<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For quarter ended March 31, 1999 Commission File No. 0-19312
-------------- -------
MEDAREX, INC.
-------------
(Exact name of registrant as specified in its charter.)
New Jersey 22-2822175
- ---------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1545 Route 22 East, Annandale, New Jersey 08801
- ----------------------------------------- -----
(Address or principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (908) 713-6001
--------------
Indicate by check mark whether registrant (1) has filed all reports required to
be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
The number of shares of common stock, $.01 par value, outstanding as of May 10,
1999 was 31,507,186 shares.
Page 1 of 12
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MEDAREX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
December 31, March 31,
----------- -----------
1998 1999
(Unaudited)
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 4,411 $ 7,298
Marketable securities 30,253 23,806
Trade accounts receivable, less allowance for doubtful
accounts of $5 16 21
Inventory 49 35
Prepaid expenses and
other current assets 1,796 2,233
----------- -----------
Total current assets 36,525 33,393
Property and equipment:
Machinery and equipment 4,439 4,584
Furniture and fixtures 282 310
Leasehold improvements 2,321 2,248
----------- -----------
7,042 7,142
Less accumulated depreciation and amortization (3,703) (3,914)
----------- -----------
3,339 3,228
Investments in, and advances to affiliates 561 561
Segregated cash 1,300 1,300
Patent rights and other assets 510 499
----------- -----------
Total assets $ 42,235 $ 38,981
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Trade accounts payable $ 394 $ 1,082
Accrued liabilities 4,867 2,243
Deferred contract revenue 1,683 1,258
----------- -----------
Total current liabilities 6,944 4,583
Long-term obligations 62 41
Commitments - -
Stockholders' equity:
Preferred stock, $1.00 par value, 2,000,000 share authorized;
none issued and outstanding - -
Common stock, $.01 par value; 40,000,000 shares authorized;
31,507,186 shares issued and outstanding 315 315
Capital in excess of par value 144,252 144,252
Accumulated other comprehensive income 67 125
Accumulated deficit (109,405) (110,335)
----------- -----------
Total stockholders' equity 35,229 34,357
----------- -----------
Total liabilities and stockholders' equity $ 42,235 $ 38,981
=========== ===========
</TABLE>
See notes to these unaudited consolidated financial statements.
Page 2 of 12
<PAGE>
MEDAREX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31, March 31,
1998 1999
----------- -----------
<S> <C> <C>
Sales $ 59 $ 44
Grants, contract and license revenues 1,254 5,550
----------- -----------
Total revenues 1,313 5,594
Costs and expenses:
Cost of sales 131 28
Research and development 5,288 5,479
General and administrative 1,059 1,282
----------- -----------
Operating loss (5,165) (1,195)
Interest and dividend income 695 267
Interest expense (600) (2)
----------- -----------
Net loss $ (5,070) $ (930)
=========== ===========
Basic and diluted net loss per share ($0.23) ($0.03)
=========== ===========
Weighted-average number of common
shares outstanding during the period
-basic and diluted 22,163,875 31,507,186
</TABLE>
See notes to these unaudited consolidated financial statements.
Page 3 of 12
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MEDAREX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
1998 1999
---- ----
<S> <C> <C>
Operating activities:
Net loss $ (5,070) $ (930)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 210 191
Amortization 101 105
Non-cash interest expense 595 -
Changes in operating assets and liabilities, net of acquistion:
Trade accounts receivable, net (19) (5)
Inventory (9) 14
Prepaid expenses and other current assets (522) (437)
Trade accounts payable (93) 688
Accrued liabilities (1,705) (2,617)
GenPharm acquisition liability (654) -
Deferred contract revenue - (425)
----------- -----------
Net cash used in operating activities (7,166) (3,416)
Investing activities:
Purchase of property and equipment (561) (174)
Increase in other assets (360) -
Purchase of marketable securities - (4,000)
Sale of marketable securities 7,057 10,505
----------- -----------
Net cash provided by investing activities 6,136 6,331
Financing activities:
Cash received from sales of securities, net 8 -
Principal payments under debt obligations (30) (28)
----------- -----------
Net cash used by financing activities (22) (28)
----------- -----------
Net increase (decrease) in cash and cash equivalents (1,052) 2,887
Cash and cash equivalents at beginning of period 6,724 4,411
----------- -----------
Cash and cash equivalents at end of period $ 5,672 $ 7,298
=========== ===========
Supplemental disclosures of cash flow information
Cash paid during period for:
Income taxes $ 983 $ -
=========== ===========
Interest $ 5 $ 2
=========== ===========
</TABLE>
See notes to these unaudited consolidated financial statements.
