 the Company issued 3,250,000 shares of its
Common Stock as payment of $17,794 of the Purchase Price (See Note 12). The
amount of the Purchase Price was subsequently reduced by approximately $518 as
a result of certain adjustments provided for under the terms of the Merger.

On August 4, 1998, certain of the former GenPharm shareholders assigned
their rights (the "Rights") to receive $25,123 of the remaining balance of the
Purchase Price to BCC Acquisition I LLC ("BCC"), a limited liability company
formed between The Bay City Capital Fund I, L.P., an affiliate of Bay City
Capital LLC and various affiliates of BCC. As part of this transaction, the
Company issued 3,721,877 shares of Common Stock and warrants to purchase
454,796 shares of Common Stock at an exercise price of $10.00 per share
exercisable over a period of seven (7) years to BCC in exchange for such
Rights. On September 1, 1998, the Company prepaid the remaining balance of the
Purchase Price owed to the GenPharm shareholders ($19,290) by issuing
3,829,315 shares of Common Stock, valued at $5.04 per share.

In August 1998, Merck KGaA made a $1,200 milestone payment in exchange for
192,000 shares of the Company's common stock. Of this amount $960 was included
in equity and $240 was recorded as contract revenue. The payment was triggered
by clinical development progress on MDX-447. In December 1998, Merck KGaA
obtained an option to expand its collaboration with Medarex for the anti-
cancer Bispecific antibody, MDX-447. Merck KGaA has obtained the exclusive
option to negotiate for worldwide licensing rights, with Medarex retaining
United States rights, in return for an option fee of $1,500. The option fee at
December 31, 1998 was recorded as deferred revenue and will be amortized into
revenue over the one year life of the option.

In September 1998, Centocor exercised its option to obtain an exclusive
commercial license to fully human antibodies for four antigens created with
the Company's HuMAb-Mouse technology. Under the terms of the agreement,
Centocor made a $4,000 equity purchase and received 900,340 shares of the
Company's Common Stock.

In December 1998, Novartis made a $2,000 equity purchase for 511,509 shares
of the Company's common stock. This payment represents the first disbursement
by Novartis pursuant to a license agreement for the rights to use the HuMAb-
Mouse technology. Of this amount, $1,800 is included in equity and $200 is
being amortized into contract revenue as Novartis evaluates the initial HuMAb-
Mouse target.

8. Stock Options

The Company has nine (9) Stock Option Plans (the "Plans"). The purchase
price of stock options under the Plans is determined by the Stock Option
Committee of the Board of Directors of the Company (the "Committee") but
cannot be less than 100% of the fair market value of the stock on the date of
grant. The term is fixed by the Committee, but no incentive stock option is
exercisable after 10 years from the date of grant. As a result of the HBI
acquisition, outstanding HBI options were converted to 187,471 Medarex
options. At December 31, 1998, a total of 137,125 shares were available for
future grants under the Plans.

48
<PAGE>

MEDAREX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)

A summary of the Company's stock option activity and related information for
the years ended December 31, 1996, 1997 and 1998 follows:

<TABLE>
<CAPTION>
1996 1997 1998
------------------- ------------------- -------------------
Weighted Weighted Weighted
Common Average Common Average Common Average
Stock Exercise Stock Exercise Stock Exercise
Options Price Options Price Options Price
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 1,456,750 $2.44 1,808,600 $3.62 2,634,452 $4.20
Granted................ 443,200 7.56 861,671 5.44 218,425 3.53
Exercised.............. (71,250) (4.26) (32,469) (4.47) (29,850) (1.27)
Canceled............... (20,100) (3.60) (3,350) (9.20) (32,100) (5.15)
--------- --------- ---------
Outstanding at end of
year................... 1,808,600 3.62 2,634,452 4.20 2,790,927 4.17
========= ========= =========
Exercisable at end of
year................... 1,613,759 1,953,522 2,576,602
========= ========= =========
Weighted average fair
value of............... $2.84 $2.31 $2.14
Options granted during
the year...............
</TABLE>

Stock options outstanding at December 31, 1998 are summarized as follows:

<TABLE>
<CAPTION>
Outstanding Weighted Average
Range of Options at Remaining Weighted Average
Exercise Price December 31, 1998 Contractual Life Exercise Price
-------------- ----------------- ---------------- ----------------
<S> <C> <C> <C>
$0.10 to $4.25........ 1,094,275 2.03 $1.86
$4.25 to $6.81........ 382,150 6.90 $5.50
$6.06 to $10.63....... 287,750 7.51 $8.54
$3.43 to $54.95....... 179,827 4.82 $7.93
$2.94 to $7.53........ 846,925 8.90 $4.48
--------- ----
2,790,927 5.53
========= ====
</TABLE>

The Company has adopted the disclosure-only provisions of SFAS No. 123,
Accounting for Stock-Based Compensation, but applies Accounting Principles
Board Opinion No. 25 and related interpretations in accounting for its Plans.
If the Company had elected to recognize compensation expense based on fair
value of the options granted at grant date as prescribed by SFAS No. 123, net
loss and loss per share would have been increased to the pro forma amounts
indicated in the table below.

<TABLE>
<CAPTION>
1996 1997 1998
------- -------- --------
<S> <C> <C> <C>
Net loss--as reported........................ $(6,868) $(55,377) $(22,537)
Net loss--pro-forma.......................... $(8,446) $(56,821) $(23,945)
Loss per share--as reported.................. $ (0.45) $ (2.93) $ (.89)
Loss per share--pro-forma.................... $ (0.55) $ (3.01) $ (.94)
</TABLE>

The fair value of each option grant is estimated on the date of grant using
the Black Scholes option-pricing model with the following assumptions:

<TABLE>
<CAPTION>
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Expected dividend yield............................ 0% 0% 0%
Expected stock price volatility.................... 60.2% 59.0% 68.8%
Risk-free interest rate............................ 5.9% 5.8% 4.64%
Expected life of options........................... 5 yrs. 5 yrs. 5 yrs.
</TABLE>

49
<PAGE>

MEDAREX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)

9. Warrants

On April 18, 1996, the Company commenced its offer to reduce temporarily the
exercise price of each of its Redeemable Warrants which had been issued
pursuant to its initial public offering in June, 1991 (the "IPO"), and as part
of a series of private placements in December, 1992, the ("Placements"), from
$6.17 to $5.55 per Redeemable Warrant (the "Warrant Reduction Offer").
Pursuant to the Warrant Reduction Offer, which was completed on May 15, 1996,
the holders of 3,882,022 Redeemable Warrants (approximately 97% of the maximum
number of Redeemable Warrants that could have been exercised) exercised their
Redeemable Warrants to purchase approximately 4,534,202 shares of Common
Stock, resulting in proceeds of $21,545 to the Company before deducting
expenses incurred in connection with the offering. Including exercises prior
and subsequent to the Warrant Reduction Offer, warrantholders purchased
approximately 5,031,910 shares of Common Stock resulting in total gross
proceeds to the Company of approximately $24,174 from the exercise of the
Redeemable Warrants.

