<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.20549
FORM 10-Q/A
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For quarter ended September 30, 2000 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.)
707 State Road #206, Princeton, New Jersey 08540
------------------------------------------ -----
(Address or principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (609) 430-2880
--------------
Indicate by check mark whether registrant (1) has filed all reports required to
be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No _____
---
The number of shares of common stock, $.01 par value, outstanding as of November
1, 2000 was 72,258,172 shares.
Page 1 of 18
<PAGE>
MEDAREX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
December 31, September 30,
------------ -------------
1999 2000
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 14,366 $ 68,336
Marketable securities 15,781 297,734
Prepaid expenses and
other current assets 4,395 20,654
---------- -----------
Total current assets 34,542 386,724
Property and equipment:
Machinery and equipment 5,061 6,137
Furniture and fixtures 336 422
Leasehold improvements 2,310 2,368
Construction in progress - 938
---------- -----------
7,707 9,865
Less accumulated depreciation and amortization (4,633) (5,473)
---------- -----------
3,074 4,392
Investments in, and advances to affiliates and partners 499 70,991
Segregated cash 1,300 21,903
Patent rights and other assets 1,067 435
---------- -----------
Total assets $ 40,482 $ 484,445
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
-------------------------------------
Current liabilities:
Trade accounts payable $ 620 $ 697
Accrued liabilities 5,133 4,585
Deferred contract revenue - current 6,407 29,442
---------- -----------
Total current liabilities 12,160 34,724
Deferred contract revenue - long-term 6,000 22,161
Long-term obligations 23 2
Commitments - -
Shareholders' equity:
Preferred stock, $1.00 par value, 2,000,000 shares authorized;
none issued and outstanding - -
Common stock, $.01 par value; 200,000,000 shares authorized;
65,429,884 shares issued and 64,224,884 outstanding
at December 31,1999 and 73,404,872 shares issued and 72,199,872
shares outstanding at September 30, 2000 654 734
Capital in excess of par value 148,705 564,469
Treasury stock, at cost 1,205,000 shares (3,031) (3,031)
Deferred compensation 2,970 2,652
Accumulated other comprehensive income (loss) (563) 1,804
Accumulated deficit (126,436) (139,070)
---------- -----------
Total shareholders' equity 22,299 427,558
---------- -----------
Total liabilities and shareholders' equity $ 40,482 $ 484,445
========== ===========
</TABLE>
See notes to these unaudited consolidated financial statements.
Page 2 of 18
<PAGE>
MEDAREX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands, except share data)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30, September 30, September 30,
1999 2000 1999 2000
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Sales $ 532 $ 150 $ 45 $ 37
Grants, contract and license revenues 7,809 10,766 1,269 5,637
------------- ------------- ------------- -------------
Total revenues 8,341 10,916 1,314 5,674
Costs and expenses:
Cost of sales 183 83 27 29
Research and development 15,166 22,780 4,998 5,520
General and administrative 4,245 12,115 1,629 6,210
------------- ------------- ------------- -------------
Operating loss (11,253) (24,062) (5,340) (6,085)
Equity in net income of affiliate - 393 - 551
Interest and dividend income 814 15,403 256 6,845
Interest expense (6) (3) (2) (1)
------------- ------------- ------------- -------------
Income (loss) before provision for income taxes (10,445) (8,269) (5,086) 1,310
Provision for income taxes - 4,365 - 4,065
============= ============= ============= =============
Net loss $ (10,445) $ (12,634) $ (5,086) $ (2,755)
============= ============= ============= =============
Basic and diluted net loss per share ($0.16) ($0.18) ($0.08) ($0.04)
============= ============= ============= =============
Weighted-average number of common
shares outstanding during the period
- basic and diluted 63,548,110 70,845,871 64,288,228 73,194,686
</TABLE>
See notes to these unaudited consolidated financial statements.