Page 4 of 12
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MEDAREX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands)
1. Organization and basis of presentation
The unaudited financial statements have been prepared from the books and
records of Medarex, Inc. and Subsidiaries (the "Company") in accordance with the
instruction to Form 10-Q and, accordingly, do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Interim results are not necessarily indicative of the results
that may be expected for the year. For further information, refer to the
financial statements and footnotes thereto included in the Company's annual
report on Form 10-K for the year ended December 31, 1998.
2. Net loss per common share
Basic and diluted earnings per share is calculated in accordance with the
Financial Accounting Standards Board ("FASB") SFAS No. 128, "Earnings per
Share". All earnings per share amounts for all periods have been presented, and
where appropriate, restated to conform to the requirements of SFAS No. 128.
3. Marketable Securities
Marketable securities consist of fixed income investments with a maturity
of greater than three months and other highly liquid investments which can be
readily purchased or sold using established markets. Such securities, which are
classified as available-for-sale, are carried at market with unrealized gains
and losses reported as a separate component of stockholders' equity.
Page 5 of 12
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MEDAREX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands)
4. Inventory
Inventory consists primarily of antibodies to be sold to the research
community and to licensees pursuant to licensing arrangements for use in human
clinical testing of the Company's products and is stated at the lower of cost or
market with cost determined on a first-in-first-out basis.
5. Contingencies
In connection with the merger of the Company and Essex Medical Products,
Inc., the Company issued promissory notes to Essex Chemical Corporation
("Essex") in the principal amount of $100, which have been subsequently repaid,
and committed to pay 20% of the Company's net after tax income until a total of
$1,000 has been paid. At the Company's option, this obligation may be
satisfied by the payment of shares of the Company's Common Stock having a fair
market value equal to the amount owed, provided such shares are registered for
sale with the Securities and Exchange Commission. Amounts up to $1,000 will be
payable to Essex, based solely on the earnings of the Company, by March 31 of
each year, to the extent of 20% of net after tax earnings of the Company
realized during the preceding fiscal year.
6. Comprehensive Income
On January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" (SFAS 130). SFAS 130
establishes new rules for the reporting and display of comprehensive income and
its components. The adoption of SFAS 130 had no impact on the Company's results
of operations or stockholders' equity. SFAS 130 requires unrealized gains or
losses on the Company's available-for-sale securities, which prior to adoption
were reported separately in stockholders' equity to be included in other
comprehensive income. The components of comprehensive income (loss) for the
three-month period ended March 31, are as follows:
<TABLE>
<CAPTION>
Three months ended March 31,
1998 1999
------------------------ -----------------------
<S> <C> <C>
Net Loss $(5,070) $(930)
Unrealized gain (loss) on
securities (85) 58
------------------------- -------------------------
Total comprehensive loss $(5,155) $(872)
</TABLE>
7. 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
quarters ended March 31, 1998 and 1999 is as follows:
Customer 1998 1999
------------------------------ -------------- --------------
Centocor, Inc. 30% 72%
Merck KGaA 12% 19%
Centeon L.L.C. 26% 3%
Santen Pharmaceutical Co.,
Ltd. 17% -
No other single customer accounted for more than 10% of the Company's total
revenues for the quarters ended March 31, 1998 and 1999, respectively.
Page 6 of 12
<PAGE>
MEDAREX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
This Quarterly Report on Form 10-Q contains "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, which represent
the Company's projections, estimates, expectations or beliefs concerning among
other things, financial items that relate to management's future plans or
objectives or to the Company's future economic and financial performance.