Certain warrants (the "Representative's Warrants"), which had been issued to
an underwriter and placement agent pursuant to the IPO and the Placements were
initially exercisable at prices of $9.90, subsequently adjusted to $7.20, per
share of Common Stock for a period of four years from June 20, 1992. The
Representative's Warrants contained provisions for adjustment to the exercise
prices and the number and type of securities issuable upon the exercise of the
Representative's Warrants upon the occurrence of certain events including the
issuance of any Common Stock or other securities convertible into or
exercisable for Common Stock, or in the event of any recapitalization,
reclassification, stock dividend, stock split, stock combination or similar
transaction. The Representative's Warrants granted to the holders thereof
certain demand and piggyback registration rights for the securities issuable
upon exercise thereof.

On June 18, 1996, the Company extended the expiration date of the 356,767
outstanding Representative's Warrants from June 19, 1996 to December 19, 1997
and the exercise price was adjusted to a range of $0.63 to $2.68 per share of
Common Stock. In addition, the number of shares issued upon the exercise of
the Representative's Warrants was increased to 581,678. During 1996, holders
of Representative's Warrants purchased approximately 561,204 shares of Common
Stock resulting in total gross proceeds to the Company of approximately $352
as of December 1996. During 1997, the balance of the outstanding
Representative's Warrants were exercised resulting in total gross proceeds of
$55.

On July 1, 1994, pursuant to a secondary offering, the underwriter was
issued warrants ("New Warrants"), to purchase 100,000 shares of Common Stock.
Under the terms of the New Warrants, each New Warrant holder is entitled to
purchase one share of Common Stock at a price of $4.50 per share commencing
July 1, 1995 until June 30, 1999. The New Warrants contain provisions for
adjustment to the exercise prices and the number and type of securities
issuable upon the exercise of the New Warrants upon the occurrence of certain
events including any recapitalization, reclassification, stock dividend, stock
split, stock combination or similar transaction. The New Warrants grant the
holders thereof certain demand and piggyback registration rights for the
securities issuable upon exercise thereof. As of December 31, 1998, 100,000
New Warrants were outstanding.

On February 28, 1997, the Company completed its acquisition of HBI (see note
12). As a result of this purchase, the Company assumed HBI outstanding
warrants which were convertible into 822,924 shares of Common Stock at $51.54
per share until June 30, 1998. These warrants expired on June 30, 1998.

On October 21, 1997, the Company acquired GenPharm (see note 12). As a
result of this purchase, the Company assumed GenPharm's outstanding warrants
which, when converted, can purchase 25,000 shares of Common Stock at $6.00 per
share until June 30, 1999. As of December 31, 1998, 25,000 GenPharm warrants
were outstanding.

50
<PAGE>

MEDAREX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)

On August 4, 1998, certain of the former GenPharm shareholders assigned
their rights to receive $25,123 of the remaining balance of the purchase price
to BCC. As part of this transaction, the Company issued to BCC warrants to
purchase 454,796 shares of Common Stock at an exercise price of $10.00 per
share exercisable over a period of seven (7) years.

10. Research and Development Agreements

On May 17, 1995, the Company announced a collaborative arrangement with
Novartis. Under the terms of the arrangement, on June 28, 1995, the Company
sold 899,888 shares of Common Stock to Novartis at $4.445 per share, for an
aggregate purchase price of $4,000. The purchase price represented a premium
of approximately $1,140 over the then fair market value of the Company's
Common Stock. This premium represents consideration paid for research
activities performed by the Company and was amortized into income as the
clinical trial and research activities were performed. As of December 31,
1996, there was no unamortized balance remaining. During 1996, $476 of
deferred contract revenues was amortized into income.

On April 26, 1996, the Company announced that it had entered into a
collaborative arrangement with Centeon, a Delaware limited liability company
formed through a joint venture of Hoechst AG and Rhone-Poulenc Rorer, Inc., to
develop and market MDX-33. This collaboration provides for the joint
development of MDX-33 by the Company and Centeon. Subject to the terms of the
arrangement, the Company is primarily responsible for product development,
clinical testing through Phase II trials and the manufacture of all product
used in clinical trials. Centeon will be primarily responsible for the payment
of all expenses associated with Phase I and Phase II clinical trials of MDX-33
to be conducted by the Company, up to a maximum of $20,000. If such trials are
successfully completed, Centeon will be primarily responsible for Phase III
clinical trials, regulatory approvals, product commercialization and the costs
associated therewith. In addition, under the terms of the arrangement, Centeon
paid to the Company an up-front fee of $1,000 which is included in contract
and license revenue and will pay research and development funding of $900 over
three years. Centeon may also provide the Company with up to $10,000 of
additional funding upon the achievement of certain milestones. During 1997,
the Company recognized $1,043 in contract revenue from Centeon. In 1998, the
Company recognized $1,339 in contract revenue from Centeon.

Under the terms of the arrangement, Centeon has an option (the "Option") to
purchase shares of Common Stock of the Company in an amount equal to $2,000,
at a premium over the market price for the Common Stock on the Nasdaq National
Market for the three day period commencing one business day prior to the
Company's public announcement that certain milestones have been achieved,
subject to a maximum of 20% of the shares of the Common Stock or voting power
outstanding prior to such issuance. If such milestones have been achieved and
Centeon does not elect to exercise the Option, then Centeon will be required
to pay $2,000 in cash to the Company.