Page 3 of 18
<PAGE>
MEDAREX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
------------
1999 2000
---- ----
<S> <C> <C>
Operating activities:
Net loss $ (10,445) $ (12,634)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 480 562
Amortization 257 309
Value of stock options to employees - 3,117
Value of stock options and warrants to non-employees - 5,237
Equity in net income of affiliate - (393)
Provision for income taxes - 3,914
Changes in operating assets and liabilities, net of acquisition:
Prepaid expenses and other current assets (123) (11,801)
Trade accounts payable (54) 77
Accrued liabilities (2,390) (544)
Deferred contract revenue (1,275) (3,338)
----------- -----------
Net cash used in operating activities (13,550) (15,494)
Investing activities:
Purchase of property and equipment (598) (2,158)
Decrease in other assets - 601
Decrease (increase) in investments and advances to affiliate and partners 12 (27,565)
Increase in segregated cash - (20,603)
Purchase of marketable securities (4,000) (294,431)
Sale of marketable securities 17,640 14,845
----------- -----------
Net cash provided by (used in) investing activities 13,054 (329,311)
Financing activities:
Cash received from sales of securities, net 189 398,799
Principal payments under debt obligations (45) (24)
----------- -----------
Net cash provided by financing activities 144 398,775
----------- -----------
Net increase (decrease) in cash and cash equivalents (352) 53,970
Cash and cash equivalents at beginning of period 4,411 14,366
----------- -----------
Cash and cash equivalents at end of period $ 4,059 $ 68,336
=========== ===========
Supplemental disclosures of cash flow information
Cash paid during period for:
Income taxes $ - $ -
=========== ===========
Interest $ 6 $ 3
=========== ===========
</TABLE>
See notes to these unaudited consolidated financial statements.
Page 4 of 18
<PAGE>
MEDAREX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands)
1. Organization and Basis of Presentation
The unaudited consolidated 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, 1999.
TWO-FOR-ONE STOCK SPLIT - On September 12, 2000, the Company announced that
its Board of Directors had approved a two-for-one stock split of the Company's
outstanding shares of common stock. The stock split entitled each holder of
record at the close of business on September 27, 2000 to receive one additional
share of common stock for every share of common stock held by such shareholder.
The accompanying financial statements have been adjusted to give retroactive
recognition to the common stock split, effective on September 27, 2000, for all
periods presented by reclassifying from capital in excess of par value to common
stock an amount equal to the par value of the additional shares arising from the
split. In addition, all references in the financial statements to number of
shares and per share amounts have been adjusted.
2. Net Loss per Share
Basic and diluted loss per share is calculated in accordance with the
Financial Accounting Standards Board ("FASB") SFAS No. 128, Earnings per Share.
Potentially dilutive securities have been excluded from the computation, as
their effect is antidilutive.
3. Marketable Securities
Marketable securities consist of fixed income investments with a maturity
of greater than three months and other highly liquid investments that 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 shareholders' equity.
Page 5 of 18
<PAGE>
MEDAREX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands)
4. Contingencies
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.
In the ordinary course of our business, the Company is at times subject to
various legal proceedings. The Company does not believe that any of our current
legal proceedings, individually or in the aggregate, will have a material
adverse effect on its operations or financial condition.
5. Contract and License Agreements
In February 2000, the Company entered into a binding letter of intent with
Eos Biotechnology, Inc. to develop and commercialize genomics-derived antibody-
based therapeutic products. Pursuant to the letter of intent, on May 15, 2000
the Company paid $5,000 to Eos Biotechnology and deposited an additional $20,000
in a third party escrow account, to be released over time to Eos Biotechnology
upon the achievement of certain milestones. This escrow deposit is included on
our September 30, 2000 balance sheet as segregated cash. Dr. Frederick B.
Craves, a member our board of directors, is also a member of the board of
directors of Eos Biotechnology. On September 6, 2000, the Company purchased
shares of preferred stock of Eos for an aggregate purchase price of $2,500.
On August 16 2000, the Company and Athersys, Inc. entered into a binding
memorandum of understanding to develop novel therapeutics produced through the
joint application of the Company's HuMAb-Mouse technology and Athersys' antigen
technology. The two companies expect to jointly discover, develop and
commercialize fully human antibodies as therapeutics. Athersys will apply its
expertise in proteomics and expects to contribute 10 or more disease-related
targets to the collaboration. These targets are expected to be in the fields of
cancer and other life-threatening or debilitating diseases. As part of this
agreement the Company made a $5,000 equity investment in Athersys.