Forward-looking statements involve known and unknown risks and uncertainties and
are indicated by words such as "anticipates", "expects", "believes", "plans",
"could" and similar words and phrases. These risks and uncertainties include,
but are not limited to, the Company's early stage of product development,
history of operating losses and accumulated deficit, additional financing
requirements and access to capital funding, dependence on strategic alliances,
government regulation of the biopharmaceutical industry and other risks that may
be detailed from time to time in the Company's periodic reports and registration
statements filed with the Securities and Exchange Commission.
Liquidity and Capital Resources
- -------------------------------
The Company had approximately $31,100 in cash, cash equivalents and
marketable securities and approximately $1,300 in a segregated cash account as
of March 31, 1999. Operating activities consumed $3,400 of cash for the three-
month period ended March 31, 1999.
To date, the Company's sources of cash have been the proceeds from the sale
of its securities through public and private placements, sales of its products
for research purposes and technology transfer and license fees.
The Company's current sources of liquidity are its cash, cash equivalents
and marketable securities, interest and dividends earned on such cash, cash
equivalents and marketable securities, sales of its products for research and
contract and licensing revenues. Management believes that under existing
operating plans its current sources of liquidity will be sufficient to meet
anticipated cash requirements for at least the next 18 months.
The Company has leased approximately 53,000 square feet of laboratory,
clinical trial production and office space in a modern facility on a research
campus in Annandale, New Jersey, that was developed by Exxon Research and
Engineering Company as its corporate research headquarters. Management believes
that this facility is well suited for clinical-grade production of bispecific
and monoclonal antibodies as it has in place most utilities required for
clinical-grade production of such antibodies, including a production unit
designed to meet cGMP standards. By leasing this facility and spending modestly
to adapt it, management believes that the Company has preserved a considerable
amount of capital that might otherwise have been used to build a
biopharmaceutical production facility. This lease runs through September 30,
2003. On January 8, 1998, the Company signed a lease for laboratory and office
space in San Jose, California. This lease runs through December 2001. The
minimum combined lease commitments for both facilities range between $1,400 and
$2,100 per year and the aggregate future minimum lease commitments over the
remainder of the lease terms are approximately $9,100. As of March 31, 1999,
the Company had commitments for approximately $575 of capital expenditures.
Page 7 of 12
<PAGE>
MEDAREX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands)
Liquidity and Capital Resources (con't)
- ---------------------------------------
On January 12, 1999 the Company announced a licensing arrangement with
Immunex Corporation ("Immunex") involving Medarex's HuMAb-MouseTM 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, Medarex will
receive technology access fees and could receive research payments, license fees
and milestone payments, as well as royalties on commercial sales.
Upon exhaustion of its current cash reserves, the Company's continued
operations will depend on its ability to raise additional funds through equity
or debt financing and/or enter into licensing or joint development agreements,
including collaborative research and development arrangements with large
pharmaceutical companies pursuant to which certain costs associated with the
regulatory approval process for certain of its products would be borne by the
licensees or joint developers. There can be no assurance that these sales or
financing activities will be successful.
Year 2000 Implications
- ----------------------
Many currently installed computer systems and software products are coded
to accept only two-digit entries in the date code field and cannot reliably
distinguish dates beginning on January 1, 2000 from dates prior to the year
2000. Many companies' software and computer systems may need to be upgraded or
replaced in order to correctly process dates beginning in 2000 and to comply
with the "Year 2000" requirements. The Company has 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, of which approximately $19, has been incurred to date.
The total cost estimate is based on management's current assessments and is
subject to change.
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.
Page 8 of 12
<PAGE>
MEDAREX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands)
Year 2000 Implications (con't)
- ------------------------------
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.
Results of Operations
- ---------------------
Three months ended March 30, 1998 and 1999
- ------------------------------------------
Revenue for the three-month period ended March 31, 1999 increased by
$4,281, a 326% increase from the three-month period ended March 31, 1998. The
increase relates principally to a $4,000 milestone payment from Centocor, Inc.