HBI, which was acquired by the Company on February 28, 1997, had entered
into an exclusive license agreement with Baylor College of Medicine ("Baylor")
to market, manufacture, grant sublicenses and sell HBI's 4197X-RA Immunotoxin
(also known as MDX-RA). Baylor may terminate this license agreement if a
Product License Application is not filed with the U.S. Food and Drug
Administration ("FDA") by December 31, 2000. Pursuant to this agreement, the
Company is obligated to pay Baylor a royalty equal to a maximum of 10% of the
net sales of the product until $5,000 in royalties are paid and 5% of net
sales thereafter (5% and 2.5% in certain instances). No royalties have yet
been paid under this agreement.

51
<PAGE>

MEDAREX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)

Effective December 29, 1995, HBI and Santen entered into a Codevelopment and
License Agreement (the "Santen License") covering the marketing in Japan of
MDX-RA. To maintain exclusive marketing rights, Santen is required to provide
$7,750 over the next five years to support the Company's development of MDX-
RA. At Santen's option, Santen may elect not to make any payment, but in such
event, the license may be made non-exclusive or terminated by the Company.
Santen is obligated to seek regulatory approval for the product in Japan and
is responsible for the development cost associated with these efforts. Upon
the commencement of commercial sales by Santen in Japan, Santen will pay the
Company earned royalties based on net sales. Commencing six months after
approval of MDX-RA by Japanese regulatory authorities, Santen is required to
pay minimum royalties. Amounts paid by Santen to the Company, except those
amounts related to the purchase of the MDX-RA, are subject to a 10%
withholding tax imposed by the Japanese government. The Company receives U.S.
income tax credits equal to the amounts withheld, but the Company is not
currently able to utilize such credits. During 1997 and 1998, the Company
recognized $865 and $900, respectively, in contract revenue from Santen.

The Company has reached an understanding with Santen regarding certain
modifications to the Santen License whereby the Company will obtain, among
other things, revisions in the manufacturing and royalty provisions as well as
an option, subject to certain rights of Santen, to reacquire commercial rights
to the MDX-RA product for the Japanese market. In return, the Company allowed
Santen to issue a contingent note in the amount of $1,000 due in January 2000
for the milestone payment which was originally due in January 1998 relating to
the initiation of Phase III clinical trials of MDX-RA in the United States. In
November 1998, the Phase III clinical trials for MDX-RA was suspended by the
trial's safety committee after 565 patients had been treated. The reason for
the suspension was the occurrence of serious adverse events ("SAE's") in seven
(7) placebo treated patients and six (6) patients given active drug. The
Company is currently analyzing the SAE's and product formulation to try to
determine the cause of the SAE's. As a result of the suspension of the Phase
III clinical trial of MDX-RA, the Company and Santen are discussing the status
of this collaboration.

The Company holds a non-exclusive license from Sanofi, S.A., ("Sanofi") a
French pharmaceutical company, to use its patented method for conjugating
antibodies involving the particular toxin and linker used by the Company in
the manufacture of MDX-RA. A royalty of $1.00 per treatment unit of MDX-RA is
payable to Sanofi for sales in countries where Sanofi has patent rights until
royalties of $1 million are paid, after which the royalty rate is reduced to
$.75 per treatment unit. The license provides for minimum annual royalties of
$137,500 for 1996 and thereafter, with the last payment due in March 1999.
During 1997 and 1998, the Company paid a minimum fee for ten (10) months of
$115 and $138, respectively.

In May 1993, GenPharm, which was acquired by the Company on October 21,
1997, entered into a collaboration with Eisai to fund the development and
initial manufacturing of a specific human antibody product. This agreement was
subsequently amended to provide for further research and development funding
through December 31, 1997. Revenue recognized in 1997 by the Company under
this research agreement, as amended, was $377. In 1998, the Company received a
$750 milestone payment for the production of antibodies. Research and
development costs incurred under this agreement, to date, have approximated
revenues.

In February 1997, GenPharm entered into a Research and Commercialization
Agreement with Centocor. This agreement provides Centocor with a research
license in return for annual license fees. Further, Centocor was granted an
option to obtain exclusive worldwide marketing and manufacturing rights to any
antibodies which are developed under the terms of the agreement contingent
upon Centocor making equity investments in GenPharm (now the Company). Under
the terms of the agreement, in October 1998, Centocor exercised its option by
making a $4,000 equity purchase and received 900,340 shares of Medarex's
Common Stock. The

52
<PAGE>

MEDAREX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)

agreement provides for benchmark payments on the achievement of certain
milestones and royalty payments on product sales.

In August 1998, the Company announced that it had received a $1,200
milestone payment from Merck KGaA in exchange for 192,000 shares of Medarex
Common Stock. The milestone payment was triggered by clinical development
progress of MDX-447, an anti-cancer treatment developed jointly by Merck KGaA
and Medarex. In December 1998, Merck KGaA obtained an option to expand its
collaboration with Medarex for the anti-cancer Bispecific antibody, MDX-447.
Merck KGaA obtained the exclusive option to negotiate for worldwide licensing
rights, with Medarex retaining United States rights, in return for an option
fee of $1,500 and Merck's agreement to pay fully for Phase II clinical trials
of MDX-447. Merck KGaA currently has exclusive marketing rights in Europe,
Medarex retains U.S. rights and the two companies share the rest of the world.

In February of 1998, the Company entered into a collaboration with Schering
AG, Germany, in which Medarex will use its HuMAb-Mouse technology to produce
fully human antibodies to a proprietary antigen for Schering AG. Medarex could
receive research and development payments, a license fee, milestone payments
and royalty payments on future product sales by Schering AG.

In May 1998, the Company entered into an antibody development agreement with
E-Site, a privately held biotechnology company. Under this new research
collaboration and license agreement, E-Site will employ Medarex's HuMAb-Mouse
technology to produce a fully human antibody for use as part of a platform
technology that has the potential to treat numerous infectious diseases.
Medarex could receive license fees, milestone payments and pre-clinical and
clinical manufacturing payments, plus royalty payments on future product sales
by E-Site. In addition, Medarex and E-Site will collaborate to develop a
second human antibody that will be shared by both companies.