On August 26, 2000 the Company entered into a binding memorandum of
understanding (the "European Genomics Agreement") with Genmab A/S, a corporation
organized under the laws of the Kingdom of Denmark, pursuant to which the
Company and Genmab have the joint right to enter into multi-target (five or
more targets) genomics partnerships involving the Company's trensganic mouse
technologies with certain pharmaceutical and biotechnology companies whose
headquarters are located in Europe. Under the terms of this European Genomics
Agreement,
Page 6 of 18
<PAGE>
MEDAREX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands)
5. Contract and License Agreements (con't)
such partnerships, if any, will be with European-based companies except
for: (i) current partners of the Company, including Novartis AG, Merck KGaA,
Schering AG, Aventis Behring LLC, IDM S.A. and Scil Biomedicals GmbH; and (ii)
any European based pharmaceutical company with worldwide revenues in excess of
$1,000,000 in 1999, provided, however, that Genmab may market the Company's
transgenic mouse technology to Sanofi/Synthelabo and Boehringer Ingelheim. The
Company has certain rights to develop and commercialize outside of Europe
products arising from such European-based alliances. The Company retains all
rights to enter into exclusive partnership with companies headquartered in the
rest of the world. Certain license fees, milestones and royalties due the
Company under the existing Evaluation and Commercialization Agreement between
the Company and Genmab are reduced. The European Genomics Agreement also
provides that, under certain circumstances, the Company must negotiate in good
faith to manufacture antibodies for such partnerships.
In addition, under the terms of the European Genomics Agreement, the
Company granted Genmab an option to receive certain rights in Europe with
respect to the development and commercialization of up to four antibody products
the Company may obtain through its alliance with Eos Biotechnology. Finally, the
European Genomics Agreement grants Genmab certain rights to access technologies
acquired by the Company from Biosite Diagnostics Incorporated and Kirin Brewery
Co. Ltd.
The European Genomics Agreement has an initial term of five years with a
right exercisable by Genmab to extend the term for an additional two years. For
each years of the agreement and during the term of any extension, the Company
will receive $2,000 per year from Genmab. At Genmab's option, these amounts may
be paid in either cash or capital stock. In August 2000, the Company received
279,760 shares of Genmab stock valued at $2,000 representing payment for the
first year.
On September 9, 2000, the Company and Oxford GlycoSciences Plc ("OGS")
entered into a binding Memorandum of Understanding to develop novel therapeutics
produced through the joint application of Medarex's fully human monoclonal
antibody technology and OGS's proprietary proteomics technology for high-
throughput protein analysis and target validation.
Under the terms of the collaboration, Medarex and OGS will share
preclinical and clinical responsibilities, and the two companies intend to
jointly commercialize products resulting from the research program. The Company
expects to make a $5,000 equity investment in OGS.
On September 9, 2000, the Company and Genmab entered into an amended and
restated European Genomics Agreement (the "Amended European Genomics
Agreement"), pursuant to which the Company agreed to assign to Genmab 100% of
the Company's economic interests to each product the Company jointly develops
with OGS (a "Medarex/OGS Product") and sells in Europe and 50% of its economic
interest in each Medarex/OGS Product sold outside North America and Europe.
Under the terms of the
Page 7 of 18
<PAGE>
MEDAREX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands)
5. Contract and License Agreements (con't)
Amended European Genomics Agreement, if a Medarex/OGS Product is intended to be
sold only in Europe, Genmab will reimburse the Company for 100% of the Company's
research, development, manufacturing and commercialization expenses associated
with such product. If the Medarex/OGS Product is to be sold only in North
America, Genmab will not be obligated to reimburse the Company for any such
expenses. In all other cases, Genmab will reimburse the Company for 50% of such
expenses. In addition, the Company and Genmab have agreed that Genmab will
purchase one-half of the Company's equity interest in OGS for $2,500.