("Centocor"). Centocor holds exclusive commercial licenses to develop HuMAb
antibodies to four licensed targets. Additionally, the increase reflects
payments pursuant to license agreements with Merck KGaA.
Cost of sales decreased by $103 during the first quarter of 1999, a 79%
decrease as compared to the quarter ended March 31, 1998. The decrease is due to
lower 1999 production of MDX-447 for Merck KGaA
Research and development expenses increased $191 during the quarter ended
March 31, 1999, a 4% increase as compared to the same period in 1998. The
increase is principally due to higher personnel costs and patent expenses offset
by lower clinical trial expenses reflecting the suspension of patient enrollment
in Phase III trial of MDX-RA.
General and administrative expenses increased by $223 for the three-month
period ending March 31, 1999, a 21% increase from the same period in 1998. The
increase is primarily attributable to higher personnel costs, shareholder
relations expenses, and travel expenses.
Interest and dividend income decreased by $428 for the three-months ending
March 31, 1999, a 62% decrease as compared to the quarter ended March 31, 1998.
The decrease is principally the loss of interest received on a $15 million note
receivable, which matured on September 30, 1998.
Page 9 of 12
<PAGE>
MEDAREX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands)
Three months ended March 30, 1998 and 1999 (con't)
- --------------------------------------------------
Interest expense decreased by $598 for the three-months ending March 31,
1999, a 100% decrease as compared to the same quarter ended March 31, 1998. The
decrease is attributable to interest accrued for the 1998 amortization of a
discount associated with the accounting treatment of the value of the liability
due to the shareholders of GenPharm International, Inc. ("GenPharm") 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 has incurred and will continue to incur significant costs in
the area of research and development, including pre-clinical and clinical trials
as its products develop. Administrative costs are also expected to increase
with the increase of administrative activities and the creation of a marketing
organization.
Page 10 of 12
<PAGE>
Part II - Other Information
Item 6. Exhibits and reports on Form 8-K
(a) Reports on Form 8-K:
Form 8-K filed on February 18, 1999, relating to the Registrant's entry
into an Evaluation, Research and Commercialization Agreement with Novartis
Pharma AG ("Novartis") granting Novartis certain rights with respect to the
Registrant's HuMAb-MouseTM technology.
Form 8-K filed on March 1, 1999, relating to the Registrant's reacquisition
of the worldwide rights to its MDX-210 anti-HER2 cancer product from
Novartis Pharma AG.
Form 8-K filed on March 5, 1999, relating to the Registrant's formation of
Genmab A/S, a new Danish company, to develop and commercialize a portfolio
of fully human antibodies from the Registrant's HuMAb-MouseTM technology.
(b) Exhibits
27.1 Financial Data Schedule
Page 11 of 12
<PAGE>
Signatures
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MEDAREX, INC.
-------------
(Registrant)
Date: May 14, 1999 By /s/ Michael A. Appelbaum
-------------------------------
Michael A. Appelbaum
Executive Vice President
Finance and Administration
(Principal Financial and
Accounting Officer)
Page 12 of 12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements for the three months ended March 31, 1999 and is qualified
in its entirety by reference in such statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 7,298
<SECURITIES> 23,806
<RECEIVABLES> 26
<ALLOWANCES> (5)
<INVENTORY> 35
<CURRENT-ASSETS> 33,393
<PP&E> 7,142
<DEPRECIATION> (3,914)
<TOTAL-ASSETS> 38,981
<CURRENT-LIABILITIES> 4,583
<BONDS> 0
0
0
<COMMON> 315
<OTHER-SE> 34,042
<TOTAL-LIABILITY-AND-EQUITY> 38,981
<SALES> 44
<TOTAL-REVENUES> 5,594
<CGS> 28
<TOTAL-COSTS> 6,789
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2
<INCOME-PRETAX> (930)
<INCOME-TAX> 0
<INCOME-CONTINUING> (930)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (930)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> 0
</TABLE>