In June 1998, the Company entered into a research agreement with Bristol-
Myers involving Medarex's HuMAb-Mouse technology. Bristol-Myers will use the
HuMAb-Mouse to create human antibodies to multiple antigens for use in their
drug discovery programs. The agreement includes the option for Bristol-Myers
to commercialize these antibodies with terms that could result in license fees
and milestone payments, plus royalties to Medarex.

In July 1998, the Company and FibroGen, a privately held biotechnology
company, entered into an antibody development agreement for potential anti-
fibrotic therapies. Medarex could receive research and development payments,
license fees and milestone payments, plus royalty payments on future product
sales by FibroGen. The agreement calls for Medarex to use its HuMAb-Mouse
technology to produce fully human antibodies against FibroGen's proprietary
targets for exclusive use by FibroGen and its licensees. 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.

In September 1998, the Company entered into an antibody development
agreement with medac, a privately held company. Under this research
collaboration and license agreement, Medarex will use its technology to
produce a new Bispecific antibody to treat Hodgkin's Lymphoma. Medarex will
employ its HuMAb-Mouse technology to generate a fully human monoclonal
antibody to CD30, a potential cancer antigen for which medac claims
proprietary rights.

In December 1998, the Company and Novartis entered into a global licensing
arrangement involving Medarex's HuMAb-Mouse technology. Under the terms of the
agreement, Novartis obtains the rights to use the

53
<PAGE>

MEDAREX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)

HuMAb-Mouse technology throughout the entire Novartis organization for an
unlimited number of targets for up to ten years. Under the terms of the
arrangement, Novartis made an initial equity investment in the Company by
purchasing 511,509 shares of Common Stock of $2 million at a purchase price of
$3.91 per share, a premium to the market price on the day of the transaction.
An additional $1 million equity investment will be made on the first
anniversary of the agreement. A further $3 million in equity purchases may be
made after the initial five year term of the agreement. In addition, the
Company could receive license fees, milestone payments and royalties on sales
of products made utilizing the HuMAb-Mouse technology.

The Company spent $7,596, $14,100 and $23,122 during the years ended
December 31, 1996, 1997 and 1998, respectively, on activities relating to
development of new products, services or techniques or the improvement of
existing products, services or techniques. In 1996, approximately 6% of the
Company's research and development was funded by Novartis and in 1996 and
1997, 15% and 7%, respectively, was funded by Centeon and in 1997 6% was
funded by Santen. In 1998, 6% was funded by Centeon, 4% by Santen and 3% was
funded by both Merck KGaA and Eisai.

11. Commitments

The Company is a party to a number of license agreements which call for
royalties to be paid by the Company if and when the Company commercializes
products utilizing the licensed technology.

The Company has a contingent commitment to pay $1,000 to Essex Chemical
Corporation ("Essex") without interest in installments equal to 20% of net
after tax earnings of the Company in future years. The Company's contingent
commitment, as amended, to pay up to $1,000 out of future earnings may be
satisfied, at the Company's option, through the payment of cash or shares of
the Company's Common Stock having a fair market value equal to the amount
owed, provided that such shares are registered with the Securities and
Exchange Commission.

12. Acquisitions

On February 28, 1997, the Company completed its acquisition of 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 purchase price consisted of 1,026,245 shares of Medarex
common stock (valued at $7.375 per share), the assumption of HBI's outstanding
options and warrants (valued at $550), the assumption of certain liabilities
in excess of tangible assets acquired of $879, forgiveness of indebtedness of
$750 and transaction and other costs of approximately $638. 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 of $10,386 were immediately written-off
and included in the results of operations as a non-recurring charge for the
year ended December 31, 1997.

On October 21, 1997, the Company acquired all of the assets and liabilities
of 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 Company agreed to pay GenPharm
shareholders up to $62,725 (the "Purchase Price"), payable in shares of the
Company's Common Stock. The Purchase Price was subsequently reduced by
approximately $518 pursuant to certain adjustments provided for in the Merger.
The transaction was treated as a purchase for accounting purposes and since
the technological feasibility of the in-

54
<PAGE>

MEDAREX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)

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 Merger, the
Company agreed to pay a stock bonus to certain employees of GenPharm in an
amount up to $2,275 payable in Common Stock. In January 1998, $1,188 of the
stock bonus was paid through the issuance of 250,000 shares of the Company's
Common Stock and in September of 1998, $1,085 was paid through the issuance of
144,942 shares of the Company's Common Stock and cash.

During 1997, the Company issued 3,250,000 shares of its Common Stock as
payment of $17,794 of the Purchase Price. On August 4, 1998, certain of the
former GenPharm shareholders assigned their Rights to receive $25,123 of the
remaining balance of the Purchase Price to BCC. As part of this transaction,
the Company issued 3,721,877 shares of Common Stock and warrants to purchase
454,796 shares of Common Stock at an exercise price of $10.00 per share
exercisable over a period of seven (7) years to BCC in exchange for such
Rights. On September 1, 1998, the Company prepaid the remaining balance of the
Purchase Price owed to the GenPharm shareholders ($19,290) by issuing
3,829,315 shares of Common Stock, valued at $5.04 per share.

The results of operations for the HBI and GenPharm acquisitions are included
in the statement of operations from the respective dates of acquisition.

13. Segment Information

The Company is an integrated monoclonal antibody-based company with antibody
discovery, development and manufacturing capabilities. The operations of the
Company and its wholly-owned subsidiaries constitute one business segment.

Revenue from customers representing 10% or more of total revenues for the
years ended December 31, 1996, 1997 and 1998 is as follows:

<TABLE>
<CAPTION>
Customer 1996 1997 1998
-------- ---- ---- ----
<S> <C> <C> <C>
Merck KGaA.................................................. 24%
Centeon..................................................... 61% 23% 20%
Santen...................................................... 26% 13%
Eisai....................................................... 12% 11%
Novartis.................................................... 25%
</TABLE>

No other single customer accounted for more than 10% of the Company's total
revenues for the years ended December 31, 1996, 1997 and 1998, respectively.

14. Subsequent Event

On February 25, 1999 the Company announced that it had reacquired the
worldwide rights to MDX-210, an anti-cancer bispecific antibody, after
Novortis elected not to continue participating in its development.