Dr. Donald L. Drakeman, the Company's President, Chief Executive Officer
and a member of its board of directors, is also a member of the board of
directors of OGS. Dr. Donald L. Drakeman has not received any options to
purchase shares of capital stock of OGS and does not have an equity interest in
OGS. Dr. Donald L. Drakeman is also a member of the board of directors of IDM
(see note 6). Dr. Donald L. Drakeman has not received any options to purchase
shares of capital stock of IDM and does not have an equity interest in IDM.
The Company maintains a wholly owned subsidiary, Medarex Europe, that is
located at Utrecht University, The Netherlands. Medarex Europe conducts research
activities on behalf of the Company and is principally engaged in research and
development activities on the Company's bispecific antibodies and monoclonal
antibody technologies. Medarex Europe's personnel currently share some
facilities and equipment with Genmab. Medarex Europe has provided and may
continue to provide certain research and development services to Genmab on a
contract basis.
Until recently, Genmab's President and Chief Executive Officer, Dr. Lisa N.
Drakeman, was the Company's Senior Vice President-Head of Business Development.
Dr. Lisa N. Drakeman currently has a consulting agreement with the Company.
Under the terms of such consulting agreement, Dr. Lisa N. Drakeman will provide
up to two days per month of consulting services to the Company. As compensation
for her services under this consulting agreement, Dr. Lisa N. Drakeman was
granted stock at an exercise equal to the market price of the Company's common
stock as of the date of grant. Dr. Lisa N. Drakeman is married to the Company's
President and Chief Executive Officer, Dr. Donald L. Drakeman. Dr. Lisa N.
Drakeman owns 30,000 shares of the Company's common stock and is custodian, on
behalf of her children, of a further 31,072 shares. In addition, she has fully-
vested options to purchase an additional 278,000 shares at an average weighted
exercise price of $5.73 per share.
Dr. Jan G.J. van de Winkel, Chief Scientific Officer of Genmab, was, until
recently, Vice President and Scientific Director of Medarex Europe. The Company
and Dr. van de Winkel currently have a consulting agreement pursuant to which
Dr. van de Winkel will provide scientific related services and advice. The
consulting agreement provides that Dr. van de Winkel may spend up to two days
per month of consulting services to the Company. As compensation for his
consulting services, Dr. van de Winkel was granted options to purchase 60,000
shares of the Company's common stock of which 20,000 shares vested upon the
execution of the consulting agreement and the balance will vest upon the
achievement of certain product development milestones. The exercise price for
the options is $37.41 per share.
Page 8 of 18
<PAGE>
MEDAREX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands)
5. Contract and License Agreements (con't)
Mr. Irwin Lerner, the Chairman of the Company's board of directors and a
director of Medarex Europe, is also a director of Genmab. In connection with
his position on the board of directors of Genmab, Mr. Lerner has been awarded
options to purchase 50,000 shares of Genmab's capital stock at an exercise price
of DKK 59.7.
Mr. Ernst Schweizer, President of Medarex Europe, is also a director of
Genmab. In connection with his position on the board of directors of Genmab, Mr.
Schweizer has been awarded options to purchase 55,000 shares of Genmab's capital
stock at an average weighted exercise price of DKK 56.75.
6. Unit Purchase Agreement
In September 2000, the Company entered into a Unit Purchase Agreement and a
Technology Access Agreement with IDM S.A. ("IDM") whereby the Company licensed
to IDM certain of its technologies in exchange for equity units in IDM. As a
result of this transaction, the Company will recorded a gain from the transfer
of its technology of approximately $40,000 (based upon an independent valuation)
in the third quarter of 2000. In accordance with Staff Accounting Bulletin No.
101, "Revenue Recognition in Financial Statements", the Company will recognize
the approximately $40,000 as revenue for financial statement reporting purposes
over a two-year period. During the third quarter of 2000, the Company recognized
revenue of approximately $844 related to technology transfer.
For tax reporting purposes, the entire gain of the transfer of technology
is taxable to the Company at the time the transaction was completed (third
quarter 2000). The provision for income taxes for the three and nine month
periods ended September 30, 2000 has been partially offset by the use of net
operating loss carryforwards which had not previously been recorded as assets.