55
<PAGE>

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures

None.

PART III

Item 10. Directors and Executive Officers of the Registrant

The information required herein will be reported in the Company's definitive
Proxy Statement for the Annual Meeting of Stockholders to be held on May 20,
1999, which will be filed on or before April 16, 1999, and is incorporated
herein by reference.

Item 11. Executive Compensation

Item 12. Security Ownership of Certain Beneficial Owners and Management

Item 13. Certain Relationships and Related Transactions

The information required herein will be incorporated in the Company's
definitive Proxy Statement for the Annual Meeting of Stockholders to be held on
May 20, 1999, which will be filed on or before April 16, 1999, and is
incorporated herein by reference.

56
<PAGE>

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

<TABLE>
<CAPTION>
Item Number
-----------
<C> <S>
(a).1. Financial Statements

Report of Independent Auditors.

Consolidated Balance Sheets as of December 31, 1997 and 1998.

Consolidated Statements of Operations for the Years Ended
December 31, 1996, 1997 and 1998.

Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 1996, 1997 and 1998.

Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1997 and 1998.

Notes to Consolidated Financial Statements

(a).2. Financial Statement Schedules

All Financial Statement schedules for which provision is made
in the applicable Accounting regulations of the Securities and
Exchange Commission are either not required under the related
instructions or are inapplicable because the required
information is included in the consolidated financial
statements or related notes thereto.

(a).3. Exhibits

2.1(1) Certificate of Merger, dated June 15, 1989, including Plan of
Merger.

2.2(18) Agreement and Plan of Merger among Medarex, Inc., Medarex
Acquisition Corp. and Houston Biotechnology Incorporated dated
December 18, 1996, together with the exhibits thereto.

2.3(28) Amended and Restated Agreement and Plan of Reorganization
among the Registrant, Medarex Acquisition Corp. and GenPharm
International, Inc., dated as of May 5, 1997, together with
Exhibits thereto.

3.1(16) Restated Certificate of Incorporation of the Registrant.

3.2(1) Amended and Restated By-laws of the Registrant.

4.1(1) Form of Specimen of Common Stock Certificate.

4.2(19) Form of Warrant Agreement between Houston Biotechnology
Incorporated and Mellon Securities Trust Company.

4.3 Form of Specimen of Warrant Certificate (included as Exhibit A
to Warrant Agreement filed as Exhibit 4.2).

10.1(4) Lease of the Registrant's executive offices dated August 1,
1992.

10.2(1) Lease of the Registrant's laboratory facilities (West Lebanon,
New Hampshire).

10.3(1) 1991 Employee Stock Option Plan.

10.4(1) Letter of Intent dated April 25, 1991 between Lower Pyne
Associates, L.P. and Medarex, Inc.

10.5(1) Joint Venture Agreement by and among Trustees of Dartmouth
College, Essex Medical Products, Inc. and the Registrant,
dated as of July 15, 1987.
</TABLE>

57
<PAGE>

<TABLE>
<CAPTION>
Item Number
-----------
<C> <S>
10.6(1) Exclusive License Agreement by and between Trustees of
Dartmouth College and the Registrant, dated July 15, 1987.

10.7(1) Non-Exclusive License Agreement by and between Trustees of
Dartmouth College and the Registrant, dated July 15, 1987.

10.8(1) Assignment Agreement by and between the Registrant and Michael
W. Fanger, dated July 15, 1987.

10.9(1) Consulting Agreement between the Registrant and Michael W.
Fanger, dated as of July 15, 1987.

10.10(1) Assignment Agreement by and between the Registrant and Paul M.
Guyre, dated July 15, 1987.

10.11(1) Consulting Agreement between the Registrant and Paul M. Guyre,
dated as of July 15, 1987.

10.12(1) Assignment Agreement by and between the Registrant and Edward
Ball, dated July 15, 1987.

10.13(1) Consulting Agreement between the Registrant and Edward Ball,
dated as of July 15, 1987.

10.14(1) Stock Purchase Agreement among Essex Vencap, Inc. and Medarex
Founders and the Registrant, dated as of June 15, 1989.

10.15(1) Amended and Restated Research and Development and Umbrella
Agreement between Fondation Nationale de Transfusion Sanguine
and the Registrant, dated March 7, 1991.

10.16(1) AML/SCCL License Agreement between Fondation Nationale de
Transfusion Sanguine and the Registrant, dated February 13,
1990.

10.17(1) HIV License Agreement between Fondation Nationale de
Transfusion Sanguine and the Registrant, dated February 13,
1990.

10.18(1) HIV Targeting Antibody License Agreement between Fondation
Nationale de Transfusion Sanguine and the Registrant, dated
February 13, 1990.

10.18A(1) Amendment to AML/SCCL License Agreement, the HIV License
Agreement and the HIV Targeting Antibody License Agreement
dated March 7, 1991.

10.19(1) Medarex Targeted Immunostimulation License Agreement between
the Registrant and Fondation Nationale de Transfusion
Sanguine, dated March 7, 1991.

10.20(1) FNTS Targeted Immunostimulation License Agreement between
Fondation Nationale de Transfusion Sanguine and the
Registrant, dated March 7, 1991.

10.21(1) Agreement of SmithKline Beecham Pharmaceuticals and the
Registrant with respect to Research Collaboration, dated
February 1, 1990.

10.21A(1) Amendment to Agreement of SmithKline Beecham Pharmaceuticals
and the Registrant with respect to Research Collaboration
dated July 5, 1990.

10.22(1) Research Agreement between the Registrant and The Upjohn
Company, dated October 18, 1990.

10.23(1) Agreement dated as of May 16, 1991 by and among Trustees of
Dartmouth College and the Registrant relating to the
assignment of certain patents and the modification of the
Joint Venture Agreement.

</TABLE>

58
<PAGE>

<TABLE>
<CAPTION>
Item Number
-----------
<C> <S>
10.23(1) Agreement dated as of May 16, 1991 by and among Trustees of
Dartmouth College and the Registrant relating to the
assignment of certain patents and the modification of the
Joint Venture Agreement.