The remaining difference in timing of the income recognition is treated as a
temporary difference under FASB Statement No. 109, "Accounting for Income
Taxes".
The current tax expense recorded by the Company will be fully offset by the
benefit of deductions related to nonqualified stock options exercised in 2000
and disqualifying dispositions of incentive stock options exercised in 2000.
A deferred tax asset of $2,600 has been recognized at September 30, 2000
related to the income that is expected to be reported in the fourth quarter of
2000. The deferred tax asset for income that is expected to be reported after
the period ending December 31, 2000 has been fully offset by a valuation
allowance, as it is not "more likely than not" that the asset will be realized
in future periods.
Page 9 of 18
<PAGE>
MEDAREX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands)
7. Investments Accounted for Under the Equity Method
In 1999, the Company acquired a 45% ownership interest in Genmab A/S a
Danish biotechnology company. In June 2000, Genmab completed a private placement
in which the Company invested $18,000 in Genmab in order to maintain its 45%
ownership interest. On August 26, 2000 the Company received 279,760 shares of
Genmab's capital stock per the European Genomics Agreement(see note 5). This
increased the Company's ownership interest to 45.5%. As a result of Genmab's
initial public offering completed in October 2000, the Company's equity interest
in Genmab was reduced to approximately 33% (see note 10). As a result of these
transactions, the Company is accounting for Genmab using the equity method. As a
result of our ownership interest, we may incur losses to the extent of our
investment in Genmab.
8. Comprehensive Income (Loss)
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 shareholders' equity. SFAS 130 requires unrealized gains or
losses on the Company's available-for-sale securities, which prior to adoption
were reported separately in shareholders' equity to be included in other
comprehensive income.
The components of comprehensive loss for the three and nine-month periods
ended September 30, are as follows:
<TABLE>
<CAPTION>
Nine months ended Three months ended
September 30, September 30,
1999 2000 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net loss $ (10,445) $ (12,634) $ (5,086) $ (2,755)
Unrealized gain (loss) on securities (434) 2,367 (32) 690
------------------------- ----------------------
Total comprehensive loss $ (10,879) $ (10,267) $ (5,118) $ (2,065)
</TABLE>
9. 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.
Page 10 of 18
<PAGE>
MEDAREX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands)
9. Segment Information (con't)
Revenue from customers representing 10% or more of total revenues for the
three and nine months ended September 30, 1999 and 2000 is as follows:
Nine months ended Three months ended
September 30, September 30,
Customer 1999 2000 1999 2000
-------- ---- ---- ---- ----
Kirin Brewery Co., Ltd. 0 41% 0% 26%
Scil Biomedicals GmbH 0% 20% 0% 35%
IDM S.A. 0% 8% 0% 15%
Centocor, Inc. 48% 1% 0% 1%
Merck KGaA 25% 0% 0% 0%
Genmab A/S 7% 7% 15% 8%
Amgen, Inc. 2% 3% 15% 2%
Novartis Pharma AG 4% 5% 11% 4%
No other single customer accounted for more than 10% of the Company's total
revenues for the three and nine months ended September 30, 1999 and 2000,
respectively.
10. Subsequent Events
On October 6, 2000 the Company participated in a private placement of IDM's
securities and purchased additional equity of $5,172. The Company's equity
position in IDM after completion of the private placement on a fully diluted
basis is approximately 31%.
On October 17, 2000 Genmab A/S announced the completion of the initial
public offering of its Ordinary Shares. The global offering consisted of an
issue of 6,000,000 new Ordinary Shares delivered either in the form of Ordinary
Shares for trading on the Copenhagen Stock Exchange or in the form of Co-
Ownership Interests ("COIS") for trading on the Neuer Market of the Frankfurt
Stock Exchange. Each COIS represents one Ordinary Share. As the result of this
offering the Company's equity investment in Genmab was reduced to 33%.
On October 19, 2000, the Company and ZymoGenetics, Inc., announced an
alliance to develop fully human antibody therapeutics. The companies plan to
combine Medarex's fully human monoclonal antibody development technology and
ZymoGenetic's expertise in the field of genomics and protein therapeutics to
create antibodies to multiple disease targets identified by ZymoGenetics.