10.24(1) Assignment of certain patent rights by Trustees of Dartmouth
College to the Registrant dated May 16, 1991.

10.25(1) Loan Agreement by and between Dr. Edward Ball, Dr. Paul Guyre,
Dr. Donald Drakeman, Dr. Michael Fanger, and First New
Hampshire Bank of Lebanon, dated October 25, 1990.

10.26(1) Security Agreement between the Registrant and First New
Hampshire Bank of Lebanon, dated October 25, 1990.

10.27(1) Distribution Agreement between the Registrant and Funakoshi
Pharmaceutical Co., Ltd., dated as of June 1, 1989, expiring
May 31, 1990.

10.28(1) Employment Agreement by and between the Registrant and Dr.
Donald Drakeman, dated as of April 1, 1991, as amended.

10.29(1) Employment Agreement by and between the Registrant and Dr.
Nathan B. Dinces, dated as of April 1, 1991, as amended.

10.30(1) Form of Financial Advisory and Investment Banking Agreement
between the Registrant and Josephthal Lyon & Ross
Incorporated.

10.31(1) License Agreement between the Registrant and Chiron
Corporation (formerly Cetus Corporation) dated as of February
19, 1991.

10.32(1) Form of invention and confidential information agreement
between registrant and its Employees.

10.33(1) Stock Purchase Plan.

10.34(1) Settlement Agreement by and between the Registrant and
Fondation Nationale de Transfusion Sanguine, dated December 9,
1991.

10.35(1) Amended and Restated HIV Targeting Antibody License Agreement
by and between the Registrant and Fondation Nationale de
Transfusion Sanguine, dated December 9, 1991.

10.36(2) HBV Cell Line License Agreement by and between the Registrant
and Fondation Nationale de Transfusion Sanguine, dated
December 9, 1991.

10.37(3) Employment Agreement by and between the Registrant and Michael
A. Appelbaum, dated as of July 29, 1991.

10.38(4) Agreement dated November 28, 1991 between Scotgen Limited and
the Company Pertaining to the genetic engineering of one of
the Company's antibodies.

10.39(5) Amended and Restated 1987 Stock Option Plan.

10.40(6) Letter of Intent between Registrant and The Bayson Company
dated March 16, 1992.

10.41(6) Form of Consulting Agreement between the Registrant and Paul
M. Guyre, dated as of March 17, 1992.

10.42(6) Form of Consulting Agreement between the Registrant and Edward
Ball, dated as of March 17, 1992.

10.43(6) Form of Consulting Agreement between the Registrant and
Michael W. Fanger, dated as of March 17, 1992.

</TABLE>

59
<PAGE>

<TABLE>
<CAPTION>
Item Number
-----------
<C> <S>
10.44(6) Agreement In Principle dated as of July 10, 1992 between the
Registrant and Dr. Daniel Beck of Centre Hospitalier
Universiter Vaudrois.

10.45(6) Agreement In Principle dated as of July 23, 1992 by and among
Institut Curie, Immuno-Designed Molecules, SARL and the
Registrant.

10.46(7) Underwriting Agreement by and between the Registrant and
Rosenkrantz Lyon & Ross Incorporated as Representative of the
Several Underwriters, dated June 20, 1991.

10.47(9) Placement Agent Agreement between the Registrant and
Josephthal Lyon & Ross Incorporated, dated as of November 13,
1992.

10.48(9) Placement Agent Warrant Agreement between the Registrant and
Josephthal Lyon & Ross Incorporated, dated as of December 14,
1992. Placement Agent Agreement between the Registrant and
Josephthal Lyon & Ross Incorporated, dated as of December 17,
1992.

10.50(9) Placement Agent Warrant Agreement between the Registrant and
Josephthal Lyon & Ross Incorporated, dated as of December 18,
1992.

10.51(8) 1992 Employee Stock Option Plan.

10.52(10) Lease of Registrant's Laboratory Facility (Annandale, New
Jersey).

10.53(11) Amendment to Lease of Registrant's Laboratory Facility
(Annandale, New Jersey).

10.54(11) Employment Agreement by and between the Registrant and
Yashwant M. Deo, dated as of July 8, 1993.

10.55(12) Financing Agreement dated as of December 1, 1993 by and among
the Registrant, G. Musuri S.A. and IDM S.A.

10.56(12) Consulting Agreement dated February 10, 1994 by and between
the Registrant and Dr. Julius A. Vida.

10.57(13)** Letter of Intent dated March 30, 1994 between the Registrant
and E. Merck.

10.58(14) Sublease of Registrant's Laboratory Facility (W. Lebanon, New
Hampshire).

10.59(14) Sublease of Registrant's Executive Office (Princeton, New
Jersey).

10.60(15) Sublease of the Company's New Hampshire Facility dated May 25,
1994.

10.61(9) 1995 Stock Option Plan

10.61A(17) Amendment to the Financing and Option Agreement of December 1,
1993 by and among the Registrant, G. Musuri S.A. and IDM S. A.

10.62(9) Stock Purchase Agreement dated May 16, 1995 between the
Registrant and Novartis Inc.

10.63(9)** Development and Commercialization Agreement dated May 16, 1995
between the Registrant and Novartis Inc.

10.64(9) Registration Rights Agreement dated May 16, 1995 between the
Registrant and Novartis Inc.

10.65(13) Letter to Josephthal Lyon & Ross Incorporated dated April 12,
1996.

10.66(20) Convertible Note dated December 18, 1996 executed by Houston
Biotechnology Incorporated in favor of the Registrant.

10.67(21) License Agreement effective December 18, 1996 between Houston
Biotechnology Incorporated and the Registrant.

10.68(22) Escrow Agreement dated as of December 18, 1996 among Houston
Biotechnology Incorporated, the Registrant and Satterlee
Stephens Burke & Burke LLP, as escrow agent.
</TABLE>

60
<PAGE>

<TABLE>
<CAPTION>
Item Number
-----------
<C> <S>
10.69(19) Convertible Note dated January 15, 1997 executed by Houston
Biotechnology Incorporated in favor of the Registrant.

10.70(29)** Cooperative Research and Development Agreement made May 31, 1993
between Eisai Co., Ltd. and GenPharm International, Inc.
together with Amendment No. 1 thereto effective as of October
10, 1995, and Amendment No. 2 thereto effective as of April 26,
1996.