Under the terms of the agreement, ZymoGenetics is responsible for the
development and commercialization of human antibody products resulting from this
alliance. The Company expects to receive license fees and milestone payments as
well as royalties on commercial sales of products resulting from the alliance
with ZymoGenetics.
Page 11 of 18
<PAGE>
MEDAREX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands)
10. Subsequent Events (con't)
In October 2000, the Company signed a purchase agreement to buy, subject to
completion of due diligence, a facility in Greenwich, New Jersey. The Greenwich
facility is situated on approximately 100 acres and contains approximately
165,000 square feet of laboratory and office space. The Company expects to
modify and expand this facility to provide it with additional capacity to
provide materials for clinical trials. The cost of the Greenwich facility
including land, building and initial modifications is expected to be
approximately $30,000. On November 3, 2000, the Company acquired the Milpitas,
California facility which it had leased in April 2000 for approximately $14,600.
This property is approximately 57,000 square feet of laboratory and office
space.
On November 6, 2000, the Company and Eli Lilly and Company announced that
the Company has agreed to produce fully human antibodies for a number of Lilly's
disease targets. Lilly expects to pursue the development of these antibodies as
therapeutic pharmaceutical products. Under the terms of the agreement, Lilly is
responsible for the development and commercialization of human antibody
products resulting from this alliance. The Company expects to receive license
fees and milestone payments as well as royalties on commercial sales of products
resulting from the alliance with Lilly.
Page 12 of 18
<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
our projections, estimates, expectations or beliefs concerning among other
things, financial items that relate to management's future plans or objectives
or to our 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, our
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 our periodic reports and registration statements filed with the
Securities and Exchange Commission.
Liquidity and Capital Resources
-------------------------------
We have approximately $366,100 in cash, cash equivalents and marketable
securities and approximately $21,900 in a segregated cash account as of
September 30, 2000. Operating activities consumed approximately $15,500 of cash
for the nine-month period ended September 30, 2000.
We have entered into a binding letter of intent with Eos Biotechnology,
Inc. to develop and commercialize genomics-derived antibody-based therapeutic
products. Pursuant to the letter of intent, on May 15, 2000 we paid $5,000 to
Eos Biotechnology and deposited an additional $20,000 in a third party escrow
account to be released over time to Eos Biotechnology upon the achievement of
certain milestones. This escrow deposit is included on our balance sheet as
segregated cash.
We have also entered into a technology access agreement with IDM S.A.
relating to the development of certain of our non-HuMAb-Mouse antibody-based
products. We paid IDM $2,000 upon the execution of this agreement in September
2000. In addition, in October 2000, the Company purchased additional equity in
IDM of $5,172 resulting in a 31% equity position on a fully diluted basis. As a
result of these agreements, we may incur losses to the extent of our investment
in IDM.
On June 7, 2000 we invested $18,000 in Genmab A/S a Danish biotechnology
company that is developing fully human antibody products to treat life
threatening and debilitating diseases, including cancer and chronic,
inflammatory conditions, such as rheumatoid arthritis and psoriasis. This
investment was made in order to maintain our 45% ownership interest in Genmab.
On August 26, 2000 the Company received additional shares of Genmab's stock per
the European Genomics Agreement. This increased our investment to 45.5%. In
October 2000, Genmab completed an initial public offering, which reduced the
Company's ownership position to 33%. As a result of our ownership interest, we
may incur losses to the extent of our investment in Genmab.
We have financed our operations since inception through the sale of our
securities in public and private placements, sales of our products for research
purposes and technology transfer and license fees.
Page 13 of 18
<PAGE>
MEDAREX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands)
Liquidity and Capital Resources (con't)
--------------------------------------
Our current sources of liquidity are our cash, cash equivalents and
marketable securities, interest and dividends earned on such cash, cash
equivalents and marketable securities, sales of our products for research and
contract and licensing revenues. As we utilize our cash, the interest earned on
the investment thereof will be reduced. We believe that under existing operating
plans our current sources of liquidity will be sufficient to meet anticipated
cash requirements for the foreseeable future.
We lease approximately 43,000 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. The term of the lease expires on
September 30, 2003, subject to renewal for an additional five years. We believe
that this facility is well suited for clinical-grade production of monoclonal
antibodies, since we have in place most utilities required for clinical-grade
production of such antibodies, including a production unit designed to meet cGMP
standards. This facility has a capacity of 10 kilograms of monoclonal antibody
production per year. We believe that our existing facilities are adequate for
the production of materials for clinical trials of our current products and for
providing the services we currently offer to our corporate partners in
connection with our human antibody technology. In October 2000, we signed a
purchase agreement to acquire, subject to completion of due diligence, a
facility in Greenwich, New Jersey. The Greenwich facility is situated on
approximately 100 acres of land and currently contains approximately 165,000
square feet of laboratory and office space. We intend to modify and expand the
Greenwich facility to increase our capacity to provide materials for clinical
trials for our future products under development through our collaborations and
alliances. However, we do not currently have the capability to manufacture our
products under development in large commercial quantities and have no experience
in commercial-scale manufacturing.
In April 2000, we signed a new lease for approximately 57,000 square feet
of laboratory and office space in Milpitas, California. In November the Company
purchased the Milpitas, California facility which will be used by our expanding
GenPharm subsidiary.
At September 30, 2000 the aggregate future minimum lease commitments over
the remainder of the lease terms are approximately $4,850. As of September 30,
2000, we have commitments for approximately $11,925 of capital expenditures. In
addition, as the result of the purchase of the Milpitas, California facility and
Greenwich, New Jersey facility, we have additional commitments of approximately
$44,200.
Upon exhaustion of our current cash reserves, our continued operations will
depend on our 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 our products would be borne by the licensees or
joint developers. We may not be able to successfully complete such sales or
financing activities.
Page 14 of 18
<PAGE>
(Dollars in thousands)
Results of Operations
---------------------
Nine months ended September 30, 1999 and 2000
---------------------------------------------
Revenue for the nine-month period ended September 30, 2000 increased by
$2,575, a 31% increase from the nine-month period ended September 30, 1999. This
increase relates principally to $4,500 of contract and license revenues from
Kirin Brewery Co., Ltd. and $2,155 from Scil Biomedicals GmbH, partially offset
by a $4,000 milestone payment from Centocor, Inc. received in January 1999.
Cost of sales decreased by $100 during the first nine months of 2000, a 55%
decrease as compared to the first nine months of 1999. This decrease relates
principally to lack of production of MDX CD4 for Genmab, which was produced in
1999 but was not produced in 2000.
Research and development expenses increased $7,614 during the first nine
months of 2000, a 50% increase from the first nine months of 1999. The increase
is principally due to a $5,000 payment to Eos Biotechnology, as part of a
binding letter of intent for upfront fees to develop and commercialize genomics-
derived antibody-based therapeutic products, and higher personnel costs.
General and administrative expenses increased by $7,870 for the first nine
months of 2000, a 185% increase from the first nine months of 1999. The increase
is primarily attributable to heightened personnel costs incurred in connection
with the expansion of our business activities and increased consulting and
shareholder relation expenses. Included in these expenses are non-cash charges
for options issued to employees and options and warrants issued to consultants
of $1,896 and $3,779, respectively.
Equity in net income of affiliate of $393 reflects our share of Genmab's
earnings subsequent to our June 2000 investment of $18,000 in this joint venture
biotechnology company. Genmab is an affiliated company and is accounted for
using the equity method.
Interest and dividend income increased by $14,589 for the nine-months
ending September 30, 2000, a 1792% increase as compared to the nine months ended
September 30, 1999. The increase reflects interest earned on higher average cash
balances resulting from the proceeds received from the March 3, 2000 follow-on
public offering of our common stock. We sold 2,399,204 shares and received net
proceeds of approximately $388,000.
Three months ended September 30, 1999 and 2000
----------------------------------------------
Revenue for the three-month's ended September 30, 2000 increased by $4,360,
a 332% increase from the three-month's ended September 30, 1999. The increase
relates principally to $1,988 of contract and license revenues from Scil
Biomedicals and $1,500 from Kirin.