10.71(29)** Cooperative Research Agreement made effective as of January 1,
1995, between LeukoSite, Inc. and GenPharm International, Inc.,
together Amendment No. 1 thereto effective as of January 1,
1996, Amendment No. 2 thereto made effective as of December 1,
1996, and an Acknowledgement Relating thereto made effective
March 24, 1997.

10.72(29)** Research and Commercialization Agreement made February 24, 1997
between Centocor, Inc. and GenPharm International, Inc.

10.73(23)** Release and Settlement Agreement, dated March 26, 1997, among
cell Genesys, Inc., Abgenix, Inc., Xenotech, L.P., Japan
Tobacco, Inc. and GenPharm International, Inc.

10.74(24)** Cross License Agreement, effective as of March 26, 1997, among
Cell Genesys, Inc., Abgenix, Inc., Xenotech, L.P., Japan
Tobacco, Inc. and GenPharm International, Inc.

10.75(25)** Interference Settlement Procedure Agreement, effective as of
March 26, 1997, among Cell Genesys, Inc., Abgenix, Inc.,
Xenotech, L.P., Japan Tobacco, Inc. and GenPharm International,
Inc.

10.76(26) Convertible Note Purchase Agreement, dated as of March 26, 1997,
between Cell Genesys, Inc. and GenPharm International, Inc.

10.77(27) Convertible Subordinated Promissory Note, dated March 26, 1997,
made by Cell Genesys, Inc. to the order of GenPharm
International, Inc.

10.78(30)** Development and Licensing Agreement between the Registrant and
Centeon L.L.C. dated April 24, 1996.

10.79(31)** Research and Licensing Agreement between the Registrant and
Merck KGaA dated June 26, 1996.

10.80(32)** Research and Commercialization Agreement dated February 11, 1998
between the Registrant and Schering AG.

10.81(33) Rights Exchange Agreement dated as of June 10, 1998 between the
Registrant and BCC Acquisition I LLC, together with the exhibits
thereto.

10.82(34)* Evaluation Research and Commercialization Agreement effective as
of November 6, 1998 between GenPharm International, Inc. and
Novartis Pharma AG.

10.83(35)* Stock Purchase Agreement dated as of November 6, 1998 between
the Registrant and Novartis Pharma AG.

21 Subsidiaries of the Registrant.

23.1 Consent of Ernst & Young LLP.

27 Financial Data Schedule.
</TABLE>
- --------
(1) Incorporated by reference to the identically numbered exhibit to the
Registrant's Registration Statement on Form S-1 (File No. 33-39956) filed
on April 12, 1991.
(2) Incorporated by reference to the identically numbered exhibit to the
Registrant's Current Report on Form 8-K dated December 20, 1991.

61
<PAGE>

(3) Incorporated by reference to exhibit number 10.33 to the Registrant's
Current Report on Form 8-K dated August 9, 1991.
(4) Incorporated by reference to the identically numbered exhibit to the
Registrant's Annual Report on Form 10-K filed on March 6, 1992.
(5) Incorporated by reference to exhibit number 4 to the Registrant's
Registration Statement on Form S-8 (File No. 33-44276) filed on November
29, 1991.
(6) Incorporated by reference to the identically numbered exhibit to the
Registrant's Registration Statement on Form S-1 (File No. 33-46509) filed
on March 18, 1992.
(7) Incorporated by reference to the exhibit number 1.1 to the Registrant's
Registration Statement on Form S-1 (File No. 33-39956) filed on April 12,
1991.
(8) Incorporated by reference to the identically numbered exhibit to the
Registrant's Annual Report on Form 10-K filed on March 15, 1993.
(9) Incorporated by reference to the identically numbered exhibit to the
Registrant's Post-Effective Amendment No. 5 to Registration Statement on
Form S-1 (File No. 33-57366) filed on September 15, 1995.
(10) Incorporated by reference to the identically numbered exhibit to the
Registrant's Quarterly Report on Form 10-Q filed on May 14, 1993.
(11) Incorporated by reference to the identically numbered exhibit to the
Registrant's Quarterly Report on Form 10-Q filed on August 16, 1993.
(12) Incorporated by reference to the identically numbered exhibit to the
Registrant's Annual Report on Form 10-K filed on February 15, 1994.
(13) Incorporated by reference to the identically numbered exhibit to the
Registrant's Registration Statement on Form S-1 (File No. 33-75324) filed
on June 28, 1994.
(14) Incorporated by reference to the identically numbered exhibit to the
Registrant's Quarterly Report on Form 10-Q filed on May 13, 1994.
(15) Incorporated by reference to the identically numbered exhibit to the
Registrant's Quarterly Report on Form 10-Q filed on August 12, 1994.
(16) Incorporated by reference to the identically numbered exhibits to the
Registrant's Registration Statement on Form S-1 (File No. 33-98244) filed
on July 26, 1995.
(17) Incorporated by reference to the identically numbered exhibits to the
Registrant's Quarterly Report on Form 10-Q filed on May 11, 1995.
(18) Incorporated by reference to Exhibit 2.1 of the Registrant's Registration
Statement on Form S-4 (File No. 333-20119) filed on January 22, 1997.
(19) Incorporated by reference to the identically number exhibit to the
Registrant's Registration Statement on Form S-4 (File No. 333-20119)
filed on January 22, 1997.
(20) Incorporated by reference to Exhibit Number 99.2 to the Registrant's
Current Report on Form 8-K filed on January 2, 1997.
(21) Incorporated by reference to Exhibit Number 99.3 to the Registrant's
Current Report on Form 8-K filed on January 2, 1997.
(22) Incorporated by reference to Exhibit Number 99.4 to the Registrant's
Current Report on Form 8-K filed on January 2, 1997.
(23) Incorporated by reference to Exhibit Number 10.44 to Cell Genesys, Inc.'s
Annual Report on Form 10-K/A filed on May 1, 1997.
(24) Incorporated by reference to Exhibit Number 10.45 to Cell Genesys, Inc.'s
Annual Report on Form 10-K/A filed on May 1, 1997.
(25) Incorporated by reference to Exhibit Number 10.46 to Cell Genesys, Inc.'s
Annual Report on Form 10-K/A filed on May 1, 1997.
(26) Incorporated by reference to Exhibit Number 10.47 to Cell Genesys, Inc.'s
Annual Report on Form 10-K/A filed on May 1, 1997.
(27) Incorporated by reference to Exhibit Number 10.48 to Cell Genesys, Inc.'s
Annual Report on Form 10-K/A filed on May 1, 1997.