Page 15 of 18
<PAGE>
MEDAREX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands)
Three months ended September 30, 1999 and 2000 (con't)
-----------------------------------------------------
Cost of sales remained comparable for the three-months ended September 30,
2000 to the three months ended September 30, 1999.
Research and development expenses increased $522 during the three-months
ended September 30, 2000, a 10% increase as compared to the three-months ended
September 30, 1999. The increase is principally due to higher personnel costs,
research funding payments to Biosite Diagnostics, Inc. and consulting expenses,
offset in part by reimbursable costs from Scil Biomedicals.
General and administrative expenses increased by $4,581 for the three-month
period ending September 30, 2000, a 281% increase from the same period in 1999.
The increase is primarily attributable to heightened consulting expenses,
personnel costs and shareholder relation expenses. Included in these expenses
are non-cash charges for options issued to employees and options and warrants
issued to consultants of $3,467.
Equity in net income of affiliate of $551 reflects our share of Genmab's
earnings subsequent to our June 2000 investment of $18,000 in this joint venture
biotechnology company. Genmab is an affiliated company and is accounted for
using the equity method.
Interest and dividend income increased by $6,589 for the three-months
ending September 30, 2000, a 2574% increase as compared to the quarter ended
September 30, 1999. The increase reflects interest earned on higher average cash
balances resulting from the proceeds received from the first quarter 2000
follow-on public offering of our common stock. We sold 2,399,204 shares and
received net proceeds of approximately $388,000.
We have incurred and will continue to incur significant costs in the area
of research and development, including pre-clinical and clinical trials as our
products develop. General and administrative costs are also expected to
increase with the increase of administrative activities resulting from the
expansion of our clinical development and other business activities.
Page 16 of 18
<PAGE>
Part II - Other Information
Item 1: Legal Proceedings
On May 24, 2000, Lexicon Genetics Incorporated filed a complaint against
Deltagen, Inc. in U.S. District Court for the District of Delaware alleging that
Deltagen is willfully infringing the claims of United States Patent
No. 5,789,215, under which Lexicon holds an exclusive license in the relevant
field from our wholly-owned subsidiary GenPharm International, Inc. This patent
covers certain methods of engineering the animal genome, including methods for
the production of knockout mice.
On October 31, 2000, Lexicon amended its complaint to add GenPharm, as the
licensor of the patent, as a plaintiff. On November 14, 2000, Deltagen filed an
answer to Lexicon's amended complaint which included counterclaims against
Lexicon and, for the first time, counterclaims against GenPharm. In its
counterclaims, Deltagen is seeking declaratory relief that the patent is
invalid, unenforceable and not infringed. In addition, Deltagen asserted
counterclaims against both Lexicon and GenPharm under the antitrust laws.
Deltagen is seeking, among other relief, an award of monetary damages against
Lexicon and GenPharm in an unspecified amount. Any damages for violations of the
antitrust laws would be trebled.
The litigation against GenPharm is in the very early stages and we cannot
predict its outcome or any possible financial losses that we may incur as a
result of the litigation. Such losses, if any, could have a material effect on
our operating results. We believe that the litigation against GenPharm is
without merit and intend to defend the action vigorously. Futhermore, because we
do not use the technology that is the subject of the litigation in any material
way in our business as currently conducted, we do not believe that a judgment in
favor of Deltagen would have a material adverse effect on the conduct of our
business.
Item 6. Exhibits and reports on Form 8-K
(a) Reports on Form 8-K:
Form 8-K filed September 13, 2000 re: Commencement of Genmab A/S initial
public offering.
Form 8-K filed on September 15, 2000 re: certain events.
(b) Exhibits.
27.1 Financial Data Schedule
Page 17 of 18
<PAGE>
Signatures
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MEDAREX, INC.
------------
(Registrant)
Date: November 17, 2000 By /s/ Christian Schade
------------------------
Christian Schade
Senior Vice President,
Treasurer and Chief
Financial Officer
(Principal Financial and
Accounting Officer)
Page 18 of 18