62
<PAGE>

(28) Incorporated by reference to Exhibit Number 2.1 to the Registrant's
Registration Statement on Form S-4 (No. 333-29953) filed on June 25,
1997.
(29) Incorporated by reference to identically numbered exhibit to the
Registrant's current Report on Form 8-K filed on March 31, 1998.
(30) Incorporated by reference to Exhibit Number 10.74 to the Registrant's
current Report on Form 8-K filed on March 31, 1998.
(31) Incorporated by reference to Exhibit Number 10.73 to the Registrant's
current Report on Form 8-K filed on March 31, 1998.
(32) Incorporated by reference to the identically numbered exhibits to the
Registrant's Quarterly Report on Form 10-Q filed May 14, 1998.
(33) Incorporated by reference to the identically numbered exhibit to the
Registrant's Current Report on Form 8-K filed on June 15, 1998.
(34) Incorporated by reference to Exhibit Number 10.1 to the Registrant's
Current Report on Form 8-K filed on February 26, 1999.
(35) Incorporated by reference to Exhibit Number 10.2 to the Registrant's
Current Report on Form 8-K filed on February 26, 1999.
*Confidential treatment has been requested with respect to specified
portions of this exhibit.
**Confidential treatment has been granted with respect to specified portions
of this exhibit.

(b) Reports on Form 8-K

Form 8-K filed on March 5, 1999, relating to the formation of a Danish joint
venture with BankInvest VF to develop the HuMAb-Mouse technology (Item 5)

Form 8-K filed on March 1, 1999, relating to the Registrant's reacquisition
of certain commercial rights from Novartis (Item 5)

Form 8-K filed on February 26, 1999, relating to the Registrant's execution
of a license agreement and stock purchase agreement with Novartis Pharma AG
(Item 5)

63
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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 on March 29, 1999.

MEDAREX, INC.

/s/ Donald L. Drakeman
By: _________________________________
Donald L. Drakeman
President and Chief Executive
Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities indicated and on the dates indicated.

Principal Executive Officer and Director:

<TABLE>
<S> <C>
/s/ Donald L. Drakeman March 29, 1999
___________________________________________
Donald L. Drakeman
Director, President and Chief Executive
Officer

Principal Financial Officer, Accounting Officer and Director:

/s/ Michael A. Appelbaum March 29, 1999
___________________________________________
Michael A. Appelbaum
Director, Executive Vice President
and Chief Financial Officer

Directors:

/s/ Irwin Lerner March 29, 1999
___________________________________________
Irwin Lerner
Chairman of the Board

/s/ Michael W. Fanger March 29, 1999
___________________________________________
Michael W. Fanger

/s/ Robert Iggulden March 29, 1999
___________________________________________
Robert Iggulden

/s/ Charles Schaller March 29, 1999
___________________________________________
Charles Schaller

/s/ W. Leigh Thompson March 29, 1999
___________________________________________
W. Leigh Thompson

/s/ Julius A. Vida March 29, 1999
___________________________________________
Julius A. Vida

/s/ Fred Craves March 29, 1999
___________________________________________
Fred Craves
</TABLE>

<PAGE>

Exhibit 21

Subsidiaries of Medarex, Inc.

Medarex Europe B.V.

Houston Biotechnology Incorporated

GenPharm International, Inc.

<PAGE>

Exhibit 23.1

Consent of Independent Auditors

We consent to the incorporation by reference in the Registration Statements
(Form S-3 No. 333-308, Form S-3 No. 333-310, Form S-3 No. 333-312, Form S-3
No. 333-16373, Form S-3 No. 333-66047, Form S-4 No. 333-20119, Form S-4
No. 333-29953) and in the related Prospectuses, in the Registration Statement
(Form S-8 No. 33-71346) pertaining to the Amended and Restated 1991 Stock
Option Plan, in the Registration Statement (Form S-8 No. 33-71350) pertaining
to the 1992 Stock Option Plan in the Registration Statement (Form S-8 No. 33-
71348) pertaining to the Amended and Restated EMP Stock Option Plan, in the
Registration Statement (Form S-8 No. 33-80211) pertaining to the Amended and
Restated 1987 Stock Option Plan, in the Registration Statement (Form S-8 No.
33-80213) pertaining to the 1994 Stock Option Plan, in the Registration
Statement (Form S-8 No. 33-80215) pertaining to the 1995 Stock Option Plan,
and in the Registration Statement (Form S-8 No. 333-16349) pertaining to the
1996 Option Plan of Medarex, Inc., of our report dated February 10, 1999,
except for Note 14 to which the date is February 25, 1999, with respect to the
consolidated financial statements of Medarex, Inc. included in this Annual
Report (Form 10-K) for the year ended December 31, 1998.

Princeton, New Jersey
March 26, 1999

<PAGE>

<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements for the twelve months ended December 31, 1998 and is
qualified in its entirety by reference in such statements.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 4,411
<SECURITIES> 30,253
<RECEIVABLES> 21
<ALLOWANCES> (5)
<INVENTORY> 49
<CURRENT-ASSETS> 36,525
<PP&E> 7,042
<DEPRECIATION> (3,703)
<TOTAL-ASSETS> 42,235
<CURRENT-LIABILITIES> 6,944
<BONDS> 0
0
0
<COMMON> 315
<OTHER-SE> 34,914
<TOTAL-LIABILITY-AND-EQUITY> 42,235
<SALES> 1,349
<TOTAL-REVENUES> 6,792
<CGS> 1,218
<TOTAL-COSTS> 29,405
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,539
<INCOME-PRETAX> (22,196)
<INCOME-TAX> 341
<INCOME-CONTINUING> (22,537)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (22,537)
<EPS-PRIMARY> (0.89)
<EPS-DILUTED> 0

</TABLE>